COMMISSIONER OF INTERNAL REVENUE VS COURT OF APPEALS

[G.R. No. 119322. June 4, 1996]

FACTS:

The Commissioner of Internal Revenue issued a Revenue Memorandum

Circular No. 37-93 reclassifying best selling cigarettes of foreign brands
subject to a higher rate of tax. 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. The CTA ruled that it is unconstitutional.

The CIR assessed against Fortune Corporation the total amount of

P7,685,942,221.66 representing deficiency income, ad valorem and value-
added tax for the year 1992 to which the company moved for reconsideration.
Later, the CIR filed a suit against Fortune for 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 due to the
underdeclaration of taxable sales and income.

It was referred to the Department of Justice Task Force for further

investigation. The task force issued a subpoena to the respondents to submit
counter-affidavits. However, they filed a motion to dismiss the case and
suspension of investigation but this was not granted.

Fortune filed a petition before RTC for

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.

On January 17, 1994, petitioners filed a motion to dismiss the petition on 13

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. The trial court rationalized its order in
14

this wise:

a) It is private respondents claim that the ad valorem tax for the year 1992
was levied, assessed and collected by the BIR under Section 142(c) of the
Tax Code on the basis of the manufacturers registered wholesale price duly
approved by the BIR. Fortunes taxable sales for 1992 was in the amount of
P11,736,658,580.00.

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, value-added and income
taxes before the taxpayer can be made liable for tax evasion.

f) 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.

g) Private respondents had been especially targeted by the government

for prosecution. Prior to the filing of the complaint in I.S. No. 93-508, 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.
 h) 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.

i) 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 January 28, 1994, private respondents filed with the trial court a
second supplemental petition, also seeking to stay the preliminary
15

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. Also, on the same day, petitioners filed an Urgent Motion for
16

Immediate Resolution of petitioners motion to dismiss.

 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. 93-508, 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

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. In granting the supplemental writ, the trial court
18

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.

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:

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).

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.

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 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.

Needless to say, the case before the respondent court involving those
against herein respondents for alleged non-payment 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.

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:

ISSUE:
Is Deficiency assessment necessary before the taxpayer be prosecuted
for tax evasion?

RULING:

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.

The pertinent provisions of law involved are Sections 127(b) and 142(c) of
the National Internal Revenue Code which state:

Sec. 127.xxx

(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:

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.

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.

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 value-added 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.

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

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 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. The amount of ad valorem tax payments together with the
22

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.

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 Fraud in its general sense, is deemed to
24

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

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.

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 willfully attempted to evade
or defeat the taxes sought to be collected from Fortune. In plain words, before
one is prosecuted for willful 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, that the lack of a final determination of Fortunes
27

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 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.: The
28

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.

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.
Enrile are:
29

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 has been denied (Salonga vs. Pano, et al., L-59524, February 18, 1985,
134 SCRA 438).

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.
 Contrary to petitioners submission, preliminary investigation may be
enjoined where exceptional circumstances so warrant. In Hernandez v.
Albano and Fortun v. Labang, injunction was issued to enjoin a preliminary
30 31

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.

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. Thus, the pertinent provisions of Rule 112 of the Rules of Court state:
32

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 voluntarily executed and understood their affidavits.

(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 counter-affidavits and other
supporting documents. He shall have the right to examine all other evidence
submitted by the complainant.
 (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.

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 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.

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, it was held that the act of the investigator in
33

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.

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 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. Consequently, the Regional Trial Court acted correctly and
34

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.

WHEREFORE, the instant petition is hereby DISMISSED.

SO ORDERED.