CIR vs.

CA
257 SCRA 200
GR No. 119322 June 4, 1996

"Before one is prosecuted for willful attempt to evade or defeat any tax, the fact that a tax is
due must first be proved."

FACTS: The CIR assessed Fortune Tobacco Corp for 7.6 Billion Pesos representing deficiency
income, ad valorem and value-added taxes for the year 1992 to which Fortune moved for
reconsideration of the assessments. Later, the CIR filed a complaint with the Department of
Justice against the respondent Fortune, its corporate officers, nine (9) other corporations and
their respective corporate officers for alleged fraudulent tax evasion for supposed non-
payment by Fortune of the correct amount of taxes, alleging among others the fraudulent
scheme of making simulated sales to fictitious buyers declaring lower wholesale prices, as
allegedly shown by the great disparity on the declared wholesale prices registered in the
"Daily Manufacturer's Sworn Statements" submitted by the respondents to the BIR. Such
documents when requested by the court were not however presented by the BIR, prompting
the trial court to grant the prayer for preliminary injuction sought by the respondent upon the
reason that tax liabiliity must be duly proven before any criminal prosecution be had. The
petitioner relying on the Ungab Doctrine sought the lifting of the writ of preliminary mandatory
injuction issued by the trial court.

ISSUE: Whose contention is correct?

HELD: In view of the foregoing reasons, misplaced is the petitioners' thesis citing Ungab v.
Cusi, that the lack of a final determination of Fortune's exact or correct tax liability is not a
bar to criminal prosecution, and that while a precise computation and assessment is required
for a civil action to collect tax deficiencies, the Tax Code does not require such computation
and assessment prior to criminal prosecution.
Reading Ungab carefully, the pronouncement therein that deficiency assessment is not
necessary prior to prosecution is pointedly and deliberately qualified by the Court with
following statement quoted from Guzik v. U.S.: "The crime is complete when the violator has
knowingly and wilfully filed a fraudulent return with intent to evade and defeat a part or all of
the tax." In plain words, for criminal prosecution to proceed before assessment, there must
be a prima facie showing of a wilful attempt to evade taxes. There was a wilful attempt to
evade tax in Ungab because of the taxpayer's failure to declare in his income tax return "his
income derived from banana sapplings." In the mind of the trial court and the Court of
Appeals, Fortune's situation is quite apart factually since the registered wholesale price of the
goods, approved by the BIR, is presumed to be the actual wholesale price, therefore, not
fraudulent and unless and until the BIR has made a final determination of what is supposed
to be the correct taxes, the taxpayer should not be placed in the crucible of criminal
prosecution. Herein lies a whale of difference between Ungab and the case at bar.