CHRISpy TAX Cases (INC)
G.R. No. 108524 November 10, 1994
MISAMIS ORIENTAL ASSOCIATION OF COCO
TRADERS, INC., petitioner,
vs.
DEPARTMENT OF FINANCE SECRETARY,
COMMISSIONER OF THE BUREAU OF INTERNAL
REVENUE (BIR), AND REVENUE DISTRICT
OFFICER, BIR MISAMIS ORIENTAL, respondents.
Damasing Law Office for petitioner.
MENDOZA, J.:
This is a petition for prohibition and injunction seeking to
nullify Revenue Memorandum Circular No. 47-91 and
enjoin the collection by respondent revenue officials of
the Value Added Tax (VAT) on the sale of copra by
members of petitioner organization. 1
Petitioner Misamis Oriental Association of Coco Traders,
Inc. is a domestic corporation whose members,
individually or collectively, are engaged in the buying
and selling of copra in Misamis Oriental. The petitioner
alleges that prior to the issuance of Revenue
Memorandum Circular 47-91 on June 11, 1991, which
implemented VAT Ruling 190-90, copra was classified as
agricultural food product under $ 103(b) of the National
Internal Revenue Code and, therefore, exempt from VAT
at all stages of production or distribution.
Respondents represent departments of the executive
branch of government charged with the generation of
funds and the assessment, levy and collection of taxes
and other imposts.
The pertinent provision of the NIRC states:
Sec. 103. Exempt Transactions . — The
following shall be exempt from the
value-added tax:
(a) Sale of nonfood agricultural, marine
and forest products in their original
state by the primary producer or the
owner of the land where the same are
produced;
(b) Sale or importation in their original
state of agricultural and marine food
products, livestock and poultry of a kind
generally used as, or yielding or
producing foods for human
consumption, and breeding stock and
genetic material therefor;
Under §103(a), as above quoted, the sale of agricultural
non-food products in their original state is exempt from
VAT only if the sale is made by the primary producer or
owner of the land from which the same are produced.
The sale made by any other person or entity, like a
trader or dealer, is not exempt from the tax. On the
other hand, under §103(b) the sale of agricultural food
products in their original state is exempt from VAT at all
stages of production or distribution regardless of who
the seller is.
The question is whether copra is an agricultural food or
non-food product for purposes of this provision of the
NIRC. On June 11, 1991, respondent Commissioner of
Internal Revenue issued the circular in question,
classifying copra as an agricultural non-food product and
declaring it "exempt from VAT only if the sale is made
by the primary producer pursuant to Section 103(a) of
the Tax Code, as amended." 2
The reclassification had the effect of denying to the
petitioner the exemption it previously enjoyed when
copra was classified as an agricultural food product
under §103(b) of the NIRC. Petitioner challenges RMC
No. 47-91 on various grounds, which will be presently
discussed although not in the order raised in the petition
for prohibition.
First. Petitioner contends that the Bureau of Food and
Drug of the Department of Health and not the BIR is the
competent government agency to determine the proper
classification of food products. Petitioner cites the
opinion of Dr. Quintin Kintanar of the Bureau of Food
and Drug to the effect that copra should be considered
"food" because it is produced from coconut which is
food and 80% of coconut products are edible.
On the other hand, the respondents argue that the
opinion of the BIR, as the government agency charged
with the implementation and interpretation of the tax
laws, is entitled to great respect.
We agree with respondents. In interpreting §103(a) and
(b) of the NIRC, the Commissioner of Internal Revenue
gave it a strict construction consistent with the rule that
tax exemptions must be strictly construed against the
taxpayer and liberally in favor of the state. Indeed, even
Dr. Kintanar said that his classification of copra as food
was based on "the broader definition of food which
includes agricultural commodities and other components
used in the manufacture/processing of food." The full
text of his letter reads:
10 April 1991
Mr. VICTOR A. DEOFERIO, JR.
Chairman VAT Review Committee
Bureau of Internal Revenue
Diliman, Quezon City
Dear Mr. Deoferio:
This is to clarify a previous communication made by this
Office about copra in a letter dated 05 December 1990
stating that copra is not classified as food. The
statement was made in the context of BFAD's regulatory
responsibilities which focus mainly on foods that are
processed and packaged, and thereby copra is not
covered.
However, in the broader definition of food which include
agricultural commodities and other components used in
1

the manufacture/ processing of food, it is our opinion
that copra should be classified as an agricultural food
product since copra is produced from coconut meat
which is food and based on available information, more
than 80% of products derived from copra are edible
products.
Very truly yours,
QUINTIN L. KINTANAR, M.D., Ph.D.
Director
Assistant Secretary of Health for Standards
Regulations
Moreover, as the government agency charged with the
enforcement of the law, the opinion of the
Commissioner of Internal Revenue, in the absence of
any showing that it is plainly wrong, is entitled to great
weight. Indeed, the ruling was made by the
Commissioner of Internal Revenue in the exercise of his
power under § 245 of the NIRC to "make rulings or
opinions in connection with the implementation of the
provisions of internal revenue laws, including rulings on
the classification of articles for sales tax and similar
purposes."
Second. Petitioner complains that it was denied due
process because it was not heard before the ruling was
made. There is a distinction in administrative law
between legislative rules and interpretative rules. 3
There would be force in petitioner's argument if the
circular in question were in the nature of a legislative
rule. But it is not. It is a mere interpretative rule.
The reason for this distinction is that a legislative rule is
in the nature of subordinate legislation, designed to
implement a primary legislation by providing the details
thereof. In the same way that laws must have the
benefit of public hearing, it is generally required that
before a legislative rule is adopted there must be
hearing. In this connection, the Administrative Code of
1987 provides:
Public Participation. — If not otherwise
required by law, an agency shall, as far
as practicable, publish or circulate
notices of proposed rules and afford
interested parties the opportunity to
submit their views prior to the adoption
of any rule.
(2) In the fixing of rates, no rule or final
order shall be valid unless the proposed
rates shall have been published in a
newspaper of general circulation at least
two (2) weeks before the first hearing
thereon.
(3) In case of opposition, the rules on
contested cases shall be observed. 4
In addition such rule must be published. 5 On the other
hand, interpretative rules are designed to provide
guidelines to the law which the administrative agency is
in charge of enforcing.
CHRISpy TAX Cases (INC)
Accordingly, in considering a legislative rule a court is
free to make three inquiries: (i) whether the rule is
within the delegated authority of the administrative
agency; (ii) whether it is reasonable; and (iii) whether it
was issued pursuant to proper procedure. But the court
is not free to substitute its judgment as to the
desirability or wisdom of the rule for the legislative body,
by its delegation of administrative judgment, has
committed those questions to administrative judgments
and not to judicial judgments. In the case of an
interpretative rule, the inquiry is not into the validity but
and into the correctness or propriety of the rule. As a matter
of power a court, when confronted with an interpretative
rule, is free to (i) give the force of law to the rule; (ii) go
to the opposite extreme and substitute its judgment; or
(iii) give some intermediate degree of authoritative
weight to the interpretative rule. 6
In the case at bar, we find no reason for holding that
respondent Commissioner erred in not considering copra
as an "agricultural food product" within the meaning of §
103(b) of the NIRC. As the Solicitor General contends,
"copra per se is not food, that is, it is not intended for
human consumption. Simply stated, nobody eats copra
for food." That previous Commissioners considered it so,
is not reason for holding that the present interpretation
is wrong. The Commissioner of Internal Revenue is not
bound by the ruling of his predecessors. 7 To the
contrary, the overruling of decisions is inherent in the
interpretation of laws.
Third. Petitioner likewise claims that RMC No. 47-91 is
discriminatory and violative of the equal protection
clause of the Constitution because while coconut farmers
and copra producers are exempt, traders and dealers
are not, although both sell copra in its original state.
Petitioners add that oil millers do not enjoy tax credit out
of the VAT payment of traders and dealers.
The argument has no merit. There is a material or
substantial difference between coconut farmers and
copra producers, on the one hand, and copra traders
and dealers, on the other. The former produce and sell
copra, the latter merely sell copra. The Constitution does
not forbid the differential treatment of persons so long
as there is a reasonable basis for classifying them
differently. 8
It is not true that oil millers are exempt from VAT.
Pursuant to § 102 of the NIRC, they are subject to 10%
VAT on the sale of services. Under § 104 of the Tax
Code, they are allowed to credit the input tax on the
sale of copra by traders and dealers, but there is no tax
credit if the sale is made directly by the copra producer
as the sale is VAT exempt. In the same manner, copra
traders and dealers are allowed to credit the input tax
on the sale of copra by other traders and dealers, but
there is no tax credit if the sale is made by the producer.
Fourth. It is finally argued that RMC No. 47-91 is
counterproductive because traders and dealers would be
forced to buy copra from coconut farmers who are
exempt from the VAT and that to the extent that prices
are reduced the government would lose revenues as the
10% tax base is correspondingly diminished.
2
 CHRISpy TAX Cases (INC)

This is not so. The sale of agricultural non-food products

is exempt from VAT only when made by the primary
producer or owner of the land from which the same is
produced, but in the case of agricultural food products
their sale in their original state is exempt at all stages of
production or distribution. At any rate, the argument
that the classification of copra as agricultural non-food
product is counterproductive is a question of wisdom or
policy which should be addressed to respondent officials
and to Congress.

WHEREFORE, the petition is DISMISSED.

SO ORDERED.

3

G.R. No. 179579               February 1, 2012
COMMISSIONER OF CUSTOMS and the DISTRICT
COLLECTOR OF THE PORT OF SUBIC, Petitioners,
vs.
HYPERMIX FEEDS CORPORATION, Respondent.
DECISION
SERENO, J.:
Before us is a Petition for Review under Rule 45, 1
assailing the Decision2 and the Resolution3 of the Court of
Appeals (CA), which nullified the Customs Memorandum
Order (CMO) No. 27-20034 on the tariff classification of
wheat issued by petitioner Commissioner of Customs.
The antecedent facts are as follows:
On 7 November 2003, petitioner Commissioner of
Customs issued CMO 27-2003. Under the Memorandum,
for tariff purposes, wheat was classified according to the
following: (1) importer or consignee; (2) country of
origin; and (3) port of discharge.5 The regulation
provided an exclusive list of corporations, ports of
discharge, commodity descriptions and countries of
origin. Depending on these factors, wheat would be
classified either as food grade or feed grade. The
corresponding tariff for food grade wheat was 3%, for
feed grade, 7%.
CMO 27-2003 further provided for the proper procedure
for protest or Valuation and Classification Review
Committee (VCRC) cases. Under this procedure, the
release of the articles that were the subject of protest
required the importer to post a cash bond to cover the
tariff differential.6
A month after the issuance of CMO 27-2003, on 19
December 2003, respondent filed a Petition for
Declaratory Relief7 with the Regional Trial Court (RTC) of
Las Piñas City. It anticipated the implementation of the
regulation on its imported and perishable Chinese milling
wheat in transit from China.8 Respondent contended that
CMO 27-2003 was issued without following the mandate
of the Revised Administrative Code on public
participation, prior notice, and publication or registration
with the University of the Philippines Law Center.
Respondent also alleged that the regulation summarily
adjudged it to be a feed grade supplier without the
benefit of prior assessment and examination; thus,
despite having imported food grade wheat, it would be
subjected to the 7% tariff upon the arrival of the
shipment, forcing them to pay 133% more than was
proper.
Furthermore, respondent claimed that the equal
protection clause of the Constitution was violated when
the regulation treated non-flour millers differently from
flour millers for no reason at all.
Lastly, respondent asserted that the retroactive
application of the regulation was confiscatory in nature.
CHRISpy TAX Cases (INC)
On 19 January 2004, the RTC issued a Temporary
Restraining Order (TRO) effective for twenty (20) days
from notice.9
Petitioners thereafter filed a Motion to Dismiss. 10 They
alleged that: (1) the RTC did not have jurisdiction over
the subject matter of the case, because respondent was
asking for a judicial determination of the classification of
wheat; (2) an action for declaratory relief was improper;
(3) CMO 27-2003 was an internal administrative rule and
not legislative in nature; and (4) the claims of
respondent were speculative and premature, because
the Bureau of Customs (BOC) had yet to examine
respondent’s products. They likewise opposed the
application for a writ of preliminary injunction on the
ground that they had not inflicted any injury through the
issuance of the regulation; and that the action would be
contrary to the rule that administrative issuances are
assumed valid until declared otherwise.
On 28 February 2005, the parties agreed that the
matters raised in the application for preliminary
injunction and the Motion to Dismiss would just be
resolved together in the main case. Thus, on 10 March
2005, the RTC rendered its Decision 11 without having to
resolve the application for preliminary injunction and the
Motion to Dismiss.
The trial court ruled in favor of respondent, to wit:
WHEREFORE, in view of the foregoing, the Petition is
GRANTED and the subject Customs Memorandum Order
27-2003 is declared INVALID and OF NO FORCE AND
EFFECT. Respondents Commissioner of Customs, the
District Collector of Subic or anyone acting in their
behalf are to immediately cease and desist from
enforcing the said Customs Memorandum Order 27-
2003.
SO ORDERED.12
The RTC held that it had jurisdiction over the subject
matter, given that the issue raised by respondent
concerned the quasi-legislative powers of petitioners. It
likewise stated that a petition for declaratory relief was
the proper remedy, and that respondent was the proper
party to file it. The court considered that respondent
was a regular importer, and that the latter would be
subjected to the application of the regulation in future
transactions.
With regard to the validity of the regulation, the trial
court found that petitioners had not followed the basic
requirements of hearing and publication in the issuance
of CMO 27-2003. It likewise held that petitioners had
"substituted the quasi-judicial determination of the
commodity by a quasi-legislative predetermination." 13
The lower court pointed out that a classification based
on importers and ports of discharge were violative of the
due process rights of respondent.
Dissatisfied with the Decision of the lower court,
petitioners appealed to the CA, raising the same
allegations in defense of CMO 27-2003. 14 The appellate
4

court, however, dismissed the appeal. It held that, since
the regulation affected substantial rights of petitioners
and other importers, petitioners should have observed
the requirements of notice, hearing and publication.
Hence, this Petition.
Petitioners raise the following issues for the
consideration of this Court:
I. THE COURT OF APPEALS DECIDED A QUESTION OF
SUBSTANCE WHICH IS NOT IN ACCORD WITH THE LAW
AND PREVAILING JURISPRUDENCE.
II. THE COURT OF APPEALS GRAVELY ERRED IN
DECLARING THAT THE TRIAL COURT HAS
JURISDICTION OVER THE CASE.
The Petition has no merit.
We shall first discuss the propriety of an action for
declaratory relief.
Rule 63, Section 1 provides:
Who may file petition. – Any person interested under a
deed, will, contract or other written instrument, or
whose rights are affected by a statute, executive order
or regulation, ordinance, or any other governmental
regulation may, before breach or violation thereof, bring
an action in the appropriate Regional Trial Court to
determine any question of construction or validity
arising, and for a declaration of his rights or duties,
thereunder.
The requirements of an action for declaratory relief are
as follows: (1) there must be a justiciable controversy;
(2) the controversy must be between persons whose
interests are adverse; (3) the party seeking declaratory
relief must have a legal interest in the controversy; and
(4) the issue involved must be ripe for judicial
determination.15 We find that the Petition filed by
respondent before the lower court meets these
requirements.
First, the subject of the controversy is the
constitutionality of CMO 27-2003 issued by petitioner
Commissioner of Customs. In Smart Communications v.
NTC,16 we held:
The determination of whether a specific rule or set of
rules issued by an administrative agency contravenes
the law or the constitution is within the jurisdiction of
the regular courts. Indeed, the Constitution vests the
power of judicial review or the power to declare a law,
treaty, international or executive agreement, presidential
decree, order, instruction, ordinance, or regulation in the
courts, including the regional trial courts. This is within
the scope of judicial power, which includes the authority
of the courts to determine in an appropriate action the
validity of the acts of the political departments. Judicial
power includes the duty of the courts of justice to settle
actual controversies involving rights which are legally
demandable and enforceable, and to determine whether
or not there has been a grave abuse of discretion
CHRISpy TAX Cases (INC)
amounting to lack or excess of jurisdiction on the part of
any branch or instrumentality of the Government.
(Emphasis supplied)
Meanwhile, in Misamis Oriental Association of Coco
Traders, Inc. v. Department of Finance Secretary, 17 we
said:
xxx [A] legislative rule is in the nature of subordinate
legislation, designed to implement a primary legislation
by providing the details thereof. xxx
In addition such rule must be published. On the other
hand, interpretative rules are designed to provide
guidelines to the law which the administrative agency is
in charge of enforcing.
Accordingly, in considering a legislative rule a court is
free to make three inquiries: (i) whether the rule is
within the delegated authority of the administrative
agency; (ii) whether it is reasonable; and (iii) whether it
was issued pursuant to proper procedure. But the court
is not free to substitute its judgment as to the
desirability or wisdom of the rule for the legislative body,
by its delegation of administrative judgment, has
committed those questions to administrative judgments
and not to judicial judgments. In the case of an
interpretative rule, the inquiry is not into the validity but
into the correctness or propriety of the rule. As a matter
of power a court, when confronted with an interpretative
rule, is free to (i) give the force of law to the rule; (ii) go
to the opposite extreme and substitute its judgment; or
(iii) give some intermediate degree of authoritative
weight to the interpretative rule. (Emphasis supplied)
Second, the controversy is between two parties that
have adverse interests. Petitioners are summarily
imposing a tariff rate that respondent is refusing to pay.
Third, it is clear that respondent has a legal and
substantive interest in the implementation of CMO 27-
2003. Respondent has adequately shown that, as a
regular importer of wheat, on 14 August 2003, it has
actually made shipments of wheat from China to Subic.
The shipment was set to arrive in December 2003. Upon
its arrival, it would be subjected to the conditions of
CMO 27-2003. The regulation calls for the imposition of
different tariff rates, depending on the factors
enumerated therein. Thus, respondent alleged that it
would be made to pay the 7% tariff applied to feed
grade wheat, instead of the 3% tariff on food grade
wheat. In addition, respondent would have to go
through the procedure under CMO 27-2003, which
would undoubtedly toll its time and resources. The lower
court correctly pointed out as follows:
xxx As noted above, the fact that petitioner is precisely
into the business of importing wheat, each and every
importation will be subjected to constant disputes which
will result into (sic) delays in the delivery, setting aside
of funds as cash bond required in the CMO as well as
the resulting expenses thereof. It is easy to see that
business uncertainty will be a constant occurrence for
petitioner. That the sums involved are not minimal is
shown by the discussions during the hearings conducted
5

as well as in the pleadings filed. It may be that the
petitioner can later on get a refund but such has been
foreclosed because the Collector of Customs and the
Commissioner of Customs are bound by their own CMO.
Petitioner cannot get its refund with the said agency. We
believe and so find that Petitioner has presented such a
stake in the outcome of this controversy as to vest it
with standing to file this petition.18 (Emphasis supplied)
Finally, the issue raised by respondent is ripe for judicial
determination, because litigation is inevitable 19 for the
simple and uncontroverted reason that respondent is not
included in the enumeration of flour millers classified as
food grade wheat importers. Thus, as the trial court
stated, it would have to file a protest case each time it
imports food grade wheat and be subjected to the 7%
tariff.
It is therefore clear that a petition for declaratory relief
is the right remedy given the circumstances of the case.
Considering that the questioned regulation would affect
the substantive rights of respondent as explained above,
it therefore follows that petitioners should have applied
the pertinent provisions of Book VII, Chapter 2 of the
Revised Administrative Code, to wit:
Section 3. Filing. – (1) Every agency shall file with the
University of the Philippines Law Center three (3)
certified copies of every rule adopted by it. Rules in
force on the date of effectivity of this Code which are
not filed within three (3) months from that date shall not
thereafter be the bases of any sanction against any
party of persons.
x x x           x x x          x x x
Section 9. Public Participation. - (1) If not otherwise
required by law, an agency shall, as far as practicable,
publish or circulate notices of proposed rules and afford
interested parties the opportunity to submit their views
prior to the adoption of any rule.
(2) In the fixing of rates, no rule or final order shall be
valid unless the proposed rates shall have been
published in a newspaper of general circulation at least
two (2) weeks before the first hearing thereon.
(3) In case of opposition, the rules on contested cases
shall be observed.
When an administrative rule is merely interpretative in
nature, its applicability needs nothing further than its
bare issuance, for it gives no real consequence more
than what the law itself has already prescribed. When,
on the other hand, the administrative rule goes beyond
merely providing for the means that can facilitate or
render least cumbersome the implementation of the law
but substantially increases the burden of those
governed, it behooves the agency to accord at least to
those directly affected a chance to be heard, and
thereafter to be duly informed, before that new issuance
is given the force and effect of law.20
Likewise, in Tañada v. Tuvera,21 we held:
CHRISpy TAX Cases (INC)
The clear object of the above-quoted provision is to give
the general public adequate notice of the various laws
which are to regulate their actions and conduct as
citizens. Without such notice and publication, there
would be no basis for the application of the maxim
"ignorantia legis non excusat." It would be the height of
injustice to punish or otherwise burden a citizen for the
transgression of a law of which he had no notice
whatsoever, not even a constructive one.
Perhaps at no time since the establishment of the
Philippine Republic has the publication of laws taken so
vital significance that at this time when the people have
bestowed upon the President a power heretofore
enjoyed solely by the legislature. While the people are
kept abreast by the mass media of the debates and
deliberations in the Batasan Pambansa – and for the
diligent ones, ready access to the legislative records –
no such publicity accompanies the law-making process
of the President. Thus, without publication, the people
have no means of knowing what presidential decrees
have actually been promulgated, much less a definite
way of informing themselves of the specific contents and
texts of such decrees. (Emphasis supplied)
Because petitioners failed to follow the requirements
enumerated by the Revised Administrative Code, the
assailed regulation must be struck down.
Going now to the content of CMO 27-3003, we likewise
hold that it is unconstitutional for being violative of the
equal protection clause of the Constitution.
The equal protection clause means that no person or
class of persons shall be deprived of the same protection
of laws enjoyed by other persons or other classes in the
same place in like circumstances. Thus, the guarantee of
the equal protection of laws is not violated if there is a
reasonable classification. For a classification to be
reasonable, it must be shown that (1) it rests on
substantial distinctions; (2) it is germane to the purpose
of the law; (3) it is not limited to existing conditions
only; and (4) it applies equally to all members of the
same class.22
Unfortunately, CMO 27-2003 does not meet these
requirements. We do not see how the quality of wheat is
affected by who imports it, where it is discharged, or
which country it came from.
Thus, on the one hand, even if other millers excluded
from CMO 27-2003 have imported food grade wheat,
the product would still be declared as feed grade wheat,
a classification subjecting them to 7% tariff. On the
other hand, even if the importers listed under CMO 27-
2003 have imported feed grade wheat, they would only
be made to pay 3% tariff, thus depriving the state of the
taxes due. The regulation, therefore, does not become
disadvantageous to respondent only, but even to the
state.
It is also not clear how the regulation intends to
"monitor more closely wheat importations and thus
prevent their misclassification." A careful study of CMO
27-2003 shows that it not only fails to achieve this end,
6

but results in the opposite. The application of the
regulation forecloses the possibility that other
corporations that are excluded from the list import food
grade wheat; at the same time, it creates an assumption
that those who meet the criteria do not import feed
grade wheat. In the first case, importers are
unnecessarily burdened to prove the classification of
their wheat imports; while in the second, the state
carries that burden.
Petitioner Commissioner of Customs also went beyond
his powers when the regulation limited the customs
officer’s duties mandated by Section 1403 of the Tariff
and Customs Law, as amended. The law provides:
Section 1403. – Duties of Customs Officer Tasked to
Examine, Classify, and Appraise Imported Articles. – The
customs officer tasked to examine, classify, and appraise
imported articles shall determine whether the packages
designated for examination and their contents are in
accordance with the declaration in the entry, invoice and
other pertinent documents and shall make return in such
a manner as to indicate whether the articles have been
truly and correctly declared in the entry as regard their
quantity, measurement, weight, and tariff classification
and not imported contrary to law. He shall submit
samples to the laboratory for analysis when feasible to
do so and when such analysis is necessary for the
proper classification, appraisal, and/or admission into
the Philippines of imported articles.
Likewise, the customs officer shall determine the unit of
quantity in which they are usually bought and sold, and
appraise the imported articles in accordance with
Section 201 of this Code.
Failure on the part of the customs officer to comply with
his duties shall subject him to the penalties prescribed
under Section 3604 of this Code.1âwphi1
The provision mandates that the customs officer must
first assess and determine the classification of the
imported article before tariff may be imposed.
Unfortunately, CMO 23-2007 has already classified the
article even before the customs officer had the chance
to examine it. In effect, petitioner Commissioner of
Customs diminished the powers granted by the Tariff
and Customs Code with regard to wheat importation
when it no longer required the customs officer’s prior
examination and assessment of the proper classification
of the wheat.
It is well-settled that rules and regulations, which are
the product of a delegated power to create new and
additional legal provisions that have the effect of law,
should be within the scope of the statutory authority
granted by the legislature to the administrative agency.
It is required that the regulation be germane to the
objects and purposes of the law; and that it be not in
contradiction to, but in conformity with, the standards
prescribed by law.23
In summary, petitioners violated respondent’s right to
due process in the issuance of CMO 27-2003 when they
failed to observe the requirements under the Revised
CHRISpy TAX Cases (INC)
Administrative Code. Petitioners likewise violated
respondent’s right to equal protection of laws when they
provided for an unreasonable classification in the
application of the regulation. Finally, petitioner
Commissioner of Customs went beyond his powers of
delegated authority when the regulation limited the
powers of the customs officer to examine and assess
imported articles.
WHEREFORE, in view of the foregoing, the Petition is
DENIED.
SO ORDERED.
G.R. No. 113459             November 18, 2002
COMMISSIONER OF INTERNAL REVENUE
petitioner,
vs.
JOSEFINA LEAL, respondent.
DECISION
SANDOVAL-GUTIERREZ, J.:
Pursuant to Section 116 of Presidential Decree No.
1158,1 (The National Internal Revenue Code of 1977, as
amended [Tax Code for brevity]), which provides:
"SEC. 116. Percentage tax on dealers in securities;
lending investors. – Dealers in securities shall pay a tax
equivalent to six (6%) per centum of their gross income.
Lending investors shall pay a tax equivalent to five (5%)
per cent of their gross income." (emphasis added)
the Commissioner of Internal Revenue, petitioner, issued
Revenue Memorandum Order (RMO) No. 15-91 dated
March 11, 1991,2 imposing 5% lending investor’s tax on
pawnshops based on their gross income and requiring all
investigating units of the Bureau of Internal Revenue
(BIR) to investigate and assess the lending investor’s tax
due from them. The issuance of RMO No. 15-91 was an
offshoot of petitioner’s evaluation that the nature of
pawnshop business is akin to that of "lending investors,"
which term is defined in Section 157 (u) of the Tax Code
in this wise:
"(u) Lending investors include all persons who make a
practice of lending money for themselves or others at
interests."
Subsequently, petitioner issued Revenue Memorandum
Circular (RMC) No. 43-91 dated May 27, 1992, 3
subjecting the pawn ticket to the documentary stamp
tax as prescribed in Title VII of the Tax Code.
Adversely affected by those revenue orders, herein
respondent Josefina Leal, owner and operator of
Josefina’s Pawnshop in San Mateo, Rizal, asked for a
reconsideration of both RMO No. 15-91 and RMC No. 43-
91 but the same was denied with finality by petitioner in
its BIR Ruling No. 221-91 dated October 30, 1991.4
7

Consequently, on March 18, 1992, respondent filed with
the Regional Trial Court (RTC), Branch 75, San Mateo,
Rizal, a petition for prohibition, docketed as Civil Case
No. 849-92,5 seeking to prohibit petitioner from
implementing the revenue orders.
Petitioner, through the Office of the Solicitor General,
filed a motion to dismiss6 the petition on the ground that
the RTC has no jurisdiction to review the questioned
revenue orders and to enjoin their implementation.
Petitioner contends that the subject revenue orders were
issued pursuant to his power "to make rulings or
opinions in connection with the implementation of the
provisions of internal revenue laws." 7 Thus, the case falls
within the exclusive appellate jurisdiction of the Court of
Tax Appeals, citing Section 7 (1) of Republic Act No.
1125.8
The RTC, through then Presiding Judge Andres B. Reyes,
Jr.,9 issued an order on April 27, 199210 denying the
motion to dismiss, holding that the revenue orders are
not assessments to implement a Tax Code provision, but
are "in effect new taxes (against pawnshops) which are
not provided for under the Code," and which only
Congress is empowered to impose.
Petitioner then filed with the Court of Appeals a petition
for certiorari and prohibition under Rule 65 of the
Revised Rules of Court (now 1997 Rules of Civil
Procedure, as amended), docketed as CA-G.R. SP No.
28824. Petitioner alleged that in denying the motion to
dismiss, the RTC Judge acted without or in excess of his
jurisdiction, or with grave abuse of discretion. In its
Decision dated December 23, 1993, the Court of Appeals
dismissed the petition "for lack of legal basis"11 and ruled
that "the (RTC) order denying the motion to dismiss is
subject to immediate challenge before the Supreme
Court (not the Court of Appeals), which is the sole
authority to determine and resolve an issue purely of
law pursuant to Section 5, Article VIII of the 1987
Constitution."12 Nonetheless, the Court of Appeals
resolved the case on the merits, sustaining the RTC
ruling that the questioned revenue orders are "new
additional measures which only Congress is empowered
to impose."13
Hence, the instant petition for review on certiorari under
Rule 45 of the Rules of Court raising the following
issues:
1. WHETHER THE COURT OF APPEALS HAS
JURISDICTION OVER A PETITION FOR CERTIORARI
UNDER RULE 65 OF THE RULES OF COURT WHERE THE
AUTHORITY OF THE REGIONAL TRIAL COURT TO
REVIEW THE SUBJECT REVENUE ORDERS IS BEING
QUESTIONED;
2. WHETHER IT IS THE RTC OR THE COURT OF TAX
APPEALS WHICH HAS JURISDICTION OVER THE
INSTANT CASE.
Anent the first issue, petitioner contends that the Court
of Appeals has "original jurisdiction to issue writs of
mandamus, prohibition, certiorari, habeas corpus and
quo warranto, and auxiliary writs or processes, whether
CHRISpy TAX Cases (INC)
or not in aid of its appellate jurisdiction," pursuant to
Section 9(1) of Batas Pambansa Blg. 129. Petitioner thus
claims that his petition for certiorari filed with the Court
of Appeals pursuant to Rule 65 of the Rules of Court is
the proper recourse to assail the RTC order denying his
motion to dismiss.
Petitioner’s contention is meritorious. The Court of
Appeals erred in holding that it has no jurisdiction over
petitioner’s special civil action for certiorari under Rule
65 of the Rules. While this Court exercises original
jurisdiction to issue the extraordinary writ of certiorari
(as well as the writs of prohibition, mandamus, quo
warranto, and habeas corpus), 14 such power is not
exclusive to this Court but is concurrent with the Court
of Appeals15 and the Regional Trial Courts.16 We reiterate
our pronouncement on this issue in Morales vs. Court of
Appeals:17
"Under Section 9 (1) of B.P. Blg. 129, the Court of
Appeals has concurrent original jurisdiction with the
Supreme Court pursuant to Section 5 (1) of Article VIII
of the Constitution and Section 17 (1) of the Judiciary
Act of 1948, and with the Regional Trial Court pursuant
to Section 21 (1) of B.P. Blg. 129 to issue writs of
certiorari, mandamus, prohibition, habeas corpus, and
quo warranto. These are original actions, not modes of
appeals.
"Since what the petitioner filed in CA-G.R. SP No. 40670
was a special civil action for certiorari under Rule 65, the
original jurisdiction of the Court of Appeals thereon is
beyond doubt.
"This error of the Court of Appeals was due to its
misapplication of Section 5 (2) (c) of Article VIII of the
Constitution and of that portion of Section 17 of the
Judiciary Act of 1948 vesting upon the Supreme Court
exclusive jurisdiction to review, revise, reverse, modify,
or affirm on certiorari as the law or rules of court may
provide, final judgments and decrees of inferior courts in
all cases in which the jurisdiction of any inferior court is
in issue. It forgot that this constitutional and statutory
provisions pertain to the appellate – not original –
jurisdiction of the Supreme Court, as correctly
maintained by the petitioner. An appellate jurisdiction
refers to a process which is but a continuation of the
original suit, not a commencement of a new action, such
as that of a special civil action for certiorari. The general
rule is that a denial of a motion to dismiss or to quash in
criminal cases is interlocutory and cannot be the subject
of an appeal or of a special civil action for certiorari.
Nevertheless, this Court has allowed a special civil action
for certiorari where a lower court has acted without or in
excess of jurisdiction or with grave abuse of discretion in
denying a motion to dismiss or to quash. The petitioner
believed that the RTC below did so; hence, the special
civil action for certiorari before the Court of Appeals
appeared to be the proper remedy." (emphasis added)
Such concurrence of original jurisdiction among the
Regional Trial Court, the Court of Appeals and this
Court, however, does not mean that the party seeking
any of the extraordinary writs has the absolute freedom
to file his petition in the court of his choice. The
hierarchy of courts in our judicial system determines the
8

appropriate forum for these petitions. Thus, petitions for
the issuance of the said writs against the first level
(inferior) courts must be filed with the Regional Trial
Court and those against the latter, with the Court of
Appeals. A direct invocation of this Court’s original
jurisdiction to issue these writs should be allowed only
where there are special and important reasons therefor,
specifically and sufficiently set forth in the petition. This
is the established policy to prevent inordinate demands
upon the Court’s time and attention, which are better
devoted to matters within its exclusive jurisdiction, and
to prevent further over-crowding of the Court’s docket. 18
Thus, it was proper for petitioner to institute the special
civil action for certiorari with the Court of Appeals
assailing the RTC order denying his motion to dismiss
based on lack of jurisdiction.
While the Court of Appeals correctly took cognizance of
the petition for certiorari, however, let it be stressed that
the jurisdiction to review the rulings of the
Commissioner of Internal Revenue pertains to the Court
of Tax Appeals, not to the RTC.
The questioned RMO No. 15-91 and RMC No. 43-91 are
actually rulings or opinions of the Commissioner
implementing the Tax Code on the taxability of
pawnshops. This is clear from petitioner’s RMO No. 15-
91, pertinent portion of which reads:
"A restudy of P.D. 114 (the Pawnshop Regulation Act)
shows that the principal activity of pawnshops is lending
money at interest and incidentally accepting a ‘pawn’ of
personal property delivered by the pawner to the
pawnee as security for the loan (Sec. 3, ibid.). Clearly,
this makes pawnshop business akin to lending investor’s
business activity which is broad enough to encompass
the business of lending money at interest by any person
whether natural or juridical. Such being the case,
pawnshops shall be subject to the 5% lending investor’s
tax based on their gross income pursuant to Section 116
of the Tax Code, as amended."19
Such revenue orders were issued pursuant to petitioner's
powers under Section 245 of the Tax Code, which
states:
"SEC. 245. Authority of the Secretary of Finance to
promulgate rules and regulations. – The Secretary of
Finance, upon recommendation of the Commissioner,
shall promulgate all needful rules and regulations for the
effective enforcement of the provisions of this Code.
"The authority of the Secretary of Finance to determine
articles similar or analogous to those subject to a rate of
sales tax under certain category enumerated in Section
163 and 165 of this Code shall be without prejudice to
the power of the Commissioner of Internal Revenue to
make rulings or opinions in connection with the
implementation of the provisions of internal revenue
laws, including ruling on the classification of articles of
sales and similar purposes." (emphasis added)
Under Republic Act No. 1125 (An Act Creating the Court
of Tax Appeals [CTA for brevity]), as amended, such
CHRISpy TAX Cases (INC)
rulings of the Commissioner of Internal Revenue are
appealable to that court, thus:
"SEC. 7. Jurisdiction. – The Court of Tax Appeals shall
exercise exclusive appellate jurisdiction to review by
appeal, as herein provided -
(1) Decisions of the Commissioner of Internal Revenue
in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters arising
under the National Internal Revenue Code or other laws
or part of law administered by the Bureau of Internal
Revenue;
x x x x x x x x x." (emphasis added)
"SEC. 11. Who may appeal; effect of appeal. – Any
person, association or corporation adversely affected by
a decision or ruling of the Commissioner of Internal
Revenue, or the Commissioner of Customs or any
provincial or city Board of Assessment Appeals may file
an appeal in the Court of Tax Appeals within thirty days
after the receipt of such decision or ruling.
x x x x x x x x x." (emphasis added)
"SEC. 18. x x x. – No judicial proceedings against the
Government involving matters arising under the National
Internal Revenue Code, the Customs Law or the
Assessment Law shall be maintained, except as herein
provided, until and unless an appeal has been previously
filed with the Court of Tax Appeals and disposed of in
accordance with the provisions of this Act.
x x x x x x x x x." (emphasis added)
This Court, in Rodriguez, etc. vs. Blaquera, etc.,20 ruled:
"Plaintiff maintains that this is not an appeal from a
ruling of the Collector of Internal Revenue, but merely
an attempt to nullify General Circular No. V-148, which
does not adjudicate or settle any controversy, and that,
accordingly, this case is not within the jurisdiction of the
Court of Tax Appeals.
"We find no merit in this pretense. General Circular No.
V-148 directs the officers charged with the collection of
taxes and license fees to adhere strictly to the
interpretation given by the defendant to the statutory
provisions abovementioned, as set forth in the Circular.
The same incorporates, therefore, a decision of the
Collector of Internal Revenue (now Commissioner of
Internal Revenue) on the manner of enforcement of the
said statute, the administration of which is entrusted by
law to the Bureau of Internal Revenue. As such, it
comes within the purview of Republic Act No. 1125,
Section 7 of which provides that the Court of Tax
Appeals ‘shall exercise exclusive appellate jurisdiction to
review by appeal x x x decisions of the Collector of
Internal Revenue in x x x matters arising under the
National Internal Revenue Code or other law or part of
the law administered by the Bureau of Internal
Revenue.’ x x x." (emphasis added)
9

In the same vein, we held in Meralco Securities
Corporation vs. Savellano,21 thus:
"Respondent judge has no jurisdiction to take
cognizance of the case because the subject matter
thereof clearly falls within the scope of cases now
exclusively within the jurisdiction of the Court of Tax
Appeals. Section 7 of Republic Act No. 1125, enacted
June 16, 1954, granted to the Court of Tax Appeals
exclusive appellate jurisdiction to review by appeal,
among others, decisions of the Commissioner of Internal
Revenue in cases involving disputed assessments,
refunds of internal revenue taxes, fees or other charges,
penalties imposed in relation thereto, or other matters
arising under the National Internal Revenue Code or
other law or part of law administered by the Bureau of
Internal Revenue. The law transferred to the Court of
Tax Appeals jurisdiction over all cases involving said
assessments previously cognizable by Courts of First
Instance, and even those already pending in said courts.
The question of whether of not to impose a deficiency
tax assessment on Meralco Securities Corporation
undoubtedly comes within the purview of the words
"disputed assessments" or of "other matters arising
under the National Internal Revenue Code…." In the
case of Blaquera, etc. vs. Rodriguez, etc.(103 Phil. 511
[1958]), this Court ruled that ‘the determination of the
correctness or incorrectness of a tax assessment to
which the taxpayer is not agreeable, falls within the
jurisdiction of the Court of Tax Appeals and not of the
Court of First Instance, for under the provisions of
Section 7 of Republic Act No. 1125, the Court of Tax
Appeals has exclusive appellate jurisdiction to review, on
appeal, any decision of the Collector of Internal Revenue
in cases involving disputed assessments and other
matters arising under the National Internal Revenue
Code or other law or part of law administered by the
Bureau of Internal Revenue.’"
Here, as earlier mentioned, respondent Josefina Leal,
being a pawnshop owner, is assailing the revenue orders
imposing 5% lending investor’s tax on pawnshops issued
by petitioner. Clearly then, she should have filed her
petition with the Court of Tax Appeals, not the RTC.
Indeed, the Court of Appeals erred in holding that the
RTC order should have been challenged before this
Court.
WHEREFORE, the petition is GRANTED. Accordingly: (1)
the assailed Decision dated December 23, 1993 of the
Court of Appeals in CA-G.R. SP No. 28824 is SET ASIDE;
(2) the Order dated April 27, 1992 and the Writ of
Preliminary Injunction dated May 21, 1992 both issued
by the RTC, Branch 75, San Mateo, Rizal in Civil Case
No. 849-92, are declared NULL and VOID for having
been issued without jurisdiction; and (3) Civil Case No.
849-92 is ordered DISMISSED.
SO ORDERED.
G.R. No. L-23988           January 2, 1968
COMMISSIONER OF INTERNAL REVENUE,
petitioner,
vs.
CHRISpy TAX Cases (INC)
LEONARDO S. VILLA and THE COURT OF APPEALS,
respondents.
Office of the Solicitor General for petitioner.
Jesus P. Garcia for respondents.
BENGZON, J.P., J.:
Jurisdiction over the subject matter is fundamental for a
court to act on a given controversy. It is conferred by
law, 1 not by consent of the parties. 2 It can be
challenged at any stage of the proceedings and for lack
of it, a court can dismiss a case ex mero motu. 3
To inquire into the existence of jurisdiction over the
subject matter is the primary concern of a court, for
thereon would depend the ability of its entire
proceedings. In this case, the parties submitted
voluntarily to the jurisdiction of the Court of Tax
Appeals, adduced their evidence thereat. Thereafter,
they submitted their cause for decision. At no stage of
the proceedings have they raised the issue of
jurisdiction. However, as aforesaid, the consent of the
parties does not confer jurisdiction over the subject
matter. Hence, We shall proceed to inquire whether or
not the Court of Tax Appeals had jurisdiction to
entertain the so-called appeal of the taxpayer in this
case.
Leonardo S. Villa, a doctor of medicine, and his wife filed
joint income tax returns for the years 1951, 1952, 1953,
1954, 1955 and 1956 on April 2, 1952, March 30, 1953,
February 26, 1954, March 31, 1955, April 2, 1956 and
March 23, 1957, respectively. Subsequently, the Bureau
of Internal Revenue determined the income of the Villa
spouses by the use of networth method and accordingly
issued on February 23, 1961 assessments for deficiency
income tax for the years 1951, 1952, 1953, 1954 and
1956 and residence tax for 1951 to 1957. Dr. Villa
received the assessments on April 7, 1961. Without
contesting the said assessments in the Bureau of
Internal Revenue, he filed on May 4, 1961 a petition for
review in the Court of Tax Appeals.
The Court of Tax Appeals took cognizance of the appeal,
tried the case on the merits and rendered the following
judgment:
IN VIEW OF THE FOREGOING CONSIDERATIONS, with
the exception of that portion regarding the additional
residence taxes and surcharges for the years 1951 to
1957 in the amount of P244.00, for which we hold
petitioner liable, the decision appealed from is hereby
reversed. The petitioner is ordered to pay to the
Commissioner of Internal Revenue or his representative
the sum of P244.00, as additional residence tax and
surcharge without pronouncement as to costs.
From said judgment, the Commissioner of Internal
Revenue has appealed to Us.
The law conferring jurisdiction on the Court of Tax
Appeals is found in Section 7 of Republic Act 1125, the
pertinent part of which states:
10

Sec. 7. Jurisdiction. — The Court of Tax Appeals shall
exercise exclusive appellate jurisdiction to review by
appeal as herein provided —
(1) Decisions of the Collector 4of Internal Revenue in
cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters arising
under the National Internal Revenue Code or other law
or part of law administered by the Bureau of Internal
Revenue;
The word "decisions" in paragraph 1, Section 7 of
Republic Act 1125, quoted above, has been interpreted
to mean the decisions of the Commissioner of Internal
Revenue on the protest of the taxpayer against the
assessments. Definitely, said word does not signify the
assessment itself. We quote what this Court said aptly in
a previous case:
In the first place, we believe the respondent court erred
in holding that the assessment in question is the
respondent Collector's decision or ruling appealable to it ,
and that consequently, the period of thirty days
prescribed by section 11 of Republic Act No. 1125 within
which petitioner should have appealed to the respondent
court must be counted from its receipt of said
assessment. Where a taxpayer questions an assessment
and asks the Collector to reconsider or cancel the same
because he (the taxpayer) believes he is not liable
therefor, the assessment becomes a "disputed
assessment" that the Collector must decide, and the
taxpayer can appeal to the Court of Tax Appeals only
upon receipt of the decision of the Collector on the
disputed assessment, . . . 5(Emphasis supplied)
The same interpretation finds support in Section 11 of
Republic Act 1125, which states:1äwphï1.ñët
Sec. 11. Who may appeal; effect of appeal . — Any
person, association or corporation adversely affected by
a decision or ruling of the Collector of Internal Revenue,
the Collector of Customs or any provincial or city Board
of Assessment Appeals may file an appeal in the Court
of Tax Appeals within thirty days after the receipt of
such decision or ruling. (Emphasis supplied)
Note that the law uses the word "decisions", not
"assessments", further indicating the legislative intention
to subject to judicial review the decision of the
Commissioner on the protest against an assessment but
not the assessment itself. 6
Since in the instant case the taxpayer appealed the
assessment of the Commissioner of Internal Revenue
without previously contesting the same, the appeal was
premature and the Court of Tax Appeals had no
jurisdiction to entertain said appeal. For, as stated, the
jurisdiction of the Tax Court is to review by appeal
decisions of Internal Revenue on disputed assessments.
The Tax Court is a court of special jurisdiction. As such,
it can take cognizance only of such matters as are
clearly within its jurisdiction. 7
CHRISpy TAX Cases (INC)
WHEREFORE, the judgment appealed from is set aside
for lack of jurisdiction and the petition for review filed in
the Court of Tax Appeals is hereby ordered dismissed.
No costs. So ordered.
G.R. No. 136975 March 31, 2005
COMMISSION OF INTERNAL REVENUE, Petitioner,
vs.
HANTEX TRADING CO., INC., respondent.
DECISION
CALLEJO, SR., J.:
Before us is a petition for review of the Decision1 of the
Court of Appeals (CA) which reversed the Decision2 of
the Court of Tax Appeals (CTA) in CTA Case No. 5126,
upholding the deficiency income and sales tax
assessments against respondent Hantex Trading Co.,
Inc.
The Antecedents
The respondent is a corporation duly organized and
existing under the laws of the Philippines. Being
engaged in the sale of plastic products, it imports
synthetic resin and other chemicals for the manufacture
of its products. For this purpose, it is required to file an
Import Entry and Internal Revenue Declaration
(Consumption Entry) with the Bureau of Customs under
Section 1301 of the Tariff and Customs Code.
Sometime in October 1989, Lt. Vicente Amoto, Acting
Chief of Counter-Intelligence Division of the Economic
Intelligence and Investigation Bureau (EIIB), received
confidential information that the respondent had
imported synthetic resin amounting to P115,599,018.00
but only declared P45,538,694.57.3 According to the
informer, based on photocopies of 77 Consumption
Entries furnished by another informer, the 1987
importations of the respondent were understated in its
accounting records.4 Amoto submitted a report to the
EIIB Commissioner recommending that an inventory
audit of the respondent be conducted by the Internal
Inquiry and Prosecution Office (IIPO) of the EIIB.5
Acting on the said report, Jose T. Almonte, then
Commissioner of the EIIB, issued Mission Order No. 398-
896 dated November 14, 1989 for the audit and
investigation of the importations of Hantex for 1987. The
IIPO issued subpoena duces tecum and ad testificandum
for the president and general manager of the
respondent to appear in a hearing and bring the
following:
1. Books of Accounts for the year 1987;
2. Record of Importations of Synthetic Resin and
Calcium Carbonate for the year 1987;
3. Income tax returns & attachments for 1987; and
11

4. Record of tax payments.7
However, the respondent’s president and general
manager refused to comply with the subpoena,
contending that its books of accounts and records of
importation of synthetic resin and calcium bicarbonate
had been investigated repeatedly by the Bureau of
Internal Revenue (BIR) on prior occasions.8 The IIPO
explained that despite such previous investigations, the
EIIB was still authorized to conduct an investigation
pursuant to Section 26-A of Executive Order No. 127.
Still, the respondent refused to comply with the
subpoena issued by the IIPO. The latter forthwith
secured certified copies of the Profit and Loss
Statements for 1987 filed by the respondent with the
Securities and Exchange Commission (SEC).9 However,
the IIPO failed to secure certified copies of the
respondent’s 1987 Consumption Entries from the Bureau
of Customs since, according to the custodian thereof,
the original copies had been eaten by termites.10
In a Letter dated June 28, 1990, the IIPO requested the
Chief of the Collection Division, Manila International
Container Port, and the Acting Chief of the Collection
Division, Port of Manila, to authenticate the machine
copies of the import entries supplied by the informer.
However, Chief of the Collection Division Merlita D.
Tomas could not do so because the Collection Division
did not have the original copies of the entries. Instead,
she wrote the IIPO that, as gleaned from the records,
the following entries had been duly processed and
released after the payment of duties and taxes:
XXX
Acting Chief of the Collection Division of the Bureau of
Customs Augusto S. Danganan could not authenticate
the machine copies of the import entries as well, since
the original copies of the said entries filed with the
Bureau of Customs had apparently been eaten by
termites. However, he issued a certification that the
following enumerated entries were filed by the
respondent which were processed and released from the
Port of Manila after payment of duties and taxes, to wit:
XXX
Bienvenido G. Flores, Chief of the Investigation Division,
and Lt. Leo Dionela, Lt. Vicente Amoto and Lt. Rolando
Gatmaitan conducted an investigation. They relied on
the certified copies of the respondent’s Profit and Loss
Statement for 1987 and 1988 on file with the SEC, the
machine copies of the Consumption Entries, Series of
1987, submitted by the informer, as well as excerpts
from the entries certified by Tomas and Danganan.
Based on the documents/records on hand, inclusive of
the machine copies of the Consumption Entries, the EIIB
found that for 1987, the respondent had importations
totaling P105,716,527.00 (inclusive of advance sales
tax). Compared with the declared sales based on the
Profit and Loss Statements filed with the SEC, the
respondent had unreported sales in the amount of
P63,032,989.17, and its corresponding income tax
CHRISpy TAX Cases (INC)
liability was P41,916,937.78, inclusive of penalty charge
and interests.
EIIB Commissioner Almonte transmitted the entire
docket of the case to the BIR and recommended the
collection of the total tax assessment from the
respondent.13
On February 12, 1991, Deputy Commissioner Deoferio,
Jr. issued a Memorandum to the BIR Assistant
Commissioner for Special Operations Service, directing
the latter to prepare a conference letter advising the
respondent of its deficiency taxes.14
Meanwhile, as ordered by the Regional Director,
Revenue Enforcement Officers Saturnino D. Torres and
Wilson Filamor conducted an investigation on the 1987
importations of the respondent, in the light of the
records elevated by the EIIB to the BIR, inclusive of the
photocopies of the Consumption Entries. They were to
ascertain the respondent’s liability for deficiency sales
and income taxes for 1987, if any. Per Torres’ and
Filamor’s Report dated March 6, 1991 which was based
on the report of the EIIB and the documents/records
appended thereto, there was a prima facie case of fraud
against the respondent in filing its 1987 Consumption
Entry reports with the Bureau of Customs. They found
that the respondent had unrecorded importation in the
total amount of P70,661,694.00, and that the amount
was not declared in its income tax return for 1987. The
District Revenue Officer and the Regional Director of the
BIR concurred with the report.15
Based on the said report, the Acting Chief of the Special
Investigation Branch wrote the respondent and invited
its representative to a conference at 10:00 a.m. of
March 14, 1991 to discuss its deficiency internal revenue
taxes and to present whatever documentary and other
evidence to refute the same.16 Appended to the letter
was a computation of the deficiency income and sales
tax due from the respondent, inclusive of increments:
B. Computations:
XXX
The invitation was reiterated in a Letter dated March 15,
1991. In his Reply dated March 15, 1991, Mariano O.
Chua, the President and General Manager of the
respondent, requested that the report of Torres and
Filamor be set aside on the following claim:
… [W]e had already been investigated by RDO No. 23
under Letters of Authority Nos. 0322988 RR dated Oct.
1, 1987, 0393561 RR dated Aug. 17, 1988 and 0347838
RR dated March 2, 1988, and re-investigated by the
Special Investigation Team on Aug. 17, 1988 under
Letter of Authority No. 0357464 RR, and the Intelligence
and Investigation Office on Sept. 27, 1988 under Letter
of Authority No. 0020188 NA, all for income and
business tax liabilities for 1987. The Economic
Intelligence and Investigation Bureau on Nov. 20, 1989,
likewise, confronted us on the same information for the
same year.
12

In all of these investigations, save your request for an
informal conference, we welcomed them and proved the
contrary of the allegation. Now, with your new inquiry,
we think that there will be no end to the problem.
Madam, we had been subjected to so many
investigations and re-investigations for 1987 and nothing
came out except the payment of deficiency taxes as a
result of oversight. Tax evasion through
underdeclaration of income had never been proven.18
Invoking Section 23519 of the 1977 National Internal
Revenue Code (NIRC), as amended, Chua requested
that the inquiry be set aside.
The petitioner, the Commissioner of Internal Revenue,
through Assistant Commissioner for Collection Jaime M.
Maza, sent a Letter dated April 15, 1991 to the
respondent demanding payment of its deficiency income
tax of P13,414,226.40 and deficiency sales tax of
P14,752,903.25, inclusive of surcharge and interest.20
Appended thereto were the Assessment Notices of Tax
Deficiency Nos. FAS-1-87-91-001654 and FAS-4-87-91-
001655.21
On February 12, 1992, the Chief of the Accounts
Receivables/Billing Division of the BIR sent a letter to
the respondent demanding payment of its tax liability
due for 1987 within ten (10) days from notice, on pain
of the collection tax due via a warrant of distraint and
levy and/or judicial action.22 The Warrant of Distraint
and/or Levy23 was actually served on the respondent on
January 21, 1992. On September 7, 1992, it wrote the
Commissioner of Internal Revenue protesting the
assessment on the following grounds:
I. THAT THE ASSESSMENT HAS NO FACTUAL AS WELL
AS LEGAL BASIS, THE FACT THAT NO INVESTIGATION
OF OUR RECORDS WAS EVER MADE BY THE EIIB
WHICH RECOMMENDED ITS ISSUANCE.24
II. THAT GRANTING BUT WITHOUT ADMITTING THAT
OUR PURCHASES FOR 1987 AMOUNTED TO
P105,716,527.00 AS CLAIMED BY THE EIIB, THE
ASSESSMENT OF A DEFICIENCY INCOME TAX IS STILL
DEFECTIVE FOR IT FAILED TO CONSIDER OUR REAL
PURCHASES OF P45,538,694.57.25
III. THAT THE ASSESSMENT OF A DEFICIENCY SALES
TAX IS ALSO BASELESS AND UNFOUNDED
CONSIDERING THAT WE HAVE DUTIFULLY PAID THE
SALES TAX DUE FROM OUR BUSINESS.26
In view of the impasse, administrative hearings were
conducted on the respondent’s protest to the
assessment. During the hearing of August 20, 1993, the
IIPO representative presented the photocopies of the
Consumption and Import Entries and the Certifications
issued by Tomas and Danganan of the Bureau of
Customs. The IIPO representative testified that the
Bureau of Customs failed to furnish the EIIB with
certified copies of the Consumption and Import Entries;
hence, the EIIB relied on the machine copies from their
informer.27
CHRISpy TAX Cases (INC)
The respondent wrote the BIR Commissioner on July 12,
1993 questioning the assessment on the ground that the
EIIB representative failed to present the original, or
authenticated, or duly certified copies of the
Consumption and Import Entry Accounts, or excerpts
thereof if the original copies were not readily available;
or, if the originals were in the official custody of a public
officer, certified copies thereof as provided for in Section
12, Chapter 3, Book VII, Administrative Procedure,
Administrative Order of 1987. It stated that the only
copies of the Consumption Entries submitted to the
Hearing Officer were mere machine copies furnished by
an informer of the EIIB. It asserted that the letters of
Tomas and Danganan were unreliable because of the
following:
In the said letters, the two collection officers merely
submitted a listing of alleged import entry numbers and
dates released of alleged importations by Hantex
Trading Co., Inc. of merchandise in 1987, for which they
certified that the corresponding duties and taxes were
paid after being processed in their offices. In said
letters, no amounts of the landed costs and advance
sales tax and duties were stated, and no particulars of
the duties and taxes paid per import entry document
was presented.
The contents of the two letters failed to indicate the
particulars of the importations per entry number, and
the said letters do not constitute as evidence of the
amounts of importations of Hantex Trading Co., Inc. in
1987.28
The respondent cited the following findings of the
Hearing Officer:
… [T]hat the import entry documents do not constitute
evidence only indicate that the tax assessments in
question have no factual basis, and must, at this point in
time, be withdrawn and cancelled. Any new findings by
the IIPO representative who attended the hearing could
not be used as evidence in this hearing, because all the
issues on the tax assessments in question have already
been raised by the herein taxpayer.29
The respondent requested anew that the income tax
deficiency assessment and the sales tax deficiency
assessment be set aside for lack of factual and legal
basis.
The BIR Commissioner30 wrote the respondent on
December 10, 1993, denying its letter-request for the
dismissal of the assessments.31 The BIR Commissioner
admitted, in the said letter, the possibility that the
figures appearing in the photocopies of the Consumption
Entries had been tampered with. She averred, however,
that she was not proscribed from relying on other
admissible evidence, namely, the Letters of Torres and
Filamor dated August 7 and 22, 1990 on their
investigation of the respondent’s tax liability. The
Commissioner emphasized that her decision was final.32
The respondent forthwith filed a petition for review in
the CTA of the Commissioner’s Final Assessment Letter
dated December 10, 1993 on the following grounds:
13

First. The alleged 1987 deficiency income tax
assessment (including increments) and the alleged 1987
deficiency sales tax assessment (including increments)
are void ab initio, since under Sections 16(a) and 49(b)
of the Tax Code, the Commissioner shall examine a
return after it is filed and, thereafter, assess the correct
amount of tax. The following facts obtaining in this case,
however, are indicative of the incorrectness of the tax
assessments in question: the deficiency interests
imposed in the income and percentage tax deficiency
assessment notices were computed in violation of the
provisions of Section 249(b) of the NIRC of 1977, as
amended; the percentage tax deficiency was computed
on an annual basis for the year 1987 in accordance with
the provision of Section 193, which should have been
computed in accordance with Section 162 of the 1977
NIRC, as amended by Pres. Decree No. 1994 on a
quarterly basis; and the BIR official who signed the
deficiency tax assessments was the Assistant
Commissioner for Collection, who had no authority to
sign the same under the NIRC.
Second. Even granting arguendo that the deficiency
taxes and increments for 1987 against the respondent
were correctly computed in accordance with the
provisions of the Tax Code, the facts indicate that the
above-stated assessments were based on alleged
documents which are inadmissible in either
administrative or judicial proceedings. Moreover, the
alleged bases of the tax computations were anchored on
mere presumptions and not on actual facts. The alleged
undeclared purchases for 1987 were based on mere
photocopies of alleged import entry documents, not the
original ones, and which had never been duly certified
by the public officer charged with the custody of such
records in the Bureau of Customs. According to the
respondent, the alleged undeclared sales were
computed based on mere presumptions as to the alleged
gross profit contained in its 1987 financial statement.
Moreover, even the alleged financial statement of the
respondent was a mere machine copy and not an official
copy of the 1987 income and business tax returns.
Finally, the respondent was following the accrual
method of accounting in 1987, yet, the BIR investigator
who computed the 1987 income tax deficiency failed to
allow as a deductible item the alleged sales tax
deficiency for 1987 as provided for under Section 30(c)
of the NIRC of 1986.33
The Commissioner did not adduce in evidence the
original or certified true copies of the 1987 Consumption
Entries on file with the Commission on Audit. Instead,
she offered in evidence as proof of the contents thereof,
the photocopies of the Consumption Entries which the
respondent objected to for being inadmissible in
evidence.34 She also failed to present any witness to
prove the correct amount of tax due from it.
Nevertheless, the CTA provisionally admitted the said
documents in evidence, subject to its final evaluation of
their relevancy and probative weight to the issues
involved.35
On December 11, 1997, the CTA rendered a decision,
the dispositive portion of which reads:
CHRISpy TAX Cases (INC)
IN THE LIGHT OF ALL THE FOREGOING, judgment is
hereby rendered DENYING the herein petition. Petitioner
is hereby ORDERED TO PAY the respondent
Commissioner of Internal Revenue its deficiency income
and sales taxes for the year 1987 in the amounts of
P11,182,350.26 and P12,660,382.46, respectively, plus
20% delinquency interest per annum on both deficiency
taxes from April 15, 1991 until fully paid pursuant to
Section 283(c)(3) of the 1987 Tax Code, with costs
against the petitioner.
SO ORDERED.36
The CTA ruled that the respondent was burdened to
prove not only that the assessment was erroneous, but
also to adduce the correct taxes to be paid by it. The
CTA declared that the respondent failed to prove the
correct amount of taxes due to the BIR. It also ruled
that the respondent was burdened to adduce in
evidence a certification from the Bureau of Customs that
the Consumption Entries in question did not belong to it.
On appeal, the CA granted the petition and reversed the
decision of the CTA. The dispositive portion of the
decision reads:
FOREGOING PREMISES CONSIDERED, the Petition for
Review is GRANTED and the December 11, 1997
decision of the CTA in CTA Case No. 5162 affirming the
1987 deficiency income and sales tax assessments and
the increments thereof, issued by the BIR is hereby
REVERSED. No costs.37
The Ruling of the Court of Appeals
The CA held that the income and sales tax deficiency
assessments issued by the petitioner were unlawful and
baseless since the copies of the import entries relied
upon in computing the deficiency tax of the respondent
were not duly authenticated by the public officer
charged with their custody, nor verified under oath by
the EIIB and the BIR investigators.38 The CA also noted
that the public officer charged with the custody of the
import entries was never presented in court to lend
credence to the alleged loss of the originals.39 The CA
pointed out that an import entry is a public document
which falls within the provisions of Section 19, Rule 132
of the Rules of Court, and to be admissible for any legal
purpose, Section 24, Rule 132 of the Rules of Court
should apply.40 Citing the ruling of this Court in
Collector of Internal Revenue v. Benipayo,41 the CA
ruled that the assessments were unlawful because they
were based on hearsay evidence. The CA also ruled that
the respondent was deprived of its right to due process
of law.
The CA added that the CTA should not have just
brushed aside the legal requisites provided for under the
pertinent provisions of the Rules of Court in the matter
of the admissibility of public documents, considering that
substantive rules of evidence should not be disregarded.
It also ruled that the certifications made by the two
Customs Collection Chiefs under the guise of supporting
the respondent’s alleged tax deficiency assessments
invoking the best evidence obtainable rule under the Tax
14

Code should not be permitted to supplant the best
evidence rule under Section 7, Rule 130 of the Rules of
Court.
Finally, the CA noted that the tax deficiency assessments
were computed without the tax returns. The CA opined
that the use of the tax returns is indispensable in the
computation of a tax deficiency; hence, this essential
requirement must be complied with in the preparation
and issuance of valid tax deficiency assessments.42
The Present Petition
The Commissioner of Internal Revenue, the petitioner
herein, filed the present petition for review under Rule
45 of the Rules of Court for the reversal of the decision
of the CA and for the reinstatement of the ruling of the
CTA.
As gleaned from the pleadings of the parties, the
threshold issues for resolution are the following: (a)
whether the petition at bench is proper and complies
with Sections 4 and 5, Rule 7 of the Rules of Court; (b)
whether the December 10, 1991 final assessment of the
petitioner against the respondent for deficiency income
tax and sales tax for the latter’s 1987 importation of
resins and calcium bicarbonate is based on competent
evidence and the law; and (c) the total amount of
deficiency taxes due from the respondent for 1987, if
any.
On the first issue, the respondent points out that the
petition raises both questions of facts and law which
cannot be the subject of an appeal by certiorari under
Rule 45 of the Rules of Court. The respondent notes that
the petition is defective because the verification and the
certification against forum shopping were not signed by
the petitioner herself, but only by the Regional Director
of the BIR. The respondent submits that the petitioner
should have filed a motion for reconsideration with the
CA before filing the instant petition for review.43
We find and so rule that the petition is sufficient in form.
A verification and certification against forum shopping
signed by the Regional Director constitutes sufficient
compliance with the requirements of Sections 4 and 5,
Rule 7 of the Rules of Court. Under Section 10 of the
NIRC of 1997,44 the Regional Director has the power to
administer and enforce internal revenue laws, rules and
regulations, including the assessment and collection of
all internal revenue taxes, charges and fees. Such power
is broad enough to vest the Revenue Regional Director
with the authority to sign the verification and
certification against forum shopping in behalf of the
Commissioner of Internal Revenue. There is no other
person in a better position to know the collection cases
filed under his jurisdiction than the Revenue Regional
Director.
Moreover, under Revenue Administrative Order No. 5-
83,45 the Regional Director is authorized to sign all
pleadings filed in connection with cases referred to the
Revenue Regions by the National Office which,
otherwise, require the signature of the petitioner.
CHRISpy TAX Cases (INC)
We do not agree with the contention of the respondent
that a motion for reconsideration ought to have been
filed before the filing of the instant petition. A motion for
reconsideration of the decision of the CA is not a
condition sine qua non for the filing of a petition for
review under Rule 45. As we held in Almora v. Court of
Appeals:46
Rule 45, Sec. 1 of the Rules of Court, however, distinctly
provides that:
A party may appeal by certiorari from a judgment of the
Court of Appeals, by filing with the Supreme Court a
petition for certiorari within fifteen (15) days from notice
of judgment, or of the denial of his motion for
reconsideration filed in due time. (Emphasis supplied)
The conjunctive "or" clearly indicates that the 15-day
reglementary period for the filing of a petition for
certiorari under Rule 45 commences either from notice
of the questioned judgment or from notice of denial of
the appellant’s motion for reconsideration. A prior
motion for reconsideration is not indispensable for a
petition for review on certiorari under Rule 45 to
prosper. …47
While Rule 45 of the Rules of Court provides that only
questions of law may be raised by the petitioner and
resolved by the Court, under exceptional circumstances,
the Court may take cognizance thereof and resolve
questions of fact. In this case, the findings and
conclusion of the CA are inconsistent with those of the
CTA, not to mention those of the Commissioner of
Internal Revenue. The issues raised in this case relate to
the propriety and the correctness of the tax assessments
made by the petitioner against the respondent, as well
as the propriety of the application of Section 16,
paragraph (b) of the 1977 NIRC, as amended by Pres.
Decree Nos. 1705, 1773, 1994 and Executive Order No.
273, in relation to Section 3, Rule 132 of the Rules of
Evidence. There is also an imperative need for the Court
to resolve the threshold factual issues to give justice to
the parties, and to determine whether the CA
capriciously ignored, misunderstood or misinterpreted
cogent facts and circumstances which, if considered,
would change the outcome of the case.
On the second issue, the petitioner asserts that since the
respondent refused to cooperate and show its 1987
books of account and other accounting records, it was
proper for her to resort to the best evidence obtainable
– the photocopies of the import entries in the Bureau of
Customs and the respondent’s financial statement filed
with the SEC.48 The petitioner maintains that these
import entries were admissible as secondary evidence
under the best evidence obtainable rule, since they were
duly authenticated by the Bureau of Customs officials
who processed the documents and released the cargoes
after payment of the duties and taxes due.49 Further,
the petitioner points out that under the best evidence
obtainable rule, the tax return is not important in
computing the tax deficiency.50
The petitioner avers that the best evidence obtainable
rule under Section 16 of the 1977 NIRC, as amended,
legally cannot be equated to the best evidence rule
15

under the Rules of Court; nor can the best evidence
rule, being procedural law, be made strictly operative in
the interpretation of the best evidence obtainable rule
which is substantive in character.51 The petitioner posits
that the CTA is not strictly bound by technical rules of
evidence, the reason being that the quantum of
evidence required in the said court is merely substantial
evidence.52
Finally, the petitioner avers that the respondent has the
burden of proof to show the correct assessments;
otherwise, the presumption in favor of the correctness of
the assessments made by it stands.53 Since the
respondent was allowed to explain its side, there was no
violation of due process.54
The respondent, for its part, maintains that the resort to
the best evidence obtainable method was illegal. In the
first place, the respondent argues, the EIIB agents are
not duly authorized to undertake examination of the
taxpayer’s accounting records for internal revenue tax
purposes. Hence, the respondent’s failure to accede to
their demands to show its books of accounts and other
accounting records cannot justify resort to the use of the
best evidence obtainable method.55 Secondly, when a
taxpayer fails to submit its tax records upon demand by
the BIR officer, the remedy is not to assess him and
resort to the best evidence obtainable rule, but to punish
the taxpayer according to the provisions of the Tax
Code.56
In any case, the respondent argues that the photocopies
of import entries cannot be used in making the
assessment because they were not properly
authenticated, pursuant to the provisions of Sections
2457 and 2558 of Rule 132 of the Rules of Court. It
avers that while the CTA is not bound by the technical
rules of evidence, it is bound by substantial rules.59 The
respondent points out that the petitioner did not even
secure a certification of the fact of loss of the original
documents from the custodian of the import entries. It
simply relied on the report of the EIIB agents that the
import entry documents were no longer available
because they were eaten by termites. The respondent
posits that the two collectors of the Bureau of Customs
never authenticated the xerox copies of the import
entries; instead, they only issued certifications stating
therein the import entry numbers which were processed
by their office and the date the same were released.60
The respondent argues that it was not necessary for it to
show the correct assessment, considering that it is
questioning the assessments not only because they are
erroneous, but because they were issued without factual
basis and in patent violation of the assessment
procedures laid down in the NIRC of 1977, as
amended.61 It is also pointed out that the petitioner
failed to use the tax returns filed by the respondent in
computing the deficiency taxes which is contrary to
law;62 as such, the deficiency assessments constituted
deprivation of property without due process of law.63
Central to the second issue is Section 16 of the NIRC of
1977, as amended,64 which provides that the
Commissioner of Internal Revenue has the power to
make assessments and prescribe additional
CHRISpy TAX Cases (INC)
requirements for tax administration and enforcement.
Among such powers are those provided in paragraph (b)
thereof, which we quote:
(b) Failure to submit required returns, statements,
reports and other documents. – When a report required
by law as a basis for the assessment of any national
internal revenue tax shall not be forthcoming within the
time fixed by law or regulation or when there is reason
to believe that any such report is false, incomplete or
erroneous, the Commissioner shall assess the proper tax
on the best evidence obtainable.
In case a person fails to file a required return or other
document at the time prescribed by law, or willfully or
otherwise files a false or fraudulent return or other
document, the Commissioner shall make or amend the
return from his own knowledge and from such
information as he can obtain through testimony or
otherwise, which shall be prima facie correct and
sufficient for all legal purposes.65
This provision applies when the Commissioner of
Internal Revenue undertakes to perform her
administrative duty of assessing the proper tax against a
taxpayer, to make a return in case of a taxpayer’s failure
to file one, or to amend a return already filed in the BIR.
The petitioner may avail herself of the best evidence or
other information or testimony by exercising her power
or authority under paragraphs (1) to (4) of Section 7 of
the NIRC:
(1) To examine any book, paper, record or other data
which may be relevant or material to such inquiry;
(2) To obtain information from any office or officer of
the national and local governments, government
agencies or its instrumentalities, including the Central
Bank of the Philippines and government owned or
controlled corporations;
(3) To summon the person liable for tax or required to
file a return, or any officer or employee of such person,
or any person having possession, custody, or care of the
books of accounts and other accounting records
containing entries relating to the business of the person
liable for tax, or any other person, to appear before the
Commissioner or his duly authorized representative at a
time and place specified in the summons and to produce
such books, papers, records, or other data, and to give
testimony;
(4) To take such testimony of the person concerned,
under oath, as may be relevant or material to such
inquiry; …66
The "best evidence" envisaged in Section 16 of the 1977
NIRC, as amended, includes the corporate and
accounting records of the taxpayer who is the subject of
the assessment process, the accounting records of other
taxpayers engaged in the same line of business,
including their gross profit and net profit sales.67 Such
evidence also includes data, record, paper, document or
any evidence gathered by internal revenue officers from
16

other taxpayers who had personal transactions or from
whom the subject taxpayer received any income; and
record, data, document and information secured from
government offices or agencies, such as the SEC, the
Central Bank of the Philippines, the Bureau of Customs,
and the Tariff and Customs Commission.
The law allows the BIR access to all relevant or material
records and data in the person of the taxpayer. It places
no limit or condition on the type or form of the medium
by which the record subject to the order of the BIR is
kept. The purpose of the law is to enable the BIR to get
at the taxpayer’s records in whatever form they may be
kept. Such records include computer tapes of the said
records prepared by the taxpayer in the course of
business.68 In this era of developing information-
storage technology, there is no valid reason to immunize
companies with computer-based, record-keeping
capabilities from BIR scrutiny. The standard is not the
form of the record but where it might shed light on the
accuracy of the taxpayer’s return.
In Campbell, Jr. v. Guetersloh,69 the United States
(U.S.) Court of Appeals (5th Circuit) declared that it is
the duty of the Commissioner of Internal Revenue to
investigate any circumstance which led him to believe
that the taxpayer had taxable income larger than
reported. Necessarily, this inquiry would have to be
outside of the books because they supported the return
as filed. He may take the sworn testimony of the
taxpayer; he may take the testimony of third parties; he
may examine and subpoena, if necessary, traders’ and
brokers’ accounts and books and the taxpayer’s book
accounts. The Commissioner is not bound to follow any
set of patterns. The existence of unreported income may
be shown by any practicable proof that is available in
the circumstances of the particular situation. Citing its
ruling in Kenney v. Commissioner,70 the U.S. appellate
court declared that where the records of the taxpayer
are manifestly inaccurate and incomplete, the
Commissioner may look to other sources of information
to establish income made by the taxpayer during the
years in question.71
We agree with the contention of the petitioner that the
best evidence obtainable may consist of hearsay
evidence, such as the testimony of third parties or
accounts or other records of other taxpayers similarly
circumstanced as the taxpayer subject of the
investigation, hence, inadmissible in a regular
proceeding in the regular courts.72 Moreover, the
general rule is that administrative agencies such as the
BIR are not bound by the technical rules of evidence. It
can accept documents which cannot be admitted in a
judicial proceeding where the Rules of Court are strictly
observed. It can choose to give weight or disregard such
evidence, depending on its trustworthiness.
However, the best evidence obtainable under Section 16
of the 1977 NIRC, as amended, does not include mere
photocopies of records/documents. The petitioner, in
making a preliminary and final tax deficiency assessment
against a taxpayer, cannot anchor the said assessment
on mere machine copies of records/documents. Mere
photocopies of the Consumption Entries have no
probative weight if offered as proof of the contents
CHRISpy TAX Cases (INC)
thereof. The reason for this is that such copies are mere
scraps of paper and are of no probative value as basis
for any deficiency income or business taxes against a
taxpayer. Indeed, in United States v. Davey,73 the U.S.
Court of Appeals (2nd Circuit) ruled that where the
accuracy of a taxpayer’s return is being checked, the
government is entitled to use the original records rather
than be forced to accept purported copies which present
the risk of error or tampering.74
In Collector of Internal Revenue v. Benipayo,75 the
Court ruled that the assessment must be based on
actual facts. The rule assumes more importance in this
case since the xerox copies of the Consumption Entries
furnished by the informer of the EIIB were furnished by
yet another informer. While the EIIB tried to secure
certified copies of the said entries from the Bureau of
Customs, it was unable to do so because the said entries
were allegedly eaten by termites. The Court can only
surmise why the EIIB or the BIR, for that matter, failed
to secure certified copies of the said entries from the
Tariff and Customs Commission or from the National
Statistics Office which also had copies thereof. It bears
stressing that under Section 1306 of the Tariff and
Customs Code, the Consumption Entries shall be the
required number of copies as prescribed by
regulations.76 The Consumption Entry is accomplished
in sextuplicate copies and quadruplicate copies in other
places. In Manila, the six copies are distributed to the
Bureau of Customs, the Tariff and Customs Commission,
the Declarant (Importer), the Terminal Operator, and
the Bureau of Internal Revenue. Inexplicably, the
Commissioner and the BIR personnel ignored the copy
of the Consumption Entries filed with the BIR and relied
on the photocopies supplied by the informer of the EIIB
who secured the same from another informer. The BIR,
in preparing and issuing its preliminary and final
assessments against the respondent, even ignored the
records on the investigation made by the District
Revenue officers on the respondent’s importations for
1987.
The original copies of the Consumption Entries were of
prime importance to the BIR. This is so because such
entries are under oath and are presumed to be true and
correct under penalty of falsification or perjury.
Admissions in the said entries of the importers’
documents are admissions against interest and
presumptively correct.77
In fine, then, the petitioner acted arbitrarily and
capriciously in relying on and giving weight to the
machine copies of the Consumption Entries in fixing the
tax deficiency assessments against the respondent.
The rule is that in the absence of the accounting records
of a taxpayer, his tax liability may be determined by
estimation. The petitioner is not required to compute
such tax liabilities with mathematical exactness.
Approximation in the calculation of the taxes due is
justified. To hold otherwise would be tantamount to
holding that skillful concealment is an invincible barrier
to proof.78 However, the rule does not apply where the
estimation is arrived at arbitrarily and capriciously.79
17

We agree with the contention of the petitioner that, as a
general rule, tax assessments by tax examiners are
presumed correct and made in good faith. All
presumptions are in favor of the correctness of a tax
assessment. It is to be presumed, however, that such
assessment was based on sufficient evidence. Upon the
introduction of the assessment in evidence, a prima facie
case of liability on the part of the taxpayer is made.80 If
a taxpayer files a petition for review in the CTA and
assails the assessment, the prima facie presumption is
that the assessment made by the BIR is correct, and
that in preparing the same, the BIR personnel regularly
performed their duties. This rule for tax initiated suits is
premised on several factors other than the normal
evidentiary rule imposing proof obligation on the
petitioner-taxpayer: the presumption of administrative
regularity; the likelihood that the taxpayer will have
access to the relevant information; and the desirability
of bolstering the record-keeping requirements of the
NIRC.81
However, the prima facie correctness of a tax
assessment does not apply upon proof that an
assessment is utterly without foundation, meaning it is
arbitrary and capricious. Where the BIR has come out
with a "naked assessment," i.e., without any foundation
character, the determination of the tax due is without
rational basis.82 In such a situation, the U.S. Court of
Appeals ruled83 that the determination of the
Commissioner contained in a deficiency notice
disappears. Hence, the determination by the CTA must
rest on all the evidence introduced and its ultimate
determination must find support in credible evidence.
The issue that now comes to fore is whether the tax
deficiency assessment against the respondent based on
the certified copies of the Profit and Loss Statement
submitted by the respondent to the SEC in 1987 and
1988, as well as certifications of Tomas and Danganan,
is arbitrary, capricious and illegal. The CTA ruled that
the respondent failed to overcome the prima facie
correctness of the tax deficiency assessment issued by
the petitioner, to wit:
The issue should be ruled in the affirmative as petitioner
has failed to rebut the validity or correctness of the
aforementioned tax assessments. It is incongruous for
petitioner to prove its cause by simply drawing an
inference unfavorable to the respondent by attacking the
source documents (Consumption Entries) which were
the bases of the assessment and which were certified by
the Chiefs of the Collection Division, Manila International
Container Port and the Port of Manila, as having been
processed and released in the name of the petitioner
after payment of duties and taxes and the duly certified
copies of Financial Statements secured from the
Securities and Exchange Commission. Any such
inference cannot operate to relieve petitioner from
bearing its burden of proof and this Court has no
warrant of absolution. The Court should have been
persuaded to grant the reliefs sought by the petitioner
should it have presented any evidence of relevance and
competence required, like that of a certification from the
Bureau of Customs or from any other agencies, attesting
to the fact that those consumption entries did not really
belong to them.
CHRISpy TAX Cases (INC)
The burden of proof is on the taxpayer contesting the
validity or correctness of an assessment to prove not
only that the Commissioner of Internal Revenue is
wrong but the taxpayer is right (Tan Guan v. CTA, 19
SCRA 903), otherwise, the presumption in favor of the
correctness of tax assessment stands (Sy Po v. CTA, 164
SCRA 524). The burden of proving the illegality of the
assessment lies upon the petitioner alleging it to be so.
In the case at bar, petitioner miserably failed to
discharge this duty.84
We are not in full accord with the findings and
ratiocination of the CTA. Based on the letter of the
petitioner to the respondent dated December 10, 1993,
the tax deficiency assessment in question was based on
(a) the findings of the agents of the EIIB which was
based, in turn, on the photocopies of the Consumption
Entries; (b) the Profit and Loss Statements of the
respondent for 1987 and 1988; and (c) the certifications
of Tomas and Danganan dated August 7, 1990 and
August 22, 1990:
In reply, please be informed that after a thorough
evaluation of the attending facts, as well as the laws and
jurisprudence involved, this Office holds that you are
liable to the assessed deficiency taxes. The conclusion
was arrived at based on the findings of agents of the
Economic Intelligence & Investigation Bureau (EIIB) and
of our own examiners who have painstakingly examined
the records furnished by the Bureau of Customs and the
Securities & Exchange Commission (SEC). The
examination conducted disclosed that while your actual
sales for 1987 amounted to P110,731,559.00, you
declared for taxation purposes, as shown in the Profit
and Loss Statements, the sum of P47,698,569.83 only.
The difference, therefore, of P63,032,989.17 constitutes
as undeclared or unrecorded sales which must be
subjected to the income and sales taxes.
You also argued that our assessment has no basis since
the alleged amount of underdeclared importations were
lifted from uncertified or unauthenticated xerox copies of
consumption entries which are not admissible in
evidence. On this issue, it must be considered that in
letters dated August 7 and 22, 1990, the Chief and
Acting Chief of the Collection Division of the Manila
International Container Port and Port of Manila,
respectively, certified that the enumerated consumption
entries were filed, processed and released from the port
after payment of duties and taxes. It is noted that the
certification does not touch on the genuineness,
authenticity and correctness of the consumption entries
which are all xerox copies, wherein the figures therein
appearing may have been tampered which may render
said documents inadmissible in evidence, but for tax
purposes, it has been held that the Commissioner is not
required to make his determination (assessment) on the
basis of evidence legally admissible in a formal
proceeding in Court (Mertens, Vol. 9, p. 214, citing
Cohen v. Commissioner). A statutory notice may be
based in whole or in part upon admissible evidence
(Llorente v. Commissioner, 74 TC 260 (1980);
Weimerskirch v. Commissioner, 67 TC 672 (1977); and
Rosano v. Commissioner, 46 TC 681 (1966). In the case
also of Weimerskirch v. Commissioner (1977), the
assessment was given due course in the presence of
18

admissible evidence as to how the Commissioner arrived
at his determination, although there was no admissible
evidence with respect to the substantial issue of whether
the taxpayer had unreported or undeclared income from
narcotics sale. …85
Based on a Memorandum dated October 23, 1990 of the
IIPO, the source documents for the actual cost of
importation of the respondent are the machine copies of
the Consumption Entries from the informer which the
IIPO claimed to have been certified by Tomas and
Danganan:
The source documents for the total actual cost of
importations, abovementioned, were the different copies
of Consumption Entries, Series of 1987, filed by subject
with the Bureau of Customs, marked Annexes "F-1" to
"F-68." The total cost of importations is the sum of the
Landed Costs and the Advance Sales Tax as shown in
the annexed entries. These entries were duly
authenticated as having been processed and released,
after payment of the duties and taxes due thereon, by
the Chief, Collection Division, Manila International
Container Port, dated August 7, 1990, "Annex-G," and
the Port of Manila, dated August 22, 1990, "Annex-H."
So, it was established that subject-importations, mostly
resins, really belong to HANTEX TRADING CO., INC.86
It also appears on the worksheet of the IIPO, as culled
from the photocopies of the Consumption Entries from
its informer, that the total cost of the respondent’s
importation for 1987 was P105,761,527.00. Per the
report of Torres and Filamor, they also relied on the
photocopies of the said Consumption Entries:
The importations made by taxpayer verified by us from
the records of the Bureau of Customs and xerox copies
of which are hereto attached shows the big volume of
importations made and not declared in the income tax
return filed by taxpayer.
Based on the above findings, it clearly shows that a
prima facie case of fraud exists in the herein transaction
of the taxpayer, as a consequence of which, said
transaction has not been possibly entered into the books
of accounts of the subject taxpayer.87
In fine, the petitioner based her finding that the 1987
importation of the respondent was underdeclared in the
amount of P105,761,527.00 on the worthless machine
copies of the Consumption Entries. Aside from such
copies, the petitioner has no other evidence to prove
that the respondent imported goods costing
P105,761,527.00. The petitioner cannot find solace on
the certifications of Tomas and Danganan because they
did not authenticate the machine copies of the
Consumption Entries, and merely indicated therein the
entry numbers of Consumption Entries and the dates
when the Bureau of Customs released the same. The
certifications of Tomas and Danganan do not even
contain the landed costs and the advance sales taxes
paid by the importer, if any. Comparing the certifications
of Tomas and Danganan and the machine copies of the
Consumption Entries, only 36 of the entry numbers of
such copies are included in the said certifications; the
CHRISpy TAX Cases (INC)
entry numbers of the rest of the machine copies of the
Consumption Entries are not found therein.
Even if the Court would concede to the petitioner’s
contention that the certification of Tomas and Danganan
authenticated the machine copies of the Consumption
Entries referred to in the certification, it appears that the
total cost of importations inclusive of advance sales tax
is only P64,324,953.00 – far from the amount of
P105,716,527.00 arrived at by the EIIB and the BIR,88
or even the amount of P110,079,491.61 arrived at by
Deputy Commissioner Deoferio, Jr.89 As gleaned from
the certifications of Tomas and Danganan, the goods
covered by the Consumption Entries were released by
the Bureau of Customs, from which it can be presumed
that the respondent must have paid the taxes due on
the said importation. The petitioner did not adduce any
documentary evidence to prove otherwise.
Thus, the computations of the EIIB and the BIR on the
quantity and costs of the importations of the respondent
in the amount of P105,761,527.00 for 1987 have no
factual basis, hence, arbitrary and capricious. The
petitioner cannot rely on the presumption that she and
the other employees of the BIR had regularly performed
their duties. As the Court held in Collector of Internal
Revenue v. Benipayo,90 in order to stand judicial
scrutiny, the assessment must be based on facts. The
presumption of the correctness of an assessment, being
a mere presumption, cannot be made to rest on another
presumption.
Moreover, the uncontroverted fact is that the BIR
District Revenue Office had repeatedly examined the
1987 books of accounts of the respondent showing its
importations, and found that the latter had minimal
business tax liability. In this case, the presumption that
the District Revenue officers performed their duties in
accordance with law shall apply. There is no evidence on
record that the said officers neglected to perform their
duties as mandated by law; neither is there evidence
aliunde that the contents of the 1987 and 1988 Profit
and Loss Statements submitted by the respondent with
the SEC are incorrect.
Admittedly, the respondent did not adduce evidence to
prove its correct tax liability. However, considering that
it has been established that the petitioner’s assessment
is barren of factual basis, arbitrary and illegal, such
failure on the part of the respondent cannot serve as a
basis for a finding by the Court that it is liable for the
amount contained in the said assessment; otherwise,
the Court would thereby be committing a travesty.
On the disposition of the case, the Court has two
options, namely, to deny the petition for lack of merit
and affirm the decision of the CA, without prejudice to
the petitioner’s issuance of a new assessment against
the respondent based on credible evidence; or, to
remand the case to the CTA for further proceedings, to
enable the petitioner to adduce in evidence certified true
copies or duplicate original copies of the Consumption
Entries for the respondent’s 1987 importations, if there
be any, and the correct tax deficiency assessment
thereon, without prejudice to the right of the respondent
to adduce controverting evidence, so that the matter
19

may be resolved once and for all by the CTA. In the
higher interest of justice to both the parties, the Court
has chosen the latter option. After all, as the Tax Court
of the United States emphasized in Harbin v.
Commissioner of Internal Revenue,91 taxation is not
only practical; it is vital. The obligation of good faith and
fair dealing in carrying out its provision is reciprocal and,
as the government should never be over-reaching or
tyrannical, neither should a taxpayer be permitted to
escape payment by the concealment of material facts.
IN LIGHT OF ALL THE FOREGOING, the petition is
GRANTED. The Decision of the Court of Appeals is SET
ASIDE. The records are REMANDED to the Court of Tax
Appeals for further proceedings, conformably with the
decision of this Court. No costs.
SO ORDERED.
FIRST DIVISION
[G.R. No. L-6741.  January 31, 1956.]
INTERPROVINCIAL AUTOBUS CO., INC.,
Petitioner, vs. COLLECTOR OF INTERNAL
REVENUE, Respondent.
 
DECISION
LABRADOR, J.:
This is an appeal by way of certiorari from a decision of
the Court of Appeals reversing the judgment of the
Court of First Instance of Misamis Occidental in civil case
No. 1161, entitled The Interprovincial Autobus Co., Inc.,
Plaintiff versus Bibiano L. Meer as Collector of Internal
Revenue, Defendant and absolving the Defendant-
Appellant therein from the complaint.
Plaintiff is a common carrier engaged in transporting
passengers and freight by means of TPU buses in
Misamis Occidental and Northern Zamboanga. Sometime
in the year 1941 the provincial revenue agent for
Misamis Occidental examined the stubs of the freight
receipts that had been issued by the Plaintiff. He found
that the stubs of the receipts issued during the years
1936 to 1938 were not preserved; chan
roblesvirtualawlibrarybut those for the years 1939 to
1940 were available. By referring, however, to the
conductors’ daily reports for 1936 to 1938, he was able
to ascertain the number of receipts for those years and
these, together with those for 1939 to 1940, gave a total
during the 5-year period from 1936 to 1940, of 194,406
freight receipts issued. Both the said daily reports of
Plaintiff’s conductors and the available stubs did not
state the value of the goods transported thereunder.
Pursuant, however, to sections 121 and 127 of the
Revised Documentary Stamp Tax Regulations of the
Department of Finance promulgated on September 16,
1924, he assumed that the value of the goods covered
by each of the above- mentioned freight receipts
amounted to more than P5, and assessed a
documentary stamp tax of P0.04 on each of the 194,406
CHRISpy TAX Cases (INC)
receipts. The tax thus assessed amounted to P7,776.24,
which was collected from the deposit of the Plaintiff in
the Misamis Occidental branch of the Philippine National
Bank. Plaintiff demanded the refund of the amount, and
upon refusal of the Defendant, Plaintiff filed the action.
The Court of First Instance of Misamis Occidental having
rendered judgment in favor of the Plaintiff, the
Defendant appealed to the Court of Appeals. This court
reversed the decision appealed from and absolved the
Defendant from the complaint. Hence, this appeal.
In this Court Petitioner-Appellant presents the following
propositions:chanroblesvirtuallawlibrary (1) that the
judgment of the Court of Appeals is null and void,
because it had no jurisdiction of the case, which involves
the validity of an assessment; chan
roblesvirtualawlibrary(2) that the decision of the Court of
Appeals is erroneous because freight receipts are not
bills of lading within the meaning of Section 1449, sub-
paragraph (r), of the Revised Administrative Code of
1917, and because the provision of section 121 of the
Revised Documentary Stamp Tax Regulations, to the
effect that if the bill of lading fails to state the value of
the goods shipped, it must be held that the tax is due, is
illegal; chan roblesvirtualawlibrary(3) that the
documentary stamp tax on freight receipts should be
paid by the shipper of the merchandise, not by the
carrier; chan roblesvirtualawlibraryand (4) that the
collection of the tax is illegal because it was done
beyond the period of limitation fixed by law for its
collection.
The first proposition, that the Court of Appeals had no
jurisdiction of the appeal from the Court of First
Instance, is well founded. Both the Constitution and the
Judiciary Act of 1948 grant to the Supreme Court
exclusive appellate jurisdiction over all cases involving
the legality of any tax, assessment, or toll, or any
penalty in relation thereto. The Court of Appeals in turn
has no jurisdiction over cases the exclusive appellate
jurisdiction of which is granted the Supreme-Court. As
the legality or validity of the tax is involved in the
present appeal the Supreme Court is the one that had
jurisdiction thereof and the Court of Appeals had none.
The decision of the Court of Appeals was, therefore, null
and void.
But the claim that freight tickets of bus companies are
not “bills of lading or receipts” within the meaning of the
Documentary Stamp Tax Law is without merit. Bills of
lading, in modern jurisprudence, are not those issued by
masters of vessels alone; chan roblesvirtualawlibrarythey
now comprehend all forms of transportation, whether by
sea or land, and includes bus receipts for cargo
transported.
“The term ‘bill of lading’ is frequently defined, especially
by the order authorities, as a writing signed by the
master of a vessel acknowledging the receipt of goods
on board to be transported to a certain part and there
delivered to a designated person or on his order. This
definition was formulated at a time when goods were
principally transported by sea and, while adequate in
view of the conditions existing at that early day, is too
narrow to suit present conditions. As comprehending all
methods of transportation, a bill of lading may be
20

defined as a written acknowledgment of the receipt of
goods and an agreement to transport and to deliver
them at a specified place to a person named or on his
order. Such instruments are sometimes called ‘shipping
receipts,’ ‘forwarders’ receipts’ and ‘receipts for
transportation.’ The designation, however, is not
material, and neither is the form of the instrument. If it
contains an acknowledgment by the carrier of the
receipt of goods for transportation, it is, in legal effect, a
bill of lading.” (9 Am. Jur. 662, Italics supplied.)
Section 227 of the National Internal Revenue Code
imposes the tax on receipts for goods or effects shipped
from one port or place to another port or place in the
Philippines. The use of the word place after port and of
the word “receipt” shows that the receipts for goods
shipped on land are included.
The next claim involves the validity of Department of
Finance Regulation No. 26 dated September 16, 1924,
which provides:chanroblesvirtuallawlibrary
“SEC. 121.  Basis of the tax and affixture of stamps. —
Bills of lading are exempt from the documentary stamp
tax imposed by paragraphs (q) and (r) of section 1449
of the Administrative Code when the value of the goods
shipped is P5 or less. Unless the bill of lading states that
the goods are worth P5 or less, it must be held that the
tax is due, and internal revenue officers will see to it
that the tax is paid in all cases where the bill of lading
does not state that the shipment is worth P5 or less.”
“SEC. 127.  ‘Chits,’ memorandum slips, and other papers
not in the usual commercial form of bills of lading, when
used by common carriers in the transportation of
merchandise or goods for the collection of fees therefor
are considered as bills of lading, and the original thereof
issued or used should bear the documentary stamp as
provided by paragraphs (q) and (r) of section 1449 of
the Administrative Code.”
The above regulations were promulgated under the
authority of section 79 (B) of the Administrative Code
(originally section 2 of Act 2803), which expressly
provides:chanroblesvirtuallawlibrary
“The Department Head shall have power to promulgate,
whenever he may see fit to do so, all rules, regulations,
orders, circulars, memorandums, and other instructions,
not contrary to law, necessary to regulate the proper
working and harmonious and efficient administration of
each and all of the offices and dependencies of his
Department, and for the strict enforcement and proper
execution of the laws relative to matters under the
jurisdiction of said Department; chan
roblesvirtualawlibrarybut none of said rules or orders
shall prescribe penalties for the violation thereof, except
as expressly authorized by law cralaw .”
Did the Secretary of Finance infringe or violate any right
of the taxpayer when he directed that the tax is to be
collected in all cases where the bill of lading or receipt
does not state that the shipment is worth P5 or less, or,
in the language of the Petitioner-Appellant, when he
(Secretary) created a presumption of liability to the tax if
CHRISpy TAX Cases (INC)
the receipt fails to state such value? It cannot be denied
that the regulation is merely a directive to the tax
officers; chan roblesvirtualawlibraryit does not purport to
change or modify the law; chan roblesvirtualawlibraryit
does not create a liability to the stamp tax when the
value of the goods does not appear on the face of the
receipt. The practical usefulness of the directive
becomes evident when account is taken of the fact that
tax officers are in no position to witness the issuance of
receipts and check the value of the goods for which they
are issued. If tax officers were to assess or collect the
tax only when they find that the value of the goods
covered by the receipts is more than five pesos, the
assessment and collection of the tax would be well-nigh
impossible, as it is impossible for tax collectors to
determine from the receipts alone, if they do not contain
the value of the goods, whether the goods receipted for
exceed P5, or not. The regulation impliedly required the
statement of the value of the goods in the receipts; chan
roblesvirtualawlibraryso that the collection of the tax can
be enforced. This the Petitioner-Appellant failed to do
and he now claims the unreasonableness of the
provision as a basis for his exemption. We find that the
regulation is not only useful, practical and necessary for
the enforcement of the law on the tax on bills of lading
and receipts, but also reasonable in its provisions.
The regulation above quoted falls within the scope of
the administrative power of the Secretary of Finance, as
authorized in Section 79 (B) of the Revised
Administrative Code, because it is essential to the strict
enforcement and proper execution of the law which it
seeks to implement. Said regulations have the force and
effect of law.
“In the very nature of things in many cases it becomes
impracticable for the legislative department of the
Government to provide general regulations for the
various and varying details for the management of a
particular department of the Government. It therefore
becomes convenient for the legislative department of
the Government, by Law, in a most general way, to
provide for the conduct, control and management of the
work of the particular department of the Government;
chan roblesvirtualawlibraryto authorize certain persons,
in charge of the management, control, and direction of
the particular department, to adopt certain rules and
regulations providing for the detail of the management
and control of such department. Such regulations have
uniformly been held to have the force of law, whenever
they are found to be in consonance and in harmony with
the general purposes and objects of the law. Many
illustrations might be given. For instance, the Civil
Service Board is given authority to examine applicants
for various positions within the Government service. The
law generally provides the conditions in a most general
way, authorizing the chief of such Bureau to provide
rules and regulations for the management of the
conduct of examinations, etc. The law provides that the
Collector of Customs shall examine persons who become
applicants to act as captains of ships for the coastwise
trade, providing at the same time that the Collector of
Customs shall establish rules and regulations for such
examinations. Such regulations, once established and
found to be in conformity with the general purposes of
the law, are just as binding upon all of the parties, as if
21

the regulations had been written in the original law
itself. (United States vs. Grimaud, 22 U. S., 506; chan
roblesvirtualawlibraryWilliamson vs. United States, 207
U. S., 425; chan roblesvirtualawlibraryUnited States vs.
United Verde Copper Co., 196 U. S., 207.)” (United
States vs. Tupasi Molina, 29 Phil., 119, 125.)
Another reason for sustaining the validity of the
regulation may be found in the principle of legislative
approval by re-enactment. The regulations were
approved on September 16, 1924. When the National
Internal Revenue Code was approved on February 18,
1939, the same provisions on stamp tax, bills of lading
and receipts were reenacted. There is a presumption
that the Legislature reenacted the law on the tax with
full knowledge of the contents of the regulations then in
force regarding bills of lading and receipts, and that it
approved or confirmed them because they carry out the
legislative purpose.
“ cralaw Of course, the rule does not operate to freeze a
meaning which is in evident conflict with the clearly
expressed legislative intent. Helvering vs. Hallock, 309
U. S. 106, 119-121, 60 S. Ct. 444, 84 L. Ed. 604 A.L.R.
1368. But where a statute is susceptible of the meaning
placed upon it by Treasury ruling and Congress
thereafter reenacts the provision without substantial
change, such action is to some extent confirmatory that
the ruling carries out the congressional purpose.” (Mead
Corporation vs. Commissioner of Internal Revenue, 116
F [2d] 187, p. 194)
“The fact that an identical Treasury Regulation with
regard to computation of stamp tax on conveyances had
been in effect during several re-enactments of the
statute was pursuasive evidence of congressional
approval thereof cralaw ..” (Railroad Federal Sav. and
Loan Ass’n. vs. United States, 135 F [2d], p. 290)
“The law, I believe, is now settled that substantial re-
enactment of legislation which has been construed by
Treasury regulations is at least strong evidence of
legislative approval of such construction. It is presumed
that Congress knew of the existing administrative
interpretations of the statute cralaw .” (Cargill vs. United
States, 46 F. Supp. 712, 716.)
“Regulations promulgated by the Commissioner of
Internal Revenue under authority of the Revenue Act of
1928 acquired the effect of law by substantial re-
enactment of provision of the 1928 Act in the 1932
Revenue Act cralaw .” (S. Slater & Sons, Inc., vs. White,
etc., 33 F. Supp. 329, 330.)
It is to be noted that the regulation does not purport to
modify or change the law in the sense that when the
value of the merchandise (for which the receipt is
issued) does not appear thereon the tax shall always be
imposed. Such a meaning would have the effect of
changing the law; chan roblesvirtualawlibrarythe
regulation should not be understood in this illegal or
authorized sense. The regulation should be considered
merely as a directive to internal revenue officers to
assess the tax and collect the same. As already adverted
to, it only creates a presumption of the liability of the
taxpayer, which presumption, however, is not conclusive
CHRISpy TAX Cases (INC)
upon the taxpayer who can adduce evidence that the
tax is not collectible because the value of the
merchandise concerned does not exceed the amount of
P5. It was in pursuance of this interpretation of the
regulation that the trial court permitted evidence to be
introduced to show that the Petitioner-Appellant is not
subject to the tax on the receipts.
Claim is made that the evidence submitted by the
Petitioner- Appellant proved that the freight receipts
covered shipment of merchandise worth not more than
P5. It is argued in support of this claim that the said
freight receipts were issued to people carrying
agricultural produce from one place to another, perhaps
from their farms to the towns or to their residences. The
Court of Appeals’ decision, upon which the claim is
made, does not state that said receipts were actually
issued for shipments the value of which was not more
than P5 each. The decision of the Court of Appeals in
fact is that the Petitioner-Appellant “merely tried to
establish through his witnesses” the facts above
mentioned, which is not a finding that the receipts
covered merchandise more than P5 in value. Upon
consideration of the claim and the testimonies with
which it is supported, we are unable to agree with said
contention. It is a common knowledge that when barrio
residents or those living in farms go to town and bring
along with them their daily needs on their daily produce,
they ordinarily do not secure receipts for these baggages
or cargoes but keep these under their seats. The
common practice is for a passenger carrying cargoes of
small value not to secure receipts therefor; chan
roblesvirtualawlibraryfor convenience and economy he
keeps them under his seat in the bus so as to make
them easily accessible when he goes down, and at the
same time save the few centavos that the issuance of
the receipt entails. On the other hand, receipts for
valuable cargo are demanded, to insure against their
loss. Our conclusion is that the receipts must have been
issued for shipments or merchandise in excess of P5 in
value. The evidence submitted notwithstanding, the fact
that it has not been contradicted fails to prove to our
satisfaction that the merchandise for which receipts
were issued were actually worth P5 or less.
Furthermore, the rule is that in actions for the recovery
of taxes assessed and collected, the taxpayer has the
burden of proving that the assessment is illegal.
“All presumptions are in favor of the correctness of tax
assessments. The good faith of tax assessors and the
validity of their actions are presumed. They will be
presumed to have taken into consideration all the facts
to which their attention was called. No presumption can
be indulged that all of the public officials of the state in
the various counties who have to do with the
assessment of property for taxation will knowingly
violate the duties imposed upon them by law.”
“As a logical outgrowth of the presumption in favor of
the validity of assessments, when such assessments are
assailed, the burden of proof is upon the complaining
party. It is incumbent upon the property owner clearly to
show that the assessment was erroneous, in order to
relieve himself from it.” (51 Am. Jur. pp. 620-621.)
22

“The burden is on him who seeks the recovery of a tax
already paid to establish those facts which show its
invalidity. United States vs. Anderson, 269 U. S. 422,
428, 70 L. ed. 347, 46 Sup. Ct. Rep. 131; chan
roblesvirtualawlibraryFidelity Title & T. Co. vs. United
States, 259 U. S. 304, 306, 66 L. ed., 953, 954, 42 Sup.
Ct. Rep. 514 cralaw .” (Compañia General de Tabacos
vs. Collector of Int. Rev., 73 L. ed., 704, 706.)
“ cralaw. But the presumption is that taxes paid are
rightly collected upon assessments correctly made by
the commissioner, and in a suit to recover them the
burden rests upon the taxpayer to prove all the facts
necessary to establish the illegality of the collection.
United States vs. Anderson, supra. See United States vs.
Rindskopt, 106 U. S. 419, 26 L. ed.,  cralaw” (Niles
Bement Pond Co. vs. United States, 74 L. ed., 901, 904.)
The rule above-mentioned has not been complied with
and the action for recovery must be denied.
It is also contended that the tax should be collected
from the holder of the receipt, and not from the one
who collected it, which is the transportation company.
There is no merit in this contention because the law
expressly provides that the tax should be paid by the
one “making, signing, issuing, accepting, or transferring
the same.” (Section 1449, Revised Administrative Code
of 1917) . The receipts were made and issued by the
transportation company; chan roblesvirtualawlibraryit is
therefore liable for the payment of the tax thereon.
The last contention of the Petitioner-Appellant is that the
tax could no longer be collectible because the same was
assessed and collected after seven years, the tax having
been due in 1936-1938 and the assessment having been
made in the year 1947. The period within which a tax
may be assessed is ten years after the discovery of the
falsity, fraud or omission (section 332, paragraph (a),
National Internal Revenue Code). Petitioner-Appellant
cites, in support of his contention, paragraph (c) of the
same action. This paragraph refers to the collection of
the tax by distraint or by levy or by a proceeding in
court, and the period prescribed is within five years after
the assessment of the tax.
Was the levy justified? The discovery, according to the
pleadings, took place in the year 1941 and the warrant
of distraint or levy was issued on September 30, 1946
(paragraphs 3 and 4 of the complaint). The pleadings do
not show, neither does the evidence, the specific date of
the assessment. It is only alleged in the complaint that
the examination of the books took place in the year
1941. In order to sustain the claim of the invalidity of
the levy, it is necessary for the Plaintiff to allege and
prove that the levy took place after five years from the
date of the assessments. But the date of the assessment
has not been proved. This is a material matter that the
Petitioner-Appellant should have proved to assail the
levy. Because of his failure to do so the exemption from
levy may not be invoked by him. Besides, the question
was not raised in the pleadings as a ground to void the
collection of the amount. The court cannot assume that
the levy and distraint took place beyond the period
prescribed by law. This conclusion is supported by the
presumption of the regularity of the acts of public
CHRISpy TAX Cases (INC)
officers. In any event the collection was made in 1947,
within ten years after the discovery in 1941, and the
liability of Petitioner-Appellant is not thereby affected.
For the foregoing considerations, the judgment of the
Court of Appeals is declared void and that of the Court
of First Instance, reversed and the Respondent-Appellee
absolved from the complaint. With costs against the
Petitioner-Appellant.
LUCAS G. ADAMSON, THERESE G.R. No. 120935
JUNE D. ADAMSON, and SARA
S. DE LOS REYES, in their capacities
as President, Treasurer and Secretary
of Adamson Management Corporation,
Petitioners,
- versus -
COURT OF APPEALS and
LIWAYWAY VINZONS-CHATO,
in her capacity as Commissioner
of the Bureau of Internal Revenue,
Respondents.
x-- - - - - - - - - - - - - - - - - - - - - - - - x
COMMISSIONER OF G.R. No. 124557
INTERNAL REVENUE,
Petitioner,
Present:
-versus- PUNO, C.J., Chairperson,
CARPIO,
CORONA,
COURT OF APPEALS, COURT LEONARDO-DE
CASTRO, and
OF TAX APPEALS, ADAMSON BERSAMIN, JJ.
MANAGEMENT CORPORATION,
LUCAS G. ADAMSON, THERESE
JUNE D. ADAMSON, and SARA Promulgated:
S. DE LOS REYES,
Respondents. May 21, 2009
DECISION
PUNO, C.J.:
Before the Court are the consolidated cases of G.R. No.
120935 and G.R. No. 124557.
G.R. No. 120935 involves a petition for review on
certiorari filed by petitioners LUCAS G. ADAMSON,
THERESE JUNE D. ADAMSON, and SARA S. DE LOS
REYES (private respondents), in their respective
capacities as president, treasurer and secretary of
Adamson Management Corporation (AMC) against then
Commissioner of Internal Revenue Liwayway Vinzons-
Chato (COMMISSIONER), under Rule 45 of the Revised
Rules of Court. They seek to review and reverse the
Decision promulgated on March 21, 1995 and Resolution
issued on July 6, 1995 of the Court of Appeals in CA-
G.R. SP No. 35488 (Liwayway Vinzons-Chato, et al. v.
Hon. Judge Erna Falloran-Aliposa, et al.).
G.R. No. 124557 is a petition for review on certiorari
filed by the Commissioner, assailing the Decision dated
March 29, 1996 of the Court of Appeals in CA-G.R. SP
No. 35520, titled Commissioner of Internal Revenue v.
Court of Tax Appeals, Adamson Management
23

Corporation, Lucas G. Adamson, Therese June D.
Adamson and Sara S. de los Reyes. In the said Decision,
the Court of Appeals upheld the Resolution promulgated
on September 19, 1994 by the Court of Tax Appeals
(CTA) in C.T.A. Case No. 5075 (Adamson Management
Corporation, Lucas G. Adamson, Therese Adamson and
Sara de los Reyes v. Commissioner of Internal Revenue).
The facts, as culled from the findings of the appellate
court, follow:
On June 20, 1990, Lucas Adamson and AMC sold
131,897 common shares of stock in Adamson and
Adamson, Inc. (AAI) to APAC Holding Limited (APAC).
The shares were valued at P7,789,995.00.[1] On June
22, 1990, P159,363.21 was paid as capital gains tax for
the transaction.
On October 12, 1990, AMC sold to APAC Philippines, Inc.
another 229,870 common shares of stock in AAI for
P17,718,360.00. AMC paid the capital gains tax of
P352,242.96.
On October 15, 1993, the Commissioner issued a Notice
of Taxpayer to AMC, Lucas G. Adamson, Therese June
D. Adamson and Sara S. de los Reyes, informing them of
deficiencies on their payment of capital gains tax and
Value Added Tax (VAT). The notice contained a schedule
for preliminary conference.
The events preceding G.R. No. 120935 are the following:
On October 22, 1993, the Commissioner filed with the
Department of Justice (DOJ) her Affidavit of
Complaint[2] against AMC, Lucas G. Adamson, Therese
June D. Adamson and Sara S. de los Reyes for violation
of Sections 45 (a) and (d)[3], and 110[4], in relation to
Section 100[5], as penalized under Section 255,[6] and
for violation of Section 253[7], in relation to Section 252
(b) and (d) of the National Internal Revenue Code
(NIRC).[8]
AMC, Lucas G. Adamson, Therese June D. Adamson and
Sara S. de los Reyes filed with the DOJ a motion to
suspend proceedings on the ground of prejudicial
question, pendency of a civil case with the Supreme
Court, and pendency of their letter-request for re-
investigation with the Commissioner. After the
preliminary investigation, State Prosecutor Alfredo P.
Agcaoili found probable cause. The Motion for
Reconsideration against the findings of probable cause
was denied by the prosecutor.
On April 29, 1994, Lucas G. Adamson, Therese June D.
Adamson and Sara S. de los Reyes were charged before
the Regional Trial Court (RTC) of Makati, Branch 150 in
Criminal Case Nos. 94-1842 to 94-1846. They filed a
Motion to Dismiss or Suspend the Proceedings. They
invoked the grounds that there was yet no final
assessment of their tax liability, and there were still
pending relevant Supreme Court and CTA cases.
Initially, the trial court denied the motion. A Motion for
Reconsideration was however filed, this time assailing
the trial courts lack of jurisdiction over the nature of the
subject cases. On August 8, 1994, the trial court granted
CHRISpy TAX Cases (INC)
the Motion. It ruled that the complaints for tax evasion
filed by the Commissioner should be regarded as a
decision of the Commissioner regarding the tax liabilities
of Lucas G. Adamson, Therese June D. Adamson and
Sara S. de los Reyes, and appealable to the CTA. It
further held that the said cases cannot proceed
independently of the assessment case pending before
the CTA, which has jurisdiction to determine the civil
and criminal tax liability of the respondents therein.
On October 10, 1994, the Commissioner filed a Petition
for Review with the Court of Appeals assailing the trial
courts dismissal of the criminal cases. She averred that it
was not a condition prerequisite that a formal
assessment should first be given to the private
respondents before she may file the aforesaid criminal
complaints against them. She argued that the criminal
complaints for tax evasion may proceed independently
from the assessment cases pending before the CTA.
On March 21, 1995, the Court of Appeals reversed the
trial courts decision and reinstated the criminal
complaints. The appellate court held that, in a criminal
prosecution for tax evasion, assessment of tax deficiency
is not required because the offense of tax evasion is
complete or consummated when the offender has
knowingly and willfully filed a fraudulent return with
intent to evade the tax.[9] It ruled that private
respondents filed false and fraudulent returns with intent
to evade taxes, and acting thereupon, petitioner filed an
Affidavit of Complaint with the Department of Justice,
without an accompanying assessment of the tax
deficiency of private respondents, in order to commence
criminal action against the latter for tax evasion.[10]
Private respondents filed a Motion for Reconsideration,
but the trial court denied the motion on July 6, 1995.
Thus, they filed the petition in G.R. No. 120935, raising
the following issues:
1. WHETHER OR NOT THE RESPONDENT
HONORABLE COURT OF APPEALS ERRED IN APPLYING
THE DOCTRINE IN UNGAB V. CUSI (Nos. L-41919-24,
May 30, 1980, 97 SCRA 877) TO THE CASE AT BAR.
2. WHETHER OR NOT AN ASSESSMENT IS
REQUIRED UNDER THE SECOND CATEGORY OF THE
OFFENSE IN SECTION 253 OF THE NIRC.
3. WHETHER OR NOT THERE WAS A VALID
ASSESSMENT MADE BY THE COMMISSIONER IN THE
CASE AT BAR.
4. WHETHER OR NOT THE FILING OF A
CRIMINAL COMPLAINT SERVES AS AN IMPLIED
ASSESSMENT ON THE TAX LIABILITY OF THE
TAXPAYER.
5. WHETHER OR NOT THE FILING OF THE
CRIMINAL INFORMATION FOR TAX EVASION IN THE
TRIAL COURT IS PREMATURE BECAUSE THERE IS YET
NO BASIS FOR THE CRIMINAL CHARGE OF WILLFULL
INTENT TO EVADE THE PAYMENT OF A TAX.
24
 CHRISpy TAX Cases (INC)

6. WHETHER OR NOT THE DOCTRINES 3. WHETHER OR NOT THE COMPLAINT

LAID DOWN IN THE CASES OF YABES V. FLOJO (No. L- FILED WITH THE DEPARTMENT OF JUSTICE CAN BE
46954, July 20, 1982, 115 SCRA 286) AND CIR V. CONSTRUED AS AN IMPLIED ASSESSMENT; and
UNION SHIPPING CORP. (G.R. No. 66160, May 21,
1990, 185 SCRA 547) ARE APPLICABLE TO THE CASE AT 4. WHETHER OR NOT THE COURT OF TAX
BAR. APPEALS HAS JURISDICTION TO ACT ON PRIVATE
RESPONDENTS PETITION FOR REVIEW FILED WITH
7. WHETHER OR NOT THE COURT OF TAX THE SAID COURT.
APPEALS HAS JURISDICTION OVER THE DISPUTE ON
WHAT CONSTITUTES THE PROPER TAXES DUE FROM
THE TAXPAYER.
The issues in G.R. No. 124557 and G.R. No. 120935 can
In parallel circumstances, the following events preceded be compressed into three:
G.R. No. 124557:
1. WHETHER THE COMMISSIONER HAS
On December 1, 1993, AMC, Lucas G. Adamson, Therese ALREADY RENDERED AN ASSESSMENT (FORMAL OR
June D. Adamson and Sara S. de los Reyes filed a letter OTHERWISE) OF THE TAX LIABILITY OF AMC, LUCAS G.
request for re-investigation with the Commissioner of ADAMSON, THERESE JUNE D. ADAMSON AND SARA S.
the Examiners Findings earlier issued by the Bureau of DE LOS REYES;
Internal Revenue (BIR), which pointed out the tax
deficiencies.
2. WHETHER THERE IS BASIS FOR THE
CRIMINAL CASES FOR TAX EVASION TO PROCEED
On March 15, 1994 before the Commissioner could act AGAINST AMC, LUCAS G. ADAMSON, THERESE JUNE D.
on their letter-request, AMC, Lucas G. Adamson, ADAMSON AND SARA S. DE LOS REYES; and
Therese June D. Adamson and Sara S. de los Reyes filed
a Petition for Review with the CTA. They assailed the
3. WHETHER THE COURT OF TAX APPEALS
Commissioners finding of tax evasion against them. The
HAS JURISDICTION TO TAKE COGNIZANCE OF BOTH
Commissioner moved to dismiss the petition, on the
THE CIVIL AND THE CRIMINAL ASPECTS OF THE TAX
ground that it was premature, as she had not yet issued
LIABILITY OF AMC, LUCAS G. ADAMSON, THERESE
a formal assessment of the tax liability of therein
JUNE D. ADAMSON AND SARA S. DE LOS REYES.
petitioners. On September 19, 1994, the CTA denied the
Motion to Dismiss. It considered the criminal complaint
The case of CIR v. Pascor Realty, et al.[11] is relevant.
filed by the Commissioner with the DOJ as an implied
In this case, then BIR Commissioner Jose U. Ong
formal assessment, and the filing of the criminal
authorized revenue officers to examine the books of
informations with the RTC as a denial of petitioners
accounts and other accounting records of Pascor Realty
protest regarding the tax deficiency.
and Development Corporation (PRDC) for 1986, 1987
and 1988. This resulted in a recommendation for the
The Commissioner repaired to the Court of Appeals on
issuance of an assessment in the amounts of
the ground that the CTA acted with grave abuse of
P7,498,434.65 and P3,015,236.35 for the years 1986
discretion. She contended that, with regard to the
and 1987, respectively.
protest provided under Section 229 of the NIRC, there
must first be a formal assessment issued by the
On March 1, 1995, the Commissioner filed a criminal
Commissioner, and it must be in accord with Section 6
complaint before the DOJ against PRDC, its President
of Revenue Regulation No. 12-85. She maintained that
Rogelio A. Dio, and its Treasurer Virginia S. Dio, alleging
she had not yet issued a formal assessment of tax
evasion of taxes in the total amount of P10,513,671.00.
liability, and the tax deficiency amounts mentioned in
Private respondents filed an Urgent Request for
her criminal complaint with the DOJ were given only to
Reconsideration/Reinvestigation disputing the tax
show the difference between the tax returns filed and
assessment and tax liability.
the audit findings of the revenue examiner.

The Commissioner denied the urgent request for

The Court of Appeals sustained the CTAs denial of the
reconsideration/reinvestigation because she had not yet
Commissioners Motion to Dismiss. Thus, the
issued a formal assessment.
Commissioner filed the petition for review under G.R.
No. 124557, raising the following issues:
Private respondents then elevated the Decision of the
Commissioner to the CTA on a petition for review. The
1. WHETHER OR NOT THE INSTANT
Commissioner filed a Motion to Dismiss the petition on
PETITION SHOULD BE DISMISSED FOR FAILURE TO
the ground that the CTA has no jurisdiction over the
COMPLY WITH THE MANDATORY REQUIREMENT OF A
subject matter of the petition, as there was yet no
CERTIFICATION UNDER OATH AGAINST FORUM
formal assessment issued against the petitioners. The
SHOPPING;
CTA denied the said motion to dismiss and ordered the
Commissioner to file an answer within thirty (30) days.
2. WHETHER OR NOT THE CRIMINAL CASE
The Commissioner did not file an answer nor did she
FOR TAX EVASION IN THE CASE AT BAR CAN PROCEED
move to reconsider the resolution. Instead, the
WITHOUT AN ASSESSMENT;
Commissioner filed a petition for review of the CTA
decision with the Court of Appeals. The Court of Appeals
25

upheld the CTA order. However, this Court reversed the
Court of Appeals decision and the CTA order, and
ordered the dismissal of the petition. We held:
An assessment contains not only a computation of tax
liabilities, but also a demand for payment within a
prescribed period. It also signals the time when
penalties and interests begin to accrue against the
taxpayer. To enable the taxpayer to determine his
remedies thereon, due process requires that it must be
served on and received by the taxpayer. Accordingly, an
affidavit, which was executed by revenue officers stating
the tax liabilities of a taxpayer and attached to a criminal
complaint for tax evasion, cannot be deemed an
assessment that can be questioned before the Court of
Tax Appeals.
Neither the NIRC nor the revenue regulations governing
the protest of assessments[12] provide a specific
definition or form of an assessment. However, the NIRC
defines the specific functions and effects of an
assessment. To consider the affidavit attached to the
Complaint as a proper assessment is to subvert the
nature of an assessment and to set a bad precedent that
will prejudice innocent taxpayers.
True, as pointed out by the private respondents, an
assessment informs the taxpayer that he or she has tax
liabilities. But not all documents coming from the BIR
containing a computation of the tax liability can be
deemed assessments.
To start with, an assessment must be sent to and
received by a taxpayer, and must demand payment of
the taxes described therein within a specific period.
Thus, the NIRC imposes a 25 percent penalty, in
addition to the tax due, in case the taxpayer fails to pay
the deficiency tax within the time prescribed for its
payment in the notice of assessment. Likewise, an
interest of 20 percent per annum, or such higher rate as
may be prescribed by rules and regulations, is to be
collected from the date prescribed for its payment until
the full payment.[13]
The issuance of an assessment is vital in determining
the period of limitation regarding its proper issuance and
the period within which to protest it. Section 203[14] of
the NIRC provides that internal revenue taxes must be
assessed within three years from the last day within
which to file the return. Section 222,[15] on the other
hand, specifies a period of ten years in case a fraudulent
return with intent to evade was submitted or in case of
failure to file a return. Also, Section 228[16] of the same
law states that said assessment may be protested only
within thirty days from receipt thereof. Necessarily, the
taxpayer must be certain that a specific document
constitutes an assessment. Otherwise, confusion would
arise regarding the period within which to make an
assessment or to protest the same, or whether interest
and penalty may accrue thereon.
It should also be stressed that the said document is a
notice duly sent to the taxpayer. Indeed, an assessment
is deemed made only when the collector of internal
revenue releases, mails or sends such notice to the
taxpayer.[17]
CHRISpy TAX Cases (INC)
In the present case, the revenue officers Affidavit merely
contained a computation of respondents tax liability. It
did not state a demand or a period for payment. Worse,
it was addressed to the justice secretary, not to the
taxpayers.
Respondents maintain that an assessment, in relation to
taxation, is simply understood to mean:
A notice to the effect that the amount therein stated is
due as tax and a demand for payment thereof.[18]
Fixes the liability of the taxpayer and ascertains the facts
and furnishes the data for the proper presentation of tax
rolls.[19]
Even these definitions fail to advance private
respondents case. That the BIR examiners Joint Affidavit
attached to the Criminal Complaint contained some
details of the tax liabilities of private respondents does
not ipso facto make it an assessment. The purpose of
the Joint Affidavit was merely to support and
substantiate the Criminal Complaint for tax evasion.
Clearly, it was not meant to be a notice of the tax due
and a demand to the private respondents for payment
thereof.
The fact that the Complaint itself was specifically
directed and sent to the Department of Justice and not
to private respondents shows that the intent of the
commissioner was to file a criminal complaint for tax
evasion, not to issue an assessment. Although the
revenue officers recommended the issuance of an
assessment, the commissioner opted instead to file a
criminal case for tax evasion. What private respondents
received was a notice from the DOJ that a criminal case
for tax evasion had been filed against them, not a notice
that the Bureau of Internal Revenue had made an
assessment.
Private respondents maintain that the filing of a criminal
complaint must be preceded by an assessment. This is
incorrect, because Section 222 of the NIRC specifically
states that in cases where a false or fraudulent return is
submitted or in cases of failure to file a return such as
this case, proceedings in court may be commenced
without an assessment. Furthermore, Section 205 of the
same Code clearly mandates that the civil and criminal
aspects of the case may be pursued simultaneously. In
Ungab v. Cusi,[20] petitioner therein sought the
dismissal of the criminal Complaints for being
premature, since his protest to the CTA had not yet
been resolved. The Court held that such protests could
not stop or suspend the criminal action which was
independent of the resolution of the protest in the CTA.
This was because the commissioner of internal revenue
had, in such tax evasion cases, discretion on whether to
issue an assessment or to file a criminal case against the
taxpayer or to do both.
Private respondents insist that Section 222 should be
read in relation to Section 255 of the NIRC,[21] which
penalizes failure to file a return. They add that a tax
assessment should precede a criminal indictment. We
disagree. To reiterate, said Section 222 states that an
26

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.
In the cases at bar, the Commissioner denied that she
issued a formal assessment of the tax liability of AMC,
Lucas G. Adamson, Therese June D. Adamson and Sara
S. de los Reyes. She admits though that she wrote the
recommendation letter[22] addressed to the Secretary
of the DOJ recommending the filing of criminal
complaints against AMC and the aforecited persons for
fraudulent returns and tax evasion.
The first issue is whether the Commissioners
recommendation letter can be considered as a formal
assessment of private respondents tax liability.
In the context in which it is used in the NIRC, an
assessment is a written notice and demand made by the
BIR on the taxpayer for the settlement of a due tax
liability that is there definitely set and fixed. A written
communication containing a computation by a revenue
officer of the tax liability of a taxpayer and giving him an
opportunity to contest or disprove the BIR examiners
findings is not an assessment since it is yet indefinite.
[23]
We rule that the recommendation letter of the
Commissioner cannot be considered a formal
assessment. Even a cursory perusal of the said letter
would reveal three key points:
1. It was not addressed to the taxpayers.
2. There was no demand made on the taxpayers to
pay the tax liability, nor a period for payment set
therein.
3. The letter was never mailed or sent to the
taxpayers by the Commissioner.
CHRISpy TAX Cases (INC)
In fine, the said recommendation letter served merely as
the prima facie basis for filing criminal informations that
the taxpayers had violated Section 45 (a) and (d), and
110, in relation to Section 100, as penalized under
Section 255, and for violation of Section 253, in relation
to Section 252 9(b) and (d) of the Tax Code.[24]
The next issue is whether the filing of the criminal
complaints against the private respondents by the DOJ is
premature for lack of a formal assessment.
Section 269 of the NIRC (now Section 222 of the Tax
Reform Act of 1997) provides:
Sec. 269. Exceptions as to period of limitation of
assessment and collection of taxes.-(a) In the case of a
false or fraudulent return with intent to evade tax or of
failure to file a return, the tax may be assessed, or a
proceeding in court after the collection of such tax may
be begun without assessment, at any time within ten
years after the discovery of the falsity, fraud or
omission: Provided, That in a fraud assessment which
has become final and executory, the fact of fraud shall
be judicially taken cognizance of in the civil or criminal
action for collection thereof
The law is clear. When fraudulent tax returns are
involved as in the cases at bar, a proceeding in court
after the collection of such tax may be begun without
assessment. Here, the private respondents had already
filed the capital gains tax return and the VAT returns,
and paid the taxes they have declared due therefrom.
Upon investigation of the examiners of the BIR, there
was a preliminary finding of gross discrepancy in the
computation of the capital gains taxes due from the sale
of two lots of AAI shares, first to APAC and then to APAC
Philippines, Limited. The examiners also found that the
VAT had not been paid for VAT-liable sale of services for
the third and fourth quarters of 1990. Arguably, the
gross disparity in the taxes due and the amounts
actually declared by the private respondents constitutes
badges of fraud.
Thus, the applicability of Ungab v. Cusi[25] is evident to
the cases at bar. In this seminal case, this Court ruled
that there was no need for precise computation and
formal assessment in order for criminal complaints to be
filed against him. It quoted Mertens Law of Federal
Income Taxation, Vol. 10, Sec. 55A.05, p. 21, thus:
An assessment of a deficiency is not necessary to a
criminal prosecution for willful attempt to defeat and
evade the income tax. A crime is complete when the
violator has knowingly and willfully filed a fraudulent
return, with intent to evade and defeat the tax. The
perpetration of the crime is grounded upon knowledge
on the part of the taxpayer that he has made an
inaccurate return, and the governments failure to
discover the error and promptly to assess has no
connections with the commission of the crime.
This hoary principle still underlies Section 269 and
related provisions of the present Tax Code.
27

We now go to the issue of whether the CTA has no
jurisdiction to take cognizance of both the criminal and
civil cases here at bar.
Under Republic Act No. 1125 (An Act Creating the Court
of Tax Appeals) as amended, the rulings of the
Commissioner are appealable to the CTA, thus:
SEC. 7. Jurisdiction. The Court of Tax Appeals shall
exercise exclusive appellate jurisdiction to review by
appeal, as herein provided -
(1) Decisions of the Commissioner of Internal Revenue
in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters arising
under the National Internal Revenue Code or other laws
or part of law administered by the Bureau of Internal
Revenue;
Republic Act No. 8424, titled An Act Amending the
National Internal Revenue Code, As Amended, And For
Other Purposes, later expanded the jurisdiction of the
Commissioner and, correspondingly, that of the CTA,
thus:
SEC. 4. Power of the Commissioner to Interpret Tax
Laws and to Decide Tax Cases. The power to interpret
the provisions of this Code and other tax laws shall be
under the exclusive and original jurisdiction of the
Commissioner, subject to review by the Secretary of
Finance.
The power to decide disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters arising
under this Code or other laws or portions thereof
administered by the Bureau of Internal Revenue is
vested in the Commissioner, subject to the exclusive
appellate jurisdiction of the Court of Tax Appeals.
The latest statute dealing with the jurisdiction of the
CTA is Republic Act No. 9282.[26] It provides:
SEC. 7. Section 7 of the same Act is hereby amended to
read as follows:
Sec. 7. Jurisdiction. The CTA shall exercise:
(a) Exclusive appellate jurisdiction to review by appeal,
as herein provided:
(1) Decisions of the Commissioner of Internal Revenue
in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties
in relation thereto, or other matters arising under the
National Internal Revenue or other laws administered by
the Bureau of Internal Revenue;
(2) Inaction by the Commissioner of Internal Revenue in
cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties
in relation thereto, or other matters arising under the
National Internal Revenue Code or other laws
administered by the Bureau of Internal Revenue, where
CHRISpy TAX Cases (INC)
the National Internal Revenue Code provides a specific
period of action, in which case the inaction shall be
deemed a denial;
(3) Decisions, orders or resolutions of the Regional Trial
Courts in local tax cases originally decided or resolved by
them in the exercise of their original or appellate
jurisdiction;
xxx
(b) Jurisdiction over cases involving criminal offenses as
herein provided:
(1) Exclusive original jurisdiction over all criminal
offenses arising from violations of the National Internal
Revenue Code or Tariff and Customs Code and other
laws administered by the Bureau of Internal Revenue or
the Bureau of Customs: Provided, however, That
offenses or felonies mentioned in this paragraph where
the principal amount of taxes and fees, exclusive of
charges and penalties, claimed is less than One million
pesos (P1,000,000.00) or where there is no specified
amount claimed shall be tried by the regular courts and
the jurisdiction of the CTA shall be appellate. Any
provision of law or the Rules of Court to the contrary
notwithstanding, the criminal action and the
corresponding civil action for the recovery of civil liability
for taxes and penalties shall at all times be
simultaneously instituted with, and jointly determined in
the same proceeding by the CTA, the filing of the
criminal action being deemed to necessarily carry with it
the filing of the civil action, and no right to reserve the
filling of such civil action separately from the criminal
action will be recognized.
(2) Exclusive appellate jurisdiction in criminal offenses:
(a) Over appeals from the judgments, resolutions or
orders of the Regional Trial Courts in tax cases originally
decided by them, in their respected territorial
jurisdiction.
(b) Over petitions for review of the judgments,
resolutions or orders of the Regional Trial Courts in the
exercise of their appellate jurisdiction over tax cases
originally decided by the Metropolitan Trial Courts,
Municipal Trial Courts and Municipal Circuit Trial Courts
in their respective jurisdiction.
(c) Jurisdiction over tax collection cases as herein
provided:
(1) Exclusive original jurisdiction in tax collection cases
involving final and executory assessments for taxes,
fees, charges and penalties: Provided, however, That
collection cases where the principal amount of taxes and
fees, exclusive of charges and penalties, claimed is less
than One million pesos (P1,000,000.00) shall be tried by
the proper Municipal Trial Court, Metropolitan Trial Court
and Regional Trial Court.
(2) Exclusive appellate jurisdiction in tax collection
cases:
28

(a) Over appeals from the judgments, resolutions or
orders of the Regional Trial Courts in tax collection cases
originally decided by them, in their respective territorial
jurisdiction.
(b) Over petitions for review of the judgments,
resolutions or orders of the Regional Trial Courts in the
exercise of their appellate jurisdiction over tax collection
cases originally decided by the Metropolitan Trial Courts,
Municipal Trial Courts and Municipal Circuit Trial Courts,
in their respective jurisdiction.
These laws have expanded the jurisdiction of the CTA.
However, they did not change the jurisdiction of the CTA
to entertain an appeal only from a final decision or
assessment of the Commissioner, or in cases where the
Commissioner has not acted within the period prescribed
by the NIRC. In the cases at bar, the Commissioner has
not issued an assessment of the tax liability of private
respondents.
Finally, we hold that contrary to private respondents
stance, the doctrines laid down in CIR v. Union Shipping
Co. and Yabes v. Flojo are not applicable to the cases at
bar. In these earlier cases, the Commissioner already
rendered an assessment of the tax liabilities of the
delinquent taxpayers, for which reason the Court ruled
that the filing of the civil suit for collection of the taxes
due was a final denial of the taxpayers request for
reconsideration of the tax assessment.
IN VIEW WHEREOF, premises considered, judgment is
rendered:
1. In G.R. No. 120935, AFFIRMING the CA
decision dated March 21, 1995, which set aside the
Regional Trial Courts Order dated August 8, 1994, and
REINSTATING Criminal Case Nos. 94-1842 to 94-1846
for further proceedings before the trial court; and
2. In G.R. No. 124557, REVERSING and
SETTING ASIDE the Decision of the Court of Appeals
dated March 29, 1996, and ORDERING the dismissal of
C.T.A. Case No. 5075.
No costs.
SO ORDERED.
G.R. No. L-54305 February 14, 1990
ATLAS CONSOLIDATED MINING & DEVELOPMENT
CORPORATION, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, MALAYAN
INTEGRATED INDUSTRIES CORPORATION, BIGA
COPPER MINES EXPLORATION COMPANY, PABLO
B. GOROSIN, FRANCISCO B. GOROSIN, HEIRS OF
PEDRO B. GOROSIN and VICENTE T. GARAYGAY,
respondents.
Belo, Ermitaño, Abiera & Associates for petitioner.
CHRISpy TAX Cases (INC)
Jose T. Sumcad for respondent Malayan
Integrated Industries, et al.
Ramon B. Ceniza for intervenor.
GANCAYCO, J.:
Can a person who is not a party to a contract file a
petition for declaratory relief and seek a judicial
intepretation of such contract? Can a trial court which
had already taken cognizance of an action involving a
mining controversy be divested of jurisdiction to hear
and decide the case upon the promulgation of
Presidential Decree No. 1281? 1 These are the threshold
issues brought about by the long drawn legal battle
between the conflicting parties in this case.
The facts are undisputed.
On June 5, 1973, Atlas Consolidated Mining &
Development Corporation (ATLAS) entered into an
operating agreement with the heirs of Manuel Cuenco
and Jose P. Velez (collectively referred to herein as
CUENCO-VELEZ) whereby in consideration of royalties to
be paid by ATLAS to CUENCO-VELEZ, the former was
granted the right to explore, develop and operate twelve
(12) mining claims belonging to the latter located at
Toledo City, Cebu.
On June 17, 1973, ATLAS entered into a similar
agreement with the Biga Copper Mines Exploration
Company (BIGA COPPER), a partnership composed of
Pablo B. Gorosin, Francisco B. Gorosin, Pedro B. Gorosin
and Vicente T. Garaygay (collectively referred to herein
as the BIGA PARTNERS). Subject of this Operating
Agreement are thirty-one (31) mining claims of BIGA-
COPPER likewise located at Toledo City, Cebu.
It appears, however, that of the total mining claims
"leased" by ATLAS from both the CUENCO-VELEZ and
BIGA COPPER, nine (9) mining claims overlap. These
nine (9) overlapping mining claims became the subject
of Mines Administrative Cases Nos. V-727 and V-750
whereby under date of February 12, 1974, the Director
of Mines resolved the same in favor of CUENCO-VELEZ.
BIGA COPPER appealed this decision to the Secretary of
Agriculture and Natural Resources who, in a decision
dated April 14, 1974, in DANR Cases Nos. 3936 and
3936-A, affirmed the decision of the Director of Mines.
This later decision was appealed to the Office of the
President under O.P. Case No. 0435.
During the pendency of this appeal in the Office of the
President, the parties, namely, CUENCO-VELEZ and
BIGA COPPER, entered into a compromise agreement. 2
This compromise agreement enabled BIGA-COPPER to
eventually lay claim over the nine (9) overlapping mining
claims.
Earlier, ATLAS alleged that when it started the operation
of its Carmen Project, which includes some of the mining
claims subject of the aforestated Operating Agreements
with BIGA COPPER and CUENCO-VELEZ ATLAS received
numerous letters from third- parties claiming that they
were assignees of BIGA COPPER and the BIGA
29

PARTNERS over the mining claims. These third-parties
claim that as such assignees, they are legally entitled to
receive the corresponding royalties from the mining
operation. In effect, they ask ATLAS that they be
substituted to the rights of BIGA COPPER and the BIGA
PARTNERS under the operating agreement.
ATLAS allegedly conducted a verification of the said
demands and later on confirmed that before the
registration of the Articles of Partnership of BIGA
COPPER, the BIGA PARTNERS sold and/or assigned
some of their respective shares, rights, interests and
participations over the mining claims to third parties 3
and that BIGA COPPER, acting separately from the BIGA
PARTNERS, likewise sold and/or assigned its undivided
shares, interests and participations over the mining
claims to third parties. 4
On the other hand, a certain Alejandro T. Escano wrote
ATLAS informing the latter that he is an assignee of
CUENCO-VELEZ with respect to the three (3) mining
claims which CUENCO-VELEZ retained under the
compromise agreement with BIGA COPPER. Escano,
alleged that CUENCO-VELEZ had assigned to him fifty
percent (50%) of their rights, interests and
participations in the said mining claims. 5 In turn,
CUENCO-VELEZ advised ATLAS that their assignment to
Alejandro T. Escano was already revoked or rescinded
for failure of the said assignee to fulfill the conditions
contained in their deed of assignment. 6
In the light of the foregoing situation, ATLAS instituted a
petition for declaratory relief with the then Court of First
Instance of Cebu, Branch 8, and which was docketed as
Civil Case No. 16669-R. Cited as respondents therein
were BIGA COPPER, BIGA PARTNERS, CUENCO-VELEZ
and some thirty-one (31) assignees. 7
In their amended petition filed with the trial court,
ATLAS raised the following issues for resolution, to wit:
1. Since ATLAS is now in the process of developing and
exploring the Carmen project which includes the mining
claims of the BIGA COPPER and CUENCO-VELEZ, should
it extract and sipose (sic) of ores from the BIGA COPPER
and CUENCO-VELEZ claims, to whom shall ATLAS pay
the royalties due thereon?
2. Considering that a Compromise Agreement has been
entered into by and between BIGA COPPER and
CUENCO- VELEZ on some claims contested by them,
which compromise agreement was already submitted to
the President for his final approval, should ATLAS
respect the same before the final approval of the
President in paying royalties under the operating
agreements with BIGA COPPER and CUENCO-VELEZ,
respectively?
3. Considering further that before the compromise
agreement was entered into, BIGA COPPER had already
assigned a large part of its interest to third parties, does
the compromise agreement entered into by BIGA
COPPER bind these assignees? Can BIGA COPPER enter
into a compromise agreement with the CUENCO-VELEZ
insofar as the shares of these assignees are concerned?
CHRISpy TAX Cases (INC)
4. Considering finally that before and after the
compromise agreement was entered into, BIGA COPPER
and/or its partners as signed and/or sold various rights
to royalties over the mining claims covered by its
Operating Agreement with ATLAS; on the other hand,
CUENCO-VELEZ made assignments after the
compromise agreement was entered into, should ATLAS
recognize these assignments and pay royalties to the
assignees?
5. Since the assignments made by BIGA COPPER and/or
its PARTNERS exceeded the participation and/or shares
of the PARTNERS in the partnership, which assignment
or who of the assignees are entitled to royalties?
6. Considering that the PARTNERS made individual
assignments of their respective shares, rights, interests
and/or participations in the so-called partnership, the
total of which together with the assignments made
directly by the said partnership itself, aggregated 37.5%
of the interest therein as of the date the PARTNERS
registered the Articles of Partnership of BIGA COPPER,
wherein the PARTNERS represented that they own 25%
each in the partnership, with the Securities and
Exchange Commission, is ATLAS, by law, bound to
respect the assignments by the PARTNERS and/or by
the partnership itself prior to and/or subsequent to said
registration?
7. Considering that the PARTNERS have also made
assignments of their respective shares, rights, interests
and/or participations after the registration of the said
partnership, are those assignments valid and binding
upon ATLAS? 8
To this petition for declaratory relief, respondents filed a
motion to dismiss dated January 18, 1978 stating as
grounds therefor the following:
1. The Honorable Court has no jurisdiction over the
subject of the action or suit;
2. The complaint states no cause of action;
3. The court has no jurisdiction over the nature of the
suit. 9
ATLAS filed a written opposition thereto dated February
4, 1978. 10
Meanwhile, due to the promulgation of Presidential
Decree No. 1281, effective January 16, 1978, a number
of the defendants in the court below filed a
supplemental motion to dismiss dated February 17,
1978. 11 They alleged in their supplemental motion that
the operating agreement which BIGA COPPER signed
with ATLAS had already been revoked by a letter dated
February 11, 1978, 12 and that by reason of this
rescission, the trial court is deemed to have lost
jurisdiction pursuant to Section 7, paragraphs A and C
and Section 12 of Presidential Decree No. 1281.
Section 7, paragraphs A and C and Section 12 of the
Decree provide:
30

SECTION 7. In addition to its regulatory and adjudicative
functions over companies, partnerships or persons
engaged in mining explorations, development and
exploitation, the Bureau of Mines shall have original and
exclusive jurisdiction to hear and decide cases involving:
(a) a mining property subject of different agreements
entered into by the claim holder thereof with several
mining operators;
xxx xxx xxx
(b) Cancellation and/or enforcement of mining contracts
due to the refusal of the claim owner/operator to abide
by the terms and conditions thereof.
xxx xxx xxx
SECTION 12. All laws, executive orders, decrees, rules
and regulations or parts thereof contrary to or
inconsistent with the provisions of this decree, are
hereby repealed and amended or modified accordingly.
(Emphasis supplied.)
On March 13,1978, ATLAS filed a supplemental
opposition to the supplemental motion to dismiss
arguing that BIGA COPPER had no right to unilaterally
cancel their operating agreement. 13
After considering the pleadings filed by the conflicting
parties to the case, the trial court, then presided by
Judge Regino Hermosisima, Jr., issued an order dated
May 29, 1978 requiring the defendants therein to
answer the petition for declaratory relief it appearing
"[t]hat the ground stated in the motion to dismiss does
not appear to be indubitable." 14
Accordingly, the defendants filed their answer which
reiterated the allegations contained in their motion to
dismiss filed earlier. 15
On December 29, 1978, some of the defendants in the
court below, namely, BIGA COPPER, BIGA PARTNERS,
Malayan Integrated Industries Corp., Guillermo Ponce
and Esmael Garaygay, filed another motion to dismiss
the proceedings reiterating, once again, the same
allegations in their previous motions to dismiss. 16 It
was likewise alleged in that same motion that the trial
court had already lost jurisdiction over the case in view
of an action for annulment of the operating agreement
between BIGA COPPER and ATLAS which had been filed
with the Bureau of Mines (docketed as Special Case No.
V-95) and which was set for hearing on January 22,
1979.
In an order dated January 17, 1979, the trial court
denied the above mentioned motion, ruling that there is
no mining controversy involved in the case before it.
Further, the court a quo clarified that the declaratory
action is merely for a judicial pronouncement on the
rights and obligations of ATLAS under several operating
agreements. It went on to state that the action for
annulment of the operating agreement filed with the
Bureau of Mines is not Identical with the petition for
CHRISpy TAX Cases (INC)
declaratory relief and, therefore, does not oust the trial
court of its jurisdiction to hear the petition. 17
Respondents herein sought reconsideration of the
immediately preceding order but failed in their attempt.
Thus, a petition for certiorari was filed with the Court of
Appeals, docketed as CA-G.R. No. SP-09773, assailing
the orders of the court a quo as having been issued with
grave abuse of discretion amounting to lack or excess of
jurisdiction.
The issues presented before the Court of Appeals were
as follows:
(1) Whether or not the trial court had jurisdiction to try
the action for declaratory relief, and assuming it had,
whether it was divested of said jurisdiction by the
subsequent enactment of PD 1281 ... and
(2) Whether or not respondent Judge committed grave
abuse of discretion ... in issuing the assailed orders. 18
In its decision, 19 the appellate court ruled in favor of
herein respondents and ordered the trial court to dismiss
the declaratory action. We quote the pertinent portions
of that decision, to wit:
But while we hold that respondent Judge has jurisdiction
over the declaratory action of which he was not divested
by the promulgation of PD 1281, he should have
precisely exercised his jurisdiction by sustaining
petitioners' motion to dismiss grounded on lack of cause
of action primordially because the allegations of the
complaint patently present no justiciable controversy. ...
xxx xxx xxx
Considering then that the declaratory suit calls for
resolution of questions which necessarily involve the
validity and enforcement of the operating and deeds of
assignment, now subject of pending administrative cases
before the Bureau of Mines from which adequate and
exclusive relief may be obtained, and the fact that Atlas'
right to file the suit is even questionable, the ineluctable
conclusion is that respondent Judge gravely abused his
discretion ...
xxx xxx xxx
Here, We are confronted with a situation where the
declaratory action should not have been allowed xxx,
the allegations of the complaint clearly suggesting more
of a request for an advisory opinion or the more proper
remedy of interpleader. ... 20
Claiming to be adversely affected by the decision of the
Court of Appeals, ATLAS interposed the present petition
for review on certiorari.
After requiring respondents herein to file their comments
to the petition, 21 Epifanio A. Anoos, claiming to have a
legal interest over the matter in litigation, filed with this
Court a motion to admit his petition in intervention
dated September 12, 1980. In support thereof, Anoos
alleges that he is one of the defendants in the
31

proceedings for declaratory relief; and that the trial
court in the same case, under date of February 21,
1979, had already rendered a summary judgment in his
favor. 22
Anoos, in effect, joins ATLAS in its prayer to have the
decision of the respondent appellate court set aside and
additionally, as arguments peculiar only to him, asserts
that (1) the Court of Appeals violated the due process
clause of the Constitution when it rendered the
questioned decision without notice to the rest of the
parties in the proceeding below; and (2) that the
summary judgment in his favor dated February 21, 1979
had already become final and executory by reason of the
failure of private respondents herein to take steps to
appeal therefrom. 23
On December 8, 1980, Milagros Cuenco, Antonio V.
Cuenco, Ramon V. Cuenco, Manuel V. Cuenco, Jr., Jose
V. Cuenco, Filomena Cuenco, Jesus V. Cuenco and Jose
P. Velez, earlier referred to herein as CUENCO-VELEZ,
filed with this Court a similar petition in intervention 24
alleging that (1) their right to both substantive and
procedural due process was violated, inasmuch as they
were not impleaded before the respondent appellate
court; and (2) that the decision of the appellate court is
not in accordance with law. 25
In a resolution dated July 1, 1981 this Court finally
resolved to give due course to the petition for review
filed by ATLAS. In that same resolution, the motions for
intervention of both Efifanio A. Anoos and CUENCO-
VELEZ were granted. 26
We now proceed to the discussion of the merits of this
petition. To reiterate the first issue—can a person who is
not a party to a contract file a petition for declaratory
relief and seek a judicial interpretation of such contract?
We rule in the negative.
Declaratory relief has been defined as an action by any
person interested under a deed, will, contract or other
written instrument or whose rights are affected by a
statute, ordinance, executive order or regulation to
determine any question of construction or validity arising
under the instrument, executive order or regulation, or
statute and for a declaration of his rights and duties
thereunder. 27 The only question that may be raised in
such kind of petition is the question of "construction' or
"validity" arising under an instrument or statute. 28
Corollary to this is the general rule that such an action
must be justified such that no other adequate relief or
remedy is available under the circumstances. 29 This, in
turn, can be explained by the fact that the only object of
a declaratory action is merely to terminate uncertainties
in an instrument or a statute. The judgment of the court
concerned cannot extend beyond a declaration of the
rights and duties of the parties to the action or provide
for corrective relief. 30
In the case at bar, ATLAS wants Us to sustain its
position that under the factual backdrop narrated earlier,
CHRISpy TAX Cases (INC)
it is entitled, as a matter of law, to proceed with its
petition for declaratory relief.
After a careful analysis of the arguments presented by
the parties herein, this Court rules that there is no legal
ground to sustain the contention of ATLAS.
ATLAS cannot be considered as an interested party
under the deeds of assignment and, therefore, has no
standing to institute the declaratory action.
It cannot be disputed that ATLAS, being one of the
parties to the operating agreements, has an interest
therein. A review of the record, in fact, reveals that
ATLAS purports to be seeking a judicial interpretation of
its operating agreements with BIGA COPPER and
CUENCO-VELEZ But after evaluating the lengthy
arguments it presented to justify the declaratory action
this Court arrives at one logical conclusion—the
ambiguity is not in the operating agreements themselves
but in the validity of the assignments of mining rights
made by BIGA COPPER and CUENCO-VELEZ to third
parties. Obviously, these third parties are not part of
ATLAS' contract with either BIGA COPPER or CUENCO-
VELEZ. In the same vein, neither is ATLAS a party to the
deeds of assignments executed by BIGA COPPER or
CUENCO-VELEZ. While this Court may concede that as a
result of the numerous assignments made by both BIGA
COPPER and CUENCO-VELEZ, ATLAS is left in a
quandary as to whom to pay the royalties in the course
of its mining operations, legally speaking however, the
ambiguity or uncertainty is not of the character as to call
for the procedural remedy of a declaratory action—
ATLAS not being a party to the said deeds of
assignment.
While this issue cannot find a square precedent in
existing jurisprudence, however, pronouncements made
by this Court in Tadeo vs. Provincial Fiscal of Pangasinan
31 and United Central & Cellulose Labor Association
(PLUM) vs. Santos 32 are of great significance in the
resolution of this legal question.
In Tadeo, this Court ruled that a notary public before
whom the execution of a deed of sale was
acknowledged is not entitled to file an action for
declaratory judgment. "None of his rights or duties
thereunder need be declared." 33 On the other hand, in
United Central, We seriously doubted if a declaratory
action can be filed in relation to a contract by persons
who are not parties thereto after considering that a
substantive law, more specifically Article 1311 of the
Civil Code provides that contracts take effect only
between the parties." Thus, "[i]t is quite plain that one
who is not a party to a contract cannot have the interest
in it that the rule requires as basis for a declaratory
relief." 34
Aside from the reason advanced herein above, this Court
is in agreement with the observation made by
respondent appellate court at least insofar as the
question of justiciability is concerned Clearly then, other
effective remedies are available to ATLAS—such as an
action for interpleader—to determine with finality who
among BIGA COPPER, CUENCO-VELEZ and the latter's
respective assignees is entitled to the royalties it will pay
32

later on under the operating agreements. At this
juncture, it is worthy to recall that courts should refuse
to exercise its prerogative to declare rights and to
construe instruments where it would not terminate the
uncertainty or controversy which gave rise to the action
or where it is not necessary and proper at the time
under all circumstances. 35
We now come to the second issue. Is the trial court
divested of jurisdiction to hear and decide a mining
controversy in view of the promulgation of Presidential
Decree No. 1281?
The answer is in the affirmative.
Tracing the development of Presidential Decree No.
1281, Justice Nocon, now Presiding Justice of the Court
of Appeals, in his separate concurring opinion on the
assailed decision, thus, correctly noted the following:
As early as January 15, 1973, PD 99-A provided where
mining controversies should be litigated: Director of
Mines whose decision is appealable to the Secretary of
Agriculture and Natural Resources and finally to the
President (Sec. 2). All laws in conflict or inconsistent
therewith were repealed (Sec. 3). ...
The same procedure was reiterated in PD 309 (Sec. 5),
issued on October 10, 1973, to accelerate disposition of
mining controversies with creation (sic) of a panel of
investigators to submit a report to the Director of Mines
within five days (Sec. 1). Exclusive jurisdiction of the
Bureau of Mines is implicit from Section 3 thereof which
give parties in pending litigations "before any judicial
tribunal" 15 days to file 'an adverse claim of any nature
whatsoever with the Bureau of Mines.'
PD 1281 issued on January 16, 1978, gives more teeth
to the Bureau of Mines (Sec. 3) for its regulatory and
adjudicative powers and functions which becomes (sic)
'original and exclusive even over 'cancellation and/or
enforcement of mining contracts,' reiterating the same
procedure laid down in PD 99-A and PD 309. Clearly, the
three Decrees—99-A, 309 and 1281—divested judicial
tribunals of jurisdiction over mining controversies
including cancellation and enforcement of mining
contracts by making the regulatory and adjudicative
functions of the Bureau 'original and exclusive' (Sec. 7,
PD 1281). 36 (Emphasis supplied).
This Court agrees with the conclusion espoused by the
respondent appellate court as to this aspect of the case.
The declaratory action flied by ATLAS is within the ambit
of Presidential Decree No. 1281. It is not an entirely
different or distinct cause of action. Were We to rule
otherwise it would be ratifying two judicial bodies
exercising jurisdiction over an essentially the same
subject matter—a situation analogous to split jurisdiction
which is obnoxious to the orderly administration of
justice. 37
Presidential Decree No. 1281 is a remedial statute. It
does not create new rights or take away rights that are
already vested. It only operates in furtherance of a
CHRISpy TAX Cases (INC)
remedy or confirmation of rights already in existence. It
does not come within the legal purview of a prospective
law. As such, it can be applied retroactively independent
of the general rule against the retrospective application
of statutes. 38 Being procedural in nature, it shall apply
to all actions pending at the time of its enactment
except only with respect to those cases which had
already attained the character of a final and executory
judgment. 39 Were it not so, the purpose of the Decree,
which is to facilitate the immediate resolution of mining
controversies by granting jurisdiction to a body or
agency more adept to the technical complexities of
mining operations, would be thwarted and rendered
meaningless. Litigants in a mining controversy cannot be
permitted to choose a forum of convenience. Jurisdiction
is imposed by law and not by any of the parties to such
proceedings.
Furthermore, Presidential Decree No. 1281 is a special
law and under a well-accepted principle in statutory
construction, the special law will prevail over a statute or
law of general application. 40 Jurisdiction having been
conferred by a special statute therefore prevails over the
jurisdiction granted by a general law. 41
Finally, as aptly observed by the respondent appellate
court, it is a rule oft repeated by this Court that the
construction placed upon a law by the officials in charge
of enforcing the same deserves great and considerable
weight. Unless the same would result in legal absurdity,
the same should be respected. 42
From the foregoing, the inevitable conclusion is that the
operative act which divested the trial court of jurisdiction
to decide the declaratory action is not respondents' act
of filing an administrative suit for the cancellation of
their operating agreement with ATLAS. With or without
such administrative action, the trial court is deemed to
have lost jurisdiction to proceed with the declaratory
action immediately upon the effectivity of Presidential
Decree No. 1281 on January 16, 1978.
The case of Twin Peaks Mining Association vs. Navarro,
43 while not squarely applicable to the present case in
view of the difference in the dates when the respective
declaratory actions were commenced, 44 nevertheless
bolsters the conclusion We have reached thus far when
it pointed out that the promulgation of Presidential
Decree No. 1281 is indicative of "[t]he trend to make the
adjudication of mining cases a purely administrative
matter." 45
WHEREFORE, inasmuch as the trial court has lost
jurisdiction to proceed, hear and decide the action for
declaratory relief filed by ATLAS, the summary judgment
in favor of herein intervenor Efifanio A. Anoos is
declared null and void, having been rendered on
February 21, 1979 when Presidential Decree No. 1281
was already in full force and effect. The petition in
intervention of CUENCO-VELEZ is hereby dismissed for
lack of merit. And, finally, the decision of the Court of
Appeals in CA-G.R. No. SP-09773 is affirmed insofar as it
declared that the trial court acted with grave abuse of
discretion in proceeding with the declaratory action. No
pronouncement as to costs.
33

SO ORDERED.
G.R. No. L-38540 April 30, 1987
REPUBLIC OF THE PHILIPPINES, petitioner,
vs.
THE COURT OF APPEALS, and NIELSON
COMPANY, INC., respondents.
The Solicitor General for petitioner.
Quasha, Aspillera, Zafra, Tayag and Ancheta for
respondents.
PADILLA, J.:
This is a petition for review on certiorari of the decision
of the respondent Court of Appeals 1 in CA G.R. No.
37417-R, dated 3 April 1974, reversing the decision of
the then Court of First Instance of Manila which ordered
private respondent Nielson & Co., Inc. to pay the
Government the amount of P11,496.00 as ad valorem
tax, occupation fees, additional residence tax and 25%
surcharge for late payment, for the years 1949 to 1952,
and costs of suit, and of the resolution of the
respondent Court, dated 31 May 1974, denying
petitioner's motion for reconsideration of said decision of
3 April 1974.
In a demand letter, dated 16 July 1955 (Exhibit A), the
Commissioner of Internal Revenue assessed private
respondent deficiency taxes for the years 1949 to 1952,
totalling P14,449.00, computed as follows:
1-1/2% ad valorem tax
P448,000.00..........................P7,320.00
25% surcharge for
payment......................................1,830.00
Occupation fees for the years 1949
to 1952 at P1.00 per ha. per
year on 1,
hectares.....................................4,920.00
Additional residence tax on P79,000.00
at P1.00 per every P5,000.00
per year or P75.00
years................................303.20
25% surcharge for
payment.........................................75.00
TOTAL AMOUNT DUE............................ P14,449.00 2
Petitioner reiterated its demand upon private respondent
for payment of said amount, per letters dated 24 April
CHRISpy TAX Cases (INC)
1956 (Exhibit D), 19 September 1956 (Exhibit E) and 9
February 1960 (Exhibit F). Private respondent did not
contest the assessment in the Court of Tax Appeals. On
the theory that the assessment had become final and
executory, petitioner filed a complaint for collection of
the said amount against private respondent with the
Court of First Instance of Manila, where it was docketed
as Civil Case No. 42911. However, for failure to serve
summons upon private respondent, the complaint was
& dismissed, without prejudice, in the Court's order dated
30 June 1961. On motion, the order of dismissal was set
aside, at the same time giving petitioner sixty (60) days
within which to serve summons upon private
respondent.
For failure anew to serve summons, the Court of First
Instance of Manila issued an order dated 4 October 1962
dismissing Civil Case No. 42911 without prejudice. The
order of dismissal became final on 5 November 1962.
On 15 November 1962, the complaint against private
respondent for collection of the same tax was refiled,
but the same was erroneously docketed as Civil Case
No. 42911, the same case previously dismissed without
prejudice. Without correcting this error, another
complaint was filed on 26 November 1963, docketed as
Civil Case No. 55817, the subject matter of the present
appeal.
As herein earlier stated, the Court a quo rendered a
decision against the private respondent. On appeal to
the respondent Court of Appeals, the decision was
reversed. Petitioner, Republic of the Philippines, filed a
motion for reconsideration which was likewise denied by
said Court in a resolution dated 31 May 1974. Hence,
this petition, with the following assignment of errors:
on I
THE COURT OF APPEALS ERRED IN NOT HOLDING
late THAT THE LETTER OF ASSESSMENT DATED JULY 16,
1955, EXHIBIT "A," WAS RECEIVED BY PRIVATE
RESPONDENT IN THE ORDINARY COURSE OF THE MAIL
PURSUANT TO SECTION 8, RULE 13 OF THE REVISED
RULES OF COURT.
II
230
THE COURT OF APPEALS ERRED IN NOT HOLDING
THAT PRIVATE RESPONDENT FAILED TO REBUT THE
PRESUMPTION THAT THE LETTER ASSESSMENT DATED
JULY 16, 1955, HAVING BEEN DULY DIRECTED AND
MAILED WAS RECEIVED IN THE REGULAR COURSE OF
THE MAIL AND THAT OFFICIAL DUTY HAS BEEN
REGULARLY PERFORMED.
x 4
III
late THAT, ASSUMING, WITHOUT ADMITTING, THAT THE
LETTER DATED JULY 16, 1955 (EXHIBIT "A") CANNOT
BE CONSIDERED AS AN ASSESSMENT, ON THE THEORY
THAT THE SAME HAS NOT BEEN RECEIVED BY PRIVATE
RESPONDENT, THE COURT OF APPEALS ERRED IN NOT
HOLDING THAT THE LETTER OF THE DEPUTY
COLLECTOR (NOW DEPUTY COMMISSIONER) OF
34

INTERNAL REVENUE DATED SEPTEMBER 19, 1956
(EXHIBIT "E") IS ITSELF AN ASSESSMENT WHICH WAS
DULY RECEIVED BY PRIVATE RESPONDENT.
Relying on the provisions of Section 8, Rule 13 and
Section 5, paragraphs m & v. Rule 131 of the Revised
Rules of Court, petitioner claims that the demand letter
of 16 July 1955 showed an imprint indicating that the
original thereof was released and mailed on 4 August
1955 by the Chief, Records Section of the Bureau of
Internal Revenue, and that the original letter was not
returned to said Bureau; thus, said demand letter must
be considered to have been received by the private
respondent. 3 According to petitioner, if service is made
by ordinary mail, unless the actual date of receipt is
shown, service is deemed complete and effective upon
the expiration of five (5) days after mailing. 4 As the
letter of demand dated 16 July 1955 was actually mailed
to private respondent, there arises the presumption that
the letter was received by private respondent in the
absence of evidence to the contrary. 5 More so, where
private respondent did not offer any evidence, except
the self-serving testimony of its witness, that it had not
received the original copy of the demand letter dated 16
July 1955. 6
We do not agree with petitioner's above contentions. As
correctly observed by the respondent court in its
appealed decision, while the contention of petitioner is
correct that a mailed letter is deemed received by the
addressee in the ordinary course of mail, stilt this is
merely a disputable presumption, subject to
controversion, and a direct denial of the receipt thereof
shifts the burden upon the party favored by the
presumption to prove that the mailed letter was indeed
received by the addressee. Thus:
Appellee contends that per Exhibit A, the notice was
released and mailed to the appellant by the BIR on Aug.
4, 1955 under the signature of the Chief, Records
Section, Office; that since the original thereof was not
returned to the appellee, the presumption is that the
appellant received the mailed notice. This is correct, but
this being merely a mere disputable presumption, the
same is subject to controversion, and a direct denial of
the receipt thereof shifts the burden upon the party
favored by the presumption to prove that the mailed
letter was received by the addressee. The appellee,
however, argues that since notice was rc-,Ieased and
mailed and the fact of its release was admitted by the
appellant the admission is proof that he received the
mailed notice of assessment. We do not think so. It is
true the Court a quo made such a finding of fact, but as
pointed out by the appehant in its brief, and as borne
out by the records, no such admission was ever made by
the appellant in the answer or in any other pleading, or
in any declaration, oral or documentary before the trial
court. We note that the appellee has not met this
challenge, and after a review of the records, we find
appeflant's assertion well-taken. 7
Since petitioner has not adduced proof that private
respondent had in fact received the demand letter of 16
July 1955, it can not be assumed that private
respondent received said letter. Records, however, show
that petitioner wrote private respondent a follow-up
CHRISpy TAX Cases (INC)
letter dated 19 September 1956, reiterating its demand
for the payment of taxes as originally demanded in
petitioner's letter dated 16 July 1955. This follow-up
letter is considered a notice of assessment in itself which
was duly received by private respondent in accordance
with its own admission. 8 The aforesaid letter reads:
September 19, 1956
Nielson and Company, Inc.
Ayala Boulevard, Manila
Gentlemen:
In reply to you (sic) letter dated June 1, 1956 relative to
your pending internal revenue tax liability involving the
amount of P15,649.00 as annual occupation fees, ad
valorem and additional residence taxes, surcharges and
penalty, originally demanded of you on July 16, 1955, I
have the honor to inform you that investigation
conducted by an agent of this office show that you and
the Hixbar Gold Mining Co., Inc. entered into an
agreement in 1938 whereby you were given full
exclusive and irrevocable control of all the operations,
development, processing and marketing of mineral
products from the latter's mines and that au the
assessments, taxes and fees of any nature in connection
with the said operation, development, proceeding and
marketing of these products shall be paid by you. In
view thereof, and it appearing that the aforesaid tax
liabilities accrued when your contract was in fun force
and effect, you are therefore, the party hable for the
payment thereof, notwithstanding the alleged contract
subsequently entered into by you and the Hixbar Gold
Mining Co., Inc. on September 9, 1954.
It is therefore, again requested that payment of the
aforesaid amount of P15,649.00 be made to the City
Treasurer, Manila within five (5) days from your receipt
hereof so that this case may be closed.
You are further requested to pay the sum of P150.00 as
compromise suggested in our letter to you dated
February 24, 1955, it appearing that the same has not
as yet been paid up to the present.
Very respectfully yours,
JOSE ARANAS
Deputy Collector of Internal Revenue 9
Under Section 7 of Republic Act No. 1125, the
assessment is appealable to the Court of Tax Appeals
within thirty (30) days from receipt of the letter. The
taxpayer's failure to appeal in due time, as in the case at
bar, makes the assessment in question final, executory
and demandable. Thus, private respondent is now
barred from disputing the correctness of the assessment
or from invoking any defense that would reopen the
question of its liability on the merits. 10
In Mamburao Lumber Co. vs. Republic, 11 this Court
further said:
35

In a suit for collection of internal revenue taxes, as in
this case, where the assessment has already become
final and executory, the action to collect is akin to an
action to enforce a judgment. No inquiry can be made
therein as to the merits of the original case or the
justness of the judgment relied upon. ...
ACCORDINGLY, the appealed decision is hereby
reversed. The decision of the Court a quo is hereby
reinstated. No costs.
SO ORDERED.
GR. No. L-37061 September 5, 1984
MAMBULAO LUMBER COMPANY, petitioner,
vs.
REPUBLIC OF THE PHILIPPINES, respondent.
CUEVAS, J.:
Petitioner in this appeal by certiorari, seeks the reversal
of the decision of the defunct Court of Appeals which
affirmed the judgment of the then Court of First
Instance of Manila ordering petitioner to pay respondent
the amount of P15,739.80 representing its tax liability
not secured by any bond, with legal interest thereon
from August 25, 1961 until fully paid.
Sometime in 1957 Agent Nestor Banzuela of the Bureau
of Internal Revenue, Regional District No. 6, Bicol
Region, Naga City, conducted an examination of the
books of accounts of herein petitioner Mambulao
number Company for the purpose of determining said
taxpayer's forest charges and percentage tax liabilities.
On July 31, 1957, Agent Banzuela submitted his report
wherein it was stated among others that —
xxx xxx xxx
xxx xxx xxx
xxx xxx xxx
It can be stated in this connection that sometime in the
early part of 1949, the personnel of the local office of
the Bureau of Forestry in Daet, Camarines Norte,
manifested under the name of the subject taxpayer
2,052.48 cubic meters of timber, with the corresponding
forest charges in the total amount of P15,443.65
including surcharges. The Bureau of Forestry then
demanded for the payment of said forest charges on
January 15, 1949. However, the subject taxpayer, for
one reason or the other, contested this assessment until
this case reached the hands of the Secretary of
Agriculture and Natural Resources, the undersigned
cannot therefore include in his assessment this amount
in question, hence, due course is given, recommending
that this bureau take proper action regarding this case.
CHRISpy TAX Cases (INC)
Consequently, on August 29, 1958, the Acting
Commissioner of Internal Revenue addressed a letter to
petitioner, the pertinent portion of which reads-
Mambulao Lumber Company
R-406 Samanillo Building
Escolta, Manila
Gentlemen:
xxx xxx xxx
It was also ascertained that in 1949 you manifested
2,052.48 cubic meters of timber, the forest charges and
surcharges of which in the total amount of P15,443.55
was demanded of you by the Bureau of Forestry on
January 15, 1949. ...
In view thereof there is due from you the amount of
P33,595.26 as deficiency sales tax, forest charges and
surcharges, committed as follows:
Sales Tax x x x
Forest Charges
Forest charges and surcharges for the year 1949
appealed to the Secretary of Agriculture and Natural
Resources P15,443.55
xxx xxx xxx
Total amount due & payable P33,595.26
Demand is hereby made upon you to pay the aforesaid
amount of P 33,595.26 to the City Treasurer of Manila or
this office within ten (10) days from receipt hereof so
that this case may be closed.
xxx xxx xxx
Sgd.Melencio Domingo
Acting Commissioner
of Internal Revenue
The aforesaid letter was acknowledged to have been
received by petitioner on September 19, 1958. 3 On
October 18, 1958, petitioner requested for a
reinvestigation of its tax liability. Subsequently, in a
letter dated July 8, 1959, respondent Commissioner of
Internal Revenue give petitioner a period of twenty (20)
days from receipt thereof to submit the results of its
verification of payments with a warning that failure to
comply therewith would be construed as an
abandonment of the request for reinvestigation.
For failure of petitioner to comply with the above letter-
request and/or to pay its tax liability despite demands
for the payment thereof, respondent Commissioner of
36

Internal Revenue filed. a complaint for collection in the
Court of First Instance of Manila on August 25, 1961. 4
After trial, judgment was rendered by the trial court, the
dispositive portion of which reads —
WHEREFORE, judgment is rendered —
(a) Ordering both defendants, jointly and severally, to
pay plaintiff the amount of P1,219.95 plus legal interest
thereon from August 25, 1961, the date of the filing of
the original complaint until fully paid, or in case of failure
to Pay the said amount, ordering the forfeiture of
GISCOR Bond No. 35 to the amount of P1,219.95; and
(b) Ordering defendant Mambulao Lumber Company to
pay the plaintiff the amount of P15,739.80 representing
its tax liability not secured by any bond, with legal
interest thereon from August 25, 1961, until paid.
With costs against defendants.
From the aforesaid decision, petitioner appealed to the
Court of Appeals 5 that portion of the trial court's
decision ordering it to pay the amount of P15,443.55
representing forest charges and surcharges due for the
year 1949.
As herein earlier stated, the then Court of Appeals
affirmed the decision of the trial court. Petitioner filed a
motion for reconsideration which was denied by the said
court in its Resolution dated June 7, 1973. Hence, the
instant appeal, petitioner presenting the lone issue of
whether or not the right of plaintiff (respondent herein)
to file a judicial action for the collection of the amount of
P15,443.55 as forest charges and surcharges due from
the petitioner Mambulao Lumber Company for the year
1949 has already prescribed.
Relying on the provisions of Section 332 of the National
Internal Revenue Code which reads-
Section 332. Exemptions as to period of limitation of
assessment and collection of taxes —
xxx xxx xxx
(c) Where the assessment of any internal revenue tax
has been made within the period of limitation above
prescribed such tax may be collected by distraint or levy
or by a proceeding in court, but only if begun (1) within
five years after the assessment of the tax, or (2) prior to
the expiration of any period for collection agreed upon in
writing by the Collector of Internal Revenue and the
taxpayer before the expiration of such five-year period.
The period so agreed upon may be extended by
subsequent agreements in writing made before the
expiration of the period previously agreed upon.
petitioner argues that counting from January 15, 1949
when the Bureau of Forestry in Daet, Camarines Norte
made an assessment and demand for payment of the
amount of P15,443.55 as forest charges and surcharges
for the year 1949, up to the filing of the complaint for
collection before the lower court on August 25, 196 1,
CHRISpy TAX Cases (INC)
more than five (5) years had already elapsed, hence, the
action had clearly prescribed.
Petitioner's aforesaid argument lacks merit. As correctly
observed by the trial court and the Court of Appeals in
the appealed decision, the letter of demand of the
Acting Commissioner of Internal Revenue dated August
29, 1958 was the basis of respondent's complaint filed in
this case and not the demand letter of the Bureau of
Forestry dated January 15, 1949. This must be so
because forest charges are internal revenue taxes 6 and
the sole power and duty to collect the same is lodged
with the Bureau of Internal Revenue 7 and not with the
Bureau of Forestry. The computation and/or assessment
of forest charges made by the Bureau of Forestry may or
may not be adopted by the Commissioner of Internal
Revenue and such computation made by the Bureau of
Forestry is not appealable to the Court of Tax Appeals. 8
Therefore, for the purpose of computing the five-year
period within which to file a complaint for collection, the
demand or even the assessment made by the Bureau of
Forestry is immaterial.
In the case at bar, the commencement of the five-year
period should be counted from August 29, 1958, the
date of the letter of demand of the Acting Commissioner
of Internal Revenue 9 to petitioner Mambulao Lumber
Company. It is this demand or assessment that is
appealable to the Court of Tax Appeals. The complaint
for collection was filed in the Court of First Instance of
Manila on August 25, 1961, very much within the five-
year period prescribed by Section 332 (c) of the Tax
Code. Consequently, the right of the Commissioner of
Internal Revenue to collect the forest charges and
surcharges in the amount of P15,443.55 has not
prescribed.
Furthermore, it is not disputed that on October 18,
1958, petitioner requested for a reinvestigation of its tax
liability. In reply thereto, respondent in a letter dated
July 8, 1959, gave petitioner a period of twenty (20)
days from receipt thereof to submit the results of its
verification of payments and failure to comply therewith
would be construed as abandonment of the request for
reinvestigation. Petitioner failed to comply with this
requirement. Neither did it appeal to the Court of Tax
Appeals within thirty (30) days from receipt of the letter
dated July 8, 1959, as prescribed under Section 11 of
Republic Act No. 1125, thus making the assessment final
and executory.
Taxpayer's failure to appeal to the Court of Tax Appeals
in due time made the assessment in question final,
executory and demandable. And when the action was
instituted on September 2, 1958 to enforce the
deficiency assessment in question, it was already barred
from disputing the correctness of the assessment or
invoking any defense that would reopen the question of
its tax liability. Otherwise, the period of thirty days for
appeal to the Court of Tax Appeals would make little
sense.
In a proceeding like this the taxpayer's defenses are
similar to those of the defendant in a case for the
enforcement of a judgment by judicial action under
Section 6 of Rule 39 of the Rules of Court. No inquiry
37

can be made therein as to the merits of the original case
or the justness of the judgment relied upon, other than
by evidence of want of jurisdiction, of collusion between
the parties, or of fraud in the party offering the record
with respect to the proceedings. As held by this Court in
Insular Government vs. Nico the taxpayer may raise only
the questions whether or not the Collector of Internal
Revenue had jurisdiction to do the particular act, and
whether any fraud was committed in the doing of the
act. In that case, Doroteo Nico was fined by the
Collector of Internal Revenue for violation of sub-
paragraphs (d), (e) and (g) of Section 28 as well as
Sections 36, 101 and 107 of Act 1189. Under Section 54
of the same Act, the taxpayer was given the right to
appeal from the decision of the Collector of Internal
Revenue to the Court of First Instance within a period of
ten days from notice of imposition of the fine. Nico did
not appeal, neither did he pay the fine. Pursuant to
Section 33 of the Act, the Collector of Internal Revenue
filed an action in the Court of First Instance to enforce
his decision and collect the fine. The decision of the
Collector of Internal Revenue having become final, this
Court, on appeal, allowed no further inquiry into the
merits of the same. 10
In a suit for collection of internal revenue taxes, as in
this case, where the assessment has already become
final and executory, the action to collect is akin to an
action to enforce a judgment. No inquiry can be made
therein as to the merits of the original case or the
justness of the judgment relied upon. Petitioner is thus
already precluded from raising the defense of
prescription.
Where the taxpayer did not contest the deficiency
income tax assessed against him, the same became final
and properly collectible by means of an ordinary court
action. The taxpayer cannot dispute an assessment
which is being enforced by judicial action, He should
have disputed it before it was brought to court. 11
WHEREFORE, the decision appealed from is hereby
AFFIRMED and the petition DISMISSED. No costs.
SO ORDERED.
THE HONGKONG AND SHANGHAI BANKING
CORPORATION LIMITED-PHILIPPINE BRANCHES,
Petitioner, v. COMMISSIONER OF INTERNAL
REVENUE, Respondent.
G.R. NO. 167728
THE HONGKONG AND SHANGHAI BANKING
CORPORATION LIMITED-PHILIPPINE BRANCHES,
Petitioner, v. COMMISSIONER OF INTERNAL
REVENUE, Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
CHRISpy TAX Cases (INC)
These petitions for review on certiorari1 assail the
Decision2 and Resolution dated July 8, 2004 and
October 25, 2004, respectively, of the Court of Appeals
in CA-G.R. SP No. 77580, as well as the Decision3 and
Resolution dated September 2, 2004 and April 4, 2005,
respectively, of the Court of Appeals in CA-G.R. SP No.
70814. The respective Decisions in the said cases
similarly reversed and set aside the decisions of the
Court of Tax Appeals (CTA) in CTA Case Nos. 59514 and
6009,5 respectively, and dismissed the petitions of
petitioner Hongkong and Shanghai Banking Corporation
Limited-Philippine Branches (HSBC). The corresponding
Resolutions, on the other hand, denied the respective
motions for reconsideration of the said Decisions.
HSBC performs, among others, custodial services on
behalf of its investor-clients, corporate and individual,
resident or non-resident of the Philippines, with respect
to their passive investments in the Philippines,
particularly investments in shares of stocks in domestic
corporations. As a custodian bank, HSBC serves as the
collection/payment agent with respect to dividends and
other income derived from its investor-clients’ passive
investments.6cralawred
HSBC’s investor-clients maintain Philippine peso and/or
foreign currency accounts, which are managed by HSBC
through instructions given through electronic messages.
The said instructions are standard forms known in the
banking industry as SWIFT, or “Society for Worldwide
Interbank Financial Telecommunication.” In purchasing
shares of stock and other investment in securities, the
investor-clients would send electronic messages from
abroad instructing HSBC to debit their local or foreign
currency accounts and to pay the purchase price
therefor upon receipt of the securities.7cralawred
Pursuant to the electronic messages of its investor-
clients, HSBC purchased and paid Documentary Stamp
Tax (DST) from September to December 1997 and also
from January to December 1998 amounting to
P19,572,992.10 and P32,904,437.30, respectively,
broken down as follows:
XXX
On August 23, 1999, the Bureau of Internal Revenue
(BIR), thru its then Commissioner, Beethoven Rualo,
issued BIR Ruling No. 132-99 to the effect that
instructions or advises from abroad on the management
of funds located in the Philippines which do not involve
transfer of funds from abroad are not subject to DST.
BIR Ruling No. 132-99
reads:chanRoblesvirtualLawlibrary
Date: August 23, 1999
FERRY TOLEDO VICTORINO GONZAGA
& ASSOCIATES
G/F AFC Building, Alfaro St.
Salcedo Village, Makati
38

Metro Manila
Attn: Atty. Tomas C. Toledo
Tax Counsel
Gentlemen:
This refers to your letter dated July 26, 1999 requesting
on behalf of your clients, the CITIBANK & STANDARD
CHARTERED BANK, for a ruling as to whether or not the
electronic instructions involving the following
transactions of residents and non-residents of the
Philippines with respect to their local or foreign currency
accounts are subject to documentary stamp tax under
Section 181 of the 1997 Tax Code,
viz:chanRoblesvirtualLawlibrary
Investment purchase transactions:
An overseas client sends instruction to its bank in the
Philippines to either:
(i)
debit its local or foreign currency account and to pay a
named recipient in the Philippines; or
(ii)
receive funds from another bank in the Philippines for
deposit into its account and to pay a named recipient in
the Philippines.”
The foregoing transactions are carried out under
instruction from abroad and [do] not involve actual fund
transfer since the funds are already in the Philippine
accounts. The instructions are in the form of electronic
messages (i.e., SWIFT MT 100 or MT 202 and/or MT
521). In both cases, the payment is against the delivery
of investments purchased. The purchase of investments
and the payment comprise one single transaction. DST
has already been paid under Section 176 for the
investment purchase.
Other transactions:
An overseas client sends an instruction to its bank in the
Philippines to either:
(i)
debit its local or foreign currency account and to pay a
named recipient, who may be another bank, a corporate
entity or an individual in the Philippines; or
(ii)
receive funds from another bank in the Philippines for
deposit to its account and to pay a named recipient, who
may be another bank, a corporate entity or an individual
in the Philippines.”
CHRISpy TAX Cases (INC)
The above instruction is in the form of an electronic
message (i.e., SWIFT MT 100 or MT 202) or tested
cable, and may not refer to any particular transaction.
The opening and maintenance by a non-resident of local
or foreign currency accounts with a bank in the
Philippines is permitted by the Bangko Sentral ng
Pilipinas, subject to certain conditions.
In reply, please be informed that pursuant to Section
181 of the 1997 Tax Code, which provides that –
SEC. 181. Stamp Tax Upon Acceptance of Bills of
Exchange and Others. – Upon any acceptance or
payment of any bill of exchange or order for the
payment of money purporting to be drawn in a foreign
country but payable in the Philippines, there shall be
collected a documentary stamp tax of Thirty centavos
(P0.30) on each Two hundred pesos (P200), or
fractional part thereof, of the face value of any such bill
of exchange, or order, or Philippine equivalent of such
value, if expressed in foreign currency. (Underscoring
supplied.)
a documentary stamp tax shall be imposed on any bill of
exchange or order for payment purporting to be drawn
in a foreign country but payable in the Philippines.
Under the foregoing provision, the documentary stamp
tax shall be levied on the instrument, i.e., a bill of
exchange or order for the payment of money, which
purports to draw money from a foreign country but
payable in the Philippines. In the instant case, however,
while the payor is residing outside the Philippines, he
maintains a local and foreign currency account in the
Philippines from where he will draw the money intended
to pay a named recipient. The instruction or order to pay
shall be made through an electronic message, i.e.,
SWIFT MT 100 or MT 202 and/or MT 521. Consequently,
there is no negotiable instrument to be made, signed or
issued by the payee. In the meantime, such electronic
instructions by the non-resident payor cannot be
considered as a transaction per se considering that the
same do not involve any transfer of funds from abroad
or from the place where the instruction originates.
Insofar as the local bank is concerned, such instruction
could be considered only as a memorandum and shall be
entered as such in its books of accounts. The actual
debiting of the payor’s account, local or foreign currency
account in the Philippines, is the actual transaction that
should be properly entered as such.
Under the Documentary Stamp Tax Law, the mere
withdrawal of money from a bank deposit, local or
foreign currency account, is not subject to DST, unless
the account so maintained is a current or checking
account, in which case, the issuance of the check or
bank drafts is subject to the documentary stamp tax
imposed under Section 179 of the 1997 Tax Code. In the
instant case, and subject to the physical impossibility on
the part of the payor to be present and prepare and sign
an instrument purporting to pay a certain obligation, the
withdrawal and payment shall be made in cash. In this
light, the withdrawal shall not be subject to
documentary stamp tax. The case is parallel to an
automatic bank transfer of local funds from a savings
39

account to a checking account maintained by a depositor
in one bank.
Likewise, the receipt of funds from another bank in the
Philippines for deposit to the payee’s account and
thereafter upon instruction of the non-resident
depositor-payor, through an electronic message, the
depository bank to debit his account and pay a named
recipient shall not be subject to documentary stamp tax.
It should be noted that the receipt of funds from
another local bank in the Philippines by a local
depository bank for the account of its client residing
abroad is part of its regular banking transaction which is
not subject to documentary stamp tax. Neither does the
receipt of funds makes the recipient subject to the
documentary stamp tax. The funds are deemed to be
part of the deposits of the client once credited to his
account, and which, thereafter can be disposed in the
manner he wants. The payor-client’s further instruction
to debit his account and pay a named recipient in the
Philippines does not involve transfer of funds from
abroad. Likewise, as stated earlier, such debit of local or
foreign currency account in the Philippines is not subject
to the documentary stamp tax under the
aforementioned Section 181 of the Tax Code.
In the light of the foregoing, this Office hereby holds
that the instruction made through an electronic message
by non-resident payor-client to debit his local or foreign
currency account maintained in the Philippines and to
pay a certain named recipient also residing in the
Philippines is not the transaction contemplated under
Section 181 of the 1997 Tax Code. Such being the case,
such electronic instruction purporting to draw funds from
a local account intended to be paid to a named recipient
in the Philippines is not subject to documentary stamp
tax imposed under the foregoing Section.
This ruling is being issued on the basis of the foregoing
facts as represented. However, if upon investigation it
shall be disclosed that the facts are different, this ruling
shall be considered null and void.
Very truly yours,
(Sgd.) BEETHOVEN L. RUALO
Commissioner of Internal Revenue8
With the above BIR Ruling as its basis, HSBC filed on
October 8, 1999 an administrative claim for the refund
of the amount of P19,572,992.10 allegedly representing
erroneously paid DST to the BIR for the period covering
September to December 1997.
Subsequently, on January 31, 2000, HSBC filed another
administrative claim for the refund of the amount of
P32,904,437.30 allegedly representing erroneously paid
DST to the BIR for the period covering January to
December 1998.
CHRISpy TAX Cases (INC)
As its claims for refund were not acted upon by the BIR,
HSBC subsequently brought the matter to the CTA as
CTA Case Nos. 5951 and 6009, respectively, in order to
suspend the running of the two-year prescriptive period.
The CTA Decisions dated May 2, 2002 in CTA Case No.
6009 and dated December 18, 2002 in CTA Case No.
5951 favored HSBC. Respondent Commissioner of
Internal Revenue was ordered to refund or issue a tax
credit certificate in favor of HSBC in the reduced
amounts of P30,360,570.75 in CTA Case No. 6009 and
P16,436,395.83 in CTA Case No. 5951, representing
erroneously paid DST that have been sufficiently
substantiated with documentary evidence. The CTA
ruled that HSBC is entitled to a tax refund or tax credit
because Sections 180 and 181 of the 1997 Tax Code do
not apply to electronic message instructions transmitted
by HSBC’s non-resident investor-
clients:chanRoblesvirtualLawlibrary
The instruction made through an electronic message by
a non-resident investor-client, which is to debit his local
or foreign currency account in the Philippines and pay a
certain named recipient also residing in the Philippines is
not the transaction contemplated in Section 181 of the
Code. In this case, the withdrawal and payment shall be
made in cash. It is parallel to an automatic bank transfer
of local funds from a savings account to a checking
account maintained by a depositor in one bank. The act
of debiting the account is not subject to the
documentary stamp tax under Section 181. Neither is
the transaction subject to the documentary stamp tax
under Section 180 of the same Code. These electronic
message instructions cannot be considered negotiable
instruments as they lack the feature of negotiability,
which, is the ability to be transferred (Words and
Phrases).
These instructions are considered as mere memoranda
and entered as such in the books of account of the local
bank, and the actual debiting of the payor’s local or
foreign currency account in the Philippines is the actual
transaction that should be properly entered as such.9
The respective dispositive portions of the Decisions
dated May 2, 2002 in CTA Case No. 6009 and dated
December 18, 2002 in CTA Case No. 5951
read:chanRoblesvirtualLawlibrary
II. CTA Case No. 6009
WHEREFORE, in the light of all the foregoing, the instant
Petition for Review is PARTIALLY GRANTED. Respondent
is hereby ORDERED to REFUND or ISSUE A TAX CREDIT
CERTIFICATE in favor of Petitioner the amount of
P30,360,570.75 representing erroneous payment of
documentary stamp tax for the taxable year
1998.10cralawred
II. CTA Case No. 5951
WHEREFORE, in the light of the foregoing, the instant
petition is hereby partially granted. Accordingly,
respondent is hereby ORDERED to REFUND, or in the
alternative, ISSUE A TAX CREDIT CERTIFICATE in favor
40

of the petitioner in the reduced amount of
P16,436,395.83 representing erroneously paid
documentary stamp tax for the months of September
1997 to December 1997.11
However, the Court of Appeals reversed both decisions
of the CTA and ruled that the electronic messages of
HSBC’s investor-clients are subject to DST. The Court of
Appeals explained:chanRoblesvirtualLawlibrary
At bar, [HSBC] performs custodial services in behalf of
its investor-clients as regards their passive investments
in the Philippines mainly involving shares of stocks in
domestic corporations. These investor-clients maintain
Philippine peso and/or foreign currency accounts with
[HSBC]. Should they desire to purchase shares of stock
and other investments securities in the Philippines, the
investor-clients send their instructions and advises via
electronic messages from abroad to [HSBC] in the form
of SWIFT MT 100, MT 202, or MT 521 directing the
latter to debit their local or foreign currency account and
to pay the purchase price upon receipt of the securities
(CTA Decision, pp. 1-2; Rollo, pp. 41-42). Pursuant to
Section 181 of the NIRC, [HSBC] was thus required to
pay [DST] based on its acceptance of these electronic
messages – which, as [HSBC] readily admits in its
petition filed before the [CTA], were essentially orders to
pay the purchases of securities made by its client-
investors (Rollo, p. 60).
Appositely, the BIR correctly and legally assessed and
collected the [DST] from [HSBC] considering that the
said tax was levied against the acceptances and
payments by [HSBC] of the subject electronic
messages/orders for payment. The issue of whether
such electronic messages may be equated as a written
document and thus be subject to tax is beside the point.
As We have already stressed, Section 181 of the law
cited earlier imposes the [DST] not on the bill of
exchange or order for payment of money but on the
acceptance or payment of the said bill or order. The
acceptance of a bill or order is the signification by the
drawee of its assent to the order of the drawer to pay a
given sum of money while payment implies not only the
assent to the said order of the drawer and a recognition
of the drawer’s obligation to pay such aforesaid sum,
but also a compliance with such obligation (Philippine
National Bank vs. Court of Appeals, 25 SCRA 693
[1968]; Prudential Bank vs. Intermediate Appellate
Court, 216 SCRA 257 [1992]).
What is vital to the valid imposition of the [DST] under
Section 181 is the existence of the requirement of
acceptance or payment by the drawee (in this case,
[HSBC]) of the order for payment of money from its
investor-clients and that the said order was drawn from
a foreign country and payable in the Philippines. These
requisites are surely present here.
It would serve the parties well to understand the nature
of the tax being imposed in the case at bar. In Philippine
Home Assurance Corporation vs. Court of Appeals (301
SCRA 443 [1999]), the Supreme Court ruled that [DST
is] levied on the exercise by persons of certain privileges
conferred by law for the creation, revision, or
termination of specific legal relationships through the
CHRISpy TAX Cases (INC)
execution of specific instruments, independently of the
legal status of the transactions giving rise thereto. In the
same case, the High Court also declared – citing Du Pont
vs. United States (300 U.S. 150, 153 [1936])
The tax is not upon the business transacted but is an
excise upon the privilege, opportunity, or facility offered
at exchanges for the transaction of the business. It is an
excise upon the facilities used in the transaction of the
business separate and apart from the business itself. x x
x.
To reiterate, the subject [DST] was levied on the
acceptance and payment made by [HSBC] pursuant to
the order made by its client-investors as embodied in
the cited electronic messages, through which the herein
parties’ privilege and opportunity to transact business
respectively as drawee and drawers was exercised,
separate and apart from the circumstances and
conditions related to such acceptance and subsequent
payment of the sum of money authorized by the
concerned drawers. Stated another way, the [DST] was
exacted on [HSBC’s] exercise of its privilege under its
drawee-drawer relationship with its client-investor
through the execution of a specific instrument which, in
the case at bar, is the acceptance of the order for
payment of money. The acceptance of a bill or order for
payment may be done in writing by the drawee in the
bill or order itself, or in a separate instrument
(Prudential Bank vs. Intermediate Appellate Court,
supra.) Here, [HSBC]’s acceptance of the orders for the
payment of money was veritably ‘done in writing in a
separate instrument’ each time it debited the local or
foreign currency accounts of its client-investors pursuant
to the latter’s instructions and advises sent by electronic
messages to [HSBC]. The [DST] therefore must be paid
upon the execution of the specified instruments or
facilities covered by the tax – in this case, the
acceptance by [HSBC] of the order for payment of
money sent by the client-investors through electronic
messages. x x x.12
Hence, these petitions.
HSBC asserts that the Court of Appeals committed grave
error when it disregarded the factual and legal
conclusions of the CTA. According to HSBC, in the
absence of abuse or improvident exercise of authority,
the CTA’s ruling should not have been disturbed as the
CTA is a highly specialized court which performs judicial
functions, particularly for the review of tax cases. HSBC
further argues that the Commissioner of Internal
Revenue had already settled the issue on the taxability
of electronic messages involved in these cases in BIR
Ruling No. 132-99 and reiterated in BIR Ruling No. DA-
280-2004.13cralawred
The Commissioner of Internal Revenue, on the other
hand, claims that Section 181 of the 1997 Tax Code
imposes DST on the acceptance or payment of a bill of
exchange or order for the payment of money. The DST
under Section 18 of the 1997 Tax Code is levied on
HSBC’s exercise of a privilege which is specifically taxed
by law. BIR Ruling No. 132-99 is inconsistent with
prevailing law and long standing administrative practice,
respondent is not barred from questioning his own
41

revenue ruling. Tax refunds like tax exemptions are
strictly construed against the taxpayer.14cralawred
The Court finds for HSBC.
The Court agrees with the CTA that the DST under
Section 181 of the Tax Code is levied on the acceptance
or payment of “a bill of exchange purporting to be
drawn in a foreign country but payable in the
Philippines” and that “a bill of exchange is an
unconditional order in writing addressed by one person
to another, signed by the person giving it, requiring the
person to whom it is addressed to pay on demand or at
a fixed or determinable future time a sum certain in
money to order or to bearer.” A bill of exchange is one
of two general forms of negotiable instruments under
the Negotiable Instruments Law.15cralawred
The Court further agrees with the CTA that the
electronic messages of HSBC’s investor-clients
containing instructions to debit their respective local or
foreign currency accounts in the Philippines and pay a
certain named recipient also residing in the Philippines is
not the transaction contemplated under Section 181 of
the Tax Code as such instructions are “parallel to an
automatic bank transfer of local funds from a savings
account to a checking account maintained by a depositor
in one bank.” The Court favorably adopts the finding of
the CTA that the electronic messages “cannot be
considered negotiable instruments as they lack the
feature of negotiability, which, is the ability to be
transferred” and that the said electronic messages are
“mere memoranda” of the transaction consisting of the
“actual debiting of the [investor-client-]payor’s local or
foreign currency account in the Philippines” and “entered
as such in the books of account of the local bank,”
HSBC.16cralawred
More fundamentally, the instructions given through
electronic messages that are subjected to DST in these
cases are not negotiable instruments as they do not
comply with the requisites of negotiability under Section
1 of the Negotiable Instruments Law, which
provides:chanRoblesvirtualLawlibrary
Sec. 1. Form of negotiable instruments.– An instrument
to be negotiable must conform to the following
requirements:chanRoblesvirtualLawlibrary
(a) It must be in writing and signed by the maker or
drawer;
(b) Must contain an unconditional promise or order to
pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or
determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he
must be named or otherwise indicated therein with
reasonable certainty.
CHRISpy TAX Cases (INC)
The electronic messages are not signed by the investor-
clients as supposed drawers of a bill of exchange; they
do not contain an unconditional order to pay a sum
certain in money as the payment is supposed to come
from a specific fund or account of the investor-clients;
and, they are not payable to order or bearer but to a
specifically designated third party. Thus, the electronic
messages are not bills of exchange. As there was no bill
of exchange or order for the payment drawn abroad and
made payable here in the Philippines, there could have
been no acceptance or payment that will trigger the
imposition of the DST under Section 181 of the Tax
Code.
Section 181 of the 1997 Tax Code, which governs
HSBC’s claim for tax refund for taxable year 1998
subject of G.R. No. 167728,
provides:chanRoblesvirtualLawlibrary
SEC. 181. Stamp Tax Upon Acceptance of Bills of
Exchange and Others. – Upon any acceptance or
payment of any bill of exchange or order for the
payment of money purporting to be drawn in a foreign
country but payable in the Philippines, there shall be
collected a documentary stamp tax of Thirty centavos
(P0.30) on each Two hundred pesos (P200), or
fractional part thereof, of the face value of any such bill
of exchange, or order, or the Philippine equivalent of
such value, if expressed in foreign currency. (Emphasis
supplied.)
Section 230 of the 1977 Tax Code, as amended, which
governs HSBC’s claim for tax refund for DST paid during
the period September to December 1997 and subject of
G.R. No. 166018, is worded exactly the same as its
counterpart provision in the 1997 Tax Code quoted
above.
The origin of the above provision is Section 117 of the
Tax Code of 1904,17 which
provided:chanRoblesvirtualLawlibrary
SECTION 117. The acceptor or acceptors of any bill of
exchange or order for the payment of any sum of money
drawn or purporting to be drawn in any foreign country
but payable in the Philippine Islands, shall, before
paying or accepting the same, place thereupon a stamp
in payment of the tax upon such document in the same
manner as is required in this Act for the stamping of
inland bills of exchange or promissory notes, and no bill
of exchange shall be paid nor negotiated until such
stamp shall have been affixed thereto.18 (Emphasis
supplied.)
It then became Section 30(h) of the 1914 Tax
Code19:chanRoblesvirtualLawlibrary
SEC. 30. Stamp tax upon documents and papers. – Upon
documents, instruments, and papers, and upon
acceptances, assignments, sales, and transfers of the
obligation, right, or property incident thereto
documentary taxes for and in respect of the transaction
so had or accomplished shall be paid as hereinafter
prescribed, by the persons making, signing, issuing,
42

accepting, or transferring the same, and at the time
such act is done or transaction had:
xxxx
(h) Upon any acceptance or payment upon acceptance
of any bill of exchange or order for the payment of
money purporting to be drawn in a foreign country but
payable in the Philippine Islands, on each two hundred
pesos, or fractional part thereof, of the face value of any
such bill of exchange or order, or the Philippine
equivalent of such value, if expressed in foreign
currency, two centavos[.] (Emphasis supplied.)
It was implemented by Section 46 in relation to Section
39 of Revenue Regulations No. 26,20 as
amended:chanRoblesvirtualLawlibrary
SEC. 39. A Bill of Exchange is one that “denotes checks,
drafts, and all other kinds of orders for the payment of
money, payable at sight or on demand, or after a
specific period after sight or from a stated date.”
SEC. 46. Bill of Exchange, etc. – When any bill of
exchange or order for the payment of money drawn in a
foreign country but payable in this country whether at
sight or on demand or after a specified period after sight
or from a stated date, is presented for acceptance or
payment, there must be affixed upon acceptance or
payment of documentary stamp equal to P0.02 for each
P200 or fractional part thereof. (Emphasis supplied.)
It took its present form in Section 218 of the Tax Code
of 1939,21 which provided:chanRoblesvirtualLawlibrary
SEC. 218. Stamp Tax Upon Acceptance of Bills of
Exchange and Others. – Upon any acceptance or
payment of any bill of exchange or order for the
payment of money purporting to be drawn in a foreign
country but payable in the Philippines, there shall be
collected a documentary stamp tax of four centavos on
each two hundred pesos, or fractional part thereof, of
the face value of any such bill of exchange or order, or
the Philippine equivalent of such value, if expressed in
foreign currency. (Emphasis supplied.)
It then became Section 230 of the 1977 Tax Code,22 as
amended by Presidential Decree Nos. 1457 and 1959,
which, as stated earlier, was worded exactly as Section
181 of the current Tax Code:chanRoblesvirtualLawlibrary
SEC. 230. Stamp tax upon acceptance of bills of
exchange and others. – Upon any acceptance or
payment of any bill of exchange or order for the
payment of money purporting to be drawn in a foreign
country but payable in the Philippines, there shall be
collected a documentary stamp tax of thirty centavos on
each two hundred pesos, or fractional part thereof, of
the face value of any such bill of exchange, or order, or
the Philippine equivalent of such value, if expressed in
foreign currency. (Emphasis supplied.)
CHRISpy TAX Cases (INC)
The pertinent provision of the present Tax Code has
therefore remained substantially the same for the past
one hundred years. The identical text and common
history of Section 230 of the 1977 Tax Code, as
amended, and the 1997 Tax Code, as amended, show
that the law imposes DST on either (a) the acceptance
or (b) the payment of a foreign bill of exchange or order
for the payment of money that was drawn abroad but
payable in the Philippines.
DST is an excise tax on the exercise of a right or
privilege to transfer obligations, rights or properties
incident thereto.23 Under Section 173 of the 1997 Tax
Code, the persons primarily liable for the payment of the
DST are those (1) making, (2) signing, (3) issuing, (4)
accepting, or (5) transferring the taxable documents,
instruments or papers.24cralawred
In general, DST is levied on the exercise by persons of
certain privileges conferred by law for the creation,
revision, or termination of specific legal relationships
through the execution of specific instruments. Examples
of such privileges, the exercise of which, as effected
through the issuance of particular documents, are
subject to the payment of DST are leases of lands,
mortgages, pledges and trusts, and conveyances of real
property.25cralawred
As stated above, Section 230 of the 1977 Tax Code, as
amended, now Section 181 of the 1997 Tax Code, levies
DST on either (a) the acceptance or (b) the payment of
a foreign bill of exchange or order for the payment of
money that was drawn abroad but payable in the
Philippines. In other words, it levies DST as an excise
tax on the privilege of the drawee to accept or pay a bill
of exchange or order for the payment of money, which
has been drawn abroad but payable in the Philippines,
and on the corresponding privilege of the drawer to
have acceptance of or payment for the bill of exchange
or order for the payment of money which it has drawn
abroad but payable in the Philippines.
Acceptance applies only to bills of exchange.26
Acceptance of a bill of exchange has a very definite
meaning in law.27 In particular, Section 132 of the
Negotiable Instruments Law
provides:chanRoblesvirtualLawlibrary
Sec. 132. Acceptance; how made, by and so forth. – The
acceptance of a bill [of exchange28] is the signification
by the drawee of his assent to the order of the drawer.
The acceptance must be in writing and signed by the
drawee. It must not express that the drawee will
perform his promise by any other means than the
payment of money.
Under the law, therefore, what is accepted is a bill of
exchange, and the acceptance of a bill of exchange is
both the manifestation of the drawee’s consent to the
drawer’s order to pay money and the expression of the
drawee’s promise to pay. It is “the act by which the
drawee manifests his consent to comply with the
request contained in the bill of exchange directed to him
and it contemplates an engagement or promise to
pay.”29 Once the drawee accepts, he becomes an
acceptor.30 As acceptor, he engages to pay the bill of
43

exchange according to the tenor of his
acceptance.31cralawred
Acceptance is made upon presentment of the bill of
exchange, or within 24 hours after such presentment.32
Presentment for acceptance is the production or
exhibition of the bill of exchange to the drawee for the
purpose of obtaining his acceptance.33cralawred
Presentment for acceptance is necessary only in the
instances where the law requires it.34 In the instances
where presentment for acceptance is not necessary, the
holder of the bill of exchange can proceed directly to
presentment for payment.
Presentment for payment is the presentation of the
instrument to the person primarily liable for the purpose
of demanding and obtaining payment
thereof.35cralawred
Thus, whether it be presentment for acceptance or
presentment for payment, the negotiable instrument has
to be produced and shown to the drawee for acceptance
or to the acceptor for payment.
Revenue Regulations No. 26 recognizes that the
acceptance or payment (of bills of exchange or orders
for the payment of money that have been drawn abroad
but payable in the Philippines) that is subjected to DST
under Section 181 of the 1997 Tax Code is done after
presentment for acceptance or presentment for
payment, respectively. In other words, the acceptance
or payment of the subject bill of exchange or order for
the payment of money is done when there is
presentment either for acceptance or for payment of the
bill of exchange or order for the payment of money.
Applying the above concepts to the matter subjected to
DST in these cases, the electronic messages received by
HSBC from its investor-clients abroad instructing the
former to debit the latter’s local and foreign currency
accounts and to pay the purchase price of shares of
stock or investment in securities do not properly qualify
as either presentment for acceptance or presentment for
payment. There being neither presentment for
acceptance nor presentment for payment, then there
was no acceptance or payment that could have been
subjected to DST to speak of.
Indeed, there had been no acceptance of a bill of
exchange or order for the payment of money on the part
of HSBC. To reiterate, there was no bill of exchange or
order for the payment drawn abroad and made payable
here in the Philippines. Thus, there was no acceptance
as the electronic messages did not constitute the written
and signed manifestation of HSBC to a drawer’s order to
pay money. As HSBC could not have been an acceptor,
then it could not have made any payment of a bill of
exchange or order for the payment of money drawn
abroad but payable here in the Philippines. In other
words, HSBC could not have been held liable for DST
under Section 230 of the 1977 Tax Code, as amended,
and Section 181 of the 1997 Tax Code as it is not “a
person making, signing, issuing, accepting, or,
transferring” the taxable instruments under the said
CHRISpy TAX Cases (INC)
provision. Thus, HSBC erroneously paid DST on the said
electronic messages for which it is entitled to a tax
refund.
WHEREFORE, the petitions are hereby GRANTED and
the Decisions dated May 2, 2002 in CTA Case No. 6009
and dated December 18, 2002 in CTA Case No. 5951 of
the Court of Tax Appeals are REINSTATED.
SO ORDERED.
G.R. No. L-56568 May 20, 1987
REPUBLIC OF THE PHILIPPINES, represented by
the Bureau of Customs and the Bureau of Internal
Revenue, petitioner,
vs.
HONORABLE E.L. PERALTA, PRESIDING JUDGE OF
THE COURT OF FIRST INSTANCE OF MANILA,
BRANCH XVII, QUALITY TABACCO
CORPORATION, FRANCISCO, FEDERACION
OBRERO DE LA INDUSTRIA TABAQUERA Y OTROS
TRABAJADORES DE FILIPINAS (FOITAF) USTC
EMPLOYEES ASSOCIATION WORKERS UNION-
PTGWO, respondents.
Oscar A. Pascua for assignee F. Candelaria.
Teofilo C. Villarico for respondent Federation.
Pedro A. Lopez for respondent USTC.
FELICIANO, J.:
The Republic of the Philippines seeks the review on
certiorari of the Order dated 17 November 1980 of the
Court of First Instance of Manila in its Civil Case No.
108395 entitled "In the Matter of Voluntary Insolvency
of Quality Tobacco Corporation, Quality Tobacco
Corporation, Petitioner," and of the Order dated 19
January 1981 of the same court denying the motion for
reconsideration of the earlier Order filed by the Bureau
of Internal Revenue and the Bureau of Customs for the
Republic.
In the voluntary insolvency proceedings commenced in
May 1977 by private respondent Quality Tobacco
Corporation (the "Insolvent"), the following claims of
creditors were filed:
(i) P2,806,729.92, by the USTC Association of
Employees and workers Union-PTGWO USTC as
separation pay for their members. This amount plus an
additional sum of P280,672.99 as attorney's fees had
been awarded by the National Labor Relations
Commission in NLRC Case No. RB-IV-9775-77. 1
(ii) P53,805.05 by the Federacion de la Industria
Tabaquera y Otros Trabajadores de Filipinas ("FOITAF),
as separation pay for their members, an amount
similarly awarded by the NLRC in the same NLRC Case.
44

(iii) P1,085,188.22 by the Bureau of Internal Revenue
for tobacco inspection fees covering the period 1
October 1967 to 28 February 1973;
(iv) P276,161.00 by the Bureau of Customs for customs
duties and taxes payable on various importations by the
Insolvent. These obligations appear to be secured by
surety bonds. 2 Some of these imported items are
apparently still in customs custody so far as the record
before this Court goes.
In its questioned Order of 17 November 1980, the trial
court held that the above-enumerated claims of USTC
and FOITAF (hereafter collectively referred to as the
"Unions") for separation pay of their respective members
embodied in final awards of the National Labor Relations
Commission were to be preferred over the claims of the
Bureau of Customs and the Bureau of Internal Revenue.
The trial court, in so ruling, relied primarily upon Article
110 of the Labor Code which reads thus:
Article 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. Union paid wages shall be paid in full
before other creditors may establish any claim to a share
in the assets of the employer.
The Solicitor General, in seeking the reversal of the
questioned Orders, argues that Article 110 of the Labor
Code is not applicable as it speaks of "wages," a term
which he asserts does not include the separation pay
claimed by the Unions. "Separation pay," the Solicitor
General contends,
is given to a laborer for a separation from employment
computed on the basis of the number of years the
laborer was employed by the employer; it is a form of
penalty or damage against the employer in favor of the
employee for the latter's dismissal or separation from
service. 3
Article 97 (f) of the Labor Code defines "wages" in the
following terms:
Wage' paid to any employee shall mean the
remuneration or earnings, however designated, capable
of being expressed in terms of money, whether fixed or
ascertained on a time, task, piece, or commission basis,
or other method of calculating the same, which is
payable by an employer to an employee under a written
or unwritten contract of employment for work done or to
be done, or for services rendered or to be rendered, and
includes the fair and reasonable value, as determined by
the Secretary of Labor, of board, lodging, or other
facilities customarily furnished by the employer to the
employee. 'Fair and reasonable value' shall not include
any profit to the employer or to any person affiliated
with the employer.(emphasis supplied)
We are unable to subscribe to the view urged by the
Solicitor General. We note, in this connection, that in
CHRISpy TAX Cases (INC)
Philippine Commercial and Industrial Bank (PCIB) us.
National Mines and Allied Workers Union, 4 the Solicitor
General took a different view and there urged that the
term "wages" under Article 110 of the Labor Code may
be regarded as embracing within its scope severance
pay or termination or separation pay. In PCIB, this Court
agreed with the position advanced by the Solicitor
General.5 We see no reason for overturning this
particular position. We continue to believe that, for the
specific purposes of Article 110 and in the context of
insolvency termination or separation pay is reasonably
regarded as forming part of the remuneration or other
money benefits accruing to employees or workers by
reason of their having previously rendered services to
their employer; as such, they fall within the scope of
"remuneration or earnings — for services rendered or to
be rendered — ." Liability for separation pay might
indeed have the effect of a penalty, so far as the
employer is concerned. So far as concerns the
employees, however, separation pay is additional
remuneration to which they become entitled because,
having previously rendered services, they are separated
from the employer's service. The relationship between
separation pay and services rendered is underscored by
the fact that separation pay is measured by the amount
(i.e., length) of the services rendered. This construction
is sustained both by the specific terms of Article 110 and
by the major purposes and basic policy embodied in the
Labor Code. 6 It is also the construction that is
suggested by Article 4 of the Labor Code which directs
that doubts — assuming that any substantial rather than
merely frivolous doubts remain-in the interpretation of
the provisions of the labor Code and its implementing
rules and regulations shall be "resolved in favor of
labor."
The resolution of the issue of priority among the several
claims filed in the insolvency proceedings instituted by
the Insolvent cannot, however, rest on a reading of
Article 110 of the labor Code alone.
Article 110 of the Labor Code, in determining the reach
of its terms, cannot be viewed in isolation. Rather,
Article 110 must be read in relation to the provisions of
the Civil Code concerning the classification, concurrence
and preference of credits, which provisions find
particular application in insolvency proceedings where
the claims of all creditors, preferred or non-preferred,
may be adjudicated in a binding manner. 7 It is thus
important to begin by outlining the scheme constituted
by the provisions of the Civil Code on this subject.
Those provisions may be seen to classify credits against
a particular insolvent into three general categories,
namely:
(a) special preferred credits listed in Articles 2241 and
2242,
(b) ordinary preferred credits listed in Article 2244; and
(c) common credits under Article 2245.
Turning first to special preferred credits under Articles
2241 and 2242, it should be noted at once that these
45

credits constitute liens or encumbrances on the specific
movable or immovable property to which they relate.
Article 2243 makes clear that these credits "shall be
considered as mortgages or pledges of real or personal
property, or liens within the purview of legal provisions
governing insolvency." It should be emphasized in this
connection that "duties, taxes and fees due [on specific
movable property of the insolvent] to the State or any
subdivision thereof" (Article 2241 [1]) and "taxes due
upon the [insolvent's] land or building (2242 [1])"stand
first in preference in respect of the particular movable or
immovable property to which the tax liens have
attached. Article 2243 is quite explicit: "[T]axes
mentioned in number 1, Article 2241 and number 1,
Article 2242 shall first be satisfied. " The claims listed in
numbers 2 to 13 in Article 2241 and in numbers 2 to 10
in Articles 2242, all come after taxes in order of
precedence; such claims enjoy their privileged character
as liens and may be paid only to the extent that taxes
have been paid from the proceeds of the specific
property involved (or from any other sources) and only
in respect of the remaining balance of such proceeds.
What is more, these other (non-tax) credits, although
constituting liens attaching to particular property, are
not preferred one over another inter se. Provided tax
liens shall have been satisfied, non-tax liens or special
preferred credits which subsist in respect of specific
movable or immovable property are to be treated on an
equal basis and to be satisfied concurrently and
proportionately. 8 Put succintly, Articles 2241 and 2242
jointly with Articles 2246 to 2249 establish a two-tier
order of preference. The first tier includes only taxes,
duties and fees due on specific movable or immovable
property. All other special preferred credits stand on the
same second tier to be satisfied, pari passu and pro rata,
out of any residual value of the specific property to
which such other credits relate.
Credits which are specially preferred because they
constitute liens (tax or non-tax) in turn, take precedence
over ordinary preferred credits so far as concerns the
property to which the liens have attached. The specially
preferred credits must be discharged first out of the
proceeds of the property to which they relate, before
ordinary preferred creditors may lay claim to any part of
such proceeds. 9
If the value of the specific property involved is greater
than the sum total of the tax liens and other specially
preferred credits, the residual value will form part of the
"free property" of the insolvent — i.e., property not
impressed with liens by operation of Articles 2241 and
2242. If, on the other hand, the value of the specific
movable or immovable is less than the aggregate of the
tax liens and other specially preferred credits, the
unsatisfied balance of the tax liens and other such
credits are to the treated as ordinary credits under
Article 2244 and to be paid in the order of preference
there set up. 10
In contrast with Articles 2241 and 2242, Article 2244
creates no liens on determinate property which follow
such property. What Article 2244 creates are simply
rights in favor of certain creditors to have the cash and
other assets of the insolvent applied in a certain
sequence or order of priority. 11
CHRISpy TAX Cases (INC)
Only in respect of the insolvent's "free property" is an
order of priority established by Article 2244. In this
sequence, certain taxes and assessments also figure but
these do not have the same kind of overriding
preference that Articles 2241 No. 1 and 2242 No. I
create for taxes which constituted liens on the taxpayer's
property. Under Article 2244,
(a) taxes and assessments due to the national
government, excluding those which result in tax liens
under Articles 2241 No. 1 and 2242 No. 1 but including
the balance thereof not satisfied out of the movable or
immovable property to which such liens attached, are
ninth in priority;
(b) taxes and assessments due any province, excluding
those impressed as tax liens under Articles 2241 No. 1
and 2242 No. 1, but including the balance thereof not
satisfied out of the movable or immovable property to
which such liens attached, are tenth in priority; and
(c) taxes and assessments due any city or municipality,
excluding those impressed as tax liens under Articles
2241 No. I and 2242 No. 2 but including the balance
thereof not satisfied out of the movable or immovable
property to which such liens attached, are eleventh in
priority.
It is within the framework of the foregoing rules of the
Civil Code that the question of the relative priority of the
claims of the Bureau of Customs and the Bureau of
Internal Revenue, on the one hand, and of the claims of
the Unions for separation pay of their members, on the
other hand, is to be resolved. A related vital issue is
what impact Article 110 of the labor Code has had on
those provisions of the Civil Code.
A. Claim of the Bureau of Customs for Unpaid Customs
Duties and Taxes-
Under Section 1204 of the Tariff and Customs Code, 12
the liability of an importer
for duties, taxes and fees and other charges attaching
on importation constitute a personal debt due from the
importer to the government which can be discharged
only by payment in full of all duties, taxes, fees and
other charges legally accruing It also constitutes a lien
upon the articles imported which may be enforced while
such articles are in the custody or subject to the control
of the government. (emphasis supplied)
Clearly, the claim of the Bureau of Customs for unpaid
customs duties and taxes enjoys the status of a specially
preferred credit under Article 2241, No. 1, of the Civil
Code. only in respect of the articles importation of which
by the Insolvent resulted in the assessment of the
unpaid taxes and duties, and which are still in the
custody or subject to the control of the Bureau of
Customs. The goods imported on one occasion are not
subject to a lien for customs duties and taxes assessed
upon other importations though also effected by the
Insolvent. Customs duties and taxes which remain
unsatisfied after levy upon the imported articles on
which such duties and taxes are due, would have to be
46

paid out of the Insolvent's "free property" in accordance
with the order of preference embodied in Article 2244 of
the Civil Code. Such unsatisfied customs duties and
taxes would fall within Article 2244, No. 9, of the Civil
Code and hence would be ninth in priority.
B. Claims of the Bureau of Internal Revenue for Tabacco
Inspection Fees —
Under Section 315 of the National Internal Revenue
Code ("old Tax Code"), 13 later reenacted in Identical
terms as Section 301 of the Tax Code of 1977, 14 an
unpaid "internal revenue tax," together with related
interest, penalties and costs, constitutes a lien in favor
of the Government from the time an assessment
therefor is made and until paid, "upon all property and
rights to property belonging to the taxpayer."
Tobacco inspection fees are specifically mentioned as
one of the miscellaneous taxes imposed under the
National Internal Revenue Code, specifically Title VIII,
Chapter IX of the old Tax Code and little VIII, Chapter
VII of the Tax Code of 1977. 15 Tobacco inspection fees
are collected both for purposes of regulation and control
and for purposes of revenue generation: half of the said
fees accrues to the Tobacco Inspection Fund created by
Section 12 of Act No. 2613, as amended by Act No.
3179, while the other half accrues to the Cultural Center
of the Philippines. Tobacco inspection fees, in other
words, are imposed both as a regulatory measure and
as a revenue-raising measure. In Commissioner of
Internal Revenue us. Guerrero, et al 16 this Court held,
through Mr. Chief Justice Concepcion, that the term
"tax" is used in Section 315 of the old Tax Code:
not in the limited sense [of burdens imposed upon
persons and/or properties, by way of contributions to
the support of the Government, in consideration of
general benefits derived from its operation], but, in a
broad sense, encompassing all government revenues
collectible by the Commissioner of Internal Revenue
under said Code, whether involving taxes, in the strict
technical sense thereof, or not. x x x As used in Title IX
of said Code, the term 'tax' includes 'any national
internal revenue tax, fee or charge imposed by the
Code. 17
It follows that the claim of the Bureau of Internal
Revenue for unpaid tobacco inspection fees constitutes a
claim for unpaid internal revenue taxes 18 which gives
rise to a tax lien upon all the properties and assets,
movable and 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. 19
C. Claims of the Unions for Separation Pay of Their
Members —
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
CHRISpy TAX Cases (INC)
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 laborers' 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
within 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.
We come to the question of what impact Article 110 of
the Labor Code has had upon the complete scheme of
classification, concurrence and preference of credits in
insolvency set out in the Civil Code. We believe and so
hold that Article 110 of the Labor Code did not sweep
away the overriding preference accorded under the
scheme of the Civil Code to tax claims of the
government or any subdivision thereof which constitute
a lien upon properties of the Insolvent. It is frequently
said that taxes are the very lifeblood of government.
The effective collection of taxes is a task of highest
importance for the sovereign. It is critical indeed for its
own survival. It follows that language of a much higher
degree of specificity than that exhibited in Article 110 of
the Labor Code is necessary to set aside the intent and
purpose of the legislator that shines through the
precisely crafted provisions of the Civil Code. It cannot
be assumed simpliciter that the legislative authority, by
using in Article 110 the words "first preference" and
"any provision of law to the contrary notwithstanding"
intended to disrupt the elaborate and symmetrical
structure set up in the Civil Code. Neither can it be
47

assumed casually that Article 110 intended to subsume
the sovereign itself within the term "other creditors" in
stating that "unpaid wages shall be paid in full before
other creditors may establish any claim to a share in the
assets of employer." Insistent considerations of public
policy prevent us from giving to "other creditors" a
linguistically unlimited scope that would embrace the
universe of creditors save only unpaid employees.
We, however, do not believe that Article 110 has had no
impact at all upon the provisions of the Civil Code.
Bearing in mind the overriding precedence given to
taxes, duties and fees by the Civil Code and the fact that
the Labor Code does not impress any lien on the
property of an employer, the use of the phrase "first
preference" in Article 110 indicates that what Article 110
intended to modify is the order of preference found in
Article 2244, which order relates, as we have seen, to
property of the Insolvent that is not burdened with the
liens or encumbrances created or recognized by Articles
2241 and 2242. We have noted that Article 2244,
number 2, establishes second priority for claims for
wages for services rendered by employees or laborers of
the Insolvent "for one year preceding the
commencement of the proceedings in insolvency."
Article 110 of the Labor Code establishes "first
preference" for services rendered "during the period
prior to the bankruptcy or liquidation, " a period not
limited to the year immediately prior to the bankruptcy
or liquidation. Thus, very substantial effect may be given
to the provisions of Article 110 without grievously
distorting the framework established in the Civil Code by
holding, as we so hold, that Article 110 of the Labor
Code has modified Article 2244 of the Civil Code in two
respects: (a) firstly, by removing the one year limitation
found in Article 2244, number 2; and (b) secondly, by
moving up claims for unpaid wages of laborers or
workers of the Insolvent from second priority to first
priority in the order of preference established I by Article
2244.
Accordingly, and by way of recapitulating the application
of Civil Code and Labor Code provisions to the facts
herein, the trial court should inventory the properties of
the Insolvent so as to determine specifically: (a)
whether the assets of the Insolvent before the trial court
includes stocks of processed or manufactured tobacco
products; and (b) whether the Bureau of Customs still
has in its custody or control articles imported by the
Insolvent and subject to the lien of the government for
unpaid customs duties and taxes.
In respect of (a), if the Insolvent has inventories of
processed or manufactured tobacco products, such
inventories must be subjected firstly to the claim of the
Bureau of Internal Revenue for unpaid tobacco
inspection fees. The remaining value of such inventories
after satisfaction of such fees (or should such inspection
fees be satisfied out of other properties of the Insolvent)
will be subject to a lien in favor of the Unions by virtue
of Article 2241, number 6. In case, upon the other hand,
the Insolvent no longer has any inventory of processed
or manufactured product, then the claim of the Unions
for separation pay would have to be satisfied out of the
"free property" of the Insolvent under Article 2244 of the
Civil Code. as modified by Article 110 of the Labor Code.
CHRISpy TAX Cases (INC)
Turning to (b), should the Bureau of Customs no longer
have any importations by the Insolvent still within
customs custody or control, or should the importations
still held by the Bureau of Customs be or have become
insufficient in value for the purpose, customs duties and
taxes remaining unpaid would have only ninth priority by
virtue of Article 2244, number 9. In respect therefore of
the Insolvent's "free property, " the claims of the Unions
will enjoy first priority under Article 2244 as modified
and will be paid ahead of the claims of the Bureau of
Customs for any customs duties and taxes still remaining
unsatisfied.
It is understood that the claims of the Unions referred to
above do not include the 10% claim for attorney's fees.
Attorney's fees incurred by the Unions do not stand on
the same footing as the Unions' claims for separation
pay of their members.
WHEREFORE, the petition for review is granted and the
Orders dated 17 November 1980 and 19 January 1981
of the trial court are modified accordingly. This case is
hereby remanded to the trial court for further
proceedings in insolvency compatible with the rulings set
forth above. No pronouncement as to costs.
SO ORDERED.
G.R. No. L-22734             September 15, 1967
COMMISSIONER OF INTERNAL REVENUE,
petitioner,
vs.
MANUEL B. PINEDA, as one of the heirs of
deceased ATANASIO PINEDA, respondent.
Office of the Solicitor General for petitioner.
Manuel B. Pineda for and in his own behalf as
respondent.
BENGZON, J.P., J.:
On May 23, 1945 Atanasio Pineda died, survived by his
wife, Felicisima Bagtas, and 15 children, the eldest of
whom is Manuel B. Pineda, a lawyer. Estate proceedings
were had in the Court of First Instance of Manila (Case
No. 71129) wherein the surviving widow was appointed
administratrix. The estate was divided among and
awarded to the heirs and the proceedings terminated on
June 8, 1948. Manuel B. Pineda's share amounted to
about P2,500.00.
After the estate proceedings were closed, the Bureau of
Internal Revenue investigated the income tax liability of
the estate for the years 1945, 1946, 1947 and 1948 and
it found that the corresponding income tax returns were
not filed. Thereupon, the representative of the Collector
of Internal Revenue filed said returns for the estate on
the basis of information and data obtained from the
aforesaid estate proceedings and issued an assessment
for the following:
1. Deficiency income tax
1945 P135.83
48

1946 436.95
1947 1,206.91 P1,779.69
  Add: 5% surcharge 88.98
1% monthly interest
from November 30,
1953 to April 15, 1957 720.77
Compromise for late
filing 80.00
Compromise for late
payment 40.00
Total amount due
P2,707.44
===========
Additional residence tax for P14.50
2.
1945 ===========
3. Real Estate dealer's tax for
the fourth quarter of 1946 P207.50
and the whole year of 1947 ===========
Manuel B. Pineda, who received the assessment,
contested the same. Subsequently, he appealed to the
Court of Tax Appeals alleging that he was appealing
"only that proportionate part or portion pertaining to him
as one of the heirs."
After hearing the parties, the Court of Tax Appeals
rendered judgment reversing the decision of the
Commissioner on the ground that his right to assess and
collect the tax has prescribed. The Commissioner
appealed and this Court affirmed the findings of the Tax
Court in respect to the assessment for income tax for
the year 1947 but held that the right to assess and
collect the taxes for 1945 and 1946 has not prescribed.
For 1945 and 1946 the returns were filed on August 24,
1953; assessments for both taxable years were made
within five years therefrom or on October 19, 1953; and
the action to collect the tax was filed within five years
from the latter date, on August 7, 1957. For taxable year
1947, however, the return was filed on March 1, 1948;
the assessment was made on October 19, 1953, more
than five years from the date the return was filed;
hence, the right to assess income tax for 1947 had
prescribed. Accordingly, We remanded the case to the
Tax Court for further appropriate proceedings.1
In the Tax Court, the parties submitted the case for
decision without additional evidence.
On November 29, 1963 the Court of Tax Appeals
rendered judgment holding Manuel B. Pineda liable for
the payment corresponding to his share of the following
taxes:
Deficiency income tax
1945 P135.83
1946 436.95
Real estate dealer's
fixed tax 4th quarter of
1946 and whole year of
1947 P187.50
CHRISpy TAX Cases (INC)
The Commissioner of Internal Revenue has appealed to
Us and has proposed to hold Manuel B. Pineda liable for
the payment of all the taxes found by the Tax Court to
be due from the estate in the total amount of P760.28
instead of only for the amount of taxes corresponding to
his share in the estate.1awphîl.nèt
Manuel B. Pineda opposes the proposition on the ground
that as an heir he is liable for unpaid income tax due the
estate only up to the extent of and in proportion to any
share he received. He relies on Government of the
Philippine Islands v. Pamintuan 2 where We held that
"after the partition of an estate, heirs and distributees
are liable individually for the payment of all lawful
outstanding claims against the estate in proportion to
the amount or value of the property they have
respectively received from the estate."
We hold that the Government can require Manuel B.
Pineda to pay the full amount of the taxes assessed.
Pineda is liable for the assessment as an heir and as a
holder-transferee of property belonging to the
estate/taxpayer. As an heir he is individually answerable
for the part of the tax proportionate to the share he
received from the inheritance.3 His liability, however,
cannot exceed the amount of his share.4
As a holder of property belonging to the estate, Pineda
is liable for he tax up to the amount of the property in
his possession. The reason is that the Government has a
lien on the P2,500.00 received by him from the estate as
his share in the inheritance, for unpaid income taxes 4a
for which said estate is liable, pursuant to the last
paragraph of Section 315 of the Tax Code, which we
quote hereunder:
If any person, corporation, partnership, joint-account
(cuenta en participacion), association, or insurance
company liable to pay the income tax, neglects or
refuses to pay the same after demand, the amount shall
be a lien in favor of the Government of the Philippines
from the time when the assessment was made by the
Commissioner of Internal Revenue until paid with
interest, penalties, and costs that may accrue in addition
thereto upon all property and rights to property
belonging to the taxpayer: . . .
By virtue of such lien, the Government has the right to
subject the property in Pineda's possession, i.e., the
P2,500.00, to satisfy the income tax assessment in the
sum of P760.28. After such payment, Pineda will have a
right of contribution from his co-heirs, 5 to achieve an
adjustment of the proper share of each heir in the
distributable estate.
All told, the Government has two ways of collecting the
tax in question. One, by going after all the heirs and
collecting from each one of them the amount of the tax
proportionate to the inheritance received. This remedy
was adopted in Government of the Philippine Islands v.
Pamintuan, supra. In said case, the Government filed an
action against all the heirs for the collection of the tax.
This action rests on the concept that hereditary property
consists only of that part which remains after the
49

settlement of all lawful claims against the estate, for the
settlement of which the entire estate is first liable. 6 The
reason why in case suit is filed against all the heirs the
tax due from the estate is levied proportionately against
them is to achieve thereby two results: first, payment of
the tax; and second, adjustment of the shares of each
heir in the distributed estate as lessened by the tax.
Another remedy, pursuant to the lien created by Section
315 of the Tax Code upon all property and rights to
property belonging to the taxpayer for unpaid income
tax, is by subjecting said property of the estate which is
in the hands of an heir or transferee to the payment of
the tax due, the estate. This second remedy is the very
avenue the Government took in this case to collect the
tax. The Bureau of Internal Revenue should be given, in
instances like the case at bar, the necessary discretion
to avail itself of the most expeditious way to collect the
tax as may be envisioned in the particular provision of
the Tax Code above quoted, because taxes are the
lifeblood of government and their prompt and certain
availability is an imperious need. 7 And as afore-stated in
this case the suit seeks to achieve only one objective:
payment of the tax. The adjustment of the respective
shares due to the heirs from the inheritance, as lessened
by the tax, is left to await the suit for contribution by the
heir from whom the Government recovered said tax.
WHEREFORE, the decision appealed from is modified.
Manuel B. Pineda is hereby ordered to pay to the
Commissioner of Internal Revenue the sum of P760.28
as deficiency income tax for 1945 and 1946, and real
estate dealer's fixed tax for the fourth quarter of 1946
and for the whole year 1947, without prejudice to his
right of contribution for his co-heirs. No costs. So
ordered.
G.R. No. L-22734             September 15, 1967
COMMISSIONER OF INTERNAL REVENUE,
petitioner,
vs.
MANUEL B. PINEDA, as one of the heirs of
deceased ATANASIO PINEDA, respondent.
Office of the Solicitor General for petitioner.
Manuel B. Pineda for and in his own behalf as
respondent.
BENGZON, J.P., J.:
On May 23, 1945 Atanasio Pineda died, survived by his
wife, Felicisima Bagtas, and 15 children, the eldest of
whom is Manuel B. Pineda, a lawyer. Estate proceedings
were had in the Court of First Instance of Manila (Case
No. 71129) wherein the surviving widow was appointed
administratrix. The estate was divided among and
awarded to the heirs and the proceedings terminated on
June 8, 1948. Manuel B. Pineda's share amounted to
about P2,500.00.
After the estate proceedings were closed, the Bureau of
Internal Revenue investigated the income tax liability of
the estate for the years 1945, 1946, 1947 and 1948 and
it found that the corresponding income tax returns were
CHRISpy TAX Cases (INC)
not filed. Thereupon, the representative of the Collector
of Internal Revenue filed said returns for the estate on
the basis of information and data obtained from the
aforesaid estate proceedings and issued an assessment
for the following:
1. Deficiency income tax
1945 P135.83
1946 436.95
1947 1,206.91 P1,779.69
  Add: 5% surcharge 88.98
1% monthly interest
from November 30,
1953 to April 15, 1957 720.77
Compromise for late
filing 80.00
Compromise for late
payment 40.00
Total amount due
P2,707.44
===========
Additional residence tax for P14.50
2.
1945 ===========
3. Real Estate dealer's tax for
the fourth quarter of 1946 P207.50
and the whole year of 1947 ===========
Manuel B. Pineda, who received the assessment,
contested the same. Subsequently, he appealed to the
Court of Tax Appeals alleging that he was appealing
"only that proportionate part or portion pertaining to him
as one of the heirs."
After hearing the parties, the Court of Tax Appeals
rendered judgment reversing the decision of the
Commissioner on the ground that his right to assess and
collect the tax has prescribed. The Commissioner
appealed and this Court affirmed the findings of the Tax
Court in respect to the assessment for income tax for
the year 1947 but held that the right to assess and
collect the taxes for 1945 and 1946 has not prescribed.
For 1945 and 1946 the returns were filed on August 24,
1953; assessments for both taxable years were made
within five years therefrom or on October 19, 1953; and
the action to collect the tax was filed within five years
from the latter date, on August 7, 1957. For taxable year
1947, however, the return was filed on March 1, 1948;
the assessment was made on October 19, 1953, more
than five years from the date the return was filed;
hence, the right to assess income tax for 1947 had
prescribed. Accordingly, We remanded the case to the
Tax Court for further appropriate proceedings.1
In the Tax Court, the parties submitted the case for
decision without additional evidence.
On November 29, 1963 the Court of Tax Appeals
rendered judgment holding Manuel B. Pineda liable for
the payment corresponding to his share of the following
taxes:
Deficiency income tax
50

1945 P135.83
1946 436.95
Real estate dealer's
fixed tax 4th quarter of
1946 and whole year of
1947 P187.50
The Commissioner of Internal Revenue has appealed to
Us and has proposed to hold Manuel B. Pineda liable for
the payment of all the taxes found by the Tax Court to
be due from the estate in the total amount of P760.28
instead of only for the amount of taxes corresponding to
his share in the estate.1awphîl.nèt
Manuel B. Pineda opposes the proposition on the ground
that as an heir he is liable for unpaid income tax due the
estate only up to the extent of and in proportion to any
share he received. He relies on Government of the
Philippine Islands v. Pamintuan 2 where We held that
"after the partition of an estate, heirs and distributees
are liable individually for the payment of all lawful
outstanding claims against the estate in proportion to
the amount or value of the property they have
respectively received from the estate."
We hold that the Government can require Manuel B.
Pineda to pay the full amount of the taxes assessed.
Pineda is liable for the assessment as an heir and as a
holder-transferee of property belonging to the
estate/taxpayer. As an heir he is individually answerable
for the part of the tax proportionate to the share he
received from the inheritance.3 His liability, however,
cannot exceed the amount of his share.4
As a holder of property belonging to the estate, Pineda
is liable for he tax up to the amount of the property in
his possession. The reason is that the Government has a
lien on the P2,500.00 received by him from the estate as
his share in the inheritance, for unpaid income taxes 4a
for which said estate is liable, pursuant to the last
paragraph of Section 315 of the Tax Code, which we
quote hereunder:
If any person, corporation, partnership, joint-account
(cuenta en participacion), association, or insurance
company liable to pay the income tax, neglects or
refuses to pay the same after demand, the amount shall
be a lien in favor of the Government of the Philippines
from the time when the assessment was made by the
Commissioner of Internal Revenue until paid with
interest, penalties, and costs that may accrue in addition
thereto upon all property and rights to property
belonging to the taxpayer: . . .
By virtue of such lien, the Government has the right to
subject the property in Pineda's possession, i.e., the
P2,500.00, to satisfy the income tax assessment in the
sum of P760.28. After such payment, Pineda will have a
right of contribution from his co-heirs, 5 to achieve an
adjustment of the proper share of each heir in the
distributable estate.
All told, the Government has two ways of collecting the
tax in question. One, by going after all the heirs and
CHRISpy TAX Cases (INC)
collecting from each one of them the amount of the tax
proportionate to the inheritance received. This remedy
was adopted in Government of the Philippine Islands v.
Pamintuan, supra. In said case, the Government filed an
action against all the heirs for the collection of the tax.
This action rests on the concept that hereditary property
consists only of that part which remains after the
settlement of all lawful claims against the estate, for the
settlement of which the entire estate is first liable. 6 The
reason why in case suit is filed against all the heirs the
tax due from the estate is levied proportionately against
them is to achieve thereby two results: first, payment of
the tax; and second, adjustment of the shares of each
heir in the distributed estate as lessened by the tax.
Another remedy, pursuant to the lien created by Section
315 of the Tax Code upon all property and rights to
property belonging to the taxpayer for unpaid income
tax, is by subjecting said property of the estate which is
in the hands of an heir or transferee to the payment of
the tax due, the estate. This second remedy is the very
avenue the Government took in this case to collect the
tax. The Bureau of Internal Revenue should be given, in
instances like the case at bar, the necessary discretion
to avail itself of the most expeditious way to collect the
tax as may be envisioned in the particular provision of
the Tax Code above quoted, because taxes are the
lifeblood of government and their prompt and certain
availability is an imperious need. 7 And as afore-stated in
this case the suit seeks to achieve only one objective:
payment of the tax. The adjustment of the respective
shares due to the heirs from the inheritance, as lessened
by the tax, is left to await the suit for contribution by the
heir from whom the Government recovered said tax.
WHEREFORE, the decision appealed from is modified.
Manuel B. Pineda is hereby ordered to pay to the
Commissioner of Internal Revenue the sum of P760.28
as deficiency income tax for 1945 and 1946, and real
estate dealer's fixed tax for the fourth quarter of 1946
and for the whole year 1947, without prejudice to his
right of contribution for his co-heirs. No costs. So
ordered.
G.R. No. 139736 October 17, 2005
BANK OF THE PHILIPPINE ISLANDS, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE,
Respondent.
DECISION
CHICO-NAZARIO, J.:
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
51

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:
₱18,480,000.00 x ₱0.30 (Sec. 182 NIRC).
₱200.00
27,720.00
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
CHRISpy TAX Cases (INC)
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 –
52

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,
CHRISpy TAX Cases (INC)
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
53

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
CHRISpy TAX Cases (INC)
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.
I
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.
54

(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.
CHRISpy TAX Cases (INC)
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
55

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.
CHRISpy TAX Cases (INC)
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
56

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
CHRISpy TAX Cases (INC)
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.
57

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
CHRISpy TAX Cases (INC)
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.
58

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
CHRISpy TAX Cases (INC)
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
59

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
CHRISpy TAX Cases (INC)
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
60

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
CHRISpy TAX Cases (INC)
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.
61

G.R. No. L-12174 April 26, 1962
MARIA B. CASTRO, petitioner,
vs.
THE COLLECTOR OF INTERNAL REVENUE, respondent.
Rosendo J. Tansinsin and Manuel O. Chan for petitioner.
Office of the Solicitor General and Special Attorney
Librada del Rosario-Natividad for respondent.
REYES, J.B.L., J.:
Appeal from a decision of the Court of Tax Appeals (in
its C.T.A. Case 141) holding petitioner Maria B. Castro
liable under the War Profits Tax Law, Republic Act No.
55, and ordering her to pay a deficiency war profits tax
(including surcharges and interest) in the amount of
P1,360,514.66, and costs.
The background of this case is set forth in great detail in
the decision appealed from. We quote:
Petitioner Maria B. Castro, who is authorized to manage
her own property, is a duly licensed merchant. Pursuant
to the provisions of Section 4 (b) and (c) of Republic Act
No. 55, she filed with the Bureau of Internal Revenue on
February 28, 1947, her war profits tax returns which
showed a net worth on February 26, 1945 in the amount
of P431,884.00 and a net worth on December 8, 1941 in
the sum of P409,581.57. Although there is indicated an
increase in net worth in the amount of P22,302.43, she
is totally exempted from paying any war profits tax
therefor as the deduction of six per centum (6%) per
annum of the net worth on December 8, 1941 therefrom
would show only a taxable increase in net worth in the
amount of P5,574.61 which is not taxable under the said
law.
On November 22, 1947, however, Criminal Case No.
4976 was filed against her in the Court of First Instance
of Manila for violation of Section 4, in connection with
Section 8, of the War Profits Tax Law, for allegedly
defrauding the Republic of the Philippines in the total
amount of P1,048,687.76. The criminal action, was filed
at the instance of respondent and simultaneous with the
filing of said action, the petitioner received for the first
time the notice of assessment dated November 19, 1947
by registered mail from the Collector of Internal
Revenue. The said letter of demand was based on the
report of Supervising Examiner Felipe Aquino of the
Bureau of Internal Revenue, who recommended that the
petitioner be assessed and made to pay the sum of
P1,048,687.76 as war profits tax and surcharge,
computed as follows: .
Petitioner through counsel filed a motion to quash the
criminal action against her and during the pendency of
the same, she amended on December 20, 1947, her
original war profits tax returns making it to appear that
her true net worth on February 26, 1945 was
P315,438.32 while her net worth on December 8, 1941
was left unchanged at P409,581.57. According to the
CHRISpy TAX Cases (INC)
amended return, there was therefore a decrease in net
worth in the amount of P94,143.25 instead of an
increase of P22,302.43 as originally reported.
On February 9, 1948, the motion of petitioner to quash
the information was denied by the Court of First
Instance of Manila. At the sheduled hearing of the case
on the merits on March 7, 1949, the City Fiscal of Manila
manifested in open court that after a re-investigation of
the case "the amount of the tax due and for which the
accused stands charged for evading payment is only
about P700,000.00, instead of P1,048,687.76 as stated
in the information." However, at the continuation of the
hearing of the case on February 22, 1950, Supervising
Examiner Felipe Aquino of the Bureau of Internal
Revenue, who testified for the prosecution, declared in
answer to questions propounded by the City Fiscal "that
as a result of a detailed reinvestigation conducted by his
office, it was found out that no war profits tax was due
from the accused in connection with the present case."
Whereupon, City Fiscal Angeles moved for the dismissal
of the case. Finding the petition for dismissal to be well
taken, the Court of First Instance of Manila, in an Order
dated February 22, 1950, dismissed Criminal Case No.
4976 against petitioner.
After the dismissal of the Criminal Case, another report
was submitted by the same Supervising Examiner Felipe
Aquino to his superiors wherein he changed his previous
stand taken before the Court of First Instance of Manila,
on the basis of which report another letter of demand
for P2,008,293.53 as war profits tax was issued against
petitioner on January 24, 1950. Barely one month
thereafter, another report was again submitted by the
same Supervising Examiner Felipe Aquino to his
superiors, on the basis of which another letter of
demand for war profits tax was issued by respondent
against petitioner for the sum of P2,229,976.94 or an
increase of P221,683.31 over that assessment of
January 24, 1950. The case was again referred to the
City Fiscal's Office for another prosecution based on the
earlier demand but the same was again dropped.
Following insistent requests of petitioner for
reinvestigation of her case, the then Secretary of
Finance Pio Pedrosa created a committee on April 11,
1950 to review or re-examine the assessment for war
profits tax issued against the petitioner. This committee,
otherwise known as the Pedrosa Committee, was
chairmanned by Atty. Artemio M. Lobrin of the Bureau of
Internal Revenue, with Messrs. Melecio R. Domingo and
Roman M. Umali of the same office, Vivencio L. de
Peralta of the General Auditing Office and Jose P.
Alejandro of the Office of the Solicitor General, as
members. After a thorough investigation of the case, the
Pedrosa Committee on September 12, 1950, submitted
its report, recommending the collection of the amount of
P3,593,950.78 as war profits tax due from petitioner
inclusive of surcharge and interests, broken down as
follows: .
The findings and recommendations of the Pedrosa
Committee were forwarded to the President of the
Philippines for approval and on September 22, 1950, the
President approved the same in toto.
62

Accordingly, on September 23, 1950 the respondent
demanded from the petitioner Maria B. Castro the
payment of the total amount of P3,593,950.78 as war
profits tax computed in detail as follows: .
XXX
In order to enforce collection of this last mentioned
assessment of P3,593,950.78, the respondent caused to
be advertised on October 18, 1950, the sale at public
auction on November 22, and 27, 1950, of various real
properties of petitioner to satisfy the war profits tax
assessed against her. The petitioner, in order to stop the
scheduled sale at public auction, filed on October 18,
1950, before the Court of First Instance of Manila a
petition for preliminary injunction (Civil Case No. 12356)
against the Collector of Internal Revenue, praying,
among others, that an order be issued enjoining said
official from proceeding with the collection by summary
methods of the war profits tax demanded. Over the
objection of respondent that the Court of First Instance
had no jurisdiction to entertain the complaint nor to
issue a writ of injunction, the said Court entered an
order dated November 8, 1950 declaring that it had
authority proceed with the case but denied the petition
for preliminary injunction. Inasmuch as no preliminary
injunction was issued by the Court, respondent
proceeded with the distraint and levy and sale at public
auction of the properties of petitioner. These properties,
which are situated in the Cities of Manila, Pasay and
Tagaytay and in the Municipalities of Caloocan and
Makati, Rizal, and Moncada, Tarlac, and described more
particularly in Exhibits C, C-1, C-2, C-3, C-4 and C-5 of
the petition for injunction filed with this Court, were
offered for sale on November 22, and 27, 1950 as
scheduled, to answer for the war profits tax liability of
petitioner to the Republic of the Philippines in the
assessed sum of P3,593,950.78, inclusive of surcharges
and interest from April 1, 1947 to September 30, 1950.
For lack of bidders on the scheduled dates of sale, the
following properties (except those in Tagaytay) with
their corresponding assessed value, were forfeited to the
Government under Section 328 of the National Internal
Revenue Code: .
XXX
In another sale at public auction on April 23, 1954, the
property of petitioner situated in Caloocan, Rizal, with an
assessed value of P4,990.00 was also offered for sale to
answer for her war profits tax liability. There being no
bidders in this sale as in the previous sale, this last
mentioned real property of petitioner was also forfeited
to the Government.
The petitioner has not exercised her right of legal
redemption with respect to all these real properties with
a total assessed value of P858,440.00 which were sold
at public auction by the respondent and forfeited in
favor of the Government for lack of bidders.
Parenthetically, it may be stated that the hearing of Civil
Case No. 12356 before the Court of First Instance of
Manila for Preliminary Injunction was not continued to
CHRISpy TAX Cases (INC)
its final determination by said court as the Supreme
Court in a decision promulgated on October 31, 1951
declared the lower court without jurisdiction to proceed
with the trial. (Saturnino David v. The Honorable Simeon
Ramos and Maria B. Castro, G.R. No. L-4300)..
In the course of the summary methods employed by the
respondent to enforce the collection of the war profits
tax liability of petitioner, the respondent also distrained
and advertised for sale the properties of the Marvel
Building Corporation in which the petitioner had a
substantial interest. To counter-act the move, the said
corporation through counsel filed on November 31,
1950, Civil Case No. 12555 in the Court of First Instance
of Manila wherein it sought to enjoin the respondent
Collector of Internal Revenue from selling at public
auction its various properties described in the complaint.
While the corporation was able to secure the injunction
from the lower court, the same was dissolved by the
Supreme Court in its decision in G.R. No. L-5081, Marvel
Building Corporation v. Saturnino David, promulgated on
February 24, 1954. Petitioner Maria B. Castro was
declared therein as the sole and exclusive owner of all
shares of stock of the Marvel Building Corporation and
all the other partners are her dummies.
In the meantime, petitioner filed on December 10, 1951,
Civil Case No. 15316 with the Court of First Instance of
Manila against the respondent Collector of Internal
Revenue for the recovery of the properties advertised
for saleon November 22 and 27, 1950 which for lack of
bidders were forfeited to theGovernment. However,
before the case could be tried on the merits before said
Court, the Court of Tax Appeals was created by Republic
Act No. 1125 and pursuant to Section 22 thereof, the
record of the case was remanded for finaldisposition to
this Court. This last mentioned case is now pending
hearing before this Court.
At this juncture, it should be stated that again on
December 22, 1951, an additional war profits tax was
assessed against the petitioner in the sum of P20,425.00
based allegedly on certain amounts receivable which
petitioner received from Magdalena Estate, Inc.
Consequently, the total war profits taxliability of
petitioner, exclusive of surcharge and interest, as found
by the Pedrosa Committee was increased to
P1,546,518.75, itemized as follows: .1äwphï1.ñët
Tax due as per Pedrosa Committee
P1,526,093.75
Additional war profits tax on account of undeclared
amount receivable from the Magdalena Estates, Inc.
20,425.00
Total war profits tax exclusive of surcharge and interest.
P1,546,518.75
63

To satisfy, fully the amount of the war profits tax
assessed against petitioner, the respondent on
September 29, 1954, caused to be advertised for sale at
public auction for November 2, 1954, other real
properties of petitioner situated in Manila. These
properties are described in detail in Appendix B of the
petition for review filed with this Court. According to the
"Amended Notice of Sale" (Appendix B, Petition for
Review), the properties were seized, distrained and
levied upon from petitioner "in satisfaction of internal
revenue taxes and penalties amounting to
P4,539,556.26, computed as of April 30, 1954" due from
her in favor of the Republic of the Philippines. For lack of
bidders at the time of the scheduled sale on November
2, 1954, the properties in question were forfeited to the
Government under Section 328 of the National Internal
Revenue Code for the total amount of P3,547,892.41
which was allegedly the balance of petitioner's tax
liability as of that date.
Before the expiration of the one-year period provided for
in Section 328 of the National Internal Revenue Code
within which petitioner may redeem the real properties
forfeited in favor of the Government in the sale at public
auction held on November 2, 1954, the petitioner filed
with this Court on September 30, 1955, a petition for the
annulment of said sale and forfeiture on the ground that
her properties were advertised for sale on tax claim of
the Government far in excess of the alleged war profits
tax, surcharges and penalties fixed by respondent.
Respondent filed his opposition to the petition and after
due hearing where evidence was adduced in support of
the petition as well as opposition thereto, this Court, in a
resolution dated October 31, 1955, declared the auction
sale of November 2, 1954 as well as the resulting
forfeiture, null and void and of no legal force and effect
because of the admitted discrepancy in the amount of
tax stated in the notice of sale for which the properties
were auctioned and the actual amount of tax assessed
and demanded.
The said resolution being without prejudice to such
action and proceedings a respondent may take in
accordance with law, respondent demanded from
petitioner the amount of P3,594,881.51 not later than
November 10, 1955 or he would again proceed with the
resale of her properties on December 12, 1955. To stop
the sale, petitioner filed a petition for injunction with this
Court on November 22, 1955 requesting that respondent
be enjoined from proceeding with the resale of her
properties scheduled on December 12, 1955; that the
said properties be released to her; and that she be
declared not liable for the war profits tax assessed and
demanded of her. After due hearing of this petition and
the opposition thereto, this Court, in a resolution dated
December 10, 1955, denied the injunction and held in
abeyance the determination of other questions until
after the case shall have been heard on the merits. The
properties were therefore advertised for sale on
December 12, 1955 to answer for a war profits tax
liability of petitioner to the Republic of the Philippines for
the alleged amount of P3,594,307.51 computed as of
that date. For lack of bidders, the same were forfeited to
the Government. Those properties and the amounts for
which they were forfeited are as follows:.
CHRISpy TAX Cases (INC)
XXX
From this decision, Maria Castro appealed to this Court..
The nineteen alleged errors committed by the Court of
Tax Appeals and discussed by appellant in her printed
brief actually revolve around four main defenses: (a)
that the War Profits Tax Law (R.A. No. 55) is
unconstitutional and void; (b) that said law was
improperly applied to the case of the appellant; (c) that
even if appellant were subject to the tax liability
declared by the court below, such liability was totally
extinguished by the levy and forfeiture of certain
properties of hers; and (d) that appellant's acquittal in
the criminal case instituted against her for violation of
the War Profits Tax Law is a bar to the collection of the
taxes assessed, and specially of the 50% surcharge. (a)
Petitioner's attack on the constitutionality of Republic Act
No. 55, commonly known as the War Profits Tax Law, on
account of its retrospective operation (Errors XVIII), is
now foreclosed by our decision in Republic vs.Oasan
Vda. de Fernandez, G.R. No. L-9141, September 25,
1956, wherein thisCourt upheld the validity of the
statute; and no reasons are alleged that would justify a
departure from the ruling made in that case..
(b) Petitioner Castro complains (Errors I and VI) that the
Tax Court had declared subject to the war profits tax her
cash transactions from June, 1945to December 31,
1946, when Republic Act No. 55 levies that tax only on
the value of the taxpayer's assets (including real and
personal property and/orcash in banks) as of February
26, 1945, minus his liabilities..
This argument misconceives the process whereby the
Tax Court (and the Pedrosa Committee) arrived at the
petitioner's net worth as of February 26,1945. Because
of the difficulty in determining the taxpayer's cash on
hand on said date (since her books and records did not
show her invested capital in 1945), said tax authorities
adopted the method of starting from her reported cash
on hand on December 31, 1946, and working backwards
to February,1945, by adding to the reported cash the
disbursements made by Castro during1945 and 1946,
and then deducting her receipts from the same period.
We see nothing fundamentally erroneous in this method
for, as pointed out in the appealed decision, "if cash on
hand at the beginning of the period, plus receipts during
the period minus disbursements during the period,
equals cash on hand at the end of the period, the
converse must necessarily be true.".
Such method is in effect but an application (in reverse)
of the inventory or networth system that, contrary to
appellants contention (Error XIII), has been approved by
this Court in Perez vs. Collector of Internal Revenue,
G.R. No. L-10507, May 30, 1958; Collector vs. A. P.
Reyes, L-11534, November 25, 1958; and Commissioner
of Internal Revenue vs. Avelino, L-14847, September 19,
1961.
The analysis of petitioner's transactions for 1945 and
1946 merely laid the basis for determining the
undisclosed cash funds in her possession as of February
26, 1945 (amounting to P1,807,444.61), and it is this
cash thatwas found subject to the war profits tax.
64

It is urged, however, that even if this finding were
correct, still, under Republic Act No. 55, only "cash in
banks" is expressly mentioned as taxable, and appellant
infers that cash on hand not so deposited was not
intended to be subject to war profits tax. This thesis
appears unmeritorious: cash heldby the taxpayer on
February 26, 1945 clearly falls under the description of
"assets, including real and personal property" that
section 2 of the Act expressly order included in
determining the taxable net worth. If "cash in banks" is
expressly mentioned by the Act, it is not because cash
on hand was intended to be excluded, but because
"cash in banks" is not, strictly, speaking, part of the
assets of the taxpayer, but assets of the banks where
the cash is deposited. It is well established that a so-
called "bank deposit" is in reality a loan to the bank, the
latter acquiring title to the amount "deposited", subject
to its withdrawal (or recall of the loan) on the dates
specified. Taxpayer's "assets", therefore, would not per
se include cash deposited in banks by the taxpayer; and
its inclusion had to be expressly prescribed by the
statute in order to remove all doubt as to its taxability.
Petitioner endeavored to show (Errors VII to XI) that
part of the amount of cash thus arrived at actually
originated in receipts from transactions made by her
after February 26, 1945 but which were not disclosed in
the books and accounts. Aside from the fact that this
claim in her behalf contradicted her admission to the
Pedrosa Committee that all her 1946 receipts were
recorded in her books (v. Respondent's Exhibit 6-A), it
lay within the exclusive discretion of the Tax Court to
believe or not to believe her evidence and statements,
and those of her witnesses regarding the source of the
cash in question; and the rule is well settled that in
cases of this kind, only errors of law, and not rulings on
the weight of evidence, are reviewable by this Court.
The same principle precludes us from interfering with
the Tax Court's refusal to credit the other deductions
claimed by petitioner as amounts obtained from loans
from various individuals. The Court of Tax Appeals found
those items unproved, except the P76,000.00 payable to
Lao Kang Suy, which is accepted, although it had been
rejected by the Pedrosa Committee.
Similarly, the finding that the petitioner had disbursed in
1946 P1,025,000.00 on account of her subscription to
the stock of the Marvel Building Corporation (Error XII)
may not be disturbed by us.
(c) The third main ground of appeal is predicated on the
acquittal of petitioner in case No. 4976 of the Court of
First Instance of Manila, wherein she was criminally
prosecuted for failure to render a true and accurate
return of the war profits tax due from her, with intent to
evade payment of the tax. She contends (Assignments
of Error II to IV) that the acquittal should operate as a
bar to the imposition of the tax and specially the 50%
surcharge provided by section 6 of the War Profits law
(R.A. No. 55), invoking the ruling in Coffey v. U.S., 29 L.
Ed. 436.
With regard to the tax proper, the state correctly points
out in its brief that the acquittal in the criminal case
could not operate to discharge petitioner from the duty
to pay the tax, since that duty is imposed by statute
CHRISpy TAX Cases (INC)
prior to and independently of any attempts on the part
of the taxpayer to evade payment. The obligation to pay
the tax is not a mere consequence of the felonious acts
charged in the information, nor is it a mere civil liability
derived from crime that would be wiped out by the
judicial declaration that the criminal acts charged did not
exist.
As to the 50% surcharge, the very United States
Supreme Court that rendered the Coffey decision has
subsequently pointed out that additions of this kind to
the main tax are not penalties but civil administrative
sanctions, provided primarily as a safeguard for the
protection of the state revenue and to reimburse the
government for the heavy expense of investigation and
the loss resulting from the taxpayer's fraud (Helvering
vs. Mitchell, 303 U.S. 390, 82 L. Ed. 917; Spies vs. U.S.
317 U.S. 492). This is made plain by the fact that such
surcharges are enforceable, like the primary tax itself, by
distraint or civil suit, and that they are provided in a
section of R.A. No. 55 (section 5) that is separate and
distinct from that providing for criminal prosecution
(section 7). We conclude that the defense of jeopardy
and estoppel by reason of the petitioner's acquittal is
untenable and without merit. Whether or not there was
fraud committed by the taxpayer justifying the
imposition of the surcharge is an issue of fact to be
inferred from the evidence and surrounding
circumstances; and the finding of its existence by the
Tax Court is conclusive upon us. (Gutierrez v. Collector,
G.R. No. L-9771, May 31, 1951 ; Perez vs. Collector,
supra).
(d) The fourth main ground adduced on behalf of the
petitioner (Errors II and XlV) is that the sale and
forfeiture to the government (due to lack of bidders) of
the properties of petitioner in Manila, Balintawak, Pasay,
Makati, Tarlac, Tagaytay and Caloocan which had been
levied upon by the respondent Collector of Internal
Revenue and advertised for sale in 1950 and 1954,
constitutes a full discharge of petitioner's tax liabilities.
In so arguing, she relies on the provisions of paragraph
1 of Section 328 of the Internal Revenue Code, reading
as follows: .
SEC. 328. Forfeiture to Government for Want of Bidder.
- In case there is no bidder for real property exposed for
sale as herein above provided or if the highest bid is for
an amount insufficient to pay the taxes, penalties, and
costs, the provincial or city treasurer shall declare the
property forfeited to the Government in satisfaction of
the claim in question and within two days thereafter
shall make a return of his proceedings and the
forfeiture, which shall be spread upon the records of his
office,
and appellant contends that in the provision to the effect
that in the absence of bidders, the property is to be
"forfeited to the Government in satisfaction of the claim
in question", the term "satisfaction" signifies nothing but
full discharge of the taxes, penalties, and costs claimed
by the state. Carried to its logical conclusion, this theory
would permit a clever taxpayer, who is able to conceal
most or the more valuable part of his property from the
revenue officers, to escape payment of his tax liability by
sacrificing an insignificant portion of his holdings; and
65
 CHRISpy TAX Cases (INC)

we can not agree that in providing that the forfeiture of

the taxpayer's distrained or levied property, for lack of
adequate bids, should operate in satisfaction of the total
tax claims even beyond the value of the property
forfeited. That the satisfaction prescribed in section 328
of the Revenue Code was intended to mean only a
discharge pro tanto is confirmed by the provisions of
section 330 of the Revenue Code to the effect that
"remedy by distraint of personal property and levy on
realty may be repeated if necessary until the full amount
due including all expenses, is collected". This section
makes no distinction between forfeitures to the
Government and sales to third persons, and we are
satisfied that no distinction was intended and that none
is warranted.

Nor do we see that the petitioner has any ground for

complaining that the properties forfeited were
undervalued (Error XV). The relation between assessed
value and market price being variable, it is not a matter
of notice. However, the Court of Tax Appeals appraised
the forfeited properties at double their assessed
evaluation, and thereby credited her with a part
payment on account of her tax liability in the amount of
P1,716,880.00. There is no adequate evidence that they
were worth more, petitioner's own estimates of value
being obviously unreliable, due to her direct interest in
the matter under investigation. Since the burden of
proof lay evidently on the taxpayer, she is not in a
position to complain in this regard.

It may be noted in this connection that the validity of

the levy and sale of her properties in November of 1950
and April 1954 is assailed by appellant in her fifth
assignment of error; but as this point was not raised in
the Court below, the same can not be entertained for
the first time on appeal.

(e) As pointed out by the counsel for the Government,

appellant's stand that the undeclared cash should be
averaged or spread out for the years 1945, 1946 and
1947 (Error XVI) assumes that what was being
subjected to tax was her undeclared income during said
years, which is not correct, as previously declared in this
opinion. If her expenditures during 1945 and 1946 were
scrutinized and analyzed, it was merely to determine the
actual value of her taxable net worth as of February 26,
1945, that was subject to the war profits tax, as
representing accumulated profits earned during the
occupation years.

Finally, no argument is needed to show that unless taxes

are to be left at the discretion of the taxpayer, she can
not be allowed to seek refuge or relief by pleading (Error
XVII) the alleged inefficient and erratic manner in which
her books of account and supporting papers had been
prepared, contrary to the requirements of the revenue
laws; and that it is incredible that a trader like the
appellant should be able to do business running into
millions of pesos without knowing exactly her financial
condition.

Appellant's alleged Error XIX, being merely pro forma,

requires no discussion.

66