CIR v.

CA
G.R. No. 119322

FACTS:
A task force was created on June 1, 1993 to investigate tax liabilities of manufacturers
engaged in tax evasion schemes. On July 1, 1993, the CIR issued Rev. Memo Circ. No.
37-93 which reclassified certain cigarette brands manufactured by private respondent
Fortune Tobacco Corp. (Fortune) as foreign brands subject to a higher tax rate. On
August 3, 1993, Fortune questioned the validity of said reclassification as being violative
of the right to due process and equal protection of laws. The CTA, on September 8,
1993 resolved that said reclassification was of doubtful legality and enjoined its
enforcement.

In the meantime, on August 3, 1993, Fortune was assessed deficiency income, ad

valorem and VAT for 1992 with payment due within 30 days from receipt. On
September 12, 1993, private respondent moved for reconsideration of said assessment.
Meanwhile on September 7, 1993, the Commissioner filed a complaint with the DOJ
against private respondent Fortune, its corporate officers and 9 other corporations and
their respective corporate officers for alleged fraudulent tax evasion for non-payment of
the correct income, ad valorem and VAT for 1992. The complaint was referred to the
DOJ Task Force on revenue cases which found sufficient basis to further investigate the
charges against Fortune.

A subpoena was issued on September 8, 1993 directing private respondent to submit

their counter-affidavits. But it filed a verified motion to dismiss or alternatively, a motion
to suspend but was denied and thus treated as their counter-affidavit. All motions filed
thereafter were denied.

January 4, 1994, private respondents filed a petition for certiorari and prohibition with
prayer for preliminary injunction praying the CIR’s complaint and prosecutor’s orders be
dismissed/set aside or alternatively, that the preliminary investigation be suspended
pending determination by CIR of Fortune’s motion for reconsideration/reinvestigation of
the August 13, 1993 assessment of taxes due.

The trial court granted the petition for a writ of preliminary injunction to enjoin the
preliminary investigation on the complaint for tax evasion pending before the DOJ,
ruling that the tax liability of private respondents first be settled before any complaint for
fraudulent tax evasion can be initiated.

ISSUE:
Whether the basis of private respondent’s tax liability first be settled before any complaint
for fraudulent tax evasion can be initiated.
RULING:
Fraud cannot be presumed. If there was fraud on willful attempt to evade payment of ad
valorem taxes by private respondent through the manipulation of the registered wholesale
price of the cigarettes, it must have been with the connivance of cooperation of certain
BIR officials and employees who supervised and monitored Fortune’s production
activities to see to it that the correct taxes were paid. But there is no allegation, much less
evidence, of BIR personnel’s malfeasance at the very least, there is the presumption that
BIR personnel performed their duties in the regular course in ensuring that the correct
taxes were paid by Fortune.

Before the tax liabilities of Fortune are finally determined, it cannot be correctly asserted
that private respondents have willfully attempted to evade or defeat any tax under Secs.
254 and 256, 1997 NIRC, the fact that a tax is due must first be proved.