JOSE A. ARCHES, Petitioner-Appellant, v.

ANACLETO I. BELLOSILLO and JAIME

ARANETA,Respondents-Appellees.

said question, whatever error if any the municipal court

committed, was merely an error of judgment, not correctible
by certiorari.
4
Neither was there grave abuse of discretion on the part of
the municipal court in ruling that the express approval of the
Revenue Commissioner himself was not necessary. The court
relied upon Memorandum Order No. V-634 of the Revenue
Commissioner, approved by the Finance Secretary on July 1,
1956, wherein the formers functions regarding the
administration and enforcement of revenue laws and
regulations powers broad enough to cover the approval of
court actions as required in Section 308 of the Tax Code
were expressly delegated to the Regional Directors. This
regulation, the issuance of which was authorized by statute,
has the force and effect of law. 5 To rely upon it, hence,
would not be tantamount to whimsical, capricious and
arbitrary
exercise
of
judgment.

SYLLABUS
1. TAXATION; SUIT ON UNCONTESTED ASSESSMENT;
JURISDICTIONAL TEST. A suit instituted by the Republic,
based on an uncontested assessment, is one merely for the
recovery of a sum of money where the amount demanded
constitutes
the
jurisdictional
test.
2. ID.; ID.; LACK OF APPROVAL BY REVENUE COMMISSIONER;
SUCH REQUISITE NOT JURISDICTIONAL. The question of
whether this suit should bear the approval of the Revenue
Commissioner is not jurisdictional, but one relating to
capacity to sue or affecting the cause of action only. So, in
ruling on said question, whatever error. if any the
municipal court committed, was merely an error of judgment,
not
correctible
by certiorari.

The verification by the Regional Director of the complaint

constitutes sufficient approval thereof already. It states, inter
alia, that said Director has caused the preparation of the
complaint and that he has read the allegations thereof and
they are true and correct to the best of his knowledge and
belief. Pleadings are to be liberally construed. 6

3. ID.; ID.; INTERLOCUTORY ORDER; REMEDY THEREFROM.

An order denying a motion to dismiss is interlocutory and the
remedy of the unsuccessful movant is to await the judgment
on
the
merits
and
then
appeal
therefrom.

Assuming, therefore, in gratia argumenti, that the suit is

being erroneously but not invalidly entertained, for lack
of express approval of the Commissioner or the Regional
Director, certiorari would still not lie. An order denying a
motion to dismiss is interlocutory and the remedy of the
unsuccessful movant is to await the judgment on the merits
and then appeal therefrom. 7 And, as the Court of First
Instance rightly observed, there was no showing of a special
reason or urgent need to stop the proceedings at such early
stage
in
the
municipal
court.

4. PRESCRIPTION; PRESCRIPTIVE PERIOD; HOW COUNTED.

The proper prescriptive period for bringing civil actions, is
five years from the date of assessment, under Section 332 of
the Tax Code. The three years prescriptive period under
Section 51 (d) refers only to the summary remedies of
distraint and levy.
DECISION
BENGZON, J.P., J.:

Petitioner-appellant would also raise the question of

prescription. Again, this is not jurisdictional. And, We have
already ruled 8 that the proper prescriptive period for
bringing civil actions is five years from the date of the
assessment, under Section 332 of the Tax Code. The three
year period urged by petitioner-appellant under Section 51
(d) refers only to the summary remedies of distraint and levy.
Here, the action was commenced one year, ten months and
three days after the assessments were made; hence, well
within
the
period.

Petitioner-appellant Jose Arches filed on February 27, 1954

his income tax return for 1953. Within five years thereafter,
or on February 26, 1959, deficiency income tax and
residence tax assessments were issued against him.
Said assessments not having been disputed, the Republic,
represented by the Bureau of Internal Revenue Regional
Director, filed suit on December 29, 1960, in the municipal
court of Roxas City, to recover from petitioner-appellant the
sum of P4,441.25 as deficiency income tax and additional
residence tax for 1953. Arches then moved to dismiss the
complaint on the ground that it did not expressly show the
approval of the Revenue Commissioner, as required by
Section 308 of the Tax Code, and on the further ground of
prescription
of
the
action.

Wherefore,
the
dismissal
of
appellants
petition
for certiorari by the Court of First Instance is hereby affirmed.
Costs against petitioner-appellant. So ordered.

The municipal court denied the motion. Petitioner-appellant,

his motion to reconsider having been denied also, resorted to
the Court of First Instance of Capiz on a petition
for certiorari and prohibition assailing the order denying his
motion to dismiss. The trial court dismissed the petition.
Hence,
this
appeal.

REPUBLIC OF THE PHILIPPINES, represented by

the Commissioner of the Bureau of
Internal Revenue (BIR), petitioner, vs.
SALUD V. HIZON, respondent.

The only question here is the correctness of the dismissal of

the petition by the Court of First Instance. The order was
predicated upon the impropriety of the writ. We find no error
committed
by
said
court.

This is a petition for review of the decision [1] of the

Regional Trial Court, Branch 44, San Fernando, Pampanga,
dismissing the suit filed by the Bureau of Internal Revenue
for collection of tax.

The municipal court had jurisdiction over the parties and

over the subject matter, the amount demanded being less
than P5,000.00. 1 The suit below instituted by the Republic,
based on an uncontested assessment, was one merely for
the recovery of a sum of money where the amount
demanded
constitutes
the
jurisdictional
test.
2
Petitioner-appellant would make much of the lack of approval
of the Revenue Commissioner. First of all, in this case, such
requisite is not jurisdictional, but one relating to capacity to
sue or affecting the cause of action only. 3 So, in ruling on

The facts are as follows:

On July 18, 1986, the BIR issued to respondent Salud V.

Hizon a deficiency income tax assessment of P1,113,359.68
covering the fiscal year 1981-1982. Respondent not having
contested the assessment, petitioner, on January 12, 1989,
served warrants of distraint and levy to collect the tax
deficiency. However, for reasons not known, it did not
proceed to dispose of the attached properties.

The trial court arrived at this conclusion because the

complaint filed by the BIR was not signed by then
Commissioner Liwayway Chato.

Sec. 221 of the NIRC provides:

Form and mode of proceeding in actions arising under this
Code. Civil and criminal actions and proceedings instituted
in behalf of the Government under the authority of this Code
or other law enforced by the Bureau of Internal Revenue shall
be brought in the name of the Government of the Philippines
and shall be conducted by the provincial or city fiscal, or the
Solicitor General, or by the legal officers of the Bureau of
Internal Revenue deputized by the Secretary of Justice, but
no civil and criminal actions for the recovery of taxes or the
enforcement of any fine, penalty or forfeiture under this
Code shall be begun without the approval of the
Commissioner. (Emphasis supplied)

More than three years later, or on November 3, 1992,

respondent wrote the BIR requesting a reconsideration of her
tax deficiency assessment. The BIR, in a letter dated August
11, 1994, denied the request. On January 1, 1997, it filed a
case with the Regional Trial Court, Branch 44, San Fernando,
Pampanga to collect the tax deficiency. The complaint was
signed by Norberto Salud, Chief of the Legal Division, BIR
Region 4, and verified by Amancio Saga, the Bureaus
Regional Director in Pampanga.
Respondent moved to dismiss the case on two
grounds: (1) that the complaint was not filed upon authority
of the BIR Commissioner as required by 221[2] of the
National Internal Revenue Code, and (2) that the action had
already prescribed. Over petitioners objection, the trial
court, on August 28, 1997, granted the motion and dismissed
the complaint. Hence, this petition. Petitioner raises the
following issues:[3]

I.

II.

To implement this provision Revenue Administrative Order

No. 5-83 of the BIR provides in pertinent portions:

The following civil and criminal cases are to be handled by

Special Attorneys and Special Counsels assigned in the Legal
Branches of Revenue Regions:

WHETHER OR NOT THE INSTITUTION OF THE

CIVIL CASE FOR COLLECTION OF TAXES WAS
WITHOUT
THE
APPROVAL
OF
THE
COMMISSIONER IN VIOLATION OF SECTION 221
OF THE NATIONAL INTERNAL REVENUE CODE.

....
III.

WHETHER
OR
NOT
THE
ACTION
FOR
COLLECTION
OF
TAXES
FILED
AGAINST
RESPONDENT HAD ALREADY BEEN BARRED BY
THE STATUTE OF LIMITATIONS.

1.

Civil Cases

Complaints for collection on cases falling within the

jurisdiction of the Region . . . .

In all the abovementioned cases, the Regional Director is

authorized to sign all pleadings filed in connection therewith
which,
otherwise,
requires
the
signature
of
the
Commissioner.

First. In sustaining respondents contention that

petitioners complaint was filed without the authority of the
BIR Commissioner, the trial court stated:[4]

.
Revenue Administrative Order No. 10-95 specifically
authorizes the Litigation and Prosecution Section of the Legal
Division of regional district offices to institute the necessary
civil and criminal actions for tax collection. As the complaint
filed in this case was signed by the BIRs Chief of Legal
Division for Region 4 and verified by the Regional Director,
there was, therefore, compliance with the law.

There is no question that the National Internal Revenue Code

explicitly provides that in the matter of filing cases in Court,
civil or criminal, for the collection of taxes, etc., the approval
of the commissioner must first be secured. . . . [A]n action
will not prosper in the absence of the commissioners
approval. Thus, in the instant case, the absence of the
approval of the commissioner in the institution of the action
is fatal to the cause of the plaintiff . . . .

However, the lower court refused to recognize RAO No.

10-95 and, by implication, RAO No. 5-83. It held:

issued by the Regional Offices involving basic

deficiency taxes of five hundred thousand pesos
(P500,000.00) or less, and minor criminal violations
as may be determined by rules and regulations to
be promulgated by the Secretary of Finance, upon
the
recommendation
of
the
Commissioner,
discovered by regional and district officials, may be
compromised by a regional evaluation board which
shall be composed of the Regional Director as
Chairman, the Assistant Regional Director, heads of
the Legal, Assessment and Collection Divisions and
the Revenue District Officer having jurisdiction over
the taxpayer, as members; and

[M]emorand[a], circulars and orders emanating from bureaus

and agencies whether in the purely public or quasi-public
corporations are mere guidelines for the internal functioning
of the said offices. They are not laws which courts can take
judicial notice of. As such, they have no binding effect upon
the courts for such memorand[a] and circulars are not the
official acts of the legislative, executive and judicial
departments of the Philippines . . . .[5]

This is erroneous. The rule is that as long as

administrative issuances relate solely to carrying into effect
the provisions of the law, they are valid and have the force of
law.[6] The governing statutory provision in this case is 4(d)
of the NIRC which provides:

(d) The power to assign or reassign internal revenue

officers to establishments where articles subject to
excise tax are produced or kept.

Specific provisions to be contained in regulations. - The

regulations of the Bureau of Internal Revenue shall, among
other things, contain provisions specifying, prescribing, or
defining:

None of the exceptions relates to the Commissioners power

to approve the filing of tax collection cases.

Second. With regard to the issue that the case filed by

petitioner for the collection of respondents tax deficiency is
barred by prescription, 223(c) of the NIRC provides:

(d) The conditions to be observed by revenue officers,

provincial fiscals and other officials respecting the institution
and conduct of legal actions and proceedings.

Any internal revenue tax which has been assessed within the
period of limitation above-prescribed may be collected by
distraint or levy or by a proceeding in court within three
years[7]following the assessment of the tax.

RAO Nos. 5-83 and 10-95 are in harmony with this statutory
mandate.

The running of
suspended[8]

As amended by R.A. No. 8424, the NIRC is now even

more categorical. Sec. 7 of the present Code authorizes the
BIR Commissioner to delegate the powers vested in him
under the pertinent provisions of the Code to any
subordinate official with the rank equivalent to a division
chief or higher, except the following:

the

three-year

prescriptive

period

is

for the period during which the Commissioner is

prohibited from making the assessment or beginning
distraint or levy or a proceeding in court and for sixty
days thereafter; when the taxpayer requests for a
reinvestigation which is granted by the Commissioner;
when the taxpayer cannot be located in the address
given by him in the return filed upon which the tax is
being assessed or collected; provided, that, if the
taxpayer informs the Commissioner of any change in
address, the running of the statute of limitations will
not be suspended; when the warrant of distraint or levy
is duly served upon the taxpayer, his authorized
representative or a member of his household with
sufficient discretion, and no property could be located;
and when the taxpayer is out of the Philippines.

(a) The power to recommend the promulgation of rules

and regulations by the Secretary of Finance;

(b) The power to issue rulings of first impression or to

reverse, revoke or modify any existing ruling of the
Bureau;

(c) The power to compromise or abate under 204(A)

and
(B)
of
this
Code,
any
tax
deficiency: Provided, however, that assessments

Petitioner argues that, in accordance with this provision,

respondents request for reinvestigation of her tax deficiency

assessment on November 3, 1992 effectively suspended the

running of the period of prescription such that the
government could still file a case for tax collection.[9]

Moreover, if, as petitioner in effect says, the

prescriptive period was suspended twice, i.e., when the
warrants of distraint and levy were served on respondent on
January 12, 1989 and then when respondent made her
request for reinvestigation of the tax deficiency assessment
on November 3, 1992, the three-year prescriptive period
must have commenced running again sometime after the
service of the warrants of distraint and levy. Petitioner,
however, does not state when or why this took place and,
indeed, there appears to be no reason for such. It is
noteworthy that petitioner raised this point before the lower
court apparently as an alternative theory, which, however, is
untenable.

The contention has no merit. Sec. 229[10] of the Code

mandates that a request for reconsideration must be made
within 30 days from the taxpayers receipt of the tax
deficiency assessment, otherwise the assessment becomes
final, unappealable and, therefore, demandable.[11] The
notice of assessment for respondents tax deficiency was
issued by petitioner on July 18, 1986. On the other hand,
respondent made her request for reconsideration thereof
only on November 3, 1992, without stating when she
received the notice of tax assessment. She explained that
she was constrained to ask for a reconsideration in order to
avoid the harassment of BIR collectors.[12] In all likelihood,
she must have been referring to the distraint and levy of her
properties by petitioners agents which took place on January
12, 1989. Even assuming that she first learned of the
deficiency assessment on this date, her request for
reconsideration was nonetheless filed late since she made it
more than 30 days thereafter. Hence, her request for
reconsideration did not suspend the running of the
prescriptive period provided under 223(c). Although the
Commissioner acted on her request by eventually denying it
on August 11, 1994, this is of no moment and does not
detract from the fact that the assessment had long become
demandable.

For the foregoing reasons, we hold that petitioners

contention that the action in this case had not prescribed
when filed has no merit. Our holding, however, is without
prejudice to the disposition of the properties covered by the
warrants of distraint and levy which petitioner served on
respondent, as such would be a mere continuation of the
summary
remedy
it
had
timely
begun. Although
considerable time has passed since then, as held
in Advertising
Associates
Inc.
v.
Court
of
Appeals[17] and Palanca v. Commissioner of Internal Revenue,
[18]
the enforcement of tax collection through summary
proceedings may be carried out beyond the statutory period
considering that such remedy was seasonably availed of.
WHEREFORE, the petition is DENIED.

CECILIA TEODORO DAYRIT, TORIBIA TEODORO

CASTANEDA, PRUDENCIO J. TEODORO,
FRANCISCO J. TEODORO, AND JOSEFINA
TEODORO TIONGSON, petitioners, vs. THE
HONORABLE FERNANDO A. CRUZ, Presiding
Judge, Branch XII, Court of First Instance of
Rizal, and MISAEL P. VERA, in his capacity as the
Commissioner of Internal Revenue, respondents.

Nonetheless, it is contended that the running of the

prescriptive period under 223(c) was suspended when the
BIR timely served the warrants of distraint and levy on
respondent on January 12, 1989.[13]Petitioner cites for this
purpose our ruling in Advertising Associates Inc. v. Court of
Appeals.[14] Because of the suspension, it is argued that the
BIR could still avail of the other remedy under 223(c) of
filing a case in court for collection of the tax deficiency, as
the BIR in fact did on January 1, 1997.

The application of tax amnesty to the estate of the Teodoros

is the issue in this case.
Petitioners are the legitimate children and heirs of the
deceased spouses Marta J. Teodoro who died intestate on July
1, 1965 and Don Toribio Teodoro who died testate on August
30, 1965. Thereafter, the heirs of the deceased filed separate
estate and inheritance tax returns for the estates of the late
spouses with the Bureau of Internal Revenue. *

Petitioners reliance on the Courts ruling in Advertising

Associates Inc. v. Court of Appeals is misplaced. What the
Court stated in that case and, indeed, in the earlier case
of Palanca v. Commissioner of Internal Revenue,[15] is that the
timely service of a warrant of distraint or levy suspends the
running of the period to collect the tax deficiency in the
sense that the disposition of the attached properties might
well take time to accomplish, extending even after the lapse
of the statutory period for collection. In those cases, the BIR
did not file any collection case but merely relied on the
summary remedy of distraint and levy to collect the tax
deficiency. The importance of this fact was not lost on the
Court. Thus, in Advertising Associates, it was held:[16] It
should be noted that the Commissioner did not institute any
judicial proceeding to collect the tax. He relied on the
warrants of distraint and levy to interrupt the running of the
statute of limitations.

In the meantime, testate and intestate proceedings for the

settlement of the decedents' estates were filed 1 by Cecilia
Teodoro-Dayrit, one of the petitioners herein, in the then
Court of First Instance of Caloocan City, ** Branch XII
docketed as Special Proceedings No. C-113. 2 On August 14,
1968, said petitioner was appointed administratrix of the
estate of Dona Marta and letters testamentary was issued in
her favor as executrix of the estate of Don Toribio.
On August 9,1972, the respondent Commissioner of Internal
Revenue issued the following deficiency estate and
inheritance tax assessments: 3
Estate of Doa
Marta

Estate Tax & penalties

P1,662,072.34

Inheritance Tax & interests

1,747,790.94

xxx xxx xxx

1. In all cases of voluntary disclosure of
previously untaxed income and/or wealth
such as earnings, receipts, gifts bequests
or any other acquisitions from any source
whatsoever which are taxable under the
National Internal Revenue Code, as
amended realized here or abroad by any
taxpayer, natural or juridical; the collection
of all internal revenue taxes including the
increments or penalties on account of nonpayment as well as all civil, criminal or
administrative liabilities arising from or
incident to such disclosures under the
National Internal Revenue Code, the
Revised Penal Code, the Anti-Graft and
Corrupt
Practices
Act,
the
Revised
Administrative Code, the Civil Service laws
and regulations, laws and regulations on
Immigration and Deportation, or any other
applicable law or proclamation, are hereby
condoned and, in lieu thereof, a tax of ten
per centum (10%) on such previously
untaxed income or wealth is hereby
imposed,
subject
to
the
following
conditions:
a.
Such
previously
untaxed income and/or
wealth must have been
earned or realized prior
to 1972;
b. The taxpayer must file
a
return
with
the
Commissioner of Internal
Revenue on or before
March 31, 1973, showing
such previously untaxed
income and/or wealth;

The aforementioned notice of deficiency assessments was

received by petitioner Dayrit on August 14, 1972. In a letter
dated October 7, 1972, **** petitioners through counsel,
asked for a reconsideration of the said assessments alleging
that the same are contrary to law and not supported by
sufficient evidence. 4 In the same letter, petitioners
requested a period of thirty (30) days within which to submit
their position paper in support of their claim.
Meanwhile, on October 16, 1972, Presidential Decree (P.D)
No. 23, entitled "Proclaiming Tax Amnesty Subject to Certain
Conditions," was issued by then President Ferdinand E.
Marcos, quoted hereunder as follows:
xxx xxx xxx
1. In all cases of voluntary disclosure of
previously untaxed income realized
here or abroad by any taxpayer,
natural or juridical, the collection of
the income tax and penalties incident
to nonpayment, as well as all criminal
and civil liabilities under the National
Internal Revenue Code, the Revised
Penal Code, the Anti-Graft and Corrupt
Practices Act or any other law
applicable thereto, is hereby condoned
and, in lieu thereof, a tax of TEN
PERCENTUM (10%) on such previously
untaxed income is hereby imposed,
subject to the following conditions:
(a)
Such
previously
untaxed income must
have been earned or
realized prior to 1972;
(b) The taxpayer must
file a notice and return
with the Commissioner of
Internal Revenue on or
before March 31, 1972
showing such previously
untaxed income; ...
2.

In a tax return dated March 31, 1973, petitioner Cecilia

Teodoro-Dayrit
declared
an
additional
amount
of
P3,655,595.78 as part of the estates of the Teodoro spouses,
for additional valuation over and above the amount declared
in the previous return for estates and inheritance taxes of
the said late spouses. 5 The Bureau of Internal Revenue
issued tax payment acceptance order Nos.1127185-86 and
1533011. 6 Pursuant to the aforesaid tax acceptance orders,
the estates and heirs of the deceased spouses Teodoro paid
the amounts of P5,000.00, P30,046.68 and P250,000.00 per
official receipts Nos. 73201, 774037 and 964467 dated April
2, 1973, July 17, 1973 and October 31, 1973,
respectively, 7 amounting to a total of P285,046.68.

The tax imposed under Paragraph 1

hereof, shall be paid within the
following period:
(a) If the amount does
not exceed P10,000.00
the tax must be paid at
the time of the filing of
notice and return but not
later than March 31,
1973;
(b)
If
the
amount
exceeds P10,000.00 the
tax maybe paid in two (2)
installments, the first
installment to be paid
upon the filing of the
notice and return but not
later than March 31,
1973; and the second
installment within three
(3) months from the date
of the filing of the return
but not later than June
30, 1973. ....

On March 14, 1974, respondent Commissioner of Internal

Revenue filed a motion for Allowance of Claim against the
estates of spouses Teodoro and for an order of payment of
taxes in S.P. No. C-113 with the then Court of First Instance of
Rizal, Branch XII, praying that petitioner Dayrit be ordered to
pay the Bureau of Internal Revenue the sum of
P6,470,396.81 plus surcharges and interest 8 Petitioners filed
two (2) separate oppositions alleging that the estate and
inheritance taxes sought to be collected have already been
settled in accordance with the provisions of P.D. No. 23, as
amended by P.D. No. 67 and that at any rate, the
assessments have not become final and executory. 9 In reply
thereto, respondent Commissioner alleged that petitioners
could not avail of the tax amnesty in view of the existence of
a prior assessment. 10 Petitioners insisted that the tax
amnesty could still be availed of invoking Section 4, BIR
Revenue Regulation No. 8-72. 11
On July 10, 1974, respondent Judge issued an order
approving the claim of respondent Commissioner and
directing the payment of the estate and inheritance
taxes. 12 Dissastisfied with the decision, petitioners filed a

On November 24, 1972, P.D. No. 67, was issued amending

paragraphs 1 and 3 of P.D. No. 23, to read as follows:

motion for reconsideration 13 but it was denied

dated September 30, 1974.*****

14

otherwise. 17 Failure of the petitioners to appeal to the Court

of Tax Appeals in due time made the assessments in
question, final, executory and demandable. 18

in an order

Hence, the present petition.

The petitioners' allegation that the Court of First Instance

(CFI) lacks jurisdiction over the subject of the case is likewise
untenable. The assessments having become final and
executory, the CFI properly acquired jurisdiction. 19 Neither is
there merit in petitioners' claim that the exclusive jurisdiction
of the Court of Tax Appeals (CTA) applies in the case. The
aforesaid exclusive jurisdiction of the CTA arises only in
cases of disputed tax assessments. 20 As noted earlier,
petitioners' letter dated October 7, 1972 asking for
reconsideration of the questioned assessments cannot be
considered as one disputing the assessments because
petitioners failed to substantiate their claim that the
deficiency assessments are contrary to law. Petitioners asked
for a period of thirty (30) days within which to submit their
position paper but they failed to submit the same
nonetheless. Hence, petitioners' letter for a reconsideration
of the assessments is nothing but a mere scrap of paper.

Petitioners contend that respondent Judge acted without

jurisdiction or in excess of jurisdiction or with grave abuse of
discretion amounting to lack of jurisdiction in granting the
respondent Commissioner's claim for estate and inheritance
taxes against the estates of the Teodoro spouses on the
ground that due to the pendency of their motion for
reconsideration of the deficiency assessments issued by the
Commissioner, said tax assessments are not yet final and
executory. Petitioners stressed that the absence of a decision
on the disputed assessments was a bar against collection of
taxes. Finally, petitioners insist that their act of filing an
estate and inheritance tax return of a previously untaxed
wealth of the estates entitles said estates to tax amnesty
under P.D. No. 23, as amended by P.D. 67 and hence, it is an
error to grant respondent Commissioner's claim for collection
of estate and inheritance taxes.
On the other hand, respondent Commissioner contends that
petitioners cannot avail of the tax amnesty in view of the
prior existing assessments issued against the estates of the
deceased spouses before the promulgation of P.D. No. 23. In
support thereof, respondent cited Section 4 of Revenue
Regulation No. 15-72, amending Section 4 of Regulation No.
8-12. Respondent Commissioner contends further that
neither may petitioners' act of filing a return of a previously
untaxed income or wealth in the amount of P3,655,595.98
entitled the estates to tax amnesty where petitioners failed
to pay the 10% tax in full within the time frame required
under P.D. No. 23, and that to allow petitioners to avail of the
tax amnesty will render nugatory the provisions of P.D. No.
68. Moreover, said respondent argues that certiorari is not
the proper remedy in that respondent Judge committed no
grave abuse of discretion in allowing the claim for collection
of taxes and that if at all, it was merely an error of judgment
which can be corrected only on appeal, and in which case the
reglementary period for the same has already prescribed.

Petitioners' contention that the absence of a decision on their

request for reconsideration of the assessments is a bar to
granting the claim for collection is likewise without merit.
In Republic vs. Lim Tian Teng Son & Co., Inc., 21this Court had
occasion to rule that a decision on a request for
reinvestigation is not a condition precedent to the filing of an
action for collection of taxes already assessed. This Court
ruled that "nowhere in the Tax Code is the Collector of
Internal Revenue required to rule first on a taxpayer's
request for reconsideration before he can go to court for the
purpose of collecting the tax assessed. On the contrary,
Section 305 of the same Code withheld from all courts,
except the Court of Tax Appeals under Republic Act No.
1125, 22 the authority to restrain the collection of any
national internal revenue tax, fee or charge, thereby
indicating the legislative policy to allow the Collector of
Internal Revenue much latitude on the speedy and prompt
collection of taxes."
Petitioners argue, however, that the Commissioner of
Internal Revenue must first rule on the taxpayer's protest
against tax assessment so as not to deprive the taxpayer of
the remedy of appeal and that it is only from the receipt of
the decision that the right to appeal to the Court of Tax
Appeals should run, citing for the purpose San Juan vs.
Velasquez 23 as well as Commissioner of Internal Revenue vs.
Gonzales. 24

The main issue in this petition is whether an estate may avail

of tax amnesty under Presidential Decree No. 23 where there
is already an existing assessment made prior to the issuance
of the said decree on the basis of the submitted estate and
inheritance tax returns by merely filing separate estate tax
returns of an undeclared and untaxed income over and
above the original amount of the estate declared.
Anent petitioners' claim that the tax assessments against the
estates of the Teodoro spouses are not yet final, the court
finds the claim untenable. In petitioners' motion for
reconsideration of the aforementioned assessments,
petitioners requested then Commissioner Misael P. Vera for a
period of thirty (30) days from October 7, 1972 within which
to submit a position paper that would embody their grounds
for reconsideration. However, no position paper was ever
filed. 15 Such failure to file a position paper may be construed
as
abandonment
of
the
petitioners'
request
for
reconsideration. The court notes that it took the respondent
Commissioner a period of more than one (1) year and five (5)
months, from October 7, 1972 to March 14, 1974, before
finally instituting the action for collection. Under the
circumstances of the case, the act of the Commissioner in
filing an action for allowance of the claim for estate and
inheritance taxes, may be considered as an outright denial of
petitioners' request for reconsideration.
From the date of receipt of the copy of the Commissioner's
letter for collection of estate and inheritance taxes against
the estates of the late Teodoro spouses, petitioners must
contest or dispute the same and, upon a denial thereof, the
petitioners have a period of thirty (30) days within which to
appeal the case to the Court of Tax Appeals. 16 This they
failed to avail of .
Tax assessments made by tax examiners are presumed
correct and made in good faith. A taxpayer has to prove

The aforementioned cases are both not in point. In San Juan,

the taxpayer concerned, through his accountant, disputed
the assessments of income tax and deficiency income tax by
adducing the reasons and explanations why said
assessments of income tax were not due and owing from the
taxpayer. Thus, it was therein ruled that having disputed the
assessments at the opportune time, the Commissioner of
Internal Revenue cannot ignore the disputed assessments by
immediate immediately bringing an action to collect. By the
same token inCommissioner of Internal Revenue vs.
Gonzales, the assessments of estate and inheritance taxes
were disputed by the taxpayer by invoking prescription as a
defense claiming that the assessments were made after the
lapse of more than five (5) years.
Payment of taxes being admittedly a burden, taxpayers
should not be left without any recourse when they feel
aggrieved due to the erroneous and burdensome
assessments made by a Bureau of Internal Revenue agent or
by the Commissioner. Said right is vested upon adversely
affected taxpayers under Republic Act No. 1125. It cannot be
rendered nugatory through the Commissioner's act of
immediately filing an action for collection without ruling
beforehand on the disputed assessments. 25 However, the
remedy of an aggrieved taxpayer is not without any
limitation. A taxpayer's right to contest assessments,

particularly the right to appeal to the Court of Tax Appeals,

may be waived or lost as in this case. 26

governs P.D. No. 67. In addition thereto, it gives the tax

evaders who failed to avail of the provisions of P.D. No. 23 a
chance to reform themselves. An examination of both
decrees does not show that taxpayers availing of the tax
amnesty in accordance with P.D. No. 67, are entitled to
blanket coverage of declarations made prior to the issuance
of said decrees.
Petitioners argue that the estates of their parents declared
for estate tax valuation sometime in the 1960's can avail of
the tax amnesty when petitioners declared an additional
amount of the estates over and above that which was
previously declared. A reading of P.D. No. 67 reveals that tax
amnesty is extendible only to those declarations made
pursuant to said decree. Thus, if at all, it is only the estates
in the amount of P3,655,595.78 declared pursuant to P.D. No.
67 that is covered, upon payment of 10% of the said amount
within the period prescribed under P.D. No. 23, which was up
to June 30, 1973. Considering that there has been partial
compliance with the said requirement by the payment of
P285,046.68, petitioner may claim the benefit of amnesty for
said declared amount upon payment of the balance of 10%
thereof required to be paid.

The requirement for the Commissioner to rule on disputed

assessments before bringing an action for collection is
applicable only in cases where the assessment was actually
disputed, adducing reasons in support thereto. In the present
case where the petitioners did not actually contest the
assessments by stating the basis thereof, the respondent
Commissioner need not rule on their request.
Taxes are the lifeblood of the nation through which the
government agencies continue to operate and with which the
State effects its functions for the welfare of its constituents.
We cannot tolerate taxpayers hampering expedient
collection of taxes by their failure to act within a reasonable
period. No government could exist if all litigants were
permitted to delay the collection of its taxes. 27 Thus, this
Court ruled earlier that a suit for the collection of internal
revenue taxes, as in this case, where the assessment has
already become final and executory, the action to collect is
akin to an action to enforce the judgment. No inquiry can be
made therein as to the merits of the original case or the
justness of the judgment relied upon. 28

WHEREFORE, with the above modification of the questioned

order of July 10, 1974, said order is hereby affirmed in all
other respect. No pronouncement as to costs.
SO ORDERED.

In view of the foregoing discussions, petitioners' allegation of

grave abuse of discretion on the part of the respondent
judge must perforce fall. Considering further that the court a
quo properly acquired jurisdiction over the subject matter of
the case, petitioners should have appealed the case. The
order of the court a quo dated September 30,1974, was
received by the petitioners on October 16, 1974. Petitioners
should have appealed within a period of fifteen (15) days
from receipt thereof but they failed to do so. ****** As
petitioners failed to file a timely appeal from the order of the
trial court, they can no longer avail of the remedy of a
special civil action for certiorari in lieu of appeal. There is no
error of jurisdiction committed by the trial court. 29

REPUBLIC OF THE PHILIPPINES, plaintiff-appellant,

vs. PEDRO B. PATANAO, defendant-appellee.

This is an appeal from an order of the Court of First Instance

of Agusan in civil case No. 925, dismissing plaintiff's
complaint so far as concerns the collection of deficiency
income taxes for the years 1951, 1953 and 1954 and
additional residence taxes for 1951 and 1952, and requiring
the defendant to file his answer with respect to deficiency
income tax for 1955 and residence taxes for 1953-1955.

On the other hand with respect the petitioners' plea that the
estate is at any rate entitled to tax amnesty, a reading of
P.D. No. 23 30 reveals that in order to avail of tax amnesty, it
is required, among others, that there should be a voluntary
disclosure of a previously untaxed income. This was the
pronouncement
of
this
Court
in Nepomuceno
vs.
Montecillo 31 with respect to P.D. 370 32 which was decreed as
a complement of P.D. Nos. 23 and 157. In addition thereto,
said income must have been earned or realized prior to 1972
and the tax return must be filed on or before March 31, 1973.
Considering that P.D. No. 23 was issued on October 16, 1972,
the court rules that the said decree embraces only those
income declared in pursuance thereof within the taxable
year 1972. The time frame cannot be stretched to include
declarations made prior to the issuance of the said decree or
those made outside of the time frame as envisioned in the
said decree. Thus, the estates of the Teodoro spouses which
have been declared separately sometime in the 1960's are
clearly outside the coverage of the tax amnesty provision.

In the complaint filed by the Republic of the Philippines,

through the Solicitor General, against Pedro B. Patanao, it is
alleged that defendant was the holder of an ordinary timber
license with concession at Esperanza, Agusan, and as such
was engaged in the business of producing logs and lumber
for sale during the years 1951-1955; that defendant failed to
file income tax returns for 1953 and 1954, and although he
filed income tax returns for 1951, 1952 and 1955, the same
were false and fraudulent because he did not report
substantial income earned by him from his business; that in
an examination conducted by the Bureau of Internal Revenue
on defendant's income and expenses for 1951-1955, it was
ascertained that the sum of P79,892.75, representing
deficiency; income taxes and additional residence taxes for
the aforesaid years, is due from defendant; that on February
14, 1958, plaintiff, through the Deputy Commissioner of
Internal Revenue, sent a letter of demand with enclosed
income tax assessment to the defendant requiring him to
pay the said amount; that notwithstanding repeated
demands the defendant refused, failed and neglected to pay
said taxes; and that the assessment for the payment of the
taxes in question has become final, executory and
demandable, because it was not contested before the Court

Petitioners argue, however, that even if a notice of deficiency

assessment had already been issued, the estates may still
avail of tax amnesty if the basis of such deficiency
assessment is either the failure to file a return or the
omission of items of taxable income for a return already filed
or the under declaration of said return, citing P.D. No. 67 and
Section 4 of BIR Revenue Regulation No. 8-72.
There is no merit in this contention. Even if P.D. No. 67, as an
amendment to P.D. 23, enlarges the coverage of tax amnesty
to include wealth such as earnings, receipts, gifts, bequests
or any other acquisitions from any source whatsoever, said
decree reiterates the need of voluntary disclosure on the
part of the taxpayer filing the return in order to avail of the
tax amnesty. The only noticeable departure from P.D. No. 23
is the extension of the date for the filing of the return from
March 31, 1972 to March 31, 1973. Thus, this Court finds that
the same policy observed in the issuance of P.D. No. 23,

of Tax Appeals in accordance with the provisions of section

11 of Republic Act No. 1125.

entirely different philosophies. Under the Penal Code the civil

liability is incurred by reason of the offender's criminal act.
Stated differently, the criminal liability gives birth to the civil
obligation such that generally, if one is not criminally liable
under the Penal Code, he cannot become civilly liable
thereunder. The situation under the income tax law is the
exact opposite. Civil liability to pay taxes arises from the
fact, for instance, that one has engaged himself in business,
and not because of any criminal act committed by him. The
criminal liability arises upon failure of the debtor to satisfy
his civil obligation. The incongruity of the factual premises
and foundation principles of the two cases is one of the
reasons for not imposing civil indemnity on the criminal
infractor of the income tax law. Another reason, of course, is
found in the fact that while section 73 of the National
Internal Revenue Code has provided the imposition of the
penalty of imprisonment or fine, or both, for refusal or
neglect to pay income tax or to make a return thereof, it
failed to provide the collection of said tax in criminal
proceedings. The only civil remedies provided, for the
collection of income tax, in Chapters I and II, Title IX of the
Code and section 316 thereof, are distraint of goods,
chattels, etc. or by judicial action, which remedies are
generally exclusive in the absence of a contrary intent from
the legislator. (People vs. Arnault, G.R. No. L-4288, November
20, 1952; People vs. Tierra, G.R. Nos. L-17177-17180,
December 28, 1964) Considering that the Government
cannot seek satisfaction of the taxpayer's civil liability in a
criminal proceeding under the tax law or, otherwise stated,
since the said civil liability is not deemed included in the
criminal action, acquittal of the taxpayer in the criminal
proceeding does not necessarily entail exoneration from his
liability to pay the taxes. It is error to hold, as the lower court
has held, that the judgment in the criminal cases Nos. 2089
and 2090 bars the action in the present case. The acquittal
in the said criminal cases cannot operate to discharge
defendant appellee from the duty of paying the taxes which
the law requires to be paid, since that duty is imposed by
statute prior to and independently of any attempts by the
taxpayer to evade payment. Said obligation is not a
consequence of the felonious acts charged in the criminal
proceeding, nor is it a mere civil liability arising from crime
that could be wiped out by the judicial declaration of nonexistence of the criminal acts charged. (Castro vs. The
Collector of Internal Revenue, G.R. No. L-12174, April 20,
1962).

Defendant moved to dismiss the complaint on two grounds,

namely: (1) that the action is barred by prior judgment,
defendant having been acquitted in criminal cases Nos. 2089
and 2090 of the same court, which were prosecutions for
failure to file income tax returns and for non-payment of
income taxes; and (2) that the action has prescribed.

After considering the motion to dismiss, the opposition

thereto and the rejoinder to the opposition, the lower court
entered the order appealed from, holding that the only cause
of action left to the plaintiff in its complaint is the collection
of the income tax due for the taxable year 1955 and the
residence tax (Class B) for 1953, 1954 and 1955. A motion to
reconsider said order was denied, whereupon plaintiff
interposed the instant appeal, which was brought directly to
this Court, the questions involved being purely legal.

The conclusion of the trial court, that the present action is

barred by prior judgment, is anchored on the following
rationale:

There is no question that the defendant herein has

been accused in Criminal Cases Nos. 2089 and 2090
of this Court for not filing his income tax returns and
for non-payment of income taxes for the years 1953
and 1954. In both cases, he was acquitted. The rule
in this jurisdiction is that the accused once
acquitted is exempt from both criminal and civil
responsibility because when a criminal action is
instituted, civil action arising from the same offense
is impliedly instituted unless the offended party
expressly waives the civil action or reserves the
right to file it separately. In the criminal cases
abovementioned wherein the defendant was
completely exonerated, there was no waiver or
reservation to file a separate civil case so that the
failure to obtain conviction on a charge of nonpayment of income taxes is fatal to any civil action
to collect the payment of said taxes.

Regarding prescription of action, the lower court held that

the cause of action on the deficiency income tax and
residence tax for 1951 is barred because appellee's income
tax return for 1951 was assessed by the Bureau of Internal
Revenue only on February 14, 1958, or beyond the five year
period of limitation for assessment as provided in section
331 of the National Internal Revenue Code. Appellant
contends that the applicable law is section 332 (a) of the
same Code under which a proceeding in court for the
collection of the tax may be commenced without assessment
at any time within 10 years from the discovery of the falsity,
fraud or omission.

Plaintiff-appellant assails the ruling as erroneous. Defendantappellee on his part urges that it should be maintained.

In applying the principle underlying the civil liability of an

offender under the Penal Code to a case involving the
collection of taxes, the court a quo fell into error. The two
cases are circumscribed by factual premises which are
diametrically opposed to each either, and are founded on

The complaint filed on December 7, 1962, alleges that the

fraud in the appellee's income tax return for 1951, was

discovered on February 14, 1958. By filing a motion to

dismiss, appellee hypothetically admitted this allegation as
all the other averments in the complaint were so admitted.
Hence, section 332 (a) and not section 331 of the National
Internal Revenue Code should determine whether or not the
cause of action of deficiency income tax and residence tax
for 1951 has prescribed. Applying the provision of section
332 (a), the appellant's action instituted in court on
December 7, 1962 has not prescribed.

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:

Wherefore, the order appealed from is hereby set aside. Let

the
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.

PEOPLE V. BALAGTAS, 105 PHIL. 1362-1363

[UNREP.].

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

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.

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.

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.

Statement of the Case

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.

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:

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.

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.

Instead, the CIR filed this petition on June 7, 1996, alleging

as grounds that:

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)

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;

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)

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.

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]

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.

As earlier observed, the Court of Appeals sustained the

CTA and dismissed the petition.

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.

Hence, this recourse to this Court.[7]

Ruling of the Court of Appeals

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.

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.

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:

Issues

10

Petitioners submit for the consideration of this Court

the following issues:

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.

(1)
Whether or not the criminal complaint for tax
evasion can be construed as an assessment.
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.

(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]
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.

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.

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 Courts Ruling

The petition is meritorious.

Main Issue: Assessment

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.

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

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]

11

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.

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.

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.

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 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.

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 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]

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.

12

plus penalties of 175.00 or a total of

P175.00, in accordance with Section
183 of the National Internal Revenue
Code;

QUIRICO P. UNGAB, petitioner, vs. HON. VICENTE

N. CUSI, JR., in his capacity as Judge of the
Court of First Instance, Branch 1, 16TH Judicial
District, Davao City, THE COMMISSIONER OF
INTERNAL REVENUE, and JESUS N. ACEBES, in
his capacity as State Prosecutor, respondents.

(3)

Petition for certiorari and prohibition with preliminary

injunction and restraining order to annul and set aside the
informations filed in Criminal Case Nos. 1960, 1961, 1962,
1963, 1964, and 1965 of the Court of First Instance of Davao,
all entitled: "People of the Philippines, plaintiff, versus
Quirico Ungab, accused;" and to restrain the respondent
Judge from further proceeding with the hearing and trial of
the said cases.

In a second indorsement to the Chief of the Prosecution

Division, dated December 12, 1974, the Commissioner of
Internal Revenue approved the prosecution of the
petitioner. 3

It is not disputed that sometime in July, 1974, BIR Examiner

Ben Garcia examined the income tax returns filed by the
herein petitioner, Quirico P. Ungab, for the calendar year
ending December 31, 1973. In the course of his examination,
he discovered that the petitioner failed to report his income
derived from sales of banana saplings. As a result, the BIR
District Revenue Officer at Davao City sent a "Notice of
Taxpayer" to the petitioner informing him that there is due
from him (petitioner) the amount of P104,980.81,
representing income, business tax and forest charges for the
year 1973 and inviting petitioner to an informal conference
where the petitioner, duly assisted by counsel, may present
his objections to the findings of the BIR Examiner. 1 Upon
receipt of the notice, the petitioner wrote the BIR District
Revenue Officer protesting the assessment, claiming that he
was only a dealer or agent on commission basis in the
banana sapling business and that his income, as reported in
his income tax returns for the said year, was accurately
stated. BIR Examiner Ben Garcia, however, was fully
convinced that the petitioner had filed a fraudulent income
tax return so that he submitted a "Fraud Referral Report," to
the Tax Fraud Unit of the Bureau of Internal Revenue. After
examining the records of the case, the Special Investigation
Division of the Bureau of Internal Revenue found sufficient
proof that the herein petitioner is guilty of tax evasion for the
taxable year 1973 and recommended his prosecution:

Thereafter, State Prosecutor Jesus Acebes who had been

designated to assist all Provincial and City Fiscals throughout
the Philippines in the investigation and prosecution, if the
evidence warrants, of all violations of the National Internal
Revenue Code, as amended, and other related laws, in
Administrative Order No. 116 dated December 5, 1974, and
to whom the case was assigned, conducted a preliminary
investigation of the case, and finding probable cause, filed
six (6) informations against the petitioner with the Court of
First Instance of Davao City, to wit:

(1) For having filed a false or fraudulent

income tax return for 1973 with intent
to evade his just taxes due the
government under Section 45 in
relation to Section 72 of the National
Internal Revenue Code;

(2)

For failure to pay the 7% percentage

tax, as a producer of banana poles or
saplings, on the total sales of
P129,580.35 to the Davao Fruit
Corporation, depriving thereby the
government of its due revenue in the
amount of P15,872.59, inclusive of
surcharge. 2

(1)

Criminal Case No. 1960 Violation of

Sec. 45, in relation to Sec. 72 of the
National Internal-Revenue Code, for
filing a fraudulent income tax return
for
the
calendar
year
ending
December 31, 1973; 4

(2)

Criminal Case No. 1961 Violation of

Sec. 182 (a), in relation to Secs. 178,
186, and 208 of the National Internal
Revenue Code, for engaging in
business as producer of saplings, from
January, 1973 to December, 1973,
without first paying the annual fixed or
privilege tax thereof; 5

(3) Criminal Case No. 1962 Violation of

Sec. 183

For failure to pay a fixed annual tax of

P50.00 a year in 1973 and 1974, or a
total of unpaid fixed taxes of P100.00

(a), in relation to Secs. 186 and

209 of the National Internal Revenue Code,
for failure to render a true and complete

13

return on the gross quarterly sales,

receipts and earnings in his business as
producer of banana saplings and to pay the
percentage tax due thereon, for the
quarter ending December 31, 1973; 6

protest against the assessment made by the BIR

Examiner. 10 However, the trial court denied the motion on
October 22, 1975. 11 Whereupon, the petitioner filed the
instant recourse. As prayed for, a temporary restraining
order was issued by the Court, ordering the respondent
Judge from further proceeding with the trial and hearing of
Criminal Case Nos. 1960, 1961, 1962, 1963, 1964, and 1965
of the Court of First Instance of Davao, all entitled: "People of
the Philippines, plaintiff, versus Quirico Ungab, accused."

(4) Criminal Case No. 1963 Violation of

Sec. 183

The petitioner seeks the annulment of the informations filed

against him on the ground that the respondent State
Prosecutor is allegedly without authority to do so. The
petitioner argues that while the respondent State Prosecutor
may initiate the investigation of and prosecute crimes and
violations of penal laws when duly authorized, certain
requisites, enumerated by this Court in its decision in the
case of Estrella vs. Orendain, 12should be observed before
such authority may be exercised; otherwise, the provisions of
the Charter of Davao City on the functions and powers of the
City Fiscal will be meaningless because according to said
charter he has charge of the prosecution of all crimes
committed within his jurisdiction; and since "appropriate
circumstances are not extant to warrant the intervention of
the State Prosecution to initiate the investigation, sign the
informations and prosecute these cases, said informations
are null and void." The ruling adverted to by the petitioner
reads, as follows:

(a), in relation to Secs. 186 and 209 of the

National Internal Revenue Code, for failure
to render a true and complete return on
the gross quarterly sales receipts and
earnings in his business as producer of
saplings, and to pay the percentage tax
due thereon, for the quarter ending on
March 31, 1973; 7

(5) Criminal Case No. 1964 Violation of

Sec. 183

(a), in relation to Secs. 186 and 209 of the

National Internal Revenue Code, for failure
to render a true and complete return on
the gross quarterly sales, receipts and
earnings in his business as producer of
banana saplings for the quarter ending on
June 30, 1973, and to pay the percentage
tax due thereon; 8

In view of all the foregoing considerations,

it is the ruling of this Court that under
Sections 1679 and 1686 of the Revised
Administrative Code, in any instance where
a provincial or city fiscal fails, refuses or is
unable, for any reason, to investigate or
prosecute a case and, in the opinion of the
Secretary of Justice it is advisable in the
public interest to take a different course of
action, the Secretary of Justice may either
appoint as acting provincial or city fiscal to
handle the investigation or prosecution
exclusively and only of such case, any
practicing attorney or some competent
officer of the Department of Justice or
office of any city or provincial fiscal, with
complete authority to act therein in all
respects as if he were the provincial or city
fiscal himself, or appoint any lawyer in the
government service, temporarily to assist
such city of provincial fiscal in the
discharge of his duties, with the same
complete authority to act independently of
and for such city or provincial fiscal
provided that no such appointment may be
made without first hearing the fiscal
concerned
and
never
after
the
corresponding information has already
been filed with the court by the
corresponding city or provincial fiscal
without the conformity of the latter, except
when it can be patently shown to the court
having cognizance of the case that said

(6) Criminal Case No. 1965 Violation of

Sec. 183

(a), in relation to Secs. 186 and 209 of the

National Internal Revenue Code, for failure
to render a true and complete return on
the gross quarterly sales, receipts and
earnings as producer of banana saplings,
for the quarter ending on September 30,
1973, and to pay the percentage tax due
thereon. 9

On September 16, 1975, the petitioner filed a motion to

quash the informations upon the grounds that: (1) the
informations are null and void for want of authority on the
part of the State Prosecutor to initiate and prosecute the said
cases; and (2) the trial court has no jurisdiction to take
cognizance of the above-entitled cases in view of his pending

14

fiscal is intent on prejudicing the interests

of justice. The same sphere of authority is
true with the prosecutor directed and
authorized under Section 3 of Republic Act
3783, as amended and/or inserted by
Republic Act 5184. The observation
in Salcedo vs. Liwag, supra, regarding the
nature of the power of the Secretary of
Justice over fiscals as being purely over
administrative matters only was not really
necessary, as indicated in the above
relation of the facts and discussion of the
legal issues of said case, for the resolution
thereof. In any event, to any extent that
the opinion therein may be inconsistent
herewith the same is hereby modified.

the charges preferred. The crime is

complete when the violator has, as in this
case,
knowingly
and
willfully
filed
fraudulent returns with intent to evade and
defeat a part or all of the tax. 14

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 willfuly 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 government's
failure to discover the error and promptly
to assess has no connections with the
commission of the crime. 15

The contention is without merit. Contrary to the petitioner's

claim, the rule therein established had not been violated.
The respondent State Prosecutor, although believing that he
can proceed independently of the City Fiscal in the
investigation and prosecution of these cases, first sought
permission from the City Fiscal of Davao City before he
started the preliminary investigation of these cases, and the
City Fiscal, after being shown Administrative Order No. 116,
dated December 5, 1974, designating the said State
Prosecutor to assist all Provincial and City fiscals throughout
the Philippines in the investigation and prosecution of all
violations of the National Internal Revenue Code, as
amended, and other related laws, graciously allowed the
respondent State Prosecutor to conduct the investigation of
said cases, and in fact, said investigation was conducted in
the office of the City Fiscal. 13

Besides, it has been ruled that a petition for reconsideration

of an assessment may affect the suspension of the
prescriptive period for the collection of taxes, but not the
prescriptive period of a criminal action for violation of
law. 16 Obviously, the protest of the petitioner against the
assessment of the District Revenue Officer cannot stop his
prosecution for violation of the National Internal Revenue
Code. Accordingly, the respondent Judge did not abuse his
discretion in denying the motion to quash filed by the
petitioner.

WHEREFORE, the petition should be, as it is hereby

dismissed. The temporary restraining order heretofore issued
is hereby set aside. With costs against the petitioner.

The petitioner also claims that the filing of the informations

was precipitate and premature since the Commissioner of
Internal Revenue has not yet resolved his protests against
the assessment of the Revenue District Officer; and that he
was denied recourse to the Court of Tax Appeals.

SO ORDERED.

COMMISSIONER OF INTERNAL REVENUE, petitioners,

vs. THE HONORABLE COURT OF APPEALS

The contention is without merit. What is involved here is not

the collection of taxes where the assessment of the
Commissioner of Internal Revenue may be reviewed by the
Court of Tax Appeals, but a criminal prosecution for violations
of the National Internal Revenue Code which is within the
cognizance of courts of first instance. While there can be no
civil action to enforce collection before the assessment
procedures provided in the Code have been followed, there is
no requirement for the precise computation and assessment
of the tax before there can be a criminal prosecution under
the Code.

The pivotal issue in this petition for review is whether or

not respondent Court of Appeals in its decision 1 in CA-G.R. SP
No. 33599 correctly ruled that the Regional Trial Court of
Quezon City (Branch 88) in Civil Case No. Q-94-18790 did not
commit grave abuse of discretion amounting to lack of
jurisdiction in issuing four (4) orders directing the issuance of
writs of preliminary injunction restraining petitioner
prosecutors from continuing with the preliminary injunction
of I.S. Nos. 93-508 and 93-584 in the Department of Justice
and I.S. No. 93-17942 in the Office of the City Prosecutors of
Quezon City wherein private respondents were respondents
and denying petitioners Motion to Dismiss said Civil Case
No. 94-18790.2

The contention is made, and is here

rejected, that an assessment of the
deficiency tax due is necessary before the
taxpayer can be prosecuted criminally for

15

alleged fraudulent tax evasion for supposed non-payment by

Fortune of the correct amount of income tax, ad valorem tax
and value-added tax for the year 1992. The complaint
alleged, among others, that:

In resolving the issue raised in the petition, the Court

may be guided by its definition of what constitutes grave
abuse of discretion. By grave abuse of discretion is meant
such capricious and whimsical exercise of judgment as is
equivalent to lack of jurisdiction. The abuse of discretion
must be patent and gross as to amount to an evasion of
positive duty or a virtual refusal to perform a duty enjoined
by law, or to act at all in contemplation of law as where the
power is exercised in an arbitrary and despotic manner by
reason of passion and hostility.3

In the said income tax return, the taxpayer declared a

net taxable income of P183,613,408.00 and an income tax
due of P64,264,693.00. Based mainly on documentary
evidence submitted by the taxpayer itself, these declarations
are false and fraudulent because the correct taxable income
of the corporation for the said year is P 1,282,959,399.25.

On June 1, 1993, the President issued a Memorandum

creating a Task Force to investigate the tax liabilities of
manufacturers engaged in tax evasion scheme, such as
selling products through dummy marketing corporations to
avoid payment of correct internal revenue tax, to collect
from them any tax liabilities discovered from such
investigation, and to file the necessary criminal actions
against those who may have violated the tax code. The task
force was composed of the Commissioner of Internal
Revenue as Chairman, a representative of the Department of
Justice and a representative of the Executive Secretary.

This underdeclaration which resulted in the evasion of

the amount of P723,773,759.79 as deficiency income tax for
the year 1992 is a violation of Section 45 of the Tax Code,
penalized under Section 253 in relation to Sections 252(b)
and (d) and 253 thereof, thus: x x x.
xxx

xxx

xxx

Fortune Tobacco Corporation, through its Vice-President

for Finance, Roxas Chua, likewise filed value-added tax
returns for the 1st, 2nd, 3rd and 4th quarters of 1992 with
the Rev. District Office of Marikina, Metro Manila, declaring
therein gross taxable sales, as follows:

On July 1, 1993, the Commissioner of Internal Revenue

issued a Revenue Memorandum Circular No. 37-93
reclassifying best selling cigarettes bearing the brands
Hope, More, and Champion as cigarettes of foreign
brands subject to a higher rate of tax.

1st Qtr.

On August 3, 1993, respondent Fortune Tobacco

Corporation (Fortune) questioned the validity of the
reclassification of said brands of cigarettes as violative of its
right to due process and equal protection of law.
Parenthetically, on September 8, 1993, the Court of Tax
Appeals by resolution ruled that the reclassification made by
the Commissioner is of doubtful legality and enjoined its
enforcement.

P2,924,418,055.00

2nd Qtr.

2,980,335,235.00

3rd Qtr.

2,839,519,325.00

4th Qtr.

2,992,386,005.00

However, contrary to what have been reported in the

said value-added tax returns, and based on documentary
evidence obtained from the taxpayer, the total actual
taxable sales of the corporation for the year 1992 amounted
to P16,158,575,035.00 instead of P 11,929,322,334.52 as
declared by the corporation in the said VAT returns.

In a letter of August 13, 1993 which was received by

Fortune on August 24, 1993, the Commissioner assessed
against Fortune the total amount of P7,685,942,221.66
representing deficiency income, ad valorem and value-added
tax for the year 1992 with the request that the said amount
be paid within thirty (30) days upon receipt thereof.4 Fortune
on September 17, 1993 moved for reconsideration of the
assessments.

These fraudulent under declarations which resulted in

the evasion of value-added taxes in the aggregate amount of
P 1,169,688,645.63 for the entire year 1992 are violations of
Section 110 in relation to Section 100 of the Tax Code, which
are likewise penalized under the aforequoted Section 253, in
relation to Section 252, thereof. Sections 110 and 100
provide:

On September 7, 1993, the Commissioner of Internal

Revenue filed a complaint with the Department of Justice
against respondent Fortune, its corporate officers, nine (9)
other corporations and their respective corporate officers for

xxx

16

xxx

xxx

Furthermore, based on the corporations VAT returns,

the corporation reported its taxable sales for 1992 in the
amount of P11,736,658,580. This declaration is likewise
false and fraudulent because based on the daily
manufacturers sworn statements submitted to the BIR by
the taxpayer, its total taxable sales during the year 1992 is
P16,686,372,295.00. As a result thereof, the corporation was
able to evade the payment of ad valorem taxes in the
aggregate amount of P5,792,479,816.24 in violation of
Section 127 in relation to Section 142, as amended by R.A.
6956, penalized under the aforequoted Section 253, in
relation to Section 252, all of the Tax Code. Sections 127 and
142, as amended by R.A. 6956, are quoted as follows: x x x.

The complaint docketed as I.S. No. 93-508, was referred

to the Department of Justice Task Force on revenue cases
which found sufficient basis to further investigate the
allegations that Fortune, through fraudulent means, evaded
payment of income tax, ad valorem tax, and value-added tax
for the year 1992 thus, depriving the government of
revenues in the amount of Seven and One-half (P7.5) Billion
Pesos.

Petitioner Commissioner and the Court of Tax

Appeals have still to determine Fortunes tax
liability for 1992 in question; without any tax
liability, there can be no tax evasion.

3.

Exclusive jurisdiction to determine tax liability

is vested in the Court of Tax Appeals; therefore,
the DOJ is without jurisdiction to conduct
preliminary investigation.

4.

The complaint of petitioner Commissioner is not

supported by any evidence to serve as
adequate basis for the issuance of subpoena to
private respondents and to put them to their
defense.

At the scheduled preliminary investigation on October

15 1993, private respondents were asked by the panel of
prosecutors to inform it of the aspects of the Verified Motion
to Dismiss which counsel for private respondents did so
briefly. Counsel for the Commissioner of Internal Revenue
asked for fifteen (15) days within which to file a reply in
writing to private respondents Verified Motion to Dismiss.
Thereupon, the panel of prosecutors declared a recess. Upon
reconvening, the panel of prosecutors denied the motion to
dismiss and treated the same as private respondents
counter-affidavits.8

The fraudulent scheme allegedly adopted by private

respondents consisted of making fictitious and simulated
sales of Fortunes cigarette products to non-existing
individuals and to entities incorporated and existing only for
the purpose of such fictitious sales by declaring registered
wholesale prices with the BIR lower than Fortunes actual
wholesale prices which are required for determination of
Fortunes correct income, ad valorem, and value-added tax
liabilities. The ghosts wholesale buyers then ostensibly
sold
the
products
to
customers
and
other
wholesalers/retailers at higher wholesale prices determined
by Fortune. The tax returns and manufacturers sworn
statements filed by Fortune would then declare the fictitious
sales it made to the conduit corporators and non-existing
individual buyers as its gross sales.5

On October 20, 1993, private respondents filed a

motion for reconsideration of the order of October 15,
1993.9 On October 21, 1993, private respondents filed a
motion to require the submission by the Bureau of Internal
Revenue of certain documents in further support of their
Verified Motion to Dismiss. Among the documents sought to
be produced are the Daily Manufacturers Sworn
Statements which according to petitioner Commissioner in
her complaint were submitted by Fortune to the BIR and
which were the basis of her conclusion that Fortunes tax
declarations were false and fraudulent. Fortune claimed that
without the Daily Manufacturers Sworn Statements, there
is no evidence to support the complaint, hence, warranting
its outright dismissal.

On September 8, 1993, the Department of Justice Task

Force issued a subpoena directing private respondents to
submit their counter-affidavits not later than September 20,
1993.6

Instead of filing their counter-affidavits, the private

respondents on October 15, 1993 filed a Verified Motion to
Dismiss; Alternatively Motion to Suspend, 7 based principally
on the following grounds:

1.

2.

On October 26, 1993, private respondents moved for

the inhibition of the State Prosecutors assigned to the case
for alleged lack of impartiality.10 Private respondents also
sought the production of the Daily Manufacturers Sworn
Statements submitted by certain cigarette companies
similarly situated as Fortune but were not proceeded against,
thus, private respondents charged that Fortune and its
officers were being singled out for criminal prosecution which

The complaint of petitioner Commissioner

follows a pattern of prosecution against private
respondents in violation of their right to due
process and equal protection of the law.

17

is discriminatory and in violation of the equal protection

clause of the Constitution.

duly approved by the BIR. Fortunes taxable

sales for 1992 was in the amount of
P11,736,658,580.00.

On December 20, 1993, the panel of prosecutors issued

an Omnibus Order11 denying private respondents motion for
reconsideration, motion for suspension of investigation,
motion to inhibit the State Prosecutors, and motion to require
submission by the BIR of certain documents to further
support private respondents motion to dismiss.

On January 4, 1994, private respondents filed a petition

for certiorari and prohibition with prayer for preliminary
injunction with the Regional Trial Court, Branch 88, Quezon
City, docketed as Q-94-18790, praying that the complaint of
the Commissioner of Internal Revenue and the orders of the
prosecutors in I.S. No. 93-508 be dismissed or set aside,
alternatively,
the
proceedings
on
the
preliminary
investigation be suspended pending final determination by
the
Commissioner
of
Fortunes
motion
for
reconsideration/reinvestigation of the August 13, 1993
assessment of the taxes due.12

On January 17, 1994, petitioners filed a motion to

dismiss the petition13 on the grounds that (a) the trial court is
bereft of jurisdiction to enjoin a criminal prosecution under
preliminary investigation; (b) a criminal prosecution for tax
fraud
can
proceed
independently
of
criminal
or
administrative action; (c) there is no prejudicial question to
justify suspension of the preliminary investigation; (d) private
respondents rights to due process was not violated; and (e)
selective prosecution is not a valid defense in this
jurisdiction.

On January 19, 1994, at the hearing of the incident for

the issuance of a writ of preliminary injunction in the
petition, private respondents offered in evidence their
verified petition for certiorari and prohibition and its annexes.
Petitioners responded by praying that their motion to dismiss
the petition for certiorari and prohibition be considered as
their opposition to private respondents application for the
issuance of a writ of preliminary injunction.

On January 25, 1994, the trial court issued an order

granting the prayer for the issuance of a preliminary
injunction.14 The trial court rationalized its order in this wise:

a)

It is private respondents claim that

valorem tax for the year 1992 was
assessed and collected by the BIR under
142(c) of the Tax Code on the basis
manufacturers registered wholesale

the ad
levied,
Section
of the
price

18

b)

On the other hand, it is petitioners contention

that Fortunes declaration was false and
fraudulent because, based on its daily
manufacturers sworn statements submitted to
the BIR, its taxable sales in 1992 were P
16,686,372,295.00, as a result of which, Fortune
was able to evade the payment of ad valorem
tax
in
the
aggregate
amount
of
P5,792,479,816.24.

c)

At the hearing for preliminary investigation, the

Daily Manufacturers Sworn Statements which,
according to petitioners, were submitted to the
BIR by private respondents and made the basis
of petitioner Commissioners complaint that the
total taxable sales of Fortune in 1992 amounted
to P16,686,372, 295.00 were not produced as
part of the evidence for petitioners. In fact,
private respondents had filed a motion to
require petitioner Commissioner to submit the
aforesaid
daily
manufacturers
sworn
statements before the DOJ panel of prosecutors
to show that Fortunes actual taxable sales
totaled P16,686,373,295.00, but the motion was
denied.

d)

There is nothing on record in the preliminary

investigation before the panel of investigators
which supports the allegation that Fortune made
a fraudulent declaration of its 1992 taxable
sales.

e)

Since, as alleged by private respondents, the ad

valorem tax for the year 1992 should be based
on the manufacturers registered wholesale
price while, as claimed by petitioners, the ad
valorem taxes should be based on the wholesale
price at which the manufacturer sold the
cigarettes, which is a legal issue as admitted by
a BIR lawyer during the hearing for preliminary
injunction, the correct interpretation of the law
involved, which is Section 142(c) of the Tax
Code, constitutes a prejudicial question which
must first be resolved before criminal
proceedings for tax evasion may be pursued. In
other words, the BIR must first make a final
determination, which it has not, of Fortunes tax
liability relative to its 1992 ad valorem, valueadded and income taxes before the taxpayer
can be made liable for tax evasion.

f)

g)

h)

i)

There was a precipitate issuance by the panel of

prosecutors
of
subpoenas
to
private
respondents, on the very day following the filing
of the complaint with the DOJ consisting of
about 600 pages, and the precipitate denial by
the panel of prosecutors, after a recess of about
twenty (20) minutes, of private respondents
motion to dismiss, consisting of one hundred
and thirty-five (135) pages.

On January 28, 1994, private respondents filed with the

trial court a second supplemental petition, 15 also seeking to
stay the preliminary investigation in I.S. 93-584, which was
the third complaint filed against private respondents with the
DOJ for alleged fraudulent tax evasion for the taxable year
1991.

On January 31, 1994, the lower court admitted the two

(2) supplemental petitions and issued a temporary
restraining order in I.S. 93-17942 and I.S. 93-584. 16 Also, on
the same day, petitioners filed an Urgent Motion for
Immediate Resolution of petitioners motion to dismiss.

Private respondents had been especially

targeted by the government for prosecution.
Prior to the filing of the complaint in I.S. No. 93508, petitioner Commissioner issued Revenue
Memorandum Circular No. 37-93 reclassifying
Fortunes best selling cigarettes, namely
Hope, More, and Champion as cigarettes
bearing a foreign brand, thereby imposing upon
them a higher rate of tax that would price them
out of the market.

On February 7, 1994, the trial court issued an order

denying petitioners motion to dismiss private respondents
petition seeking to stay preliminary investigation in I.S. 93508, ruling that the issue of whether Sec. 127(b) of the
National Tax Revenue Code should be the basis of private
respondents tax liability as contended by the Bureau of
Internal Revenue, or whether it is Section 142(c) of the same
Code that applies, as argued by herein private respondents,
should first be settled before any complaint for fraudulent
tax evasion can be initiated.17

While in petitioner Commissioners letter of

August 13, 1993, she gave Fortune a period of
thirty (30) days from receipt thereof within
which to pay the alleged tax deficiency
assessments, she filed the criminal complaint
for tax evasion before the period lapsed.

On February 14, 1994, the trial court issued an order

granting private respondents petition for a supplemental
writ of preliminary injunction, likewise enjoining the
preliminary investigation of the two (2) other complaints filed
with the Quezon City Prosecutors Office and the DOJ for
fraudulent tax evasion, I.S. 93-17942 and I.S. 93- 584, for
alleged tax evasion for the taxable years 1990 and 1991,
respectively.18 In granting the supplemental writ, the trial
court stated that the two other complaints are the same as in
I.S. 93-508, except that the former refer to the taxable years
1990 and 1991.

Based on the foregoing, the criminal complaint

against
private
respondents
was
filed
prematurely
and
in
violation
of
their
constitutional right to equal protection of the
laws.

On January 26, 1994, private respondents filed with the

trial court a Motion to Admit Supplemental Petition and
sought the issuance of a writ of preliminary injunction to
enjoin the State Prosecutors from continuing with the
preliminary investigation filed by them against private
respondents with the Quezon City Prosecutors Office,
docketed as I.S. 93-17942, for alleged fraudulent tax
evasion, committed by private respondents for the taxable
year 1990. Private respondents averred in their motion that
no supporting documents or copies of the complaint were
attached to the subpoena in I.S. 93-17942; that the
subpoena violates private respondents constitutional right to
due process, equal protection and presumption of innocence;
that IS. 93-17942 is substantially the same as I. S. 93-508;
that no tax assessment has been issued by the Commission
of Internal Revenue and considering that taxes paid have not
been challenged, no tax liability exists; and that since
Assistant City Prosecutor Baraquia was a former classmate of
Presidential Legal Counsel Antonio T. Carpio, the former
cannot conduct the preliminary investigation in an impartial
manner.

On March 7, 1994, petitioners filed a petition for

certiorari and prohibition with prayer forpreliminary
injunction before this Court. However, the petition was
referred to the Court of Appeals for disposition by virtue of its
original concurrent jurisdiction over the petition.

On December 19, 1994, the Court of Appeals in CA-G.R.

No. SP-33599 rendered a decision denying the petition. The
Court of Appeals ruled that the trial court committed no
grave abuse of discretion in ordering the issuance of writs of
preliminary injunction and in denying petitioners motion to
dismiss. In upholding the reasons and conclusions given by
the trial court in its orders for the issuance of the questioned
writs, the Court of Appeals said in part:

19

vs. Sulit, 162 SCRA 659, 664; FCC vs. IAC, 166 SCRA 155;
Purefoods Corp. vs. NLRC, 171 SCRA 45). Certiorari and
prohibition are remedies narrow in scope and inflexible in
character. They are not general utility tools in the legal
workshop (Vda. de Guia vs. Veloso, 158 SCRA 340, 344).
Their function is but limited to correction of defects of
jurisdiction solely, not to be used for any other purpose
(Garcia vs. Ranada, 166 SCRA 9), such as to cure errors in
proceedings or to correct erroneous conclusions of law or
fact (Gold City Integrated Ports Services vs. IAC, 171 SCRA
579). Due regard for the foregoing teachings enunciated in
the decisions cited can not bring about a decision other than
what has been reached herein.

In making such conclusion the respondent Court must

have understood from herein petitioner Commissioners
letter-complaint of 14 pages (pp. 477-490, rollo of this case)
and the joint affidavit of eight revenue officers of 17 pages
attached thereto (pp. 491-507, supra) and its annexes (pp.
508-1077, supra) , that
the
charge
against
herein
respondents is for tax evasion for non-payment by herein
respondent Fortune of the correct amounts of income tax, ad
valorem tax and value added tax, not necessarily fraudulent
tax evasion. Hence, the need for previous assessment of the
correct amount by herein petitioner Commissioner before
herein respondents may be charged criminally. Certiorari will
not be issued to cure errors in proceedings or correct
erroneous conclusions of law or fact. As long as a Court acts
within its jurisdiction, any alleged error committed in the
exercise of its jurisdiction, will amount to nothing more than
errors of judgment which are reviewable by timely appeal
and not by a special civil action of certiorari (Santos,
Jr. vs. Court of Appeals, 152 SCRA 378; Gold City Integrated
Port Services, Inc. vs. Intermediate Appellate Court, 171
SCRA 579).

Needless to say, the case before the respondent court

involving those against herein respondents for alleged nonpayment of the correct amounts due as income tax, ad
valorem tax and value added tax for the years 1990, 1991
and 1992 (Civil Case No. Q-94-18790) is not ended by this
decision. The respondent Court is still to try the case and
decide it on the merits. All that is decided here is but the
validity of the orders of the respondent Court granting herein
respondents application for preliminary njunction and
denying herein petitioners motion to dismiss. If upon the
facts established after trial and the applicable law,
dissolution of the writ of preliminary injunction allowed to be
issued by the respondent Court is called for and a judgment
favorable to herein petitioners is demanded, the respondent
Court is duty bound to render judgment accordingly.

The questioned orders issued after hearing (Annexes A,

B, C and D, petition) being but interlocutory, review thereof
by this Court is inappropriate until final judgment is
rendered, absent a showing of grave abuse of discretion on
the part of the issuing court (See Van Dom vs. Romillo, 139
SCRA 139, 141; Newsweek, Inc. vs. IAC, 171, 177; Mendoza
vs. Court of Appeals, 201 SCRA 343, 352). The factual and
legal issues involved in the main case still before the
respondent Court are best resolved after trial. Petitioners,
therefore, instead of resorting to this petition for certiorari
and prohibition should have filed an answer to the petition as
ordained in Section 4, Rule 16, in connection with Rule 11 of
the Revised Rules of Court, interposing as defense or
defenses the objection or objections raised in their motion to
dismiss, then proceed to trial in order that thereafter the
case may be decided on the merits by the respondent Court.
In case of an adverse decision, they may appeal therefrom
by which the entire record of the case would be elevated for
review (See Mendoza vs. Court of Appeals, supra).Therefore,
certiorari and prohibition resorted to by herein petitioners
will not lie in view of the remedy open to them. Thus, the
resulting delay in the final disposition of the case before the
respondent Court would not have been incurred.

WHEREFORE, the instant petition for certiorari and

prohibition with application for issuance of restraining order
and writ of preliminary injunction is DISMISSED. Costs de
officio.19

Their motion for reconsideration having been denied by

respondent appellate court on February 23, 1995, petitioners
filed the present petition for review based on the following
grounds:

THE RESPONDENT COURTS COMMITTED GRAVE ABUSE OF

DISCRETION
AMOUNTING
TO
LACK
OR
EXCESS
OFJURISDICTION IN HOLDING THAT:
Grave abuse of discretion as a ground for issuance of
writs of certiorari and prohibition implies capricious and
whimsical exercise of judgment as is equivalent to lack of
jurisdiction, or where the power is exercised in an arbitrary or
despotic manner by reason of passion, prejudice, or personal
hostility, amounting to an evasion of positive duty or to a
virtual refusal to perform the duty enjoined, or to act at all in
contemplation of law (Confederation of Citizens Labor Union
vs. NLRC, 60 SCRA 84; Bustamante vs. Commission on Audit,
216 SCRA 134). For such writs to lie, there must be
capricious, arbitrary and whimsical exercise of power, the
very antithesis of the judicial prerogative in accordance with
centuries of both civil law and common law traditions (Young

I. THERE IS A PREJUDICIAL AND/OR LEGAL

QUESTION TO JUSTIFY THE SUSPENSION OF
THE PRELIMINARY INVESTIGATION.
II. PRIVATE RESPONDENTS RIGHTS TO DUE
PROCESS,
EQUAL
PROTECTION
AND
PRESUMPTION
OF
INNOCENCE
WERE
VIOLATED; ON THE CONTRARY, THE STATE
ITSELF WAS DEPRIVED OF DUE PROCESS.

20

III. THE ADMISSION OF PRIVATE RESPONDENTS

SUPPLEMENTAL PETITIONS WERE PROPER.

xxx

xxx

xxx

Private respondents contend that per Fortunes VAT

returns, correct taxable sales for 1992 was in the amount of
P11,736,658,580.00
which
was
the
manufacturers
registered wholesale price in accordance with Section
142(c) of the Tax Code and paid the amount of
P4,805,254,523 as ad valorem tax.

IV. THERE WAS SELECTIVE PROSECUTION.

V. THE FACTUAL ALLEGATIONS IN THE PETITION
ARE HYPOTHETICALLY ADMITTED IN A MOTION
TO DISMISS BASED ON JURISDICTIONAL
GROUNDS.
VI. THE ISSUANCE OF THE WRITS OF INJUNCTION
IS NOT A DECISION ON THE MERITS OF THE
PETITION BEFORE THE LOWER COURT.20

On the other hand, petitioners allege, as specifically

worded in the complaint in I.S. No. 93 -508, that based on
the daily manufacturers sworn statements submitted to the
BIR by the Taxpayer (Fortunes) total taxable sales during the
year 1992 is P16,686,372,295.00, as a result of which
Fortune was able to evade the payment of ad valorem taxes
in the aggregate amount of P5,792,479,816.24 xxx.

The petition is bereft of merit.

In essence, the complaints in I.S. Nos. 93-508, 93-584

and 93-17942 charged private respondents with fraudulent
tax evasion or wilfully attempting to evade or defeat
payment of income tax, ad valorem tax and value-added tax
for the year 1992, as well as for the years 1990-1991.

Petitioners now argue that Section 127(b) lays down the

rule that in determining the gross selling price of goods
subject to ad valorem tax, it is the price, excluding the valueadded tax, at which the goods are sold at wholesale price in
the place of production or through their sales agents to the
public. The registered wholesale price shall then be used for
computing the ad valorem tax which is imposable upon
removal of the taxable goods from the place of production.
However, petitioners claim that Fortune used the
manufacturers registered wholesale price in selling the
goods to alleged fictitious individuals and dummy
corporations for the purpose of evading the payment of the
correct ad valorem tax.

The pertinent provisions of law involved are Sections

127(b) and 142(c) of the National Internal Revenue Code
which state:

Sec. 127.xxx
There can be no question that under Section 127(b),
the ad valorem tax should be based on the correct price
excluding the value-added tax, at which goods are sold at
wholesale in the place of production. It is significant to note
that among the goods subject to ad valorem tax, the
law specifically Section 142(c) requires that the
corresponding tax on cigarettes shall be levied, assessed and
collected at the rates based on the manufacturers
registered wholesale price. Why does the wholesale price
need to be registered and what is the purpose of the
registration? The reason is self-evident, which is to ensure
the payment of the correct taxes by the manufacturers of
cigarettes through close supervision, monitoring and
checking of the business operations of the cigarette
companies. As pointed out by private respondents, no
industry is as intensely supervised by the BIR and also by the
National Tobacco Administration (NTA). Thus, the purchase
and use of raw materials are subject to prior authorization
and approval by the NTA. Importations of bobbins or
cigarette paper, the manufacture, sale, and utilization of the
same, are subject to BIR supervision and approval 21

(b) Determination of gross selling price of goods

subject to ad valorem tax. -Unless otherwise provided,
the price, excluding the value-added tax, at which the goods
are sold at wholesale in the place of production or through
their sales agents to the public shall constitute the gross
selling price. If the manufacturer also sells or allows such
goods to be sold at wholesale price in another establishment
of which he is the owner or in the profits at which he has an
interest, the wholesale price in such establishment shall
constitute the gross selling price. Should such price be less
than the costs of manufacture plus expenses incurred until
the goods are finally sold, then a proportionate margin of
profit, not less than 10% of such manufacturing costs and
expenses, shall be added to constitute the gross selling
price.

Sec. 142.xxx
(c) Cigarettes packed in twenties. There shall be
levied, assessed and collected on cigarettes packed in
twenties an ad valorem tax at the rates prescribed below
based on the manufacturers registered wholesale price:

Moreover, as pointed to by private respondents, for

purposes of closer supervision by the BIR over the production
of cigarettes, Revenue Enforcement Officers are detailed on

21

a 24-hour basis in the premises of the manufacturer to

secure production and removal of finished products.
Composite Mobile Teams conduct counter-security on the
business operations as well as the performance of the
Revenue Enforcement Officers detailed thereat. Every
transfer of any raw material is not allowed unless, in addition
to the required permits, accompanied by Revenue
Enforcement Officer. For the purpose of determining the
Manufacturers Registered Wholesale Price a cigarette
manufacturer is required to file a Manufacturers Declaration
(BIR Form No. 31.03) for each brand of cigarette
manufactured, stating: a.) Materials; b) Labor; c) Overhead;
d) Tax Burden and the Wholesale Price by Case. The data
submitted therewith is verified by the Revenue Officers and
approved by the Commission of Internal Revenue. Any
change in the manufacturers registered wholesale price of
any brand cannot be effected without submitting the
corresponding Sworn Manufacturers Declaration and verified
by the Revenue Officer and approved by the Commissioner
on Internal Revenue.22 The amount of ad valorem tax
payments together with the Payment Order and Confirmation
Receipt Nos. must be indicated in the sales and delivery
invoices and together with the Manufacturers Sworn
Declarations on (a) the quantity of raw materials used during
the days operations; (b) the total quantity produced
according to brand; and (c) the corresponding quantity
removed during the day, the corresponding wholesale price
thereof, and the VAT paid thereon must be presented to the
corresponding BIR representative for authentication before
removal.

Fraud cannot be presumed. If there was fraud or wilful

attempt to evade payment of ad valorem taxes by private
respondents through the manipulation of the registered
wholesale price of the cigarettes, it must have been with the
connivance or cooperation of certain BIR officials and
employees who supervised and monitored Fortunes
production activities to see to it that the correct taxes were
paid. But there is no allegation, much less evidence, of BIR
personnels malfeasance. In the very least, there is the
presumption that the BIR personnel performed their duties in
the regular course in ensuring that the correct taxes were
paid by Fortune.26

It is the opinion of both the trial court and respondent

Court of Appeals, that before Fortune and the other private
respondents could be prosecuted for tax evasion under
Sections 253 and 255 of the Tax Code, the fact that the
deficiency income, ad valorem and value-added taxes were
due from Fortune for the year 1992 should first be
established. Fortune received from the Commissioner of
Internal Revenue the deficiency assessment notices in the
total amount of P7,685,942,221.06 on August 24, 1993.
However, under Section 229 of the Tax Code, the taxpayer
has the right to move for reconsideration of the assessment
issued by the Commissioner of Internal Revenue within thirty
(30) days from receipt of the assessment; and if the motion
for reconsideration is denied, it may appeal to the Court of
Appeals within thirty (30) days from receipt of the
Commissioners decision. Here, Fortune received the
Commissioners assessment notice dated August 13, 1993
on August 24, 1993 asking for the payment of the deficiency
taxes. Within thirty (30) days from receipt thereof, Fortune
moved for reconsideration. The Commissioner has not
resolved the request for reconsideration up to the present.

Thus, as observed by the trial court in its order of

January 25, 1994 granting private respondents prayer for
the issuance of a writ of preliminary injunction, Fortunes
registered wholesale price (was) duly approved by the BIR,
which fact is not disputed by petitioners.23

Now, if every step in the production of cigarettes was

closely monitored and supervised by the BIR personnel
specifically assigned to Fortunes premises, and considering
that the Manufacturers Sworn Declarations on the data
required to be submitted by the manufacturer were
scrutinized and verified by the BIR and, further, since the
manufacturers wholesale price was duly approved by the
BIR, then it is presumed that such registered wholesale price
is the same as, or approximates the price, excluding the
value-added tax, at which the goods are sold at wholesale in
the place production, otherwise, the BIR would not have
approved the registered wholesale price of the goods for
purposes of imposing the ad valorem tax due. In such case,
and in the absence of contrary evidence, it was precipitate
and premature to conclude that private respondents made
fraudulent returns or wilfully attempted to evade payment of
taxes due. Wilful means premeditated; malicious; done
with intent, or with bad motive or purpose, or with
indifference to the natural consequence x x x 24 Fraud in its
general sense, is deemed to comprise anything calculated
to deceive, including all acts, omissions, and concealment
involving a breach of legal or equitable duty, trust or
confidence justly reposed, resulting in the damage to
another, or by which an undue and unconscionable
advantage taken of another.25

We share with the view of both the trial court and Court
of Appeals that before the tax liabilities of Fortune are first
finally determined, it cannot be correctly asserted that
private respondents have wilfully attempted to evade or
defeat the taxes sought to be collected from Fortune. In plain
words, before one is prosecuted for wilful attempt to evade
or defeat any tax under Sections 253 and 255 of the Tax
Code, the fact that a tax is due must first be proved.
Suppose the Commissioner eventually resolves
Fortunes motion for reconsideration of the assessments by
pronouncing that the taxpayer is not liable for any deficiency
assessment, then, the criminal complaints filed against
private respondents will have no leg to stand on.

In view of the foregoing reasons, we cannot subscribe

to the petitioners thesis citing, Ungad v. Cusi,27 that the lack
of a final determination of Fortunes exact or correct tax
liability is not a bar to criminal prosecution, and that while a
precise computation and assessment is required for a civil
action to collect tax deficiencies, the Tax Code does not

22

require such computation and assessment prior to criminal

prosecution.

Reading Ungad carefully, the pronouncement therein

that deficiency assessment is not necessary prior to
prosecution is pointedly and deliberately qualified by the
Court with following statement quoted from Guzik v.
U.S.:28 The crime is complete when the violator has
knowingly and wilfully filed a fraudulent return with intent to
evade and defeat a part or all of the tax. In plain words, for
criminal prosecution to proceed before assessment, there
must be a prima.facie showing of a wilful attempt to evade
taxes. There was a wilful attempt to evade tax in Ungad
because of the taxpayers failure to declare in his income tax
return his income derived from banana saplings. In the
mind of the trial court and the Court of Appeals, Fortunes
situation is quite apart factually since the registered
wholesale price of the goods, approved by the BIR, is
presumed to be the actual wholesale price, therefore, not
fraudulent and unless and until the BIR has made a final
determination of what is supposed to be the correct taxes,
the taxpayer should not be placed in the crucible of criminal
prosecution. Herein lies a whale of difference between Ungad
and the case at bar.

a.

To afford adequate protection to the constitutional

rights of the accused (Hernandez vs. Albano, et al.,
L-19272, January 25, 1967, 19 SCRA 95);

b.

When necessary for the orderly administration of

justice or to avoid oppression or multiplicity of
actions (Dimayuga, et al. vs. Fernandez, 43 Phil.
304;
Hernandez vs. Albano, supra; Fortun vs. Labang, et
al., L-38383, May 27, 1981, 104 SCRA 607);

c.

When there is a prejudicial question which is sub

judice (De Leon vs. Mabanag, 70 Phil. 202);

d.

When the acts of the officer are without or in excess

of authority (Planas vs. Gil, 67 Phil. 62);

e.

Where the prosecution is under an invalid law,

ordinance or regulation (Young vs. Rafferty, 33 Phil.
556; Yu Cong Eng vs. Trinidad, 47 Phil. 385, 389);

f.

When double jeopardy is clearly apparent

(Sangalang vs. People and Alvendia, 109 Phil.
1140);

g.

Where the court had no jurisdiction over the offense

(Lopez vs. City Judge, L-25795, October 29, 1966,
18 SCRA 616);

h.

Where it is a case of persecution rather than

prosecution (Rustia vs. Ocampo, CA-G.R. No. 4760,
March 25, 1960);

i.

Where the charges are manifestly false and

motivated
by
the
lust
for
vengeance
(Recto vs. Castelo, 18 L.J., cited in Rano vs. Alvenia,
CA-G.R. No. 30720-R, October 8, 1962; Cf.
Guingona, et al. vs.City Fiscal, L-60033, April 4,
1984, 128 SCRA 577); and

j.

When there is clearly no prima facie case against

the accused and a motion to quash on that ground

This brings us to the erroneous disquisition that private

respondents recourse to the trial court by way of special civil
action of certiorari and prohibition was improper because:

a)

the proceedings before the state prosecutors

(preliminary
injunction)
were
far
from
terminated private respondents were merely
subpoenaed and asked to submit counter affidavits,
matters that they should have appealed to the
Secretary of Justice; b) it is only after the
submission of private respondents counter
affidavits that the prosecutors will determine
whether or not there is enough evidence to file in
court criminal charges for fraudulent tax evasion
against private respondents; and c) the proper
procedure is to allow the prosecutors to conduct and
finish the preliminary investigation and to render a
resolution, after which the aggrieved party can
appeal the resolution to the Secretary of Justice.

We disagree.

As a general rule, criminal prosecutions cannot be

enjoined: However, there are recognized exceptions which,
as summarized in Brocka v. Enrile29 are:

23

has been denied (Salonga vs. Pano, et al., L-59524,

February 18, 1985, 134 SCRA 438).

voluntarily
affidavits.

executed

and

understood

their

In issuing the questioned orders granting the issuance

of a writ of preliminary injunction, the trial court believed
that said orders were warranted to afford private
respondents adequate protection of their constitutional
rights, particularly in reference to presumption of innocence,
due process and equal protection of the laws. The trial court
also found merit in private respondents contention that
preliminary injunction should be issued to avoid oppression
and because the acts of the state prosecutors were without
or in excess of authority and for the reason that there was a
prejudicial question.

(b)

Within ten (10) days after the filing of the

complaint, the investigating officer shall either
dismiss the same if he finds no ground to
continue with the inquiry, or issue a subpoena
to the respondent, attaching thereto a copy of
the complaint, affidavits and other supporting
documents. Within ten (10) days from receipt
thereof, the respondent shall submit counteraffidavits and other supporting documents. He
shall have the right to examine all other
evidence submitted by the complainant.

Contrary to petitioners submission, preliminary

investigation
may
be
enjoined
where
exceptional
circumstances
so
warrant.
In Hernandez
v.
Albano30 and Fortun v. Labang,31 injunction was issued to
enjoin a preliminary investigation. In the case at bar, private
respondents filed a motion to dismiss the complaint against
them before the prosecution and alternatively, to suspend
the preliminary investigation on the grounds cited
hereinbefore, one of which is that the complaint of the
Commissioner is not supported by any evidence to serve as
adequate basis for the issuance of the subpoena to them and
put them to their defense.

(c)

Such counter-affidavits and other supporting

evidence submitted by the respondent shall
also be sworn to and certified as prescribed in
paragraph (a) hereof and copies thereof shall
be furnished by him to the complainant.

(d)

If the respondent cannot be subpoenaed, or if

subpoenaed, does not submit counter-affidavits
within the ten (10) day period, the investigating
officer shall base his resolution on the evidence
presented by the complainant.

(e)

If the investigating officer believes that there

are matters to be clarified, he may set a
hearing to propound clarificatory questions to
the parties or their witnesses, during which the
parties shall be afforded an opportunity to be
present but without the right to examine or
cross-examine. If the parties so desire, they
may submit questions to the investigating
officer which the latter may propound to the
parties or witnesses concerned.

(f)

Thereafter, the investigation shall be deemed

concluded, and the investigating officer shall
resolve the case within ten (10) days therefrom.
Upon the evidence thus adduced, the
investigating officer shall determine whether or
not there is sufficient ground to hold the
respondent for trial.

Indeed, the purpose of a preliminary injunction is to

secure the innocent against hasty, malicious and oppressive
prosecution and to protect him from an open and public
accusation of crime, from the trouble, expense and anxiety
of a public trial and also to protect the state from useless
and expensive trials.32 Thus, the pertinent provisions of Rule
112 of the Rules of Court state:

SECTION. 3. Procedure. Except as provided for in

Section 7 hereof, no complaint or information for an offense
cognizable by the Regional Trial Court shall be filed without a
preliminary investigation having been first conducted in the
following manner:

(a)

The complaint shall state the known address of

the respondent and be accompanied by
affidavits of the complainant and his witnesses
as well as other supporting documents, in such
number of copies as there are respondents, plus
two (2) copies for the official file. The said
affidavits shall be sworn to before any fiscal,
state prosecutor or government official
authorized to administer oath, or, in their
absence or unavailability, a notary public, who
must certify that he personally examined the
affiants and that he is satisfied that they

As found by the Court of Appeals, there was obvious

haste by which the subpoena was issued to private
respondents, just the day after the complaint was filed,
hence, without the investigating prosecutors being afforded
material time to examine and study the voluminous

24

documents appended to the complaint for them to determine

if preliminary investigation should be conducted. The Court
of Appeals further added that the precipitate haste in the
issuance of the subpoena justified private respondents
misgivings regarding the objectivity and neutrality of the
prosecutors in the conduct of the preliminary investigation
and so, the appellate court concluded, the grant of
preliminary investigation by the trial court to afford adequate
protection to private respondents constitutional rights and
to avoid oppression does not constitute grave abuse of
discretion amounting to lack of jurisdiction.

have not. For certiorari will not be issued to cure errors in

proceedings or correct erroneous conclusions of law or fact.
As long as a court acts within its jurisdiction, any alleged
errors committed in the exercise of its jurisdiction will
amount to nothing more than errors of judgment which are
reviewable by timely appeal and not by a special civil action
of certiorari.34 Consequently, the Regional Trial Court acted
correctly and judiciously, and as demanded by the facts and
the law, in issuing the orders granting the writs of
preliminary injunction, in denying petitioners motion to
dismiss and in admitting the supplemental petitions. What
petitioners should have done was to file an answer to the
petition filed in the trial court, proceed to the hearing and
appeal the decision of the court if adverse to them.

The complaint filed by the Commissioner on Internal

Revenue states itself that the primary evidence establishing
the falsity of the declared taxable sales in 1992 in the
amount of P 11,736,658,580.00 were the Daily
Manufacturers Sworn Statements submitted by the
taxpayer which would show that the total taxable sales in
1992 are in the amount of P 16,686,372,295.00. However,
the Commissioner did not present the Daily Manufacturers
Sworn Statements supposedly submitted to the BIR by the
taxpayer, prompting private respondents to move for their
production in order to verify the basis of petitioners
computation. Still, the Commissioner failed to produce the
declarations. In Borja v. Moreno,33 it was held that the act of
the investigator in proceeding with the hearing without first
acting on respondents motion to dismiss is a manifest
disregard of the requirement of due process. Implicit in the
opinion of the trial court and the Court of Appeals is that, if
upon the examination of the complaint, it was clear that
there was no ground to continue with the inquiry, the
investigating prosecutor was duty bound to dismiss the case.
On this point, the trial court stressed that the prosecutors
conducting the preliminary investigation should have allowed
the production of the Daily Manufacturers Sworn
Statements submitted by Fortune without which there was
no valid basis for the allegation that private respondents
wilfully attempted to evade payment of the correct taxes.
The prosecutors should also have produced the Daily
Manufacturers Sworn Statements by other cigarette
companies, as sought by private respondents, to show that
these companies which had paid the ad valorem taxes on the
same basis and in the same manner as Fortune were not
similarly
criminally
charged.
But
the
investigating
prosecutors denied private respondents motion, thus,
indicating that only Fortune was singled out for prosecution.
The trial court and the Court of Appeals maintained that at
that stage of the preliminary investigation, where the
complaint and the accompanying affidavits and supporting
documents did not show any violation of the Tax Code
providing penal sanctions, the prosecutors should have
dismissed the complaint outright because of total lack of
evidence, instead of requiring private respondents to submit
their counter affidavits under Section 3(b) of Rule 112.

WHEREFORE, the
DISMISSED.

instant

petition

is

hereby

SO ORDERED.

LUCAS G. ADAMSON, Petitioners, - versus - COURT

OF APPEALS, Respondents.
x-- - - - - - - - - - - - - - - - - - - - - - - - x
COMMISSIONER OF INTERNAL REVENUE,
Petitioner, -versus COURT OF APPEALS
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 onMarch 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.

We believe that the trial court in issuing its questioned

orders, which are interlocutory in nature, committed no
grave abuse of discretion amounting to lack of jurisdiction.
There are factual and legal bases for the assailed orders. On
the other hand, the burden is upon the petitioners to
demonstrate that the questioned orders constitute a
whimsical and capricious exercise of judgment, which they

Inc.

25

On October 12, 1990, AMC sold to APAC Philippines,

another
229,870
common
shares
of
stock

in AAI for P17,718,360.00. AMC paid the capital gains tax

ofP352,242.96.

respondents, in order to commence criminal action

against the latter for tax evasion.[10]

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.

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.

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.

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 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

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

26

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.

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.

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. 1285. 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.

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 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.

The Commissioner denied the urgent request for

reconsideration/reinvestigation because she had not yet
issued a formal assessment.

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.

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

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

27

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
[21]
Section 255 of the NIRC,
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 preassessment
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.

28

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:

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.

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.

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.

This hoary principle still underlies Section 269 and related

provisions of the present Tax Code.

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]

SEC. 7. Jurisdiction. The Court of Tax

Appeals shall exercise exclusive appellate
jurisdiction to review by appeal, as herein
provided -

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:

(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;

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

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 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.

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:

29

SEC. 7. Section 7 of the same Act is hereby amended to

read as follows:

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.

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

(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:

(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

(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:

30

(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.

Appeals dated March 29, 1996,

and ORDERING the dismissal of
C.T.A. Case No. 5075.
No costs.
SO ORDERED.

COMMISSIONER OF INTERNAL
REVENUE, petitioner, vs.
NATIONAL LABOR RELATIONS
COMMISSION, respondents.

(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.

This is a petition for certiorari to set aside the resolution

dated April 4, 1986 1 of the National Labor Relations
Commission in NLRC Case No. NCR-12-4233-84 (Domingo C.
Niangar v. Maritime Company of the Philippines), affirming
the denial by the Labor Arbiter 2 of petitioner's motion to
annul the sheriff's sale of four barges or, in the alternative, to
order him to remit the proceeds of his sale to the Bureau of
the Internal Revenue for the satisfaction of the tax liabilities
of private respondent Maritime Company of the Philippines.

The facts are as follows:

On January 12, 1984 the Commissioner of the Internal

Revenue sent two letters 3 of demand to the respondent
Maritime Company of the Philippines for deficiency common
carrier's tax, fixed tax, 6% Commercial Broker's tax,
documentary stamp tax, income tax and withholding taxes in
the total amount of P17,284,882.45.

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.

The assessment became final and executory as private

respondent did not contest it. But as private respondent did
not pay its tax liability either, the Commissioner of Internal
Revenue issued warrants of distraint of personal property
and levy of real property of private respondent. Copies of the
warrants, both dated January 23, 1985, were served on
January 28, 1985 on Yoly T. Petrache, private respondent's
accountant. 4

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
judgment is rendered:

WHEREOF, premises

considered,

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 94-1846 for further
proceedings before the trial court;
and

2.

In
G.R.
No.
124557,
REVERSING and SETTING ASIDE
the Decision of the Court of

On April 16, 1985 a "Receipt for Goods, Articles, and Things

Seized 5 under Authority of the National Internal Revenue
Code" was executed, covering, among other things, six
barges identified as MCP-1,2,3,4,5 and 6. This receipt is
required by 303 (now 206) of the NIRC as proof of the
constructive distraint of property. It is an undertaking by the
taxpayer or person in possession of the property covered
that he will preserve the property and deliver it upon order of
the court or the Internal Revenue Commissioner.

31

The receipt was prepared by the BIR for the signature of a

representative of respondent Maritime Company of the
Philippines, but it was not in fact signed. Petitioner later
explained that the individuals who had possession of the
barges had refused to sign the receipt.

For reasons to be presently stated, the petition is granted.

The National Internal Revenue Code provides for the

collection of delinquent taxes by any of the following
remedies: (a) distraint of personal property or levy of real
property of the delinquent taxpayer and (b) civil or criminal
action.

This circumstance has given rise to the question in this case

as it appears that four of the barges placed under
constructive distraint were levied upon execution by
respondent deputy sheriff of Manila on July 20, 1985 to
satisfy a judgment for unpaid wages and other benefits of
employees of respondent Maritime Company of the
Philippines. More specifically, the question in this case is the
validity of the warrant of distraint served by the Revenue
Seizure Officer against the writ of execution subsequently
levied upon the same property by the deputy sheriff of
Manila to satisfy the claims of employees in NLRC Case No.
NCR-12-4233-84 (Domingo C. Niangar, et al. v. Maritime
Company of the Philippines) for P490,749.21.

With respect to the four barges in question, petitioner

resorted to constructive distraint pursuant to 303 (now
206) of the NLRC. This provisions states:

Constructive distraint of the property of a

taxpayer. To safeguard the interest of
the Government, the Commissioner of
Internal Revenue may place under
constructive distraint the property of a
delinquent taxpayer or any taxpayer who,
in his opinion, is retiring from any business
subject to tax, or intends to leave the
Philippines, or remove his property
therefrom, or hide or conceal his property,
or perform any act tending to obstruct the
proceedings, for collecting the tax due or
which may be due from him.

The four barges were sold by respondent deputy sheriff at a

public auction on August 12, 1985. The highest bidder,
Daniel C. Sabino, subsequently sold them to private
respondents Fernando S. Tuliao and Tulmar Trading
Corporation.

On September 4, 1985, petitioner asked the Labor Arbiter to

annul the sale and to enjoin the sheriff from disposing of the
proceeds of the sale or, in the alternative, to remit them to
the Bureau of Internal Revenue so that the amount could be
applied to the payment of private respondent Maritime
Company's tax liabilities.

The constructive distraint of personal

property shall be effected by requiring the
taxpayer or any person having possession
or control of such property to sign a receipt
covering the property distrained and
obligate himself to preserve the same
intact and unaltered and not to dispose of
the same in any manner whatever without
the express authority of the Commissioner
of Internal Revenue.

In an order dated September 30, 1985, Labor Arbiter

Ceferina Diosana denied the motion on the ground that
petitioner Commissioner of Internal Revenue failed to show
that the barges which were levied upon in execution and sold
at public auction had been validly placed under constructive
distraint. 6 The Labor Arbiter likewise rejected petitioner's
contention that the government's claim for taxes was
preferred under Art. 2247, in relation to Art. 2241(1) of the
Civil Code, on the ground that under this provisions only
taxes and fees which are due on specific movables enjoy
preference, whereas the taxes claimed by petitioner were not
due on the four barges in question.

In case the taxpayer or the person having

the possession and control of the property
sought to be placed under constructive
distraint refuses or fails to sign the receipt
herein referred to, the revenue officer
effecting the constructive distraint shall
proceed to prepare a list of such property
and in the presence of two witnesses leave
a copy thereof in the premises where the
property distrained is located, after which
the said property shall be deemed to have
been placed under constructive distraint..

The order was appealed to the NLRC, which in resolution

dated April 4, 1986, affirmed the denial of the Internal
Revenue Commissioner's motion. Hence this petition
for certiorari.

Although the warrant of distraint in this case had been issued

earlier (January 23,1985) than the levy on execution in the
labor case on July 20, 1985, the Labor Arbiter nevertheless

32

held that there was no valid distraint of personal property on

the ground that the receipt of property distrained had not
been signed by the taxpayer as required above. In her order,
which the NLRC affirmed in toto, the Labor Arbiter said:

vehicles and two (2) bodegas of spare parts belonging to

Maritime Company of the Philippines.

Apparently, what had been attached to the petitioner's

motion filed by the government with the Labor Arbiter in this
case was a copy, not the original one showing the rubber
stamp of the Coast Guard and duly signed by its
representative. A xerox copy of this signed receipt was
submitted in the prior case. 9 This could be due to the fact
that, except for Solicitor Erlinda B. Masakayan, the
government lawyers who prepared the petition in the prior
case were different from those who filed the present petition.
They admitted that the receipt of property distrained had not
been signed by the taxpayer or person in possession of the
taxpayer's property allegedly because they had refused to do
so. What apparently they did not know is that the receipt had
been acknowledged by the Coast Guard which obviously had
the barges in its possession.

It is claimed by the Commissioner of the

Internal Revenue that on January 23, 1984,
he issued a warrant of distraint of personal
property on respondent to satisfy the
collection of the deficiency taxes in the
aggregate sum of P17,284,882.45 and a
copy of said warrant was served upon
Maritime Company on January 28, 1985
and pursuant to the warrant, the
Commissioner, through Revenue Seizure
Agent Roland L. Bombay, issued on April
16, 1985, to Maritime Company a receipt
for goods, articles and things seized
pursuant to authority granted to him under
the National Internal Revenue Code. Such
personal properties seized includes, among
others, "Six (6) units of barges MCI-6 . . . "
However, his own receipts for goods
attached to his motions does not show that
it was received by Maritime; neither does it
show any signature of any of Maritime's
Officers.

In addition to the receipt duly acknowledged by the Coast

Guard, the record of the prior case also shows that on
October 4, 1985, the Commissioner of the Internal Revenue
issued a "Notice of Seizure of Personal Property" stating that
the goods and chattels listed on its reverse side, among
which were the four barges (MCP-2, MCP-3, MCP-5, and MCP6), had been distrained by the Commissioner of Internal
Revenue. 10

Apart from the foregoing, in his affidavit of

11 September 1985, Sheriff Cachero stated
that before he sold the subject four barges
at public auction, he conducted an
investigation on the ownership of the said
four barges. In brief, he found out that the
said four barges were purchased by
respondent through Makati Leasing and
that the whole purchase price has been
paid
by
respondent.
In
fact,
the
corresponding deed of sale has already
been signed. He did not find any lien or
encumbrance on any of the said four
barges. Thus it cannot be true that the
Commissioner effected a valid warrant of
distraint of personal property on the four
barges in question. 7

The "Notice of Seizure of Personal Property," a copy of which

was received by Atty. Redentor R. Melo in behalf of Maritime
Company of the Philippines, together with the receipt of the
Coast Guard, belies the claim of respondent deputy sheriff
that when he levied upon the four barges there was no
indication that the barges had previously been placed under
distraint by the Commissioner of Internal Revenue.

Accordingly, what we said in the prior case 11 in upholding

the validity of distraint of two of the six barges (MCP Nos. 1
and 4), fully applies in this case:

It is settled that the claim of the

government predicated on a tax lien is
superior to the claim of a private litigant
predicated on a judgment. The tax lien
attaches not only from the service of the
warrant of distraint of personal property
but from the time the tax became due and
payable. Besides, the distraint on the
subject
properties
of
the
Maritime
Company of the Philippines as well as the
notice of their seizure were made by
petitioner, through the Commissioner of
the Internal Revenue, long before the writ
of the execution was issued by the

However, this case arose out of the same facts involved

in Republic v. Enriquez, 8 in which we sustained the validity
of the distraint of the six barges, which included the four
involved in this case, against the levy on execution made by
another deputy sheriff of Manila in another case filed against
Maritime Company. Two barges (MCP-1 and MCP-4) were the
subject of a levy in the case. There we found that the
"Receipt for Goods, Articles and Things Seized under
Authority of the National Internal Revenue Code" covering
the six barges had been duly executed, with the
Headquarters, First Coast Guard District, Farola Compound
Binondo, Manila acknowledging receipt of several barges,

33

Regional Trial Court of Manila, Branch 31.

There is no question then that at the time
the writ of execution was issued, the two
(2) barges, MPC-1 and MCP-4, were no
longer properties of the Maritime Company
of the Philippines. The power of the court in
execution of judgments extends only to
properties unquestionably belonging to the
judgment debtor. Execution sales affect the
rights of the judgment debtor only, and the
purchaser in an auction sale acquires only
such right as the judgment debtor had at
the time of sale. It is also well-settled that
the sheriff is not authorized to attach or
levy on property not belonging to the
judgment debtor.

the goods manufactured or the work

done," or by Article 2242, number 3:
"claims of laborers and other workers
engaged
in
the
construction,
reconstruction or repair of buildings, canals
and other works, upon said buildings,
canals or other works." To the extent that
claims for unpaid wages fall outside the
scope of Article 2241, number 6 and 2242,
number 3, they would come with the ambit
of the category of ordinary preferred
credits under Article 2244.

Applying Article 2241, number 6 to the

instant case, the claims of the Unions for
separation pay of their members constitute
liens attaching to the processed leaf
tobacco, cigars and cigarettes and other
products produced or manufactured by the
Insolvent, but not to other assets owned by
the Insolvent. And even in respect of such
tobacco and tobacco products produced by
the Insolvent, the claims of the Unions may
be given effect only after the Bureau of
Internal Revenue's claim for unpaid
tobacco inspection fees shall have been
satisfied
out
of
the
products
so
manufactured by the Insolvent.

Nor is there any merit in the contention of the NLRC that

taxes are absolutely preferred claims only with respect to
movable or immovable properties on which they are due and
that since the taxes sought to be collected in this case are
not due on the barges in question the government's claim
cannot prevail over the claims of employees of the Maritime
Company of the Philippines which, pursuant to Art. 110 of
the Labor Code, "enjoy first preference."

In Republic v. Peralta 12 this Court rejected a

contention. Through Mr. Justice Feliciano we held:

similar

Article 2242, number 3, also creates a lien

or encumbrance upon a building or other
real property of the Insolvent in favor of
workmen who constructed or repaired such
building or other real property. Article
2242, number 3, does not however appear
relevant in the instant case, since the
members of the Unions to whom
separation pay is due rendered services to
the Insolvent not (so far as the record of
this case would show) in the construction
or repair of buildings or other real property,
but rather, in the regular course of the
manufacturing operations of the Insolvent.
The Unions' claims do not therefore
constitute a lien or encumbrance upon any
immovable property owned by the
insolvent, but rather, as already indicated,
upon the Insolvent's existing inventory (if
any) of processed tobacco and tobacco
products.

. . . [T]he claim of the Bureau of Internal

Revenue for unpaid tobacco inspection
fees constitutes a claim for unpaid internal
revenue taxes which gives rise to a tax lien
upon all the properties and assets,
movable or immovable, of the insolvent as
taxpayer. Clearly, under Articles 2241 No.
1, 2242 No. 1, and 2246-2249 of the Civil
Code, this tax claim must be given
preference over any other claim of any
other creditor, in respect of any and all
properties of the insolvent.
xxx xxx xxx

Article 110 of the Labor Code does not

purport to create a lien in favor of workers
or employees for unpaid wages either upon
all of the properties or upon any particular
property owned by their employer. Claims
for unpaid wages do not therefore fall at all
within the category of specially preferred
claims established under Articles 2241 and
2242 of the Civil Code, except to the
extent that such claims for unpaid wages
are already covered by Article 2241,
number 6: "claims for laborer's wages, on

In addition, we have held 13 that Art. 110 of the Labor Code

applies only in case of bankruptcy or judicial liquidation of
the employer. This is clear from the text of the law.

34

Art. 110. Worker preference in case of

bankruptcy. In the event of bankruptcy
or liquidation of an employer's business,
his workers shall enjoy first preference as
regards wages due them for services
rendered during the period prior to the
bankruptcy or liquidation, any provision of
law to the contrary notwithstanding.
Unpaid wages shall be paid in full before
other creditors may establish any claims to
a share in the assets of the employer.

absolved the defendant from all liability thereunder. From

that judgment the plaintiff appealed to this court.

The property in question formerly belonged to the Taba Saw

Mill Co., a copartnership formed by Pujalte and Co. and one
Ramon Murga. In April, 1914, Ramon Murga sold all his
rights, title, and interest in and to the said copartnership to
Pujalte and Co., which thereby became the sole owner of the
concern.

This case does not involve the liquidation of the employer's

business.

It appears from plaintiff's Exhibit AA, which was admitted in

evidence without objection on the part of the defendant, that
on the 26th day of September, 1912, the said Taba Saw Mill
Co. conveyed to the plaintiff bank, by way of chattel
mortgage, the property here in question together with other
personalities, as security for the payment to said bank of two
certain promissory notes for the sum of P180,000. Said
chattel mortgage was duly registered in the office of the
register of deeds of Zamboanga on the 26th day of
December, 1912. On that date the property in question was
free from all tax liens; at least, the plaintiff mortgagee had
no notice thereof. On the 13th day of July, 1916, when the
amount here in question was found to be due to the
Government from Pujalte and Co. as forestry charges, and
when the property in question was seized by the defendant,
the said chattel mortgage was still subsisting. It is admitted
that at the time of its seizure the said property was being
used in the sawmill of Pujalte and Co.

WHEREFORE, the petition for certiorari is GRANTED and the

resolution dated April 4, 1986 of respondent NLRC in NLRC
Case No. NCR-12-4233-84 is SET ASIDE insofar as it denies
the government's claim for taxes, and respondent deputy
sheriff Carmelo V. Cachero or his successor is ORDERED to
remit the proceeds of the auction sale to the Bureau of
Internal Revenue to be applied as part payment of
respondent Maritime Company's tax liabilities.
SO ORDERED.

BANK OF THE PHILIPPINE ISLANDS, plaintiffappellant, vs. WENCESLAO TRINIDAD, Collector of

Internal Revenue, defendant-appellee.

Upon the foregoing facts the lower court absolved the

defendant from all liability under the plaintiff's complaint, for
the following reasons:

There is a practically no dispute about the facts in this case.

They are as follows:

On the 13th day of July, 1916, the defendant Collector of

Internal Revenue, through his duly authorized agent at
Zamboanga, seized and distrained certain personal property,
consisting of machinery for sawing lumber which is
particularly enumerated and described in paragraph 3 of the
complaint, and advertised the same for sale, to realize the
sum of P2,159.79, alleged to be due to the Government of
the Philippine Islands from Pujalte and Co., as forestry
charges. The defendant claimed that said personality
belonged to the said company, was used in the business on
which the taxes were due, and was liable to seizure to cover
said taxes. On the other hand, the plaintiff claimed to be the
owner of said property, and demanded its release. The
demand being denied, the plaintiff paid to the defendant the
said sum of P2,159.79 under protest to prevent the sale of
said property, and immediately brought the present action in
the Court of First Instance of Zamboanga to recover the said
sum of P2,159.78 together with interest and costs. The lower
court, after due trial, dismissed the plaintiff's complaint and

35

1.

That the party who was liable to pay the taxes for
which the property in question was distrained was
not the plaintiff but Pujalte and Co.; and that the
plaintiff having "voluntarily and spontaneously" paid
the debt of the latter, had no cause of action
against the defendant collector, and could only
recover the sum so paid by it from Pujalte and Co.,
under article 1158 of the Civil Code (p. 15, B. of E.);
that the plaintiff should have proceeded under
section 141 of Act No. 2339 (now sec. 1580 of Act
No. 2711), and not under section 140 of the said Act
(sec. 1579 of Act No. 2711).

2.

That "even supposing for a moment" that the

plaintiff had a right of action against the defendant
to recover the sum paid by it to the latter, yet this
action must fail because the property in
question, having been used by Pujalte and Co. in its
business of cutting and sawing lumber, was liable to
seizure and distraint under section 149 of Act No.
2339.

personal property here in question was seized by the

defendant "under claim of forfeiture;" nor could it have been
legally seized under claim of forfeiture. It was seized to
enforce an alleged tax lien, under section 149 of Act No.
2339 (sec. 1588, Act No. 2711), which was quoted by the
lower court in its decision (p. 19 B. of E.) and which in no way
provides for the forfeiture of the property on which such a
lien attaches. Forfeiture is "the divestiture of property
without compensation, in consequence of an offense. The
effect of such forfeiture is to transfer the title to the specific
thing from the owner to the sovereign power." (12 R. C. L.,
124.) There is a great difference between a seizure under
forfeiture and a seizure to enforce a tax lien. In the
former all the proceeds derived from the sale of the thing
forfeited are turned over to the Collector of Internal Revenue
(sec. 148, Act No. 2339) in the latter the residue of such
proceeds over and above what is required to pay the tax
sought to be realized, including expenses, is returned to the
owner of the property (second paragraph, sec. 152, Act No.
2339). Clearly, the remedy applicable to the present case is
that provided for in section 140, above quoted, and which
the plaintiff invoked. (See Hongkong and Shanghai Banking
Corporation vs. Rafferty, 39 Phil., 145, 147.)

We are of the opinion that neither of the foregoing reasons is

sound, and that the judgment of the lower court should be
revoked.

First. There is absolutely no basis for the finding of the trial

court that "the plaintiff bank had voluntarily and
spontaneously paid the debt of a third party, that is, that of
the firm of Pujalte and Co." (p. 15, B. of E.). Paragraph 7 of
the
plaintiff's
complaint
alleges:
"That
thereupon, involuntarily and under due protest in writing, the
plaintiff bank made payment of the required sum of
P2,159.79 in order to secure the release of its seized
property." These allegations were specially admitted by the
defendant (par. 5, stipulation, Plaintiff's Exhibit G).

Section 140 of the Internal Revenue Law (Act No. 2339

provides as follows:
SEC. 140. Recovery of tax paid under protest.
When the validity of any tax in questioned, or
amount disputed, or other question raised as to
liability
therefor,
the
person
against whom
or against whose property the same is sought to be
enforced shall pay the tax under instant protest, or
upon protest within ten days, and shall thereupon
request the decision of the Collector of Internal
Revenue. If the decision of the Collector of Internal
Revenue is adverse, or if no decision is made by him
within six months from the date when his decision
was requested, the taxpayer may proceed, at any
time within two years after the payment of the tax,
to bring an action against the Collector of Internal
Revenue for the recovery of the sum alleged to
have been illegally collected, the process to be
served upon him, upon the provincial treasurer, or
upon the officer collecting the tax.

Second. At the time of the seizure of the property here in

question, the plaintiff held a valid and subsisting chattel
mortgage on the same, duly registered in the registry of
deeds. "A chattel mortgage is a conditional sale of personal
property as security for the payment of a debt, or the
performance of some other obligation specified therein, the
condition being that the sale shall be void upon the seller
paying the purchaser a sum of money or doing some other
act named." (Sec. 3, Act No. 1508.) "Therefore, so long as
the mortgage exists, the dominionwith respect to the
mortgaged personal property rests with the creditorpledgee from the time of the inscription of the mortgage in
the registry, and the furniture ceases to be the property of
the debtor for the reason that it has become the property of
the creditor, in like manner as the domination of a thing sold
is transferred to the purchaser and ceases to belong to the
vendor from the moment of the delivery thereof, as a result
of the sale." (Meyers vs. Thein, 15 Phil., 303, 303-309; see
also Bachrach vs. Mantel, 25 Phil., 410; In re Du Tec Chuan,
34 Phil., 488, 490.)

Section 141 of the same Act provides:

SEC. 141. Action to contest forfeiture of chatted.
In case of the seizure of personal property under
claim of forfeiture the owner, desiring to contest the
validity of the forfeiture, may at any time before
sale or destruction of the property bring an action
against the person seizing the property or having
possession thereof to recover the same, and upon
giving proper bond may enjoin the sale; or after the
sale and within six months he may bring an action
to recover the net proceeds realized at the sale.

The chattel mortgage in question was registered in the

registry of deeds on the 26th day of December, 1912.
Theforest charges sought to be collected by the defendant
were found to be due from Pujalte and Co. on the 13th day of
July, 1916, and on that date the property covered by said
chattel mortgage was seized by the defendant to enforce the
payment of said forest charges. It is clear from these facts
and from the legal provisions and jurisprudence above
quoted that the plaintiff-mortgagee, and not Pujalte and Co.,
the mortgagor, was, and had been for more than three years,
the legal owner of the property in question at the time the
same was seized by the defendant. And even granting,
without
deciding,
that
the forest charges
are
a tax on business or occupationwithin the meaning of section
149 of Act No. 2339 (sec. 1588, Act No. 2711), yet we are of
the opinion and so decide that the mere fact that said
property was used in the business of Pujalte and Co. could

The lower court was of the opinion that the plaintiff should
have proceeded under the latter section above quoted and
not under the former. It cannot be maintained that the

36

not and did not make such property liable for the payment of
taxes due from said company, said property belonging as it
did to an innocent third party. "The property used in the
business or occupation," referred to in said section 149, can
only mean property belonging to the owner of the business
or occupation. Any other construction would be unwarranted
and unjust.

Appellant, in his brief, assigned the following as errors

committed by the lower court.
"The lower court erred in holding that the Government had
made a claim against Benito Garcia for the amount of
P204.08 as specific tax, in criminal case No. 5922 of the
Court of First Instance of Bulacan, and that the court, in its
decision, declined to award it to the Government.
"The lower court erred in holding that the manufacturer of
alcohol ordinarily pays the tax and that, as he manufacturer
of the alcohol in question was Jose B. Suntay, and Benito
Garcia was a mere employee, the latter cannot be made to
pay the tax in question.

For the foregoing reasons the judgment appealed from is

hereby revoked, and it is hereby ordered and decreed that a
judgment be entered in favor of the plaintiff and against the
defendant, ordering the latter to refund to the former the
sum of P2,159.79, with interest thereon at the legal rate from
the 13th day of July, 1916, until paid, and without any finding
as to costs. So ordered.

"The lower court erred in ordering the defendant to pay the

plaintiff the amount of P204.08, plus costs.
"The lower court erred in denying the motion for new trial
filed by the defendant."
In the decision appealed from the court has proceeded upon
the assumption that in the criminal case filed against plaintiff
herein, the Government has sought payment from him of the
amount of P204.08 as specific tax; but that the court in its
decision refused to impose the same for the alleged reason
that, as the alcohol in question had been confiscated and as
the value of the same was probably greater than the amount
of the tax, the Government already has had an opportunity
to recover it. In truth, however, the payment of the tax was
not sought in the criminal case above referred to because
the object of the information was the imposition upon the
offender of the corresponding penalty for violation of section
2727 of the Revised Administrative Code. The tax should
have been recovered by the Collector of Internal Revenue
independently of the criminal action instituted by the People
of the Philippines against the accused Benito Garcia.
Therefore, the fact that in the judgment rendered in said
case no pronouncement whatsoever as regard said tax had
been made, was no bar to the Governments recovering it
afterwards, as the Collector of Internal Revenue, appellant
herein, has done in his own name.

US VS. SURIA
BENITO GARCIA, Plaintiff-Appellee, v. THE
COLLECTOR OF INTERNAL REVENUE, DefendantAppellant.
SYLLABUS
1. INTERNAL REVENUE; SPECIFIC TAX ON LOCAL PRODUCTS;
ACTION TO RECOVER TAX ON ALCOHOL. In order to avoid
disputes and to determine easily the person who should pay
the specific tax (in the present case on alcohol of local
manufacture), section 1479 of the Revised Administrative
Code has farsightedly provided that it should be paid by the
manufacturer, producer, owner of the person having
possession of the article, immediately before the removal of
the article from the place of production. The law does not say
that the tax may be paid immediately before the sale.
2. ID.; ID.; ID.; CRIMINAL CASE IS NO BAR TO ACTION TO
RECOVER SPECIFIC TAX. After plaintiff was sentenced in a
criminal case to pay a fine for taking from a distillery a
certain amount of alcohol to remove the same to a distant
store, without first paying the corresponding specific tax, he
was required by the herein defendant, as Collector of Internal
Revenue, to pay the amount of said tax. The plaintiff paid the
tax under protest and thereafter filed this complaint to
recover the amount paid. In view of the fact that in the
former criminal case against the herein plaintiff, for violation
of section 2727 of the Administrative Code, the payment of
the tax owing from him was not sought, inasmuch as its sole
object was to impose upon the offender the corresponding
penalty, the said tax should have been collected by the
Government in an independent action, as was done, because
the confiscation in the criminal case was nothing more than
an accessory penalty imposed by article 25 of the Revised
Penal Code and the penalty is an entirely different thing from
the payment of the tax. A violator of a law should suffer the
consequences of his own acts, and one of these
consequences
is
the
aforesaid
confiscation.

Furthermore, the confiscation in the criminal case was an

accessory penalty imposed by article 25 of the Revised Penal
Code, which is entirely different from the payment of the
tax.
Another ground of the appealed decision, according to the
reasoning of the court, is that the payment of the tax is in
reality made by the consumer, although the distiller has to
pay it first, charging the same later in the price of the sale. In
the present case, says the court, the plaintiff Garcia never
had the opportunity to sell the alcohol and consequently
would never be reimbursed for the amount of the
corresponding specific tax. All this loses its apparent merit by
the single consideration that one who violates the law must
suffer all the consequences of his own acts. One of the
consequences of violating the law is confiscation.

DECISION

According to section 1479 of the Revised Administrative

Code, the tax should be paid immediately before the removal
of the article from the place of production. The law does not
say that the tax may be paid immediately before the sale.

The Collector of Internal Revenue, defendant herein, required

Benito Garcia to pay a specific tax of P204.08 after the latter
had been sentenced in a criminal case to pay a fine for
having taken six hundred and sixteen liters of alcohol from
the distillery of Jose B. Suntay for the purpose of removing
the same to a distant store without having previously paid
the corresponding specific tax therefor. Appellee paid the tax
under protest, filing afterwards a complaint to recover its
amount. The court decided the case in favor of plaintiff, and
the Collector of Internal Revenue appealed from the decision
to this court.

The second error committed by the court consists in holding

that the distiller of alcohol ordinarily is the one who pays the
tax and inasmuch as Jose B. Suntay was the distiller of the
alcohol in question, while Benito Garcia was a mere
employee, the latter could not be compelled to pay the tax
referred to. This is an inaccurate interpretation of the law.
Section 1479 aforecited of the Revised Administrative Code
provides that the specific taxes on domestic products shall
be paid by the manufacturer, producer, owner or person
having possession of the same. It is a fact that the six
hundred and sixteen liters of alcohol were found in the

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possession of plaintiff when he transferred them from the

factory to a distant store and there is neither allegation nor
evidence that plaintiff had taken the alcohol from the
distillery to remove the same to the store by order of his
principal, Jose B. Suntay. In order to avoid disputes and to
determine easily the person who should pay the specific tax,
section 1479 of the Revised Administrative Code has

farsightedly provided that the manufacturer, producer, owner

or person having possession of the article shall pay the tax.
The judgment appealed from is reversed without a special
pronouncement as to costs. So ordered.

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