[G.R. No. 231581. April 10, 2019.
] unutilized or excess creditable withholding taxes for taxable year ending December
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. UNIVATION MOTOR
PHILIPPINES, INC. (formerly NISSAN MOTOR PHILIPPINES, INC.), respondent.
DECISION
J.C. REYES, JR., J p:
This resolves the Petition for Review on Certiorari 1 seeking to nullify the December
22, 2016 Decision 2 and the April 27, 2017 Resolution 3 of the Court of Tax Appeals
(CTA) En Banc, which respectively dismissed petitioner Commissioner for Internal
Revenue's (petitioner CIR's) Petition for Review thereby partially granting
respondent's judicial claim for refund and/or issuance of Tax Credit Certificate for
its excess creditable income tax, and denied petitioner CIR's Motion for
Reconsideration, in CTA EB No. 1333.
On July 8, 2011, Univation Motor Philippines, Inc. (respondent) filed its amended
Annual Income Tax Return (ITR) for 2010 4 showing a total gross income of
P117,084,174.00 and an overpayment of income taxes amounting to
P26,103,898.52. Respondent opted to claim its overpayment of income tax through
the issuance of a tax credit certificate. On March 12, 2012, respondent filed its
administrative claim 5 with the Bureau of Internal Revenue (BIR) explaining that the
overpayment of P26,103,898.52 consists of prior year's excess credits in the
amount of P15,576,837.00 less Minimum Corporate Income Tax amounting to
P2,341,683.48 and creditable withholding taxes accumulated during the four
quarters of 2010 in the amount of P12,868,745.00. Respondent filed its Application
for Tax Credit 6 in the amount of P12,868,745.00. Since the BIR has not yet acted
upon respondent's administrative claim, petitioner filed a Petition for Review with
the CTA on April 12, 2013. 7
In its Answer, petitioner CIR raised the following special and affirmative defenses:
(a) respondent's claim for refund is tainted with procedural infirmity due to
petitioner's failure to submit complete documents in support of its administrative
claim for refund; (b) petitioner miserably failed to exhaust administrative remedies
before elevating the case to this Court; and (c) claims for refund are construed
strictly against the taxpayer and in favor of the government.
During trial, respondent presented and formally offered its testimonial and
documentary evidence which were all admitted in the Resolutions dated May 22,
2014 and August 11, 2014. Petitioner CIR's counsel manifested during hearing that
he will no longer present any evidence.
On March 10, 2015, the CTA First Division rendered a Decision 8 which partially
granted respondent's Petition for Review and ordered petitioner CIR to issue a tax
credit certificate in the amount of P12,729,617.90 representing respondent's
1
21, 2010. Petitioner CIR filed a Motion for Reconsideration but the CTA First
Division denied the said Motion in a Resolution 9 dated June 30, 2015.
Petitioner CIR elevated the case to the CTA En Banc. Finding respondent's
documentary evidence as sufficient, the CTA En Banc issued the now appealed
Decision dated December 22, 2016 affirming the Decision of the CTA First Division.
Petitioner CIR moved to reconsider but just the same, its motion was denied in a
Resolution dated April 27, 2017. CAIHTE
Dissatisfied with the Decision of the CTA En Banc, petitioner CIR filed the instant
petition with this Court raising the following issues, to wit:
I.
WHETHER THE CTA HAS PREMATURELY ASSUMED JURISDICTION ON
RESPONDENT'S JUDICIAL CLAIM FOR TAX REFUND OR CREDIT WITHOUT WAITING
FOR THE DECISION OF PETITIONER.
II.
WHETHER THE CTA EN BANC ERRED IN GRANTING RESPONDENT'S CLAIM FOR
REFUND DESPITE ITS FAILURE TO SUBSTANTIATE ITS CLAIM BY SUFFICIENT
DOCUMENTARY PROOF.
Petitioner CIR argued that respondent prematurely filed its judicial claim with the
CTA depriving it with the opportunity to act on the administrative claim for
refund/tax credit in violation of the doctrine of exhaustion of administrative
remedies. Petitioner CIR also argued that respondent's administrative claim should
be considered pro-forma for failure to submit the complete supporting documents
as required by Revenue Memorandum Order (RMO) No. 53-98 and Revenue
Regulations No. 2-2006.
Respondent, however, explained that if it waited for the CIR's decision on its claim
for refund, it would have suffered irreparable damage as it would have been barred
from seeking judicial recourse.
The issue is not novel.
Sections 204 and 229 of the National Internal Revenue Code (NIRC) provide for the
refund of erroneously or illegally collected taxes. Section 204 applies to
administrative claims for refund, while Section 229 to judicial claims for refund. 10
Thus:
SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or
Credit Taxes. — The Commissioner may —
xxx xxx xxx
(c) Credit or refund taxes erroneously or illegally received or penalties imposed
without authority, refund the value of internal revenue stamps when they are
returned in good condition by the purchaser, and, in his discretion, redeem or
change unused stamps that have been rendered unfit for use and refund their
value upon proof of destruction. No credit or refund of taxes or penalties shall be
allowed unless the taxpayer files in writing with the Commissioner a claim for
credit or refund within two (2) years after the payment of the tax or penalty:
Provided, however, That a return filed showing an overpayment shall be
considered as a written claim for credit or refund. 11
Section 229 of the 1997 NIRC provides:
Sec. 229. Recovery of Tax Erroneously or Illegally Collected. — No suit or
proceeding shall be maintained in any court for the recovery of any national
internal revenue tax hereafter alleged to have been erroneously or illegally
assessed or collected, or of any penalty claimed to have been collected without
authority, of any sum alleged to have been excessively or in any manner wrongfully
collected without authority, or of any sum alleged to have been excessively or in
any manner wrongfully collected, until a claim for refund or credit has been duly
filed with the Commissioner; but such suit or proceeding may be maintained,
whether or not such tax, penalty, or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two
(2) years from the date of payment of the tax or penalty regardless of any
supervening cause that may arise after payment. Provided, however, That the
Commissioner may, even without a written claim therefor, refund or credit any tax,
where on the face of the return upon which payment was made, such payment
appears clearly to have been erroneously paid. (Emphasis supplied)
Indeed, the two-year period in filing a claim for tax refund is crucial. While the law
provides that the two-year period is counted from the date of payment of the tax,
jurisprudence, however, clarified that the two-year prescriptive period to claim a
refund actually commences to run, at the earliest, on the date of the filing of the
adjusted final tax return 12 because this is where the figures of the gross receipts
and deductions have been audited and adjusted, reflective of the results of the
operations of a business enterprise. 13 "Thus, it is only when the Adjustment
Return covering the whole year is filed that the taxpayer would know whether a tax
is still due or a refund can be claimed based on the adjusted and audited figures."
14
In the instant case, the two-year period to file a claim for refund is reckoned from
April 15, 2011, the date respondent filed its Final Adjustment Return. Since
respondent filed its administrative claim on March 12, 2012 and its judicial claim on
April 12, 2013, therefore, both of respondent's administrative and judicial claim for
2
refund were filed on time or within the two-year prescriptive period provided by
law. Under the circumstances, if respondent awaited for the commissioner to act
on its administrative claim (before resort to the Court), chances are, the two-year
prescriptive period will lapse effectively resulting to the loss of respondent's right
to seek judicial recourse and worse, its right to recover the taxes it erroneously
paid to the government. Hence, respondent's immediate resort to the Court is
justified.
Contrary to petitioner CIR's assertion, there was no violation of the doctrine of
exhaustion of administrative remedies. The Court ruled: DETACa
x x x the Court agrees with the ratiocination of the CTA En Banc in debunking the
alleged failure to exhaust administrative remedies. Had CBK Power awaited the
action of the Commissioner on its claim for refund prior to taking court action
knowing fully well that the prescriptive period was about to end, it would have lost
not only its right to seek judicial recourse but its right to recover the final
withholding taxes it erroneously paid to the government thereby suffering
irreparable damage. 15 (Citation omitted)
The law only requires that an administrative claim be priorly filed. 16 That is, to
give the BIR at the administrative level an opportunity to act on said claim. 17 In
other words, for as long as the administrative claim and the judicial claim were filed
within the two-year prescriptive period, then there was exhaustion of the
administrative remedies.
At any rate, Section 7 of Republic Act No. 9282, amending Republic Act No. 1125,
provides that the CTA has exclusive appellate jurisdiction over tax refund claims in
case the Commissioner fails to act on them:
Sec. 7. Jurisdiction. — The CTA shall exercise:
(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:
(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the National Internal Revenue or
other laws administered by the Bureau of Internal Revenue;
(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the National Internal Revenue Code
or other laws administered by the Bureau of Internal Revenue, where the National
Internal Revenue Code provides a specific period of action, in which case the
inaction shall be deemed a denial;
(3) Decisions, orders or resolutions of the Regional Trial Courts in local tax cases
originally decided or resolved by them in the exercise of their original or appellate
jurisdiction. (Emphasis supplied)
This means that while the Commissioner has the right to hear a refund claim first, if
he or she fails to act on it, it will be treated as a denial of the refund, and the CTA is
the only entity that may review this ruling. 18 Respondent need not wait for the
Commissioner to act on its administrative claim for refund. Thus, in the old case of
P.J. Kiener Co., Ltd. v. David, 19 the Court held:
x x x Nowhere and in no wise does the law imply that the Collector of Internal
Revenue must act upon the claim, or that the taxpayer shall not go to court before
he is notified of the Collector's action. Having filed his claim and the Collector of
Internal Revenue having had ample time to study it, the claimant may, indeed
should, within the statutory period of two years proceed with his suit without
waiting for the Collector's decision. We understand the filing of the claim with the
Collector of Internal Revenue to be intended primarily as a notice or warning that
unless the tax or penalty alleged to have been collected erroneously or illegally is
refunded, court action will follow. x x x 20
Petitioner CIR argued that failure of the respondent to submit the required
complete documents as required by Revenue Memorandum Order No. 53-98 and
Revenue Regulations No. 2-2006 rendered the petition with the CTA dismissible on
the ground of lack of jurisdiction. It reasoned out that when a taxpayer
prematurely filed a judicial claim with the CTA, the latter has no jurisdiction over
the appeal.
In the instant case, respondent's failure to submit the complete documents at the
administrative level did not render its petition for review with the CTA dismissible
for lack of jurisdiction. At this point, it is necessary to determine the grounds relied
upon by a taxpayer in filing its judicial claim with the CTA. The case of Pilipinas
Total Gas, Inc. v. Commissioner of Internal Revenue 21 is instructive, thus:
A distinction must, thus, be made between administrative cases appealed due to
inaction and those dismissed at the administrative level due to the failure of the
taxpayer to submit supporting documents. If an administrative claim was dismissed
by the CIR due to the taxpayer's failure to submit complete documents despite
notice/request, then the judicial claim before the CTA would be dismissible, not for
lack of jurisdiction, but for the taxpayer's failure to substantiate the claim at the
administrative level. When a judicial claim for refund or tax credit in the CTA is an
appeal of an unsuccessful administrative claim, the taxpayer has to convince the
CTA that the CIR had no reason to deny its claim. It, thus, becomes imperative for
the taxpayer to show the CTA that not only is he entitled under substantive law to
his claim for refund or tax credit, but also that he satisfied all the documentary and
3
evidentiary requirements for an administrative claim. It is, thus, crucial for a
taxpayer in a judicial claim for refund or tax credit to show that its administrative
claim should have been granted in the first place. Consequently, a taxpayer cannot
cure its failure to submit a document requested by the BIR at the administrative
level by filing the said document before the CTA. 22 aDSIHc
In this case, it was the inaction of petitioner CIR which prompted respondent to
seek judicial recourse with the CTA. Petitioner CIR did not send any written notice
to respondent informing it that the documents it submitted were incomplete or at
least require respondent to submit additional documents. As a matter of fact,
petitioner CIR did not even render a Decision denying respondent's administrative
claim on the ground that it had failed to submit all the required documents.
Considering that the administrative claim was never acted upon, there was no
decision for the CTA to review on appeal per se. However, this does not preclude
the CTA from considering evidence that was not presented in the administrative
claim with the BIR. 23 Thus, RA No. 1125 states:
Section 8. Court of record; seal; proceedings. — The Court of Tax Appeals shall be a
court of record and shall have a seal which shall be judicially noticed. It shall
prescribe the form of its writs and other processes. It shall have the power to
promulgate rules and regulations for the conduct of the business of the Court, and
as may be needful for the uniformity of decisions within its jurisdiction as conferred
by law, but such proceedings shall not be governed strictly by technical rules of
evidence.
The law creating the CTA specifically provides that proceedings before it shall not
be governed strictly by the technical rules of evidence. 24 The paramount
consideration remains the ascertainment of truth. 25 Thus, the CTA is not limited
by the evidence presented in the administrative claim in the Bureau of Internal
Revenue. 26 The claimant may present new and additional evidence to the CTA to
support its case for tax refund. 27
Cases filed in the CTA are litigated de novo as such, respondent "should prove every
minute aspect of its case by presenting, formally offering and submitting x x x to
the Court of Tax Appeals all evidence x x x required for the successful prosecution
of its administrative claim." 28 Consequently, the CTA may give credence to all
evidence presented by respondent, including those that may not have been
submitted to the CIR as the case is being essentially decided in the first instance. 29
The issue of whether or not respondent was able to prove by preponderance of
evidence its entitlement to the issuance of a Tax Credit certificate, the same is a
factual matter. "It is doctrinal that the Court will not lightly set aside the
conclusions reached by the CTA which, by the very nature of its function of being
dedicated exclusively to the resolution of tax problems, has developed an expertise
on the subject, unless there has been an abuse or improvident exercise of
authority." 30
Jurisprudence laid down the basic requirements in order for a taxpayer to claim tax
credit or refund of creditable withholding tax, thus: (1) The claim must be filed with
the CIR within the two-year period from the date of payment of the tax, as
prescribed under Section 229 of the NIRC of 1997; (2) The fact of withholding is
established by a copy of a statement duly issued by the payor to the payee showing
the amount paid and the amount of tax withheld; and (3) It must be shown on the
return of the recipient that the income received was declared as part of the gross
income. 31 The second and third requirements are found under Section 2.58.3 (B)
of Revenue Regulations No. 2-98, 32 as amended, which reads:
Section 2.58.3. Claim for tax credit or refund. — (B) Claims for tax credit or refund
of any creditable income tax which was deducted and withheld on income payment
shall be given due course only when it is shown that the income payment has been
declared as part of the gross income and the fact of withholding is established by a
copy of the withholding tax statement duly issued by the payor to the payee
showing the amount paid and the amount of tax withheld therefrom.
Petitioner CIR insisted on the absence of the second and third requirements. It
argued that respondent failed to prove the fact of withholding, showing the
amount paid and the amount of tax withheld and that the income it received was
declared as part of the gross income. Specifically, petitioner CIR questioned
respondent when it included the creditable withholding taxes pertaining to income
payments for the years 2006, 2008 and 2009 to form part of its claim for refund for
the year 2010.
In this case, respondent was able to establish through the documentary evidence it
submitted compliance with the second and third requisites. As correctly evaluated
by the CTA 1st division:
To prove its compliance with the second requisite, petitioner [now respondent]
presented Schedule/Summary of Creditable Taxes Withheld for the year 2010 and
the related Certificates of Creditable Taxes Withheld at Source (BIR Form No. 2307)
duly issued to it by various withholding agents for the year 2010, reflecting
creditable withholding taxes in the total amount of P12,868,745.87.
Anent the third requisite, the court was able to trace the income payments related
to the substantiated CWT of P12,868,745.87 (save for the amount of P139,127.97
CWT) to petitioner's General Ledger (GL) for CY 2010, 2009, 2008 and 2006 and
noted that the same were reported in petitioner's Annual ITRs for the years 2010,
2009, 2008 and 2006. 33
4
It must be noted that while the income payments from which the CWTs which were
declared in its return covered the years 2006, 2008, 2009 and 2010, there was
nothing wrong with it as what is important is that the respondent complied with
the third requisite, that is, the income which the taxes were withheld was included
in the returns of the respondent. ETHIDa
The CTA En Banc correctly appreciated the explanation of the independent CPA
(ICPA) why the income payments from which the CWT amounting to
P12,729,617.90 were withheld, were declared in its returns covering the years
2006, 2008, 2009 and 2010. In gist, the ICPA suggests that there were delays in
collection of certain income payments to respondent. For one, certain sales made
by respondent to its dealers in 2008 and 2009 were only paid in 2010. In other
words, there were certain income payments which, although respondent expected
to receive in 2006, 2008 and 2009, were only remitted to it in 2010. As concluded
by the CTA En Banc, the delay in collection of certain income payments of
respondent caused the timing difference between the actual reporting of the
income by respondent and the actual withholding of the corresponding creditable
income tax by respondent's customers. 34 What is important is that the creditable
withholding taxes corresponding to the related income in the respondent's books
for CY's 2006, 2008 and 2009 were not yet claimed as income tax credits in
respondent's annual ITRs corresponding to the said years. Hence, it is just proper
that these income payments should form part of respondent's tax credit for 2010.
Again, 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 x
x x. 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 x x x. 35 On this score, we give highest respect to the factual findings of the
CTA, which 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. 36 No
such exception obtains in this case and thus, we presume that the CTA rendered a
decision which is valid in every respect.
WHEREFORE, the instant Petition is DENIED. The December 22, 2016 Decision and
the April 27, 2017 Resolution of the Court of Tax Appeals En Banc, respectively
sustaining the findings of the CTA 1st Division and denying petitioner CIR's Motion
for Reconsideration, in CTA EB No. 1333, are AFFIRMED. Accordingly, the
Commissioner of the Bureau of Internal Revenue is DIRECTED to issue a Tax Credit
Certificate in favor of Univation Motor Philippines, Inc. in the amount of
P12,729,617.90 representing its unutilized or excess creditable withholding tax for
the taxable year 2010.
SO ORDERED.
[G.R. No. 210604. June 3, 2019.]
MISNET, INC., petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
J.C. REYES, JR., J p:
This resolves the Petition for Review on Certiorari from the Decision 1 dated July
15, 2013 and Resolution 2 dated December 9, 2013 of the Court of Tax Appeals
(CTA) En Banc, in CTA EB Case No. 915.
On November 29, 2006, petitioner received a Preliminary Assessment Notice (PAN)
3 from respondent Commissioner of Internal Revenue (CIR) stating that after
examination, there was an alleged deficiency in taxes for taxable year 2003
amounting to P11,329,803.61, representing the expanded withholding tax (EWT)
and final withholding VAT. Petitioner filed a letter-protest on the PAN.
Thereafter, on January 23, 2007, petitioner received a Formal Assessment Notice
(FAN) 4 which states that petitioner's tax deficiency for the year 2003, amounted to
P11,580,749.31, inclusive of P25,000.00 Compromise Penalty. Thus:
 
Expanded Withholding Tax (EWT) P1,781,873.55
Final Withholding of VAT 9,773,875.76
  –––––––––––––
SUBTOTAL 11,555,749.31
Add: Compromise Penalty 25,000.00
  –––––––––––––
TOTAL P11,580,749.31
  ============
On February 9, 2007, petitioner paid the amount of P2,152.41 for certain
undisputed assessments. 5 On the same day, petitioner administratively protested
the FAN by filing a request for reconsideration. 6 The CIR acknowledged receipt of
the payment and the protest letter and informed the petitioner that its tax docket
had been forwarded to Revenue District Officer (RDO) No. 049, North Makati. 7 On
May 28, 2007, the CIR informed petitioner that Revenue Officer (RO) Josephine L.
Paralejas has been authorized to verify the documents relative to its request for
5
reinvestigation and reiterated the previous assessment of petitioner's deficiency
taxes for taxable year 2003 in the amount of P11,580,749.31. 8 On June 1, 2007,
petitioner sent a letter to RO Josephine L. Paralejas reiterating its protest to the
PAN and the FAN.
On April 28, 2008, the CIR again wrote a letter to petitioner informing it that it
found additional deficiency taxes due. 9 On May 8, 2008, petitioner protested this
letter.
On March 28, 2011, petitioner received an Amended Assessment Notice reflecting
an amended deficiency EWT after reinvestigation. On the same date, petitioner
received a Final Decision on Disputed Assessment (FDDA) stating that after
reinvestigation, there was still due from petitioner the amount of P14,564,323.34,
representing deficiency taxes, broken down as follows:
 
Expanded Withholding Tax P430,716.17
(with Interest)
Final Withholding of VAT 14,108,607.17
(with 25% Surcharge & Interest)
Compromise Penalty 25,000.00
  ––––––––––––––
TOTAL P14,564,323.34
  =============
 
This FDDA was received by petitioner on March 28, 2011. 10
On April 8, 2011, petitioner filed a letter-reply 11 to the Amended Assessment
Notice and FDDA, which was received by the CIR on April 11, 2011. On May 9, 2011,
the CIR sent a letter 12 to petitioner which states in part that petitioner's letter-
reply dated April 8, 2011 produced no legal effect since it availed of the improper
remedy. 13 It should have appealed the final decision of the CIR to the Court of Tax
Appeals within thirty (30) days from the date of receipt of the said Decision,
otherwise, the assessment became final, executory and demandable. 14
On May 27, 2011, petitioner filed a Petition for Relief from Judgment 15 with
respondent Commissioner arguing that it was not able to file its proper appeal of
the FDDA due to its mistake and excusable negligence as it was not assisted by
counsel. On June 29, 2011, petitioner received a Preliminary Collection Letter 16
dated June 22, 2011, which is deemed a denial of petitioner's Petition for Relief. 17
On July 26, 2011, petitioner filed a Petition for Review 18 docketed as CTA Case No.
8313, with the Court of Tax Appeals which was raffled to the First Division.
Meanwhile, the CIR filed a Motion to Dismiss the petition on the ground of lack of
jurisdiction — arguing that the assessment against petitioner has become final,
executory and demandable for its failure to file an appeal within the prescribed
period of thirty (30) days.
In a Resolution dated March 27, 2012, 19 the CTA 1st Division granted CIR's Motion
to Dismiss. Petitioner filed a Motion for Reconsideration 20 of the March 27, 2012
Resolution. On June 27, 2012, petitioner received from CTA 1st Division a
Resolution dated June 22, 2012 21 denying its Motion for Reconsideration.
On July 12, 2012, petitioner filed a Petition for Review (CTA EB Case No. 915) with
the CTA En Banc.
In a Decision dated July 15, 2013, the CTA En Banc dismissed petitioner's Petition
for Review on the ground of lack of jurisdiction as the lapse of the statutory period
to appeal rendered the subject deficiency taxes final, executory and demandable.
22 On August 6, 2013, petitioner filed a Motion for Reconsideration but the said
Motion was denied in a Resolution dated December 9, 2013. 23
Dissatisfied, petitioner filed the instant Petition with this Court raising the lone
issue that —
THE HONORABLE COURT OF TAX APPEALS [EN BANC] GRAVELY ERRED IN
DISMISSING THE PETITION FOR REVIEW FOR LACK OF JURISDICTION, BECAUSE IT
THEREBY DISREGARDED THE REMEDY OF PETITION FOR RELIEF IN TAX CASES,
PURSUANT TO SECTION 3 OF RULE 1 OF THE REVISED RULES OF THE COURT OF TAX
APPEALS, SECTIONS 1 TO 3 OF RULE 38 OF THE RULES OF COURT, AND THE RULING
OF THE SUPREME COURT IN THE CASE OF GESULGON [V.] NLRC. 24
Otherwise stated, the issue obtaining in the instant case is whether or not the CTA
En Banc correctly dismissed petitioner's Petition for Review on the ground of lack
of jurisdiction.
Section 228 of the 1997 National Internal Revenue Code of the Philippines
(NIRC)which provides for the remedies of a taxpayer in case of an adverse final
decision by the CIR on Disputed Assessment, thus:
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: x x x
xxx xxx xxx
6
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 (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)
It bears to stress that the perfection of an appeal within the statutory period is a
jurisdictional requirement and failure to do so renders the questioned decision or
decree final and executory and no longer subject to review. 25
In the instant case, petitioner allegedly failed to observe the 30-day period within
which to appeal the final decision of the CIR to the CTA. As records would show,
petitioner admittedly received the FDDA on March 28, 2011. Reckoned from this
date of receipt, it has until April 27, 2011, within which to appeal with the CTA.
However, petitioner filed its appeal (Petition for Review) only on July 26, 2011 or
after the lapse of ninety-three (93) days from its receipt of the FDDA. It appears
that petitioner's filing of an appeal with the CTA was beyond the statutory period
to appeal.
Nonetheless, this Court has on several occasions relaxed this strict requirement.
We have on several instances allowed the filing of an appeal outside the period
prescribed by law in the interest of justice, and in the exercise of its equity
jurisdiction. 26 Thus:
x x x [F]or a party to seek exception for its failure to comply strictly with the
statutory requirements for perfecting its appeal, strong compelling reasons such as
serving the ends of justice and preventing a grave miscarriage thereof must be
shown, in order to warrant the Court's suspension of the rules. Indeed, the Court is
confronted with the need to balance stringent application of technical rules vis-a-
vis strong policy considerations of substantial significance to relax said rules based
on equity and justice. 27 (Emphasis supplied; citation omitted)
Petitioner averred that after receiving the Amended Assessment Notice and the
FDDA of the CIR on March 28, 2011, it filed, without the assistance of a counsel, a
letter protesting the Amended Assessment Notice, with Regional Director Mr.
Jaime B. Santiago, of RDO No. 049, Makati City. This letter of protest was filed by
petitioner on April 11, 2011 28 or within the statutory period within which to
appeal. Apparently, petitioner was merely relying on the statement in the said
Amended Assessment Notice, which reads:
IF YOU DISAGREE WITH THIS ASSESSMENT, FILE YOUR PROTEST IN WRITING
INDICATING YOUR REASONS WITH THE COMMISSIONER OF INTERNAL REVENUE,
BIR DILIMAN, QUEZON CITY OR THE REGIONAL DIRECTOR WITHIN 30 DAYS FROM
RECEIPT HEREOF: x x x 29
Thus, petitioner opted to file the protest with the Regional Director. On May 12,
2011, petitioner received a letter informing it that its filing of a letter of protest was
an improper remedy. 30 Therefore, petitioner, on May 27, 2011, filed a Petition for
Relief from Judgment on the ground of mistake in good faith for relying on the
statement provided in the Amended Assessment Notice. Petitioner contends that
the CTA En Banc should have taken into consideration that the filing of the Petition
for Relief from Judgment has stopped the running of the period to appeal.
Petitioner insists that all of these incidents constitute excusable delay that justified
its belated filing of an appeal with the CTA.
We sustain petitioner's argument.
When petitioner sent a letter-reply 31 dated April 8, 2011 to the Regional Director,
it was actually protesting both the Amended Assessment Notice and the FDDA. The
Amended Assessment Notice 32 reflects the amended deficiency EWT of petitioner
after reinvestigation while the FDDA 33 reflects the Final Decision on: (a)
petitioner's deficiency EWT; (b) Final Withholding of VAT; and (c) Compromise
Penalty. Since the deficiency EWT is a mere component of the aggregate tax due as
reflected in the FDDA, then the FDDA cannot be considered as the final decision of
the CIR as one of its components — the amended deficiency EWT — is still under
protest.
Petitioner was correct when it protested with the Regional Director the deficiency
EWT as per the Amended Assessment Notice sent by the BIR. However, instead of
resolving the protest, the Regional Director informed the petitioner that it was an
improper remedy. A ruling totally inconsistent with the statement reflected in the
Amended Assessment Notice, which states that protest must be filed with the CIR
or the Regional Director within 30 days from receipt thereof. 34 Apparently, the
Regional Director has hastily presumed that petitioner was already protesting the
FDDA, which incidentally was received by petitioner on the same date as that of the
Amended Assessment Notice.
7
With petitioner's pending protest with the Regional Director on the amended EWT,
then technically speaking, there was yet no final decision that was issued by the CIR
that is appealable to the CTA. It is still incumbent for the Regional Director to act
upon the protest on the amended EWT — whether to grant or to deny it. Only
when the CIR settled (deny/grant) the protest on the deficiency EWT could there be
a final decision on petitioner's liabilities. And only when there is a final decision of
the CIR, would the prescriptive period to appeal with the CTA begin to run.
Hence, petitioner's belated filing of an appeal with the CTA is not without strong,
compelling reason. We could say that petitioner was merely exhausting all
administrative remedies available before seeking recourse to the judicial courts.
While the rule is that a taxpayer has 30 days to appeal to the CTA from the final
decision of the CIR, the said rule could not be applied if the Assessment Notice
itself clearly states that the taxpayer must file a protest with the CIR or the
Regional Director within 30 days from receipt of the Assessment Notice. Under the
circumstances obtaining in this case, we opted not to apply the statutory period
within which to appeal with the CTA considering that no final decision yet was
issued by the CIR on petitioner's protest. The subsequent appeal taken by
petitioner is from the inaction of the CIR on its protest.
In this case, petitioner's appeal with the CTA was basically anchored on two points
of contention, to wit: (a) the BIR's assessment of EWT which has no basis in fact
and in law. Petitioner argues that it is not a top 10,000 Corporation, hence, not all
its purchases are subject to the 1% and 2% EWT; and (b) the withholding of the VAT
on royalty payments for the software application it purchased from a non-resident
foreign corporation. Petitioner argues that it is only a reseller (engaged in the buy
and sell) of Microsoft products and not a licensor. Thus, the income payments
made to Microsoft do not constitute royalty income subject to withholding VAT but
merely a business income. It maintained that even Revenue Memorandum Circular
(RMC) No. 44-2005 issued by the Bureau of Internal Revenue (BIR) on September 7,
2005 does not consider payments for computer software as royalties but business
income. And lastly, petitioner argues that RMC No. 7-2003 issued on November 18,
2003, which was relied upon by the BIR in assessing it with deficiency withholding
tax on VAT on royalties, does not expressly state when it would take effect. Thus,
petitioner opined that it cannot be given retroactive effect (to cover its case),
otherwise, it will impose liabilities not existing at the time of its passage.
If petitioner's right to appeal would be curtailed by the mere expediency of holding
that it had belatedly filed its appeal, then this Court as the final arbiter of justice
would be deserting its avowed objective, that is to dispense justice based on the
merits of the case and not on a mere technicality. 35
Since the CTA First Division has the exclusive appellate jurisdiction over decisions of
the Commissioner of Internal Revenue on disputed assessment, 36 it is just proper
to remand the case to it in order to determine whether petitioner is indeed liable
to pay the deficiency withholding tax on VAT on royalties. It should be noted that
the CTA has developed an expertise on the subject of taxation because it is a
specialized court dedicated exclusively to the study and resolution of tax problems.
37 Thus, this Court has no jurisdiction to review tax cases at the first instance
without first letting the CTA study and resolve the same. 38
WHEREFORE, the instant petition is GRANTED. The case is REMANDED to the Court
of Tax Appeals 1st Division which is DIRECTED to reinstate petitioner's Petition for
Review (appeal), in CTA Case No. 8313 and to resolve the same on the merits with
reasonable dispatch.
SO ORDERED.
||| (Misnet, Inc. v. Commissioner of Internal Revenue, G.R. No. 210604, [June 3,
2019])

8
[G.R. No. 241338. April 10, 2019.]
(SGD.) LIBRADA C. BUENA
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. ROCA SECURITY AND
Division Clerk of Court
INVESTIGATION AGENCY, INC., respondent.
 
NOTICE
Footnotes
Sirs/Mesdames :
1. Rollo, pp. 8-23; penned by Associate Justice Esperanza R. Fabon-Victorino with
Please take notice that the Court, First Division, issued a Resolution dated April 10,
Presiding Justice Roman G. Del Rosario, Associate Justices Juanito C. Castañeda, Jr.,
2019 which reads as follows:
Lovell R. Bautista, Erlinda P. Uy (on leave), Caesar A. Casanova, Cielito N. Mindaro-
"G.R. No. 241338 (Commissioner of Internal Revenue v. Roca Security and Grulla, Ma. Belen M. Ringpis-Liban, and Catherine T. Manahan, concurring.
Investigation Agency, Inc.)
2. SEC. 228. Protesting of Assessment. — When the Commissioner or his duly
After review of the records, the Court resolves to DENY the petition for failure to authorized representative finds that proper taxes should be assessed, he shall first
sufficiently show that the Court of Tax Appeals (CTA) En Banc committed any notify the taxpayer of his findings: Provided, however, That a pre-assessment
reversible error in its March 7, 2018 Decision, 1 as to warrant the exercise of the notice shall not be required in the following cases:
Court's appellate jurisdiction. HTcADC
xxx xxx xxx
As correctly held by the CTA En Banc, the Final Assessment Notice (FAN) issued by
   Such assessment may be protested administratively by filing a request for
the Commissioner of Internal Revenue (CIR) is void as it violates respondent's right
reconsideration or reinvestigation within thirty (30) days from receipt of the
to due process. Section 228 2 of the National Internal Revenue Code (NIRC) gives
assessment in such form and manner as may be prescribed by implementing rules
the taxpayer being assessed a period of sixty (60) days from the date of filing a
and regulations. Within sixty (60) days from filing of the protest, all relevant
protest assailing the Preliminary Assessment Notice (PAN) within which to submit
supporting documents shall have been submitted; otherwise, the assessment shall
relevant supporting documents. In this case, the respondent filed its protest on
become final.
April 18, 2013. It had sixty (60) days from that date, or until June 17, 2013, to
present its relevant documents to support its protest against the PAN. Clearly, the xxx xxx xxx
FAN issued by the CIR on April 12, 2013 and received by respondent only on April
||| (Commissioner of Internal Revenue v. Roca Security and Investigation Agency,
19, 2013 violated the latter's right to due process as the latter had only one (1) day
Inc., G.R. No. 241338 (Notice), [April 10, 2019])
(instead of 60 days) to present its relevant documents in support of its protest.
Besides, the 60-day period to protest alluded to in Section 228 of the NIRC refers to
one made against the PAN and not the FAN as the CIR insists, as only upon
expiration of the said period does a contested assessment "become final."
Therefore, the CTA En Banc properly found the CIR to have violated the statutory
guidelines in terms of affording respondent taxpayer the right to due process.
WHEREFORE, the petition is DENIED. The March 7, 2018 Decision of the Court of
Tax Appeals in CTA EB No. 1523 is AFFIRMED. CAIHTE
SO ORDERED." Del Castillo, J., on official business. Jardeleza, J., on official leave.

Very truly yours,

9
[G.R. No. 221780. March 25, 2019.]
COMMISSIONER OF INTERNAL REVENUE,petitioner,vs. V.Y. DOMINGO JEWELLERS,
INC.,respondent.
DECISION
PERALTA, J p:
This is petition for review on certiorari under Rule 45 seeking to reverse and set
aside the Court of Tax Appeals (CTA) En Banc Decision 1 dated July 1, 2015 in CTA
EB Case No. 1170, which granted respondent V.Y. Domingo Jewellers, Inc.'s (V.Y.
Domingo) petition for review, and ordered the remand of the case to the CTA First
Division for further proceedings; and the Resolution 2 dated December 3, 2015
which denied petitioner Commissioner of Internal Revenue's (CIR) motion for
reconsideration.
The facts are as follows:
On September 9, 2009, the Bureau of Internal Revenue (BIR) issued a Preliminary
Assessment Notice 3 (PAN) against V.Y. Domingo, a corporation primarily engaged
in manufacturing and selling emblematic jewelry, assessing the latter the total
amount of P2,781,844.21 representing deficiency income tax and value-added tax,
inclusive of interest, for the taxable year 2006.
V.Y. Domingo filed a Request for Re-evaluation/Re-investigation and
Reconsideration 4 dated September 17, 2009 with the Regional Director of BIR-
Revenue Region No. 6, requesting a "thorough re-evaluation and re-investigation to
verify the accuracy of the computation as well as the accounts included in the
Preliminary Assessment Notice."
V.Y. Domingo then received a Preliminary Collection Letter 5 (PCL) dated August 10,
2011 from the Revenue District Office (RDO) No. 28-Novaliches, informing it of the
existence of Assessment Notice No. 32-06-IT-0242 and Assessment Notice No. 32-
06-VT-0243, both dated November 18, 2010, for collection of its tax liabilities in the
amounts of P1,798,889.80 and P1,365,727.63, respectively, for a total amount of
P3,164,617.43. The PCL likewise stated:
If you want to know the details and/or settle this assessment, may we invite you to
come to this office, within ten (10) days from receipt of this notice. However, if
payment had already been made, please send or bring us copies of the receipts of
payment together with this letter to be our basis for canceling/closing your
liability/ies.
We will highly appreciate if you can give this matter your preferential attention,
otherwise we shall be constrained to enforce the collection thereof thru
10
Administrative Summary Remedies provided for by the law, without further notice.
6 cDSAEI
On September 12, 2011, V.Y. Domingo sent a letter to the BIR Revenue District
Office No. 28 in Quezon City, requesting certified true copies of Assessment Notice
Nos. 32-06-IT-0242 and 32-06-VT-0243. Upon receipt of the requested copies of
the notices on September 15, 2011, V.Y. Domingo filed on September 16, 2011 a
Petition for Review 7 with the CTA in Division, under Section 7 (1) of RA No. 1125
and Section 4, Rule 8 of the Revised Rules of the Court of Tax Appeals
(RRCTA),praying that Assessment Notice Nos. 32-06-IT-0242 and 32-06-VT-0243
dated November 18, 2010 and the PCL dated August 10, 2011 be declared null and
void, cancelled, withdrawn, and with no force and effect, for allegedly having been
issued beyond the prescriptive period for assessment and collection of internal
revenue taxes.
During trial, the CIR filed her Motion to Dismiss 8 the petition for lack of
jurisdiction. She argued that under Republic Act (R.A.) No. 1125 ("An Act Creating
the Court of Tax Appeals"), as amended, and the RRCTA, it is neither the
assessment nor the formal letter of demand that is appealable to the CTA but the
decision of the CIR on a disputed assessment. Claiming that V.Y. Domingo's petition
was anchored on its receipt of the PCL, which it treated as a denial of its Request
for Re-evaluation/Re-investigation and Reconsideration, the CIR further argued
that there was no disputed assessment to speak of, and that the CTA had no
jurisdiction to entertain the said Petition for Review.
In a Resolution 9 dated January 29, 2014, the CTA First Division granted the CIR's
motion and dismissed V.Y. Domingo's Petition for Review. It held that it was
without jurisdiction to entertain the petition, as the rule is that for the CTA to
acquire jurisdiction, as assessment must first be disputed by the taxpayer and
either ruled upon by the CIR to warrant a decision, or denied by the CIR through
inaction. The CTA First Division ruled that what were appealed to it were the
subject assessments, not a decision or the CIR's denial of its protest; thus, the said
assessments had attained finality, and the CTA in Division was without jurisdiction
to entertain the appeal.
V.Y. Domingo's motion for reconsideration having been denied in a Resolution
dated April 23, 2014, it filed on May 30, 2014 a petition for review before the CTA
En Banc.It argued that the CTA First Division erred when it upheld the CIR's position
that V.Y. Domingo should have administratively protested the Assessment Notices
first before filing its Petition for Review. Furthermore, V.Y. Domingo claimed that it
was denied due process when the CIR failed to send the Notice of Final Assessment
to it.
In its Decision dated July 1, 2015, the CTA En Banc granted V.Y. Domingo's Petition
for Review, reversing and setting aside the January 29, 2014 and April 23, 2014
Resolutions of the CTA First Division. It remanded the case to the CTA First Division
for further proceedings to afford the CIR full opportunity to present her evidence. It
held —
Petitioner's case did not fall within the usual procedure in the issuance of an
assessment as respondent failed to serve or send the FAN to petitioner. Section
228 of the NIRC of 1997, as amended, and Section 3 of Revenue Regulations No.
12-99 are silent as to the procedure to be followed in case the taxpayer did not
receive the FAN but instead receives a preliminary collection letter or a warrant of
distraint/levy or similar communications, informing the taxpayer of the existence of
a FAN for the first time. Understandably, this would cause some confusion as to
what the next step it. Hence, petitioner cannot be faulted for not filing an
administrative protest before filing a petition for review before the Court in
Division since it did not receive the FAN and the language of the PCL shows that the
respondent is already demanding payment from petitioner presupposing that the
assessment has become final. 10
Thus, the present petition raising the sole issue of whether the First Division of the
CTA has jurisdiction to entertain V.Y. Domingo's petition for review.
The CIR argues that assessment notices are not appealable to the CTA as the power
to decide disputed assessments is vested in the CIR, subject only to the exclusive
appellate jurisdiction of the CTA. The CIR adds that a thorough review of V.Y.
Domingo's petition for review before the CTA First Division would readily show that
it was an original protest on the assessment made by the petitioner, a matter that,
under R.A. No. 1125, is not within the jurisdiction of the CTA. SIcCTD
The CIR likewise claims that a close scrutiny of V.Y. Domingo's petition for review
before the CTA would reveal that it was anchored on its receipt of the PCL issued
by the BIR, which V.Y. Domingo mistakenly treated as a denial of its motion for
reinvestigation of the PAN. 11 Before V.Y. Domingo filed its petition for review
before the CTA First Division on September 16, 2011, it had already received copies
of Assessment Notice Nos. 32-06-IT-0242 and 32-06-VT-0243 and the Formal Letter
of Demand (FLD) dated September 9, 2010. However, instead of challenging the
contents of the said assessment notices by filing the appropriate protest or motion
for reinvestigation within thirty (30) days from September 15, 2011, the date it
received the copies of the notices, the CIR laments that V.Y. Domingo opted to
immediately institute a petition for review on the basis of the PCL. 12 This, argues
the CIR, is in clear violation of the doctrine of exhaustion of administrative
remedies.
11
This Court, through a Resolution 13 dated March 7, 2016, required respondent V.Y.
Domingo to comment on the Petition for Review.
In its Comment, 14 V.Y. Domingo contends that contrary to the CIR's allegation, the
CTA has jurisdiction to take cognizance of its Petition for Review. Citing Section 7 of
R.A. No. 1125, as amended, V.Y. Domingo suggests that the CIR may have
disregarded the fact that the jurisdiction of the CTA is not limited to review of
decisions of the CIR in cases involving disputed assessments only, but also includes
"other matters arising under the National Internal Revenue or other laws
administered by the Bureau of Internal Revenue." 15 V.Y. Domingo reiterates that
its case does not involve an appeal from a decision of the CIR on a disputed
assessment since in the first place, there is no "disputed" assessment to speak of.
16
Furthermore, V.Y. Domingo also claims that the tenor of the PCL forecloses any
opportunity for it to file its administrative protest as a reading of the same will
show that the CIR had already decided to deny any protest as regards the
assessment made against the respondent taxpayer. 17
We rule for the petitioner.
At the outset, it bears emphasis that the CTA, being a court of special jurisdiction,
can take cognizance only of matters that are clearly within its jurisdiction. 18
Section 7 of R.A. No. 1125, as amended by R.A. No. 9282, specifically 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
assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the National Internal Revenue Code
or other laws administered by the Bureau of Internal Revenue, where the National
Internal Revenue Code provides a specific period of action, in which case the
inaction shall be deemed a denial;
xxx xxx xxx. 19
In relation thereto, Section 228 of R.A. No. 8424 or The Tax Reform Act of 1997, as
amended, implemented by Revenue Regulations No. 12-99, 20 provides for the
procedure to be followed in issuing tax assessments and in protesting the same.
Thus: aTcSID
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 pre-assessment
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 one
hundred eighty (180)-day period; otherwise, the decision shall become final,
executory and demandable. 21
On the other hand, Section 3.1.5 of Revenue Regulations No. 12-99, 22
implementing Section 228 above, provides:
12
3.1.5. Disputed Assessment. — The taxpayer or his duly authorized representative
may protest administratively against the aforesaid formal letter of demand and
assessment notice within thirty (30) days from date of receipt thereof ...
xxx xxx xxx
If the taxpayer fails to file a valid protest against the formal letter of demand and
assessment notice within thirty (30) days from date of receipt thereof, the
assessment shall become final, executory and demandable.
If the protest is denied, in whole or in part, by the Commissioner, the taxpayer may
appeal to the Court of Tax Appeals within thirty (30) days from the date of receipt
of the said decision, otherwise, the assessment shall become final, executory and
demandable.
In general, if the protest is denied, in whole or in part, by the Commissioner or his
duly authorized representative, the taxpayer may appeal to the Court of Tax
Appeals within thirty (30) days from date of receipt of the said decision, otherwise,
the assessment shall become final executory and demandable: Provided,however,
that if the taxpayer elevates his protest to the Commissioner within thirty (30) days
from date of receipt of the final decision of the Commissioner's duly authorized
representative, the latter's decision shall not be considered final, executory and
demandable, in which case, the protest shall be decided by the Commissioner.
CDHaET
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. (Emphasis ours)
It is clear from the said provisions of the law that a protesting taxpayer like V.Y.
Domingo has only three options to dispute an assessment:
1. If the protest is wholly or partially denied by the CIR or his authorized
representative, then the taxpayer may appeal to the CTA within 30 days from
receipt of the whole or partial denial of the protest;
2. If the protest is wholly or partially denied by the CIR's authorized representative,
then the taxpayer may appeal to the CIR within 30 days from receipt of the whole
or partial denial of the protest;
3. If the CIR or his authorized representative failed to act upon the protest within
180 days from submission of the required supporting documents, then the
taxpayer may appeal to the CTA within 30 days from the lapse of the 180-day
period. 23
In this case, records show that on August 11, 2011, V.Y. Domingo received the PCL
issued by petitioner CIR informing it of Assessment Notice Nos. 32-06-IT-0242 and
32-06-VT-0243 dated November 18, 2010. On September 12, 2011, the former sent
a letter request to the BIR requesting for certified true copies of the said
Assessment Notices.
However, instead of filing an administrative protest against the assessment notice
within thirty (30) days from its receipt of the requested copies of the Assessment
Notices on September 15, 2011, V.Y. Domingo elected to file its petition for review
before the CTA First Division on September 16, 2011, ratiocinating that the
issuance of the PCL and the alleged finality of the terms used for demanding
payment therein proved that its Request for Re-evaluation/Re-investigation and
Reconsideration had been denied by the CIR.
That V.Y. Domingo believed that the PCL "undeniably shows" the intention of the
CIR to make it as its final "decision" did not give it cause of action to disregard the
procedure set forth by the law in protesting tax assessments and act prematurely
by filing a petition for review before the courts. The word "decisions" in the
aforementioned provision of R.A. No. 9282 has been interpreted to mean the
decisions of the CIR on the protest of the taxpayer against the assessments. 24
Definitely, said word does not signify the assessment itself. 25 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 CTA only upon receipt of the decision of the Collector on the
disputed assessment. 26
Admitting for the sake of argument the claim of V.Y. Domingo in its Comment —
that its case does not involve an appeal from a decision of the CIR on a disputed
assessment since in the first place, there is no "'disputed' assessment to speak of"
— admits the veracity of petitioner CIR's claim: there being no disputed assessment
to speak of when V.Y. Domingo filed its petition for review before the CTA First
Division, the latter had no jurisdiction to entertain the same. Thus, the latter's
dismissal of the petition for review was proper.
Evidently, V.Y. Domingo's immediate recourse to the CTA First Division was in
violation of the doctrine of exhaustion of administrative remedies.
Under the doctrine of exhaustion of administrative remedies, before a party is
allowed to seek the intervention of the court, he or she should have availed himself
or herself of all the means of administrative processes afforded him or her. 27
Section 228 of the Tax Code requires taxpayers to exhaust administrative remedies
by filing a request for reconsideration or reinvestigation within 30 days from
receipt of the assessment. 28 Exhaustion of administrative remedies is required
prior to resort to the CTA precisely to give the Commissioner the opportunity to
"re-examine its findings and conclusions" and to decide the issues raised within her
competence. 29 HASDcC
V.Y. Domingo posits that its case is an exception to the rule on exhaustion of
administrative remedies and the rule on primary jurisdiction as it cannot be
expected to be able to file an administrative protest to the Assessment Notices
which it never received. 30 It expressly admitted that it did not file an
administrative protest, based on its alleged non-receipt of the same. 31 Citing the
case of Allied Banking Corporation v. CIR,32 wherein this Court ruled that the filing
of therein petitioner of a petition for review with the CTA without first contesting
the FAN issued against it was an exception to the rule on exhaustion of
administrative remedies, V.Y. Domingo maintains that in its case, the CIR was
similarly estopped from claiming that the filing of the petition for review was
premature.
However, as previously mentioned, the records of the case show that V.Y. Domingo
did receive the certified true copies of the Assessment Notices it requested on
September 15, 2011, the day before it filed its petition for review before the CTA
First Division. V.Y. Domingo cannot now assert that its recourse to the court was
based on its non-receipt of the Assessment Notices that it requested.
Likewise, this Court cannot apply the ruling in Allied Banking Corporation v. CIR,33
wherein the demand letter sent by the CIR was worded as follows:
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. 34
The ruling of this Court in the said case was grounded on the language used and
the tenor of the demand letter, which indicate that it was the final decision of the
CIR on the matter. The words used, specifically the words "final decision" and
"appeal," taken together led therein 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. 35
Comparing the wording of the above-quoted demand letter with that sent by the
CIR to V.Y. Domingo in the instant case, it becomes apparent that the latter's
invocation of the ruling in the Allied Banking Corporation case is misguided as the

13
foregoing statements and terms are not present in the subject PCL dated August
10, 2011.
What is evident in the instant case is that Assessment Notice Nos. 32-06-IT-0242
and 32-06-VT-0243 dated November 18, 2010 have not been disputed by V.Y.
Domingo at the administrative level without any valid basis therefor, in violation of
the doctrine of exhaustion of administrative remedies. To reiterate, what is
appealable to the CTA are decisions of the CIR on the protest of the taxpayer
against the assessments. There being no protest ruling by the CIR when V.Y.
Domingo's petition for review was filed, the dismissal of the same by the CTA First
Division was proper. As correctly put by Associate Justice Roman G. Del Rosario in
his Dissenting Opinion, "(C)learly, petitioner did not exhaust the administrative
remedy provided under Section 228 of the NIRC of 1997, as amended, and RR No.
12-99 which is fatal to its cause. Consequently, the non-filing of the protest against
the FLD led to the finality of the assessment." 36
WHEREFORE,in view of the foregoing, the Court GRANTS the petition for review on
certiorari.The assailed July 1, 2015 Decision and December 3, 2015 Resolution of
the Court of Tax Appeals En Banc are hereby REVERSED and SET ASIDE,and the
January 29, 2014 and April 23, 2014 Resolutions of the First Division of the Court of
Tax Appeals are REINSTATED. STaAcC
SO ORDERED.
||| (Commissioner of Internal Revenue v. V.Y. Domingo Jewellers, Inc., G.R. No.
221780, [March 25, 2019])

14
[G.R. No. 211449. January 16, 2019.] Letter 7 dated August 3, 2007, demanding immediate payment of the assessments.
Respondent received a copy of the First Collection Letter on August 28, 2007.
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. TRANSFIELD PHILIPPINES,
INC., respondent. Then, on January 17, 2008, petitioner constructively served a Final Notice before
Seizure 8 dated December 20, 2007, to respondent's office.
DECISION
On February 29, 2008, respondent availed of the benefits of Republic Act (R.A.) No.
J.C. REYES, JR., J p:
9480 by submitting the following documents to the Development Bank of the
Assailed in this petition for review on certiorari are the August 5, 2013 Decision 1 Philippines (DBP), an authorized agent bank of the BIR: 1) Notice of Availment of
and the February 19, 2014 Resolution 2 of the Court of Tax Appeals (CTA) En Banc Tax Amnesty; 2) Tax Amnesty Return (BIR Form No. 2116); 3) Statement of Assets,
in CTA EB Case No. 907 which affirmed the February 28, 2012 Amended Decision 3 Liabilities and Net Worth (SALN) as of December 31, 2005; and 4) Tax Amnesty
and the May 14, 2012 Resolution 4 of the CTA First Division in CTA Case No. 7842. Payment Form (BIR Form No. 0617). On the same day, respondent paid the BIR,
through DBP, an amnesty tax in the amount of P112,500.00. On April 23, 2008,
The Antecedents respondent paid P2,000.00 to the BIR in relation to FAN No. LTDO-122-PEN-2002-
On May 30, 2007, respondent Transfield Philippines, Inc. (respondent) received 00002 for compromise penalties on alleged failure to file summary of sales and
copies of Final Assessment Notice (FAN) Nos. LTDO-122-IT-2002-00014, LTDO-122- purchase from the first and second quarters of 2002. AScHCD
WE-2002-00011, LTDO-122-VT-2002-00012, and LTDO-122-PEN-2002-00002 issued On May 5, 2008, respondent informed the BIR Large Taxpayers District Office
by petitioner Commissioner of Internal Revenue (CIR), through Nestor S. Valeroso, (LTDO) of Makati City in a letter dated April 28, 2008, that it availed of the benefits
Officer-in-Charge, Assistant Commissioner for the Large Taxpayers Service. 5 of R.A. No. 9480 and furnished the LTDO with copies of the tax amnesty
Respondent was assessed the total sum of P563,168,996.70 for deficiency income documents. 9 The said letter was received by the BIR LTDO of Makati City on the
tax, Expanded Withholding Tax (EWT), and Value-Added Tax (VAT), inclusive of same day.
interest and compromise penalties for the Fiscal Year July 1, 2001 to June 30, 2002.
The details of the assessments are as follows: On July 10, 2008, petitioner wrote respondent, advising the latter that under
Revenue Memorandum Circular (RMC) No. 19-2008, those "with delinquent
  accounts/accounts receivable considered as assets of the BIR/Government,
Kind of Basic Interest Compromise Total including self-assessed tax," are not allowed to avail of the benefits of R.A. No.
Tax 9480. 10
On September 8, 2008, petitioner issued a Warrant of Distraint and/or Levy (WDAL)
Income 291,320,169.28 271,335,605.67 25,000.00 562,680,774.95
directing the seizure of respondent's goods, chattels or effects, and other personal
Tax
properties, and/or levy of its real property and interest in/or rights to real property
EWT 66,497.56 69,996.28 14,000.00 150,493.84 to the extent of P563,168,996.70. 11 A copy of the WDAL was constructively served
on respondent's offices on September 11, 2008. On the same day, the Bank of the
VAT 147,156.30 164,071.61 24,500.00 335,727.91 Philippine Islands (BPI) informed respondent that the latter's account was being put
on hold because of the WDAL.
VAT     2,000.00 2,000.00
penalty The CTA First Division Ruling
In an Amended Decision 12 dated February 28, 2012, the CTA First Division ruled
Total 291,533,823.14 271,569,673.56 65,500.00 563,168,996.70
that the CTA has jurisdiction not only over decisions or inactions of the CIR in cases
  involving disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties in relation thereto, but also over other matters arising under the
On June 5, 2007, respondent filed a protest with the Bureau of Internal Revenue National Internal Revenue Code (NIRC) or other laws administered by the BIR. It
(BIR). 6 Without acting on respondent's protest, the BIR issued the First Collection declared that petitioner is already barred from collecting from respondent the

15
alleged tax liabilities because it is undisputed that respondent had complied with
all the legal requirements pertaining to its application for tax amnesty by
submitting to the BIR its Notice of Availment of Tax Amnesty, Tax Amnesty Return,
SALN, and Tax Amnesty Payment Form together with the BIR Tax Payment Deposit
Slip evidencing payment of amnesty tax amounting to P112,500.00. The CTA First
Division added that when respondent complied with all the requirements of R.A.
No. 9480, it is deemed to have settled in full all its tax liabilities for the years
covered by the tax amnesty. It held that the July 10, 2008 Letter of petitioner is
void as it disqualifies respondent from availing of the immunity from payment of
tax liabilities under R.A. No. 9480 on the ground that its account has been
considered delinquent or receivable asset of the government, which reason is not
in consonance with the provisions of R.A. No. 9480. The fallo reads:
WHEREFORE, the Motion for Reconsideration (from the Decision dated 20
September 2011) dated October 11, 2011 filed by petitioner is hereby GRANTED.
Consequently, the Warrant of Distraint and/or Levy dated September 08, 2008 is
hereby declared NULL and VOID and of no legal effect. Respondent is now
precluded from collecting the amount of P563,168,996.70, representing
petitioner's tax liability for taxable year 2002, which is deemed settled.
SO ORDERED. 13
Petitioner moved for reconsideration, but the same was denied by the CTA First
Division in a Resolution 14 dated May 14, 2012. Aggrieved, petitioner filed a
petition for review before the CTA En Banc.
The CTA En Banc Ruling
In a Decision 15 dated August 5, 2013, the CTA En Banc opined that it has
jurisdiction to rule on the petition because it is not an appeal of the disputed
assessment which is subject to a reglementary period, but it is a case to determine
whether the issuance of the WDAL is proper. It added that the issue to be
addressed is not the timeliness of the protest, but rather, whether petitioner may
validly collect taxes from respondent despite the latter having availed of the tax
amnesty. The CTA En Banc concluded that respondent properly availed of the
immunity from payment of taxes under R.A. No. 9480, and as such, the issuance of
a WDAL was invalid, which justified the filing of a petition within 30 days from
receipt of the warrant. It disposed the case in this wise:
WHEREFORE, the petition is DENIED. The Amended Decision dated February 28,
2012, rendered by the First Division of this Court in CTA Case No. 7842, and its
Resolution dated May 14, 2012 are AFFIRMED. No pronouncement as to costs.
SO ORDERED. 16
16
Petitioner moved for reconsideration, but the same was denied by the CTA En Banc
on February 19, 2014. Hence, this petition for review on certiorari, wherein
petitioner raises the following issues: AcICHD
I. WHETHER THE CTA COMMITTED REVERSIBLE ERROR WHEN IT ASSUMED
JURISDICTION OVER THE CASE.
II. WHETHER THE CTA COMMITTED REVERSIBLE ERROR WHEN IT RULED THAT
RESPONDENT IS ENTITLED TO THE IMMUNITIES UNDER THE TAX AMNESTY
PROGRAM PROVIDED IN REPUBLIC ACT NO. 9480. 17
Petitioner argues that Section 9 of R.A. No. 9282 provides that a party adversely
affected by a decision, ruling or inaction of the CIR may file an appeal with the CTA
within 30 days after the receipt of such decision or ruling; that the 30-day period
for filing an appeal with the CTA should be reckoned from respondent's receipt of
the Final Notice before Seizure, or at the latest, its receipt of the Letter dated July
10, 2008; that it is erroneous to consider receipt of the WDAL as the date of
reckoning the period to file an appeal to the CTA because the WDAL is merely a
means, an instrument, or a mechanism to implement the Final Notice before
Seizure, or at the latest, the July 10, 2008 Letter; that whatever decision, action, or
ruling petitioner had with respect to respondent's claims and/or defenses was set
forth in the aforementioned issuances and not in the WDAL; and that in providing
for the exception that delinquent accounts, or accounts receivable considered
assets of the government are not eligible under the tax amnesty program, RMC No.
19-2008 merely supplied the gap in the law where assessments have become final
and incontestable upon the lapse of the reglementary period for appeal. 18
In its Comment, 19 respondent counters that the CTA is vested with jurisdiction to
determine whether a taxpayer is immune from the payment of taxes insofar as it is
given the exclusive appellate jurisdiction to review by appeal matters arising from
the laws administered by the BIR such as tax amnesty statutes; that in Pantoja v.
David, 20 the Court ruled that petitions for the annulment of distraint orders of the
BIR do not violate the prohibition against injunctions to restrain the collection of
taxes because the proceedings were not directed against the right of the BIR to
collect per se, but against the right of the BIR to do so by distraint and levy; that
while it did not file any petition for review from its receipt of the Final Notice
before Seizure, or the July 10, 2008 Letter, it availed of the tax amnesty on
February 29, 2008 by complying with the requirements of R.A. No. 9480; that in CS
Garment, Inc. v. Commissioner of Internal Revenue, 21 the Court ruled that a
taxpayer immediately enjoys the immunities granted by R.A. No. 9480 as soon as
the taxpayer complies with the conditions under the law and the BIR may not
prevent or delay a taxpayer from immediately enjoying immunity from the
payment of taxes by making the tax amnesty application contingent on the BIR's
confirmation or agreement; that in Union Bank of the Philippines v. Commissioner
of Internal Revenue, 22 decided by the CTA, the latter held that Section 4 of R.A.
No. 9480 limits petitioner's remedy to assailing the taxpayer's SALN within a period
of one year from the date of filing; that after the one-year period mandated by R.A.
No. 9480, the tax amnesty could no longer be disputed by the BIR; and that to
allow petitioner to enforce collection of assessments covered by the amnesty
availed by respondent through the perfunctory and summary issuance of a WDAL
would sanction a disregard of the law, and to punish respondent for its compliance
therewith.
In its Reply, 23 petitioner contends that the July 10, 2008 Letter was the adverse
decision or ruling appealable to the CTA and respondent's receipt of the letter is
the proper reckoning point for filing a petition for review with the CTA; that
respondent received the said letter on August 5, 2008, thus, it was already apprised
of petitioner's adverse decision regarding its application for tax amnesty at that
time; that respondent had until September 4, 2008 to appeal the decision,
however, respondent's petition for review was filed with the CTA only on October
10, 2008; and that assessments which have become final and executory upon the
taxpayer's failure to appeal therefrom are outside the coverage of R.A. No. 9480.
The Court's Ruling
I.
A tax amnesty operates as a general pardon or intentional overlooking by the State
of its authority to impose penalties on persons otherwise guilty of evasion or
violation of a revenue or tax law. It is an absolute forgiveness or waiver by the
government of its right to collect what is due it and to give tax evaders who wish to
relent a chance to start with a clean slate. A tax amnesty, much like a tax
exemption, is never favored nor presumed in law. The grant of a tax amnesty is
akin to a tax exemption; thus, it must be construed strictly against the taxpayer and
liberally in favor of the taxing authority. 24
On May 24, 2007, R.A. No. 9480 took effect and authorized the grant of a tax
amnesty to qualified taxpayers for all national internal revenue taxes for the
taxable year 2005 and prior years, with or without assessments duly issued
therefor, that have remained unpaid as of December 31, 2005. 25 The pertinent
provisions of R.A. No. 9480 are:
SEC. 1. Coverage. — There is hereby authorized and granted a tax amnesty which
shall cover all national internal revenue taxes for the taxable year 2005 and prior
years, with or without assessments duly issued therefor, That have remained
unpaid as of December 31, 2005: Provided, however, that the amnesty hereby
authorized and granted shall not cover persons or cases enumerated under Section
8 hereof. TAIaHE
17
xxx xxx xxx
SEC. 6. Immunities and Privileges. — Those who availed themselves of the tax
amnesty under Section 5 hereof, and have fully complied with all its conditions
shall be entitled to the following immunities and privileges:
(a) The taxpayer shall be immune from the payment of taxes, as well as additions
thereto, and the appurtenant civil, criminal or administrative penalties under the
National Internal Revenue Code of 1997, as amended, arising from the failure to
pay any and all internal revenue taxes for taxable year 2005 and prior years.
(Emphases supplied)
xxx xxx xxx
To implement R.A. No. 9480, the Department of Finance (DOF) issued DOF
Department Order No. 29-07 (DO 29-07). Section 6 thereof outlines the method for
availing a tax amnesty under R.A. No. 9480, viz.:
SEC. 6. Method of Availment of Tax Amnesty. —
1. Forms/Documents to be filed. — To avail of the general tax amnesty, concerned
taxpayers shall file the following documents/requirements:
a. Notice of Availment in such form as may be prescribed by the BIR;
b. Statement of Assets, Liabilities and Networth (SALN) as of December 31, 2005 in
such [form], as may be prescribed by the BIR;
c. Tax Amnesty Return in such form as may be prescribed by the BIR.
2. Place of Filing of Amnesty Tax Return. — The Tax Amnesty Return, together with
the other documents stated in Sec. 6 (1) hereof, shall be filed as follows:
a. Residents shall file with the Revenue District Officer (RDO)/Large Taxpayer
District Office of the BIR which has jurisdiction over the legal residence or principal
place of business of the taxpayer, as the case may be.
b. Non-residents shall file with the office of the Commissioner of the BIR, or with
the RDO.
c. At the option of the taxpayer, the RDO may assist the taxpayer in accomplishing
the forms and computing the taxable base and the amnesty tax payable, but may
not look into, question or examine the veracity of the entries contained in the Tax
Amnesty Return, [SALN], or such other documents submitted by the taxpayer.
3. Payment of Amnesty Tax and Full Compliance. — Upon filing of the Tax Amnesty
Return in accordance with Sec. 6 (2) hereof, the taxpayer shall pay the amnesty tax
to the authorized agent bank or in the absence thereof, the Collection Agents or
duly authorized Treasurer of the city or municipality in which such person has his
legal residence or principal place of business.
The RDO shall issue sufficient Acceptance of Payment Forms, as may be prescribed
by the BIR for the use of — or to be accomplished by — the bank, the collection
agent or the Treasurer, showing the acceptance by the amnesty tax payment. In
case of the authorized agent bank, the branch manager or the assistant branch
manager shall sign the acceptance of payment form.
The Acceptance of Payment Form, the Notice of Availment, the SALN, and the Tax
Amnesty Return shall be submitted to the RDO, which shall be received only after
complete payment. The completion of these requirements shall be deemed full
compliance with the provisions of [R.A. No.] 9480. x x x (Emphasis supplied)
cDHAES
In this case, it remains undisputed that respondent complied with all the
requirements pertaining to its application for tax amnesty by submitting to the BIR
a Notice of Availment of Tax Amnesty, Tax Amnesty Return, SALN as of December
31, 2005 and Tax Amnesty Payment Form. Further, it paid the corresponding
amnesty taxes. Hence, respondent has successfully availed itself of the tax amnesty
benefits granted under R.A. No. 9480 which include immunity from "the
appurtenant civil, criminal, or administrative penalties under the NIRC of 1997, as
amended, arising from the failure to pay any and all internal revenue taxes for
taxable year 2005 and prior years."
II.
The CIR, however, insists that respondent is still liable for deficiency taxes,
contending that under RMC No. 19-2008, respondent is disqualified to avail of the
tax amnesty because it falls under the exception of "delinquent accounts or
accounts receivable considered as assets by the BIR or the Government, including
self-assessed tax." In Commissioner of Internal Revenue v. Philippine Aluminum
Wheels, Inc., 26 petitioner therein raised a similar argument which the Court did
not sustain and instead ruled that "in case there is a discrepancy between the law
and a regulation issued to implement the law, the law prevails because the rule or
regulation cannot go beyond the terms and provisions of the law. x x x To give
effect to the exception under RMC No. 19-2008 of delinquent accounts or accounts
receivable by the BIR, as interpreted by the BIR, would unlawfully create a new
exception for availing of the Tax Amnesty Program under [R.A. No.] 9480." 27
Moreover, it must be noted that under Section 8 of R.A. No. 9480, only the
following persons are disqualified from availing of the tax amnesty:
SEC. 8. Exceptions. — x x x
(a) Withholding agents with respect to their withholding tax liabilities;
18
(b) Those with pending cases falling under the jurisdiction of the Presidential
Commission on Good Government;
(c) Those with pending cases involving unexplained or unlawfully acquired wealth
or under the Anti-Graft and Corrupt Practices Act;
(d) Those with pending cases filed in court involving violation of the Anti-Money
Laundering Law;
(e) Those with pending criminal cases for tax evasion and other criminal offenses
under Chapter II of Title X of the National Internal Revenue Code of 1997, as
amended, and the felonies of frauds, illegal exactions and transactions, and
malversation of public funds and property under Chapters III and IV of Title VII of
the Revised Penal Code; and
(f) Tax cases subject of final and executory judgment by the courts. 28
It is a basic precept of statutory construction that the express mention of one
person, thing, act, or consequence excludes all others as expressed in the maxim
expressio unius est exclusio alterius. In implementing tax amnesty laws, the CIR
cannot now insert an exception where there is none under the law. Indeed, a tax
amnesty must be construed strictly against the taxpayer and liberally in favor of the
taxing authority. However, the rule-making power of administrative agencies
cannot be extended to amend or expand statutory requirements or to embrace
matters not originally encompassed by the law. Administrative regulations should
always be in accord with the provisions of the statute they seek to implement, and
any resulting inconsistency shall be resolved in favor of the basic law. 29 ASEcHI
III.
As regards the issue on the propriety and timeliness of the petition for review,
suffice it to say that in this case, the reckoning point of the 30-day period to appeal
the assessments is immaterial because the assessments have already been
extinguished by respondent's compliance with the requirements for tax amnesty
under R.A. No. 9480. To sustain petitioner's contention that respondent should
have elevated an appeal to the CTA when it received the Final Notice before
Seizure, or at most, when it received the July 10, 2008 Letter of the BIR, would lead
to an absurd and unjust situation wherein the taxpayer avails of the benefits of a
tax amnesty law, yet the BIR still issues a WDAL simply because the taxpayer did
not appeal the assessment to the CTA. The requirement of filing an appeal with the
CTA even after the taxpayer has already complied with the requirements of the tax
amnesty law negates the amnesty granted to the taxpayer and creates a condition
which is not found in the law. It is worthy to note that respondent filed a protest to
the assessments, but because of the passage of R.A. No. 9480, it no longer pursued
its legal remedies against the assessments. Thus, respondent cannot be faulted for
filing a petition for review with the CTA only upon receipt of the WDAL for it
rightfully relied on the provision of R.A. No. 9480 that "those who availed
themselves of the tax amnesty x x x, and have fully complied with all its conditions
x x x shall be immune from the payment of taxes x x x." Finally, in CS Garment, Inc.
v. Commissioner of Internal Revenue, 30 the Court pronounced that taxpayers may
immediately enjoy the privileges and immunities under R.A. No. 9480 as soon as
they fulfill the suspensive condition imposed therein, i.e., submission of 1) Notice
of Availment of Tax Amnesty Form; 2) Tax Amnesty Return Form (BIR Form No.
2116); 3) SALN as of December 31, 2005; and 4) Tax Amnesty Payment Form
(Acceptance of Payment Form or BIR Form No. 0617). In fine, the deficiency taxes
for Fiscal Year July 1, 2001 to June 30, 2002 are deemed settled in view of
respondent's compliance with the requirements for tax amnesty under R.A. No.
9480.
WHEREFORE, the petition is DENIED. The August 5, 2013 Decision and the February
19, 2014 Resolution of the Court of Tax Appeals in CTA EB Case No. 907 are
AFFIRMED.
SO ORDERED.
||| (Commissioner of Internal Revenue v. Transfield Philippines, Inc., G.R. No.
211449, [January 16, 2019])

19
[G.R. No. 139736. October 17, 2005.]
BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. COMMISSIONER OF INTERNAL
REVENUE, respondent.
DECISION
CHICO-NAZARIO, J p:
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 P18,480,000.00
    –––––––––––––
Tax Due Thereon:  
  P18,480,000.00 x P0.30 (Sec. 182 NIRC). 27,720.00
––––––––––––  
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.
CASaEc
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.

  P200.00   In view of the foregoing, we request that the assessment be revoked and cancelled.

Add: Suggested compromise penalty 300.00 Very truly yours,

TOTAL AMOUNT DUE AND COLLECTIBLE P28,020.00 PADILLA LAW OFFICE

By:
    –––––––––

20
(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 —
". . . 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 —
". . . 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."
21
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. EHSIcT
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. . .
xxx xxx xxx
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
22
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. AaCTID
I
The efforts of respondent Commissioner to collect on
Assessment No. FAS-5-85-89-002054 were already barred by
prescription.
Anent the question of prescription, this Court disagrees in the Decisions of the CTA
and the Court of Appeals, and herein determines the statute of limitations on
collection of the deficiency DST in Assessment No. FAS-5-85-89-002054 had already
prescribed.
The period for the BIR to assess and collect an internal revenue tax is limited to
three years by Section 203 of the Tax Code of 1977, as amended, 15 which provides
that —
SEC. 203. Period of limitation upon assessment and collection. — Except as
provided in the succeeding section, internal revenue taxes shall be assessed within
three years after the last day prescribed by law for the filing of the return, and no
proceeding in court without assessment for the collection of such taxes shall be
begun after the expiration of such period: Provided, That in a case where a return is
filed beyond the period prescribed by law, the three-year period shall be counted
from the day the return was filed. For the purposes of this section, a return filed
before the last day prescribed by law for the filing thereof shall be considered as
filed on such last day. 16
The three-year period of limitations on the assessment and collection of national
internal revenue taxes set by Section 203 of the Tax Code of 1977, as amended, can
be affected, adjusted, or suspended, in accordance with the following provisions of
the same Code —
SEC. 223. — Exceptions as to period of limitation of assessment and collection of
taxes. — (a) In the case of a false or fraudulent return with intent to evade tax or of
failure to file a return, the tax may be assessed, or a proceeding in court for the
collection of such tax may be begun without assessment, at any time within ten
years after the discovery of the falsity, fraud, or omission: Provided, That in a fraud
assessment which has become final and executory, the fact of fraud shall be
judicially taken cognizance of in the civil or criminal action for the collection
thereof.
(b) If before the expiration of the time prescribed in the preceding section for the
assessment of the tax, both the Commissioner and the taxpayer have agreed in
writing to its assessment after such time the tax may be assessed within the period
agreed upon. The period so agreed upon may be extended by subsequent written
agreement made before the expiration of the period previously agreed upon.
(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
23
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. HDATSI
 
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. —

24
xxx xxx xxx
(b) If before the expiration of the time prescribed in the preceding section for the
assessment of the tax, both the Commissioner and the taxpayer have agreed in
writing to its assessment after such time the tax may be assessed within the period
agreed upon. The period so agreed upon may be extended by subsequent written
agreement made before the expiration of the period previously agreed upon.
xxx xxx xxx
(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. ITCcAD
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
25
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. . .
xxx xxx xxx
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
26
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. caIACE
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
27
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.
cCSTHA
 
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
28
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. . .
xxx xxx xxx
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. . . aSIHcT
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
29
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 defense of prescription against collection of the tax assessed, as required in the
assessment. Respondent BIR Commissioner did not require, neither did petitioner Suyoc case. CSEHcT
BPI offer, additional evidence on the matter. After petitioner BPI filed its request
This is a simple case wherein respondent BIR Commissioner and other BIR officials
for reconsideration, there was no other communication between it and respondent
failed to act promptly in resolving and denying the request for reconsideration filed
BIR Commissioner or any of the authorized representatives of the latter. There was
by petitioner BPI and in enforcing collection on the assessment. They presented no
no showing that petitioner BPI was informed or aware that its request for
reason or explanation as to why it took them almost eight years to address the
reconsideration was granted or acted upon by the BIR.
protest of petitioner BPI. The statute on limitations imposed by the Tax Code
IV precisely intends to protect the taxpayer from such prolonged and unreasonable
assessment and investigation by the BIR.
Conclusion
Considering that the right of the respondent BIR Commissioner to collect from
To summarize all the foregoing discussion, this Court lays down the following rules
petitioner BPI the deficiency DST in Assessment No. FAS-5-85-89-002054 had
on the exceptions to the statute of limitations on collection.
already prescribed, then, there is no more need for this Court to make a
The statute of limitations on collection may only be interrupted or suspended by a determination on the validity and correctness of the said Assessment for the latter
valid waiver executed in accordance with paragraph (d) of Section 223 of the Tax would only be unenforceable.
Code of 1977, as amended, and the existence of the circumstances enumerated in
WHEREFORE, based on the foregoing, the instant Petition is GRANTED. The
Section 224 of the same Code, which include a request for reinvestigation granted
Decision of the Court of Appeals in CA-G.R. SP No. 51271, dated 11 August 1999,
by the BIR Commissioner.
which reinstated Assessment No. FAS-5-85-89-002054 requiring petitioner BPI to
Even when the request for reconsideration or reinvestigation is not accompanied pay the amount of P28,020.00 as deficiency documentary stamp tax for the taxable
by a valid waiver or there is no request for reinvestigation that had been granted by year 1985, inclusive of the compromise penalty, is REVERSED and SET ASIDE.
the BIR Commissioner, the taxpayer may still be held in estoppel and be prevented Assessment No. FAS-5-85-89-002054 is hereby ordered CANCELED.
from setting up the defense of prescription of the statute of limitations on
SO ORDERED.
collection when, by his own repeated requests or positive acts, the Government
had been, for good reasons, persuaded to postpone collection to make the ||| (Bank of the Philippine Islands v. Commissioner of Internal Revenue, G.R. No.
taxpayer feel that the demand is not unreasonable or that no harassment or 139736, [October 17, 2005], 510 PHIL 1-37)
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

30
[G.R. No. 213943. March 22, 2017.]
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. PHILIPPINE DAILY
INQUIRER, INC., respondent.
DECISION
CARPIO, J p:
The Case
Before the Court is a petition for review 1 assailing the 4 November 2013 Decision
2 and the 1 August 2014 Resolution 3 of the Court of Tax Appeals (CTA) En Banc in
CTA EB Case No. 905. The CTA En Banc affirmed the 16 February 2012 Decision 4
and the 8 May 2012 Resolution 5 of the CTA First Division in CTA Case No. 7853
which granted the petition for review filed by Philippine Daily Inquirer, Inc. (PDI)
and cancelled the Formal Letter of Demand dated 11 March 2008 and Assessment
No. LN #116-AS-04-00-00038-000526 issued by the Bureau of Internal Revenue
(BIR) for deficiency Value Added Tax (VAT) and income tax for the taxable year
2004. EcTCAD
The Antecedent Facts
The facts of this case, as presented by the CTA, are as follows:
PDI is a corporation engaged in the business of newspaper publication. On 15 April
2005, it filed its Annual Income Tax Return for taxable year 2004. Its Quarterly VAT
Returns for the same year showed the following:
executed a Waiver of the Statute of Limitation (First Waiver) consenting to the
assessment and/or collection of taxes for the year 2004 which may be found due
after the investigation, at any time before or after the lapse of the period of
limitations fixed by Sections 203 and 222 of the National Internal Revenue Code
(NIRC) but not later than 30 June 2007. The First Waiver was received on 23 March
2007 by Nestor Valeroso (Valeroso), OIC-ACIR of the Large Taxpayer Service. In a
letter dated 7 May 2007, PDI submitted additional partial reconciliation and
explanations on the discrepancies found by the BIR. On 30 May 2007, PDI received
a letter dated 28 May 2007 from Mr. Gerardo Florendo, Chief of the BIR-LTAID,
informing it that the results of the evaluation relative to the matching of sales of its
suppliers against its purchases for the taxable year 2004 had been submitted by
Revenue Officer Narciso Laguerta under Group Supervisor Fe Caling. In the same
letter, BIR invited PDI to an informal conference to present any objections that it
might have on the BIR's findings. On 5 June 2007, PDI executed a Waiver of the
Statute of Limitation (Second Waiver), which Valeroso accepted on 8 June 2007.
SDHTEC
In a Preliminary Assessment Notice (PAN) dated 15 October 2007 issued by the BIR-
LTAID, PDI was assessed for alleged deficiency income tax and VAT for taxable year
2004 on the basis of LN No. 116-AS-04-00-00038. The PAN states:
COMPUTATION OF DEFICIENCY VAT
Undeclared Income   P1,007,565.03
Add: Overdeclared input VAT   1,601,652.43

  Date of Filing Total undeclared income per Investigation   P2,609,217.46

Less: Attributable input tax   715,371.17
For the First Quarter 20 April 2004
VAT still payable per investigation   P1,893,846.29
For the Second Quarter 16 July 2004
Add: Increments —    
For the Third Quarter 18 October 2004
Interest from 1/26/05 to 11/15/07 P1,062,629.37  
For the Fourth Quarter 21 January 2005 6
Compromise penalty 25,000.00 1,087,629.37
On 10 August 2006, PDI received a letter dated 30 June 2006 from Region 020
Amount Due and Collectible   P2,981,475.66
Large Taxpayers' Service of BIR under LN No. 116-AS-04-00-00038. BIR alleged that
based on the computerized matching it conducted on the information and data COMPUTATION OF DEFICIENCY INCOME TAX
provided by third party sources against PDI's declaration on its VAT Returns for
taxable year 2004, there was an underdeclaration of domestic purchases from its Undeclared Gross Income   P10,075,650.28
suppliers amounting to P317,705,610.52. The BIR invited PDI to reconcile the Less: Cost of Sales   7,153,711.70
deficiencies with BIR's Large Taxpayers Audit & Investigation Division I (BIR-LTAID).
In response, PDI submitted reconciliation reports, attached to its letters dated 22 Undeclared Net Income   P2,921,938.58
August 2006 and 19 December 2006, to BIR-LTAID. On 21 March 2007, PDI

31
 Multiply by income tax rate   32% Income tax still due per investigation   P935,020.35
Income tax still due per investigation   P935,020.35 Add: Increments —    
Add: Increments —     Interest from 4/16/05 to 11/15/07 P569,209.65  
Interest from 4/16/05 to 11/15/07 P483,648.88   Compromise penalty 20,000.00 589,209.65
Compromise penalty 20,000.00 503,648.88 Amount Due and Collectible   P1,524,229.99 8
Amount Due and Collectible   P1,438,669.23 7 On 16 May 2008, PDI filed its protest. On 12 December 2008, PDI filed a Petition for
Review against the Commissioner of Internal Revenue (CIR) alleging that the 180-
PDI received the PAN on 4 December 2007. In a letter dated 12 December 2007,
day period within which the BIR should act on its protest had already lapsed.
PDI sought reconsideration of the PAN and expressed its willingness to execute
AScHCD
another Waiver (Third Waiver), which it did on the same date, thus extending BIR's
right to assess and/or collect from it until 30 April 2008. Romulo L. Aguila, Jr. The CTA First Division, quoting at length the CIR's Answer, presented the following
(Aguila), OIC-Head Revenue Executive Assistant for the Large Taxpayers Service- facts:
Regular, accepted the Third Waiver on 20 December 2007. HSAcaE
Petitioner Philippine Daily Inquirer is liable to pay the amount of Three Million One
On 17 April 2008, PDI received a Formal Letter of Demand dated 11 March 2008 Hundred Fifty Four Thousand Seven Hundred Seventy Five Pesos and 56/100
and an Audit Result/Assessment Notice from the BIR, demanding for the payment (P3,154,775.56) and One Million Five Hundred Twenty Four Thousand Two
of alleged deficiency VAT and income tax, respectively, computed as follows: Hundred Twenty Nine Pesos and 99/100 (P1,524,299.99) representing deficiency
Value-Added Tax (VAT and Income Tax, respectively, for the taxable year 2004).
1. COMPUTATION OF (DEFICIENCY) VAT
1. The VAT and income tax liabilities of petitioner in the aggregate amount of Four
Undeclared Income   P1,007,565.03
Million Six Hundred Seventy Nine Thousand and Five Pesos and 55/100
Add: Overdeclared input VAT   1,601,652.43 (P4,679,005.55) arose on account of the issuance to petitioner of Letter Notice No.
116-AS-04-00-00038 dated June 30, 2006. Computerized matching conducted by
Total Undeclared Income per Investigation   P2,609,217.46 respondent on information/data provided by third party sources against its
Less: Attributable input tax   715,371.17 declaration per VAT returns revealed the aforesaid discrepancies for taxable year
2004. The income and value-added tax liabilities were generated through the
VAT still payable per investigation   P1,893,846.29 Reconciliation of Listing for Enforcement (RELIEF) system-Summary List of Sales and
Add: Increments —     Purchases (SLSP) and Third Party Matching. Through the system, respondent was
able to detect tax leaks through the matching of data available in the Integrated
Interest from 1/26/05 to 11/15/07 P1,235,929.28   Tax Systems (ITS) with the information gathered from third party sources.
Compromise penalty 25,000.00 1,260,929.28 On the basis of the consolidation and cross-referencing of third party information,
Amount Due and Collectible   P3,154,775.56 discrepancy reports on sales and purchases were generated to uncover under-
declared income and over-claimed purchases (goods and services).
2. COMPUTATION OF [DEFICIENCY INCOME TAX]
As explicitly provided under Revenue Memorandum Order (RMO) No. 42-2003:
Undeclared Gross Income   P10,075,650.28
II. POLICIES
Less: Cost of Sales   7,153,711.70
[xxx xxx xxx]
Undeclared Net Income   2,921,938.58
Multiply by income tax rate   32%

32
2. In order to intensify enforcement, the power of the Commissioner to authorize
the examination of the taxpayer and the assessment of the correct amount of tax is
hereby ordered done through the so called 'no contact-audit-approach.'
3. The 'no contact-audit-approach' includes the process of computerized matching
of sales and purchases data contained in the Schedules of Sales and Domestic
Purchases, and Schedule of Importation submitted by VAT taxpayer under the
RELIEF system pursuant to RR No. 7-95 as amended by RR Nos. 13-97, 7-99 and 8-
2002. This may also include the matching of data from other information or returns
filed by the taxpayers with the BIR such as Alphalist of Payees subject to Final or
Creditable Withholding Taxes. HESIcT
4. Even without conducting a detailed examination of taxpayer's books and
records, the computerized/manual matching of sales and purchases/expenses will
reveal discrepancies which shall be communicated to the concerned taxpayer
through the issuance of a Letter Notice (LN) by the Commissioner.
5. LNs being served by the Bureau upon the taxpayer found to have understated
their sales or over claimed their purchases/expenses can be considered notice of
audit or investigation in so far as the amendment of any return is concerned which
is the subject of such LN. A taxpayer is therefore disqualified from amending his
return once an LN is served upon him.
III. GUIDELINES
xxx xxx xxx
5. The LN shall serve as a discrepancy notice to taxpayer similar to a Notice of
Informal Conference, thus, the procedures defined in RR 12-99 should likewise be
observed.
Furthermore, in CTA Case No. 7092 entitled 'BIG AA Corporation represented by
Erlinda L. Stohner vs. Bureau of Internal Revenue' dated February 22, 2006, the
Honorable Court had the opportunity to say:
'Letter Notices issued against a taxpayer in connection with the information of
under declaration of sales and purchases gathered through Third Party Information
Program may be considered as a 'notice of audit or investigation' in the absence of
evident error or clear abuse of discretion.'
2. On the basis of the abovementioned LN and after a careful and extensive
scrutiny of petitioner's documents, resulting deficiency in income and Value-added
taxes led to the issuance of the Preliminary Assessment Notice (PAN) dated
October 15, 2007 together with the Details of Discrepancies and subsequently, a
Formal Letter of Demand (FLD) dated March 11, 2008.
33
Relative thereto, Section 203 of the National Internal Revenue Code (NIRC)
explicitly provides:
'Section 203. Period of Limitation Upon Assessment and Collection of Taxes.
Except as provided in Section 222, internal revenue taxes shall be assessed within
three (3) years after the last day prescribed by law for 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
i[s] filed beyond the period prescribed by law, the three (3) year period shall be
counted from the day [t]he 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
filed on such day.' AcICHD
However, Section 222 of the NIRC provides the exceptions as regards to the
provisions laid down under Section 203. In particular, as shown under Section (1)
thereof, the three (3) [year] period of limitation in making assessment shall not
apply in cases where it involves false or fraudulent return or in cases where there
is failure to file a return [by] the person obliged to file such return. Section 222(a)
of the National Internal Revenue Code provides:
'Section 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 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 executor[y], [t]he fact of fraud shall be judicially taken
cognizance of in the civil and criminal action for the collection thereof.'
Such being the case, the three (3) [year] period of limitation for the assessment of
internal revenue tax liabilities reckoned from the last day prescribed by law for the
filing of the return shall not apply in the case at hand for the simple reason that
petitioner falsely filed the return for taxable year 2004. Such being the case, the
applicable provision shall be Section 222(a) where the period of limitation provides
that the assessment may be made within ten (10) years after the discovery of
falsity, fraud or omission. In the case at hand, the reckoning period was from the
time during which the LN dated June 30, 2006 was issued to petitioner. Indubitably,
the Formal Letter of Demand dated March 11, 2008 was issued within the
prescriptive period provided by law. Such being the case, the FLD is considered
valid and has the force and effect of law.
3. On the basis of the investigation conducted by respondent through the RELIEF
system, respondent though the FLD, outlined how the tax liabilities in the
 aggregate amount of P4,679,005.55 representing income and VAT liabilities were under declaration of VAT payable in the amount of P1,601,652.43 for the taxable
arrived at. Upon matching the data gathered from respondent's Integrated Tax year 2004. Therefore, petitioner is liable to pay said outstanding VAT. In addition,
System (ITS) against the Summary of List of Purchases (SLP) attached to the the amount of P10,075,650.28 which resulted from the excess of the LN over the
Quarterly VAT returns filed with respondent, the following discrepancies remain SLP amounting to P715,371.17 must be likewise added to arrive at the total VAT
unsettled despite petitioner's submission of supporting documents: caITAC liability of P3,154,775.56 (including increments up to April 30, 2008). Details of the
computation are shown in the FLD.
(a) An excess of SLP over the Letter Notices (LN) in the amount of P1,601,652.43
from the following suppliers: As stated earlier, the excess of LN over the SLP in the amount of P715,371.17
resulted to under-declared input tax on the part of petitioner which led to an
 
under[-]declared purchases of P7,153,711.70, arrived at by dividing P715,371.17 by
  Per SLP Per LN Discrepancy the VAT rate of 10%. As can be gleaned from the LN, suppliers declared in its books
of accounts output VAT for sales made to petitioner. However, in petitioner's SLP,
Alliance Media Printing Corp. 109,073,375.58 107,640,812.95 1,432,562.63 no declaration of such amount incurred for the taxable year 2004 was shown. Such
Citimotors, Inc. 70,454.55 70,056.65 397.90 being the case, petitioner under-declared its purchases that resulted to the under-
declared amount of Input VAT. If petitioner has under[-]declared its purchases, it
Diamond Motors Corp. 288,181.82 142,363.64 145,818.18 would likewise have under-declared its Gross Income which will be worked back by
Western Marketing Corp. 30,830.99 7,957.27 22,873.72 using the ratio of Cost of Sales against its Gross Income per Income Tax Return. In
the case at hand, the ratio of Cost of Sales against its Gross Income per Income Tax
Total 109,462,842.94 107,861,190.51 1,601,652.43 Return filed for taxable year 2004 is 71%. If petitioner divides the amount of
(b) On the other hand, it is likewise evident than an excess of LN over the SLP also P7,153,711.70 by the cost ratio of 71%, the under-declared Gross Income of
occurred in the total amount of Seven Hundred Fifteen Thousand Three Hundred P10,075,650.28 will be arrived at. Such being the case, petitioner would then be
Seventy One Pesos and 17/100 (P715,371.17). The details of which are shown liable to pay the corresponding income tax for the under-declared Net [I]ncome at
hereunder: the rate of 32%. Net Income was arrived at by deducting from the Gross Income of
P10,075,650.28 the corresponding Cost of Sales of P7,153,711.70. Hence, the
  Per SLP Per LN Discrepancy amount of income tax still to be paid is P1,524,229.99 (including additional
increments until April 30, 2008). For ready reference of this Honorable Court, the
Grasco Industries, Inc.   202.55 (202.55)
full details of the aforesaid computation are shown in the Formal Letter of Demand
Harrison Communications, Inc. 18,157.89 398,331.12 (380,173.23) issued to petitioner. TAIaHE
Makati Property Ventures   64.55 (64.55) 4. Petitioner emphasized that it is a service company deriving its main source of
income from newspaper and advertising sales, thus any understatement of
Mc[C]an[n] Erikson Phils., Inc.   204,769.38 (204,769.38)
expenses or purchases (also mostly from services) does not mean it understated its
Millennium Cars, Inc.   89,545.45 (89,545.45) sales. It goes further by saying that its transactions pertaining mostly to services
and goods must be reflected as Operating Expenses and not as part of the Cost of
WPP Marketing Communications, Inc.   40,616.01 (40,616.01) Sales. It revealed that Harrison Communications, Inc., McCann Erikson, Inc., WPP
Total 18,157.89 733,529.06 (715,371.17) Marketing Corporation are some of the advertising agencies which rendered direct
professional services to petitioner in the form of marketing or promotional
On the basis of the aforesaid investigation, it can be observed that the SLP which purposes. To bolster its claim, it likewise stated that the transactions with aforesaid
petitioner attached as supporting documents upon filing the quarterly VAT return three (3) main entities should not be treated as cost of sales since what these
revealed the declared amount of P109,462,842.94 as its input VAT for purchases entities provided were 'not materials' in order for petitioner to gain income that
incurred. However, on the basis of the LN, its suppliers recorded in its books of can be both taxable under the income tax and VAT provisions.
account the aggregate amount of P107,861,190.51 as its corresponding VAT.
Suffice it to say, the over-declared VAT input tax on the part of petitioner led to the Corollary thereto, Section 27 E(4) of the NIRC specifically provides:

34
'(4) Gross Income Defined. For purposes of applying the minimum corporate
income tax provided under Section (E) hereof, the term 'gross income' shall mean
gross sales less sales returns, discounts and allowances and cost of goods sold.
'Cost of goods sold' shall include business expenses directly incurred to produce
the merchandise to bring them to their present location and use.
xxx xxx xxx
In the case of taxpayers engaged in the sale of service, 'gross income' means gross
receipts less sales returns, allowances, discounts and cost of services. 'Cost of
services' shall mean direct costs and expenses necessarily incurred to provide the
services required by the customers and clients including (a) salaries and employee
benefits of personnel, consultants and specialists directly rendering the service and
(b) cost of facilities directly utilized in providing the service such as depreciation or
rental of equipment used and cost of supplies.' ICHDca
Petitioner, by its own admission, is a service-oriented company which derives its
income from sale of newspaper and advertisement. It is without doubt that in
selling newspapers to the public, it necessarily incurs direct costs to bring about the
merchandise it sells to its present state and/or condition. In the same vein, in
selling advertisements to clients/customers, it likewise incurs direct costs for the
rendition of services in the process. On the basis of the aforesaid provision of the
NIRC, 'cost of services' include[s] direct costs and expenses necessarily incurred to
provide the services required by its customers or clients. Applying the same at
hand, in order for petitioner to boost its sales on advertisement, it would actually
employ services of companies which would handle the promotion and marketing of
the services it is offering. The direct and professional services rendered by the
three (3) advertising companies namely Harrison Communications, Inc., McCann
Erikson, Inc. and WPP Marketing Corporation should be considered as part of the
cost of advertisement sales/services by petitioner.
In view of the foregoing, the amount of discrepancy that resulted on account of the
under-declared input tax of P715,371.17 should be treated as Cost of Sales of
services and not just an ordinary operating expenses because the services provided
by the aforementioned three (3) advertising agencies are direct costs and expenses
necessary to bring about the advertisement sales of petitioner." 9
After the presentation of oral and documentary evidence and submission of the
parties' respective Memoranda, the case was submitted for resolution.
The Decision of the CTA First Division
The CTA First Division resolved the following issues raised by the parties:
1. Whether or not respondent's authority to issue an assessment against petitioner
for deficiency value-added and income taxes has prescribed;
35
2. Whether or not respondent erred in assessing petitioner deficiency value-added
tax and income tax for calendar year 2004;
3. Whether petitioner is liable to pay the aggregate amount of Four Million Six
Hundred Seventy Nine Thousand Five Pesos and 55/100 (Php4,679,005.55)
representing alleged deficiency income and value-added tax for taxable year 2004,
including interest and compromise penalty from 30 April 2008 until fully paid
pursuant to Sections 248 and 249 of the Tax Code, arising from discrepancies which
were generated through the Reconciliation of Listing for Enforcement (RELIEF)
System-Summary List of Sales and Purchases and Third Party Matching of Data
available in the Integrated Tax System (ITS) of respondent against information
gathered from third party sources; cDHAES
4. Whether the fees paid to the three (3) advertising agencies, namely Harrison
Communications, Inc., McCann Erikson, Inc., and WPP Marketing Corporation are
considered part of the cost of sales made by petitioner for taxable year 2004;
5. Whether Section 222 of the Tax Code is applicable in the case at hand;
6. Whether the Formal Letter of Demand dated 11 March 2008 was issued within
the prescriptive period provided by law; and
7. Whether or not petitioner should be assessed a compromise penalty. 10
In its 16 February 2012 Decision, the CTA First Division ruled in favor of PDI.
The CTA First Division ruled that the period of limitation in the assessment and
collection of taxes is governed by Section 203 of the NIRC which provides:
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.
The CTA First Division ruled that internal revenue taxes must be assessed on time.
It added that the period of assessment must not extend indefinitely because doing
so will deprive the taxpayer of the assurance that it will not be subjected to further
investigation after the expiration of a reasonable period of time. Nevertheless, the
CTA First Division noted that the three-year prescriptive period under Section 203
of the NIRC applies only when the returns are filed pursuant to legal requirements.
The CTA First Division explained that for false or fraudulent tax returns, or for
failure to file returns, the prescriptive period is 10 years after the discovery of the
falsity or fraud, or from failure to file tax returns. It also added that in the absence
of a false or fraudulent return, or where a return has been filed, the period of
limitation may still be extended in cases where the taxpayer and the CIR have
agreed in writing, prior to the expiration of the period prescribed under Section
203 of the NIRC, to an assessment within the time agreed upon.
In ruling on the prescriptive period, the CTA First Division had to determine
whether PDI's tax returns were false or fraudulent. The CTA First Division ruled that
in ascertaining the correctness of any return, or in determining the tax liability of
any person, the CIR is authorized to obtain information, on a regular basis, from
any person other than the taxpayer subject of the audit or investigation. It further
ruled that the CIR may rely on the information obtained from third parties in
issuing assessments to taxpayers, and that the CIR enjoys the presumption of
regularity in obtaining such information. Further, the CTA First Division stated that
the determinations and assessments of the CIR are presumed correct and made in
good faith, and it is the duty of the taxpayer to prove otherwise. The CTA First
Division then ruled that in this case, PDI introduced proof that the determination
made by the CIR on the supposed overdeclared input tax of P1,601,652.43 is not
correct. The CTA First Division ruled that the CIR failed to disprove the findings
submitted by the Independent Certified Public Accountant (ICPA) that supported
PDI's assertions. TCAScE
The CTA First Division rejected the CIR's theory that since there was an
underdeclaration of the input tax and of purchases, it translates to taxable income
for tax purposes and taxable gross receipts for VAT purposes. According to the CTA
First Division, the following elements must be present in the imposition of income
tax: (1) there must be gain or profit; (2) the gain or profit is realized or received,
actually or constructively; and (3) it is not exempted by law or treaty from income
tax. In this case, the CTA First Division ruled that in the imposition or assessment of
income tax, it must be clear that there was an income and the income was received
by the taxpayer. The basis could not be merely an underdeclaration of purchases.
The CTA First Division added that for income tax purposes, a taxpayer may either
deduct from its gross income a lesser amount, or not claim any deduction at all. It
stated that what is prohibited is to claim a deduction beyond the amount
authorized by law. According to the CTA First Division, even when there was
underdeclaration of input tax, which means there was an underdeclaration of
purchases and expenses, the same is not prohibited by law.
As regards the VAT assessment, the CTA First Division ruled that the 10% VAT is
assessed on "gross receipts derived from the sale or exchange of services." As such,
it is critical to show that the taxpayer received an amount of money or its
equivalent, and not only that there was underdeclared input taxes or purchases.
36
The CTA First Division ruled that it was an error for the CIR to impose a deficiency
income tax based on the underdeclared input tax, and the income tax return
cannot be treated as false. Thus, the CTA First Division ruled that the prescriptive
period applicable to the case is the three-year period, and the deficiency income
tax assessment issued by the BIR beyond the three-year prescriptive period is void.
The CTA First Division further ruled that Section 222 (b) of the NIRC authorizes the
extension of the original three-year prescriptive period by the execution of a valid
waiver upon the agreement in writing between the taxpayer and the BIR, provided:
(1) the agreement was made before the expiration of the three-year period and (2)
the guidelines in the proper execution of the waiver are strictly followed. The CTA
First Division found that while the First and Second Waivers were executed in three
copies, the BIR failed to provide the office accepting the waivers with their
respective third copies. The CTA First Division found that the third copies were still
attached to the docket of the case. The CTA First Division also found that the BIR
failed to prove that the Third Waiver was executed in three copies. Further, the
revenue official who accepted the Third Waiver was not authorized to do so. The
CTA First Division also noted that the Second Waiver would have expired on 31
December 2007 but the Third Waiver was already executed on 20 December 2007,
meaning there was enough time to have it signed by the ACIR of the Large
Taxpayers Service. The CTA First Division concluded that due to the defects in the
Waivers, the three-year period within which to assess PDI was not extended. The
CTA First Division further ruled that the compromise penalties should likewise be
cancelled. The dispositive portion of the CTA First Division's Decision reads: ASEcHI
WHEREFORE, premises considered, the instant Petition for Review is hereby
GRANTED. The Formal Letter of Demand dated March 11, 2008 and Assessment
No. LN #116-AS-04-00-00038-[000526] for calendar year 2004 issued by the BIR
against petitioner are hereby CANCELLED and SET ASIDE.
SO ORDERED. 11
The CIR filed a motion for reconsideration. In its 8 May 2012 Resolution, the CTA
First Division denied the motion for lack of merit.
The CIR filed a petition for review before the CTA En Banc.
The Decision of the CTA En Banc
In its 4 November 2013 Decision, the CTA En Banc cited the CTA First Division's
Decision extensively. The CTA En Banc ruled that it found no reason to depart from
the CTA First Division's findings. The CTA En Banc held that PDI sufficiently
discharged its burden of proving that the VAT assessment and the Income Tax
assessment made by the CIR were not correct. The CTA En Banc ruled that the
presumptions of correctness and regularity cited by the CIR were overturned by the
evidence presented by PDI particularly, the final report of the ICPA, accounts
payable, check vouchers, invoices, official receipts, and credit memoranda. The CTA
En Banc noted that the CIR did not present any evidence to the contrary. The CTA
En Banc rejected the CIR's allegation that PDI made a false return and held that the
three-year prescriptive period based on Section 203, in relation to Section 222 (a)
of the NIRC, as amended, should apply in this case. The CTA En Banc likewise
sustained the CTA First Division's ruling that the Waivers issued by PDI were
defective and could not extend the three-year prescriptive period. The CTA En Banc
also sustained the CTA First Division's ruling that it can resolve the issue of
prescription because the CIR did not contest it when it was raised by PDI.
The dispositive portion of the CTA En Banc's Decision reads: cTDaEH
WHEREFORE, premises considered, the Petition for Review is hereby DENIED for
lack of merit. Accordingly, the Decision and Resolution dated February 16, 2012
and May 8, 2012, respectively, are hereby AFFIRMED in toto.
SO ORDERED. 12
The CIR filed a motion for reconsideration. In its 1 August 2014 Resolution, the CTA
En Banc denied the motion for lack of merit.
Hence, the CIR filed a petition for review on certiorari before this Court.
The Issues
The CIR raised the following issues in her petition:
(1) The CTA En Banc erred in ruling that petitioner's assessment for deficiency VAT
and income tax was adequately controverted by respondent;
(2) The CTA En Banc erred in ruling that the petitioner's right to assess respondent
for deficiency VAT and income tax has prescribed; and
(3) The CTA En Banc erred in ruling that respondent is not estopped from raising
the defense of prescription. 13
The Ruling of this Court
BIR's assessment was not adequately controverted by PDI
Reconciliation of Listing for Enforcement (RELIEF) System is an information
technology tool used by the BIR to improve tax administration. 14 The system was
created —
x x x to support third party information program and voluntary assessment
program of the Bureau through the cross-referencing of third party information
from the taxpayers' Summary Lists of Sales and Purchases prescribed to be
37
submitted on a quarterly basis pursuant to Revenue Regulations Nos. 7-95, as
amended by RR 13-97, RR 7-99 and RR 8-2002. 15
In addition —
[RELIEF] can detect tax leaks by matching the data available under the Bureau's
Integrated Tax System (ITS) with data gathered from third party sources (i.e.,
Schedules of Sales and Domestic Purchases, and Schedule of Importations
submitted by VAT taxpayers pursuant to RR No. 7-95, as amended by RR Nos. 13-
97, 7-99 and 8-2002).
Through the consolidation and cross-referencing of third party information,
discrepancy reports on sales and purchases can be generated to uncover under
declared income and over claimed purchases (goods and services). Timely
recognition and accurate reporting of unregistered taxpayers and non-filers can be
made possible. 16 ITAaHc
Using the RELIEF system, the BIR assessed PDI for deficiency VAT and income tax
amounting to P3,154,775.57 and P1,525,230.00, respectively. According to the BIR,
the computerized matching conducted by its office, using information and data
from third party sources against PDI's VAT returns for 2004 showed an
underdeclaration of domestic purchases from its suppliers amounting to
P317,705,610.52. PDI denied the allegation.
In ruling on the case, the CTA recognized that the BIR may obtain information from
third party sources in assessing taxpayers. The CTA also stated that the BIR enjoyed
a presumption of regularity in obtaining the information, and its assessments are
presumed correct and made in good faith. Indeed, the burden to controvert the
assessments made by the BIR lies with the taxpayer. In this case, the CTA rejected
BIR's finding that PDI underdeclared its input tax and purchases. According to the
CTA, PDI was able to disprove BIR's assessments.
The general rule is that findings of fact of the CTA are not to be disturbed by this
Court unless clearly shown to be unsupported by substantial evidence. 17 Since by
the very nature of its functions, the CTA has developed an expertise to resolve tax
issues, the Court will not set aside lightly the conclusions reached by them, unless
there has been an abuse or improvident exercise of authority. 18
In reaching their conclusions, the CTA First Division and En Banc relied on the
report submitted by the ICPA. According to the CTA, the BIR failed to rebut the ICPA
report. After going over the ICPA report, as well as the affidavit summarizing the
examination submitted by Jerome Antonio B. Constantino (Constantino), a Certified
Public Accountant and the Managing Partner of the firm that conducted the
examination, this Court notes that:
(1) Purchases made from Harrison Communications, Inc. were recorded as general
and administrative expenses and selling expenses in the 2004 General Ledger and
2004 Audited Financial Statements and not as cost of sales; 19
(2) The 2004 purchases from Harrison Communications, Inc. and McCann Erickson,
Inc. were recorded in PDI's book in 2005 and 2006 as "Summary List of Purchases."
There was a discrepancy between the purchases from Harrison Communications,
Inc. and McCann Erickson, Inc. and the BIR's Letter Notice amounting to
P150,203.29 and P191,406.02, respectively, but the ICPA was not able to account
for the difference because according to PDI, the details were not provided in the
BIR's Letter Notice; 20
(3) Promotional services purchased from Harrison Communications, Inc. and
McCann Erickson, Inc. in 2004 were recorded in PDI's books in 2005 and 2006.
According to Constantino, the VAT input on purchases from Harrison
Communications, Inc. and McCann Erickson, Inc. recorded in 2005 and 2006,
amounting to P206,713.63 and P13,363.36, respectively, were supported only by
photocopies of sales invoices because PDI claimed that it could not find the original
documents despite diligent efforts to locate them; 21 cSaATC
(4) Constantino reported that no input taxes were recorded in 2004 from McCann
Erickson, Inc., Millennium Cars, Inc., WPP Marketing Communications, Inc., Grasco
Industries, Inc., and Makati Property Ventures. Constantino was not able to vouch
for supporting documents for purchase transactions from WPP Marketing
Communications, Inc., Grasco Industries, Inc., and Makati Property Ventures. He
established that the purchase from Millennium Cars, Inc. was for a car loan account
for an employee and was recorded to Advances to Officers and Employees; 22
(5) Alliance Media Printing, Inc.'s erroneous posting of data in the BIR RELIEF
caused the discrepancies in the analysis of suppliers' sales and purchases made by
PDI. 23
The foregoing showed that there were discrepancies that PDI were able to explain.
In particular, the ICPA report showed that the purchase from Millennium Cars, Inc.
was made on behalf of an employee as a loan. In addition, the underdeclared input
tax insofar as Alliance Printing, Inc. is concerned was due to the latter's erroneous
posting of data, a fact that the corporation admitted. However, there are still issues
that need to be resolved. In particular, PDI failed to justify its erroneous listing of
purchases from Harrison Communications, Inc., McCann Erickson, Inc., and WPP
Marketing Corporation as general and administrative expenses.
The CIR pointed out that PDI could not treat purchases from Harrison
Communications, Inc. and McCann Erickson, Inc. as general and administrative
expenses. Indeed, Section 27 (E) (4) of the NIRC provides:
38
xxx xxx xxx
(4) Gross Income Defined. For purposes of applying the minimum corporate income
tax provided under Subsection (E) hereof, the term "gross income" shall mean
gross sales less sales returns, discounts and allowances and cost of goods sold.
"Cost of goods sold" shall include business expenses directly incurred to produce
the merchandise to bring them to their present location and use.
xxx xxx xxx
In the case of taxpayers engaged in the sale of service, "gross income" means gross
receipts less sales returns, allowances, discounts and cost of services. "Cost of
services" shall mean direct costs and expenses necessarily incurred to provide the
services required by the customers and clients including (a) salaries and employee
benefits of personnel, consultants and specialists directly rendering the service and
(b) cost of facilities directly utilized in providing the service such as depreciation or
rental of equipment used and cost of supplies: Provided, however, That in the case
of banks, "cost of services" shall include interest expense.
The ICPA report found nothing wrong in the entries. However, as pointed out by
the Office of the Solicitor General, PDI is a service-oriented company that derives
its income from the sale of newspapers and advertisements. The services rendered
by Harrison Communications, Inc., McCann Erickson, Inc., and WPP Marketing
Corporation were meant to promote and market the advertising services offered by
PDI. As such, their services should be considered part of cost of services instead of
general and administrative expenses and operating expenses. CHTAIc
Such finding would ordinarily call for a recomputation. However, we need to
resolve first whether the BIR's assessment was made within the prescriptive period.
Prescription and Estoppel
We will discuss the second and third issues jointly.
The CIR alleges that PDI filed a false or fraudulent return. As such, Section 222 of
the NIRC should apply to this case and the applicable prescriptive period is 10 years
from the discovery of the falsity of the return. The CIR argues that the ten-year
period starts from the time of the issuance of its Letter Notice on 10 August 2006.
As such, the assessment made through the Formal Letter of Demand dated 11
March 2008 is within the prescriptive period.
We do not agree.
Under Section 203 of the NIRC, the prescriptive period to assess is set at three
years. This rule is subject to the exceptions provided under Section 222 of the NIRC.
The CIR invokes Section 222 (a) which provides:
SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of fraudulent return with intent to evade tax, and failure to file a return is
Taxes. — strengthened immeasurably by the last portion of the provision which segregates
the situation into three different classes, namely "falsity," "fraud," and "omission."
(a) In the case of a false or fraudulent return with intent to evade tax or of failure
That there is a difference between "false return" and "fraudulent return" cannot be
to file a return, the tax may be assessed, or a proceeding in court for the collection
denied. While the first implies deviation from the truth, whether intentional or not,
of such tax may be filed without assessment, at any time within ten (10) years after
the second implies intentional or deceitful entry with intent to evade the taxes due.
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 The ordinary period of prescription of 5 years within which to assess tax liabilities
cognizance of in the civil or criminal action for the collection thereof. 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
In Commissioner of Internal Revenue v. Javier, 24 this Court ruled that fraud is
agents from proper assessment of tax liabilities due to false returns, fraudulent
never imputed. The Court stated that it will not sustain findings of fraud upon
return intended to evade payment of tax or failure to file returns, the period of ten
circumstances which, at most, create only suspicion. 25 The Court added that the
years provided for in Sec. 332 (a) NIRC, from the time of discovery of the falsity,
mere understatement of a tax is not itself proof of fraud for the purpose of tax
fraud or omission even seems to be inadequate and should be the one enforced. 30
evasion. 26 The Court explained: cHDAIS
EATCcI
x x x. The fraud contemplated by law is actual and not constructive. It must be
Thus, while the filing of a fraudulent return necessarily implies that the act of the
intentional fraud, consisting of deception willfully and deliberately done or
taxpayer was intentional and done with intent to evade the taxes due, the filing of
resorted to in order to induce another to give up some legal right. Negligence,
a false return can be intentional or due to honest mistake. In CIR v. B.F. Goodrich
whether slight or gross, is not equivalent to fraud with intent to evade the tax
Phils., Inc., 31 the Court stated that the entry of wrong information due to mistake,
contemplated by law. It must amount to intentional wrong-doing with the sole
carelessness, or ignorance, without intent to evade tax, does not constitute a false
object of avoiding the tax. x x x. 27
return. In this case, we do not find enough evidence to prove fraud or intentional
In Samar-I Electric Cooperative v. Commissioner of Internal Revenue, 28 the Court falsity on the part of PDI.
differentiated between false and fraudulent returns. Quoting Aznar v. Court of Tax
Since the case does not fall under the exceptions, Section 203 of the NIRC should
Appeals, 29 the Court explained in Samar-I the acts or omissions that may
apply. It provides:
constitute falsity, thus:
SEC. 203. Period of Limitation Upon Assessment and Collection. — Except as
Petitioner argues that Sec. 332 of the NIRC does not apply because the taxpayer did
provided in Section 222, internal revenue taxes shall be assessed within three (3)
not file false and fraudulent returns with intent to evade tax, while respondent
years after the last day prescribed by law for the filing of the return, and no
Commissioner of Internal Revenue insists contrariwise, with respondent Court of
proceeding in court without assessment for the collection of such taxes shall be
Tax Appeals concluding that the very "substantial underdeclarations of income for
begun after the expiration of such period. Provided, That in a case where a return is
six consecutive years eloquently demonstrate the falsity or fraudulence of the
filed beyond the period prescribed by law, the three (3)-year period shall be
income tax returns with an intent to evade the payment of tax."
counted from the day the return was filed. For purposes of this Section, a return
To our minds we can dispense with these controversial arguments on facts, filed before the last day prescribed by law for the filing thereof shall be considered
although we do not deny that the findings of facts by the Court of Tax Appeals, as filed on such last day.
supported as they are by very substantial evidence, carry great weight, by resorting
Indeed, the Waivers executed by the BIR and PDI were meant to extend the three-
to a proper interpretation of Section 332 of the NIRC. We believe that the proper
year prescriptive period, and would have extended such period were it not for the
and reasonable interpretation of said provision should be that in the three different
defects found by the CTA. This further shows that at the outset, the BIR did not find
cases of (1) false return, (2) fraudulent return with intent to evade tax, (3) failure to
any ground that would make the assessment fall under the exceptions.
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 In Commissioner of Internal Revenue v. Kudos Metal Corporation, 32 the Court
discovery of the (1) falsity, (2) fraud, (3) omission. Our stand that the law should be ruled:
interpreted to mean a separation of the three different situations of false return,

39
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 20-90 issued on April
4, 1990 and RDAO 05-01 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. ISHCcT
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. 33
In this case, the CTA found that contrary to PDI's allegations, the First and Second
Waivers were executed in three copies. However, the CTA also found that the CIR
failed to provide the office accepting the First and Second Waivers with their
respective third copies, as the CTA found them still attached to the docket of the
case. In addition, the CTA found that the Third Waiver was not executed in three
copies.
The failure to provide the office accepting the waiver with the third copy violates
RMO 20-90 and RDAO 05-01. Therefore, the First Waiver was not properly
executed on 21 March 2007 and thus, could not have extended the three-year
prescriptive period to assess and collect taxes for the year 2004. To make matters
40
worse, the CIR committed the same error in the execution of the Second Waiver on
5 June 2007. Even if we consider that the First Waiver was validly executed, the
Second Waiver failed to extend the prescriptive period because its execution was
contrary to the procedure set forth in RMO 20-90 and RDAO 05-01. Granting
further that the First and Second Waivers were validly executed, the Third Waiver
executed on 12 December 2007 still failed to extend the three-year prescriptive
period because it was not executed in three copies. In short, the records of the
case showed that the CIR's three-year prescriptive period to assess deficiency tax
had already prescribed due to the defects of all the Waivers.
In Commissioner of Internal Revenue v. The Stanley Works Sales (Phils.),
Incorporated, 34 the Court explained the nature of a waiver of assessment. The
Court said: DHITCc
In Philippine Journalist, Inc. v. Commissioner of Internal Revenue, the Court
categorically stated 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 29-2012. Thus, the
BIR cannot claim the benefits of extending the period to collect the deficiency tax
as a consequence of the Waiver when, in truth it was the BIR's inaction which is the
proximate cause of the defects of the Waiver. The BIR has the burden of ensuring
compliance with the requirements of RMO No. 20-90 as they have the burden of
securing the right of the government to assess and collect tax deficiencies. This
right would prescribe absent any showing of a valid extension of the period set by
the law.
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 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 imply that the taxpayer relinquishes the right to invoke
prescription unequivocally.
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 of revenues. A statute of limitations on the assessment and collection
of internal revenue taxes was adopted to serve a purpose that would benefit both
the taxpayer and the government. 35
Clearly, the defects in the Waivers resulted to the non-extension of the period to
assess or collect taxes, and made the assessments issued by the BIR beyond the
three-year prescriptive period void. 36
The CIR also argues that PDI is estopped from questioning the validity of the
Waivers. We do not agree. As stated by the CTA, the BIR cannot shift the blame to
the taxpayer for issuing defective waivers. 37 The Court has ruled that the BIR
cannot hide behind the doctrine of estoppel to cover its failure to comply with
RMO 20-90 and RDAO 05-01 which were issued by the BIR itself. 38 A waiver of the
statute of limitations is a derogation of the taxpayer's right to security against
prolonged and unscrupulous investigations and thus, it must be carefully and
strictly construed. 39
Since the three Waivers in this case are defective, they do not produce any effect
and did not suspend the three-year prescriptive period under Section 203 of the
NIRC. As such, we sustain the cancellation of the Formal Letter of Demand dated 11
March 2008 and Assessment No. LN #116-AS-04-00-00038-000526 for taxable year
2004 issued by the BIR against PDI. CAacTH
WHEREFORE, we DENY the petition.
SO ORDERED.
||| (Commissioner of Internal Revenue v. Philippine Daily Inquirer, Inc., G.R. No.
213943, [March 22, 2017], 807 PHIL 912-941)

41
[G.R. Nos. 167274-75. July 21, 2008.]
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. FORTUNE TOBACCO
CORPORATION, respondent.
DECISION
TINGA, J p:
Simple and uncomplicated is the central issue involved, yet whopping is the
amount at stake in this case. TcHDIA
After much wrangling in the Court of Tax Appeals (CTA) and the Court of Appeals,
Fortune Tobacco Corporation (Fortune Tobacco) was granted a tax refund or tax
credit representing specific taxes erroneously collected from its tobacco products.
The tax refund is being re-claimed by the Commissioner of Internal Revenue
(Commissioner) in this petition.
Winston F Kings P5.00
Winston Lights P5.00
Immediately prior to January 1, 1997, the above-mentioned cigarette brands were
subject to ad valorem tax pursuant to then Section 142 of the Tax Code of 1977, as
amended. However, on January 1, 1997, R.A. No. 8240 took effect whereby a shift
from the ad valorem tax (AVT) system to the specific tax system was made and
subjecting the aforesaid cigarette brands to specific tax under [S]ection 142
thereof, now renumbered as Sec. 145 of the Tax Code of 1997, pertinent provisions
of which are quoted thus: caDTSE
Section 145. Cigars and Cigarettes. —
(A) Cigars. — There shall be levied, assessed and collected on cigars a tax of One
peso (P1.00) per cigar.

The following undisputed facts, summarized by the Court of Appeals, are quoted in "(B) Cigarettes packed by hand. — There shall be levied, assessed and collected on
the assailed Decision 1 dated 28 September 2004: cigarettes packed by hand a tax of Forty centavos (P0.40) per pack.

CA G.R. SP No. 80675 (C) Cigarettes packed by machine. — There shall be levied, assessed and collected
on cigarettes packed by machine a tax at the rates prescribed below:
xxx xxx xxx
(1) If the net retail price (excluding the excise tax and the value-added tax) is above
Petitioner 2 is a domestic corporation duly organized and existing under and by Ten pesos (P10.00) per pack, the tax shall be Twelve (P12.00) per pack;
virtue of the laws of the Republic of the Philippines, with principal address at
Fortune Avenue, Parang, Marikina City. (2) If the net retail price (excluding the excise tax and the value added tax) exceeds
Six pesos and Fifty centavos (P6.50) but does not exceed Ten pesos (P10.00) per
Petitioner is the manufacturer/producer of, among others, the following cigarette pack, the tax shall be Eight Pesos (P8.00) per pack.
brands, with tax rate classification based on net retail price prescribed by Annex
"D" to R.A. No. 4280, to wit: (3) If the net retail price (excluding the excise tax and the value-added tax) is Five
pesos (P5.00) but does not exceed Six Pesos and fifty centavos (P6.50) per pack , the
Brand  Tax Rate tax shall be Five pesos (P5.00) per pack;
    (4) If the net retail price (excluding the excise tax and the value-added tax) is below
Five pesos (P5.00) per pack, the tax shall be One peso (P1.00) per pack;
Champion M 100 P1.00
"Variants of existing brands of cigarettes which are introduced in the domestic
Salem M 100 P1.00 market after the effectivity of R.A. No. 8240 shall be taxed under the highest
classification of any variant of that brand.
Salem M King P1.00
The excise tax from any brand of cigarettes within the next three (3) years from the
Camel F King P1.00 effectivity of R.A. No. 8240 shall not be lower than the tax, which is due from each
Camel Lights Box 20's P1.00 brand on October 1, 1996. Provided, however, that in cases were (sic) the excise
tax rate imposed in paragraphs (1), (2), (3) and (4) hereinabove will result in an
Camel Filters Box 20's P1.00 increase in excise tax of more than seventy percent (70%), for a brand of cigarette,
the increase shall take effect in two tranches: fifty percent (50%) of the increase

42
shall be effective in 1997 and one hundred percent (100%) of the increase shall be   (B)  Cigarettes packed    
effective in 1998.
  by machine    
Duly registered or existing brands of cigarettes or new brands thereof packed by
machine shall only be packed in twenties.        

The rates of excise tax on cigars and cigarettes under paragraphs (1), (2) (3) and   (1)  Net retail price    
(4) hereof, shall be increased by twelve percent (12%) on January 1, 2000.
(Emphasis supplied) HIACac   (excluding VAT and P12.00/pack P13.44/pack

New brands shall be classified according to their current net retail price.   excise) exceeds    

For the above purpose, 'net retail price' shall mean the price at which the cigarette   P10.00 per pack    
is sold on retail in twenty (20) major supermarkets in Metro Manila (for brands of
cigarettes marketed nationally), excluding the amount intended to cover the        
applicable excise tax and value-added tax. For brands which are marketed only   (2)  Exceeds P10.00 P8.00/pack P8.96/pack
outside Metro [M]anila, the 'net retail price' shall mean the price at which the
cigarette is sold in five (5) major supermarkets in the region excluding the amount   per pack    
intended to cover the applicable excise tax and the value-added tax.
       
The classification of each brand of cigarettes based on its average retail price as of
October 1, 1996, as set forth in Annex "D", shall remain in force until revised by   (3)  Net retail price    
Congress.
  (excluding VAT and P5.00/pack P5.60/pack
Variant of a brand shall refer to a brand on which a modifier is prefixed and/or
suffixed to the root name of the brand and/or a different brand which carries the   excise) is P5.00 to    
same logo or design of the existing brand.   P6.50 per pack    
To implement the provisions for a twelve percent (12%) increase of excise tax on,
       
among others, cigars and cigarettes packed by machines by January 1, 2000, the
Secretary of Finance, upon recommendation of the respondent Commissioner of   (4)  Net Retail Price    
Internal Revenue, issued Revenue Regulations No. 17-99, dated December 16,
1999, which provides the increase on the applicable tax rates on cigar and   (excluding VAT and P1.00/pack P1.12/pack
cigarettes as follows:
  excise) is below    
SECTION DESCRIPTION OF PRESENT NEW
  P5.00 per pack    
  ARTICLES SPECIFIC TAX SPECIFIC TAX
Revenue Regulations No. 17-99 likewise provides in the last paragraph of Section 1
    RATE PRIOR RATE EFFECTIVE thereof, "(t)hat the new specific tax rate for any existing brand of cigars,
cigarettes packed by machine, distilled spirits, wines and fermented liquor shall
    TO JAN. 1, 2000 JAN. 1, 2000 not be lower than the excise tax that is actually being paid prior to January 1,
2000." SHIETa
       
For the period covering January 1-31, 2000, petitioner allegedly paid specific taxes
145 (A)   P1.00/cigar P1.12/cigar on all brands manufactured and removed in the total amounts of P585,705,250.00.

43
On February 7, 2000, petitioner filed with respondent's Appellate Division a claim
for refund or tax credit of its purportedly overpaid excise tax for the month of
January 2000 in the amount of P35,651,410.00
On June 21, 2001, petitioner filed with respondent's Legal Service a letter dated
June 20, 2001 reiterating all the claims for refund/tax credit of its overpaid excise
taxes filed on various dates, including the present claim for the month of January
2000 in the amount of P35,651,410.00.
As there was no action on the part of the respondent, petitioner filed the instant
petition for review with this Court on December 11, 2001, in order to comply with
the two-year period for filing a claim for refund.
In his answer filed on January 16, 2002, respondent raised the following Special and
Affirmative Defenses;
4. Petitioner's alleged claim for refund is subject to administrative routinary
investigation/examination by the Bureau;
5. The amount of P35,651,410 being claimed by petitioner as alleged overpaid
excise tax for the month of January 2000 was not properly documented.
6. In an action for tax refund, the burden of proof is on the taxpayer to establish its
right to refund, and failure to sustain the burden is fatal to its claim for
refund/credit.
7. Petitioner must show that it has complied with the provisions of Section 204(C)
in relation [to] Section 229 of the Tax Code on the prescriptive period for claiming
tax refund/credit;
8. Claims for refund are construed strictly against the claimant for the same
partake of tax exemption from taxation; and
9. The last paragraph of Section 1 of Revenue Regulation[s] [No.]17-99 is a valid
implementing regulation which has the force and effect of law." TAcDHS
CA G.R. SP No. 83165
The petition contains essentially similar facts, except that the said case questions
the CTA's December 4, 2003 decision in CTA Case No. 6612 granting respondent's 3
claim for refund of the amount of P355,385,920.00 representing erroneously or
illegally collected specific taxes covering the period January 1, 2002 to December
31, 2002, as well as its March 17, 2004 Resolution denying a reconsideration
thereof.
xxx xxx xxx
44
In both CTA Case Nos. 6365 & 6383 and CTA No. 6612, the Court of Tax Appeals
reduced the issues to be resolved into two as stipulated by the parties, to wit: (1)
Whether or not the last paragraph of Section 1 of Revenue Regulation[s] [No.] 17-
99 is in accordance with the pertinent provisions of Republic Act [No.] 8240, now
incorporated in Section 145 of the Tax Code of 1997; and (2) Whether or not
petitioner is entitled to a refund of P35,651,410.00 as alleged overpaid excise tax
for the month of January 2000.
xxx xxx xxx
Hence, the respondent CTA in its assailed October 21, 2002 [twin] Decisions[s]
disposed in CTA Case Nos. 6365 & 6383:
WHEREFORE, in view of the foregoing, the court finds the instant petition
meritorious and in accordance with law. Accordingly, respondent is hereby
ORDERED to REFUND to petitioner the amount of P35,651.410.00 representing
erroneously paid excise taxes for the period January 1 to January 31, 2000.
SO ORDERED.
Herein petitioner sought reconsideration of the above-quoted decision. In [twin]
resolution[s] [both] dated July 15, 2003, the Tax Court, in an apparent change of
heart, granted the petitioner's consolidated motions for reconsideration, thereby
denying the respondent's claim for refund.
However, on consolidated motions for reconsideration filed by the respondent in
CTA Case Nos. 6363 and 6383, the July 15, 2002 resolution was set aside, and the
Tax Court ruled, this time with a semblance of finality, that the respondent is
entitled to the refund claimed. Hence, in a resolution dated November 4, 2003, the
tax court reinstated its December 21, 2002 Decision and disposed as follows:
WHEREFORE, our Decisions in CTA Case Nos. 6365 and 6383 are hereby
REINSTATED. Accordingly, respondent is hereby ORDERED to REFUND petitioner
the total amount of P680,387,025.00 representing erroneously paid excise taxes for
the period January 1, 2000 to January 31, 2000 and February 1, 2000 to December
31, 2001. SEAHcT
SO ORDERED.
Meanwhile, on December 4, 2003, the Court of Tax Appeals rendered decision in
CTA Case No. 6612 granting the prayer for the refund of the amount of
P355,385,920.00 representing overpaid excise tax for the period covering January
1, 2002 to December 31, 2002. The tax court disposed of the case as follows:
IN VIEW OF THE FOREGOING, the Petition for Review is GRANTED. Accordingly,
respondent is hereby ORDERED to REFUND to petitioner the amount of
P355,385,920.00 representing overpaid excise tax for the period covering January
1, 2002 to December 31, 2002.
SO ORDERED.
Petitioner sought reconsideration of the decision, but the same was denied in a
Resolution dated March 17, 2004. 4 (Emphasis supplied) (Citations omitted)
The Commissioner appealed the aforesaid decisions of the CTA. The petition
questioning the grant of refund in the amount of P680,387,025.00 was docketed as
CA-G.R. SP No. 80675, whereas that assailing the grant of refund in the amount of
P355,385,920.00 was docketed as CA-G.R. SP No. 83165. The petitions were
consolidated and eventually denied by the Court of Appeals. The appellate court
also denied reconsideration in its Resolution 5 dated 1 March 2005.
In its Memorandum 6 22 dated November 2006, filed on behalf of the
Commissioner, the Office of the Solicitor General (OSG) seeks to convince the Court
that the literal interpretation given by the CTA and the Court of Appeals of Section
145 of the Tax Code of 1997 (Tax Code) would lead to a lower tax imposable on 1
January 2000 than that imposable during the transition period. Instead of an
increase of 12% in the tax rate effective on 1 January 2000 as allegedly mandated
by the Tax Code, the appellate court's ruling would result in a significant decrease
in the tax rate by as much as 66%.
The OSG argues that Section 145 of the Tax Code admits of several interpretations,
such as:
1. That by January 1, 2000, the excise tax on cigarettes should be the higher tax
imposed under the specific tax system and the tax imposed under the ad valorem
tax system plus the 12% increase imposed by par. 5, Sec. 145 of the Tax Code;
AIHaCc
2. The increase of 12% starting on January 1, 2000 does not apply to the brands of
cigarettes listed under Annex "D" referred to in par. 8, Sec. 145 of the Tax Code;
3. The 12% increment shall be computed based on the net retail price as indicated
in par. C, sub-par. (1)-(4), Sec. 145 of the Tax Code even if the resulting figure will
be lower than the amount already being paid at the end of the transition period.
This is the interpretation followed by both the CTA and the Court of Appeals. 7
This being so, the interpretation which will give life to the legislative intent to raise
revenue should govern, the OSG stresses.
Finally, the OSG asserts that a tax refund is in the nature of a tax exemption and
must, therefore, be construed strictly against the taxpayer, such as Fortune
Tobacco.
45
In its Memorandum 8 dated 10 November 2006, Fortune Tobacco argues that the
CTA and the Court of Appeals merely followed the letter of the law when they ruled
that the basis for the 12% increase in the tax rate should be the net retail price of
the cigarettes in the market as outlined in paragraph C, sub paragraphs (1)-(4),
Section 145 of the Tax Code. The Commissioner allegedly has gone beyond his
delegated rule-making power when he promulgated, enforced and implemented
Revenue Regulation No. 17-99, which effectively created a separate classification
for cigarettes based on the excise tax "actually being paid prior to January 1, 2000".
9
It should be mentioned at the outset that there is no dispute between the fact of
payment of the taxes sought to be refunded and the receipt thereof by the Bureau
of Internal Revenue (BIR). There is also no question about the mathematical
accuracy of Fortune Tobacco's claim since the documentary evidence in support of
the refund has not been controverted by the revenue agency. Likewise, the claims
have been made and the actions have been filed within the two (2)-year
prescriptive period provided under Section 229 of the Tax Code.
The power to tax is inherent in the State, such power being inherently legislative,
based on the principle that taxes are a grant of the people who are taxed, and the
grant must be made by the immediate representatives of the people; and where
the people have laid the power, there it must remain and be exercised. 10
This entire controversy revolves around the interplay between Section 145 of the
Tax Code and Revenue Regulation 17-99. The main issue is an inquiry into whether
the revenue regulation has exceeded the allowable limits of legislative delegation.
For ease of reference, Section 145 of the Tax Code is again reproduced in full as
follows:
Section 145. Cigars and Cigarettes. —
(A) Cigars. — There shall be levied, assessed and collected on cigars a tax of One
peso (P1.00) per cigar.
(B). Cigarettes packed by hand. — There shall be levied, assessed and collected on
cigarettes packed by hand a tax of Forty centavos (P0.40) per pack.
(C) Cigarettes packed by machine. — There shall be levied, assessed and collected
on cigarettes packed by machine a tax at the rates prescribed below: CScaDH
(1) If the net retail price (excluding the excise tax and the value-added tax) is above
Ten pesos (P10.00) per pack, the tax shall be Twelve pesos (P12.00) per pack;
(2) If the net retail price (excluding the excise tax and the value added tax) exceeds
Six pesos and Fifty centavos (P6.50) but does not exceed Ten pesos (P10.00) per
pack, the tax shall be Eight Pesos (P8.00) per pack.
(3) If the net retail price (excluding the excise tax and the value-added tax) is Five effective implementation of the Tax Code, 12 interprets the above-quoted
pesos (P5.00) but does not exceed Six Pesos and fifty centavos (P6.50) per pack, the provision and reflects the 12% increase in excise taxes in the following manner:
tax shall be Five pesos (P5.00) per pack;
SECTION DESCRIPTION OF PRESENT NEW
(4) If the net retail price (excluding the excise tax and the value-added tax) is below
Five pesos (P5.00) per pack, the tax shall be One peso (P1.00) per pack;   ARTICLES SPECIFIC TAX SPECIFIC TAX

Variants of existing brands of cigarettes which are introduced in the domestic     RATES PRIOR RATE Effective
market after the effectivity of R.A. No. 8240 shall be taxed under the highest
    TO JAN. 1, 2000 Jan. 1, 2000
classification of any variant of that brand.
The excise tax from any brand of cigarettes within the next three (3) years from the        
effectivity of R.A. No. 8240 shall not be lower than the tax, which is due from each 145 (A)  Cigars P1.00/cigar P1.12/cigar
brand on October 1, 1996. Provided, however, That in cases where the excise tax
rates imposed in paragraphs (1), (2), (3) and (4) hereinabove will result in an   (B)  Cigarettes packed    
increase in excise tax of more than seventy percent (70%), for a brand of cigarette,
the increase shall take effect in two tranches: fifty percent (50%) of the increase   by machine    
shall be effective in 1997 and one hundred percent (100%) of the increase shall be
       
effective in 1998. HCTEDa
  (1)  Net Retail Price    
Duly registered or existing brands of cigarettes or new brands thereof packed by
machine shall only be packed in twenties.   (excluding VAT and P12.00/pack P13.44/pack
The rates of excise tax on cigars and cigarettes under paragraphs (1), (2) (3) and   Excise) exceeds    
(4) hereof, shall be increased by twelve percent (12%) on January 1, 2000.
  P10.00 per pack    
New brands shall be classified according to their current net retail price.
For the above purpose, 'net retail price' shall mean the price at which the cigarette        
is sold on retail in twenty (20) major supermarkets in Metro Manila (for brands of   (2)  Net Retail Price P8.00/pack P8.96/pack
cigarettes marketed nationally), excluding the amount intended to cover the
applicable excise tax and value-added tax. For brands which are marketed only   (excluding VAT and    
outside Metro Manila, the 'net retail price' shall mean the price at which the
cigarette is sold in five (5) major intended to cover the applicable excise tax and the   Excise) is P6.51 up    
value-added tax.   to P10.00 per pack    
The classification of each brand of cigarettes based on its average retail price as of
       
October 1, 1996, as set forth in Annex "D", shall remain in force until revised by
Congress.   (3)  Net Retail Price    
Variant of a brand' shall refer to a brand on which a modifier is prefixed and/or   (excluding VAT and P5.00/pack P5.60/pack
suffixed to the root name of the brand and/or a different brand which carries the
same logo or design of the existing brand. 11 (Emphasis supplied)   excise) is P5.00 to    
Revenue Regulation 17-99, which was issued pursuant to the unquestioned   P6.50 per pack    
authority of the Secretary of Finance to promulgate rules and regulations for the
       

46

  (4)  Net Retail Price    
  (excluding VAT and P1.00/pack P1.12/pack
  excise) is below    
  P5.00 per pack    
This table reflects Section 145 of the Tax Code insofar as it mandates a 12%
increase effective on 1 January 2000 based on the taxes indicated under paragraph
C, sub-paragraph (1)-(4). However, Revenue Regulation No. 17-99 went further and
added that "[T]he new specific tax rate for any existing brand of cigars, cigarettes
packed by machine, distilled spirits, wines and fermented liquor shall not be lower
than the excise tax that is actually being paid prior to January 1, 2000". 13 aACEID
 
Parenthetically, Section 145 states that during the transition period, i.e., within the
next three (3) years from the effectivity of the Tax Code, the excise tax from any
brand of cigarettes shall not be lower than the tax due from each brand on 1
October 1996. This qualification, however, is conspicuously absent as regards the
12% increase which is to be applied on cigars and cigarettes packed by machine,
among others, effective on 1 January 2000. Clearly and unmistakably, Section 145
mandates a new rate of excise tax for cigarettes packed by machine due to the 12%
increase effective on 1 January 2000 without regard to whether the revenue
collection starting from this period may turn out to be lower than that collected
prior to this date.
By adding the qualification that the tax due after the 12% increase becomes
effective shall not be lower than the tax actually paid prior to 1 January 2000,
Revenue Regulation No. 17-99 effectively imposes a tax which is the higher amount
between the ad valorem tax being paid at the end of the three (3)-year transition
period and the specific tax under paragraph C, sub-paragraph (1)-(4), as increased
by 12% — a situation not supported by the plain wording of Section 145 of the Tax
Code.
This is not the first time that national revenue officials had ventured in the area of
unauthorized administrative legislation.
In Commissioner of Internal Revenue v. Reyes, 14 respondent was not informed in
writing of the law and the facts on which the assessment of estate taxes was made
pursuant to Section 228 of the 1997 Tax Code, as amended by Republic Act (R.A.)
No. 8424. She was merely notified of the findings by the Commissioner, who had
simply relied upon the old provisions of the law and Revenue Regulation No. 12-85
47
which was based on the old provision of the law. The Court held that in case of
discrepancy between the law as amended and the implementing regulation based
on the old law, the former necessarily prevails. The law must still be followed, even
though the existing tax regulation at that time provided for a different procedure.
15
In Commissioner of Internal Revenue v. Central Luzon Drug Corporation, 16 the tax
authorities gave the term "tax credit" in Sections 2 (i) and 4 of Revenue Regulation
2-94 a meaning utterly disparate from what R.A. No. 7432 provides. Their
interpretation muddled up the intent of Congress to grant a mere discount
privilege and not a sales discount. The Court, striking down the revenue regulation,
held that an administrative agency issuing regulations may not enlarge, alter or
restrict the provisions of the law it administers, and it cannot engraft additional
requirements not contemplated by the legislature. The Court emphasized that tax
administrators are not allowed to expand or contract the legislative mandate and
that the "plain meaning rule" or verba legis in statutory construction should be
applied such that where the words of a statute are clear, plain and free from
ambiguity, it must be given its literal meaning and applied without attempted
interpretation.
As we have previously declared, rule-making power must be confined to details for
regulating the mode or proceedings in order to carry into effect the law as it has
been enacted, and it cannot be extended to amend or expand the statutory
requirements or to embrace matters not covered by the statute. Administrative
regulations must always be in harmony with the provisions of the law because any
resulting discrepancy between the two will always be resolved in favor of the basic
law. 17
In Commissioner of Internal Revenue v. Michel J. Lhuillier Pawnshop, Inc., 18
Commissioner Jose Ong issued Revenue Memorandum Order (RMO) No. 15-91, as
well as the clarificatory Revenue Memorandum Circular (RMC) 43-91, imposing a
5% lending investor's tax under the 1977 Tax Code, as amended by Executive Order
(E.O.) No. 273, on pawnshops. The Commissioner anchored the imposition on the
definition of lending investors provided in the 1977 Tax Code which, according to
him, was broad enough to include pawnshop operators. However, the Court noted
that pawnshops and lending investors were subjected to different tax treatments
under the Tax Code prior to its amendment by the executive order; that Congress
never intended to treat pawnshops in the same way as lending investors; and that
the particularly involved section of the Tax Code explicitly subjected lending
investors and dealers in securities only to percentage tax. And so the Court
affirmed the invalidity of the challenged circulars, stressing that "administrative
issuances must not override, supplant or modify the law, but must remain
consistent with the law they intend to carry out". 19
In Philippine Bank of Communications v. Commissioner of Internal Revenue, 20 the
then acting Commissioner issued RMC 7-85, changing the prescriptive period of
two years to ten years for claims of excess quarterly income tax payments, thereby
creating a clear inconsistency with the provision of Section 230 of the 1977 Tax
Code. The Court nullified the circular, ruling that the BIR did not simply interpret
the law; rather it legislated guidelines contrary to the statute passed by Congress.
The Court held:
It bears repeating that Revenue memorandum-circulars are considered
administrative rulings (in the sense of more specific and less general interpretations
of tax laws) which are issued from time to time by the Commissioner of Internal
Revenue. It is widely accepted that the interpretation placed upon a statute by the
executive officers, whose duty is to enforce it, is entitled to great respect by the
courts. Nevertheless, such interpretation is not conclusive and will be ignored if
judicially found to be erroneous. Thus, courts will not countenance administrative
issuances that override, instead of remaining consistent and in harmony with, the
law they seek to apply and implement. 21 cTCEIS
In Commissioner of Internal Revenue v. CA, et al., 22 the central issue was the
validity of RMO 4-87 which had construed the amnesty coverage under E.O. No. 41
(1986) to include only assessments issued by the BIR after the promulgation of the
executive order on 22 August 1986 and not assessments made to that date.
Resolving the issue in the negative, the Court held:
. . . all such issuances must not override, but must remain consistent and in
harmony with, the law they seek to apply and implement. Administrative rules and
regulations are intended to carry out, neither to supplant nor to modify, the law.
23
xxx xxx xxx
If, as the Commissioner argues, Executive Order No. 41 had not been intended to
include 1981-1985 tax liabilities already assessed (administratively) prior to 22
August 1986, the law could have simply so provided in its exclusionary clauses. It
did not. The conclusion is unavoidable, and it is that the executive order has been
designed to be in the nature of a general grant of tax amnesty subject only to the
cases specifically excepted by it. 24
In the case at bar, the OSG's argument that by 1 January 2000, the excise tax on
cigarettes should be the higher tax imposed under the specific tax system and the
tax imposed under the ad valorem tax system plus the 12% increase imposed by
paragraph 5, Section 145 of the Tax Code, is an unsuccessful attempt to justify what
is clearly an impermissible incursion into the limits of administrative legislation.
Such an interpretation is not supported by the clear language of the law and is
48
obviously only meant to validate the OSG's thesis that Section 145 of the Tax Code
is ambiguous and admits of several interpretations.
The contention that the increase of 12% starting on 1 January 2000 does not apply
to the brands of cigarettes listed under Annex "D" is likewise unmeritorious, absurd
even. Paragraph 8, Section 145 of the Tax Code simply states that, "[T]he
classification of each brand of cigarettes based on its average net retail price as of
October 1, 1996, as set forth in Annex 'D', shall remain in force until revised by
Congress". This declaration certainly does not lend itself to the interpretation given
to it by the OSG. As plainly worded, the average net retail prices of the listed
brands under Annex "D", which classify cigarettes according to their net retail price
into low, medium or high, obviously remain the bases for the application of the
increase in excise tax rates effective on 1 January 2000.
The foregoing leads us to conclude that Revenue Regulation No. 17-99 is indeed
indefensibly flawed. The Commissioner cannot seek refuge in his claim that the
purpose behind the passage of the Tax Code is to generate additional revenues for
the government. Revenue generation has undoubtedly been a major consideration
in the passage of the Tax Code. However, as borne by the legislative record, 25 the
shift from the ad valorem system to the specific tax system is likewise meant to
promote fair competition among the players in the industries concerned, to ensure
an equitable distribution of the tax burden and to simplify tax administration by
classifying cigarettes, among others, into high, medium and low-priced based on
their net retail price and accordingly graduating tax rates.
At any rate, this advertence to the legislative record is merely gratuitous because,
as we have held, the meaning of the law is clear on its face and free from the
ambiguities that the Commissioner imputes. We simply cannot disregard the letter
of the law on the pretext of pursuing its spirit. 26 TcSaHC
Finally, the Commissioner's contention that a tax refund partakes the nature of a
tax exemption does not apply to the tax refund to which Fortune Tobacco is
entitled. There is parity between tax refund and tax exemption only when the
former is based either on a tax exemption statute or a tax refund statute.
Obviously, that is not the situation here. Quite the contrary, Fortune Tobaccos
claim for refund is premised on its erroneous payment of the tax, or better still the
government's exaction in the absence of a law.
Tax exemption is a result of legislative grace. And he who claims an exemption
from the burden of taxation must justify his claim by showing that the legislature
intended to exempt him by words too plain to be mistaken. 27 The rule is that tax
exemptions must be strictly construed such that the exemption will not be held to
be conferred unless the terms under which it is granted clearly and distinctly show
that such was the intention. 28
A claim for tax refund may be based on statutes granting tax exemption or tax WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA
refund. In such case, the rule of strict interpretation against the taxpayer is G.R. SP No. 80675, dated 28 September 2004, and its Resolution, dated 1 March
applicable as the claim for refund partakes of the nature of an exemption, a 2005, are AFFIRMED. No pronouncement as to costs.
legislative grace, which cannot be allowed unless granted in the most explicit and
SO ORDERED.
categorical language. The taxpayer must show that the legislature intended to
exempt him from the tax by words too plain to be mistaken. 29 ||| (Commissioner of Internal Revenue v. Fortune Tobacco Corp., G.R. Nos. 167274-
75, [July 21, 2008], 581 PHIL 146-168)
Tax refunds (or tax credits), on the other hand, are not founded principally on
legislative grace but on the legal principle which underlies all quasi-contracts
abhorring a person's unjust enrichment at the expense of another. 30 The dynamic
of erroneous payment of tax fits to a tee the prototypic quasi-contract, solutio
indebiti, which covers not only mistake in fact but also mistake in law. 31
The Government is not exempt from the application of solutio indebiti. 32 Indeed,
the taxpayer expects fair dealing from the Government, and the latter has the duty
to refund without any unreasonable delay what it has erroneously collected. 33 If
the State expects its taxpayers to observe fairness and honesty in paying their
taxes, it must hold itself against the same standard in refunding excess (or
erroneous) payments of such taxes. It should not unjustly enrich itself at the
expense of taxpayers. 34 And so, given its essence, a claim for tax refund
necessitates only preponderance of evidence for its approbation like in any other
ordinary civil case.
Under the Tax Code itself, apparently in recognition of the pervasive quasi-contract
principle, a claim for tax refund may be based on the following: (a) erroneously or
illegally assessed or collected internal revenue taxes; (b) penalties imposed without
authority; and (c) any sum alleged to have been excessive or in any manner
wrongfully collected. 35
What is controlling in this case is the well-settled doctrine of strict interpretation in
the imposition of taxes, not the similar doctrine as applied to tax exemptions. 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. 36 As burdens, taxes should not be unduly exacted
nor assumed beyond the plain meaning of the tax laws. 37 HAaDTE

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