Set 2 Cases

G.R. No.
197515 July 2, 2014
COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
UNITED SALVAGE AND TOWAGE (PHILS.), INC., Respondent.
DECISION
PERALTA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Revised Rules of Court
which seeks to review, reverse and set aside the Decision of the Court of Tax Appeals En Banc
1
(CTA En Banc), dated June 27, 2011, in the case entitled Commissioner of Internal Revenue v.
United Salvage and Towage (Phils.), Inc. (USTP), docketed as C.T.A. EB No. 662. The facts as
culled from the records:
Respondent is engaged in the business of sub-contracting work for service contractors engaged in
petroleum operations in the Philippines. During the taxable years in question, it had entered into
2
various contracts and/or sub-contracts with several petroleum service contractors, such as Shell
Philippines Exploration, B.V. and Alorn Production Philippines for the supply of service vessels. 3
In the course of respondent’s operations, petitioner found respondent liable for deficiency income
tax, withholding tax, value-added tax (VAT) and documentary stamp tax (DST) for taxable years
1992,1994, 1997 and 1998. Particularly, petitioner, through BIR officials, issued demand letters with
4
attached assessment notices for withholding tax on compensation (WTC) and expanded withholding
tax (EWT) for taxable years 1992, 1994 and 1998, detailed as follows:
5
Assessment Notice No. Tax Covered Period Amount

25-1-000545-92 WTC 1992 ₱50,429.18
25-1-000546-92 EWT 1992 ₱14,079.45
034-14-000029-94 EWT 1994 ₱48,461.76
034-1-000080-98 EWT 1998 ₱22,437.01 6
On January 29, 1998 and October 24, 2001, USTP filed administrative protests against the 1994 and
1998 EWT assessments, respectively. 7
On February 21, 2003, USTP appealed by way of Petition for Review before the Court in action
(which was thereafter raffled to the CTA-Special First Division) alleging, among others, that the
Notices of Assessment are bereft of any facts, law, rules and regulations or jurisprudence; thus, the
assessments are void and the right of the government to assess and collect deficiency taxes from it
has prescribed on account of the failure to issue a valid notice of assessment within the applicable
period.8
During the pendency of the proceedings, USTP moved to withdraw the aforesaid Petition because it
availed of the benefits of the Tax Amnesty Program under Republic Act (R.A.) No. 9480. Having
9
complied with all the requirements therefor, the CTA-Special First Division partially granted the
Motion to Withdraw and declared the issues on income tax, VAT and DST deficiencies closed and
terminated in accordance with our pronouncement in Philippine Banking Corporation v.
Commissioner of Internal Revenue. Consequently, the case was submitted for decision covering
10
the remaining issue on deficiency EWT and WTC, respectively, for taxable years 1992, 1994 and
1998.11
The CTA-Special First Division held that the Preliminary Assessment Notices (PANs) for deficiency
EWT for taxable years 1994 and 1998 were not formally offered; hence, pursuant to Section 34,
Rule 132 of the Revised Rules of Court, the Court shall neither consider the same as evidence nor
rule on their validity. As regards the Final Assessment Notices (FANs) for deficiency EWT for
12
taxable years 1994 and 1998, the CTA-Special First Division held that the same do not show the law
and the facts on which the assessments were based. Said assessments were, therefore, declared
13
void for failure to comply with Section 228 of the 1997 National Internal Revenue Code (Tax
Code). From the foregoing, the only remaining valid assessment is for taxable year 1992.
14 15
Nevertheless, the CTA-Special First Division declared that the right of petitioner to collect the
deficiency EWT and WTC, respectively, for taxable year 1992 had already lapsed pursuant to
Section 203 of the Tax Code. Thus, in ruling for USTP, the CTA-Special First Division cancelled
16
Assessment Notice Nos. 25-1-00546-92 and 25-1-000545-92, both dated January 9, 1996 and
covering the period of 1992, as declared in its Decision dated March 12, 2010, the dispositive
17
portion of which provides:
WHEREFORE, the instant Petition for Review is hereby GRANTED. Accordingly, Assessment
Notice No. 25-1-00546-92 dated January 9, 1996 for deficiency Expanded Withholding Tax and
Assessment Notice No. 25-1-000545 dated January 9, 1996 for deficiency Withholding Tax on
Compensation are hereby CANCELLED.
SO ORDERED. 18
Dissatisfied, petitioner moved to reconsider the aforesaid ruling. However, in a Resolution dated
19
July 15, 2010, the CTA-Special First Division denied the same for lack of merit.
On August 18, 2010, petitioner filed a Petition for Review with the CTA En Banc praying that the
Decision of the CTA-Special First Division, dated March 12, 2010,be set aside. 20
On June 27, 2011, the CTA En Banc promulgated a Decision which affirmed with modification the
Decision dated March 12, 2010 and the Resolution dated July 15, 2010 of the CTA-Special First
Division, the dispositive portion of which reads:
WHEREFORE, premises considered, the Petition is PARTLY GRANTED. The Decision dated March
12, 2010 and the Resolution dated July 15, 2010 are AFFIRMED with MODIFICATION upholding the
1998 EWT assessment. In addition to the basic EWT deficiency of ₱14,496.79, USTP is ordered to
pay surcharge, annual deficiency interest, and annual delinquency interest from the date due until
full payment pursuant to Section 249 of the 1997 NIRC.
SO ORDERED. 21
Hence, the instant petition raising the following issues:
1. Whether or not the Court of Tax Appeals is governed strictly by the technical rules of
evidence;
2. Whether or not the Expanded Withholding Tax Assessments issued by petitioner against
the respondent for taxable year 1994 was without any factual and legal basis; and
3. Whether or not petitioner’s right to collect the creditable withholding tax and expanded
withholding tax for taxable year 1992 has already prescribed. 22
After careful review of the records and evidence presented before us, we find no basis to overturn
the decision of the CTA En Banc.
On this score, our ruling in Compagnie Financiere Sucres Et Denrees v. CIR, is enlightening, to wit:
23
We reiterate the well-established doctrine that as a matter of practice and principle, [we] will not set
aside the conclusion reached by an agency, like the CTA, especially if affirmed by the [CA]. By the
very nature of its function, it has dedicated itself to the study and consideration of tax problems and
has necessarily developed an expertise on the subject, unless there has been an abuse or
improvident exercise of authority on its part, which is not present here. 24
Now, to the first issue.
Petitioner implores unto this Court that technical rules of evidence should not be strictly applied in
the interest of substantial justice, considering that the mandate of the CTA explicitly provides that its
proceedings shall not be governed by the technical rules of evidence. Relying thereon, petitioner
25
avers that while it failed to formally offer the PANs of EWTs for taxable years 1994and 1998, their
existence and due execution were duly tackled during the presentation of petitioner’s witnesses,
Ruleo Badilles and Carmelita Lynne de Guzman (for taxable year 1994) and Susan Salcedo-De
Castro and Edna A. Ortalla (for taxable year 1998). Petitioner further claims that although the PANs
26
were not marked as exhibits, their existence and value were properly established, since the BIR
records for taxable years 1994 and 1998 were forwarded by petitioner to the CTA in compliance with
the latter’s directive and were, in fact, made part of the CTA records. 27
Under Section 8 of Republic Act (R.A.) No. 1125, the CTA is categorically described as a court of
28
record. As such, it shall have the power to promulgate rules and regulations for the conduct of its
29
business, and as may be needed, for the uniformity of decisions within its jurisdiction. Moreover, as
30
cases filed before it are litigated de novo, party-litigants shall prove every minute aspect of their
cases. Thus, no evidentiary value can be given the pieces of evidence submitted by the BIR, as the
31
rules on documentary evidence require that these documents must be formally offered before the
CTA. Pertinent is Section 34, Rule 132 of the Revised Rules on Evidence which reads:
32
SEC. 34. Offer of evidence. – The court shall consider no evidence which has not been formally
offered. The purpose for which the evidence is offered must be specified.
Although in a long line of cases, we have relaxed the foregoing rule and allowed evidence not
formally offered to be admitted and considered by the trial court, we exercised extreme caution in
applying the exceptions to the rule, as pronounced in Vda. de Oñate v. Court of Appeals, thus: 33
From the foregoing provision, it is clear that for evidence to be considered, the same must be
formally offered. Corollarily, the mere fact that a particular document is identified and marked as an
exhibit does not mean that it has already been offered as part of the evidence of a party. In
Interpacific Transit, Inc. v. Aviles[186 SCRA 385, 388-389 (1990)], we had the occasion to make a
distinction between identification of documentary evidence and its formal offer as an exhibit. We said
that the first is done in the course of the trial and is accompanied by the marking of the evidence as
an exhibit while the second is done only when the party rests its case and not before. A party,
therefore, may opt to formally offer his evidence if he believes that it will advance his cause or not to
do so at all. In the event he chooses to do the latter, the trial court is not authorized by the Rules to
consider the same.
However, in People v. Napat-a[179 SCRA 403 (1989)] citing People v. Mate[103 SCRA 484 (1980)],
we relaxed the foregoing rule and allowed evidence not formally offered to be admitted and
considered by the trial court provided the following requirements are present, viz.: first, the same
must have been duly identified by testimony duly recorded and, second, the same must have been
incorporated in the records of the case. 34
The evidence may, therefore, be admitted provided the following requirements are present: (1) the
same must have been duly identified by testimony duly recorded; and (2) the same must have been
incorporated in the records of the case. Being an exception, the same may only be applied when
there is strict compliance with the requisites mentioned above; otherwise, the general rule in Section
34 of Rule 132 of the Rules of Court should prevail. 35
In the case at bar, petitioner categorically admitted that it failed to formally offer the PANs as
evidence. Worse, it advanced no justifiable reason for such fatal omission. Instead, it merely alleged
that the existence and due execution of the PANs were duly tackled by petitioner’s witnesses. We
hold that such is not sufficient to seek exception from the general rule requiring a formal offer of
evidence, since no evidence of positive identification of such PANs by petitioner’s witnesses was
presented. Hence, we agree with the CTA En Banc’s observation that the 1994 and 1998 PANs for
EWT deficiencies were not duly identified by testimony and were not incorporated in the records of
the case, as required by jurisprudence.
While we concur with petitioner that the CTA is not governed strictly by technical rules of evidence,
as rules of procedure are not ends in themselves but are primarily intended as tools in the
administration of justice, the presentation of PANs as evidence of the taxpayer’s liability is not mere
36
procedural technicality. It is a means by which a taxpayer is informed of his liability for deficiency
taxes. It serves as basis for the taxpayer to answer the notices, present his case and adduce
supporting evidence. More so, the same is the only means by which the CTA may ascertain and
37
verify the truth of respondent's claims. We are, therefore, constrained to apply our ruling in Heirs of
Pedro Pasag v. Spouses Parocha, viz.:
38
x x x. A formal offer is necessary because judges are mandated to rest their findings of facts and
their judgment only and strictly upon the evidence offered by the parties at the trial. Its function is to
enable the trial judge to know the purpose or purposes for which the proponent is presenting the
evidence. On the other hand, this allows opposing parties to examine the evidence and object to its
admissibility. Moreover, it facilitates review as the appellate court will not be required to review
documents not previously scrutinized by the trial court.
Strict adherence to the said rule is not a trivial matter. The Court in Constantino v. Court of Appeals
ruled that the formal offer of one's evidence is deemed waived after failing to submit it within a
considerable period of time. It explained that the court cannot admit an offer of evidence made after
a lapse of three (3) months because to do so would "condone an inexcusable laxity if not non-
compliance with a court order which, in effect, would encourage needless delays and derail the
speedy administration of justice."
Applying the aforementioned principle in this case, we find that the trial court had reasonable ground
to consider that petitioners had waived their right to make a formal offer of documentary or object
evidence. Despite several extensions of time to make their formal offer, petitioners failed to comply
with their commitment and allowed almost five months to lapse before finally submitting it.
Petitioners' failure to comply with the rule on admissibility of evidence is anathema to the efficient,
effective, and expeditious dispensation of justice. x x x.39
Anent the second issue, petitioner claims that the EWT assessment issued for taxable year 1994
has factual and legal basis because at the time the PAN and FAN were issued by petitioner to
respondent on January 19, 1998, the provisions of Revenue Regulation No. 12-99 which governs
40
the issuance of assessments was not yet operative. Hence, its compliance with Revenue Regulation
No. 12-85 was sufficient. In any case, petitioner argues that a scrutiny of the BIR records of
41
respondent for taxable year 1994 would show that the details of the factual finding of EWT were
itemized from the PAN issued by petitioner. 42
In order to determine whether the requirement for a valid assessment is duly complied with, it is
important to ascertain the governing law, rules and regulations and jurisprudence at the time the
assessment was issued. In the instant case, the PANs and FANs pertaining to the deficiency EWT
for taxable years 1994 and 1998, respectively, were issued on January 19, 1998, when the Tax
Code was already in effect, as correctly found by the CTA En Banc:
The date of issuance of the notice of assessment determines which law applies- the 1997 NIRC or
the old Tax Code. The case of Commissioner of Internal Revenue v. Bank of Philippine Islands is
instructive:
In merely notifying BPI of his findings, the CIR relied on the provisions of the former Section 270
prior to its amendment by RA 8424 (also known as the Tax Reform Act of 1997). In CIR v. Reyes,
we held that:
In the present case, Reyes was not informed in writing of the law and the facts on which the
assessment of estate taxes had been made. She was merely notified of the findings by the CIR, who
had simply relied upon the provisions of former Section 229 prior to its amendment by [RA] 8424,
otherwise known as the Tax Reform Act of 1997.
First, RA 8424 has already amended the provision of Section 229 on protesting an assessment. The
old requirement of merely notifying the taxpayer of the CIR's findings was changed in 1998to
informing the taxpayer of not only the law, but also of the facts on which an assessment would be
made; otherwise, the assessment itself would be invalid.
It was on February 12, 1998, that a preliminary assessment notice was issued against the estate. On
April 22, 1998, the final estate tax assessment notice, as well as demand letter, was also issued.
During those dates, RA 8424 was already in effect. The notice required under the old law was no
longer sufficient under the new law.(Emphasis ours.)
In the instant case, the 1997 NIRC covers the 1994 and 1998 EWT FANs because there were
issued on January 19, 1998 and September 21, 2001, respectively, at the time of the effectivity of
the 1997 NIRC. Clearly, the assessments are governed by the law. 43
Indeed, Section 228 of the Tax Code provides that the taxpayer shall be informed in writing of the
law and the facts on which the assessment is made. Otherwise, the assessment is void. To
implement the aforesaid provision, Revenue Regulation No. 12-99was enacted by the BIR, of which
Section 3.1.4 thereof reads:
3.1.4. Formal Letter of Demand and Assessment Notice. –The formal letter of demand and
assessment notice shall be issued by the Commissioner or his duly authorized representative. The
letter of demand calling for payment of the taxpayer’s deficiency tax or taxes shall state the facts, the
law, rules and regulations, or jurisprudence on which the assessment is based, otherwise, the formal
letter of demand and assessment notice shall be void. The same shall be sent to the taxpayer only
by registered mail or by personal delivery. x x x 44
It is clear from the foregoing that a taxpayer must be informed in writing of the legal and factual
bases of the tax assessment made against him. The use of the word "shall" in these legal provisions
indicates the mandatory nature of the requirements laid down therein.
In the present case, a mere perusal of the FAN for the deficiency EWT for taxable year 1994will
show that other than a tabulation of the alleged deficiency taxes due, no further detail regarding the
assessment was provided by petitioner. Only the resulting interest, surcharge and penalty were
anchored with legal basis. Petitioner should have at least attached a detailed notice of discrepancy
45
or stated an explanation why the amount of ₱48,461.76 is collectible against respondent and how
46
the same was arrived at. Any short-cuts to the prescribed content of the assessment or the process
thereof should not be countenanced, in consonance with the ruling in Commissioner of Internal
Revenue v. Enron Subic Power Corporation to wit:
47
The CIR insists that an examination of the facts shows that Enron was properly apprised of its tax
deficiency. During the pre-assessment stage, the CIR advised Enron’s representative of the tax
deficiency, informed it of the proposed tax deficiency assessment through a preliminary five-day
letter and furnished Enron a copy of the audit working paper allegedly showing in detail the legal and
factual bases of the assessment. The CIR argues that these steps sufficed to inform Enron of the
laws and facts on which the deficiency tax assessment was based.
We disagree. The advice of tax deficiency, given by the CIR to an employee of Enron, as well as the
preliminary five-day letter, were not valid substitutes for the mandatory notice in writing of the legal
and factual bases of the assessment. These steps were mere perfunctory discharges of the CIR’s
duties incorrectly assessing a taxpayer. The requirement for issuing a preliminary or final notice, as
the case may be, informing a taxpayer of the existence of a deficiency tax assessment is markedly
different from the requirement of what such notice must contain. Just because the CIR issued an
advice, a preliminary letter during the pre-assessment stage and a final notice, in the order required
by law, does not necessarily mean that Enron was informed of the law and facts on which the
deficiency tax assessment was made.
The law requires that the legal and factual bases of the assessment be stated in the formal letter of
demand and assessment notice. Thus, such cannot be presumed. Otherwise, the express provisions
of Article 228 of the NIRC and RR No. 12-99 would be rendered nugatory. The alleged "factual
bases" in the advice, preliminary letter and "audit working papers" did not suffice. There was no
going around the mandate of the law that the legal and factual bases of the assessment be stated in
writing in the formal letter of demand accompanying the assessment notice.
We note that the old law merely required that the taxpayer be notified of the assessment made by
the CIR. This was changed in 1998 and the taxpayer must now be informed not only of the law but
also of the facts on which the assessment is made. Such amendment is in keeping with the
constitutional principle that no person shall be deprived of property without due process. In view of
the absence of a fair opportunity for Enron to be informed of the legal and factual bases of the
assessment against it, the assessment in question was void. x x x. 48
In the same vein, we have held in Commissioner of Internal Revenue v. Reyes, that:
49
Even a cursory review of the preliminary assessment notice, as well as the demand letter sent,
reveals the lack of basis for -- not to mention the insufficiency of -- the gross figures and details of
the itemized deductions indicated in the notice and the letter. This Court cannot countenance an
assessment based on estimates that appear to have been arbitrarily or capriciously arrived at.
Although taxes are the lifeblood of the government, their assessment and collection "should be
made in accordance with law as any arbitrariness will negate the very reason for government itself." 50
Applying the aforequoted rulings to the case at bar, it is clear that the assailed deficiency tax
assessment for the EWT in 1994disregarded the provisions of Section 228 of the Tax Code, as
amended, as well as Section 3.1.4 of Revenue Regulations No. 12-99 by not providing the legal and
factual bases of the assessment. Hence, the formal letter of demand and the notice of assessment
issued relative thereto are void.
In any case, we find no basis in petitioner’s claim that Revenue Regulation No. 12-99 is not
applicable at the time the PAN and FAN for the deficiency EWT for taxable year 1994 were issued.
Considering that such regulation merely implements the law, and does not create or take away
vested rights, the same may be applied retroactively, as held in Reyes:
x x x x.
Second, the non-retroactive application of Revenue Regulation (RR) No. 12-99 is of no moment,
considering that it merely implements the law.
A tax regulation is promulgated by the finance secretary to implement the provisions of the Tax
Code. While it is desirable for the government authority or administrative agency to have one
immediately issued after a law is passed, the absence of the regulation does not automatically mean
that the law itself would become inoperative.
At the time the pre-assessment notice was issued to Reyes, RA 8424 already stated that the
taxpayer must be informed of both the law and facts on which the assessment was based. Thus, the
CIR should have required the assessment officers of the Bureau of Internal Revenue (BIR) to follow
the clear mandate of the new law. The old regulation governing the issuance of estate tax
assessment notices ran afoul of the rule that tax regulations-- old as they were -- should be in
harmony with, and not supplant or modify, the law.
It may be argued that the Tax Code provisions are not self- executory. It would be too wide a stretch
of the imagination, though, to still issue a regulation that would simply require tax officials to inform
the taxpayer, in any manner, of the law and the facts on which an assessment was based. That
requirement is neither difficult to make nor its desired results hard to achieve. Moreover, an
administrative rule interpretive of a statute, and not declarative of certain rights and corresponding
obligations, is given retroactive effect as of the date of the effectivity of the statute. RR 12-99 is one
such rule. Being interpretive of the provisions of the Tax Code, even if it was issued only on
September 6, 1999, this regulation was to retroact to January 1, 1998 -- a date prior to the issuance
of the preliminary assessment notice and demand letter. 51
Indubitably, the disputed assessments for taxable year 1994 should have already complied with the
requirements laid down under Revenue Regulation No. 12-99. Having failed so, the same produces
no legal effect.
Notwithstanding the foregoing findings, we sustain the CTA En Banc’s findings on the deficiency
EWT for taxable year 1998 considering that it complies with Section 228 of the Tax Code as well as
Revenue Regulation No. 12-99, thus:
On the other hand, the 1998 EWT FAN reflected the following: a detailed factual account why the
basic EWT is ₱14,496.79 and the legal basis, Section 57 B of the 1997 NIRC supporting findings of
EWT liability of ₱22,437.01. Thus, the EWT FAN for 1998 is duly issued in accordance with the law. 52
As to the last issue, petitioner avers that its right to collect the EWT for taxable year 1992 has not yet
prescribed. It argues that while the final assessment notice and demand letter on EWT for taxable
year 1992 were all issued on January 9, 1996, the five (5)-year prescriptive period to collect was
interrupted when respondent filed its request for reinvestigation on March 14, 1997 which was
granted by petitioner on January 22, 2001 through the issuance of Tax Verification Notice No.
00165498 on even date. Thus, the period for tax collection should have begun to run from the date
53
of the reconsidered or modified assessment. 54
This argument fails to persuade us.
The statute of limitations on assessment and collection of national internal revenue taxes was
shortened from five (5) years to three (3) years by virtue of Batas Pambansa Blg. 700. Thus,
55
petitioner has three (3) years from the date of actual filing of the tax return to assess a national
internal revenue tax or to commence court proceedings for the collection thereof without an
assessment. However, when it validly issues an assessment within the three (3)-year period, it has
56
another three (3) years within which to collect the tax due by distraint, levy, or court
proceeding. The assessment of the tax is deemed made and the three (3)-year period for collection
57
of the assessed tax begins to run on the date the assessment notice had been released, mailed or
sent to the taxpayer. 58
On this matter, we note the findings of the CTA-Special First Division that no evidence was formally
offered to prove when respondent filed its returns and paid the corresponding EWT and WTC for
taxable year 1992. 59
Nevertheless, as correctly held by the CTA En Banc, the Preliminary Collection Letter for deficiency
taxes for taxable year 1992 was only issued on February 21, 2002, despite the fact that the FANs for
the deficiency EWT and WTC for taxable year 1992 was issued as early as January 9, 1996. Clearly,
five (5) long years had already lapsed, beyond the three (3)-year prescriptive period, before
collection was pursued by petitioner.
Further, while the request for reinvestigation was made on March 14, 1997, the same was only acted
upon by petitioner on January22, 2001, also beyond the three (3) year statute of limitations reckoned
from January 9, 1996, notwithstanding the lack of impediment to rule upon such issue. We cannot
countenance such inaction by petitioner to the prejudice of respondent pursuant to our ruling in
Commissioner of Internal Revenue v. Philippine Global Communication, Inc., to wit:
60
The assessment, in this case, was presumably issued on 14 April 1994 since the respondent did not
dispute the CIR’s claim. Therefore, the BIR had until 13 April 1997. However, as there was no
Warrant of Distraint and/or Levy served on the respondents nor any judicial proceedings initiated by
the BIR, the earliest attempt of the BIR to collect the tax due based on this assessment was when it
filed its Answer in CTA Case No. 6568 on 9 January 2003, which was several years beyond the
three-year prescriptive period. Thus, the CIR is now prescribed from collecting the assessed tax. 61
Here, petitioner had ample time to make a factually and legally well-founded assessment and
implement collection pursuant thereto. Whatever examination that petitioner may have conducted
1âwphi1
cannot possibly outlast the entire three (3)-year prescriptive period provided by law to collect the
assessed tax. Thus, there is no reason to suspend the running of the statute of limitations in this
case.
Moreover, in Bank of the Philippine Islands, citing earlier jurisprudence, we held that the request for
reinvestigation should be granted or at least acted upon in due course before the suspension of the
statute of limitations may set in, thus:
In BPI v. Commissioner of Internal Revenue, the Court emphasized the rule that the CIR must first
grant the request for reinvestigation as a requirement for the suspension of the statute of limitations.
The Court said:
In the case of Republic of the Philippines v. Gancayco, 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—
x x x The act of requesting a reinvestigation alone does not suspend the period. The request should
first be granted, in order to effect suspension. (Collector v. Suyoc Consolidated, supra; also Republic
v. 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…
In Republic of the Philippines v. Acebedo, this Court similarly found that –
x x x 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 follow-
up of this warrant. Consequently, the request for reinvestigation did not suspend the running of the
period for filing an action for collection.[Emphasis in the original] With respect to petitioner’s
62
argument that respondent’s act of elevating its protest to the CTA has fortified the continuing
interruption of petitioner’s prescriptive period to collect under Section 223 of the Tax Code, the 63
same is flawed at best because respondent was merely exercising its right to resort to the proper
Court, and does not in any way deter petitioner’s right to collect taxes from respondent under
existing laws.
On the strength of the foregoing observations, we ought to reiterate our earlier teachings that "in
balancing the scales between the power of the State to tax and its inherent right to prosecute
perceived transgressors of the law on one side, and the constitutional rights of a citizen to due
process of law and the equal protection of the laws on the other, the scales must tilt in favor of the
individual, for a citizen’s right is amply protected by the Bill of Rights under the Constitution." Thus, 64
while "taxes are the lifeblood of the government," the power to tax has its limits, in spite of all its
plenitude. Even as we concede the inevitability and indispensability of taxation, it is a requirement
65
in all democratic regimes that it be exercised reasonably and in accordance with the prescribed
procedure. 66
After all, the statute of limitations on the collection of taxes was also enacted to benefit and protect
the taxpayers, as elucidated in the case of Philippine Global Communication, Inc., thus:
67
x x x The report submitted by the tax commission clearly states that these provisions on prescription
should be enacted to benefit and protect taxpayers:
Under the former law, the right of the Government to collect the tax does not prescribe. However, in
1âwphi1
fairness to the taxpayer, the Government should be estopped from collecting the tax where it failed
to make the necessary investigation and assessment within 5 years after the filing of the return and
where it failed to collect the tax within 5 years from the date of assessment thereof. Just as the
government is interested in the stability of its collections, so also are the taxpayers entitled to an
assurance that they will not be subjected to further investigation for tax purposes after the expiration
of a reasonable period of time. (Vol. II, Report of the Tax Commission of the Philippines, pp. 321-
322).68
WHEREFORE, the petition is DENIED. The June 27, 2011 Decision of the Court of Tax Appeals En
Banc in C.T.A. EB No. 662 is hereby AFFIRMED.
SO ORDERED.
DIOSDADO M. PERALTA
Associate Justice
G.R. No. 175097
ALLIED BANKING CORPORATION, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
DEL CASTILLO, J.:
The key to effective communication is clarity.
The Commissioner of Internal Revenue (CIR) as well as his duly authorized representative must
indicate clearly and unequivocally to the taxpayer whether an action constitutes a final determination
on a disputed assessment.1 Words must be carefully chosen in order to avoid any confusion that
could adversely affect the rights and interest of the taxpayer.
Assailed in this Petition for Review on Certiorari2 under Section 12 of Republic Act (RA) No. 9282,3 in
relation to Rule 45 of the Rules of Court, are the August 23, 2006 Decision4 of the Court of Tax
Appeals (CTA) and its October 17, 2006 Resolution5 denying petitioner’s Motion for Reconsideration.
Factual Antecedents
On April 30, 2004, the Bureau of Internal Revenue (BIR) issued a Preliminary Assessment Notice
(PAN) to petitioner Allied Banking Corporation for deficiency Documentary Stamp Tax (DST) in the
amount of ₱12,050,595.60 and Gross Receipts Tax (GRT) in the amount of ₱38,995,296.76 on
industry issue for the taxable year 2001.6 Petitioner received the PAN on May 18, 2004 and filed a
protest against it on May 27, 2004.7
On July 16, 2004, the BIR wrote a Formal Letter of Demand with Assessment Notices to petitioner,
which partly reads as follows:8
It is requested that the above deficiency tax be paid immediately upon receipt hereof, inclusive of
penalties incident to delinquency. This is our final decision based on investigation. If you disagree,
you may appeal the final decision within thirty (30) days from receipt hereof, otherwise said
deficiency tax assessment shall become final, executory and demandable.
Petitioner received the Formal Letter of Demand with Assessment Notices on August 30, 2004.9
Proceedings before the CTA First Division
On September 29, 2004, petitioner filed a Petition for Review10 with the CTA which was raffled to its
First Division and docketed as CTA Case No. 7062.11
On December 7, 2004, respondent CIR filed his Answer.12 On July 28, 2005, he filed a Motion to
Dismiss13 on the ground that petitioner failed to file an administrative protest on the Formal Letter of
Demand with Assessment Notices. Petitioner opposed the Motion to Dismiss on August 18, 2005.14
On October 12, 2005, the First Division of the CTA rendered a Resolution15 granting respondent’s
Motion to Dismiss. It ruled:
Clearly, it is neither the assessment nor the formal demand letter itself that is appealable to this
Court. It is the decision of the Commissioner of Internal Revenue on the disputed assessment that
can be appealed to this Court (Commissioner of Internal Revenue vs. Villa, 22 SCRA 3). As correctly
pointed out by respondent, a disputed assessment is one wherein the taxpayer or his duly
authorized representative filed an administrative protest against the formal letter of demand and
assessment notice within thirty (30) days from date [of] receipt thereof. In this case, petitioner failed
to file an administrative protest on the formal letter of demand with the corresponding assessment
notices. Hence, the assessments did not become disputed assessments as subject to the Court’s
review under Republic Act No. 9282. (See also Republic v. Liam Tian Teng Sons & Co., Inc., 16
SCRA 584.)
WHEREFORE, the Motion to Dismiss is GRANTED. The Petition for Review is hereby DISMISSED
for lack of jurisdiction.
SO ORDERED.16
Aggrieved, petitioner moved for reconsideration but the motion was denied by the First Division in its
Resolution dated February 1, 2006.17
Proceedings before the CTA En Banc
On February 22, 2006, petitioner appealed the dismissal to the CTA En Banc.18 The case was
docketed as CTA EB No. 167.
Finding no reversible error in the Resolutions dated October 12, 2005 and February 1, 2006 of the
CTA First Division, the CTA En Banc denied the Petition for Review19as well as petitioner’s Motion
for Reconsideration.20
The CTA En Banc declared that it is absolutely necessary for the taxpayer to file an administrative
protest in order for the CTA to acquire jurisdiction. It emphasized that an administrative protest is an
integral part of the remedies given to a taxpayer in challenging the legality or validity of an
assessment. According to the CTA En Banc, although there are exceptions to the doctrine of
exhaustion of administrative remedies, the instant case does not fall in any of the exceptions.
Issue
Hence, the present recourse, where petitioner raises the lone issue of whether the Formal Letter of
Demand dated July 16, 2004 can be construed as a final decision of the CIR appealable to the CTA
under RA 9282.
Our Ruling
The petition is meritorious.
Section 7 of RA 9282 expressly provides that the CTA exercises exclusive appellate jurisdiction to
review by appeal decisions of the CIR in cases involving disputed assessments
The CTA, being a court of special jurisdiction, can take cognizance only of matters that are clearly
within its jurisdiction.21 Section 7 of RA 9282 provides:
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 Code or other laws
administered by the Bureau of Internal Revenue;
(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed

administered by the Bureau of Internal Revenue, where the National Internal Revenue Code
provides a specific period of action, in which case the inaction shall be deemed a denial;
(Emphasis supplied)
xxxx
The word "decisions" in the above quoted provision of RA 9282 has been interpreted to mean the
decisions of the CIR on the protest of the taxpayer against the assessments.22 Corollary thereto,
Section 228 of the National Internal Revenue Code (NIRC) provides for the procedure for protesting
an assessment. It states:
SECTION 228. Protesting of Assessment. – When the Commissioner or his duly authorized

representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his
findings: Provided, however, That a preassessment notice shall not be required in the following
cases:
(a) When the finding for any deficiency tax is the result of mathematical error in the
computation of the tax as appearing on the face of the return; or
(b) When a discrepancy has been determined between the tax withheld and the amount
actually remitted by the withholding agent; or
(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable
withholding tax for a taxable period was determined to have carried over and automatically
applied the same amount claimed against the estimated tax liabilities for the taxable quarter
or quarters of the succeeding taxable year; or
(d) When the excise tax due on excisable articles has not been paid; or
(e) When an article locally purchased or imported by an exempt person, such as, but not
limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or
transferred to non-exempt persons.
The taxpayers shall be informed in writing of the law and the facts on which the assessment is
made; otherwise, the assessment shall be void.
Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be
required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly
authorized representative shall issue an assessment based on his findings.
Such assessment may be protested administratively by filing a request for reconsideration or
reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as
may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the
protest, all relevant supporting documents shall have been submitted; otherwise, the assessment
shall become final.
If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days
from submission of documents, the taxpayer adversely affected by the decision or inaction may
appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from
the lapse of the one hundred eighty (180)-day period; otherwise, the decision shall become final,
executory and demandable.
In the instant case, petitioner timely filed a protest after receiving the PAN. In response thereto, the
BIR issued a Formal Letter of Demand with Assessment Notices. Pursuant to Section 228 of the
NIRC, the proper recourse of petitioner was to dispute the assessments by filing an administrative
protest within 30 days from receipt thereof. Petitioner, however, did not protest the final assessment
notices. Instead, it filed a Petition for Review with the CTA. Thus, if we strictly apply the rules, the
dismissal of the Petition for Review by the CTA was proper.
The case is an exception to the

rule on exhaustion of administrative remedies
However, a careful reading of the Formal Letter of Demand with Assessment Notices leads us to
agree with petitioner that the instant case is an exception to the rule on exhaustion of administrative
remedies, i.e., estoppel on the part of the administrative agency concerned.
In the case of Vda. De Tan v. Veterans Backpay Commission,23 the respondent contended that
before filing a petition with the court, petitioner should have first exhausted all administrative
remedies by appealing to the Office of the President. However, we ruled that respondent was
estopped from invoking the rule on exhaustion of administrative remedies considering that in its
Resolution, it said, "The opinions promulgated by the Secretary of Justice are advisory in nature,
which may either be accepted or ignored by the office seeking the opinion, and any aggrieved party
has the court for recourse". The statement of the respondent in said case led the petitioner to
conclude that only a final judicial ruling in her favor would be accepted by the Commission.
Similarly, in this case, we find the CIR estopped from claiming that the filing of the Petition for
Review was premature because petitioner failed to exhaust all administrative remedies.
The Formal Letter of Demand with Assessment Notices reads:
Based on your letter-protest dated May 26, 2004, you alleged the following:
1. That the said assessment has already prescribed in accordance with the provisions of
Section 203 of the Tax Code.
2. That since the exemption of FCDUs from all taxes found in the Old Tax Code has been
deleted, the wording of Section 28(A)(7)(b) discloses that there are no other taxes imposable
upon FCDUs aside from the 10% Final Income Tax.
Contrary to your allegation, the assessments covering GRT and DST for taxable year 2001 has not
prescribed for [sic] simply because no returns were filed, thus, the three year prescriptive period has
not lapsed.
With the implementation of the CTRP, the phrase "exempt from all taxes" was deleted. Please refer
to Section 27(D)(3) and 28(A)(7) of the new Tax Code. Accordingly, you were assessed for
deficiency gross receipts tax on onshore income from foreign currency transactions in accordance
with the rates provided under Section 121 of the said Tax Code. Likewise, deficiency documentary
stamp taxes was [sic] also assessed on Loan Agreements, Bills Purchased, Certificate of Deposits
and related transactions pursuant to Sections 180 and 181 of NIRC, as amended.
The 25% surcharge and 20% interest have been imposed pursuant to the provision of Section
248(A) and 249(b), respectively, of the National Internal Revenue Code, as amended.
It is requested that the above deficiency tax be paid immediately upon receipt hereof, inclusive of
penalties incident to delinquency. This is our final decision based on investigation. If you disagree,
you may appeal this final decision within thirty (30) days from receipt hereof, otherwise said
deficiency tax assessment shall become final, executory and demandable.24 (Emphasis supplied)
It appears from the foregoing demand letter that the CIR has already made a final decision on the
matter and that the remedy of petitioner is to appeal the final decision within 30 days.
In Oceanic Wireless Network, Inc. v. Commissioner of Internal Revenue,25 we considered the

language used and the tenor of the letter sent to the taxpayer as the final decision of the CIR.
In this case, records show that petitioner disputed the PAN but not the Formal Letter of Demand with
Assessment Notices. Nevertheless, we cannot blame petitioner for not filing a protest against the
Formal Letter of Demand with Assessment Notices since the language used and the tenor of the
demand letter indicate that it is the final decision of the respondent on the matter. We have time and
again reminded the CIR to indicate, in a clear and unequivocal language, whether his action on a
disputed assessment constitutes his final determination thereon in order for the taxpayer concerned
to determine when his or her right to appeal to the tax court accrues.26 Viewed in the light of the
foregoing, respondent is now estopped from claiming that he did not intend the Formal Letter of
Demand with Assessment Notices to be a final decision.
Moreover, we cannot ignore the fact that in the Formal Letter of Demand with Assessment Notices,
respondent used the word "appeal" instead of "protest", "reinvestigation", or "reconsideration".
Although there was no direct reference for petitioner to bring the matter directly to the CTA, it cannot
be denied that the word "appeal" under prevailing tax laws refers to the filing of a Petition for Review
with the CTA. As aptly pointed out by petitioner, under Section 228 of the NIRC, the terms "protest",
"reinvestigation" and "reconsideration" refer to the administrative remedies a taxpayer may take
before the CIR, while the term "appeal" refers to the remedy available to the taxpayer before the
CTA. Section 9 of RA 9282, amending Section 11 of RA 1125,27 likewise uses the term "appeal"
when referring to the action a taxpayer must take when adversely affected by a decision, ruling, or
inaction of the CIR. As we see it then, petitioner in appealing the Formal Letter of Demand with
Assessment Notices to the CTA merely took the cue from respondent. Besides, any doubt in the
interpretation or use of the word "appeal" in the Formal Letter of Demand with Assessment Notices
should be resolved in favor of petitioner, and not the respondent who caused the confusion.
To be clear, we are not disregarding the rules of procedure under Section 228 of the NIRC, as
implemented by Section 3 of BIR Revenue Regulations No. 12-99.28 It is the Formal Letter of
Demand and Assessment Notice that must be administratively protested or disputed within 30 days,
and not the PAN. Neither are we deviating from our pronouncement in St. Stephen’s Chinese Girl’s
School v. Collector of Internal Revenue,29 that the counting of the 30 days within which to institute an
appeal in the CTA commences from the date of receipt of the decision of the CIR on the disputed
assessment, not from the date the assessment was issued. 1avvphi1
What we are saying in this particular case is that, the Formal Letter of Demand with Assessment
Notices which was not administratively protested by the petitioner can be considered a final decision
of the CIR appealable to the CTA because the words used, specifically the words "final decision"
and "appeal", taken together led petitioner to believe that the Formal Letter of Demand with
Assessment Notices was in fact the final decision of the CIR on the letter-protest it filed and that the
available remedy was to appeal the same to the CTA.
We note, however, that during the pendency of the instant case, petitioner availed of the provisions
of Revenue Regulations No. 30-2002 and its implementing Revenue Memorandum Order by
submitting an offer of compromise for the settlement of the GRT, DST and VAT for the period 1998-
2003, as evidenced by a Certificate of Availment dated November 21, 2007.30 Accordingly, there is
no reason to reinstate the Petition for Review in CTA Case No. 7062.
WHEREFORE, the petition is hereby GRANTED. The assailed August 23, 2006 Decision and the
October 17, 2006 Resolution of the Court of Tax Appeals are REVERSED and SET ASIDE. The
Petition for Review in CTA Case No. 7062 is hereby DISMISSED based solely on the Bureau of
Internal Revenue’s acceptance of petitioner’s offer of compromise for the settlement of the gross
receipts tax, documentary stamp tax and value added tax, for the years 1998-2003.
SO ORDERED.
MARIANO C. DEL CASTILLO

Associate Justice
G.R. No. 171251 March 5, 2012
LASCONA LAND CO., INC., Petitioner,

vs.
DECISION
PERALTA, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking
the reversal of the Decision dated October 25, 2005 and Resolution dated January 20, 2006 of the
1 2
Court of Appeals (CA) in CA-G.R. SP No. 58061 which set aside the Decision dated January 4,
3
2000 and Resolution dated March 3, 2000 of the Court of Tax Appeals (CTA) in C.T.A. Case No.
4
5777 and declared Assessment Notice No. 0000047-93-407 dated March 27, 1998 to be final,
executory and demandable.
The facts, as culled from the records, are as follows:
On March 27, 1998, the Commissioner of Internal Revenue (CIR) issued Assessment Notice No.
0000047-93-407 against Lascona Land Co., Inc. (Lascona) informing the latter of its alleged
5
deficiency income tax for the year 1993 in the amount of ₱753,266.56.
Consequently, on April 20, 1998, Lascona filed a letter protest, but was denied by Norberto R.
Odulio, Officer-in-Charge (OIC), Regional Director, Bureau of Internal Revenue, Revenue Region
No. 8, Makati City, in his Letter dated March 3, 1999, which reads, thus:
6
xxxx
Subject: LASCONA LAND CO., INC.
1993 Deficiency Income Tax
Madam,
Anent the 1993 tax case of subject taxpayer, please be informed that while we agree with the
arguments advanced in your letter protest, we regret, however, that we cannot give due course to
your request to cancel or set aside the assessment notice issued to your client for the reason that
the case was not elevated to the Court of Tax Appeals as mandated by the provisions of the last
paragraph of Section 228 of the Tax Code. By virtue thereof, the said assessment notice has
become final, executory and demandable.
In view of the foregoing, please advise your client to pay its 1993 deficiency income tax liability in the
amount of ₱753,266.56.
x x x x (Emphasis ours)
On April 12, 1999, Lascona appealed the decision before the CTA and was docketed as C.T.A.
Case No. 5777. Lascona alleged that the Regional Director erred in ruling that the failure to appeal
to the CTA within thirty (30) days from the lapse of the 180-day period rendered the assessment final
and executory.
The CIR, however, maintained that Lascona's failure to timely file an appeal with the CTA after the
lapse of the 180-day reglementary period provided under Section 228 of the National Internal
Revenue Code (NIRC) resulted to the finality of the assessment.
On January 4, 2000, the CTA, in its Decision, nullified the subject assessment. It held that in cases
7
of inaction by the CIR on the protested assessment, Section 228 of the NIRC provided two options
for the taxpayer: (1) appeal to the CTA within thirty (30) days from the lapse of the one hundred
eighty (180)-day period, or (2) wait until the Commissioner decides on his protest before he elevates
the case.
The CIR moved for reconsideration. It argued that in declaring the subject assessment as final,
executory and demandable, it did so pursuant to Section 3 (3.1.5) of Revenue Regulations No. 12-
99 dated September 6, 1999 which reads, thus:
If the Commissioner or his duly authorized representative fails to act on the taxpayer's protest within
one hundred eighty (180) days from date of submission, by the taxpayer, of the required documents
in support of his protest, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days
from the lapse of the said 180-day period; otherwise, the assessment shall become final, executory
and demandable.
On March 3, 2000, the CTA denied the CIR's motion for reconsideration for lack of merit. The CTA
8
held that Revenue Regulations No. 12-99 must conform to Section 228 of the NIRC. It pointed out
that the former spoke of an assessment becoming final, executory and demandable by reason of the
inaction by the Commissioner, while the latter referred to decisions becoming final, executory and
demandable should the taxpayer adversely affected by the decision fail to appeal before the CTA
within the prescribed period. Finally, it emphasized that in cases of discrepancy, Section 228 of the
NIRC must prevail over the revenue regulations.
Dissatisfied, the CIR filed an appeal before the CA. 9
In the disputed Decision dated October 25, 2005, the Court of Appeals granted the CIR's petition
and set aside the Decision dated January 4, 2000 of the CTA and its Resolution dated March 3,
2000. It further declared that the subject Assessment Notice No. 0000047-93-407 dated March 27,
1998 as final, executory and demandable.
Lascona moved for reconsideration, but was denied for lack of merit.
Thus, the instant petition, raising the following issues:
THE HONORABLE COURT HAS, IN THE REVISED RULES OF COURT OF TAX APPEALS
WHICH IT RECENTLY PROMULGATED, RULED THAT AN APPEAL FROM THE
INACTION OF RESPONDENT COMMISSIONER IS NOT MANDATORY.
II
THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT HELD THAT THE

ASSESSMENT HAS BECOME FINAL AND DEMANDABLE BECAUSE, ALLEGEDLY, THE
WORD "DECISION" IN THE LAST PARAGRAPH OF SECTION 228 CANNOT BE
STRICTLY CONSTRUED AS REFERRING ONLY TO THE DECISION PER SE OF THE
COMMISSIONER, BUT SHOULD ALSO BE CONSIDERED SYNONYMOUS WITH AN
ASSESSMENT WHICH HAS BEEN PROTESTED, BUT THE PROTEST ON WHICH HAS
NOT BEEN ACTED UPON BY THE COMMISSIONER. 10
In a nutshell, the core issue to be resolved is: Whether the subject assessment has become final,
executory and demandable due to the failure of petitioner to file an appeal before the CTA within
thirty (30) days from the lapse of the One Hundred Eighty (180)-day period pursuant to Section 228
of the NIRC.
Petitioner Lascona, invoking Section 3, Rule 4 of the Revised Rules of the Court of Tax Appeals,
11
maintains that in case of inaction by the CIR on the protested assessment, it has the option to either:
(1) appeal to the CTA within 30 days from the lapse of the 180-day period; or (2) await the final
decision of the Commissioner on the disputed assessment even beyond the 180-day period − in
which case, the taxpayer may appeal such final decision within 30 days from the receipt of the said
decision. Corollarily, petitioner posits that when the Commissioner failed to act on its protest within
the 180-day period, it had the option to await for the final decision of the Commissioner on the
protest, which it did.
Section 228 of the NIRC is instructional as to the remedies of a taxpayer in case of the inaction of
the Commissioner on the protested assessment, to wit:
SEC. 228. Protesting of Assessment. − x x x
xxxx

may be prescribed by implementing rules and regulations.
Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been
submitted; otherwise, the assessment shall become final.
appeal to the Court of Tax Appeals within (30) days from receipt of the said decision, or from the
lapse of the one hundred eighty (180)-day period; otherwise the decision shall become final,
executory and demandable. (Emphasis supplied).
Respondent, however, insists that in case of the inaction by the Commissioner on the protested
assessment within the 180-day reglementary period, petitioner should have appealed the inaction to
the CTA. Respondent maintains that due to Lascona's failure to file an appeal with the CTA after the
lapse of the 180-day period, the assessment became final and executory.
We do not agree.
In RCBC v. CIR, the Court has held that in case the Commissioner failed to act on the disputed
12
assessment within the 180-day period from date of submission of documents, a taxpayer can either:
(1) file a petition for review with the Court of Tax Appeals within 30 days after the expiration of the
180-day period; or (2) await the final decision of the Commissioner on the disputed assessments
and appeal such final decision to the Court of Tax Appeals within 30 days after receipt of a copy of
such decision. 13
This is consistent with Section 3 A (2), Rule 4 of the Revised Rules of the Court of Tax Appeals, to
14
wit:
SEC. 3. Cases within the jurisdiction of the Court in Divisions. – The Court in Divisions shall
exercise:
(a) Exclusive original or appellate jurisdiction to review by appeal the following:


or other applicable law provides a specific period for action: Provided, that in case of
disputed assessments, the inaction of the Commissioner of Internal Revenue within the one
hundred eighty day-period under Section 228 of the National Internal revenue Code shall be
deemed a denial for purposes of allowing the taxpayer to appeal his case to the Court and
does not necessarily constitute a formal decision of the Commissioner of Internal Revenue
on the tax case; Provided, further, that should the taxpayer opt to await the final decision of
the Commissioner of Internal Revenue on the disputed assessments beyond the one
hundred eighty day-period abovementioned, the taxpayer may appeal such final decision to
the Court under Section 3(a), Rule 8 of these Rules; and Provided, still further, that in the
case of claims for refund of taxes erroneously or illegally collected, the taxpayer must file a
petition for review with the Court prior to the expiration of the two-year period under Section
229 of the National Internal Revenue Code;
(Emphasis ours)
In arguing that the assessment became final and executory by the sole reason that petitioner failed
to appeal the inaction of the Commissioner within 30 days after the 180-day reglementary period,
respondent, in effect, limited the remedy of Lascona, as a taxpayer, under Section 228 of the NIRC
to just one, that is - to appeal the inaction of the Commissioner on its protested assessment after the
lapse of the 180-day period. This is incorrect.
As early as the case of CIR v. Villa, it was already established that the word "decisions" in
15
paragraph 1, Section 7 of Republic Act No. 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, . . . 16
Therefore, as in Section 228, when the law provided for the remedy to appeal the inaction of the
CIR, it did not intend to limit it to a single remedy of filing of an appeal after the lapse of the 180-day
prescribed period. Precisely, when a taxpayer protested an assessment, he naturally expects the
CIR to decide either positively or negatively. A taxpayer cannot be prejudiced if he chooses to wait
for the final decision of the CIR on the protested assessment. More so, because the law and
jurisprudence have always contemplated a scenario where the CIR will decide on the protested
assessment.
It must be emphasized, however, that in case of the inaction of the CIR on the protested
assessment, while we reiterate − the taxpayer has two options, either: (1) file a petition for review
with the CTA within 30 days after the expiration of the 180-day period; or (2) await the final decision
of the Commissioner on the disputed assessment and appeal such final decision to the CTA within
30 days after the receipt of a copy of such decision, these options are mutually exclusive and
resort to one bars the application of the other.
Accordingly, considering that Lascona opted to await the final decision of the Commissioner on the
protested assessment, it then has the right to appeal such final decision to the Court by filing a
petition for review within thirty days after receipt of a copy of such decision or ruling, even after the
expiration of the 180-day period fixed by law for the Commissioner of Internal Revenue to act on the
disputed assessments. Thus, Lascona, when it filed an appeal on April 12, 1999 before the CTA,
17
after its receipt of the Letter dated March 3, 1999 on March 12, 1999, the appeal was timely made
18
as it was filed within 30 days after receipt of the copy of the decision.1âwphi1
Finally, the CIR should be reminded that taxpayers cannot be left in quandary by its inaction on the
protested assessment. It is imperative that the taxpayers are informed of its action in order that the
taxpayer should then at least be able to take recourse to the tax court at the opportune time. As
correctly pointed out by the tax court:
x x x to adopt the interpretation of the respondent will not only sanction inefficiency, but will likewise
condone the Bureau's inaction. This is especially true in the instant case when despite the fact that
respondent found petitioner's arguments to be in order, the assessment will become final, executory
and demandable for petitioner's failure to appeal before us within the thirty (30) day period. 19
Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. On the other hand, such collection should be made in accordance with law as any
arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile
the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of
taxation, which is the promotion of the common good, may be achieved. Thus, even as we concede
20
the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that it be
exercised reasonably and in accordance with the prescribed procedure. 21
WHEREFORE, the petition is GRANTED. The Decision dated October 25, 2005 and the Resolution
dated January 20, 2006 of the Court of Appeals in CA-G.R. SP No. 58061 are REVERSED and SET
ASIDE. Accordingly, the Decision dated January 4, 2000 of the Court of Tax Appeals in C.T.A. Case
No. 5777 and its Resolution dated March 3, 2000 are REINSTATED.
SO ORDERED.
DIOSDADO M. PERALTA
Associate Justice
THIRD DIVISION
G.R. No. 193100, December 10, 2014
SAMAR-I ELECTRIC COOPERATIVE, Petitioner, v. COMMISSIONER OF INTERNAL

REVENUE, Respondent.
DECISION
VILLARAMA, JR., J.:
At bar is a petition for review on certiorari of the Decision1 of the Court of Tax
Appeals En Banc (CTA EB) dated March 11, 2010 and its Resolution2 dated July 28,
2010 in C.T.A. EB Nos. 460 and 462 (C.T.A. Case No. 6697) affirming the May 27, 2008
Decision3 and the January 19, 2009 Amended Decision4 of the CTA’s First Division, and
ordering petitioner to pay respondent Commissioner of Internal Revenue (CIR)
deficiency withholding tax on compensation in the aggregate amount of P2,690,850.91,
plus 20% interest starting September 30, 2002, until fully paid, pursuant to Section
249(c) of the National Internal Revenue Code (NIRC) of 1997.
The following facts are undisputed as found by the CTA’s First Division and adopted by
the CTA EB: chanroblesvirtuallawlibrary
Samar-I Electric Cooperative, Inc. (Petitioner) is an electric cooperative, with principal

office at Barangay Carayman, Calbayog City. It was issued a Certificate of Registration
by the National Electrification Administration (NEA) on February 27, 1974 pursuant to
Presidential Decree (PD) 269. Likewise, it was granted a Certificate of Provisional
Registration under Republic Act (RA) 6938, otherwise known as the Cooperative Code
of the Philippines on March 16, 1993, by the Cooperative Development Authority (CDA).
Respondent Commissioner of Internal Revenue is a public officer authorized under the

National Internal Revenue Code (NIRC) to examine any taxpayer including inter alia,
the power to issue tax assessment, evaluate, and decide upon protests relative thereto.
On July 13, 1999 and April 17, 2000, petitioner filed its 1998 and 1999 income tax
returns, respectively. Petitioner filed its 1997, 1998, and 1999 Annual Information
Return of Income Tax Withheld on Compensation, Expanded and Final Withholding
Taxes on February 17, 1998, February 1, 1999, and February 4, 2000, in that order.
On November 13, 2000, respondent issued a duly signed Letter of Authority (LOA) No.
1998 00023803; covering the examination of petitioner’s books of account and other
accounting records for income and withholding taxes for the period 1997 to 1999. The
LOA was received by petitioner on November 14, 2000.
Petitioner cooperated in the audit and investigation conducted by the Special

Investigation Division of the BIR by submitting the required documents on December 5,
2000.
On October 19, 2001, respondent sent a Notice for Informal Conference which was
received by petitioner in November 2001; indicating the allegedly income and
withholding tax liabilities of petitioner for 1997 to 1999. Attached to the letter is a
summary of the report, with an explanation of the findings of the investigators.
In response, petitioner sent a letter dated November 26, 2001 to respondent

maintaining its indifference to the latter’s findings and requesting details of the
assessment.
On December 13, 2001, petitioner executed a Waiver of the Defense of Prescription

under the Statute of Limitations, good until March 29, 2002.
On February 27, 2002, a letter was sent by petitioner to respondent requesting a

detailed computation of the alleged 1997, 1998 and 1999 deficiency withholding tax on
compensation.
On February 28, 2002, respondent issued a Preliminary Assessment Notice (PAN). The
PAN was received by petitioner on April 9, 2002, which was protested on April 18,
2002. Respondent’s Reply dated May 27, 2002, contained the explanation of the legal
basis of the issuance of the questioned tax assessments.
However, on July 8, 2002, respondent dismissed petitioner’s protest and recommended

the issuance of a Final Assessment Notice.
Consequently, on September 15, 2002, petitioner received a demand letter and

assessments notices (Final Assessment Notices) for the alleged 1997, 1998, and 1999
deficiency withholding tax in the amount of [P]3,760,225.69, as well as deficiency
income tax covering the years 1998 to 1999 in the amount of [P]440,545.71, or in the
aggregate amount of [P]4,200,771.40.
Petitioner filed its protest and Supplemental Protest to the Final Assessment Notices on
October 14, 2002 and November 4, 2002, respectively. But on the Final Decision on
Disputed Assessment issued on April 10, 2003, petitioner was still held liable for the
alleged tax liabilities.5
The CTA EB narrates the following succeeding events: chanroblesvirtuallawlibrary
On May 29, 2003, the Petition for Review was filed by SAMELCO-I with the Court in
division.
On May 27, 2008, the assailed Decision partially granting SAMELCO-I’s petition was
promulgated.
Dissatisfied, both parties sought reconsideration of the said decision. CIR filed the
“Motion for Partial Reconsideration (Re: Decision dated 27 May 2008[)]” on June 13,
2008. On the other hand, SAMELCO-I’s “Motion for Reconsideration” was filed on June
17, 2008.
On January 19, 2009, the Court in division promulgated its Amended Decision which
denied CIR’s motion and partially granted SAMELCO-I’s motion.
Thereafter, CIR and SAMELCO-I filed their “Motion for Extension of Time to File Petition
for Review” on February 6, 2009 and February 11, 2009, respectively. Both motions
were granted by the Court.6
The following issues were raised by the parties in their petitions for review before the
CTA EB. In C.T.A. EB 460, herein respondent CIR raised the following grounds: chanroblesvirtuallawlibrary
I. Whether or not SAMELCO-I is entitled to tax privileges accorded to

members in accordance with Republic Act No. 6938, or the Cooperative
Code, or to privileges of Presidential Decree (PD) No. 269.
II. Whether or not SAMELCO-I is liable for the minimum corporate income
tax (MCIT) for taxable years 1998 to 1999.
III. Whether or not SAMELCO-I is liable to pay the total deficiency expanded
withholding tax of [P]3,760,225.69 for taxable years 1997 to 1999.7
On the other hand, petitioner SAMELCO-I raised the following legal and factual errors in
C.T.A. EB No. 462, viz.:chanroblesvirtuallawlibrary
I. The Court in Division gravely erred in holding that the 1997 and 1998
assessments on withholding tax on compensation (received by SAMELCO-I
on September 15, 2002), have not prescribed even if the waiver validly
executed was good only until March 29, 2002.
II. The Court in Division erred in holding that CIR can validly assess within
the ten (10)-year prescriptive period even if the notice of informal
conference, PAN, formal letter of demand, and assessment notice mention
not a word that the BIR is invoking Section 222 (a) of the 1997 Tax Code
[then Sec. 223, NIRC], due to alleged false withholding tax returns filed
by [SAMELCO-I] as the same assertions were mere afterthought to justify
application of the 10-year prescriptive period to assess.
III. The Court in Division failed to consider that CIR made no findings as to
SAMELCO-I’s filing of a false return as clearly manifested by the non-
imposition of 50% surcharge on the 1997, 1998 and 1999 basic
withholding tax deficiency in the PAN, demand notice and even in the
assessment notice other than interest charges.
IV. The Court in Division erred in not holding that given SAMELCO-I’s filing of
its 1997, 1998, and 1999 withholding tax returns in good faith, and in
close consultation with the BIR personnel in Calbayog City where
SAMELCO-I’s place of business is located, the latter should no longer be
imposed the incremental penalties (surcharge and interest).
V. The Court in Division failed to rule that since there was no substantial
under remittance of 1998 withholding tax as the basic deficiency tax per
amended decision is less than 30% of the computed total tax due per
return, SAMELCO-I did not file a false return.
VI. The Court in Division overlooked the fact that for taxable year 1999,
[SAMELCO-I] remitted the amount of [P]844,958.00 as withholding tax in
compensation instead of [P]786,702.43 as indicated in Page 8, Annex C of
the CTA (1st Division) Decision.
VII. The Court in Division erred in failing to declare as void both the formal
letter of demand and assessment notice on withholding tax on
compensation for 1997 taxable year, given its non-compliance with
Section 3.1.4 of RR 12-99.8
On February 26, 2009, the CTA EB consolidated both cases. After the filing of the
respective Comments of both parties, the cases were deemed submitted for decision.
The CTA EB found that the issues and arguments raised by the parties were “mere
reiterations of what have been considered and passed upon by the Court in division in
the assailed Decision and the Amended Decision.”9 It ruled that SAMELCO-I is
exempted in the payment of the Minimum Corporate Income Tax (MCIT); that due
process was observed in the issuance of the assessments in accordance with Section
228 of the Tax Code; and that the 1997 and 1998 assessments on deficiency
withholding tax on compensation have not prescribed. Finding no reversible error in the
Decision and the Amended Decision, the CTA EB ruled, viz.: chanroblesvirtuallawlibrary
WHEREFORE, premises considered, We deny the petitions for lack of merit.

Accordingly, We AFFIRM the May 27, 2008 Decision and the January 19, 2009
Amended Decision promulgated by the First Division of this Court.
SO ORDERED.10
Petitioner moved for reconsideration. In a Resolution dated July 28, 2010, the CTA EB
denied the motion. Petitioner now comes to this Court raising the following assignment
of errors:
chanroblesvirtuallawlibrary
A. The Honorable CTA En Banc gravely erred in holding that respondent sufficiently

complied with the due process requirements mandated by Section 228 of the 1997 Tax
Code in the issuance of 1997-1999 assessments to petitioner, even if the details of
discrepancies on which the assessments were factually and legally based as required
under Section 3.1.4 of Revenue Regulations (RR) No[.] 12-99, were not found in the
Formal Letter of Demand and Final Assessment Notice (FAN) sent to petitioner, in clear
violation of the doctrine established in the case of Commissioner of Internal Revenue
vs. Enron Subic Power Corporation, G.R. No. 166387, January 19, 2009, applying
Section 3.1.4 of RR 12-99 in relation to Section 228 NIRC.
B. The Honorable CTA En Banc erred in holding that respondent observed due process
notwithstanding the missing Annex “A-1” that was meant to show Details of
Discrepancies and to be attached to BIR’s Letter of Demand/Final Notice dated
September 15, 2002, which was not furnished to petitioner and worse, a file copy of
which is not even found in the BIR records as part of its Exhibit “16” and neither is the
same found in the CTA records.
C. In deciding that the 1997 and 1998 withholding tax assessments have not yet
prescribed, the Honorable CTA En Banc failed to consider the singular significance of the
Waiver of the Defense of Prescription validly agreed upon and executed by the parties.
D. The Honorable CTA En Banc erred in holding that respondent can validly assess
within the ten (10)-year prescriptive period even if the Notice of Informal Conference,
PAN, and Final Letter of Demand (dated September 15, 2002), mentioned not a word
as to the falsity of the returns filed by petitioner, but as an afterthought that was raised
rather belatedly only in the Answer and during the trial.
E. The Honorable CTA En Banc erred in holding as valid the 1997 deficiency withholding
tax assessment being anchored on RR 2-98 (as cited in Notice of Informal Conference
and PAN), as the said RR 2-98 governs compensation income paid beginning January 1,
1998.11
We shall resolve the instant controversy by discussing the following two main issues in
seriatim: whether the 1997 and 1998 assessments on withholding tax on compensation
were issued within the prescriptive period provided by law; and whether the
assessments were issued in accordance with Section 228 of the NIRC of 1997.
On the issue of prescription, petitioner contends that the subject 1997 and 1998
withholding tax assessments on compensation were issued beyond the prescriptive
period of three years under Section 203 of the NIRC of 1997. Under this section, the
government is allowed a period of only three years to assess the correct tax liability of
a taxpayer, viz.: chanroblesvirtuallawlibrary
SEC. 203. Period of Limitation Upon Assessment and Collection. – Except as provided in

Section 222, internal revenue taxes shall be assessed within three (3) 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 (3)-year period shall be counted from the day the return
was filed. For 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.
Relying on Section 203, petitioner argues that the subject deficiency tax assessments
issued by respondent on September 15, 2002 was issued beyond the three-year
prescriptive period. Petitioner filed its Annual Information Return of Income Tax
Withheld on Compensation, Expanded and Final Withholding Taxes on the following
dates: on February 17, 1998 for the taxable year 1997; and on February 1, 1999 for
the year taxable 1998. Thus, if the period prescribed under Section 203 of the NIRC of
1997 is to be followed, the three-year prescriptive period to assess for the taxable
years 1997 and 1998 should have ended on February 16, 2001 and January 31, 2002,
respectively.
We disagree.
While petitioner is correct that Section 203 sets the three-year prescriptive period to
assess, the following exceptions are provided under Section 222 of the NIRC of
1997, viz.:chanroblesvirtuallawlibrary
SEC. 222. 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 filed without assessment, at any time within
ten (10) 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 Section 203 for the assessment of
the tax, both the Commissioner and the taxpayer have agreed in writing to its
assessment after such time, the tax may be assessed within the period agreed upon.
The period so agreed upon may be extended by subsequent written agreement made
before the expiration of the period previously agreed upon.
(c) Any internal revenue tax which has been assessed within the period of limitation as
prescribed in paragraph (a) hereof may be collected by distraint or levy or by a
proceeding in court within five (5) 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
five (5)-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 return filed in accordance with the provisions of any tax amnesty
law or decree. (Emphasis supplied.)
In the case at bar, it was petitioner’s substantial underdeclaration of withholding taxes
in the amount of P2,690,850.91 which constituted the “falsity” in the subject returns –
giving respondent the benefit of the period under Section 222 of the NIRC of 1997 to
assess the correct amount of tax “at any time within ten (10) years after the discovery
of the falsity, fraud or omission.”12
The case of Aznar v. Court of Tax Appeals13 discusses what acts or omissions may
constitute falsity, viz.:
Petitioner argues that Sec. 332 of the NIRC does not apply because the taxpayer did
not file false and fraudulent returns with intent to evade tax, while respondent
Commissioner of Internal Revenue insists contrariwise, with respondent Court of Tax
Appeals concluding that the very “substantial underdeclarations of income for six
consecutive years eloquently demonstrate the falsity or fraudulence of the income tax
returns with an intent to evade the payment of tax.”
To our minds we can dispense with these controversial arguments on facts, although we
do not deny that the findings of facts by the Court of Tax Appeals, supported as they
are by very substantial evidence, carry great weight, by resorting to a proper
interpretation of Section 332 of the NIRC. We believe that the proper and reasonable
interpretation of said provision should be that in the three different cases of (1) false
return, (2) fraudulent return with intent to evade tax, (3) failure to file a return, the tax
may be assessed, or a proceeding in court for the collection of such tax may be begun
without assessment, at any time within ten years after the discovery of the (1) falsity,
(2) fraud, (3) omission. Our stand that the law should be interpreted to mean a
separation of the three different situations of false return, fraudulent return with intent
to evade tax, and failure to file a return is strengthened immeasurably by the last
portion of the provision which segregates the situations into three different classes,
namely “falsity,” “fraud” and “omission.” That there is a difference between “false
return” and “fraudulent return” cannot be denied. While the first merely implies
deviation from the truth, whether intentional or not, the second implies intentional or
deceitful entry with intent to evade the taxes due.
The ordinary period of prescription of 5 years within which to assess tax liabilities under
Sec. 331 of the NIRC should be applicable to normal circumstances, but whenever the
government is placed at a disadvantage so as to prevent its lawful agents from proper
assessment of tax liabilities due to false returns, fraudulent return intended to evade
payment of tax or failure to file returns, the period of ten years provided for in Sec. 332
(a) NIRC, from the time of the discovery of the falsity, fraud or omission even seems to
be inadequate and should be the one enforced.
There being undoubtedly false tax returns in this case, We affirm the conclusion of the
respondent Court of Tax Appeals that Sec. 332 (a) of the NIRC should apply and that
the period of ten years within which to assess petitioner’s tax liability had not expired at
the time said assessment was made.14
A careful examination of the evidence on record yields to no other conclusion but that
petitioner failed to withhold taxes from its employees’ 13th month pay and other
benefits in excess of thirty thousand pesos (P30,000.00) amounting to P2,690,850.91
for the taxable years 1997 to 1999 – resulting to its filing of the subject false returns.
Petitioner failed to refute this finding, both in fact and in law, before the courts a quo.
We quote the following portion of the assailed Decision of the CTA EB, viz.: chanroblesvirtuallawlibrary
It is noteworthy to mention that during the trial, the witness for the CIR testified that
SAMELCO-I did not file an accurate return, as follows:
ATTY. FRANCIA:
Q: Did the petitioner file an accurate Return?
MS. RAPATAN:
A: No.
ATTY. FRANCIA:
Q: Can you please explain?
MS. RAPATAN:
A: Because I based the computation of my deficiency withholding taxes on declared taxable
income per alpha list submitted then, I have extracted a data from the Alpha List,
particularly that of the manager and other officials, only their basic salary and their overtime
pay were declared but the other benefits were not actually subjected to withholding tax. So,
the deficiency withholding taxes from the taxes on the taxable 13th month pay and other
benefits in excess of the [P]12,000.00 for 1997 and for the taxable years 1998 and 1999, in
excess of the [P]30,000.00. I also noticed that the per diem of the Manager was not included
in the withholding tax computation of SAMELCO[-]I.
ATTY. FRANCIA:
Nothing further, your Honors.
JUSTICE BAUTISTA:
Any re-cross?
ATTY. NAPUTO:
No re-cross, your Honors.15
We have consistently held that courts will not interfere in matters which are addressed
to the sound discretion of the government agency entrusted with the regulation of
activities coming under its special and technical training and knowledge.16 The findings
of fact of these quasi-judicial agencies are generally accorded respect and even finality
as long as they are supported by substantial evidence – in recognition of their expertise
on the specific matters under their consideration.17 In the case at bar, petitioner failed
to proffer convincing argument and evidence that would persuade us to disturb the
factual findings of the CTA First Division, as affirmed by the CTA EB. As such, we cannot
but affirm the finding of petitioner’s substantial underdeclaration of withholding taxes in
the amount of P2,690,850.91 which constituted the “falsity” in the subject returns.
Anent the issue of violation of due process in the issuance of the final notice of
assessment and letter of demand, Section 228 of the NIRC of 1997 provides: chanroblesvirtuallawlibrary
SEC. 228. Protesting of Assessment. – x x x
xxxx
The taxpayers shall be informed in writing of the law and the facts on which the
assessment is made: otherwise, the assessment shall be void.
Petitioner contends that as the Final Demand Letter and Assessment Notices (FAN)
were silent as to the nature and basis of the assessments, it was denied due
process,18 and the assessments must be declared void. It likewise invokes Revenue
Regulations (RR) No. 12-99 which states, viz.: chanroblesvirtuallawlibrary
3.1.4 Formal Letter of Demand and Assessment Notice. – The formal letter of
demand and assessment notice shall be issued by the Commissioner or his duly
authorized representative. The letter of demand calling for payment of the taxpayer’s
deficiency tax or taxes shall state the facts, the law, rules and regulations, or
jurisprudence on which the assessment is based, otherwise, the formal letter of
demand and assessment notice shall be void . The same shall be sent to the
taxpayer only by registered mail or by personal delivery. x x x
We uphold the assessments issued to petitioner.
Both Section 228 of the NIRC of 1997 and Section 3.1.4 of RR No. 12-99 clearly require
the written details on the nature, factual and legal bases of the subject deficiency tax
assessments. The reason for the mandatory nature of this requirement is explained in
the case of Commissioner of Internal Revenue v. Reyes:19
A void assessment bears no valid fruit.

The law imposes a substantive, not merely a formal, requirement. To proceed
heedlessly with tax collection without first establishing a valid assessment is evidently
violative of the cardinal principle in administrative investigations: that taxpayers should
be able to present their case and adduce supporting evidence. In the instant case,
respondent has not been informed of the basis of the estate tax liability. Without
complying with the unequivocal mandate of first informing the taxpayer of the
government’s claim, there can be no deprivation of property, because no
effective protest can be made. The haphazard shot at slapping an assessment,
supposedly based on estate taxation’s general provisions that are expected to be known
by the taxpayer, is utter chicanery.
Even a cursory review of the preliminary assessment notice, as well as the demand
letter sent, reveals the lack of basis for – not to mention the insufficiency of – the gross
figures and details of the itemized deductions indicated in the notice and the
letter. This Court cannot countenance an assessment based on estimates that
appear to have been arbitrarily or capriciously arrived at. Although taxes are the
lifeblood of the government, their assessment and collection “should be made in
accordance with law as any arbitrariness will negate the very reason for government
itself.” (Emphasis supplied; citations omitted)
In Commissioner of Internal Revenue v. Enron Subic Power Corporation,20 we held that
the law requires that the legal and factual bases of the assessment be stated in the
formal letter of demand and assessment notice, and that the alleged “factual bases” in
the advice, preliminary letter and “audit working papers” did not suffice. Thus:chanroblesvirtuallawlibrary
Both the CTA and the CA concluded that the deficiency tax assessment merely itemized
the deductions disallowed and included these in the gross income. It also imposed the
preferential rate of 5% on some items categorized by Enron as costs. The legal and
factual bases were, however, not indicated.
The CIR insists that an examination of the facts shows that Enron was properly apprised
of its tax deficiency. During the pre-assessment stage, the CIR advised Enron’s
representative of the tax deficiency, informed it of the proposed tax deficiency
assessment through a preliminary five-day letter and furnished Enron a copy of the
audit working paper allegedly showing in detail the legal and factual bases of the
assessment. The CIR argues that these steps sufficed to inform Enron of the laws and
facts on which the deficiency tax assessment was based.
We disagree. The advice of tax deficiency, given by the CIR to an employee of

Enron, as well as the preliminary five-day letter, were not valid substitutes for
the mandatory notice in writing of the legal and factual bases of the
assessment. These steps were mere perfunctory discharges of the CIR’s duties in
correctly assessing a taxpayer. The requirement for issuing a preliminary or final notice,
as the case may be, informing a taxpayer of the existence of a deficiency tax
assessment is markedly different from the requirement of what such notice must
contain. Just because the CIR issued an advice, a preliminary letter during the
pre-assessment stage and a final notice, in the order required by law, does not
necessarily mean that Enron was informed of the law and facts on which the
deficiency tax assessment was made.21 (Emphasis supplied)
In this case, we agree with the respondent that petitioner was sufficiently apprised of
the nature, factual and legal bases, as well as how the deficiency taxes being assessed
against it were computed. Records reveal that on October 19, 2001, prior to the
conduct of an informal conference, petitioner was already informed of the results and
findings of the investigations made by the respondent, and was duly furnished with a
copy of the summary of the report submitted by Revenue Officer Elisa G. Ponferrada-
Rapatan of the Special Investigation Division. Said summary report contained an
explanation of Findings of Investigation stating the legal and factual bases for the
deficiency assessment. In a letter dated February 27, 2002 petitioner requested for
copies of working papers indicating how the deficiency withholding taxes were
computed.22 Respondent promptly responded in a letter-reply dated February 28, 2002
stating:
please be informed that the cooperative’s deficiency withholding taxes on compensation

were due to the failure of the cooperative to withhold taxes on the taxable 13th month
pay and other benefits in excess of P30,000.00 threshold pursuant to Section 3 of
Revenue Regulation No. 2-95 implementing Republic Act No. 7833 and Section 2.78/1 B
11 of Revenue Regulation 2-98 implementing Section 32 B e of Republic Act No. 8424.
Further, we are providing you hereunder the computational format on how deficiency
withholding taxes were computed and sample computation from our working papers,
for your information and guidance.23
On April 9, 2002, petitioner received the PAN dated February 28, 2002 which contained
the computations of its deficiency income and withholding taxes. Attached to the PAN
was the detailed explanation of the particular provision of law and revenue regulation
violated, thus:
DETAILS OF DISCREPANCIES
1. Deficiency income taxes for 1998 and 1999 respectively result from non-
payment of the minimum corporate income tax (MCIT) imposed pursuant
to Section 27(E) of the 1997 Tax Reform Act.
2. Deficiency Withholding Taxes on Compensation for 1997-1999 are the

total withholding taxes on compensation of all employees of SAMELCO[-]I
resulting from failure of employer to withhold taxes on the taxable
13th month pay and other benefits in excess of [P]30,000.00 threshold
pursuant to Revenue Regulation 2-98.24
The above information provided to petitioner enabled it to protest the PAN by

questioning respondent’s interpretation of the laws cited as legal basis for the
computation of the deficiency withholding taxes and assessment of minimum corporate
income tax despite petitioner’s position that it remains exempt therefrom.25 In its letter-
reply dated May 27, 2002, respondent answered the arguments raised by petitioner in
its protest, and requested it to pay the assessed deficiency on the date of payment
stated in the PAN. A second protest letter dated June 23, 2002 was sent by petitioner,
to which respondent replied (letter dated July 8, 2002) answering each of the two
issues reiterated by petitioner: (1) validity of EO 93 withdrawing the tax exemption
privileges under PD 269; and (2) retroactive application of RR No. 8-2000.26 The FAN
was finally received by petitioner on September 24, 2002, and protested by it in a letter
dated October 14, 2002 which reiterated in lengthy arguments its earlier interpretation
of the laws and regulations upon which the assessments were based.27
Although the FAN and demand letter issued to petitioner were not accompanied by a
written explanation of the legal and factual bases of the deficiency taxes assessed
against the petitioner, the records showed that respondent in its letter dated April 10,
2003 responded to petitioner’s October 14, 2002 letter-protest, explaining at length the
factual and legal bases of the deficiency tax assessments and denying the protest.28
Considering the foregoing exchange of correspondence and documents between the

parties, we find that the requirement of Section 228 was substantially complied with.
Respondent had fully informed petitioner in writing of the factual and legal bases of the
deficiency taxes assessment, which enabled the latter to file an “effective” protest,
much unlike the taxpayer’s situation in Enron. Petitioner’s right to due process was thus
not violated.
WHEREFORE, the petition is DENIED. The assailed Decision and Resolution of the
Court of Tax Appeals En Banc dated March 11, 2010 and July 28, 2010, respectively, in
C.T.A. EB Nos. 460 and 462 (C.T.A. Case No. 6697), are hereby AFFIRMED and
UPHELD.
With costs against the petitioner.

SO ORDERED.
G.R. No. 185371 December 8, 2010

vs.
METRO STAR SUPERAMA, INC., Respondent.
DECISION
MENDOZA, J.:
This petition for review on certiorari under Rule 45 of the Rules of Court filed by the petitioner
Commissioner of Internal Revenue (CIR) seeks to reverse and set aside the 1] September 16, 2008
Decision1 of the Court of Tax Appeals En Banc (CTA-En Banc), in C.T.A. EB No. 306 and 2] its
November 18, 2008 Resolution2 denying petitioner’s motion for reconsideration.
The CTA-En Banc affirmed in toto the decision of its Second Division (CTA-Second Division) in CTA
Case No. 7169 reversing the February 8, 2005 Decision of the CIR which assessed respondent
Metro Star Superama, Inc. (Metro Star) of deficiency value-added tax and withholding tax for the
taxable year 1999.
Based on a Joint Stipulation of Facts and Issues3 of the parties, the CTA Second Division
summarized the factual and procedural antecedents of the case, the pertinent portions of which
read:
Petitioner is a domestic corporation duly organized and existing by virtue of the laws of the Republic
of the Philippines, x x x.
On January 26, 2001, the Regional Director of Revenue Region No. 10, Legazpi City, issued Letter
of Authority No. 00006561 for Revenue Officer Daisy G. Justiniana to examine petitioner’s books of
accounts and other accounting records for income tax and other internal revenue taxes for the
taxable year 1999. Said Letter of Authority was revalidated on August 10, 2001 by Regional Director
Leonardo Sacamos.
For petitioner’s failure to comply with several requests for the presentation of records and Subpoena
Duces Tecum, [the] OIC of BIR Legal Division issued an Indorsement dated September 26, 2001
informing Revenue District Officer of Revenue Region No. 67, Legazpi City to proceed with the
investigation based on the best evidence obtainable preparatory to the issuance of assessment
notice.
On November 8, 2001, Revenue District Officer Socorro O. Ramos-Lafuente issued a Preliminary

15-day Letter, which petitioner received on November 9, 2001. The said letter stated that a post
audit review was held and it was ascertained that there was deficiency value-added and withholding
taxes due from petitioner in the amount of ₱ 292,874.16.
On April 11, 2002, petitioner received a Formal Letter of Demand dated April 3, 2002 from Revenue
District No. 67, Legazpi City, assessing petitioner the amount of Two Hundred Ninety Two Thousand
Eight Hundred Seventy Four Pesos and Sixteen Centavos (₱292,874.16.) for deficiency value-
added and withholding taxes for the taxable year 1999, computed as follows:
ASSESSMENT NOTICE NO. 067-99-003-579-072
VALUE ADDED TAX

Gross Sales ₱1,697,718.90
Output Tax ₱ 154,338.08
Less: Input Tax _____________
VAT Payable ₱ 154,338.08
Add: 25% Surcharge ₱ 38,584.54
20% Interest 79,746.49
Compromise Penalty
Late Payment ₱16,000.00
Failure to File VAT returns 2,400.00 18,400.00 136,731.01
TOTAL ₱ 291,069.09
WITHHOLDING TAX
Compensation 2,772.91
Expanded 110,103.92
Total Tax Due ₱ 112,876.83
Less: Tax Withheld 111,848.27
Deficiency Withholding Tax ₱ 1,028.56
Add: 20% Interest p.a. 576.51
Compromise Penalty 200.00
TOTAL ₱ 1,805.07
*Expanded Withholding Tax ₱1,949,334.25 x 5% 97,466.71
Film Rental 10,000.25 x 10% 1,000.00
Audit Fee 193,261.20 x 5% 9,663.00
Rental Expense 41,272.73 x 1% 412.73
Security Service 156,142.01 x 1% 1,561.42
Service Contractor ₱ 110,103.92
Total
SUMMARIES OF DEFICIENCIES
VALUE ADDED TAX ₱ 291,069.09
WITHHOLDING TAX 1,805.07
TOTAL ₱ 292,874.16
Subsequently, Revenue District Office No. 67 sent a copy of the Final Notice of Seizure dated May
12, 2003, which petitioner received on May 15, 2003, giving the latter last opportunity to settle its
deficiency tax liabilities within ten (10) [days] from receipt thereof, otherwise respondent BIR shall be
constrained to serve and execute the Warrants of Distraint and/or Levy and Garnishment to enforce
collection.
On February 6, 2004, petitioner received from Revenue District Office No. 67 a Warrant of Distraint
and/or Levy No. 67-0029-23 dated May 12, 2003 demanding payment of deficiency value-added tax
and withholding tax payment in the amount of ₱292,874.16.
On July 30, 2004, petitioner filed with the Office of respondent Commissioner a Motion for
Reconsideration pursuant to Section 3.1.5 of Revenue Regulations No. 12-99.
On February 8, 2005, respondent Commissioner, through its authorized representative, Revenue

Regional Director of Revenue Region 10, Legaspi City, issued a Decision denying petitioner’s
Motion for Reconsideration. Petitioner, through counsel received said Decision on February 18,
2005.
x x x.
Denying that it received a Preliminary Assessment Notice (PAN) and claiming that it was not
accorded due process, Metro Star filed a petition for review4 with the CTA. The parties then
stipulated on the following issues to be decided by the tax court:
1. Whether the respondent complied with the due process requirement as provided under
the National Internal Revenue Code and Revenue Regulations No. 12-99 with regard to the
issuance of a deficiency tax assessment;
1.1 Whether petitioner is liable for the respective amounts of ₱291,069.09 and
₱1,805.07 as deficiency VAT and withholding tax for the year 1999;
1.2. Whether the assessment has become final and executory and demandable for
failure of petitioner to protest the same within 30 days from its receipt thereof on April
11, 2002, pursuant to Section 228 of the National Internal Revenue Code;
2. Whether the deficiency assessments issued by the respondent are void for failure to state
the law and/or facts upon which they are based.
2.2 Whether petitioner was informed of the law and facts on which the assessment is
made in compliance with Section 228 of the National Internal Revenue Code;
3. Whether or not petitioner, as owner/operator of a movie/cinema house, is subject to VAT

on sales of services under Section 108(A) of the National Internal Revenue Code;
4. Whether or not the assessment is based on the best evidence obtainable pursuant to
Section 6(b) of the National Internal Revenue Code.
The CTA-Second Division found merit in the petition of Metro Star and, on March 21, 2007, rendered
a decision, the decretal portion of which reads:
WHEREFORE, premises considered, the Petition for Review is hereby GRANTED. Accordingly, the
assailed Decision dated February 8, 2005 is hereby REVERSED and SET ASIDE and respondent is
ORDERED TO DESIST from collecting the subject taxes against petitioner.
The CTA-Second Division opined that "[w]hile there [is] a disputable presumption that a mailed letter
[is] deemed received by the addressee in the ordinary course of mail, a direct denial of the receipt of
mail shifts the burden upon the party favored by the presumption to prove that the mailed letter was
indeed received by the addressee."5 It also found that there was no clear showing that Metro Star
actually received the alleged PAN, dated January 16, 2002. It, accordingly, ruled that the Formal
Letter of Demand dated April 3, 2002, as well as the Warrant of Distraint and/or Levy dated May 12,
2003 were void, as Metro Star was denied due process.6
The CIR sought reconsideration7 of the decision of the CTA-Second Division, but the motion was
denied in the latter’s July 24, 2007 Resolution.8
Aggrieved, the CIR filed a petition for review9 with the CTA-En Banc, but the petition was dismissed
after a determination that no new matters were raised. The CTA-En Banc disposed:
WHEREFORE, the instant Petition for Review is hereby DENIED DUE COURSE and DISMISSED
for lack of merit. Accordingly, the March 21, 2007 Decision and July 27, 2007 Resolution of the CTA
Second Division in CTA Case No. 7169 entitled, "Metro Star Superama, Inc., petitioner vs.
Commissioner of Internal Revenue, respondent" are hereby AFFIRMED in toto.
SO ORDERED.
The motion for reconsideration10 filed by the CIR was likewise denied by the CTA-En Banc in its
November 18, 2008 Resolution.11
The CIR, insisting that Metro Star received the PAN, dated January 16, 2002, and that due process
was served nonetheless because the latter received the Final Assessment Notice (FAN), comes now
before this Court with the sole issue of whether or not Metro Star was denied due process.
The general rule is that the Court will not lightly set aside the conclusions reached by the CTA which,
by the very nature of its functions, has accordingly developed an exclusive expertise on the
resolution unless there has been an abuse or improvident exercise of authority.12 In Barcelon, Roxas
Securities, Inc. (now known as UBP Securities, Inc.) v. Commissioner of Internal Revenue,13 the
Court wrote:
Jurisprudence has consistently shown that this Court accords the findings of fact by the CTA with the
highest respect. In Sea-Land Service Inc. v. Court of Appeals [G.R. No. 122605, 30 April 2001, 357
SCRA 441, 445-446], this Court recognizes that the Court of Tax Appeals, which by the very nature
of its function is dedicated exclusively to the consideration of tax problems, has necessarily
developed an expertise on the subject, and its conclusions will not be overturned unless there has
been an abuse or improvident exercise of authority. Such findings can only be disturbed on appeal if
they are not supported by substantial evidence or there is a showing of gross error or abuse on the
part of the Tax Court. In the absence of any clear and convincing proof to the contrary, this Court
must presume that the CTA rendered a decision which is valid in every respect.
On the matter of service of a tax assessment, a further perusal of our ruling in Barcelon is
instructive, viz:
Jurisprudence is replete with cases holding that if the taxpayer denies ever having received an
assessment from the BIR, it is incumbent upon the latter to prove by competent evidence that such
notice was indeed received by the addressee. The onus probandi was shifted to respondent to prove
by contrary evidence that the Petitioner received the assessment in the due course of mail. The
Supreme Court has consistently held that while a mailed letter is deemed received by the addressee
in the course of mail, this is merely a disputable presumption subject to controversion and a direct
denial thereof shifts the burden to the party favored by the presumption to prove that the mailed
letter was indeed received by the addressee (Republic vs. Court of Appeals, 149 SCRA 351). Thus
as held by the Supreme Court in Gonzalo P. Nava vs. Commissioner of Internal Revenue, 13 SCRA
104, January 30, 1965:
"The facts to be proved to raise this presumption are (a) that the letter was properly addressed with
postage prepaid, and (b) that it was mailed. Once these facts are proved, the presumption is that the
letter was received by the addressee as soon as it could have been transmitted to him in the
ordinary course of the mail. But if one of the said facts fails to appear, the presumption does not lie.
(VI, Moran, Comments on the Rules of Court, 1963 ed, 56-57 citing Enriquez vs. Sunlife Assurance
of Canada, 41 Phil 269)."
x x x. What is essential to prove the fact of mailing is the registry receipt issued by the Bureau of
Posts or the Registry return card which would have been signed by the Petitioner or its authorized
representative. And if said documents cannot be located, Respondent at the very least, should have
submitted to the Court a certification issued by the Bureau of Posts and any other pertinent
document which is executed with the intervention of the Bureau of Posts. This Court does not put
much credence to the self serving documentations made by the BIR personnel especially if they are
unsupported by substantial evidence establishing the fact of mailing. Thus:
"While we have held that an assessment is made when sent within the prescribed period, even if
received by the taxpayer after its expiration (Coll. of Int. Rev. vs. Bautista, L-12250 and L-12259,
May 27, 1959), this ruling makes it the more imperative that the release, mailing or sending of the
notice be clearly and satisfactorily proved. Mere notations made without the taxpayer’s intervention,
notice or control, without adequate supporting evidence cannot suffice; otherwise, the taxpayer
would be at the mercy of the revenue offices, without adequate protection or defense." (Nava vs.
CIR, 13 SCRA 104, January 30, 1965).
x x x.
The failure of the respondent to prove receipt of the assessment by the Petitioner leads to the
conclusion that no assessment was issued. Consequently, the government’s right to issue an
assessment for the said period has already prescribed. (Industrial Textile Manufacturing Co. of the
Phils., Inc. vs. CIR CTA Case 4885, August 22, 1996). (Emphases supplied.)
The Court agrees with the CTA that the CIR failed to discharge its duty and present any evidence to
show that Metro Star indeed received the PAN dated January 16, 2002. It could have simply
presented the registry receipt or the certification from the postmaster that it mailed the PAN, but
failed. Neither did it offer any explanation on why it failed to comply with the requirement of service
of the PAN. It merely accepted the letter of Metro Star’s chairman dated April 29, 2002, that stated
that he had received the FAN dated April 3, 2002, but not the PAN; that he was willing to pay the tax
as computed by the CIR; and that he just wanted to clarify some matters with the hope of lessening
its tax liability.
This now leads to the question: Is the failure to strictly comply with notice requirements prescribed
under Section 228 of the National Internal Revenue Code of 1997 and Revenue Regulations (R.R.)
No. 12-99 tantamount to a denial of due process? Specifically, are the requirements of due process
satisfied if only the FAN stating the computation of tax liabilities and a demand to pay within the
prescribed period was sent to the taxpayer?
The answer to these questions require an examination of Section 228 of the Tax Code which reads:
SEC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized
representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his
findings: provided, however, that a preassessment notice shall not be required in the following
cases:
(a) When the finding for any deficiency tax is the result of mathematical error in the
computation of the tax as appearing on the face of the return; or
(b) When a discrepancy has been determined between the tax withheld and the amount
actually remitted by the withholding agent; or
(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable
withholding tax for a taxable period was determined to have carried over and automatically
applied the same amount claimed against the estimated tax liabilities for the taxable quarter
or quarters of the succeeding taxable year; or
(d) When the excise tax due on exciseable articles has not been paid; or
(e) When the article locally purchased or imported by an exempt person, such as, but not
limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or
transferred to non-exempt persons.
The taxpayers shall be informed in writing of the law and the facts on which the assessment is

may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the
protest, all relevant supporting documents shall have been submitted; otherwise, the assessment
shall become final.
appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from
the lapse of one hundred eighty (180)-day period; otherwise, the decision shall become final,
executory and demandable. (Emphasis supplied).
Indeed, Section 228 of the Tax Code clearly requires that the taxpayer must first be informed that he
is liable for deficiency taxes through the sending of a PAN. He must be informed of the facts and the
law upon which the assessment is made. The law imposes a substantive, not merely a formal,
requirement. To proceed heedlessly with tax collection without first establishing a valid assessment
is evidently violative of the cardinal principle in administrative investigations - that taxpayers should
be able to present their case and adduce supporting evidence.14
This is confirmed under the provisions R.R. No. 12-99 of the BIR which pertinently provide:
SECTION 3. Due Process Requirement in the Issuance of a Deficiency Tax Assessment. —
3.1 Mode of procedures in the issuance of a deficiency tax assessment:
3.1.1 Notice for informal conference. — The Revenue Officer who audited the taxpayer's
records shall, among others, state in his report whether or not the taxpayer agrees with his
findings that the taxpayer is liable for deficiency tax or taxes. If the taxpayer is not amenable,
based on the said Officer's submitted report of investigation, the taxpayer shall be informed,
in writing, by the Revenue District Office or by the Special Investigation Division, as the case
may be (in the case Revenue Regional Offices) or by the Chief of Division concerned (in the
case of the BIR National Office) of the discrepancy or discrepancies in the taxpayer's
payment of his internal revenue taxes, for the purpose of "Informal Conference," in order to
afford the taxpayer with an opportunity to present his side of the case. If the taxpayer fails to
respond within fifteen (15) days from date of receipt of the notice for informal conference, he
shall be considered in default, in which case, the Revenue District Officer or the Chief of the
Special Investigation Division of the Revenue Regional Office, or the Chief of Division in the
National Office, as the case may be, shall endorse the case with the least possible delay to
the Assessment Division of the Revenue Regional Office or to the Commissioner or his duly
authorized representative, as the case may be, for appropriate review and issuance of a
deficiency tax assessment, if warranted.
3.1.2 Preliminary Assessment Notice (PAN). — If after review and evaluation by the
Assessment Division or by the Commissioner or his duly authorized representative, as the
case may be, it is determined that there exists sufficient basis to assess the taxpayer for any
deficiency tax or taxes, the said Office shall issue to the taxpayer, at least by registered mail,
a Preliminary Assessment Notice (PAN) for the proposed assessment, showing in detail, the
facts and the law, rules and regulations, or jurisprudence on which the proposed assessment
is based (see illustration in ANNEX A hereof). If the taxpayer fails to respond within fifteen
(15) days from date of receipt of the PAN, he shall be considered in default, in which case, a
formal letter of demand and assessment notice shall be caused to be issued by the said
Office, calling for payment of the taxpayer's deficiency tax liability, inclusive of the applicable
penalties.
3.1.3 Exceptions to Prior Notice of the Assessment. — The notice for informal conference
and the preliminary assessment notice shall not be required in any of the following cases, in
which case, issuance of the formal assessment notice for the payment of the taxpayer's
deficiency tax liability shall be sufficient:
(i) When the finding for any deficiency tax is the result of mathematical error in the
computation of the tax appearing on the face of the tax return filed by the taxpayer;
or
(ii) When a discrepancy has been determined between the tax withheld and the
amount actually remitted by the withholding agent; or
(iii) When a taxpayer who opted to claim a refund or tax credit of excess creditable
withholding tax for a taxable period was determined to have carried over and
automatically applied the same amount claimed against the estimated tax liabilities
for the taxable quarter or quarters of the succeeding taxable year; or
(iv) When the excise tax due on excisable articles has not been paid; or
(v) When an article locally purchased or imported by an exempt person, such as, but
not limited to, vehicles, capital equipment, machineries and spare parts, has been
sold, traded or transferred to non-exempt persons.
3.1.4 Formal Letter of Demand and Assessment Notice. — The formal letter of demand and
assessment notice shall be issued by the Commissioner or his duly authorized
representative. The letter of demand calling for payment of the taxpayer's deficiency tax or
taxes shall state the facts, the law, rules and regulations, or jurisprudence on which the
assessment is based, otherwise, the formal letter of demand and assessment notice shall be
void (see illustration in ANNEX B hereof).
The same shall be sent to the taxpayer only by registered mail or by personal delivery.
If sent by personal delivery, the taxpayer or his duly authorized representative shall acknowledge
receipt thereof in the duplicate copy of the letter of demand, showing the following: (a) His name; (b)
signature; (c) designation and authority to act for and in behalf of the taxpayer, if acknowledged
received by a person other than the taxpayer himself; and (d) date of receipt thereof.
x x x.
From the provision quoted above, it is clear that the sending of a PAN to taxpayer to inform him of
the assessment made is but part of the "due process requirement in the issuance of a deficiency tax
assessment," the absence of which renders nugatory any assessment made by the tax authorities.
The use of the word "shall" in subsection 3.1.2 describes the mandatory nature of the service of a
PAN. The persuasiveness of the right to due process reaches both substantial and procedural rights
and the failure of the CIR to strictly comply with the requirements laid down by law and its own rules
is a denial of Metro Star’s right to due process.15 Thus, for its failure to send the PAN stating the facts
and the law on which the assessment was made as required by Section 228 of R.A. No. 8424, the
assessment made by the CIR is void.
The case of CIR v. Menguito16 cited by the CIR in support of its argument that only the non-service of
the FAN is fatal to the validity of an assessment, cannot apply to this case because the issue therein
was the non-compliance with the provisions of R. R. No. 12-85 which sought to interpret Section 229
of the old tax law. RA No. 8424 has already amended the provision of Section 229 on protesting an
assessment. The old requirement of merely notifying the taxpayer of the CIR’s findings was changed
in 1998 to informing the taxpayer of not only the law, but also of the facts on which an assessment
would be made. Otherwise, the assessment itself would be invalid.17 The regulation then, on the
other hand, simply provided that a notice be sent to the respondent in the form prescribed, and that
no consequence would ensue for failure to comply with that form. 1avvphi1
The Court need not belabor to discuss the matter of Metro Star’s failure to file its protest, for it is
well-settled that a void assessment bears no fruit.18
It is an elementary rule enshrined in the 1987 Constitution that no person shall be deprived of
property without due process of law.19 In balancing the scales between the power of the State to tax
and its inherent right to prosecute perceived transgressors of the law on one side, and the
constitutional rights of a citizen to due process of law and the equal protection of the laws on the
other, the scales must tilt in favor of the individual, for a citizen’s right is amply protected by the Bill
of Rights under the Constitution. Thus, while "taxes are the lifeblood of the government," the power
to tax has its limits, in spite of all its plenitude. Hence in Commissioner of Internal Revenue v. Algue,
Inc.,20 it was said –
taxation, which is the promotion of the common good, may be achieved.
x x x x x x x x x
It is said that taxes are what we pay for civilized society. Without taxes, the government would be
paralyzed for the lack of the motive power to activate and operate it. Hence, despite the natural
reluctance to surrender part of one’s hard-earned income to taxing authorities, every person who is
able to must contribute his share in the running of the government. The government for its part is
expected to respond in the form of tangible and intangible benefits intended to improve the lives of
the people and enhance their moral and material values. This symbiotic relationship is the rationale
of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those
in the seat of power.
But even as we concede the inevitability and indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably and in accordance with the prescribed
procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to his
succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the
taxpayer can demonstrate x x x that the law has not been observed.21 (Emphasis supplied).
WHEREFORE, the petition is DENIED.
SO ORDERED.
JOSE CATRAL MENDOZA

Associate Justice
G.R. No. 155541 January 27, 2004
ESTATE OF THE LATE JULIANA DIEZ VDA. DE GABRIEL, petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
YNARES-SANTIAGO, J.:
This petition for review on certiorari assails the decision of the Court of Appeals in CA-G.R. CV No.
09107, dated September 30, 2002,1 which reversed the November 19, 1995 Order of Regional Trial
Court of Manila, Branch XXXVIII, in Sp. Proc. No. R-82-6994, entitled "Testate Estate of Juliana Diez
Vda. De Gabriel". The petition was filed by the Estate of the Late Juliana Diez Vda. De Gabriel,
represented by Prudential Bank as its duly appointed and qualified Administrator.
As correctly summarized by the Court of Appeals, the relevant facts are as follows:
During the lifetime of the decedent, Juliana Vda. De Gabriel, her business affairs were
managed by the Philippine Trust Company (Philtrust). The decedent died on April 3, 1979.
Two days after her death, Philtrust, through its Trust Officer, Atty. Antonio M. Nuyles, filed
her Income Tax Return for 1978. The return did not indicate that the decedent had died.
On May 22, 1979, Philtrust also filed a verified petition for appointment as Special Administrator with
the Regional Trial Court of Manila, Branch XXXVIII, docketed as Sp. Proc. No. R-82-6994. The court
a quo appointed one of the heirs as Special Administrator. Philtrust’s motion for reconsideration was
denied by the probate court.
On January 26, 1981, the court a quo issued an Order relieving Mr. Diez of his appointment, and
appointed Antonio Lantin to take over as Special Administrator. Subsequently, on July 30, 1981, Mr.
Lantin was also relieved of his appointment, and Atty. Vicente Onosa was appointed in his stead.
In the meantime, the Bureau of Internal Revenue conducted an administrative investigation on the
decedent’s tax liability and found a deficiency income tax for the year 1977 in the amount of
P318,233.93. Thus, on November 18, 1982, the BIR sent by registered mail a demand letter and
Assessment Notice No. NARD-78-82-00501 addressed to the decedent "c/o Philippine Trust
Company, Sta. Cruz, Manila" which was the address stated in her 1978 Income Tax Return. No
response was made by Philtrust. The BIR was not informed that the decedent had actually passed
away.
In an Order dated September 5, 1983, the court a quo appointed Antonio Ambrosio as the
Commissioner and Auditor Tax Consultant of the Estate of the decedent.
On June 18, 1984, respondent Commissioner of Internal Revenue issued warrants of distraint and
levy to enforce collection of the decedent’s deficiency income tax liability, which were served upon
her heir, Francisco Gabriel. On November 22, 1984, respondent filed a "Motion for Allowance of
Claim and for an Order of Payment of Taxes" with the court a quo. On January 7, 1985, Mr.
Ambrosio filed a letter of protest with the Litigation Division of the BIR, which was not acted upon
because the assessment notice had allegedly become final, executory and incontestable.
On May 16, 1985, petitioner, the Estate of the decedent, through Mr. Ambrosio, filed a formal
opposition to the BIR’s Motion for Allowance of Claim based on the ground that there was no proper
service of the assessment and that the filing of the aforesaid claim had already prescribed. The BIR
filed its Reply, contending that service to Philippine Trust Company was sufficient service, and that
the filing of the claim against the Estate on November 22, 1984 was within the five-year prescriptive
period for assessment and collection of taxes under Section 318 of the 1977 National Internal
Revenue Code (NIRC).
On November 19, 1985, the court a quo issued an Order denying respondent’s claim against the
Estate,2 after finding that there was no notice of its tax assessment on the proper party.3
On July 2, 1986, respondent filed an appeal with the Court of Appeals, docketed as CA-G.R. CV No.
09107,4 assailing the Order of the probate court dated November 19, 1985. It was claimed that
Philtrust, in filing the decedent’s 1978 income tax return on April 5, 1979, two days after the
taxpayer’s death, had "constituted itself as the administrator of the estate of the deceased at least
insofar as said return is concerned."5 Citing Basilan Estate Inc. v. Commissioner of Internal
Revenue,6 respondent argued that the legal requirement of notice with respect to tax
assessments7 requires merely that the Commissioner of Internal Revenue release, mail and send
the notice of the assessment to the taxpayer at the address stated in the return filed, but not that the
taxpayer actually receive said assessment within the five-year prescriptive period.8 Claiming that
Philtrust had been remiss in not notifying respondent of the decedent’s death, respondent therefore
argued that the deficiency tax assessment had already become final, executory and incontestable,
and that petitioner Estate was liable therefor.
On September 30, 2002, the Court of Appeals rendered a decision in favor of the respondent.
Although acknowledging that the bond of agency between Philtrust and the decedent was severed
upon the latter’s death, it was ruled that the administrator of the Estate had failed in its legal duty to
inform respondent of the decedent’s death, pursuant to Section 104 of the National Internal Revenue
Code of 1977. Consequently, the BIR’s service to Philtrust of the demand letter and Notice of
Assessment was binding upon the Estate, and, upon the lapse of the statutory thirty-day period to
question this claim, the assessment became final, executory and incontestable. The dispositive
portion of said decision reads:
WHEREFORE, finding merit in the appeal, the appealed decision is REVERSED AND SET
ASIDE. Another one is entered ordering the Administrator of the Estate to pay the
Commissioner of Internal Revenue the following:
a. The amount of P318,223.93, representing the deficiency income tax liability for the
year 1978, plus 20% interest per annum from November 2, 1982 up to November 2,
1985 and in addition thereto 10% surcharge on the basic tax of P169,155.34
pursuant to Section 51(e)(2) and (3) of the Tax Code as amended by PD 69 and
1705; and
b. The costs of the suit.
SO ORDERED.9
Hence, the instant petition, raising the following issues:
1. Whether or not the Court of Appeals erred in holding that the service of deficiency tax
assessment against Juliana Diez Vda. de Gabriel through the Philippine Trust Company was
a valid service in order to bind the Estate;
2. Whether or not the Court of Appeals erred in holding that the deficiency tax assessment
and final demand was already final, executory and incontestable.
Petitioner Estate denies that Philtrust had any legal personality to represent the decedent after her
death. As such, petitioner argues that there was no proper notice of the assessment which,
therefore, never became final, executory and incontestable.10 Petitioner further contends that
respondent’s failure to file its claim against the Estate within the proper period prescribed by the
Rules of Court is a fatal error, which forever bars its claim against the Estate.11
Respondent, on the other hand, claims that because Philtrust filed the decedent’s income tax return
subsequent to her death, Philtrust was the de facto administrator of her Estate.12 Consequently,
when the Assessment Notice and demand letter dated November 18, 1982 were sent to Philtrust,
there was proper service on the Estate.13 Respondent further asserts that Philtrust had the legal
obligation to inform petitioner of the decedent’s death, which requirement is found in Section 104 of
the NIRC of 1977.14 Since Philtrust did not, respondent contends that petitioner Estate should not be
allowed to profit from this omission.15 Respondent further argues that Philtrust’s failure to protest the
aforementioned assessment within the 30-day period provided in Section 319-A of the NIRC of 1977
meant that the assessment had already become final, executory and incontestable.16
The resolution of this case hinges on the legal relationship between Philtrust and the decedent, and,
by extension, between Philtrust and petitioner Estate. Subsumed under this primary issue is the sub-
issue of whether or not service on Philtrust of the demand letter and Assessment Notice No. NARD-
78-82-00501 was valid service on petitioner, and the issue of whether Philtrust’s inaction thereon
could bind petitioner. If both sub-issues are answered in the affirmative, respondent’s contention as
to the finality of Assessment Notice No. NARD-78-82-00501 must be answered in the affirmative.
This is because Section 319-A of the NIRC of 1977 provides a clear 30-day period within which to
protest an assessment. Failure to file such a protest within said period means that the assessment
ipso jure becomes final and unappealable, as a consequence of which legal proceedings may then
be initiated for collection thereof.
We find in favor of the petitioner.
The first point to be considered is that the relationship between the decedent and Philtrust was one
of agency, which is a personal relationship between agent and principal. Under Article 1919 (3) of
the Civil Code, death of the agent or principal automatically terminates the agency. In this instance,
the death of the decedent on April 3, 1979 automatically severed the legal relationship between her
and Philtrust, and such could not be revived by the mere fact that Philtrust continued to act as her
agent when, on April 5, 1979, it filed her Income Tax Return for the year 1978.
Since the relationship between Philtrust and the decedent was automatically severed at the moment
of the Taxpayer’s death, none of Philtrust’s acts or omissions could bind the estate of the Taxpayer.
Service on Philtrust of the demand letter and Assessment Notice No. NARD-78-82-00501 was
improperly done.
It must be noted that Philtrust was never appointed as the administrator of the Estate of the
decedent, and, indeed, that the court a quo twice rejected Philtrust’s motion to be thus appointed. As
of November 18, 1982, the date of the demand letter and Assessment Notice, the legal relationship
between the decedent and Philtrust had already been non-existent for three years.
Respondent claims that Section 104 of the National Internal Revenue Code of 1977 imposed the
legal obligation on Philtrust to inform respondent of the decedent’s death. The said Section reads:
SEC. 104. Notice of death to be filed. – In all cases of transfers subject to tax or where,
though exempt from tax, the gross value of the estate exceeds three thousand pesos, the
executor, administrator, or any of the legal heirs, as the case may be, within two months after
the decedent’s death, or within a like period after qualifying as such executor or
administrator, shall give written notice thereof to the Commissioner of Internal Revenue.
The foregoing provision falls in Title III, Chapter I of the National Internal Revenue Code of
1977, or the chapter on Estate Tax, and pertains to "all cases of transfers subject to tax" or
where the "gross value of the estate exceeds three thousand pesos". It has absolutely no
applicability to a case for deficiency income tax, such as the case at bar. It further lacks
applicability since Philtrust was never the executor, administrator of the decedent’s estate,
and, as such, never had the legal obligation, based on the above provision, to inform
respondent of her death.
Although the administrator of the estate may have been remiss in his legal obligation to
inform respondent of the decedent’s death, the consequences thereof, as provided in
Section 119 of the National Internal Revenue Code of 1977, merely refer to the imposition of
certain penal sanctions on the administrator. These do not include the indefinite tolling of the
prescriptive period for making deficiency tax assessments, or the waiver of the notice
requirement for such assessments.
Thus, as of November 18, 1982, the date of the demand letter and Assessment Notice No.
NARD-78-82-00501, there was absolutely no legal obligation on the part of Philtrust to either
(1) respond to the demand letter and assessment notice, (2) inform respondent of the
decedent’s death, or (3) inform petitioner that it had received said demand letter and
assessment notice. This lack of legal obligation was implicitly recognized by the Court of
Appeals, which, in fact, rendered its assailed decision on grounds of "equity".17
Since there was never any valid notice of this assessment, it could not have become final, executory
and incontestable, and, for failure to make the assessment within the five-year period provided in
Section 318 of the National Internal Revenue Code of 1977, respondent’s claim against the
petitioner Estate is barred. Said Section 18 reads:
SEC. 318. Period of limitation upon assessment and collection. – Except as provided in the
succeeding section, internal revenue taxes shall be assessed within five years after the
return was filed, and no proceeding in court without assessment for the collection of such
taxes shall be begun after the expiration of such period. For the purpose of this section, a
return filed before the last day prescribed by law for the filing thereof shall be considered as
filed on such last day: Provided, That this limitation shall not apply to cases already
investigated prior to the approval of this Code.
Respondent argues that an assessment is deemed made for the purpose of giving effect to such
assessment when the notice is released, mailed or sent to the taxpayer to effectuate the
assessment, and there is no legal requirement that the taxpayer actually receive said notice within
the five-year period.18 It must be noted, however, that the foregoing rule requires that the notice be
sent to the taxpayer, and not merely to a disinterested party. Although there is no specific
requirement that the taxpayer should receive the notice within the said period, due process requires
at the very least that such notice actually be received. In Commissioner of Internal Revenue v.
Pascor Realty and Development Corporation,19 we had occasion to say:
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.
In Republic v. De le Rama,20 we clarified that, when an estate is under administration, notice must be
sent to the administrator of the estate, since it is the said administrator, as representative of the
estate, who has the legal obligation to pay and discharge all debts of the estate and to perform all
orders of the court. In that case, legal notice of the assessment was sent to two heirs, neither one of
whom had any authority to represent the estate. We said:
The notice was not sent to the taxpayer for the purpose of giving effect to the assessment,
and said notice could not produce any effect. In the case of Bautista and Corrales Tan v.
Collector of Internal Revenue … this Court had occasion to state that "the assessment is
deemed made when the notice to this effect is released, mailed or sent to the taxpayer for
the purpose of giving effect to said assessment." It appearing that the person liable for the
payment of the tax did not receive the assessment, the assessment could not become final
and executory. (Citations omitted, emphasis supplied.)
In this case, the assessment was served not even on an heir of the Estate, but on a completely
disinterested third party. This improper service was clearly not binding on the petitioner.
By arguing that (1) the demand letter and assessment notice were served on Philtrust, (2) Philtrust
was remiss in its obligation to respond to the demand letter and assessment notice, (3) Philtrust was
remiss in its obligation to inform respondent of the decedent’s death, and (4) the assessment notice
is therefore binding on the Estate, respondent is arguing in circles. The most crucial point to be
remembered is that Philtrust had absolutely no legal relationship to the deceased, or to her Estate.
There was therefore no assessment served on the Estate as to the alleged underpayment of tax.
Absent this assessment, no proceedings could be initiated in court for the collection of said tax,21 and
respondent’s claim for collection, filed with the probate court only on November 22, 1984, was
barred for having been made beyond the five-year prescriptive period set by law.
WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals in CA-G.R. CV No.
09107, dated September 30, 2002, is REVERSED and SET ASIDE. The Order of the Regional Trial
Court of Manila, Branch XXXVIII, in Sp. Proc. No. R-82-6994, dated November 19, 1985, which
denied the claim of the Bureau of Internal Revenue against the Estate of Juliana Diez Vda. De
Gabriel for the deficiency income tax of the decedent for the year 1977 in the amount of
P318,223.93, is AFFIRMED.
No pronouncement as to 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
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:
IMPORTER – HANTEX TRADING CO., INC. – SERIES OF

1987
ENTRY NO. DATE ENTRY NO. DATE
RELEASED RELEASED
03058-87 1/30/87 50265-87 12/9/87
09120-87 3/20/87 46427-87 11/27/87
18089-87 5/21/87 30764-87 8/21/87
19439-87 6/2/87 30833-87 8/20/87
19441-87 6/3/87 34690-87 9/16/87
11667-87 4/15/87 34722-87 9/11/87
23294-87 7/7/87 43234-87 11/2/87
45478-87 11/16/87 44850-87 11/16/87
45691-87 12/2/87 44851-87 11/16/87
25464-87 7/16/87 46461-87 11/19/87
26483-87 7/23/87 46467-87 11/18/87
29950-87 8/11/87 48091-87 11-27-8711
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:
Hantex Trading Co., Inc.

Entry No. Date Released Entry No. Date Released
3903 1/29/87 22869 4/8/87
4414 1/20/87 19441 3/31/87
10683 2/17/87 24189 4/21/87
12611 2/24/87 26431 4/20/87
12989 2/26/87 45478 7/3/87
17050 3/13/87 26796 4/23/87
17169 3/13/87 28827 4/30/87
18089 3/16/87 31617 5/14/87
19439 4/1/87 39068 6/5/87
21189 4/3/87 42581 6/21/87
43451 6/29/87 42793 6/23/87
42795 6/23/87 45477 7/3/87
35582 not received 85830 11/13/87
45691 7/3/87 86650 not received
46187 7/8/87 87647 11/18/87
46427 7/3/87 88829 11/23/87
57669 8/12/87 92293 12/3/87
62471 8/28/87 93292 12/7/87
63187 9/2/87 96357 12/16/87
66859 9/15/87 96822 12/15/87
67890 9/17/87 98823 not received
68115 9/15/87 99428 12/28/87
69974 9/24/87 99429 12/28/87
72213 10/2/87 99441 12/28/87
77688 10/16/87 101406 1/5/87
84253 11/10/87 101407 1/8/87
85534 11/11/87 3118 1-19-8712
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 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:
1. Cost of Sales Ratio A2/A1 85.492923%
2. Undeclared Sales – Imported A3/B1 110,079,491.61
3. Undeclared Gross Profit B2-A3 15,969,316.61
C. Deficiency Taxes Due:
1. Deficiency Income Tax B3 x 35% 5,589,261.00
50% Surcharge C1 x 50% 2,794,630.50
Interest to 2/28/91 C1 x 57.5% 3,213,825.08
Total 11,597,825.58
2. Deficiency Sales Tax
at 10% 7,290,082.72
at 20% 10,493,312.31
Total Due 17,783,395.03
Less: Advanced Sales Taxes Paid 11,636,352.00
Deficiency Sales Tax 6,147,043.03
50% Surcharge C2 x 50% 3,073,521.52
Interest to 2/28/91 5,532,338.73
Total 14,752,903.2817
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.
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
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:
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:
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 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.
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 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
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 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 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
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.
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 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 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 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.
G.R. No. 175410 November 12, 2014
SMI-ED PHILIPPINES TECHNOLOGY, INC., Petitioner,

vs.
DECISION
LEONEN, J.:
In an action for the refund of taxes allegedly erroneously paid, the Court of Tax Appeals may
determine whether there are taxes that should have been paid in lieu of the taxes paid. Determining
the proper category of tax that should have been paid is not an assessment. It is incidental to
determining whether there should be a refund.
A Philippine Economic Zone Authority (PEZA)-registered corporation that has never commenced
operations may not avail the tax incentives and preferential rates given to PEZA-registered
enterprises. Such corporation is subject to ordinary tax rates under the National Internal Revenue
Code of 1997.
This is a petition for review on certiorari of the November 3, 2006 Court of Tax Appeals En Banc
1
decision. It affirmed the Court of Tax Appeals Second Division’s decision and resolution denying
2 3 4
petitioner SMI-Ed Philippines Technology, Inc.’s (SMI-Ed Philippines) claim for tax refund. 5
SMI-Ed Philippines is a PEZA-registered corporation authorized "to engage in the business of

manufacturing ultra high-density microprocessor unit package." 6
After its registration on June 29, 1998, SMI-Ed Philippines constructed buildings and purchased
machineries and equipment. As of December 31, 1999, the total cost of the properties amounted to
7
₱3,150,925,917.00. 8
SMI-Ed Philippines "failed to commence operations." Its factory was temporarily closed, effective
9
October 15, 1999. On August 1, 2000, it sold its buildings and some of its installed machineries and
equipment to Ibiden Philippines, Inc., another PEZA-registered enterprise, for ¥2,100,000,000.00
(₱893,550,000.00). SMI-Ed Philippines was dissolved on November 30, 2000. 10
In its quarterly income tax return for year 2000, SMI-Ed Philippines subjected the entire gross sales
of itsproperties to 5% final tax on PEZA registered corporations. SMI-Ed Philippines paid taxes
amounting to ₱44,677,500.00. 11
On February 2, 2001, after requesting the cancellation of its PEZA registration and amending its
articles of incorporation to shorten its corporate term, SMI-Ed Philippines filed an administrative
claim for the refund of ₱44,677,500.00 with the Bureauof Internal Revenue (BIR). SMIEd Philippines
alleged that the amountwas erroneously paid. It also indicated the refundable amount in its final
income tax return filed on March 1, 2001. It also alleged that it incurred a net loss of
₱2,233,464,538.00. 12
The BIR did not act on SMI-Ed Philippines’ claim, which prompted the latter to file a petition for
reviewbefore the Court of Tax Appeals on September 9, 2002. 13
The Court of Tax Appeals Second Division denied SMI-Ed Philippines’ claim for refund in the
decision dated December 29, 2004. 14
The Court of Tax Appeals Second Division found that SMI-Ed Philippines’ administrative claim for
refund and the petition for review with the Court of Tax Appeals were filed within the two-year
prescriptive period. However, fiscal incentives given to PEZA-registered enterprises may be availed
15
only by PEZA-registered enterprises that had already commenced operations. Since SMI-Ed
16
Philippines had not commenced operations, it was not entitled to the incentives of either the income
tax holiday or the 5% preferential tax rate. Payment of the 5% preferential tax amounting to
17
₱44,677,500.00 was erroneous. 18
After finding that SMI-Ed Philippines sold properties that were capital assets under Section 39(A)(1)
of the National Internal Revenue Code of 1997, the Court of Tax Appeals Second Division subjected
the sale of SMIEd Philippines’ assets to 6% capital gains tax under Section 27(D)(5) of the same
Code and Section 2 of Revenue Regulations No. 8-98. It was found liable for capital gains tax
19
amounting to ₱53,613,000.00. Therefore, SMIEd Philippines must still pay the balance of
20
₱8,935,500.00 as deficiency tax, "which respondent should perhaps look into." The dispositive
21 22
portion of the Court of Tax Appeals Second Division’s decision reads:
WHEREFORE, premises considered, the instant petition is hereby DENIED.
SO ORDERED. 23
The Court of Tax Appeals denied SMI-Ed Philippines’ motion for reconsideration in its June 15, 2005
resolution. 24
On July 17, 2005, SMI-Ed Philippines filed a petition for review before the Court of Tax Appeals En
Banc. It argued that the Court of Tax Appeals Second Division erroneously assessed the 6% capital
25
gains tax on the sale of SMI-Ed Philippines’ equipment, machineries, and buildings. It also argued
26
that the Court of Tax Appeals Second Division cannot make an assessment at the first
instance. Even if the Court of Tax Appeals Second Division has such power, the period to make an
27
assessment had already prescribed. 28
In the decision promulgated on November 3, 2006, the Court of Tax Appeals En Banc dismissed
SMI-Ed Philippines’ petition and affirmed the Court of Tax Appeals Second Division’s decision and
resolution. The dispositive portion of the Court of Tax Appeals En Banc’s decision reads:
29
WHEREFORE, finding no reversible error to reverse the assailed Decision promulgated on

December 29, 2004 and the Resolution dated June 15, 2005, the instant petition for review is hereby
DISMISSED. Accordingly, the assailed Decision and Resolution are hereby AFFIRMED. SO
ORDERED. 30
SMI-Ed Philippines filed a petition for review before this court on December 27, 2006, praying for
31
the grant of its claim for refund and the reversal of the Court of Tax Appeals En Banc’s decision. 32
SMI-Ed Philippines assigned the following errors:
A. The honorable CTA En Banc grievously erred and acted beyond its jurisdiction when it
assessed for deficiency tax in the first instance.
B. Even assuming that the honorable CTA En Banc has the right to make an assessment
against the petitioner-appellant, it grievously erred in finding that the machineries and
equipment sold by the petitioner-appellant is subject to the six percent (6%) capital gains tax
under Section 27(D)(5) of the Tax Code. 33
Petitioner argued that the Court of Tax Appeals has no jurisdiction to make an assessment since its
jurisdiction, with respect to the decisions of respondent, is merely appellate. Moreover, the power to
34
make assessment had already prescribed under Section 203 of the National Internal Revenue Code
of 1997 since the return for the erroneous payment was filed on September 13, 2000. This is more
than three (3) years from the last day prescribed by law for the filing of the return.
35
Petitioner also argued that the Court of Tax Appeals En Banc erroneously subjected petitioner’s
machineries to 6% capital gains tax. Section 27(D)(5) of the National Internal Revenue Code of
36
1997 is clear that the 6% capital gains tax on domestic corporations applies only on the sale of lands
and buildings and not tomachineries and equipment. Since ¥1,700,000,000.00 of the
37
¥2,100,000,000.00 constituted the consideration for the sale of petitioner’s machineries, only
¥400,000,000.00 or ₱170,200,000.00 should be subjected to the 6% capital gains tax. Petitioner
38
should be liable only for ₱10,212,000.00. It should be entitled to a refund of ₱34,464,500.00 after
39
deducting ₱10,212,000.00 from the erroneously paid final tax of ₱44,677,500.00. 40
In its comment, respondent argued that the Court of Tax Appeals’ determination of petitioner’s
liability for capital gains tax was not an assessment. Such determination was necessary to settle the
question regarding the tax consequence of the sale of the properties. This is clearly within the Court
41
of Tax Appeals’ jurisdiction under Section 7 of Republic Act No. 9282. Respondent also argued that
42
"petitioner failed to justify its claim for refund."

43
Jurisdiction of the Court of Tax Appeals
The term "assessment" refers to the determination of amounts due from a person obligated to make
payments. In the context of national internal revenue collection, it refers the determination of the
taxes due from a taxpayer under the National Internal Revenue Code of 1997.
The power and duty to assess national internal revenue taxes are lodged with the BIR. Section 2 of
44
the National Internal Revenue Code of 1997 provides:
SEC. 2. Powers and Duties of the Bureau of Internal Revenue. - The Bureau of Internal Revenue
shall be under the supervision and control of the Department of Finance and its powers and duties
shall comprehend the assessment and collection ofall national internal revenue taxes, fees, and
charges, and the enforcement of all forfeitures, penalties, and fines connected therewith, including
the execution of judgments in all cases decided in its favor by the Court of Tax Appeals and the
ordinary courts. The Bureau shall give effect to and administer the supervisory and police powers
conferred to it by this Code or other laws. (Emphasis supplied) The BIR is not mandated to make an
assessment relative to every return filed with it. Tax returns filed with the BIR enjoy the presumption
that these are in accordance with the law. Tax returns are also presumed correct since these are
45
filed under the penalty of perjury. Generally, however, the BIR assesses taxes when it appears,
46
after a return had been filed, that the taxes paid were incorrect, false, or fraudulent. The BIR also
47 48 49
assesses taxes when taxes are due but no return is filed. Thus:50
SEC. 6. Power of the Commissioner to Make assessments and Prescribe additional Requirements
for Tax Administration and Enforcement.–
(A) Examination of Returns and Determination of Tax Due. - After a return has been filed as required
under the provisions of this Code, the Commissioner or his duly authorized representative may
authorize the examination of any taxpayer and the assessment of the correct amount of tax:
Provided, however; That failure to file a return shall not prevent the Commissioner from authorizing
the examination of any taxpayer.The tax or any deficiency tax so assessed shall be paid upon notice
and demand from the Commissioner or from his duly authorized representative.
....
SEC. 222. 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 preceeding in court for the collection of such tax may be filed without
assessment, at any time within ten (10) 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. (Emphasis
supplied)
The Court of Tax Appeals has no powerto make an assessment at the first instance. On matters
such as tax collection, tax refund, and others related to the national internal revenue taxes, the Court
of Tax Appeals’ jurisdiction is appellate in nature.
Section 7(a)(1) and Section 7(a)(2) of Republic Act No. 1125, as amended by Republic Act No.
51
9282, provide that the Court of Tax Appeals reviews decisions and inactions of the Commissioner
52
of Internal Revenue in disputed assessments and claims for tax refunds. Thus: SEC. 7. Jurisdiction.-
The CTA shall exercise:
a. Exclusive appellate jurisdiction toreview by appeal, as herein provided:
1. Decisions of the Commissioner of Internal Revenue in cases involving disputed

thereto, or other matters arising under the National Internal Revenue or other laws
2. Inaction by the Commissioner of Internal Revenue in cases involving disputed

assessments, refunds of internal revenue taxes, fees or other charges, penalties in relations
provides a specific period of action, in which case the inaction shall be deemed a denial[.]
(Emphasis supplied) Based on these provisions, the following must be present for the Court
of Tax Appeals to have jurisdiction over a case involving the BIR’s decisions or inactions:
a) A case involving any of the following:
i. Disputed assessments;
ii. Refunds of internal revenue taxes, fees, or other charges, penalties in

relation thereto; and
iii. Other matters arising under the National Internal Revenue Code of 1997.
b) Commissioner of Internal Revenue’s decision or inaction in a case submitted to

him or her
Thus, the BIR first has to make an assessment of the taxpayer’s liabilities. When the BIR makes the
assessment, the taxpayer is allowed to dispute that assessment before the BIR. If the BIR issues a
decision that is unfavorable to the taxpayer or if the BIR fails to act on a dispute brought by the
taxpayer, the BIR’s decision or inaction may be brought on appeal to the Court of Tax Appeals. The
Court of Tax Appeals then acquires jurisdiction over the case.
When the BIR’s unfavorable decision is brought on appeal to the Court of Tax Appeals, the Court of
Tax Appeals reviews the correctness of the BIR’s assessment and decision. In reviewing the BIR’s
assessment and decision, the Court of Tax Appeals had to make its own determination of the
taxpayer’s tax liabilities. The Court of Tax Appeals may not make such determination before the BIR
makes its assessment and before a dispute involving such assessment is brought to the Court of
Tax Appeals on appeal.
The Court of Tax Appeals’ jurisdiction is not limited to cases when the BIR makes an assessment or
a decision unfavorable to the taxpayer. Because Republic Act No. 1125 also vests the Court of Tax
53
Appeals with jurisdiction over the BIR’s inaction on a taxpayer’s refund claim, there may be
instances when the Court of Tax Appeals has to take cognizance of cases that have nothing to do
with the BIR’s assessments or decisions. When the BIR fails to act on a claim for refund of
voluntarily but mistakenly paid taxes, for example, there is no decision or assessment involved.
Taxes are generally self-assessed. They are initially computed and voluntarily paid by the taxpayer.
The government does not have to demand it. If the tax payments are correct, the BIR need not make
an assessment.
The self-assessing and voluntarily paying taxpayer, however, may later find that he or she has
erroneously paid taxes. Erroneously paid taxes may come in the form of amounts thatshould not
have been paid. Thus, a taxpayer may find that he or she has paid more than the amount that
should have been paid under the law. Erroneously paid taxes may also come in the form of tax
payments for the wrong category of tax. Thus, a taxpayer may find that he or she has paid a certain
kindof tax that he or she is not subject to.
In these instances, the taxpayer may ask for a refund. If the BIR fails to act on the request for refund,
the taxpayer may bring the matter to the Court of Tax Appeals.
From the taxpayer’s self-assessment and tax payment up to his or her request for refund and the
BIR’s inaction,the BIR’s participation is limited to the receipt of the taxpayer’s payment. The BIR
does not make an assessment; the BIR issues no decision; and there is no dispute yet involved.
Since there is no BIR assessment yet, the Court of Tax Appeals may not determine the amount of
taxes due from the taxpayer. There is also no decision yet to review. However, there was inaction on
the part of the BIR. That inaction is within the Court of Tax Appeals’ jurisdiction.
In other words, the Court of Tax Appeals may acquire jurisdiction over cases even if they do not
involve BIR assessments or decisions.
In this case, the Court of Tax Appeals’ jurisdiction was acquired because petitioner brought the case
on appeal before the Court of Tax Appeals after the BIR had failed to act on petitioner’s claim for
refund of erroneously paid taxes. The Court of Tax Appeals did not acquire jurisdiction as a result of
a disputed assessment of a BIR decision.
Petitioner argued that the Court of Tax Appeals had no jurisdiction to subject it to 6% capital gains
tax or other taxes at the first instance. The Court of Tax Appeals has no power to make an
assessment.
As earlier established, the Court of Tax Appeals has no assessment powers. In stating that
petitioner’s transactions are subject to capital gains tax, however, the Court of Tax Appeals was not
making an assessment. It was merely determining the proper category of tax that petitioner should
have paid, in view of its claim that it erroneously imposed upon itself and paid the 5% final tax
imposed upon PEZA-registered enterprises.
The determination of the proper category of tax that petitioner should have paid is an incidental
matter necessary for the resolution of the principal issue, which is whether petitioner was entitled to
a refund. 54
The issue of petitioner’s claim for tax refund is intertwined with the issue of the proper taxes that are
due from petitioner. A claim for tax refund carries the assumption that the tax returns filed were
correct. If the tax return filed was not proper, the correctness of the amount paid and, therefore, the
55
claim for refund become questionable. In that case, the court must determine if a taxpayer claiming
refund of erroneously paid taxes is more properly liable for taxes other than that paid.
In South African Airways v. Commissioner of Internal Revenue, South African Airways claimed for
56
refund of its erroneously paid 2½% taxes on its gross Philippine billings. This court did not
immediately grant South African’s claim for refund. This is because although this court found that
South African Airways was not subject to the 2½% tax on its gross Philippine billings, this court also
found that it was subject to 32% tax on its taxable income. 57
In this case, petitioner’s claim that it erroneously paid the 5% final tax is an admission that the
quarterly tax return it filed in 2000 was improper. Hence, to determine if petitioner was entitled to the
refund being claimed, the Court of Tax Appeals has the duty to determine if petitioner was indeed
not liable for the 5% final tax and, instead, liable for taxes other than the 5% final tax. As in South
African Airways, petitioner’s request for refund can neither be granted nor denied outright without
such determination. 58
If the taxpayer is found liable for taxes other than the erroneously paid 5% final tax, the amount of
the taxpayer’s liability should be computed and deducted from the refundable amount.
Any liability in excess of the refundable amount, however, may not be collected in a case involving
solely the issue of the taxpayer’s entitlement to refund. The question of tax deficiencyis distinct and
unrelated to the question of petitioner’s entitlement to refund. Tax deficiencies should be subject to
assessment procedures and the rules of prescription. The court cannot be expected to perform the
BIR’s duties whenever it fails to do so either through neglect or oversight. Neither can court
processes be used as a tool to circumvent laws protecting the rights of taxpayers.
II
Petitioner’s entitlement to benefits given to PEZA-registered enterprises
Petitioner is not entitled to benefits given to PEZA-registered enterprises, including the 5%

preferential tax rate under Republic Act No. 7916 or the Special Economic Zone Act of 1995. This is
because it never began its operation.
Essentially, the purpose of Republic Act No. 7916 is to promote development and encourage
investments and business activities that will generate employment. Giving fiscal incentives to
59
businesses is one of the means devised to achieve this purpose. It comes with the expectation that
persons who will avail these incentives will contribute to the purpose’s achievement. Hence, to avail
the fiscal incentives under Republic Act No. 7916, the law did not say that mere PEZA registration is
sufficient.
Republic Act No. 7916 or The Special Economic Zone Act of 1995 provides:
SEC. 23. Fiscal Incentives.— Business establishments operating within the ECOZONES shall be
entitled to the fiscal incentives as provided for under Presidential Decree No. 66, the law creating the
Export Processing Zone Authority, or those provided under Book VI of Executive Order No. 226,
otherwise known as the Omnibus Investment Code of 1987.
Furthermore, tax credits for exporters using local materials as inputs shall enjoy the same benefits
provided for in the Export Development Act of 1994.
SEC. 24. Exemption from Taxes Under the National Internal Revenue Code. — Any provision of
existing laws, rules and regulations to the contrary notwithstanding, no taxes, local and national,
shall be imposed on business establishments operating within the ECOZONE. In lieu of paying
taxes, five percent (5%) of the gross income earned by all businesses and enterprises within the
ECOZONE shall be remitted tothe national government. This five percent (5%) shall be shared and
distributed as follows:
a. Three percent (3%) to the national government;
b. One percent (1%) to the localgovernment units affected by the declaration of the
ECOZONE inproportion to their population, land area, and equal sharing factors; and
c. One percent (1%) for the establishment of a development fund to be utilized for the
development of municipalities outside and contiguous to each ECOZONE: Provided,
however, That the respective share of the affected local government units shall be
determined on the basis of the following formula:
1. Population - fifty percent (50%);
2. Land area - twenty-five percent (25%); and
3. Equal sharing - twenty-five percent (25%). (Emphasis supplied)
Based on these provisions, the fiscal incentives and the 5% preferential tax rate are available only to
businesses operating within the Ecozone. A business is considered in operation when it starts
60
entering into commercial transactions that are not merely incidental to but are related to the
purposes of the business. It is similar to the definition of "doing business," as applied in actions
involvingthe right of foreign corporations to maintain court actions. In Mentholatum Co. Inc., et al. v.
Mangaliman, et al., this court said that the terms "doing" or "engaging in" or "transacting" business":
61
. . . impl[y] a continuity of commercial dealings and arrangements, and contemplates, to that extent,
the performance of acts or works or the exercise of some of the functions normally incident to, and in
progressive prosecution of, the purpose and object of its organization. Petitioner never started its
62
operations since its registration on June 29, 1998 because of the Asian financial crisis. Petitioner
63 64
admitted this. Therefore, it cannot avail the incentives provided under Republic Act No. 7916. It is
65
not entitled to the preferential tax rate of 5% on gross income in lieu of all taxes. Because petitioner
is not entitled to a preferential rate, it is subject to ordinary tax rates under the National Internal
Revenue Code of 1997.
III
Imposition of capital gains tax
The Court of Tax Appeals found that petitioner’s sale of its properties is subject to capital gains tax.
For petitioner’s properties to be subjected to capital gains tax, the properties must form part
ofpetitioner’s capital assets.
Section 39(A)(1) of the National Internal Revenue Code of 1997 defines "capital assets":
SEC. 39. Capital Gains and Losses. -
(A) Definitions.- As used in this Title -
(1) Capital Assets.- the term ‘capital assets’ means property held by the taxpayer (whether or not
connected with his trade or business), but does not include stock in trade of the taxpayer or other
property of a kind which would properly be included in the inventory of the taxpayer if on hand at the
close of the taxable year, or property held by the taxpayer primarily for sale to customers in the
ordinary course of his trade orbusiness, or property used in the trade or business, of a character
which is subject to the allowance for depreciation provided in Subsection (F) of Section 34; or real
property used in trade or business of the taxpayer. (Emphasis supplied) Thus, "capital assets" refers
to taxpayer’s property that is NOT any of the following:
1. Stock in trade;
2. Property that should be included inthe taxpayer’s inventory at the close of the taxable
year;
3. Property held for sale in the ordinary course of the taxpayer’s business;
4. Depreciable property used in the trade or business; and
5. Real property used in the trade or business.
The properties involved in this case include petitioner’s buildings, equipment, and machineries. They
are not among the exclusions enumerated in Section 39(A)(1) of the National Internal Revenue
Code of 1997. None of the properties were used in petitioner’s trade or ordinary course of business
because petitioner never commenced operations. They were not part of the inventory. None of
themwere stocks in trade. Based on the definition of capital assets under Section 39 of the National
Internal Revenue Code of 1997, they are capital assets.
Respondent insists that since petitioner’s machineries and equipment are classified as capital
assets, their sales should be subject to capital gains tax. Respondent is mistaken.
In Commissioner of Internal Revenue v. Fortune Tobacco Corporation, this court said:

66
The rule in the interpretation of tax laws is that a statute will not be construed as imposing a tax
unless it does so clearly, expressly, and unambiguously. A tax cannot be imposed without clear and
express words for that purpose. Accordingly, the general rule of requiring adherence to the letter in
construing statutes applies with peculiar strictness to tax laws and the provisions of a taxing act are
not to be extended by implication. In answering the question of who is subject to tax statutes, it is
basic that in case of doubt, such statutes are to be construed most strongly against the government
and in favor of the subjects or citizens because burdens are not to be imposed nor presumed to be
imposed beyond what statutes expressly and clearly import. As burdens, taxes should not be unduly
exacted nor assumed beyond the plain meaning of the tax laws. (Citations omitted)
67
Capital gains of individuals and corporations from the sale of real properties are taxed differently.
Individuals are taxed on capital gains from sale of all real properties located in the Philippines and
classified as capital assets. Thus:
SEC. 24. Income Tax Rates.
....
(D) Capital Gains from Sale of Real Property. –
(1) In General. - The provisions of Section 39(B) notwithstanding, a final tax of six percent (6%)
based on the gross selling price or current fair market value as determined in accordance with
Section 6(E) of this Code, whichever is higher, is hereby imposed upon capital gains presumed to
have been realized from the sale, exchange, or other disposition of real property located in the
Philippines, classified as capital assets, including pacto de retro sales and other forms of conditional
sales, by individuals, including estates and trusts: Provided, That the tax liability, if any, on gains
from sales or other dispositions of real property to the government or any of its political subdivisions
or agencies or to government-owned or controlled corporations shall be determined either under
Section 24 (A) or under this Subsection, at the option of the taxpayer. (Emphasis supplied)
68
For corporations, the National Internal Revenue Code of 1997 treats the sale of land and buildings,
and the sale of machineries and equipment, differently. Domestic corporations are imposed a 6%
capital gains tax only on the presumed gain realized from the sale of lands and/or buildings. The
National Internal Revenue Code of 1997 does not impose the 6% capital gains tax on the gains
realized from the sale of machineries and equipment. Section 27(D)(5) of the National Internal
Revenue Code of 1997 provides:
SEC. 27. Rates of Income tax on Domestic Corporations. -
....
(D) Rates of Tax on Certain Passive Incomes. -
....
(5) Capital Gains Realized from the Sale, Exchange or Disposition of Lands and/or Buildings. - A
final tax of six percent (6%) is hereby imposed on the gain presumed to have been realized on the
sale, exchange or disposition of lands and/or buildings which are not actually used in the business of
a corporation and are treated as capital assets, based on the gross selling price of fair market value
as determined in accordance with Section 6(E) of this Code, whichever is higher, of such lands
and/or buildings. (Emphasis supplied)
Therefore, only the presumed gain from the sale of petitioner’s land and/or building may be
subjected to the 6% capital gains tax. The income from the sale of petitioner’s machineries and
equipment is subject to the provisions on normal corporate income tax.
To determine, therefore, if petitioner is entitled to refund, the amount of capital gains tax for the sold
land and/or building of petitioner and the amount of corporate income tax for the sale of petitioner’s
machineries and equipment should be deducted from the total final tax paid. Petitioner indicated,
however, in its March 1, 2001 income tax return for the 11-month period ending on November 30,
2000 that it suffered a net loss of ₱2,233,464,538.00. This declaration was made under the pain of
69
perjury. Section 267 of the National Internal Revenue Code of 1997 provides:
SEC. 267. Declaration under Penalties of Perjury. - Any declaration, return and other statement
required under this Code, shall, in lieu of an oath, contain a written statement that they are made
under the penalties of perjury. Any person who willfully files a declaration, return or statement
containing information which is not true and correct as to every material matter shall, upon
conviction, be subject to the penalties prescribed for perjury under the Revised Penal Code.
Moreover, Rule 131, Section 3(ff) of the Rules of Court provides for the presumption that the law has
been obeyed unless contradicted or overcome by other evidence, thus:
SEC. 3. Disputable presumptions.— The following presumptions are satisfactory if uncontradicted,

but may be contradicted and overcome by other evidence:
....
(ff) That the law has been obeyed;
The BIR did not make a deficiency assessment for this declaration. Neither did the BIR dispute this
statement in its pleadings filed before this court. There is, therefore, no reason todoubt the truth that
petitioner indeed suffered a net loss in 2000.
Since petitioner had not started its operations, it was also not subject to the minimum corporate
income tax of 2% on gross income. Therefore, petitioner is not liable for any income tax.
70
IV
Prescription
Section 203 of the National Internal Revenue Code of 1997 provides that as a general rule, the BIR
has three (3) years from the last day prescribed by law for the filing of a return to make an
assessment. If the return is filed beyond the last day prescribed by law for filing, the three-year
period shall run from the actual date of filing. Thus:
SEC. 203. Period of Limitation Upon Assessment and Collection. - Except as provided in Section
222, internal revenue taxes shall be assessed within three (3) 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 (3)-year period shall be counted from
the day the return was filed. For 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.
This court said that the prescriptive period to make an assessment of internal revenue taxes is
provided "primarily to safeguard the interests of taxpayers from unreasonable investigation." This
71
court explained in Commissioner of Internal Revenue v. FMF Development Corporation the reason
72
behind the provisions on prescriptive periods for tax assessments: Accordingly, the government
must assess internal revenue taxes on time so as not to extend indefinitely the period of assessment
and deprive the taxpayer of the assurance that it will no longer be subjected to further investigation
for taxes after the expiration of reasonable period of time.73
Rules derogating taxpayers’ right against prolonged and unscrupulous investigations are strictly
construed against the government. 74
[T]he law on prescription should beinterpreted in a way conducive to bringing about the beneficent
purpose of affording protection to the taxpayer within the contemplation of the Commission which
recommended the approval of the law. To the Government, its tax officers are obliged to act
promptlyin the making of assessment so that taxpayers, after the lapse of the period of prescription,
would have a feeling of security against unscrupulous tax agents who will always try to find an
excuse to inspect the books of taxpayers, not to determine the latter’s real liability, but to take
advantage of a possible opportunity to harass even law-abiding businessmen. Without such legal
defense, taxpayers would be open season to harassment by unscrupulous tax agents. 75
Moreover, in Commissioner of Internal Revenue v. BF Goodrich Phils.: 76
For the purpose of safeguarding taxpayers from any unreasonable examination, investigation or
assessment, our tax law provides a statute of limitations in the collection of taxes. Thus, the law on
prescription, being a remedial measure, should be liberally construed in order to afford such
protection. As a corollary, the exceptions to the law on prescription should perforce be strictly
construed[.]
....
. . . . Such instances of negligence or oversight on the part of the BIR cannot prejudice taxpayers,
considering that the prescriptive period was precisely intended to give them peace of
mind. (Citation omitted)
77
The BIR had three years from the filing of petitioner’s final tax return in 2000 to assess petitioner’s
taxes. Nothing stopped the BIR from making the correct assessment. The elevation of the refund
claim with the Court of Tax Appeals was not a bar against the BIR’s exercise of its assessment
powers.
The BIR, however, did not initiate any assessment for deficiency capital gains tax. Since more than
78
a decade have lapsed from the filing of petitioner's return, the BIR can no longer assess petitioner
for deficiency capital gains taxes, if petitioner is later found to have capital gains tax liabilities in
excess of the amount claimed for refund.
The Court of Tax Appeals should not be expected to perform the BIR's duties of assessing and
collecting taxes whenever the BIR, through neglect or oversight, fails to do so within the prescriptive
period allowed by law.
WHEREFORE, the Court of Tax Appeals' November 3, 2006 decision is SET ASIDE. The Bureau of
Internal Revenue is ordered to refund petitioner SMI-Ed Philippines Technology, Inc. the amount of
5% final tax paid to the BIR, less the 6% capital gains tax on the sale of petitioner SMI-Ed
Philippines Technology, Inc. 's land and building. In view of the lapse of the prescriptive period for
assessment, any capital gains tax accrued from the sale of its land and building that is in excess of
the 5% final tax paid to the Bureau of Internal Revenue may no longer be recovered from petitioner
SMI-Ed Philippines Technology, Inc.
SO ORDERED.
G.R. No. 178087 May 5, 2010

vs.
KUDOS METAL CORPORATION, Respondent.
DECISION
DEL CASTILLO, J.:
The prescriptive period on when to assess taxes benefits both the government and the
taxpayer.1 Exceptions extending the period to assess must, therefore, be strictly construed.
This Petition for Review on Certiorari seeks to set aside the Decision2 dated March 30, 2007 of the
Court of Tax Appeals (CTA) affirming the cancellation of the assessment notices for having been
issued beyond the prescriptive period and the Resolution3 dated May 18, 2007 denying the motion
for reconsideration.
Factual Antecedents
On April 15, 1999, respondent Kudos Metal Corporation filed its Annual Income Tax Return (ITR) for
the taxable year 1998.
Pursuant to a Letter of Authority dated September 7, 1999, the Bureau of Internal Revenue (BIR)
served upon respondent three Notices of Presentation of Records. Respondent failed to comply with
these notices, hence, the BIR issued a Subpeona Duces Tecum dated September 21, 2006, receipt
of which was acknowledged by respondent’s President, Mr. Chan Ching Bio, in a letter dated
October 20, 2000.
A review and audit of respondent’s records then ensued.
On December 10, 2001, Nelia Pasco (Pasco), respondent’s accountant, executed a Waiver of the
Defense of Prescription,4 which was notarized on January 22, 2002, received by the BIR
Enforcement Service on January 31, 2002 and by the BIR Tax Fraud Division on February 4, 2002,
and accepted by the Assistant Commissioner of the Enforcement Service, Percival T. Salazar
(Salazar).
This was followed by a second Waiver of Defense of Prescription5 executed by Pasco on February

18, 2003, notarized on February 19, 2003, received by the BIR Tax Fraud Division on February 28,
2003 and accepted by Assistant Commissioner Salazar.
On August 25, 2003, the BIR issued a Preliminary Assessment Notice for the taxable year 1998
against the respondent. This was followed by a Formal Letter of Demand with Assessment Notices
for taxable year 1998, dated September 26, 2003 which was received by respondent on November
12, 2003.
Respondent challenged the assessments by filing its "Protest on Various Tax Assessments" on
December 3, 2003 and its "Legal Arguments and Documents in Support of Protests against Various
Assessments" on February 2, 2004.
On June 22, 2004, the BIR rendered a final Decision6 on the matter, requesting the immediate
payment of the following tax liabilities:
Kind of Tax Amount

Income Tax ₱ 9,693,897.85
VAT 13,962,460.90
EWT 1,712,336.76
Withholding Tax-Compensation 247,353.24
Penalties 8,000.00
Total ₱25,624,048.76
Ruling of the Court of Tax Appeals, Second Division
Believing that the government’s right to assess taxes had prescribed, respondent filed on August 27,
2004 a Petition for Review7 with the CTA. Petitioner in turn filed his Answer.8
On April 11, 2005, respondent filed an "Urgent Motion for Preferential Resolution of the Issue on
Prescription."9
On October 4, 2005, the CTA Second Division issued a Resolution10 canceling the assessment
notices issued against respondent for having been issued beyond the prescriptive period. It found
the first Waiver of the Statute of Limitations incomplete and defective for failure to comply with the
provisions of Revenue Memorandum Order (RMO) No. 20-90. Thus:
First, the Assistant Commissioner is not the revenue official authorized to sign the waiver, as the tax
case involves more than ₱1,000,000.00. In this regard, only the Commissioner is authorized to enter
into agreement with the petitioner in extending the period of assessment;
Secondly, the waiver failed to indicate the date of acceptance. Such date of acceptance is necessary
to determine whether the acceptance was made within the prescriptive period;
Third, the fact of receipt by the taxpayer of his file copy was not indicated on the original copy. The
requirement to furnish the taxpayer with a copy of the waiver is not only to give notice of the
existence of the document but also of the acceptance by the BIR and the perfection of the
agreement. 1avvphi1
The subject waiver is therefore incomplete and defective. As such, the three-year prescriptive period
was not tolled or extended and continued to run. x x x11
Petitioner moved for reconsideration but the CTA Second Division denied the motion in a
Resolution12 dated April 18, 2006.
Ruling of the Court of Tax Appeals, En Banc
On appeal, the CTA En Banc affirmed the cancellation of the assessment notices. Although it ruled
that the Assistant Commissioner was authorized to sign the waiver pursuant to Revenue Delegation
Authority Order (RDAO) No. 05-01, it found that the first waiver was still invalid based on the second
and third grounds stated by the CTA Second Division. Pertinent portions of the Decision read as
follows:
While the Court En Banc agrees with the second and third grounds for invalidating the first waiver, it
finds that the Assistant Commissioner of the Enforcement Service is authorized to sign the waiver
pursuant to RDAO No. 05-01, which provides in part as follows:
A. For National Office cases

Designated Revenue Official
1. Assistant Commissioner (ACIR), For tax fraud and policy Enforcement Service cases
2. ACIR, Large Taxpayers Service For large taxpayers cases other than those cases falling under
Subsection B hereof
3. ACIR, Legal Service For cases pending verification and awaiting resolution of certain legal issues
prior to prescription and for issuance/compliance of Subpoena Duces Tecum
4. ACIR, Assessment Service (AS) For cases which are pending in or subject to review or approval
by the ACIR, AS
Based on the foregoing, the Assistant Commissioner, Enforcement Service is authorized to sign
waivers in tax fraud cases. A perusal of the records reveals that the investigation of the subject
deficiency taxes in this case was conducted by the National Investigation Division of the BIR, which
was formerly named the Tax Fraud Division. Thus, the subject assessment is a tax fraud case.
Nevertheless, the first waiver is still invalid based on the second and third grounds stated by the
Court in Division. Hence, it did not extend the prescriptive period to assess.
Moreover, assuming arguendo that the first waiver is valid, the second waiver is invalid for violating
Section 222(b) of the 1997 Tax Code which mandates that the period agreed upon in a waiver of the
statute can still be extended by subsequent written agreement, provided that it is executed prior to
the expiration of the first period agreed upon. As previously discussed, the exceptions to the law on
prescription must be strictly construed.
In the case at bar, the period agreed upon in the subject first waiver expired on December 31, 2002.
The second waiver in the instant case which was supposed to extend the period to assess to
December 31, 2003 was executed on February 18, 2003 and was notarized on February 19, 2003.
Clearly, the second waiver was executed after the expiration of the first period agreed upon.
Consequently, the same could not have tolled the 3-year prescriptive period to assess.13
Petitioner sought reconsideration but the same was unavailing.
Issue
Hence, the present recourse where petitioner interposes that:
THE COURT OF TAX APPEALS EN BANC ERRED IN RULING THAT THE GOVERNMENT’S

RIGHT TO ASSESS UNPAID TAXES OF RESPONDENT PRESCRIBED.14
Petitioner’s Arguments
Petitioner argues that the government’s right to assess taxes is not barred by prescription as the two
waivers executed by respondent, through its accountant, effectively tolled or extended the period
within which the assessment can be made. In disputing the conclusion of the CTA that the waivers
are invalid, petitioner claims that respondent is estopped from adopting a position contrary to what it
has previously taken. Petitioner insists that by acquiescing to the audit during the period specified in
the waivers, respondent led the government to believe that the "delay" in the process would not be
utilized against it. Thus, respondent may no longer repudiate the validity of the waivers and raise the
issue of prescription.
Respondent’s Arguments
Respondent maintains that prescription had set in due to the invalidity of the waivers executed by
Pasco, who executed the same without any written authority from it, in clear violation of RDAO No.
5-01. As to the doctrine of estoppel by acquiescence relied upon by petitioner, respondent counters
that the principle of equity comes into play only when the law is doubtful, which is not present in the
instant case.
Our Ruling
The petition is bereft of merit.
Section 20315 of the National Internal Revenue Code of 1997 (NIRC) mandates the government to
assess internal revenue taxes within three years from the last day prescribed by law for the filing of
the tax return or the actual date of filing of such return, whichever comes later. Hence, an
assessment notice issued after the three-year prescriptive period is no longer valid and effective.
Exceptions however are provided under Section 22216 of the NIRC.
The waivers executed by respondent’s accountant did not extend the period within which the
assessment can be made
Petitioner does not deny that the assessment notices were issued beyond the three-year prescriptive
period, but claims that the period was extended by the two waivers executed by respondent’s
accountant.
We do not agree.
Section 222 (b) of the NIRC provides that the period to assess and collect taxes may only be
extended upon a written agreement between the CIR and the taxpayer executed before the
expiration of the three-year period. RMO 20-9017 issued on April 4, 1990 and RDAO 05-0118 issued
on August 2, 2001 lay down the procedure for the proper execution of the waiver, to wit:
1. The waiver must be in the proper form prescribed by RMO 20-90. The phrase "but not
after ______ 19 ___", which indicates the expiry date of the period agreed upon to
assess/collect the tax after the regular three-year period of prescription, should be filled up.
2. The waiver must be signed by the taxpayer himself or his duly authorized representative.
In the case of a corporation, the waiver must be signed by any of its responsible officials. In
case the authority is delegated by the taxpayer to a representative, such delegation should
be in writing and duly notarized.
3. The waiver should be duly notarized.
4. The CIR or the revenue official authorized by him must sign the waiver indicating that the
BIR has accepted and agreed to the waiver. The date of such acceptance by the BIR should
be indicated. However, before signing the waiver, the CIR or the revenue official authorized
by him must make sure that the waiver is in the prescribed form, duly notarized, and
executed by the taxpayer or his duly authorized representative.
5. Both the date of execution by the taxpayer and date of acceptance by the Bureau should
be before the expiration of the period of prescription or before the lapse of the period agreed
upon in case a subsequent agreement is executed.
6. The waiver must be executed in three copies, the original copy to be attached to the
docket of the case, the second copy for the taxpayer and the third copy for the Office
accepting the waiver. The fact of receipt by the taxpayer of his/her file copy must be
indicated in the original copy to show that the taxpayer was notified of the acceptance of the
BIR and the perfection of the agreement.19
A perusal of the waivers executed by respondent’s accountant reveals the following infirmities:
1. The waivers were executed without the notarized written authority of Pasco to sign the
waiver in behalf of respondent.
2. The waivers failed to indicate the date of acceptance.
3. The fact of receipt by the respondent of its file copy was not indicated in the original copies
of the waivers.
Due to the defects in the waivers, the period to assess or collect taxes was not extended.
Consequently, the assessments were issued by the BIR beyond the three-year period and are void.
Estoppel does not apply in this case
We find no merit in petitioner’s claim that respondent is now estopped from claiming prescription
since by executing the waivers, it was the one which asked for additional time to submit the required
documents.
In Collector of Internal Revenue v. Suyoc Consolidated Mining Company,20 the doctrine of estoppel

prevented the taxpayer from raising the defense of prescription against the efforts of the government
to collect the assessed tax. However, it must be stressed that in the said case, estoppel was applied
as an exception to the statute of limitations on collection of taxes and not on the assessment of
taxes, as the BIR was able to make an assessment within the prescribed period. More important,
there was a finding that the taxpayer made several requests or positive acts to convince the
government to postpone the collection of taxes, viz:
It appears that the first assessment made against respondent based on its second final return filed
on November 28, 1946 was made on February 11, 1947. Upon receipt of this assessment
respondent requested for at least one year within which to pay the amount assessed although it
reserved its right to question the correctness of the assessment before actual payment. Petitioner
granted an extension of only three months. When it failed to pay the tax within the period extended,
petitioner sent respondent a letter on November 28, 1950 demanding payment of the tax as
assessed, and upon receipt of the letter respondent asked for a reinvestigation and reconsideration
of the assessment. When this request was denied, respondent again requested for a reconsideration
on April 25, 1952, which was denied on May 6, 1953, which denial was appealed to the Conference
Staff. The appeal was heard by the Conference Staff from September 2, 1953 to July 16, 1955, and
as a result of these various negotiations, the assessment was finally reduced on July 26, 1955. This
is the ruling which is now being questioned after a protracted negotiation on the ground that the
collection of the tax has already prescribed.
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.
This case has no precedent in this jurisdiction for it is the first time that such has risen, but there are
several precedents that may be invoked in American jurisprudence. As Mr. Justice Cardozo has
said: "The applicable principle is fundamental and unquestioned. ‘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."’ "(R. H. Stearns
Co. vs. U.S., 78 L. ed., 647). Or, as was aptly said, "The tax could have been collected, but the
government withheld action at the specific request of the plaintiff. The plaintiff is now estopped and
should not be permitted to raise the defense of the Statute of Limitations." [Newport Co. vs. U.S.,
(DC-WIS), 34 F. Supp. 588].21
Conversely, in this case, the assessments were issued beyond the prescribed period. Also, there is
no showing that respondent made any request to persuade the BIR to postpone the issuance of the
assessments.
The doctrine of estoppel cannot be applied in this case as an exception to the statute of limitations
on the assessment of taxes considering that there is a detailed procedure for the proper execution of
the waiver, which the BIR must strictly follow. As we have often said, the doctrine of estoppel is
predicated on, and has its origin in, equity which, broadly defined, is justice according to natural law
and right.22 As such, the doctrine of estoppel cannot give validity to an act that is prohibited by law or
one that is against public policy.23 It should be resorted to solely as a means of preventing injustice
and should not be permitted to defeat the administration of the law, or to accomplish a wrong or
secure an undue advantage, or to extend beyond them requirements of the transactions in which
they originate.24 Simply put, the doctrine of estoppel must be sparingly applied.
Moreover, the BIR cannot hide behind the doctrine of estoppel to cover its failure to comply with
RMO 20-90 and RDAO 05-01, which the BIR itself issued. As stated earlier, the BIR failed to verify
whether a notarized written authority was given by the respondent to its accountant, and to indicate
the date of acceptance and the receipt by the respondent of the waivers. Having caused the defects
in the waivers, the BIR must bear the consequence. It cannot shift the blame to the taxpayer. To
stress, a waiver of the statute of limitations, being a derogation of the taxpayer’s right to security
against prolonged and unscrupulous investigations, must be carefully and strictly construed.25
As to the alleged delay of the respondent to furnish the BIR of the required documents, this cannot
be taken against respondent. Neither can the BIR use this as an excuse for issuing the assessments
beyond the three-year period because with or without the required documents, the CIR has the
power to make assessments based on the best evidence obtainable.26
WHEREFORE, the petition is DENIED. The assailed Decision dated March 30, 2007 and Resolution
dated May 18, 2007 of the Court of Tax Appeals are hereby AFFIRMED.
SO ORDERED.
G.R. No. 198677 November 26, 2014

vs.
BASF COATING + INKS PHILS., INC., Respondent.
DECISION
PERALTA, J.:
Before the Court is a petition for review on certiorari assailing the Decision of the Court of Tax
1
Appeals (CTA) En Banc, dated June 16, 2011, and Resolution dated September 16, 2011, in C.T.A.
2
EB No. 664 (C.T.A. Case No. 7125).

The pertinent factual and procedural antecedents of the case are as follows:
Respondent was a corporation which was duly organized under and by virtue of the laws of the
Republic of the Philippines on August 1, 1990 with a term of existence of fifty (50) years. Its BIR-
registered address was at 101 Marcos Alvarez Avenue, Barrio Talon, Las Piñas City. In a joint
special meeting held on March 19, 2001, majorityof the members of the Board of Directors and the
stockholders representing more than two-thirds (2/3) of the entire subscribed and outstanding capital
stock of herein respondent corporation, resolved to dissolve the corporation by shortening its
corporate term to March 31, 2001. Subsequently, respondent moved out of its address in Las Piñas
3
City and transferred to Carmelray Industrial Park, Canlubang, Calamba, Laguna.
On June 26, 2001, respondent submitted two (2) letters to the Bureau of Internal Revenue (BIR)
Revenue District Officer of Revenue District Office (RDO) No. 53, Region 8, in Alabang, Muntinlupa
City. The first letter, dated April 26, 2001, was a notice of respondent's dissolution, in compliance
with the requirements of Section 52(c) of the National Internal Revenue Code. On the other hand,
4
the second letter, dated June 22, 2001, was a manifestation indicating the submission of various
documents supporting respondent's dissolution, among which was BIR Form No. 1905, which refers
to an update of information contained in its tax registration.5
Thereafter, in a Formal Assessment Notice (FA N) dated January 17, 2003, petitioner assessed
respondent the aggregate amount of ₱18,671,343.14 representing deficiencies in income tax, value
added tax, withholding tax on compensation, expanded withholding tax and documentary stamp tax,
including increments, for the taxable year 1999. The FAN was sent by registered mail on January
6
24, 2003 to respondent's former address in Las Piñas City.
On March 5, 2004, the Chief of the Collection Section of BIR Revenue Region No. 7, RDO No. 39,
South Quezon City, issued a First Notice Before Issuance of Warrant of Distraint and Levy, which
was sent to the residence of one of respondent's directors. 7
On March 19, 2004, respondent filed a protest letter citing lack of due process and prescription as
grounds. On April 16, 2004, respondent filed a supplemental letter of protest. Subsequently, on
8 9
June 14, 2004, respondent submitted a letter wherein it attached documents to prove the defenses
raised in its protest letters.
10
On January 10, 2005, after 180 dayshad lapsed without action on the part of petitioner on
respondent's protest, the latter filed a Petition for Review with the CTA.
11
Trial on the merits ensued.
On February 17, 2010, the CTA Special First Division promulgated its Decision, the dispositive
12
portion of which reads, thus:
WHEREFORE, the Petition for Review is hereby GRANTED. The assessments for deficiency
income tax in the amount of ₱14,227,425.39, deficiency value-added tax of ₱3,981,245.66,
deficiency withholding tax on compensation of ₱49,977.21, deficiency expanded withholding tax of
₱156,261.97 and deficiency documentary stamp tax of ₱256,432.91, including increments, in the
aggregate amount of ₱18,671,343.14 for the taxable year 1999 are hereby CANCELLED and SET
ASIDE.
SO ORDERED. 13
The CTA Special First Division ruled that since petitioner was actually aware of respondent's new
address, the former's failure to send the Preliminary Assessment Notice and FAN to the said
address should not be taken against the latter. Consequently, since there are no valid notices sent to
respondent, the subsequent assessments against it are considered void. Aggrieved by the Decision,
petitioner filed a Motion for Reconsideration, but the CTA Special First Division denied it in its
Resolution dated July 13, 2010.
14
Petitioner then filed a Petition for Review with the CTA En Banc. 15
On June 16, 2011, the CTA En Banc promulgated its assailed Decision denying petitioner's Petition
for Review for lack of merit. The CTA En Banc held that petitioner's right to assess respondent for
deficiency taxes for the taxable year 1999 has already prescribed and that the FAN issued to
respondent never attained finality because respondent did not receive it.
Petitioner filed a Motion for Reconsideration, but the CTA En Banc denied it in its Resolution dated
September 16, 2011.
Hence, the present petition with the following Assignment of Errors:
THE HONORABLE CTA EN BANC ERRED IN RULING THAT THE RIGHT OF PETITIONER TO
ASSESS HEREIN RESPONDENT FOR DEFICIENCY INCOME TAX, VALUEADDED TAX,
WITHHOLDING TAX ON COMPENSATION, EXPANDED WITHHOLDING TAX AND
DOCUMENTARY STAMP TAX, FOR TAXABLE YEAR 1999 IS BARRED BY PRESCRIPTION.
II
THE HONORABLE COURT OF TAX APPEALS, EN BANC, ERRED IN RULING THAT THE
FORMAL ASSESSMENT NOTICE (FAN) FOR RESPONDENT'S DEFICIENCY INCOME TAX,
VALUE-ADDED TAX, WITHHOLDING TAX ON COMPENSATION, EXPANDED WITHHOLDING
TAX AND DOCUMENTARY STAMP TAX FOR TAXABLE YEAR 1999 HAS NOT YET BECOME
FINAL, EXECUTORY AND DEMANDABLE. 16
The petition lacks merit.
Petitioner contends that, insofar as respondent's alleged deficiency taxes for the taxable year1999
are concerned, the running of the three-year prescriptive period to assess, under Sections 203 and
222 of the National Internal Revenue Act of 1997 (Tax Reform Act of 1997) was suspended when
respondent failed to notify petitioner, in writing, of its change of address, pursuant to the provisions
of Section 223 of the same Act and Section 11 of BIR Revenue Regulation No. 12-85.
Sections 203, 222 and 223 of the Tax Reform Act of 1997 provide, respectively:
Sec. 203. Period of Limitation Upon Assessment and Collection.– Except as provided in Section
222,internal revenue taxes shall be assessed within three (3) 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 (3)-year period shall be counted from
the day the return was filed. For 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. (emphasis
supplied)
Sec. 222. 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 filed without assessment, at any time within ten (10) 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 Section 203 for the assessment of the
tax, both the Commissioner and the taxpayer have agreed in writing to its assessment after
such time, the tax may be assessed within the period agreed upon.
The period so agreed upon may be extended by subsequent written agreement made before
the expiration of the period previously agreed upon.
(c) Any internal revenue tax which has been assessed within the period of limitation as
prescribed in paragraph (a) hereof may be collected by distraint or levy or by a proceeding in
court within five (5) 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 bydistraint or levy or by a
proceeding in court within the period agreed upon in writing before the expiration of the five
(5) -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 and paragraph (a) hereof
shall be construed to authorize the examination and investigation or inquiry into any tax
return filed in accordance with the provisions of any tax amnesty law or decree.
Sec. 223. Suspension of Running of Statute of Limitations. - The running of the Statute of Limitations
provided in Sections 203 and 222 on the making of assessment and the beginning of distraint or levy
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 (60) 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 or levy is duly served upon the
taxpayer, his authorized representative, or a member of his household with sufficient discretion, and
no property could be located; and when the taxpayer is out of the Philippines. (emphasis supplied)
In addition, Section 11 of BIR Revenue Regulation No. 12-85 states:
Sec. 11. Change of Address. – In case of change of address, the taxpayer must give a written notice
thereof to the Revenue District Officer or the district having jurisdiction over his formerlegal
residence and/or place of business, copy furnished the Revenue District Officer having jurisdiction
over his new legal residence or place of business, the Revenue Computer Center and the
Receivable Accounts Division, BIR, National Office, Quezon City, and in case of failure to do so, any
communication referred to in these regulations previously sent to his former legal residence or
business address as appear in is tax return for the period involved shall be considered valid and
binding for purposes of the period within which to reply.
It is true that, under Section 223 of the Tax Reform Act of 1997, the running of the Statute of
Limitations provided under the provisions of Sections 203 and 222 of the same Act shall be
suspended when the taxpayer cannot be located in the address given by him in the return filed upon
which a tax is being assessed or collected. In addition, Section 11 of Revenue Regulation No. 12-85
states that, in case of change of address, the taxpayer is required to give a written notice thereof to
the Revenue District Officer or the district having jurisdiction over his former legal residence and/or
place of business. However, this Court agrees with both the CTA Special First Division and the CTA
En Banc in their ruling that the above mentioned provisions on the suspension of the three-year
period to assess apply only if the BIR Commissioner is not aware of the whereabouts of the
taxpayer.
In the present case, petitioner, by all indications, is well aware that respondent had moved to its new
address in Calamba, Laguna, as shown by the following documents which form partof respondent's
records with the BIR:
1) Checklist on Income Tax/Withholding Tax/Documentary Stamp Tax/Value-Added Tax and

Other Percentage Taxes; 17
2) General Information (BIR Form No. 23-02); 18
3) Report on Taxpayer's Delinquent Account, dated June 27, 2002; 19
4) Activity Report, dated October 17, 2002; 20
5) Memorandum Report of Examiner, dated June 27, 2002; 21
6) Revenue Officer's Audit Report on Income Tax; 22
7) Revenue Officer's Audit Report on Value-Added Tax; 23
8) Revenue Officer's Audit Report on Compensation Withholding Taxes; 24
9) Revenue Officer's Audit Report on Expanded Withholding Taxes; 25
10) Revenue Officer's Audit Report on Documentary Stamp Taxes. 26
The above documents, all of which were accomplished and signed by officers of the BIR, clearly
show that respondent's address is at Carmelray Industrial Park, Canlubang, Calamba, Laguna. The
CTA also found that BIR officers, at various times prior to the issuance of the subject FAN,
conducted examination and investigation of respondent's tax liabilities for 1999 at the latter's new
address in Laguna as evidenced by the following, in addition to the above mentioned records:
1) Letter, dated September 27, 2001, signed by Revenue Officer I Eugene R. Garcia; 27
2) Final Request for Presentation of Records Before Subpoena Duces Tecum, dated March
20, 2002, signed by Revenue Officer I Eugene R. Garcia. 28
Moreover, the CTA found that, based on records, the RDO sent respondent a letter dated April 24,
2002 informing the latter of the results of their investigation and inviting it to an informal
conference. Subsequently, the RDO also sent respondent another letter dated May 30, 2002,
29
acknowledging receipt of the latter's reply to his April 24, 2002 letter. These two letters were sent to
30
respondent's new address in Laguna. Had the RDO not been informed or was not aware of
respondent's new address, he could not have sent the said letters to the said address.
Furthermore, petitioner should have been alerted by the fact that prior to mailing the FAN, petitioner
sent to respondent's old address a Preliminary Assessment Notice but it was "returned to sender."
This was testified to by petitioner's Revenue Officer II at its Revenue District Office 39 in Quezon
City. Yet, despite this occurrence, petitioner still insisted in mailing the FAN to respondent's old
31
address.
Hence, despite the absence of a formal written notice of respondent's change of address, the fact
remains that petitioner became aware of respondent's new address as shown by documents replete
in its records. As a consequence, the running of the three-year period to assess respondent was not
suspended and has already prescribed.
It bears stressing that, in a number of cases, this Court has explained that the statute of limitations
on the collection of taxes primarily benefits the taxpayer. In these cases, the Court exemplified the
detrimental effects that the delay in the assessment and collection of taxes inflicts upon the
taxpayers. Thus, in Commissioner of Internal Revenue v. Philippine Global Communication,
Inc., this Court echoed Justice Montemayor's disquisition in his dissenting opinion in Collector of
32
Internal Revenue v. Suyoc Consolidated Mining Company, regarding the potential loss to the
33
taxpayer if the assessment and collection of taxes are not promptly made, thus:
Prescription in the assessment and in the collection of taxes is provided by the Legislature for the
benefit of both the Government and the taxpayer; for the Government for the purpose of expediting
the collection of taxes, so that the agency charged with the assessment and collection may not tarry
too long or indefinitely tothe prejudice of the interests of the Government, which needs taxes to run
it; and for the taxpayer so that within a reasonable time after filing his return, hemay know the
amount of the assessment he is required to pay, whether or not such assessment is well founded
and reasonable so that he may either pay the amount of the assessment or contest its validity
incourt x x x. It would surely be prejudicial to the interest of the taxpayer for the Government
collecting agency to unduly delay the assessment and the collection because by the time the
collecting agency finally gets around to making the assessment or making the collection, the
taxpayer may then have lost his papers and books to support his claim and contest that of the
Government, and what is more, the tax is in the meantime accumulating interest which the taxpayer
eventually has to pay. 34
Likewise, in Republic of the Philippines v. Ablaza, this Court elucidated that the prescriptive period
35
for the filing of actions for collection of taxes is justified by the need to protect law-abiding citizens
from possible harassment. Also, in Bank of the Philippine Islands v. Commissioner of Internal
Revenue, it was held that the statute of limitations on the assessment and collection of taxes is
36
principally intended to afford protection to the taxpayer against unreasonable investigations as the
indefinite extension of the period for assessment deprives the 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. Thus, in Commissioner of Internal Revenue v. B.F. Goodrich Phils., Inc., this Court ruled that
37
the legal provisions on prescription should be liberally construed to protect taxpayers and that, as a
corollary, the exceptions to the rule on prescription should be strictly construed.
It might not also be amiss to point out that petitioner's issuance of the First Notice Before Issuance of
Warrant of Distraint and Levy violated respondent's right to due process because no valid notice of
38
assessment was sent to it. An invalid assessment bears no valid fruit. The law imposes a
substantive, not merely a formal, requirement. To proceed heedlessly with tax collection without first
establishing a valid assessment is evidently violative of the cardinal principle inadministrative
investigations: that taxpayers should be able to present their case and adduce supporting
evidence. In the instant case, respondent has not properly been informed of the basis of its tax
39
liabilities. Without complying with the unequivocal mandate of first informing the taxpayer of the
government’s claim, there can be no deprivation of property, because no effective protest can be
made.
It is true that taxes are the lifeblood of the government. However, in spite of all its plenitude, the
power to tax has its limits. Thus, in Commissioner of Internal Revenue v. Algue, Inc., this Court
40 41
held:
1âwphi1
taxation, which is the promotion of the common good, may be achieved.
xxxx
It is said that taxes are what we pay for civilized society. Without taxes, the government would be
paralyzed for the lack of the motive power to activate and operate it. Hence, despite the natural
reluctance to surrender part of one’s hard-earned income to taxing authorities, every person who is
able to must contribute his share in the running of the government. The government for its partis
expected torespond in the form of tangible and intangible benefits intended to improve the lives of
the people and enhance their moral and material values. This symbiotic relationship is the rationale
of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those
in the seat of power.
But even as we concede the inevitability and indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably and in accordance with the prescribed
procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to his
succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the
taxpayer can demonstrate x x x that the law has not been observed. 42
It is an elementary rule enshrined in the 1987 Constitution that no person shall be deprived of
property without due process of law. In balancing the scales between the power of the State to tax
and its inherent right to prosecute perceived transgressors of the law on one side, and the
constitutional rights of a citizen todue process of law and the equal protection of the laws on the
other, the scales must tilt in favor of the individual, for a citizen’s right is amply protected by the Bill
of Rights under the Constitution. 43
As to the second assigned error, petitioner's reliance on the provisions of Section 3.1.7 of BIR
Revenue Regulation No. 12-99 as well as on the case of Nava v. Commissioner of Internal
44
Revenue is misplaced, because in the said case, one of the requirements ofa valid assessment
45
notice is that the letter or notice must be properly addressed. It is not enough that the notice is sent
by registered mail as provided under the said Revenue Regulation. In the instant case, the FAN was
sent tothe wrong address. Thus, the CTA is correct in holding that the FAN never attained finality
because respondent never received it, either actually or constructively.
WHEREFORE, the instant petition is DENIED. The Decision of the Court of Tax Appeals En Banc,
dated June 16, 2011, and its Resolution dated September 16, 2011, in C.T.A. EB No. 664 (C.T.A.
Case No. 7125), are AFFIRMED.
SO ORDERED.
G.R. No. 187589 December 3, 2014

vs.
THE STANLEY WORKS SALES (PHILS.), INCORPORATED, Respondent.
DECISION
SERENO, CJ:
This is a Petition for Review on Certiorari filed by the Commissioner of Internal Revenue (petitioner)
1
under Rule 45 of the 1997 Rules of Civil Procedure assailing the Court of Tax Appeals En Banc
(CTA En Banc) Decision dated 27 February 2009 and Resolution dated 24 April 2009 in C.T.A. EB
2 3
No. 406.
THE FACTS
The pertinent findings of fact of the CTA En Banc are as follows:
Petitioner is the duly appointed officer of the Bureau of Internal Revenue (BIR) mandated to exercise
the powers and perform the duties of his office including, among others, the power to decide
disputed assessments, refunds of internal revenue taxes, fees and other charges, penalties imposed
in relation thereto, or other matters arising under the National Internal Revenue Code. Respondent,
on the other hand, is a domestic corporation duly organized and existing under Philippine laws and
duly registered with the Securities and Exchange Commission. Its office address is at the 5th Floor,
Pan Pacific Hotel, Adriatico Street corner Gen. Malvar Street, Manila.
Respondent is authorized "to engage in the business of designing, manufacturing, fabricating, or

otherwise producing, and the purchase, sale at whole sale, importation, export, distribution,
marketing or otherwise dealing with, construction and hardware materials, tools, fixtures and
equipment."
On January 1, 1979, respondent and Stanley Works Agencies (Pte.) Limited, Singapore (Stanley-
Singapore) entered into a Representation Agreement. Under such agreement, Stanley-Singapore
appointed respondent as its sole agent for the selling of its products within the Philippines on an
indent basis.
On April 16, 1990, respondent filed with the BIR its Annual Income Tax Return for taxable year 1989.
On March 19, 1993, pursuant to Letter of Authority dated July 3, 1992, the BIR issued against
respondent a Pre-Assessment Notice (PAN) No. 002523 for 1989 deficiency income tax.
On March 29, 1993, respondent received its copy of the PAN.
On April 12, 1993, petitioner, through OTC Domingo C. Paz of Revenue Region No. 4B-2 of Makati,
issued to respondent Assessment Notice No. 002523-89-6014 for deficiency income tax for taxable
year 1989. The Notice was sent on April 15, 1993 and respondent received it on April 21, 1993.
On May 19, 1993, respondent, through its external auditors Punongbayan & Araullo, filed a protest
letter and requested reconsideration and cancellation of the assessment.
On November 16, 1993, a certain Mr. John Ang, on behalf of respondent, executed a "Waiver of the
Defense of Prescription Under the Statute of Limitations of the National Internal Revenue Code"
(Waiver). Under the terms of the Waiver, respondent waived its right to raise the defense of
prescription under Section 223 of the NIRC of 1977 insofar as the assessment and collection of any
deficiency taxes for the year ended December 31, 1989, but not after June 30, 1994. The Waiver
was not signed by petitioner or any of his authorized representatives and did not state the date of
acceptance as prescribed under Revenue Memorandum Order No. 20-90. Respondent did not
execute any other Waiver or similar document before or after the expiration of the November 16,
1993 Waiver on June 30, 1994.
On January 6, 1994, respondent, through its external auditors Punongbayan & Araullo, wrote a letter
to the Chief of the BIR Appellate Division and requested the latter to take cognizance of
respondent's protest/request for reconsideration, asserting that the dispute involved pure questions
of law. On February 22, 1994, respondent sent a similar letter to the Revenue District Officer (RDO)
of BIR Revenue Region No. 4B-2 and asked for the transmittal of the entire docket of the subject tax
assessment to the BIR Appellate Division.
On September 30, 1994, respondent, through its external auditors Punongbayan & Araullo,
submitted a Supplemental Memorandum on its protest to the BIR Revenue Region No. 4B-2.
On September 20, 1995, respondent, through its external auditors Punongbayan & Araullo, filed a
Supplemental Memorandum with the BIR Appellate Division.
On November 29, 2001, the Chief of the BIR Appellate Division sent a letter to respondent requiring
it to submit duly authenticated financial statements for the worldwide operations of Stanley Works
and a sworn declaration from the home office on the allocated share of respondent as a "branch
office."
On December 11, 2001, respondent, through its counsel, the Quisumbing Torres Law Offices, wrote
the BIR Appellate Division and asked for an extension of period within which to comply with the
request for submission of documents. On January 15, 2002, respondent sent a request for an
extension of period to submit a Supplemental Memorandum.
On March 4, 2002, respondent, through its counsel, the Quisumbing Torres Law Offices, submitted a
Supplemental Memorandum alleging, inter alia, that petitioner's right to collect the alleged deficiency
income tax has prescribed.
On March 22, 2004, petitioner rendered a Decision denying respondent’s request for reconsideration
and ordering respondent to pay the deficiency income tax plus interest that may have accrued. The
dispositive portion reads:
IN VIEW WHEREOF, this Office resolves, as it hereby resolves, to DENY the request for
reconsideration of STANLEY WORK SALES (Philippines), INC. dated May 19, 1993 of Assessment
No. 002523-89-6014 dated April 12, 1993 issued by this Bureau demanding payment of the total
amount of Php41,284,968.34 as deficiency income tax for taxable year 1989. Consequently, Stanley
Works Sales (Philippines), Inc. is hereby ordered to pay the above-stated amount plus interest that
may have accrued thereon to the Collection Service, within thirty (30) days from receipt hereof,
otherwise, collection will be effected through the summary remedies provided by law.
This constitutes the final decision of this Office on the matter.
On March 30, 2004, respondent received its copy of the assailed Decision. Hence, on April 28, 2004,
respondent filed before the Court in Division a Petition for Review docketed as C.T.A. Case No.
6971 entitled "The Stanley Works Sales (Philippines), Inc., petitioner, vs. Commissioner of Internal
Revenue, respondent. x x x
THE CTA FIRST DIVISION RULING 4
After trial on the merits, the CTA First Division found that although the assessment was made within
the prescribed period, the period within which petitioner may collect deficiency income taxes had
already lapsed. Accordingly, the court cancelled Assessment Notice No. 002523-89-6014 dated 12
April 1993.
The CTA Division ruled that the request for reconsideration did not suspend the running of the
prescriptive period to collect deficiency income tax. There was no valid waiver of the statute of
limitations, as the following infirmities were found: (1) there was no conformity, either by respondent
or his duly authorized representative; (2) there was no date of acceptance to show that both parties
had agreed on the Waiver before the expiration of the prescriptive period; and (3) there was no proof
that respondent was furnished a copy of the Waiver. Applying jurisprudence and relevant BIR
rulings, the waiver was considered defective; thus, the period for collection of deficiency income tax
had already prescribed.
THE CTA EN BANC RULING 5
The CTA En Banc affirmed the CTA First Division Decision dated 6 May 2008 and Resolution dated
14 July 2008. The Waiver executed by respondent on 16 November 1993 could not be used by
petitioner as a basis for extending the period of assessment and collection, as there was no
evidence that the latter had acted upon the waiver. Hence, the unilateral act of respondent in
executing said document did not produce any effect on the prescriptive period for the assessment
and collection of its deficiency tax. As to the issue of estoppel, the court ruled that this measure
could not be used against respondent, as it was petitioner who had failed to act within the prescribed
period on the protest asking for a reconsideration of the assessment. ISSUES
In the present recourse, petitioner raises the following issues:
Whether or not petitioner’s right to collect the deficiency income tax of respondent for taxable year
1989 has prescribed.
Whether or not respondent’s repeated requests and positive acts constitute "estoppel" from setting
up the defense of prescription under the NIRC. 6
THE COURT’S RULING
We deny the Petition.
Petitioner mainly argues that in view of respondent’s execution of the Waiver of the statute of
limitations, the period to collect the assessed deficiency income taxes has not yet prescribed.
The resolution of the main issue requires a factual determination of the proper execution of the
Waiver. The CTA Division has already made a factual finding on the infirmities of the Waiver
executed by respondent on 16 November 1993. The Court found that the following requisites were
absent:
(1) Conformity of either petitioner or a duly authorized representative;
(2) Date of acceptance showing that both parties had agreed on the Waiver before the
expiration of the prescriptive period; and
(3) Proof that respondent was furnished a copy of the Waiver. 7

These findings are undisputed by petitioner. In fact, it cites BPI v. CIR to support its contention that
8
the approval of the CIR need not be express, but may be implied from the acts of the BIR officials in
response to the request for reinvestigation. Accordingly, petitioner argues that the actual approval of
the Waiver is apparent from the proceedings that were additionally conducted indetermining the
propriety of the subject assessment. 9
We do not agree.
The statute of limitations on the right to assess and collect a tax means that once the period
established by law for the assessment and collection of taxes has lapsed, the government’s
corresponding right to enforce that action is barred by provision of law.
The period to assess and collect deficiency taxes may be extended only upon a written agreement
between the CIR and the taxpayer prior to the expiration of the three-year prescribed period in
accordance with Section 222 (b) of the NIRC. In relation to the implementation of this provision, the
CIR issued Revenue Memorandum Order (RMO) No. 20-90 on 4 April 1990 to provide guidelines
10
on the proper execution of the Waiver of the Statute of Limitations. In the execution of this waiver,
the following procedures should be followed:
1. The waiver must be in the form identified hereof. This form may be reproduced by the
Office concerned but there should be no deviation from such form. The phrase "but not after
__________ 19___" should be filled up x x x
2. x x x x
Soon after the waiver is signed by the taxpayer, the Commissioner of Internal Revenue or
the revenue official authorized by him, as hereinafter provided, shall sign the waiver
indicating that the Bureau has accepted and agreed to the waiver. The date of such
acceptance by the Bureau should be indicated. x x x.
3. The following revenue officials are authorized to sign the waiver.
A. In the National Office
xxxx
3. Commissioner For tax cases involving more than 1M
B. In the Regional Offices
1. The Revenue District Officer with respect to tax cases still pending investigation and the
period toassess is about to prescribe regardless of amount.
xxxx
5. The foregoing procedures shall be strictly followed. Any revenue official found not to have
complied with this Order resulting in prescription of the right to assess/collect shall be
administratively dealt with.
Furthermore, jurisprudence is replete with requisites of a valid waiver:

1. The waiver must be in the proper form prescribed by RMO 20-90. The phrase "but not
after ______ 19 ___", which indicates the expiry date of the period agreed upon to
assess/collect the tax after the regular three-year period of prescription, should be filled up.
2. The waiver must be signed by the taxpayer himself or his duly authorized representative.
In the case of a corporation, the waiver must be signed by any of its responsible officials. In
case the authority is delegated by the taxpayer toa representative, such delegation should
be in writing and duly notarized.
3. The waiver should be duly notarized.
4. The CIR or the revenue official authorized by him must sign the waiver indicating that the
BIR has accepted and agreed to the waiver. The date of such acceptance by the BIR should
be indicated. However, before signing the waiver, the CIR or the revenue official authorized
by him must make sure that the waiver is in the prescribed form, duly notarized, and
executed by the taxpayer or his duly authorized representative.
5. Both the date of execution by the taxpayer and date of acceptance by the Bureau should
be before the expiration of the period of prescription or before the lapse of the period agreed
upon in case a subsequent agreement is executed.
6. The waiver must be executed in three copies, the original copy to be attached to the
docket of the case, the second copy for the taxpayer and the third copy for the Office
accepting the waiver. The fact of receipt by the taxpayer of his/her file copy must be
indicated in the original copy to show that the taxpayer was notified of the acceptance of the
BIR and the perfection of the agreement. 11
In Philippine Journalist, Inc. v. Commissioner of Internal Revenue, the Court categorically stated
12
that a Waiver must strictly conform to RMO No. 20-90. The mandatory nature of the requirements
set forth in RMO No. 20-90, as ruled upon by this Court, was recognized by the BIR itself in the
latter’s subsequent issuances, namely, Revenue Memorandum Circular (RMC) Nos. 6-2005 and 13
29-2012. Thus, the BIR cannot claim the benefits of extending the period to collect the deficiency
14
tax as a consequence of the Waiver when, in truth it was the BIR’s inaction which is the proximate
cause of the defects of the Waiver. The BIR has the burden of ensuring compliance with the
requirements of RMO No. 20-90, as they have the burden of securing the right of the government to
assess and collect tax deficiencies. This right would prescribe absent any showing of a valid
extension of the period set by the law.
To emphasize, the Waiver was not a unilateral act of the taxpayer; hence, the BIR must act on it,
either by conforming to or by disagreeing with the extension. A waiver of the statute of limitations,
whether on assessment or collection, should not be construed asa 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 imply that the taxpayer relinquishes the right to invoke prescription unequivocally. 15
Although we recognize that the power of taxation is deemed inherent in order to support the
government, tax provisions are not all about raising revenue. Our legislature has provided
safeguards and remedies beneficial to both the taxpayer, to protect against abuse; and the
government, to promptly act for the availability and recovery ofrevenues. A statute of limitations on
the assessment and collection of internal revenue taxes was adopted to serve a purpose that would
benefit both the taxpayer and the government.
This Court has expounded on the significance of adopting a statute of limitation on tax assessment
and collection in this case:
The provision of law on prescription was adopted in our statute books upon recommendation of the
tax commissioner of the Philippines which declares:
Under the former law, the right of the Government to collect the tax does not prescribe. However, in
fairness to the taxpayer, the Government should be estopped from collecting the tax where it failed
to make the necessary investigation and assessment within 5 years after the filing of the return and
where it failed to collect the tax within 5 years from the date of assessment thereof. Just as the
government is interested in the stability of its collection, so alsoare the taxpayers entitled to an
assurance that they will not be subjected to further investigation for tax purposes after the expiration
of a reasonable period of time. (Vol. II, Report of the Tax Commission of the Philippines, pp. 321-
322)
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 havea 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 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 beneficient
purpose of affording protection to the taxpayer within the contemplation of the Commission which
recommends the approval of the law. 16
Anent the second issue, we do not agree with petitioner that respondent is now barred from setting
up the defense of prescription by arguing that the repeated requests and positive acts of the latter
constituted estoppels, as these were attempts to persuade the CIR to delay the collection of
respondent’s deficiency income tax.
True, respondent filed a Protest and asked for a reconsideration and cancellation of the assessment
on 19 May 1993; however, it is uncontested that petitioner failed to act on that Protest until 29
November 2001, when the latter required the submission of other supporting documents. In fact, the
Protest was denied only on 22 March 2004.
Petitioner’s reliance on CIR v. Suyoc (Suyoc) is likewise misplaced. In Suyoc, the BIR was induced
17
to extend the collection of tax through repeated requests for extension to pay and for reinvestigation,
which were all denied by the Collector. Contrarily, herein respondent filed only one Protest over the
assessment, and petitioner denied it 10 years after. The subsequent letters of respondent cannot be
construed as inducements to extend the period of limitation, since the letters were intended to urge
petitioner to act on the Protest, and not to persuade the latter to delay the actual collection.
Petitioner cannot take refuge in BPI either, considering that respondent and BPI are similarly
18
situated. Similar to BP I, this is a simple case in which the BIR Commissioner and other BIR officials
1a\^/phi1
failed to act promptly in resolving and denying the request for reconsideration filed by the taxpayer
and in enforcing the collection on the assessment. Both in BP I and in this case, the BIR presented
no reason or explanation as to why it took many years to address the Protest of the taxpayer. The
statute of limitations imposed by the Tax Code precisely intends to protect the taxpayer from
prolonged and unreasonable assessment and investigation by the BIR. 19
Even assuming arguendo that the Waiver executed by respondent on 16 November 1993 is valid,
the right of petitioner to collect the deficiency income tax for the year 1989 would have already
prescribed by 2001 when the latter first acted upon the protest, more so in 2004 when it finally
denied the reconsideration. Records show that the Waiver extends only for the period ending 30
June 1994, and that there were no further extensions or waivers executed by respondent. Again, a
waiver is not a unilateral act of the taxpayer or the BIR, but is a bilateral agreement between two
parties to extend the period to a date certain. 20
Since the Waiver in this case is defective and therefore invalid, it produces no effect; thus, the
prescriptive period for collecting deficiency income tax for taxable year 1989 was never suspended
or tolled. Consequently, the right to enforce collection based on Assessment Notice No. 002523-89-
6014 has already prescribed.
WHEREFORE, premises considered, the Petition is DENIED.
SO ORDERED.
G.R. No. 179343 January 21, 2010
FISHWEALTH CANNING CORPORATION, Petitioner,

vs.
DECISION
CARPIO MORALES, J.:
The Commissioner of Internal Revenue (respondent), by Letter of Authority dated May 16,
2000,1 ordered the examination of the internal revenue taxes for the taxable year 1999 of Fishwealth
Canning Corp. (petitioner). The investigation disclosed that petitioner was liable in the amount of
₱2,395,826.88 representing income tax, value added tax (VAT), withholding tax deficiencies and
other miscellaneous deficiencies. Petitioner eventually settled these obligations on August 30, 2000.2
On August 25, 2000, respondent reinvestigated petitioner’s books of accounts and other records of
internal revenue taxes covering the same period for the purpose of which it issued a subpoena
duces tecum requiring petitioner to submit its records and books of accounts. Petitioner requested
the cancellation of the subpoena on the ground that the same set of documents had previously been
examined.
As petitioner did not heed the subpoena, respondent thereafter filed a criminal complaint against
petitioner for violation of Sections 5 (c) and 266 of the 1997 Internal Revenue Code, which complaint
was dismissed for insufficiency of evidence.3
Respondent sent, on August 6, 2003, petitioner a Final Assessment Notice of income tax and VAT
deficiencies totaling ₱67,597,336.75 for the taxable year 1999,4 which assessment petitioner
contested by letter of September 23, 2003.5
Respondent thereafter issued a Final Decision on Disputed Assessment dated August 2, 2005,
which petitioner received on August 4, 2005, denying its letter of protest, apprising it of its income
tax and VAT liabilities in the amounts of "₱15,396,905.24 and ₱63,688,434.40 [sic],
respectively, for the taxable year 1999,"6 and requesting the immediate payment thereof, "inclusive
of penalties incident to delinquency." Respondent added that if petitioner disagreed, it may appeal to
the Court of Tax Appeals (CTA) "within thirty (30) days from date of receipt hereof, otherwise our
said deficiency income and value-added taxes assessments shall become final, executory, and
demandable."7
Instead of appealing to the CTA, petitioner filed, on September 1, 2005, a Letter of Reconsideration
dated August 31, 2005.8
By a Preliminary Collection Letter dated September 6, 2005, respondent demanded payment of

petitioner’s tax liabilities,9 drawing petitioner to file on October 20, 2005 a Petition for Review10 before
the CTA.
In his Answer,11 respondent argued, among other things, that the petition was filed out of time which
argument the First Division of the CTA upheld and accordingly dismissed the petition.12
Petitioner filed a Motion for Reconsideration13 which was denied.14 The Resolution denying its motion
for reconsideration was received by petitioner on October 31, 2006.15
On November 21, 2006, petitioner filed a petition for review before the CTA En Banc16 which, by
Decision17 of July 5, 2007, held that the petition before the First Division, as well as that before it,
was filed out of time.
Hence, the present petition,18 petitioner arguing that the CTA En Banc erred in holding that the
petition it filed before the CTA First Division as well as that filed before it (CTA En Banc) was filed
out of time.
The petition is bereft of merit.
Section 228 of the 1997 Tax Code provides that an assessment
x x x may be protested administratively by filing a request for reconsideration or reinvestigation

within thirty (30) days from receipt of the assessment in such form and manner as may be
prescribed by implementing rules and regulations. Within sixty (60) days from filing of the protest, all
relevant supporting documents shall have been submitted; otherwise, the assessment shall become
final.
from submission of documents, the taxpayer adversely affected by the decision or inaction
may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or
from the lapse of the one hundred eighty (180)-day period; otherwise, the decision shall become
final, executory and demandable. (underscoring supplied) 1avvphi1
In the case at bar, petitioner’s administrative protest was denied by Final Decision on Disputed
Assessment dated August 2, 2005 issued by respondent and which petitioner received on August 4,
2005. Under the above-quoted Section 228 of the 1997 Tax Code, petitioner had 30 days to appeal
respondent’s denial of its protest to the CTA.
Since petitioner received the denial of its administrative protest on August 4, 2005, it had until
September 3, 2005 to file a petition for review before the CTA Division. It filed one, however, on
October 20, 2005, hence, it was filed out of time. For a motion for reconsideration of the denial of the
administrative protest does not toll the 30-day period to appeal to the CTA.
On petitioner’s final contention that it has a meritorious case in view of the dismissal of the above-
mentioned criminal case filed against it for violation of the 1997 Internal Revenue Code,19 the same
fails. For the criminal complaint was instituted not to demand payment, but to penalize the taxpayer
for violation of the Tax Code.20
WHEREFORE, the petition is DISMISSED.
Costs against petitioner.
SO ORDERED.
G.R. No. 168498 April 24, 2007
RIZAL COMMERCIAL BANKING CORPORATION, Petitioner,

vs.
RESOLUTION
YNARES-SANTIAGO, J.:
For resolution is petitioner’s Motion for Reconsideration of our Decision1 dated June 16, 2006
affirming the Decision of the Court of Tax Appeals En Banc dated June 7, 2005 in C.T.A. EB No. 50,
which affirmed the Resolutions of the Court of Tax Appeals Second Division dated May 3, 2004 and
November 5, 2004 in C.T.A. Case No. 6475, denying petitioner’s Petition for Relief from Judgment
and Motion for Reconsideration, respectively.
Petitioner reiterates its claim that its former counsel’s failure to file petition for review with the Court
of Tax Appeals within the period set by Section 228 of the National Internal Revenue Code of 1997
(NIRC) was excusable and raised the following issues for resolution:
A.
THE DENIAL OF PETITIONER’S PETITION FOR RELIEF FROM JUDGMENT WILL RESULT IN
THE DENIAL OF SUBSTANTIVE JUSTICE TO PETITIONER, CONTRARY TO ESTABLISHED
DECISIONS OF THIS HONORABLE COURT BECAUSE THE ASSESSMENT SOUGHT TO BE
CANCELLED HAS ALREADY PRESCRIBED – A FACT NOT DENIED BY THE RESPONDENT IN
ITS ANSWER.
B.
CONTRARY TO THIS HONORABLE COURT’S DECISION, AND FOLLOWING THE LASCONA

DECISION, AS WELL AS THE 2005 REVISED RULES OF THE COURT OF TAX APPEALS,
PETITIONER TIMELY FILED ITS PETITION FOR REVIEW BEFORE THE COURT OF TAX
APPEALS; THUS, THE COURT OF TAX APPEALS HAD JURISDICTION OVER THE CASE.
C.
CONSIDERING THAT THE SUBJECT ASSESSMENT INVOLVES AN INDUSTRY ISSUE, THAT IS,
A DEFICIENCY ASSESSMENT FOR DOCUMENTARY STAMP TAX ON SPECIAL SAVINGS
ACCOUNTS AND GROSS ONSHORE TAX, PETITIONER IN THE INTEREST OF SUBSTANTIVE
JUSTICE AND UNIFORMITY OF TAXATION, SHOULD BE ALLOWED TO FULLY LITIGATE THE
ISSUE BEFORE THE COURT OF TAX APPEALS.2
Petitioner’s motion for reconsideration is denied for lack of merit.
Other than the issue of prescription, which is raised herein for the first time, the issues presented are
a mere rehash of petitioner’s previous arguments, all of which have been considered and found
without merit in our Decision dated June 16, 2006.
Petitioner maintains that its counsel’s neglect in not filing the petition for review within the
reglementary period was excusable. It alleges that the counsel’s secretary misplaced the Resolution
hence the counsel was not aware of its issuance and that it had become final and executory.
We are not persuaded.
In our Decision, we held that:

Relief cannot be granted on the flimsy excuse that the failure to appeal was due to the neglect of
petitioner’s counsel. Otherwise, all that a losing party would do to salvage his case would be to
invoke neglect or mistake of his counsel as a ground for reversing or setting aside the adverse
judgment, thereby putting no end to litigation.
Negligence to be "excusable" must be one which ordinary diligence and prudence could not have
guarded against and by reason of which the rights of an aggrieved party have probably been
impaired. Petitioner’s former counsel’s omission could hardly be characterized as excusable, much
less unavoidable.
The Court has repeatedly admonished lawyers to adopt a system whereby they can always receive
promptly judicial notices and pleadings intended for them. Apparently, petitioner’s counsel was not
only remiss in complying with this admonition but he also failed to check periodically, as an act of
prudence and diligence, the status of the pending case before the CTA Second Division. The fact
that counsel allegedly had not renewed the employment of his secretary, thereby making the latter
no longer attentive or focused on her work, did not relieve him of his responsibilities to his client. It is
a problem personal to him which should not in any manner interfere with his professional
commitments.3
Petitioner also argues that, in the interest of substantial justice, the instant case should be re-opened
considering that it was allegedly not accorded its day in court when the Court of Tax Appeals
dismissed its petition for review for late filing. It claims that rules of procedure are intended to help
secure, not override, substantial justice.
Petitioner’s arguments fail to persuade us.
As correctly observed by the Court of Tax Appeals in its Decision dated June 7, 2005:
If indeed there was negligence, this is obviously on the part of petitioner’s own counsel whose
prudence in handling the case fell short of that required under the circumstances. He was well aware
of the motion filed by the respondent for the Court to resolve first the issue of this Court’s jurisdiction
on July 15, 2003, that a hearing was conducted thereon on August 15, 2003 where both counsels
were present and at said hearing the motion was submitted for resolution. Petitioner’s counsel
apparently did not show enthusiasm in the case he was handling as he should have been vigilant of
the outcome of said motion and be prepared for the necessary action to take whatever the outcome
may have been. Such kind of negligence cannot support petitioner’s claim for relief from judgment.
Besides, tax assessments by tax examiners are presumed correct and made in good faith, and all
presumptions are in favor of the correctness of a tax assessment unless proven otherwise.4 Also,
petitioner’s failure to file a petition for review with the Court of Tax Appeals within the statutory period
rendered the disputed assessment final, executory and demandable, thereby precluding it from
interposing the defenses of legality or validity of the assessment and prescription of the
Government’s right to assess.5
The Court of Tax Appeals is a court of special jurisdiction and can only take cognizance of such
matters as are clearly within its jurisdiction. Section 7 of Republic Act (R.A.) No. 9282, amending
R.A. No. 1125, otherwise known as the Law Creating the Court of Tax Appeals, provides:
Sec. 7. Jurisdiction. — The CTA shall exercise:
(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:

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;

relation thereto, or other matters arising under the National Internal Revenue Code or
other laws administered by the Bureau of Internal Revenue, where the National
Internal Revenue Code provides a specific period of action, in which case the
inaction shall be deemed a denial;
Also, Section 3, Rule 4 and Section 3(a), Rule 8 of the Revised Rules of the Court of Tax
Appeals6 state:
RULE 4
Jurisdiction of the Court
xxxx
SECTION 3. Cases Within the Jurisdiction of the Court in Divisions. — The Court in Divisions shall
exercise:
(a) Exclusive original or appellate jurisdiction to review by appeal the following:

other laws administered by the Bureau of Internal Revenue;

other laws administered by the Bureau of Internal Revenue, where the National
Internal Revenue Code or other applicable law provides a specific period for action:
Provided, that in case of disputed assessments, the inaction of the Commissioner of
Internal Revenue within the one hundred eighty day-period under Section 228 of the
National Internal Revenue Code shall be deemed a denial for purposes of allowing
the taxpayer to appeal his case to the Court and does not necessarily constitute a
formal decision of the Commissioner of Internal Revenue on the tax case; Provided,
further, that should the taxpayer opt to await the final decision of the Commissioner
of Internal Revenue on the disputed assessments beyond the one hundred eighty
day-period abovementioned, the taxpayer may appeal such final decision to the
Court under Section 3(a), Rule 8 of these Rules; and Provided, still further, that in the
case of claims for refund of taxes erroneously or illegally collected, the taxpayer must
file a petition for review with the Court prior to the expiration of the two-year period
under Section 229 of the National Internal Revenue Code;
xxxx
RULE 8
Procedure in Civil Cases
xxxx
SECTION 3. Who May Appeal; Period to File Petition. — (a) A party adversely affected by a
decision, ruling or the inaction of the Commissioner of Internal Revenue on disputed assessments or
claims for refund of internal revenue taxes, or by a decision or ruling of the Commissioner of
Customs, the Secretary of Finance, the Secretary of Trade and Industry, the Secretary of
Agriculture, or a Regional Trial Court in the exercise of its original jurisdiction may appeal to the
Court by petition for review filed within thirty days after receipt of a copy of such decision or ruling, or
expiration of the period fixed by law for the Commissioner of Internal Revenue to act on the disputed
assessments. In case of inaction of the Commissioner of Internal Revenue on claims for refund of
internal revenue taxes erroneously or illegally collected, the taxpayer must file a petition for review
within the two-year period prescribed by law from payment or collection of the taxes. (n)
From the foregoing, it is clear that the jurisdiction of the Court of Tax Appeals has been expanded to
include not only decisions or rulings but inaction as well of the Commissioner of Internal Revenue.
The decisions, rulings or inaction of the Commissioner are necessary in order to vest the Court of
Tax Appeals with jurisdiction to entertain the appeal, provided it is filed within 30 days after the
receipt of such decision or ruling, or within 30 days after the expiration of the 180-day period fixed by
law for the Commissioner to act on the disputed assessments. This 30-day period within which to file
an appeal is jurisdictional and failure to comply therewith would bar the appeal and deprive the Court
of Tax Appeals of its jurisdiction to entertain and determine the correctness of the assessments.
Such period is not merely directory but mandatory and it is beyond the power of the courts to extend
the same.7
In case the Commissioner failed to act on the disputed assessment within the 180-day period from
date of submission of documents, a taxpayer can either: 1) file a petition for review with the Court of
Tax Appeals within 30 days after the expiration of the 180-day period; or 2) await the final decision of
the Commissioner on the disputed assessments and appeal such final decision to the Court of Tax
Appeals within 30 days after receipt of a copy of such decision. However, these options are mutually
exclusive, and resort to one bars the application of the other.
In the instant case, the Commissioner failed to act on the disputed assessment within 180 days from
date of submission of documents. Thus, petitioner opted to file a petition for review before the Court
of Tax Appeals. Unfortunately, the petition for review was filed out of time, i.e., it was filed more than
30 days after the lapse of the 180-day period. Consequently, it was dismissed by the Court of Tax
Appeals for late filing. Petitioner did not file a motion for reconsideration or make an appeal; hence,
the disputed assessment became final, demandable and executory.
Based on the foregoing, petitioner can not now claim that the disputed assessment is not yet final as
it remained unacted upon by the Commissioner; that it can still await the final decision of the
Commissioner and thereafter appeal the same to the Court of Tax Appeals. This legal maneuver
cannot be countenanced. After availing the first option, i.e., filing a petition for review which was
however filed out of time, petitioner can not successfully resort to the second option, i.e., awaiting
the final decision of the Commissioner and appealing the same to the Court of Tax Appeals, on the
pretext that there is yet no final decision on the disputed assessment because of the
Commissioner’s inaction.
Lastly, we note that petitioner is raising the issue of prescription for the first time in the instant motion
for reconsideration. Although the same was raised in the petition for review, it was dismissed for late
filing. No motion for reconsideration was filed hence the disputed assessment became final,
demandable and executory. Thereafter, petitioner filed with the Court of Tax Appeals a petition for
relief from judgment. However, it failed to raise the issue of prescription therein. After its petition for
relief from judgment was denied by the Court of Tax Appeals for lack of merit, petitioner filed a
petition for review before this Court without raising the issue of prescription. It is only in the instant
motion for reconsideration that petitioner raised the issue of prescription which is not allowed. The
rule is well-settled that points of law, theories, issues and arguments not adequately brought to the
attention of the lower court need not be considered by the reviewing court as they cannot be raised
for the first time on appeal,8 much more in a motion for reconsideration as in this case, because this
would be offensive to the basic rules of fair play, justice and due process.9 This last ditch effort to
shift to a new theory and raise a new matter in the hope of a favorable result is a pernicious practice
that has consistently been rejected.
WHEREFORE, in view of the foregoing, petitioner’s motion for reconsideration is DENIED.
SO ORDERED.
G.R. No. 134062 April 17, 2007

vs.
BANK OF THE PHILIPPINE ISLANDS, Respondent.
DECISION
CORONA, J.:
This is a petition for review on certiorari1 of a decision2 of the Court of Appeals (CA) dated May 29,
1998 in CA-G.R. SP No. 41025 which reversed and set aside the decision3 and resolution4 of the
Court of Tax Appeals (CTA) dated November 16, 1995 and May 27, 1996, respectively, in CTA Case
No. 4715.
In two notices dated October 28, 1988, petitioner Commissioner of Internal Revenue (CIR) assessed
respondent Bank of the Philippine Islands’ (BPI’s) deficiency percentage and documentary stamp
taxes for the year 1986 in the total amount of ₱129,488,656.63:
1986 – Deficiency Percentage Tax
Deficiency percentage tax ₱ 7, 270,892.88

Add: 25% surcharge 1,817,723.22
20% interest from 1-21-87 to 10-28-88 3,215,825.03
15,000.00
Compromise penalty
TOTAL AMOUNT DUE AND COLLECTIBLE ₱12,319,441.13
1986 – Deficiency Documentary Stamp Tax
Deficiency percentage tax ₱93,723,372.40

Add: 25% surcharge 23,430,843.10
15,000.00
Compromise penalty
TOTAL AMOUNT DUE AND COLLECTIBLE ₱117,169,215.50.5
Both notices of assessment contained the following note:
Please be informed that your [percentage and documentary stamp taxes have] been assessed as
shown above. Said assessment has been based on return – (filed by you) – (as verified) – (made by
this Office) – (pending investigation) – (after investigation). You are requested to pay the above
amount to this Office or to our Collection Agent in the Office of the City or Deputy Provincial
Treasurer of xxx6
In a letter dated December 10, 1988, BPI, through counsel, replied as follows:
1. Your "deficiency assessments" are no assessments at all. The taxpayer is not informed,
even in the vaguest terms, why it is being assessed a deficiency. The very purpose of a
deficiency assessment is to inform taxpayer why he has incurred a deficiency so that he can
make an intelligent decision on whether to pay or to protest the assessment. This is all the
more so when the assessment involves astronomical amounts, as in this case.
We therefore request that the examiner concerned be required to state, even in the briefest
form, why he believes the taxpayer has a deficiency documentary and percentage taxes, and
as to the percentage tax, it is important that the taxpayer be informed also as to what
particular percentage tax the assessment refers to.
2. As to the alleged deficiency documentary stamp tax, you are aware of the compromise
forged between your office and the Bankers Association of the Philippines [BAP] on this
issue and of BPI’s submission of its computations under this compromise. There is therefore
no basis whatsoever for this assessment, assuming it is on the subject of the BAP
compromise. On the other hand, if it relates to documentary stamp tax on some other issue,
we should like to be informed about what those issues are.
3. As to the alleged deficiency percentage tax, we are completely at a loss on how such
assessment may be protested since your letter does not even tell the taxpayer what
particular percentage tax is involved and how your examiner arrived at the deficiency. As
soon as this is explained and clarified in a proper letter of assessment, we shall inform you of
the taxpayer’s decision on whether to pay or protest the assessment.7
On June 27, 1991, BPI received a letter from CIR dated May 8, 1991 stating that:
… although in all respects, your letter failed to qualify as a protest under Revenue Regulations No.
12-85 and therefore not deserving of any rejoinder by this office as no valid issue was raised against
the validity of our assessment… still we obliged to explain the basis of the assessments.
xxx xxx xxx
… this constitutes the final decision of this office on the matter.8
On July 6, 1991, BPI requested a reconsideration of the assessments stated in the CIR’s May 8,
1991 letter.9 This was denied in a letter dated December 12, 1991, received by BPI on January 21,
1992.10
On February 18, 1992, BPI filed a petition for review in the CTA.11 In a decision dated November 16,
1995, the CTA dismissed the case for lack of jurisdiction since the subject assessments had become
final and unappealable. The CTA ruled that BPI failed to protest on time under Section 270 of the
National Internal Revenue Code (NIRC) of 1986 and Section 7 in relation to Section 11 of RA
1125.12 It denied reconsideration in a resolution dated May 27, 1996.13
On appeal, the CA reversed the tax court’s decision and resolution and remanded the case to the
CTA14 for a decision on the merits.15 It ruled that the October 28, 1988 notices were not valid
assessments because they did not inform the taxpayer of the legal and factual bases therefor. It
declared that the proper assessments were those contained in the May 8, 1991 letter which provided
the reasons for the claimed deficiencies.16 Thus, it held that BPI filed the petition for review in the
CTA on time.17 The CIR elevated the case to this Court.
This petition raises the following issues:
1) whether or not the assessments issued to BPI for deficiency percentage and documentary
stamp taxes for 1986 had already become final and unappealable and
2) whether or not BPI was liable for the said taxes.
The former Section 27018 (now renumbered as Section 228) of the NIRC stated:
Sec. 270. Protesting of assessment. — When the [CIR] or his duly authorized representative
finds that proper taxes should be assessed, he shall first notify the taxpayer of his
findings. Within a period to be prescribed by implementing regulations, the taxpayer shall be
required to respond to said notice. If the taxpayer fails to respond, the [CIR] shall issue an
assessment based on his findings.
xxx xxx xxx (emphasis supplied)
Were the October 28, 1988 Notices Valid Assessments?
The first issue for our resolution is whether or not the October 28, 1988 notices19 were valid
assessments. If they were not, as held by the CA, then the correct assessments were in the May 8,
1991 letter, received by BPI on June 27, 1991. BPI, in its July 6, 1991 letter, seasonably asked for a
reconsideration of the findings which the CIR denied in his December 12, 1991 letter, received by
BPI on January 21, 1992. Consequently, the petition for review filed by BPI in the CTA on February
18, 1992 would be well within the 30-day period provided by law.20
The CIR argues that the CA erred in holding that the October 28, 1988 notices were invalid
assessments. He asserts that he used BIR Form No. 17.08 (as revised in November 1964) which
was designed for the precise purpose of notifying taxpayers of the assessed amounts due and
demanding payment thereof.21 He contends that there was no law or jurisprudence then that required
notices to state the reasons for assessing deficiency tax liabilities.22
BPI counters that due process demanded that the facts, data and law upon which the assessments
were based be provided to the taxpayer. It insists that the NIRC, as worded now (referring to Section
228), specifically provides that:
"[t]he taxpayer shall be informed in writing of the law and the facts on which the assessment is
made; otherwise, the assessment shall be void."
According to BPI, this is declaratory of what sound tax procedure is and a confirmation of what due
process requires even under the former Section 270.
BPI’s contention has no merit. The present Section 228 of the NIRC provides:
Sec. 228. Protesting of Assessment. — When the [CIR] or his duly authorized representative
finds that proper taxes should be assessed, he shall first notify the taxpayer of his
findings: Provided, however, That a preassessment notice shall not be required in the following
cases:
xxx xxx xxx
The taxpayer shall be informed in writing of the law and the facts on which the assessment is
xxx xxx xxx (emphasis supplied)
Admittedly, the CIR did not inform BPI in writing of the law and facts on which the assessments of
the deficiency taxes were made. He merely notified BPI of his findings, consisting only of the
computation of the tax liabilities and a demand for payment thereof within 30 days after receipt.
In merely notifying BPI of his findings, the CIR relied on the provisions of the former Section 270
prior to its amendment by RA 8424 (also known as the Tax Reform Act of 1997).23 In CIR v.
Reyes,24 we held that:
had simply relied upon the provisions of former Section 229 prior to its amendment by [RA] 8424,
otherwise known as the Tax Reform Act of 1997.
old requirement of merely notifying the taxpayer of the CIR's findings was changed in
1998 to informing the taxpayer of not only the law, but also of the facts on which an assessment
would be made; otherwise, the assessment itself would be invalid.
longer sufficient under the new law.25 (emphasis supplied; italics in the original)
Accordingly, when the assessments were made pursuant to the former Section 270, the only
requirement was for the CIR to "notify" or inform the taxpayer of his "findings." Nothing in the old law
required a written statement to the taxpayer of the law and facts on which the assessments were
based. The Court cannot read into the law what obviously was not intended by Congress. That
would be judicial legislation, nothing less.
Jurisprudence, on the other hand, simply required that the assessments contain a computation of tax
liabilities, the amount the taxpayer was to pay and a demand for payment within a prescribed
period.26 Everything considered, there was no doubt the October 28, 1988 notices sufficiently met the
requirements of a valid assessment under the old law and jurisprudence.
The sentence
[t]he taxpayers shall be informed in writing of the law and the facts on which the assessment is
made; otherwise, the assessment shall be void
was not in the old Section 270 but was only later on inserted in the renumbered Section 228 in 1997.
Evidently, the legislature saw the need to modify the former Section 270 by inserting the aforequoted
sentence.27 The fact that the amendment was necessary showed that, prior to the introduction of the
amendment, the statute had an entirely different meaning.28
Contrary to the submission of BPI, the inserted sentence in the renumbered Section 228 was not an
affirmation of what the law required under the former Section 270. The amendment introduced by
RA 8424 was an innovation and could not be reasonably inferred from the old law.29 Clearly, the
legislature intended to insert a new provision regarding the form and substance of assessments
issued by the CIR.30
In ruling that the October 28, 1988 notices were not valid assessments, the CA explained:
xxx. Elementary concerns of due process of law should have prompted the [CIR] to inform [BPI] of
the legal and factual basis of the former’s decision to charge the latter for deficiency documentary
stamp and gross receipts taxes.31
In other words, the CA’s theory was that BPI was deprived of due process when the CIR failed to
inform it in writing of the factual and legal bases of the assessments —even if these were not called
for under the old law.
We disagree.
Indeed, the underlying reason for the law was the basic constitutional requirement that "no person
shall be deprived of his property without due process of law."32 We note, however, what the CTA had
to say:
xxx xxx xxx
From the foregoing testimony, it can be safely adduced that not only was [BPI] given the opportunity
to discuss with the [CIR] when the latter issued the former a Pre-Assessment Notice (which [BPI]
ignored) but that the examiners themselves went to [BPI] and "we talk to them and we try to [thresh]
out the issues, present evidences as to what they need." Now, how can [BPI] and/or its counsel
honestly tell this Court that they did not know anything about the assessments?
Not only that. To further buttress the fact that [BPI] indeed knew beforehand the assessments[,]
contrary to the allegations of its counsel[,] was the testimony of Mr. Jerry Lazaro, Assistant Manager
of the Accounting Department of [BPI]. He testified to the fact that he prepared worksheets which
contain his analysis regarding the findings of the [CIR’s] examiner, Mr. San Pedro and that the same
worksheets were presented to Mr. Carlos Tan, Comptroller of [BPI].
xxx xxx xxx
From all the foregoing discussions, We can now conclude that [BPI] was indeed aware of the nature
and basis of the assessments, and was given all the opportunity to contest the same but ignored it
despite the notice conspicuously written on the assessments which states that "this ASSESSMENT
becomes final and unappealable if not protested within 30 days after receipt." Counsel resorted to
dilatory tactics and dangerously played with time. Unfortunately, such strategy proved fatal to the
cause of his client.33
The CA never disputed these findings of fact by the CTA:
[T]his Court recognizes that the [CTA], which by the very nature of its function is dedicated
exclusively to the consideration of tax problems, has necessarily developed an expertise on the
subject, and its conclusions will not be overturned unless there has been an abuse or improvident
exercise of authority. Such findings can only be disturbed on appeal if they are not supported by
substantial evidence or there is a showing of gross error or abuse on the part of the [CTA].34
Under the former Section 270, there were two instances when an assessment became final and
unappealable: (1) when it was not protested within 30 days from receipt and (2) when the adverse
decision on the protest was not appealed to the CTA within 30 days from receipt of the final
decision:35
Sec. 270. Protesting of assessment. 1a\^/phi1.net
xxx xxx xxx

reinvestigation in such form and manner as may be prescribed by the implementing regulations
within thirty (30) days from receipt of the assessment; otherwise, the assessment shall become final
and unappealable.
If the protest is denied in whole or in part, the individual, association or corporation adversely
affected by the decision on the protest may appeal to the [CTA] within thirty (30) days from receipt of
the said decision; otherwise, the decision shall become final, executory and demandable.
Implications Of A Valid Assessment
Considering that the October 28, 1988 notices were valid assessments, BPI should have protested
the same within 30 days from receipt thereof. The December 10, 1988 reply it sent to the CIR did not
qualify as a protest since the letter itself stated that "[a]s soon as this is explained and clarified in a
proper letter of assessment, we shall inform you of the taxpayer’s decision on whether to pay
or protest the assessment."36 Hence, by its own declaration, BPI did not regard this letter as a
protest against the assessments. As a matter of fact, BPI never deemed this a protest since it did not
even consider the October 28, 1988 notices as valid or proper assessments.
The inevitable conclusion is that BPI’s failure to protest the assessments within the 30-day period
provided in the former Section 270 meant that they became final and unappealable. Thus, the CTA
correctly dismissed BPI’s appeal for lack of jurisdiction. BPI was, from then on, barred from disputing
the correctness of the assessments or invoking any defense that would reopen the question of its
liability on the merits.37 Not only that. There arose a presumption of correctness when BPI failed to
protest the assessments:
Tax assessments by tax examiners are presumed correct and made in good faith. The taxpayer has
the duty to prove otherwise. In the absence of proof of any irregularities in the performance of duties,
an assessment duly made by a Bureau of Internal Revenue examiner and approved by his superior
officers will not be disturbed. All presumptions are in favor of the correctness of tax assessments.38
Even if we considered the December 10, 1988 letter as a protest, BPI must nevertheless be deemed
to have failed to appeal the CIR’s final decision regarding the disputed assessments within the 30-
day period provided by law. The CIR, in his May 8, 1991 response, stated that it was his "final
decision … on the matter." BPI therefore had 30 days from the time it received the decision on June
27, 1991 to appeal but it did not. Instead it filed a request for reconsideration and lodged its appeal
in the CTA only on February 18, 1992, way beyond the reglementary period. BPI must now suffer
the repercussions of its omission. We have already declared that:
… the [CIR] should always indicate to the taxpayer in clear and unequivocal language whenever his
action on an assessment questioned by a taxpayer constitutes his final determination on the
disputed assessment, as contemplated by Sections 7 and 11 of [RA 1125], as amended. On the
basis of his statement indubitably showing that the Commissioner's communicated action is
his final decision on the contested assessment, the aggrieved taxpayer would then be able to
take recourse to the tax court at the opportune time. Without needless difficulty, the taxpayer
would be able to determine when his right to appeal to the tax court accrues.
The rule of conduct would also obviate all desire and opportunity on the part of the taxpayer
to continually delay the finality of the assessment — and, consequently, the collection of the
amount demanded as taxes — by repeated requests for recomputation and
reconsideration. On the part of the [CIR], this would encourage his office to conduct a careful and
thorough study of every questioned assessment and render a correct and definite decision thereon
in the first instance. This would also deter the [CIR] from unfairly making the taxpayer grope in the
dark and speculate as to which action constitutes the decision appealable to the tax court. Of greater
import, this rule of conduct would meet a pressing need for fair play, regularity, and orderliness in
administrative action.39 (emphasis supplied)
Either way (whether or not a protest was made), we cannot absolve BPI of its liability under the
subject tax assessments.
We realize that these assessments (which have been pending for almost 20 years) involve a
considerable amount of money. Be that as it may, we cannot legally presume the existence of
something which was never there. The state will be deprived of the taxes validly due it and the public
will suffer if taxpayers will not be held liable for the proper taxes assessed against them:
Taxes are the lifeblood of the government, for without taxes, the government can neither exist nor
endure. A principal attribute of sovereignty, the exercise of taxing power derives its source from the
very existence of the state whose social contract with its citizens obliges it to promote public interest
and common good. The theory behind the exercise of the power to tax emanates from necessity;
without taxes, government cannot fulfill its mandate of promoting the general welfare and well-being
of the people.40
WHEREFORE, the petition is hereby GRANTED. The May 29, 1998 decision of the Court of
Appeals in CA-G.R. SP No. 41025 is REVERS
G.R. No. 159694 January 27, 2006

vs.
AZUCENA T. REYES, Respondent.
x -- -- -- -- -- -- -- -- -- -- -- -- -- x
G.R. No. 163581 January 27, 2006
AZUCENA T. REYES, Petitioner,
vs.
DECISION
PANGANIBAN, CJ.:
Under the present provisions of the Tax Code and pursuant to elementary due process, taxpayers
must be informed in writing of the law and the facts upon which a tax assessment is based;
otherwise, the assessment is void. Being invalid, the assessment cannot in turn be used as a basis
for the perfection of a tax compromise.
The Case
Before us are two consolidated1 Petitions for Review2 filed under Rule 45 of the Rules of Court,
assailing the August 8, 2003 Decision3 of the Court of Appeals (CA) in CA-GR SP No. 71392. The
dispositive portion of the assailed Decision reads as follows:
"WHEREFORE, the petition is GRANTED. The assailed decision of the Court of Tax Appeals is
ANNULLED and SET ASIDE without prejudice to the action of the National Evaluation Board on the
proposed compromise settlement of the Maria C. Tancinco estate’s tax liability."4
The Facts
The CA narrated the facts as follows:
"On July 8, 1993, Maria C. Tancinco (or ‘decedent’) died, leaving a 1,292 square-meter residential
lot and an old house thereon (or ‘subject property’) located at 4931 Pasay Road, Dasmariñas
Village, Makati City.
"On the basis of a sworn information-for-reward filed on February 17, 1997 by a certain Raymond
Abad (or ‘Abad’), Revenue District Office No. 50 (South Makati) conducted an investigation on the
decedent’s estate (or ‘estate’). Subsequently, it issued a Return Verification Order. But without the
required preliminary findings being submitted, it issued Letter of Authority No. 132963 for the regular
investigation of the estate tax case. Azucena T. Reyes (or ‘[Reyes]’), one of the decedent’s heirs,
received the Letter of Authority on March 14, 1997.
"On February 12, 1998, the Chief, Assessment Division, Bureau of Internal Revenue (or ‘BIR’),
issued a preliminary assessment notice against the estate in the amount of P14,580,618.67. On May
10, 1998, the heirs of the decedent (or ‘heirs’) received a final estate tax assessment notice and a
demand letter, both dated April 22, 1998, for the amount of P14,912,205.47, inclusive of surcharge
and interest.
"On June 1, 1998, a certain Felix M. Sumbillo (or ‘Sumbillo’) protested the assessment [o]n behalf of
the heirs on the ground that the subject property had already been sold by the decedent sometime in
1990.
"On November 12, 1998, the Commissioner of Internal Revenue (or ‘[CIR]’) issued a preliminary
collection letter to [Reyes], followed by a Final Notice Before Seizure dated December 4, 1998.
"On January 5, 1999, a Warrant of Distraint and/or Levy was served upon the estate, followed on
February 11, 1999 by Notices of Levy on Real Property and Tax Lien against it.
"On March 2, 1999, [Reyes] protested the notice of levy. However, on March 11, 1999, the heirs
proposed a compromise settlement of P1,000,000.00.
"In a letter to [the CIR] dated January 27, 2000, [Reyes] proposed to pay 50% of the basic tax due,
citing the heirs’ inability to pay the tax assessment. On March 20, 2000, [the CIR] rejected [Reyes’s]
offer, pointing out that since the estate tax is a charge on the estate and not on the heirs, the latter’s
financial incapacity is immaterial as, in fact, the gross value of the estate amounting
to P32,420,360.00 is more than sufficient to settle the tax liability. Thus, [the CIR] demanded
payment of the amount of P18,034,382.13 on or before April 15, 2000[;] otherwise, the notice of sale
of the subject property would be published.
"On April 11, 2000, [Reyes] again wrote to [the CIR], this time proposing to pay 100% of the basic
tax due in the amount of P5,313,891.00. She reiterated the proposal in a letter dated May 18, 2000.
"As the estate failed to pay its tax liability within the April 15, 2000 deadline, the Chief, Collection
Enforcement Division, BIR, notified [Reyes] on June 6, 2000 that the subject property would be sold
at public auction on August 8, 2000.
"On June 13, 2000, [Reyes] filed a protest with the BIR Appellate Division. Assailing the scheduled
auction sale, she asserted that x x x the assessment, letter of demand[,] and the whole tax
proceedings against the estate are void ab initio. She offered to file the corresponding estate tax
return and pay the correct amount of tax without surcharge [or] interest.
"Without acting on [Reyes’s] protest and offer, [the CIR] instructed the Collection Enforcement
Division to proceed with the August 8, 2000 auction sale. Consequently, on June 28, 2000, [Reyes]
filed a [P]etition for [R]eview with the Court of Tax Appeals (or ‘CTA’), docketed as CTA Case No.
6124.
"On July 17, 2000, [Reyes] filed a Motion for the Issuance of a Writ of Preliminary Injunction or
Status Quo Order, which was granted by the CTA on July 26, 2000. Upon [Reyes’s] filing of a surety
bond in the amount of P27,000,000.00, the CTA issued a [R]esolution dated August 16, 2000
ordering [the CIR] to desist and refrain from proceeding with the auction sale of the subject property
or from issuing a [W]arrant of [D]istraint or [G]arnishment of [B]ank [A]ccount[,] pending
determination of the case and/or unless a contrary order is issued.
"[The CIR] filed a [M]otion to [D]ismiss the petition on the grounds (i) that the CTA no longer has
jurisdiction over the case[,] because the assessment against the estate is already final and
executory; and (ii) that the petition was filed out of time. In a [R]esolution dated November 23, 2000,
the CTA denied [the CIR’s] motion.
"During the pendency of the [P]etition for [R]eview with the CTA, however, the BIR issued Revenue
Regulation (or ‘RR’) No. 6-2000 and Revenue Memorandum Order (or ‘RMO’) No. 42-2000 offering
certain taxpayers with delinquent accounts and disputed assessments an opportunity to compromise
their tax liability.
"On November 25, 2000, [Reyes] filed an application with the BIR for the compromise settlement (or
‘compromise’) of the assessment against the estate pursuant to Sec. 204(A) of the Tax Code, as
implemented by RR No. 6-2000 and RMO No. 42-2000.
"On December 26, 2000, [Reyes] filed an Ex-Parte Motion for Postponement of the hearing before
the CTA scheduled on January 9, 2001, citing her pending application for compromise with the BIR.
The motion was granted and the hearing was reset to February 6, 2001.
"On January 29, 2001, [Reyes] moved for postponement of the hearing set on February 6, 2001, this
time on the ground that she had already paid the compromise amount of P1,062,778.20 but was still
awaiting approval of the National Evaluation Board (or ‘NEB’). The CTA granted the motion and
reset the hearing to February 27, 2001.
"On February 19, 2001, [Reyes] filed a Motion to Declare Application for the Settlement of Disputed
Assessment as a Perfected Compromise. In said motion, she alleged that [the CIR] had not yet
signed the compromise[,] because of procedural red tape requiring the initials of four Deputy
Commissioners on relevant documents before the compromise is signed by the [CIR]. [Reyes]
posited that the absence of the requisite initials and signature[s] on said documents does not vitiate
the perfected compromise.
"Commenting on the motion, [the CIR] countered that[,] without the approval of the NEB, [Reyes’s]
application for compromise with the BIR cannot be considered a perfected or consummated
compromise.
"On March 9, 2001, the CTA denied [Reyes’s] motion, prompting her to file a Motion for
Reconsideration Ad Cautelam. In a [R]esolution dated April 10, 2001, the CTA denied the [M]otion
for [R]econsideration with the suggestion that[,] for an orderly presentation of her case and to
prevent piecemeal resolutions of different issues, [Reyes] should file a [S]upplemental [P]etition for
[R]eview[,] setting forth the new issue of whether there was already a perfected compromise.
"On May 2, 2001, [Reyes] filed a Supplemental Petition for Review with the CTA, followed on June 4,
2001 by its Amplificatory Arguments (for the Supplemental Petition for Review), raising the following
issues:
‘1. Whether or not an offer to compromise by the [CIR], with the acquiescence by the Secretary of
Finance, of a tax liability pending in court, that was accepted and paid by the taxpayer, is a perfected
and consummated compromise.
‘2. Whether this compromise is covered by the provisions of Section 204 of the Tax Code (CTRP)
that requires approval by the BIR [NEB].’
"Answering the Supplemental Petition, [the CIR] averred that an application for compromise of a tax
liability under RR No. 6-2000 and RMO No. 42-2000 requires the evaluation and approval of either
the NEB or the Regional Evaluation Board (or ‘REB’), as the case may be.
"On June 14, 2001, [Reyes] filed a Motion for Judgment on the Pleadings; the motion was granted
on July 11, 2001. After submission of memoranda, the case was submitted for [D]ecision.
"On June 19, 2002, the CTA rendered a [D]ecision, the decretal portion of which pertinently reads:
‘WHEREFORE, in view of all the foregoing, the instant [P]etition for [R]eview is hereby DENIED.
Accordingly, [Reyes] is hereby ORDERED to PAY deficiency estate tax in the amount of Nineteen
Million Five Hundred Twenty Four Thousand Nine Hundred Nine and 78/100 (P19,524,909.78),
computed as follows:
xxxxxxxxx
‘[Reyes] is likewise ORDERED to PAY 20% delinquency interest on deficiency estate tax due
of P17,934,382.13 from January 11, 2001 until full payment thereof pursuant to Section 249(c) of the
Tax Code, as amended.’
"In arriving at its decision, the CTA ratiocinated that there can only be a perfected and consummated
compromise of the estate’s tax liability[,] if the NEB has approved [Reyes’s] application for
compromise in accordance with RR No. 6-2000, as implemented by RMO No. 42-2000.
"Anent the validity of the assessment notice and letter of demand against the estate, the CTA stated
that ‘at the time the questioned assessment notice and letter of demand were issued, the heirs knew
very well the law and the facts on which the same were based.’ It also observed that the petition was
not filed within the 30-day reglementary period provided under Sec. 11 of Rep. Act No. 1125 and
Sec. 228 of the Tax Code."5
Ruling of the Court of Appeals
In partly granting the Petition, the CA said that Section 228 of the Tax Code and RR 12-99 were
mandatory and unequivocal in their requirement. The assessment notice and the demand letter
should have stated the facts and the law on which they were based; otherwise, they were deemed
void.6 The appellate court held that while administrative agencies, like the BIR, were not bound by
procedural requirements, they were still required by law and equity to observe substantive due
process. The reason behind this requirement, said the CA, was to ensure that taxpayers would be
duly apprised of -- and could effectively protest -- the basis of tax assessments against them.7 Since
the assessment and the demand were void, the proceedings emanating from them were likewise
void, and any order emanating from them could never attain finality.
The appellate court added, however, that it was premature to declare as perfected and
consummated the compromise of the estate’s tax liability. It explained that, where the basic tax
assessed exceeded P1 million, or where the settlement offer was less than the prescribed minimum
rates, the National Evaluation Board’s (NEB) prior evaluation and approval were the conditio sine
qua non to the perfection and consummation of any compromise.8 Besides, the CA pointed out,
Section 204(A) of the Tax Code applied to all compromises, whether government-initiated or
not.9 Where the law did not distinguish, courts too should not distinguish.
Hence, this Petition.10
The Issues
In GR No. 159694, petitioner raises the following issues for the Court’s consideration:
"I.
Whether petitioner’s assessment against the estate is valid.

"II.
Whether respondent can validly argue that she, as well as the other heirs, was not aware of the facts
and the law on which the assessment in question is based, after she had opted to propose several
compromises on the estate tax due, and even prematurely acting on such proposal by paying 20%
of the basic estate tax due."11
The foregoing issues can be simplified as follows: first, whether the assessment against the estate is
valid; and, second, whether the compromise entered into is also valid.
The Court’s Ruling
The Petition is unmeritorious.
First Issue:
Validity of the Assessment Against the Estate
The second paragraph of Section 228 of the Tax Code12 is clear and mandatory. It provides as
follows:
"Sec. 228. Protesting of Assessment. --
xxxxxxxxx
"The taxpayers shall be informed in writing of the law and the facts on which the assessment is
made: otherwise, the assessment shall be void."
had simply relied upon the provisions of former Section 22913 prior to its amendment by Republic Act
(RA) No. 8424, otherwise known as the Tax Reform Act of 1997.
old requirement of merely notifying the taxpayer of the CIR’s findings was changed in 1998
to informing the taxpayer of not only the law, but also of the facts on which an assessment would be
made; otherwise, the assessment itself would be invalid.
longer sufficient under the new law.
To be simply informed in writing of the investigation being conducted and of the recommendation for
the assessment of the estate taxes due is nothing but a perfunctory discharge of the tax function of
correctly assessing a taxpayer. The act cannot be taken to mean that Reyes already knew the law
and the facts on which the assessment was based. It does not at all conform to the compulsory
requirement under Section 228. Moreover, the Letter of Authority received by respondent on March
14, 1997 was for the sheer purpose of investigation and was not even the requisite notice under the
law.
The procedure for protesting an assessment under the Tax Code is found in Chapter III of Title VIII,
which deals with remedies. Being procedural in nature, can its provision then be applied
retroactively? The answer is yes.
The general rule is that statutes are prospective. However, statutes that are remedial, or that do not
create new or take away vested rights, do not fall under the general rule against the retroactive
operation of statutes.14 Clearly, Section 228 provides for the procedure in case an assessment is
protested. The provision does not create new or take away vested rights. In both instances, it can
surely be applied retroactively. Moreover, RA 8424 does not state, either expressly or by necessary
implication, that pending actions are excepted from the operation of Section 228, or that applying it
to pending proceedings would impair vested rights.
Second, the non-retroactive application of Revenue Regulation (RR) No. 12-99 is of no moment,
considering that it merely implements the law.
A tax regulation is promulgated by the finance secretary to implement the provisions of the Tax
Code.15 While it is desirable for the government authority or administrative agency to have one
immediately issued after a law is passed, the absence of the regulation does not automatically mean
that the law itself would become inoperative.
At the time the pre-assessment notice was issued to Reyes, RA 8424 already stated that the
taxpayer must be informed of both the law and facts on which the assessment was based. Thus, the
CIR should have required the assessment officers of the Bureau of Internal Revenue (BIR) to follow
the clear mandate of the new law. The old regulation governing the issuance of estate tax
assessment notices ran afoul of the rule that tax regulations -- old as they were -- should be in
harmony with, and not supplant or modify, the law.16
It may be argued that the Tax Code provisions are not self-executory. It would be too wide a stretch
of the imagination, though, to still issue a regulation that would simply require tax officials to inform
the taxpayer, in any manner, of the law and the facts on which an assessment was based. That
requirement is neither difficult to make nor its desired results hard to achieve.
Moreover, an administrative rule interpretive of a statute, and not declarative of certain rights and
corresponding obligations, is given retroactive effect as of the date of the effectivity of the
statute.17 RR 12-99 is one such rule. Being interpretive of the provisions of the Tax Code, even if it
was issued only on September 6, 1999, this regulation was to retroact to January 1, 1998 -- a date
prior to the issuance of the preliminary assessment notice and demand letter.
Third, neither Section 229 nor RR 12-85 can prevail over Section 228 of the Tax Code.
No doubt, Section 228 has replaced Section 229. The provision on protesting an assessment has
been amended. Furthermore, in case of discrepancy between the law as amended and its
implementing but old regulation, the former necessarily prevails.18 Thus, between Section 228 of the
Tax Code and the pertinent provisions of RR 12-85, the latter cannot stand because it cannot go
beyond the provision of the law. The law must still be followed, even though the existing tax
regulation at that time provided for a different procedure. The regulation then simply provided that
notice be sent to the respondent in the form prescribed, and that no consequence would ensue for
failure to comply with that form.
Fourth, petitioner violated the cardinal rule in administrative law that the taxpayer be accorded due
process. Not only was the law here disregarded, but no valid notice was sent, either. A void
assessment bears no valid fruit.
The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly with tax
collection without first establishing a valid assessment is evidently violative of the cardinal principle
in administrative investigations: that taxpayers should be able to present their case and adduce
supporting evidence.19 In the instant case, respondent has not been informed of the basis of the
estate tax liability. Without complying with the unequivocal mandate of first informing the taxpayer of
the government’s claim, there can be no deprivation of property, because no effective protest can be
made.20 The haphazard shot at slapping an assessment, supposedly based on estate taxation’s
general provisions that are expected to be known by the taxpayer, is utter chicanery.
Even a cursory review of the preliminary assessment notice, as well as the demand letter sent,
reveals the lack of basis for -- not to mention the insufficiency of -- the gross figures and details of
the itemized deductions indicated in the notice and the letter. This Court cannot countenance an
assessment based on estimates that appear to have been arbitrarily or capriciously arrived at.
Although taxes are the lifeblood of the government, their assessment and collection "should be
made in accordance with law as any arbitrariness will negate the very reason for government itself."21
Fifth, the rule against estoppel does not apply. Although the government cannot be estopped by the
negligence or omission of its agents, the obligatory provision on protesting a tax assessment cannot
be rendered nugatory by a mere act of the CIR .
Tax laws are civil in nature.22 Under our Civil Code, acts executed against the mandatory provisions
of law are void, except when the law itself authorizes the validity of those acts.23 Failure to comply
with Section 228 does not only render the assessment void, but also finds no validation in any
provision in the Tax Code. We cannot condone errant or enterprising tax officials, as they are
expected to be vigilant and law-abiding.
Second Issue:
Validity of Compromise
It would be premature for this Court to declare that the compromise on the estate tax liability has
been perfected and consummated, considering the earlier determination that the assessment
against the estate was void. Nothing has been settled or finalized. Under Section 204(A) of the Tax
Code, where the basic tax involved exceeds one million pesos or the settlement offered is less than
the prescribed minimum rates, the compromise shall be subject to the approval of the NEB
composed of the petitioner and four deputy commissioners.
Finally, as correctly held by the appellate court, this provision applies to all compromises, whether
government-initiated or not. Ubi lex non distinguit, nec nos distinguere debemos. Where the law
does not distinguish, we should not distinguish.
WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED. No
pronouncement as to costs.
SO ORDERED.
SECOND DIVISION
BANK OF THE PHILIPPINE ISLANDS, G.R. No. 139736
P e t i t i o n e r, Present:

PUNO,
Chairman
AUSTRIA-MARTINEZ,
- versus- CALLEJO, SR.,
TINGA, and
CHICO-NAZARIO, JJ .

Promulgated:
COMMISSIONER OF INTERNAL
REVENUE,
October 17, 2005
Respondent.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
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 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 P28,020.00 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:

P 18,480,000.00 x P0.30 (Sec. 182 NIRC). 27,720.00
P200.00

Add: Suggested compromise penalty. 300.00

TOTAL AMOUNT DUE AND COLLECTIBLE. P 28,020.00

Petitioner BPI received the Assessment, together with the attached Assessment
Notice, [4] on 20 October 1989.
Petitioner BPI, through its counsel, protested the Assessment in a letter dated 16 November 1989,
and filed with the BIR on 17 November 1989. The said protest letter is reproduced in full below '
November 16, 1989
The Commissioner of Internal Revenue
Quezon City
Attention of: Mr. Pedro C. Aguillon
Asst. Commissioner for Collection
Sir:
On behalf of our client, Bank of the Philippine Islands (BPI), we have

the honor to protest your assessment against it for deficiency
documentary stamp tax for the year 1985 in the amount
of P28,020.00, 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 Levy [6] against petitioner BPI for the assessed
deficiency DST for taxable year 1985, in the amount of P27,720.00 (excluding the compromise penalty
of P300.00). It served the Warrant on petitioner BPI only on 23 October 1992. [7]
Then again, petitioner BPI did not hear from the BIR until 11 September 1997, when its counsel
received a letter, dated 13 August 1997, signed by then BIR Commissioner Liwayway Vinzons-Chato,
denying its' 'request for reconsideration, and addressing the points raised by petitioner BPI in its
protest letter, dated 16 November 1989, thus '

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

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

1. BIR Unnumbered Ruling dated May 30, 1977 '

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

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

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

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

Upon receipt of the above-cited letter from the BIR, petitioner BPI proceeded to file a Petition for
Review with the CTA on 10 October 1997; [9] to which respondent BIR Commissioner, represented by
the Office of the Solicitor General, filed an Answer on 08 December 1997. [10]
Petitioner BPI raised in its Petition for Review before the CTA, in addition to the arguments presented
in its protest letter, dated 16 November 1989, the defense of prescription of the right of respondent
BIR Commissioner to enforce collection of the assessed amount. It alleged that respondent BIR
Commissioner only had three years to collect on Assessment No. FAS-5-85-89-002054, but she waited
for seven years and nine months to deny the protest. In her Answer and subsequent Memorandum,
respondent BIR Commissioner merely reiterated her position, as stated in her letter to petitioner BPI,
dated 13 August 1997, which denied the latter's protest; and remained silent as to the expiration of
the prescriptive period for collection of the assessed deficiency DST.
After due trial, the CTA rendered a Decision on 02 February 1999, in which it identified two primary
issues in the controversy between petitioner BPI and respondent BIR Commissioner: (1) whether or
not the right of respondent BIR Commissioner to collect from petitioner BPI the alleged deficiency DST
for taxable year 1985 had prescribed; and (2) whether or not the sales of US$1,000,000.00 on 06
June 1985 and 14 June 1985 by petitioner BPI to the Central Bank were subject to DST.
The CTA answered the first issue in the negative and held that the statute of limitations for respondent
BIR Commissioner to collect on the Assessment had not yet prescribed. In resolving the issue of
prescription, the CTA reasoned that '

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

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

Section 320 (now 223) of the Tax Code, clearly states that a request
for reinvestigation which is granted by the Commissioner, shall
suspend the prescriptive period to collect. The underscored portion
above does not mean that the Commissioner will cancel the subject
assessment but should be construed as when the same was
entertained by the Commissioner by not issuing any warrant of
distraint or levy on the properties of the taxpayer or any action
prejudicial to the latter unless and until the request for reinvestigation
is finally given due course. Taking into consideration this provision of
law and the aforementioned ruling of the Supreme Court in Wyeth
Suaco which specifically and categorically states that a protest could
be considered as a request for reinvestigation, We rule that
prescription has not set in against the government. [11]
The CTA had likewise resolved the second issue in the negative. Referring to its own decision in an
earlier case, Consolidated Bank & Trust Co. v. The Commissioner of Internal Revenue, [12] the CTA
reached the conclusion that the sales of foreign currency by petitioner BPI to the Central Bank in
taxable year 1985 were not subject to DST '
From the abovementioned decision of this Court, it can be gleaned that

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

Applying the above decision to the case at bar, petitioner cannot be
held liable for DST on its 1985 sales of foreign currencies to the
Central Bank, as the latter who is the purchaser of the subject
currencies is the one liable thereof. However, since the Central Bank is
exempt from all taxes during 1985 by virtue of Resolution No. 35-85 of
the Fiscal Incentive Review Board dated March 3, 1985, neither the
petitioner nor the Central Bank is liable for the payment of the
documentary stamp tax for the former's 1985 sales of foreign
currencies to the latter. This aforecited case of Consolidated Bank vs.
Commissioner of Internal Revenue was affirmed by the Court of
Appeals in its decision dated March 31, 1995, CA-GR Sp. No. 35930.
Said decision was in turn affirmed by the Supreme Court in its
resolution denying the petition filed by Consolidated Bank dated
November 20, 1995 with the Supreme Court under Entry of Judgment
dated March 1, 1996. [13]

In sum, the CTA decided that the statute of limitations for respondent BIR Commissioner to collect on
Assessment No. FAS-5-85-89-002054 had not yet prescribed; nonetheless, it still ordered the
cancellation of the said Assessment because the sales of foreign currency by petitioner BPI to the
Central Bank in taxable year 1985 were tax-exempt.
Herein respondent BIR Commissioner appealed the Decision of the CTA to the Court of Appeals. In its
Decision dated 11 August 1999, [14] the Court of Appeals sustained the finding of the CTA on the first
issue, that the running of the prescriptive period for collection on Assessment No. FAS-5-85-89-
002054 was suspended when herein petitioner BPI filed a protest on 17 November 1989 and,
therefore, the prescriptive period for collection on the Assessment had not yet lapsed. In the same
Decision, however, the Court of Appeals reversed the CTA on the second issue and basically adopted
the position of the respondent BIR Commissioner that the sales of foreign currency by petitioner BPI
to the Central Bank in taxable year 1985 were subject to DST. The Court of Appeals, thus, ordered the
reinstatement of Assessment No. FAS-5-85-89-002054 which required petitioner BPI to pay the
amount of P28,020.00 as deficiency DST for taxable year 1985, inclusive of the compromise penalty.
Comes now petitioner BPI before this Court in this Petition for Review on Certiorari, seeking resolution
of the same two legal issues raised and discussed in the courts below, to reiterate: (1) whether or not
the right of respondent BIR Commissioner to collect from petitioner BPI the alleged deficiency DST for
taxable year 1985 had prescribed; and (2) whether or not the sales of US$1,000,000.00 on 06 June
1985 and 14 June 1985 by petitioner BPI to the Central Bank were subject to DST.
The efforts of respondent Commissioner to collect on Assessment No. FAS-5-85-89-

002054 were already barred by prescription.

Anent the question of prescription, this Court disagrees in the Decisions of the CTA and the Court of
Appeals, and herein determines the statute of limitations on collection of the deficiency DST in
Assessment No. FAS-5-85-89-002054 had already prescribed.

The period for the BIR to assess and collect an internal revenue tax is limited to three years by
Section 203 of the Tax Code of 1977, as amended, [15] which provides that '

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

The three-year period of limitations on the assessment and collection of national internal revenue
taxes set by Section 203 of the Tax Code of 1977, as amended, can be affected, adjusted, or
suspended, in accordance with the following provisions of the same Code '
SEC. 223. ' Exceptions as to period of limitation of assessment and

collection of taxes. ' (a) In the case of a false or fraudulent return with
intent to evade tax or of failure to file a return, the tax may be
assessed, or a proceeding in court for the collection of such tax may
be begun without assessment, at any time within ten years after the
discovery of the falsity, fraud, or omission: Provided, That in a fraud
assessment which has become final and executory, the fact of fraud
shall be judicially taken cognizance of in the civil or criminal action for
the collection thereof.

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

(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 years [19] after the assessment within which to collect the national internal
revenue tax due thereon by distraint, levy, and/or court proceeding. The assessment of the tax is
deemed made and the three-year period for collection of the assessed tax begins to run on the date
the assessment notice had been released, mailed or sent by the BIR to the taxpayer. [20]

In the present Petition, there is no controversy on the timeliness of the issuance of the Assessment,
only on the prescription of the period to collect the deficiency DST following its Assessment. While
Assessment No. FAS-5-85-89-002054 and its corresponding Assessment Notice were both dated 10
October 1989 and were received by petitioner BPI on 20 October 1989, there was no showing as to
when the said Assessment and Assessment Notice were released, mailed or sent by the BIR. Still, it
can be granted that the latest date the BIR could have released, mailed or sent the Assessment and
Assessment Notice to petitioner BPI was on the same date they were received by the latter, on 20
October 1989. Counting the three-year prescriptive period, for a total of 1,095 days, [21] from 20
October 1989, then the BIR only had until 19 October 1992 within which to collect the assessed
deficiency DST.
The earliest attempt of the BIR to collect on Assessment No. FAS-5-85-89-002054 was its issuance
and service of a Warrant of Distraint and/or Levy on petitioner BPI. Although the Warrant was issued
on 15 October 1992, previous to the expiration of the period for collection on 19 October 1992, the
same was served on petitioner BPI only on 23 October 1992.
Under Section 223(c) of the Tax Code of 1977, as amended, it is not essential that the Warrant of
Distraint and/or Levy be fully executed so that it can suspend the running of the statute of limitations
on the collection of the tax. It is enough that the proceedings have validly began or commenced and
that their execution has not been suspended by reason of the voluntary desistance of the respondent
BIR Commissioner. Existing jurisprudence establishes that distraint and levy proceedings are validly
begun or commenced by the issuance of the Warrant and service thereof on the taxpayer. [22] It is
only logical to require that the Warrant of Distraint and/or Levy be, at the very least, served upon the
taxpayer in order to suspend the running of the prescriptive period for collection of an assessed tax,
because it may only be upon the service of the Warrant that the taxpayer is informed of the denial by
the BIR of any pending protest of the said taxpayer, and the resolute intention of the BIR to collect
the tax assessed.

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

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

In their Decisions, both the CTA and the Court of Appeals found that the filing by petitioner BPI of a
protest letter suspended the running of the prescriptive period for collecting the assessed DST. This
Court, however, takes the opposing view, and, based on the succeeding discussion, concludes that
there is no valid ground for suspending the running of the prescriptive period for collection of the
deficiency DST assessed against petitioner BPI.
A. The statute of limitations on assessment and collection of taxes is for the protection of the taxpayer
and, thus, shall be construed liberally in his favor.
Though the statute of limitations on assessment and collection of national internal revenue taxes
benefits both the Government and the taxpayer, it principally intends to afford protection to the
taxpayer against unreasonable investigation. The indefinite extension of the period for assessment is
unreasonable because it deprives the said taxpayer of the assurance that he will no longer be
subjected to further investigation for taxes after the expiration of a reasonable period of time. [24] As
aptly explained in Republic of the Philippines v. Ablaza [25]

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 224 [26] thereof the
circumstances when the prescriptive periods for assessing and collecting taxes could be suspended or
interrupted.
To give effect to the legislative intent, these provisions on the statute of limitations on assessment
and collection of taxes shall be construed and applied liberally in favor of the taxpayer and strictly
against the Government.
B. The statute of limitations on assessment and collection of national internal revenue taxes may be
waived, subject to certain conditions, under paragraphs (b) and (d) of Section 223 of the Tax
Code of 1977, as amended, respectively. Petitioner BPI, however, did not execute any such
waiver in the case at bar.

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

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

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

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

The agreements so described in the afore-quoted provisions are often referred to as waivers of the
statute of limitations. The waiver of the statute of limitations, whether on assessment or collection,
should not be construed as a waiver of the right to invoke the defense of prescription but, rather, an
agreement between the taxpayer and the BIR to extend the period to a date certain, within which the
latter could still assess or collect taxes due. The waiver does not mean that the taxpayer relinquishes
the right to invoke prescription unequivocally. [28]
A valid waiver of the statute of limitations under paragraphs (b) and (d) of Section 223 of the Tax
Code of 1977, as amended, must be: (1) in writing; (2) agreed to by both the Commissioner and the
taxpayer; (3) before the expiration of the ordinary prescriptive periods for assessment and collection;
and (4) for a definite period beyond the ordinary prescriptive periods for assessment and collection.
The period agreed upon can still be extended by subsequent written agreement, provided that it is
executed prior to the expiration of the first period agreed upon. The BIR had issued Revenue
Memorandum Order (RMO) No. 20-90 on 04 April 1990 to lay down an even more detailed procedure
for the proper execution of such a waiver. RMO No. 20-90 mandates that the procedure for execution
of the waiver shall be strictly followed, and any revenue official who fails to comply therewith resulting
in the prescription of the right to assess and collect shall be administratively dealt with.
This Court had consistently ruled in a number of cases that a request for reconsideration or
reinvestigation by the taxpayer, without a valid waiver of the prescriptive periods for the assessment
and collection of tax, as required by the Tax Code and implementing rules, will not suspend the
running thereof. [29]
In the Petition at bar, petitioner BPI executed no such waiver of the statute of limitations on the
collection of the deficiency DST per Assessment No. FAS-5-85-89-002054. In fact, an internal
memorandum of the Chief of the Legislative, Ruling & Research Division of the BIR to her counterpart
in the Collection Enforcement Division, dated 15 October 1992, expressly noted that, 'The taxpayer
fails to execute a Waiver of the Statute of Limitations extending the period of collection of the said tax
up to December 31, 1993 pending reconsideration of its protest. . . [30] Without a valid waiver, the
statute of limitations on collection by the BIR of the deficiency DST could not have been suspended
under paragraph (d) of Section 223 of the Tax Code of 1977, as amended.
C. The protest filed by petitioner BPI did not constitute a request for reinvestigation, granted by the
respondent BIR Commissioner, which could have suspended the running of the statute of
limitations on collection of the assessed deficiency DST under Section 224 of the Tax Code of
1977, as amended.
The Tax Code of 1977, as amended, also recognizes instances when the running of the statute of
limitations on the assessment and collection of national internal revenue taxes could be suspended,
even in the absence of a waiver, under Section 224 thereof, which reads '

SEC. 224. Suspension of running of statute. ' The running of the
statute of limitation provided in Section[s] 203 and 223 on the making
of assessment and the beginning of distraint or levy or a proceeding in
court for collection, in respect of any deficiency, shall be suspended for
the period during which the Commissioner is prohibited from making
the assessment or beginning distraint or levy or a proceeding in court
and for sixty days thereafter; when the taxpayer requests for a
reinvestigation which is granted by the Commissioner; when the
taxpayer cannot be located in the address given by him in the return
filed upon which a tax is being assessed or collected: Provided, That, if
the taxpayer informs the Commissioner of any change in address, the
running of the statute of limitations will not be suspended; when the
warrant of distraint and levy is duly served upon the taxpayer, his
authorized representative, or a member of his household with
sufficient discretion, and no property could be located; and when the
taxpayer is out of the Philippines. [31]

Of particular importance to the present case is one of the circumstances enumerated in Section 224 of
the Tax Code of 1977, as amended, wherein the running of the statute of limitations on assessment
and collection of taxes is considered suspended 'when the taxpayer requests for a reinvestigation
which is granted by the Commissioner.
This Court gives credence to the argument of petitioner BPI that there is a distinction between a
request for reconsideration and a request for reinvestigation. Revenue Regulations (RR) No. 12-85,
issued on 27 November 1985 by the Secretary of Finance, upon the recommendation of the BIR
Commissioner, governs the procedure for protesting an assessment and distinguishes between the
two types of protest, as follows '
PROTEST TO ASSESSMENT

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

For the purpose of the protest herein '

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

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

With the issuance of RR No. 12-85 on 27 November 1985 providing the above-quoted distinctions
between a request for reconsideration and a request for reinvestigation, the two types of protest can
no longer be used interchangeably and their differences so lightly brushed aside. It bears to
emphasize that under Section 224 of the Tax Code of 1977, as amended, the running of the
prescriptive period for collection of taxes can only be suspended by a request for reinvestigation ,
not a request for reconsideration. Undoubtedly, a reinvestigation, which entails the reception and
evaluation of additional evidence, will take more time than a reconsideration of a tax assessment,
which will be limited to the evidence already at hand; this justifies why the former can suspend the
running of the statute of limitations on collection of the assessed tax, while the latter can not.
The protest letter of petitioner BPI, dated 16 November 1989 and filed with the BIR the next day, on
17 November 1989, did not specifically request for either a reconsideration or reinvestigation. A close
review of the contents thereof would reveal, however, that it protested Assessment No. FAS-5-85-89-
002054 based on a question of law, in particular, whether or not petitioner BPI was liable for DST on
its sales of foreign currency to the Central Bank in taxable year 1985. The same protest letter did not
raise any question of fact; neither did it offer to present any new evidence. In its own letter to
petitioner BPI, dated 10 September 1992, the BIR itself referred to the protest of petitioner BPI as a
request for reconsideration. [32] These considerations would lead this Court to deduce that the
protest letter of petitioner BPI was in the nature of a request for reconsideration, rather than a
request for reinvestigation and, consequently, Section 224 of the Tax Code of 1977, as amended, on
the suspension of the running of the statute of limitations should not apply.

Even if, for the sake of argument, this Court glosses over the distinction between a request for
reconsideration and a request for reinvestigation, and considers the protest of petitioner BPI as a
request for reinvestigation, the filing thereof could not have suspended at once the running of the
statute of limitations. Article 224 of the Tax Code of 1977, as amended, very plainly requires that the
request for reinvestigation had been granted by the BIR Commissioner to suspend the running of
the prescriptive periods for assessment and collection.
That the BIR Commissioner must first grant the request for reinvestigation as a requirement for
suspension of the statute of limitations is even supported by existing jurisprudence.
In the case of Republic of the Philippines v. Gancayco, [33] taxpayer Gancayco requested for a
thorough reinvestigation of the assessment against him and placed at the disposal of the Collector of
Internal Revenue all the evidences he had for such purpose; yet, the Collector ignored the request,
and the records and documents were not at all examined. Considering the given facts, this Court
pronounced that '
. . .The act of requesting a reinvestigation alone does not

suspend the period. The request should first be granted, in
order to effect suspension. (Collector vs. Suyoc Consolidated,
supra; also Republic vs. Ablaza, supra). Moreover, the Collector gave
appellee until April 1, 1949, within which to submit his evidence, which
the latter did one day before. There were no impediments on the part
of the Collector to file the collection case from April 1, 1949. . . . [34]

In Republic of the Philippines v. Acebedo, [35] this Court similarly found that '

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

The burden of proof that the taxpayer's request for reinvestigation had been actually granted shall be
on respondent BIR Commissioner. The grant may be expressed in communications with the taxpayer
or implied from the actions of the respondent BIR Commissioner or his authorized BIR representatives
in response to the request for reinvestigation.
In Querol v. Collector of Internal Revenue, [36] the BIR, after receiving the protest letters of taxpayer
Querol, sent a tax examiner to San Fernando, Pampanga, to conduct the reinvestigation; as a result of
which, the original assessment against taxpayer Querol was revised by permitting him to deduct
reasonable depreciation. In another case, Republic of the Philippines v. Lopez, [37] taxpayer Lopez
filed a total of four petitions for reconsideration and reinvestigation. The first petition was denied by
the BIR. The second and third petitions were granted by the BIR and after each reinvestigation, the
assessed amount was reduced. The fourth petition was again denied and, thereafter, the BIR filed a
collection suit against taxpayer Lopez. When the taxpayers spouses Sison, in Commissioner of
Internal Revenue v. Sison, [38] contested the assessment against them and asked for a
reinvestigation, the BIR ordered the reinvestigation resulting in the issuance of an amended
assessment. Lastly, in Republic of the Philippines v. Oquias, [39] the BIR granted taxpayer Oquias's
request for reinvestigation and duly notified him of the date when such reinvestigation would be held;
only, neither taxpayer Oquias nor his counsel appeared on the given date.
In all these cases, the request for reinvestigation of the assessment filed by the taxpayer was
evidently granted and actual reinvestigation was conducted by the BIR, which eventually resulted in
the issuance of an amended assessment. On the basis of these facts, this Court ruled in the same
cases that the period between the request for reinvestigation and the revised assessment should be
subtracted from the total prescriptive period for the assessment of the tax; and, once the assessment
had been reconsidered at the taxpayer's instance, the period for collection should begin to run from
the date of the reconsidered or modified assessment. [40]

The rulings of the foregoing cases do not apply to the present Petition because: (1) the protest filed
by petitioner BPI was a request for reconsideration, not a reinvestigation, of the assessment against
it; and (2) even granting that the protest of petitioner BPI was a request for reinvestigation, there was
no showing that it was granted by respondent BIR Commissioner and that actual reinvestigation had
been conducted.
Going back to the administrative records of the present case, it would seem that the BIR, after
receiving a copy of the protest letter of petitioner BPI on 17 November 1989, did not attempt to
communicate at all with the latter until 10 September 1992, less than a month before the prescriptive
period for collection on Assessment No. FAS-5-85-89-002054 was due to expire. There were internal
communications, mostly indorsements of the docket of the case from one BIR division to another; but
these hardly fall within the same sort of acts in the previously discussed cases that satisfactorily
demonstrated the grant of the taxpayer's request for reinvestigation. Petitioner BPI, in the meantime,
was left in the dark as to the status of its protest in the absence of any word from the BIR. Besides, in
its letter to petitioner BPI, dated 10 September 1992, the BIR unwittingly admitted that it had not yet
acted on the protest of the former '
This refers to your protest against and/or request for reconsideration

of the assessment/s of this Office against you involving the amount
of P28,020.00 under FAS-5-85-89-002054 dated October 23, 1989 as
deficiency documentary stamp tax inclusive of compromise penalty for
the year 1985.

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

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

DST from petitioner BPI does not find support in jurisprudence.

It is the position of respondent BIR Commissioner, affirmed by the CTA and the Court of Appeals, that
the three-year prescriptive period for collecting on Assessment No. FAS-5-85-89-002054 had not yet
prescribed, because the said prescriptive period was suspended, invoking the case of Commissioner of
Internal Revenue v. Wyeth Suaco Laboratories, Inc. [42] It was in this case in which this Court ruled
that the prescriptive period provided by law to make a collection is interrupted once a taxpayer
requests for reinvestigation or reconsideration of the assessment.
Petitioner BPI, on the other hand, is requesting this Court to revisit the Wyeth Suaco case contending
that it had unjustifiably expanded the grounds for suspending the prescriptive period for collection of
national internal revenue taxes.
This Court finds that although there is no compelling reason to abandon its decision in the Wyeth
Suaco case, the said case cannot be applied to the particular facts of the Petition at bar.
A. The only exception to the statute of limitations on collection of taxes, other than those already
provided in the Tax Code, was recognized in the Suyoc case.
As had been previously discussed herein, the statute of limitations on assessment and collection of
national internal revenue taxes may be suspended if the taxpayer executes a valid waiver thereof, as
provided in paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended; and in
specific instances enumerated in Section 224 of the same Code, which include a request for
reinvestigation granted by the BIR Commissioner. Outside of these statutory provisions, however, this
Court also recognized one other exception to the statute of limitations on collection of taxes in the
case of Collector of Internal Revenue v. Suyoc Consolidated Mining Co. [43]
In the said case, the Collector of Internal Revenue issued an assessment against taxpayer Suyoc
Consolidated Mining Co. on 11 February 1947 for deficiency income tax for the taxable year 1941.
Taxpayer Suyoc requested for at least a year within which to pay the amount assessed, but at the
same time, reserving its right to question the correctness of the assessment before actual payment.
The Collector granted taxpayer Suyoc an extension of only three months to pay the assessed tax.
When taxpayer Suyoc failed to pay the assessed tax within the extended period, the Collector sent it a
demand letter, dated 28 November 1950. Upon receipt of the demand letter, taxpayer Suyoc asked
for a reinvestigation and reconsideration of the assessment, but the Collector denied the request.
Taxpayer Suyoc reiterated its request for reconsideration on 25 April 1952, which was denied again by
the Collector on 06 May 1953. Taxpayer Suyoc then appealed the denial to the Conference Staff. The
Conference Staff heard the appeal from 02 September 1952 to 16 July 1955, and the negotiations
resulted in the reduction of the assessment on 26 July 1955. It was the collection of the reduced
assessment that was questioned before this Court for being enforced beyond the prescriptive
period. [44]
In resolving the issue on prescription, this Court ratiocinated thus '

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

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

By the principle of estoppel, taxpayer Suyoc was not allowed to raise the defense of prescription
against the efforts of the Government to collect the tax assessed against it. This Court adopted the
following principle from American jurisprudence: 'He who prevents a thing from being done may not
avail himself of the nonperformance which he has himself occasioned, for the law says to him in effect
'this is your own act, and therefore you are not damnified. [46]
In the Suyoc case, this Court expressly conceded that a mere request for reconsideration or
reinvestigation of an assessment may not suspend the running of the statute of limitations. It affirmed
the need for a waiver of the prescriptive period in order to effect suspension thereof. However, even
without such waiver, the taxpayer may be estopped from raising the defense of prescription because
by his repeated requests or positive acts, he had induced Government authorities to delay collection of
the assessed tax.
Based on the foregoing, petitioner BPI contends that the declaration made in the later case of Wyeth
Suaco, that the statute of limitations on collection is suspended once the taxpayer files a request for
reconsideration or reinvestigation, runs counter to the ruling made by this Court in the Suyoc case.

B. Although this Court is not compelled to abandon its decision in the Wyeth Suaco case, it finds that
Wyeth Suaco is not applicable to the Petition at bar because of the distinct facts involved
herein.
In the case of Wyeth Suaco, taxpayer Wyeth Suaco was assessed for failing to
remit withholding taxes on royalties and dividend declarations, as well as, for
deficiency sales tax. The BIR issued two assessments, dated 16 December 1974
and 17 December 1974, both received by taxpayer Wyeth Suaco on 19 December
1974. Taxpayer Wyeth Suaco, through its tax consultant, SGV & Co., sent to the
BIR two letters, dated 17 January 1975 and 08 February 1975, protesting the
assessments and requesting their cancellation or withdrawal on the ground that
said assessments lacked factual or legal basis. On 12 September 1975, the BIR
Commissioner advised taxpayer Wyeth Suaco to avail itself of the compromise
settlement being offered under Letter of Instruction No. 308. Taxpayer Wyeth
Suaco manifested its conformity to paying a compromise amount, but subject to
certain conditions; though, apparently, the said compromise amount was never
paid. On 10 December 1979, the BIR Commissioner rendered a decision reducing
the assessment for deficiency withholding tax against taxpayer Wyeth Suaco, but
maintaining the assessment for deficiency sales tax. It was at this point when
taxpayer Wyeth Suaco brought its case before the CTA to enjoin the BIR from
enforcing the assessments by reason of prescription. Although the CTA decided in
favor of taxpayer Wyeth Suaco, it was reversed by this Court when the case was
brought before it on appeal. According to the decision of this Court '
Settled is the rule that the prescriptive period provided by law to make a collection by
distraint or levy or by a proceeding in court is interrupted once a taxpayer requests for
reinvestigation or reconsideration of the assessment. . .
...

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

These letters of Wyeth Suaco interrupted the running of the five-year prescriptive
period to collect the deficiency taxes. The Bureau of Internal Revenue, after
having reviewed the records of Wyeth Suaco, in accordance with its request
for reinvestigation, rendered a final assessment It was only upon receipt by
Wyeth Suaco of this final assessment that the five-year prescriptive period started to
run again. [47]

The foremost criticism of petitioner BPI of the Wyeth Suaco decision is directed at the statement made
therein that, 'settled is the rule that the prescriptive period provided by law to make a collection by
distraint or levy or by a proceeding in court is interrupted once a taxpayer requests for reinvestigation
or reconsideration of the assessment. [48] It would seem that both petitioner BPI and respondent BIR
Commissioner, as well as, the CTA and Court of Appeals, take the statement to mean that the filing
alone of the request for reconsideration or reinvestigation can already interrupt or suspend the
running of the prescriptive period on collection. This Court therefore takes this opportunity to clarify
and qualify this statement made in the Wyeth Suaco case. While it is true that, by itself, such
statement would appear to be a generalization of the exceptions to the statute of limitations on
collection, it is best interpreted in consideration of the particular facts of the Wyeth Suaco case and
previous jurisprudence.
The Wyeth Suaco case cannot be in conflict with the Suyoc case because there are

substantial differences in the factual backgrounds of the two cases. The Suyoc case
refers to a situation where there were repeated requests or positive acts performed
by the taxpayer that convinced the BIR to delay collection of the assessed tax. This
Court pronounced therein that the repeated requests or positive acts of the
taxpayer prevented or estopped it from setting up the defense of prescription
against the Government when the latter attempted to collect the assessed tax. In
the Wyeth Suaco case, taxpayer Wyeth Suaco filed a request for reinvestigation,
which was apparently granted by the BIR and, consequently, the prescriptive period
was indeed suspended as provided under Section 224 of the Tax Code of 1977, as
amended. [49]
To reiterate, Section 224 of the Tax Code of 1977, as amended, identifies specific circumstances when
the statute of limitations on assessment and collection may be interrupted or suspended, among
which is a request for reinvestigation that is granted by the BIR Commissioner. The act of filing a
request for reinvestigation alone does not suspend the period; such request must be
granted. [50] The grant need not be express, but may be implied from the acts of the BIR
Commissioner or authorized BIR officials in response to the request for reinvestigation. [51]
This Court found in the Wyeth Suaco case that the BIR actually conducted a reinvestigation, in
accordance with the request of the taxpayer Wyeth Suaco, which resulted in the reduction of the
assessment originally issued against it. Taxpayer Wyeth Suaco was also aware that its request for
reinvestigation was granted, as written by its Finance Manager in a letter dated 01 July 1975,
addressed to the Chief of the Tax Accounts Division, wherein he admitted that, '[a]s we understand,
the matter is now undergoing review and consideration by your Manufacturing Audit Division The
statute of limitations on collection, then, started to run only upon the issuance and release of the
reduced assessment.
The Wyeth Suaco case, therefore, is correct in declaring that the prescriptive period for collection is
interrupted or suspended when the taxpayer files a request for reinvestigation, provided that, as
clarified and qualified herein, such request is granted by the BIR Commissioner.
Thus, this Court finds no compelling reason to abandon its decision in the Wyeth
Suaco case. It also now rules that the said case is not applicable to the Petition at
bar because of the distinct facts involved herein. As already heretofore determined
by this Court, the protest filed by petitioner BPI was a request for reconsideration,
which merely required a review of existing evidence and the legal basis for the
assessment. Respondent BIR Commissioner did not require, neither did petitioner
BPI offer, additional evidence on the matter. After petitioner BPI filed its request for
reconsideration, there was no other communication between it and respondent BIR
Commissioner or any of the authorized representatives of the latter. There was no
showing that petitioner BPI was informed or aware that its request for
reconsideration was granted or acted upon by the BIR.
IV
Conclusion
To summarize all the foregoing discussion, this Court lays down the following rules
on the exceptions to the statute of limitations on collection.
The statute of limitations on collection may only be interrupted or suspended by a

valid waiver executed in accordance with paragraph (d) of Section 223 of the Tax
Code of 1977, as amended, and the existence of the circumstances enumerated in
Section 224 of the same Code, which include a request for reinvestigation granted
by the BIR Commissioner.
Even when the request for reconsideration or reinvestigation is not accompanied by

a valid waiver or there is no request for reinvestigation that had been granted by
the BIR Commissioner, the taxpayer may still be held in estoppel and be prevented
from setting up the defense of prescription of the statute of limitations on collection
when, by his own repeated requests or positive acts, the Government had been, for
good reasons, persuaded to postpone collection to make the taxpayer feel that the
demand is not unreasonable or that no harassment or injustice is meant by the
Government, as laid down by this Court in the Suyoc case.
Applying the given rules to the present Petition, this Court finds that '
(a) The statute of limitations for collection of the deficiency DST in Assessment No.
FAS-5-85-89-002054, issued against petitioner BPI, had already expired; and
(b) None of the conditions and requirements for exception from the statute of
limitations on collection exists herein: Petitioner BPI did not execute any waiver of
the prescriptive period on collection as mandated by paragraph (d) of Section 223
of the Tax Code of 1977, as amended; the protest filed by petitioner BPI was a
request for reconsideration, not a request for reinvestigation that was granted by
respondent BIR Commissioner which could have suspended the prescriptive period
for collection under Section 224 of the Tax Code of 1977, as amended; and,
petitioner BPI, other than filing a request for reconsideration of Assessment No.
FAS-5-85-89-002054, did not make repeated requests or performed positive acts
that could have persuaded the respondent BIR Commissioner to delay collection,
and that would have prevented or estopped petitioner BPI from setting up the
defense of prescription against collection of the tax assessed, as required in
the Suyoc case.
This is a simple case wherein respondent BIR Commissioner and other BIR officials
failed to act promptly in resolving and denying the request for reconsideration filed
by petitioner BPI and in enforcing collection on the assessment. They presented no
reason or explanation as to why it took them almost eight years to address the
protest of petitioner BPI. The statute on limitations imposed by the Tax Code
precisely intends to protect the taxpayer from such prolonged and unreasonable
assessment and investigation by the BIR.
Considering that the right of the respondent BIR Commissioner to collect from
petitioner BPI the deficiency DST in Assessment No. FAS-5-85-89-002054 had
already prescribed, then, there is no more need for this Court to make a
determination on the validity and correctness of the said Assessment for the latter
would only be unenforceable.
WHEREFORE, BASED ON THE FOREGOING, THE INSTANT PETITION IS GRANTED.

THE DECISION OF THE COURT OF APPEALS IN CA-G.R. SP NO. 51271, DATED 11
AUGUST 1999, WHICH REINSTATED ASSESSMENT NO. FAS-5-85-89-002054
REQUIRING PETITIONER BPI TO PAY THE AMOUNT OF P28,020.00 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.
G.R. No. 158540 July 8, 2004
SOUTHERN CROSS CEMENT CORPORATION, petitioner,

vs.
THE PHILIPPINE CEMENT MANUFACTURERS CORP., THE SECRETARY OF THE
DEPARTMENT OF TRADE & INDUSTRY, THE SECRETARY OF THE DEPARTMENT OF
FINANCE, and THE COMMISSIONER OF THE BUREAU OF CUSTOMS, respondents.
DECISION
TINGA, J.:
"Good fences make good neighbors," so observed Robert Frost, the archetype of traditional New
England detachment. The Frost ethos has been heeded by nations adjusting to the effects of the
liberalized global market. The Philippines, for one, enacted Republic Act (Rep. Act) No. 8751 (on the
1
imposition of countervailing duties), Rep. Act No. 8752 (on the imposition of anti-dumping duties)
and, finally, Rep. Act No. 8800, also known as the Safeguard Measures Act ("SMA") soon after it
2
joined the General Agreement on Tariff and Trade (GATT) and the World Trade Organization (WTO)
Agreement. 3
The SMA provides the structure and mechanics for the imposition of emergency measures, including
tariffs, to protect domestic industries and producers from increased imports which inflict or could
inflict serious injury on them. The wisdom of the policies behind the SMA, however, is not put into
4
question by the petition at bar. The questions submitted to the Court relate to the means and the
procedures ordained in the law to ensure that the determination of the imposition or non-imposition
of a safeguard measure is proper.
Antecedent Facts
Petitioner Southern Cross Cement Corporation ("Southern Cross") is a domestic corporation

engaged in the business of cement manufacturing, production, importation and exportation. Its
principal stockholders are Taiheiyo Cement Corporation and Tokuyama Corporation, purportedly the
largest cement manufacturers in Japan. 5
Private respondent Philippine Cement Manufacturers Corporation ("Philcemcor") is an association of

6
domestic cement manufacturers. It has eighteen (18) members, per Record. While Philcemcor

7
heralds itself to be an association of domestic cement manufacturers, it appears that considerable

equity holdings, if not controlling interests in at least twelve (12) of its member-corporations, were
acquired by the three largest cement manufacturers in the world, namely Financiere Lafarge S.A. of
France, Cemex S.A. de C.V. of Mexico, and Holcim Ltd. of Switzerland (formerly Holderbank
Financiere Glaris, Ltd., then Holderfin B.V.). 8
On 22 May 2001, respondent Department of Trade and Industry ("DTI") accepted an application
from Philcemcor, alleging that the importation of gray Portland cement in increased quantities has
9
caused declines in domestic production, capacity utilization, market share, sales and employment;
as well as caused depressed local prices. Accordingly, Philcemcor sought the imposition at first of
provisional, then later, definitive safeguard measures on the import of cement pursuant to the SMA.
Philcemcor filed the application in behalf of twelve (12) of its member-companies. 10
After preliminary investigation, the Bureau of Import Services of the DTI, determined that critical
circumstances existed justifying the imposition of provisional measures. On 7 November 2001, the
11
DTI issued an Order, imposing a provisional measure equivalent to Twenty Pesos and Sixty
Centavos (P20.60) per forty (40) kilogram bag on all importations of gray Portland cement for a
period not exceeding two hundred (200) days from the date of issuance by the Bureau of Customs
(BOC) of the implementing Customs Memorandum Order. The corresponding Customs
12
Memorandum Order was issued on 10 December 2001, to take effect that same day and to remain
in force for two hundred (200) days. 13
In the meantime, the Tariff Commission, on 19 November 2001, received a request from the DTI for
a formal investigation to determine whether or not to impose a definitive safeguard measure on
imports of gray Portland cement, pursuant to Section 9 of the SMA and its Implementing Rules and
Regulations. A notice of commencement of formal investigation was published in the newspapers on
21 November 2001. Individual notices were likewise sent to concerned parties, such as Philcemcor,
various importers and exporters, the Embassies of Indonesia, Japan and Taiwan,
contractors/builders associations, industry associations, cement workers' groups, consumer groups,
non-government organizations and concerned government agencies. A preliminary conference was
14
held on 27 November 2001, attended by several concerned parties, including Southern

Cross. Subsequently, the Tariff Commission received several position papers both in support and
15
against Philcemcor's application. The Tariff Commission also visited the corporate offices and
16
manufacturing facilities of each of the applicant companies, as well as that of Southern Cross and
two other cement importers. 17
On 13 March 2002, the Tariff Commission issued its Formal Investigation Report ("Report"). Among
the factors studied by the Tariff Commission in its Report were the market share of the domestic
industry, production and sales, capacity utilization, financial performance and profitability, and
18 19 20 21
return on sales. The Tariff Commission arrived at the following conclusions:

22
1. The circumstances provided in Article XIX of GATT 1994 need not be demonstrated since
the product under consideration (gray Portland cement) is not the subject of any Philippine
obligation or tariff concession under the WTO Agreement. Nonetheless, such inquiry is
governed by the national legislation (R.A. 8800) and the terms and conditions of the
Agreement on Safeguards.
2. The collective output of the twelve (12) applicant companies constitutes a major proportion
of the total domestic production of gray Portland cement and blended Portland cement.
3. Locally produced gray Portland cement and blended Portland cement (Pozzolan) are "like"
to imported gray Portland cement.
4. Gray Portland cement is being imported into the Philippines in increased quantities, both
in absolute terms and relative to domestic production, starting in 2000. The increase in
volume of imports is recent, sudden, sharp and significant.
5. The industry has not suffered and is not suffering significant overall impairment in its
condition, i.e., serious injury.
6. There is no threat of serious injury that is imminent from imports of gray Portland cement.
7. Causation has become moot and academic in view of the negative determination of the
elements of serious injury and imminent threat of serious injury. 23
Accordingly, the Tariff Commission made the following recommendation, to wit:
The elements of serious injury and imminent threat of serious injury not having been
established, it is hereby recommended that no definitive general safeguard measure be
imposed on the importation of gray Portland cement. 24
The DTI received the Report on 14 March 2002. After reviewing the report, then DTI Secretary
Manuel Roxas II ("DTI Secretary") disagreed with the conclusion of the Tariff Commission that there
was no serious injury to the local cement industry caused by the surge of imports. In view of this
25
disagreement, the DTI requested an opinion from the Department of Justice ("DOJ") on the DTI
Secretary's scope of options in acting on the Commission's recommendations. Subsequently, then
DOJ Secretary Hernando Perez rendered an opinion stating that Section 13 of the SMA precluded a
review by the DTI Secretary of the Tariff Commission's negative finding, or finding that a definitive
safeguard measure should not be imposed. 26
On 5 April 2002, the DTI Secretary promulgated a Decision. After quoting the conclusions of the
Tariff Commission, the DTI Secretary noted the DTI's disagreement with the conclusions. However,
he also cited the DOJ Opinion advising the DTI that it was bound by the negative finding of the Tariff
Commission. Thus, he ruled as follows:
The DTI has no alternative but to abide by the [Tariff] Commission's recommendations.
IN VIEW OF THE FOREGOING, and in accordance with Section 13 of RA 8800 which

states:
"In the event of a negative final determination; or if the cash bond is in excess
of the definitive safeguard duty assessed, the Secretary shall immediately
issue, through the Secretary of Finance, a written instruction to the
Commissioner of Customs, authorizing the return of the cash bond or the
remainder thereof, as the case may be, previously collected as provisional
general safeguard measure within ten (10) days from the date a final decision
has been made; Provided, that the government shall not be liable for any
interest on the amount to be returned. The Secretary shall not accept for
consideration another petition from the same industry, with respect to the
same imports of the product under consideration within one (1) year after the
date of rendering such a decision."
The DTI hereby issues the following:
The application for safeguard measures against the importation of gray Portland cement filed
by PHILCEMCOR (Case No. 02-2001) is hereby denied. (Emphasis in the original)
27
Philcemcor received a copy of the DTI Decision on 12 April 2002. Ten days later, it filed with the
Court of Appeals a Petition for Certiorari, Prohibition and Mandamus seeking to set aside the
28
DTI Decision, as well as the Tariff Commission's Report. Philcemcor likewise applied for
a Temporary Restraining Order/Injunction to enjoin the DTI and the BOC from implementing the
questioned Decision and Report. It prayed that the Court of Appeals direct the DTI Secretary to
disregard the Report and to render judgment independently of the Report. Philcemcor argued that
the DTI Secretary, vested as he is under the law with the power of review, is not bound to adopt the
recommendations of the Tariff Commission; and, that the Report is void, as it is predicated on a
flawed framework, inconsistent inferences and erroneous methodology. 29
On 10 June 2002, Southern Cross filed its Comment. It argued that the Court of Appeals had no
30
jurisdiction over Philcemcor's Petition, for it is on the Court of Tax Appeals ("CTA") that the SMA
conferred jurisdiction to review rulings of the Secretary in connection with the imposition of a
safeguard measure. It likewise argued that Philcemcor's resort to the special civil action of certiorari
is improper, considering that what Philcemcor sought to rectify is an error of judgment and not an
error of jurisdiction or grave abuse of discretion, and that a petition for review with the CTA was
available as a plain, speedy and adequate remedy. Finally, Southern Cross echoed the DOJ Opinion
that Section 13 of the SMA precludes a review by the DTI Secretary of a negative finding of the Tariff
Commission.
After conducting a hearing on 19 June 2002 on Philcemcor's application for preliminary injunction,
the Court of Appeals' Twelfth Division granted the writ sought in its Resolution dated 21 June
31
2002. Seven days later, on 28 June 2002, the two-hundred (200)-day period for the imposition of
32
the provisional measure expired. Despite the lapse of the period, the BOC continued to impose the
provisional measure on all importations of Portland cement made by Southern Cross. The
uninterrupted assessment of the tariff, according to Southern Cross, worked to its detriment to the
point that the continued imposition would eventually lead to its closure. 33
Southern Cross timely filed a Motion for Reconsideration of the Resolution on 9 September 2002.
Alleging that Philcemcor was not entitled to provisional relief, Southern Cross likewise sought a
clarificatory order as to whether the grant of the writ of preliminary injunction could extend the earlier
imposition of the provisional measure beyond the two hundred (200)-day limit imposed by law. The
appeals' court failed to take immediate action on Southern Cross's motion despite the four (4)
motions for early resolution the latter filed between September of 2002 and February of 2003. After
six (6) months, on 19 February 2003, the Court of Appeals directed Philcemcor to comment on
Southern Cross's Motion for Reconsideration. After Philcemcor filed its Opposition on 13 March
34 35
2003, Southern Cross filed another set of four (4) motions for early resolution.
Despite the efforts of Southern Cross, the Court of Appeals failed to directly resolve the Motion for
Reconsideration. Instead, on 5 June 2003, it rendered a Decision, granting in part Philcemcor's
36
petition. The appellate court ruled that it had jurisdiction over the petition for certiorari since it alleged
grave abuse of discretion. It refused to annul the findings of the Tariff Commission, citing the rule
that factual findings of administrative agencies are binding upon the courts and its corollary, that
courts should not interfere in matters addressed to the sound discretion and coming under the
special technical knowledge and training of such agencies. Nevertheless, it held that the DTI
37
Secretary is not bound by the factual findings of the Tariff Commission since such findings are
merely recommendatory and they fall within the ambit of the Secretary's discretionary review. It
determined that the legislative intent is to grant the DTI Secretary the power to make a final decision
on the Tariff Commission's recommendation. The dispositive portion of the Decision reads:
38
WHEREFORE, based on the foregoing premises, petitioner's prayer to set aside the findings
of the Tariff Commission in its assailed Report dated March 13, 2002 is DENIED. On the
other hand, the assailed April 5, 2002 Decision of the Secretary of the Department of Trade
and Industry is hereby SET ASIDE. Consequently, the case is REMANDED to the public
respondent Secretary of Department of Trade and Industry for a final decision in accordance
with RA 8800 and its Implementing Rules and Regulations.
SO ORDERED. 39
On 23 June 2003, Southern Cross filed the present petition, assailing the appellate
court's Decision for departing from the accepted and usual course of judicial proceedings, and not
deciding the substantial questions in accordance with law and jurisprudence. The petition argues in
the main that the Court of Appeals has no jurisdiction over Philcemcor's petition, the proper remedy
being a petition for review with the CTA conformably with the SMA, and; that the factual findings of
the Tariff Commission on the existence or non-existence conditions warranting the imposition of
general safeguard measures are binding upon the DTI Secretary.
The timely filing of Southern Cross's petition before this Court necessarily prevented the Court of
Appeals Decision from becoming final. Yet on 25 June 2003, the DTI Secretary issued a
40
new Decision, ruling this time that that in light of the appellate court's Decision there was no longer
any legal impediment to his deciding Philcemcor's application for definitive safeguard measures. He 41
made a determination that, contrary to the findings of the Tariff Commission, the local cement
industry had suffered serious injury as a result of the import surges. Accordingly, he imposed a
42
definitive safeguard measure on the importation of gray Portland cement, in the form of a definitive
safeguard duty in the amount of P20.60/40 kg. bag for three years on imported gray Portland
Cement. 43
On 7 July 2003, Southern Cross filed with the Court a "Very Urgent Application for a Temporary
Restraining Order and/or A Writ of Preliminary Injunction" ("TRO Application"), seeking to enjoin the
DTI Secretary from enforcing his Decision of 25 June 2003 in view of the pending petition before this
Court. Philcemcor filed an opposition, claiming, among others, that it is not this Court but the CTA
that has jurisdiction over the application under the law.
On 1 August 2003, Southern Cross filed with the CTA a Petition for Review, assailing the DTI
Secretary's 25 June 2003 Decision which imposed the definite safeguard measure. Prescinding from
this action, Philcemcor filed with this Court a Manifestation and Motion to Dismiss in regard to
Southern Cross's petition, alleging that it deliberately and willfully resorted to forum-shopping. It
points out that Southern Cross's TRO Application seeks to enjoin the DTI Secretary's second
decision, while its Petition before the CTA prays for the annulment of the same decision. 44
Reiterating its Comment on Southern Cross's Petition for Review, Philcemcor also argues that the
CTA, being a special court of limited jurisdiction, could only review the ruling of the DTI Secretary
when a safeguard measure is imposed, and that the factual findings of the Tariff Commission are not
binding on the DTI Secretary. 45
After giving due course to Southern Cross's Petition, the Court called the case for oral argument on
18 February 2004. At the oral argument, attended by the counsel for Philcemcor and Southern
46
Cross and the Office of the Solicitor General, the Court simplified the issues in this wise: (i) whether
the Decision of the DTI Secretary is appealable to the CTA or the Court of Appeals; (ii) assuming
that the Court of Appeals has jurisdiction, whether its Decision is in accordance with law; and, (iii)
whether a Temporary Restraining Order is warranted. 47
During the oral arguments, counsel for Southern Cross manifested that due to the imposition of the
general safeguard measures, Southern Cross was forced to cease operations in the Philippines in
November of 2003. 48
Propriety of the Temporary Restraining Order
Before the merits of the Petition, a brief comment on Southern Cross's application for provisional
relief. It sought to enjoin the DTI Secretary from enforcing the definitive safeguard measure he
imposed in his 25 June 2003 Decision. The Court did not grant the provisional relief for it would be
tantamount to enjoining the collection of taxes, a peremptory judicial act which is traditionally
frowned upon, unless there is a clear statutory basis for it. In that regard, Section 218 of the Tax
49 50
Reform Act of 1997 prohibits any court from granting an injunction to restrain the collection of any
national internal revenue tax, fee or charge imposed by the internal revenue code. A similar 51
philosophy is expressed by Section 29 of the SMA, which states that the filing of a petition for review
before the CTA does not stop, suspend, or otherwise toll the imposition or collection of the
appropriate tariff duties or the adoption of other appropriate safeguard measures. This evinces a
52
clear legislative intent that the imposition of safeguard measures, despite the availability of judicial
review, should not be enjoined notwithstanding any timely appeal of the imposition.
The Forum-Shopping Issue
In the same breath, we are not convinced that the allegation of forum-shopping has been duly
proven, or that sanction should befall upon Southern Cross and its counsel. The standard by Section
5, Rule 7 of the 1997 Rules of Civil Procedure in order that sanction may be had is that "the acts of
the party or his counsel clearly constitute willful and deliberate forum shopping." The standard
53
implies a malicious intent to subvert procedural rules, and such state of mind is not evident in this
case.
The Jurisdictional Issue
On to the merits of the present petition.
In its assailed Decision, the Court of Appeals, after asserting only in brief that it had jurisdiction over
Philcemcor's Petition, discussed the issue of whether or not the DTI Secretary is bound to adopt the
negative recommendation of the Tariff Commission on the application for safeguard measure. The
Court of Appeals maintained that it had jurisdiction over the petition, as it alleged grave abuse of
discretion on the part of the DTI Secretary, thus:
A perusal of the instant petition reveals allegations of grave abuse of discretion on the part of
the DTI Secretary in rendering the assailed April 5, 2002 Decision wherein it was ruled that
he had no alternative but to abide by the findings of the Commission on the matter of
safeguard measures for the local cement industry. Abuse of discretion is admittedly within
the ambit of certiorari.
Grave abuse of discretion implies such capricious and whimsical exercise of judgment as is
equivalent to lack of jurisdiction. It is alleged that, in the assailed Decision, the DTI Secretary
gravely abused his discretion in wantonly evading to discharge his duty to render an
independent determination or decision in imposing a definitive safeguard measure. 54
We do not doubt that the Court of Appeals' certiorari powers extend to correcting grave abuse of
discretion on the part of an officer exercising judicial or quasi-judicial functions. However, the special
55
civil action of certiorari is available only when there is no plain, speedy and adequate remedy in the
ordinary course of law. Southern Cross relies on this limitation, stressing that Section 29 of the SMA
56
is a plain, speedy and adequate remedy in the ordinary course of law which Philcemcor did not avail
of. The Section reads:
Section 29. Judicial Review. – Any interested party who is adversely affected by the ruling
of the Secretary in connection with the imposition of a safeguard measure may file with
the CTA, a petition for review of such ruling within thirty (30) days from receipt thereof.
Provided, however, that the filing of such petition for review shall not in any way stop,
suspend or otherwise toll the imposition or collection of the appropriate tariff duties or the
adoption of other appropriate safeguard measures, as the case may be.
The petition for review shall comply with the same requirements and shall follow the same
rules of procedure and shall be subject to the same disposition as in appeals in connection
with adverse rulings on tax matters to the Court of Appeals. (Emphasis supplied)
57
It is not difficult to divine why the legislature singled out the CTA as the court with jurisdiction to
review the ruling of the DTI Secretary in connection with the imposition of a safeguard measure. The
Court has long recognized the legislative determination to vest sole and exclusive jurisdiction on
matters involving internal revenue and customs duties to such a specialized court. By the very
58
nature of its function, the CTA is dedicated exclusively to the study and consideration of tax
problems and has necessarily developed an expertise on the subject. 59
At the same time, since the CTA is a court of limited jurisdiction, its jurisdiction to take cognizance of
a case should be clearly conferred and should not be deemed to exist on mere
implication. Concededly, Rep. Act No. 1125, the statute creating the CTA, does not extend to it the
60
power to review decisions of the DTI Secretary in connection with the imposition of safeguard
measures. Of course, at that time which was before the advent of trade liberalization the notion of
61
safeguard measures or safety nets was not yet in vogue.
Undeniably, however, the SMA expanded the jurisdiction of the CTA by including review of the
rulings of the DTI Secretary in connection with the imposition of safeguard measures. However,
Philcemcor and the public respondents agree that the CTA has appellate jurisdiction over a decision
of the DTI Secretary imposing a safeguard measure, but not when his ruling is not to impose such
measure.
In a related development, Rep. Act No. 9282, enacted on 30 March 2004, expressly vests unto the
CTA jurisdiction over "[d]ecisions of the Secretary of Trade and Industry, in case of nonagricultural
product, commodity or article xxx involving xxx safeguard measures under Republic Act No.
8800, where either party may appeal the decision to impose or not to impose said
duties." Had Rep. Act No. 9282 already been in force at the beginning of the incidents subject of
62
this case, there would have been no need to make any deeper inquiry as to the extent of the CTA's
jurisdiction. But as Rep. Act No. 9282 cannot be applied retroactively to the present case, the
question of whether such jurisdiction extends to a decision not to impose a safeguard measure will
have to be settled principally on the basis of the SMA.
Under Section 29 of the SMA, there are three requisites to enable the CTA to acquire jurisdiction
over the petition for review contemplated therein: (i) there must be a ruling by the DTI Secretary; (ii)
the petition must be filed by an interested party adversely affected by the ruling; and (iii) such ruling
must be in connection with the imposition of a safeguard measure. The first two requisites are clearly
present. The third requisite deserves closer scrutiny.
Contrary to the stance of the public respondents and Philcemcor, in this case where the DTI
Secretary decides not to impose a safeguard measure, it is the CTA which has jurisdiction to review
his decision. The reasons are as follows:
First. Split jurisdiction is abhorred.
Essentially, respondents' position is that judicial review of the DTI Secretary's ruling is exercised by
two different courts, depending on whether or not it imposes a safeguard measure, and in either
case the court exercising jurisdiction does so to the exclusion of the other. Thus, if the DTI decision
involves the imposition of a safeguard measure it is the CTA which has appellate jurisdiction;
otherwise, it is the Court of Appeals. Such setup is as novel and unusual as it is cumbersome and
unwise. Essentially, respondents advocate that Section 29 of the SMA has established split
appellate jurisdiction over rulings of the DTI Secretary on the imposition of safeguard measure.
This interpretation cannot be favored, as the Court has consistently refused to sanction split
jurisdiction. The power of the DTI Secretary to adopt or withhold a safeguard measure emanates
63
from the same statutory source, and it boggles the mind why the appeal modality would be such that
one appellate court is qualified if what is to be reviewed is a positive determination, and it is not if
what is appealed is a negative determination. In deciding whether or not to impose a safeguard
measure, provisional or general, the DTI Secretary would be evaluating only one body of facts and
applying them to one set of laws. The reviewing tribunal will be called upon to examine the same
facts and the same laws, whether or not the determination is positive or negative.
In short, if we were to rule for respondents we would be confirming the exercise by two judicial
bodies of jurisdiction over basically the same subject matter¾precisely the split-jurisdiction situation
which is anathema to the orderly administration of justice. The Court cannot accept that such was
64
the legislative motive especially considering that the law expressly confers on the CTA, the tribunal
with the specialized competence over tax and tariff matters, the role of judicial review without
mention of any other court that may exercise corollary or ancillary jurisdiction in relation to the SMA.
The provision refers to the Court of Appeals but only in regard to procedural rules and dispositions of
appeals from the CTA to the Court of Appeals. 65
The principle enunciated in Tejada v. Homestead Property Corporation is applicable to the case at
66
bar:
The Court agrees with the observation of the [that] when an administrative agency or body is
conferred quasi-judicial functions, all controversies relating to the subject matter
pertaining to its specialization are deemed to be included within the jurisdiction of
said administrative agency or body. Split jurisdiction is not favored. 67
Second. The interpretation of the provisions of the SMA favors vesting untrammeled appellate
jurisdiction on the CTA.
A plain reading of Section 29 of the SMA reveals that Congress did not expressly bar the CTA from
reviewing a negative determination by the DTI Secretary nor conferred on the Court of Appeals such
review authority. Respondents note, on the other hand, that neither did the law expressly grant to the
CTA the power to review a negative determination. However, under the clear text of the law, the
CTA is vested with jurisdiction to review the ruling of the DTI Secretary "in connection with the
imposition of a safeguard measure." Had the law been couched instead to incorporate the phrase
"the ruling imposing a safeguard measure," then respondent's claim would have indisputable merit.
Undoubtedly, the phrase "in connection with" not only qualifies but clarifies the succeeding phrase
"imposition of a safeguard measure." As expounded later, the phrase also encompasses the
opposite or converse ruling which is the non-imposition of a safeguard measure.
In the American case of Shaw v. Delta Air Lines, Inc., the United States Supreme Court, in
68
interpreting a key provision of the Employee Retirement Security Act of 1974, construed the phrase
"relates to" in its normal sense which is the same as "if it has connection with or reference to." There
69
is no serious dispute that the phrase "in connection with" is synonymous to "relates to" or "reference
to," and that all three phrases are broadly expansive. This is affirmed not just by jurisprudential fiat,
but also the acquired connotative meaning of "in connection with" in common parlance.
Consequently, with the use of the phrase "in connection with," Section 29 allows the CTA to review
not only the ruling imposing a safeguard measure, but all other rulings related or have reference
to the application for such measure.
Now, let us determine the maximum scope and reach of the phrase "in connection with" as used in
Section 29 of the SMA. A literalist reading or linguistic survey may not satisfy. Even the US Supreme
Court in New York State Blue Cross Plans v. Travelers Ins. conceded that the phrases "relate to" or
70
"in connection with" may be extended to the farthest stretch of indeterminacy for, universally,
relations or connections are infinite and stop nowhere. Thus, in the case the US High Court,
71
examining the same phrase of the same provision of law involved in Shaw, resorted to looking at the
statute and its objectives as the alternative to an "uncritical literalism." A similar inquiry into the other
72
provisions of the SMA is in order to determine the scope of review accorded therein to the CTA. 73
The authority to decide on the safeguard measure is vested in the DTI Secretary in the case of non-
agricultural products, and in the Secretary of the Department of Agriculture in the case of agricultural
products. Section 29 is likewise explicit that only the rulings of the DTI Secretary or the Agriculture
74
Secretary may be reviewed by the CTA. Thus, the acts of other bodies that were granted some
75
powers by the SMA, such as the Tariff Commission, are not subject to direct review by the CTA.
Under the SMA, the Department Secretary concerned is authorized to decide on several matters.
Within thirty (30) days from receipt of a petition seeking the imposition of a safeguard measure, or
from the date he made motu proprio initiation, the Secretary shall make a preliminary determination
on whether the increased imports of the product under consideration substantially cause or threaten
to cause serious injury to the domestic industry. Such ruling is crucial since only upon the
76
Secretary's positive preliminary determination that a threat to the domestic industry exists shall the
matter be referred to the Tariff Commission for formal investigation, this time, to determine whether
the general safeguard measure should be imposed or not. Pursuant to a positive preliminary
77
determination, the Secretary may also decide that the imposition of a provisional safeguard measure
would be warranted under Section 8 of the SMA. The Secretary is also authorized to decide, after
78
receipt of the report of the Tariff Commission, whether or not to impose the general safeguard
measure, and if in the affirmative, what general safeguard measures should be applied. Even after
79
the general safeguard measure is imposed, the Secretary is empowered to extend the safeguard
measure, or terminate, reduce or modify his previous rulings on the general safeguard measure.
80 81
With the explicit grant of certain powers involving safeguard measures by the SMA on the DTI
Secretary, it follows that he is empowered to rule on several issues. These are the issues which
arise in connection with, or in relation to, the imposition of a safeguard measure. They may arise at
different stages – the preliminary investigation stage, the post-formal investigation stage, or the post-
safeguard measure stage – yet all these issues do become ripe for resolution because an initiatory
action has been taken seeking the imposition of a safeguard measure. It is the initiatory action for
the imposition of a safeguard measure that sets the wheels in motion, allowing the Secretary to
make successive rulings, beginning with the preliminary determination.
Clearly, therefore, the scope and reach of the phrase "in connection with," as intended by Congress,
pertain to all rulings of the DTI Secretary or Agriculture Secretary which arise from the time an
application or motu proprio initiation for the imposition of a safeguard measure is taken. Indeed, the
incidents which require resolution come to the fore only because there is an initial application or
action seeking the imposition of a safeguard measure. From the legislative standpoint, it was a
matter of sense and practicality to lump up the questions related to the initiatory application or action
for safeguard measure and to assign only one court and; that is the CTA to initially review all the
rulings related to such initiatory application or action. Both directions Congress put in place by
employing the phrase "in connection with" in the law.
Given the relative expanse of decisions subject to judicial review by the CTA under Section 29, we
do not doubt that a negative ruling refusing to impose a safeguard measure falls within the scope of
its jurisdiction. On a literal level, such negative ruling is "a ruling of the Secretary in connection with
the imposition of a safeguard measure," as it is one of the possible outcomes that may result from
the initial application or action for a safeguard measure. On a more critical level, the rulings of the
DTI Secretary in connection with a safeguard measure, however diverse the outcome may be, arise
from the same grant of jurisdiction on the DTI Secretary by the SMA. The refusal by the DTI
82
Secretary to grant a safeguard measure involves the same grant of authority, the same statutory
prescriptions, and the same degree of discretion as the imposition by the DTI Secretary of a
safeguard measure.
The position of the respondents is one of "uncritical literalism" incongruent with the animus of the
83
law. Moreover, a fundamentalist approach to Section 29 is not warranted, considering the absurdity
of the consequences.
Third. Interpretatio Talis In Ambiguis Semper Fienda Est, Ut Evitur Inconveniens Et Absurdum. 84
Even assuming arguendo that Section 29 has not expressly granted the CTA jurisdiction to review a
negative ruling of the DTI Secretary, the Court is precluded from favoring an interpretation that would
cause inconvenience and absurdity. Adopting the respondents' position favoring the CTA's minimal
85
jurisdiction would unnecessarily lead to illogical and onerous results.
Indeed, it is illiberal to assume that Congress had intended to provide appellate relief to rulings
imposing a safeguard measure but not to those declining to impose the measure. Respondents
might argue that the right to relief from a negative ruling is not lost since the applicant could, as
Philcemcor did, question such ruling through a special civil action for certiorari under Rule 65 of the
1997 Rules of Civil Procedure, in lieu of an appeal to the CTA. Yet these two reliefs are of differing
natures and gravamen. While an appeal may be predicated on errors of fact or errors of law, a
special civil action for certiorari is grounded on grave abuse of discretion or lack of or excess of
jurisdiction on the part of the decider. For a special civil action for certiorari to succeed, it is not
enough that the questioned act of the respondent is wrong. As the Court clarified in Sempio v. Court
of Appeals:
A tribunal, board or officer acts without jurisdiction if it/he does not have the legal power to
determine the case. There is excess of jurisdiction where, being clothed with the power to
determine the case, the tribunal, board or officer oversteps its/his authority as determined by
law. And there is grave abuse of discretion where the tribunal, board or officer acts in a
capricious, whimsical, arbitrary or despotic manner in the exercise of his judgment as to be
said to be equivalent to lack of jurisdiction. Certiorari is often resorted to in order to correct
errors of jurisdiction. Where the error is one of law or of fact, which is a mistake of judgment,
appeal is the remedy. 86
It is very conceivable that the DTI Secretary, after deliberate thought and careful evaluation of the
evidence, may either make a negative preliminary determination as he is so empowered under
Section 7 of the SMA, or refuse to adopt the definitive safeguard measure under Section 13 of the
same law. Adopting the respondents' theory, this negative ruling is susceptible to reversal only
through a special civil action for certiorari, thus depriving the affected party the chance to elevate the
ruling on appeal on the rudimentary grounds of errors in fact or in law. Instead, and despite whatever
indications that the DTI Secretary acted with measure and within the bounds of his jurisdiction are,
the aggrieved party will be forced to resort to a gymnastic exercise, contorting the straight and
narrow in an effort to discombobulate the courts into believing that what was within was actually
beyond and what was studied and deliberate actually whimsical and capricious. What then would be
the remedy of the party aggrieved by a negative ruling that simply erred in interpreting the facts or
the law? It certainly cannot be the special civil action for certiorari, for as the Court held in Silverio v.
Court of Appeals: "Certiorari is a remedy narrow in its scope and inflexible in its character. It is not a
general utility tool in the legal workshop."87
Fortunately, this theoretical quandary need not come to pass. Section 29 of the SMA is worded in
such a way that it places under the CTA's judicial review all rulings of the DTI Secretary, which are
connected with the imposition of a safeguard measure. This is sound and proper in light of the
specialized jurisdiction of the CTA over tax matters. In the same way that a question of whether to
tax or not to tax is properly a tax matter, so is the question of whether to impose or not to impose a
definitive safeguard measure.
On another note, the second paragraph of Section 29 similarly reveals the legislative intent that
rulings of the DTI Secretary over safeguard measures should first be reviewed by the CTA and not
the Court of Appeals. It reads:
The petition for review shall comply with the same requirements and shall follow the same
rules of procedure and shall be subject to the same disposition as in appeals in connection
with adverse rulings on tax matters to the Court of Appeals.
This is the only passage in the SMA in which the Court of Appeals is mentioned. The express wish
of Congress is that the petition conform to the requirements and procedure under Rule 43 of the
Rules of Civil Procedure. Since Congress mandated that the form and procedure adopted be
analogous to a review of a CTA ruling by the Court of Appeals, the legislative contemplation could
not have been that the appeal be directly taken to the Court of Appeals.
Issue of Binding Effect of Tariff

Commission's Factual Determination
on DTI Secretary.
The next issue for resolution is whether the factual determination made by the Tariff Commission
under the SMA is binding on the DTI Secretary. Otherwise stated, the question is whether the DTI
Secretary may impose general safeguard measures in the absence of a positive final determination
by the Tariff Commission.
The Court of Appeals relied upon Section 13 of the SMA in ruling that the findings of the Tariff
Commission do not necessarily constitute a final decision. Section 13 details the procedure for the
adoption of a safeguard measure, as well as the steps to be taken in case there is a negative final
determination. The implication of the Court of Appeals' holding is that the DTI Secretary may adopt a
definitive safeguard measure, notwithstanding a negative determination made by the Tariff
Commission.
Undoubtedly, Section 13 prescribes certain limitations and restrictions before general safeguard
measures may be imposed. However, the most fundamental restriction on the DTI Secretary's
power in that respect is contained in Section 5 of the SMA¾that there should first be a
positive final determination of the Tariff Commission¾which the Court of Appeals curiously all
but ignored. Section 5 reads:
Sec. 5. Conditions for the Application of General Safeguard Measures. – The

Secretary shall apply a general safeguard measure upon a positive final determination
of the [Tariff] Commission that a product is being imported into the country in increased
quantities, whether absolute or relative to the domestic production, as to be a substantial
cause of serious injury or threat thereof to the domestic industry; however, in the case of
non-agricultural products, the Secretary shall first establish that the application of such
safeguard measures will be in the public interest. (emphasis supplied)
The plain meaning of Section 5 shows that it is the Tariff Commission that has the power to make a
"positive final determination." This power lodged in the Tariff Commission, must be distinguished
from the power to impose the general safeguard measure which is properly vested on the DTI
Secretary. 88
All in all, there are two condition precedents that must be satisfied before the DTI Secretary may
impose a general safeguard measure on grey Portland cement. First, there must be a positive final
determination by the Tariff Commission that a product is being imported into the country in increased
quantities (whether absolute or relative to domestic production), as to be a substantial cause of
serious injury or threat to the domestic industry. Second, in the case of non-agricultural products the
Secretary must establish that the application of such safeguard measures is in the public
interest. As Southern Cross argues, Section 5 is quite clear-cut, and it is impossible to finagle a
89
different conclusion even through overarching methods of statutory construction. There is no safer
nor better settled canon of interpretation that when language is clear and unambiguous it must be
held to mean what it plainly expresses: In the quotable words of an illustrious member of this Court,
90
thus:
[I]f a statute is clear, plain and free from ambiguity, it must be given its literal meaning and
applied without attempted interpretation. The verba legis or plain meaning rule rests on the
valid presumption that the words employed by the legislature in a statute correctly express its
intent or will and preclude the court from construing it differently. The legislature is presumed
to know the meaning of the words, to have used words advisedly, and to have expressed its
intent by the use of such words as are found in the statute. 91
Moreover, Rule 5 of the Implementing Rules and Regulations of the SMA, which interprets Section 5
92
of the law, likewise requires a positive final determination on the part of the Tariff Commission before
the application of the general safeguard measure.
The SMA establishes a distinct allocation of functions between the Tariff Commission and the DTI
Secretary. The plain meaning of Section 5 shows that it is the Tariff Commission that has the power
to make a "positive final determination." This power, which belongs to the Tariff Commission, must
be distinguished from the power to impose general safeguard measure properly vested on the DTI
Secretary. The distinction is vital, as a "positive final determination" clearly antecedes, as a condition
precedent, the imposition of a general safeguard measure. At the same time, a positive final
determination does not necessarily result in the imposition of a general safeguard measure. Under
Section 5, notwithstanding the positive final determination of the Tariff Commission, the DTI
Secretary is tasked to decide whether or not that the application of the safeguard measures is in the
public interest.
It is also clear from Section 5 of the SMA that the positive final determination to be undertaken by
the Tariff Commission does not entail a mere gathering of statistical data. In order to arrive at such
determination, it has to establish causal linkages from the statistics that it compiles and evaluates:
after finding there is an importation in increased quantities of the product in question, that such
importation is a substantial cause of serious threat or injury to the domestic industry.
The Court of Appeals relies heavily on the legislative record of a congressional debate during
deliberations on the SMA to assert a purported legislative intent that the findings of the Tariff
Commission do not bind the DTI Secretary. Yet as explained earlier, the plain meaning of Section 5
93
emphasizes that only if the Tariff Commission renders a positive determination could the DTI
Secretary impose a safeguard measure. Resort to the congressional records to ascertain legislative
intent is not warranted if a statute is clear, plain and free from ambiguity. The legislature is presumed
to know the meaning of the words, to have used words advisedly, and to have expressed its intent
by the use of such words as are found in the statute. 94
Indeed, the legislative record, if at all to be availed of, should be approached with extreme caution,
as legislative debates and proceedings are powerless to vary the terms of the statute when the
meaning is clear. Our holding in Civil Liberties Union v. Executive Secretary on the resort to
95 96
deliberations of the constitutional convention to interpret the Constitution is likewise appropriate in

ascertaining statutory intent:
While it is permissible in this jurisdiction to consult the debates and proceedings of the
constitutional convention in order to arrive at the reason and purpose of the resulting
Constitution, resort thereto may be had only when other guides fail as said proceedings are
powerless to vary the terms of the Constitution when the meaning is clear. Debates in the
constitutional convention "are of value as showing the views of the individual members, and
as indicating the reasons for their votes, but they give us no light as to the views of the large
majority who did not talk xxx. We think it safer to construe the constitution from what appears
upon its face."97
Moreover, it is easy to selectively cite passages, sometimes out of their proper context, in order to
assert a misleading interpretation. The effect can be dangerous. Minority or solitary views, anecdotal
ruminations, or even the occasional crude witticisms, may improperly acquire the mantle of
legislative intent by the sole virtue of their publication in the authoritative congressional record.
Hence, resort to legislative deliberations is allowable when the statute is crafted in such a manner as
to leave room for doubt on the real intent of the legislature.
Section 5 plainly evinces legislative intent to restrict the DTI Secretary's power to impose a general
safeguard measure by preconditioning such imposition on a positive determination by the Tariff
Commission. Such legislative intent should be given full force and effect, as the executive power to
impose definitive safeguard measures is but a delegated power¾the power of taxation, by nature
and by command of the fundamental law, being a preserve of the legislature. Section 28(2), Article
98
VI of the 1987 Constitution confirms the delegation of legislative power, yet ensures that the
prerogative of Congress to impose limitations and restrictions on the executive exercise of this
power:
The Congress may, by law, authorize the President to fix within specified limits, and subject
to such limitations and restrictions as it may impose, tariff rates, import and export quotas,
tonnage and wharfage dues, and other duties or imposts within the framework of the national
development program of the Government. 99
The safeguard measures which the DTI Secretary may impose under the SMA may take the
following variations, to wit: (a) an increase in, or imposition of any duty on the imported product; (b) a
decrease in or the imposition of a tariff-rate quota on the product; (c) a modification or imposition of
any quantitative restriction on the importation of the product into the Philippines; (d) one or more
appropriate adjustment measures, including the provision of trade adjustment assistance; and (e)
any combination of the above-described actions. Except for the provision of trade adjustment
assistance, the measures enumerated by the SMA are essentially imposts, which precisely are the
subject of delegation under Section 28(2), Article VI of the 1987 Constitution. 100
This delegation of the taxation power by the legislative to the executive is authorized by the
Constitution itself. At the same time, the Constitution also grants the delegating authority
101
(Congress) the right to impose restrictions and limitations on the taxation power delegated to the
President. The restrictions and limitations imposed by Congress take on the mantle of a
102
constitutional command, which the executive branch is obliged to observe.
The SMA empowered the DTI Secretary, as alter ego of the President, to impose definitive general
103
safeguard measures, which basically are tariff imposts of the type spoken of in the Constitution.
However, the law did not grant him full, uninhibited discretion to impose such measures. The DTI
Secretary authority is derived from the SMA; it does not flow from any inherent executive power.
Thus, the limitations imposed by Section 5 are absolute, warranted as they are by a constitutional
fiat.
104
Philcemcor cites our 1912 ruling in Lamb v. Phipps to assert that the DTI Secretary, having the final
105
decision on the safeguard measure, has the power to evaluate the findings of the Tariff Commission
and make an independent judgment thereon. Given the constitutional and statutory limitations
governing the present case, the citation is misplaced. Lamb pertained to the discretion of the Insular
Auditor of the Philippine Islands, whom, as the Court recognized, "[t]he statutes of the United States
require[d] xxx to exercise his judgment upon the legality xxx [of] provisions of law and resolutions of
Congress providing for the payment of money, the means of procuring testimony upon which he may
act."
106
Thus in Lamb, while the Court recognized the wide latitude of discretion that may have been vested
on the Insular Auditor, it also recognized that such latitude flowed from, and is consequently limited
by, statutory grant. However, in this case, the provision of the Constitution in point expressly
recognizes the authority of Congress to prescribe limitations in the case of tariffs, export/import
quotas and other such safeguard measures. Thus, the broad discretion granted to the Insular
Auditor of the Philippine Islands cannot be analogous to the discretion of the DTI Secretary which is
circumscribed by Section 5 of the SMA.
For that matter, Cariño v. Commissioner on Human Rights, likewise cited by Philcemcor, is also
107
inapplicable owing to the different statutory regimes prevailing over that case and the present
petition. In Cariño, the Court ruled that the constitutional power of the Commission on Human Rights
(CHR) to investigate human rights' violations did not extend to adjudicating claims on the
merits. Philcemcor claims that the functions of the Tariff Commission being "only investigatory," it
108
could neither decide nor adjudicate. 109
The applicable law governing the issue in Cariño is Section 18, Article XIII of the Constitution, which
delineates the powers and functions of the CHR. The provision does not vest on the CHR the power
to adjudicate cases, but only to investigate all forms of human rights violations. Yet, without
110
modifying the thorough disquisition of the Court in Cariño on the general limitations on the
investigatory power, the precedent is inapplicable because of the difference in the involved statutory
frameworks. The Constitution does not repose binding effect on the results of the CHR's
investigation. On the other hand, through Section 5 of the SMA and under the authority of Section
111
28(2), Article VI of the Constitution, Congress did intend to bind the DTI Secretary to the
determination made by the Tariff Commission. It is of no consequence that such determination
112
results from the exercise of investigatory powers by the Tariff Commission since Congress is well
within its constitutional mandate to limit the authority of the DTI Secretary to impose safeguard
measures in the manner that it sees fit.
The Court of Appeals and Philcemcor also rely on Section 13 of the SMA and Rule 13 of the SMA's
Implementing Rules in support of the view that the DTI Secretary may decide independently of the
determination made by the Tariff Commission. Admittedly, there are certain infelicities in the
language of Section 13 and Rule 13. But reliance should not be placed on the textual imprecisions.
Rather, Section 13 and Rule 13 must be viewed in light of the fundamental prescription imposed by
Section 5.
113
Section 13 of the SMA lays down the procedure to be followed after the Tariff Commission renders
its report. The provision reads in full:
SEC. 13. Adoption of Definitive Measures. — Upon its positive determination, the

Commission shall recommend to the Secretary an appropriate definitive measure, in the form
of:
(a) An increase in, or imposition of, any duty on the imported product;
(b) A decrease in or the imposition of a tariff-rate quota (MAV) on the product;
(c) A modification or imposition of any quantitative restriction on the importation of the

product into the Philippines;
(d) One or more appropriate adjustment measures, including the provision of trade
adjustment assistance;
(e) Any combination of actions described in subparagraphs (a) to (d).
The Commission may also recommend other actions, including the initiation of international
negotiations to address the underlying cause of the increase of imports of the product, to
alleviate the injury or threat thereof to the domestic industry, and to facilitate positive
adjustment to import competition.
The general safeguard measure shall be limited to the extent of redressing or preventing the
injury and to facilitate adjustment by the domestic industry from the adverse effects directly
attributed to the increased imports: Provided, however, That when quantitative import
restrictions are used, such measures shall not reduce the quantity of imports below the
average imports for the three (3) preceding representative years, unless clear justification is
given that a different level is necessary to prevent or remedy a serious injury.
A general safeguard measure shall not be applied to a product originating from a developing
country if its share of total imports of the product is less than three percent (3%): Provided,
however, That developing countries with less than three percent (3%) share collectively
account for not more than nine percent (9%) of the total imports.
The decision imposing a general safeguard measure, the duration of which is more than one
(1) year, shall be reviewed at regular intervals for purposes of liberalizing or reducing its
intensity. The industry benefiting from the application of a general safeguard measure shall
be required to show positive adjustment within the allowable period. A general safeguard
measure shall be terminated where the benefiting industry fails to show any improvement, as
may be determined by the Secretary.
The Secretary shall issue a written instruction to the heads of the concerned government
agencies to implement the appropriate general safeguard measure as determined by the
Secretary within fifteen (15) days from receipt of the report.
In the event of a negative final determination, or if the cash bond is in excess of the definitive
safeguard duty assessed, the Secretary shall immediately issue, through the Secretary of
Finance, a written instruction to the Commissioner of Customs, authorizing the return of the
cash bond or the remainder thereof, as the case may be, previously collected as provisional
general safeguard measure within ten (10) days from the date a final decision has been
made: Provided, That the government shall not be liable for any interest on the amount to be
returned. The Secretary shall not accept for consideration another petition from the same
industry, with respect to the same imports of the product under consideration within one (1)
year after the date of rendering such a decision.
When the definitive safeguard measure is in the form of a tariff increase, such increase shall
not be subject or limited to the maximum levels of tariff as set forth in Section 401(a) of the
Tariff and Customs Code of the Philippines.
To better comprehend Section 13, note must be taken of the distinction between the investigatory
and recommendatory functions of the Tariff Commission under the SMA.
The word "determination," as used in the SMA, pertains to the factual findings on whether there are
increased imports into the country of the product under consideration, and on whether such
increased imports are a substantial cause of serious injury or threaten to substantially cause serious
injury to the domestic industry. The SMA explicitly authorizes the DTI Secretary to make a
114
preliminary determination, and the Tariff Commission to make the final determination. The
115 116
distinction is fundamental, as these functions are not interchangeable. The Tariff Commission makes
its determination only after a formal investigation process, with such investigation initiated only if
there is a positive preliminary determination by the DTI Secretary under Section 7 of the SMA. On 117
the other hand, the DTI Secretary may impose definitive safeguard measure only if there is a
positive final determination made by the Tariff Commission. 118
In contrast, a "recommendation" is a suggested remedial measure submitted by the Tariff

Commission under Section 13 after making a positive final determination in accordance with Section
5. The Tariff Commission is not empowered to make a recommendation absent a positive final
determination on its part. Under Section 13, the Tariff Commission is required to recommend to the
119
[DTI] Secretary an "appropriate definitive measure." The Tariff Commission "may also recommend
120
other actions, including the initiation of international negotiations to address the underlying cause of
the increase of imports of the products, to alleviate the injury or threat thereof to the domestic
industry and to facilitate positive adjustment to import competition."121
The recommendations of the Tariff Commission, as rendered under Section 13, are not obligatory on
the DTI Secretary. Nothing in the SMA mandates the DTI Secretary to adopt the recommendations
made by the Tariff Commission. In fact, the SMA requires that the DTI Secretary establish that the
application of such safeguard measures is in the public interest, notwithstanding the Tariff
Commission's recommendation on the appropriate safeguard measure based on its positive final
determination. The non-binding force of the Tariff Commission's recommendations is congruent
122
with the command of Section 28(2), Article VI of the 1987 Constitution that only the President may
be empowered by the Congress to impose appropriate tariff rates, import/export quotas and other
similar measures. It is the DTI Secretary, as alter ego of the President, who under the SMA may
123
impose such safeguard measures subject to the limitations imposed therein. A contrary conclusion
would in essence unduly arrogate to the Tariff Commission the executive power to impose the
appropriate tariff measures. That is why the SMA empowers the DTI Secretary to adopt safeguard
measures other than those recommended by the Tariff Commission.
Unlike the recommendations of the Tariff Commission, its determination has a different effect on the
DTI Secretary. Only on the basis of a positive final determination made by the Tariff Commission
under Section 5 can the DTI Secretary impose a general safeguard measure. Clearly, then the DTI
Secretary is bound by the determination made by the Tariff Commission.
Some confusion may arise because the sixth paragraph of Section 13 uses the variant word
124
"determined" in a different context, as it contemplates "the appropriate general safeguard measure

as determined by the Secretary within fifteen (15) days from receipt of the report." Quite plainly, the
word "determined" in this context pertains to the DTI Secretary's power of choice of the appropriate
safeguard measure, as opposed to the Tariff Commission's power to determine the existence of
conditions necessary for the imposition of any safeguard measure. In relation to Section 5, such
choice also relates to the mandate of the DTI Secretary to establish that the application of safeguard
measures is in the public interest, also within the fifteen (15) day period. Nothing in Section 13
contradicts the instruction in Section 5 that the DTI Secretary is allowed to impose the general
safeguard measures only if there is a positive determination made by the Tariff Commission.
Unfortunately, Rule 13.2 of the Implementing Rules of the SMA is captioned "Final Determination by
the Secretary." The assailed Decision and Philcemcor latch on this phraseology to imply that the
factual determination rendered by the Tariff Commission under Section 5 may be amended or
reversed by the DTI Secretary. Of course, implementing rules should conform, not clash, with the
law that they seek to implement, for a regulation which operates to create a rule out of harmony with
the statute is a nullity. Yet imperfect draftsmanship aside, nothing in Rule 13.2 implies that the DTI
125
Secretary can set aside the determination made by the Tariff Commission under the aegis of Section
5. This can be seen by examining the specific provisions of Rule 13.2, thus:
RULE 13.2. Final Determination by the Secretary
RULE 13.2.a. Within fifteen (15) calendar days from receipt of the Report of the
Commission, the Secretary shall make a decision, taking into consideration the
measures recommended by the Commission.
RULE 13.2.b. If the determination is affirmative, the Secretary shall issue, within two
(2) calendar days after making his decision, a written instruction to the heads of the
concerned government agencies to immediately implement the appropriate general
safeguard measure as determined by him. Provided, however, that in the case of
non-agricultural products, the Secretary shall first establish that the imposition of the
safeguard measure will be in the public interest.
RULE 13.2.c. Within two (2) calendar days after making his decision, the Secretary
shall also order its publication in two (2) newspapers of general circulation. He shall
also furnish a copy of his Order to the petitioner and other interested parties, whether
affirmative or negative. (Emphasis supplied.)
Moreover, the DTI Secretary does not have the power to review the findings of the Tariff
Commission for it is not subordinate to the Department of Trade and Industry ("DTI"). It falls under
the supervision, not of the DTI nor of the Department of Finance (as mistakenly asserted by
Southern Cross), but of the National Economic Development Authority, an independent
126
planning agency of the government of co-equal rank as the DTI. As the supervision and control
127
of a Department Secretary is limited to the bureaus, offices, and agencies under him, the DTI128
Secretary generally cannot exercise review authority over actions of the Tariff Commission. Neither
does the SMA specifically authorize the DTI Secretary to alter, amend or modify in any way the
determination made by the Tariff Commission. The most that the DTI Secretary could do to express
displeasure over the Tariff Commission's actions is to ignore its recommendation, but not its
determination.
The word "determination" as used in Rule 13.2 of the Implementing Rules is dissonant with the same
word as employed in the SMA, which in the latter case is undeviatingly in reference to the
determination made by the Tariff Commission. Beyond the resulting confusion, however, the
divergent use in Rule 13.2 is explicable as the Rule textually pertains to the power of the DTI
Secretary to review the recommendations of the Tariff Commission, not the latter's determination.
Indeed, an examination of the specific provisions show that there is no real conflict to reconcile. Rule
13.2 respects the logical order imposed by the SMA. The Rule does not remove the essential
requirement under Section 5 that a positive final determination be made by the Tariff Commission
before a definitive safeguard measure may be imposed by the DTI Secretary.
The assailed Decision characterizes the findings of the Tariff Commission as merely

recommendatory and points to the DTI Secretary as the authority who renders the final decision. At 129
the same time, Philcemcor asserts that the Tariff Commission's functions are merely investigatory,
and as such do not include the power to decide or adjudicate. These contentions, viewed in the
context of the fundamental requisite set forth by Section 5, are untenable. They run counter to the
statutory prescription that a positive final determination made by the Tariff Commission should first
be obtained before the definitive safeguard measures may be laid down.
Was it anomalous for Congress to have provided for a system whereby the Tariff Commission may
preclude the DTI, an office of higher rank, from imposing a safeguard measure? Of course, this
Court does not inquire into the wisdom of the legislature but only charts the boundaries of powers
and functions set in its enactments. But then, it is not difficult to see the internal logic of this statutory
framework.
For one, as earlier stated, the DTI cannot exercise review powers over the Tariff Commission which
is not its subordinate office.
Moreover, the mechanism established by Congress establishes a measure of check and balance
involving two different governmental agencies with disparate specializations. The matter of
safeguard measures is of such national importance that a decision either to impose or not to impose
then could have ruinous effects on companies doing business in the Philippines. Thus, it is ideal to
put in place a system which affords all due deliberation and calls to fore various governmental
agencies exercising their particular specializations.
Finally, if this arrangement drawn up by Congress makes it difficult to obtain a general safeguard
measure, it is because such safeguard measure is the exception, rather than the rule. The
Philippines is obliged to observe its obligations under the GATT, under whose framework trade
liberalization, not protectionism, is laid down. Verily, the GATT actually prescribes conditions before
a member-country may impose a safeguard measure. The pertinent portion of the GATT Agreement
on Safeguards reads:
2. A Member may only apply a safeguard measure to a product only if that member has
determined, pursuant to the provisions set out below, that such product is being imported
into its territory in such increased quantities, absolute or relative to domestic production, and
under such conditions as to cause or threaten to cause serious injury to the domestic
industry that produces like or directly competitive products.130
3. (a) A Member may apply a safeguard measure only following an investigation by the
competent authorities of that Member pursuant to procedures previously established and
made public in consonance with Article X of the GATT 1994. This investigation shall include
reasonable public notice to all interested parties and public hearings or other appropriate
means in which importers, exporters and other interested parties could present evidence and
their views, including the opportunity to respond to the presentations of other parties and to
submit their views, inter alia, as to whether or not the application of a safeguard measure
would be in the public interest. The competent authorities shall publish a report setting forth
their findings and reasoned conclusions reached on all pertinent issues of fact and law. 131
The SMA was designed not to contradict the GATT, but to complement it. The two requisites laid
down in Section 5 for a positive final determination are the same conditions provided under the
GATT Agreement on Safeguards for the application of safeguard measures by a member country.
Moreover, the investigatory procedure laid down by the SMA conforms to the procedure required by
the GATT Agreement on Safeguards. Congress has chosen the Tariff Commission as the competent
authority to conduct such investigation. Southern Cross stresses that applying the provision of the
GATT Agreement on Safeguards, the Tariff Commission is clearly empowered to arrive at binding
conclusions. We agree: binding on the DTI Secretary is the Tariff Commission's determinations on
132
whether a product is imported in increased quantities, absolute or relative to domestic production

and whether any such increase is a substantial cause of serious injury or threat thereof to the
domestic industry. 133
Satisfied as we are with the proper statutory paradigm within which the SMA should be analyzed, the
flaws in the reasoning of the Court of Appeals and in the arguments of the respondents become
apparent. To better understand the dynamics of the procedure set up by the law leading to the
imposition of definitive safeguard measures, a brief step-by-step recount thereof is in order.
1. After the initiation of an action involving a general safeguard measure, the DTI Secretary makes
134
a preliminary determination whether the increased imports of the product under consideration
substantially cause or threaten to substantially cause serious injury to the domestic industry, and 135
whether the imposition of a provisional measure is warranted under Section 8 of the SMA. If the
136
preliminary determination is negative, it is implied that no further action will be taken on the
application.
2. When his preliminary determination is positive, the Secretary immediately transmits the records
covering the application to the Tariff Commission for immediate formal investigation. 137
3. The Tariff Commission conducts its formal investigation, keyed towards making a final
determination. In the process, it holds public hearings, providing interested parties the opportunity to
present evidence or otherwise be heard. To repeat, Section 5 enumerates what the Tariff
138
Commission is tasked to determine: (a) whether a product is being imported into the country in
increased quantities, irrespective of whether the product is absolute or relative to the domestic
production; and (b) whether the importation in increased quantities is such that it causes serious
injury or threat to the domestic industry. The findings of the Tariff Commission as to these matters
139
constitute the final determination, which may be either positive or negative.

4. Under Section 13 of the SMA, if the Tariff Commission makes a positive determination, the Tariff
Commission "recommends to the [DTI] Secretary an appropriate definitive measure." The Tariff
Commission "may also recommend other actions, including the initiation of international negotiations
to address the underlying cause of the increase of imports of the products, to alleviate the injury or
threat thereof to the domestic industry, and to facilitate positive adjustment to import competition." 140
5. If the Tariff Commission makes a positive final determination, the DTI Secretary is then to decide,
within fifteen (15) days from receipt of the report, as to what appropriate safeguard measures should
he impose.
6. However, if the Tariff Commission makes a negative final determination, the DTI Secretary cannot
impose any definitive safeguard measure. Under Section 13, he is instructed instead to return
whatever cash bond was paid by the applicant upon the initiation of the action for safeguard
measure.
The Effect of the Court's Decision
The Court of Appeals erred in remanding the case back to the DTI Secretary, with the instruction
that the DTI Secretary may impose a general safeguard measure even if there is no positive final
determination from the Tariff Commission. More crucially, the Court of Appeals could not have
acquired jurisdiction over Philcemcor's petition for certiorari in the first place, as Section 29 of the
SMA properly vests jurisdiction on the CTA. Consequently, the assailed Decision is an absolute
nullity, and we declare it as such.
What is the effect of the nullity of the assailed Decision on the 5 June 2003 Decision of the DTI
Secretary imposing the general safeguard measure? We have recognized that any initial judicial
review of a DTI ruling in connection with the imposition of a safeguard measure belongs to the CTA.
At the same time, the Court also recognizes the fundamental principle that a null and void judgment
cannot produce any legal effect. There is sufficient cause to establish that the 5 June
2003 Decision of the DTI Secretary resulted from the assailed Court of Appeals Decision, even if the
latter had not yet become final. Conversely, it can be concluded that it was because of the putative
imprimatur of the Court of Appeals' Decision that the DTI Secretary issued his ruling imposing the
safeguard measure. Since the 5 June 2003 Decision derives its legal effect from the void Decision of
the Court of Appeals, this ruling of the DTI Secretary is consequently void. The spring cannot rise
higher than the source.
The DTI Secretary himself acknowledged that he drew stimulating force from the appellate
court's Decision for in his own 5 June 2003 Decision, he declared:
From the aforementioned ruling, the CA has remanded the case to the DTI Secretary for a
final decision. Thus, there is no legal impediment for the Secretary to decide on the
application.141
The inescapable conclusion is that the DTI Secretary needed the assailed Decision of the Court of
Appeals to justify his rendering a second Decision. He explicitly invoked the Court of
Appeals' Decision as basis for rendering his 5 June 2003 ruling, and implicitly recognized that
without such Decision he would not have the authority to revoke his previous ruling and render a
new, obverse ruling.
It is clear then that the 25 June 2003 Decision of the DTI Secretary is a product of the void Decision,
it being an attempt to carry out such null judgment. There is therefore no choice but to declare it void
as well, lest we sanction the perverse existence of a fruit from a non-existent tree. It does not even
matter what the disposition of the 25 June 2003 Decision was, its nullity would be warranted even if
the DTI Secretary chose to uphold his earlier ruling denying the application for safeguard measures.
It is also an unfortunate spectacle to behold the DTI Secretary, seeking to enforce a judicial decision
which is not yet final and actually pending review on appeal. Had it been a judge who attempted to
enforce a decision that is not yet final and executory, he or she would have readily been subjected to
sanction by this Court. The DTI Secretary may be beyond the ambit of administrative review by this
Court, but we are capacitated to allocate the boundaries set by the law of the land and to exact fealty
to the legal order, especially from the instrumentalities and officials of government.
WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals is

DECLARED NULL AND VOID and SET ASIDE. The Decision of the DTI Secretary dated 25 June
2003 is also DECLARED NULL AND VOID and SET ASIDE. No Costs.
SO ORDERED.

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G.R. No.

197515 July 2, 2014

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

Assessment Notice No. Tax Covered Period Amount

portion of which provides:

Hence, the instant petition raising the following issues:

Now, to the first issue.

of the reconsidered or modified assessment. 54

This argument fails to persuade us.

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

ALLIED BANKING CORPORATION, Petitioner,

The key to effective communication is clarity.

Proceedings before the CTA First Division

Proceedings before the CTA En Banc

The petition is meritorious.

Sec. 7. Jurisdiction. — The CTA shall exercise:

(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed

(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed

SECTION 228. Protesting of Assessment. – When the Commissioner or his duly authorized

The case is an exception to the

The Formal Letter of Demand with Assessment Notices reads:

In Oceanic Wireless Network, Inc. v. Commissioner of Internal Revenue,25 we considered the

MARIANO C. DEL CASTILLO

LASCONA LAND CO., INC., Petitioner,

The facts, as culled from the records, are as follows:

Subject: LASCONA LAND CO., INC.

1993 Deficiency Income Tax

Dissatisfied, the CIR filed an appeal before the CA. 9

Thus, the instant petition, raising the following issues:

THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT HELD THAT THE

The petition is meritorious.

SEC. 228. Protesting of Assessment. − x x x

Such assessment may be protested administratively by filing a request for reconsideration or

(a) Exclusive original or appellate jurisdiction to review by appeal the following:

(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed

(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed

G.R. No. 193100, December 10, 2014

SAMAR-I ELECTRIC COOPERATIVE, Petitioner, v. COMMISSIONER OF INTERNAL

Samar-I Electric Cooperative, Inc. (Petitioner) is an electric cooperative, with principal

Respondent Commissioner of Internal Revenue is a public officer authorized under the

Petitioner cooperated in the audit and investigation conducted by the Special

In response, petitioner sent a letter dated November 26, 2001 to respondent

On December 13, 2001, petitioner executed a Waiver of the Defense of Prescription

On February 27, 2002, a letter was sent by petitioner to respondent requesting a

However, on July 8, 2002, respondent dismissed petitioner’s protest and recommended

Consequently, on September 15, 2002, petitioner received a demand letter and

I. Whether or not SAMELCO-I is entitled to tax privileges accorded to

WHEREFORE, premises considered, We deny the petitions for lack of merit.

A. The Honorable CTA En Banc gravely erred in holding that respondent sufficiently

SEC. 203. Period of Limitation Upon Assessment and Collection. – Except as provided in

SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes.

(e) Provided, however, That nothing in the immediately preceding Section and

SEC. 228. Protesting of Assessment. – x x x

A void assessment bears no valid fruit.

We disagree. The advice of tax deficiency, given by the CIR to an employee of

please be informed that the cooperative’s deficiency withholding taxes on compensation

2. Deficiency Withholding Taxes on Compensation for 1997-1999 are the

The above information provided to petitioner enabled it to protest the PAN by

Considering the foregoing exchange of correspondence and documents between the

With costs against the petitioner.

G.R. No. 185371 December 8, 2010

On November 8, 2001, Revenue District Officer Socorro O. Ramos-Lafuente issued a Preliminary

ASSESSMENT NOTICE NO. 067-99-003-579-072

VALUE ADDED TAX