IX.

COLLECTION
A. Administrative Remedies
1. Tax Lien (Sec. 219)
a. COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, DEPUTY CITY SHERIFF CARMELO V. CACHERO, MARITIME
COMPANY OF THE PHILIPPINES, DOMINGO C. NIANGAR, DANIEL C. SABINO, FERNANDO S. TULIAO and
TULMAR TRADING CORPORATION, respondents.
G.R. No. 74965 November 9, 1994

This is a petition for certiorari to set aside the resolution dated April 4, 19861 of the National Labor Relations
Commission in NLRC Case No. NCR-12-4233-84 (Domingo C. Niangar v. Maritime Company of the Philippines), affirming
the denial by the Labor Arbiter2 of petitioner's motion to annul the sheriff's sale of four barges or, in the alternative, to
order him to remit the proceeds of his sale to the Bureau of the Internal Revenue for the satisfaction of the tax liabilities
of private respondent Maritime Company of the Philippines.

The facts are as follows:

On January 12, 1984 the Commissioner of the Internal Revenue sent two letters3 of demand to the respondent Maritime
Company of the Philippines for deficiency common carrier's tax, fixed tax, 6% Commercial Broker's tax, documentary
stamp tax, income tax and withholding taxes in the total amount of P17,284,882.45.

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

On April 16, 1985 a "Receipt for Goods, Articles, and Things Seized5 under Authority of the National Internal Revenue
Code" was executed, covering, among other things, six barges identified as MCP-1,2,3,4,5 and 6. This receipt is required
by § 303 (now § 206) of the NIRC as proof of the constructive distraint of property. It is an undertaking by the taxpayer
or person in possession of the property covered that he will preserve the property and deliver it upon order of the court
or the Internal Revenue Commissioner.

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

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

The four barges were sold by respondent deputy sheriff at a public auction on August 12, 1985. The highest bidder,
Daniel C. Sabino, subsequently sold them to private respondents Fernando S. Tuliao and Tulmar Trading Corporation.

On September 4, 1985, petitioner asked the Labor Arbiter to annul the sale and to enjoin the sheriff from disposing of
the proceeds of the sale or, in the alternative, to remit them to the Bureau of Internal Revenue so that the amount could
be applied to the payment of private respondent Maritime Company's tax liabilities.
In an order dated September 30, 1985, Labor Arbiter Ceferina Diosana denied the motion on the ground that petitioner
Commissioner of Internal Revenue failed to show that the barges which were levied upon in execution and sold at public
auction had been validly placed under constructive distraint.6 The Labor Arbiter likewise rejected petitioner's contention
that the government's claim for taxes was preferred under Art. 2247, in relation to Art. 2241(1) of the Civil Code, on the
ground that under this provisions only taxes and fees which are due on specific movables enjoy preference, whereas the
taxes claimed by petitioner were not due on the four barges in question.

The order was appealed to the NLRC, which in resolution dated April 4, 1986, affirmed the denial of the Internal
Revenue Commissioner's motion. Hence this petition for certiorari.

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

The National Internal Revenue Code provides for the collection of delinquent taxes by any of the following remedies: (a)
distraint of personal property or levy of real property of the delinquent taxpayer and (b) civil or criminal action.

With respect to the four barges in question, petitioner resorted to constructive distraint pursuant to § 303 (now § 206)
of the NLRC. This provisions states:

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

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

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

Although the warrant of distraint in this case had been issued earlier (January 23,1985) than the levy on execution in the
labor case on July 20, 1985, the Labor Arbiter nevertheless held that there was no valid distraint of personal property on
the ground that the receipt of property distrained had not been signed by the taxpayer as required above. In her order,
which the NLRC affirmed in toto, the Labor Arbiter said:

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

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

However, this case arose out of the same facts involved in Republic v. Enriquez,8 in which we sustained the validity of the
distraint of the six barges, which included the four involved in this case, against the levy on execution made by another
deputy sheriff of Manila in another case filed against Maritime Company. Two barges (MCP-1 and MCP-4) were the
subject of a levy in the case. There we found that the "Receipt for Goods, Articles and Things Seized under Authority of
the National Internal Revenue Code" covering the six barges had been duly executed, with the Headquarters, First Coast
Guard District, Farola Compound Binondo, Manila acknowledging receipt of several barges, vehicles and two (2) bodegas
of spare parts belonging to Maritime Company of the Philippines.

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

In addition to the receipt duly acknowledged by the Coast Guard, the record of the prior case also shows that on
October 4, 1985, the Commissioner of the Internal Revenue issued a "Notice of Seizure of Personal Property" stating
that the goods and chattels listed on its reverse side, among which were the four barges (MCP-2, MCP-3, MCP-5, and
MCP-6), had been distrained by the Commissioner of Internal Revenue.10

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

Accordingly, what we said in the prior case 11 in upholding the validity of distraint of two of the six barges (MCP Nos. 1
and 4), fully applies in this case:

It is settled that the claim of the government predicated on a tax lien is superior to the claim of a private
litigant predicated on a judgment. The tax lien attaches not only from the service of the warrant of
distraint of personal property but from the time the tax became due and payable. Besides, the distraint
on the subject properties of the Maritime Company of the Philippines as well as the notice of their
seizure were made by petitioner, through the Commissioner of the Internal Revenue, long before the
writ of the execution was issued by the Regional Trial Court of Manila, Branch 31. There is no question
then that at the time the writ of execution was issued, the two (2) barges, MPC-1 and MCP-4, were no
longer properties of the Maritime Company of the Philippines. The power of the court in execution of
judgments extends only to properties unquestionably belonging to the judgment debtor. Execution sales
affect the rights of the judgment debtor only, and the purchaser in an auction sale acquires only such
right as the judgment debtor had at the time of sale. It is also well-settled that the sheriff is not
authorized to attach or levy on property not belonging to the judgment debtor.

Nor is there any merit in the contention of the NLRC that taxes are absolutely preferred claims only with respect to
movable or immovable properties on which they are due and that since the taxes sought to be collected in this case are
not due on the barges in question the government's claim cannot prevail over the claims of employees of the Maritime
Company of the Philippines which, pursuant to Art. 110 of the Labor Code, "enjoy first preference."
In Republic v. Peralta 12 this Court rejected a similar contention. Through Mr. Justice Feliciano we held:

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

xxx xxx xxx

Article 110 of the Labor Code does not purport to create a lien in favor of workers or employees for
unpaid wages either upon all of the properties or upon any particular property owned by their
employer. Claims for unpaid wages do not therefore fall at all within the category of specially preferred
claims established under Articles 2241 and 2242 of the Civil Code, except to the extent that such claims
for unpaid wages are already covered by Article 2241, number 6: "claims for laborer's wages, on the
goods manufactured or the work done," or by Article 2242, number 3: "claims of laborers and other
workers engaged in the construction, reconstruction or repair of buildings, canals and other works, upon
said buildings, canals or other works." To the extent that claims for unpaid wages fall outside the scope
of Article 2241, number 6 and 2242, number 3, they would come with the ambit of the category of
ordinary preferred credits under Article 2244.

Applying Article 2241, number 6 to the instant case, the claims of the Unions for separation pay of their
members constitute liens attaching to the processed leaf tobacco, cigars and cigarettes and other
products produced or manufactured by the Insolvent, but not to other assets owned by the Insolvent.
And even in respect of such tobacco and tobacco products produced by the Insolvent, the claims of the
Unions may be given effect only after the Bureau of Internal Revenue's claim for unpaid tobacco
inspection fees shall have been satisfied out of the products so manufactured by the Insolvent.

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

In addition, we have held 13 that Art. 110 of the Labor Code applies only in case of bankruptcy or judicial liquidation of
the employer. This is clear from the text of the law.

Art. 110. Worker preference in case of bankruptcy. — In the event of bankruptcy or liquidation of an
employer's business, his workers shall enjoy first preference as regards wages due them for services
rendered during the period prior to the bankruptcy or liquidation, any provision of law to the contrary
notwithstanding. Unpaid wages shall be paid in full before other creditors may establish any claims to a
share in the assets of the employer.

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

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

2. Distraint of personal property, or levy of real property, or garnishment of bank deposits [Sec. 205(A)]
a. Actual Distraint (Sec 207 A)
b. Constructive Distraint (Sec 206)
i. BANK OF THE PHILIPPINE ISLANDS, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
G.R. No. 139736 October 17, 2005

This Petition for Review on Certiorari, under Rule 45 of the 1997 Rules of Civil Procedure, assails the Decision of the
Court of Appeals in CA-G.R. SP No. 51271, dated 11 August 1999,1 which reversed and set aside the Decision of the Court
of Tax Appeals (CTA), dated 02 February 1999,2 and which reinstated Assessment No. FAS-5-85-89-002054 requiring
petitioner Bank of the Philippine Islands (BPI) to pay the amount of ₱28,020.00 as deficiency documentary stamp tax
(DST) for the taxable year 1985, inclusive of the compromise penalty.

There is hardly any controversy as to the factual antecedents of this Petition.

Petitioner BPI is a commercial banking corporation organized and existing under the laws of the Philippines. On two
separate occasions, particularly on 06 June 1985 and 14 June 1985, it sold United States (US) $500,000.00 to the Central
Bank of the Philippines (Central Bank), for the total sales amount of US$1,000,000.00.

On 10 October 1989, the Bureau of Internal Revenue (BIR) issued Assessment No. FAS-5-85-89-002054,3 finding
petitioner BPI liable for deficiency DST on its afore-mentioned sales of foreign bills of exchange to the Central Bank,
computed as follows –

1985 Deficiency Documentary Stamp Tax

Foreign Bills of Exchange………………………….. P 18,480,000.00
Tax Due Thereon: 27,720.00

₱18,480,000.00 x ₱0.30 (Sec. 182 NIRC).

₱200.00
Add: Suggested compromise penalty………….…… 300.00
TOTAL AMOUNT DUE AND COLLECTIBLE…. P 28,020.00

Petitioner BPI received the Assessment, together with the attached Assessment Notice,4 on 20 October 1989.

Petitioner BPI, through its counsel, protested the Assessment in a letter dated 16 November 1989, and filed with the BIR
on 17 November 1989. The said protest letter is reproduced in full below –

November 16, 1989

The Commissioner of Internal Revenue

Quezon City

Attention of: Mr. Pedro C. Aguillon

Asst. Commissioner for Collection

Sir:

On behalf of our client, Bank of the Philippine Islands (BPI), we have the honor to protest your assessment against it for
deficiency documentary stamp tax for the year 1985 in the amount of ₱28,020.00, arising from its sale to the Central
Bank of U.S. $500,000.00 on June 6, 1985 and another U.S. $500,000.00 on June 14, 1985.

1. Under established market practice, the documentary stamp tax on telegraphic transfers or sales of foreign exchange is
paid by the buyer. Thus, when BPI sells to any party, the cost of documentary stamp tax is added to the total price or
charge to the buyer and the seller affixes the corresponding documentary stamp on the document. Similarly, when the
Central Bank sells foreign exchange to BPI, it charges BPI for the cost of the documentary stamp on the transaction.

2. In the two transactions subject of your assessment, no documentary stamps were affixed because the buyer,
Central Bank of the Philippines, was exempt from such tax. And while it is true that under P.D. 1994, a proviso was
added to sec. 222 (now sec. 186) of the Tax Code "that whenever one party to a taxable document enjoys exemption
from the tax herein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax," this
proviso (and the other amendments of P.D. 1994) took effect only on January 1, 1986, according to sec. 49 of P.D. 1994.
Hence, the liability for the documentary stamp tax could not be shifted to the seller.

In view of the foregoing, we request that the assessment be revoked and cancelled.

Very truly yours,

PADILLA LAW OFFICE

By:

(signed)

SABINO PADILLA, JR.5

Petitioner BPI did not receive any immediate reply to its protest letter. However, on 15 October 1992, the BIR issued a
Warrant of Distraint and/or Levy6 against petitioner BPI for the assessed deficiency DST for taxable year 1985, in the
amount of ₱27,720.00 (excluding the compromise penalty of ₱300.00). It served the Warrant on petitioner BPI only on
23 October 1992.7

Then again, petitioner BPI did not hear from the BIR until 11 September 1997, when its counsel received a letter, dated
13 August 1997, signed by then BIR Commissioner Liwayway Vinzons-Chato, denying its "request for reconsideration,"
and addressing the points raised by petitioner BPI in its protest letter, dated 16 November 1989, thus –

In reply, please be informed that after a thorough and careful study of the facts of the case as well as the law and
jurisprudence pertinent thereto, this Office finds the above argument to be legally untenable. It is admitted that while
industry practice or market convention has the force of law between the members of a particular industry, it is not
binding with the BIR since it is not a party thereto. The same should, therefore, not be allowed to prejudice the Bureau
of its lawful task of collecting revenues necessary to defray the expenses of the government. (Art. 11 in relation to Art.
1306 of the New Civil Code.)

Moreover, let it be stated that even before the amendment of Sec. 222 (now Sec. 173) of the Tax Code, as amended, the
same was already interpreted to hold that the other party who is not exempt from the payment of documentary stamp
tax liable from the tax. This interpretation was further strengthened by the following BIR Rulings which in substance
state:

1. BIR Unnumbered Ruling dated May 30, 1977 –

"x x x Documentary stamp taxes are payable by either person, signing, issuing, accepting, or transferring the instrument,
document or paper. It is now settled that where one party to the instrument is exempt from said taxes, the other party
who is not exempt should be liable."

2. BIR Ruling No. 144-84 dated September 3, 1984 –

"x x x Thus, where one party to the contract is exempt from said tax, the other party, who is not exempt, shall be liable
therefore. Accordingly, since A.J.L. Construction Corporation, the other party to the contract and the one assuming the
payment of the expenses incidental to the registration in the vendee’s name of the property sold, is not exempt from
said tax, then it is the one liable therefore, pursuant to Sec. 245 (now Sec. 196), in relation to Sec. 222 (now Sec. 173),
both of the Tax Code of 1977, as amended."

Premised on all the foregoing considerations, your request for reconsideration is hereby DENIED.8

Upon receipt of the above-cited letter from the BIR, petitioner BPI proceeded to file a Petition for Review with the CTA
on 10 October 1997;9 to which respondent BIR Commissioner, represented by the Office of the Solicitor General, filed an
Answer on 08 December 1997.10

Petitioner BPI raised in its Petition for Review before the CTA, in addition to the arguments presented in its protest
letter, dated 16 November 1989, the defense of prescription of the right of respondent BIR Commissioner to enforce
collection of the assessed amount. It alleged that respondent BIR Commissioner only had three years to collect on
Assessment No. FAS-5-85-89-002054, but she waited for seven years and nine months to deny the protest. In her
Answer and subsequent Memorandum, respondent BIR Commissioner merely reiterated her position, as stated in her
letter to petitioner BPI, dated 13 August 1997, which denied the latter’s protest; and remained silent as to the expiration
of the prescriptive period for collection of the assessed deficiency DST.

After due trial, the CTA rendered a Decision on 02 February 1999, in which it identified two primary issues in the
controversy between petitioner BPI and respondent BIR Commissioner: (1) whether or not the right of respondent BIR
Commissioner to collect from petitioner BPI the alleged deficiency DST for taxable year 1985 had prescribed; and (2)
whether or not the sales of US$1,000,000.00 on 06 June 1985 and 14 June 1985 by petitioner BPI to the Central Bank
were subject to DST.

The CTA answered the first issue in the negative and held that the statute of limitations for respondent BIR
Commissioner to collect on the Assessment had not yet prescribed. In resolving the issue of prescription, the CTA
reasoned that –

In the case of Commissioner of Internal Revenue vs. Wyeth Suaco Laboratories, Inc., G.R. No. 76281, September 30,
1991, 202 SCRA 125, the Supreme Court laid to rest the first issue. It categorically ruled that a "protest" is to be treated
as request for reinvestigation or reconsideration and a mere request for reexamination or reinvestigation tolls the
prescriptive period of the Commissioner to collect on an assessment. . .

...

In the case at bar, there being no dispute that petitioner filed its protest on the subject assessment on November 17,
1989, there can be no conclusion other than that said protest stopped the running of the prescriptive period of the
Commissioner to collect.

Section 320 (now 223) of the Tax Code, clearly states that a request for reinvestigation which is granted by the
Commissioner, shall suspend the prescriptive period to collect. The underscored portion above does not mean that the
Commissioner will cancel the subject assessment but should be construed as when the same was entertained by the
Commissioner by not issuing any warrant of distraint or levy on the properties of the taxpayer or any action prejudicial
to the latter unless and until the request for reinvestigation is finally given due course. Taking into consideration this
provision of law and the aforementioned ruling of the Supreme Court in Wyeth Suaco which specifically and
categorically states that a protest could be considered as a request for reinvestigation, We rule that prescription has not
set in against the government.11

The CTA had likewise resolved the second issue in the negative. Referring to its own decision in an earlier
case, Consolidated Bank & Trust Co. v. The Commissioner of Internal Revenue,12 the CTA reached the conclusion that the
sales of foreign currency by petitioner BPI to the Central Bank in taxable year 1985 were not subject to DST –

From the abovementioned decision of this Court, it can be gleaned that the Central Bank, during the period June 11,
1984 to March 9, 1987 enjoyed tax exemption privilege, including the payment of documentary stamp tax (DST)
pursuant to Resolution No. 35-85 dated May 3, 1985 of the Fiscal Incentive Review Board. As such, the Central Bank, as
buyer of the foreign currency, is exempt from paying the documentary stamp tax for the period above-mentioned. This
Court further expounded that said tax exemption of the Central Bank was modified beginning January 1, 1986 when
Presidential Decree (P.D.) 1994 took effect. Under this decree, the liability for DST on sales of foreign currency to the
Central Bank is shifted to the seller.

Applying the above decision to the case at bar, petitioner cannot be held liable for DST on its 1985 sales of foreign
currencies to the Central Bank, as the latter who is the purchaser of the subject currencies is the one liable thereof.
However, since the Central Bank is exempt from all taxes during 1985 by virtue of Resolution No. 35-85 of the Fiscal
Incentive Review Board dated March 3, 1985, neither the petitioner nor the Central Bank is liable for the payment of the
documentary stamp tax for the former’s 1985 sales of foreign currencies to the latter. This aforecited case of
Consolidated Bank vs. Commissioner of Internal Revenue was affirmed by the Court of Appeals in its decision dated
March 31, 1995, CA-GR Sp. No. 35930. Said decision was in turn affirmed by the Supreme Court in its resolution denying
the petition filed by Consolidated Bank dated November 20, 1995 with the Supreme Court under Entry of Judgment
dated March 1, 1996.13

In sum, the CTA decided that the statute of limitations for respondent BIR Commissioner to collect on Assessment No.
FAS-5-85-89-002054 had not yet prescribed; nonetheless, it still ordered the cancellation of the said Assessment
because the sales of foreign currency by petitioner BPI to the Central Bank in taxable year 1985 were tax-exempt.

Herein respondent BIR Commissioner appealed the Decision of the CTA to the Court of Appeals. In its Decision dated 11
August 1999,14 the Court of Appeals sustained the finding of the CTA on the first issue, that the running of the
prescriptive period for collection on Assessment No. FAS-5-85-89-002054 was suspended when herein petitioner BPI
filed a protest on 17 November 1989 and, therefore, the prescriptive period for collection on the Assessment had not
yet lapsed. In the same Decision, however, the Court of Appeals reversed the CTA on the second issue and basically
adopted the position of the respondent BIR Commissioner that the sales of foreign currency by petitioner BPI to the
Central Bank in taxable year 1985 were subject to DST. The Court of Appeals, thus, ordered the reinstatement of
Assessment No. FAS-5-85-89-002054 which required petitioner BPI to pay the amount of ₱28,020.00 as deficiency DST
for taxable year 1985, inclusive of the compromise penalty.

Comes now petitioner BPI before this Court in this Petition for Review on Certiorari, seeking resolution of the same two
legal issues raised and discussed in the courts below, to reiterate: (1) whether or not the right of respondent BIR
Commissioner to collect from petitioner BPI the alleged deficiency DST for taxable year 1985 had prescribed; and (2)
whether or not the sales of US$1,000,000.00 on 06 June 1985 and 14 June 1985 by petitioner BPI to the Central Bank
were subject to DST.

The efforts of respondent Commissioner to collect on Assessment No. FAS-5-85-89-002054 were already barred by
prescription.

Anent the question of prescription, this Court disagrees in the Decisions of the CTA and the Court of Appeals, and herein
determines the statute of limitations on collection of the deficiency DST in Assessment No. FAS-5-85-89-002054 had
already prescribed.
The period for the BIR to assess and collect an internal revenue tax is limited to three years by Section 203 of the Tax
Code of 1977, as amended,15 which provides that –

SEC. 203. Period of limitation upon assessment and collection. – Except as provided in the succeeding section, internal
revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return, and no
proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such
period: Provided, That in a case where a return is filed beyond the period prescribed by law, the three-year period shall
be counted from the day the return was filed. 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.16

The three-year period of limitations on the assessment and collection of national internal revenue taxes set by Section
203 of the Tax Code of 1977, as amended, can be affected, adjusted, or suspended, in accordance with the following
provisions of the same Code –

SEC. 223. – 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
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: 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 the collection thereof.

(b) If before the expiration of the time prescribed in the preceding section for the assessment of the tax, both the
Commissioner and the taxpayer have agreed in writing to its assessment after such time the tax may be assessed within
the period agreed upon. The period so agreed upon may be extended by subsequent written agreement made before
the expiration of the period previously agreed upon.

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

(d) Any internal revenue tax which has been assessed within the period agreed upon as provided in paragraph (b)
hereinabove may be collected by distraint or levy or by a proceeding in court within the period agreed upon in writing
before the expiration of the three-year period. The period so agreed upon may be extended by subsequent written
agreements made before the expiration of the period previously agreed upon.

(e) Provided, however, That nothing in the immediately preceding section and paragraph (a) hereof shall be construed to
authorize the examination and investigation or inquiry into any tax returns filed in accordance with the provisions of any
tax amnesty law or decree.17

SEC. 224. Suspension of running of statute. – The running of the statute of limitation provided in Section[s] 203 and 223
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 reinvestigation which is granted by the Commissioner; when the taxpayer cannot be located in the
address given by him in the return filed upon which 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.18

As enunciated in these statutory provisions, the BIR has three years, counted from the date of actual filing of the return
or from the last date prescribed by law for the filing of such return, whichever comes later, to assess a national internal
revenue tax or to begin a court proceeding for the collection thereof without an assessment. In case of a false or
fraudulent return with intent to evade tax or the failure to file any return at all, the prescriptive period for assessment of
the tax due shall be 10 years from discovery by the BIR of the falsity, fraud, or omission. When the BIR validly issues an
assessment, within either the three-year or ten-year period, whichever is appropriate, then the BIR has another three
years19 after the assessment within which to collect the national internal revenue tax due thereon by distraint, levy,
and/or court proceeding. The assessment of the tax is deemed made and the three-year period for collection of the
assessed tax begins to run on the date the assessment notice had been released, mailed or sent by the BIR to the
taxpayer.20

In the present Petition, there is no controversy on the timeliness of the issuance of the Assessment, only on the
prescription of the period to collect the deficiency DST following its Assessment. While Assessment No. FAS-5-85-89-
002054 and its corresponding Assessment Notice were both dated 10 October 1989 and were received by petitioner BPI
on 20 October 1989, there was no showing as to when the said Assessment and Assessment Notice were released,
mailed or sent by the BIR. Still, it can be granted that the latest date the BIR could have released, mailed or sent the
Assessment and Assessment Notice to petitioner BPI was on the same date they were received by the latter, on 20
October 1989. Counting the three-year prescriptive period, for a total of 1,095 days,21 from 20 October 1989, then the
BIR only had until 19 October 1992 within which to collect the assessed deficiency DST.

The earliest attempt of the BIR to collect on Assessment No. FAS-5-85-89-002054 was its issuance and service of a
Warrant of Distraint and/or Levy on petitioner BPI. Although the Warrant was issued on 15 October 1992, previous to
the expiration of the period for collection on 19 October 1992, the same was served on petitioner BPI only on 23
October 1992.

Under Section 223(c) of the Tax Code of 1977, as amended, it is not essential that the Warrant of Distraint and/or Levy
be fully executed so that it can suspend the running of the statute of limitations on the collection of the tax. It is enough
that the proceedings have validly began or commenced and that their execution has not been suspended by reason of
the voluntary desistance of the respondent BIR Commissioner. Existing jurisprudence establishes that distraint and levy
proceedings are validly begun or commenced by the issuance of the Warrant and service thereof on the taxpayer.22 It is
only logical to require that the Warrant of Distraint and/or Levy be, at the very least, served upon the taxpayer in order
to suspend the running of the prescriptive period for collection of an assessed tax, because it may only be upon the
service of the Warrant that the taxpayer is informed of the denial by the BIR of any pending protest of the said taxpayer,
and the resolute intention of the BIR to collect the tax assessed.

If the service of the Warrant of Distraint and/or Levy on petitioner BPI on 23 October 1992 was already beyond the
prescriptive period for collection of the deficiency DST, which had expired on 19 October 1992, then what more the
letter of respondent BIR Commissioner, dated 13 August 1997 and received by the counsel of the petitioner BPI only on
11 September 1997, denying the protest of petitioner BPI and requesting payment of the deficiency DST? Even later and
more unequivocally barred by prescription on collection was the demand made by respondent BIR Commissioner for
payment of the deficiency DST in her Answer to the Petition for Review of petitioner BPI before the CTA, filed on 08
December 1997.23

II

There is no valid ground for the suspension of the running of the prescriptive period for collection of the assessed DST
under the Tax Code of 1977, as amended.

In their Decisions, both the CTA and the Court of Appeals found that the filing by petitioner BPI of a protest letter
suspended the running of the prescriptive period for collecting the assessed DST. This Court, however, takes the
opposing view, and, based on the succeeding discussion, concludes that there is no valid ground for suspending the
running of the prescriptive period for collection of the deficiency DST assessed against petitioner BPI.

A. The statute of limitations on assessment and collection of taxes is for the protection of the taxpayer and, thus, shall be
construed liberally in his favor.

Though the statute of limitations on assessment and collection of national internal revenue taxes benefits both the
Government and the taxpayer, it principally intends to afford protection to the taxpayer against unreasonable
investigation. The indefinite extension of the period for assessment is unreasonable because it deprives the said
taxpayer of the assurance that he will no longer be subjected to further investigation for taxes after the expiration of a
reasonable period of time.24 As aptly explained in Republic of the Philippines v. Ablaza25 –

The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the Government and
to its citizens; to the Government because tax officers would be obliged to act promptly in the making of assessment,
and to citizens because after the lapse of the period of prescription citizens would have a feeling of security against
unscrupulous tax agents who will always find an excuse to inspect the books of taxpayers, not to determine the latter’s
real liability, but to take advantage of every opportunity to molest peaceful, law-abiding citizens. Without such a legal
defense taxpayers would furthermore be under obligation to always keep their books and keep them open for
inspection subject to harassment by unscrupulous tax agents. The law on prescription being a remedial measure should
be interpreted in a way conducive to bringing about the beneficent purpose of affording protection to the taxpayer
within the contemplation of the Commission which recommend the approval of the law.

In order to provide even better protection to the taxpayer against unreasonable investigation, the Tax Code of 1977, as
amended, identifies specifically in Sections 223 and 22426 thereof the circumstances when the prescriptive periods for
assessing and collecting taxes could be suspended or interrupted.

To give effect to the legislative intent, these provisions on the statute of limitations on assessment and collection of
taxes shall be construed and applied liberally in favor of the taxpayer and strictly against the Government.

B. The statute of limitations on assessment and collection of national internal revenue taxes may be waived, subject to
certain conditions, under paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended, respectively.
Petitioner BPI, however, did not execute any such waiver in the case at bar.

According to paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended, the prescriptive periods for
assessment and collection of national internal revenue taxes, respectively, could be waived by agreement, to wit –

SEC. 223. – Exceptions as to period of limitation of assessment and collection of taxes. –

...

(b) If before the expiration of the time prescribed in the preceding section for the assessment of the tax, both the
Commissioner and the taxpayer have agreed in writing to its assessment after such time the tax may be assessed within
the period agreed upon. The period so agreed upon may be extended by subsequent written agreement made before
the expiration of the period previously agreed upon.

...

(d) Any internal revenue tax which has been assessed within the period agreed upon as provided in paragraph (b)
hereinabove may be collected by distraint or levy or by a proceeding in court within the period agreed upon in writing
before the expiration of the three-year period. The period so agreed upon may be extended by subsequent written
agreements made before the expiration of the period previously agreed upon.27

The agreements so described in the afore-quoted provisions are often referred to as waivers of the statute of
limitations. The 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 taxes due. The waiver does not
mean that the taxpayer relinquishes the right to invoke prescription unequivocally.28

A valid waiver of the statute of limitations under paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as
amended, must be: (1) in writing; (2) agreed to by both the Commissioner and the taxpayer; (3) before the expiration of
the ordinary prescriptive periods for assessment and collection; and (4) for a definite period beyond the ordinary
prescriptive periods for assessment and collection. The period agreed upon can still be extended by subsequent written
agreement, provided that it is executed prior to the expiration of the first period agreed upon. The BIR had issued
Revenue Memorandum Order (RMO) No. 20-90 on 04 April 1990 to lay down an even more detailed procedure for the
proper execution of such a waiver. RMO No. 20-90 mandates that the procedure for execution of the waiver shall be
strictly followed, and any revenue official who fails to comply therewith resulting in the prescription of the right to
assess and collect shall be administratively dealt with.

This Court had consistently ruled in a number of cases that a request for reconsideration or reinvestigation by the
taxpayer, without a valid waiver of the prescriptive periods for the assessment and collection of tax, as required by the
Tax Code and implementing rules, will not suspend the running thereof.29

In the Petition at bar, petitioner BPI executed no such waiver of the statute of limitations on the collection of the
deficiency DST per Assessment No. FAS-5-85-89-002054. In fact, an internal memorandum of the Chief of the Legislative,
Ruling & Research Division of the BIR to her counterpart in the Collection Enforcement Division, dated 15 October 1992,
expressly noted that, "The taxpayer fails to execute a Waiver of the Statute of Limitations extending the period of
collection of the said tax up to December 31, 1993 pending reconsideration of its protest. . ."30 Without a valid waiver,
the statute of limitations on collection by the BIR of the deficiency DST could not have been suspended under paragraph
(d) of Section 223 of the Tax Code of 1977, as amended.

C. The protest filed by petitioner BPI did not constitute a request for reinvestigation, granted by the respondent BIR
Commissioner, which could have suspended the running of the statute of limitations on collection of the assessed
deficiency DST under Section 224 of the Tax Code of 1977, as amended.

The Tax Code of 1977, as amended, also recognizes instances when the running of the statute of limitations on the
assessment and collection of national internal revenue taxes could be suspended, even in the absence of a waiver,
under Section 224 thereof, which reads –

SEC. 224. Suspension of running of statute. – The running of the statute of limitation provided in Section[s] 203 and 223
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 reinvestigation which is granted by the Commissioner; when the taxpayer cannot be located in the
address given by him in the return filed upon which 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.31

Of particular importance to the present case is one of the circumstances enumerated in Section 224 of the Tax Code of
1977, as amended, wherein the running of the statute of limitations on assessment and collection of taxes is considered
suspended "when the taxpayer requests for a reinvestigation which is granted by the Commissioner."

This Court gives credence to the argument of petitioner BPI that there is a distinction between a request for
reconsideration and a request for reinvestigation. Revenue Regulations (RR) No. 12-85, issued on 27 November 1985 by
the Secretary of Finance, upon the recommendation of the BIR Commissioner, governs the procedure for protesting an
assessment and distinguishes between the two types of protest, as follows –

PROTEST TO ASSESSMENT

SEC. 6. Protest. The taxpayer may protest administratively an assessment by filing a written request for reconsideration
or reinvestigation. . .

...
For the purpose of the protest herein –

(a) Request for reconsideration. – refers to a plea for a re-evaluation of an assessment on the basis of existing
records without need of additional evidence. It may involve both a question of fact or of law or both.

(b) Request for reinvestigation. – refers to a plea for re-evaluation of an assessment on the basis of newly-discovered or
additional evidence that a taxpayer intends to present in the reinvestigation. It may also involve a question of fact or
law or both.

With the issuance of RR No. 12-85 on 27 November 1985 providing the above-quoted distinctions between a request for
reconsideration and a request for reinvestigation, the two types of protest can no longer be used interchangeably and
their differences so lightly brushed aside. It bears to emphasize that under Section 224 of the Tax Code of 1977, as
amended, the running of the prescriptive period for collection of taxes can only be suspended by a request for
reinvestigation, not a request for reconsideration. Undoubtedly, a reinvestigation, which entails the reception and
evaluation of additional evidence, will take more time than a reconsideration of a tax assessment, which will be limited
to the evidence already at hand; this justifies why the former can suspend the running of the statute of limitations on
collection of the assessed tax, while the latter can not.

The protest letter of petitioner BPI, dated 16 November 1989 and filed with the BIR the next day, on 17 November 1989,
did not specifically request for either a reconsideration or reinvestigation. A close review of the contents thereof would
reveal, however, that it protested Assessment No. FAS-5-85-89-002054 based on a question of law, in particular,
whether or not petitioner BPI was liable for DST on its sales of foreign currency to the Central Bank in taxable year 1985.
The same protest letter did not raise any question of fact; neither did it offer to present any new evidence. In its own
letter to petitioner BPI, dated 10 September 1992, the BIR itself referred to the protest of petitioner BPI as a request for
reconsideration.32 These considerations would lead this Court to deduce that the protest letter of petitioner BPI was in
the nature of a request for reconsideration, rather than a request for reinvestigation and, consequently, Section 224 of
the Tax Code of 1977, as amended, on the suspension of the running of the statute of limitations should not apply.

Even if, for the sake of argument, this Court glosses over the distinction between a request for reconsideration and a
request for reinvestigation, and considers the protest of petitioner BPI as a request for reinvestigation, the filing thereof
could not have suspended at once the running of the statute of limitations. Article 224 of the Tax Code of 1977, as
amended, very plainly requires that the request for reinvestigation had been granted by the BIR Commissioner to
suspend the running of the prescriptive periods for assessment and collection.

That the BIR Commissioner must first grant the request for reinvestigation as a requirement for suspension of the
statute of limitations is even supported by existing jurisprudence.

In the case of Republic of the Philippines v. Gancayco,33 taxpayer Gancayco requested for a thorough reinvestigation of
the assessment against him and placed at the disposal of the Collector of Internal Revenue all the evidences he had for
such purpose; yet, the Collector ignored the request, and the records and documents were not at all examined.
Considering the given facts, this Court pronounced that –

. . .The act of requesting a reinvestigation alone does not suspend the period. The request should first be granted, in
order to effect suspension. (Collector vs. Suyoc Consolidated, supra; also Republic vs. Ablaza, supra). Moreover, the
Collector gave appellee until April 1, 1949, within which to submit his evidence, which the latter did one day before.
There were no impediments on the part of the Collector to file the collection case from April 1, 1949. . . .34

In Republic of the Philippines v. Acebedo,35 this Court similarly found that –

. . . [T]he defendant, after receiving the assessment notice of September 24, 1949, asked for a reinvestigation thereof on
October 11, 1949 (Exh. A). There is no evidence that this request was considered or acted upon. In fact, on October 23,
1950 the then Collector of Internal Revenue issued a warrant of distraint and levy for the full amount of the assessment
(Exh. D), but there was no follow-up of this warrant. Consequently, the request for reinvestigation did not suspend the
running of the period for filing an action for collection.

The burden of proof that the taxpayer’s request for reinvestigation had been actually granted shall be on respondent BIR
Commissioner. The grant may be expressed in communications with the taxpayer or implied from the actions of the
respondent BIR Commissioner or his authorized BIR representatives in response to the request for reinvestigation.

In Querol v. Collector of Internal Revenue,36 the BIR, after receiving the protest letters of taxpayer Querol, sent a tax
examiner to San Fernando, Pampanga, to conduct the reinvestigation; as a result of which, the original assessment
against taxpayer Querol was revised by permitting him to deduct reasonable depreciation. In another case, Republic of
the Philippines v. Lopez,37 taxpayer Lopez filed a total of four petitions for reconsideration and reinvestigation. The first
petition was denied by the BIR. The second and third petitions were granted by the BIR and after each reinvestigation,
the assessed amount was reduced. The fourth petition was again denied and, thereafter, the BIR filed a collection suit
against taxpayer Lopez. When the taxpayers spouses Sison, in Commissioner of Internal Revenue v. Sison,38 contested the
assessment against them and asked for a reinvestigation, the BIR ordered the reinvestigation resulting in the issuance of
an amended assessment. Lastly, in Republic of the Philippines v. Oquias,39 the BIR granted taxpayer Oquias’s request for
reinvestigation and duly notified him of the date when such reinvestigation would be held; only, neither taxpayer Oquias
nor his counsel appeared on the given date.

In all these cases, the request for reinvestigation of the assessment filed by the taxpayer was evidently granted and
actual reinvestigation was conducted by the BIR, which eventually resulted in the issuance of an amended assessment.
On the basis of these facts, this Court ruled in the same cases that the period between the request for reinvestigation
and the revised assessment should be subtracted from the total prescriptive period for the assessment of the tax; and,
once the assessment had been reconsidered at the taxpayer’s instance, the period for collection should begin to run
from the date of the reconsidered or modified assessment.40

The rulings of the foregoing cases do not apply to the present Petition because: (1) the protest filed by petitioner BPI
was a request for reconsideration, not a reinvestigation, of the assessment against it; and (2) even granting that the
protest of petitioner BPI was a request for reinvestigation, there was no showing that it was granted by respondent BIR
Commissioner and that actual reinvestigation had been conducted.

Going back to the administrative records of the present case, it would seem that the BIR, after receiving a copy of the
protest letter of petitioner BPI on 17 November 1989, did not attempt to communicate at all with the latter until 10
September 1992, less than a month before the prescriptive period for collection on Assessment No. FAS-5-85-89-002054
was due to expire. There were internal communications, mostly indorsements of the docket of the case from one BIR
division to another; but these hardly fall within the same sort of acts in the previously discussed cases that satisfactorily
demonstrated the grant of the taxpayer’s request for reinvestigation. Petitioner BPI, in the meantime, was left in the
dark as to the status of its protest in the absence of any word from the BIR. Besides, in its letter to petitioner BPI, dated
10 September 1992, the BIR unwittingly admitted that it had not yet acted on the protest of the former –

This refers to your protest against and/or request for reconsideration of the assessment/s of this Office against you
involving the amount of ₱28,020.00 under FAS-5-85-89-002054 dated October 23, 1989 as deficiency documentary
stamp tax inclusive of compromise penalty for the year 1985.

In this connection, it is requested that the enclosed waiver of the statute of limitations extending the period of
collection of the said tax/es to December 31, 1993 be executed by you as a condition precedent of our giving due course
to your protest…41

When the BIR stated in its letter, dated 10 September 1992, that the waiver of the statute of limitations on collection
was a condition precedent to its giving due course to the request for reconsideration of petitioner BPI, then it was
understood that the grant of such request for reconsideration was being held off until compliance with the given
condition. When petitioner BPI failed to comply with the condition precedent, which was the execution of the waiver,
the logical inference would be that the request was not granted and was not given due course at all.
 III

The suspension of the statute of limitations on collection of the assessed deficiency DST from petitioner BPI does not find
support in jurisprudence.

It is the position of respondent BIR Commissioner, affirmed by the CTA and the Court of Appeals, that the three-year
prescriptive period for collecting on Assessment No. FAS-5-85-89-002054 had not yet prescribed, because the said
prescriptive period was suspended, invoking the case of Commissioner of Internal Revenue v. Wyeth Suaco Laboratories,
Inc.42 It was in this case in which this Court ruled that the prescriptive period provided by law to make a collection is
interrupted once a taxpayer requests for reinvestigation or reconsideration of the assessment.

Petitioner BPI, on the other hand, is requesting this Court to revisit the Wyeth Suaco case contending that it had
unjustifiably expanded the grounds for suspending the prescriptive period for collection of national internal revenue
taxes.

This Court finds that although there is no compelling reason to abandon its decision in the Wyeth Suaco case, the said
case cannot be applied to the particular facts of the Petition at bar.

A. The only exception to the statute of limitations on collection of taxes, other than those already provided in the Tax
Code, was recognized in the Suyoc case.

As had been previously discussed herein, the statute of limitations on assessment and collection of national internal
revenue taxes may be suspended if the taxpayer executes a valid waiver thereof, as provided in paragraphs (b) and (d) of
Section 223 of the Tax Code of 1977, as amended; and in specific instances enumerated in Section 224 of the same
Code, which include a request for reinvestigation granted by the BIR Commissioner. Outside of these statutory
provisions, however, this Court also recognized one other exception to the statute of limitations on collection of taxes in
the case of Collector of Internal Revenue v. Suyoc Consolidated Mining Co.43

In the said case, the Collector of Internal Revenue issued an assessment against taxpayer Suyoc Consolidated Mining Co.
on 11 February 1947 for deficiency income tax for the taxable year 1941. Taxpayer Suyoc requested for at least a year
within which to pay the amount assessed, but at the same time, reserving its right to question the correctness of the
assessment before actual payment. The Collector granted taxpayer Suyoc an extension of only three months to pay the
assessed tax. When taxpayer Suyoc failed to pay the assessed tax within the extended period, the Collector sent it a
demand letter, dated 28 November 1950. Upon receipt of the demand letter, taxpayer Suyoc asked for a reinvestigation
and reconsideration of the assessment, but the Collector denied the request. Taxpayer Suyoc reiterated its request for
reconsideration on 25 April 1952, which was denied again by the Collector on 06 May 1953. Taxpayer Suyoc then
appealed the denial to the Conference Staff. The Conference Staff heard the appeal from 02 September 1952 to 16 July
1955, and the negotiations resulted in the reduction of the assessment on 26 July 1955. It was the collection of the
reduced assessment that was questioned before this Court for being enforced beyond the prescriptive period.44

In resolving the issue on prescription, this Court ratiocinated thus –

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

While we may agree with the Court of Tax Appeals that a mere request for reexamination or reinvestigation may not
have the effect of suspending the running of the period of limitation for in such case there is need of a written
agreement to extend the period between the Collector and the taxpayer, there are cases however where a taxpayer
may be prevented from setting up the defense of prescription even if he has not previously waived it in writing as
when by his repeated requests or positive acts the Government has been, for good reasons, persuaded to postpone
collection to make him feel that the demand was not unreasonable or that no harassment or injustice is meant by the
Government. And when such situation comes to pass there are authorities that hold, based on weighty reasons, that
such an attitude or behavior should not be countenanced if only to protect the interest of the Government.45

By the principle of estoppel, taxpayer Suyoc was not allowed to raise the defense of prescription against the efforts of
the Government to collect the tax assessed against it. This Court adopted the following principle from American
jurisprudence: "He who prevents a thing from being done may not avail himself of the nonperformance which he has
himself occasioned, for the law says to him in effect ‘this is your own act, and therefore you are not damnified.’"46

In the Suyoc case, this Court expressly conceded that a mere request for reconsideration or reinvestigation of an
assessment may not suspend the running of the statute of limitations. It affirmed the need for a waiver of the
prescriptive period in order to effect suspension thereof. However, even without such waiver, the taxpayer may be
estopped from raising the defense of prescription because by his repeated requests or positive acts, he had induced
Government authorities to delay collection of the assessed tax.

Based on the foregoing, petitioner BPI contends that the declaration made in the later case of Wyeth Suaco, that the
statute of limitations on collection is suspended once the taxpayer files a request for reconsideration or reinvestigation,
runs counter to the ruling made by this Court in the Suyoc case.

B. Although this Court is not compelled to abandon its decision in the Wyeth Suaco case, it finds that Wyeth Suaco is not
applicable to the Petition at bar because of the distinct facts involved herein.

In the case of Wyeth Suaco, taxpayer Wyeth Suaco was assessed for failing to remit withholding taxes on royalties and
dividend declarations, as well as, for deficiency sales tax. The BIR issued two assessments, dated 16 December 1974 and
17 December 1974, both received by taxpayer Wyeth Suaco on 19 December 1974. Taxpayer Wyeth Suaco, through its
tax consultant, SGV & Co., sent to the BIR two letters, dated 17 January 1975 and 08 February 1975, protesting the
assessments and requesting their cancellation or withdrawal on the ground that said assessments lacked factual or legal
basis. On 12 September 1975, the BIR Commissioner advised taxpayer Wyeth Suaco to avail itself of the compromise
settlement being offered under Letter of Instruction No. 308. Taxpayer Wyeth Suaco manifested its conformity to paying
a compromise amount, but subject to certain conditions; though, apparently, the said compromise amount was never
paid. On 10 December 1979, the BIR Commissioner rendered a decision reducing the assessment for deficiency
withholding tax against taxpayer Wyeth Suaco, but maintaining the assessment for deficiency sales tax. It was at this
point when taxpayer Wyeth Suaco brought its case before the CTA to enjoin the BIR from enforcing the assessments by
reason of prescription. Although the CTA decided in favor of taxpayer Wyeth Suaco, it was reversed by this Court when
the case was brought before it on appeal. According to the decision of this Court –

Settled is the rule that the prescriptive period provided by law to make a collection by distraint or levy or by a
proceeding in court is interrupted once a taxpayer requests for reinvestigation or reconsideration of the assessment. . .

...

Although the protest letters prepared by SGV & Co. in behalf of private respondent did not categorically state or use the
words "reinvestigation" and "reconsideration," the same are to be treated as letters of reinvestigation and
reconsideration…

These letters of Wyeth Suaco interrupted the running of the five-year prescriptive period to collect the deficiency
taxes. The Bureau of Internal Revenue, after having reviewed the records of Wyeth Suaco, in accordance with its
request for reinvestigation, rendered a final assessment… It was only upon receipt by Wyeth Suaco of this final
assessment that the five-year prescriptive period started to run again.47
The foremost criticism of petitioner BPI of the Wyeth Suaco decision is directed at the statement made therein that,
"settled is the rule that the prescriptive period provided by law to make a collection by distraint or levy or by a
proceeding in court is interrupted once a taxpayer requests for reinvestigation or reconsideration of the
assessment."48 It would seem that both petitioner BPI and respondent BIR Commissioner, as well as, the CTA and Court
of Appeals, take the statement to mean that the filing alone of the request for reconsideration or reinvestigation can
already interrupt or suspend the running of the prescriptive period on collection. This Court therefore takes this
opportunity to clarify and qualify this statement made in the Wyeth Suaco case. While it is true that, by itself, such
statement would appear to be a generalization of the exceptions to the statute of limitations on collection, it is best
interpreted in consideration of the particular facts of the Wyeth Suaco case and previous jurisprudence.

The Wyeth Suaco case cannot be in conflict with the Suyoc case because there are substantial differences in the factual
backgrounds of the two cases. The Suyoc case refers to a situation where there were repeated requests or positive acts
performed by the taxpayer that convinced the BIR to delay collection of the assessed tax. This Court pronounced therein
that the repeated requests or positive acts of the taxpayer prevented or estopped it from setting up the defense of
prescription against the Government when the latter attempted to collect the assessed tax. In the Wyeth Suaco case,
taxpayer Wyeth Suaco filed a request for reinvestigation, which was apparently granted by the BIR and, consequently,
the prescriptive period was indeed suspended as provided under Section 224 of the Tax Code of 1977, as amended.49

To reiterate, Section 224 of the Tax Code of 1977, as amended, identifies specific circumstances when the statute of
limitations on assessment and collection may be interrupted or suspended, among which is a request for reinvestigation
that is granted by the BIR Commissioner. The act of filing a request for reinvestigation alone does not suspend the
period; such request must be granted.50 The grant need not be express, but may be implied from the acts of the BIR
Commissioner or authorized BIR officials in response to the request for reinvestigation.51

This Court found in the Wyeth Suaco case that the BIR actually conducted a reinvestigation, in accordance with the
request of the taxpayer Wyeth Suaco, which resulted in the reduction of the assessment originally issued against it.
Taxpayer Wyeth Suaco was also aware that its request for reinvestigation was granted, as written by its Finance
Manager in a letter dated 01 July 1975, addressed to the Chief of the Tax Accounts Division, wherein he admitted that,
"[a]s we understand, the matter is now undergoing review and consideration by your Manufacturing Audit Division…"
The statute of limitations on collection, then, started to run only upon the issuance and release of the reduced
assessment.

The Wyeth Suaco case, therefore, is correct in declaring that the prescriptive period for collection is interrupted or
suspended when the taxpayer files a request for reinvestigation, provided that, as clarified and qualified herein, such
request is granted by the BIR Commissioner.

Thus, this Court finds no compelling reason to abandon its decision in the Wyeth Suaco case. It also now rules that the
said case is not applicable to the Petition at bar because of the distinct facts involved herein. As already heretofore
determined by this Court, the protest filed by petitioner BPI was a request for reconsideration, which merely required a
review of existing evidence and the legal basis for the assessment. Respondent BIR Commissioner did not require,
neither did petitioner BPI offer, additional evidence on the matter. After petitioner BPI filed its request for
reconsideration, there was no other communication between it and respondent BIR Commissioner or any of the
authorized representatives of the latter. There was no showing that petitioner BPI was informed or aware that its
request for reconsideration was granted or acted upon by the BIR.

IV

Conclusion

To summarize all the foregoing discussion, this Court lays down the following rules on the exceptions to the statute of
limitations on collection.
The statute of limitations on collection may only be interrupted or suspended by a valid waiver executed in accordance
with paragraph (d) of Section 223 of the Tax Code of 1977, as amended, and the existence of the circumstances
enumerated in Section 224 of the same Code, which include a request for reinvestigation granted by the BIR
Commissioner.

Even when the request for reconsideration or reinvestigation is not accompanied by a valid waiver or there is no request
for reinvestigation that had been granted by the BIR Commissioner, the taxpayer may still be held in estoppel and be
prevented from setting up the defense of prescription of the statute of limitations on collection when, by his own
repeated requests or positive acts, the Government had been, for good reasons, persuaded to postpone collection to
make the taxpayer feel that the demand is not unreasonable or that no harassment or injustice is meant by the
Government, as laid down by this Court in the Suyoc case.

Applying the given rules to the present Petition, this Court finds that –

(a) The statute of limitations for collection of the deficiency DST in Assessment No. FAS-5-85-89-002054, issued against
petitioner BPI, had already expired; and

(b) None of the conditions and requirements for exception from the statute of limitations on collection exists herein:
Petitioner BPI did not execute any waiver of the prescriptive period on collection as mandated by paragraph (d) of
Section 223 of the Tax Code of 1977, as amended; the protest filed by petitioner BPI was a request for reconsideration,
not a request for reinvestigation that was granted by respondent BIR Commissioner which could have suspended the
prescriptive period for collection under Section 224 of the Tax Code of 1977, as amended; and, petitioner BPI, other than
filing a request for reconsideration of Assessment No. FAS-5-85-89-002054, did not make repeated requests or
performed positive acts that could have persuaded the respondent BIR Commissioner to delay collection, and that
would have prevented or estopped petitioner BPI from setting up the defense of prescription against collection of the
tax assessed, as required in the Suyoc case.

This is a simple case wherein respondent BIR Commissioner and other BIR officials failed to act promptly in resolving and
denying the request for reconsideration filed by petitioner BPI and in enforcing collection on the assessment. They
presented no reason or explanation as to why it took them almost eight years to address the protest of petitioner BPI.
The statute on limitations imposed by the Tax Code precisely intends to protect the taxpayer from such prolonged and
unreasonable assessment and investigation by the BIR.

Considering that the right of the respondent BIR Commissioner to collect from petitioner BPI the deficiency DST in
Assessment No. FAS-5-85-89-002054 had already prescribed, then, there is no more need for this Court to make a
determination on the validity and correctness of the said Assessment for the latter would only be unenforceable.

Wherefore, based on the foregoing, the instant Petition is GRANTED. The Decision of the Court of Appeals in CA-G.R. SP
No. 51271, dated 11 August 1999, which reinstated Assessment No. FAS-5-85-89-002054 requiring petitioner BPI to pay
the amount of ₱28,020.00 as deficiency documentary stamp tax for the taxable year 1985, inclusive of the compromise
penalty, is REVERSED and SET ASIDE. Assessment No. FAS-5-85-89-002054 is hereby ordered CANCELED.

SO ORDERED.

3. Sale of property (Sec 209, 213)

4. Forfeiture (Sec 215)
5. Compromise and Abatement (Sec 204)
6. Penalties and Fines
7. Suspension of business operations

X. JUDICIAL REMEDIES OF THE GOVERNMENT

 A. Civil Actions
1. Form and Mode of Proceeding in Actions Arising under this Code (Sec 220)
2. Injunction not Available to Restrain Collection of Tax (Sec 218)
3. Jurisdiction
4. CASES:
a. REPUBLIC OF THE PHILIPPINES, represented by the Commissioner of the Bureau of Internal Revenue
(BIR), petitioner,
vs.
SALUD V. HIZON, respondent.
G.R. No. 130430 December 13, 1999

This is a petition for review of the decision 1 of the Regional Trial Court, Branch 44, San Fernando, Pampanga, dismissing
the suit filed by the Bureau of Internal Revenue for collection of tax.

The facts are as follows:

On July 18, 1986, the BIR issued to respondent Salud V. Hizon a deficiency income tax assessment of P1,113,359.68
covering the fiscal year 1981-1982. Respondent not having contested the assessment, petitioner, on January 12, 1989,
served warrants of distraint and levy to collect the tax deficiency. However, for reasons not known, it did not proceed to
dispose of the attached properties.

More than three years later, or on November 3, 1992, respondent wrote the BIR requesting a reconsideration of her tax
deficiency assessment. The BIR, in a letter dated August 11, 1994, denied the request. On January 1, 1997, it filed a case
with the Regional Trial Court, Branch 44, San Fernando, Pampanga to collect the tax deficiency. The complaint was
signed by Norberto Salud, Chief of the Legal Division, BIR Region 4, and verified by Amancio Saga, the Bureau's Regional
Director in Pampanga.

Respondent moved to dismiss the case on two grounds: (1) that the complaint was not filed upon authority of the BIR
Commissioner as required by §221 2 of the National Internal Revenue Code, and (2) that the action had already
prescribed. Over petitioner's objection, the trial court, on August 28, 1997, granted the motion and dismissed the
complaint. Hence, this petition. Petitioner raises the following issues: 3

I. WHETHER OR NOT THE INSTITUTION OF THE CIVIL CASE FOR COLLECTION OF TAXES WAS WITHOUT
THE APPROVAL OF THE COMMISSIONER IN VIOLATION OF SECTION 221 OF THE NATIONAL INTERNAL
REVENUE CODE.

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

First. In sustaining respondent's contention that petitioner's complaint was filed without the authority of the BIR
Commissioner, the trial court stated: 4

There is no question that the National Internal Revenue Code explicitly provides that in the matter of
filing cases in Court, civil or criminal, for the collection of taxes, etc., the approval of the commissioner
must first be secured. . . . [A]n action will not prosper in the absence of the commissioner's approval.
Thus, in the instant case, the absence of the approval of the commissioner in the institution of the
action is fatal to the cause of the plaintiff . . . .

The trial court arrived at this conclusion because the complaint filed by the BIR was not signed by then
Commissioner Liwayway Chato.

Sec. 221 of the NIRC provides:

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

To implement this provision Revenue Administrative Order No. 5-83 of the BIR provides in pertinent portions:

The following civil and criminal cases are to be handled by Special Attorneys and Special Counsels
assigned in the Legal Branches of Revenues Regions:

xxx xxx xxx

II. Civil Cases

1. Complaints for collection on cases falling within the jurisdiction of the Region . . . .

In all the abovementioned cases, the Regional Director is authorized to sign all pleadings
filed in connection therewith which, otherwise, requires the signature of the
Commissioner.

xxx xxx xxx

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

However, the lower court refused to recognize RAO No. 10-95 and, by implication, RAO No. 5-83. It held:

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

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

Specific provisions to be contained in regulations. — The regulations of the Bureau of Internal Revenue
shall, among other things, contain provisions specifying, prescribing, or defining:

xxx xxx xxx

(d) The conditions to be observed by revenue officers, provincial fiscals and other officials respecting the
institution and conduct of legal actions and proceedings.

RAO Nos. 5-83 and 10-95 are in harmony with this statutory mandate.
As amended by R.A. No. 8424, the NIRC is now even more categorical. Sec. 7 of the present Code authorizes the BIR
Commissioner to delegate the powers vested in him under the pertinent provisions of the Code to any subordinate
official with the rank equivalent to a division chief or higher, except the following:

(a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance;

(b) The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of
the Bureau;

(c) The power to compromise or abate under §204 (A) and (B) of this Code, any tax
deficiency: Provided, however, that assessment issued by the Regional Offices involving basic deficiency
taxes of five hundred thousand pesos (P500,000.00) or less, and minor criminal violations as may be
determined by rules and regulations to be promulgated by the Secretary of Finance, upon the
recommendation of the Commissioner, discovered by regional and district officials, may be
compromised by a regional evaluation board which shall be composed of the Regional Director as
Chairman, the Assistant Regional Director, heads of the Legal, Assessment and Collection Divisions and
the Revenue District Officer having jurisdiction over the taxpayer, as members; and

(d) The power to assign or reassign internal revenue officers to establishments where articles subject to
excise tax are produced or kept.

None of the exceptions relates to the Commissioner's power to approve the filing of tax collection cases.

Second. With regard to the issue that the case filed by petitioner for the collection of respondent's tax deficiency is
barred by prescription, §223(c) of the NIRC provides:

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

The running of the three-year prescriptive period is suspended 8 —

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

Petitioner argues that, in accordance with this provision, respondent's request for reinvestigation of her tax
deficiency assessment on November 3, 1992 effectively suspended the running of the period of prescription
such that the government could still file a case for tax collection. 9

The contention has no merit. Sec. 229 10 of the Code mandates that a request for reconsideration must be made within
30 days from the taxpayer's receipt of the tax deficiency assessment, otherwise the assessment becomes final,
unappealable and, therefore, demandable. 11 The notice of assessment for respondent's tax deficiency was issued by
petitioner on July 18, 1986. On the other hand, respondent made her request for reconsideration thereof only on
November 3, 1992, without stating when she received the notice of tax assessment. She explained that she was
constrained to ask for a reconsideration in order to avoid the harassment of BIR collectors. 12 In all likelihood, she must
have been referring to the distraint and levy of her properties by petitioner's agents which took place on January 12,
1989. Even assuming that she first learned of the deficiency assessment on this date, her request for reconsideration
was nonetheless filed late since she made it more than 30 days thereafter. Hence, her request for reconsideration did
not suspend the running of the prescriptive period provided under §223(c). Although the Commissioner acted on her
request by eventually denying it on August 11, 1994, this is of no moment and does not detract from the fact that the
assessment had long become demandable.

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

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

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

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

WHEREFORE, the petition is DENIED.

B. Criminal Actions
CASES:

a. QUIRICO P. UNGAB, petitioner,

vs.
HON. VICENTE N. CUSI, JR., in his capacity as Judge of the Court of First Instance, Branch 1, 16TH
Judicial District, Davao City, THE COMMISSIONER OF INTERNAL REVENUE, and JESUS N. ACEBES, in his
capacity as State Prosecutor, respondents.
G.R. No. L-41919-24 May 30, 1980

Petition for certiorari and prohibition with preliminary injunction and restraining order to annul and set aside the
informations filed in Criminal Case Nos. 1960, 1961, 1962, 1963, 1964, and 1965 of the Court of First Instance of Davao,
all entitled: "People of the Philippines, plaintiff, versus Quirico Ungab, accused;" and to restrain the respondent Judge
from further proceeding with the hearing and trial of the said cases.
It is not disputed that sometime in July, 1974, BIR Examiner Ben Garcia examined the income tax returns filed by the
herein petitioner, Quirico P. Ungab, for the calendar year ending December 31, 1973. In the course of his examination,
he discovered that the petitioner failed to report his income derived from sales of banana saplings. As a result, the BIR
District Revenue Officer at Davao City sent a "Notice of Taxpayer" to the petitioner informing him that there is due from
him (petitioner) the amount of P104,980.81, representing income, business tax and forest charges for the year 1973 and
inviting petitioner to an informal conference where the petitioner, duly assisted by counsel, may present his objections
to the findings of the BIR Examiner. 1 Upon receipt of the notice, the petitioner wrote the BIR District Revenue Officer
protesting the assessment, claiming that he was only a dealer or agent on commission basis in the banana sapling
business and that his income, as reported in his income tax returns for the said year, was accurately stated. BIR
Examiner Ben Garcia, however, was fully convinced that the petitioner had filed a fraudulent income tax return so that
he submitted a "Fraud Referral Report," to the Tax Fraud Unit of the Bureau of Internal Revenue. After examining the
records of the case, the Special Investigation Division of the Bureau of Internal Revenue found sufficient proof that the
herein petitioner is guilty of tax evasion for the taxable year 1973 and recommended his prosecution: têñ.£îhqwâ£

(1) For having filed a false or fraudulent income tax return for 1973 with intent to evade his just taxes
due the government under Section 45 in relation to Section 72 of the National Internal Revenue Code;

(2) For failure to pay a fixed annual tax of P50.00 a year in 1973 and 1974, or a total of unpaid fixed
taxes of P100.00 plus penalties of 175.00 or a total of P175.00, in accordance with Section 183 of the
National Internal Revenue Code;

(3) For failure to pay the 7% percentage tax, as a producer of banana poles or saplings, on the total sales
of P129,580.35 to the Davao Fruit Corporation, depriving thereby the government of its due revenue in
the amount of P15,872.59, inclusive of surcharge. 2

In a second indorsement to the Chief of the Prosecution Division, dated December 12, 1974, the Commissioner of
Internal Revenue approved the prosecution of the petitioner. 3

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

(1) Criminal Case No. 1960 — Violation of Sec. 45, in relation to Sec. 72 of the National Internal-Revenue
Code, for filing a fraudulent income tax return for the calendar year ending December 31, 1973; 4

(2) Criminal Case No. 1961 — Violation of Sec. 182 (a), in relation to Secs. 178, 186, and 208 of the
National Internal Revenue Code, for engaging in business as producer of saplings, from January, 1973 to
December, 1973, without first paying the annual fixed or privilege tax thereof; 5

(3) Criminal Case No. 1962 — Violation of Sec. 183 (a), in relation to Secs. 186 and 209 of the National
Internal Revenue Code, for failure to render a true and complete return on the gross quarterly sales,
receipts and earnings in his business as producer of banana saplings and to pay the percentage tax due
thereon, for the quarter ending December 31, 1973; 6

(4) Criminal Case No. 1963 — Violation of Sec. 183 (a), in relation to Secs. 186 and 209 of the National
Internal Revenue Code, for failure to render a true and complete return on the gross quarterly sales
receipts and earnings in his business as producer of saplings, and to pay the percentage tax due thereon,
for the quarter ending on March 31, 1973; 7

(5) Criminal Case No. 1964 — Violation of Sec. 183 (a), in relation to Secs. 186 and 209 of the National
Internal Revenue Code, for failure to render a true and complete return on the gross quarterly sales,
 receipts and earnings in his business as producer of banana saplings for the quarter ending on June 30,
1973, and to pay the percentage tax due thereon; 8

(6) Criminal Case No. 1965 — Violation of Sec. 183 (a), in relation to Secs. 186 and 209 of the National
Internal Revenue Code, for failure to render a true and complete return on the gross quarterly sales,
receipts and earnings as producer of banana saplings, for the quarter ending on September 30, 1973,
and to pay the percentage tax due thereon. 9

On September 16, 1975, the petitioner filed a motion to quash the informations upon the grounds that: (1) the
informations are null and void for want of authority on the part of the State Prosecutor to initiate and prosecute the said
cases; and (2) the trial court has no jurisdiction to take cognizance of the above-entitled cases in view of his pending
protest against the assessment made by the BIR Examiner. 10 However, the trial court denied the motion on October 22,
1975. 11 Whereupon, the petitioner filed the instant recourse. As prayed for, a temporary restraining order was issued by
the Court, ordering the respondent Judge from further proceeding with the trial and hearing of Criminal Case Nos. 1960,
1961, 1962, 1963, 1964, and 1965 of the Court of First Instance of Davao, all entitled: "People of the Philippines, plaintiff,
versus Quirico Ungab, accused."

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

In view of all the foregoing considerations, it is the ruling of this Court that under Sections 1679 and
1686 of the Revised Administrative Code, in any instance where a provincial or city fiscal fails, refuses or
is unable, for any reason, to investigate or prosecute a case and, in the opinion of the Secretary of
Justice it is advisable in the public interest to take a different course of action, the Secretary of Justice
may either appoint as acting provincial or city fiscal to handle the investigation or prosecution
exclusively and only of such case, any practicing attorney or some competent officer of the Department
of Justice or office of any city or provincial fiscal, with complete authority to act therein in all respects as
if he were the provincial or city fiscal himself, or appoint any lawyer in the government service,
temporarily to assist such city of provincial fiscal in the discharge of his duties, with the same complete
authority to act independently of and for such city or provincial fiscal provided that no such
appointment may be made without first hearing the fiscal concerned and never after the corresponding
information has already been filed with the court by the corresponding city or provincial fiscal without
the conformity of the latter, except when it can be patently shown to the court having cognizance of the
case that said fiscal is intent on prejudicing the interests of justice. The same sphere of authority is true
with the prosecutor directed and authorized under Section 3 of Republic Act 3783, as amended and/or
inserted by Republic Act 5184. The observation in Salcedo vs. Liwag, supra, regarding the nature of the
power of the Secretary of Justice over fiscals as being purely over administrative matters only was not
really necessary, as indicated in the above relation of the facts and discussion of the legal issues of said
case, for the resolution thereof. In any event, to any extent that the opinion therein may be inconsistent
herewith the same is hereby modified.

The contention is without merit. Contrary to the petitioner's claim, the rule therein established had not been violated.
The respondent State Prosecutor, although believing that he can proceed independently of the City Fiscal in the
investigation and prosecution of these cases, first sought permission from the City Fiscal of Davao City before he started
the preliminary investigation of these cases, and the City Fiscal, after being shown Administrative Order No. 116, dated
December 5, 1974, designating the said State Prosecutor to assist all Provincial and City fiscals throughout the
Philippines in the investigation and prosecution of all violations of the National Internal Revenue Code, as amended, and
other related laws, graciously allowed the respondent State Prosecutor to conduct the investigation of said cases, and in
fact, said investigation was conducted in the office of the City Fiscal. 13

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

The contention is without merit. What is involved here is not the collection of taxes where the assessment of the
Commissioner of Internal Revenue may be reviewed by the Court of Tax Appeals, but a criminal prosecution for
violations of the National Internal Revenue Code which is within the cognizance of courts of first instance. While there
can be no civil action to enforce collection before the assessment procedures provided in the Code have been followed,
there is no requirement for the precise computation and assessment of the tax before there can be a criminal
prosecution under the Code. têñ.£îhqwâ£

The contention is made, and is here rejected, that an assessment of the deficiency tax due is necessary
before the taxpayer can be prosecuted criminally for the charges preferred. The crime is complete when
the violator has, as in this case, knowingly and willfully filed fraudulent returns with intent to evade and
defeat a part or all of the tax. 14

An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to defeat and
evade the income tax. A crime is complete when the violator has knowingly and willfuly filed a
fraudulent return with intent to evade and defeat the tax. The perpetration of the crime is grounded
upon knowledge on the part of the taxpayer that he has made an inaccurate return, and the
government's failure to discover the error and promptly to assess has no connections with the
commission of the crime. 15

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

WHEREFORE, the petition should be, as it is hereby dismissed. The temporary restraining order heretofore issued is
hereby set aside. With costs against the petitioner.

SO ORDERED.

b. CIR v. CA
G.R. No. 119322 June 4, 1996

The pivotal issue in this petition for review is whether or not respondent Court of Appeals in its decision1 in CA-G.R. SP
No. 33599 correctly ruled that the Regional Trial Court of Quezon City (Branch 88) in Civil Case No. Q-94- 18790 did not
commit grave abuse of discretion amounting to lack of jurisdiction in issuing four (4) orders directing the issuance of
writs of preliminary injunction restraining petitioner prosecutors from continuing with the preliminary injunction of I.S.
Nos. 93-508 and 93-584 in the Department of Justice and I.S. No. 93-17942 in the Office of the City Prosecutors of
Quezon City wherein private respondents were respondents and denying petitioners' Motion to Dismiss said Civil Case
No. 94-18790.2

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

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 underdeclarations 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.

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

On September 8, 1993, the Department of Justice Task Force issued a subpoena directing private respondents to submit
their counter-affidavits not later than September 20, 1993. 6

Instead of filing their counter-affidavits, the private respondents on October 15, 1993 filed a Verified Motion to Dismiss;
Alternatively Motion to Suspend,7 based principally on the following grounds:

1. The complaint of petitioner Commissioner follows a pattern of prosecution against private

respondents in violation of their right to due process and equal protection of the law.

2. Petitioner Commissioner and the Court of Tax Appeals have still to determine Fortune's tax liability for
1992 in question; without any tax liability, there can be no tax evasion.

3. Exclusive jurisdiction to determine tax liability is vested in the Court of Tax Appeals; therefore, the
DOJ is without jurisdiction to conduct preliminary investigation.

4. The complaint of petitioner Commissioner is not supported by any evidence to serve as adequate
basis for the issuance of subpoena to private respondents and to put them to their defense.
At the scheduled preliminary investigation on October 15, 1993, private respondents were asked by the panel of
prosecutors to inform it of the aspects of the Verified Motion to Dismiss which counsel for private respondents did so
briefly. Counsel for the Commissioner of Internal Revenue asked for fifteen (15) days within which to file a reply in
writing to private respondents' Verified Motion to Dismiss. Thereupon, the panel of prosecutors declared a recess. Upon
reconvening, the panel of prosecutors denied the motion to dismiss and treated the same as private respondents'
counter-affidavits.8

On October 20, 1993, private respondents filed a motion for reconsideration of the order of October 15, 1993.9 On
October 21, 1993, private respondents filed a motion to require the submission by the Bureau of Internal Revenue of
certain documents in further support of their Verified Motion to Dismiss. Among the documents sought to be produced
are the "Daily Manufacturer's Sworn Statements" which according to petitioner Commissioner in her complaint were
submitted by Fortune to the BIR and which were the basis of her conclusion that Fortune's tax declarations were false
and fraudulent. Fortune claimed that without the "Daily Manufacturer's Sworn Statements," there is no evidence to
support the complaint, hence, warranting its outright dismissal.

On October 26, 1993, private respondents moved for the inhibition of the State prosecutors assigned to the case for
alleged lack of impartiality.10 Private respondents also sought the production of the "Daily Manufacturer's Sworn
Statements" submitted by certain cigarette companies similarly situated as Fortune but were not proceeded against,
thus, private respondents charged that Fortune and its officers were being singled out for criminal prosecution which is
discriminatory and in violation of the equal protection clause of the Constitution.

On December 20, 1993, the panel of prosecutors issued an Omnibus Order11 denying private respondents' motion for
reconsideration, motion for suspension of investigation, motion to inhibit the State Prosecutors, and motion to require
submission by the BIR of certain documents to further support private respondents' motion to dismiss.

On January 4, 1994, private respondents filed a petition for certiorari and prohibition with prayer for preliminary
injunction with the Regional Trial Court, Branch 88, Quezon City, docketed as Q-94-18790, praying that the complaint of
the Commissioner of Internal Revenue and the orders of the prosecutors in I.S. No. 93-508 be dismissed or set aside,
alternatively, the proceedings on the preliminary investigation be suspended pending final determination by the
Commissioner of Fortune's motion for reconsideration/ reinvestigation of the August 13, 1993 assessment of the taxes
due.12

On January 17, 1994, petitioners filed a motion to dismiss the petition13 on the grounds that (a) the trial court is bereft
of jurisdiction to enjoin a criminal prosecution under preliminary investigation; (b) a criminal prosecution for tax fraud
can proceed independently of criminal or administrative action; (c) there is no prejudicial question to justify suspension
of the preliminary investigation; (d) private respondents' rights to due process was not violated; and (e) selective
prosecution is not a valid defense in this jurisdiction.

On January 19, 1994, at the hearing of the incident for the issuance of a writ of preliminary injunction in the petition,
private respondents offered in evidence their verified petition for certiorari and prohibition and its annexes. Petitioners
responded by praying that their motion to dismiss the petition for certiorari and prohibition be considered as their
opposition to private respondents' application for the issuance of a writ of preliminary injunction.

On January 25, 1994, the trial court issued an order granting the prayer for the issuance of a preliminary
injunction.14 The trial court rationalized its order in this wise:

a) It is private respondents' claim that 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 January 26, 1994, private respondents filed with the trial court a Motion to Admit Supplemental Petition and sought
the issuance of a writ of preliminary injunction to enjoin the State Prosecutors from continuing with the preliminary
investigation filed by them against private respondents with the Quezon City Prosecutor's Office, docketed as I.S. 93-
17942, for alleged fraudulent tax evasion, committed by private respondents for the taxable year 1990. Private
respondents averred in their motion that no supporting documents or copies of the complaint were attached to the
subpoena in I.S. 93-17942; that the subpoena violates private respondents' constitutional right to due process, equal
protection and presumption of innocence; that I.S. 93-17942 is substantially the same as I.S. 93-508; that no tax
assessment has been issued by the Commission of Internal Revenue and considering that taxes paid have not been
challenged, no tax liability exists; and that since Assistant City Prosecutor Baraquia was a former classmate of
Presidential Legal Counsel Antonio T. Carpio, the former cannot conduct the preliminary investigation in an impartial
manner.
On January 28, 1994, private respondents filed with the trial court a second supplemental petition,15 also seeking to stay
the preliminary investigation in I.S. 93-584, which was the third complaint filed against private respondents with the DOJ
for alleged fraudulent tax evasion for the taxable year 1991.

On January 31, 1994, the lower court admitted the two (2) supplemental petitions and issued a temporary restraining
order in I.S. 93-17942 and I.S. 93-584.16 Also, on the same day, petitioners filed an Urgent Motion for Immediate
Resolution of petitioners' motion to dismiss.

On February 7, 1994, the trial court issued an order denying petitioners' motion to dismiss private respondents' petition
seeking to stay preliminary investigation in I.S. 93-508, ruling that the issue of whether Sec. 127(b) of the National Tax
Revenue Code should be the basis of private respondents' tax liability as contended by the Bureau of Internal Revenue,
or whether it is Section 142(c) of the same Code that applies, as argued by herein private respondents, should first be
settled before any complaint for fraudulent tax evasion can be initiated.17

On February 14, 1994, the trial court issued an order granting private respondents' petition for a supplemental writ of
preliminary injunction, likewise enjoining the preliminary investigation of the two (2) other complaints filed with the
Quezon City Prosecutor's Office and the DOJ for fraudulent tax evasion, I.S. 93-17942 and I.S. 93-584, for alleged tax
evasion for the taxable years 1990 and 1991 respectively.18 In granting the supplemental writ, the trial court stated that
the two other complaints are the same as in I.S. 93-508, except that the former refer to the taxable years 1990 and
1991.

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. In upholding the reasons and conclusions given by
the trial court in its orders for the issuance of the questioned writs, the Court of Appeals said in part:

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

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

Grave abuse of discretion as a ground for issuance of writs of certiorari and prohibition implies
capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction, or where the
power is exercised in an arbitrary or despotic manner by reason of passion, prejudice, or personal
hostility, amounting to an evasion of positive duty or to a virtual refusal to perform the duty enjoined, or
to act at all in contemplation of law (Confederation of Citizens Labor Union vs. NLRC, 60 SCRA 84;
Bustamante vs. Commission on Audit, 216 SCRA 134). For such writs to lie, there must be capricious,
arbitrary and whimsical exercise of power, the very antithesis of the judicial prerogative in accordance
with centuries of both civil law and common law traditions (Young vs. Sulit, 162 SCRA 659, 664; FCC vs.
IAC, 166 SCRA 155; Purefoods Corp. vs. NLRC, 171 SCRA 45). Certiorari and prohibition are remedies
narrow in scope and inflexible in character. They are not general utility tools in the legal workshop (Vda.
de Guia vs. Veloso, 158 SCRA 340, 344). Their function is but limited to correction of defects of
jurisdiction solely, not to be used for any other purpose (Garcia vs. Ranada, 166 SCRA 9), such as to cure
errors in. proceedings or to correct erroneous conclusions of law or fact (Gold City Integrated Ports
Services vs. IAC, 171 SCRA 579). Due regard for the foregoing teachings enunciated in the decisions cited
can not bring about a decision other than what has been reached herein.

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

WHEREFORE, the instant petition for certiorari and prohibition with application for issuance of
restraining order and writ of preliminary injunction is DISMISSED. Costs de oficio.19

Their motion for reconsideration having been denied by respondent appellate court on February 23, 1995, petitioners
filed the present petition for review based on the following grounds:

THE RESPONDENT COURTS COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR

EXCESS OF JURISDICTION IN HOLDING THAT:

I. THERE IS A PREJUDICIAL AND/OR LEGAL QUESTION TO JUSTIFY THE SUSPENSION OF THE PRELIMINARY
INVESTIGATION.

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

III. THE ADMISSION OF PRIVATE RESPONDENTS' SUPPLEMENTAL PETITIONS WERE PROPER.

IV. THERE WAS SELECTIVE PROSECUTION.

V. THE FACTUAL ALLEGATIONS IN THE PETITION ARE HYPOTHETICALLY ADMITTED IN A MOTION TO

DISMISS BASED ON JURISDICTIONAL GROUNDS.
 VI. THE ISSUANCE OF THE WRITS OF INJUNCTION IS NOT A DECISION ON THE MERITS OF THE PETITION
BEFORE THE LOWER COURT.20

The petition is bereft of merit.

In essence, the complaints in I.S. Nos. 93-508, 93-584 and 93-17942 charged private respondents with fraudulent tax
evasion or wilfully attempting to evade or defeat payment of income tax, ad valorem tax and value-added tax for the
year 1992, as well as for the years 1990-1991.

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

Sec. 127. . . .

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

Sec. 142. . . .

(c) Cigarettes packed in twenties. -- There shall be levied, assessed and collected on cigarettes packed in
twenties an ad valorem tax at the rates prescribed below based on the manufacturer's registered
wholesale price.

xxx xxx xxx

Private respondents contend that per Fortune's VAT returns, correct taxable sales for 1992 was in the amount of
P11,736,658,580.00 which was the "manufacturer's registered wholesale price" in accordance with Section 142(c) of the
Tax Code and paid the amount of P4,805,254,523 as ad valorem tax.

On the other hand, petitioners allege, as specifically worded in the complaint in I.S. No. 93-508, that "based on the daily
manufacturer's sworn statements submitted to the BIR by the Taxpayer (Fortune's) total taxable sales during the year
1992 is P16,686,372,295.00," as result of which Fortune "was able to evade the payment of ad valorem taxes in the
aggregate amount of P5,792,479,816.24 . . ."

Petitioners now argue that Section 127(b) lays down the rule that in determining the gross selling price of goods subject
to ad valorem tax, it is the price, excluding the value-added tax, at which the goods are sold at wholesale price in the
place of production or through their sales agents to the public. The registered wholesale price shall then be used for
computing the ad valorem tax which is imposable upon removal of the taxable goods from the place of production.
However, petitioners claim that Fortune used the "manufacturer's registered wholesale price" in selling the goods to
alleged fictitious individuals and dummy corporations for the purpose of evading the payment of the correct ad valorem
tax.

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

Moreover, as pointed to by private respondents, for purposes of closer supervision by the BIR over the production of
cigarettes, Revenue Enforcement Officers are detailed on a 24-hour basis in the premises of the manufacturer to secure
production and removal of finished products. Composite Mobile Teams conduct counter-security on the business
operations as well as the performance of the Revenue Enforcement Officers detailed thereat. Every transfer of any raw
material is not allowed unless, in addition to the required permits, accompanied by Revenue Enforcement Officer. For
the purpose of determining the "Manufacturer's Registered Wholesale Price" a cigarette manufacturer is required to file
a Manufacturer's Declaration (BIR Form No. 31.03) for each brand of cigarette manufactured, stating: a) Materials, b)
Labor; c) Overhead; d) Tax Burden and the Wholesale Price by Case. The data submitted therewith is verified by the
Revenue Officers and approved by the Commission of Internal Revenue. Any change in the manufacturer's registered
wholesale price of any brand cannot be effected without submitting the corresponding Sworn Manufacturer's
Declaration and verified by the Revenue Officer and approved by the Commissioner on Internal Revenue.22 The amount
of ad valorem tax payments together with the Payment Order and Confirmation Receipt Nos. must be indicated in the
sales and delivery invoices and together with the Manufacturer's Sworn Declarations on (a) the quantity of raw materials
used during the day's operations; (b) the total quantity produced according to brand; and (c) the corresponding quantity
removed during the day, the corresponding wholesale price thereof, and the VAT paid thereon must be presented to the
corresponding BIR representative for authentication before removal.

Thus, as observed by the trial court in its order of January 25, 1994 granting private respondents' prayer for the issuance
of a writ of preliminary injunction, Fortune's registered wholesale price (was) duly approved by the BIR, which fact is not
disputed by petitioners.23

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

Fraud cannot be presumed. If there was fraud or wilful attempt to evade payment of ad valorem taxes by private
respondents through the manipulation of the registered wholesale price of the cigarettes, it must have been with the
connivance or cooperation of certain BIR officials and employees who supervised and monitored 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. In the very least, there is the presumption that the BIR personnel performed their duties in the regular
course in ensuing the correct taxes were paid by Fortune.26

It is the opinion of both the trial court and respondent Court of Appeals, that before Fortune and the other private
respondents could be prosecuted for tax evasion under Sections 253 and 255 of the Tax Code, the fact that the
deficiency income, ad valorem and value-added taxes were due from Fortune for the year 1992 should first be
established. Fortune received 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
facie showing 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.

We disagree.

As a general rule, criminal prosecutions cannot be enjoined. However, there are recognized exceptions which, as
summarized in Brocka v. Enrile29 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).

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

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

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

Sec. 3. Procedure. -- Except as provided for in Section 7 hereof, no complaint or information for an
offense cognizable by the Regional Trial Court shall be filed without a preliminary investigation having
been first conducted in the following manner:

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

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

(c) Such counter-affidavits and other supporting evidence submitted by the respondent shall also be
sworn to and certified as prescribed in paragraph (a) hereof and copies thereof shall be furnished by him
to the complainant.

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

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

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

As found by the Court of Appeals, there was obvious haste by which the subpoena was issued to private respondents,
just the day after the complaint was filed, hence, without the investigating prosecutors being afforded material time to
examine and study the voluminous documents appended to the complaint for them to determine if preliminary
investigation should be conducted. The Court of Appeals further added that the precipitate haste in the issuance of the
subpoena justified private respondents' misgivings regarding the objectivity and neutrality of the prosecutors in the
conduct of the preliminary investigation and so, the appellate court concluded, the grant of preliminary investigation by
the trial court to afford adequate protection to private respondents' constitutional rights and to avoid oppression does
not constitute grave abuse of discretion amounting to lack of jurisdiction.

The complaint filed by the Commissioner on Internal Revenue states itself that the primary evidence establishing the
falsity of the declared taxable sales in 1992 in the amount of P11,736,658,580.00 were the "daily Manufacturer's Sworn
Statements" submitted by the taxpayer which would show that the total taxable sales in 1992 are in the amount of
P16,686,372,295.00. However, the Commissioner did not present the "Daily Manufacturer's Sworn Statements"
supposedly submitted to the BIR by the taxpayer, prompting private respondents to move for their production in order
to verify the basis of petitioners' computation. Still, the Commissioner failed to produce the declarations. In Borja
v. Moreno,33 it was held that the act of the investigator in proceeding with the hearing without first acting on
respondents' motion to dismiss is a manifest disregard of the requirement of due process. Implicit in the opinion of the
trial court and the Court of Appeals is that, if upon the examination of the complaint, it was clear that there was no
ground to continue, with the inquiry, the investigating prosecutor was duty bound to dismiss the case. On this point, the
trial court stressed that the prosecutor conducting the preliminary investigation should have allowed the production of
the "Daily Manufacturer's Sworn Statements" submitted by Fortune without which there was no valid basis for the
allegation that private respondents wilfully attempted to evade payment of the correct taxes. The prosecutors should
also have produced the "Daily Manufacturer's Sworn Statements" by other cigarette companies, as sought by private
respondents, to show that these companies which had paid the ad valorem taxes on the same basis and in the same
manner as Fortune were not similarly criminally charged. But the investigating prosecutors denied private respondents'
motion, thus, indicating that only Fortune was singled out for prosecution. The trial court and the Court of Appeals
maintained that at that stage of the preliminary investigation, where the complaint and the accompanying affidavits and
supporting documents did not show any violation of the Tax Code providing penal sanctions, the prosecutors should
have dismissed the complaint outright because of total lack of evidence, instead of requiring private respondents to
submit their counter affidavits under Section 3(b) of Rule 112.

We believe that the trial court in issuing its questioned orders, which are interlocutory in nature, committed no grave
abuse of discretion amounting to lack of jurisdiction. There are factual and legal bases for the assailed orders. On the
other hand, the burden is upon the petitioners to demonstrate that the questioned orders constitute a whimsical and
capricious exercise of judgment, which they have not. For certiorari will not be issued to cure errors in proceedings or
correct erroneous conclusions of law or fact. As long as a court acts within its jurisdiction, any alleged errors committed
in the exercise of its jurisdiction will amount to nothing more than errors of judgment which are reviewable by timely
appeal and not by a special civil action of certiorari. 34 Consequently, the Regional Trial Court acted correctly and
judiciously, and as demanded by the facts and the law, in issuing the orders granting the writs of preliminary injunction,
in denying petitioners' motion to dismiss and in admitting the supplemental petitions. What petitioners should have
done was to file an answer to the petition filed in the trial court, proceed to the hearing and appeal the decision of the
court if adverse to them.

WHEREFORE, the instant petition is hereby DISMISSED.

SO ORDERED.

c. COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
PASCOR REALTY AND DEVELOPMENT CORPORATION, ROGELIO A. DIO and VIRGINIA S.
DIO, respondents.

G.R. No. 128315 June 29, 1999

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

Statement of the Case

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

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

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

The Facts

As found by the Court of Appeals, the undisputed facts of the case are as follows:
It appears that by virtue of Letter of Authority No. 001198, then BIR Commissioner Jose U. Ong
authorized Revenue Officers Thomas T. Que, Sonia T. Estorco and Emmanuel M. Savellano to examine
the books of accounts and other accounting records of Pascor Realty and Development Corporation.
(PRDC) for the years ending 1986, 1987 and 1988. The said examination resulted in a recommendation
for the issuance of an assessment in the amounts of P7,498,434.65 and P3,015,236.35 for the years
1986 and 1987, respectively.

On March 1, 1995, the Commissioner of Internal Revenue filed a criminal complaint before the
Department of Justice against the PRDC, its President Rogelio A. Dio, and its Treasurer Virginia S. Dio,
alleging evasion of taxes in the total amount of P10,513,671 .00. Private respondents PRDC, et. al. filed
an Urgent Request for Reconsideration/Reinvestigation disputing the tax assessment and tax liability.

On March 23, 1995, private respondents received a subpoena from the DOJ in connection with the
criminal complaint filed by the Commissioner of Internal Revenue (BIR) against them.1âwphi1.nêt

In a letter dated May 17, 1995, the CIR denied the urgent request for reconsideration/reinvestigation of
the private respondents on the ground that no formal assessment of the has as yet been issued by the
Commissioner.

Private respondents then elevated the Decision of the CIR dated May 17, 1995 to the Court of Tax
Appeals on a petition for review docketed as CTA Case No. 5271 on July 21, 1995. On September 6,
1995, the CIR filed a Motion to Dismiss the petition on the ground that the CTA has no jurisdiction over
the subject matter of the petition, as there was no formal assessment issued against the petitioners. The
CTA denied the said motion to dismiss in a Resolution dated January 25, 1996 and ordered the CIR to file
an answer within thirty (30) days from receipt of said resolution. The CIR received the resolution on
January 31, 1996 but did not file an answer nor did she move to reconsider the resolution.

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

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

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

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

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

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

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

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

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

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

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

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

Hence, this recourse to this Court. 7

Ruling of the Court of Appeals

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

Issues

Petitioners submit for the consideration of this Court following issues:

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

(2) Whether or not an assessment is necessary before criminal charges for tax evasion
may be instituted.

(3) Whether or not the CTA can take cognizance of the case in the absence of an
assessment. 9

In the main, the Court will resolve whether the revenue officers' Affidavit-Report, which was attached to criminal
revenue Complaint filed the Department of Justice, constituted an assessment that could be questioned before the
Court of Tax Appeals.
 The Court's Ruling

The petition is meritorious.

Main Issue: Assessment

Petitioner argues that the filing of the criminal complaint with the Department of Justice cannot in any way be construed
as a formal assessment of private respondents' tax liabilities. This position is based on Section 205 of the National
Internal Revenue Code 10 (NIRC), which provides that remedies for the collection of deficient taxes may be by either civil
or criminal action. Likewise, petitioner cites Section 223(a) of the same Code, which states that in case of failure to file a
return, the tax may be assessed or a proceeding in court may be begun without assessment.

Respondents, on the other hand, maintain that an assessment is not an action or proceeding for the collection of taxes,
but merely a notice that the amount stated therein is due as tax and that the taxpayer is required to pay the same. Thus,
qualifying as an assessment was the BIR examiners' Joint Affidavit, which contained the details of the supposed taxes
due from respondent for taxable years ending 1987 and 1988, and which was attached to the tax evasion Complaint
filed with the DOJ. Consequently, the denial by the BIR of private respondents' request for reinvestigation of the
disputed assessment is properly appealable to the CTA.

We agree with petitioner. Neither the NIRC nor the regulations governing the protest of assessments 11 provide a
specific definition or form of an assessment. However, the NIRC defines the specific functions and effects of an
assessment. To consider the affidavit attached to the Complaint as a proper assessment is to subvert the nature of an
assessment and to set a bad precedent that will prejudice innocent taxpayers.

True, as pointed out by the private respondents, an assessment informs the taxpayer that he or she has tax liabilities.
But not all documents coming from the BIR containing a computation of the tax liability can be deemed assessments.

To start with, an assessment must be sent to and received by a taxpayer, and must demand payment of the taxes
described therein within a specific period. Thus, the NIRC imposes a 25 percent penalty, in addition to the tax due, in
case the taxpayer fails to pay deficiency tax within the time prescribed for its payment in the notice of assessment.
Likewise, an interest of 20 percent per annum, or such higher rates as may be prescribed by rules and regulations, is to
be collected form the date prescribed for its payment until the full payment. 12

The issuance of an assessment is vital in determining, the period of limitation regarding its proper issuance and the
period within which to protest it. Section 203 13 of the NIRC provides that internal revenue taxes must be assessed
within three years from the last day within which to file the return. Section 222, 14 on the other hand, specifies a period
of ten years in case a fraudulent return with intent to evade was submitted or in case of failure to file a return. Also,
Section 228 15 of the same law states that said assessment may be protested only within thirty days from receipt
thereof. Necessarily, the taxpayer must be certain that a specific document constitutes an assessment. Otherwise,
confusion would arise regarding the period within which to make an assessment or to protest the same, or whether
interest and penalty may accrue thereon.

It should also be stressed that the said document is a notice duly sent to the taxpayer. Indeed, an assessment is deemed
made only when the collector of internal revenue releases, mails or sends such notice to the taxpayer. 16

In the present case, the revenue officers' Affidavit merely contained a computation of respondents' tax liability. It did
not state a demand or a period for payment. Worse, it was addressed to the justice secretary, not to the taxpayers.

Respondents maintain that an assessment, in relation to taxation, is simply understood' to mean:

A notice to the effect that the amount therein stated is due as tax and a demand for payment
thereof. 17
 Fixes the liability of the taxpayer and ascertains the facts and furnishes the data for the proper
presentation of tax rolls. 18

Even these definitions fail to advance private respondents' case. That the BIR examiners' Joint Affidavit attached to the
Criminal Complaint contained some details of the tax liabilities of private respondents does not ipso facto make it an
assessment. The purpose of the Joint Affidavit was merely to support and substantiate the Criminal Complaint for tax
evasion. Clearly, it was not meant to be a notice of the tax due and a demand to the private respondents for payment
thereof.

The fact that the Complaint itself was specifically directed and sent to the Department of Justice and not to private
respondents shows that the intent of the commissioner was to file a criminal complaint for tax evasion, not to issue an
assessment. Although the revenue officers recommended the issuance of an assessment, the commissioner opted
instead to file a criminal case for tax evasion. What private respondents received was a notice from the DOJ that a
criminal case for tax evasion had been filed against them, not a notice that the Bureau of Internal Revenue had made an
assessment.

In addition, what private respondents sent to the commissioner was a motion for a reconsideration of the tax evasion
charges filed, not of an assessment, as shown thus:

This is to request for reconsideration of the tax evasion charges against my client, PASCOR Realty and Development
Corporation and for the same to be referred to the Appellate Division in order to give my client the opportunity of a fair
and objective hearing. 19

Additional Issues:

Assessment Not

Necessary Before Filing of

Criminal Complaint

Private respondents maintain that the filing of a criminal complaint must be preceded by an assessment. This is
incorrect, because Section 222 of the NIRC specifically states that in cases where a false or fraudulent return is
submitted or in cases of failure to file a return such as this case, proceedings in court may be commenced without an
assessment. Furthermore, Section 205 of the same Code clearly mandates that the civil and criminal aspects of the case
may be pursued simultaneously. In Ungab v. Cusi,20 petitioner therein sought the dismissal of the criminal Complaints
for being premature, since his protest to the CTA had not yet been resolved. The Court held that such protests could not
stop or suspend the criminal action which was independent of the resolution of the protest in the CTA. This was because
the commissioner of internal revenue had, in such tax evasion cases, discretion on whether to issue an assessment or to
file a criminal case against the taxpayer or to do both.

Private respondents insist that Section 222 should be read in relation to Section 255 of the NLRC, 21 which penalizes
failure to file a return. They add that a tax assessment should precede a criminal indictment. We disagree. To reiterate,
said Section 222 states that an assessment is not necessary before a criminal charge can be filed. This is the general rule.
Private respondents failed to show that they are entitled to an exception. Moreover, the criminal charge need only be
supported by a prima facie showing of failure to file a required return. This fact need not be proven by an assessment.

The issuance of an assessment must be distinguished from the filing of a complaint. Before an assessment is issued,
there is, by practice, a pre-assessment notice sent to the taxpayer. The taxpayer is then given a chance to submit
position papers and documents to prove that the assessment is unwarranted. If the commissioner is unsatisfied, an
assessment signed by him or her is then sent to the taxpayer informing the latter specifically and clearly that an
assessment has been made against him or her. In contrast, the criminal charge need not go through all these. The
criminal charge is filed directly with the DOJ. Thereafter, the taxpayer is notified that a criminal case had been filed
against him, not that the commissioner has issued an assessment. It must be stressed that a criminal complaint is
instituted not to demand payment, but to penalize the taxpayer for violation of the Tax Code.

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

SO ORDERED.