A. TAX REMEDIES UNDER THE NIRC must contain.
must contain. Just because the CIR issued an advice, a preliminary letter during the pre-
A. CIR vs. Eron Subic Power Corporation, GR No. 166387, 19 January 2009
DOCTRINE: The law requires that the legal and factual bases of the assessment be stated in
the formal letter of demand and assessment notice. Thus, such cannot be presumed.
Facts:
Enron, a domestic corporation registered with the Subic Bay Metropolitan Authority as a
freeport enterprise, filed its annualincome tax return for the year 1996 on April 12, 1997. It
indicated a net loss of P7,684,948. The BIR, through a preliminary five-day letter, informed
Enron of a proposed assessment of an alleged deficiency income tax. Enron disputed the
proposed deficiency assessment in its first protest letter. May 26, 1999 - Enron received from
the CIR a formal assessment notice requiring it to pay the alleged deficiency income tax
of P2,880,817.25 for the taxable year 1996. Enron protested this deficiency tax assessment.
Due to the non-resolution of its protest within the 180-day period, Enron filed a petition for
review in the CTA. It argued that the deficiency tax assessment disregarded the provisions of
Sec. 228 of the NIRC, as amended, and Section 3.1.4 of RR No. 12-99 by not providing the
legal and factual bases of the assessment. Enron likewise questioned the substantive validity
of the assessment.
CTA: Deficiency tax assessment for the year 1996 CANCELLED. The assessment notice
sent to Enron failed to comply with the requirements of a valid written notice under Sec. 228
of the NIRC and RR No. 12-99. CIR’s MR DENIED.
CA: CTA AFFIRMED. The audit working papers did not substantially comply with Section
228 of the NIRC and RR No. 12-99 because they failed to show the applicability of the cited
law to the facts of the assessment.
Issue:
WON the notice of assessment in question complied with the requirements of the NIRC and
RR No. 12-99 (NO)
Ruling
Section 228 of the NIRC provides that the taxpayer shall be informed in writing of the law
and the facts on which the assessment ismade. Otherwise, the assessment is void. To
implement the provisions of Section 228 of the NIRC, RR No. 12-99 was enacted
(Section 3.1.4). The use of the word “shall” in these legal provisions indicates the mandatory
nature of the requirements laid down therein.
Both the CTA and the CA concluded that the deficiency tax assessment merely itemized the
deductions disallowed and included these in the gross income. It also imposed the
preferential rate of 5% on some items categorized by Enron as costs. The legal and factual
bases were, however, not indicated.
The advice of tax deficiency, given by the CIR to an employee of Enron, as well as the
preliminary five-day letter, were not valid substitutes for the mandatory notice in writing of
the legal and factual bases of the assessment. These steps were mere perfunctory discharges
of the CIR’s duties in correctly assessing a taxpayer. The requirement for issuing a
preliminary or final notice, as the case may be, informing a taxpayer of the existence of a
deficiency tax assessment is markedly different from the requirement of what such notice
assessment stage and a final notice, in the order required by law, does not necessarily mean
that Enron was informed of the law and facts on which the deficiency tax assessment was
made.
The alleged “factual bases” in the advice, preliminary letter and “audit working papers” did
not suffice. There was no going around the mandate of the law that the legal and factual
bases of the assessment be stated in writing in the formal letter of demand accompanying the
assessment notice.
The old law merely required that the taxpayer be notified of the assessment made by the CIR.
This was changed in 1998 and the taxpayer must now be informed not only of the law but
also of the facts on which the assessment is made. Such amendment is in keeping with the
constitutional principle that no person shall be deprived of property without due process.
In view of the absence of a fair opportunity for Enron to be informed of the legal and factual
bases of the assessment against it, the assessment in question was void.
B. CIR vs. UNITED SALVAGE AND TOWAGE (PHILS.), INC., G.R. No.
197515, July 2, 2014
Doctrine: The law requires that the legal and factual bases of the assessment be stated in the
formal letter of demand and assessment notice. Thus, such cannot be presumed. Otherwise,
the express provisions of Article 228 of the NIRC and RR No. 12-99 would be rendered
nugatory.
Facts:
Respondent is engaged in the business of sub-contraction work for service contractors
engaged in petroleum operations in the Philippines. In the course of respondent’s
operations, petitions found respondent liable for deficiency income tax, withholding
tax, and value-added tax (VAT) and documentary stamp tax (DST) for taxable years
1992, 1994, 1997, and 1998. Particularly, petitioner, through BIR officials, issued
demand letters with attached assessment notices for withholding tax compensation
(WTC) and expanded withholding tax (EWT) for taxable years 1992, 1994, and 1998.
On January 29, 1998 and October 24, 2001, USTP filed administrative protests against
the 1994 and 1998 assessments, respectively.
On February 21, 2003, USTP appeals by way of Petition for Review before the Court in
action (which was thereafter raffled to the CTA-Special First Division) alleging, among
others, that the Notices of Assessment are bereft of any facts, law, rules, and
regulations or jurisprudence; thus, the assessment are void and the right of the
government to assess and collect deficiency taxes from it has prescribed on account of
the failure to issue a valid notice of assessment within the applicable period.
As, regards the FANs for deficiency EWT for taxable years 1994 and 1998, the CTA-
Special First Division held that the same do not show the law and the facts on which the
assessments were based. Said assessments were, therefore, declared void for failure to
comply with Section 228 of the NIRC. From the foregoing the only remaining valid
assessment is for the taxable year 1992.
Issue:
Whether or not the EWT for the year 1994 issued by petitioner against respondent was
without any factual and legal basis.
Held:
In the present case, a mere perusal of the FAN for the deficiency EWT for taxable year
1994 will show that other than a tabulation of the alleged deficiency taxes due, no
further detail regarding the assessment was provided by petitioner. Only the resulting
interest, surcharge, and penalty were anchored with legal basis. Petitioner should have
at least attached a detailed notice of discrepancy or stated an explanation why the
amount of P 48, 461.76 is collectible to respondent and how the same was arrived at.
Any short-cuts to the prescribed content of the assessment or the process thereof should
not be countenanced, in consonance with the ruling in CIR vs Enron Subic Power
Corporation to wit:
The law requires that the legal and factual bases of the assessment be
stated in the formal letter of demand and assessment notice. Thus, such
cannot be presumed. Otherwise, the express provisions of Article 228 of
the NIRC and RR No. 12-99 would be rendered nugatory. The alleged
“factual bases” in the advice, preliminary letter and “audit working papers”
did not suffice. There was no going around the mandate of the law that the
legal and factual bases of the assessment be stated in writing in the formal
letter of demand accompanying the assessment notice.
It is clear that the assailed deficiency tax assessment for the EWT in 1994 disregarded
the provisions of Section 228 of the Tax Code, as amended, as well as Section 3.1.4 of
the RR 12-99 by not providing legal and factual bases of the assessment. Hence, the
formal letter of demand and the notice of assessment issued relative thereto are void.
C. SAMAR-I ELECTRIC COOPERATIVE vs. CIR, G.R. No. 193100, 10 December
2014
FACTS: Samar-I Electric Cooperative, Inc. (Petitioner) is an electric cooperative, with
principal office at Barangay Carayman, Calbayog City.
July 13, 1999 and April 17, 2000 –
Petitioner filed its 1998 and 1999 income tax returns, respectively. Petitioner filed its 1997,
1998, and 1999 Annual Information Return of Income Tax Withheld on Compensation,
Expanded and Final Withholding Taxes on February 17, 1998, February 1, 1999, and
February 4, 2000, in that order.
November 13, 2000 -
respondent issued a duly signed Letter of Authority (LOA) No. 1998 00023803.
Petitioner cooperated in the audit and investigation conducted by the Special Investigation
Division of the BIR by submitting the required documents on December 5, 2000.
October 19, 2001 -
Respondent sent a Notice for Informal Conference which was received by petitioner in
November 2001; indicating the allegedly income and withholding tax liabilities of petitioner
for 1997 to 1999.
In response, petitioner sent a letter dated November 26, 2001 to respondent maintaining its
indifference to the latter’s findings and requesting details of the assessment.
December 13, 2001 –
Petitioner executed a Waiver of the Defense of Prescription under the Statute of Limitations,
good until March 29, 2002.
February 28, 2002 -
Respondent issued a Preliminary Assessment Notice (PAN). The PAN was received by
petitioner on April 9, 2002, which was protested on April 18, 2002.
July 8, 2002 -
Respondent dismissed petitioner’s protest and recommended the issuance of a Final
Assessment Notice
September 15, 2002 -
Petitioner received a demand letter and assessments notices (Final Assessment Notices) for
the alleged 1997, 1998, and 1999 deficiency withholding tax in the amount of
[P]3,760,225.69, as well as deficiency income tax covering the years 1998 to 1999 in the
amount of [P]440,545.71, or in the aggregate amount of [P]4,200,771.40.
April 10, 2003 –
Final Decision on Disputed Assessment, petitioner was still held liable for the alleged tax
liabilities
DECISION OF LOWER COURT:
(1) CTA First Division - ordered petitioner to pay CIR deficiency withholding tax on
compensation in the aggregate amount of P2,690,850.91
ISSUE:
whether the 1997 and 1998 assessments on withholding tax on compensation were issued
within the prescriptive period provided by law; and whether the assessments were issued in
accordance with Section 228 of the NIRC of 1997.
RULING:
Yes.
It was petitioner’s substantial underdeclaration of withholding taxes in the amount of
P2,690,850.91 which constituted the “falsity” in the subject returns – giving respondent the
benefit of the period under Section 222 of the NIRC of 1997 to assess the correct amount of
tax “at any time within ten (10) years after the discovery of the falsity, fraud or omission.”
the proper and reasonable interpretation of said provision should be that in the three different
cases of
(1) false return,
(2) fraudulent return with intent to evade tax,
(3) failure to file a return, the tax may be assessed, or a proceeding in court for the collection
of such tax may be begun without assessment, at any time within ten years after the
discovery of the (1) falsity,
(2) fraud,
(3) omission.
There is a difference between “false return” and “fraudulent return” cannot be denied. While
the first merely implies deviation from the truth, whether intentional or not, the second
implies intentional or deceitful entry with intent to evade the taxes due.
The ordinary period of prescription of 5 years within which to assess tax liabilities under
Sec. 331 of the NIRC should be applicable to normal circumstances, but whenever the
government is placed at a disadvantage so as to prevent its lawful agents from proper
assessment of tax liabilities due to false returns, fraudulent return intended to evade payment
of tax or failure to file returns, the period of ten years provided for in Sec. 332 (a) NIRC,
from the time of the discovery of the falsity, fraud or omission even seems to be inadequate
and should be the one enforced.
Both Section 228 of the NIRC of 1997 and Section 3.1.4 of RR No. 12-99 clearly require the
written details on the nature, factual and legal bases of the subject deficiency tax
assessments.
Considering the foregoing exchange of correspondence and documents between the parties,
we find that the requirement of Section 228 was substantially complied with. Respondent
had fully informed petitioner in writing of the factual and legal bases of the deficiency taxes
assessment, which enabled the latter to file an "effect
D. PILMICO-MAURI FOODS CORP., v. CIR, G.R. No. 175651, September 14, 2016
DOCTRINE
The statutory test of deductibility, under Section 34 of the NIRC, where it is
axiomatic that to be deductible as a business expense, three conditions are imposed, namely:
(a) both ordinary and necessary; (b) incurred in carrying a business or trade; and (c) paid
or incurred within the taxable year, then, it shall be allowed as a deduction from the gross
income. In addition, not only must the taxpayer meet the business test, he must substantially
prove by evidence or records the deductions claimed under the law, specifically under
Section 237, otherwise, the same will be disallowed.
FACTS
PMFC is a domestic corporation with principal place of business at Cebu City. The
books of accounts of PMFC pertaining to 1996 were examined by the CIR for deficiency
income, value-added tax (VAT) and withholding tax liabilities. In the assessment, the claim
for deduction of PMFC for business expenses were disallowed on the ground that it was not
substantiated by the official receipts and invoices. PMFC further argues that in determining
the deductibility of the purchase of raw materials from gross income, Section 34 of the NIRC
is the applicable provision and not Section 237 relative to the mandatory requirement of
keeping records of official receipts, upon which the CTA had misplaced reliance. PMFC also
claims that prior to the promulgation of the 1997 NIRC, the law does not require the
production of official receipts to prove an expense.
ISSUE
Whether the nature of evidence required to prove an ordinary expense like raw
materials is governed by Section34 of the NIRC and not by Section 237 as found by the
CTA.
RULING
No. The Court finds that the alleged differences between the requirements of
Section 34 invoked by PMFC, on one hand, and Section 237 relied upon by the CTA, on the
other, are more imagined than real. It is a rule in statutory construction that every part of the
statute must be interpreted with reference to the context. The law, thus, intends for the
aforementioned sections to be read together, and not for one provision to be accorded
preference over the other.
The statutory test of deductibility where it is axiomatic that to be deductible as a
business expense, three conditions are imposed, namely: (a) both ordinary and necessary; (b)
incurred in carrying a business or trade; and (c) paid or incurred within the taxable year,
then, it shall be allowed as a deduction from the gross income. In addition, not only must the
taxpayer meet the business test, he must substantially prove by evidence or records the
deductions claimed under the law, otherwise, the same will be disallowed. The mere
allegation of the taxpayer that an item of expense is ordinary and necessary does not justify
its deduction. It is, thus, clear that Section 34 does not exempt the taxpayer from
substantiating claims for deductions. While official receipts are not the only pieces of
evidence which can prove deductible expenses, if presented, they shall be subjected to
examination. PMFC submitted official receipts as among its evidence, and the CTA doubted
their veracity. PMFC was, however, unable to persuasively explain and prove through other
documents the discrepancies in the said receipts. Accordingly, Section 237 is applicable to
determine if such receipts and invoices may substantiate such claims for deduction.
E. CIR v. Fitness by Design, Inc., G.R. No. 215957, November 9, 2016
Facts:
More than 8 years from filing of tax return, Fitness By Design Inc. (FBDI) received a FAN
covering the taxable year 1995.  The imposed 50% surcharge and indicated that the total
amount due shall be adjusted if paid prior or beyond 15 April 2004.  FBDI protested the
FAN stating that the right of the BIR to assess has already prescribed.  Eventually, the BIR
issued warrant of Distraint and/or Levy which prompted FBDI to go the CTA.  The CTA
cancelled the assessment on the ground of prescription.  Thus, the BIR elevated the case to
the SC.
ISSUE (1) Whether or not the BIR correctly invoked fraud and therefore 10-year
prescriptive period should apply.
RULING  The SC held that fraud is a question of fact that should be alleged and duly
proven. It was noted that aside from imposing the 50% surcharge, the FAN and the Audit
Result/Assessment Notice did not impute fraud on the part of the taxpayer nor did it include
any basis for the allegation of fraud.  The SC ruled that fraud cannot be presumed and the
willful neglect to file the required return or fraudulent intent to evade taxes must be proven
by the party alleging the fraud.
ISSUE(2) Whether or not the FAN issued to FBDI is a demand for payment or merely a
request for payment.
RULING
The FAN provides that the tax due is still subject to modification, depending on the date of
payment. The SC reiterated that in order to serve its purpose, the FAN should contain a
definite amount of tax liability, and an actual demand for the payment of such. Thus, absent
the definite amount and actual demand to pay, the FAN is void.
F. CIR v. Pascor Realty and Development Corporation, GR No. 128315, 29
June 1999
Doctrine: Section 222 of the NIRC specifically states that in cases of failure to file a
return, proceedings in court may be commenced without an assessment; an assessment
is not necessary before a criminal charge can be filed; a criminal complaint is instituted
not to demand payment, but to penalize the taxpayer for violation of the Tax Code
Facts: Through letter of Authority, Pascor Reality and Development Corporation’s
(“PASCOR”) accounting records for 1986, 1987, and 1988 were examined by
Revenue examiners, Lagmay and Savellano, and was assessed in the amount of
P7,498,434.65 and P3,015,236.35 for years 1986 and 1987, respectively. Thereafter
an evasion case was filed in the DOJ. After PASCOR’s
reconsideration/reinvestigation was denied, it elevated on petition for review to the
CTA. CIR insists that the CTA has no jurisdiction because no formal assessment
was made. CTA says it has jurisdiction because the complaint which was supported
by the examiner’s affidavit containing the kind and amount of tax due already
constitutes an assessment. The CIR elevated the case to the CA which agreed with
the CTA—an evasion case is the assessment itself.
Issue:
Whether or not the criminal complaint for tax evasion can be construed as an
assessment. (NO)
Whether or not an assessment is necessary before criminal charges for tax
evasion may be instituted. (NO)
Whether or not the CTA can take cognizance of the case in the absence of an
assessment. (NO)
Ruling:
1. ON ASSESSMENT: A criminal Complaint for evasion containing joint
affidavits detailing the kind and amount due is not an assessment
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.
i. 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.
ii. Section 203 of the NIRC provides that internal revenue taxes
must be assessed within three years from the last day within
which to file the return.
iii. Section 222, on the other hand, specifies a period of ten years
in case a fraudulent return with intent to evade was submitted
or in case of failure to file a return. Also, Section 228 of the
same law states that said assessment may be protested only
within thirty days from receipt thereof.
b. Assessment is deemed made only when the collector of internal
revenue releases, mails or sends such notice to the taxpayer
i. 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.
ii. 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.
2. ON NECESSITY OF ASSESSMENT BEFORE COMPLAINT-- Section
222 of the NIRC specifically states that in cases of failure to file a return,
proceedings in court may be commenced without an assessment
a. Private respondents maintain that the filing of a criminal complaint
must be preceded by an assessment.
i. 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.
ii. Furthermore, Section 205 of the same Code clearly mandates
that the civil and criminal aspects of the case may be pursued
simultaneously.
1. In Ungab v. Cusi, petitioner therein sought the dismissal
of the criminal Complaints for being premature, since
his protest to the CTA had not yet been resolved. The
Court held that such protests could not stop or suspend
the criminal action which was independent of the
resolution of the protest in the CTA. This was because
the commissioner of internal revenue had, in such tax
evasion cases, discretion on whether to issue an
assessment or to file a criminal case against the taxpayer
or to do both.
b. Private respondents insist that Section 222 should be read in relation to
Section 255 of the NIRC, which penalizes failure to file a return. They
add that a tax assessment should precede a criminal indictment.
i. We disagree. To reiterate, said Section 222 states that an
assessment is not necessary before a criminal charge can be
filed.
ii. 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.
c. A criminal complaint is instituted not to demand payment, but to penalize
the taxpayer for violation of the Tax Code.
i. The issuance of an assessment must be distinguished from the
filing of a complaint.
1. 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.
2. 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.
ii. In contrast, the criminal charge need not go through all these.
1. The criminal charge is filed directly with the DOJ.
2. 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
G. Adamson v. Court of Appeals, GR No. 120935, 21 May 2009
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 court’s 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 court’s dismissal of the criminal cases.  She averred that it was not
a condition prerequisite that a formal assessment should first be given to the private
respondents before she may file the aforesaid criminal complaints against them.  She argued
that the criminal complaints for tax evasion may proceed independently from the assessment
cases pending before the CTA.
 
On March 21, 1995, the Court of Appeals reversed the trial court’s decision and reinstated
the criminal complaints.  The appellate court held that, in a criminal prosecution for tax
evasion, assessment of tax deficiency is not required because the offense of tax evasion
is complete or consummated when the offender has knowingly and willfully filed a
fraudulent return with intent to evade the tax. [9]  It ruled that private respondents filed
false and fraudulent returns with intent to evade taxes, and acting thereupon, petitioner
filed an Affidavit of Complaint with the Department of Justice, without an
accompanying assessment of the tax deficiency of private respondents, in order to
commence criminal action against the latter for tax evasion.[10]
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
“Examiner’s Findings” earlier issued by the Bureau of Internal Revenue (BIR), which
pointed out the tax deficiencies.
On March 15, 1994 before the Commissioner could act on their letter-request, AMC,
Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes filed a Petition
for Review with the CTA.  They assailed the Commissioner’s finding of tax evasion
against them. The Commissioner moved to dismiss the petition, on the ground that it
was premature, as she had not yet issued a formal assessment of the tax liability of
therein petitioners.  On September 19, 1994, the CTA denied the Motion to Dismiss.  It
considered the criminal complaint filed by the Commissioner with the DOJ as an
implied formal assessment, and the filing of the criminal informations with the RTC as
a denial of petitioners’ protest regarding the tax deficiency.
 
The Commissioner repaired to the Court of Appeals on the ground that the CTA acted
with grave abuse of discretion.  She contended that, with regard to the protest provided
under Section 229 of the NIRC, there must first be a formal assessment issued by the
Commissioner, and it must be in accord with Section 6 of Revenue Regulation No. 12-
85.  She maintained that she had not yet issued a formal assessment of tax liability, and
the tax deficiency amounts mentioned in her criminal complaint with the DOJ were
given only to show the difference between the tax returns filed and the audit findings of
the revenue examiner.
 
The Court of Appeals sustained the CTA’s denial of the Commissioner’s Motion to
Dismiss.  seminal case, this Court ruled that there was no need for precise computation and formal
Issues:
1. Whether the Commissioner’s recommendation letter can be considered as a formal
assessment of private respondents’ tax liability.
2. Whether the filing of the criminal complaints against the private respondents by the
DOJ is premature for lack of a formal assessment.
Held #1:
We rule that the recommendation letter of the Commissioner cannot be considered a
formal assessment.  Even a cursory perusal of the said letter would reveal three key points:
1.     It was not addressed to the taxpayers.
2.     There was no demand made on the taxpayers to pay the tax liability,
nor a period for payment set therein.
3.     The letter was never mailed or sent to the taxpayers by the Commissioner.
 
In fine, the said recommendation letter served merely as the prima facie basis for filing
criminal informations that the taxpayers had violated Section 45 (a) and (d), and 110, in
relation to Section 100, as penalized under Section 255, and for violation of Section 253, in
relation to Section 252 9(b) and (d)  of the Tax Code.
Held #2:
Section 269 of the NIRC (now Section 222 of the Tax Reform Act of 1997)
provides:
          Sec. 269.  Exceptions as to period of limitation of assessment and
collection of taxes.-(a) In the case of a false or fraudulent return with intent
to evade tax or of failure to file a return, the tax may be assessed, or a
proceeding in court after the collection of such tax may be begun without
assessment, at any time within ten years after the discovery of the falsity,
fraud or omission: Provided, That in a fraud assessment which has become
final and executory, the fact of fraud shall be judicially taken cognizance
of in the civil or criminal action for collection thereof…
          The law is clear.  When fraudulent tax returns are involved as in the cases at bar, a
proceeding in court after the collection of such tax may be begun without
assessment.  Here, the private respondents had already filed the capital gains tax return and
the VAT returns, and paid the taxes they have declared due therefrom.  Upon investigation of
the examiners of the BIR, there was a preliminary finding of gross discrepancy in the
computation of the capital gains taxes due from the sale of two lots of AAI shares, first to
APAC and then to APAC Philippines, Limited.  The examiners also found that the VAT had
not been paid for VAT-liable sale of services for the third and fourth quarters of
1990.  Arguably, the gross disparity in the taxes due and the amounts actually declared by
the private respondents constitutes badges of fraud. 
Thus, the applicability of Ungab v. Cusi[25] is evident to the cases at bar.  In this
assessment in order for criminal complaints to be filed against him.  It quoted Merten’s Law
of Federal Income Taxation, Vol. 10, Sec. 55A.05, p. 21, thus:
An assessment of a deficiency is not necessary to a criminal
prosecution for willful attempt to defeat and evade the income tax.  A
crime is complete when the violator has knowingly and willfully filed a
fraudulent return, with intent to evade and defeat the tax.  The perpetration
of the crime is grounded upon knowledge on the part of the taxpayer that
he has made an inaccurate return, and the government’s failure to discover
the error and promptly to assess has no connections with the commission
of the crime. 
          This hoary principle still underlies Section 269 and related provisions of the present
Tax Code.
H. Estate of Julina Diez vda. De Gabriel vs. CIR, GR No. 155541, 01 January 2004
Facts: During the lifetime of the decedent, Juliana Vda. De Gabriel, her business affairs were
managed by the Philippine Trust Company (Philtrust). 2 days after her death Philtrust filed
her Income Tax without stating the decedent died. Philtrust also filed a verified petition for
appointment as Special Administrator which was denied.  The court a quo appointed one of
the heirs as Special Administrator. BIR assessed the estate and found a deficiency in income
tax the BIR sent on November 18, 1982 by registered mail a demand letter and Assessment
Notice addressed to the decedent c/o Philippine Trust Company. On June 18, 1984 issued
warrants of distraint and levy to enforce collection. Heir filed an opposition on May 16, 1985
stating that there was no proper service of Assessment
Issue: Whether or not the service of deficiency tax assessment through the Philippine Trust
Company was a valid.
Held: No. The relationship between the decedent and Philtrust was one of agency, which is a
personal relationship between agent and principal. the mere fact that Philtrust continued to
act as her agent could not be revived such relationship. In CIR vs Pascor Realty assessment
must in consonance with due process requires that it must be served on and received by
the taxpayer. In this case it was served to Philtrust a disinterested party. In Republic vs DE le
Rama notice must be sent to the administrator of the estate. There was therefore no
assessment served on the Estate as to the alleged underpayment of tax.
I. CIR v. B.F. Goodrich Phils., Inc, G.R. No. 104171 February 24, 1999
Facts: Respondent Goodrich sold a parcel of land to Siltown Reality Philippines, Inc (SRP)
for insufficient consideration on January 21, 1974. For the year 1974, it filed its return on
April 13, 1975. It was only when the 5 year prescriptive period had lapsed when the CIR
assessed deficiency Donor’s tax on October 10, 1980 and modified on March 16, 1981. CIR
argued that it had authority to assess beyond the 5 year period under Section 15 of the old
code which provides that the CIR may assess in case of false returns. Falsity here was the
fact that the sale was under-priced.
Issue:
Whether or not petitioner’s right to assess herein deficiency donor’s tax has
indeed prescribed as ruled by the CA--- YES
Whether or not the herein deficiency donor’s tax assessment for 1974 is valid and
in accordance with the law—NO
Ruling:
 SEC. 331. Period of limitation upon assessment and collection. – Except
as provided in the succeeding section, internal-revenue taxes shall be
assessed within five years after the return was filed, and no proceeding in
court without assessment for the collection of such taxes shall be begun
after expiration of such period. For the purposes of this section, a return
filed before the last day prescribed by law for the filing thereof shall be
considered as filed on such last day: Provided, That this limitation
shall not apply to cases already investigated prior to the approval of this
Code
A. Involved here is respondent’s income for 1974—the return of
which was required to be filed on or before April 15, 1975
B. The return was filed on April 13, 1975
C. The subsequent assessment was on October 10, 1980 modified,
by that of March 16, 1981 was made beyond the 5 year period.
 If it is clearly out of time, what was the CIR thinking? Well, it was
alleged that there was reason to believe the falsity of respondent’s return
and for that matter, section 16 of the code authorizes the CIR to assess
proper tax on the best evidence obtainable.
A. Falsity here was the sale of the land for insufficient consideration
 The question now is which should prevail—the 5 year period or the right
to assess based on false return? Or simply, can the CIR assess beyond the 5
year period when there is falsity?
A. Prescription: For the purpose of safeguarding taxpayers from any
unreasonable examination, investigation or assessment, our tax law provides a
statute of limitations in the collection of taxes
B. Section 15: “[w]hen a report required by law as a basis for the assessment
of any national internal revenue tax shall not be forthcoming within the time
fixed by law or regulation, or when there is reason to believe that any such
report is false, incomplete, or erroneous, the Commissioner of Internal
Revenue shall assess the proper tax on the best evidence obtainable.
C. Court’s conclusion: Clearly, Section 15 does not provide an exception to
the statute of limitations on the issuance of an assessment, by allowing the
initial assessment to be made on the basis of the best evidence available.
Having made its initial assessment in the manner prescribed, the
commissioner could not have been authorized to issue, beyond the five-year
prescriptive period, the second and the third assessments under consideration
before us.
 SEC. 332. Exceptions as to period of limitation of assessment and collection
of taxes. -- (a) In the case of a (1) false or fraudulent return with intent to
evade a tax or of a (2) failure to file a return, the tax may be assessed, or a
proceeding in court for the collection of such tax may be begun without
assessment, at any time within ten years after the discovery of the falsity, fraud,
or omission: xxx.
A. The fact of selling for an insufficient consideration alone did not
constitute a false return which contains wrong information due to
 mistake, carelessness or ignorance
a) It is possible that real property may be sold for less than
adequate consideration for a bona fide business
purpose; in such event, the sale remains an “arm’s length”
transaction.
b)In the present case, the private respondent was compelled to
sell the property even at a price less than its market value,
because it would have lost all ownership rights over it upon
the expiration of the parity amendment.
c) Moreover, the BIR failed to prove that respondent's 1974
return had been filed fraudulently. Equally, significant was
its failure to prove respondent's intent to evade the payment
of the correct amount of tax.
d)Ineludibly, the BIR failed to show that private respondent's
1974 return was filed fraudulently with intent to evade the
payment of the correct amount of tax.
B. Moreover, the tax return filed by private respondent to report its income for
the year 1974 was sufficient compliance with the legal requirement to file a
return.
a) In other words, the fact that the sale transaction may have
partly resulted in a donation does not change the fact that
private respondent already reported its income for 1974
by filing an income tax return.
 CONCLUSION: Since the BIR failed to demonstrate clearly that private
respondent had filed a fraudulent return with the intent to evade tax, or that
it had failed to file a return at all, the period for assessments has obviously
prescribed.
J. CIR vs. ASALUS CORPORATION, G.R. No. 221590, 22 Feb 2017
Facts:
On December 16, 2010, respondent Asalus Corporation (Asalus) received a Notice of
Informal Conference from Revenue District Office (RDO) No. 47 of the Bureau of Internal
Revenue (BIR). It was in connection with the investigation conducted by Revenue Officer
Fidel M. Bañares II (Bañares) on the Value-Added Tax (VAT) transactions of Asalus for the
taxable year 2007.4 Asalus filed its Letter-Reply,5 dated December 29, 2010, questioning the
basis of Bañares' computation for its VAT liability.
petitioner Commissioner of Internal Revenue (CIR) issued the Preliminary Assessment
Notice (PAN) finding Asalus liable for deficiency VAT for 2007 in the aggregate amount of
₱413, 378, 058.11, inclusive of surcharge and interest. Asalus filed its protest against the
PAN but it was denied by the CIR. 
On August 26, 2011, Asalus received the Formal Assessment Notice (FAN) stating that it
was liable for deficiency VAT for 2007 in the total amount of ₱95,681,988.64, inclusive of
surcharge and interest. Consequently, it filed its protest against the FAN, dated September 6,
2011. Thereafter, Asalus filed a supplemental protest stating that the deficiency VAT
assessment had prescribed pursuant to Section 203 of the National Internal Revenue
Code (NIRC).
The CTA Division Ruling
The CT A Division ruled that the VAT assessment issued on August 26, 2011 had prescribed
and consequently deemed invalid. It opined that the ten (10)-year prescriptive period under
Section 222 of the NIRC was inapplicable as neither the FAN nor the FDDA indicated that
Asalus had filed a false VAT return warranting the application of the ten (10)-year
prescriptive period. It explained that it was only in the PAN where an allegation of false or
fraudulent return was made. The CTA stressed that after Asalus had protested the PAN, the
CIR never mentioned in both the FAN and the FDDA that the prescriptive period would be
ten (10) years. It further pointed out that the CIR failed to present evidence regarding its
allegation of fraud or falsity in the returns..
The CTA En Banc Ruling
The CTA En Banc sustained the assailed decision of the CTA Division and dismissed the
petition for review filed by the CIR. It explained that there was nothing in the FAN and the
FDDA that would indicate, the non-application of the three (3) year prescriptive period under
Section 203 of the NIRC. It found that the CIR did not present any evidence during the trial
to substantiate its claim of falsity in the returns and again missed its chance to do so when it
failed to file its memorandum before the CTA Division.
The CTA En Banc further explained that the PAN alone could not be used as a basis because
it was not the assessment contemplated by law. Consequently, the allegation of falsity in
Asalus' tax returns could not be considered as it was not reiterated in the FAN.
Issue/s:
Whether petitioner's right to assess respondent for its deficiency vat for taxable year
2007 had already prescribed - No
Ruling:
Generally, internal revenue taxes shall be assessed within three (3) years after the ,last day
prescribed by law for the filing of the return, or where the return is filed beyond the period,
from the day the return was actually filed. 19Section 222 of the NIRC, however, provides for
exceptions to the general rule. It states that in the case of a false or fraudulent return with
intent to evade tax or of failure to file a return, the assessment may be made within ten (10)
years from the discovery of the falsity, fraud or omission.
Under Section 248(B) of the NIRC,21 there is a prima facie evidence of a false return if there
is a substantial underdeclaration of taxable sales, receipt or income. The failure to report
sales, receipts or income in an amount exceeding 30% what is declared in the returns
constitute substantial underdeclaration. A prima facie evidence is one which that will
establish a fact or sustain a judgment unless contradictory evidence is produced. 22
In other words, when there is a showing that a taxpayer has substantially underdeclared its
sales, receipt or income, there is a presumption that it has filed a false return. As such, the
CIR need not immediately present evidence to support the falsity of the return, unless the
taxpayer fails to overcome the presumption against it.
Applied in this case, the audit investigation revealed that there were undeclared VA Table
sales more than 30% of that declared in Asalus' VAT returns. Moreover, Asalus' lone witness
testified that not all membership fees, particularly those pertaining to medical practitioners
and hospitals, were reported in Asalus' VAT returns. The testimony of its witness, in trying
to justify why not all of its sales were included in the gross receipts reflected in the VAT
returns, supported the presumption that the return filed was indeed false precisely because
not all the sales of Asalus were included in the VAT returns.
Hence, the CIR need not present further evidence as the presumption of falsity of the returns
was not overcome. Asalus was bound to refute the presumption of the falsity of the return
and to prove that it had filed accurate returns. Its failure to overcome the same warranted the
application of the ten (10)-year prescriptive period for assessment under Section 222 of the
NIRC. To require the CIR to present additional evidence in spite of the presumption
provided in Section 248(B) of the NIRC would render the said provision inutile.
It is true that neither the FAN nor the FDDA explicitly stated that the applicable prescriptive
period was the ten (10)-year period set in Section 222 of the NIRC. They, however, made
reference to the PAN, which categorically stated that "[t]he running of the three-year statute
of limitation I as provided un4er Section 203 of the 1997 National Internal Revenue Code
(NIRC) is not i applicable xxx but rather to the ten (10) year prescriptive period pursua11t to
Section 222(A) of the tax code xxx." 23 In Samar-I Electric Cooperative v. COMELEC,24the
Court ruled that it sufficed that the taxpayer was substantially informed of the legal and
factual bases of the assessment enabling him to file an effective protest, to wit:
Although, the FAN and demand letter issued to petitioner were not
accompanied by a written explanation of the legal and factual bases of the
deficiency taxes assessed against the petitioner, the records showed that
respondent in its letter dated April 10, 2003 responded to petitioner's
October 14, 2002 letter-protest, explaining at length the factual and legal
bases of the deficiency tax assessments and denying the protest.
Considerirg the foregoing exchange of correspondence and Document
between the parties, we find that the requirement of Section 228 was
substantially complied with. Respondent had fully informed I
petitioner in writing of the factual and legal bases of the deficiency taxes
assessment, which enabled the latter to file an "effective" protest, much
unlike the taxpayer's situation in Enron. Petitioner's right to due process
was thus not violated. [Emphasis supplied]
Thus, substantial compliance with the requirement as laid down under Section 228 of the
NIRC suffices, for what is important is that the taxpayer has been sufficiently informed of
the factual and legal bases of the assessment so that it may file an effective protest against
the assessment. In the case at bench, Asalus was sufficiently informed that with respect to its
tax liability, the extraordinary period laid down in Section 222 of the NIRC would apply.
This was categorically stated in the PAN and all subsequent communications from the CIR
made reference to the PAN. Asalus was eventually able to file a protest addressing the issue
on prescription, although it was done only in its supplemental protest to the FAN.
Considering the existing circumstances, the assessment was timely made because the
applicable prescriptive period was the ten (10)-year prescriptive period under Section 222 of
the NIRC. To reiterate, there was a prima facie showing that the returns filed by Asalus were
false, which it failed to controvert. Also, it was adequately informed that it was being
assessed within the extraordinary prescriptive period.
K. CIR vs. PHILIPPINE DAILY INQUIRER, INC., G.R. No. 213943, 22 March
2017
FACTS:
PDI (newspaper publication) filed annual income tax return on 2005 for taxable
year 2004. On june 30, 2006, PDI Receivd a (LN) from BIR alleging that there
was an underdeclaration of domestic purchases from its suppliers.
PDI submitter reconciliation reports. On March 21, 2007, PGI executed a waiver of
statute of limitation (first waiver) consenting to the assessment and/or collection at
any time before or after the lapse of the period of limitation but not later than june
30, 2007.
PDI submitted additional partial reconciliation and explanation on the discrepancies
found by BIR. BIR invited PFI ro an informal conference. On june 5, 2007, PDI
executed a Waiver of the Statute of Limitation (Second Waiver)

PAN dated October 15, 2007, PDI was assessed for alleged deficiency income tax
and VAT
PAN was received on December 2007. PDI sought recon. And expressed its willing
to execute another waiver (Third waiver), thus extending BIR’s right to asses and/or
collect until april 30, 2008
April 17, 2008 – FAN/FLD – demanding payment for alleged deficiency
Petitioner filed a protest. Filed a petition for review alleging that the 180-day period
within which the BIR should act on the protest had already lapsed.
CTA First Division – Ruled in favor of PDI. Right to assess has prescribed. PDI
introduced proof that the determination made by the CIR is incorrect. CIR failed to
disprove the findings submitted by ICPA
CTA – En banc – Petition for review – denied
ISSUES/RULING:
1. WON PDI HAS ADEQUATELY CONTROVERTED BIR’S ASSESMENT
No. The general rule is that findings of fact of the CTA are not to be disturbed by this
Court unless clearly shown to be unsupported by substantial evidence.[17] Since by the very
nature of its functions, the CTA has developed an expertise to resolve tax issues, the Court
will not set aside lightly the conclusions reached by them, unless there has been an abuse or
improvident exercise of authority.
In reaching their conclusions, the CTA First Division and En Banc relied on the report
submitted by the ICPA. According to the CTA, the BIR failed to rebut the ICPA report.
However, there were discrepancies that PDI were able to explain. In particular, the ICPA
report showed that the purchase from Millennium Cars, Inc. was made on behalf of an
employee as a loan. In addition, the underdeclared input tax insofar as Alliance Printing, Inc.
is concerned was due to the latter's erroneous posting of data, a fact that the corporation
admitted. However, there are still issues that need to be resolved. In particular, PDI failed to
justify its erroneous listing of purchases from Harrison Communications, Inc., McCann
Erickson, Inc., and WPP Marketing Corporation as general and administrative expenses.
2. WON THE RIGHT TO ASSES HAS PRESCRIBED and WON THE PDI IS
ESTOPPED FROM RAISING THE DEFENSE OF PRESCRIPTION
The right to assess has prescribed. CIR alleges that PDI filed a flase or fraudulent return,
thus, Section 222 applies (10 years). While the filing of a fraudulent return necessarily
implies that the act of the taxpayer was intentional and done with intent to evade the taxes
due, the filing of a false return can be intentional or due to honest mistake. In CIR v. B.F.
Goodrich Phils., Inc.,[31] the Court stated that the entry of wrong information due to
mistake, carelessness, or ignorance, without intent to evade tax, does not constitute a false
return. In this case, we do not find enough evidence to prove fraud or intentional falsity on
the part of PDL. Since the case does not fall under the exceptions, Section 203 of the NIRC
should apply. Indeed, the Waivers executed by the BIR and PDI were meant to extend the
three-year prescriptive period, and would have extended such period were it not for the
defects found by the CTA. This further shows that at the outset, the BIR did not find any
ground that would make the assessment fall under the exceptions.
Waiver must strictly conform to RMO No. 20-90. The failure to provide the office
accepting the waiver with the third copy violates RMO 20-90 and RDAO 05-01. Therefore,
the First Waiver was not properly executed on 21 March 2007 and thus, could not have
extended the three-year prescriptive period to assess and collect taxes for the year 2004. To
make matters worse, the CIR committed the same error in the execution of the Second
Waiver on 5 June 2007. Even if we consider that the First Waiver was validly executed, the
Second Waiver failed to extend the prescriptive period because its execution was contrary to
the procedure set forth in RMO 20-90 and RDAO 05-01. Granting that the First and Second
Waivers were validly executed, the Third Waiver executed on 12 December 2007 still failed
to extend the three-year prescriptive period because it was not executed in three copies. In
short, the records of the case showed that the CIR's three-year prescriptive period to assess
deficiency tax had already prescribed due to the defects of all the Waivers.
Clearly, the defects in the Waivers resulted to the non-extension of the period to
assess or collect taxes, and made the assessments issued by the BIR beyond the three-year
prescriptive period void.
The CIR also argues that PDI is estopped from questioning the validity of the Waivers. We
do not agree. As stated by the CTA, the BIR cannot shift the blame to the taxpayer for
issuing defective waivers. The Court has ruled that the BIR cannot hide behind the doctrine
of estoppel to cover its failure to comply with RMO 20-90 and RDAO 05-01 which were
issued by the BIR itself. A waiver of the statute of limitations is a derogation of the
taxpayer's right to security against prolonged and unscrupulous investigations and thus, it
must be carefully and strictly construed.
Since the three Waivers in this case are defective, they do not produce any effect and did not
suspend the three-year prescriptive period under Section 203 of the NIRC.
L. CIR vs. THE STANLEY WORKS SALES (PHILS.), INC., G.R. No. 187589.
December 3, 2014
Facts: Stanley Works Sales is a domestic corporation, and Stanley Works Agencies Limited,
Singapore entered into a Representation Agreement. Under such agreement, Stanley-
Singapore appointed Stanley Works Sales as its sole agent for the selling of its products
within the Philippines on an indent basis.
 On April 16, 1990, Stanley Works Sales filed with the BIR its Annual Income Tax
Return for taxable year 1989. On March 19, 1993, the BIR issued against Stanley Works
Sales a Pre-Assessment Notice (PAN) for 1989 deficiency income tax.
On March 29, 1993, it received its copy of the PAN. The Commissioner issued to
Stanley Works Sales assessment for deficiency income tax for taxable year 1989. Stanley
Works Sales filed a protest letter and requested reconsideration and cancellation of the
assessment.
A certain Mr. John Ang, on behalf of Stanley Works Sales, executed a ―Waiver of
the Defense of Prescription Under the Statute of Limitations of the National Internal
Revenue Code.‖ Under the terms of the Waiver, Stanley Works Sales waived its right to raise
the defense of prescription under Section 223 of the NIRC of 1977 insofar as the assessment
and collection of any deficiency taxes for the year ended December 31, 1989, but not after
June 30, 1994. This was not signed by the Commissioner or any of his authorized
representatives and did not state the date of acceptance. Stanley Works Sales did not execute
any other Waiver or similar document.
The Commissioner denied the request for reconsideration and ordered Stanley
Works Sales to pay the deficiency income tax plus interest that may have accrued.
Court of Tax Appeals found that although the assessment was made within the prescribed
period, the period within which the Commissioner may collect deficiency income taxes had
already lapsed. The CTA ruled that the request for reconsideration did not suspend the
running of the prescriptive period to collect deficiency income tax. There was no valid
waiver of the statute of limitations, as the following infirmities were found: (1) there was no
conformity, either by Stanley Works Sales or his duly authorized representative; (2) there
was no date of acceptance to show that both parties had agreed on the Waiver before the
expiration of the prescriptive period; and (3) there was no proof that Stanley Works Sales
was furnished a copy of the Waiver.
CTA En Banc affirmed this ruling.
ISSUES:
1. Whether or not the Commissioner‘s right to collect the deficiency income tax of
respondent for taxable year 1989 has prescribed
2. Whether or not Stanley‘s repeated requests and positive acts constitute
―estoppel from setting up the defense of prescription under the NIRC
RULING:
1. Yes, the Court ruled that it has prescribed.
The statute of limitations on the right to assess and collect a tax means that once the
period established by law for the assessment and collection of taxes has lapsed, the
government‘s corresponding right to enforce that action is barred by provision of law.
The period to assess and collect deficiency taxes may be extended only upon a
written agreement between the Commissioner and the taxpayer prior to the expiration of the
three-year prescribed period in accordance with Section 222 (b) of the NIRC. In relation to
the implementation of this provision, the CIR issued Revenue Memorandum Order (RMO)
No. 20-9010 on 4 April 1990 to provide guidelines on the proper execution of the Waiver of
the Statute of Limitations.
A Waiver must strictly conform to RMO No. 20-90. The mandatory nature of the
requirements set forth in RMO No. 20-90 was recognized by the BIR itself in the latter‘s
subsequent issuances, namely, Revenue Memorandum Circular (RMC) Nos. 6-200513 and
29-2012. Thus, the BIR cannot claim the benefits of extending the period to collect the
deficiency tax as a consequence of the Waiver when, in truth it was the BIR‘s inaction which
is the proximate cause of the defects of the Waiver. The BIR has the burden of ensuring
compliance with the requirements of RMO No. 20-90, as they have the burden of securing
the right of the government to assess and collect tax deficiencies. This right would prescribe
absent any showing of a valid extension of the period set by the law.
The Waiver was not a unilateral act of the taxpayer. The BIR must act on it, either
by conforming to or by disagreeing with the extension. A waiver of the statute of limitations,
whether on assessment or collection, should not be construed as a waiver of the right to
invoke the defense of prescription but, rather, an agreement between the taxpayer and the
BIR to extend the period to a date certain, within which the latter could still assess or collect
the taxes due.
The waiver does not imply that the taxpayer relinquishes the right to invoke
prescription unequivocally. The power of taxation is deemed inherent in order to support the
government, tax provisions are not all about raising revenue. Our legislature has provided
safeguards and remedies beneficial to both the taxpayer, to protect against abuse; and the
government, to promptly act for the availability and recovery of revenues. A statute of
limitations on the assessment and collection of internal revenue taxes was adopted to serve a
purpose that would benefit both the taxpayer and the government.
2. No, the Court held that Stanley Works Sales is not barred from setting up the
defense of prescription by its repeated requests and positive acts. It is not constituted
estoppel.
Stanley Works Sales filed a Protest and asked for a reconsideration and cancellation
of the assessment on 19 May 1993. However, it is uncontested that the Commissioner failed
to act on that Protest until 29 November 2001, when the latter required the submission of
other supporting documents. In fact, the Protest was denied only on 22 March 2004.
The subsequent letters of Stanley Works Sales cannot be construed as inducements
to extend the period of limitation, since the letters were intended to urge the Commissioner
to act on the Protest, and not to persuade the latter to delay the actual collection.
Even assuming arguendo that the Waiver executed on is valid, the right of the
Commissioner to collect the deficiency income tax for the year 1989 would have already
prescribed by 2001 when the latter first acted upon the protest, more so in 2004 when it
finally denied the reconsideration. Records show that the Waiver extends only for the period
ending 30 June 1994, and that there were no further extensions or waivers executed.
Thus, the prescriptive period for collecting deficiency income tax for taxable year
1989 was never suspended or tolled. Consequently, the right to enforce collection has already
prescribed.
M. RCBC vs. CIR, GR No. 170257, 7 September 2011
Facts;
On August 15, 1996, RCBC received Letter of Authority to examine the books of accounts
and other accounting records for all internal revenue taxes from January 1, 1994 to
December 31, 1995.
On January 23, 1997, RCBC executed two Waivers of the Defense of Prescription Under the
Statute of Limitations of the National Internal Revenue Code covering the internal revenue
taxes due for the years 1994 and 1995, effectively extending the period of the Bureau of
Internal Revenue (BIR) to assess up to December 31, 2000.
On January 27, 2000, RCBC received a Formal Letter of Demand together with Assessment
Notices from the BIR. Disagreeing with the said deficiency tax assessment, RCBC filed a
protest on February 24, 2000 and later submitted the relevant documentary evidence to
support it. A reinvestigation followed based on the newly submitted documentary evidence.
On December 6, 2000, RCBC received another Formal Letter of Demand with Assessment
Notices dated October 20, 2000, following the reinvestigation it requested, which drastically
reduced the original amount of deficiency taxes .On the same day, RCBC paid the following
deficiency taxes as assessed by the BIR. RCBC, however, refused to pay the following
assessments for deficiency onshore tax and documentary stamp tax
RCBC argued that the waivers of the Statute of Limitations which it executed on January 23,
1997 were not valid because the same were not signed or conformed to by the respondent
CIR as required under Section 222(b) of the Tax Code. The CTA en banc denied the petition
for lack of merit ruling that RCBC was estopped from questioning the validity of the
waivers.
While awaiting the decision of this Court, RCBC filed its Manifestation dated July 22, 2009,
informing the Court that this petition, relative to the DST deficiency assessment, had been
rendered moot and academic by its payment of the tax deficiencies on Documentary Stamp
Tax (DST) on Special Savings Account (SSA) for taxable years 1994 and 1995 after the BIR
approved its applications for tax abatement.
Issue:
Whether petitioner, by paying the other tax assessment covered by the waivers of the statute
of limitations, is rendered estopped from questioning the validity of the said waivers with
respect to the assessment of deficiency onshore tax.
Held:
Petitioner is estopped from questioning the validity of the waivers. Under Article 1431 of the
Civil Code, the doctrine of estoppel is anchored on the rule that “an admission or
representation is rendered conclusive upon the person making it, and cannot be denied or
disproved as against the person relying thereon.” A party is precluded from denying his own
acts, admissions or representations to the prejudice of the other party in order to prevent
fraud and falsehood.
Estoppel is clearly applicable to the case at bench. RCBC, through its partial payment of the
revised assessments issued within the extended period as provided for in the questioned
waivers, impliedly admitted the validity of those waivers. Had petitioner truly believed that
the waivers were invalid and that the assessments were issued beyond the prescriptive
period, then it should not have paid the reduced amount of taxes in the revised assessment.
RCBC’s subsequent action effectively belies its insistence that the waivers are invalid. The
records show that on December 6, 2000, upon receipt of the revised assessment, RCBC
immediately made payment on the uncontested taxes. Thus, RCBC is estopped from
questioning the validity of the waivers. To hold otherwise and allow a party to gainsay its
own act or deny rights which it had previously recognized would run counter to the principle
of equity which this institution holds dear.
N. CIR vs. BASF COATING + INKS PHILS., INC., [G.R. No. 198677.
November 26, 2014
FACTS:
Taxpayer had its BIR-registered address at Barrio Talon, Las Piñas City. Following
the resolution of the stockholders and directors to shorten its corporate life, taxpayer
moved its office to Calamba, Laguna.
Following the change in address, taxpayer sent two letters to the Revenue District
Office in Alabang, Muntinlupa City, which has jurisdiction over the taxpayer’s
address in Las Pinas.
The first letter was a notice of taxpayer’s dissolution and the second letter was a
manifestation indicating the submission of various documents supporting the
taxpayer’s dissolution, among which was BIR Form No. 1905, which refers to an
update of information contained in taxpayer’s tax registration.
Thereafter, a Formal Assessment Notice was sent by the BIR through registered
mail on January 24, 2003 at the taxpayer’s former address in Las Piñas City,
assessing the taxpayer of various deficiency taxes for the year 1999. On March 4,
 2004, a First Notice Before Issuance of Warrant of Distraint and Levy was sent to
the residence of one of the taxpayer’s directors.
On March 19, 2004, taxpayer filed a protest letter citing lack of due process and
prescription as grounds. For lack of action by the BIR on the taxpayer’s protest, the
latter filed a Petition for Review with the CTA. The CTA Division and En Banc
granted the petition.
On appeal to the Supreme Court, the Court ruled that under Section 223 of the Tax
Reform Act of 1997, the running of the Statute of Limitations provided under the
provisions of Sections 203 and 222 of the same Act shall be suspended when the
taxpayer cannot be located in the address given by him in the return filed upon
which a tax is being assessed or collected.
Also, under Section 11 of Revenue Regulations No. 12-85, in case of change of
address, the taxpayer is required to give a written notice to the Revenue District
Officer or the district having jurisdiction over his former legal residence and/or
place of business.
ISSUE: Whether or not the suspension of the three year period to assess apply in this case?
DECISION:
NO, the provisions on the suspension of the three- year period to assess apply only
if the BIR Commissioner is not aware of the whereabouts of the taxpayer. In this
case, the BIR, by all indications, is well aware that the taxpayer had moved to its
new address in Calamba, Laguna.
The Court also noted that BIR officers, at various times prior to the issuance of the
subject FAN, conducted examination and investigation of taxpayer’s tax liabilities
for 1999 at the latter's new address in Laguna. Moreover, the RDO previously sent
taxpayer a letter informing the latter of the results of their investigation and inviting
it to an informal conference.
Subsequently, the RDO also sent taxpayer another letter acknowledging receipt of
the latter's reply. These two letters were sent to taxpayer’s new address in Laguna.
Had the RDO not been informed or was not aware of respondent's new address, he
could not have sent the said letters to the said address.
Furthermore, the BIR should have been alerted by the fact that prior to mailing the
FAN, the BIR sent to taxpayer’s s old address a Preliminary Assessment Notice but
it was "returned to sender." Yet, despite this occurrence, the BIR still insisted in
mailing the FAN to respondent's old address. Hence, despite the absence of a formal
written notice of taxpayer’s change of address, the fact remains that the BIR became
aware of taxpayer’s new address. As a consequence, the running of the three-year
period to assess respondent was not suspended and has already prescribed.
O. Ungab Vs. Cusi, 97 SCRA 877, 30 May 1980
Facts: BIR examiner examined ITRs filed by Ungab and found that he failed to report his
income derived from sales of banana saplings so BIR RDO sent him “Notice of Taxpayer”
informing him of deficiency due and inviting him to informal conference. He wrote BIR
RDO protesting, stating he was only an agent on commission basis and his income reported
was accurate. But BIR Examiner was so convinced that he submitted a “Fraud Referral
Report” to the Tax Fraud Unit of the BIR and after examining the records, Special
Investigation Division found sufficient proof that he’s guilty of tax evasion and
recommended prosecution for filing false fraudulent return with intent to evade, failure to
pay annual taxes and percentages taxes as producer of banana poles or saplings. CIR
approved the prosecution and thereafter, State Prosecutor (SP) who had been designated to
assist all provincial and city fiscals in the investigation of violations of NIRC, conducted a
preliminary investigation and finding probable cause, filed 6 infos. Ungab filed motion to
quash on 2 grounds, which are also the issues in this case. The trial court denied and so
Ungab went to the SC on certiorari and prohibition. SC issued TRO on trial court
Issues:
1. WON SP had authority to initiate and prosecute these cases—YES
2. WON trial court had jurisdiction to take cognizance in view of his pending
protest of the assessment of the BIR RDO—YES
Ruling:
On the authority of the SP (not relevant). Petitioner seeks anullment of the infos because
certain requisites must be met before the SP may exercise the authority to investigate and
prosecute violations of penal laws. This is under Sec. 1679 and 1686 of the Revised Admin.
Code (just take a look at it).
The rule was not 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
On the legality of filing informations pending protest of the BIR RDO’s
assessment. Petitioner avers that since the CIR has not yet resolved his protests against
the assessments, he was denied recourse to the CTA. BUT this contention is without
merit:
What is involved here is not the collection of taxes where the assessment of
 the CIR may be reviewed by the CTA but the criminal prosecution for
violations of the NIRC which is within the cognizance of the RTC. While
there can be no civil suit for collection before the assessment procedures have
been followed, there is no requirements for the precise computation and
assessment of tax before there can be criminal prosecution under the Code.
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.
An assessment of a deficiency is not necessary to a criminal prosecution for
willful attempt to defeat and evade the income 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.
Besides, it has been ruled that 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
P. CIR vs. CA (Fortune Case) GR No.119322, 4 June 1996)
Facts:
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.
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.
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.
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.
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 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 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 P1,282,959,399.25.
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: . . .
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:
1st Qtr. P 2,924,418,055.00
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 P11,929,322,334.52 as declared by the
corporation in the said VAT returns.
These fraudulent under declarations which resulted in the evasion of value-
added taxes in the aggregate amount of P1,169,688,645.63 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:
xxx xxx xxx
Furthermore, based on the corporation's 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
manufacturer's 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: . . .
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.
On December 20, 1993, the panel of prosecutors issued an Omnibus Order  11 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 Fortune's 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  13 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 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 "manufacturer's registered wholesale price"
duly approved by the BIR. Fortune's taxable sales for 1992 was in the
amount of P11,736,658,580.00.
b) On the other hand, it is petitioners' contention that Fortune's declaration
was false and fraudulent because, based on its daily manufacturer's sworn
statements submitted to the BIR, its taxable sales in 1992 were
P16,686,372,295.00, 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 Manufacturer's
Sworn Statements" which, according to petitioners, were submitted to the
BIR by private respondents and made the basis of petitioner
Commissioner's 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
manufacturer's sworn statements before the DOJ panel of prosecutors to
show that Fortune's 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 "manufacturer's 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 Fortune's 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 Fortune's 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 Commissioner's 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 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. 
On March 7, 1994, petitioners filed a petition for certiorari and prohibition with prayer for
preliminary 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.
Their motion for reconsideration having been denied by respondent appellate court on
February 23, 1995.
Issue:
Whether or not the prosecution of private respondent be enjoined pending the
determination of the latter’s tax liability.
Held:
The Court ruled in the affirmative. 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 form 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 Commissioner's decision.
Here, Fortune received the Commissioner's 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 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 Fortune's 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 Fortune's 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.:28 "The crime is complete when the
violator has knowingly and wilfully filed a fraudulent return with intent to evade and
defeat apart or all of the tax." In plain words, for criminal prosecution to proceed before
assessment, there must be a  prima facies howing of a wilful attempt  to evade taxes.
There was a wilful attempt to evade tax in Ungad  because of the taxpayer's failure to
declare in his income tax return "his income derived from banana sapplings." In the
mind of the trial court and the Court of Appeals, Fortune's 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.
As a general rule, criminal prosecutions cannot be enjoined. However, there are recognized
exceptions which, as summarized in Brocka v. Enrile 29 are:
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. [1953], 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. Pane, et al.,
L-59524, February 18, 1985, 134 SCRA 438).
Contrary to petitioners' submission, preliminary investigation may be enjoined where
exceptional circumstances so warrant. In Hernandez v. Albano  30  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.
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. 
Q. Adamson, et al vs. CA/CIR vs. CA, GR Nos. 120935 and 124557, 21 May 2009
Facts:
Adamson paid capital gains tax and VAT. Upon investigation, there was a preliminary
finding of gross discrepancy in the computation prompting the CIR to send a
recommendation letter to the DOJ for tax evasion. Adamson argues that there was yet no
final assessment of their tax liability, hence the case for tax evasion is cannot procede. CIR
argues that formal assessment is not a condition prerequisite before she may file the
aforesaid criminal complains against Adamson; She also argued that the criminal
complaints for tax evasion may proceed independently from the assessment cases
pending before the CTA.
Issue:
w/n a criminal complaint may be filed without a formal assessment.
Ruling: No
SC ruled citing Ungab v. Cusi, 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 government’s failure
to discover the error and promptly to assess has no connections with the commission of the
crime.
R. BIR vs.CA, SPOUSES MANLY, G.R. No. 197590. November 24, 2014.]
FACTS:
1. Antonio Manly is stockholder and EVP of Standard Realty corp, a family owned
corporation while at the same time engaged in rental business. His wife, herein co
accused is a housewife.
2. On April 27, 2005, the BIR issued LOA No. 2001 00012387 authorizing its revenue
officers to investigate respondent spouses for internal revenue tax liabilities for the year
2003 and prior years.
3. On June 6, 2005, BIR issued a letter to respondents requiring them to submit
documentary eveidence.
4. The Spouses failed to comply, thus on June 23, 2005, the revenue officers executed a
joint affidavit purporting to the declared annual income of the spouses for the years
1998-2003. In the said affidavit, it was alleged that despite the modest income declared,
 the spouses were able to acquire valuable properties such as the log house in Tagaytay
City, a Toyota Rav 4 and a Toyota Prado.
5. The revenue officers recommended the filing of criminal cases against the respondents,
for failing to supply the correct and accurate information in their ITRs for the years
2000, 2001 and 2003, punishable under Sec. 254 and 255, in relation to Sec. 248 (B) of
R.A. 8424 (Tax Reform Act of 1997).
6. The State Prosecutor recommended for the filing of criminal charges against
respondents: 3 counts of violation of Sec. 254 (attempt to evade or defeat tax), 3 counts
of violation of Sec. 255 (failure to supply correct and accurate information), and 3
counts of violation of Sec. 255 (failure to pay).
7. On July 27, 2009, Justice Secretary Agnes Devanadera reversed the resolution of the
State Prosecutor. She found no willful failure to pay or attempt to evade or defeat the tax
on the part of the respondent spouses. She also pointed to the BIR’s failure to issue a
deficiency tax assessment against respondents is a prerequisite to the filing of criminal
case for tax evasion.
BIR filed a petition for certiorari before the CA, however, the petition was dismissed.
ISSUE(S):
WON the issuance of a deficiency tax assessment is a prerequisite to the filing of criminal
case for tax evasion?
HELD: Petition of BIR granted.
RATIO:
1. Tax evasion is deemed complete when the violator has knowingly and willfully
filed fraudulent return with intent to evade and defeat a part or all of the tax. An
assessment of the tax deficiency is not required in a criminal prosecution for tax
evasion. However, the fact that a tax is due must be proved before one can be
prosecuted for tax evasion.
2. Since the underdeclaration of the income is more than 30% (133.24%), it constitutes
prima facie evidence of false or fraudulent return.
The amount of tax due was specifically alleged in the complaint.
S. Medicard Philippines vs. CIR, GR. No. 222743, 5 April 2017
Facts:
MEDICARD was ordered by the CTA to pay CIR VAT deficiency at 220 million pesos plus
20% interest per annum from January 25, 2007.
Finding some discrepancies between MEDICARD's Income Tax Returns (ITR) and VAT
Returns, the CIR informed MEDICARD and issued a Letter Notice (LN). A PAN was issued
against MEDICARD for deficiency VAT.  A FAN was received by MEDICARD on January
4, 2008 for alleged deficiency VAT for taxable year 2006 in the total amount of Pl
96,614,476.69,10 inclusive of penalties.
More importantly, MEDICARD raised the issue of lack of Letter of Authority (LOA) on the
part of the revenue officer who conducted the examination. The CIR, on the other hand,
posits that the LN is enough compliance with the LOA requirement, arguing that the use of
computers to detect discrepancies dispenses with the requirement of LOA.
Furthermore, the CIR argued that the amounts earmarked and eventually paid by
MEDICARD to medical service providers form part of gross receipts for VAT purposes. The
CTA EB sided with the CIR.
ISSUE: Can the LN replace the LOA requirement? What is the status of the
assessment?
No, the LN cannot replace the LOA requirement.
An LOA is the authority given to the appropriate revenue officer assigned to perform
assessment functions. In the absence of such an authority, the assessment or examination is a
nullity.
The LN cannot replace the LOA required under the law even if the same was issued by the
CIR himself. Under RR No. 12-2002, LN is issued to a person found to have underreported
sales/receipts per data generated under the RELIEF system. Upon receipt of the LN, a
taxpayer may avail of the BIR's Voluntary Assessment and Abatement Program. If a
taxpayer fails or refuses to avail of the said program, the BIR may avail of administrative and
criminal remedies, particularly closure, criminal action, or audit and investigation. Since the
law specifically requires an LOA and RMO No. 32-2005 requires the conversion of the
previously issued LN to an LOA, the absence thereof cannot be simply swept under the rug,
as the CIR would have it. In fact, Revenue Memorandum Circular No. 40-2003 considers an
LN as a notice of audit or investigation only for the purpose of disqualifying the taxpayer
from amending his returns.
The revenue officers not having authority to examine MEDICARD in the first place, the
assessment issued by the CIR is inescapably void.
ISSUE: Can the LOA requirement be dispensed with, considering that MEDICARD's
books have not been physically examined?
No, the LOA requirement cannot be dispensed with even if MEDICARD's books have not
been physically examined.
Section 6 of the NIRC requires an authority from the CIR or from his duly authorized
representatives before an examination "of a taxpayer" may be made. The requirement of
authorization is therefore not dependent on whether the taxpayer may be required to
physically open his books and financial records but only on whether a taxpayer is being
subject to examination.
An LOA cannot be dispensed with just because none of the financial books or records being
physically kept by MEDICARD was examined.

ISSUE: Are the amounts earmarked and eventually paid by MEDICARD to the
medical service providers part of gross receipts for VAT purposes?
No, the amounts earmarked and eventually paid by MEDICARD to its medical service
providers do not form part of gross receipts for VAT purposes.
The CTA EB overlooked that the definition of gross receipts under. RR No. 16-2005 merely
presumed that the amount received by an HMO as membership fee is the HMO's
compensation for their services. As a mere presumption, an HMO is, thus, allowed to
establish that a portion of the amount it received as membership fee does NOT actually
compensate it but some other person, which in this case are the medical service providers
themselves. It is a well-settled principle of legal hermeneutics that words of a statute will be
interpreted in their natural, plain and ordinary acceptation and signification, unless it is
evident that the legislature intended a technical or special legal meaning to those words. The
Court cannot read the word "presumed" in any other way.
The CTA's ruling and CIR's Comment have not pointed to any portion of Section 108 of the
NIRC that would extend the definition of gross receipts even to amounts that do not only
pertain to the services to be performed by another person, other than the taxpayer, but even
to amounts that were indisputably utilized not by MEDICARD itself but by the medical
service providers.
ISSUE: Is it not that MEDICARD's act of earmarking constitutes an exercise of
ownership, thereby proving that the amounts earmarked form part of gross receipts for
VAT purposes?
No, such act of earmarking does not constitute an exercise of ownership.
MEDICARD's act of earmarking or allocating 80% of the amount it received as membership
fee at the time of payment that weakens the ownership imputed to it. By earmarking or
allocating 80% of the amount, MEDICARD unequivocally recognizes that its possession of
the funds is not in the concept of owner but as a mere administrator of the same. For this
reason, at most, MEDICARD's right in relation to these amounts is a mere inchoate owner
which would ripen into actual ownership if, and only if, there is underutilization of the
membership fees at the end of the fiscal year. Prior to that, MEDICARD is bound to pay
from the amounts it had allocated as an administrator once its members avail of the medical
services of MEDICARD's healthcare providers.
T. CIR vs. Hantex Trading Co., Inc. G.R. No. 136975, 31 March 2005
Facts:
Hantex Trading Co is a company organized under the Philippines. It is engaged in the
sale of plastic products, it imports synthetic resin and other chemicals for the manufacture of
its products. For this purpose, it is required to file an Import Entry and Internal Revenue
Declaration (Consumption Entry) with the Bureau of Customs under Section 1301 of the
Tariff and Customs Code. Sometime in October 1989, Lt. Vicente Amoto, Acting Chief
of Counter-Intelligence Division of the Economic Intelligence and Investigation Bureau
(EIIB), received confidential information that the respondent had
imported synthetic resin amounting to P115,599,018.00 but only declared P45,538,694.57.
Thus, Hantex receive a subpoena to present its books of account which it failed to do. The
bureau cannot find any original copies of the products Hantex imported since the originals
were eaten by termites. Thus, the Bureau relied on the certified copies of the respondent’s
Profit and Loss Statement for 1987 and1988 on file with the SEC, the machine copies of the
Consumption Entries, Series of 1987, submitted by the informer, as well as excerpts from the
entries certified by Tomas and Danganan. The case was submitted to the CTA which
ruled that Hantex have tax deficiency and is ordered to pay, per investigation of the Bureau.
The CA ruled that the income and sales tax deficiency assessments issued by the petitioner
were unlawful and baseless since the copies of the import entries relied upon in computing
the deficiency tax of the respondent were not duly authenticated by the public officer charged
with their custody, nor verified under oath by the EIIB and the BIR investigators.
Issue: Whether or not the final assessment of the petitioner against the respondent for
deficiency income tax and sales tax for the latter’s 1987 importation of resins and
calcium bicarbonate is based on competent evidence and the law
Ruling:
Section 16 of the NIRC of 1977, as amended, provides that the Commissioner
of Internal Revenue has the power to make assessments and prescribe additional
requirements for tax administration and enforcement. Among such powers are those
provided in paragraph (b), which provides that “Failure to submit required returns,
statements, reports and other documents. – When a report required by law as a basis for the
assessment of any national internal revenue tax shall not be forthcoming within the time
fixed by law or regulation or when there is reason to believe that any such report is false,
incomplete or erroneous, the Commissioner shall assess the
proper tax on the best evidence obtainable.” This provision applies when the Commissioner
of Internal Revenue undertakes to perform her administrative duty of assessing the proper tax
against a taxpayer, to make a return in case of a taxpayer’s failure to file one, or to amend a
return already filed in the BIR. The “best evidence” envisaged in Section 16 of the 1977
NIRC, as amended, includes the corporate and accounting records of the taxpayer who is the
subject of the assessment process, the
accounting records of other taxpayers engaged in the same line of business, including their
gross profit and net profit sales. Such evidence also includes data, record, paper, document or
any evidence gathered by internal revenue officers from other taxpayers who had personal
transactions or from whom the subject taxpayer received any income;
and record, data, document and information secured from government offices or agencies,
such as the SEC, the Central Bank of the Philippines, the Bureau of Customs, and the Tariff
and Customs Commission. However, the best
evidence obtainable under Section 16 of the 1977 NIRC, as amended, does not
include mere photocopies of records/documents. The petitioner, in making a preliminary and
final tax deficiency assessment against a taxpayer, cannot anchor
the said assessment on mere machine copies of records/documents. Mere photocopies of the
Consumption Entries have no probative weight if offered as proof of the contents thereof.
The reason for this is that such copies are mere scraps of paper and are of no probative value
as basis for any deficiency income or business taxes against a taxpayer.
U. Visayan Cebu Terminal vs. Collector, 108 SCRA 320)
Facts:
The Visayan Cebu Terminal Co. Inc., is a corporation organized for the purpose of handling
arrastre operations in the port of Cebu. It was awarded the contract for the said arrastre
operations by the Bureau of Customs, pursuant to Act No. 3002, as amended.
On March 1, 1952, appellant filed its income tax return for 1951 reporting a gross income of
P420,633.40 and claimed deductions amounting to P379,036.95, leaving a net income of
P41,596.45 on which it paid income tax in the sum of P8,319.29.
The sum of P379,036.95 claimed as deductions consisted of various items including salaries,
representation and miscellaneous expenses. However, the said expenses were disallowed by
the Collector of Internal Revenue, thus giving rise to a deficiency assessment.
Upon reconsideration, the Collector modified the deficiency income tax assessment by
allowing the deduction from appellant's gross income of the salary and miscellaneous
expenses.
The Visayan Cebu Terminal Co. Inc., maintains that said court had acted arbitrarily in
considering the representation expenses in 1950, not those incurred in 1949 and 1952, in
fixing the amount deductible in 1951
ISSUE: The only issue raised in this appeal relates to the deductibility of the sum of
P75,855.88 as representation expenses.
HELD:
The Court of Tax Appeals, in the instant case, had been patently fair and reasonable, if not
liberal, in allowing appellant to deduct a certain amount as representation expenses on the
basis of its gross income, net income and representation expenses during the prior years,
although there was absolutely no concrete evidence of the sums actually spent for purposes
of representation. The explanation to the effect that the supporting papers of some of the
expenses had been destroyed when the house of appellant's treasurer was burned, it not
satisfactory, for appellant's records were supposed to be kept in its offices, not in the
residence of one of its officers.
It appears: (a) that part of the alleged representation expenses had never had any supporting
paper; (b) that the vouchers and chits covering other representation expenses had been
allegedly destroyed; (c) that there is no documentary evidence on record of any of the
representation expenses in question; (d) that no testimonial evidence has been introduced on
any specific item of said alleged expenses; (e) that there is no more than oral proof to the
effect that payments had been made to appellant's officers for representation expenses
allegedly made by the latter and about the general nature of such alleged expenses; (f) that
the gross income in 1950 exceeded the gross income in 1951 and 1952, and (g) that the
representation expenses in 1948 amounted to P500 only. Under these circumstances, the
lower court was fully justified in concluding that the representation expenses in 1951 should
be slightly less than those incurred in 1950.
V. CIR vs. Metro Star Superama, GR No. 185371, 8 December 2010
Facts:
In January 2001, a revenue officer was authorized to examine the books of accounts of Metro
Star Superama, Inc. In April 2002, after the audit review, the revenue district officer issued a
formal assessment notice against Metro Star advising the latter that it is liable to pay
P292,874.16 in deficiency taxes. Metro Star assailed the issuance of the formal assessment
notice as it averred that due process was not observed when it was not issued a pre-
assessment notice. Nevertheless, the Commissioner of Internal Revenue authorized the
issuance of a Warrant of Distraint and/or Levy against the properties of Metro Star.
Metro Star then appealed to the Court of Tax Appeals (CTA Case No. 7169). The CTA ruled
in favor of Metro Star.
Issue:
Whether or not due process was observed in the issuance of the formal assessment notice
against Metro Star.
Held:
No. It is true that there is a presumption that the tax assessment was duly issued. However,
this presumption is disregarded if the taxpayer denies ever having received a tax assessment
from the Bureau of Internal Revenue. In such cases, it is incumbent upon the BIR to prove by
competent evidence that such notice was indeed received by the addressee-taxpayer. The
onus probandi was shifted to the BIR to prove by contrary evidence that the Metro Star
received the assessment in the due course of mail. In the case at bar, the CIR merely alleged
that Metro Star received the pre-assessment notice in January 2002. The CIR could have
simply presented the registry receipt or the certification from the postmaster that it mailed the
pre-assessment notice, but failed. Neither did it offer any explanation on why it failed to
comply with the requirement of service of the pre-assessment notice. The Supreme Court
emphasized that the sending of a pre-assessment notice is part of the due process requirement
in the issuance of a deficiency tax assessment,” the absence of which renders nugatory any
assessment made by the tax authorities.
Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. But even so, it is a requirement in all democratic regimes that it be exercised
reasonably and in accordance with the prescribed procedure.
W. CHINA BANKING CORPORATION v. CIR, GR. No. 172509, February 04, 2015
Facts:
Petitioner, China Banking Corporation (CBC) is a universal bank duly organized and
existing under the laws of the Philippines. For the taxable years 1982 to 1986, CBC was
engaged in transactions involving sales of foreign exchange to the Central Bank of the
Philippines (now Bangko Sentral ng Pilipinas), commonly known as SWAP transactions.
Petitioner did not file tax returns or pay tax on the SWAP transactions for those taxable
years.
Petitioner received an assessment from the Bureau of Internal Revenue (BIR)
finding CBC liable for deficiency documentary stamp tax (DST) on the sales of
foreign bills of exchange to the Central Bank.
On 8 May 1989, petitioner, through its vice-president, sent a letter of protest to the
BIR. On 6 December 2001, more than 12 years after the filing of the protest, the
Commissioner of Internal Revenue (CIR) rendered a decision reiterating the
deficiency DST assessment and ordered the payment thereof plus increments within
30 days from receipt of the Decision.
CBC filed a Petition for Review with the CTA. The CTA Second Division denied
the Petition of CBC. The CTA ruled that a SWAP arrangement should be treated as
a telegraphic transfer subject to documentary stamp tax.
Petitioner appealed to the CTA En Banc. The appellate tax court, however,
dismissed the Petition for Review in a Decision dated 1 December 2005. CBC filed
a Motion for Reconsideration on 21 December 2005, but it was denied in a 20
March 2006 Resolution. The taxpayer now comes to this Court with a Rule 45
Petition, reiterating the arguments it raised at the CTA level and invoking for the
first time the argument of prescription.
ISSUE:
Whether or not the right of the BIR to collect the assessed DST from CBC is barred by
prescription?
RULING:
The court grants the Petition on the ground that the right of the BIR to collect
the assessed DST is barred by the statute of limitations.
The Bureau of Internal Revenue (BIR) issued the assessment for deficiency DST
on 19 April 1989, when the applicable rule was Section 319(c) of the National
Internal Revenue Code of 1977, as amended. In that provision, the time limit for
the government to collect the assessed tax is set at three years, to be reckoned from
the date when the BIR mails/releases/sends the assessment notice to the taxpayer.
Further, Section 319(c) states that the assessed tax must be collected by distraint or
levy and/or court proceeding within the three-year period.
In this case, the records do not show when the assessment notice was mailed,
released or sent to CBC. Nevertheless, the latest possible date that the BIR could
have released, mailed or sent the assessment notice was on the same date that CBC
received it, 19 April 1989. Assuming therefore that 19 April 1989 is the reckoning
date, the BIR had three years to collect the assessed DST. However, the records of
this case show that there was neither a warrant of distraint or levy served on CBC's
properties nor a collection case filed in court by the BIR within the three- year
period.
The attempt of the BIR to collect the tax through its Answer with a demand for CBC to
pay the assessed DST in the CTA on 11 March 2002 did not comply with Section 319(c) of
the 1977 Tax Code, as amended. The demand was made almost thirteen years from the
date from which the prescriptive period is to be reckoned. Thus, the attempt to collect the
tax was made way beyond the three-year prescriptive period.
The running of the statute of limitations was not suspended by the request
for reinvestigation.
The fact that the taxpayer in this case may have requested a reinvestigation did
not toll the running of the three-year prescriptive period. Section 320 of the 1977 Tax Code
states:
“Sec. 320. Suspension of running of statute.—The running of the statute of
limitations provided in Sections 318 or 319 on the making of assessment and the beginning
of distraint or levy or a proceeding in court for collection, in respect of any deficiency,
shall be suspended for the period during which the Commissioner is prohibited from
making the assessment or beginning distraint or levy or a proceeding in court and for sixty
days thereafter; when the taxpayer requests for a re-investigation which is granted by the
Commissioner; when the taxpayer cannot be located in the address given by him in the
return filed upon which a 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 and 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 request for reinvestigation alone will not suspend the statute of limitations. Two
things must concur: there must be a request for reinvestigation and the CIR
must have granted it. In the present case, there is no showing from the records
that the CIR ever granted the request for reinvestigation filed by CBC. That being
the case, it cannot be said that the running of the three-year prescriptive period was
effectively suspended.
In this case, petitioner may have raised the question of prescription only on appeal
to this Court. The BIR could have crushed the defense by the mere invocation of
the rule against setting up the defense of prescription only at the appeal stage. The
government, however, failed to do so. On the contrary, the BIR was silent despite
having the opportunity to invoke the bar against the issue of prescription.
A new ruling is entered DENYING respondent's claim for deficiency DST in
the amount of P11,383,165.50.
X. Angeles City vs. Angeles City Electric Cooperative, GR No. 166134, 29 June 2010
Facts:
AEC was granted a legislative franchise under Republic Act 4079 to construct, maintain and
operate an electric light, heat, and power system for the purpose of generating and
distributing electric light, heat and power for sale in Angeles City, Pampanga.
On September 11, 1974, Presidential Decree 551 reduced the franchise tax of electric
franchise holders. It provided that the franchise tax payable by all grantees of franchises to
generate, distribute and sell electric current for light, heat and power shall be two percent
(2%) of their gross receipts and such franchise tax shall be payable to the Commissioner of
Internal Revenue or his duly authorized representative.
On January 1, 1992, the Local Government Code of 1991 was passed into law, conferring
upon provinces and cities the power, among others, to impose tax on businesses enjoying
franchise. In accordance with the LGC, the Sangguniang Panlungsod of Angeles City
enacted Tax Ordinance No. 33, S-93, otherwise known as the Revised Revenue Code of
Angeles City (RRCAC).
As a result, a petition seeking the reduction of the tax rates and a review of the provisions of
the RRCAC was filed with the Sangguniang Panlungsod by Metro Angeles Chamber of
Commerce and Industry Inc. (MACCI) of which AEC is a member. There being no action
taken by the Sangguniang Panlungsod on the matter, MACCI elevated the petition to the
Department of Finance, which referred the same to the Bureau of Local Government Finance
(BLGF). In the petition, MACCI alleged that the RRCAC is oppressive, excessive, unjust
and confiscatory; that it was published only once, simultaneously on January 22, 1994; and
that no public hearings were conducted prior to its enactment. Acting on the petition, the
BLGF issued a First Indorsement to the City Treasurer of Angeles City, instructing the latter
to make representations with the Sangguniang Panlungsod for the appropriate amendment of
the RRCAC in order to ensure compliance with the provisions of the LGC, and to make a
report on the action taken within five days.
Thereafter, starting July 1995, AEC has been paying the local franchise tax to the Office of
the City Treasurer on a quarterly basis, in addition to the national franchise tax it pays every
quarter to the Bureau of Internal Revenue. The City Treasurer issued a Notice of Assessment
to AEC for payment of business tax, license fee and other charges for the period 1993 to
2004 in the total amount of ₱94,861,194.10. AEC protested the assessment claiming that,
among others, pursuant to RA 4079, it is exempt from paying local business tax and the
assessment and collection of taxes under the RRCAC cannot  be made retroactive to 1993 or
prior to its effectivity. However, it was denied by the City Treasurer for lack of merit.
Aggrieved, AEC appealed the denial of its protest to the RTC of Angeles City via a Petition
for Declaratory Relief.
However, the City Treasurer levied on the real properties of AEC. This prompted AEC to file
with the RTC, where the petition for declaratory relief was pending, an Urgent Motion for
Issuance of Temporary Restraining Order and/or Writ of Preliminary Injunction to enjoin
Angeles City and its City Treasurer from levying, annotating the levy, seizing, confiscating,
garnishing, selling and disposing at public auction the properties of AEC.
After due notice and hearing, the RTC issued a Temporary Restraining Order, followed by
an Order granting the issuance of a Writ of Preliminary Injunction. Angeles City and its City
Treasurer moved for its dissolution but the same was denied.
Petitioner’s main argument is that the collection of taxes cannot be enjoined by the RTC,
citing Valley Trading Co., Inc. v. Court of First Instance of Isabela, Branch II, wherein the
lower court’s denial of a motion for the issuance of a writ of preliminary injunction to enjoin
the collection of a local tax was upheld. Petitioner further reasons that since the levy and
auction of the properties of a delinquent taxpayer are proper and lawful acts specifically
allowed by the LGC, these cannot be the subject of an injunctive writ. Petitioner likewise
insists that AEC must first pay the tax before it can protest the assessment. Finally, petitioner
contends that the tax exemption claimed by AEC has no legal basis because RA 4079 has
been expressly repealed by the LGC.
On the other hand, AEC asserts that there was no grave abuse of discretion on the part of the
RTC in issuing the writ of preliminary injunction because it was issued after due notice and
hearing, and was necessary to prevent the petition from becoming moot. In addition, AEC
claims that the issuance of the writ of injunction was proper since the tax assessment issued
by the City Treasurer is not yet final, having been seasonably appealed pursuant to Section
195 of the LGC. AEC likewise points out that following the case of Pantoja v. David,
proceedings to invalidate a warrant of distraint and levy to restrain the collection of taxes do
not violate the prohibition against injunction to restrain the collection of taxes because the
proceedings are directed at the right of the City Treasurer to collect the tax by distraint or
levy. As to its tax liability, AEC maintains that it is exempt from paying local business tax.
In any case, AEC counters that the issue of whether it is liable to pay the assessed local
business tax is a factual issue that should be determined by the RTC and not by the Supreme
Court via a petition for certiorari under Rule 65 of the Rules of Court.
ISSUE:
Whether or not the RTC gravely abused its discretion in issuing the writ of preliminary
injunction
HELD:
No.
The LGC does not specifically prohibit an injunction enjoining the collection of local taxes.
A principle deeply embedded in our jurisprudence is that taxes being the lifeblood of the
government should be collected promptly, without unnecessary hindrance or delay. In line
with this principle, the National Internal Revenue Code of 1997 expressly provides that no
court shall have the authority to grant an injunction to restrain the collection of any national
internal revenue tax, fee or charge imposed by the code. An exception to this rule obtains
only when in the opinion of the Court of Tax Appeals the collection thereof may jeopardize
the interest of the government and/or the taxpayer.
The situation, however, is different in the case of the collection of local taxes as there is no
express provision in the LGC prohibiting courts from issuing an injunction to restrain local
governments from collecting taxes. Thus, in the case of Valley Trading Co., Inc. v. Court of
First Instance of Isabela, Branch II, cited by the petitioner, we ruled that:
Unlike the National Internal Revenue Code, the Local Tax Code does not contain any
specific provision prohibiting courts from enjoining the collection of local taxes. Such
statutory lapse or intent, however it may be viewed, may have allowed preliminary
injunction where local taxes are involved but cannot negate the procedural rules and
requirements under Rule 58.
In light of the foregoing, petitioner’s reliance on the above-cited case to support its view that
the collection of taxes cannot be enjoined is misplaced. The lower court’s denial of the
motion for the issuance of a writ of preliminary injunction to enjoin the collection of the
local tax was upheld in that case, not because courts are prohibited from granting such
injunction, but because the circumstances required for the issuance of writ of injunction were
not present.
Nevertheless, it must be emphasized that although there is no express prohibition in the
LGC, injunctions enjoining the collection of local taxes are frowned upon. Courts therefore
should exercise extreme caution in issuing such injunctions.
The RTC did not commit grave abuse of discretion.
Section 3, Rule 58, of the Rules of Court lays down the requirements for the issuance of a
writ of preliminary injunction, viz:
(a) That the applicant is entitled to the relief demanded, and the whole or part of such relief
consists in restraining the commission or continuance of the acts complained of, or in the
performance of an act or acts, either for a limited period or perpetually;
(b)That the commission, continuance or non-performance of the act or acts complained of
during the litigation would probably work injustice to the applicant; or
(c) That a party, court, or agency or a person is doing, threatening, or attempting to do, or is
procuring or suffering to be done, some act or acts probably in violation of the rights of the
applicant respecting the subject of the action or proceeding, and tending to render the
judgment ineffectual.
Two requisites must exist to warrant the issuance of a writ of preliminary injunction, namely:
(1) the existence of a clear and unmistakable right that must be protected; and (2) an urgent
and paramount necessity for the writ to prevent serious damage.
The Court is fully aware of the Supreme Court pronouncement that injunction is not proper
to restrain the collection of taxes. The issue here as of the moment is the restraining of the
respondent from pursuing its auction sale of the petitioner’s properties. The right of
ownership and possession of the petitioner over the properties subject of the auction sale is at
stake.
Respondents assert that not one of the witnesses presented by the petitioner have proven
what kind of right has been violated by the respondent, but merely mentioned of an injury
which is only a scenario based on speculation because of petitioner’s claim that electric
power may be disrupted.
Engr. Abordo’s testimony reveals and even his Affidavit Exhibit “S” showed that if the
auction sale will push thru, petitioner will not only lose control and operation of its facility,
but its employees will also be denied access to equipments vital to petitioner’s operations,
and since only the petitioner has the capability to operate Petersville sub station, there will be
a massive power failure or blackout which will adversely affect business and economy, if not
lives and properties in Angeles City and surrounding communities.
Petitioner, thru its witnesses, in the hearing of the temporary restraining order, presented
sufficient and convincing evidence proving irreparable damages and injury which were
already elaborated in the temporary restraining order although the same may be realized only
if the auction sale will proceed. And unless prevented, restrained, and enjoined, grave and
irreparable damage will be suffered not only by the petitioner but all its electric consumers in
Angeles, Clark, Dau and Bacolor, Pampanga.
The purpose of injunction is to prevent injury and damage from being incurred, otherwise, it
will render any judgment in this case ineffectual.
“As an extraordinary remedy, injunction is calculated to preserve or maintain the status quo
of things and is generally availed of to prevent actual or threatened acts, until the merits of
the case can be heard” (Cagayan de Oro City Landless Res. Assn. Inc. vs. CA, 254 SCRA
220)
It appearing that the two essential requisites of an injunction have been satisfied, as there
exists a right on the part of the petitioner to be protected, its right[s] of ownership and
possession of the properties subject of the auction sale, and that the acts (conducting an
auction sale) against which the injunction is to be directed, are violative of the said rights of
the petitioner, the Court has no other recourse but to grant the prayer for the issuance of a
writ of preliminary injunction considering that if the respondent will not be restrained from
doing the acts complained of, it will preempt the Court from properly adjudicating on the
merits the various issues between the parties, and will render moot and academic the
proceedings before this court.
As a rule, the issuance of a preliminary injunction rests entirely within the discretion of the
court taking cognizance of the case and will not be interfered with, except where there is
grave abuse of discretion committed by the court.36For grave abuse of discretion to prosper
as a ground for certiorari, it must be demonstrated that the lower court or tribunal has
exercised its power in an arbitrary and despotic manner, by reason of passion or personal
hostility, and it must be patent and gross as would amount to an evasion or to a unilateral
refusal to perform the duty enjoined or to act in contemplation of law. In other words, mere
abuse of discretion is not enough.
Guided by the foregoing, we find no grave abuse of discretion on the part of the RTC in
issuing the writ of injunction. Petitioner, who has the burden to prove grave abuse of
discretion, failed to show that the RTC acted arbitrarily and capriciously in granting the
injunction. Neither was petitioner able to prove that the injunction was issued without any
factual or legal justification. In assailing the injunction, petitioner primarily relied on the
prohibition on the issuance of a writ of injunction to restrain the collection of taxes. But as
we have already said, there is no such prohibition in the case of local taxes. Records also
show that before issuing the injunction, the RTC conducted a hearing where both parties
were given the opportunity to present their arguments. During the hearing, AEC was able to
show that it had a clear and unmistakable legal right over the properties to be levied and that
it would sustain serious damage if these properties, which are vital to its operations, would
be sold at public auction. As we see it then, the writ of injunction was properly issued.
Y. CIR vs. First Express Pawnshop Company, Inc., GR No. 172045, 16 June 2009
Facts:
CIR issued assessment notices against Respondent for deficiency income tax, VAT and
documentary stamp tax on deposit on subscription and on pawn tickets. Respondent
filed its written protest on the assessments. When CIR did not act on the protest during
the 180-day period, respondent filed a petition before the CTA.
Issue:
Has Respondent’s right to dispute the assessment in the CTA prescribed?
Held:
NO. The assessment against Respondent has not become final and unappealable. It
cannot be said that respondent failed to submit relevant supporting documents that
would render the assessment final because when respondent submitted its protest,
respondent attached all the documents it felt were necessary to support its claim.
Further, CIR cannot insist on the submission of proof of DST payment because such
document does not exist as respondent claims that it is not liable to pay, and has not
paid, the DST on the deposit on subscription.
The term "relevant supporting documents" are those documents necessary to support
the legal basis in disputing a tax assessment as determined by the taxpayer. The BIR
can only inform the taxpayer to submit additional documents and cannot demand what
type of supporting documents should be submitted. Otherwise, a taxpayer will be at the
mercy of the BIR, which may require the production of documents that a taxpayer
cannot submit. Since the taxpayer is deemed to have submitted all supporting
documents at the time of filing of its protest, the 180-day period likewise started to run
on that same date.
Z. CIR VS. LIQUIGAS PHILIPPINES CORPORATION, GR NOS. 215534 & 215557,
18 APR 2016
FACTS:
Liquigaz Philippines Corporation (Liquigaz), a corporation duly organized and
existing under Philippines laws, received a copy of a Letter of Authority (LOA) issued by the
Commissioner of Internal Revenue (CIR), authorizing the investigation of all internal
revenue taxes for taxable year 2005. On April 9, 2008, Liquigaz received an undated letter
purporting to be a Notice of Informal Conference (NIC), as well as the detailed computation
of its supposed tax liability. Subsequently, Liquigaz received a copy of the Preliminary
Assessment Notice (PAN), together with the attached details of discrepancies for the
calendar year ending December 31, 2005. Thereafter, it received a Formal Letter of Demand
(FLD)/Formal Assessment Notice (FAN).
Liquigaz filed a protest against the FLD/FAN. Then, Liquigaz received a copy of
the Final Decision Disputed Assessment (FDDA) covering the tax audit under the previous
LOA and finding Liquigaz liable for deficiency withholding tax liabilities. Consequently,
Liquigaz filed a petition before the Court of Tax Appeals Division (CTA Division) assailing
the validity of the FDDA.
The CTA Division partially granted the petition, cancelling the Expanded
Withholding Tax (EWT) and Fringe Benefits Tax (FBT) assessments but modifying the
Withholding Tax on Compensation (WTC). It ruled that the portion of the FDDA relating to
the EWT and FBT was void because it failed to notify the taxpayer of the factual bases
thereof, as required in Section 228 of the National Internal Revenue Code (NIRC).
Aggrieved, the CIR and Liquigaz filed their respective petitions before the CTA En Banc
which affirmed the court a quo decision.
ISSUE:
Should the assessment be invalidated since the FDDA did not provide for the facts
on which the assessment was based?
RULING:
YES. The importance of providing the taxpayer of adequate written notice of his tax
liability is undeniable. Section 228 of the NIRC declares that an assessment is void if the
taxpayer is not notified in writing of the facts and law on which it is made. Again, Section
3.1.4 of Revenue Regulation (RR) No. 12-99 requires that the FLD must state the facts and
law on which it is based, otherwise, the FLD/FAN itself shall be void. Meanwhile, Section
3.1.6 of RR No. 12-99 specifically requires the decision of the CIR or his duly authorized
representative on a disputed assessment shall state the facts, law and rules and regulations, or
jurisprudence on which the decision is based. Failure to do so would invalidate the FDDA.
But a void FDDA does not ipso facto render the assessment void.
A decision of the CIR on a disputed assessment differs from the assessment itself.
What is appealable to the CTA is the ―decision‖ of the CIR on disputed assessment and not
the assessment itself. An assessment becomes a disputed assessment after a taxpayer has
filed its protest to the assessment in the administrative level. Thereafter, the CIR either issues
a decision on the disputed assessment or fails to act on it and is, therefore, denied. The
taxpayer may then appeal the decision on the disputed assessment or the inaction of the CIR.
Hence, the invalidity of one does not necessarily result to the invalidity of the other – unless
the law or regulations otherwise provide.
A perusal of the FDDA reveals that it merely contained a table of Liquigaz‘s supposed tax
liabilities, without providing any details. While it provided for the legal bases of the
assessment, it fell short on informing Liquigaz of the factual bases thereof. thus, the FDDA
is void.
The Court found that the CTA erred in concluding that the assessment on EWT and
FBT deficiency was void because the FDDA covering the same was void. The assessment
remains valid notwithstanding the nullity of the FDDA because as discussed above, the
assessment itself differs from a decision on the disputed assessment.
As established, an FDDA that does not inform the taxpayer in writing of the facts
and law on which it is based renders the decision void. Therefore, it is as if there was no
decision rendered by the CIR. It is tantamount to a denial by inaction by the CIR, which may
still be appealed before the CTA and the assessment evaluated on the basis of the available
evidence and documents. The merits of the EWT and FBT assessment should have been
discussed and not merely brushed aside on account of the void FDDA.
AA. Lascona Land Co., Inc. vs. CIR, GR No. 171251, 5 March 2012
Facts:
On March 27, 1998, the Commissioner of Internal Revenue (CIR) issued Assessment Notice
No. 0000047-93-407against Lascona Land Co., Inc. (Lascona) informing the latter of its
alleged deficiency income tax for the year 1993 in the amount of P753,266.56.
Consequently, on April 20, 1998, Lascona filed a letter protest, but was denied by Norberto
R. Odulio, Officer-in-Charge (OIC), Regional Director, Bureau of Internal Revenue,
Revenue Region No. 8, Makati City, in his Letter[ dated March 3, 1999. Said letter denied the
protest for the reason that the case was not appealed to the CTA after the lapsed of 180 days
from day of filing the said protests.
On April 12, 1999, Lascona appealed the decision before the CTA and was docketed as
C.T.A. Case No. 5777. Lascona alleged that the Regional Director erred in ruling that the
failure to appeal to the CTA within thirty (30) days from the lapse of the 180-day period
rendered the assessment final and executory.
The CIR, however, maintained that Lascona's failure to timely file an appeal with the CTA
after the lapse of the 180-day reglementary period provided under Section 228 of the
National Internal Revenue Code (NIRC) resulted to the finality of the assessment.
On January 4, 2000, the CTA, in its Decision, nullified the subject assessment.
On March 3, 2000, the CTA denied the CIR's motion for reconsideration for lack of merit.
The CIR filed an appeal before the CA. The Court of Appeals granted the CIR's petition and
set aside the Decision dated January 4, 2000 of the CTA and its Resolution dated March 3,
2000.  It further declared that the subject Assessment Notice No. 0000047-93-407
dated March 27, 1998 as final, executory and demandable.
Issue:
Whether the subject assessment has become final, executory and demandable due to the
failure of petitioner to file an appeal before the CTA within thirty (30) days from the lapse of
the One Hundred Eighty (180)-day period pursuant to Section 228 of the NIRC.
Ruling:
The Court decided in favor of Lascona. In RCBC v. CIR, the Court has held that in case the
Commissioner failed to act on the disputed assessment within the 180-day period from date
of submission of documents, a taxpayer can either: (1) file a petition for review with the
Court of Tax Appeals within 30 days after the expiration of the 180-day period; or (2) await
the final decision of the Commissioner on the disputed assessments and appeal such final
decision to the Court of Tax Appeals within 30 days after receipt of a copy of such decision.
Therefore, as in Section 228, when the law provided for the remedy to appeal the inaction of
the CIR, it did not intend to limit it to a single remedy of filing of an appeal after the lapse of
the 180-day prescribed period. Precisely, when a taxpayer protested an assessment, he
naturally expects the CIR to decide either positively or negatively. A taxpayer cannot be
prejudiced if he chooses to wait for the final decision of the CIR on the protested assessment.
More so, because the law and jurisprudence have always contemplated a scenario where the
CIR will decide on the protested assessment. 
Accordingly, considering that Lascona opted to await the final decision of the Commissioner
on the protested assessment, it then has the right to appeal such final decision to the Court by
filing a petition for review within thirty days after receipt of a copy of such decision or
ruling, even after the expiration of the 180-day period fixed by law for the Commissioner of
Internal Revenue to act on the disputed assessments. Thus, Lascona, when it filed an appeal
on April 12, 1999 before the CTA, after its receipt of the Letter dated March 3,
1999 on March 12, 1999, the appeal was timely made as it was filed within 30 days after
receipt of the copy of the decision.
Finally, the CIR should be reminded that taxpayers cannot be left in quandary by its inaction
on the protested assessment.  It is imperative that the taxpayers are informed of its action in
order that the taxpayer should then at least be able to take recourse to the tax court at the
opportune time.

AB. Rizal Commercial Banking Corporation vs. CIR, GR No. 168498, 24 April 2007
DOCTRINE:
 The jurisdiction of the CTA has been expanded to include not only decisions or rulings but
inaction as well of the CIR. The decisions, rulings, or inaction of the CIR are subject to
appeal with the CIR provided such appeal is filed within 30 days after the receipt of such
decision or ruling, or within 30 days after the expiration of the 180-day period fixed by law
for the Commissioner to act on the disputed assessments. This30-day period within which to
file an appeal is jurisdictional and failure to comply therewith would bar the appeal and
deprive the CTA of its jurisdiction. Such period is not merely directory but mandatory.
Tax Remedies
 – action taken thereon as of that date. On March 11, 2009, PAGCOR filed the instant Petition
 In case the Commissioner fails to act on the disputed assessment within the 180-day period
from date of submission of documents, a taxpayer can either: (options mutually exclusive)
1) file a petition for review with the CTA w/in 30 days after the expiration of the 180-day
period; or
2) await the final decision of the Commissioner on the disputed assessments and appeal such
final decision to the CTA within 30 days after receipt of a copy of such decision
FACTS:
 In 2001, RCBC received a demand letter from the CIR for its tax liabilities -- Gross Onshore
Tax and Documentary Stamp Tax – for its Special Savings Placements for the taxable year
1997. It then filed on July 20, 2001, a letter/request for reconsideration/reinvestigation
pursuant to Section 228 of the NIRC. When this was not acted upon, RCBC filed on April
30, 2002 a petition for review with the CTA for the cancellation of the assessments.
The issue of CTA’s jurisdiction was decided upon in a Resolution dated Sep 10, 2003 but
RCBC’s petition for review was dismissed because it was filed beyond the 30-day period
following the lapse of 180 days from petitioner’s submission of documents in support of its
protest. RCBC did not file a motion for reconsideration or appeal. The Resolution became
final and executor on October 1, 2003 and Entry of Judgment was made on December 1,
2003.
ISSUE: WN petitioner was denied the opportunity to be heard – NO
HELD:  duly authorized representative, the taxpayer may appeal to the Court of Tax Appeals within
Petitioner’s action for the cancellation of its assessments had already prescribed. As provided
in Section228, the failure of a taxpayer to appeal from an assessment on time rendered
the assessment final, executory and demandable. After availing the first option (filing a
petition for review which was however filed out of time) petitioner cannot successfully resort
to the second option (awaiting the final decision of the Commissioner and appealing he same
to CTA) on the pretext that there is yet no final decision on the disputed assessment because
of the Commissioner’s inaction.
RCBC’s failure to comply with the 30-day statutory period would bar the appeal and deprive
the CTA of its jurisdiction to entertain and determine the correctness of the assessment.
RCBC is precluded from disputing the correctness of the assessment.
AC. PAGCOR vs. BIR, G.R. No. 208731, January 27, 2016
FACTS:
On October 10, 2007, PAGCOR received a Post Reporting Notice showing deficiencies on
fringe benefit taxes (FBT). On January 17, 2008, PAGCOR received a Final Assessment
Notice (FAN) dated January 14, 2008, with demand for payment of deficiency FBT for
taxable year 2004 in the amount of P48,589,507.65. On January 24, 2008, PAGCOR filed a
protest to the FAN with the BIR Regional Director (RD). On August 14, 2008, PAGCOR
elevated its protest to respondent CIR in a Letter dated August 13, 2008, there being no
for Review alleging respondents' inaction in its protest on the disputed deficiency FBT.
The CTA 1st Division ruled in favor of respondents on the ground that the petition
for review filed before it was filed out of time. The CTA 1st Division stated: ―As earlier
stated, [PAGCOR] timely filed its administrative protest on January 24, 2008. In accordance
with Section 228 of the Tax Code, respondent CIR or her duly authorized representative had
180 days or until July 22, 2008 to act on the protest. After the expiration of the 180-day
period without action on the protest, as in the instant case, the taxpayer, specifically
[PAGCOR], had 30 days or until August 21, 2008 to assail the non-determination of its
protest. Clearly, the conclusion that the instant Petition for Review was filed beyond the
reglementary period for appeal on March 11, 2009, effectively depriving the Court of
jurisdiction over the petition, is inescapable.‖ The CTA en banc affirmed the decision.
ISSUE:
Whether or not the petition for review before the CTA 1st division was filed out of
time.
HELD:
No. The CTA En Banc and 1st Division were correct in dismissing PAGCOR's
petition. However, as we shall explain below, the dismissal should be on the ground of
premature, rather than late, filing.
In general, if the protest is denied, in whole or in part, by the Commissioner or his
thirty (30) days from date of receipt of the said decision, otherwise, the assessment shall
become final executory and demandable: Provided, however, that if the taxpayer elevates his
protest to the Commissioner within thirty (30) days from date of receipt of the final decision
of the Commissioner's duly authorized representative, the latter's decision shall not be
considered final, executory and demandable, in which case, the protest shall be decided by
the Commissioner. If the Commissioner or his duly authorized representative fails to act on
the taxpayer's protest within one hundred eighty (180) days from date of submission, by the
taxpayer, of the required documents in support of his protest, the taxpayer may appeal to the
Court of Tax Appeals within thirty (30) days from the lapse of the said 180-day period,
otherwise the assessment shall become final, executory and demandable.
The CTA 1st Division and CTA En Banc both established that PAGCOR received a
FAN on 17 January 2008, filed its protest to the FAN addressed to RD Misajon on 24
January 2008, filed yet another protest addressed to the CIR on 14 August 2008, and then
filed a petition before the CTA on 11 March 2009. There was no action on PAGCOR's
protests filed on 24 January 2008 and 14 August 2008.
PAGCOR only three options: (1). If the protest is wholly or partially denied by the
CIR or his authorized representative, then the taxpayer may appeal to the CTA within 30
days from receipt of the whole or partial denial of the protest. (2.) If the protest is wholly or
partially denied by the CIR's authorized representative, then the taxpayer may appeal to the
CIR within 30 days from receipt of the whole or partial denial of the protest. (3.) If the CIR
or his authorized representative failed to act upon the protest within 180 days from
submission of the required supporting documents, then the taxpayer may appeal to the CTA
within 30 days from the lapse of the 180-day period. To further clarify the three options: A
whole or partial denial by the CIR's authorized representative may be appealed to the CIR or
the CTA. A whole or partial denial by the CIR may be appealed to the CTA. The CIR or the
CIR's authorized representative's failure to act may be appealed to the CTA. There is no
mention of an appeal to the CIR from the failure to act by the CIR's authorized
representative.
Under the third option described above, even if we grant leeway to PAGCOR and consider
its unspecified April 2008 submission, PAGCOR still should have waited for the RD's
decision until 27 October 2008, or 180 days from 30 April 2008. PAGCOR then had 30 days
from 27 October 2008, or until 26 November 2008, to file its petition before the CTA.
PAGCOR, however, did not make use of the third option. PAGCOR did not file a petition
before the CTA on or before 26 November 2008.
Under the second option, PAGCOR ought to have waited for the RD's whole or
partial denial of its protest before it filed an appeal before the CIR. PAGCOR rendered the
second option moot when it formulated its own rule and chose to ignore the clear text of
Section 3.1.5. PAGCOR "elevated an appeal" to the CIR on 13 August 2008 without any
decision from the RD, then filed a petition before the CTA on 11 March 2009. A textual
reading of Section 228 and Section 3 .1.5 will readily show that neither Section 228 nor
Section 3 .1.5 provides for the remedy of an appeal to the CIR in case of the RD's failure to
act. The third option states that the remedy for failure to act by the CIR or his authorized
representative is to file an appeal to the CTA within 30 days after the lapse of 180 days from
the submission of the required supporting documents. PAGCOR clearly failed to do this.
When PAGCOR filed its petition before the CTA, it is clear that PAGCOR failed to
make use of any of the three options described above. A petition before the CTA may only
be made after a whole or partial denial of the protest by the CIR or the CIR's authorized
representative. When PAGCOR filed its petition before the CTA on 11 March 2009, there
was still no denial of PAGCOR's protest by either the RD or the CIR. Therefore, under the
first option, PAGCOR's petition before the CTA had no cause of action because it was
prematurely filed. The CIR made an unequivocal denial of PAGCOR's protest only on 18
July 2011, when the CIR sought to collect from PAGCOR the amount of P46,589,507.65.
The CIR's denial further puts PAGCOR in a bind, because it can no longer amend its petition
before the CTA.
PAGCOR has clearly failed to comply with the requisites in disputing an
assessment as provided by Section 228 and Section 3.1.5. Indeed, PAGCOR's lapses in
procedure have made the BIR's assessment final, executory and demandable, thus obviating
the need to further discuss the issue of the propriety of imposition of fringe benefits tax.
AD. Silkair (Singapore) Pte. Ltd. v. CIR, GR No. 171383, 14 November 2008;
Silkair (Singapore) Pte. Ltd. v. CIR, GR No. 184398, 25 February 2010
Silkair (Singapore) PTE. Ltd. vs. Commissioner of Internal Revenue, G.R. No.
184398, February 25, 2010.
Facts: SPL, a Singapore corporation, is an online international carrier which maintains a
Philippine representative office and operates routes passing through Cebu and Davao. SPL
filed with the BIR a claim for refund of the excise taxes it allegedly paid on its purchases of
jet fuel from P Corp. on the basis of Sec 135 of the 1997 NIRC. Held: The SC held that the
proper party to question or seek a refund of an indirect tax is the statutory taxpayer, the
person on whom the tax is imposed by law and who paid the same even if he shifts the
burden thereof to another. In this case, P Corp., being the manufacturer of the petroleum
products, is the statutory taxpayer and, therefore, the proper party to file the claim for tax
refund. The SC did not give merit to the argument of SPL that it is exempt from indirect
taxes on the basis of the RP-Singapore Air Transport Agreement. The SC held that the
exemption granted under Sec 135(B) of the 1997 NIRC and Article 4(2) of the Air Transport
Agreement, without clear legislative intent, cannot be construed as including indirect taxes.
Silkair Pte Ltd v. Commissioner of Internal Revenue, G.R. No. 173594, February 6, 2008
Excise tax;  refund. The proper party to question, or claim a refund or tax credit of an indirect
tax is the statutory taxpayer, which is Petron in this case, as it is the company on which the
tax is imposed by law and which paid the same even if the burden thereof was shifted or
passed on to another. It bears stressing that even if Petron shifted or passed on to petitioner
Silkair, the burden of the tax, the additional amount which petitioner paid is not a tax but a
part of the purchase price which it had to pay to obtain the goods.   
Proper Party to Claim Excise Tax Refund
The proper party to seek a refund of an indirect tax is the statutory taxpayer, the person on
whom the tax is imposed by law and who paid the same even if he shifts the burden thereof
to another. In case of a refund of excise taxes on petroleum products, it is the manufacturer
or producer which is entitled to claim a refund. Even if the manufacturer or
producer passed the burden of the tax to the purchaser, the additional amount billed for jet
fuel is not a tax but part of the price which the purchaser had to pay. [Silkair (Singapore) Pte.
Ltd. vs. CIR, G.R. No. 173594, promulgated 6 February 2008]
STATUTORY TAXPAYER IS PROPER PARTY TO CLAIM FOR REFUND OF
INDIRECT TAXES;INDIRECT TAX EXEMPTION MUST BE CLEARLY GRANTED;
15-DAY APPEAL PERIOD TO CTA EN BANC IS JURISDICTIONAL; SERVICE TO
COUNSEL OF RECORD BINDS PETITIONER
Petitioner Silkair, a Singapore-based international air carrier, sought a refund of excise tax
paid by Petron Corporation as manufacturer, which shifted the burden of the tax to purchaser
Silkair. The CTA Division denied against the claim since it was not the taxpayer. On
September 12, 2005, a new counsel entered appearance without the withdrawal of the
original counsel. Its original counsel of record received on October 3, 2005 a copy of the
September 22, 2005 Resolution of the CTA Division denying its motion for reconsideration
of the decision. On October 13, 2005, the original counsel withdrew its appearance with
conformity of petitioner and the new counsel requested for an official copy of the Resolution.
On October 14, 2005, the new counsel received a copy of the Resolution and requested on
October 28, 2005 an extension of time to file petition. The Court En Banc gave it until
November 14, 2005. Upon request, another extension until November 24, 2005 was granted
and on November 17, 2005, Silkair filed its petition. By Resolution of May 19, 2006, the
CTA En Banc dismissed the petition for being filed out of time notwithstanding the grant of
extension.
On petition for certiorari, the Supreme Court affirmed the dismissal, ruling that where no
notice of withdrawal or substitution of counsel has been shown, notice to counsel of record is
notice to the client citing Section 26, Rule 138 of the Rules of Court on the requirements for
withdrawal of counsel.
Ruling on the merits, the high tribunal held: The proper party to question, or seek a refund
of, an indirect tax is the statutory taxpayer, the person on whom the tax is imposed by law
and who paid the same even he shifts the burden
thereof to another. Under Section 130(A)(2) of the NIRC, it is the manufacturer or producer
who is subject to excise tax. Thus, Petron Corporation, not Silkair, is the statutory taxpayer
entitled to claim a refund based on Section 135 of the NIRC, which exempts from excise tax
petroleum products sold to exempt entities under international agreements and Article 4(2) of
the Air Transport Agreement between RP and Singapore. Even if Petron passed on to Silkair
the burden of the tax, the additional amount billed to Silkair for jet fuel is not a tax but part
of the purchase price. There is no indirect tax exemption under the Air Transport Agreement
in the absence of clear showing of legislative intent. Statutes granting tax exemptions must
be construed in strictissimi juris against the taxpayer. Silkair (Singapore) PTE, Ltd. vs. CIR,
G.R. No. 173594, Feb. 6, 2008.
Who is the proper party to claim a refund for the payment of excise taxes? What is an excise
tax? What is the remedy of a taxpayer who enjoys tax exemption with regard to the payment
of excise taxes?
Silkair (Singapore Pte. Ltd. Purchased aviation jet fuel from Petron, to which the latter
imposed a P3.67 per liter excise (specific) tax.
Claiming exemption from payment of excise taxes pursuant to Section 135 of the Tax Code
and Article 4 of the Philippines Singapore Air Agreement, Silkair filed a formal claim for
refund with the Commissioner
of Internal Revenue (CIR). Silkair alleged that it was the one who actually paid the excise
taxes due on the transactions while Petron merely remitted the payment to the BIR, thereby
negating the tax exemption
expressly granted to it. Nonetheless, the Supreme Court held that “the proper party to
question, or seek a refund of an indirect tax is the statutory taxpayer, the person on whom the
tax is imposed by law and who paid the same even if he shifts the burden thereof to
another.”3
Excise tax, “whether classified as specific or ad valorem tax, is basically an indirect tax
imposed on the consumption of a specified list of goods or products. The tax is directly
levied on the manufacturer upon removal of the table goods from the place of production but
in reality, the tax is passed on to the end consumer as part of the selling price of goods
sold.”4
In view thereof, while Petron actually passed on the burden of the tax to Silkair, the
additional amount billed to the latter was essentially a part of the purchase price and not a tax
in itself. Hence, the SC ruled that “even if the consumers or purchasers ultimately pay for the
tax, they are not considered the taxpayers. The fact that Petron, on whom the excise tax is
imposed, can shift the tax burden to its purchasers does not make the latter the taxpayers and
the former the withholding agent.
AE. G.R. No. 188497. February 19, 2014, COMMISSIONER OF INTERNAL
REVENUE vs. PILIPINAS SHELL PETROLEUM CORPORATION
DOCTRINE
Under section 123 of the NIRC, excise taxes are those applied to goods & manufactured or
produced in the Philippines for domestic sale or consumption or for any other disposition and
to things imported. Excise taxes as used in our Tax Code fall under 2 types – (1) specific tax
which is based on weight and volume capacity and other physical unit of measurement, and
(2) ad valorem tax which is based on selling price or other specified value of the goods.
Aviation fuel is subject to specific tax under Section 148 (g) which attaches to said product
"as soon as they are in existence as such."
Facts:
The Supreme Court, on April 2012, ruled that the CTA erred in granting Pilipinas Shell’s
claim for tax refund because the latter failed to establish a tax exemption in its favor under
Section 135(a) of the NIRC. Thus, Pilipinas Shell’s claim for tax refund was denied.
Hence, this MR filed by Pilipinas Shell. It argued:
That a plain reading of Section 135 of the NIRC reveals that it is the petroleum products sold
to international carriers which are exempt from excise tax for which reason no excise taxes
are deemed to have been due in the first place;
That excise tax being an indirect tax, Section 135 in relation to Section 148 should be
interpreted as referring to a tax exemption from the point of production and removal from the
place of production considering that it is only at that point that an excise tax is imposed;
That the situation is unlike the value-added tax (VAT) which is imposed at every point of
turnover – from production to wholesale, to retail and to end consumer;
That exemption could only refer to the imposition of the tax on the statutory seller, in this
case Pilipinas Shell, because when a tax paid by the statutory seller is passed on to the buyer
it is no longer in the nature of a tax but an added cost to the purchase price of the product
sold.
That the SC’s ruling that Section 135 only prohibits local petroleum manufacturers like
respondent from shifting the burden of excise tax to international carriers has adverse
economic impact as it severely curtails the domestic oil industry and places them at a
competitive disadvantage since foreign oil producers, particularly those whose governments
with which we have entered into bilateral service agreements, are not subject to excise tax
for the same transaction. Respondent fears this could lead to cessation of supply of petroleum
products to international carriers, retrenchment of employees of domestic
manufacturers/producers to prevent further losses, or worse, shutting down of their
production. Under this scenario, participation of Filipino capital, management and labor in
the domestic oil industry is effectively diminished.
That the imposition by the Philippine Government of excise tax on petroleum products sold
to international carriers is in violation of the Chicago Convention on International Aviation
("Chicago Convention") to which it is a signatory, as well as other international agreements
(the Republic of the Philippines’ air transport agreements with the United States of America,
Netherlands, Belgium and Japan).
The Solicitor General, in behalf of the CIR, argued that in the case of Exxonmobil Petroleum
& Chemical Holdings, Inc.-Philippine Branch v. Commissioner of Internal Revenue, the SC
held that the excise tax, when passed on to the purchaser, becomes part of the purchase price.
Hence, this refutes Pilipinas Shell’s theory that the exemption attaches to the petroleum
product itself and not to the purchaser for it would have been erroneous for the seller to pay
the excise tax and inequitable to pass it on to the purchaser if the excise tax exemption
attaches to the product.
ISSUE(S): Whether Pilipinas Shell is entitled to the tax refund
HELD: Yes.
Nature of Excise Tax
Under Section 129 of the NIRC, excise taxes are those applied to goods manufactured or
produced in the Philippines for domestic sale or consumption or for any other disposition and
to things imported. Excise taxes as used in our Tax Code fall under two types – (1) specific
tax which is based on weight or volume capacity and other physical unit of measurement,
and (2) ad valorem tax which is based on selling price or other specified value of the goods.
Aviation fuel is subject to specific tax under Section 148 (g) which attaches to said product
"as soon as they are in existence as such."
In ruling that specific taxes are excise taxes and not taxes on property the Supreme Court
said that “Specific taxes are truly excise taxes for the fact that the value of the property taxed
is taken into account will not change the nature of the tax. It is correct to say that specific
taxes are taxes on the privilege to import, manufacture and remove from storage certain
articles specified by law.” A tax is not excise where it does not subject directly the produce
or goods to tax but indirectly as an incident to, or in connection with, the business to be
taxed. The current definition of an excise tax is that of a tax levied on a specific article, rather
than one "upon the performance, carrying on, or the exercise of an activity.
Basis in granting the tax refund
That excise tax as presently understood is a tax on property has no bearing at all on the issue
of Pilipinas Shell’s entitlement to refund. Nor does the nature of excise tax as an indirect tax
supports Pilipinas Shell’s postulation that the tax exemption provided in Sec. 135 attaches to
the petroleum products themselves and consequently the domestic petroleum manufacturer is
not liable for the payment of excise tax at the point of production.
Excise tax on aviation fuel used for international flights is practically nil as most countries
are signatories to the 1944 Chicago Convention on International Aviation (Chicago
Convention). Article 249 of the Convention has been interpreted to prohibit taxation of
aircraft fuel consumed for international transport.
Section 135(a) of the NIRC and earlier amendments to the Tax Code represent our
Governments’ compliance with the Chicago Convention, its subsequent resolutions/annexes,
and the air transport agreements entered into by the Philippine Government with various
countries. The rationale for exemption of fuel from national and local taxes was expressed by
ICAO as follows:
To recognize the uniqueness of civil aviation and the need to accord tax exempt status to
certain aspects of the operations of international air transport and were adopted because
multiple taxation on the aircraft, fuel, technical supplies and the income of international air
transport, as well as taxes on its sale and use, were considered as major obstacles to the
further development of international air transport.
Indeed, the avowed purpose of a tax exemption is always "some public benefit or interest,
which the law-making body considers sufficient to offset the monetary loss entailed in the
grant of the exemption." The exemption from excise tax of aviation fuel purchased by
international carriers for consumption outside the Philippines fulfills a treaty obligation
pursuant to which our Government supports the promotion and expansion of international
travel through avoidance of multiple taxation and ensuring the viability and safety of
international air travel.
In this case, Sec. 135(a) of the NIRC (see notes) embodies our compliance with our
undertakings under the Chicago Convention and various bilateral air service agreements not
to impose excise tax on aviation fuel purchased by international carriers from domestic
manufacturers or suppliers. However, we agree that there is a need to reexamine the effect of
denying the domestic manufacturers/sellers’ claim for refund of the excise taxes they already
paid on petroleum products sold to international carriers, and its serious implications on our
Government’s commitment to the goals and objectives of the Chicago Convention.
Without any international agreement on taxing fuel, it is highly likely that moves to impose
duty on international flights, either at a domestic or European level, would encourage
'tankering': carriers filling their aircraft as full as possible whenever they landed outside the
EU to avoid paying tax. Clearly this would be entirely counterproductive. Aircraft would be
travelling further than necessary to fill up in low-tax jurisdictions; in addition they would be
burning up more fuel when carrying the extra weight of a full fuel tank.
With the prospect of declining sales of aviation jet fuel sales to international carriers on
account of major domestic oil companies' unwillingness to shoulder the burden of excise tax,
or of petroleum products being sold to said carriers by local manufacturers or sellers at still
high prices , the practice of "tankering" would not be discouraged. This scenario does not
augur well for the Philippines' growing economy and the booming tourism industry. Worse,
our Government would be risking retaliatory action under several bilateral agreements with
various countries. Evidently, construction of the tax exemption provision in question should
give primary consideration to its broad implications on our commitment under international
agreements.
In view of the foregoing reasons, we find merit in Pilipinas Shell’s motion for
reconsideration. We therefore hold that respondent, as the statutory taxpayer who is directly
liable to pay the excise tax on its petroleum products, is entitled to a refund or credit of the
excise taxes it paid for petroleum products sold to international carriers, the latter having
been granted exemption from the payment of said excise tax under Sec. 135 (a) of the NIRC.
AF. CIR vs. PHILIPPINE ASSOCIATED SMELTING AND REFINING
CORPORATION [G.R. No. 186223. October 1, 2014]
Facts:
The respondent Philippine Associated Smelting and Refining Corporation (PASAR) is a
domestic corporation engaged in the business of processing, smelting, refining and
exporting refined copper cathodes and other copper products, and a registered Zone
Export Enterprise with the Export Processing Zone Authority (EPZA). 3 PASAR uses
petroleum products for its manufacturing and other processes, and purchases it from
local distributors, which import the same and pay the corresponding excise taxes. The
excise taxes paid are then passed on by the local distributors to its purchasers. In this
particular case, Petron passed on to PASAR the excise taxes it paid on the petroleum
products bought by the latter during the period of January 2005 to October 2005,
totalling eleven million six hundred eighty-seven thousand four hundred sixty-seven
62/100 (P11,687,467.62).
In December 2006, PASAR filed a claim for refund and/or tax credit with the Office of
the Regional Director of Region XIV, which denied the same in a letter dated January
3, 2007.4cralawred
PASAR then filed a petition for review with the Court of Tax Appeals (CTA) Second
Division, which was contested by the petitioner. The petitioner also filed a motion to
preliminarily resolve whether PASAR is the proper party to ask for a refund.
Issue:
Whether or not PASAR is the proper party to claim for refund or issuance of tax credit
certificate for excise taxes paid
Ruling:
Yes
PASAR is a business enterprise registered with the EPZA pursuant to P.D. No. 66. 17 There is
no dispute as regards its use of fuel and petroleum products for the processing, smelting and
refining of its export copper products, and that Petron, from which PASAR purchased its fuel
and petroleum, products, passed on the excise taxes paid to the latter. In ruling that PASAR
is the proper party to file the claim for the refund/credit, the CTA En Bane chiefly relied on
the Court's rulings in Commissioner of Customs v. Philippine Phosphate Fertilizer
Corp.18 and Philippine Phosphate Fertilizer Corporation v. Commissioner of Internal
Revenue.19cralawred
Commissioner of Customs involved a claim for refund by Philippine Phosphate Fertilizer
Corporation (Philphos) of the customs duties it indirectly paid on fuel and petroleum
products purchased from Petron Corporation for the period of October 1991 until June 1992.
This was opposed by the Commissioner of Customs. One of the issues raised in the case was
the legal basis for Philphos' exemption from duties and taxes, it being an EPZA-registered
company. While it may be true that Commissioner of Customs involved the refund of
customs duties paid on petroleum products, it was nevertheless correctly applied by the
CTA En Banc.
Notably, in Commissioner of Customs, the Court squarely interpreted the exemption granted
under Section 17 of P.D. No. 66 as applicable to both customs duties and internal revenue
taxes, viz:chanroblesvirtuallawlibrary
The incentives offered to enterprises duly registered with the PEZA consist, among
others, of tax exemptions, x x x
Section 17 of the EPZA Law particularizes the tax benefits accorded to
duly registered enterprises. It states:
SEC. 17. Tax Treatment of Merchandize in the Zone. -
(1) Except as otherwise provided in this Decree, foreign
and domestic merchandise, raw materials, supplies,
articles, equipment, machineries, spare parts and wares
of every description, except those prohibited by law,
brought into the Zone to be sold, stored, broken up,
repacked, assembled, installed, sorted, cleaned, graded,
or otherwise processed, manipulated, manufactured,
mixed with foreign or domestic merchandise or used
whether directly or indirectly in such activity, shall not
be subject to customs and internal revenue laws and
regulations nor to local tax ordinances, the following
provisions of law to the contrary notwithstanding.
The cited provision certainly covers petroleum supplies used, directly or
indirectly, by Philphos to facilitate its production of fertilizers, subject to
the minimal requirement that these supplies are brought into the zone. The
supplies are not subject to customs and internal revenue laws and
regulations, nor to local tax ordinances. It is clear that Section 17(1)
considers such supplies exempt even if they are used indirectly, as they
had been in this case.20 (Emphasis and underscoring ours)
Thus, the Court affirmed the refund of customs duties granted by the CTA and in closing,
stated that "[t]he grant of exemption under Section 17(1) is clear and unambiguous, x x
x."21cralawred
Philphos, meanwhile, involved Philphos' claim for refund of excise taxes passed on by
Petron. One of the issues identified by the Court in the case was whether the CTA should
have granted the claim for refund. In resolving said issue, the Court ruled that the CTA erred
when it disallowed the petitioner's claim due to its failure to present invoices as there is
nothing in CTA Circular No. 1-95 that requires its presentation. The issue of whether the
petitioner was entitled to exemption from payment of excise taxes was not lengthily
discussed by the Court because it was already undisputed. Thus, the Court
stated:chanRoblesvirtualLawlibrary
In this case, there is no dispute that petitioner is entitled to exemption
from the payment of excise taxes by virtue of its being an EPZA
registered enterprise. As stated by the CTA, the only thing left to be
determined is whether or not petitioner is entitled to the amount claimed
for refund.
xxxx
Since it is not disputed that petitioner is entitled to tax exemption, it
should not be precluded from presenting evidence to substantiate the
amount of refund it is claiming on mere technicality especially in this case,
where the failure to present invoices at the first instance was adequately
explained by petitioner.22 (Emphasis ours)
Applying the foregoing rulings in this case, it is therefore undeniable that PASAR is
exempted from payment of excise taxes.
The next pivotal question then that must be resolved is whether PASAR has the legal
personality to file the claim for the refund of the excise taxes passed on by Petron. The
petitioner insists that PASAR is not the proper party to seek a refund of an indirect tax, such
as an excise tax or Value Added Tax, because it is not the statutory taxpayer. The petitioner's
argument, however, has no merit.
The rule that it is the statutory taxpayer which has the legal personality to file a claim for
refund23 finds no applicability in this case. In Philippine Airlines, Inc. v. Commissioner of
Internal Revenue,24 the Court distinguished between the kinds of exemption enjoyed by a
claimant in order to determine the propriety of a tax refund claim. "If the law confers an
exemption from both direct or indirect taxes, a claimant is entitled to a tax refund even
if it only bears the economic burden of the applicable tax. On the other hand, if the
exemption conferred only applies to direct taxes, then the statutory taxpayer is regarded as
the proper party to file the refund claim."25 In PASAR's case, Section 17 of P.D. No. 66, as
affirmed in Commissioner of Customs, specifically declared that supplies, including
petroleum products, whether used directly or indirectly, shall not be subject to internal
revenue laws and regulations. Such exemption includes the payment of excise taxes, which
was passed on to PASAR by Petron. PASAR, therefore, is the proper party to file a claim for
refund.
AG. Chevron vs. CIR, GR No. 210836, 1 Sept 2015
Facts:
Chevron sold and delivered petroleum products to CDC in the period from August 2007 to
December 2007. Chevron did not pass on to CDC the excise taxes paid on the importation of
the petroleum products sold to CDC in taxable year 2007; hence it filed an administrative
claim for tax refund or
issuance of tax credit certificate in the amount of P6,542,400.00.Considering that respondent
CIR did not act on the administrative claim for tax refund or tax credit, Chevron elevated its
claim to the CTA by petition for review.
The CTA First Division denied Chevron‘s judicial claim for tax refund or tax credit and later
on also denied Chevron‘s Motion for Reconsideration. In due course, Chevron appealed to
the CTA En Banc, which, in the decision affirmed the ruling of the CTA First Division,
stating that there was nothing in Section 135(c) of the NIRC that explicitly exempted
Chevron as the seller of the imported petroleum products from the payment of the excise
taxes; and holding that because it did not fall under any of the categories exempted from
paying excise tax, Chevron was not entitled to the tax refund or tax credit. The CTA En Banc
noted that:
Considering that an excise tax is in the nature of an indirect tax where the tax burden can be
shifted, Section 135(c) of the NIRC of 1997, as amended, should be construed as prohibiting
the shifting of the burden of the excise tax to tax-exempt entities who buys petroleum
products from the manufacturer/seller by incorporating the excise tax component as an added
cost in the price fixed by the manufacturer/seller.
Issue:
Whether Chevron was entitled to the tax refund or the tax credit for the excise taxes paid on
the importation of petroleum products that it had sold to CDC in 2007.
Ruling: Chevron‘s Motion for Reconsideration is meritorious.
Under Section 129 of the NIRC, as amended, excise taxes are imposed on two kinds of
goods, namely:
(a) goods manufactured or produced in the Philippines for domestic sales or consumption or
for any other disposition; and (b) things imported. Undoubtedly, the excise tax imposed
under Section 129 of the NIRC is a tax on property.
With respect to imported things, Section 131 of the NIRC declares that excise taxes on
imported things shall be paid by the owner or importer to the Customs officers, conformably
with the regulations of the Department of Finance and before the release of such articles
from the customs house, unless the imported things are exempt from excise taxes and the
person found to be in possession of the same is other than those legally entitled to such tax
exemption. For this purpose, the statutory taxpayer is the importer of the things subject to
excise tax.
Chevron, being the statutory taxpayer, paid the excise taxes on its importation of the
petroleum products.
Pursuant to Section 135(c), supra, petroleum products sold to entities that are by law exempt
from direct and indirect taxes are exempt from excise tax. The phrase which are by law
exempt from direct and indirect taxes describes the entities to whom the petroleum products
must be sold in order to render the exemption operative. Section 135(c) should thus be
construed as an exemption in favor of the petroleum products on which the excise tax was
levied in the first place. The exemption cannot be granted to the buyers – that is, the entities
that are by law exempt from direct and indirect taxes – because they are not under any legal
duty to pay the excise tax.
Consequently, the payment of the excise taxes by Chevron upon its importation of petroleum
products was deemed illegal and erroneous upon the sale of the petroleum products to CDC.
AH. CBK POWER COMPANY LIMITED vs. CIR, G.R. Nos. 193383-84, January
14, 2015; CIR vs. CBK POWER COMPANY LIMITED, G.R. Nos. 193407-08
FACTS:
CBK Power is a limited partnership duly organized and existing under the laws of the
Philippines, and primarily engaged in the development and operation of the Caliraya,
Botocan, and Kalayaan hydro electric power generating plants in Laguna (CBK Project).
To finance the CBK Project, CBK Power obtained in August 2000 a syndicated
loan from several foreign banks, i.e., BNP Paribas, Dai-ichi Kangyo Bank, Limited,
Industrial Bank of Japan, Limited, and Societe General (original lenders), acting
through an Inter- Creditor Agent, Dai-ichi Kangyo Bank, a Japanese bank that
subsequently merged with the Industrial Bank of Japan, Limited (Industrial Bank of
Japan) and the Fuji Bank, Limited (Fuji Bank), with the merged entity being named
as Mizuho Corporate Bank (Mizuho Bank). One of the merged banks, Fuji Bank,
had a branch in the Philippines, which became a branch of Mizuho Bank as a result
of the merger.
Certain portions of the loan were subsequently assigned by the original lenders to
various other banks, including Fortis Bank (Nederland) N.V. (Fortis- Netherlands)
and Raiffesen Zentral Bank Osterreich AG (Raiffesen Bank). Fortis-Netherlands, in
turn, assigned its portion of the loan to Fortis Bank S.A./N.V. (Fortis- Belgium), a
resident of Belgium. Fortis Netherlands and Raiffesen Bank, on the other hand, are
residents of Netherlands and Austria, respectively.
In February 2001, CBK Power borrowed money from Industrial Bank of Japan,
Fortis-Netherlands, Raiffesen Bank, Fortis-Belgium, and Mizuho Bank for which it
remitted interest payments from May 2001 to May 2003. It allegedly withheld final
taxes from said payments based on the following rates, and paid the same to the
Revenue District Office No. 55 of the Bureau of Internal Revenue (BIR): (a)
fifteen percent (15%) for Fortis-Belgium, Fortis-Netherlands, and Raiffesen Bank;
and (b) twenty percent (20%) for Industrial Bank of Japan and Mizuho Bank.
BANK COUNTRY OF PREFERENTIA L RATE
RESIDENC E UNDER THE
 First Division granted the petitions and ordered the refund of the amount of
RELEVANT
15,672,958.42 upon a finding that the relevant tax treaties were applicable to the
TAX TREATY
case. The CTA First Division categorically declared in the August 28, 2008
Fortis Bank Belgium 10% (Article Decision that the required International Tax Affairs Division (ITAD) ruling was not
S.A./N.V. 11[1], RP-Belgium Tax a condition sine qua non for the entitlement of the tax relief sought by CBK Power,
Treaty) however, upon motion for reconsideration filed by the Commissioner, the CTA
First Division amended its earlier decision by reducing the amount of the refund
Industrial Bank Japan 10% (Article from P15,672,958.42 to P14,835,720.39 on the ground that CBK Power failed to
of 11[3], RP-Japan obtain an ITAD ruling with respect to its transactions with Fortis- Netherlands.
Japan Tax Treaty)
Raiffesen Austria 10% (Article
CBK Power elevated the matter to the CTA En Banc on petition for review,
Zentral Bank 11[3], RP-Japan
docketed as C.T.A E.B. No. 494. The Commissioner likewise filed his own petition
Osterreic Tax Treaty)
for review, which was docketed as C.T.A. E.B. No. 469. Said petitions were
h AG
subsequently consolidated.
Mizuho Japan 10% (Article
CBK Power raised the lone issue of whether or not an ITAD ruling is
Corporate Bank 11[3], RP-Japan
required before it can avail of the preferential tax rate. On the other hand,
Tax Treaty) the Commissioner claimed that CBK Power failed to exhaust
administrative remedies when it filed its petitions before the CTA First
On April 14, 2003, CBK Power filed a claim for refund of its excess final Division, and that said petitions were not filed within the two-year
withholding taxes allegedly erroneously withheld and collected for the prescriptive period for initiating judicial claims for refund.
years 2001 and 2002 with the BIR Revenue Region No. 9. The claim for
refund of excess final withholding taxes in 2003 was subsequently filed on The CTA En Banc Ruling: The CTA En Banc affirmed the ruling of the
March 4, 2005. CTA First Division that a prior application with the ITAD is indeed
required by Revenue Memorandum Order (RMO) 1-2000, which
CTA Case No. 6699 was filed by CBK Power on June 6, 2003 seeking the administrative issuance has the force and effect of law and is just as
refund of excess final withholding tax in the total amount of binding as a tax treaty.
P6,393,267.20 covering the year 2001 with respect to interest income
derived by [Fortis-Belgium], Industrial Bank of Japan, and [Raiffesen CBK Power’s motion for partial reconsideration and the Commissioner’s
Bank]. motion for reconsideration of the foregoing Decision were both denied in a
Resolution dated August 16, 2010 for lack of merit; hence, the present
consolidated petitions.
CTA Case No. 6884 was filed by CBK Power on March 5, 2004 seeking for the refund of
the amount of P8,136,174.31 covering the year 2002 with respect to interest income derived ISSUE:
by [Fortis- Belgium], Industrial Bank of Japan, [Mizuho Bank], and [Raiffesen Bank].
Whether or not the BIR may add a requirement prior application for an ITAD
CTA Case No. 7166 was filed by CBK [Power] on March 9, 2005 seeking for the ruling that is not found in the income tax treaties signed by the Philippines before a
refund of [the amount of] P1,143,517.21covering the year 2003 with respect to taxpayer can avail of preferential tax rates under said treaties?
interest income derived by [Fortis Belgium], and [Raiffesen Bank].
RULING:
CTA Case Nos. 6699 and 6884 were consolidated first on June 18, 2004.
Subsequently, however, all three cases – CTA Case Nos. 6699, 6884, and 7166 – - G.R. Nos. 193383-84: The Court holds that the CTA En Banc committed reversible
were consolidated in a Resolution dated August 3, 2005. error in affirming the reduction of the amount of refund to CBK Power from
15,672,958.42 to P14,835,720.39 to exclude its transactions with Fortis-
The CTA First Division Rulings: In a Decision dated August 28, 2008, the CTA
 Netherlands for which no ITAD ruling was obtained. CBK Power’s petition in G.R. Nos.
193383-84 is therefore granted.
The obligation to comply with a tax treaty must take precedence over the
objective of RMO No. 1-2000. Logically, noncompliance with tax treaties has negative
implications on international relations, and unduly discourages foreign investors. While
the consequences sought to be prevented by RMO No. 1-2000 involve an administrative
procedure, these may be remedied through other system management processes, e.g., the
imposition of a fine or penalty. But we cannot totally deprive those who are entitled to the
benefit of a treaty for failure to strictly comply with an administrative issuance requiring
prior application for tax treaty relief.
CBK Power could not have applied for a tax treaty relief 15 days prior to its
payment of the final withholding tax on the interest paid to its lenders precisely because it
erroneously paid said tax on the basis of the regular rate as prescribed by the NIRC, and
not on the preferential tax rate provided under the different treaties. As stressed by the
Court, the prior application requirement under RMO No. 1-2000 then becomes illogical.
Since CBK Power had requested for confirmation from the ITAD on June 8, 2001
and October 28, 2002 before it filed on April 14, 2003 its administrative claim for refund
of its excess final withholding taxes, the same should be deemed substantial compliance
with RMO No. 1-2000.
- G.R. Nos. 193407-08: The petition of the Commissioner in G.R. Nos. 193407- 08 is denied
for lack of merit. CBK Power’s administrative and judicial claims for refund of its excess
final withholding taxes covering taxable year 2003 were filed within the two-year
prescriptive period.
Commissioner argues that the failure on the part of CBK Power to give him a
reasonable time to act on said claim is violative of the doctrines of exhaustion of
administrative remedies and of primary jurisdiction. CBK Power maintains that it
would be prejudicial to wait for the Commissioner’s ruling before it files its
judicial claim since it only has 2 years from the payment of the tax within which to
file both its administrative and judicial claims.
DISPOSITIVE: The petition in G.R. Nos. 193383-84 is GRANTED. The
Decision dated March 29, 2010 and the Resolution dated August 16, 2010 of the
Court of Tax Appeals (CTA) En Banc in C.T.A. E.B. Nos. 469 and 494 are
hereby REVERSED and SET ASIDE and a new one entered REINSTATING the
Decision of the CTA First Division dated August 28, 2008 ordering the refund in
favor of CBK Power Company Limited the amount of Pl5,672,958.42
representing its excess final withholding taxes for the taxable years 2001 to 2003,
and the petition in G.R. Nos. 193407-08 is DENIED for lack of merit.
AI. CIR vs. Goodyear Philippines, Inc. GR No. 216130, 3 August 2016
Facts: Respondent is a domestic corporation duly organized and existing under the laws of
the Philippines, and registered with the Bureau of Internal Revenue (BIR) as a large taxpayer
with Taxpayer Identification Number 000-409-561-000.6 On August 19, 2003, the
authorized capital stock of respondent was increased from P400,000,000.00 divided into
4,000,000 shares with a par value of P100.00 each, to P1,731,863,000.00 divided into
4,000,000 common shares and 13,318,630 preferred shares with a par value of P100.00 each.
Consequently, all the preferred shares were solely and exclusively subscribed by Goodyear
Tire and Rubber Company (GTRC), which was a foreign company organized and existing
under the laws of the State of Ohio, United States of America (US) and is unregistered in the
Philippines.7chanrobleslaw
On May 30, 2008, the Board of Directors of respondent authorized the redemption of
GTRC's 3,729,216 preferred shares on October 15, 2008 at the redemption price of
P470,653,914.00, broken down as follows: P372,921,600.00 representing the aggregate par
value and P97,732,314.00, representing accrued and unpaid dividends.8chanrobleslaw
On October 15, 2008, respondent filed an application for relief from double taxation before
the International Tax Affairs Division of the BIR to confirm that the redemption was not
subject to Philippine income tax, pursuant to the Republic of the Philippines (RP) - US Tax
Treaty.9 This notwithstanding, respondent still took the conservative approach, and thus,
withheld and remitted the sum of P14,659,847.10 to the BIR on November 3, 2008,
representing fifteen percent (15%) FWT, computed based on the difference of the
redemption price and aggregate par value of the shares.10chanrobleslaw
On October 21, 2010, respondent filed an administrative claim for refund or issuance of
TCC, representing 15% FWT in the sum of P14,659,847.10 before the BIR. Thereafter, or on
November 3, 2010, it filed a judicial claim, by way of petition for review, before the CTA,
docketed as C.T.A. Case No. 8188.11chanrobleslaw
For her part, petitioner maintained that respondent's claim must be denied, considering that:
(a) it failed to exhaust administrative remedies by prematurely filing its petition before the
CTA; and (b) it failed to submit complete supporting documents before the BIR.
Issue/s: WON the judicial claim of respondent should be dismissed for non-exhaustion of
administrative remedies.
Ruling: NO.
Section 229 of the Tax Code states that judicial claims for refund must be filed within two
(2) years from the date of payment of the tax or penalty, providing further that the same may
not be maintained until a claim for refund or credit has been duly filed with the
Commissioner of Internal Revenue (CIR), viz.:
SEC. 229. Recovery of Tax Erroneously or Illegally Collected. – No suit or proceeding shall
be maintained in any court for the recovery of any national internal revenue tax hereafter
alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed
to have been collected without authority, or of any sum alleged to have been excessively or
in any manner wrongfully collected, until a claim for refund or credit has been duly filed
with the Commissioner; but such suit or proceeding may be maintained, whether or not such
tax, penalty, or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years
from the date of payment of the tax or penalty regardless of any supervening cause that may
arise after payment x x x. (Emphases and underscoring supplied)
Verily, the primary purpose of filing an administrative claim was to serve as a notice of
warning to the CIR that court action would follow unless the tax or penalty alleged to have
been collected erroneously or illegally is refunded. To clarify, Section 229 of the Tax Code –
[then Section 306 of the old Tax Code] – however does not mean that the taxpayer must
await the final resolution of its administrative claim for refund, since doing so would be
tantamount to the taxpayer's forfeiture of its right to seek judicial recourse should the two
(2)-year prescriptive period expire without the appropriate judicial claim being filed. In CBK
Power Company, Ltd. v. CIR,36 the Court enunciated:
In the foregoing instances, attention must be drawn to the Court's ruling in P.J. Kiener Co.,
Ltd. v. David (Kiener), wherein it was held that in no wise does the law, i.e., Section 306 of
the old Tax Code (now, Section 229 of the NIRC), imply that the Collector of Internal
Revenue first act upon the taxpayer's claim, and that the taxpayer shall not go to court before
he is notified of the Collector's action. In Kiener, the Court went on to say that the claim with
the Collector of Internal Revenue was intended primarily as a notice of warning that unless
the tax or penalty alleged to have been collected erroneously or illegally is refunded, court
action will follow x x x.37 (Emphases and underscoring supplied)
In the case at bar, records show that both the administrative and judicial claims for refund of
respondent for its erroneous withholding and remittance of FWT were indubitably filed
within the two-year prescriptive period.38 Notably, Section 229 of the Tax Code, as worded,
only required that an administrative claim should first be filed. It bears stressing that
respondent could not be faulted for resorting to court action, considering that the prescriptive
period stated therein was about to expire. Had respondent awaited the action of petitioner
knowing fully well that the prescriptive period was about to lapse, it would have resultantly
forfeited its right to seek a judicial review of its claim, thereby suffering irreparable damage.
Thus, in view of the aforesaid circumstances, respondent correctly and timely sought judicial
redress, notwithstanding that its administrative and judicial claims were filed only 13 days
apart.
AJ. METROPOLITAN BANK & TRUST COMPANY VS. CIR, GR NO. 182582,
17 APRIL 2017
FACTS:
On June 5, 1997, Solidbank Corporation (Solidbank) entered into an agreement with Luzon
Hydro Corporation (LHC), whereby the former extended to the latter a foreign currency
denominated loan in the principal amount of US$123,780,000.00 (Agreement). Pursuant to
the Agreement, LHC is bound to shoulder all the corresponding internal revenue taxes
required by law to be deducted or withheld on the said loan, as well as the filing of tax
returns and remittance of the taxes withheld to the Bureau of Internal Revenue (BIR). On
September 1, 2000, Metrobank acquired Solidbank, and consequently, assumed the latter's
rights and obligations under the aforesaid Agreement.
On March 2, 2001 and October 31, 2001, LHC paid Metro bank the total amounts of
US$1,538,122.17 and US$1,333,268.31,  respectively. Pursuant to the Agreement, LHC
withheld, and eventually paid to the BIR, the ten percent (10%) final tax on the interest
portions of the aforesaid payments, on the same months that the respective payments were
made to petitioner. In sum, LHC remitted a total ofUS$106,178.69, or its Philippine Peso
equivalent of ₱5,296,773.05, as evidenced by LHC's Schedules of Final Tax and Monthly
Remittance Returns for the said months.
According to Metrobank, it mistakenly remitted the aforesaid amounts to the BIR as well
when they were inadvertently included in its own Monthly Remittance Returns of Final
Income Taxes Withheld for the months of March 2001 and October 2001. Thus, on
December 27, 2002, it filed a letter to the BIR requesting for the refund thereof. Thereafter
and in view of respondent the Commissioner of Internal Revenue's (CIR) inaction,
Metrobank filed its judicial claim for refund via a petition for review filed before the CTA on
September 10, 2003.
In defense, the CIR averred that: Metro bank must prove that there was double payment of
the tax sought to be refunded.
The CTA Division also denied Metrobank's claim for refund relative to the October 2001 tax
payment for insufficiency of evidence.
The CTA En Banc affirmed the CTA Division's ruling. It held that since Metrobank's March
2001 final tax is in the nature of a final withholding tax, the two (2)-year prescriptive period
was correctly reckoned by the CTA Division from the time the same was paid on April 25,
2001. As such, Metro bank's claim for refund had already prescribed as it only filed its
judicial claim on September 10, 2003.
ISSUE: 
Whether or not the CTA En Banc correctly held that Metrobank's claim for refund relative to
its March 2001 final tax had already prescribed.
RULINGS:
In this relation, Section 229 of the same Code provides for the proper procedure in order to
claim for such refunds, to wit:
Section 229. Recovery of Tax Erroneously or Illegally Collected. - No suit or proceeding
shall be maintained in any court for the recovery of any national internal revenue tax
hereafter alleged to have been erroneously or illegally assessed or collected, or of any
penalty claimed to have been collected without authority, or of any sum alleged to have been
excessively or in any manner wrongfully collected, until a claim for refund or credit has been
duly filed with the Commissioner; but such suit or proceeding may be maintained, whether
or not such tax, penalty, or sum has been paid under protest or duress.
No such suit or proceeding shall be filed after the expiration of two (2) years from the date
of payment of the tax or penalty regardless of any supervening cause that may arise after
payment.
Metrobank insists that the filing of its administrative and judicial claims on December 27,
2002 and September 10, 2003, respectively, were well-within the two (2)-year prescriptive
period.
AK. PBCOM vs. CIR, GR No. 194065, 20 June 2016
Facts:
Petitioner PBCom purchased documentary stamps from BIR and loaded them to its DS
metering machine. During the period 23 March 2004 to 23 December 2004, petitioner
executed several repurchase agreements with the Bangko Sentral ng Pilipinas (BSP). The
DST imprinted on the confirmation letters corresponding to those repurchase agreements
through petitioner’s DS metering machine.
Petitioner filed with the BIR an administrative claim for the issuance of tax credit certificates
for the alleged erroneous payment of the DST claiming that the repurchase agreements were
not subject to the DST.
For failure of BIR to act upon petitioner’s claim for issuance of tax credit certificates,
PBCom filed a petition for review with the CTA.
Subsequently, CTA Second division rendered a decision, holding that the various repurchase
agreements with the BSP from 23 March 2004 to 23 December 2004 were exempt from the
imposition of the DST pursuant to Section 9 of RA 9243 but only P10, 633, 881.20 had been
substantiated. Out of that amount, P3, 072, 521.60 was barred by prescription, and only the
claim for the remaining P7,561, 359.60 fell within the 2 year prescriptive period. The CTA
Division reckoned the counting of the 2 year period from the date of the Confirmation
Letters of the repurchase agreements. Considering that petitioner filed its administrative
claim on 12 May 2006 and judicial claim on 18 May 2006, the DST paid on the repurchase
agreements earlier than 18 May 2004 was disallowed due to prescription.
The CTA en banc ruled that insofar as the taxpayers using the DS metering machine were
concerned, the DST was deemed paid upon the purchase of documentary stamps for loading
and reloading on the DS metering machine, through the filing of the DST Declaration under
BIR Form No. 2000, and not from the date appearing on the documentary stamp imprinted
through the DS metering machine. Consequently, the refundable amount was further reduced
to P5, 238, 495.40 representing the erroneously paid DST that had not yet been barred by
prescription.
Issue:
Whether or not the date imprinting the documentary stamps on the document or the date of
the purchase of the documentary stamps for loading and reloading on the DS metering
machine should be deemed as payment of the DST contemplated under Section 200 (D) of
the NIRC for the purpose of counting the 2 year prescriptive period for filing a claim for a
refund or tax credit?
Held.
No. In Gibbs v. Commissioner of Internal Revenue, this court ruled that “payment is a mode
of extinguishing obligations (Art. 1231, civil code) and it means not only the delivery of
money but also the performance, in any other manner, of an obligation. A taxpayer, resident
or non - resident, does so not really to deposit an amount to the Commissioner of Internal
Revenue, but, in truth, to perform, and extinguish his tax obligation for the year concerned.
In other words, he is paying his tax liabilities for that year. Consequently, a taxpayer whose
income is withheld at source will be deemed to have paid his tax liability when the same falls
due at the end of the tax year. It is from this latter date then, or when the tax liability falls
due, that the 2 year prescriptive period under Section 306 (now part of Section 230) of the
Revenue Code starts to run with respect to payments effected through the withholding tax
system.” The aforequoted ruling presents two alternative reckoning dates: (1) the end of the
tax year; and (2) the date when the tax liability falls due.
Applying the same rationale to this case, the payment of the DST and the filing of the DST
Declaration Return upon loading/reloading of the DS metering machine must not be
considered as the “date of payment” when the prescriptive period to file a claim for a
refund/credit must commence. For DS metering machine users, the payment of the DST
upon loading/reloading is merely an advance payment for future application. The liability for
the payment of the DST falls due only upon the concurrence of a taxable transaction.
Therefore, it is only then that payment may be considered for the purpose of filing a claim
for a refund or tax credit. Since actual payment was already made upon loading/reloading of
the DS metering machine and the filing of the DST Declaration Return, the date of
imprinting the documentary stamp on the taxable document must be considered as the date of
payment contemplated under Section 229 of the NIRC.
In the case at bar, the DST fell due when the petitioner entered into repurchase agreements
with the BSP and the corresponding documentary stamps were imprinted on the confirmation
letters. Considering, however, that the transaction is exempt from tax, petitioner is entitled ti
a refund. The prescriptive period for filing the claim for a refund or tax credit under Section
229 must be reckoned from the date when the documentary stamps were imprinted on the
Confirmation Letters.
AL. MITSUBISHI CORPORATION – MANILA BRANCH VS. CIR, June 5, 2017,
G.R. No. 175772
FACTS
The governments of Japan and the Philippines executed an Exchange of Notes,
whereby the former agreed to extend a loan amounting to Forty Billion Four Hundred
Million Japanese Yen to the latter through the then Overseas Economic Cooperation Fund
(OECF, now Japan Bank for International Cooperation) for the implementation of the Calaca
II Coal-Fired Thermal Power Plant Project (Project). The Philippine Government, by itself or
through its executing agency, undertook to assume all taxes imposed by the Philippines on
Japanese contractors engaged in the Project. Meanwhile, the National Power Corporation
(NPC), as the executing government agency, entered into a contract with Mitsubishi
Corporation for the engineering, supply, construction, installation, testing, and
commissioning of a steam generator, auxiliaries, and associated civil works for the Project
(Contract). The Contract's foreign currency portion was funded by the OECF loans. The
Contract indicated NPC' s undertaking to pay any and all forms of taxes that are directly
imposable under the Contract.
Petitioner filed its Income Tax Return for the fiscal year that ended on March 31,
1998 with the Bureau of Internal Revenue. Petitioner included in its income tax due the
amount of ₱44,288,712.00, representing income from the OECF-funded portion of the
Project. On the same day, petitioner also filed its Monthly Remittance Return of Income
Taxes Withheld and remitted ₱8,324,100.00 as BPRT for branch profits remitted to its head
office in Japan out of its income for the fiscal year that ended on March 31, 1998 .
Petitioner filed with the respondent Commissioner on Internal Revenue (CIR) an
administrative claim for refund of Fifty Two Million Six Hundred Twelve Thousand, Eight
Hundred Twelve Pesos (P52,612,812.00), representing the erroneously paid amounts of
P44,288,712.00 as income tax and ₱8,324,100.00 as BPRT corresponding to the OECF-
funded portion of the Project. To suspend the running of the two-year period to file a judicial
claim for refund, petitioner filed a petition for review before the CTA.
The CTA Division granted the petition and ordered the CIR to refund to petitioner the
amounts it erroneously paid as income tax and BPRT. The CTA En Banc reversed the CTA
Division's rulings and declared that petitioner is not entitled to a refund of the taxes it paid to
the CIR.
ISSUES
Is the petitioner entitled to a refund? If in the affirmative, from which government
entity should the refund be claimed?
RULING
YES. The Petitioner is entitled to a refund. In this case, it is fairly apparent that the
subject taxes in the amount of ₱52,612,812.00 was erroneously collected from petitioner,
considering that the obligation to pay the same had already been assumed by the Philippine
Government by virtue of its Exchange of Notes with the Japanese Government. Case law
explains that an exchange of notes is considered as an executive agreement, which is binding
on the State even without Senate concurrence.
To "assume" means "[t]o take on, become bound as another is bound, or put oneself
in place of another as to an obligation or liability." This means that the obligation or liability
remains, although the same is merely passed on to a different person. In this light, the
concept of an assumption is therefore different from an exemption, the latter being the
"[f]reedom from a duty, liability or other requirement" or "[a] privilege given to a judgment
debtor by law, allowing the debtor to retain [a] certain property without liability."Thus,
contrary to the CTA En Bane's opinion, the constitutional provisions on tax exemptions
would not apply.
Thus, in line with the tax assumption provision under the Exchange of Notes,
Article VIII (B)
(1) of the Contract states that NPC shall pay any and all forms of taxes that are directly
imposable under the Contract.
The Philippine Government's assumption of "all fiscal levies and taxes," which
includes the subject taxes, is clearly a form of concession given to Japanese suppliers,
contractors or consultants in consideration of the OECF Loan, which proceeds were used for
the implementation of the Project. Therefore, considering that petitioner paid the subject
taxes in the aggregate amount of ₱52,612,812.00, which it was not required to pay, the BIR
erroneously collected such amount. Accordingly, petitioner is entitled to its refund.
To reiterate, petitioner's entitlement to the refund is based on the tax assumption
provision in the Exchange of Notes. Given that this is a case of tax assumption and not an
exemption, the BIR is, therefore, not without recourse; it can properly collect the subject
taxes from the NPC as the proper party that assumed petitioner's tax liability.
AM. CIR vs. MANILA ELECTRIC COMPANY (MERALCO), respondent. G.R.
No. 181459. June 9, 2014.]
FACTS: Respondent Manila Electric Company (MERALCO) obtained a loan from
Norddeutsche Landesbank Girozentrale (NORD/LB) Singapore Branch with ING Barings
South East Asia Limited (ING Barings) as the Arranger. On September 4, 2000, respondent
MERALCO executed another loan agreement with NORD/LB Singapore Branch for a loan
facility with Citicorp International Limited as Agent. Under the foregoing loan agreements,
the income received by NORD/LB, by way of respondent MERALCO’s interest payments,
shall be paid in full without deductions, as respondent MERALCO shall bear the obligation
of paying/remitting to the BIR the corresponding ten percent (10%) final withholding tax.
Pursuant thereto, respondent MERALCO paid/remitted to the Bureau of Internal Revenue
(BIR) the said withholding tax on its interest payments to NORD/LB Singapore Branch,
covering the period from January 1999 to September 2003. However, sometime in 2001,
respondent MERALCO discovered that NORD/LB Singapore Branch is a foreign
government-owned financing institution of Germany. Thus, respondent MERALCO filed a
request for a BIR Ruling with petitioner Commissioner of Internal Revenue (CIR) with
regard to the tax exempt status of NORD/LB Singapore Branch. On October 7, 2003, the
BIR issued a ruling declaring that the interest payments made to NORD/LB Singapore
Branch are exempt from the ten percent (10%) final withholding tax, since it is a financing
institution owned and controlled by the foreign government of Germany. Consequently, on
July 13, 2004, relying on the aforesaid BIR Ruling, respondent MERALCO filed with
petitioner a claim for tax refund or issuance of tax credit certificate, representing the
erroneously paid or overpaid final withholding tax on interest payments made to NORD/LB
Singapore Branch. On November 5, 2004, respondent MERALCO received a letter from
petitioner denying its claim for tax refund on the basis that the same had already prescribed
under Section 204 of the Tax Code, which gives a taxpayer/claimant a period of two (2)
years from the date of payment of tax to file a claim for refund before the BIR.
ISSUE: WON respondent MERALCO is entitled to a tax refund/credit relative to its payment
of final withholding taxes on interest payments made to NORD/LB from January 1999 to
September 2003.
HELD: No. Petitioner is misguided when it relied upon the six (6)-year prescriptive period
for initiating an action on the ground of quasi contract or solutio indebiti under Article 1145
of the New Civil Code. Such legal precept is inapplicable to the present case since the Tax
Code, a special law, explicitly provides for a mandatory period for claiming a refund for
taxes erroneously paid. Tax refunds are based on the general premise that taxes have either
been erroneously or excessively paid. Though the Tax Code recognizes the right of taxpayers
to request the return of such excess/erroneous payments from the government, they must do
so within a prescribed period. Further, "a taxpayer must prove not only his entitlement to a
refund, but also his compliance with the procedural due process as non-observance of the
prescriptive periods within which to file the administrative and the judicial claims would
result in the denial of his claim. In the case at bar, respondent MERALCO had ample
opportunity to verify on the tax-exempt status of NORD/ LB for purposes of claiming tax
refund. Even assuming that respondent MERALCO could not have emphatically known the
status of NORD/LB, its supposition of the same was already confirmed by the BIR Ruling
which was issued on October 7, 2003. Nevertheless, it only filed its claim for tax refund on
July 13, 2004, or ten (10) months from the issuance of the aforesaid Ruling. We agree with
the CTA-First Division, therefore, that respondent MERALCO's claim for refund in the
amount of Two Hundred Twenty-Four Million Seven Hundred Sixty Thousand Nine
Hundred Twenty-Six Pesos and Sixty-Five Centavos (P224,760,926.65) representing
erroneously paid and remitted final income taxes for the period January 1999 to July 2002
should be denied on the ground of prescription.
AN. REPUBLIC OF THE PHILIPPINES, represented by the CIR vs. vs. TEAM
(PHILS.) ENERGY CORPORATION (formerly MIRANT (PHILS.) ENERGY
CORPORATION, G.R. No. 188016, 14 January 2015)
FACTS:
Respondent, a domestic corporation, is primarily engaged in the business of developing,
designing, constructing, erecting, assembling, commissioning, owning, operating,
maintaining, rehabilitating, and managing gas turbine and other power generating plants and
related facilities for conversion into electricity, coal, distillate and other fuel provided by and
under contract with the Government, or any subdivision, instrumentality or agency thereof,
or any government-owned or controlled corporations or any entity engaged in the
development, supply or distribution of energy.
The respondent filed its annual income tax return (ITR) for calendar years 2002 and 2003 on
April 15, 2003 and April 15, 2004, respectively, reflecting overpaid income taxes or excess
creditable withholding taxes in the amounts of P6,232,003.00 and P10,134,410.00 for taxable
years 2002 and 2003, respectively.
On March 22, 2005, the respondent filed an administrative claim for refund or issuance of
tax credit certificate with the Bureau of Internal Revenue (BIR) in the total amount
of P16,366,413.00, representing the overpaid income tax or the excess creditable withholding
tax of the respondent for calendar years 2002 and 2003.
Due to the inaction of the BIR and in order to toll the running of the two-year prescriptive
period for claiming a refund under Section 229 of the National Internal Revenue Code
(NIRC) of 1997, the respondent filed a petition for review in the Court of Tax Appeals
(CTA) on April 14, 2005. On May 15, 2008, the CTA in Division rendered its decision in
favor of the respondent. It ordered the petitioner to refund or to issue a tax credit certificate
in favor of the respondent. The CTA in Division found that the respondent had signified in
its ITRs for the same years its intent to have its excess creditable tax withheld for calendar
years 2002 and 2003 be refunded, and that the respondent’s administrative and judicial
claims for refund had been timely filed within the two-year prescriptive period under Section
204 (C) in relation to Section 229 of the NIRC
The petitioner then filed a motion for reconsideration, but the CTA in Division denied the
motion on September 5, 2008. The petitioner brought a petition for review before the CTA
En Banc. On April 15, 2009, the CTA En Banc rendered a decision dismissing the Petition
for Review.
The petitioner asserts the necessity of submission of the quarterly return of the respondent to
prove its entitlement to the refund pursuant to Sec. 76 of the NIRC because such quarterly
returns would establish the correctness of the total amount of payments made and the taxes
due as reported on the adjusted return at the end of the year. Petitioner has brought this
appeal.
“Section 76. Final Adjusted Return- Every corporation liable to tax under Section 27
shall file a final adjustment return covering the total taxable income for the preceding
calendar of fiscal year. If the sum of the quarterly tax payments made during the said
taxable year is not equal to the total tax due on the entire taxable income of that year, the
corporation shall either:
(A) Pay the balance of the tax still due; or
(B) Carry over the excess credit; or
(C) Be credited or refunded withthe excess amount paid, as the case may be.”
ISSUE:
Whether or not the respondent proved it’s entitlement to the refund?
RULING:
The court denied the petition for review on certiorari.
The requirements for entitlement of a corporate taxpayer for a refund or the issuance of tax
credit certificate involving excess withholding taxes are as follows:
1. That the claim for refund was filed within the two-year reglementary period pursuant
to Section 229 of the NIRC;
2. When it is shown on the ITR that the income payment received is being declared part
of the taxpayer’s gross income; and
3. When the fact of withholding is established by a copy of the withholding tax
statement, duly issued by the payor to the payee, showing the amount paid and income
tax withheld from that amount. The court do not expound anymore on the first
requirement because even the petitioner does not contest that the respondent filed its
administrative and judicial claim for refund within the statutory period.
With regard to the second requirement, it is fundamental that the findings of fact by the CTA
in Division are not to be disturbed without any showing of grave abuse of discretion
considering that the members of the Division are in the best position to analyze the
documents presented by the parties. Consequently, we adopt the findings of the CTA in
Division, which the CTA En Banc cited, as follows:
“that the total amount of Creditable Withholding Tax per Annual ITRs for calendar
years ended December 31, 2002 and December 31, 2003 agrees with the total amount of
Creditable Withholding Tax presented on petitioner’s Schedule of Creditable
Withholding Tax Certificates for the calendar years ended December 31, 2002 and
December 31, 2003.”
With respect to the third requirement, the respondent proved that it had met the requirement
by presenting the 10 certificates of creditable taxes withheld at source. The petitioner did not
challenge the respondent’s compliance with the requirement.
When the respondent was able to establish prima facie its right to the refund by
testimonial and object evidence, the petitioner should have presented rebuttal evidence
to shift the burden of evidence back to the respondent. Indeed, the petitioner ought to
have its own copies of the respondent’s quarterly returns on file, on the basis of which it
could rebut the respondent's claim that it did not carry over its unutilized and excess
creditable withholding taxes for the immediately succeeding quarters. The BIR's failure
to present such vital document during the trial in order to bolster the petitioner's
contention against the respondent's claim for the tax refund was fatal.
AO. WINEBRENNER & IÑIGO INSURANCE BROKERS, INC., Petitioner, v.
COMMISSIONER OF INTERNAL REVENUE, G.R. No. 206526, January 28,
2015
FACTS:
 On April 15, 2004, petitioner filed its Annual Income Tax Return for
CY 2003.
 About two years thereafter or on April 7, 2006, petitioner applied for the
administrative tax credit/refund claiming entitlement to the refund of its
excess or unutilized creditable withholding tax (CWT) for CY 2003, by
filing BIR Form No. 1914 with the Revenue District Office No. 50 of
the Bureau of Internal Revenue (BIR).
 There being no action taken on the said claim, a petition for review was
filed by petitioner before the CTA on April 11, 2006. The case was
docketed as CTA Case No. 7440 and was raffled to the Special First
Division (CTA Division). CTA Division partially granted petitioner’s
claim for refund of excess and unutilized CWT for CY 2003 in the
reduced amount of P2,737,903.34 in its April 13, 2010 Decision
(original decision).
 On July 27, 2011, the CTA-Division reversed itself. In an Amended Decision, it
denied the entire claim of petitioner. It reasoned out that petitioner should have
presented as evidence its first, second and third quarterly Income Tax Returns
(ITRs) for the year 2004 to prove that the unutilized CWT being claimed had not
been carried over to the succeeding quarters.
 Petitioner elevated the case to the CTA En Banc praying for the reversal of the
Amended Decision of the CTA Division. The CTA-En Banc affirmed the
Amended Decision of the CTA-Division. It stated that before a cash refund or an
issuance of tax credit certificate for unutilized excess tax credits could be granted,
it was essential for petitioner to establish and prove, by presenting the quarterly
ITRs of the succeeding years, that the excess CWT was not carried over to the
succeeding taxable quarters considering that the option to carry over in the
succeeding taxable quarters could not be modified in the final adjustment returns
(FAR), because petitioner did not present the first, second and third quarterly
ITRs for CY 2004, despite having offered and submitted the Annual ITR/FAR for
the same year, the CTA-En Banc stated that the petitioner failed to discharge its
burden, hence, no refund could be granted.
ISSUE:
Whether or not the submission and presentation of the quarterly ITRs of the
succeeding quarters of a taxable year is indispensable in a claim for refund?
RULING:
CIR is ordered to REFUND to petitioner the amount of P2,737,903.34
as excess creditable withholding tax paid for taxable year 2003. The April 13,
2010 Decision of the Court of Tax Appeals Special First Division is
REINSTATED.
A taxpayer who seeks a refund of excess and unutilized CWT must:
1) File the claim with the CIR within the two year period from the date
of payment of the tax;
2) Show on the return that the income received was declared as part
 of the gross income; and
3) Establish the fact of withholding by a copy of a statement duly
issued by the payor to the payee showing the amount paid and the
amount of tax withheld.
The irrevocability rule under Section 76 of the NIRC means that once an
option, either for refund or issuance of tax credit certificate or carry-over of CWT
has been exercised, the same can no longer be modified for the succeeding taxable
years.
The fact of having carried over petitioner’s 2003 excess credits to succeeding
taxable year is in issue. According to the CTA-En Banc and the CIR, the only
evidence that can sufficiently show that carrying over has been made is to present
the quarterly ITRs. Some members of this Court adhere to the same view. The
Court however cannot.
Proving that no carry-over has been made does not absolutely require the
presentation of the quarterly ITRs.
Requiring that the ITR or the FAR of the succeeding year be presented to the BIR in
requesting a tax refund has no basis in law and jurisprudence.
Section 76 of the Tax Code does not mandate it. The law merely requires the filing of
the FAR for the preceding – not the succeeding – taxable year. Indeed, any refundable
amount indicated in the FAR of the preceding taxable year may be credited against the
estimated income tax liabilities for the taxable quarters of the succeeding taxable year.
However, nowhere is there even a tinge of a hint in any provisions of the [NIRC] that the
FAR of the taxable year following the period to which the tax credits are originally being
applied should also be presented to the BIR. What Section 76 requires, just like in all civil
cases, is to prove the prima facie entitlement to a claim, including the fact of not having
carried over the excess credits to the subsequent quarters or taxable year. It does not say that
to prove such a fact, succeeding quarterly ITRs are absolutely needed.
The absence of any amount written in the Prior Year excess Credit – Tax Withheld
portion of petitioner’s 2004 annual ITR clearly shows that no prior excess credits were
carried over in the first four quarters of 2004. And since petitioner was able to sufficiently
prove that excess tax credits in 2003 were not carried over to taxable year 2004 by leaving
the item "Prior Year’s Excess Credits" as blank in its 2004 annual ITR, then petitioner is
entitled to a refund. Unfortunately, the CTA, in denying entirely the claim, merely relied on
the absence of the quarterly ITRs despite being able to verify the truthfulness of the
declaration that no carry over was indeed effected by simply looking at the 2004 annual ITR.
Verily, with the petitioner having complied with the requirements for refund, and
without the CIR showing contrary evidence other than its bare assertion of the
absence of the quarterly ITRs, copies of which are easily verifiable by its very
own records, the burden of proof of establishing the propriety of the claim for
refund has been sufficiently discharged. Hence, the grant of refund is proper.
The Court does not, and cannot, however, grant the entire claimed
amount as it finds no error in the original decision of the CTA Division granting
refund to the reduced amount of P2,737,903.34. This finding of fact is given
respect, if not finality, as the CTA, which by the very nature of its functions of
dedicating itself exclusively to the consideration of the tax problems has
necessarily developed an expertise on the subject.
AP. PHILIPPINE NATIONAL BANK v. CIR, G.R. No. 206019, March 18, 2015
Facts:
GotescoTyan Ming Development, Inc. (Gotesco), a Filipino corporation engaged in
the real estate business, entered on April 7, 1995 into a syndicated loan agreement
with petitioner Philippine National Bank (PNB) and three (3) other banks. To secure
the loan, Gotesco mortgaged a six- hectare expanse known as the Ever Ortigas
Commercial Complex, under a mortgage trust indenture agreement in favor of
PNB, through its Trust Banking Group, as trustee.
Gotesco defaulted on its loan obligations. PNB foreclosed the mortgaged
property; a certificate of sale was issued in favor of PNB. As it prepared
for the consolidation of its ownership over the foreclosed property, PNB
paid the BIR Eighteen Million Six Hundred Fifteen Thousand Pesos
(P18,615,000) as documentary stamp tax (DST). PNB also withheld and
remitted to the BIR withholding taxes equivalent to six percent (6%) of
the bid price.
Pending the issuance of the Certificate Authorizing Registration (CAR),
the BIR informed PNB that it is imposing interests, penalties and
surcharges of on capital gains tax and on DST. To facilitate the release of
the CAR, petitioner paid all the surcharges, interests and penalties
assessed against it in the total amount of Php77,172,555.28.

On October 27, 2005, it filed an administrative claim for the refund of
excess withholding taxes with the BIR. A day after, or on October 28,
2005, it filed its petition for review before the tax court.
In its claim for refund, PNB explained that it inadvertently applied the six percent (6%)
creditable withholding tax rate on the sale of real property classified as ordinary asset, when
it should have applied the five percent (5%) creditable withholding tax rate on the sale of
ordinary asset, as provided in Section 2.57.2 (J)(B) of Revenue Regulation (RR) No. 2-98 as
amended by RR No. 6-01, considering that Gotesco is primarily engaged in the real estate
business. Therefore, PNB claimed that it erroneously withheld and remitted to the BIR
excess taxes of Php12,400,004.71
The CTA Special First Division (First Division), in CTA Case No. 7588, ordered
the CIR to refund to PNB P77,172,555.28 representing its claim for refund of
interests, surcharges and penalties on capital gains taxes and documentary stamp
taxes for the year 2003. However, the First Division denied PNB’s claim for the
refund of excess creditable withholding taxes for insufficiency of evidence.
PNB filed a Motion for Reconsideration, attaching therewith, among others,
Gotesco’s 2003 ITR and the latter’s Schedule of Prepaid Tax, which the First
Division admitted as part of the records.
The First Division issued a Resolution denying PNB’s MR mainly because there were no
documents or schedules to support the figures reported in Gotesco’s 2003 ITR to show that
no part of the creditable withholding tax sought to be refunded was used, in part, for the
settlement of Gotesco’s tax liabilities for the same year. It stated that PNB should have
likewise presented the Certificate of Creditable Tax Withheld at Source (BIR Form No.
2307) issued to Gotesco in relation to the creditable taxes withheld reported in its 2003 ITR.
BIR Form No. 2307, so declared in the Resolution, will confirm whether or not that the
amount being claimed by PNB was indeed not utilized by Gotesco to offset its taxes.
did not recognize the foreclosure sale and therefore, the payment by PNB of the creditable
withholding taxes corresponding to the same; (2) Gotesco’s 2003 ITRs, which the CTA
Special First Division required to show that the excess creditable withholding tax claimed
for refund was not used by Gotesco, along with the 2003 Schedule of Prepaid Tax which
itemized in detail the withholding taxes claimed by Gotesco for the year 2003 amounting
to P6,014,433.00; (3) the testimony of Gotesco’s former accountant, proving that the
amount subject of PNB’s claim for refund was not included among the creditable
withholding taxes stated in Gotesco’s 2003 ITR; and(4) the Withholding Tax Remittance
Returns (BIR Form 1606) proving that the amount of P74,400,028.49 was withheld and
paid by PNB in the year 2003.
Ergo, the evidence on record sufficiently proves that the claimed creditable
withholding tax was withheld and remitted to the BIR, that such withholding and
remittance was erroneous, and that the claimed creditable withholding tax was not used by
Gotesco to settle its tax liabilities.

PNB filed an appeal before the CTA En Banc by way of a Petition for Review.
However, the CTA En Banc denied the Petition for Review. The income tax returns
alone are not enough to fully support petitioner’s contention that no part of the
creditable withholding tax sought to be refunded by petitioner was utilized by
GOTESCO.

ISSUE:
Whether or not PNB is entitled to the refund of creditable withholding taxes
erroneously paid to the BIR?

RULING:

YES. The petition is impressed with merit. The court directed the respondent to
refund to petitioner Philippine National Bank, within thirty (30) days from the
finality of the Decision, the amount of Php12,400,004.71, representing excess
creditable withholding taxes withheld and paid for the year 2003. Although PNB
was not able to submit Gotesco’s BIR Form No. 2307, the Court is persuaded and
so declares that PNB submitted evidence sufficiently showing Gotesco’s non-
utilization of the taxes withheld subject of the refund.
In this case, PNB was able to establish, through the evidence it presented, that Gotesco did
not in fact use the claimed creditable withholding taxes to settle its tax liabilities, to
reiterate: (1) Gotesco’s 2003 Audited Financial Statements, which still included the
mortgaged property in the asset account “Properties and Equipment,” proving that Gotesco