G.R. No.

130430 December 13, 1999 ALREADY BEEN BARRED BY THE

STATUTE OF LIMITATIONS.
REPUBLIC OF THE PHILIPPINES, represented by the
Commissioner of the Bureau of Internal Revenue First. In sustaining respondent's contention that
(BIR), petitioner,  petitioner's complaint was filed without the authority of
vs. the BIR Commissioner, the trial court stated: 4
SALUD V. HIZON, respondent.
There is no question that the National
  Internal Revenue Code explicitly
provides that in the matter of filing cases
MENDOZA, J.: in Court, civil or criminal, for the
collection of taxes, etc., the approval of
the commissioner must first be
This is a petition for review of the decision 1 of the
secured. . . . [A]n action will not prosper
Regional Trial Court, Branch 44, San Fernando,
in the absence of the commissioner's
Pampanga, dismissing the suit filed by the Bureau of
approval. Thus, in the instant case, the
Internal Revenue for collection of tax.
absence of the approval of the
commissioner in the institution of the
The facts are as follows: action is fatal to the cause of the plaintiff
....
On July 18, 1986, the BIR issued to respondent Salud V.
Hizon a deficiency income tax assessment of The trial court arrived at this conclusion because
P1,113,359.68 covering the fiscal year 1981-1982. the complaint filed by the BIR was not signed by
Respondent not having contested the assessment, then Commissioner Liwayway Chato.
petitioner, on January 12, 1989, served warrants of
distraint and levy to collect the tax deficiency. However,
Sec. 221 of the NIRC provides:
for reasons not known, it did not proceed to dispose of
the attached properties.
Form and mode of proceeding in actions
arising under this Code. — Civil and
More than three years later, or on November 3, 1992,
criminal actions and proceedings
respondent wrote the BIR requesting a reconsideration
instituted in behalf of the Government
of her tax deficiency assessment. The BIR, in a letter
under the authority of this Code or other
dated August 11, 1994, denied the request. On January
law enforced by the Bureau of Internal
1, 1997, it filed a case with the Regional Trial Court,
Revenue shall be brought in the name of
Branch 44, San Fernando, Pampanga to collect the tax
the Government of the Philippines and
deficiency. The complaint was signed by Norberto Salud,
shall be conducted by the provincial or
Chief of the Legal Division, BIR Region 4, and verified by
city fiscal, or the Solicitor General, or by
Amancio Saga, the Bureau's Regional Director in
the legal officers of the Bureau of
Pampanga.
Internal Revenue deputized by the
Secretary of Justice, but no civil and
Respondent moved to dismiss the case on two grounds: criminal actions for the recovery of taxes
(1) that the complaint was not filed upon authority of the or the enforcement of any fine,  penalty
BIR Commissioner as required by §221 2 of the National or forfeiture under this Code shall begun
Internal Revenue Code, and (2) that the action had without the approval of the
already prescribed. Over petitioner's objection, the trial Commissioner. (Emphasis supplied)
court, on August 28, 1997, granted the motion and
dismissed the complaint. Hence, this petition. Petitioner
To implement this provision Revenue
raises the following issues: 3
Administrative Order No. 5-83 of the BIR
provides in pertinent portions:
I. WHETHER OR NOT THE
INSTITUTION OF THE CIVIL CASE
The following civil and criminal cases
FOR COLLECTION OF TAXES WAS
are to be handled by Special Attorneys
WITHOUT THE APPROVAL OF THE
and Special Counsels assigned in the
COMMISSIONER IN VIOLATION OF
Legal Branches of Revenues Regions:
SECTION 221 OF THE NATIONAL
INTERNAL REVENUE CODE.
x x x           x x x          x x x
II. WHETHER OR NOT THE ACTION
FOR COLLECTION OF TAXES FILED II. Civil Cases
AGAINST RESPONDENT HAD
 1. Complaints for
collection on cases
falling within the
jurisdiction of the
Region . . . .
In all the
abovementioned cases,
the Regional Director is
authorized to sign all
pleadings filed in
connection therewith
which, otherwise,
requires the signature of
the Commissioner.
x x x           x x x          x x x
Revenue Administrative Order No. 10-95 specifically
authorizes the Litigation and Prosecution Section of the
Legal Division of regional district offices to institute the
necessary civil and criminal actions for tax collection. As
the complaint filed in this case was signed by the BIR's
Chief of Legal Division for Region 4 and verified by the
Regional Director, there was, therefore, compliance with
the law.
However, the lower court refused to recognize RAO No.
10-95 and, by implication, RAO No. 5-83. It held:
[M]emorand[a], circulars and orders
emanating from bureaus and agencies
whether in the purely public or quasi-
public corporations are mere guidelines
for the internal functioning of the said
offices. They are not laws which courts
can take judicial notice of. As such, they
have no binding effect upon the courts
for such memorand[a] and circulars are
not the official acts of the legislative,
executive and judicial departments of
the Philippines. . . . 5
This is erroneous. The rule is that as long as
administrative issuances relate solely to carrying into
effect the provisions of the law, they are valid and have
the force of law. 6 The governing statutory provision in
this case is §4(d) of the NIRC which provides:
Specific provisions to be contained in
regulations. — The regulations of the
Bureau of Internal Revenue shall,
among other things, contain provisions
specifying, prescribing, or defining:
x x x           x x x          x x x
(d) The conditions to be observed by
revenue officers, provincial fiscals and
other officials respecting the institution
and conduct of legal actions and
proceedings.
RAO Nos. 5-83 and 10-95 are in harmony with
this statutory mandate.
As amended by R.A. No. 8424, the NIRC is now even
more categorical. Sec. 7 of the present Code authorizes
the BIR Commissioner to delegate the powers vested in
him under the pertinent provisions of the Code to any
subordinate official with the rank equivalent to a division
chief or higher, except the following:
(a) The power to recommend the
promulgation of rules and regulations by
the Secretary of Finance;
(b) The power to issue rulings of first
impression or to reverse, revoke or
modify any existing ruling of the Bureau;
(c) The power to compromise or abate
under §204 (A) and (B) of this Code, any
tax deficiency: Provided,  however, that
assessment issued by the Regional
Offices involving basic deficiency taxes
of five hundred thousand pesos
(P500,000.00) or less, and minor
criminal violations as may be
determined by rules and regulations to
be promulgated by the Secretary of
Finance, upon the recommendation of
the Commissioner, discovered by
regional and district officials, may be
compromised by a regional evaluation
board which shall be composed of the
Regional Director as Chairman, the
Assistant Regional Director, heads of
the Legal, Assessment and Collection
Divisions and the Revenue District
Officer having jurisdiction over the
taxpayer, as members; and
(d) The power to assign or reassign
internal revenue officers to
establishments where articles subject to
excise tax are produced or kept.
None of the exceptions relates to the
Commissioner's power to approve the filing of
tax collection cases.
Second. With regard to the issue that the case filed by
petitioner for the collection of respondent's tax deficiency
is barred by prescription, §223(c) of the NIRC provides:
Any internal revenue tax which has been
assessed within the period of limitation
above-prescribed may be collected by
distraint or levy or by a proceeding in
 court within three years 7 following the
assessment of the tax.
The running of the three-year prescriptive period
is suspended 8 —
for the period during which the
Commissioner is prohibited from making
the assessment or beginning distraint or
levy or a proceeding in court and for
sixty days thereafter; when the taxpayer
requests for a reinvestigation which is
granted by the Commissioner; when the
taxpayer cannot be located in the
address given by him in the return filed
upon which the tax is being assessed or
collected; provided, that, if the taxpayer
informs the Commissioner of any
change in address, the running of the
statute of limitations will not be
suspended; when the warrant of distraint
or levy is duly served upon the taxpayer,
his authorized representative or a
member of his household with sufficient
discretion, and no property could be
located; and when the taxpayer is out of
the Philippines.
Petitioner argues that, in accordance with this
provision, respondent's request for
reinvestigation of her tax deficiency assessment
on November 3, 1992 effectively suspended the
running of the period of prescription such that
the government could still file a case for tax
collection. 9
The contention has no merit. Sec. 229 10 of the Code
mandates that a request for reconsideration must be
made within 30 days from the taxpayer's receipt of the
tax deficiency assessment, otherwise the assessment
becomes final, unappealable and, therefore,
demandable. 11 The notice of assessment for
respondent's tax deficiency was issued by petitioner on
July 18, 1986. On the other hand, respondent made her
request for reconsideration thereof only on November 3,
1992, without stating when she received the notice of tax
assessment. She explained that she was constrained to
ask for a reconsideration in order to avoid the
harassment of BIR collectors. 12 In all likelihood, she
must have been referring to the distraint and levy of her
properties by petitioner's agents which took place on
January 12, 1989. Even assuming that she first learned
of the deficiency assessment on this date, her request
for reconsideration was nonetheless filed late since she
made it more than 30 days thereafter. Hence, her
request for reconsideration did not suspend the running
of the prescriptive period provided under §223(c).
Although the Commissioner acted on her request by
eventually denying it on August 11, 1994, this is of no
moment and does not detract from the fact that the
assessment had long become demandable.
Nonetheless, it is contended that the running of the
prescriptive period under §223(c) was suspended when
the BIR timely served the warrants of distraint and levy
on respondent on January 12, 1989. 13 Petitioner cites
for this purpose our ruling in Advertising Associates
Inc.,  v. Court of Appeals. 14 Because of the suspension,
it is argued that the BIR could still avail of the other
remedy under §223(c) of filing a case in court for
collection of the tax deficiency, as the BIR in fact did on
January 1, 1997.
Petitioner's reliance on the Court's ruling in Advertising
Associates Inc. v.  Court of Appeals is misplaced. What
the Court stated in that case and, indeed, in the earlier
case of Palanca v. Commissioner of Internal
Revenue, 15 is that the timely service of a warrant of
distraint or levy suspends the running of the period to
collect the tax deficiency in the sense that the disposition
of the attached properties might well take time to
accomplish, extending even after the lapse of the
statutory period for collection. In those cases, the BIR
did not file any collection case but merely relied on the
summary remedy of distraint and levy to collect the tax
deficiency. The importance of this fact was not lost on
the Court. Thus, in Advertising Associates, it was
held: 16 "It should be noted that the Commissioner did
not institute any judicial proceeding to collect the tax. He
relied on the warrants of distraint and levy to interrupt the
running of the statute of limitations.
Moreover, if, as petitioner in effect says, the prescriptive
period was suspended twice, i.e., when the warrants of
distraint and levy were served on respondent on January
12, 1989 and then when respondent made her request
for reinvestigation of the tax deficiency assessment on
November 3, 1992, the three-year prescriptive period
must have commenced running again sometime after the
service of the warrants of distraint and levy. Petitioner,
however, does not state when or why this took place
and, indeed, there appears to be no reason for such. It is
noteworthy that petitioner raised this point before the
lower court apparently as an alternative theory, which,
however, is untenable.
For the foregoing reasons, we hold that petitioner's
contention that the action in this case had not prescribed
when filed has no merit. Our holding, however, is without
prejudice to the disposition of the properties covered by
the warrants of distraint and levy which petitioner served
on respondent, as such would be a mere continuation of
the summary remedy it had timely begun. Although
considerable time has passed since then, as held
in Advertising Associates Inc.  v. Court of
Appeals 17 and Palanca v.  Commissioner of Internal
Revenue, 18 the enforcement of tax collection through
summary proceedings may be carried out beyond the
statutory period considering that such remedy was
seasonably availed of.
G.R. No. 152532. August 16, 2005
PEOPLE OF THE PHILIPPINES, Petitioners,  Ad Valorem Tax ₱308,798,604.67’
vs.
SANDIGANBAYAN (Fourth Division) and
BIENVENIDO A. TAN JR., Respondent.
DECISION
PANGANIBAN, J.:
A judgment of acquittal made by a competent court on a
valid information after the accused has entered a plea
bars an appeal by the prosecution. Only a clear showing
of grave abuse of discretion or denial of due process to
the State can justify a review (through a petition
for certiorari) of such decision by this Court. In acquitting
private respondent in the present case, the
Sandiganbayan has not been shown to have acted
arbitrarily or whimsically. Equally important, the herein
accused, Commissioner Bienvenido A. Tan Jr., has not
been proven to have exceeded his discretion in the
exercise of his functions. Taking into account the
relevant facts and applicable laws in this very perplexing
subject of taxation, this Court cannot fault him for abating
an excessive and erroneous tax assessment. Quite the
contrary, he has acted fairly and sensibly under the
circumstances.
The Case
Before us is a Petition for Certiorari1 under Rule 65 of the
Rules of Court, seeking to nullify and set aside the
January 23, 2002 Resolution2 of the Sandiganbayan (SB)
in Criminal Case No. 20685. The dispositive part of the
Resolution reads as follows:
"WHEREFORE, premises considered, the Decision
dated 02 March 2001 is hereby RECONSIDERED and
SET ASIDE, and the accused is hereby ACQUITTED of
the charge in the instant case.
"The bailbond of the accused is hereby cancelled and
the Hold Departure order previously issued by the court
is hereby lifted and set aside."3  Service, BIR, also gave his concurrence to the
The Facts
The facts are narrated by the SB in its original Decision
dated March 2, 2001, as follows:
"Pursuant to Letter of Authority No. ATD-035-STO dated
January 2, 1986 and Memorandum of Authority dated
March 3, 1986, an investigation was conducted by
[Bureau of Internal Revenue (BIR)] examiners on the ad
valorem and specific tax liabilities of [San Miguel Corp.
(SMC)] covering the period from January 1, 1985 to
March 31, 1986. The result of the investigation showed
that [SMC] has a deficiency on specific and ad valorem
taxes totaling ₱342,616,217.88 broken down as follows:
‘Specific Tax ₱ 33,817,613.21
"On the basis of these findings, the BIR sent a letter
dated July 13, 1987 to SMC demanding the payment of
its deficiency tax in the amount of ₱342,616,217.88.
Apparently, the letter was received by the SMC, as it
protested the assessment in its letter dated August 10,
1987 with the information: 1) that the alleged specific tax
deficiency was already paid when the BIR approved
SMC’s request that its excess ad valorem payments be
applied to its specific tax balance; 2) that the
computation of the ad valorem tax deficiency was
erroneous since the BIR examiners disallowed the
deduction of the price differential (cost of freight from
brewery to warehouse) and ad valorem tax.
"The protest was denied by the BIR thru a letter dated
October [8], 1987 signed by accused Commissioner
Bienvenido Tan, Jr., but the original assessment of
₱342,616,217.88 was reduced to ₱302,[0]51,048.93 due
to the crediting of the taxpayer’s excess ad valorem tax
deposit of ₱21,805,409.10 with a reiteration of the
payment of the x x x assessed specific and ad valorem
tax as reduced.
"On October 27, 1987, herein accused referred the
matter to Jaime M. Maza, Assistant BIR Commissioner,
Legal Service Division and thereafter different BIR
officials also reviewed the case of SMC and rendered
varying legal opinions on the issue x x x
"On the part of Alicia P. Clemeno, Chief, Legislative
Ruling and Research Division, she recommended the
reduction of SMC’s tax liability, first to ₱21,856,985.29,
and later to ₱22,000,000.00. Balbino E. Gatdula, Jr.,
Assistant Revenue Service Chief, Legal Service,
supported the demand for ad valorem tax deficiency
from SMC. In a letter dated August 31, 1988, SMC, thru
a certain Avendano offered the amount of
₱10,000,000.00 for the settlement of the assessment.
This was concurred in by Juanito Urbi, Chief, Prosecutor
Division, BIR in a Memorandum dated December 20,
1988. Jaime Maza, Assistant Commissioner, Legal
recommendation that the offer of SMC for
₱10,000,000.00 in compromise settlement be accepted.
The recommendation was approved by accused
Bienvenido Tan; and accordingly, in a letter dated
December 20, 1988, SMC was informed that its offer to
compromise was accepted."4 
Subsequently, the SB reversed its original March 2, 2001
Decision with its now assailed January 23, 2002
Resolution. The antecedents leading to the Petition
before this Court are narrated by the SB in this manner:
"In our Decision of March 2, 2001, herein accused
Bienvenido A. Tan, former Commissioner of the [BIR],
was convicted for violation of Section 3(e) of Republic
Act [(RA)] No. 3019 as amended, otherwise known as
the Anti-Graft and Corrupt Practices Act, the dispositive
portion of which states as follows:
‘WHEREFORE, premises considered, judgment is
hereby rendered convicting the accused for Violation of
Section 3(e) of [(RA)] 3019 as amended, and
appreciating in his favor the presence of the mitigating
circumstance of age, accused being over seventy (70)
years old, and in the absence of aggravating
circumstances to offset the same, applying the
Indeterminate Sentence Law, he is hereby sentenced to
suffer imprisonment of six (6) years and one (1) month
as minimum to fifteen (15) years as maximum. He is
further disqualified perpetually from holding public office.
‘As the Court finds the compromise agreement to have
been entered into illegally, the [BIR] is hereby ordered to
collect from [SMC] the amount of ₱292,951,048.93
representing its tax liabilities covering the period from
January 1, 1985 to March 31, 1986.
‘SO ORDERED.’
"In his Motion for Reconsideration filed on March 12,
2001, accused seeks to reconsider aforesaid Decision
and posits the following grounds: (1) the Court erred in
holding that the assessment contained in the letter of
accused dated 08 October 1987 was final and executory;
(2) corollarily, the Court erred in holding that the referral
of the 08 October 1987 assessment to the Assistant
Commissioner for further study was uncalled for, given
that there was no request for a reconsideration of the 08
October 1987 assessment; (3) the Court erred in not
holding that the specific tax assessment of
[₱]33,817,613.21 had been paid through the application
of SMC’s excess ad valorem tax deposits to its unpaid
specific tax; (4) the Court erred in not holding that the
abatement of SMC’s ad valorem tax was proper on the
ground that there exists a reasonable doubt as to the
correctness of said assessment; [(5)] the Court erred in
holding that accused exercise of his authority under
Section 204 of the [National Internal Revenue Code
(NIRC)] to abate the assessment of ad valorem tax was
improper; and [(6)] the Court erred in holding that there
was a compromise of the SMC tax case which resulted
in undue injury to the government.
"In its Comment, the prosecution asserts that (1) the
assessment contained in the letter of SMC dated
October 8, 1987 was final and executory; (2) the referral
of the 08 October 1987 assessment to the Assistant
Commissioner for further study was uncalled for given
that there was no request for a reconsideration from
SMC; (3) SMC’s total tax due and collectible as Specific
Tax of [₱]33,817,613.21 has not been settled; (4) the
Court correctly held that the abatement of SMC’s ad
valorem taxes is improper; and (5) the Court is correct in
ruling that there was a compromise of SMC’s tax which
resulted in undue injury to the government.
"Thereafter, the accused and the prosecution made a
further exchange of pleadings elaborating on their
respective positions on the matter.
"The Motion is impressed with merit. After a careful and
exhaustive review of the pleadings, the records and the
evidence, we reconsider our Decision dated March 2,
2001 and hereby acquit the accused of the charge in the
instant case."5 
Ruling of the Sandiganbayan
In acquitting herein private respondent, the SB adduced
several reasons.
First, the SB failed to give weight to the October 27,
1987 meeting between Commissioner Tan and SMC’s
representatives -- a meeting which resulted in the
referral of the assessment to Tan’s subordinates for
further review and study. The referral showed that the
disputed assessment had not yet become final and
executory.
Second, notwithstanding the prosecution’s observation
that the BIR rejected SMC’s protest against the inclusion
of the water component of beer, private respondent
unequivocally approved SMC’s application of its excess
ad valorem deposit to complete the payment of its
specific tax deficiency.
Third, the abatement of SMC’s ad valorem taxes is
proper. The tax base for computing them should not
include the ad valorem tax itself and the price differential.
Reliance upon Executive Order (EO) No. 273 is not
misplaced, because that law simply affirms general
principles of taxation as well as BIR’s long-standing
practice and policy not to impose a tax on a tax.
Moreover, nothing precludes private respondent from
applying EO 273 on an assessment made prior to its
effectivity, because that law was merely intended to
formalize such long-standing practice and policy.
Fourth, after inquiring into the discretionary prerogative
of private respondent to compromise, the SB found no
reason to conclude that he had acted contrary to law or
been impelled by any motive other than honest good
faith. The compromise he had entered into regarding
SMC’s tax did not result in any injury to the government.
No genuine compromise is impeccable, since the parties
to it must perforce give up something in exchange for
something else. No basis existed to hold him liable for
violation of Section 3(e) of RA 3019.
Hence, this Petition.6 
The Issues
Petitioner raises the following issues for our
consideration:
"A.
"The respondent court acted with grave abuse of
discretion amounting to lack or excess of jurisdiction
when, in upholding private respondent’s act in ruling
upon SMC’s Motion for Reconsideration, it disregarded
Section 228 (previously Section 246) of the NIRC.
"B.
"The respondent court acted with grave abuse of
discretion amounting to lack or excess of jurisdiction
when, in upholding private respondent’s act in accepting
SMC’s offer of compromise of ₱10,000,000.00 for its tax
liability of ₱302,051,048.93, it disregarded Sections 124
and 228 of the NIRC.
"C.
"The respondent court acted with grave abuse of
discretion amounting to lack or excess of jurisdiction
when it declared the validity of private respondent’s act
of approving SMC’s application of the excess ad valorem
to its specific tax deficiency despite its being contrary to
law.
"D.
"The respondent court acted with grave abuse of
discretion amounting to lack or excess of jurisdiction
when it acquitted private respondent for violation of Sec.
3(e) of RA 3019 despite the overwhelming evidence
proving his guilt beyond reasonable doubt."7  1987. Contrary to petitioner’s assertion, the rules on
We shall tackle the foregoing issues seriatim, with the
exception of the third issue that will be discussed ahead
of the second.
The Court’s Ruling
The Petition has no merit.
First Issue:
Viability of SMC’s Motion for Reconsideration
Section 229 of the NIRC8 provides thus:
"Sec. 229. Protesting of assessment. -- When the
Commissioner of Internal Revenue or his duly authorized
representative finds that proper taxes should be
assessed, he shall first notify the taxpayer of his findings.
Within a period to be prescribed by implementing
regulations, the taxpayer shall be required to respond to
said notice. If the taxpayer fails to respond, the
Commissioner shall issue an assessment based on his
findings.
"Such assessment may be protested administratively by
filing a request for reconsideration or reinvestigation in
such form and manner as may be prescribed by
implementing regulation within thirty (30) days from
receipt of the assessment; otherwise, the assessment
shall become final and unappealable.
"If the protest is denied in whole or in part, the individual,
association or corporation adversely affected by the
decision on the protest may appeal to the Court of Tax
Appeals within thirty (30) days from receipt of the said
decision; otherwise, the decision shall become final,
executory and demandable."9 
Petitioner argues that "on October 8, 1987, a final
decision was rendered by private respondent as to
SMC’s tax liability totaling ₱302,051,048.93 x x x." Since
SMC did not appeal to the CTA, this decision became
final and could no longer be compromised by private
respondent. We disagree.
A careful reading of the quoted tax provision readily
shows that the "Motion for Reconsideration" filed by
SMC was aptly ruled upon by private respondent.
Despite the use of the phrase "finally decided," his
October 8, 1987 letter to SMC did not constitute a final
assessment.
First, the phrase "finally decided" referred not to the total
amount of deficiency specific and ad valorem taxes, but
to the reduction of such assessment. The reduction was
the result of SMC’s protest, by way of two requests for
reconsideration dated June 9, 1987 and August 10,
statutory construction did not apply; the October 8, 1987
letter was not even a law. Grantia argumenti that the
letter partook of the nature of a final assessment, its
finality was suspended by private respondent’s
handwritten note on the bottom left of the second page,
extending the tender of payment for another 15 days
from October 27, 1987, because of a referral of the
assessment to the BIR’s Legal Service.10 
Second, SMC filed on November 2, 1987
a timely request for reinvestigation -- technically not a
motion for reconsideration. Under Section 229 of the
NIRC, this request was a proper administrative
protest11 done within 30 days from receipt of the
assessment and substantiated by facts and law.12 The
assessment was received by SMC only on October 26,
1987. Its request for reinvestigation was in turn received
by the BIR on November 10, 1987, well within the 30-day
period allowed by Section 229; thus, the assessment
had not yet become final.
Moreover, a day after SMC’s receipt of the assessment,
the SB found that a meeting had indeed been held
between private respondent and the representatives of
SMC, resulting in the suspension of the alleged finality of
the assessment. The meeting partook of the nature of an
oral, in advance of the written, request for
reinvestigation. In both instances, the taxpayer’s request
was not merely pro forma; it had the effect of suspending
-- not interrupting -- the 30-day period for appeal.13  subordinates or to the action taken by them -- a process
We do not agree with petitioner’s contention that,
contrary to the finding of the SB in its March 2, 2001
Decision, no conference had been held on that date. A
careful perusal of the Decision would, however, reveal
that the date of the supposed conference was not
indicated with certainty.14 And even if it were, the
conference was supposed to have been held between
SMC’s representatives and BIR officials, other than
private respondent, on the computation (not the
assessment) that was followed by SMC and that bore
the alleged approval by the BIR.
Third, after SMC’s request for reinvestigation, no other
issuance emanated from the BIR that could be
considered a decision. Therefore, no appeal to the Tax
Court15 could have been made under Section 229 of the
NIRC, since the protest filed with the BIR had not been
acted upon. Appealable to the Tax Court is a decision
that refers not to the assessment itself, but to one made
on the protest against such assessment.16 The
commissioner of internal revenue’s action in response to
a taxpayer’s request for reconsideration or
reinvestigation of the assessment constitutes the
decision, the receipt of which will start the 30-day period
for appeal.17  First, the approval given by private respondent was
Section 229 does not prevent a taxpayer from
exhausting administrative remedies by filing a request for
reconsideration, then a request for
reinvestigation.18 Furthermore, under Section 7(1) of RA
112519 as amended,20 the Tax Court exercised exclusive
appellate jurisdiction to review not
the assessments themselves, but the decisions involving
disputed ones arising under the NIRC.21  in crediting the same amount to a subsequent ad
Fourth, quite obviously, no decision could as yet be
made by the BIR, because the protest filed by SMC had
been referred by private respondent to several top BIR
officials for further review. In fact, various intra-office
Memoranda were issued in 1988 involving the chiefs of
the (1) Legislative Ruling and Research and (2)
Prosecution Divisions of the BIR, as well as its assistant
commissioners for legal service and excise tax. Had the
assessment already become final in 1987, there would
then be no more reason to reinvestigate and study the
merits of SMC’s protest in 1988.
Fifth, totally misplaced is petitioner’s reference to the
180-day period from the submission of documents,
within which time the BIR should act upon the protest,
followed by a 30-day period of appeal to the Tax Court.
This provision did not exist in either 1987 or 1988. It
appeared only in a much later law, RA 8424, as Section
228 -- again erroneously referred to by petitioner as the
basis for the present controversy.
Consequently, there was no legal impediment either to
the referral of the protest by private respondent to his
that lasted for more than 180 days. Neither was there a
need to make a 30-day appeal to the Tax Court due to
the BIR’s inaction on the protest within the 180-day
period.
The assessment was clearly not yet final, executory or
demandable. While it is pending with the commissioner
of internal revenue, it cannot yet serve as the basis of
collection by distraint or levy or by judicial action.22 No
grave abuse of discretion can be attributed to the SB for
upholding private respondent’s act of reinvestigation
upon SMC’s request.
Second Issue:
Application of the Ad Valorem Tax
to the Specific Tax Deficiency
In like manner, no grave abuse of discretion was
committed when the SB upheld private respondent’s
approval of SMC’s application of its excess ad valorem
tax deposits to its specific tax deficiency.
correct. Ad valorem taxes23 and specific taxes24 are both
excise taxes25 on alcohol products.26 The payment by
installment of a portion of the total specific tax deficiency
of SMC, in addition to the application of its excess and
unused ad valorem tax deposits to the remaining portion,
fully covered the total net specific tax shortfall. BIR
committed an oversight in failing to credit the amount of
deposits to the specific tax deficiency, as well as an error
valorem tax liability. A confusion was thus created when
it issued a later assessment for the same specific
tax deficiency, this time inclusive of increments.27 Proper
was the BIR officials’ abatement or cancellation of
the specific taxes of SMC, after the amount of its ad
valorem tax deposits had already been credited to it.
To state that the balances of accounts pertaining to
different tax deposits could only be applied to cover
certain tax liabilities upon the approval of a request for
tax credit is to validate the proposition that the
acceptance of payment by installment of a portion of
the specific tax deficiency was indeed tantamount to the
approval of the request. No law or regulation prevented
such approval.
Private respondent’s letter states a condition: should the
final computation of specific and ad valorem taxes yield
a different result, the difference plus penalties would be
paid in addition to them. Obviously, this condition
referred solely to the discrepancy, not to the application,
and had nothing to do with the approval that was given.
Second, such approval had the concurrence of top tax
officials within the Bureau. Not only was there a
presumption of regularity in the performance of official
functions;28 also, their collective conclusion was
controlling. Besides, the disclosure of the change in beer
formulation was timely and voluntary; no attribution of
bad faith or fraud could be made. A change in
technology that would result in a change in the manner
of computing taxes was well within the realm of tax
administration,29 on which private respondent had
reasonable discretion to rule.
Third, the law and revenue regulations30 allowed pre-
payment schemes,31 whereby excise taxes on alcohol
products could be paid in advance of the dates they
were due. Since the equivalent value of specific taxes by
way of advance ad valorem tax deposits had already
been paid, the government lost nothing. It was a simple
request properly granted for applying the advance
deposits made on one type of excise tax to another type.
Granting such request was well within private
respondent’s authority to administer tax laws and
regulations.32 Again, the assessment was not final,
demandable or executory at the time.
Fourth, in a letter to the Blue Ribbon Committee of the
Senate, no less than the succeeding commissioner of
internal revenue declared that the abatement of
the specific tax deficiency through the proposed
application was proper. Even if the new commissioner
had admittedly been advised by private respondent,
there remained the unrebutted presumptions of good
faith and regularity in the performance of official
functions.
Third Issue:
Acceptance of the ₱10 Million Alleged Compromise
The SB did not gravely abuse its discretion when it
upheld private respondent’s acceptance of SMC’s
compromise offer of ₱10 million.
In computing its ad valorem tax liabilities for the taxable
period involved in the present case, SMC deducted from
its brewer’s gross selling price the specific tax, price
differential, and ad valorem tax. The BIR allowed the
deduction of the specific tax, but not the deduction of the
price differential and ad valorem tax, thus increasing the
tax base and consequently the ad valorem tax liabilities
of SMC for the said period.
Prior to and during the taxable period involved in the
present case, several changes were made in the NIRC
of 1977, particularly its provisions pertaining to
fermented liquor. We must therefore trace the NIRC’s
pertinent history to be able to rule properly on the validity
of SMC’s deduction of both the price differential and
the ad valorem taxfrom the brewer’s gross selling price.
Section 147(A) of the NIRC, as amended by PD
195933 in 1984, provides for the collection of a specific
tax on each liter of the volume capacity of fermented
liquor. In addition to the provision on the specific tax, the
first paragraph of its Section 147(B) provides for the
levying, assessment and collection of an ad valorem tax.
The latter tax is equivalent to a certain percentage of the
brewer’s gross selling price, net of the specific tax, of the
product to be removed from the brewery or other place
of manufacture. The ad valorem tax shall be paid by the
brewer at the same time as the specific tax.
Added in 1984 were provisions of Section 186-
A34 governing the determination of the gross selling price
of cigarettes, as well as the administrative requirements
and penalties imposable. Such provisions shall apply to
the determination of the gross selling price of fermented
liquor.35 Basically, this means that the amount of tax due
on the fermented liquor shall be determined by the price
at which it is sold either wholesale in the factory of SMC
or directly to the public through its sales agents. If the
fermented liquor is sold or allowed to be sold wholesale
by SMC in another establishment which it owns, the
wholesale price in that establishment shall determine the
tax applicable to the fermented liquor sold there. When
the price is less than the cost of manufacture plus all
expenses incurred, until the fermented liquor is finally
sold by SMC, such cost plus expenses shall be the basis
for determining the amount of tax to be collected.
In 1986, PD 1994 amended the NIRC of 1977 by
renumbering, among others, Section 147 as Section
124.36 In the new Section 124, the provisions on
the specific and ad valorem taxes imposed on fermented
liquors remained substantially the same, except for the
tax rates.
On July 1, 1986, Section 4 of EO 22 amended said
Section 124 by essentially providing that an ad valorem
taxequivalent to a certain percentage of the brewer’s
wholesale selling price -- this time excluding the ad
valorem tax -- shall be levied, assessed and collected on
fermented liquors. It was only in 1988 that EO 273
renumbered Section 124 as Section 140, and thereby
amended it further to exclude also from such wholesale
price the value-added tax already imposed at the time
upon the same articles.37 
Price Differential Deduction
Section 110 of the NIRC of 1977, as amended in 1986
by PD 1994, explicitly provides that the excise taxes on
domestic products shall be paid by the manufacturer or
producer before the removal of those products from the
place of production.38 "It does not matter to what use the
article[s] subject to tax is put";39 the excise taxes are still
due, even though the articles are removed merely for
storage in some other place and are not actually sold or
consumed.40 The intent of the law is reiterated in several
implementing regulations.41 This means, therefore, that
the price that should be used as the tax base for
computing the ad valorem tax on fermented liquor is the ₱10.2544 - ad valorem tax 
price at the brewery. After all, excise taxes are taxes on
property,42 not on the sale of the property. and 42.7269 - SMC price

Verily, the price differential cannot be ascertained at the
time the fermented liquor is removed from the brewery,
because such ascertainment will involve amounts that
cannot be determined with certainty in advance, and that
vary from one commercial outlet to another. The price
differential, according to SMC, represents the cost of
discounts, promotions, rebates, and transportation. To
require the inclusion of the price differential in, not its
deduction from, the tax base for purposes of computing
the ad valorem tax would certainly lead to the impossible
situation of computing for such tax, because the price
differential itself cannot be determined unless the
fermented liquor is actually sold.
₱52.9813 - this should be the new selling price ex
brewery but SMC only charged ₱51.2722’
"Following the prosecution’s theory, since there is a new
selling price ex brewery, i.e., ₱52.9813, the ad valorem
tax should be adjusted to the new selling price or tax
base or 20% of ₱52.9813, resulting in:
‘₱42.7269 - SMC price
10.5962 - new ad valorem tax P53.3231

Hence, no ad valorem tax can ever be paid before the ₱53.3231 - another new selling price ex brewery’
removal of the fermented liquor from the place of
production. This outcome cannot be countenanced, for it "Then following the prosecution’s theory, the 20% ad
would be contrary to what the law mandates -- payment valorem tax is again charged on the new selling price ex
before removal. It follows that the tax base to be used brewery.
should be net of the price differential. In other words, the
gross selling price should be that which is charged at the
‘20% of ₱53.3231 the new tax base or
brewery prior to the removal of the fermented liquor.

₱10.6646 - the new ad valorem tax

Ad Valorem Tax Deduction

Resulting in ₱42.7269 - SMC price

The taxable period covered in this case is January 1,
1985 to March 31, 1986. Prior to the amendment of the
NIRC of 1977 by EO 22 on July 1, 1986, the ad valorem 10.6646 - new ad valorem tax
tax was not excluded from the brewer’s wholesale price.
Does this mean that such tax cannot be deducted? The ₱53.3915 - new selling price ex warehouse
answer is no.
"Therefore, the ad valorem tax is not ₱10.2544 or
A tax should not be imposed upon another tax. This is ₱10.5962 but ₱10.6646 ad infinitum.
tax pyramiding, which has no basis either in fact or in
law. "The obvious untenability of the above situation is a clear
enough argument to prove that ad valorem tax should be
Private respondent has shown by mathematical analysis excluded from the tax base.
that the inclusion of the ad valorem tax in the tax base
would only yield a circuitous manner of computation that "The correct method is that used by the BIR and that is:
will never end in just one ad valorem tax figure properly
chargeable against a taxpayer. Quoted verbatim, his ‘₱51.2722 - original price to public
presentation is as follows:
[1.20]
"If [SMC] wants to make ₱42.7269 on a case of beer and
because of price differential and specific taxes has to fix
a price of ₱51.2722 ex brewery, what would the ad = ₱42.726[8] - SMC warehouse price.’"43 
valorem tax be?
Expectedly, though, petitioner is unable to negate the
"The prosecution’s method is to charge the 20% ad mathematics proffered by private respondent.
valorem on the selling price ex brewery of P51.2722 and
to tack that on the SMC price as follows: Equally important, tax pyramiding has since 1922 been
rejected by this Court, the legislature, and our tax
‘₱51.2722 - price ex brewery authorities. The intent behind the law is clearly to obviate
a tax imposed upon another tax. Ratio legis est anima
legis. The reason for the law is its spirit.
x .20
For instance, Regulations No. 27,44 promulgated March
1, 1923, already excludes the specific tax on cigars and
cigarettes from the tax base upon which such tax is
computed.45 This is reiterated in the more recent
amendments to our tax law, among which are EOs 22
and 273,46 and their implementing rules. In
fact, Commissioner of Internal Revenue v. American
Rubber Co. held that a taxpayer cannot be "compelled to
pay a x x x tax on the tax itself."47  jeopardy of punishment for the same offense.60 It is a
Having shown the appropriateness of deducting the ad
valorem tax from the tax base upon which it is computed,
private respondent has shown prudence in exercising his
power under Section 204(2)48 of the NIRC of 1977 to
abate an unjust, excessively assessed, and
unreasonable tax; and to accept the offer of ₱10
million,49 if only to avoid protracted and costly litigation.
Abatement,
Not Compromise
Although referred to in the pleadings as a compromise,
the matter at hand is actually an abatement or a
cancellation. Abatement is the "diminution or decrease in
the amount of tax imposed;"50 it refers to "the act of
eliminating or nullifying; x x x of lessening or moderating
x x x."51 To abate is "to nullify or reduce in value or
amount";52 while to cancel is "to obliterate, cross out, or
invalidate";53 and "to strike out; x x x delete; x x x erase; x
x x make void or invalid; x x x annul; x x x destroy; x x x
revoke or recall."54 
The BIR may therefore abate or cancel the whole or any
unpaid portion of a tax liability, inclusive of increments, if
its assessment is excessive or erroneous;55 or if the
administration costs involved do not justify the collection
of the amount due.56 No mutual concessions need be
made,57 because an excessive or erroneous tax is not
compromised; it is abated or canceled. Only correct
taxes should be paid.58 Besides, as we have discussed
earlier, there was no finality in the assessment that could
be settled.
Moreover, petitioner did not prove the alleged bad faith
attributed to private respondent, who simply relied upon
his subordinates. Mere assertion will not suffice. Even
reference to the approval by the Evaluation Board was
misleading, for such approval was inexistent at the time
and was merely a product of RA 8424 as
amended.59 Actual, not presumed, fraud should be the
bench mark of liability.
Fourth Issue:
Violation of Section 3(e) of RA 3019
Clearly, the court a quo did not commit grave abuse of
discretion in upholding private respondent in his act of
ruling upon the request of SMC for reinvestigation,
leading, first, to his approval of its application of the
excess tax deposit to its tax deficiency; and, second, to
his acceptance of its offer to pay for its tax liability, which
was a little over the assessed amount, inclusive of
increments. It necessarily follows that his acquittal is
proper and inevitable.
Basic is the rule that no person shall be twice put in
constitutional guarantee repeated in Section 7 of Rule
117 of the Rules of Court. A judgment of acquittal cannot
be reopened, absent a grave abuse of discretion or a
denial of due process to the State.61 In this light, pertinent
is the following excerpt, showing how a similar attempt
was made by the prosecution to overturn an acquittal
through a Petition for Certiorari in this Court:
"The rule against double jeopardy proscribes an appeal
from a judgment of acquittal. If said judgment is assailed
in a petition for certiorari under Rule 65 of the Rules of
Court, x x x the petitioner must prove that the lower
court, in acquitting the accused, committed not merely
reversible errors, but grave abuse of discretion
amounting to lack or excess of jurisdiction. A judgment
rendered with grave abuse of discretion or without due
process is void, does not exist in legal contemplation
and, thus, cannot be the source of an acquittal.
However, where the petition demonstrate[s] mere errors
in judgment not amounting to grave abuse of discretion
or deprivation of due process, the writ
of certiorari cannot issue. A review of the alleged errors
of judgment cannot be made without trampling upon the
right of the accused against double jeopardy."62 
As aptly put by private respondent, error in the exercise
of jurisdiction is not the same as error in judgment. The
latter is not reviewable by certiorari,63 since evidence has
been duly considered and passed upon by the SB.
Epilogue
Former BIR Commissioner Bienvenido A. Tan Jr. was
charged with "having willfully, unlawfully and criminally
cause[d] undue injury to the government by effecting a
compromise of the tax liabilities" of SMC amounting to
₱302,051,048.93 for only ₱10,000,000, a "compromise
[that] is grossly disadvantageous to the government." In
no uncertain terms, the assailed Resolution of the
Sandiganbayan acquitted him of violating Section 3(e) of
Republic Act No. 3019 (the Anti-Graft Law).
Under the Constitution, no person shall be twice put in
jeopardy of punishment for the same offense. To
implement this constitutional mandate, the Rules of
Court64 bars an appeal by the State from a judgment of
acquittal, provided the following requisites are present:
(1) a valid complaint or information was filed; (2) before a
competent court; (3) the defendant pleaded to the
charge; and (4) the accused was acquitted.
Petitioner alleges, however, that in acquitting the
accused, the Sandiganbayan acted in a "capricious,
whimsical, arbitrary or despotic manner" equivalent to
lack or excess of jurisdiction.
Indeed, the double jeopardy principle will not protect the
accused, if the prosecution can show that the court
gravely abused its discretion in rendering the judgment
of acquittal. The prosecution’s burden is heavy: to show
grave -- not just ordinary -- abuse of discretion
equivalent to lack or excess of jurisdiction.
This Court notes the tenacity of the Ombudsman and the
Office the Special Prosecutor in doggedly pursuing what
they believe is the public weal. But after a careful review
of the assailed judgment and the relevant facts and laws,
this Court cannot ascribe capricious or whimsical
conduct on the part of the Sandiganbayan. The SB
Resolution assessed the facts and applied the governing
laws and jurisprudence. It analyzed the arguments of
both the prosecution and the defense. It then concluded
that the elements of the crime charged had not been
sufficiently proven. Hence, it acquitted the accused.
Because of the importance of this case and the need to
assist the government in collecting the correct amount of
taxes, this Court even went further by inquiring whether
private respondent (not just the Sandiganbayan) acted
within the confines of his duties and prerogatives.
As can be seen from the foregoing discussions,
Commissioner Bienvenido A. Tan Jr. acted fairly,
honestly and in good faith in discharging his functions.
To compromise a tax liability of more than ₱300 million
for only ₱10 million may appear to be an arbitrary action
grossly disadvantageous to the government. The fact
remains, however, that the initial tax assessment of
₱300 million was correctly found by the SB to be overly
excessive and erroneous. Under the circumstances, the
abatement of the excessive and erroneous taxes was
not only within the discretion of respondent; it was just
and fair to all concerned. After all, the purpose of tax
assessment is to collect only what is legally and justly
due the government; not to overburden, much less
harass, the taxpayers.
WHEREFORE, the Petition is DENIED, and the assailed
Resolution AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Sandoval-Gutierrez, Corona, Carpio-Morales, and
Garcia, JJ., concur.
G.R. No. 109976             April 26, 2005
PHILIPPINE NATIONAL OIL COMPANY, Petitioner,  of P376,301,133.33.8   On the same date, the BIR also
vs.
THE HON. COURT OF APPEALS, THE
COMMISSIONER OF INTERNAL REVENUE and
TIRSO SAVELLANO,Respondents.
x--------------------x
G.R. No. 112800             April 26, 2005
PHILIPPINE NATIONAL BANK, Petitioner, 
vs.
THE HON. COURT OF APPEALS, COURT OF TAX
APPEALS, TIRSO B. SAVELLANO and
COMMISSIONER OF INTERNAL
REVENUE, Respondents.
DECISION
CHICO-NAZARIO, J.:
This is a consolidation of two Petitions for Review on
Certiorari filed by the Philippine National Oil Company
(PNOC)1 and the Philippine National Bank
(PNB),<2 assailing the decisions of the Court of Appeals
in CA-G.R. SP No. 295833 and CA-G.R. SP No.
29526,4 respectively, which both affirmed the decision of
the Court of Tax Appeals (CTA) in CTA Case No. 4249.5 
The Petitions before this Court originated from a sworn
statement submitted by private respondent Tirso B.
Savellano (Savellano) to the Bureau of Internal Revenue
(BIR) on 24 June 1986.  Through his sworn statement,
private respondent Savellano informed the BIR that PNB
had failed to withhold the 15% final tax on interest
earnings and/or yields from the money placements of
PNOC with the said bank, in violation of Presidential
Decree (P.D.) No. 1931.  P.D. No. 1931, which took
effect on 11 June 1984, withdrew all tax exemptions of
government-owned and controlled corporations.
In a letter, dated 08 August 1986, the BIR requested
PNOC to settle its liability for taxes on the interests
earned by its money placements with PNB and which
PNB did not withhold.6   PNOC wrote the BIR on 25
September 1986, and made an offer to compromise its
tax liability, which it estimated to be in the sum
of P304,419,396.83, excluding interest and surcharges,
as of 31 July 1986.  PNOC proposed to set-off its tax
liability against a claim for tax refund/credit of the
National Power Corporation (NAPOCOR), then pending
with the BIR, in the amount of P335,259,450.21.  The
amount of the claim for tax refund/credit was supposedly
a receivable account of PNOC from NAPOCOR.7 
On 08 October 1986, the BIR sent a demand letter to
PNB, as withholding agent, for the payment of the final
tax on the interest earnings and/or yields from PNOC's
money placements with the bank, from 15 October 1984
to 15 October 1986, in the total amount
mailed a letter to PNOC informing it of the demand letter
sent to PNB.9  compromise was in accordance with the provisions of
PNOC, in another letter, dated 14 October 1986,
reiterated its proposal to settle its tax liability through the
set-off of the said tax liability against NAPOCOR'S
pending claim for tax refund/credit.10   The BIR replied on
11 November 1986 that the proposal for set-off was
premature since NAPOCOR's claim was still under
process.  Once more, BIR requested PNOC to settle its
tax liability in the total amount of P385,961,580.82,
consisting of P303,343,765.32 final tax,
plus P82,617,815.50 interest computed until 15
November 1986.11 
On 09 June 1987, PNOC made another offer to the BIR
to settle its tax liability.  This time, however, PNOC
proposed a compromise by paying P91,003,129.89,
representing 30% of the P303,343,766.29 basic tax, in
accordance with the provisions of Executive Order (E.O.)
No. 44.12  exercise of jurisdiction" in entering into a compromise
Then BIR Commissioner Bienvenido A. Tan, in a letter,
dated 22 June 1987, accepted the compromise.  The
BIR received a total tax payment on the interest earnings
and/or yields from PNOC's money placements with PNB
in the amount of P93,955,479.12, broken down as
follows:
Previous payment made by PNB
Add: Payment made by PNOC pursuant to the
compromise agreement of June 22, 1987
Total tax payment
Private respondent Savellano, through four installments,
was paid the informer's reward in the total amount
of P14,093,321.89, representing 15% of
the P93,955,479.12 tax collected by the BIR from PNOC
and PNB.  He received the last installment on 01
December 1987.14  PNOC and PNB filed separate Motions to Dismiss, both
On 07 January 1988, private respondent Savellano,
through his legal counsel, wrote the BIR to demand
payment of the balance of his informer's reward,
computed as follows:
BIR tax assessment
Final tax rate
Informer's reward due (BIR deficiency tax
assessment x Final tax rate)
Less: Payment received by private respondent
Savellano
Outstanding balance
BIR Commissioner Tan replied through a letter, dated 08
March 1988, that private respondent Savellano was
already fully paid the informer's reward equivalent to
15% of the amount of tax actually collected by the BIR
pursuant to its compromise agreement with PNOC.  BIR
Commissioner Tan further explained that the
E.O. No. 44, Revenue Memorandum Order (RMO) No.
39-86, and RMO No. 4-87.16 
Private respondent Savellano submitted another letter,
dated 24 March 1988, to BIR Commissioner Tan,
seeking reconsideration of his decision to compromise
the tax liability of PNOC.  In the same letter, private
respondent Savellano questioned the legality of the
compromise agreement entered into by the BIR and
PNOC and claimed that the tax liability should have been
collected in full.17 
On 08 April 1988, while the aforesaid Motion for
Reconsideration was still pending with the BIR, private
respondent Savellano filed a Petition for Review ad
cautelam with the CTA, docketed as CTA Case No.
4249.  He claimed therein that BIR Commissioner Tan
acted "with grave abuse of discretion and/or whimsical
agreement that resulted in "a gross and unconscionable
diminution" of his reward.  Private respondent Savellano
prayed for the enforcement and collection of the total tax
assessment against taxpayer PNOC and/or withholding
agent PNB; and the payment to him by the BIR
Commissioner of the 15% informer's reward on the total
tax collected.18 He would later amend his Petition to
implead PNOC and PNB as necessary and
indispensable parties since they were parties to the
compromise agreement.19 
In his Answer filed with the CTA, BIR Commissioner Tan
asserted that the Petition stated no cause of action
against him, and that private respondent Savellano was
already paid the informer's reward due him.  Alleging
that the Petition was baseless and malicious, BIR
Commissioner Tan filed a counterclaim for exemplary
damages against private respondent Savellano.20 
arguing that the CTA lacked jurisdiction to decide the
case.21 In its Resolution, dated 28 November 1988, the
CTA denied the Motions to Dismiss since the question of
lack of jurisdiction and/or cause of action do not appear
to be indubitable.22 
After their Motions to Dismiss were denied by the CTA,
PNOC and PNB filed their respective Answers to the
amended Petition.  PNOC averred, among other things,
that (1) it had no privity with private respondent
Savellano; (2) the BIR Commissioner's discretionary act
in entering into the compromise agreement had legal
basis under E.O. No. 44 and RMO No. 39-86 and RMO
No. 4-87; and (3) the CTA had no jurisdiction to resolve
the case against it.23 On the other hand, PNB asserted
that (1) the CTA lacked jurisdiction over the case; and
(2) the BIR Commissioner's decision to accept the
compromise was discretionary on his part and, therefore,
cannot be reviewed or interfered with by the
courts.24 PNOC and PNB later filed their amended
Answer invoking an opinion of the Commission on Audit government offices, agencies, and instrumentalities,
(COA) disallowing the payment by the BIR of informer's including government-owned and controlled
reward to private respondent Savellano.25  corporations.37 

The CTA, thereafter, ordered the parties to submit their Three days later, on 14 June 1991, PNB filed a Motion to
evidence,26 to be followed by their respective Suspend Proceedings before the CTA since it had a
Memoranda.27  pending appeal before the DOJ.38 On 04 July 1991, PNB
filed with the CTA a Motion for Reconsideration of its
On 23 November 1990, private respondent Savellano, Order, dated 03 June 1991, submitting the case for
filed a Manifestation with Motion for Suspension of decision as of 04 June 1991, and prayed that the CTA
Proceedings, claiming that his pending Motion for hold its resolution of the case in view of PNB's appeal
Reconsideration with the BIR Commissioner may soon pending before the DOJ.39 
be resolved.28 Both PNOC and PNB opposed the said
Motion.29  On 17 July 1991, PNB filed a Motion to Suspend the
Collection of Tax by the BIR.  It alleged that despite its
Subsequently, the new BIR Commissioner, Jose U. Ong, request for reconsideration of the deficiency withholding
in a letter to PNB, dated 16 January 1991, demanded tax assessment, dated 16 January 1991, BIR
that PNB pay deficiency withholding tax on the interest Commissioner Ong sent another letter, dated 23 April
earnings and/or yields from PNOC's money placements, 1991, demanding payment of the P294,958,450.73
in the amount of P294,958,450.73, computed as follows: deficiency withholding tax on the interest earnings and/or
yields from PNOC's money placements.  The same letter
informed PNB that this was the BIR Commissioner's final
Withholding tax, plus interest under the letter of P 
decision on the matter and that the BIR Commissioner
demand dated November 11, 1986
was set to issue a warrant of distraint and/or levy against
Less: Amount paid under E.O. No. 44 P  PNB's deposits with the Central Bank of the Philippines. 
Amount still due and collectible P  PNB further alleged that the levy and distraint of PNB's
deposits, unless restrained by the CTA, would cause
This BIR letter was received by PNB on 06 February great and irreparable prejudice not only to PNB, a
1991,31 and was protested by it through a letter, dated 11 government-owned and controlled corporation, but also
April 1991.32 The BIR denied PNB's protest on the to the Government itself.40 
ground that it was filed out of time and, thus, the
assessment had already become final.33  Pursuant to the Order of the CTA, during the hearing on
19 July 1991,41 the parties submitted their respective
Private respondent Savellano, on 22 February 1991, Memoranda on PNB's Motion to Suspend
filed an Omnibus Motion moving to withdraw his previous Proceedings.42 
Motion for Suspension of Proceeding since BIR
Commissioner Ong had finally resolved his Motion for On 20 September 1991, private respondent Savellano
Reconsideration, and submitting by way of supplemental filed another Omnibus Motion calling the attention of the
offer of evidence (1) the letter of BIR Commissioner Ong, CTA to the fact that the BIR already issued, on 12
dated 13 February 1991, informing private respondent August 1991, a warrant of garnishment addressed to the
Savellano of the action on his Motion for Central Bank Governor and against PNB.  In compliance
Reconsideration; and (2) the demand-letter of BIR with the said warrant, the Central Bank issued, on 23
Commissioner Ong to PNB, dated 16 January 1991.34  August 1991, a debit advice against the demand deposit
account of PNB with the Central Bank for the amount
Despite the oppositions of PNOC and PNB, the CTA, in of P294,958,450.73, with a corresponding transfer of the
a Resolution, dated 02 May 1991, resolved to allow same amount to the demand deposit-in-trust of BIR with
private respondent Savellano to withdraw his previous the Central Bank.  Since the assessment had already
Motion for Suspension of Proceeding and to admit the been enforced, PNB's Motion to Suspend Proceedings
supplementary evidence being offered by the same became moot and academic.  Private respondent
party.35  Savellano, thus, moved for the denial of PNB's Motion to
Suspend Proceedings and for an order requiring BIR to
In its Order, dated 03 June 1991, the CTA considered deposit with the CTA the amount of P44,243,767.00 as
the case submitted for decision as of the following day, his informer's reward, representing 15% of the deficiency
04 June 1991.36  withholding tax collected.43 

On 11 June 1991, PNB appealed to the Department of
Justice (DOJ) the BIR assessment, dated 16 January
1991, for deficiency withholding tax in the sum
of P294,958,450.73.  PNB alleged that its appeal to the
DOJ was sanctioned under P.D. No. 242, which provided
for the administrative settlement of disputes between
Both PNOC and PNB opposed private respondent
Savellano's Omnibus Motion, dated 20 September 1991,
arguing that the DOJ already ordered the suspension of
the collection of the tax deficiency.  There was therefore
no basis for private respondent Savellano's Motion as
the same was premised on the erroneous assumption
that the tax deficiency had been collected. When the
DOJ denied the BIR Commissioner's Motion to Dismiss
and required him to file his answer, the DOJ assumed
jurisdiction over PNB's appeal, and the CTA should first
suspend its proceedings to give the DOJ the opportunity
to decide the validity and propriety of the tax assessment
against PNB.44  since they involved identical parties and factual
The CTA, on 28 May 1992, rendered its decision,
wherein it upheld its jurisdiction and disposed of the case
as follows:
WHEREFORE, judgment is rendered declaring
the COMPROMISE AGREEMENT between the
Bureau of Internal Revenue, on the one hand,
and the Philippine National Oil Company and
Philippine National Bank, on the other, as
WITHOUT FORCE AND EFFECT;
The Commissioner of Internal Revenue is
hereby ordered to ENFORCE the
ASSESSMENT of January 16, 1991 against
Philippine National Bank which has become final
and unappealable by collecting from Philippine
National Bank the deficiency withholding tax,
plus interest totalling (sic) P294,958,450.73;
Petitioner may be paid, upon collection of the
deficiency withholding tax, the balance of his
entitlement to informer's reward based on fifteen
percent (15%) of the deficiency withholding total
tax collected in this case or P44,243.767.00
subject to existing rules and regulations
governing payment of reward to informers.45  2.  The respondent Court erred in not finding that
In a Resolution, dated 16 November 1992, the CTA
denied the Motions for Reconsideration filed by PNOC
and PNB since they substantially raised the same issues
in their previous pleadings and which had already been
passed upon and resolved adversely against them.46  3.  The respondent Court erred in not ruling that
PNOC and PNB filed separate appeals with the Court of
Appeals seeking the reversal of the CTA decision in CTA
Case No. 4249, dated 28 May 1992, and the CTA
Resolution in the same case, dated 16 November 1992.  The decisions of the Court of Appeals in CA-GR SP No.
PNOC's appeal was docketed as CA-G.R. SP No.
29583, while PNB's appeal was CA-G.R. SP No. 29526.  of the CTA in CTA Case No. 4249.  The resolution,
In both cases, the Court of Appeals affirmed the decision
of the CTA.
In the meantime, the Central Bank again issued on 02
September 1992 a debit advice against the demand
deposit account of PNB with the Central Bank for the
amount of P294,958,450.73,47 and on 15 September
1992, credited the same amount to the demand deposit
account of the Treasurer of the Republic of the
Philippines.48   On 04 November 1992, the Treasurer of
the Republic issued a journal voucher
transferring P294,958,450.73 to the account of the
BIR.49   PNB, in turn, debited P294,958,450.73 from the
deposit account of PNOC with PNB.50 
PNOC and PNB then filed separate Petitions for Review
on Certiorari with this Court, praying that the decisions of
the Court of Appeals in CA-G.R. SP No. 29583 and CA-
G.R. SP No. 29526, respectively, both affirming the
decision of the CTA in CTA Case No. 4249, be reversed
and set aside.  These two Petitions were consolidated
background, and the resolution of related, if not exactly,
the same issues.
In its Petition for Review, PNOC alleged the following
errors committed by the Court of Appeals in CA-G.R. SP
No. 29583:
1.  The Court of Appeals erred in holding that the
deficiency taxes of PNOC could not be the
subject of a compromise under Executive Order
No. 44; and
2.  The Court of Appeals erred in holding that
Savellano is entitled to additional informer's
reward.51 
PNB, in its own Petition for Review, assailed the decision
of the Court of Appeals in CA-G.R. SP No. 29526,
assigning the following errors:
1.  Respondent Court erred in not finding that
the Court of Tax Appeals lacks jurisdiction on
the controversy involving BIR and PNB (both
government instrumentalities) regarding the new
assessment of BIR against PNB;
the Court of Tax Appeals has no jurisdiction to
question the compromise agreement entered
into by the Commissioner of Internal Revenue;
and
the Commissioner of Internal Revenue cannot
unilaterally annul tax compromises validly
entered into by his predecessor.52 
29583 and CA-G.R. SP No. 29526, affirmed the decision
therefore, of the assigned errors in the Court of Appeals'
decisions essentially requires a review of the CTA
decision itself.
In consolidating the present Petitions, this Court finds
that PNOC and PNB are basically questioning the (1)
Jurisdiction of the CTA in CTA Case No. 4249; (2)
Declaration by the CTA that the compromise agreement
was without force and effect; (3) Finding of the CTA that
the deficiency withholding tax assessment against PNB
had already become final and unappealable and, thus,
enforceable; and (4) Order of the CTA directing payment
of additional informer's reward to private respondent
Savellano.
I
Jurisdiction of the CTA
A. The demand letter, dated 16 January 1991
did not constitute a new assessment against
PNB.
The main argument of PNB in assailing the jurisdiction of
the CTA in CTA Case No. 4249 is that the BIR demand
letter, dated 16 January 1991,53 should be considered as
a new assessment against PNB.  As a new assessment,
it gave rise to a new dispute and controversy solely
between the BIR and PNB that should be
administratively settled or adjudicated, as provided in
P.D. No. 242.
This argument is without merit.  The issuance by the BIR
of the demand letter, dated 16 January 1991, was
merely a development in the continuing effort of the BIR
to collect the tax assessed against PNOC and PNB way
back in 1986.
BIR's first letter, dated 08 August 1986, was addressed
to PNOC, requesting it to settle its tax liability.  The BIR
subsequently sent another letter, dated 08 October
1986, to PNB, as withholding agent, demanding payment
of the tax it had failed to withhold on the interest
earnings and/or yields from PNOC's money placements. 
PNOC wrote the BIR three succeeding letters offering to
compromise its tax liability; PNB, on the other hand, did
not act on the demand letter it received, dated 08
October 1986.  The BIR and PNOC eventually reached a
compromise agreement on 22 June 1987.  Private
respondent Savellano questioned the validity of the
compromise agreement because the reduced amount of
tax collected from PNOC, by virtue of the compromise
agreement, also proportionately reduced his informer's
reward.  Private respondent Savellano then requested
the BIR Commissioner to review and reconsider the
compromise agreement.  Acting on the request of private
respondent Savellano, the new BIR Commissioner
declared the compromise agreement to be without basis
and issued the demand letter, dated 16 January 1991,
against PNB, as the withholding agent for PNOC.
It is clear from the foregoing that the BIR demand letter,
dated 16 January 1991, could not stand alone as a new
assessment.  It should always be considered in the
factual context summarized above.
In fact, the demand letter, dated 16 January 1991,
actually referred to the withholding tax assessment first
issued in 1986 and its eventual settlement through a
compromise agreement.  In addition, the computation of
the deficiency withholding tax was based on the figures
from the 1986 assessments against PNOC and PNB,
and BIR no longer conducted a new audit or
investigation of either PNOC and PNB before it issued
the demand letter on 16 January 1991.
These constant references to past events and
circumstances demonstrate that the demand letter,
dated 16 January 1991, was not a new assessment, but
rather, the latest action taken by the BIR to collect on the
tax assessments issued against PNOC and PNB in
1986.
PNB argues that the demand letter, dated 16 January
1991, introduced a new controversy.  We see it
differently as the said demand letter presented the
resolution by BIR Commissioner Ong of the previous
controversy involving the compromise of the 1986 tax
assessments.  BIR Commissioner Ong explicitly
declared therein that the compromise agreement was
without legal basis, and requested PNB, as the
withholding agent, to pay the amount of withholding tax
still due.
B. The CTA correctly retained jurisdiction over
CTA Case No. 4249 by virtue of Republic Act
No. 1125.
Having established that the BIR demand letter, dated 16
January 1991, did not constitute a new assessment,
then, there could be no basis for PNB's claim that any
dispute arising from the new assessment should only be
between BIR and PNB.
Still proceeding from the argument that there was a new
dispute between PNB and BIR, PNB sought the
suspension of the proceedings in CTA Case No.  4249,
after it contested the deficiency withholding tax
assessment against it and the demand for payment
thereof before the DOJ, pursuant to P.D. No. 242.  The
CTA, however, correctly sustained its jurisdiction and
continued the proceedings in CTA Case No. 4249; and,
in effect, rejected DOJ's claim of jurisdiction to
administratively settle or adjudicate BIR's assessment
against PNB.
The CTA assumed jurisdiction over the Petition for
Review filed by private respondent Savellano based on
the following provision of Rep. Act No. 1125, the Act
creating the Court of Tax Appeals:
SECTION 7.  Jurisdiction. – The Court of Tax
Appeals shall exercise exclusive appellate
jurisdiction to review by appeal, as herein
provided -
(1)   Decisions of the Collector of
Internal Revenue in cases involving
disputed assessments, refunds of
internal revenue taxes, fees or other
charges, penalties imposed in relation
thereto, or other matters arising under
 the National Internal Revenue Code or
other law or part of law administered by
the Bureau of Internal
Revenue; . . . (Underscoring ours.) 
In his Petition before the CTA, private respondent
Savellano requested a review of the decisions of then
BIR Commissioner Tan to enter into a compromise
agreement with PNOC and to reject his claim for
additional informer's reward.  He submitted before the
CTA questions of law involving the interpretation and
application of (1) E.O. No. 44, and its implementing rules
and regulations, which authorized the BIR Commissioner
to compromise delinquent accounts and disputed
assessments pending as of 31 December 1985; and (2)
Section 316(1) of the National Internal Revenue Code of
1977 (NIRC of 1977), as amended, which granted to the
informer a reward equivalent to 15% of the actual
amount recovered or collected by the BIR.54 These
should undoubtedly be considered as matters arising
from the NIRC and other laws being administered by the
BIR, thus, appealable to the CTA under Section 7(1) of
Rep. Act No. 1125.
PNB, however, insists on the jurisdiction of the DOJ over
its appeal of the deficiency withholding tax assessment
by virtue of P.D. No. 242.  Provisions on jurisdiction of
P.D. No. 242 read:
SECTION 1.  Provisions of law to the contrary
notwithstanding, all disputes, claims and
controversies solely between or among the
departments, bureaus, offices, agencies, and
instrumentalities of the National Government,
including government-owned or controlled
corporations, but excluding constitutional offices
or agencies, arising from the interpretation and
application of statutes, contracts or agreements,
shall henceforth be administratively settled or
adjudicated as provided hereinafter; Provided,
That this shall not apply to cases already
pending in court at the time of the effectivity of
this decree.
SECTION 2.  In all cases involving only
questions of law, the same shall be submitted to
and settled or adjudicated by the Secretary of
Justice, as Attorney General and ex officio legal
adviser of all government-owned or controlled
corporations and entities, in consonance with
Section 83 of the Revised Administrative Code.  statutes in question, to wit:
His ruling or determination of the question in
each case shall be conclusive and binding upon
all the parties concerned.
SECTION 3.  Cases involving mixed questions
of law and of fact or only factual issues shall be
submitted to and settled or adjudicated by:
(a)  The Solicitor General, with respect
to disputes or claims controversies
between or among the departments,
bureaus, offices and other agencies of
the National Government;
(b)  The Government Corporate
Counsel, with respect to disputes or
claims or controversies between or
among government-owned or controlled
corporations or entities being served by
the Office of the Government Corporate
Counsel; and
(c)  The Secretary of Justice, with
respect to all other disputes or claims or
controversies which do not fall under the
categories mentioned in paragraphs (a)
and (b).
The PNB and DOJ are of the same position that P.D. No.
242, the more recent law, repealed Section 7(1) of Rep.
Act No. 1125,55 based on the pronouncement of this
Court in Development Bank of the Philippines v. Court of
Appeals, et al., 56]  quoted below:
The Court … expresses its entire agreement
with the conclusion of the Court of Appeals —
and the basic premises thereof — that there is
an "irreconcilable repugnancy…between Section
7(2) of R.A. No. 1125 and P.D. No. 242," and
hence, that the later enactment (P.D. No. 242),
being the latest expression of the legislative will,
should prevail over the earlier.
In the said case, it was expressly declared that P.D. No.
242 repealed Section 7(2) of Rep. Act No. 1125, which
provides for the exclusive appellate jurisdiction of the
CTA over decisions of the Commissioner of Customs. 
PNB contends that P.D. No. 242 should be deemed to
have likewise repealed Section 7(1) of Rep. Act No.
1125, which provide for the exclusive appellate
jurisdiction of the CTA over decisions of the BIR
Commissioner.57 
After re-examining the provisions on jurisdiction of Rep.
Act No. 1125 and P.D. No. 242, this Court finds itself in
disagreement with the pronouncement made
in Development Bank of the Philippines v. Court of
Appeals, et al.,58 and refers to the earlier case of
Lichauco & Company, Inc. v. Apostol, et al.,59 for the
guidelines in determining the relation between the two
The cases relating to the subject of repeal by
implication all proceed on the assumption that if
the act of later date clearly reveals an intention
on the part of the law making power to abrogate
the prior law, this intention must be given effect;
but there must always be a sufficient revelation
of this intention, and it has become an
unbending rule of statutory construction that the
intention to repeal a former law will not be
 imputed to the Legislature when it appears that
the two statutes, or provisions, with reference to
which the question arises bear to each other the
relation of general to special.  (Underscoring
ours.)
When there appears to be an inconsistency or conflict
between two statutes and one of the statutes is a
general law, while the other is a special law, then repeal
by implication is not the primary rule applicable.  The
following rule should principally govern instead:
Specific legislation upon a particular subject is
not affected by a general law upon the same
subject unless it clearly appears that the
provisions of the two laws are so repugnant that
the legislators must have intended by the later to
modify or repeal the earlier legislation. The
special act and the general law must stand
together, the one as the law of the particular
subject and the other as the general law of the
land. (Ex Parte United States, 226 U. S., 420; 57
L. ed., 281; Ex Parte Crow Dog, 109 U. S., 556;
27 L. ed., 1030; Partee vs. St. Louis & S. F. R.
Co., 204 Fed. Rep., 970.)
Where there are two acts or provisions, one of
which is special and particular, and certainly
includes the matter in question, and the other
general, which, if standing alone, would include
the same matter and thus conflict with the
special act or provision, the special must be
taken as intended to constitute an exception to
the general act or provision, especially when
such general and special acts or provisions are
contemporaneous, as the Legislature is not to be
presumed to have intended a conflict. (Crane v.
Reeder and Reeder, 22 Mich., 322, 334;
University of Utah vs. Richards, 77 Am. St. Rep.,
928.)60  justified its decision in the following manner:
It has, thus, become an established rule of statutory
construction that between a general law and a special
law, the special law prevails – Generalia specialibus non
derogant.61  stability in labor litigations.  A piecemeal resort to
Sustained herein is the contention of private respondent
Savellano that P.D. No. 242 is a general law that deals
with administrative settlement or adjudication of
disputes, claims and controversies between or among
government offices, agencies and instrumentalities,
including government-owned or controlled corporations.
Its coverage is broad and sweeping, encompassing all
disputes, claims and controversies.  It has been
incorporated as Chapter 14, Book IV of E.O. No. 292,
otherwise known as the Revised Administrative Code of
the Philippines.62 On the other hand, Rep. Act No. 1125
is a special law63 dealing with a specific subject matter –
the creation of the CTA, which shall exercise exclusive
appellate jurisdiction over the tax disputes and
controversies enumerated therein.
Following the rule on statutory construction involving a
general and a special law previously discussed, then
P.D. No. 242 should not affect Rep. Act No. 1125.  Rep.
Act No. 1125, specifically Section 7 thereof on the
jurisdiction of the CTA, constitutes an exception to P.D.
No. 242.  Disputes, claims and controversies, falling
under Section 7 of Rep. Act No. 1125, even though
solely among government offices, agencies, and
instrumentalities, including government-owned and
controlled corporations, remain in the exclusive appellate
jurisdiction of the CTA.  Such a construction resolves the
alleged inconsistency or conflict between the two
statutes, and the fact that P.D. No. 242 is the more
recent law is no longer significant.
Even if, for the sake of argument, that P.D. No. 242
should prevail over Rep. Act No. 1125, the present
dispute would still not be covered by P.D. No. 242. 
Section 1 of P.D. No. 242 explicitly provides that only
disputes, claims and controversies solely between or
among departments, bureaus, offices, agencies, and
instrumentalities of the National Government, including
constitutional offices or agencies, as well as
government-owned and controlled corporations, shall be
administratively settled or adjudicated.  While the BIR is
obviously a government bureau, and both PNOC and
PNB are government-owned and controlled corporations,
respondent Savellano is a private citizen.  His standing
in the controversy could not be lightly brushed aside.  It
was private respondent Savellano who gave the BIR the
information that resulted in the investigation of PNOC
and PNB; who requested the BIR Commissioner to
reconsider the compromise agreement in question; and
who initiated CTA Case No. 4249 by filing a Petition for
Review.
In Bay View Hotel, Inc. v. Manila Hotel Workers' Union-
PTGWO, et al.,64] this Court upheld the jurisdiction of the
Court of Industrial Relations over the ordinary courts and
We are unprepared to break away from the
teaching in the cases just adverted to.  To draw
a tenuous jurisdictional line is to undermine
one court and another gives rise to multiplicity of
suits.  To force the employees to shuttle from
one court to another to secure full redress is a
situation gravely prejudicial.  The time to be lost,
effort wasted, anxiety augmented, additional
expense incurred – these are considerations
which weigh heavily against split jurisdiction. 
Indeed, it is more in keeping with orderly
administration of justice that all the causes of
action here "be cognizable and heard by only
one court:  the Court of Industrial Relations."
The same justification is used in the present case to
reject DOJ's jurisdiction over the BIR and PNB, to the
exclusion of the other parties.  The rights of all four
parties in CTA Case No. 4249, namely the BIR, as the
tax collector; PNOC, the taxpayer; PNB, the withholding
agent; and private respondent Savellano, the informer
claiming his reward; arose from the same factual
background and were so closely interrelated, that a
pronouncement as to one would definitely have
repercussions on the others.  The ends of justice were
best served when the CTA continued to exercise its
jurisdiction over CTA Case No. 4249.  The CTA, which
had assumed jurisdiction over all the parties to the
controversy, could render a comprehensive resolution of
the issues raised and grant complete relief to the parties.
II
Validity of the Compromise Agreement
A. PNOC could not apply for a compromise
under E.O. No. 44 because its tax liability was
not a delinquent account or a disputed
assessment as of 31 December 1985.
PNOC and PNB, on different grounds, dispute the
decision of the CTA in CTA Case No. 4249 declaring the
compromise agreement between BIR and PNOC without
force and effect.
PNOC asserts that the compromise agreement was in
accordance with E.O. No. 44, and its implementing rules
and regulations, and should be binding upon the parties
thereto.
E.O. No. 44 granted the BIR Commissioner or his duly
authorized representatives the power to compromise any
disputed assessment or delinquent account pending as
of 31 December 1985, upon the payment of an amount
equal to 30% of the basic tax assessed; in which case,
the corresponding interests and penalties shall be
condoned.  E.O. No. 44 took effect on 04 September
1986 and remained effective until 31 March 1987.
The disputed assessments or delinquent accounts that
the BIR Commissioner could compromise under E.O.
No. 44 are defined under Revenue Regulation (RR) No.
17-86, as follows:
a)   Delinquent account – Refers to the amount
of tax due on or before December 31, 1985 from
a taxpayer who failed to pay the same within the
time prescribed for its payment arising from (1) a
self assessed tax, whether or not a tax return
was filed, or (2) a deficiency assessment issued
by the BIR which has become final and
executory.
Where no return was filed, the taxpayer shall be
considered delinquent as of the time the tax on
such return was due, and in availing of the
compromise, a tax return shall be filed as a
basis for computing the amount of compromise
to be paid.
b)  Disputed assessment – refers to a tax
assessment disputed or protested on or before
December 31, 1985 under any of the following
categories:
1)       if the same is administratively protested
within thirty (30) days from the date the taxpayer
received the assessment, or
2.)      if the decision of the BIR on the taxpayer's
administrative protest is appealed by the
taxpayer before an appropriate court.
PNOC's tax liability could not be considered a delinquent
account since (1) it was not self-assessed, because the
BIR conducted an investigation and assessment of
PNOC and PNB after obtaining information regarding the
non-withholding of tax from private respondent
Savellano; and (2) the demand letter, issued against it
on 08 August 1986, could not have been a deficiency
assessment that became final and executory by 31
December 1985.
The dissenting opinion contends, however, that the tax
liability of PNOC constitutes a self-assessed tax, and is,
therefore, a delinquent account as of 31 December
1985, qualifying for a compromise under E.O. No. 44.  It
anchors its argument on the declaration made by this
Court in Tupaz v. Ulep,65 that internal revenue taxes are
self-assessing.
It is not denied herein that the self-assessing system
governs Philippine internal revenue taxes.  The
dissenting opinion itself defines self-assessed tax as, "a
tax that the taxpayer himself assesses or computes and
pays to the taxing authority."  Clearly, such a system
imposes upon the taxpayer the obligation to conduct an
assessment of himself so he could determine and
declare the amount to be used as tax basis, any
deductions therefrom, and finally, the tax due.
E.O. No. 44 covers self-assessed tax, whether or not a
tax return was filed.  The phrase "whether or not a tax
return was filed" only refers to the compliance by the
taxpayer with the obligation to file a return on the dates
specified by law, but it does not do away with the
requisite that the tax must be self-assessed in order for
the taxpayer to avail of the compromise.  The second
paragraph of Section 2(a) of RR No. 17-86 expressly
commands, and still imposes upon the taxpayer, who is
availing of the compromise under E.O. No. 44, and who
has not previously filed any return, the duty to conduct
self-assessment by filing a tax return that would be used
as the basis for computing the amount of compromise to
be paid.
Section 2(a)(1) of RR No. 17-86 thus involves a situation
wherein a taxpayer, after conducting a self-assessment,
discovers or becomes aware that he had failed to pay a
tax due on or before 31 December 1985, regardless of
whether he had previously filed a return to reflect such
tax; voluntarily comes forward and admits to the BIR his
tax liability; and applies for a compromise thereof.  In
case the taxpayer has not previously filed any return, he
must fill out such a return reflecting therein his own
declaration of the taxable amount and computation of the
tax due.  The compromise payment shall be computed
based on the amount reflected in the tax return
submitted by the taxpayer himself.
Neither PNOC nor PNB, the taxpayer and the
withholding agent, respectively, conducted self-
assessment in this case.  There is no showing that in the
absence of the tax assessment issued by the BIR
against them, that PNOC and/or PNB would have
voluntarily admitted their tax liabilities, already
amounting to P385,961,580.82, as of 15 November
1986, and would have offered to compromise the same.  be compromised under E.O. No. 44.
In fact, both PNOC and PNB were conspicuously silent
about their tax liabilities until they were assessed
thereon.
Any attempt by PNOC and PNB to assess and declare
by themselves their tax liabilities had already been
overtaken by the BIR's conduct of its audit and
investigation and subsequent issuance of the
assessments, dated 08 August 1986 and 08 October
1986, against PNOC and PNB, respectively.  The said
tax assessments, uncontested and undisputed,
presented the results of the BIR audit and investigation
and the computation of the total amount of tax liabilities
of PNOC and PNB.  They should be controlling in this
case, and should not be so easily and conveniently
ignored and set aside.  It would be a contradiction to
claim that the tax liabilities of PNOC and PNB are self-
assessed and, at the same time, BIR-assessed; when it
is clear and simple that it had been the BIR that
conducted the assessment and determined the tax
liabilities of PNOC and PNB.
That the BIR-assessed tax liability should be
differentiated from a self-assessed one, is supported by
the provisions of RR No. 17-86 on the basis for
computing the amount of compromise payment.  Note
that where tax liabilities are self-assessed, the
compromise payment shall be computed based on the
tax return filed by the taxpayer.66 On the other hand,
where the BIR already issued an assessment, the
compromise payment shall be computed based on the
tax due on the assessment notice.67  been issued from January 1 to August 21, 1986
For instances where the BIR had already issued an
assessment against the taxpayer, the tax liability could
still be compromised under E.O. No. 44 only if: (1) the
assessment had been final and executory on or before
31 December 1985 and, therefore, considered a
delinquent account as of said date;68 or (2) the
assessment had been disputed or protested on or before
31 December 1985.69  and executory by 31 December 1985 could be the
RMO No. 39-86, which provides the guidelines for the
implementation of E.O. No. 44, does mention different
types of assessments that may be compromised under
said statute (i.e., jeopardy assessments, arbitrary
assessments, and tax assessments of doubtful validity). 
RMO No. 39-86 may not have expressly stated any
qualification for these particular types of assessments;
nonetheless, E.O. No. 44 specifically refers only to
assessments that were delinquent or disputed as of 31
December 1985.
E.O. No. 44 and all BIR issuances to implement said
statute should be interpreted so that they are
harmonized and consistent with each other. 
Accordingly, this Court finds that the different types of
assessments mentioned in RMO No. 39-86 would still
have to qualify as delinquent accounts or disputed
assessments as of 31 Dcember 1985, so that they could
The BIR had first written to PNOC on 08 August 1986,
demanding payment of the income tax on the interest
earnings and/or yields from PNOC's money placements
with PNB from 15 October 1984 to 15 October 1986. 
This demand letter could be regarded as the first
assessment notice against PNOC.
Such an assessment, issued only on 08 August 1986,
could not have been final and executory as of 31
December 1985 so as to constitute a delinquent
account.  Neither was the assessment against PNOC an
assessment that could have been disputed or protested
on or before 31 December 1985, having been issued on
a later date.
Given that PNOC's tax liability did not constitute a
delinquent account or a disputed assessment as of 31
December 1985, then it could not be compromised under
E.O. No. 44.
The assessment against PNOC, instead, was more
appropriately covered by Revenue Memorandum
Circular (RMC) No. 31-86.  RMC No. 31-86 clarifies the
scope of availment of the tax amnesty under E.O. No.
4170 and compromise payments on delinquent accounts
and disputed assessments under E.O. No. 44.  The third
paragraph of RMC No. 31-86 reads:
[T]axpayers against whom assessments had
may settle their tax liabilities by way of
compromise under Section 246 of the Tax Code
as amended by paying 30% of the basic
assessment excluding surcharge, interest,
penalties and other increments thereto.
The above-quoted paragraph supports the position that
only assessments that were disputed or that were final
subject of a compromise under E.O. No. 44. 
Assessments issued between 01 January to 21 August
1986 could still be compromised by payment of 30% of
the basic tax assessed, not anymore pursuant to E.O.
No. 44, but pursuant to Section 246 of the NIRC of 1977,
as amended.
Section 246 of the NIRC of 1977, as amended, granted
the BIR Commissioner the authority to compromise the
payment of any internal revenue tax under the following
circumstances: (1) there exists a reasonable doubt as to
the validity of the claim against the taxpayer; or (2) the
financial position of the taxpayer demonstrates a clear
inability to pay the assessed tax.71  liability must either be a delinquent account or a disputed
There are substantial differences in circumstances under
which compromises may be granted under Section 246
of the NIRC of 1977, as amended, and E.O. No. 44.  been issued on 08 October 1986 or two months later
Although PNOC and PNB have extensively argued their
entitlement to compromise under E.O. No. 44, neither of
them has alleged, much less, has presented any
evidence to prove that it may compromise its tax liability
under Section 246 of the NIRC of 1977, as amended.
B. The tax liability of PNB as withholding agent
also did not qualify for compromise under E.O.
No. 44.
Before proceeding any further, this Court reconsiders the
conclusion made by BIR Commissioner Ong in his
demand letter, dated 16 January 1991, that the
compromise settlement executed between the BIR and
PNOC was without legal basis because withholding
taxes were not actually taxes that could be
compromised, but a penalty for PNB's failure to withhold
and for which it was made personally liable.
E.O. No. 44 covers disputed or delinquency cases where
the person assessed was himself the taxpayer rather
than a mere agent.72   RMO No. 39-86 expressly allows a
withholding agent, who failed to withhold the required tax
because of neglect, ignorance of the law, or his belief
that he was not required by law to withhold tax, to apply
for a compromise settlement of his withholding tax
liability under E.O. No. 44.  A withholding agent, in such
a situation, may compromise the withholding tax
assessment against him precisely because he is being
held directly accountable for the tax.73  date, subject, however, to the provisions of
RMO No. 39-86 distinguishes between the withholding
agent in the foregoing situation from the withholding
agent who withheld the tax but failed to remit the amount
to the Government.  A withholding agent in the latter
situation is the one disqualified from applying for a
compromise settlement because he is being made
accountable as an agent, who held funds in trust for the
Government.74  or regulation by those charged with its execution is
Both situations, however, involve withholding agents.  such rule or regulation, and such interpretation will be
The right to compromise under these provisions should
have been claimed by PNB, the withholding agent for
PNOC.  The BIR held PNB personally accountable for its
failure to withhold the tax on the interest earnings and/or
yields from PNOC's money placements with PNB.  The
BIR sent a demand letter, dated 08 October 1986,
addressed directly to PNB, for payment of the
withholding tax assessed against it, but PNB failed to
take any action on the said demand letter.  Yet, all the
offers to compromise the withholding tax assessment
came from PNOC and PNOC did not claim that it made
the offers to compromise on behalf of PNB.
Moreover, the general requirement of E.O. No. 44 still
applies to withholding agents – that the withholding tax
assessment as of 31 December 1985 to qualify for
compromise settlement.  The demand letter against
PNB, which also served as its assessment notice, had
than PNOC's.  PNB's withholding tax liability could not
be considered a delinquent account or a disputed
assessment, as defined under RR No. 17-86, for the
same reasons that PNOC's tax liability did not constitute
as such.  The tax liability of PNB, therefore, was also not
eligible for compromise settlement under E.O. No. 44.
C. Even assuming arguendo that PNOC and/or
PNB qualified under E.O. No. 44, their
application for compromise was filed beyond the
deadline.
Despite already ruling that the tax liabilities of PNOC and
PNB could not be compromised under E.O. No. 44, this
Court still deems it necessary to discuss the finding of
the CTA that the compromise agreement had been filed
beyond the effectivity of E.O. No. 44, since the CTA
made a declaration in relation thereto that paragraph 2 of
RMO No. 39-86 was null and void for unduly extending
the effectivity of E.O. No. 44.
Paragraph 2 of RMO No. 39-86 provides that:
2. Period for availment. – Filing of application for
compromise settlement under the said law shall
be effective only until March 31, 1987. 
Applications filed on or before this date shall be
valid even if the payment or payments of the
compromise amount shall be made after the said
Executive Order No. 44 and its implementing
Revenue Regulations No. 17-86.
It is well-settled in this jurisdiction that administrative
authorities are vested with the power to make rules and
regulations because it is impracticable for the lawmakers
to provide general regulations for various and varying
details of management. The interpretation given to a rule
entitled to the greatest weight by the court construing
followed unless it appears to be clearly unreasonable or
arbitrary.75 
RMO No. 39-86, particularly paragraph 2 thereof, does
not appear to be unreasonable or arbitrary.  It does not
unduly expand the coverage of E.O. No. 44 by merely
providing that applications for compromise filed until 31
March 1987 are still valid, even if payment of the
compromised amount is made on a later date.
It cannot be expected that the compromise allowed
under E.O. No. 44 can be automatically granted upon
mere filing of the application by the taxpayer.  Irrefutably,
the applications would still have to be processed by the
BIR to determine compliance with the requirements of
E.O. No. 44.  As it is uncontested that a taxpayer could
still file an application for compromise on 31 March 1987,
the very last day of effectivity of E.O. No. 44, it would be
unreasonable to expect the BIR to process and approve
the taxpayer's application within the same date
considering the volume of applications filed and pending
approval, plus the other matters the BIR personnel would
also have to attend to.  Thus, RMO No. 39-86 merely
assures the taxpayers that their applications would still
be processed and could be approved on a later date. 
Payment, of course, shall be made by the taxpayer only
after his application had been approved and the
compromised amount had been determined.
Given that paragraph 2 of RMO No. 39-86 is valid, the
next question that needs to be addressed is whether
PNOC had been able to submit an application for
compromise on or before 31 March 1987 in compliance
thereof.  Although the compromise agreement was
executed only on 22 June 1987, PNOC is claiming that it
had already written a letter to the BIR, as early as 25
September 1986, offering to compromise its tax liability,
and that the said letter should be considered as PNOC's
application for compromise settlement.
A perusal of PNOC's letter, dated 25 September 1986,
would reveal, however, that the terms of its proposed
compromise did not conform to those authorized by E.O.
No. 44.   PNOC did not offer to pay outright 30% of the
basic tax assessed against it as required by E.O. No. 44;
and instead, made the following offer:
(2) That PNOC be permitted to set-off its
foregoing mentioned tax liability
of P304,419,396.83 against the tax refund/credit
claims of the National Power Corporation (NPC)
for specific taxes on fuel oil sold to NPC
totaling P335,259,450.21, which tax
refunds/credits are actually receivable accounts
of our Company from NPC.76  actual cash-out by the company. The offer defeated the
PNOC reiterated the offer in its letter to the BIR, dated
14 October 1986.77 The BIR, in its letters to PNOC, dated
8 October 198678 and 11 November 1986,79 consistently
denied PNOC's offer because the claim for tax
refund/credit of NAPOCOR was still under process, so
that the offer to set-off such claim against PNOC's tax
liability was premature.
Furthermore, E.O. No. 44 does not contemplate
compromise payment by set-off of a tax liability against a
claim for tax refund/credit.  Compromise under E.O. No.
44 may be availed of only in the following circumstances:
SEC. 3.  Who may avail. – Any person, natural
or juridical, may settle thru a compromise any
delinquent account or disputed assessment
which has been due as of December 31,
1985, by paying an amount equal to thirty
percent (30%) of the basic tax assessed.
…
SEC. 6.  Mode of Payment. – Upon acceptance
of the proposed compromise, the amount offered
as compromise in complete settlement of the
delinquent account shall be paid immediately
in cash or manager's certified check.
Deferred or staggered payments of compromise
amounts over P50,000 may be considered on a
case to case basis in accordance with the extant
regulations of the Bureau upon approval of the
Commissioner of Internal Revenue, his Deputy
or Assistant as delineated in their respective
jurisdictions.
If the Compromise amount is not paid as
required herein, the compromise agreement is
automatically nullified and the delinquent
account reverted to the original amount plus the
statutory increments, which shall be collected
thru the summary and/or judicial processes
provided by law.
E.O. No. 44 is not for the benefit of the taxpayer alone,
who can extinguish his tax liability by paying the
compromise amount equivalent to 30% of the basic tax. 
It also benefits the Government by making collection of
delinquent accounts and disputed assessments simpler,
easier, and faster.  Payment of the compromise amount
must be made immediately, in cash or in manager's
check.  Although deferred or staggered payments may
be allowed on a case-to-case basis, the mode of
payment remains unchanged, and must still be made
either in cash or in manager's check.
PNOC's offer to set-off was obviously made to avoid
purpose of E.O. No. 44 because it would not only delay
collection, but more importantly, it would not guarantee
collection.  First of all, BIR's collection was contingent on
whether the claim for tax refund/credit of NAPOCOR
would be subsequently granted.  Second, collection
could not be made immediately and would have to wait
until the resolution of the claim for tax refund/credit of
NAPOCOR.  Third, there is no proof, other than the bare
allegation of PNOC, that NAPOCOR's claim for tax
refund/credit is an account receivable of PNOC.  A
possible dispute between NAPOCOR and PNOC as to
the proceeds of the tax refund/credit would only delay
collection by the BIR even further.
It was only in its letter, dated 09 June 1987, that PNOC
actually offered to compromise its tax liability in
accordance with the terms and circumstances prescribed
by E.O. No. 44 and its implementing rules and
regulations, by stating that:
Consequently, we reiterate our previous request
for compromise under E.O. No. 44, and convey
our preparedness to settle the subject tax
assessment liability by payment of the
compromise amount of P91,003,129.89,
representing thirty percent (30%) of the basic tax
assessment of P303,343,766.29, in accordance
with E.O. No. 44 and its implementing BIR
Revenue Memorandum Order No. 39-86.80  authority to enter into a compromise agreement
PNOC claimed in the same letter that it had previously
requested for a compromise under the terms of E.O. No.
44, but this Court could not find evidence of such
previous request.  There are stark and substantial
differences in the terms of PNOC's offer to compromise
in its earlier letters, dated 25 September 1986 and 14
October 1986 (set-off of the entire amount of its tax
liability against the claim for tax refund/credit of
NAPOCOR), to those in its letter, dated 09 June 1987
(payment of the compromise amount representing 30%
of the basic tax assessed against it), making it difficult for
this Court to accept that the letter of 09 June 1987
merely reiterated PNOC's offer to compromise in its
earlier letters.
This Court likewise cannot give credence to PNOC's
allegation that beginning 25 September 1986, the date of
its first letter to the BIR, there were continuing
negotiations between PNOC and BIR that culminated in
the compromise agreement on 22 June 1987.  Aside
from the exchange of letters recounted in the preceding
paragraphs, both PNOC and PNB failed to present any
other proof of the supposed negotiations.
After the BIR denied the second offer of PNOC to set-off
its tax liability against the claim for tax refund/credit of
NAPOCOR in a letter, dated 11 November 1986, there is
no other evidence of subsequent communication
between PNOC and the BIR.  It was only after almost
seven months, or on 09 June 1987, that PNOC again
wrote a letter to the BIR, this time offering to pay the
compromise amount of 30% of the basic tax assessed
against.  This letter was already filed beyond 31 March
1987, after the lapse of the effectivity of E.O. No. 44 and
the deadline for filing applications for compromise under
the said statute.
Evidence of meetings between PNOC and the BIR, or
any other form of communication, wherein the parties
presented their offer and counter-offer to the other,
would have been very valuable in explaining and
supporting BIR Commissioner Tan's decision to accept
PNOC's third offer to compromise after denying the
previous two.  The absence of such evidence herein
negates PNOC's claim of actual negotiations with the
BIR.
Therefore, even assuming arguendo that the tax
liabilities of PNOC and PNB qualify as delinquent
accounts or disputed assessments as of 31 December
1985, the application for compromise filed by PNOC on
09 June 1987, and accepted by then BIR Commissioner
Tan on 22 June 1987, was still filed way beyond 31
March 1987, the expiration date of the effectivity of E.O.
No. 44 and the deadline for filing of applications for
compromise under RMO No. 39-86.
D. The BIR Commissioner's discretionary
is not absolute and the CTA may inquire into
allegations of abuse thereof.
The foregoing discussion supports the CTA's conclusion
that the compromise agreement between PNOC and the
BIR was indeed without legal basis.  Despite this lack of
legal support for the execution of the said compromise
agreement, PNB argues that the CTA still had no
jurisdiction to review and set aside the compromise
agreement.  It contends that the authority to compromise
is purely discretionary on the BIR Commissioner and the
courts cannot interfere with his exercise thereof.
It is generally true that purely administrative and
discretionary functions may not be interfered with by the
courts; but when the exercise of such functions by the
administrative officer is tainted by a failure to abide by
the command of the law, then it is incumbent on the
courts to set matters right, with this Court having the last
say on the matter.81 
The manner by which BIR Commissioner Tan exercised
his discretionary power to enter into a compromise was
brought under the scrutiny of the CTA amidst allegations
of "grave abuse of discretion and/or whimsical exercise
of jurisdiction."82 The discretionary power of the BIR
Commissioner to enter into compromises cannot be
superior over the power of judicial review by the courts.
The discretionary authority to compromise granted to the
BIR Commissioner is never meant to be absolute,
uncontrolled and unrestrained.  No such unlimited power
may be validly granted to any officer of the government,
except perhaps in cases of national emergency.83 In this
case, the BIR Commissioner's authority to compromise,
whether under E.O. No. 44 or Section 246 of the NIRC of
1977, as amended, can only be exercised under certain
circumstances specifically identified in said statutes. 
The BIR Commissioner would have to exercise his
discretion within the parameters set by the law, and in
case he abuses his discretion, the CTA may correct such
abuse if the matter is appealed to them.84 
Petitioners PNOC and PNB both contend that BIR
Commissioner Tan merely exercised his authority to
enter into a compromise specially granted by E.O. No.
44.  Since this Court has already made a determination
that the compromise agreement did not qualify under
E.O. No. 44, BIR Commissioner Tan's decision to agree
to the compromise should have been reviewed in the
light of the general authority granted to the BIR
Commissioner to compromise taxes under Section 246
of the NIRC of 1977, as amended.  Then again,
petitioners PNOC and PNB failed to allege, much less
present evidence, that BIR Commissioner Tan acted in
accordance with Section 246 of the NIRC of 1977, as
amended, when he entered into the compromise
agreement with PNOC.
E. The CTA may set aside a compromise
agreement that is contrary to law and public
policy.
PNB also asserts that the CTA had no jurisdiction to set
aside a compromise agreement entered into in good
faith.  It relies on the decision of this Court in Republic v.
Sandiganbayan85 that a compromise agreement cannot
be set aside merely because it is too one-sided.  A
compromise agreement should be respected by the
courts as the res judicata between the parties thereto.
This Court, though, finds that there are substantial
differences in the factual background of Republic v.
Sandiganbayan and the present case.
The compromise agreement executed between the
Presidential Commission on Good Government (PCGG)
and Roberto S. Benedicto in Republic v.
Sandiganbayan was judicially approved by the
Sandiganbayan.  The Sandiganbayan had ample
opportunity to examine the validity of the compromise
agreement since two years elapsed from the time the
agreement was executed up to the time it was judicially
approved.  This Court even stated in the said case that,
"We are not dealing with the usual compromise
agreement perfunctorily submitted to a court and
approved as a matter of course. The PCGG-Benedicto
agreement was thoroughly and, at times, disputatiously
discussed before the respondent court. There could be
no deception or misrepresentation foisted on either the
PCGG or the Sandiganbayan."86  to lose almost P300 million in tax revenues and would
In addition, the new PCGG Chairman originally prayed
for the re-negotiation of the compromise agreement so
that it could be more just, fair, and equitable, an action
considered by this Court as an implied admission that
the agreement was not contrary to law, public policy or
morals nor was there any circumstance which had
vitiated consent.87  be the favored method to settle disputes, but when it
The above-mentioned circumstances strongly supported
the validity of the compromise agreement in Republic v.
Sandiganbayan, which was why this Court refused to set
it aside.  Unfortunately for the petitioners in the present
case, the same cannot be said herein.
The Court of Appeals, in upholding the jurisdiction of the
CTA to set aside the compromise agreement, ruled that:
We are unable to accept petitioner's
submissions.  Its formulation of the issues on
CIR and CTA's lack of jurisdiction to disturb a
compromise agreement presupposes a
compromise agreement validly entered into by
the CIR and not, when as in this case, it was
indubitably shown that the supposed
compromise agreement is without legal support. 
In case of arbitrary or capricious exercise by the
Commissioner or if the proceedings were fatally
defective, the compromise can be attacked and
reversed through the judicial process (Meralco
Securities Corporation v. Savellano, 117 SCRA
805, 812 [1982]; Sarah E. Ramsay, et. al. v.
U.S. 21 Ct. C1 443, aff'd 120 U.S. 214, 30 L. Ed.
582; Tyson v. U.S., 39 F. Supp. 135 cited in
page 18 of decision) ….88 
Although the general rule is that compromises are to be
favored, and that compromises entered into in good faith
cannot be set aside,89 this rule is not without
qualification.  A court may still reject a compromise or
settlement when it is repugnant to law, morals, good
customs, public order, or public policy.90 
The compromise agreement between the BIR and
PNOC was contrary to law having been entered into by
BIR Commissioner Tan in excess or in abuse of the
authority granted to him by legislation.  E.O. No. 44 and
the NIRC of 1977, as amended, had identified the
situations wherein the BIR Commissioner may
compromise tax liabilities, and none of these situations
existed in this case.
The compromise, moreover, was contrary to public
policy.  The primary duty of the BIR is to collect taxes,
since taxes are the lifeblood of the Government and their
prompt and certain availability are imperious needs.91 In
the present case, however, BIR Commissioner Tan, by
entering into the compromise agreement that was bereft
of any legal basis, would have caused the Government
have deprived the Government of much needed
monetary resources.
Allegations of good faith and previous execution of the
terms of the compromise agreement on the part of
PNOC would not be enough for this Court to disregard
the demands of law and public policy.  Compromise may
involves taxes, it may be subject to closer scrutiny by the
courts.  A compromise agreement involving taxes would
affect not just the taxpayer and the BIR, but also the
whole nation, the ultimate beneficiary of the tax revenues
collected.
 F. The Government cannot be estopped from
collecting taxes by the mistake, negligence, or
omission of its agents.
The new BIR Commissioner, Commissioner Ong, had
acted well within his powers when he set aside the
compromise agreement, dated 22 June 1987, after
finding that the said compromise agreement was without
legal basis.  When he took over from his predecessor,
there was still a pending motion for reconsideration of
the said compromise agreement, filed by private
respondent Savellano on 24 March 1988.  To resolve the
said motion, he reviewed the compromise agreement
and, thereafter, came upon the conclusion that it did not
comply with E.O. No. 44 and its implementing rules and
regulations.
It had been declared by this Court in Hilado v. Collector
of Internal Revenue, et al.,92 that an administrative
officer, such as the BIR Commissioner, may revoke,
repeal or abrogate the acts or previous rulings of his
predecessor in office.  The construction of a statute by
those administering it is not binding on their successors
if, thereafter, the latter becomes satisfied that a different
construction should be given.
It is evident in this case that the new BIR Commissioner,
Commissioner Ong, construed E.O. No. 44 and its
implementing rules and regulations differently from that
of his predecessor, former Commissioner Tan, which led
to Commissioner Ong's revocation of the BIR approval of
the compromise agreement, dated 22 June 1987.  Such
a revocation was only proper considering that the former
BIR Commissioner's decision to approve the said
compromise agreement was based on the erroneous
construction of the law (i.e., E.O. No. 44 and its
implementing rules and regulations) and should not give
rise to any vested right on PNOC.93  Whether or not the BIR complied with the notice
Furthermore, approval of the compromise agreement
and acceptance of the compromise payment by his
predecessor cannot estop BIR Commissioner Ong from
setting aside the compromise agreement, dated 22 June
1987, for lack of legal basis; and from demanding
payment of the deficiency withholding tax from PNB.  As
a general rule, the Government cannot be estopped from
collecting taxes by the mistake, negligence, or omission
of its agents94 because:
. . . Upon taxation depends the Government
ability to serve the people for whose benefit
taxes are collected.  To safeguard such interest,
neglect or omission of government officials
entrusted with the collection of taxes should not
be allowed to bring harm or detriment to the
people, in the same manner as private persons
may be made to suffer individually on account of
his own negligence, the presumption being that
they take good care of their personal affairs.
This should not hold true to government officials
with respect to matters not of their own personal
concern. This is the philosophy behind the
government's exception, as a general rule, from
the operation of the principle of estoppel.
(Republic vs. Caballero, L-27437, September
30, 1977, 79 SCRA 177; Manila Lodge No. 761,
Benevolent and Protective Order of the Elks,
Inc. vs. Court of Appeals, L-41001, September
30, 1976, 73 SCRA 162; Sy vs. Central Bank of
the Philippines, L-41480, April 30, 1976, 70
SCRA 571; Balmaceda vs. Corominas & Co.,
Inc., 66 SCRA 553; Auyong Hian vs. Court of
Tax Appeals, 59 SCRA 110; Republic vs.
Philippine Rabbit Bus Lines, Inc., 66 SCRA
553; Republic vs. Philippine Long Distance
Telephone Company, L-18841, January 27,
1969, 26 SCRA 620; Zamora vs. Court of Tax
Appeals, L-23272, November 26, 1970, 36
SCRA 77; E. Rodriguez, Inc. vs. Collector of
Internal Revenue, L-23041, July 31, 1969, 28
SCRA 119).95 
III
Finality of the Tax Assessment
A. The issue on whether the BIR complied with
the notice requirements under RR No. 12-85 is
raised for the first time on appeal and should not
be given due course.
PNB, in another effort to block the collection of the
deficiency withholding tax, this time raises doubts as to
the validity of the deficiency withholding tax assessment
issued against it on 16 January 1991.  It submits that the
BIR failed to comply with the notice requirements set
forth in RR No. 12-85.96 
requirements of RR No. 12-85 is a new issue raised by
PNB only before this Court.  Such a question has not
been ventilated before the lower courts.  For an
appellate tribunal to consider a legal question, it should
have been raised in the court below.97 If raised earlier,
the matter would have been seriously delved into by the
CTA and the Court of Appeals.98 
B. The assessment against PNB had become
final and unappealable, and therefore,
enforceable.
The CTA and the Court of Appeals declared as final and
unappealable, and thus, enforceable, the assessment
against PNB, dated 16 January 1991, since PNB failed
to protest said assessment within the 30-day prescribed
period.  This Court, though, finds that the significant BIR
assessment, as far as this case is concerned, should be
the one issued by the BIR against PNB on 08 October
1986.
The BIR issued on 08 October 1986 an assessment
against PNB for its withholding tax liability on the interest
earnings and/or yields from PNOC's money placements
with the bank.  It had 30 days from receipt to protest the
BIR's assessment.99 PNB, however, did not take any
action as to the said assessment so that upon the lapse
of the period to protest, the withholding tax assessment
against it, dated 8 October 1986, became final and
unappealable, and could no longer be disputed.100 The
courts may therefore order the enforcement of this
assessment.
It is the enforcement of this BIR assessment against
PNB, dated 08 October 1986, that is in issue in the
instant case.  If the compromise agreement is valid, it
would effectively bar the BIR from enforcing the
assessment and collecting the assessed tax; on the
other hand, if the compromise agreement is void, then
the courts can order the BIR to enforce the assessment
and collect the assessed tax.
As has been previously discussed by this Court, the BIR
demand letter, dated 16 January 1991, is not a new
assessment against PNB.  It only demanded from PNB
the payment of the balance of the withholding tax
assessed against it on 08 October 1986.  The same
demand letter also has no substantial effect or impact on
the resolution of the present case.  It is already
unnecessary and superfluous, having been issued by the
BIR when CTA Case No. 4249 was already pending
before the CTA.  At best, the demand letter, dated 16
January 1991, constitute a useful reference for the
courts in computing the balance of PNB's tax liability,
after applying as partial payment thereon the amount
previously received by the BIR from PNOC pursuant to
the compromise agreement.
IV
Prescription
A. The defense of prescription was never raised
by petitioners PNOC and PNB, and should be
considered waived.
The dissenting opinion takes the position that the right of
the BIR to assess and collect income tax on the interest
earnings and/or yields from PNOC's money placements
with PNB, particularly for taxable year 1985, had already
prescribed, based on Section 268 of the NIRC of 1977,
as amended.
Section 268 of the NIRC of 1977, as amended, provides
a three-year period of limitation for the assessment and
collection of internal revenue taxes, which begins to run
after the last day prescribed for filing of the return.101  placements with the bank; and (3) that the returns were
The dissenting opinion points out that more than four
years have elapsed from 25 January 1986 (the last day
prescribed by law for PNB to file its withholding tax
return for the fourth quarter of 1985) to 16 January 1991
(the date when the alleged final assessment of PNB's
tax liability was issued).
The issue of prescription, however, was brought up only
in the dissenting opinion and was never raised by PNOC
and PNB in the proceedings before the BIR nor in any of
their pleadings submitted to the CTA and the Court of
Appeals.
Section 1, Rule 9 of the Rules of Civil Procedure lays
down the rule on defenses and objections not pleaded,
and reads:
SECTION 1.  Defenses and objections not
pleaded.  – Defenses and objections not
pleaded either in a motion to dismiss or in the
answer are deemed waived.  However, when it
appears from the pleadings or the evidence on
record that the court has no jurisdiction over the
subject matter, that there is another action
pending between the parties for the same cause,
or that the action is barred by prior judgment or
by the statute of limitations, the court shall
dismiss the claim.
The general rule enunciated in the above-quoted
provision governs the present case, that is, the defense
of prescription, not pleaded in a motion to dismiss or in
the answer, is deemed waived.  The exception in same
provision cannot be applied herein because the
pleadings and the evidence on record do not sufficiently
show that the action is barred by prescription.
It has been consistently held in earlier tax cases that the
defense of prescription of the period for the assessment
and collection of tax liabilities shall be deemed waived
when such defense was not properly pleaded and the
facts alleged and evidences submitted by the parties
were not sufficient to support a finding by this Court on
the matter.102 In Querol v. Collector of Internal
Revenue,103 this Court pronounced that prescription,
being a matter of defense, imposes the burden on the
taxpayer to prove that the full period of the limitation has
expired; and this requires him to positively establish the
date when the period started running and when the
same was fully accomplished.
In making its conclusion that the assessment and
collection in this case had prescribed, the dissenting
opinion took liberties to assume the following facts even
in the absence of allegations and evidences to the effect
that: (1) PNB filed returns for its withholding tax
obligations for taxable year 1985; (2) PNB reported in
the said returns the interest earnings of PNOC's money
filed on or before the prescribed date, which was 25
January 1986.
It is not safe to adopt the first and second assumptions in
this case considering that Section 269 of the NIRC of
1977, as amended, provides for a different period of
limitation for assessment and collection of taxes in case
of false or fraudulent return or for failure to file a return.  the expiration of such period…
In such cases, the BIR is given 10 years after discovery
of the falsity, fraud, or omission within which to make an
assessment.104  of assessment and collection of taxes. –
It is also not safe to accept the third assumption since
there can be a possibility that PNB filed the withholding
tax return later than the prescribed date, in which case,
following the dictates of Section 268 of the NIRC of
1977, as amended, the three-year prescriptive period
shall be counted from the date the return was actually
filed.105  following the assessment of the tax.
PNB's withholding tax returns for taxable year 1985, duly
received by the BIR, would have been the best evidence
to prove actual filing, the date of filing and the contents
thereof.  These facts are relevant in determining which
prescriptive period should apply, and when such
prescriptive period should begin to run and when it had
lapsed.  Yet, the pleadings did not refer to any return,
and no return was made part of the records of the
present case.
This Court could not make a proper ruling on the matter
of prescription on the mere basis of assumptions; such
an issue should have been properly raised, argued, and
supported by evidences submitted by the parties
themselves before the BIR and the courts below.
B. Granting that this Court can take cognizance
of the defense of prescription, this Court finds
that the assessment of the withholding tax
liability against PNOC and collection of the tax
assessed were done within the prescriptive
period.
Assuming, for the sake of argument, that this Court can
give due course to the defense of prescription, it finds
that the assessment against PNB for its withholding tax
liability for taxable year 1985 and the collection of the tax
assessed therein were accomplished within the
prescribed periods for assessment and collection under
the NIRC of 1977, as amended.
If this Court adopts the assumption made by the
dissenting opinion that PNB filed its withholding tax
return for the last quarter of 1985 on 25 January 1986,
then the BIR had until 24 January 1989 to assess PNB.  PNB.  The BIR, the collecting government agency;
The original assessment against PNB was issued as
early as 08 October 1986, well-within the three-year
prescriptive period for making the assessment as
prescribed by the following provisions of the NIRC of
1977, as amended:
SEC. 268.  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
SEC. 269.  Exceptions as to period of limitation
…
(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
Sections 268 and 269(c) of the NIRC of 1977, as
amended, should be read in conjunction with one
another.  Section 268 requires that assessment be made
within three years from the last day prescribed by law for
the filing of the return.  Section 269(c), on the other
hand, provides that when an assessment is issued within
the prescribed period provided in Section 268, the BIR
has three years, counted from the date of the
assessment, to collect the tax assessed either by
distraint, levy or court action.  Therefore, when an
assessment is timely issued in accordance with Section
268, the BIR is given another three-year period, under
Section 269(c), within which to collect the tax assessed,
reckoned from the date of the assessment.
In the case of PNB, an assessment was issued against it
by the BIR on 08 October 1986, so that the BIR had until
07 October 1989 to enforce it and to collect the tax
assessed.  The filing, however, by private respondent
Savellano of his Amended Petition for Review before the
CTA on 02 July 1988 already constituted a judicial action
for collection of the tax assessed which stops the
running of the three-year prescriptive period for
collection thereof.
A judicial action for the collection of a tax may be
initiated by the filing of a complaint with the proper
regular trial court; or where the assessment is appealed
to the CTA, by filing an answer to the taxpayer's petition
for review wherein payment of the tax is prayed for.106 
The present case is unique, however, because the
Petition for Review was filed by private respondent
Savellano, the informer, against the BIR, PNOC, and
PNOC, the taxpayer; and PNB, the withholding agent,
initially found themselves on the same side.  The prayer
in the Amended Petition for Review of private
respondent Savellano reads:
WHEREFORE, in view of the foregoing,
petitioner respectfully prays that the compromise
agreement of June 22, 1987 be reviewed and
declared null and void, and that this Court
directs:
 a) respondent Commissioner to enforce
and collect and respondents PNB and/or
PNOC to pay in a joint and several
capacity, the total tax
liability of P387,987,785.73, plus
interests from 31 October 1986; and
b) respondent Commissioner to pay
unto petitioner, as informer's reward,
15% of the tax liability collected under
clause (a) hereof.
Other equitable reliefs under the premises are
likewise prayed for.107 (Underscoring ours.)
Private respondent Savellano, in his Amended Petition
for Review in CTA Case No. 4249, prayed for (1) the
CTA to direct the BIR Commissioner to enforce and
collect the tax, and (2) PNB and/or PNOC to pay the tax
– making CTA Case No. 4249 a collection case.  That
the Amended Petition for Review was filed by the
informer and not the taxpayer; and that the prayer for the
enforcement of the tax assessment and payment of the
tax was also made by the informer, not the BIR, should
not affect the nature of the case as a judicial action for
collection.  In case the CTA grants the Petition and the
prayer therein, as what has happened in the present
case, the ultimate result would be the collection of the
tax assessed.  Consequently, upon the filing of the
Amended Petition for Review by private respondent
Savellano, judicial action for collection of the tax had
been initiated and the running of the prescriptive period
for collection of the said tax was terminated.
Supposing that CTA Case No. 4249 is not a collection
case which stops the running of the prescriptive period
for the collection of the tax, CTA Case No. 4249, at the
very least, suspends the running of the said prescriptive
period.  Under Section 271 of the NIRC of 1977, as
amended, the running of the prescriptive period to collect
deficiency taxes shall be suspended for the period during
which the BIR Commissioner is prohibited from
beginning a distraint or levy or instituting a proceeding in
court, and for 60 days thereafter.108 Just as in the cases
of Republic v. Ker & Co., Ltd.109 and Protector's Services,
Inc. v. Court of Appeals,110 this Court declares herein that
the pendency of the present case before the CTA, the
Court of Appeals and this Court, legally prevents the BIR
Commissioner from instituting an action for collection of
the same tax liabilities assessed against PNOC and PNB
in the CTA or the regular trial courts.  To rule otherwise
would be to violate the judicial policy of avoiding
multiplicity of suits and the rule on lis pendens.
Once again, that CTA Case No. 4249 was initiated by
private respondent Savellano, the informer, instead of
PNOC, the taxpayer, or PNB, the withholding agent,
would not prevent the suspension of the running of the
prescriptive period for collection of the tax.  What is
controlling herein is the fact that the BIR Commissioner
cannot file a judicial action in any other court for the
collection of the tax because such a case would
necessarily involve the same parties and involve the
same issues already being litigated before the CTA in
CTA Case No. 4249.  The three-year prescriptive period
for collection of the tax shall commence to run only after
the promulgation of the decision of this Court in which
the issues of the present case are resolved with finality.
Whether the filing of the Amended Petition for Review by
private respondent Savellano entirely stops or merely
suspends the running of the prescriptive period for
collection of the tax, it had been premature for the BIR
Commissioner to issue a writ of garnishment against
PNB on 12 August 1991 and for the Central Bank of the
Philippines to debit the account of PNB on 02 September
1992 pursuant to the said writ, because the case was by
then, pending review by the Court of Appeals.  However,
since this Court already finds that the compromise
agreement is without force and effect and hereby orders
the enforcement of the assessment against PNB, then,
any issue or controversy arising from the premature
garnishment of PNB's account and collection of the tax
by the BIR has become moot and academic at this point.
V
Additional Informer's Reward
Private respondent Savellano is entitled to additional
informer's reward since the BIR had already collected
the full amount of the tax assessment against PNB.
PNOC insists that private respondent Savellano is not
entitled to additional informer's reward because there
was no voluntary payment of the withholding tax liability. 
PNOC, however, fails to state any legal basis for its
argument.
Section 316(1) of the NIRC of 1977, as amended,
granted a reward to an informer equivalent to 15% of the
revenues, surcharges, or fees recovered, plus, any fine
or penalty imposed and collected.111 The provision was
clear and uncomplicated – an informer was entitled to a
reward of 15% of the total amount actually recovered or
collected by the BIR based on his information.  The
provision did not make any distinction as to the manner
the tax liability was collected – whether it was through
voluntary payment by the taxpayer or through
garnishment of the taxpayer's property.  Applicable
herein is another well-known maxim in statutory
construction – Ubi lex non distinguit nec nos distinguere
debemos – when the law does not distinguish, we
should not distinguish.112 
Pursuant to the writ of garnishment issued by the BIR,
the Central Bank issued a debit advice against the
demand deposit account of PNB with the Central Bank
for the amount of P294,958,450.73, and credited the
same amount to the demand deposit account of the
Treasurer of the Republic of the Philippines.  The
Treasurer of the Republic, in turn, already issued a
journal voucher transferring P294,958,450.73 to the
account of the BIR.
Since the BIR had already collected P294,958,450.73
from PNB through the execution of the writ of
garnishment over PNB's deposit with the Central Bank,
then private respondent Savellano should be awarded
15% thereof as reward since the said collection could
still be traced to the information he had given.
WHEREFORE, in view of the foregoing, the Petitions of
PNOC and PNB in G.R. No. 109976 and G.R. No.
112800, respectively, are hereby DENIED.  This Court
AFFIRMS the assailed Decisions of the Court of Appeals
in CA-G.R. SP No. 29583 and CA-G.R. SP No. 29526,
which affirmed the decision of the CTA in CTA Case No.
4249, with modifications, to wit:  judicata. The parties to the compromise agreement have
(1)    The compromise agreement between
PNOC and the BIR, dated 22 June 1987, is
declared void for being contrary to law and
public policy, and is without force and effect;
(2)Paragraph 2 of RMO No. 39-86 remains a
valid provision of the regulation;
(3)The withholding tax assessment against PNB,
dated 08 October 1986, had become final and
unappealable.  The BIR Commissioner is
ordered to enforce the said assessment and
collect the amount of P294,958,450.73, the
balance of tax assessed after crediting the
previous payment made by PNOC pursuant to
the compromise agreement, dated 22 June
1987; and
(4)    Private respondent Savellano shall be paid
the remainder of his informer's reward,
equivalent to 15% of the deficiency withholding
tax ordered collected herein,
or P 44,243,767.61.
SO ORDERED.
Quisumbing, Sandoval-Gutierrez, Austria-Martinez,
Callejo, Sr.,  and Garcia, JJ., concur.
Davide, Jr., C.J., Corona, and  Carpio-Morales,  joins J.
Carpio in his dissenting opinion.
Puno, and Panganiban, J.,  concurs with the majority and
the separate opinion of J. Tinga.
Ynares-Santiago, J., no part.
Carpio, J., see dissenting opinion.
Azcuna, J., no part—was PNB Chairman in 1991.
Tinga, J.,  see separate concurring opinion.
DISSENTING OPINION
CARPIO, J.:
I dissent from the majority opinion penned by Justice
Minita V. Chico-Nazario.
First, the withholding tax liability of Philippine National
Oil Company ("PNOC") is a delinquent account that falls
within the coverage of Executive Order No. 44 ("EO No.
44"), the tax compromise law.
Second, PNOC filed its application for tax compromise
under EO No. 44 within the period prescribed by EO No.
44 and its implementing regulations.
Third, the tax compromise agreement made by PNOC
with the Bureau of Internal Revenue ("BIR") is now res
fully implemented the agreement in good faith.
Fourth, the BIR failed to collect the tax from within the
three-year prescriptive period. Thus, the collection of the
tax is now barred by prescription.
PNOC's Tax Liability Falls under EO No. 44
On 16 January 1991, BIR Commissioner Jose U. Ong
declared void the tax compromise agreement that his
predecessor Commissioner Bienvenido A. Tan made
with PNOC more than three years earlier. The
compromise agreement, dated 22 June 1987, settled
the P385,961,580.82 tax liability of PNOC and the
Philippine National Bank ("PNB") arising from PNB's
failure to withhold the final tax on interest income on
money market placements of PNOC covering the years
1984 to August 1986.1 Under the compromise
agreement, PNOC paid the BIR P93,955,479.12 in full
settlement of the tax liability arising from PNB's failure to
withhold the final tax.
Article 2028 of the Civil Code defines a compromise as
"a contract whereby the parties, by making reciprocal
concessions, avoid litigation or put an end to one already
commenced." The purpose of compromise is to settle
the claims of the parties and bar all future disputes and
controversies.2
In the present case, the BIR and PNOC entered into the
tax compromise agreement in accordance with the
provisions of Executive Order No. 44 ("EO No. 44"),
Revenue Memorandum Order No. 39-86 ("RMO No. 39-
86") and Revenue Memorandum Order No. 4-87 ("RMO
No. 4-87"). The relevant provisions read:
Executive Order No. 44
SECTION 1. The Commissioner of Internal
Revenue or his duly authorized representatives
may compromise any disputed assessment
or delinquent account pending as of
December 31, 1985, upon the payment of an
 amount equal to thirty percent (30%) of the basic
tax assessed. In such cases, the Commissioner
of Internal Revenue or his duly authorized
representatives shall condone the corresponding
interests and penalties. (Emphasis supplied)
x x x  implementing revenue regulations of
SECTION 4. Section 246 of the National Internal
Revenue Code, as amended, is hereby
suspended with respect to the disputed
assessments and delinquent accounts referred
to herein for the duration of the effectivity hereof.
SECTION 5. All laws, orders, issuances, rules
and regulations or any part thereof inconsistent
with this Executive Order is hereby repealed or
modified accordingly.
SECTION 6. This Executive Order shall take
effect immediately and shall remain effective
until March 31, 1987.
Revenue Memorandum Order No. 39-86
1. Coverage. - This Order shall apply only to
(1) delinquent tax accounts; or (2) disputed tax
assessments pending as of December 31, 1985
within the purview of Executive Order No. 44
and its implementing regulations. (Emphasis
supplied)
1. x x x  from a taxpayer who failed to pay the same
2. Disqualification. – 
3.1. There are pending assessments for
withholding taxes.
By operation of law, the relationship between the
Government and the withholding agent is one of
agency for which reason the withholding agent
only holds the funds withheld by him in trust for
the Government. Accordingly, a withholding tax
assessment issued against a withholding agent
(1) who withheld the tax (2) but did not remit the
same to the Government, shall not qualify for
compromise settlement herein prescribed, even
if the assessment was issued as of December
31, 1985, because under this situation he is
being made accountable not as a taxpayer but
as an agent. The disputed or delinquency cases
covered by Executive Order No. 44 refer only to
those where the person assessed is himself the
taxpayer rather than a mere agent.
3.2. There is, however, another situation
whereby a withholding agent did not
withhold the tax either because of neglect,
ignorance of law or his belief that he is not
required by law to withhold a tax. Under this
situation, such person is made directly
accountable for the tax. This latter situation
shall, however, qualify for compromise
settlement, subject to the provisions of
paragraph 1 hereof, in relation to
Executive Order No. 44. (Emphasis supplied)
x x x 
8. Clearance. – 
8.1. 30% compromise settlement rate. - If the
compromise settlement rate is equivalent to 30%
of the basic tax assessed, immediate action
shall be taken on the taxpayer-applicant's
application. After payment of the compromise
amount, the revenue office which passed
upon the application as referred to in
paragraph 5.2 hereof, shall issue to the
taxpayer a letter, signed by the chief of the
said revenue office, confirming the payment
and advising that the case is already closed.
(Emphasis supplied)
x x x 
Revenue Regulations No. 17-86
a) Delinquent account - Refers to the amount
of tax due on or before December 31, 1985
within the time prescribed for its payment
arising from (1) a self assessed tax, whether
or not a return was filed, or (2) a deficiency
assessment issued by the BIR which has
become final and executory. (Emphasis
supplied)
Revenue Memorandum Order No. 4-87
2.0 Notwithstanding the lapse of Executive
Order No. 41 as amended, pre-assessment
notices, assessment notices and letters of
demand issued after August 21, 1986 which are
not otherwise covered by the availment of the
amnesty, may nevertheless be compromised
under Sec. 246 of the Tax Code by paying 30%
of the basic tax assessed or pre-assessed.
RMO No. 39-86 expressly provides that a compromise
shall include a "situation whereby a withholding agent
did not withhold the tax either because of neglect,
ignorance of law or his belief that he is not required
by law to withhold a tax." In the present case, the
majority opinion states that the "BIR held the PNB
personally accountable for its failure to withhold the tax
on the interest earnings and/or yields from PNOCs
money placements."
PNB did not withhold and keep the tax for itself. PNB's
case is a failure to withhold, not a failure to remit to the
BIR what it withheld for PNB withheld nothing. PNB is
not the taxpayer here but merely a withholding agent,
burdened by law with a public duty to collect the tax for
the government. PNB is not only the withholding agent
of the BIR, but also the agent of the taxpayer in
preparing the return and paying the tax. In Philippine
Guaranty Co., Inc. v. Commissioner of Internal
Revenue,3 the Court held:
x x x Thus, the withholding agent is constituted
the agent of both the Government and the
taxpayer. With respect to the collection and/or
withholding of the tax, he is the Government's
agent. In regard to the filing of the necessary
income tax return and the payment of the tax
to the Government, he is the agent of the
taxpayer. The withholding agent, therefore, is
no ordinary government agent especially
because under Section 53(c) he is held
personally liable for the tax he is duty bound to
withhold; whereas, the Commissioner of Internal
Revenue and his deputies are not made liable
by law. (Emphasis supplied)
For failure to withhold the tax, PNB is made directly
liable to pay the tax, not because it is the taxpayer, but
because it failed to comply with the law.4 PNB's legal
duty is to withhold the tax, file the prescribed quarterly
return, and remit the tax to the BIR.5
PNB, which at that time was a government-owned and
controlled corporation, did not withhold because of an
honest belief that there was no withholding tax on the
interest income of a wholly owned government
corporation like PNOC. PNOC's application for
restoration of its tax-exempt status was then pending
with the Fiscal Incentives Review Board.
Under paragraph 3.2 of RMO No. 39-86, a mere failure
to withhold by the withholding agent shall "qualify for
compromise settlement." Thus, PNB's failure to
withhold expressly falls within the coverage of EO No.
44. What is outside the coverage of EO No. 44 is the
failure of a withholding agent to remit what it had
withheld. In such a situation, the withholding agent
absconds with trust funds in its possession. Such a
situation is definitely not subject to a tax compromise
under EO No. 44. RMO No. 39-86 provides that "a
withholding tax assessment issued against a withholding
agent (1) who withheld the tax (2) but did not remit the
same to the Government, shall not qualify for
compromise settlement." PNB's case, however, is not a
failure to remit the withheld tax but a plain failure to
withhold the tax. PNB did not withhold the tax and thus
did not abscond with public or trust funds.
EO No. 44, issued on 4 September 1986, is a special
law enacted when then President Corazon C. Aquino
exercised legislative powers. EO No. 44 is separate and
distinct from the authority of the BIR Commissioner to
compromise taxes under the Tax Code.6 EO No. 44 is a
one-time tax compromise scheme, "effective until
March 31, 1987" and covering only "disputed
assessment or delinquent account pending as of
December 31, 1985." EO No. 44 was issued to generate
immediate revenues for the new government following
the 1986 EDSA revolution, as well as to clear the tax
dockets of the BIR as of 31 December 1985. Thus, the
whereas clauses of EO No. 44 state in part:
xxx
WHEREAS, there is a need to clear this
backlog of pending cases of disputed
assessments and delinquent accounts;
WHEREAS, there is a further need to raise
revenues.
x x x.
The power of the BIR Commissioner to compromise
under EO No. 44 is broader than his power to
compromise under the Tax Code. Under Section 204 of
the Tax Code,7 the BIR Commissioner can compromise
a tax only if there is reasonable doubt as to its validity or
if the taxpayer's financial position shows a clear inability
to pay the tax. EO No. 44 does not require these
conditions. A compromise under Section 204 requires an
examination of the legal basis of the assessment or the
financial capacity of the taxpayer to pay the assessment.
EO No. 44 does not require such examination.
The conditions in EO No. 44 are straightforward and
require no examination of the legal basis of the
assessment or financial capacity of the taxpayer. The
conditions in EO No. 44 are plain and simple: first, the
disputed assessment or delinquent account is
pending as of 31 December 1995; and second, the
taxpayer is willing to pay thirty percent of the basic
tax assessed. EO No. 44 prescribed simple, plain and
straightforward conditions precisely to encourage
taxpayers to avail of the tax compromise program under
EO No. 44.
EO No. 44 is a special law that prevails over Section 204
of the Tax Code. Section 4 of EO No. 44 states:
Section 4. Section 246 (now 204) of the National
Internal Revenue Code, as amended, is hereby
suspended with respect to the disputed
assessments and delinquent accounts referred
to herein for the duration of the effectivity hereof.
The stringent standards prescribed in Section 204 of the
Tax Code do not apply to compromise agreements
under EO No. 44. The law expressly suspended the
effectivity of Section 204 of the Tax Code during the
effectivity of EO No. 44.
Thus, during the effectivity of EO No. 44, the only tax
compromise possible for delinquent accounts as of
31 December 1985 is under EO No. 44. PNOC filed its
application with the BIR for a tax compromise during the
effectivity of EO No. 44. Obviously, PNOC's application
for a tax compromise of its delinquent accounts as of 31
december 1985 meant a tax compromise under eo no.
44. the bir had no authority to entertain any other tax
compromise.
rr no. 17-86 defines a "delinquent account" to include a
"self-assessed tax." the majority opinion adopts
respondents' argument that pnoc's withholding tax
liability is not a "self-assessed tax" because the bir
investigated the taxpayer and assessed the tax. here
lies the fundamental error of the majority
opinion. the majority opinion states:
pnoc's tax liability could not be considered a
delinquent account since (1) it was not self-
assessed, because the bir conducted an
investigation and assessment of pnoc and
pnb after obtaining information regarding the
non-withholding of tax from private respondent
savellano; x x x. (emphasis supplied)
the majority opinion's thesis is contrary to the very
concept of a self-assessed tax.
a self-assessed tax, as the term implies, is self-
assessed by the taxpayer without the intervention of
an assessment by the taxing authority to create the
tax liability. a self-assessed tax means a tax that the
taxpayer himself assesses or computes and pays to the
taxing authority. in Tupaz v. Ulep,8 this Court explained
that a self-assessed tax is one where "no further
assessment by the government is required to create
the tax liability." A self-assessed tax falls due without
need of any prior assessment by the BIR, and non-
payment of a self-assessed tax on the date prescribed
by law results in penalties even in the absence of any
assessment by the BIR.
A clear example of a self-assessed tax is the annual
income tax, which the taxpayer himself computes and
pays without the intervention of any assessment by the
BIR. The annual income tax becomes due and payable
without need of any prior assessment by the BIR. The
BIR may or may not investigate or audit the annual
income tax return filed by the taxpayer. The taxpayer's
liability for the income tax does not depend on whether
or not the BIR conducts such subsequent investigation
or audit.
However, if the taxing authority is first required to
investigate, and after such investigation to issue the tax
assessment that creates the tax liability, then the tax is
no longer self-assessed. This is not the case of the final
withholding tax on interest income on money market
placements.
The computation of the amount of the final withholding
tax on interest income does not require any assessment
by the BIR. The taxpayer can easily determine the
amount of the tax since it is a flat rate based on the
interest paid. In fact, the bank automatically computes
the amount of the final withholding tax, deducts the tax
from the taxpayer's interest income, and remits the tax to
the BIR. The BIR does not make any assessment.
Plainly, the final withholding tax on interest payment is a
self-assessed tax.
The taxpayer's failure to pay when due a self-assessed
tax, while it may result in a subsequent investigation and
assessment by the BIR, does not remove the character
of the tax as a self-assessed tax. The tax liability of the
taxpayer arises on due date of the tax, and the non-
payment of the self-assessed tax on due date does not
prevent the tax liability from attaching. The tax liability is
created by operation of law, even in the absence of an
investigation and assessment by the BIR. The
subsequent BIR investigation and assessment is for the
purpose of collecting a past due tax, and not for the
purpose of creating the tax liability. Of course, the
computation by the taxpayer of his tax liability under a
self-assessed tax is not conclusive on the BIR. After
investigation or audit, the BIR can issue an assessment
for any deficiency tax still due from the taxpayer.
In Tupaz v. Ulep,9 the Court declared that "internal
revenue taxes are self-assessing." The final
withholding tax on interest income is an internal revenue
tax. Indeed, the Tax Code follows the pay-as-you-file
system of taxation under which the taxpayer computes
his own tax liability, prepares the return, and pays the tax
as he files the return. The pay-as-you-file system is a
self-assessing tax system.
EO No. 44 is a general tax compromise
program covering all delinquent taxes and disputed
assessments under the Tax Code as of 31 December
1985. EO No. 44 does not distinguish between
delinquent accounts that are or are not the subject
of subsequent investigation and assessment by the
BIR. Where the law does not distinguish, courts should
not distinguish. To remove from the coverage of EO No.
44 delinquent accounts that became the subject of
subsequent investigation and assessment would
severely limit the coverage of EO No. 44, a limitation that
is not found in the language or intent of EO No. 44.
Indeed, such a limitation would defeat the avowed
purpose of EO No. 44 to clear the tax dockets of the BIR.
The big delinquent accounts, such as PNOC's tax
liability, which normally go through subsequent
investigation and assessment, would not qualify for the
general tax compromise program, preventing EO No. 44
from attaining its objectives.
Clearly, PNOC's tax liability is a delinquent account
within the coverage of EO No. 44 because it is a self-
assessed tax unpaid as of 31 December 1985.10 There
can be no dispute that the final withholding tax on
interest payments by PNB on PNOC's money market
placements does not require the intervention of the BIR
for its assessment and remittance to the BIR.
Thus, the compromise agreement between PNOC and
BIR falls within the coverage of EO No. 44 and its
implementing rules. The non-payment of the final
withholding tax has resulted in a delinquent tax account
of PNOC. In addition, the failure of PNB to withhold the
tax falls within the coverage of RMO No. 39-86.
However, the majority opinion insists that PNOC's
withholding tax liability is outside the coverage of EO 44
because there is no proof that PNOC or PNB filed the
tax return in compliance with the self-assessment
system. The majority opinion states:
Neither PNOC nor PNB, the taxpayer and the
withholding agent, respectively, complied
with the system and conducted self-
assessment in this case. There is no showing
that in the absence of tax assessment issued by
the BIR against them, that PNOC and/or PNB
would have voluntarily admitted their tax
liabilities, already amounting
to P385,961,580.82, as of 15 November 1986,
and would have offered to compromise the
same. In fact, both PNOC and PNB were
conspicuously silent about their tax liabilities
until they were assessed thereon. (Emphasis
supplied)
The majority opinion conveniently forgets that the tax
compromise under EO 44 and its implementing rules
covers "a self-assessed tax, whether or not a return
was filed." Revenue Regulations No. 17-86 provides:
Delinquent account - Refers to the amount of
tax due on or before December 31, 1985 from a
taxpayer who failed to pay the same within the
time prescribed for its payment arising from (1) a
self assessed tax, whether or not a return
was filed, or (2) a deficiency assessment issued
by the BIR which has become final and
executory.
Where no return was filed, the taxpayer shall
be considered delinquent as of the time the tax
on such return was due, and in availing of the
compromise, a tax return shall be filed as a
basis for computing the amount of
compromise to be paid. (Emphasis supplied)
Clearly, the tax compromise under EO No. 44 applies to
a self-assessed tax, whether or not a return was filed,
because Revenue Regulations No. 17-86 expressly so
provides.
Revenue Regulations No. 17-86 even states, "Where no
return was filed, the taxpayer shall be considered
delinquent as of the time the tax on such return was
due, and in availing of the compromise, a tax return
shall be filed as a basis for computing the amount of
compromise to be paid." If the taxpayer failed to file the
return, he can avail of the tax compromise by filing a
return, which shall serve as basis for computing the
compromise amount. Revenue Regulations No. 17-86
expressly applies to delinquent accounts of taxpayers
who failed to file the returns.
EO No. 44 and its implementing rules do not require that
PNOC or PNB must have "complied with the system and
conducted self-assessment" before they could avail of
the tax compromise. The BIR could not have required
the thousands of taxpayers who availed of the tax
compromise under EO No. 44 to show proof that they
filed their tax returns. There is no such requirement in
EO No. 44 or in its implementing rules. On the contrary,
Revenue Regulations No. 17-86 expressly states
"whether or not a return was filed" – which means that
the filing of a tax return is not a condition for the
availment of the tax compromise. The BIR never
required the thousands of taxpayers who availed of EO
No. 44 to prove that they filed their tax returns. For the
majority opinion to require now PNOC and PNB to prove
that they filed the tax returns would constitute denial of
equal protection of the law.
The tax compromise under EO No. 44 and its
implementing rules applies to self-assessed
taxes, whether or not the corresponding tax returns
were filed. The definition of a delinquent account that is
subject to the tax compromise expressly includes a self-
assessed tax "whether or not a return was filed."
There can be no clearer language than this to express
that the taxpayer is not required to prove that he filed the
tax return. There is absolutely no legal basis in requiring
PNOC or PNB to show proof that they filed the proper
tax returns before they could avail of the tax
compromise. The majority opinion is patently wrong in
holding that PNOC and PNB must prove that they filed
the tax returns before they can avail of the tax
compromise.
The majority opinion also insists that PNOC's
withholding tax liability is outside the coverage of EO No.
44 because the BIR subsequently investigated and
assessed PNOC for the withholding tax liability. The
majority opinion states:
It is important to remember that, in this case, any
attempt by PNOC and PNB to assess and
declare by themselves their tax liabilities had
already been overtaken by the BIR's conduct of
its audit and investigation and subsequent
issuance of the assessments, dated 8 August
1986 and 8 October 1986, against PNOC and
PNB, respectively. The said tax assessments,
uncontested and undisputed, already
presented the results of the BIR audit and
investigation and the computation of the
 total amount of tax liabilities of PNOC and
PNB, and should be controlling in this case.
They should not be so easily and conveniently
ignored and set aside. It would be a
contradiction to claim that the tax liabilities
of PNOC and PNB are self-assessed and, at
the same time, BIR-assessed; when it is clear
and simple that it had been the BIR that
conducted the assessment and determined the
tax liabilities of PNOC and PNB.
The majority opinion theorizes that a taxpayer with a
delinquent account consisting of a self-assessed tax
cannot avail of EO No. 44 if the BIR issued an
assessment against the taxpayer because the BIR
assessment is allegedly controlling.
The majority opinion's theory that a subsequent BIR
assessment removes a delinquent account from the
coverage of EO No. 44 collides directly with Revenue
Memorandum Order No. 39-8611 which implements EO
No. 44. Revenue Memorandum Order No. 39-
86 expressly recognizes that the delinquent accounts
subject to compromise under EO No. 44 may be
"covered by a letter of demand and assessment
notice" by the BIR. Revenue Memorandum Order No.
39-86 provides:
xxx
6. Base of the compromise settlement rate. -
The compromise settlement rate shall be applied
against the basic tax assessed referred to under
paragraph 5.1 hereof. In no case may any
revenue office passing upon cases covered
hereunder cause any computational adjustment
or adjustments in determining the basic tax
before applying the compromise settlement rate,
any error in the assessment and demand being
compromised notwithstanding. In all instances,
the compromise settlement rate shall be applied
against the basic tax assessed. If the
assessment is covered by a letter of demand
and assessment notice, the compromise
settlement rate shall be applied against the
basic tax assessed as shown in the said
letter of demand and assessment notice.
7. Allowable compromise settlement rates below
thirty percent (30%). - The Evaluation
Committee shall apply exclusively the
compromise settlement rates prescribed
hereunder:
7.1 "Jeopardy" tax assessment as
defined under RMO 17-85 (while RMO
17-85 speaks only of income tax
assessments, this compromise
settlement shall, however, apply to all
internal revenue tax assessments in
the nature of a "jeopardy" tax
assessment) - 10%
7.2 Arbitrary assessments which
have been issued only and primarily
to forestall prescription - 10%
7.3 Tax assessments of doubtful
validity whether as to law or as to
facts - 15%
x x x.
Paragraph 6 of Revenue Memorandum Order No. 39-86
expressly provides, "If the assessment is covered by a
letter of demand and assessment notice, the
compromise settlement rate shall be applied against
the basic tax assessed as shown in the said letter of
demand and assessment notice." The BIR
assessment is even made the basis in applying the 30%
settlement rate under EO No. 44. Indisputably, a
subsequent BIR assessment does not remove a
delinquent account from the coverage of EO No. 44.
With or without a BIR assessment, a delinquent
account qualifies for tax compromise under EO NO. 44
provided it is a self-assessed tax unpaid as of 31
December 1985. EO No. 44 and its implementing rules
do not exclude delinquent accounts that were issued BIR
assessments. On the contrary, Revenue Memorandum
Order No. 39-86 expressly states that the BIR
assessment shall serve as basis in applying the
compromise settlement rate under EO No. 44. The
majority opinion is mistaken in holding that EO No. 44
and its implementing rules exclude BIR-assessed
delinquent accounts from the coverage of the tax
compromise. Revenue Memorandum Order No. 39-86
even expressly includes within the coverage of EO No.
44 jeopardy assessments, arbitrary assessments,
and doubtful assessments issued by the BIR. Clearly,
a subsequent BIR assessment – indeed any kind of
subsequent BIR assessment - does not remove a
delinquent account from the coverage of EO No. 44.
Thousands of taxpayers availed of the tax compromise
under EO No. 44 although the BIR had issued them
assessments, whether regular assessments, jeopardy
assessments, arbitrary assessments or doubtful
assessments. For the majority opinion to exclude PNOC
or PNB from availing of the same tax compromise
because the BIR issued PNOC an assessment would
constitute a denial of equal protection of the law.
PNOC's and PNB's withholding tax liability clearly falls
within the coverage of EO No. 44 and its implementing
rules.
The majority opinion further claims that PNOC does not
fall under EO No. 44 but under Revenue Memorandum
Circular No. 31-86 because the assessment against
PNOC was issued on 8 August 1986. The majority
opinion states:
 As has already been discussed in the main
opinion, the assessment against PNOC, issued
on 08 August 1986, is more appropriately
covered by the following provision of Revenue
Memorandum Circular (RMC) No. 31-86:
[T]axpayers against whom assessments
had been issued from January 1 to
August 21, 1986 may settle their tax
liabilities by way of compromise under
Section 246 of the Tax Code as
amended by paying 30% of the basic tax
assessment excluding surcharge,
interest, penalties and other increments
thereto. (Emphasis supplied)
The majority opinion gratuitously states that PNOC is
"more appropriately covered" by Revenue
Memorandum Circular No. 31-86. However, the majority
opinion then declares that PNOC is still not qualified for
tax compromise under Revenue Memorandum Circular
No. 31-86, thus:
However, even though the tax assessment
against it was issued on 08 August 1986, PNOC
would still not be entitled to compromise its tax
liability under the above-quoted provision of
RMC No. 31-86 because it failed to allege, must
less present any evidence that: (1) there existed
a reasonable doubt as to the validity of the claim
against it; or (2) its financial position
demonstrated a clear inability to pay the
assessed tax, as required by Section 246 of the
Tax Code of 1977, as amended.
The majority opinion wants to deprive PNOC from
availing of the tax compromise under EO No. 44 just
because the BIR issued the assessment on 8 August
1986. There is nothing in EO No. 44 or in Revenue
Regulations No. 17-86 that excludes from the tax
compromise delinquent accounts as of 31 December
1985 that were the subject of assessments issued after
31 December 1985. On the contrary, Revenue
Regulations No. 17-86 expressly provides that the
delinquent accounts may be covered by regular
assessments, jeopardy assessments, arbitrary
assessments and doubtful assessments. Revenue
Regulations No. 17-86 does not state that these
assessments should be issued before 1 January
1986.
In fact, taxes falling due in the fourth quarter of 1985
could never be issued assessments before 1 January
1986. The assessments for most of the taxes falling
due in tax year 1985 could only be issued from 1
January 1986 onwards. To exclude unpaid taxes falling
due in 1985 just because the BIR issued assessments
on these accounts from 1 January 1986 onwards would
render the tax compromise under EO No. 44 inutile.
The period from 1 January to 21 August 1986 in
Revenue Memorandum Circular No. 31-86 refers to
those who could not avail of the tax amnesty under
Executive Order No. 4112 which was issued on 22
August 1986. The cut-off date is 21 January 1986
because this is the day before EO No. 41 was issued.
However, this period has become irrelevant because EO
No. 41, which originally covered only tax years 1981 to
1985, was amended by Executive Order No. 9513 to
extend the tax amnesty up to 31 January 1987.
Clearly, the reference to 1 January to 21 August 1986
has nothing to do with EO No. 44 which is different from
EO No. 41. EO No. 44 is a tax compromise while EO No.
41 is a tax amnesty and they cover different taxable
years. PNOC's tax delinquency for the period 1 January
1986 onwards is not covered by EO No. 44 which
applies only to unpaid taxes as of 31 December 1985.
This is why in its letter of 26 September 1986 to the BIR
requesting for a tax compromise PNOC also invoked
Section 246 of the Tax Code to cover the period from 1
January 1986 onwards.
Although PNB is not a signatory to the compromise
agreement, the subject matter of the compromise falls
expressly within the coverage of EO No. 44 and its
implementing rules. The compromise agreement
absolved PNOC from any tax liability after PNOC paid
the compromise amount. The BIR can no longer recover
the foregone tax, either from PNOC or from
PNB. Unless an express reservation is made in the
compromise agreement and there is none here, the
compromise amount stands in the place of the
amount originally assessed against PNOC.
PNOC Filed its Tax Compromise Application on Time
The majority opinion states that PNOC filed its
application for tax compromise under EO No. 44 out of
time. The majority opinion asserts:
More importantly, even assuming arguendo that
the liabilities of PNOC and PNB qualify as
delinquent accounts, the application for
compromise filed by PNOC on 09 June 1987,
and accepted by then BIR Commissioner Tan on
22 June 1987, was filed way beyond 31 March
1987, the expiration date of the effectivity of
E.O. No. 44 and the deadline for filing of
applications for compromise under Revenue
Memorandum Order (RMO) No. 39-86.
(Emphasis supplied)
Revenue Memorandum Order No. 39-86 fixes the period
for availing of the tax compromise under EO No. 44.
Paragraph 2 of Revenue Memorandum Order No. 39-86
provides:
2. Period for availment. - Filing of application
for compromise settlement under the said
law shall be effective only until March 31,
 1987. Applications filed on or before this date
shall be valid even if the payment or
payments of the compromise amount shall
be made after the said date, subject, however,
to the provisions of Executive Order No. 44 and
its implementing Revenue Regulations No. 17-
86.
The deadline for filing the application is 31 March
1987. Applications filed on or before 31 March 1987
"shall be valid" even if the compromise amount is paid
after 31 March 1987.
Contrary to the majority opinion's claim that the
effectivity of EO No. 44 expires on 31 March 1987,
Revenue Memorandum Order No. 39-86 provides that
applications filed on or before 31 March 1987 shall be
valid even if the payment is made after 31 March
1987. Thus, the crucial issue is whether PNOC filed
any application to avail of the tax compromise under
EO No. 44 on or before the deadline of 31 March
1987.
On 25 September 1986, long before the 31 March
1987 deadline, PNOC wrote the BIR submitting a
compromise settlement pursuant to EO No. 44 as well
as Section 246 of the Tax Code. PNOC's letter reads:
We would like to amicably settle this liability with
the BIR. In this regard, we wish to invoke the
authority vested by law in your office, particularly
under Section 246 of the National Internal
Revenue Code, as amended, and the spirit
underlying Executive Order No. 44 dated
September 4, 1986. Consequently, we hereby
request for a compromise settlement and
submit our offer for compromise of the
matter, as follows: x x x.14
More than five months before the deadline of 31 March
1987, PNOC had already applied with the BIR for a tax
compromise under EO No. 44 and Section 246 of the
Tax Code. Apparently, PNOC invoked EO No. 44 for its
delinquent tax liability from 15 October 1984 to 31
December 1985, and Section 246 of the Tax Code for its
tax liability from 1 January 1986 onwards since EO No.
44 covered only delinquent accounts as of 31 December
1985.
PNOC filed its application for tax compromise on 25
September 1986, during the effectivity of EO No. 44. EO
No. 44 suspended during the effectivity of EO No. 44 the
BIR Commissioner's power to enter into tax
compromises under Section 204 of the Tax Code. This
suspension refers to delinquent accounts as of 31
December 1985, the delinquencies covered under EO
No. 44. Thus, when PNOC applied for tax
compromise of its delinquent accounts as of 31
December 1985, the application for tax compromise
could only have referred to EO No. 44 and not to any
other tax compromise law. During the effectivity of
EO No. 44, the BIR Commissioner had no power to
compromise tax delinquencies as of 31 December
1985 under any law except EO No. 44. PNOC's
application for tax compromise of its delinquent
accounts as 31 December 1985 was clearly based on
EO No. 44 as the only law then governing tax
compromises for such delinquencies.
After the BIR received PNOC's letter of 26 September
1986, several meetings took place between the BIR and
PNOC on PNOC's request to avail of the tax
compromise under EO No. 44. On 14 October 1986,
PNOC reiteratedits compromise settlement proposal to
the BIR. There were also several exchanges of
communications between the BIR and PNOC. On 9 June
1987, the PNOC wrote again the BIR in this manner:
If your office will recall, our Company (even
under the administration of then PNOC
Chairman and President Vicentc T.
Paterno) had originally requested in writing
and negotiated for the compromise of the
subject tax assessment pursuant to the
beneficial provisions of E.0. No. 44, as early
as September, 1986, shortly after the
effectivity of Executive Order.
It appears, however, that the provisions of BIR
Revenue Memorandum Order No. 39-86 may
not have been applied or considered at length in
evaluating the legal basis and merits of our
compromise request, in our favor, since most of
the negotiations and the earlier decisions of
your office were made prior to the
promulgation of BIR Revenue Memorandum
Order No. 39-86 on November 18, 1986. (In
fact, the last letter in the 1986 series of
correspondences between your office and our
Company is dated November 11, 1986.)
We cite in particular the provisions of
Section 3.2 of your Revenue Memorandum
Order No. 39-86, by virtue of which the
subject tax assessment is qualified for
compromise settlement under E.0. No. 44.
Under these provisions, the tax liability
resulting from the situation "whereby a
withholding agent did not withhold the tax
either because of neglect, ignorance of law
or his belief that he is not required by law to
withhold a tax," is deemed qualified for
compromise settlement under E.O. No. 44.
The case contemplated by the cited
provisions of BIR Revenue Memorandum
Order No. 39-86 squarely covers our present
case, considering that the final withholding tax
on the interest earnings of our Company's
placements with PNB were not withheld by PNB
because of PNB's honest belief then, that it was
not required by law to commence withholding
 the tax. At that time, it was the clear impression
and understanding of both PNB and our
Company that PNOC's tax exemptions
continued to subsist during the pendency of
PNOC's tax exemption restoration application
with the Fiscal Incentives Review Board (FIRB),
until and unless the application is categorically
denied or resolved to the contrary. In fact, it was
only in the course of the subject BIR tax
assessment that the effective loss of PNOC's tax
exemptions was categorically raised by the BIR.
Consequently, we reiterate our previous
request for compromise under E.O. No. 44,
and convey our preparedness to settle the
subject tax assessment liability by payment
of the compromise amount
of P91,003,129.89, representing thirty percent
(30%) of the basic tax assessment
of P303,343,766.29, in accordance with E.O.
No. 44 and its implementing BIR Revenue
Memorandum Order No. 39-86.15(Emphasis
supplied)
PNOC's letter of 9 June 1987 explains why the BIR
could not immediately act on its 26 September 1986
request for tax compromise under EO No. 44. When
PNOC wrote the 26 September 1986 letter, only EO No.
44 and Revenue Regulations No. 17-86 were in
existence. The BIR Commissioner had not yet issued
Revenue Memorandum Order No. 39-86 which clarified
that the failure to withhold taxes did not prevent the
taxpayer or withholding agent from availing of the tax
compromise under EO No. 44, which was the situation of
PNOC and PNB. It was only during the course of the
negotiations between PNOC and the BIR that the BIR
Commissioner issued Revenue Memorandum Order No.
39-86.
As a result of the negotiations, PNOC reiterated its 26
September 1986 application for tax compromise under
EO No. 44 by writing the 9 June 1987 letter to the BIR. In
turn, the BIR Commissioner approved the tax
compromise on 22 June 1987. Thereafter, PNOC paid
the full amount of the tax compromise in three
installments from June to October 1987. Revenue
Regulations No. 17-86 authorized the instalment
payment because the compromise amount was
over P50,000.16 Clearly, PNOC's 26 September 1986
letter-request for tax compromise under EO No. 44
culminated successfully on 22 June 1987 in the approval
of the tax compromise under EO No. 44. This is actual
compliance with the requirement that the application
for tax compromise under EO No. 44 should be filed
on or before 31 March 1987.
Indeed, the BIR knew that PNOC filed its application for
tax compromise "under E.O. 44 as early as September
1986." The Memorandum dated 16 January
199117 submitted by Venancia M. Pangilinan, Chief of
the BIR Litigation Division, and approved by BIR
Commissioner Ong, states:
PNOC, through the letter of its legal counsel
dated June 9, 1987, offered to
pay P91,003,129.89 representing 30% of the
basic withholding tax of P303,343,766.29
pursuant to E.O. 44 which took effect on
September 4, 1986, to be paid on installment
basis, viz:
xxx
x x x From the tenor of the above letter, it
appears PNOC has made a previous offer of
settlement of this case under E.O. 44 as early
as September 1986, shortly after the
effectivity of said E.O. (Emphasis supplied)
The Tax Compromise is now Res Judicata
A compromise agreement constitutes a final and definite
settlement of the controversy between the parties.18 A
compromise agreement, even if not judicially approved,
has the effect of res judicata on the parties. Article
2037 of the Civil Code provides:
A compromise has upon the parties the effect
and authority of res judicata; but there shall be
no execution except in compliance with a judicial
compromise. (Emphasis supplied)
The compromise agreement has the force of law
between the parties and no party may discard
unilaterally the compromise agreement.19 Under Section
8.1 of RMO No. 39-86, upon payment of the compromise
amount, the tax "case is already closed." The Solicitor
General, who withdrew as counsel for the BIR, maintains
that the compromise agreement is valid.
Where a party has received the consideration for the
compromise agreement, such party is estopped from
questioning its terms and asking for the reopening of the
case on the ground of mistake.20 As explained
in McCarthy v. Barber Steamship Lines:21
Hence it is general rule in this country, that
compromises are to be favored, without
regard to the nature of the controversy
compromised, and that they cannot be set
aside because the event shows all the gain to
have been on one side, and all the sacrifice on
the other, if the parties have acted in good faith,
and with a belief of the actual existence of the
rights which they have respectively waived or
abandoned; and if a settlement be made in
regard to such subject, free from fraud or
mistake, whereby there is a surrender or
satisfaction, in whole or in part, of a claim upon
one side in exchange for or in consideration of a
 surrender or satisfaction of a claim in whole or in
part, or of something of value, upon the other,
however baseless may be the claim upon either
side or harsh the terms as to either of the
parties, the other cannot successfully impeach
the agreement in a court of justice * * *. Where
the compromise is instituted and carried through
in good faith, the fact that there was a mistake
as to the law or as to the facts, except in certain
cases where the mistake was mutual and
correctable as such in equity, cannot afford a
basis for setting a compromise aside or
defending against a suit brought thereon * * *
xxx
And whether one or the other party understood
the law of the case more correctly than the
other, cannot be material to the validity of the
bargain. For if it were, then it would follow that
contracts by the parties settling their own
disputes, would at last be made to stand or fall,
according to the opinion of the appellate court
how the law would have determined it.
(Emphasis supplied)
In People v. Magdaluyo,22 the BIR Commissioner
approved the agreement which compromised the
taxpayer's violation of the Tax Code. The taxpayer paid
the compromise amount before the filing of the criminal
information in court. The Court ruled that the government
could no longer prosecute the taxpayer for violation of
the Tax Code.
The same principle holds true in the present case. The
parties to the compromise agreement have voluntarily
settled the tax liability arising from PNB's failure to
withhold the final tax on PNOC's interest income. The
parties have fully implemented in good faith the
compromise agreement. The new BIR Commissioner
cannot just annul the legitimate compromise agreements
made by his predecessors in the performance of their
regular duties where the parties entered into the
compromise agreements in good faith and had already
fully implemented the compromise agreements.23
To rule otherwise would subject the validity and finality of
a tax compromise agreement to depend on the different
interpretations of succeeding BIR Commissioners. Such
lack of finality of tax compromises would discourage
taxpayers from entering into tax compromises with the
BIR, considering that compromises entail admissions by
taxpayers of violations of tax laws. A tax compromise
cannot be invalidated except in case of mistake, fraud,
violence, undue influence, or falsity of documents. Article
2038 of the Civil Code provides:
Article 2038. A compromise in which there
is mistake, fraud, violence, intimidation,
undue influence, or falsity of documents, is
subject to the provisions of Article 1330 of this
Code.
x x x (Emphasis supplied)
Article 1330 of the Civil Code makes compromises
tainted with such circumstances voidable.24 In the
present case, there is no mistake because PNOC's
delinquent account clearly falls within the coverage of
EO No. 44. Also, PNOC clearly filed its application for
tax compromise before the deadline. Thus, none of the
circumstances that make a compromise voidable is
present in this case.
PNB was a government-owned and controlled
corporation when it failed to withhold the tax. PNOC, the
taxpayer primarily liable for the tax, was then also a
government-owned and controlled corporation, and
remains so until now. PNB did not abscond with any tax
money because this is a case of failure to withhold the
tax and not a failure to remit a withheld tax. No fraud or
bad faith is ascribable to PNB or PNOC in the execution
of the compromise agreement.
Collection of Tax is Barred by Prescription
PNB regularly filed its quarterly returns covering the final
withholding tax on all money market placements with
PNB for the years 1984 to 1985.25 Under Revenue
Regulations No. 12-80, PNB prepared its quarterly
returns using BIR Form No. 1745,26 as follows:
SECTION 4. Manner of Computation of Tax
Base. — For purposes of Section 3 above, tax
bases of the following taxes shall be computed
in the following manner:
(a) Final withholding tax on savings deposits. —
xxx
x x x 
(c) Final withholding tax on yield of deposit
substitutes.- The final withholding tax on
yield of deposit substitute shall be based on
the adjusted gross interest or yield paid or
accrued by banks or non-bank financial
intermediaries on all of its deposit substitute
debt instruments issued.
The adjusted gross interest or yield paid or
accrued is arrived at after deducting from the
total interest or yield paid or accrued on deposit
substitutes, the sum of — 
(1) All interest and/or yield paid or accrued
on deposit substitute earned by tax-exempt
entities;
 (2) All interest and/or yield paid or accrued on
inter-bank loans, including those between or
among quasi-banks;
(3) All interest and/or yield paid or accrued on
borrowings from World Bank, Asian
Development Bank, International Finance
Corporation and similar institutions; and
(4) All interest and/or yield paid or accrued
on deposit substitutes exempt from
withholding tax.
The adjusted gross interest and/or yield paid or
accrued on deposit substitute debt instruments
shall further be detailed as to amount subjected
in full to the twenty per centum (20%) final
withholding tax and amount subjected to
preferential final withholding tax rates in the
prescribed from (B.I.R. Form No. _____).
(Emphasis supplied)
Thus, the computation for the quarterly returns already
took into account "[A]ll interest and/or yield paid or
accrued on deposit substitute earned by tax-exempt
entities," including interest income of PNOC on its
money market placements since PNB believed in good
faith that PNOC was exempt from the withholding tax.
After filing of the quarterly returns, the BIR had every
opportunity to investigate and audit the correctness of
the PNB's computation.
The last day for filing the quarterly return for the last
quarter of 1985 was 25 January 1986. The BIR and
PNOC signed the compromise agreement on 22 June
1987. BIR Commissioner Ong abrogated the
compromise agreement on 16 January 1991, the same
day the BIR issued the final assessment against PNOC
and PNB for the P294,958,450.73 foregone tax. From 25
January 1986, the last day for PNB to file the fourth
quarter return for 1985, to the issuance of the final
assessment for the foregone tax on 16 January 1991,
more than four years had lapsed. The Tax Code requires
the BIR to assess and collect the tax within three years
from the last day of filing of the tax return.
In the present case, the BIR had until 25 January
1990 to assess and collect the tax. Otherwise, the
right of the government to assess or collect the tax would
prescribe. Section 318 of the Tax Code, the section
governing prescription during the taxable years 1984 and
1985, then provided as Section 20327 of the Tax Code
now similarly provides:
Sec. 318. 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
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.
The law prescribes two conditions for the collection of
internal revenue taxes. First, the BIR must assess the
tax on the taxpayer within three years from the last day
of filing of the tax return. Second, the BIR must collect
judicially or administratively the tax also within three
years from the last day of filing of the tax return. In short,
the BIR must institute both the assessment and the
collection case within three years from the last day of
filing of the return, but the assessment must precede the
collection case. One textbook writer put it succinctly in
this manner:
As mandated by law (Sec. 203, 1997 NIRC), the
Government must assess on time, that is to say,
not later than three years counted from and after
the period fixed by law for the filing of the tax
return or the actual date of filing, whichever is
the later date.
xxx
In the case of self-assessed taxes like the
income tax that the taxpayer himself assesses
and reflects on his return, the collection
thereof may proceed without any further
assessment; in which case, therefore, the
prescriptive period of collection applies.
Hence, the BIR must collect such tax, either
by summary or judicial remedies, within
three (3) years from the date of filing of the
tax return. This is so because the date of
assessment in the case of self-assessed taxes
would be the date of the actual filing of the return
as it is on such date when the tax is said to have
been assessed (Sec. 222[c], 1997
NIRC).28 (Emphasis supplied)
Since more than four years had lapsed since the filing
of the last quarterly return on 25 January 1986, the BIR
could no longer assess the foregone tax on PNOC when
the BIR abrogated the compromise agreement on 16
January 1991. The reckoning date for the three-year
prescriptive period for withholding taxes due before the
last quarter of 1985 is even earlier than 25 January
1986. Even assuming that the BIR had assessed the tax
within the three-year prescriptive period, the BIR could
no longer collect the foregone tax when it demanded
payment from PNOC and PNB on 16 January 1991, the
date the BIR abrogated the compromise agreement. The
BIR must issue the tax assessment, and judicially
collect the assessed tax, within three years from the
last day of filing of the last quarterly return.
Of course, the BIR may also administratively collect the
assessed tax by distraint of personal property or levy on
real property.29 However, the BIR must take these
summary remedies within the three-year prescriptive
period for collecting the assessed tax. In the present
case, the BIR issued the warrant of garnishment against
PNB on 12 August 1991, more than five years from the
last day of filing of the last quarterly return on 25 January
1986. Thus, the garnishment of PNB's account with the
Central Bank on 23 August 1991 is void since the right of
the BIR to collect the tax had already prescribed by then.
Section 318 (now 203) of the Tax Code clearly provides
that the three-year prescriptive period is counted from
the due date of the filing of the return. The BIR must
assess and collect the tax within three years from the
filing of the tax return.
In the present case, the majority opinion expressly
admits that the BIR issued the assessment against
PNB on 8 October 1986, and that the BIR had until 7
October 1989, or three years from the issuance of
the assessment, to collect the tax. The majority
opinion declares:
Neither has the three-year prescriptive period
for the collection of the tax prescribed.
Considering that the assessment against
PNB was issued on 8 October 1986, the BIR
had until 7 October 1989 to enforce
collection based thereon. (Emphasis and
underscoring supplied)
The majority opinion is mistaken in stating that the three-
year period is counted from the date of issuance of the
assessment. Section 318 (now 203) of the Tax Code
clearly states that the three-year period is counted from
the due date of the filing of the return. This means that
the prescriptive period in the present case expired
on 24 January 1989 since the last quarterly return
was due on 25 January 1986. This is almost 9
months earlier than the 7 October 1989 expiry date
that the majority opinion claims.
The majority opinion further claims that there is no proof
that PNB filed its quarterly withholding tax returns. The
majority opinion asserts:
In making its conclusions that the assessment
and collection in this case has prescribed, the
dissenting opinion has taken liberties to assume
the following facts even in the absence of
allegations and evidences to the effect that: (1)
PNB filed returns for its withholding tax
obligations for taxable year 1985; (2) PNB
reported in the said returns the interest earnings
of PNOC's money placements with the bank;
and (3) that the returns were filed on or before
the prescribed date, which was 25 January
1986.
Contrary to the majority opinion's claim, the BIR audit
report on PNB's failure to withhold the tax from 1984 to
1985 does not state that PNB failed to file its quarterly
return. Had PNB failed to file its quarterly return, the tax
assessment against PNB would have been increased by
a penalty equivalent to either 25% or 50% of the tax due
as mandated by Section 248 of the Tax Code, thus:
SEC. 248. Civil Penalties. – (A) There shall be
imposed, in addition to the tax required to be
paid, a penalty equivalent to twenty-five
percent (25%) of the amount due, in the
following cases:
(1) Failure to file any return and pay the tax
due thereon as required under the provisions
of this Code or rules and regulations on the
date prescribed; or
x x x 
(B) In case of willful neglect to file the return
within the period prescribed by the Code or
by the rules and regulations, x x x the
penalty to be imposed shall be fifty percent
(50%) of the tax x x x.
The tax assessment against PNB, made after the
investigation and audit of PNB's failure to withhold the
tax for the years 1984 and 1985, does not include the
25% or 50% penalty for failure to file the return. The
assessment letter to PNB dated 8 October 1986 states:
Please be informed that upon investigation, there was
found due from you as a withholding agent within the
provisions of Section 31 of the National Internal Revenue
Code, the total sum of P376,301,133.23, representing
deficiency withholding final tax inclusive of interests, as
the yield of the deposit substitutes placed with your Bank
by the Philippine National Oil Company, as shown
below:
Deficiency withholding final Tax on - P298,863,332.51
the total yield
of P1,960,881,332.25 covering the
period from October 15, 1984 to
July 31, 1986
Interests due - computed up to - P77,455,580.72
October 15, 1986
Total Deficiency Amount P376,301,133.23
As you will note the interest due on the deficiency
withholding final tax was computed up to October 15,
1986. Should you fail to pay the total deficiency amount
on due date, the provisions of Section 283, NIRC,
provide that in case of failure to pay "a deficiency tax, or
any surcharge or interest therein, on due date appearing
in the notice and demand of the Commissioner, there
shall be assessed and collected, on the unpaid amount,
interest at the rate prescribed in paragraph (a) hereof
until the amount is fully paid, which amount shall form
part of the tax." x x x.30
Nowhere in the assessment letter does it state that PNB
failed to file the returns and thus should be liable for
the mandatory 25% or even 50% penalty. This only
means that PNB did not fail to file the quarterly returns.
Even assuming for the sake of argument that PNB failed
to file the quarterly returns, PNOC filed an amended
return when the BIR Commissioner approved on 22 June
1987 the tax compromise. Under Revenue Regulations
No. 17-86, the taxpayer who avails of the tax
compromise under EO No. 44 must file a tax return for
the income covered by the delinquent account. Section 2
(a) of Revenue Regulations No. 17-86 provides:
a) x x x
Where no return was filed, the taxpayer shall be
considered delinquent as of the time the tax on
such return was due, and in availing of the
compromise, a return shall be filed as a basis
for computing the amount of compromise to
be paid. (Emphasis and underscoring supplied)
Thus, PNOC for sure filed a return in June 1987 even
assuming its agent, PNB, failed to file the return on 25
January 1986. Under the worst-case scenario that PNB
failed to file the return on 25 January 1986, the BIR still
had only until June 1990 to collect the tax from PNOC
and PNB, applying the three-year period from PNOC's
actual filing of the return in June 1987. This is the rule in
Section 318 (now 203) of the Tax Code, which provides:
x x x Provided, That in 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. x x x.
(Emphasis supplied)
Whether the BIR had only until 24 January 1989, or 7
October 1989, or even until the end of June 1990 to
collect the tax would not really matter. The collection of
the tax would still be time-barred in the present case
under any of these three prescriptive periods.
The BIR garnished PNB's funds with the Central
Bank on 2 September 1992, long after the
prescriptive period had expired under any of the
three prescriptive periods. The garnishment was thus
void since the BIR's right to collect the tax had already
prescribed. The BIR did not also file any collection case
in court against PNB within any of the three prescriptive
periods. The present case is not even a collection
case against PNB or PNOC. Before 2004, the year
Republic Act No. 9282 took effect, the Court of Tax
Appeals had no jurisdiction to enforce the collection of
taxes. Prior to 2004, judicial action to collect internal
revenue taxes fell under the jurisdiction of the regular
trial courts.
In the case of PNOC, the BIR issued the assessment
even earlier, on 8 August 1986. If we follow the
majority opinion's erroneous computation that the three-
year period begins from the issuance of the
assessment, the BIR had only until 7 August 1989 to
collect from PNOC the tax administratively or
judicially. If we assume, for the sake of argument, that
there was a failure to file the return, the BIR had also
only until 7 August 1989, or three years after the
issuance of the assessment, to collect the tax from
PNOC. This is pursuant to Section 319 (now 222) of the
Tax Code, which provided:
Sec. 319. Exceptions as to period of limitation of
assessment and collection of taxes - (a) In the
case of x x x 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
discovery of the x x x omission: x x x
x x x 
(a) Any internal revenue tax which has been
assessed within the period of limitation
above-specified may be collected within
three years following the assessment of the
tax.31 (Emphasis supplied)
Until now, after a lapse of more than 18 years, the BIR
has made no distraint or levy on PNOC's assets. Neither
has the BIR filed any collection case in court against
PNOC. In short, the pleadings and the evidence on
record clearly establish that prescription had long
set in to bar the collection of the tax against PNB
and PNOC.
The majority opinion, however, claims that prescription
cannot bar the collection of PNOC's or PNB's
withholding tax liability because neither PNOC nor PNB
raised the defense of prescription. The majority opinion
contends:
The undersigned believes that the defense of
prescription of the period for the assessment
and collection of tax liabilities should be
considered waived since it was not raised in
the answers or any other pleadings filed by
PNOC and PNB. Such a defense had not been
properly pleaded and the facts alleged and
evidences submitted by the parties were not
sufficient to support a finding by the Cout on the
matter. In Querol v. Collector of Internal
Revenue, this Court ruled that prescription,
being a matter of defense, imposes on the
taxpayer to prove that the full period of the
 limitation has expired, and this requires him
to positively establish the date when the
period started running and when the same
was fully accomplished.
The majority opinion is clearly mistaken.
While the rule is that prescription is waived if not raised
as a defense, the present case falls under the express
exception to this rule. Section 1, Rule 9 of the 1997
Rules of Civil Procedure provides:
Section 1. Defenses and objections not pleaded.
- Defenses and objections not pleaded either in
a motion to dismiss or in the answer are deemed
waived. However, when it appears from the
pleadings or the evidence on record that the
court has no jurisdiction over the subject matter,
that there is another action pending between the
same parties for the same cause, or that the
action is barred by prior judgment or by the
statute of limitations, the court shall dismiss
the claim. (Emphasis and underscoring
supplied)
Thus, if the pleadings or evidence on record show that
the action is barred by prescription, the court
is mandated to dismiss the action even if prescription is
not raised as a defense.
Justice Florence D. Regalado, in Volume I of his
Remedial law Compendium,32 explains this exception as
follows:
Under the amended provision, the following
defenses are not waived even if not raised in
a motion to dismiss or in the answer: (a) lack
of jurisdiction over the subject matter; (b) litis
pendentia; (c) res judicata; and (d) prescription
of the action.
xxx
Res judicata and prescription of the claim have
also been added as exceptions since they are
grounds for extinguishment of the claim. It would
appear to be unduly technical, if not contrary to
the rule on unjust enrichment, to have the
defending party respond all over again for the
same claim which has already been resolved or
is no longer recoverable under the law. It is
worth mentioning in this connection that, in Sec.
5 of Rule 16 as amended, an order granting a
motion to dismiss on the grounds, inter alia, of
res judicata or prescription shall bar the refiling
of the same action or claim.
The presence of any of these four grounds
authorizes the court to motu proprio dismiss
the claim, that is, the claims asserted in the
complaint, counterclaim, crossclaim, third
(fourth, etc.) – party complaint or complaint-in-
intervention (see Sec. 2, Rule 6). In order that it
may do so, it is necessary, however, that such
grounds be raised in a motion to dismiss or in
the answer with evidence duly adduced to prove
the same, or where such grounds appear in the
other pleadings filed or in the evidence of record
in the case.
Specifically with respect to the defense of
prescription, the present provision is similar to
the rule adopted in civil cases, but dissimilar to
the rule and rationale in criminal cases. In civil
cases, it has been held that the defense of
prescription may be considered only if the same
is invoked in the answer, except where the fact
of prescription appears in the allegations in
the complaint or the evidence presented by
the plaintiff, in which case such defense is
not deemed waived (Ferrer vs. Ericta, et al.,
L-41767, Aug. 23, 1978; Garcia vs. Mathis, et
al., L-48577, Sept. 30, 1980). It would thus
appear that the non-waiver is dependent on the
timeliness of the invocation of the defense, or
where such defense is a matter of record or
evidence. (Emphasis supplied)
The ruling of this Court in Gicano, et al. v. Gegato, et
al.,33 decided in January 1988, became the basis of the
present Section 1 of Rule 9. In Gicano this Court ruled: 
x x x We have ruled that trial courts have
authority and discretion to dismiss an action on
the ground of prescription when the parties'
pleadings or other facts on record show it to be
indeed time-barred; (Francisco v. Robles, Feb.
15, 1954; Sison v. McQuaid, 50 O.G. 97;
Bambao v. Lednicky, Jan. 28, 1961; Cordova v.
Cordova, Jan. 14, 1958; Convets, Inc. v. NDC,
Feb. 28, 1958; 32 SCRA 529; Sinaon v.
Sorongan, 136 SCRA 408); and it may do so on
the basis of a motion to dismiss, or an answer
which sets up such ground as an affirmative
defense; or even if the ground is alleged after
judgment on the merits, as in a motion for
reconsideration; or even if the defense has not
been asserted at all, as where no statement
thereof is found in the pleadings, or where a
defendant has been declared in default. What
is essential only, to repeat, is that the facts
demonstrating the lapse of the prescriptive
period, be otherwise sufficiently and
satisfactorily apparent on the record: either
in the averments of the plaintiffs complaint,
or otherwise established by the evidence.
(Emphasis supplied)
Thus, even before the adoption of the present Section 1
of Rule 9, prevailing jurisprudence had already
recognized the exceptions laid down in Section 1 of Rule
9.
The majority opinion further claims that the running of
the prescriptive period was suspended when petitioner
filed with the Court of Tax Appeals on 8 April 1988 the
present petition to declare void the tax compromise
between the BIR and PNOC. The majority opinion
asserts that the running of the prescriptive period
remains suspended up to now. The majority opinion
contends:
x x x However, the running of the prescriptive
period for the collection of the assessment
against PNB is for the meantime suspended
during the pendency of the case before the
CTA, then before the Court of Appeals, and
finally before this Court, because the issue
for resolution by the courts is whether or not
the assessment should actually be enforced.
The majority opinion's contention collides with the
applicable provision of the Tax Code. Section 223 of the
Tax Code governs the suspension of the running of the
prescriptive period to assess and collect internal revenue
taxes. Section 223 provides:
SEC. 223. Suspension of Running of Statute of
Limitations. — The running of the Statute of
Limitationsprovided in Sections 203 and 222 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 (60) days
thereafter; when the taxpayer requests for a
reinvestigation which is granted by the
Commissioner; when the taxpayer cannot be
located in the address given by him in the return
filed upon which a tax is being assessed or
collected: Provided, That, if the taxpayer informs
the Commissioner of any change in address, the
running of the Statute of Limitations will not be
suspended; when the warrant of distraint or levy
is duly served upon the taxpayer, his authorized
representative, or a member of his household
with sufficient discretion, and no property could
be located; and when the taxpayer is out of the
Philippines. (Emphasis supplied)
Section 223 suspends the running of the prescriptive
period if the BIR Commissioner "is prohibited from x x
x beginning distraint or levy or a proceeding in
court" to enforce collection of the tax assessed. In the
present case, the Court of Tax Appeals, Court of
Appeals and this Court never prohibited the BIR
Commissioner from commencing a distraint, levy or civil
suit against PNB or PNOC to collect the tax. No court
ever issued an order prohibiting the BIR from
collecting the tax from PNB or PNOC. In Republic v.
Ret,34 this Court ruled:
As heretofore stated, the plaintiff-appellant made
the assessment on January 20, 1951 and had
up to January 20, 1956 to file the necessary
action. It was only on September 5, 1957, that
an action was filed in Court for the collection of
alleged deficiency income tax — far beyond the
5 year period. This notwithstanding, plaintiff-
appellant argues that during the pendency of the
criminal cases, it was prohibited from instituting
the civil action for the collection of the deficiency
taxes. This contention is untenable. The present
complaint against the defendant-appellee is not
for the recovery of civil liability arising from the
offense of falsification; it is for the collection of
deficiency income tax. The provisions of Section
1, Rule 107 (supra) that "after a criminal action
has been commenced, no civil action arising
from the same offense can be prosecuted", is
not applicable. The said criminal cases would
not affect, one way or another, the running of the
prescriptive period for the commencement of the
civil suit. The criminal actions are entirely
separate and distinct from the present civil
suit. There is nothing in the law which would
have stopped the plaintiff-appellant from
filing this civil suit simultaneously with or
during the pendency of the criminal cases.
Assuming the applicability of the rule, at most,
the prosecution of the civil action would be
suspended but not its filing within the prescribed
period. Section 332 of the Tax Code provides:
"the running of the statutory limitation . . . shall
be suspended for the period during which the
Collector of Internal Revenue is prohibited from
making the assessment, or beginning distraint or
levy or a proceeding in court, and for sixty days
thereafter". As heretofore stated, the plaintiff-
appellant was not prohibited by any order of
the court or by any law from commencing or
filing a proceeding in court. x x x (Emphasis
supplied)
The BIR could have filed a collection suit against PNB or
PNOC with the proper regional trial court, which before
2004 had jurisdiction over tax collection cases. At the
very least, the BIR should have filed with the proper
regional trial court a collection case ad cautelam during
the pendency of the present case in court. This would
have suspended the running of the prescriptive period.
However, the BIR neglected to file a collection case
before 7 October 1989, the expiration of the prescriptive
period to collect the tax from PNB.
The BIR could also have administratively collected the
tax from PNB and PNOC. In fact, during the pendency of
the case in the Court of Tax Appeals, the BIR
Commissioner administratively garnished PNB's
funds with the Central Bank, although the garnishment
is void because the prescriptive period had already
expired even by the majority opinion's own computation
of the prescriptive period. This only proves that
nothing prevented the BIR from administratively
garnishing PNB's or PNOC's accounts even during
the pendency of the present case. However, the BIR
garnished PNB's funds only after the prescriptive period
had expired on 7 October 1989.
Obviously, the BIR failed to collect the tax before 7
October 1989 because of the fault or negligence of the
BIR, and not because a court order prevented the BIR
from collecting the tax before the expiration of the
prescriptive period on 7 October 1989. The BIR was free
at any time to distrain or levy on the assets of PNB or
PNOC, as well as to file a collection suit before the
regular courts against PNB or PNOC, even during the
pendency of the present petition in the various courts.
In particular, the BIR could have distrained or levied on
the assets of PNB at any time because PNB was not
even a party to the tax compromise between the BIR and
PNOC. Indeed, the BIR did garnish the funds of PNB,
but only after the expiration of the prescriptive period.
The BIR simply slept on its rights.
Neither PNOC nor PNB instituted the present case
against the BIR to prevent the collection of the tax.
Private respondent Tirso B. Savellano, who is not the
taxpayer, originally filed this petition against the BIR
Commissioner only, and later on impleaded PNOC and
PNB. This Court has applied Section 223 of the Tax
Code suspending the running of the prescriptive period
in cases where the taxpayer sued the BIR
Commissioner to prevent the collection of a tax, as
when the taxpayer disputed the validity or amount of the
assessment before the Court of Tax Appeals.35 This is
not the situation in the present case since PNOC and
PNB have not sued the BIR Commissioner to prevent
the collection of the tax, and they do not dispute the
validity or amount of the assessment issued against
them.
Nothing legally prevented the BIR from collecting the tax,
administratively or judicially, from PNOC or PNB at any
time before 7 October 1989. Thus, the BIR cannot
invoke Section 223 of the Tax Code to claim the
suspension of the running of the prescriptive period
during the pendency of the present case in the courts.
Conclusion
To conclude, the compromise agreement between the
BIR and PNOC falls within the coverage of EO No. No.
44 and its implementing rules. The compromise
agreement is not contrary to law, morals, good customs,
public order, or public policy.36 Thus, the compromise
agreement is valid, and has the effect of res judicata on
the BIR and PNOC. In any event, the collection of the
foregone tax is barred by prescription.
Accordingly, I dissent from the majority opinion. I vote to
grant the petition, to declare valid the 22 June 1987 tax
compromise between PNOC and the BIR, and to deny
the claim of private respondent Tirso B. Savellano for an
additional informer's reward of P43,800,915.25.
SEPARATE OPINION
TINGA, J.:
I agree with the ponencia that no valid compromise
agreement had been entered into between the Philippine
National Oil Company (PNOC) and the Bureau of
Internal Revenue (BIR).
First, the coverage of the governing special compromise
tax measure.
Executive Order No. 44, on which the compromise
agreement was predicated, explicitly delineates the
parameters within which the amnesty provided therein
may be availed of. Section 1 thereof allows the
compromise of disputed assessments or delinquent
accounts pending as of 31 December 1985, viz.:
SECTION 1. The Commissioner of Internal
Revenue or his duly authorized representatives
may compromise any disputed assessment or
delinquent account pending as of December
31, 1985, upon the payment of an amount equal
to thirty percent (30%) of the basic tax assessed.
In such cases, the Commissioner of Internal
Revenue or his duly authorized representatives
shall condone the corresponding interests and
penalties. (Emphasis supplied)
The directive in Section 1 is reiterated in the first
paragraph of Revenue Memorandum Circular No. 31-
861, Sections 2 and 3 of Revenue Regulation No. 17-862,
and Section 1 of Revenue Memorandum Order No. 39-
86.3
Evidently, E.O. No. 44 applies only to "disputed
assessment or delinquent account pending as of
December 31, 1985". This is not an executive issuance
meant to give blanket authority on the Commissioner of
Internal Revenue to compromise away tax liabilities. In
fact, the "cut-off" period stipulated in the executive order
refers to a date nine months prior to the date of the
promulgation of the issuance, 4 September 1986.
The authority to compromise was delegated for a
specific purpose, as stated in E.O. No. 44. Significantly
in that regard, the Executive Order is not a mere
executive issuance but a legislative edict in much the
same fashion as an Act of Congress, issued as it was by
then President Corazon C. Aquino in the exercise of her
legislative powers under the Freedom Constitution. The
perambulatory clauses of E.O. No. 44 state the need to
clear the backlog of pending cases of disputed
assessments and delinquent accounts4 in view of the
fact that the records of Bureau of Internal Revenue show
that over the past ten years, a great number of cases
involving disputed assessments and delinquent accounts
for internal revenue had accumulated.5 The interpretation
of the provisions of E.O. No. 44 cannot be strained in
order to cover taxes that accrued after 31 December
1985, since this would no longer be included in the
"backlog" adverted to in the issuance. Parenthetically,
the Executive Order is akin to a tax exemption statute
which should be construed strictly against the taxpayer.
The taxes sought to be compromised in this case
concern the final tax on interest income representing the
earnings and/or yield from PNOC's money placements
with the Philippine National Bank (PNB) for the period
from 15 October 1984 to 15 October 1986. Evidently, a
cursory glance reveals that the PNOC cannot invoke
E.O. No. 44 with reference to its entire tax liability, as the
period covered under the Executive Order was only up to
31 December 1985. The withholding taxes due for the
period of 01 January 1986 to 16 October 1986 are
neither disputed assessments nor delinquent accounts
pending as of 31 December 1985.
Moreover, these are taxes that accrue from the yield of
interest income of money market placements, and
clearly not at the time such placements were made by
the PNOC. Even if the money market placements were
made in 1984 or 1985, it would not necessarily mean
that the interest yields on these placements were paid
out or credited during those years. It is unclear when
exactly between 1984 to 1986 did such interest incomes
had accrued, but admittedly this is a question of fact that
need not be reviewed by this Court.
Nonetheless, I maintain that even without need of
ascertaining when exactly such interest income accrued,
the compromise agreement in question is null and void in
its entirety for being contrary to E.O. No. 44.
While PNB failed to submit any application for
compromise, PNOC submitted two offers – not
applications for compromise settlement. PNOC's first
proposal, contained in a letter dated 22 September 1986,
offered to clear its basic6 tax liability through a set-off
thereof against the claim for tax refund/credit of the
National Power Corporation (NPC), which amount was
also supposedly a receivable of PNOC from NPC. This
proposal was reiterated in another letter dated 14
October 1986. The operative portions of the first letter
read:
We would like to amicably settle this liability with
the BIR. In this regard, we wish to invoke the
authority vested by law in your office, particularly
under Section 246 of the national Internal
Revenue Code, as amended, and the spirit
underlying Executive Order No. 44 dated
September 4, 1986. Consequently, we hereby
request for a compromise settlement and submit
our offer for a compromise of the matter. xxx
(2) That PNOC be permitted to set-off its
foregoing mentioned tax liability
of P304,419,396.83 against the tax refund/credit
claims of the National Power Corporation (NPC)
for specific taxes on fuel oil sold to NPC
totaling P335,239,450.21, which tax
refunds/credits are actually receivable accounts
of our Company from NPC.7
Section 1 of E.O. No. 44 is explicit in declaring that the
compromise of a disputed assessment or delinquent
account is accomplished through payment of an amount
equal to thirty percent (30%) of the basic tax assessed, a
generous sum if I may add. Payment, as defined in this
jurisdiction, means the delivery of money or the
performance of an obligation8. It institutes a totally
different mode of extinguishment of an obligation from
compensation and/or confusion or merger9. PNOC
invokes the concepts of compensation and/or confusion
or merger as it seeks to have the NPC, which allegedly
had outstanding payables due to PNOC, absorb PNOC's
tax liabilities with its own outstanding tax credit due from
the BIR.
However, as noted by the BIR in its initial response to
PNOC's proposal, NPC's claim was still under process.
Hence, at the time PNOC offered its terms for
compromise to the BIR, no extinguishment of PNOC's
tax liability could have taken place — whether by
compensation, confusion or merger. There was no
mutual creditor-debtor relationship between PNOC and
the BIR – the existence of which is one of the requisites
for compensation to take place.10 Also, neither was there
an outstanding creditor-debtor relationship between the
NPC and the BIR. Moreover, the "credit" which PNOC
proposed to use for the purpose of offsetting emanated
from a segregate obligation than that due the BIR from
PNOC; hence, there could be no confusion or
merger11 which could lead to payment.
In short, there was no legal basis for the NPC then to
offset PNOC's tax liabilities through its own "tax credit,"
as the said "tax credit" had not, in the first place, yet
ripened as an existing obligation.
For that reason, PNOC cannot be deemed as having
made payment, or even a valid offer of payment through
its first two letters, as there was no legal basis to effect
its proposed mode of payment. In the meantime, the
outstanding tax liability had accrued and eventually, the
deadline set forth in RMO No. 39-86 passed.
So now, the prescribed period of availment and the
effective duration of the special compromise tax
measure.
RMO No. 39-86 pertains to "Guidelines for
Implementation of Executive Order No. 44 re
compromise settlement of (1) delinquent tax accounts; or
(2) disputed tax assessments as of December 31, 1985".
Paragraph 2 thereof is explicit as to the period for
availment of the compromise settlement:
2. Period for availment. – Filing of application for
compromise settlement under the said law shall
be effective only until March 31, 1987.
Applications filed on or before this date shall be
valid even if the payment or payments of the
compromise amount shall be made after the said
date, subject, however, to the provisions of
Executive Order No. 44 and its implementing
Revenue Regulations No. 17-86. (emphasis
supplied)
The deadline was occasioned by Section 6 of E.O. No.
44, which itself provides for the term of effectivity of the
period for compromise:
Section 6. This Executive Order shall take effect
immediately and shall remain effective until March 31,
1987.
The plain meaning of paragraph (2), in relation to
Section 6, E.O. No. 44, is that the deadline for the
submission of an application for compromise settlement
shall be effective only until 31 March 1987. As of that
point, had PNOC submitted an application for
compromise settlement within the contemplation of law?
Plainly, the two letters in 1986 of PNOC are not in the
form of an "application for compromise settlement".
Though the Court need not be strict in demanding
obeisance with the formal requisites, I would consider
any valid form of an application for compromise should
concede the liability for tax, and make a valid offer of
payment. To require otherwise would render a mockery
of the offer of tax compromise. Owing to the legal
implausibility of the initial offer of PNOC to the BIR, I
could not consider the first two letters as a valid
application for compromise settlement. Moreover, the
BIR expressly rejected this application, if it could be
construed as such, as early as November of 1986. If
there was indeed a bona fide intent on the part of PNOC
to comply with E.O. No. 44 and its attendant revenue
issuances, it should have exerted efforts to comply with
this deadline set forth under RMO No. 39-86, in light of
the BIR's rejection of its earlier offer. Instead, the 31
March 1987 deadline passed without a word or renewed
offer from the PNOC.
Instead, on 09 June 1987, or two months after the
deadline had elapsed, PNOC made a second, different
offer, proposing by way of compromise to pay thirty
(30%) of its basic tax liability, specifically invoking
Section 1 of E.O. 44. This new offer was subsequently
accepted by the BIR.
The contrary view argues that owing to the
administrative power of the tax commissioner, such
subsequent acceptance can be deemed as an effective
extension of the deadline set forth under RMO No. 39-
86. However, E.O. No. 44 is explicit in declaring that its
effectivity subsists only until 31 March 1987, a fact which
is similarly demonstrated by paragraph (2) of RMO No.
39-86.
The dissent relies on the fact that E.O. No. 44, issued in
the exercise of legislative powers then vested in
President Aquino, is a special law of more specific
application in this case than the Tax Code. Yet the
delegation of authority to the tax commissioner to effect
compromises is limited by the confines of E.O. No. 44,
which is explicit in stating that its effectivity runs only
until 31 March 1987. Hence, contrary to the dissenting
view, the BIR Commissioner had no authority to extend
the effectivity of E.O. No. 44, or the deadline prescribed
thereupon. RMO No. 39-86 properly recognizes such
limitation, and assuming that the subsequent acts of the
tax commissioner contravene the deadline set by law
and regulation, those acts should be deemed as beyond
the ambit of delegated power, and thus void. Under the
circumstances, only Congress could have validly
extended the effectivity of the special compromise
tax measure.
Thus, the ponencia correctly concludes that the
compromise agreement entered into on 22 June 1987 is
void. It was entered into after the lapse of the authority of
BIR Commissioner to effect such compromise
agreement, owing to the prescribed effectivity of E.O.
No. 44, from which such authority was derived. Needless
to say, much trouble would have been saved had the
PNOC been timely in seeking a compromise agreement
with the BIR, and prudent enough in proposing one that
had basis under law. It cannot rely upon its status as a
component of the government as basis for relief.
We should not discount the damage inflicted by the void
compromise agreement on the informer, Tirso Savellano.
The financial remuneration to be obtained by the
informer is designed to alleviate whatever socio-political
stigma that may attach as a result of the information that
is divulged. The informer's right is predicated on the
amount actually paid, and if the amount paid is less than
what is due as a result of an unauthorized compromise,
then the informer indubitably has an interest to assail the
said compromise.
Finally, the dissent raises the argument that prescription
had run to bar the annulment of the compromise
agreement. Notably, this issue was not raised before any
of the fora involved, by the Court of Tax Appeals, the
Court of Appeals, or this Court. Neither was it discussed
in any of the assailed rulings.
The proper taxes due in this case have actually been
paid to the government. Petitioners unfortunately seek
the refund of what has been already collected, despite
the fact that they have all along conceded, not denying
at all, the basis for their tax liability. The Court should not
be privy to the divestiture of the huge tax payment
already remitted to the cash-strapped government if
there is no unequivocal basis for the return thereof. More
so, should it not be a party to the forfeiture of the
informer's reward to which the private respondent has a
vested right as a matter of law and equity.
Case No. 6967.13
For its part, petitioner the Commissioner of Internal
Revenue (CIR) asserted, inter alia, that the amounts
being claimed by Nippon as unutilized input VAT were
not properly documented, hence, should be denied.14
Proceedings Before the CTA Division

I vote to DENY the petitions. In a Decision15 dated August 10, 2011, the CTA Division
partially granted Nippon's claim for tax refund, and
thereby ordered the CIR to issue a tax credit certificate in
the reduced amount of P2,614,296.84, representing its
unutilized input VAT which was attributable to its zero-
G.R. No. 212920, September 16, 2015 rated sales.16 It found that while Nippon timely filed its
administrative and judicial claims within the two (2)-year
COMMISSIONER OF INTERNAL prescriptive period,17 it, however, failed to show that the
REVENUE, Petitioner, v. NIPPON EXPRESS (PHILS.) recipients of its services - which, in this case, were
CORPORATION, Respondent. mostly Philippine Economic Zone Authority registered
enterprises - were non-residents "doing business outside
DECISION the Philippines." Accordingly, it concluded that Nippon's
purported sales therefrom could not qualify as zero-rated
PERLAS-BERNABE, J.: sales, hence, the reduction in the amount of tax credit
certificate claimed.18
Assailed in this petition for review on certiorari1 are the
Before its receipt of the August 10, 2011 Decision, or on
Decision2 dated December 18, 2013 and the
August 12, 2011, Nippon filed a motion to
Resolution3 dated June 10, 2014 of the Court of Tax
withdraw,19 considering that the BIR, acting on its
Appeals (CTA) En Banc in CTA EB No. 924, which
administrative claim, already issued a tax credit
affirmed the Resolution4 dated July 31, 2012 of the CTA
certificate in the amount of P21,675,128.91 on July 27,
Third Division (CTA Division) in CTA Case No. 6967,
2011 (July 27, 2011 Tax Credit Certificate).
granting respondent Nippon Express (Phils.)
Corporation's (Nippon) motion to withdraw petition for
Separately, the CIR moved for reconsideration20 of the
review5 (motion to withdraw).
August 10, 2011 Decision and filed its
comment/opposition21 to Nippon's motion to withdraw,
The Facts
claiming that: (a) the CTA Division had already resolved
the factual issue pertaining to Nippon's entitlement to a
Nippon is a domestic corporation duly organized and
tax credit certificate, which, after trial, was proven to be
existing under Philippine laws which is primarily engaged
only in the amount of P2,614,296.84; (b) the issuance of
in the business of freight forwarding, namely, in the
the July 27, 2011 Tax Credit Certificate was bereft of
international and domestic air and sea freight and cargo
factual and legal bases, and prejudicial to the interest of
forwarding, hauling, carrying, handling, distributing,
the government; and (c) Nippon's motion to withdraw
loading, and unloading general cargoes and all classes
was "tantamount to [a] withdrawal and abandonment of
of goods, wares, and merchandise, and the operation of
its [mjotion for [reconsideration also filed in this case."22
container depots, warehousing, storage, hauling, and
packing facilities.6 It is a Value-Added Tax (VAT)
Thereafter, Nippon, which maintained that it only had
registered entity with Tax Identification No. VAT
notice of the August 10, 2011 Decision on August 16,
Registration No. 004-669-434-000.7 As such, it filed its
2011,23 likewise sought for reconsideration,24 praying that
quarterly VAT returns for the year 2002 on April 25,
the CTA Division set aside its August 10, 2011 Decision
2002, July 25, 2002, October 25, 2002, and January 27,
and render judgment ordering the CIR to issue a tax
2003, respectively.8 It maintained that during the said
credit certificate in the full amount of P24,644,506.86, or
period it incurred input VAT attributable to its zero-rated
in the alternative, grant its motion to
sales in the amount of P28,405,167.60, from which only
withdraw.25cralawred
P3,760,660.74 was applied as tax credit, thus, reflecting
refundable excess input VAT in the amount of
In a Resolution dated July 31, 2012,26 the CTA Division
P24,644,506.86.9
granted Nippon's motion to withdraw and, thus,
considered the case closed and terminated.27 It found
On April 22, 2004, Nippon filed an administrative claim
that pursuant to Revenue Memorandum Circular No.
for refund10 of its unutilized input VAT in the amount of
49-03 (RMC No. 49-03) dated August 15, 2003, Nippon
P24,644,506.86 for the year 2002 before the Bureau of
correctly availed of the proper remedy notwithstanding
Internal Revenue (BIR).11 A day later, or on April 23,
the promulgation of the August 10, 2011 Decision. It
2004, it filed a judicial claim for tax refund, by way of
added that in approving the withdrawal of Nippon's
petition for review,12 before the CTA, docketed as CTA
petition for review, it exercised its discretionary authority
under Section 3, Rule 50 of the Rules of Court after due
consideration of the reasons proffered by Nippon,
namely: (a) that the parties had already arrived at a
reasonable settlement of the issues; (b) further legal and
related costs would be avoided; and (c) the court's time
and resources would be saved.28
Aggrieved, the CIR elevated29 its case to the CTA En
Banc.  Having arrived at a reasonable settlement of the issues
The CTA En Banc Ruling
In a Decision30 dated December 18, 2013, the CTA En
Banc affirmed the July 31, 2012 Resolution of the CTA
Division granting Nippon's motion to withdraw.31 It
debunked the CIR's assertions that Nippon failed to
comply with the requirements set forth in RMC No. 49-03
- i.e., that Nippon failed to notify the BIR that it agreed
with its findings and to file the necessary motion before
the CTA Division prior to the promulgation of its Decision
-noting that RMC No. 49-03 did not expressly require a
taxpayer to inform the BIR of its assent nor prescribe a
definite period for filing a motion to withdraw. It also
observed that the CIR did not deny the existence and
issuance of the July 27, 2011 Tax Credit Certificate. In
this regard, the same may be taken judicial notice of,
and the need for its formal offer dispensed with.32
The CIR moved for partial reconsideration33 which was,
however, denied by the CTA En Banc in a
Resolution34 dated June 10, 2014; hence, this petition.
The Issue Before the Court
The core issue in this case is whether the CTA properly
granted Nippon's motion to withdraw.
The Court's Ruling
The petition is meritorious.
A perusal of the Revised Rules of the Court of Tax
Appeals35 (RRCTA) reveals the lack of provisions
governing the procedure for the withdrawal of pending
appeals before the CTA. Hence, pursuant to Section 3,
Rule 1 of the RRCTA, the Rules of Court shall
suppletorily apply:
Sec. 3. Applicability of the Rules of Court. - The Rules of
Court in the Philippines shall apply suppletorily to these
Rules.
Rule 50 of the Rules of Court - an adjunct rule to the
appellate procedure in the CA under Rules 42, 43, 44,
and 46 of the Rules of Court which are equally adopted
in the RRCTA36 - states that when the case is deemed
submitted for resolution, withdrawal of appeals made
after the filing of the appellee's brief may still be allowed
in the discretion of the court:
RULE 50  Therefore, as aptly pointed out by Associate Justice
DISMISSAL OF APPEAL
xxxx
Section 3. Withdrawal of appeal. — An appeal may be
withdrawn as of right at any time before the filing of the
appellee's brief. Thereafter, the withdrawal may be
allowed in the discretion of the court.(Emphasis
supplied)
Impelled by the BIR's supervening issuance of the July
27, 2011 Tax Credit Certificate, Nippon filed a motion to
withdraw the case, proffering that:
with the [CIR]/BIR, and to avoid incurring further legal
and related costs, not to mention the time and resources
of [the CTA], [Nippon] most respectfully moves for the
withdrawal of its Petition for Review.37
Finding the aforementioned grounds to be justified, the
CTA Division allowed the withdrawal of Nippon's appeal
thereby ordering the case closed and terminated,
notwithstanding the fact that the said motion was filed
after the promulgation of its August 10, 2011 Decision.
While it is true that the CTA Division has the prerogative
to grant a motion to withdraw under the authority of the
foregoing legal provisions, the attendant circumstances
in this case should have incited it to act otherwise.
First, it should be pointed out that the August 10, 2011
Decision was rendered by the CTA Division after a full-
blown hearing in which the parties had already ventilated
their claims. Thus, the findings contained therein were
the results of an exhaustive study of the pleadings and a
judicious evaluation of the evidence submitted by the
parties, as well as the report of the commissioned
certified public accountant. In Reyes v. Commission on
Elections,38 the Court only noted, and did not grant, a
motion to withdraw the petition filed after it had already
acted on said petition, ratiocinating in the following wise:
It may well be in order to remind petitioner that
jurisdiction, once acquired, is not lost upon the instance
of the parties, but continues until the case is terminated.
When petitioner filed her Petition for Certiorarijurisdiction
vested in the Court and, in fact, the Court exercised such
jurisdiction when it acted on the petition. Such
jurisdiction cannot be lost by the unilateral withdrawal of
the petition by petitioner.39
The primary reason, however, that militates against the
granting of the motion to withdraw is the fact that the
CTA Division, in its August 10, 2011 Decision, had
already determined that Nippon was only entitled to
refund the reduced amount of P2,614,296.84 since it
failed to prove that the recipients of its services were
non-residents "doing business outside the Philippines";
hence, Nippon's purported sales therefrom could not
qualify as zero-rated sales, necessitating the reduction in
the amount of refund claimed. Markedly different from
this is the BIR's determination that Nippon should
receive P21,675,128.91 as per the July 27, 2011 Tax
Credit Certificate, which is, in all, P19,060,832.07 larger
than the amount found due by the CTA Division.
Teresita J. Leonardo-De Castro during the deliberations
on this case, the massive discrepancy alone between
the administrative and judicial determinations of the
amount to be refunded to Nippon should have already
raised a red flag to the CTA Division. Clearly, the interest
of the government, and, more significantly, the public,
will be greatly prejudiced by the erroneous grant of
refund - at a substantial amount at that - in favor of
Nippon. Hence, under these circumstances, the CTA
Division should not have granted the motion to withdraw.
In this relation, it deserves mentioning that the CIR is not
estopped from assailing the validity of the July 27, 2011
Tax Credit Certificate which was issued by her
subordinates in the BIR. In matters of taxation, the
government cannot be estopped by the mistakes, errors
or omissions of its agents for upon it depends the ability
of the government to serve the people for whose benefit
taxes are collected.40
Finally, the Court has observed that based on the
records, Nippon's administrative claim for the first
taxable quarter of 2002 which closed on March 31, 2002
was already time-barred41 for being filed on April 22,
2004, or beyond the two (2)-year prescriptive period
pursuant to Section 112(A)42 of the National Internal
Revenue Code of 1997. Although prescription was not
raised as an issue, it is well-settled that if the pleadings
or the evidence on record show that the claim is barred
by prescription, the Court may motu proprio order its
dismissal on said ground.43
All told, the CTA committed a reversible error in granting
Nippon's motion to withdraw. The August 10, 2011
Decision of the CTA Division should therefore be
reinstated, without prejudice, however, to the right of
either party to appeal the same in accordance with the
RRCTA.
WHEREFORE, the petition is GRANTED. The Decision
dated December 18, 2013 and the Resolution dated
June 10, 2014 of the Court of Tax Appeals En Banc in
CTA EB Case No. 924 are hereby SET ASIDE. The
Decision dated August 10, 2011 of the Court of Tax
Appeals Third Division in CTA Case No. 6967
is REINSTATED, without prejudice, however, to the right
of either party to appeal the same in accordance with the
Revised Rules of the Court of Tax Appeals.
COMMISSIONER OF INTERNAL
REVENUE, Petitioner, v. HON. RAUL M. GONZALEZ,
Secretary of Justice, L. M. CAMUS ENGINEERING
CORPORATION (represented by LUIS M. CAMUS and
LINO D. MENDOZA),Respondents.cralaw
DECISION
VILLARAMA, JR., J.:
This is a petition for review on certiorari under Rule 45 of
the 1997 Rules of Civil Procedure, as amended,
assailing the Decision1cra1aw dated October 31, 2006
and Resolution2cra1aw dated March 6, 2007 of the Court
of Appeals (CA) in CA-G.R. SP No. 93387 which
affirmed the Resolution3cra1aw dated December 13,
2005 of respondent Secretary of Justice in I.S. No. 2003-
774 for violation of Sections 254 and 255 of the National
Internal Revenue Code of 1997 (NIRC).
The facts as culled from the
records:chanroblesvirtualawlibrary
Pursuant to Letter of Authority (LA) No. 00009361 dated
August 25, 2000 issued by then Commissioner of
Internal Revenue (petitioner) Dakila B. Fonacier,
Revenue Officers Remedios C. Advincula, Jr., Simplicio
V. Cabantac, Jr., Ricardo L. Suba, Jr. and Aurelio
Agustin T. Zamora supervised by Section Chief Sixto C.
Dy, Jr. of the Tax Fraud Division (TFD), National Office,
conducted a fraud investigation for all internal revenue
taxes to ascertain/determine the tax liabilities of
respondent L. M. Camus Engineering Corporation
(LMCEC) for the taxable years 1997, 1998 and
1999.4cra1aw The audit and investigation against
LMCEC was precipitated by the information provided by
an "informer" that LMCEC had substantial underdeclared
income for the said period. For failure to comply with the
subpoena duces tecum issued in connection with the tax
fraud investigation, a criminal complaint was instituted by
the Bureau of Internal Revenue (BIR) against LMCEC on
January 19, 2001 for violation of Section 266 of the
NIRC (I.S. No. 00-956 of the Office of the City
Prosecutor of Quezon City).5chanroblesvirtuallawlibrary
Based on data obtained from an "informer" and various
clients of LMCEC,6cra1aw it was discovered that LMCEC
filed fraudulent tax returns with substantial
underdeclarations of taxable income for the years 1997,
1998 and 1999. Petitioner thus assessed the company of
total deficiency taxes amounting to P430,958,005.90
(income tax - P318,606,380.19 and value-added tax
[VAT] - P112,351,625.71) covering the said period. The
Preliminary Assessment Notice (PAN) was received by
LMCEC on February 22,
2001.7chanroblesvirtuallawlibrary
LMCECs alleged underdeclared income was
summarized by petitioner as
follows:chanroblesvirtualawlibrary
Year Income Income Unde
Per ITR Per Investigation Inc
1997 96,638,540.00 283,412,140.84 186,733,6
1998 86,793,913.00 236,863,236.81 150,069,3
1999 88,287,792.00 251,507,903.13 163,220,1
In view of the above findings, assessment notices
together with a formal letter of demand dated August 7,
2002 were sent to LMCEC through personal service on
October 1, 2002.9cra1aw Since the company and its
representatives refused to receive the said notices and
demand letter, the revenue officers resorted to
constructive service10cra1aw in accordance with Section
3, Revenue Regulations (RR) No. 12-9911cra1aw .
On May 21, 2003, petitioner, through then Commissioner
Guillermo L. Parayno, Jr., referred to the Secretary of
Justice for preliminary investigation its complaint against
LMCEC, Luis M. Camus and Lino D. Mendoza, the latter
two were sued in their capacities as President and
Comptroller, respectively. The case was docketed as I.S.
No. 2003-774. In the Joint Affidavit executed by the
revenue officers who conducted the tax fraud
investigation, it was alleged that despite the receipt of
the final assessment notice and formal demand letter on
October 1, 2002, LMCEC failed and refused to pay the
deficiency tax assessment in the total amount
of P630,164,631.61, inclusive of increments, which had
become final and executory as a result of the said
taxpayers failure to file a protest thereon within the thirty
(30)-day reglementary
period.12chanroblesvirtuallawlibrary
Camus and Mendoza filed a Joint Counter-Affidavit
contending that LMCEC cannot be held liable
whatsoever for the alleged tax deficiency which had
become due and demandable. Considering that the
complaint and its annexes all showed that the suit is a
simple civil action for collection and not a tax evasion
case, the Department of Justice (DOJ) is not the proper
forum for BIRs complaint. They also assail as invalid the
assessment notices which bear no serial numbers and
should be shown to have been validly served by an
Affidavit of Constructive Service executed and sworn to
by the revenue officers who served the same. As stated
in LMCECs letter-protest dated December 12, 2002
addressed to Revenue District Officer (RDO) Clavelina
S. Nacar of RD No. 40, Cubao, Quezon City, the
company had already undergone a series of routine
examinations for the years 1997, 1998 and 1999; under
the NIRC, only one examination of the books of accounts
is allowed per taxable year.13chanroblesvirtuallawlibrary
LMCEC further averred that it had availed of the Bureaus
Tax Amnesty Programs (Economic Recovery Assistance
Payment [ERAP] Program and the Voluntary
Assessment Program [VAP]) for 1998 and 1999; for
1997, its tax liability was terminated and closed under
Letter of Termination14cra1aw dated June 1, 1999 issued
by petitioner and signed by the Chief of the Assessment
Division.15cra1aw LMCEC claimed it made payments of
income tax, VAT and expanded withholding tax (EWT),
as follows:chanroblesvirtualawlibrary
YEAR  
1997 Termination Letter Under Letter of
Authority No. 174600 Dated November 4, VAT - 540,
1998 IT - 3,000.0
1998 ERAP Program pursuant WC - 38,40
to RR #2-99 VAT - 61,6
1999 VAP Program pursuant  IT - 878,49
to RR #8-2001 VAT - 1,32
LMCEC argued that petitioner is now estopped from
further taking any action against it and its corporate
officers concerning the taxable years 1997 to 1999. With
the grant of immunity from audit from the companys
availment of ERAP and VAP, which have a feature of a
tax amnesty, the element of fraud is negated the
moment the Bureau accepts the offer of compromise or
payment of taxes by the taxpayer. The act of the
revenue officers in finding justification under Section 6(B)
of the NIRC (Best Evidence Obtainable) is misplaced
and unavailing because they were not able to open the
books of the company for the second time, after the
routine examination, issuance of termination letter and
the availment of ERAP and VAP. LMCEC thus
maintained that unless there is a prior determination of
fraud supported by documents not yet incorporated in
the docket of the case, petitioner cannot just issue LAs
without first terminating those previously issued. It
emphasized the fact that the BIR officers who filed and
signed the Affidavit-Complaint in this case were the
same ones who appeared as complainants in an earlier
case filed against Camus for his alleged "failure to obey
summons in violation of Section 5 punishable under
Section 266 of the NIRC of 1997" (I.S. No. 00-956 of the
Office of the City Prosecutor of Quezon City). After
preliminary investigation, said case was dismissed for
lack of probable cause in a Resolution issued by the
Investigating Prosecutor on May 2,
2001.17chanroblesvirtuallawlibrary
LMCEC further asserted that it filed on April 20, 2001 a
protest on the PAN issued by petitioner for having no
basis in fact and law. However, until now the said protest
remains unresolved. As to the alleged informant who
purportedly supplied the "confidential information,"
LMCEC believes that such person is fictitious and his
true identity and personality could not be produced.
Hence, this case is another form of harassment against
the company as what had been found by the Office of
the City Prosecutor of Quezon City in I.S. No. 00-956.
Said case and the present case both have something to
do with the audit/examination of LMCEC for taxable
years 1997, 1998 and 1999 pursuant to LA No.
00009361.18chanroblesvirtuallawlibrary
In the Joint Reply-Affidavit executed by the Bureaus
revenue officers, petitioner disagreed with the contention
AMOUNT OF TAXES
of LMCEC that the complaint filed is not criminal in
nature, pointing out that LMCEC and its officers Camus
and Mendoza were being charged for the criminal
EWT - P 6,000.00
offenses defined and penalized under Sections 254
(Attempt to Evade or Defeat Tax) and 255 (Willful Failure
to Pay Tax) of the NIRC. This finds support in Section
205 of the same Code which provides for administrative
(distraint, levy, fine, forfeiture, lien, etc.) and judicial
(criminal or civil action) remedies in order to enforce
collection of taxes. Both remedies may be pursued either
independently or simultaneously. In this case, the BIR
decided to simultaneously pursue both remedies and
thus aside from this criminal action, the Bureau also
initiated administrative proceedings against
LMCEC.19chanroblesvirtuallawlibrary
On the lack of control number in the assessment notice,
petitioner explained that such is a mere office
requirement in the Assessment Service for the purpose
of internal control and monitoring; hence, the
unnumbered assessment notices should not be
interpreted as irregular or anomalous. Petitioner stressed
that LMCEC already lost its right to file a protest letter
after the lapse of the thirty (30)-day reglementary period.
LMCECs protest-letter dated December 12, 2002 to
RDO Clavelina S. Nacar, RD No. 40, Cubao, Quezon
City was actually filed only on December 16, 2002, which
was disregarded by the petitioner for being filed out of
time. Even assuming for the sake of argument that the
assessment notices were invalid, petitioner contended
that such could not affect the present criminal
action,20cra1aw citing the ruling in the landmark case of
Ungab v. Cusi, Jr.21chanroblesvirtuallawlibrary
As to the Letter of Termination signed by Ruth Vivian G.
Gandia of the Assessment Division, Revenue Region
No. 7, Quezon City, petitioner pointed out that LMCEC
failed to mention that the undated Certification issued by
RDO Pablo C. Cabreros, Jr. of RD No. 40, Cubao,
Quezon City stated that the report of the 1997 Internal
Revenue taxes of LMCEC had already been submitted
for review and approval of higher authorities. LMCEC
also cannot claim as excuse from the reopening of its
books of accounts the previous investigations and
examinations. Under Section 235 (a), an exception was
provided in the rule on once a year audit examination in
case of "fraud, irregularity or mistakes, as determined by
the Commissioner". Petitioner explained that the
distinction between a Regular Audit Examination and
Tax Fraud Audit Examination lies in the fact that the
former is conducted by the district offices of the Bureaus
Regional Offices, the authority emanating from the
Regional Director, while the latter is conducted by the
TFD of the National Office only when instances of fraud
had been determined by the
petitioner.22chanroblesvirtuallawlibrary
Petitioner further asserted that LMCECs claim that it was
granted immunity from audit when it availed of the VAP
and ERAP programs is misleading. LMCEC failed to
state that its availment of ERAP under RR No. 2-99 is
not a grant of absolute immunity from audit and
investigation, aside from the fact that said program was
only for income tax and did not cover VAT and
withholding tax for the taxable year 1998. As for
LMCECS availment of VAP in 1999 under RR No. 8-
2001 dated August 1, 2001 as amended by RR No. 10-
2001 dated September 3, 2001, the company failed to
state that it covers only income tax and VAT, and did not
include withholding tax. However, LMCEC is not actually
entitled to the benefits of VAP under Section 1 (1.1 and
1.2) of RR No. 10-2001. As to the principle of estoppel
invoked by LMCEC, estoppel clearly does not lie against
the BIR as this involved the exercise of an inherent
power by the government to collect
taxes.23chanroblesvirtuallawlibrary
Petitioner also pointed out that LMCECs assertion
correlating this case with I.S. No. 00-956 is misleading
because said case involves another violation and
offense (Sections 5 and 266 of the NIRC). Said case
was filed by petitioner due to the failure of LMCEC to
submit or present its books of accounts and other
accounting records for examination despite the issuance
of subpoena duces tecum against Camus in his capacity
as President of LMCEC. While indeed a Resolution was
issued by Asst. City Prosecutor Titus C. Borlas on May
2, 2001 dismissing the complaint, the same is still on
appeal and pending resolution by the DOJ. The
determination of probable cause in said case is confined
to the issue of whether there was already a violation of
the NIRC by Camus in not complying with the subpoena
duces tecum issued by the
BIR.24chanroblesvirtuallawlibrary
Petitioner contended that precisely the reason for the
issuance to the TFD of LA No. 00009361 by the
Commissioner is because the latter agreed with the
findings of the investigating revenue officers that fraud
exists in this case. In the conduct of their investigation,
the revenue officers observed the proper procedure
under Revenue Memorandum Order (RMO) No. 49-2000
wherein it is required that before the issuance of a Letter
of Authority against a particular taxpayer, a preliminary
investigation should first be conducted to determine if a
prima facie case for tax fraud exists. As to the allegedly
unresolved protest filed on April 20, 2001 by LMCEC
over the PAN, this has been disregarded by the Bureau
for being pro forma and having been filed beyond the 15-
day reglementary period. A subsequent letter dated April
20, 2001 was filed with the TFD and signed by a certain
Juan Ventigan. However, this was disregarded and
considered a mere scrap of paper since the said
signatory had not shown any prior authorization to
represent LMCEC. Even assuming said protest letter
was validly filed on behalf of the company, the issuance
of a Formal Demand Letter and Assessment Notice
through constructive service on October 1, 2002 is
deemed an implied denial of the said protest. Lastly, the
details regarding the "informer" being confidential, such
information is entitled to some degree of protection,
including the identity of the informant against
LMCEC.25chanroblesvirtuallawlibrary
In their Joint Rejoinder-Affidavit,26cra1aw Camus and
Mendoza reiterated their argument that the identity of the
alleged informant is crucial to determine if he/she is
qualified under Section 282 of the NIRC. Moreover, there
was no assessment that has already become final, the
validity of its issuance and service has been put in issue
being anomalous, irregular and oppressive. It is
contended that for criminal prosecution to proceed
before assessment, there must be a prima facie showing
of a willful attempt to evade taxes. As to LMCECs
availment of the VAP and ERAP programs, the
certificate of immunity from audit issued to it by the BIR
is plain and simple, but petitioner is now saying it has the
right to renege with impunity from its undertaking.
Though petitioner deems LMCEC not qualified to avail of
the benefits of VAP, it must be noted that if it is true that
at the time the petitioner filed I.S. No. 00-956 sometime
in January 2001 it had already in its custody that
"Confidential Information No. 29-2000 dated July 7,
2000", these revenue officers could have rightly filed the
instant case and would not resort to filing said criminal
complaint for refusal to comply with a subpoena duces
tecum.
On September 22, 2003, the Chief State Prosecutor
issued a Resolution27cra1aw finding no sufficient
evidence to establish probable cause against
respondents LMCEC, Camus and Mendoza. It was held
that since the payments were made by LMCEC under
ERAP and VAP pursuant to the provisions of RR Nos. 2-
99 and 8-2001 which were offered to taxpayers by the
BIR itself, the latter is now in estoppel to insist on the
criminal prosecution of the respondent taxpayer. The
voluntary payments made thereunder are in the nature of
a tax amnesty. The unnumbered assessment notices
were found highly irregular and thus their validity is
suspect; if the amounts indicated therein were collected,
it is uncertain how these will be accounted for and if it
would go to the coffers of the government or elsewhere.
On the required prior determination of fraud, the Chief
State Prosecutor declared that the Office of the City
Prosecutor in I.S. No. 00-956 has already squarely ruled
that (1) there was no prior determination of fraud, (2)
there was indiscriminate issuance of LAs, and (3) the
complaint was more of harassment. In view of such
findings, any ensuing LA is thus defective and allowing
the collection on the assailed assessment notices would
already be in the context of a "fishing expedition" or
"witch-hunting." Consequently, there is nothing to speak
of regarding the finality of assessment notices in the
aggregate amount of P630,164,631.61.
Petitioner filed a motion for reconsideration which was
denied by the Chief State
Prosecutor.28chanroblesvirtuallawlibrary
Petitioner appealed to respondent Secretary of Justice
but the latter denied its petition for review under
Resolution dated December 13,
2005.29chanroblesvirtuallawlibrary
The Secretary of Justice found that petitioners claim that
there is yet no finality as to LMCECs payment of its 1997
taxes since the audit report was still pending review by
higher authorities, is unsubstantiated and misplaced. It
was noted that the Termination Letter issued by the
Commissioner on June 1, 1999 is explicit that the matter
is considered closed. As for taxable year 1998,
respondent Secretary stated that the record shows that
LMCEC paid VAT and withholding tax in the amount
of P61,635.40 and P38,404.55, respectively. This
eventually gave rise to the issuance of a certificate of
immunity from audit for 1998 by the Office of the
Commissioner of Internal Revenue. For taxable year
1999, respondent Secretary found that pursuant to
earlier LA No. 38633 dated July 4, 2000, LMCECs 1999
tax liabilities were still pending investigation for which
reason LMCEC assailed the subsequent issuance of LA
No. 00009361 dated August 25, 2000 calling for a similar
investigation of its alleged 1999 tax deficiencies when no
final determination has yet been arrived on the earlier LA
No. 38633.30chanroblesvirtuallawlibrary
On the allegation of fraud, respondent Secretary ruled
that petitioner failed to establish the existence of the
following circumstances indicating fraud in the settlement
of LMCECs tax liabilities: (1) there must be intentional
and substantial understatement of tax liability by the
taxpayer; (2) there must be intentional and substantial
overstatement of deductions or exemptions; and (3)
recurrence of the foregoing circumstances. First,
petitioner miserably failed to explain why the assessment
notices were unnumbered; second, the claim that the tax
fraud investigation was precipitated by an alleged
"informant" has not been corroborated nor was it clearly
established, hence there is no other conclusion but that
the Bureau engaged in a "fishing expedition"; and
furthermore, petitioners course of action is contrary to
Section 235 of the NIRC allowing only once in a given
taxable year such examination and inspection of the
taxpayers books of accounts and other accounting
records. There was no convincing proof presented by
petitioner to show that the case of LMCEC falls under
the exceptions provided in Section 235. Respondent
Secretary duly considered the issuance of Certificate of
Immunity from Audit and Letter of Termination dated
June 1, 1999 issued to
LMCEC.31chanroblesvirtuallawlibrary
Anent the earlier case filed against the same taxpayer
(I.S. No. 00-956), the Secretary of Justice found
petitioner to have engaged in forum shopping in view of
the fact that while there is still pending an appeal from
the Resolution of the City Prosecutor of Quezon City in
said case, petitioner hurriedly filed the instant case,
which not only involved the same parties but also similar
substantial issues (the joint complaint-affidavit also
alleged the issuance of LA No. 00009361 dated August
25, 2000). Clearly, the evidence of litis pendentia is
present. Finally, respondent Secretary noted that if
indeed LMCEC committed fraud in the settlement of its
tax liabilities, then at the outset, it should have been
discovered by the agents of petitioner, and consequently
petitioner should not have issued the Letter of
Termination and the Certificate of Immunity From Audit.
Petitioner thus should have been more circumspect in
the issuance of said
documents.32chanroblesvirtuallawlibrary
Its motion for reconsideration having been denied,
petitioner challenged the ruling of respondent Secretary
via a certiorari petition in the CA.
On October 31, 2006, the CA rendered the assailed
decision33cra1aw denying the petition and concurred with
the findings and conclusions of respondent Secretary.
Petitioners motion for reconsideration was likewise
denied by the appellate court.34cra1aw It appears that
entry of judgment was issued by the CA stating that its
October 31, 2006 Decision attained finality on March 25,
2007.35cra1aw However, the said entry of judgment was
set aside upon manifestation by the petitioner that it has
filed a petition for review before this Court subsequent to
its receipt of the Resolution dated March 6, 2007
denying petitioners motion for reconsideration on March
20, 2007.36chanroblesvirtuallawlibrary
The petition is anchored on the following
grounds:chanroblesvirtualawlibrary
I.
The Honorable Court of Appeals erroneously sustained
the findings of the Secretary of Justice who gravely
abused his discretion by dismissing the complaint based
on grounds which are not even elements of the offenses
charged.
II.
The Honorable Court of Appeals erroneously sustained
the findings of the Secretary of Justice who gravely
abused his discretion by dismissing petitioners evidence,
contrary to law.
III.
The Honorable Court of Appeals erroneously sustained
the findings of the Secretary of Justice who gravely
abused his discretion by inquiring into the validity of a
Final Assessment Notice which has become final,
executory and demandable pursuant to Section 228 of
the Tax Code of 1997 for failure of private respondent to
file a protest against the
same.37chanroblesvirtuallawlibrary
The core issue to be resolved is whether LMCEC and its
corporate officers may be prosecuted for violation of
Sections 254 (Attempt to Evade or Defeat Tax) and 255
(Willful Failure to Supply Correct and Accurate
Information and Pay Tax).  inquire into its validity. Respondent taxpayer is thereby
Petitioner filed the criminal complaint against the private
respondents for violation of the following provisions of
the NIRC, as amended:chanroblesvirtualawlibrary
SEC. 254. Attempt to Evade or Defeat Tax. Any person
who willfully attempts in any manner to evade or defeat
any tax imposed under this Code or the payment thereof
shall, in addition to other penalties provided by law, upon
conviction thereof, be punished by a fine of not less than
Thirty thousand pesos (P30,000) but not more than One
hundred thousand pesos (P100,000) and suffer
imprisonment of not less than two (2) years but not more
than four (4) years: Provided, That the conviction or
acquittal obtained under this Section shall not be a bar to
the filing of a civil suit for the collection of taxes.
SEC. 255. Failure to File Return, Supply Correct and
Accurate Information, Pay Tax, Withhold and Remit Tax
and Refund Excess Taxes Withheld on Compensation.
Any person required under this Code or by rules and
regulations promulgated thereunder to pay any tax,
make a return, keep any record, or supply any correct
and accurate information, who willfully fails to pay such
tax, make such return, keep such record, or supply such
correct and accurate information, or withhold or remit
taxes withheld, or refund excess taxes withheld on
compensations at the time or times required by law or
rules and regulations shall, in addition to other penalties
provided by law, upon conviction thereof, be punished by
a fine of not less than Ten thousand pesos (P10,000)
and suffer imprisonment of not less than one (1) year but
not more than ten (10) years. 
x x x x (Emphasis supplied.)
Respondent Secretary concurred with the Chief State
Prosecutors conclusion that there is insufficient evidence
to establish probable cause to charge private
respondents under the above provisions, based on the
following findings: (1) the tax deficiencies of LMCEC for
taxable years 1997, 1998 and 1999 have all been settled
or terminated, as in fact LMCEC was issued a Certificate
of Immunity and Letter of Termination, and availed of the
ERAP and VAP programs; (2) there was no prior
determination of the existence of fraud; (3) the
assessment notices are unnumbered, hence irregular
and suspect; (4) the books of accounts and other
accounting records may be subject to audit examination
only once in a given taxable year and there is no proof
that the case falls under the exceptions provided in
Section 235 of the NIRC; and (5) petitioner committed
forum shopping when it filed the instant case even as the
earlier criminal complaint (I.S. No. 00-956) dismissed by
the City Prosecutor of Quezon City was still pending
appeal.
Petitioner argues that with the finality of the assessment
due to failure of the private respondents to challenge the
same in accordance with Section 228 of the NIRC,
respondent Secretary has no jurisdiction and authority to
allowed to do indirectly what it cannot do directly to raise
a collateral attack on the assessment when even a direct
challenge of the same is legally barred. The rationale for
dismissing the complaint on the ground of lack of control
number in the assessment notice likewise betrays a lack
of awareness of tax laws and jurisprudence, such
circumstance not being an element of the offense.
Worse, the final, conclusive and undisputable evidence
detailing a crime under our taxation laws is swept under
the rug so easily on mere conspiracy theories imputed
on persons who are not even the subject of the
complaint.  00-956 involving the act of disobedience to the summons
We grant the petition.
There is no dispute that prior to the filing of the complaint
with the DOJ, the report on the tax fraud investigation
conducted on LMCEC disclosed that it made substantial
underdeclarations in its income tax returns for 1997,
1998 and 1999. Pursuant to RR No. 12-99,38cra1aw a
PAN was sent to and received by LMCEC on February
22, 2001 wherein it was notified of the proposed
assessment of deficiency taxes amounting
to P430,958,005.90 (income tax - P318,606,380.19 and
VAT - P112,351,625.71) covering taxable years 1997,
1998 and 1999.39cra1aw In response to said PAN,
LMCEC sent a letter-protest to the TFD, which denied
the same on April 12, 2001 for lack of legal and factual
basis and also for having been filed beyond the 15-day
reglementary period.40chanroblesvirtuallawlibrary
As mentioned in the PAN, the revenue officers were not
given the opportunity to examine LMCECs books of
accounts and other accounting records because its
officers failed to comply with the subpoena duces tecum
earlier issued, to verify its alleged underdeclarations of
income reported by the Bureaus informant under Section
282 of the NIRC. Hence, a criminal complaint was filed
by the Bureau against private respondents for violation
of Section 266 which provides:chanroblesvirtualawlibrary
SEC. 266. Failure to Obey Summons. Any person who,
being duly summoned to appear to testify, or to appear
and produce books of accounts, records, memoranda, or
other papers, or to furnish information as required under
the pertinent provisions of this Code, neglects to appear
or to produce such books of accounts, records,
memoranda, or other papers, or to furnish such
information, shall, upon conviction, be punished by a fine
of not less than Five thousand pesos (P5,000) but not
more than Ten thousand pesos (P10,000) and suffer
imprisonment of not less than one (1) year but not more
than two (2) years.
It is clear that I.S. No. 00-956 involves a separate
offense and hence litis pendentia is not present
considering that the outcome of I.S. No. 00-956 is not
determinative of the issue as to whether probable cause
exists to charge the private respondents with the crimes
of attempt to evade or defeat tax and willful failure to
supply correct and accurate information and pay tax
defined and penalized under Sections 254 and 255,
respectively. For the crime of tax evasion in particular,
compliance by the taxpayer with such subpoena, if any
had been issued, is irrelevant. As we held in Ungab v.
Cusi, Jr.,41cra1aw "[t]he crime is complete when the
[taxpayer] has x x x knowingly and willfully filed [a]
fraudulent [return] with intent to evade and defeat x x x
the tax." Thus, respondent Secretary erred in holding
that petitioner committed forum shopping when it filed
the present criminal complaint during the pendency of its
appeal from the City Prosecutors dismissal of I.S. No.
in the course of the preliminary investigation on LMCECs
correct tax liabilities for taxable years 1997, 1998 and
1999.
In the Details of Discrepancies attached as Annex B of
the PAN,42cra1aw private respondents were already
notified that inasmuch as the revenue officers were not
given the opportunity to examine LMCECs books of
accounts, accounting records and other documents, said
revenue officers gathered information from third parties.
Such procedure is authorized under Section 5 of the
NIRC, which provides:chanroblesvirtualawlibrary
SEC. 5. Power of the Commissioner to Obtain
Information, and to Summon, Examine, and Take
Testimony of Persons. In ascertaining the correctness of
any return, or in making a return when none has been
made, or in determining the liability of any person for any
internal revenue tax, or in collecting any such liability, or
in evaluating tax compliance, the Commissioner is
authorized:chanroblesvirtualawlibrary
(A) To examine any book, paper, record or other data
which may be relevant or material to such inquiry;
(B) To obtain on a regular basis from any person other
than the person whose internal revenue tax liability is
subject to audit or investigation, or from any office or
officer of the national and local governments,
government agencies and instrumentalities, including the
Bangko Sentral ng Pilipinas and government-owned or
-controlled corporations, any information such as, but not
limited to, costs and volume of production, receipts or
sales and gross incomes of taxpayers, and the names,
addresses, and financial statements of corporations,
mutual fund companies, insurance companies, regional
operating headquarters of multinational companies, joint
accounts, associations, joint ventures or consortia and
registered partnerships, and their members;
(C) To summon the person liable for tax or required to
file a return, or any officer or employee of such person,
or any person having possession, custody, or care of the
books of accounts and other accounting records
containing entries relating to the business of the person
liable for tax, or any other person, to appear before the
Commissioner or his duly authorized representative at a
time and place specified in the summons and to produce
such books, papers, records, or other data, and to give
testimony;
(D) To take such testimony of the person concerned,
under oath, as may be relevant or material to such
inquiry; x x x
x x x x (Emphasis supplied.)
Private respondents assertions regarding the
qualifications of the "informer" of the Bureau deserve
scant consideration. We have held that the lack of
consent of the taxpayer under investigation does not
imply that the BIR obtained the information from third
parties illegally or that the information received is false or
malicious. Nor does the lack of consent preclude the BIR
from assessing deficiency taxes on the taxpayer based
on the documents.43cra1aw In the same vein, herein
private respondents cannot be allowed to escape
criminal prosecution under Sections 254 and 255 of the
NIRC by mere imputation of a "fictitious" or disqualified
informant under Section 282 simply because other than
disclosure of the official registry number of the third party
"informer," the Bureau insisted on maintaining the
confidentiality of the identity and personal circumstances
of said "informer."
Subsequently, petitioner sent to LMCEC by constructive
service allowed under Section 3 of RR No. 12-99,
assessment notice and formal demand informing the
said taxpayer of the law and the facts on which the
assessment is made, as required by Section 228 of the
NIRC. Respondent Secretary, however, fully concurred
with private respondents contention that the assessment
notices were invalid for being unnumbered and the tax
liabilities therein stated have already been settled and/or
terminated.
We do not agree.
A notice of assessment is:chanroblesvirtualawlibrary
[A] declaration of deficiency taxes issued to a [t]axpayer
who fails to respond to a Pre-Assessment Notice (PAN)
within the prescribed period of time, or whose reply to
the PAN was found to be without merit. The Notice of
Assessment shall inform the [t]axpayer of this fact, and
that the report of investigation submitted by the Revenue
Officer conducting the audit shall be given due course.
The formal letter of demand calling for payment of the
taxpayers deficiency tax or taxes shall state the fact,
the law, rules and regulations or jurisprudence on
which the assessment is based, otherwise the formal
letter of demand and the notice of assessment shall
be void.44chanroblesvirtuallawlibrary
As it is, the formality of a control number in the
assessment notice is not a requirement for its validity but
rather the contents thereof which should inform the
taxpayer of the declaration of deficiency tax against said
taxpayer. Both the formal letter of demand and the notice
of assessment shall be void if the former failed to state
the fact, the law, rules and regulations or jurisprudence
on which the assessment is based, which is a mandatory
requirement under Section 228 of the NIRC. 
Section 228 of the NIRC provides that the taxpayer shall
be informed in writing of the law and the facts on which
the assessment is made. Otherwise, the assessment is
void. To implement the provisions of Section 228 of the
NIRC, RR No. 12-99 was enacted. Section 3.1.4 of the
revenue regulation reads:chanroblesvirtualawlibrary
3.1.4. Formal Letter of Demand and Assessment
Notice.  The formal letter of demand and assessment
notice shall be issued by the Commissioner or his duly
authorized representative. The letter of demand calling
for payment of the taxpayers deficiency tax or taxes
shall state the facts, the law, rules and regulations,
or jurisprudence on which the assessment is based,
otherwise, the formal letter of demand and
assessment notice shall be void. The same shall be
sent to the taxpayer only by registered mail or by
personal delivery. x x x.45cra1aw (Emphasis supplied.)
The Formal Letter of Demand dated August 7, 2002
contains not only a detailed computation of LMCECs tax
deficiencies but also details of the specified
discrepancies, explaining the legal and factual bases of
the assessment. It also reiterated that in the absence of
accounting records and other documents necessary for
the proper determination of the companys internal
revenue tax liabilities, the investigating revenue officers
resorted to the "Best Evidence Obtainable" as provided
in Section 6(B) of the NIRC (third party information) and
in accordance with the procedure laid down in RMC No.
23-2000 dated November 27, 2000. Annex "A" of the
Formal Letter of Demand thus
stated:chanroblesvirtualawlibrary
Thus, to verify the validity of the information previously
provided by the informant, the assigned revenue officers
resorted to third party information. Pursuant to Section
5(B) of the NIRC of 1997, access letters requesting for
information and the submission of certain documents
(i.e., Certificate of Income Tax Withheld at Source and/or
Alphabetical List showing the income payments made to
L.M. Camus Engineering Corporation for the taxable
years 1997 to 1999) were sent to the various clients of
the subject corporation, including but not limited to the
following:chanroblesvirtualawlibrary
1. Ayala Land Inc.
2. Filinvest Alabang Inc.
3. D.M. Consunji, Inc.
4. SM Prime Holdings, Inc.
5. Alabang Commercial Corporation
6. Philam Properties Corporation
7. SM Investments, Inc.
8. Shoemart, Inc.
9. Philippine Securities Corporation
10. Makati Development Corporation
From the documents gathered and the data obtained
therein, the substantial underdeclaration as defined
under Section 248(B) of the NIRC of 1997 by your
corporation of its income had been confirmed. x x x
x46cra1aw (Emphasis supplied.)
In the same letter, Assistant Commissioner Percival T.
Salazar informed private respondents that the estimated
tax liabilities arising from LMCECs underdeclaration
amounted to P186,773,600.84 in 1997, P150,069,323.81
in 1998 and P163,220,111.13 in 1999. These figures
confirmed that the non-declaration by LMCEC for the
taxable years 1997, 1998 and 1999 of an amount
exceeding 30% income47cra1aw declared in its return is
considered a substantial underdeclaration of income,
which constituted prima facie evidence of false or
fraudulent return under Section 248(B)48cra1aw of the
NIRC, as amended.49chanroblesvirtuallawlibrary
On the alleged settlement of the assessed tax
deficiencies by private respondents, respondent
Secretary found the latters claim as meritorious on the
basis of the Certificate of Immunity From Audit issued on
December 6, 1999 pursuant to RR No. 2-99 and Letter of
Termination dated June 1, 1999 issued by Revenue
Region No. 7 Chief of Assessment Division Ruth Vivian
G. Gandia. Petitioner, however, clarified that the
certificate of immunity from audit covered only income
tax for the year 1997 and does not include VAT and
withholding taxes, while the Letter of Termination
involved tax liabilities for taxable year 1997 (EWT, VAT
and income taxes) but which was submitted for review of
higher authorities as per the Certification of RD No. 40
District Officer Pablo C. Cabreros, Jr.50cra1aw For 1999,
private respondents supposedly availed of the VAP
pursuant to RR No. 8-2001.
RR No. 2-99 issued on February 7, 1999 explained in its
Policy Statement that considering the scarcity of financial
and human resources as well as the time constraints
within which the Bureau has to "clean the Bureaus
backlog of unaudited tax returns in order to keep
updated and be focused with the most current accounts"
in preparation for the full implementation of a
computerized tax administration, the said revenue
regulation was issued "providing for last priority in audit
and investigation of tax returns" to accomplish the said
objective "without, however, compromising the revenue
collection that would have been generated from audit
and enforcement activities." The program named as
"Economic Recovery Assistance Payment (ERAP)
Program" granted immunity from audit and investigation
of income tax, VAT and percentage tax returns for 1998.
It expressly excluded withholding tax returns (whether for
income, VAT, or percentage tax purposes). Since such
immunity from audit and investigation does not preclude
the collection of revenues generated from audit and
enforcement activities, it follows that the Bureau is
likewise not barred from collecting any tax deficiency
discovered as a result of tax fraud investigations.
Respondent Secretarys opinion that RR No. 2-99
contains the feature of a tax amnesty is thus misplaced. 
Tax amnesty is a general pardon to taxpayers who want
to start a clean tax slate. It also gives the government a
chance to collect uncollected tax from tax evaders
without having to go through the tedious process of a tax
case.51cra1aw Even assuming arguendo that the
issuance of RR No. 2-99 is in the nature of tax amnesty,
it bears noting that a tax amnesty, much like a tax
exemption, is never favored nor presumed in law and if
granted by statute, the terms of the amnesty like that of a
tax exemption must be construed strictly against the
taxpayer and liberally in favor of the taxing
authority.52chanroblesvirtuallawlibrary
For the same reason, the availment by LMCEC of VAP
under RR No. 8-2001 as amended by RR No. 10-2001,
through payment supposedly made in October 29, 2001
before the said program ended on October 31, 2001, did
not amount to settlement of its assessed tax deficiencies
for the period 1997 to 1999, nor immunity from
prosecution for filing fraudulent return and attempt to
evade or defeat tax. As correctly asserted by petitioner,
from the express terms of the aforesaid revenue
regulations, LMCEC is not qualified to avail of the VAP
granting taxpayers the privilege of last priority in the
audit and investigation of all internal revenue taxes for
the taxable year 2000 and all prior years under certain
conditions, considering that first, it was issued a PAN on
February 19, 2001, and second, it was the subject of
investigation as a result of verified information filed by a
Tax Informer under Section 282 of the NIRC duly
recorded in the BIR Official Registry as Confidential
Information (CI) No. 29-200053cra1aw even prior to the
issuance of the PAN. 
Section 1 of RR No. 8-2001
provides:chanroblesvirtualawlibrary
SECTION 1. COVERAGE. x x x
Any person, natural or juridical, including estates and
trusts, liable to pay any of the above-cited internal
revenue taxes for the above specified period/s who, due
to inadvertence or otherwise, erroneously paid his
internal revenue tax liabilities or failed to file tax
return/pay taxes may avail of the Voluntary Assessment
Program (VAP), except those falling under any of the
following instances:chanroblesvirtualawlibrary
1.1 Those covered by a Preliminary Assessment Notice
(PAN), Final Assessment Notice (FAN), or Collection
Letter issued on or before July 31, 2001; or  correctly pointed out by petitioner, the discovery of
1.2 Persons under investigation as a result of verified
information filed by a Tax Informer under Section 282 of
the Tax Code of 1997, duly processed and recorded in
the BIR Official Registry Book on or before July 31,
2001;
1.3 Tax fraud cases already filed and pending in courts
for adjudication; and
x x x x (Emphasis supplied.)
Moreover, private respondents cannot invoke LMCECs
availment of VAP to foreclose any subsequent audit of
its account books and other accounting records in view
of the strong finding of underdeclaration in LMCECs
payment of correct income tax liability by more than 30%
as supported by the written report of the TFD detailing
the facts and the law on which such finding is based,
pursuant to the tax fraud investigation authorized by
petitioner under LA No. 00009361. This conclusion finds
support in Section 2 of RR No. 8-2001 as amended by
RR No. 10-2001 provides:chanroblesvirtualawlibrary
SEC. 2. TAXPAYERS BENEFIT FROM AVAILMENT
OF THE VAP. A taxpayer who has availed of the VAP
shall not be audited except upon authorization and
approval of the Commissioner of Internal Revenue when
there is strong evidence or finding of understatement in
the payment of taxpayers correct tax liability by more
than thirty percent (30%) as supported by a written
report of the appropriate office detailing the facts and the
law on which such finding is based: Provided, however,
that any VAP payment should be allowed as tax credit
against the deficiency tax due, if any, in case the
concerned taxpayer has been subjected to tax audit.
xxxx
Given the explicit conditions for the grant of immunity
from audit under RR No. 2-99, RR No. 8-2001 and RR
No. 10-2001, we hold that respondent Secretary gravely
erred in declaring that petitioner is now estopped from
assessing any tax deficiency against LMCEC after
issuance of the aforementioned documents of immunity
from audit/investigation and settlement of tax liabilities. It
is axiomatic that the State can never be in estoppel, and
this is particularly true in matters involving taxation. The
errors of certain administrative officers should never be
allowed to jeopardize the governments financial
position.54chanroblesvirtuallawlibrary
Respondent Secretarys other ground for assailing the
course of action taken by petitioner in proceeding with
the audit and investigation of LMCEC -- the alleged
violation of the general rule in Section 235 of the NIRC
allowing the examination and inspection of taxpayers
books of accounts and other accounting records only
once in a taxable year -- is likewise untenable. As
substantial underdeclarations of income by LMCEC for
taxable years 1997, 1998 and 1999 upon verified
information provided by an "informer" under Section 282
of the NIRC, as well as the necessity of obtaining
information from third parties to ascertain the
correctness of the return filed or evaluation of tax
compliance in collecting taxes (as a result of the
disobedience to the summons issued by the Bureau
against the private respondents), are circumstances
warranting exception from the general rule in Section
235.55chanroblesvirtuallawlibrary
As already stated, the substantial underdeclared income
in the returns filed by LMCEC for 1997, 1998 and 1999
in amounts equivalent to more than 30% (the
computation in the final assessment notice showed
underdeclarations of almost 200%) constitutes prima
facie evidence of fraudulent return under Section 248(B)
of the NIRC. Prior to the issuance of the preliminary and
final notices of assessment, the revenue officers
conducted a preliminary investigation on the information
and documents showing substantial understatement of
LMCECs tax liabilities which were provided by the
Informer, following the procedure under RMO No. 15-
95.56cra1aw Based on the prima facie finding of the
existence of fraud, petitioner issued LA No. 00009361 for
the TFD to conduct a formal fraud investigation of
LMCEC.57cra1aw Consequently, respondent Secretarys
ruling that the filing of criminal complaint for violation of
Sections 254 and 255 of the NIRC cannot prosper
because of lack of prior determination of the existence of
fraud, is bereft of factual basis and contradicted by the
evidence on record. 
Tax assessments by tax examiners are presumed
correct and made in good faith, and all presumptions are
in favor of the correctness of a tax assessment unless
proven otherwise.58cra1aw We have held that a
taxpayers failure to file a petition for review with the
Court of Tax Appeals within the statutory period
rendered the disputed assessment final, executory and
demandable, thereby precluding it from interposing the
defenses of legality or validity of the assessment and
prescription of the Governments right to
assess.59cra1aw Indeed, any objection against the
assessment should have been pursued following the
avenue paved in Section 229 (now Section 228) of the
NIRC on protests on assessments of internal revenue
taxes.60chanroblesvirtuallawlibrary
Records bear out that the assessment notice and Formal
Letter of Demand dated August 7, 2002 were duly
served on LMCEC on October 1, 2002. Private
respondents did not file a motion for reconsideration of
the said assessment notice and formal demand; neither
did they appeal to the Court of Tax Appeals. Section 228
of the NIRC61cra1aw provides the remedy to dispute a
tax assessment within a certain period of time. It states
that an assessment may be protested by filing a request
for reconsideration or reinvestigation within 30 days from
receipt of the assessment by the taxpayer. No such
administrative protest was filed by private respondents
seeking reconsideration of the August 7, 2002
assessment notice and formal letter of demand. Private
respondents cannot belatedly assail the said
assessment, which they allowed to lapse into finality, by
raising issues as to its validity and correctness during the
preliminary investigation after the BIR has referred the
matter for prosecution under Sections 254 and 255 of
the NIRC.  WHEREFORE, the petition is GRANTED. The Decision
As we held in Marcos II v. Court of
Appeals62cra1aw :chanroblesvirtualawlibrary
It is not the Department of Justice which is the
government agency tasked to determine the amount of
taxes due upon the subject estate, but the Bureau of
Internal Revenue, whose determinations and
assessments are presumed correct and made in good
faith. The taxpayer has the duty of proving otherwise. In
the absence of proof of any irregularities in the
performance of official duties, an assessment will not be
disturbed. Even an assessment based on estimates
is prima facie valid and lawful where it does not appear
to have been arrived at arbitrarily or capriciously. The
burden of proof is upon the complaining party to show
clearly that the assessment is erroneous. Failure to
present proof of error in the assessment will justify the
judicial affirmance of said assessment. x x x.
Moreover, these objections to the assessments should
have been raised, considering the ample remedies
afforded the taxpayer by the Tax Code, with the Bureau
of Internal Revenue and the Court of Tax Appeals, as
described earlier, and cannot be raised now via Petition
forCertiorari, under the pretext of grave abuse of
discretion. The course of action taken by the petitioner
reflects his disregard or even repugnance of the
established institutions for governance in the scheme of
a well-ordered society. The subject tax assessments
having become final, executory and enforceable, the
same can no longer be contested by means of a
disguised protest. In the main, Certiorari may not be
used as a substitute for a lost appeal or remedy. This
judicial policy becomes more pronounced in view of the
absence of sufficient attack against the actuations of
government. (Emphasis supplied.)
The determination of probable cause is part of the
discretion granted to the investigating prosecutor and
ultimately, the Secretary of Justice. However, this Court
and the CA possess the power to review findings of
prosecutors in preliminary investigations. Although policy
considerations call for the widest latitude of deference to
the prosecutors findings, courts should never shirk from
exercising their power, when the circumstances warrant,
to determine whether the prosecutors findings are
supported by the facts, or by the law. In so doing, courts
do not act as prosecutors but as organs of the judiciary,
exercising their mandate under the Constitution, relevant
statutes, and remedial rules to settle cases and
controversies.63cra1aw Clearly, the power of the
Secretary of Justice to review does not preclude this
Court and the CA from intervening and exercising our
own powers of review with respect to the DOJs findings,
such as in the exceptional case in which grave abuse of
discretion is committed, as when a clear sufficiency or
insufficiency of evidence to support a finding of probable
cause is ignored.64chanroblesvirtuallawlibrary
dated October 31, 2006 and Resolution dated March 6,
2007 of the Court of Appeals in CA-G.R. SP No. 93387
are hereby REVERSED and SET ASIDE. The Secretary
of Justice is hereby DIRECTED to order the Chief State
Prosecutor to file before the Regional Trial Court of
Quezon City, National Capital Judicial Region, the
corresponding Information against L. M. Camus
Engineering Corporation, represented by its President
Luis M. Camus and Comptroller Lino D. Mendoza, for
Violation of Sections 254 and 255 of the National Internal
Revenue Code of 1997.
G.R. No. 166387             January 19, 2009
COMMISSIONER OF INTERNAL
REVENUE, Petitioners, 
vs.
ENRON SUBIC
POWERCORPORATION, Respondents.
RESOLUTION
CORONA, J.:
In this petition for review on certiorari under Rule 45 of
the Rules of Court, petitioner Commissioner of Internal
Revenue (CIR) assails the November 24, 2004
decision1 of the Court of Appeals (CA) annulling the
formal assessment notice issued by the CIR against
respondent Enron Subic Power Corporation (Enron) for
failure to state the legal and factual bases for such
assessment.
Enron, a domestic corporation registered with the Subic
Bay Metropolitan Authority as a freeport enterprise,2 filed
its annual income tax return for the year 1996 on April
12, 1997. It indicated a net loss of P7,684,948.
Subsequently, the Bureau of Internal Revenue, through
a preliminary five-day letter,3 informed it of a proposed
assessment of an alleged P2,880,817.25 deficiency
income tax.4 Enron disputed the proposed deficiency
assessment in its first protest letter.5
On May 26, 1999, Enron received from the CIR a formal
assessment notice6 requiring it to pay the alleged
deficiency income tax of P2,880,817.25 for the taxable
year 1996. Enron protested this deficiency tax
assessment.7
Due to the non-resolution of its protest within the 180-
day period, Enron filed a petition for review in the Court
of Tax Appeals (CTA). It argued that the deficiency tax
assessment disregarded the provisions of Section 228 of
the National Internal Revenue Code (NIRC), as
amended,8and Section 3.1.4 of Revenue Regulations
(RR) No. 12-999by not providing the legal and factual
bases of the assessment. Enron likewise questioned the
substantive validity of the assessment.10
In a decision dated September 12, 2001, the CTA
granted Enron’s petition and ordered the cancellation of
its deficiency tax assessment for the year 1996. The
CTA reasoned that the assessment notice sent to Enron
failed to comply with the requirements of a valid written
notice under Section 228 of the NIRC and RR No. 12-99.
The CIR’s motion for reconsideration of the CTA
decision was denied in a resolution dated November 12,
2001.
The CIR appealed the CTA decision to the CA but the
CA affirmed it. The CA held that the audit working
papers did not substantially comply with Section 228 of
the NIRC and RR No. 12-99 because they failed to show
the applicability of the cited law to the facts of the
assessment. The CIR filed a motion for reconsideration
but this was deemed abandoned when he filed a motion
for extension to file a petition for review in this Court.
The CIR now argues that respondent was informed of
the legal and factual bases of the deficiency assessment
against it.
We adopt in toto the findings of fact of the CTA, as
affirmed by the CA. In Compagnie Financiere Sucres et
Denrees v. CIR,11 we held:
We reiterate the well-established doctrine that as a
matter of practice and principle, [we] will not set aside
the conclusion reached by an agency, like the CTA,
especially if affirmed by the [CA]. By the very nature of
its function, it has dedicated itself to the study and
consideration of tax problems and has necessarily
developed an expertise on the subject, unless there has
been an abuse or improvident exercise of authority on its
part, which is not present here.
The CIR errs in insisting that the notice of assessment in
question complied with the requirements of the NIRC
and RR No. 12-99.
A notice of assessment is:
[A] declaration of deficiency taxes issued to a [t]axpayer
who fails to respond to a Pre-Assessment Notice (PAN)
within the prescribed period of time, or whose reply to
the PAN was found to be without merit. The Notice of
Assessment shall inform the [t]axpayer of this fact, and
that the report of investigation submitted by the Revenue
Officer conducting the audit shall be given due course.
The formal letter of demand calling for payment of the
taxpayer’s deficiency tax or taxes shall state the fact,
the law, rules and regulations or jurisprudence on
which the assessment is based, otherwise the formal
letter of demand and the notice of assessment shall
be void. (emphasis supplied)12
Section 228 of the NIRC provides that the taxpayer shall
be informed in writing of the law and the facts on which
the assessment is made. Otherwise, the assessment is
void. To implement the provisions of Section 228 of the
NIRC, RR No. 12-99 was enacted. Section 3.1.4 of the
revenue regulation reads:
3.1.4. Formal Letter of Demand and Assessment
Notice. – The formal letter of demand and assessment
notice shall be issued by the Commissioner or his duly
authorized representative. The letter of demand calling
for payment of the taxpayer’s deficiency tax or taxes
shall state the facts, the law, rules and regulations,
or jurisprudence on which the assessment is based,
otherwise, the formal letter of demand and
assessment notice shall be void. The same shall be
sent to the taxpayer only by registered mail or by
personal delivery. xxx (emphasis supplied)
It is clear from the foregoing that a taxpayer must be
informed in writing of the legal and factual bases of the
tax assessment made against him. The use of the word
“shall” in these legal provisions indicates the mandatory
nature of the requirements laid down therein. We note
the CTA’s findings:
In [this] case, [the CIR] merely issued a formal
assessment and indicated therein the supposed tax,
surcharge, interest and compromise penalty due
thereon. The Revenue Officers of the [the CIR] in the
issuance of the Final Assessment Notice did not provide
Enron with the written bases of the law and facts on
which the subject assessment is based. [The CIR] did
not bother to explain how it arrived at such an
assessment. Moreso, he failed to mention the specific
provision of the Tax Code or rules and regulations which
were not complied with by Enron.13
Both the CTA and the CA concluded that the deficiency
tax assessment merely itemized the deductions
disallowed and included these in the gross income. It
also imposed the preferential rate of 5% on some items
categorized by Enron as costs. The legal and factual
bases were, however, not indicated.
The CIR insists that an examination of the facts shows
that Enron was properly apprised of its tax deficiency.
During the pre-assessment stage, the CIR advised
Enron’s representative of the tax deficiency, informed it
of the proposed tax deficiency assessment through a
preliminary five-day letter and furnished Enron a copy of
the audit working paper14 allegedly showing in detail the
legal and factual bases of the assessment. The CIR
argues that these steps sufficed to inform Enron of the
laws and facts on which the deficiency tax assessment
was based.
We disagree. The advice of tax deficiency, given by the
CIR to an employee of Enron, as well as the preliminary
five-day letter, were not valid substitutes for the
mandatory notice in writing of the legal and factual bases
of the assessment. These steps were mere perfunctory
discharges of the CIR’s duties in correctly assessing a
taxpayer.15The requirement for issuing a preliminary or
final notice, as the case may be, informing a taxpayer of
the existence of a deficiency tax assessment is markedly
different from the requirement of what such notice must
contain. Just because the CIR issued an advice, a
preliminary letter during the pre-assessment stage and a
final notice, in the order required by law, does not
necessarily mean that Enron was informed of the law
and facts on which the deficiency tax assessment was
made.
The law requires that the legal and factual bases of the
assessment be stated in the formal letter of demand and
assessment notice. Thus, such cannot be presumed.
Otherwise, the express provisions of Article 228 of the
NIRC and RR No. 12-99 would be rendered nugatory.
The alleged “factual bases” in the advice, preliminary
letter and “audit working papers” did not suffice. There
was no going around the mandate of the law that the
legal and factual bases of the assessment be stated in
writing in the formal letter of demand accompanying the
assessment notice.
We note that the old law merely required that the
taxpayer be notified of the assessment made by the CIR.
This was changed in 1998 and the taxpayer must now
be informed not only of the law but also of the facts on
which the assessment is made.16 Such amendment is in
keeping with the constitutional principle that no person
shall be deprived of property without due process.17 In
view of the absence of a fair opportunity for Enron to be
informed of the legal and factual bases of the
assessment against it, the assessment in question was
void. We reiterate our ruling in Reyes v. Almanzor, et
al.:18
Verily, taxes are the lifeblood of the Government and so
should be collected without unnecessary hindrance.
However, such collection should be made in accordance
with law as any arbitrariness will negate the very reason
for the Government itself.
WHEREFORE, the petition is hereby DENIED. The
November 24, 2004 decision of the Court of Appeals
isAFFIRMED.
G.R. No. 193100, December 10, 2014
SAMAR-I ELECTRIC
COOPERATIVE, Petitioner, v. COMMISSIONER OF
INTERNAL REVENUE, Respondent.
DECISION
VILLARAMA, JR., J.:
At bar is a petition for review on certiorari of the
Decision1 of the Court of Tax Appeals En Banc (CTA EB)
dated March 11, 2010 and its Resolution2 dated July 28,
2010 in C.T.A. EB Nos. 460 and 462 (C.T.A. Case No.
6697) affirming the May 27, 2008 Decision3 and the
January 19, 2009 Amended Decision4 of the CTA’s First
Division, and ordering petitioner to pay respondent
Commissioner of Internal Revenue (CIR) deficiency
withholding tax on compensation in the aggregate
amount of P2,690,850.91, plus 20% interest starting
September 30, 2002, until fully paid, pursuant to Section
249(c) of the National Internal Revenue Code (NIRC) of
1997.
The following facts are undisputed as found by the
CTA’s First Division and adopted by the CTA
EB:chanroblesvirtuallawlibrary
Samar-I Electric Cooperative, Inc. (Petitioner) is an
electric cooperative, with principal office at Barangay
Carayman, Calbayog City. It was issued a Certificate of
Registration by the National Electrification Administration
(NEA) on February 27, 1974 pursuant to Presidential
Decree (PD) 269. Likewise, it was granted a Certificate
of Provisional Registration under Republic Act (RA)
6938, otherwise known as the Cooperative Code of the
Philippines on March 16, 1993, by the Cooperative
Development Authority (CDA).
Respondent Commissioner of Internal Revenue is a
public officer authorized under the National Internal
Revenue Code (NIRC) to examine any taxpayer
including inter alia, the power to issue tax assessment,
evaluate, and decide upon protests relative thereto.
On July 13, 1999 and April 17, 2000, petitioner filed its
1998 and 1999 income tax returns, respectively.
Petitioner filed its 1997, 1998, and 1999 Annual
Information Return of Income Tax Withheld on
Compensation, Expanded and Final Withholding Taxes
on February 17, 1998, February 1, 1999, and February
4, 2000, in that order.
On November 13, 2000, respondent issued a duly
signed Letter of Authority (LOA) No. 1998 00023803;
covering the examination of petitioner’s books of account
and other accounting records for income and withholding
taxes for the period 1997 to 1999. The LOA was
received by petitioner on November 14, 2000.
Petitioner cooperated in the audit and investigation
conducted by the Special Investigation Division of the
BIR by submitting the required documents on December
5, 2000.

On October 19, 2001, respondent sent a Notice for
Informal Conference which was received by petitioner in
November 2001; indicating the allegedly income and
withholding tax liabilities of petitioner for 1997 to 1999.
Attached to the letter is a summary of the report, with an
explanation of the findings of the investigators.
In response, petitioner sent a letter dated November 26,
2001 to respondent maintaining its indifference to the
latter’s findings and requesting details of the
assessment.
On December 13, 2001, petitioner executed a Waiver of
the Defense of Prescription under the Statute of
Limitations, good until March 29, 2002.
On February 27, 2002, a letter was sent by petitioner to
respondent requesting a detailed computation of the
alleged 1997, 1998 and 1999 deficiency withholding tax
on compensation.
On February 28, 2002, respondent issued a Preliminary
Assessment Notice (PAN). The PAN was received by
petitioner on April 9, 2002, which was protested on April
18, 2002. Respondent’s Reply dated May 27, 2002,
contained the explanation of the legal basis of the
issuance of the questioned tax assessments.
However, on July 8, 2002, respondent dismissed
petitioner’s protest and recommended the issuance of a
Final Assessment Notice.
Consequently, on September 15, 2002, petitioner
received a demand letter and assessments notices
(Final Assessment Notices) for the alleged 1997, 1998,
and 1999 deficiency withholding tax in the amount of
[P]3,760,225.69, as well as deficiency income tax
covering the years 1998 to 1999 in the amount of
[P]440,545.71, or in the aggregate amount of
[P]4,200,771.40.
Petitioner filed its protest and Supplemental Protest to
the Final Assessment Notices on October 14, 2002 and
November 4, 2002, respectively. But on the Final
Decision on Disputed Assessment issued on April 10,
2003, petitioner was still held liable for the alleged tax
liabilities.5
The CTA EB narrates the following succeeding
events:chanroblesvirtuallawlibrary
On May 29, 2003, the Petition for Review was filed by
SAMELCO-I with the Court in division.
On May 27, 2008, the assailed Decision partially
granting SAMELCO-I’s petition was promulgated.
Dissatisfied, both parties sought reconsideration of the
said decision. CIR filed the “Motion for Partial
Reconsideration (Re: Decision dated 27 May 2008[)]” on
June 13, 2008. On the other hand, SAMELCO-I’s
“Motion for Reconsideration” was filed on June 17, 2008.
On January 19, 2009, the Court in division promulgated
its Amended Decision which denied CIR’s motion and
partially granted SAMELCO-I’s motion.
Thereafter, CIR and SAMELCO-I filed their “Motion for
Extension of Time to File Petition for Review” on
February 6, 2009 and February 11, 2009, respectively.
Both motions were granted by the Court.6
The following issues were raised by the parties in their
petitions for review before the CTA EB. In C.T.A. EB
460, herein respondent CIR raised the following
grounds:chanroblesvirtuallawlibrary
I. Whether or not SAMELCO-I is entitled to
tax privileges accorded to members in
accordance with Republic Act No. 6938,
or the Cooperative Code, or to privileges
of Presidential Decree (PD) No. 269.
II. Whether or not SAMELCO-I is liable for
the minimum corporate income tax
(MCIT) for taxable years 1998 to 1999.
III. Whether or not SAMELCO-I is liable to
pay the total deficiency expanded
withholding tax of [P]3,760,225.69 for
taxable years 1997 to 1999.7
On the other hand, petitioner SAMELCO-I raised the
following legal and factual errors in C.T.A. EB No.
462, viz.:chanroblesvirtuallawlibrary
I. The Court in Division gravely erred in
holding that the 1997 and 1998
assessments on withholding tax on
compensation (received by SAMELCO-I
on September 15, 2002), have not
prescribed even if the waiver validly
executed was good only until March 29,
2002.
II. The Court in Division erred in holding
that CIR can validly assess within the
ten (10)-year prescriptive period even if
the notice of informal conference, PAN,
formal letter of demand, and
assessment notice mention not a
word that the BIR is invoking Section
222 (a) of the 1997 Tax Code [then Sec.
223, NIRC], due to alleged false
withholding tax returns filed by
[SAMELCO-I] as the same assertions
were mere afterthought to justify
application of the 10-year prescriptive
period to assess.
III. The Court in Division failed to consider
that CIR made no findings as to
SAMELCO-I’s filing of a false return as
clearly manifested by the non-imposition
of 50% surcharge on the 1997, 1998
 and 1999 basic withholding tax
deficiency in the PAN, demand notice
and even in the assessment notice other
than interest charges.
IV. The Court in Division erred in not
holding that given SAMELCO-I’s filing of
its 1997, 1998, and 1999 withholding tax
returns in good faith, and in close
consultation with the BIR personnel in
Calbayog City where SAMELCO-I’s
place of business is located, the latter
should no longer be imposed the
incremental penalties (surcharge and
interest).
V. The Court in Division failed to rule that
since there was no substantial under
remittance of 1998 withholding tax as
the basic deficiency tax per amended
decision is less than 30% of the
computed total tax due per return,
SAMELCO-I did not file a false return.
VI. The Court in Division overlooked the fact
that for taxable year 1999, [SAMELCO-I]
remitted the amount of [P]844,958.00 as
withholding tax in compensation instead
of [P]786,702.43 as indicated in Page 8,
Annex C of the CTA (1st Division)
Decision.
VII. The Court in Division erred in failing to
declare as void both the formal letter of
demand and assessment notice on
withholding tax on compensation for
1997 taxable year, given its non-
compliance with Section 3.1.4 of RR 12-
99.8
On February 26, 2009, the CTA EB consolidated both
cases. After the filing of the respective Comments of
both parties, the cases were deemed submitted for
decision. The CTA EB found that the issues and
arguments raised by the parties were “mere reiterations
of what have been considered and passed upon by the
Court in division in the assailed Decision and the
Amended Decision.”9 It ruled that SAMELCO-I is
exempted in the payment of the Minimum Corporate
Income Tax (MCIT); that due process was observed in
the issuance of the assessments in accordance with
Section 228 of the Tax Code; and that the 1997 and
1998 assessments on deficiency withholding tax on
compensation have not prescribed. Finding no reversible
error in the Decision and the Amended Decision, the
CTA EB ruled, viz.:chanroblesvirtuallawlibrary
WHEREFORE, premises considered, We deny the
petitions for lack of merit. Accordingly, We AFFIRM the
May 27, 2008 Decision and the January 19, 2009
Amended Decision promulgated by the First Division of
this Court.
SO ORDERED.10
Petitioner moved for reconsideration. In a Resolution
dated July 28, 2010, the CTA EB denied the motion.
Petitioner now comes to this Court raising the following
assignment of errors:chanroblesvirtuallawlibrary
A. The Honorable CTA En Banc gravely erred in holding
that respondent sufficiently complied with the due
process requirements mandated by Section 228 of the
1997 Tax Code in the issuance of 1997-1999
assessments to petitioner, even if the details of
discrepancies on which the assessments were factually
and legally based as required under Section 3.1.4 of
Revenue Regulations (RR) No[.] 12-99, were not found
in the Formal Letter of Demand and Final Assessment
Notice (FAN) sent to petitioner, in clear violation of the
doctrine established in the case of Commissioner of
Internal Revenue vs. Enron Subic Power Corporation,
G.R. No. 166387, January 19, 2009, applying Section
3.1.4 of RR 12-99 in relation to Section 228 NIRC.
B. The Honorable CTA En Banc erred in holding that
respondent observed due process notwithstanding the
missing Annex “A-1” that was meant to show Details of
Discrepancies and to be attached to BIR’s Letter of
Demand/Final Notice dated September 15, 2002, which
was not furnished to petitioner and worse, a file copy of
which is not even found in the BIR records as part of its
Exhibit “16” and neither is the same found in the CTA
records.
C. In deciding that the 1997 and 1998 withholding tax
assessments have not yet prescribed, the Honorable
CTA En Banc failed to consider the singular significance
of the Waiver of the Defense of Prescription validly
agreed upon and executed by the parties.
D. The Honorable CTA En Banc erred in holding that
respondent can validly assess within the ten (10)-year
prescriptive period even if the Notice of Informal
Conference, PAN, and Final Letter of Demand (dated
September 15, 2002), mentioned not a word as to the
falsity of the returns filed by petitioner, but as
an afterthought that was raised rather belatedly only in
the Answer and during the trial.
E. The Honorable CTA En Banc erred in holding as valid
the 1997deficiency withholding tax assessment being
anchored on RR 2-98 (as cited in Notice of Informal
Conference and PAN), as the said RR 2-98 governs
compensation income paid beginning January 1, 1998.11
We shall resolve the instant controversy by discussing
the following two main issues in seriatim: whether the
1997 and 1998 assessments on withholding tax on
compensation were issued within the prescriptive period
provided by law; and whether the assessments were
issued in accordance with Section 228 of the NIRC of
1997.
On the issue of prescription, petitioner contends that the
subject 1997 and 1998 withholding tax assessments on
compensation were issued beyond the prescriptive
period of three years under Section 203 of the NIRC of
1997. Under this section, the government is allowed a
period of only three years to assess the correct tax
liability of a taxpayer, viz.:chanroblesvirtuallawlibrary
SEC. 203. Period of Limitation Upon Assessment and
Collection. – Except as provided in Section 222, internal
revenue taxes shall be assessed within three (3) years
after the last day prescribed by law for the filing of the
return, and no proceeding in court without assessment
for the collection of such taxes shall be begun after the
expiration of such period: Provided, That in a case where
a return is filed beyond the period prescribed by law, the
three (3)-year period shall be counted from the day the
return was filed. For purposes of this Section, a return
filed before the last day prescribed by law for the filing
thereof shall be considered as filed on such last day.
Relying on Section 203, petitioner argues that the
subject deficiency tax assessments issued by
respondent on September 15, 2002 was issued beyond
the three-year prescriptive period. Petitioner filed
its Annual Information Return of Income Tax Withheld on
Compensation, Expanded and Final Withholding
Taxes on the following dates: on February 17, 1998 for
the taxable year 1997; and on February 1, 1999 for the
year taxable 1998. Thus, if the period prescribed under
Section 203 of the NIRC of 1997 is to be followed, the
three-year prescriptive period to assess for the taxable
years 1997 and 1998 should have ended on February
16, 2001 and January 31, 2002, respectively.
We disagree.
While petitioner is correct that Section 203 sets the
three-year prescriptive period to assess, the following
exceptions are provided under Section 222 of the NIRC
of 1997, viz.:chanroblesvirtuallawlibrary
SEC. 222. Exceptions as to Period of Limitation of
Assessment and Collection of Taxes. –
(a) In the case of a false or fraudulent return with
intent to evade tax or of failure to file a return, the
tax may be assessed, or a proceeding in court for
the collection of such tax may be filed without
assessment, at any time within ten (10) years after
the discovery of the falsity, fraud or
omission: Provided, That in a fraud assessment which
has become final and executory, the fact of fraud shall
be judicially taken cognizance of in the civil or criminal
action for the collection thereof.
(b) If before the expiration of the time prescribed in
Section 203 for the assessment of the tax, both the
Commissioner and the taxpayer have agreed in writing
to its assessment after such time, the tax may be
assessed within the period agreed upon. The period so
agreed upon may be extended by subsequent written
agreement made before the expiration of the period
previously agreed upon.
(c) Any internal revenue tax which has been assessed
within the period of limitation as prescribed in paragraph
(a) hereof may be collected by distraint or levy or by a
proceeding in court within five (5) years following the
assessment of the tax.
(d) Any internal revenue tax, which has been assessed
within the period agreed upon as provided in paragraph
(b) hereinabove, may be collected by distraint or levy or
by a proceeding in court within the period agreed upon in
writing before the expiration of the five (5)-year period.
The period so agreed upon may be extended by
subsequent written agreements made before the
expiration of the period previously agreed upon.
(e) Provided, however, That nothing in the immediately
preceding Section and paragraph (a) hereof shall be
construed to authorize the examination and investigation
or inquiry into any tax return filed in accordance with the
provisions of any tax amnesty law or decree. (Emphasis
supplied.)
In the case at bar, it was petitioner’s substantial
underdeclaration of withholding taxes in the amount of
P2,690,850.91 which constituted the “falsity” in the
subject returns – giving respondent the benefit of the
period under Section 222 of the NIRC of 1997 to assess
the correct amount of tax “at any time within ten (10)
years after the discovery of the falsity, fraud or
omission.”12
The case of Aznar v. Court of Tax Appeals13 discusses
what acts or omissions may constitute
falsity, viz.:chanroblesvirtuallawlibrary
Petitioner argues that Sec. 332 of the NIRC does not
apply because the taxpayer did not file false and
fraudulent returns with intent to evade tax, while
respondent Commissioner of Internal Revenue insists
contrariwise, with respondent Court of Tax Appeals
concluding that the very “substantial underdeclarations
of income for six consecutive years eloquently
demonstrate the falsity or fraudulence of the income tax
returns with an intent to evade the payment of tax.”
To our minds we can dispense with these controversial
arguments on facts, although we do not deny that the
findings of facts by the Court of Tax Appeals, supported
as they are by very substantial evidence, carry great
weight, by resorting to a proper interpretation of Section
332 of the NIRC. We believe that the proper and
reasonable interpretation of said provision should be that
in the three different cases of (1) false return, (2)
fraudulent return with intent to evade tax, (3) failure to
file a return, the tax may be assessed, or a proceeding in
court for the collection of such tax may be begun without
assessment, at any time within ten years after the
discovery of the (1) falsity, (2) fraud, (3) omission. Our
stand that the law should be interpreted to mean a
separation of the three different situations of false return,
fraudulent return with intent to evade tax, and failure to
file a return is strengthened immeasurably by the last
portion of the provision which segregates the situations
into three different classes, namely “falsity,” “fraud” and
“omission.” That there is a difference between “false
return” and “fraudulent return” cannot be denied. While
the first merely implies deviation from the truth, whether
intentional or not, the second implies intentional or
deceitful entry with intent to evade the taxes due.
The ordinary period of prescription of 5 years within
which to assess tax liabilities under Sec. 331 of the
NIRC should be applicable to normal circumstances, but
whenever the government is placed at a disadvantage
so as to prevent its lawful agents from proper
assessment of tax liabilities due to false returns,
fraudulent return intended to evade payment of tax or
failure to file returns, the period of ten years provided for
in Sec. 332 (a) NIRC, from the time of the discovery of
the falsity, fraud or omission even seems to be
inadequate and should be the one enforced.
There being undoubtedly false tax returns in this case,
We affirm the conclusion of the respondent Court of Tax
Appeals that Sec. 332 (a) of the NIRC should apply and
that the period of ten years within which to assess
petitioner’s tax liability had not expired at the time said
assessment was made.14
A careful examination of the evidence on record yields to
no other conclusion but that petitioner failed to withhold
taxes from its employees’ 13th month pay and other
benefits in excess of thirty thousand pesos (P30,000.00)
amounting to P2,690,850.91 for the taxable years 1997
to 1999 – resulting to its filing of the subject false returns.
Petitioner failed to refute this finding, both in fact and in
law, before the courts a quo.
We quote the following portion of the assailed Decision
of the CTA EB, viz.:chanroblesvirtuallawlibrary
It is noteworthy to mention that during the trial, the
witness for the CIR testified that SAMELCO-I did not file
an accurate return, as follows:
ATTY. FRANCIA:
Q: Did the petitioner file an accurate Return?
MS. RAPATAN:
A:  No.
ATTY. FRANCIA:
Q: Can you please explain?
MS. RAPATAN:
A:  Because I based the computation of my deficiency
withholding taxes on declared taxable income per
alpha list submitted then, I have extracted a data from
the Alpha List, particularly that of the manager and
other officials, only their basic salary and their
overtime pay were declared but the other benefits
were not actually subjected to withholding tax. So, the
deficiency withholding taxes from the taxes on the
taxable 13th month pay and other benefits in excess of
the [P]12,000.00 for 1997 and for the taxable years
1998 and 1999, in excess of the [P]30,000.00. I also
noticed that the per diem of the Manager was not
included in the withholding tax computation of
SAMELCO[-]I.
ATTY. FRANCIA:
Nothing further, your Honors.
JUSTICE BAUTISTA:
Any re-cross?
ATTY. NAPUTO:
No re-cross, your Honors.15
We have consistently held that courts will not interfere in
matters which are addressed to the sound discretion of
the government agency entrusted with the regulation of
activities coming under its special and technical training
and knowledge.16 The findings of fact of these quasi-
judicial agencies are generally accorded respect and
even finality as long as they are supported by substantial
evidence – in recognition of their expertise on the
specific matters under their consideration.17 In the case
at bar, petitioner failed to proffer convincing argument
and evidence that would persuade us to disturb the
factual findings of the CTA First Division, as affirmed by
the CTA EB. As such, we cannot but affirm the finding of
petitioner’s substantial underdeclaration of withholding
taxes in the amount of P2,690,850.91 which constituted
the “falsity” in the subject returns.
Anent the issue of violation of due process in the
issuance of the final notice of assessment and letter of
demand, Section 228 of the NIRC of 1997
provides:chanroblesvirtuallawlibrary
SEC. 228. Protesting of Assessment. – x x x
xxxx
The taxpayers shall be informed in writing of the law
and the facts on which the assessment is made:
otherwise, the assessment shall be void.
Petitioner contends that as the Final Demand Letter and
Assessment Notices (FAN) were silent as to the nature
and basis of the assessments, it was denied due
process,18 and the assessments must be declared void.
It likewise invokes Revenue Regulations (RR) No. 12-99
which states, viz.:chanroblesvirtuallawlibrary
3.1.4 Formal Letter of Demand and Assessment
Notice. – The formal letter of demand and assessment
notice shall be issued by the Commissioner or his duly
authorized representative. The letter of demand calling
for payment of the taxpayer’s deficiency tax or taxes
shall state the facts, the law, rules and regulations, or
jurisprudence on which the assessment is
based, otherwise, the formal letter of demand and
assessment notice shall be void . The same shall be
sent to the taxpayer only by registered mail or by
personal delivery. x x x
We uphold the assessments issued to petitioner.
Both Section 228 of the NIRC of 1997 and Section 3.1.4
of RR No. 12-99 clearly require the written details on the
nature, factual and legal bases of the subject deficiency
tax assessments. The reason for the mandatory nature
of this requirement is explained in the case
of Commissioner of Internal Revenue v. Reyes:19
A void assessment bears no valid fruit.
The law imposes a substantive, not merely a formal,
requirement. To proceed heedlessly with tax collection
without first establishing a valid assessment is evidently
violative of the cardinal principle in administrative
investigations: that taxpayers should be able to present
their case and adduce supporting evidence. In the
instant case, respondent has not been informed of the
basis of the estate tax liability. Without complying with
the unequivocal mandate of first informing the
taxpayer of the government’s claim, there can be no
deprivation of property, because no effective protest
can be made. The haphazard shot at slapping an
assessment, supposedly based on estate taxation’s
general provisions that are expected to be known by the
taxpayer, is utter chicanery.
Even a cursory review of the preliminary assessment
notice, as well as the demand letter sent, reveals the
lack of basis for – not to mention the insufficiency of –
the gross figures and details of the itemized deductions
indicated in the notice and the letter. This Court cannot
countenance an assessment based on estimates
that appear to have been arbitrarily or capriciously
arrived at. Although taxes are the lifeblood of the
government, their assessment and collection “should be
made in accordance with law as any arbitrariness will
negate the very reason for government itself.” (Emphasis
supplied; citations omitted)
In Commissioner of Internal Revenue v. Enron Subic
Power Corporation,20 we held that the law requires that
the legal and factual bases of the assessment be stated
in the formal letter of demand and assessment notice,
and that the alleged “factual bases” in the advice,
preliminary letter and “audit working papers” did not
suffice. Thus:chanroblesvirtuallawlibrary
Both the CTA and the CA concluded that the deficiency
tax assessment merely itemized the deductions
disallowed and included these in the gross income. It
also imposed the preferential rate of 5% on some items
categorized by Enron as costs. The legal and factual
bases were, however, not indicated.
The CIR insists that an examination of the facts shows
that Enron was properly apprised of its tax deficiency.
During the pre-assessment stage, the CIR advised
Enron’s representative of the tax deficiency, informed it
of the proposed tax deficiency assessment through a
preliminary five-day letter and furnished Enron a copy of
the audit working paper allegedly showing in detail the
legal and factual bases of the assessment. The CIR
argues that these steps sufficed to inform Enron of the
laws and facts on which the deficiency tax assessment
was based.
We disagree. The advice of tax deficiency, given by
the CIR to an employee of Enron, as well as the
preliminary five-day letter, were not valid substitutes
for the mandatory notice in writing of the legal and
factual bases of the assessment. These steps were
mere perfunctory discharges of the CIR’s duties in
correctly assessing a taxpayer. The requirement for
issuing a preliminary or final notice, as the case may be,
informing a taxpayer of the existence of a deficiency tax
assessment is markedly different from the requirement of
what such notice must contain. Just because the CIR
issued an advice, a preliminary letter during the pre-
assessment stage and a final notice, in the order
required by law, does not necessarily mean that
Enron was informed of the law and facts on which
the deficiency tax assessment was
made.21 (Emphasis supplied)
In this case, we agree with the respondent that petitioner
was sufficiently apprised of the nature, factual and legal
bases, as well as how the deficiency taxes being
assessed against it were computed. Records reveal that
on October 19, 2001, prior to the conduct of an informal
conference, petitioner was already informed of the
results and findings of the investigations made by the
respondent, and was duly furnished with a copy of the
summary of the report submitted by Revenue Officer
Elisa G. Ponferrada-Rapatan of the Special Investigation
Division. Said summary report contained an explanation
of Findings of Investigation stating the legal and factual
bases for the deficiency assessment. In a letter dated
February 27, 2002 petitioner requested for copies of
working papers indicating how the deficiency withholding
taxes were computed.22 Respondent promptly responded
in a letter-reply dated February 28, 2002
stating:chanroblesvirtuallawlibrary
please be informed that the cooperative’s deficiency
withholding taxes on compensation were due to the
failure of the cooperative to withhold taxes on the taxable
13th month pay and other benefits in excess of
P30,000.00 threshold pursuant to Section 3 of Revenue
Regulation No. 2-95 implementing Republic Act No.
7833 and Section 2.78/1 B 11 of Revenue Regulation 2-
98 implementing Section 32 B e of Republic Act No.
8424. Further, we are providing you hereunder the
computational format on how deficiency withholding
taxes were computed and sample computation from our
working papers, for your information and guidance.23
On April 9, 2002, petitioner received the PAN dated
February 28, 2002 which contained the computations of
its deficiency income and withholding taxes. Attached to
the PAN was the detailed explanation of the particular
provision of law and revenue regulation violated,
thus:chanroblesvirtuallawlibrary
DETAILS OF DISCREPANCIES
1. Deficiency income taxes for 1998 and
1999 respectively result from non-
payment of the minimum corporate
income tax (MCIT) imposed pursuant to
Section 27(E) of the 1997 Tax Reform
Act.
2. Deficiency Withholding Taxes on
Compensation for 1997-1999 are the
total withholding taxes on compensation
of all employees of SAMELCO[-]I
resulting from failure of employer to
withhold taxes on the taxable 13th month
pay and other benefits in excess of
[P]30,000.00 threshold pursuant to
Revenue Regulation 2-98.24
The above information provided to petitioner enabled it
to protest the PAN by questioning respondent’s
interpretation of the laws cited as legal basis for the
computation of the deficiency withholding taxes and
assessment of minimum corporate income tax despite
petitioner’s position that it remains exempt
therefrom.25 In its letter-reply dated May 27, 2002,
respondent answered the arguments raised by petitioner
in its protest, and requested it to pay the assessed
deficiency on the date of payment stated in the PAN. A
second protest letter dated June 23, 2002 was sent by
petitioner, to which respondent replied (letter dated July
8, 2002) answering each of the two issues reiterated by
petitioner: (1) validity of EO 93 withdrawing the tax
exemption privileges under PD 269; and (2) retroactive
application of RR No. 8-2000.26 The FAN was finally
received by petitioner on September 24, 2002, and
protested by it in a letter dated October 14, 2002 which
reiterated in lengthy arguments its earlier interpretation
of the laws and regulations upon which the assessments
were based.27
Although the FAN and demand letter issued to petitioner
were not accompanied by a written explanation of the
legal and factual bases of the deficiency taxes assessed
against the petitioner, the records showed that
respondent in its letter dated April 10, 2003 responded to
petitioner’s October 14, 2002 letter-protest, explaining at
length the factual and legal bases of the deficiency tax
assessments and denying the protest.28
Considering the foregoing exchange of correspondence
and documents between the parties, we find that the
requirement of Section 228 was substantially complied
with. Respondent had fully informed petitioner in
writing of the factual and legal bases of the deficiency
taxes assessment, which enabled the latter to file an
“effective” protest, much unlike the taxpayer’s situation
in Enron. Petitioner’s right to due process was thus not
violated.
WHEREFORE, the petition is DENIED. The assailed
Decision and Resolution of the Court of Tax Appeals En
Banc dated March 11, 2010 and July 28, 2010,
respectively, in C.T.A. EB Nos. 460 and 462 (C.T.A.
Case No. 6697), are hereby AFFIRMED and UPHELD.
With costs against the petitioner.
G.R. No. 159694             January 27, 2006
COMMISSIONER OF INTERNAL
REVENUE, Petitioner, 
vs.
AZUCENA T. REYES, Respondent.  Bureau of Internal Revenue (or ‘BIR’), issued a
x -- -- -- -- -- -- -- -- -- -- -- -- -- x  amount of P14,580,618.67. On May 10, 1998, the heirs
G.R. No. 163581             January 27, 2006
AZUCENA T. REYES, Petitioner, 
vs.
COMMISSIONER OF INTERNAL
REVENUE, Respondent. 
DECISION
PANGANIBAN, CJ.:
Under the present provisions of the Tax Code and
pursuant to elementary due process, taxpayers must be
informed in writing of the law and the facts upon which a
tax assessment is based; otherwise, the assessment is
void. Being invalid, the assessment cannot in turn be
used as a basis for the perfection of a tax compromise.
The Case
Before us are two consolidated1 Petitions for
Review2 filed under Rule 45 of the Rules of Court,
assailing the August 8, 2003 Decision3 of the Court of
Appeals (CA) in CA-GR SP No. 71392. The dispositive
portion of the assailed Decision reads as follows:
"WHEREFORE, the petition is GRANTED. The assailed
decision of the Court of Tax Appeals is ANNULLED and
SET ASIDE without prejudice to the action of the
National Evaluation Board on the proposed compromise
settlement of the Maria C. Tancinco estate’s tax
liability."4
The Facts
The CA narrated the facts as follows:
"On July 8, 1993, Maria C. Tancinco (or ‘decedent’) died,
leaving a 1,292 square-meter residential lot and an old
house thereon (or ‘subject property’) located at 4931
Pasay Road, Dasmariñas Village, Makati City.
"On the basis of a sworn information-for-reward filed on
February 17, 1997 by a certain Raymond Abad (or
‘Abad’), Revenue District Office No. 50 (South Makati)
conducted an investigation on the decedent’s estate (or
‘estate’). Subsequently, it issued a Return Verification
Order. But without the required preliminary findings
being submitted, it issued Letter of Authority No. 132963
for the regular investigation of the estate tax case.
Azucena T. Reyes (or ‘[Reyes]’), one of the decedent’s
heirs, received the Letter of Authority on March 14, 1997.
"On February 12, 1998, the Chief, Assessment Division,
preliminary assessment notice against the estate in the
of the decedent (or ‘heirs’) received a final estate tax
assessment notice and a demand letter, both dated April
22, 1998, for the amount of P14,912,205.47, inclusive of
surcharge and interest.
"On June 1, 1998, a certain Felix M. Sumbillo (or
‘Sumbillo’) protested the assessment [o]n behalf of the
heirs on the ground that the subject property had already
been sold by the decedent sometime in 1990.
"On November 12, 1998, the Commissioner of Internal
Revenue (or ‘[CIR]’) issued a preliminary collection letter
to [Reyes], followed by a Final Notice Before Seizure
dated December 4, 1998.
"On January 5, 1999, a Warrant of Distraint and/or Levy
was served upon the estate, followed on February 11,
1999 by Notices of Levy on Real Property and Tax Lien
against it.
"On March 2, 1999, [Reyes] protested the notice of levy.
However, on March 11, 1999, the heirs proposed a
compromise settlement of P1,000,000.00.
"In a letter to [the CIR] dated January 27, 2000, [Reyes]
proposed to pay 50% of the basic tax due, citing the
heirs’ inability to pay the tax assessment. On March 20,
2000, [the CIR] rejected [Reyes’s] offer, pointing out that
since the estate tax is a charge on the estate and not on
the heirs, the latter’s financial incapacity is immaterial as,
in fact, the gross value of the estate amounting
to P32,420,360.00 is more than sufficient to settle the tax
liability. Thus, [the CIR] demanded payment of the
amount of P18,034,382.13 on or before April 15, 2000[;]
otherwise, the notice of sale of the subject property
would be published.
"On April 11, 2000, [Reyes] again wrote to [the CIR], this
time proposing to pay 100% of the basic tax due in the
amount of P5,313,891.00. She reiterated the proposal in
a letter dated May 18, 2000.
"As the estate failed to pay its tax liability within the April
15, 2000 deadline, the Chief, Collection Enforcement
Division, BIR, notified [Reyes] on June 6, 2000 that the
subject property would be sold at public auction on
August 8, 2000.
"On June 13, 2000, [Reyes] filed a protest with the BIR
Appellate Division. Assailing the scheduled auction sale,
she asserted that x x x the assessment, letter of
demand[,] and the whole tax proceedings against the
estate are void ab initio. She offered to file the
corresponding estate tax return and pay the correct
amount of tax without surcharge [or] interest.
"Without acting on [Reyes’s] protest and offer, [the CIR]
instructed the Collection Enforcement Division to
proceed with the August 8, 2000 auction sale.
Consequently, on June 28, 2000, [Reyes] filed a
[P]etition for [R]eview with the Court of Tax Appeals (or
‘CTA’), docketed as CTA Case No. 6124.
"On July 17, 2000, [Reyes] filed a Motion for the
Issuance of a Writ of Preliminary Injunction or Status
Quo Order, which was granted by the CTA on July 26,
2000. Upon [Reyes’s] filing of a surety bond in the
amount of P27,000,000.00, the CTA issued a
[R]esolution dated August 16, 2000 ordering [the CIR] to
desist and refrain from proceeding with the auction sale
of the subject property or from issuing a [W]arrant of
[D]istraint or [G]arnishment of [B]ank [A]ccount[,]
pending determination of the case and/or unless a
contrary order is issued.
"[The CIR] filed a [M]otion to [D]ismiss the petition on the
grounds (i) that the CTA no longer has jurisdiction over
the case[,] because the assessment against the estate is
already final and executory; and (ii) that the petition was
filed out of time. In a [R]esolution dated November 23,
2000, the CTA denied [the CIR’s] motion.
"During the pendency of the [P]etition for [R]eview with
the CTA, however, the BIR issued Revenue Regulation
(or ‘RR’) No. 6-2000 and Revenue Memorandum Order
(or ‘RMO’) No. 42-2000 offering certain taxpayers with
delinquent accounts and disputed assessments an
opportunity to compromise their tax liability.
"On November 25, 2000, [Reyes] filed an application
with the BIR for the compromise settlement (or
‘compromise’) of the assessment against the estate
pursuant to Sec. 204(A) of the Tax Code, as
implemented by RR No. 6-2000 and RMO No. 42-2000.
"On December 26, 2000, [Reyes] filed an Ex-Parte
Motion for Postponement of the hearing before the CTA
scheduled on January 9, 2001, citing her pending
application for compromise with the BIR. The motion was
granted and the hearing was reset to February 6, 2001.
"On January 29, 2001, [Reyes] moved for postponement
of the hearing set on February 6, 2001, this time on the
ground that she had already paid the compromise
amount of P1,062,778.20 but was still awaiting approval
of the National Evaluation Board (or ‘NEB’). The CTA
granted the motion and reset the hearing to February 27,
2001.
"On February 19, 2001, [Reyes] filed a Motion to Declare
Application for the Settlement of Disputed Assessment
as a Perfected Compromise. In said motion, she alleged
that [the CIR] had not yet signed the compromise[,]
because of procedural red tape requiring the initials of
four Deputy Commissioners on relevant documents
before the compromise is signed by the [CIR]. [Reyes]
posited that the absence of the requisite initials and
signature[s] on said documents does not vitiate the
perfected compromise.
"Commenting on the motion, [the CIR] countered that[,]
without the approval of the NEB, [Reyes’s] application for
compromise with the BIR cannot be considered a
perfected or consummated compromise.
"On March 9, 2001, the CTA denied [Reyes’s] motion,
prompting her to file a Motion for Reconsideration Ad
Cautelam. In a [R]esolution dated April 10, 2001, the
CTA denied the [M]otion for [R]econsideration with the
suggestion that[,] for an orderly presentation of her case
and to prevent piecemeal resolutions of different issues,
[Reyes] should file a [S]upplemental [P]etition for
[R]eview[,] setting forth the new issue of whether there
was already a perfected compromise.
"On May 2, 2001, [Reyes] filed a Supplemental Petition
for Review with the CTA, followed on June 4, 2001 by its
Amplificatory Arguments (for the Supplemental Petition
for Review), raising the following issues:
‘1. Whether or not an offer to compromise by the [CIR],
with the acquiescence by the Secretary of Finance, of a
tax liability pending in court, that was accepted and paid
by the taxpayer, is a perfected and consummated
compromise.
‘2. Whether this compromise is covered by the
provisions of Section 204 of the Tax Code (CTRP) that
requires approval by the BIR [NEB].’
"Answering the Supplemental Petition, [the CIR] averred
that an application for compromise of a tax liability under
RR No. 6-2000 and RMO No. 42-2000 requires the
evaluation and approval of either the NEB or the
Regional Evaluation Board (or ‘REB’), as the case may
be.
"On June 14, 2001, [Reyes] filed a Motion for Judgment
on the Pleadings; the motion was granted on July 11,
2001. After submission of memoranda, the case was
submitted for [D]ecision.
"On June 19, 2002, the CTA rendered a [D]ecision, the
decretal portion of which pertinently reads:
‘WHEREFORE, in view of all the foregoing, the instant
[P]etition for [R]eview is hereby DENIED. Accordingly,
[Reyes] is hereby ORDERED to PAY deficiency estate
tax in the amount of Nineteen Million Five Hundred
Twenty Four Thousand Nine Hundred Nine and 78/100
(P19,524,909.78), computed as follows:
xxxxxxxxx
‘[Reyes] is likewise ORDERED to PAY 20% delinquency
interest on deficiency estate tax due of P17,934,382.13
from January 11, 2001 until full payment thereof
pursuant to Section 249(c) of the Tax Code, as
amended.’
"In arriving at its decision, the CTA ratiocinated that
there can only be a perfected and consummated
compromise of the estate’s tax liability[,] if the NEB has
approved [Reyes’s] application for compromise in
accordance with RR No. 6-2000, as implemented by
RMO No. 42-2000.
"Anent the validity of the assessment notice and letter of
demand against the estate, the CTA stated that ‘at the
time the questioned assessment notice and letter of
demand were issued, the heirs knew very well the law
and the facts on which the same were based.’ It also
observed that the petition was not filed within the 30-day
reglementary period provided under Sec. 11 of Rep. Act
No. 1125 and Sec. 228 of the Tax Code."5
Ruling of the Court of Appeals
In partly granting the Petition, the CA said that Section
228 of the Tax Code and RR 12-99 were mandatory and
unequivocal in their requirement. The assessment notice
and the demand letter should have stated the facts and
the law on which they were based; otherwise, they were
deemed void.6 The appellate court held that while
administrative agencies, like the BIR, were not bound by
procedural requirements, they were still required by law
and equity to observe substantive due process. The
reason behind this requirement, said the CA, was to
ensure that taxpayers would be duly apprised of -- and
could effectively protest -- the basis of tax assessments
against them.7Since the assessment and the demand
were void, the proceedings emanating from them were
likewise void, and any order emanating from them could
never attain finality.
The appellate court added, however, that it was
premature to declare as perfected and consummated the
compromise of the estate’s tax liability. It explained that,
where the basic tax assessed exceeded P1 million, or
where the settlement offer was less than the prescribed
minimum rates, the National Evaluation Board’s (NEB)
prior evaluation and approval were the conditio sine qua
non to the perfection and consummation of any
compromise.8Besides, the CA pointed out, Section
204(A) of the Tax Code applied to all compromises,
whether government-initiated or not.9 Where the law did
not distinguish, courts too should not distinguish.
Hence, this Petition.10
The Issues
In GR No. 159694, petitioner raises the following issues
for the Court’s consideration:
"I.
Whether petitioner’s assessment against the estate is
valid.
"II.
Whether respondent can validly argue that she, as well
as the other heirs, was not aware of the facts and the
law on which the assessment in question is based, after
she had opted to propose several compromises on the
estate tax due, and even prematurely acting on such
proposal by paying 20% of the basic estate tax due."11
The foregoing issues can be simplified as follows: first,
whether the assessment against the estate is valid; and,
second, whether the compromise entered into is also
valid.
The Court’s Ruling
The Petition is unmeritorious.
First Issue:
Validity of the Assessment Against the Estate
The second paragraph of Section 228 of the Tax
Code12 is clear and mandatory. It provides as follows:
"Sec. 228. Protesting of Assessment. --  expressly or by necessary implication, that pending
xxxxxxxxx
"The taxpayers shall be informed in writing of the law
and the facts on which the assessment is made:
otherwise, the assessment shall be void."
In the present case, Reyes was not informed in writing of
the law and the facts on which the assessment of estate
taxes had been made. She was merely notified of the
findings by the CIR, who had simply relied upon the
provisions of former Section 22913 prior to its amendment
by Republic Act (RA) No. 8424, otherwise known as the
Tax Reform Act of 1997.
First, RA 8424 has already amended the provision of
Section 229 on protesting an assessment. The old
requirement of merely notifying the taxpayer of the CIR’s
findings was changed in 1998 to informing the taxpayer
of not only the law, but also of the facts on which an
assessment would be made; otherwise, the assessment
itself would be invalid.
It was on February 12, 1998, that a preliminary
assessment notice was issued against the estate. On
April 22, 1998, the final estate tax assessment notice, as
well as demand letter, was also issued. During those
dates, RA 8424 was already in effect. The notice
required under the old law was no longer sufficient under
the new law.
To be simply informed in writing of the investigation
being conducted and of the recommendation for the
assessment of the estate taxes due is nothing but a
perfunctory discharge of the tax function of correctly
assessing a taxpayer. The act cannot be taken to mean
that Reyes already knew the law and the facts on which
the assessment was based. It does not at all conform to
the compulsory requirement under Section 228.
Moreover, the Letter of Authority received by respondent
on March 14, 1997 was for the sheer purpose of
investigation and was not even the requisite notice under
the law.
The procedure for protesting an assessment under the
Tax Code is found in Chapter III of Title VIII, which deals
with remedies. Being procedural in nature, can its
provision then be applied retroactively? The answer is
yes.
The general rule is that statutes are prospective.
However, statutes that are remedial, or that do not
create new or take away vested rights, do not fall under
the general rule against the retroactive operation of
statutes.14 Clearly, Section 228 provides for the
procedure in case an assessment is protested. The
provision does not create new or take away vested
rights. In both instances, it can surely be applied
retroactively. Moreover, RA 8424 does not state, either
actions are excepted from the operation of Section 228,
or that applying it to pending proceedings would impair
vested rights.
Second, the non-retroactive application of Revenue
Regulation (RR) No. 12-99 is of no moment, considering
that it merely implements the law.
A tax regulation is promulgated by the finance secretary
to implement the provisions of the Tax Code.15 While it is
desirable for the government authority or administrative
agency to have one immediately issued after a law is
passed, the absence of the regulation does not
automatically mean that the law itself would become
inoperative.
At the time the pre-assessment notice was issued to
Reyes, RA 8424 already stated that the taxpayer must
be informed of both the law and facts on which the
assessment was based. Thus, the CIR should have
required the assessment officers of the Bureau of
Internal Revenue (BIR) to follow the clear mandate of the
new law. The old regulation governing the issuance of
estate tax assessment notices ran afoul of the rule that
tax regulations -- old as they were -- should be in
harmony with, and not supplant or modify, the law.16
It may be argued that the Tax Code provisions are not
self-executory. It would be too wide a stretch of the
imagination, though, to still issue a regulation that would
simply require tax officials to inform the taxpayer, in any
manner, of the law and the facts on which an
assessment was based. That requirement is neither
difficult to make nor its desired results hard to achieve.
Moreover, an administrative rule interpretive of a statute,
and not declarative of certain rights and corresponding
obligations, is given retroactive effect as of the date of
the effectivity of the statute.17 RR 12-99 is one such rule.
Being interpretive of the provisions of the Tax Code,
even if it was issued only on September 6, 1999, this
regulation was to retroact to January 1, 1998 -- a date
prior to the issuance of the preliminary assessment
notice and demand letter.
Third, neither Section 229 nor RR 12-85 can prevail over
Section 228 of the Tax Code.
No doubt, Section 228 has replaced Section 229. The
provision on protesting an assessment has been
amended. Furthermore, in case of discrepancy between
the law as amended and its implementing but old
regulation, the former necessarily prevails.18 Thus,
between Section 228 of the Tax Code and the pertinent
provisions of RR 12-85, the latter cannot stand because
it cannot go beyond the provision of the law. The law
must still be followed, even though the existing tax
regulation at that time provided for a different procedure.
The regulation then simply provided that notice be sent
to the respondent in the form prescribed, and that no
consequence would ensue for failure to comply with that
form.
Fourth, petitioner violated the cardinal rule in
administrative law that the taxpayer be accorded due
process. Not only was the law here disregarded, but no
valid notice was sent, either. A void assessment bears
no valid fruit.
The law imposes a substantive, not merely a formal,
requirement. To proceed heedlessly with tax collection
without first establishing a valid assessment is evidently
violative of the cardinal principle in administrative
investigations: that taxpayers should be able to present
their case and adduce supporting evidence.19 In the
instant case, respondent has not been informed of the
basis of the estate tax liability. Without complying with
the unequivocal mandate of first informing the taxpayer
of the government’s claim, there can be no deprivation of
property, because no effective protest can be
made.20 The haphazard shot at slapping an assessment,
supposedly based on estate taxation’s general
provisions that are expected to be known by the
taxpayer, is utter chicanery.
Even a cursory review of the preliminary assessment
notice, as well as the demand letter sent, reveals the
lack of basis for -- not to mention the insufficiency of --
the gross figures and details of the itemized deductions
indicated in the notice and the letter. This Court cannot
countenance an assessment based on estimates that
appear to have been arbitrarily or capriciously arrived at.
Although taxes are the lifeblood of the government, their
assessment and collection "should be made in
accordance with law as any arbitrariness will negate the
very reason for government itself."21
Fifth, the rule against estoppel does not apply. Although
the government cannot be estopped by the negligence
or omission of its agents, the obligatory provision on
protesting a tax assessment cannot be rendered
nugatory by a mere act of the CIR .
Tax laws are civil in nature.22 Under our Civil Code, acts
executed against the mandatory provisions of law are
void, except when the law itself authorizes the validity of
those acts.23 Failure to comply with Section 228 does not
only render the assessment void, but also finds no
validation in any provision in the Tax Code. We cannot
condone errant or enterprising tax officials, as they are
expected to be vigilant and law-abiding.
Second Issue:
Validity of Compromise
It would be premature for this Court to declare that the
compromise on the estate tax liability has been perfected
and consummated, considering the earlier determination
that the assessment against the estate was void.
Nothing has been settled or finalized. Under Section
204(A) of the Tax Code, where the basic tax involved
exceeds one million pesos or the settlement offered is
less than the prescribed minimum rates, the compromise
shall be subject to the approval of the NEB composed of
the petitioner and four deputy commissioners.
Finally, as correctly held by the appellate court, this
provision applies to all compromises, whether
government-initiated or not. Ubi lex non distinguit, nec
nos distinguere debemos. Where the law does not
distinguish, we should not distinguish.
WHEREFORE, the Petition is hereby DENIED and the
assailed Decision AFFIRMED. No pronouncement as to
costs.
SECOND DIVISION
G.R. No. 215957, November 09, 2016
COMMISSIONER OF INTERNAL
REVENUE, Petitioner, v. FITNESS BY DESIGN,
INC., Respondent.
DECISION
LEONEN, J.:
To avail of the extraordinary period of assessment in
Section 222(a) of the National Internal Revenue Code,
the Commissioner of Internal Revenue should show that
the facts upon which the fraud is based is communicated
to the taxpayer. The burden of proving that the facts
exist in any subsequent proceeding is with the
Commissioner. Furthermore, the Final Assessment
Notice is not valid if it does not contain a definite due
date for payment by the taxpayer.
This resolves a Petition for Review on Certiorari1 filed by
the Commissioner of Internal Revenue, which assails the (20%/
Decision2 dated July 14, 2014 and Resolution3dated annum)
December 16, 2014 of the Court of Tax Appeals. The until 4-15-
Court of Tax Appeals En Banc affirmed the Decision of 04
the First Division, which declared the assessment issued
against Fitness by Design, Inc. (Fitness) as invalid.4 Deficiency P
 
Income Tax 8,265,568.17
On April 11, 1996, Fitness filed its Annul Income Tax
Return for the taxable year of 1995.5 According to
Fitness, it was still in its pre-operating stage during the Value Added Tax
covered period.6
Unreported
On June 9, 2004, Fitness received a copy of the Final 7, 156,336.08  
Sales
Assessment Notice dated March 17, 2004.7 The Final
Assessment Notice was issued under Letter of Authority Output Tax
No. 00002953.8 The Final Assessment Notice assessed 715,633.61  
(10%)
that Fitness had a tax deficiency in the amount of
P10,647,529.69.9 It provides: Add: Surcharge
P 357,816.80  
chanRoblesvirtualLawlibrary (50%)

FINAL ASSESSMENT NOTICE Interest (20%/

annum) until 1,303,823.60  1,661,640.41  
March 17, 2004 4-15-04

Deficiency P
FITNESS BY DESIGN, INC  
VAT 2,377,274.02
169 Aguirre St., BF Homes,
Paranaque City Documentary
 
Stamp Tax
Gentlemen:
 
Please be informed that after investigation of your
Internal revenue Tax Liabilities for the year 1995 Subscribe
pursuant to Letter of Authority No. 000029353 dated May P 375,000.00  
Capital Stock
13, 2002, there has been found due deficiency taxes as
shown hereunder: DST due
3,750.00  
(2/200)
Assessment No. __________
Add: Surcharge
937.50  
Income Tax (25%) 

Deficiency
Taxable P 4,687.50  
DST
Income per P    
return    

Add: Total
Unreported 7, 156,336.08   P
Deficiency  
Sales 10,647,529.69
Taxes

Taxable
Income per 7, 156,336.08   The complete details covering the aforementioned
audit discrepancies established during the investigation of this
case are shown in the accompanying Annex 1 of this
    Notice. The 50% surcharge and 20% interest have been
imposed pursuant to Sections 248 and 249(B) of the
Tax Due [National Internal Revenue Code], as amended. Please
2,504,717.63   note, however, that the interest and the total amount
(35%)
due will have to be adjusted if paid prior or beyond
Add: April 15, 2004.
P
Surcharge  
1,252,358.81
(50%) In view thereof, you are requested to pay your aforesaid
deficiency internal revenue taxes liabilities through the
Interest 4,508,491.73 5,760,850.54   duly authorized agent bank in which you are enrolled
within the time shown in the enclosed assessment
notice.10 (Emphasis in the
original)ChanRoblesVirtualawlibrary
Fitness filed a protest to the Final Assessment Notice on
June 25, 2004. According to Fitness, the
Commissioner's period to assess had already
prescribed. Further, the assessment was without basis
since the company was only incorporated on May 30,
1995.11
On February 2, 2005, the Commissioner issued a
Warrant of Distraint and/or Levy with Reference No.
OCN WDL-95-05-005 dated February 1, 2005 to
Fitness.12
Fitness filed before the First Division of the Court of Tax
Appeals a Petition for Review (With Motion to Suspend
Collection of Income Tax, Value Added Tax,
Documentary Stamp Tax and Surcharges and Interests)
on March 1, 2005.13
On May 17, 2005, the Commissioner of Internal
Revenue filed an Answer to Fitness' Petition and raised
special and affirmative defenses.14 The Commissioner
posited that the Warrant of Distraint and/or Levy was
issued in accordance with law.15 The Commissioner
claimed that its right to assess had not yet prescribed
under Section 222(a)16 of the National Internal Revenue
Code.17 Because the 1995 Income Tax Return filed by
Fitness was false and fraudulent for its alleged
intentional failure to reflect its true sales, Fitness'
respective taxes may be assessed at any time within 10
years from the discovery of fraud or omission.18
The Commissioner asserted further that the assessment
already became final and executory for Fitness' failure to
file a protest within the reglementary period.19 The
Commissioner denied that there was a protest to the
Final Assessment Notice filed by Fitness on June 25,
2004.20 According to the Commissioner, the alleged
protest was "nowhere to be found in the [Bureau of
Internal Revenue] Records nor reflected in the Record
Book of the Legal Division as normally done by [itsr
receiving clerk when she received [sic] any
document."21 Therefore, the Commissioner had sufficient
basis to collect the tax deficiency through the Warrant of
Distraint and/or Levy.22
The alleged fraudulent return was discovered through a
tip from a confidential informant.23 The revenue officers'
investigation revealed that Fitness had been operating
business with sales operations amounting to
P7,156,336.08 in 1995, which it neglected tq report in its
income tax return.24 Fitness' failure to report its income
resulted in deficiencies to its income tax and value-
added tax of P8,265,568.17 and P2,377,274.02
respectively, as well as the documentary stamp tax with
regard to capital stock subscription.25cralawred
Through the report, the revenue officers recommended
the filing of a civil case for collection of taxes and a
criminal case for failure to declare Fitness' purported
sales in its 1995 Income Tax Return.26 Hence, a criminal
complaint against Fitness was filed before the
Department of Justice.27
The Court of Tax Appeals First Division granted Fitness'
Petition on the ground that the assessment has already
prescribed.28 It cancelled and set aside the Final
Assessment Notice dated March 17, 2004 as well as the
Warrant of Distraint and/or Levy issued by the C
mmissioner.29 It ruled that the Final Assessment Notice
is invalid for failure to comply with the requirements of
Section 22830 of the National Internal Revenue Code.
The dispositive portion of the Decision reads:
chanRoblesvirtualLawlibrary
WHEREFORE, the Petition for Review dated February
24, 2005 filed by petitioner Fitness by Design, Inc., is
hereby GRANTED. Accordingly, the Final Assessment
Notice dated March 17, 2004, finding petitioner liable for
deficiency income tax, documentary stamp tax and
value-added tax for taxable year 1995 in the total
amount of P10,647,529.69 is
hereby CANCELLED and SET ASIDE. The Warrant of
Distraint and Levy dated February 1, 2005 is
likewise CANCELLED and SET ASIDE.
SO ORDERED.31 (Emphasis in the
original)ChanRoblesVirtualawlibrary
The Commissioner's Motion for Reconsideration and its
Supplemental Motion for Reconsideration were denied
by the Court of Tax Appeals First Division.32
Aggrieved, the Commissioner filed an appeal before the
Court of Tax Appeals En Banc.33 The Commissioner
asserted that it had 10 years to make an assessment
due to the fraudulent income tax return filed by
Fitness.34 It also claimed that the assessment already
attained finality due to Fitness' failure to file its protest
within the period provided by law.35
Fitness argued that the Final Assessment Notice issued
to it could not be claimed as a valid deficiency
assessment that could justify the issuance of a warrant
of distraint and/or levy.36 It asserted that it was a mere
request for payment as it did not provide the period
within which to pay the alleged liabilities.37
The Court of Tax Appeals En Banc ruled in favor of
Fitness. It affirmed the Decision of the Court of Tax
Appeals First Division, thus:
chanRoblesvirtualLawlibrary
WHEREFORE, the instant Petition for Review
is DENIED for lack of merit. Accordingly, both the
Decision and Resolution in CTA Case No. 7160 dated
July 10, 2012 and November 21, 2012 respectively
are AFFIRMED in toto.38 (Emphasis in the
original)ChanRoblesVirtualawlibrary
The Commissioner's Motion for Reconsideration was
denied by the Court of Tax Appeals En Banc in the
Resolution39 dated December 16, 2014.
Hence, the Commissioner of Internal Revenue filed
before this Court a Petition for Review.
Petitioner Commissioner of Internal Revenue raises the
sole issue of whether the Final Assessment Notice
issued against respondent Fitness by Design, Inc. is a
valid assessment under Section 228 of the National
Internal Revenue Code and Revenue Regulations No.
12-99.40
Petitioner argues that the Final Assessment Notice
issued to respondent is valid since it complies with
Section 228 of the National Internal Revenue Code and
Revenue Regulations No. 12-99.41 The law states that
the taxpayer shall be informed in writing of the facts,
jurisprudence, and law on which the assessment is
based.42 Nothing in the law provides that due date for
payment is a substantive requirement for the validity of a
final assessment notice.43
Petitioner further claims that a perusal of the Final
Assessment Notice shows that April 15, 2004 is the due
date for payment.44 The pertinent portion of the
assessment reads:
chanRoblesvirtualLawlibrary
The complete details covering the aforementioned
discrepancies established during the investigation of this
case are shown in the accompanying Annex 1 of this
Notice. The 50% surcharge and 20% interest have been
imposed pursuant to Sections 248 and 249(B) of the
[National Internal Revenue Code], as amended. Please
note, however, that the interest and the total amount due
will have to be adjusted if paid prior or beyond April 15,
2004.45 (Emphasis supplied)ChanRoblesVirtualawlibrary
This Court, through the Resolution46 dated July 22, 2015,
required respondent to comment on the Petition for
Review.
In its Comment,47 respondent argues that the Final
Assessment Notice issued was merely a request and not
a demand for payment of tax liabilities.48 The Final
Assessment Notice cannot be considered as a final
deficiency assessment because it deprived respondent
of due process when it failed to reflect its fixed tax
liabilities.49 Moreover, it also gave respondent an
indefinite period to pay its tax liabilities.50
Respondent points out that an assessment should
strictly comply with the law for its
validity.51 Jurisprudence provides that "not all documents
coming from the [Bureau of Internal Revenue] containing
a computation of the tax liability can be deemed
assessments[,] which can attain finality."52 Therefore, the
Warrant of Distraint and/or Levy cannot be enforced
since it is based on an invalid assessment.53
Respondent likewise claims that since the Final
Assessment Notice was allegedly based on fraud, it
must show the details of the fraudulent acts imputed to it
as part of due process.54chanroblesvirtuallawlibrary
I responsible for the "appropriate review and issuance of a
The Petition has no merit.
An assessment "refers to the determination of amounts
due from a person obligated to make payments."55 "In
the context of national internal revenue collection, it
refers to the determination of the taxes due from a
taxpayer under the National Internal Revenue Code of
1997."56
The assessment process starts with the filing of tax
return and payment of tax by the taxpayer.57 The initial
assessment evidenced by the tax return is a self-
assessment of the taxpayer.58 The tax is primarily
computed and voluntarily paid by the taxpayer without
need of any demand from govemment.59 If tax
obligations are properly paid, the Bureau of Internal
Revenue may dispense with its own assessment.60
After filing a return, the Commissioner or his or her
representative may allow the examination of any
taxpayer for assessment of proper tax liability.61 The
failure of a taxpayer to file his or her return will not hinder
the Commissioner from permitting the taxpayer's
examination.62 The Commissioner can examine records
or other data relevant to his or her inquiry in order to
verify the correctness of any return, or to make a return
in case of noncompliance, as well as to determine and
collect tax liability.63
The indispensability of affording taxpayers sufficient
written notice of his or her tax liability is a clear definite
requirement.64 Section 228 of the National Internal
Revenue Code and Revenue Regulations No. 12-99, as
amended, transparently outline the procedure in tax
assessment.65
Section 3 of Revenue Regulations No. 12-99,66 the then
prevailing regulation regarding the due process
requirement in the issuance of a deficiency tax
assessment, requires a notice for informal
conference.67 The revenue officer who audited the
taxpayer's records shall state in his or her report whether
the taxpayer concurs with his or her findings of liability
for deficiency taxes.68 If the taxpayer does not agree,
based on the revenue officer's report, the taxpayer shall
be informed in writing69 of the discrepancies in his or her
payment of internal revenue taxes for "Informal
Conference."70 The informal conference gives the
taxpayer an opportunity to present his or her side of the
case.71
The taxpayer is given 15 days from receipt of the notice
of informal conference to respond.72 If the taxpayer fails
to respond, he or she will be considered in default.73 The
revenue officer74 endorses the case with the least
possible delay to the Assessment Division of the
Revenue Regional Office or the Commissioner or his or
her authorized representative.75 The Assessment
Division of the Revenue Regional Office or the
Commissioner or his or her authorized representative is
deficiency tax assessment, if warranted."76
If, after the review conducted, there exists sufficient
basis to assess the taxpayer with deficiency taxes, the
officer shall issue a preliminary assessment notice
showing in detail the facts, jurisprudence, and law on
which the assessment is based.77 The taxpayer is given
15 days from receipt of the pre-assessment notice to
respond.78 If the taxpayer fails to respond, he or she will
be considered in default, and a formal letter of demand
and assessment notice will be issued.79
The formal letter of demand and assessment notice shall
state the facts, jurisprudence, and law on which the
assessment was based; otherwise, these shall be
void.80 The taxpayer or the authorized representative
may administratively protest the formal letter of demand
and assessment notice within 30 days from receipt of the
notice.81chanroblesvirtuallawlibrary
II
The word "shall" in Section 228 of the National Internal
Revenue Code and Revenue Regulations No. 12-99
means the act of informing the taxpayer of both the legal
and factual bases of the assessment is mandatory.82 The
law requires that the bases be reflected in the formal
letter of demand and assessment notice.83 This cannot
be presumed.84 Otherwise, the express mandate of
Section 228 and Revenue Regulations No. 12-99 would
be nugatory.85 The requirement enables the taxpayer to
make an effective protest or appeal of the assessment or
decision.86
The rationale behind the requirement that taxpayers
should be informed of the facts and the law on which the
assessments are based conforms with the constitutional
mandate that no person shall be deprived of his or her
property without due process of law.87 Between the
power of the State to tax and an individual's right to due
process, the scale favors the right of the taxpayer to due
process.88
The purpose of the written notice requirement is to aid
the taxpayer in making a reasonable protest, if
necessary.89 Merely notifying the taxpayer of his or her
tax liabilities without details or particulars is not
enough.90
Commissioner of Internal Revenue v. United Salvage
and Towage (Phils.), Inc.91held that a final assessment
notice that only contained a table of taxes with no other
details was insufficient:
chanRoblesvirtualLawlibrary
In the present case, a mere perusal of the [Final
Assessment Notice] for the deficiency EWT for taxable
year 1994 will show that other than a tabulation of the
alleged deficiency taxes due, no further detail regarding
the assessment was provided by petitioner. Only the
resulting interest, surcharge and penalty were anchored
with legal basis.Petitioner should have at least attached
a detailed notice of discrepancy or stated an explanation
why the amount of P48,461.76 is collectible against
respondent and how the same was arrived
at.92ChanRoblesVirtualawlibrary
Any deficiency to the mandated content of the
assessment or its process will not be
tolerated.93 In Commissioner of Internal Revenue v.
Enron,94 an advice of tax deficiency from the
Commissioner of Internal Revenue to an employee of
Enron, including the preliminary five (5)-day letter, were
not considered valid substitutes for the mandatory
written notice of the legal and factual basis of the
assessment.95The required issuance of deficiency tax
assessment notice to the taxpayer is different from the
required contents of the notice.96 Thus:
chanRoblesvirtualLawlibrary
The law requires that the legal and factual bases of the
assessment be stated in the forma letter of demand and
assessment notice. Thus, such cannot be presumed.
Otherwise, the express provisions of Article 228 of the
[National Internal Revenue Code] and [Revenue
Regulations] No. 12-99 would be rendered
nugatory. The alleged "factual bases" in the advice,
preliminary letter and "audit working papers" did not
suffice. There was no going around the mandate of the
law that the legal and factual bases of the assessment
be stated in writinin the formal letter of demand
accompanying the assessment notice.97 (Emphasis
supplied)ChanRoblesVirtualawlibrary
However, the mandate of giving the taxpayer a notice of
the facts and laws on which the assessments are based
should not be mechanically applied.98 To emphasize, the
purpose of this requirement is to sufficiently inform the
taxpayer of the bases for the assessment to enable him
or her to make an intelligent protest.99
In Samar-I Electric Cooperative v. Commissioner of
Internal Revenue,100substantial compliance with Section
228 of the National Internal Revenue Code is allowed,
provided that the taxpayer would be later apprised in
writing of the factual and legal bases of the assessment
to enable him or her to prepare for an effective
protest.101 Thus:
chanRoblesvirtualLawlibrary
Although the [Final Assessment Notice] and demand
letter issued to petitioner were not accompanied by a
written explanation of the legal and factual bases of the
deficiency taxes assessed against the petitioner, the
records showed that respondent in its letter dated April
10, 2003 responded to petitioner's October 14, 2002
letter-protest, explaining at length the factual and legal
bases of the deficiency tax assessments and denying
the protest.
Considering the foregoing exchange of correspondence
and documents between the parties, we find that the
requirement of Section 228 was substantially complied
with. Respondent had fully informed petitioner in writing
of the factual and legal bases of the deficiency taxes
assessment, which enabled the latter to file an "effective"
protest, much unlike the taxpayer's situation in Enron.
Petitioner's right to due process was thus not
violated.102ChanRoblesVirtualawlibrary
A final assessment notice provides for the amount of tax
due with a demand for payment.103 This is to determine
the amount of tax due to a taxpayer.104 However, due
process requires that taxpayers be informed in writing of
the facts and law on which the assessment is based in
order to aid the taxpayer in making a reasonable
protest.105 To immediately ensue with tax collection
without initially substantiating a valid assessment
contravenes the principle in administrative investigations
"that tax ayers should be able to present their case and
adduce supporting evidence."106
Respondent filed its income tax return in 1995.107 Almost
eight (8) years passed before the disputed final
assessment notice was issued. Respondent pleaded
prescription as its defense when it filed a protest to the
Final Assessment Notice. Petitioner claimed fraud
assessment to justify the belated assessment made on
respondent.108 If fraud was indeed present, the period of
assessment should be within 10 years.109 It is incumbent
upon petitioner to clearly state the allegations of fraud
committed by respondent to serve the purpose of an
assessment notice to aid respondent in filing an effective
protest.chanroblesvirtuallawlibrary
III
The prescriptive period in making an assessment
depends upon whether a tax return was filed or whether
the tax return filed was either false or fraudulent. When a
tax return that is neither false nor fraudulent has been
filed, the Bureau of Internal Revenue may assess within
three (3) years, reckoned from the date of actual filing or
from the last day prescribed by law for filing.110 However,
in case of a false or fraudulent return with intent to evade
tax, Section 222(a) provides:
chanRoblesvirtualLawlibrary
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 of failure to file a return, the tax may be
assessed, or a proceeding in court for the collection of
such tax may be filed without assessment, at any time
within ten (10) years after the discovery of the falsity,
fraud or omission: Provided, That in a fraud assessment
which has become final and executory, the fact of fraud
shall be judicially taken cognizance of in the civil or
criminal action for the collection thereof. (Emphasis
supplied)ChanRoblesVirtualawlibrary
In Aznar v. Court of Tax Appeals,111 this Court
interpreted Section 332112 (now Section 222[a] of the
National Internal Revenue Code) by dividing it in three
(3) different cases: first, in case of false return; second,
in case of a fraudulent return with intent to evade; and
third, in case of failure to file a return.113 Thus:
chanRoblesvirtualLawlibrary
Our stand that the law should be interpreted to mean a
separation of the three different situations of false return,
fraudulent return with intent to evade tax and failure to
file a return is strengthened immeasurably by the last
portion of the provision which aggregates the situations
into three different classes, namely "falsity", "fraud" and
"omission."114ChanRoblesVirtualawlibrary
This Court held that there is a difference between "false
return" and a "fraudulent return."115 A false return simply
involves a "deviation from the truth, whether intentional
or not" while a fraudulent return "implies intentional or
deceitful entry with intent to evade the taxes due."116
Fraud is a question of fact that should be alleged and
duly proven.117 "The willful neglect to file the required tax
return or the fraudulent intent to evade the payment of
taxes, considering that the same is accompanied by
legal consequences, cannot be presumed."118 Fraud
entails corresponding sanctions under the tax law.
Therefore, it is indispensable for the Commissioner of
Internal Revenue to include the basis for its allegations
of fraud in the assessment notice.
During the proceedings in the Court of Tax Appeals First
Division, respondent presented its President, Domingo
C. Juan Jr. (Juan, Jr.), as witness.119 Juan, Jr. testified
that respondent was in its pre-operating stage in
1995.120 During that period, respondent "imported
equipment and distributed them for market testing in the
Philippines without earning any profit."121 He also
confirmed that the Final Assessment Notice and its
attachments failed to substantiate the Commissioner's
allegations of fraud against respondent, thus:
chanRoblesvirtualLawlibrary
More than three (3) years from the time petitioner filed its
1995 annual income tax return on April 11, 1996,
respondent issued to petitioner a [Final Assessment
Notice] dated March 17, 2004 for the year 1995,
pursuant to the Letter of Authority No. 00002953 dated
May 13, 2002. The attached Details of discrepancy
containing the assessment for income tax (IT), value-
added tax (VAT) and documentary stamp tax (DST) as
well as the Audit Result/Assessment Notice do not
impute fraud on the part of petitioner. Moreover, it was
obtained on information and documents illegally obtained
by a [Bureau of Internal Revenue] informant from
petitioner's accountant Elnora Carpio in
1996.122(Emphasis supplied)ChanRoblesVirtualawlibrary
Petitioner did not refute respondent's allegations. For its
defense, it presented Socrates Regala (Regala), the
Group Supervisor of the team, who examined
respondent's tax liabilities.123 Regala confirmed that the
investigation was prompted by a tip from an informant
who provided them with respondent's list of sales.124 He
admitted125 that the gathered information did not show
that respondent deliberately failed to reflect its true
income in 1995.126chanroblesvirtuallawlibrary
IV
The issuance of a valid formal assessment is a
substantive prerequisite for collection of taxes.127 Neither
the National Internal Revenue Code nor the revenue
regulations provide for a "specific definition or form of an
assessment." However, the National Internal Revenue
Code defines its explicit functions and effects.128 An
assessment does not only include a computation of tax
liabilities; it also includes a demand for payment within a
period prescribed.129 Its main purpose is to determine the
amount that a taxpayer is liable to pay.130
A pre-assessment notice "do[es] not bear the gravity of a
formal assessment notice."131 A pre-assessment notice
merely gives a tip regarding the Bureau of Internal
Revenue's findings against a taxpayer for an informal
conference or a clarificatory meeting.132
A final assessment is a notice "to the effect that the
amount therein stated is due as tax and a demand for
payment thereof."133 This demand for payment signals
the time "when penalties and interests begin to accrue
against the taxpayer and enabling the latter to determine
his remedies[.]"134 Thus, it must be "sent to and received
by the taxpayer, and must demand payment of the taxes
described therein within a specific period."135
The disputed Final Assessment Notice is not a valid
assessment.
First, it lacks the definite amount of tax liability for which
respondent is accountable. It does not purport to be a
demand for payment of tax due, which a final
assessment notice should supposedly be. An
assessment, in the context of the National Internal
Revenue Code, is a "written notice and demand made
by the [Bureau of Internal Revenue] on the taxpayer for
the settlement of a due tax liability that is there definitely
set and fixed."136 Although the disputed notice provides
for the computations of respondent's tax liability, the
amount remains indefinite. It only provides that the tax
due is still subject to modification, depending on the date
of payment. Thus:
chanRoblesvirtualLawlibrary
The complete details covering the aforementioned
discrepancies established during the investigation of this
case are shown in the accompanying Annex 1 of this
Notice. The 50% surcharge and 20% interest have been
imposed pursuant to Sections 248 and 249 (B) of the
[National Internal Revenue Code], as amended. Please
note, however, that the interest and the total amount due
will have to be adjusted if prior or beyond April 15,
2004.137 (Emphasis
Supplied)ChanRoblesVirtualawlibrary
Second, there are no due dates in the Final Assessment
Notice. This negates petitioner's demand for
payment.138 Petitioner's contention that April 15, 2004
should be regarded as the actual due date cannot be
accepted. The last paragraph of the Final Assessment
Notice states that the due dates for payment were
supposedly reflected in the attached assessment:
chanRoblesvirtualLawlibrary
In view thereof, you are requested to pay your aforesaid
deficiency internal revenue tax liabilities through the duly
authorized agent bank in which ou are enrolled within
the time shown in the enclosed assessment
notice.139 (Emphasis in the
original)ChanRoblesVirtualawlibrary
However, based on the findings of the Court of Tax
Appeals First Division, the enclosed assessment
pertained to remained unaccomplished.140
Contrary to petitioner's view, April 15, 2004 was the
reckoning date of accrual of penalties and surcharges
and not the due date for payment of tax liabilities. The
total amount depended upon when respondent decides
to pay. The notice, therefore, did not contain a definite
and actual demand to pay.
Compliance with Section 228 of the National Internal
Revenue Code is a substantive requirement.141 It is not a
mere formality.142 Providing the taxpayer with the factual
and legal bases for the assessment is crucial before
proceeding with tax collection. Tax collection should be
premised on a valid assessment, which would allow the
taxpayer to present his or her case and produce
evidence for substantiation.143
The Court of Tax Appeals did not err in cancelling the
Final Assessment Notice as well as the Audit
Result/Assessment Notice issued by petitioner to
respondent for the year 1995 covering the "alleged
deficiency income tax, value-added tax and documentary
stamp tax amounting to P10,647,529.69, inclusive of
surcharges and interest"144 for lack of due process. Thus,
the Warrant of Distraint and/or Levy is void since an
invalid assessment bears no valid effect.145
Taxes are the lifeblood of government and should be
collected without hindrance.146 However, the collection of
taxes should be exercised "reasonably and in
accordance with the prescribed procedure."147
The essential nature of taxes for the existence of the
State grants government with vast remedies to ensure its
collection. However, taxpayers are guaranteed their
fundamental right to due process of law, as articulated in
various ways in the process of tax assessment. After all,
the State's purpose is to ensure the well-being of its
citizens, not simply to deprive them of their fundamental
rights.
WHEREFORE, the Petition is DENIED. The Decision of
the Court of Tax Appeals En Banc dated July 14, 2014
and Resolution dated December 16, 2014 in CTA EB
Case No. 970 (CTA Case No. 7160) are
hereby AFFIRMED.
SO ORDERED.cralawlawlibrary