CIR vs. CA (Fortune Case) GR No.119322, 4 June 1996

[ G.R. No. 119322.
June 04, 1996 ] 2/12/23, 12:41 PM
327 Phil. 1
FIRST DIVISION
[ G.R. No. 119322. June 04, 1996 ]

COMMISSIONER OF INTERNAL REVENUE, SENIOR STATE
PROSECUTOR AURORA S. LAGMAN, SENIOR STATE
PROSECUTOR BERNELITO R. FERNANDEZ, SENIOR STATE
PROSECUTOR HENRICK P. GINGOYON, ROGELIO F. VISTA,
STATE PROSECUTOR ALFREDO AGCAOILI, PROSECUTING
ATTORNEY EMMANUEL VELASCO, CITY PROSECUTOR
CANDIDO V. RIVERA, AND ASSISTANT CITY PROSECUTOR
LEOPOLDO E. BARAQUIA, PETITIONERS, VS. THE HONORABLE
COURT OF APPEALS, THE HONORABLE TIRSO D’C VELASCO,
PRESIDING JUDGE, REGIONAL TRIAL COURT OF QUEZON CITY,
BRANCH 88, FORTUNE TOBACCO CORPORATION, LUCIO TAN,
HARRY C. TAN, CARMEN KAO TAN, FLORENCIO SANTOS,
SALVADOR MISON, CHUNG POE KEE, ROJAS CHUA, MARIANO
TANENGLIAN, JUANITA LEE AND ANTONIO P. ABAYA,
RESPONDENTS. DAGUPAN COMBINED COMMODITIES, INC.,
TOWNSMAN COMMERCIALS, INC., LANDMARK SALES AND
MARKETING, INC., CRIMSON CROCKER DISTRIBUTORS, INC.,
MOUNT MATUTUM MARKETING CORP., FIRST UNION TRADING
CORP., CARLSBURG AND SONS, INC., OMAR ALI DISTRIBUTORS,
INC., ORIEL AND COMPANY, NEMESIO TAN, QUINTIN CALLEJA,
YOLANDA MANALILI, CARLOS CHAN, ROMEO TAN, VICENTE
CO, WILLIAM YU, LETICIA LIM, GLORIA LOPEZ, ROBERT
TANTAMCO, FELIPE LOY, ROLANDO CHUA, HONORINA TAN,
WILLIE TANTAMCO, HENRY WEECHEE, JESUS LIM, TEODORO
TAN, ANTONIO APOSTOL, DOMINGO TENG, CANDELARIO LI,
ERLINDA CRUZ, CARLOS TUMPALAN, LARRY JOHN SY,
ERNESTO ONG, WILFREDO MACROHON, ANTONIO TIU,
ROSARIO LESTER, WILFREDO ONG, BONIFACIA CHUA, GO
CHING CHUAN, HENRY CHUA, LOPE LIM GUAN, EMILIO TAN,
FELIPE TAN SHE CHUAN, ANDRES CO, FELIPE KEE, HENRY GO
CO, NARCISO GO, ADOLFO LIM, CO SHU, DANIEL YAO
CABIGUN, GABRIEL QUINTELA, NELSON TE, EMILIO GO,
EDWIN LEE, CESAR LEDESMA, JR., JAO CHEP SENG, ARNULFO
TAN, BENJAMIN T. HONG, PHILIP JAO, JOSE P. YU, AND DAVID R.
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CORTES, RESPONDENTS-INTERVENORS.
DECISION
KAPUNAN, J.:
The pivotal issue in this petition for review is whether or not respondent Court of Appeals
in its decision[1] in CA-G.R. SP No. 33599 correctly ruled that the Regional Trial Court of
Quezon City (Branch 88) in Civil Case No. Q-94-18790 did not commit grave abuse of
discretion amounting to lack of jurisdiction in issuing four (4) orders directing the issuance
of writs of preliminary injunction restraining petitioner prosecutors from continuing with
the preliminary injunction of I.S. Nos. 93-508 and 93-584 in the Department of Justice and
I.S. No. 93-17942 in the Office of the City Prosecutors of Quezon City wherein private
respondents were respondents and denying petitioners’ Motion to Dismiss said Civil Case
No. 94-18790.[2]
In resolving the issue raised in the petition, the Court may be guided by its definition of
what constitutes grave abuse of discretion. By grave abuse of discretion is meant such
capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction. The
abuse of discretion must be patent and gross as to amount to an evasion of positive duty or
a virtual refusal to perform a duty enjoined by law, or to act at all in contemplation of law
as where the power is exercised in an arbitrary and despotic manner by reason of passion
and hostility.[3]
On June 1, 1993, the President issued a Memorandum creating a Task Force to investigate
the tax liabilities of manufacturers engaged in tax evasion scheme, such as selling products
through dummy marketing corporations to avoid payment of correct internal revenue tax,
to collect from them any tax liabilities discovered from such investigation, and to file the
necessary criminal actions against those who may have violated the tax code. The task
force was composed of the Commissioner of Internal Revenue as Chairman, a
representative of the Department of Justice and a representative of the Executive Secretary.
On July 1, 1993, the Commissioner of Internal Revenue issued a Revenue Memorandum

Circular No. 37-93 reclassifying best selling cigarettes bearing the brands "Hope", "More",
and "Champion" as cigarettes of foreign brands subject to a higher rate of tax.
On August 3, 1993, respondent Fortune Tobacco Corporation (Fortune) questioned the

validity of the reclassification of said brands of cigarettes as violative of its right to due
process and equal protection of law. Parenthetically, on September 8, 1993, the Court of
Tax Appeals by resolution ruled that the reclassification made by the Commissioner "is of
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doubtful legality" and enjoined its enforcement.
In a letter of August 13, 1993 which was received by Fortune on August 24, 1993, the
Commissioner assessed against Fortune the total amount of P7,685,942,221.66
representing deficiency income, ad valorem and value-added tax for the year 1992 with the
request that the said amount be paid within thirty (30) days upon receipt thereof.[4]Fortune
on September 17, 1993 moved for reconsideration of the assessments.
On September 7, 1993, the Commissioner of Internal Revenue filed a complaint with the
Department of Justice against 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 income tax, ad valorem tax and
value-added tax for the year 1992. The complaint alleged, among others, that:
In the said income tax return, the taxpayer declared a net taxable income of
P183,613,408.00 and an income tax due of P64,264,693.00. Based mainly on
documentary evidence submitted by the taxpayer itself, these declarations are
false and fraudulent because the correct taxable income of the corporation for
the said year is P 1,282,959,399.25.
This underdeclaration which resulted in the evasion of the amount of

P723,773,759.79 as deficiency income tax for the year 1992 is a violation of
Section 45 of the Tax Code, penalized under Section 253 in relation to Sections
252(b) and (d) and 253 thereof, thus: x x x.
xxx xxx xxx
Fortune Tobacco Corporation, through its Vice-President for Finance, Roxas

Chua, likewise filed value-added tax returns for the 1st, 2nd, 3rd and 4th
quarters of 1992 with the Rev. District Office of Marikina, Metro Manila,
declaring therein gross taxable sales, as follows:
1st Qtr. P2,924,418,055.00

2nd Qtr. 2,980,335,235.00
3rd Qtr. 2,839,519,325.00
4th Qtr. 2,992,386,005.00
However, contrary to what have been reported in the said value-added tax
returns, and based on documentary evidence obtained from the taxpayer, the
total actual taxable sales of the corporation for the year 1992 amounted to
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P16,158,575,035.00 instead of P 11,929,322,334.52 as declared by the

corporation in the said VAT returns.
These fraudulent under declarations which resulted in the evasion of value-

added taxes in the aggregate amount of P 1,169,688,645.63 for the entire year
1992 are violations of Section 110 in relation to Section 100 of the Tax Code,
which are likewise penalized under the aforequoted Section 253, in relation to
Section 252, thereof. Sections 110 and 100 provide:
xxx xxx xxx
Furthermore, based on the corporation’s VAT returns, the corporation reported

its taxable sales for 1992 in the amount of P11,736,658,580. This declaration is
likewise false and fraudulent because based on the daily manufacturer’s sworn
statements submitted to the BIR by the taxpayer, its total taxable sales during
the year 1992 is P16,686,372,295.00. As a result thereof, the corporation was
able to evade the payment of ad valorem taxes in the aggregate amount of
P5,792,479,816.24 in violation of Section 127 in relation to Section 142, as
amended by R.A. 6956, penalized under the aforequoted Section 253, in relation
to Section 252, all of the Tax Code. Sections 127 and 142, as amended by R.A.
6956, are quoted as follows: x x x.
The complaint docketed as I.S. No. 93-508, was referred to the Department of Justice Task
Force on revenue cases which found sufficient basis to further investigate the allegations
that Fortune, through fraudulent means, evaded payment of income tax, ad valorem tax,
and value-added tax for the year 1992 thus, depriving the government of revenues in the
amount of Seven and One-half (P7.5) Billion Pesos.
The fraudulent scheme allegedly adopted by private respondents consisted of making

fictitious and simulated sales of Fortune’s cigarette products to non-existing individuals
and to entities incorporated and existing only for the purpose of such fictitious sales by
declaring registered wholesale prices with the BIR lower than Fortune’s actual wholesale
prices which are required for determination of Fortune’s correct income, ad valorem, and
value-added tax liabilities. The "ghosts wholesale buyers" then ostensibly sold the products
to customers and other wholesalers/retailers at higher wholesale prices determined by
Fortune. The tax returns and manufacturer’s sworn statements filed by Fortune would then
declare the fictitious sales it made to the conduit corporators and non-existing individual
buyers as its gross sales.[5]
On September 8, 1993, the Department of Justice Task Force issued a subpoena directing
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private respondents to submit their counter-affidavits not later than September 20, 1993.[6]
Instead of filing their counter-affidavits, the private respondents on October 15, 1993 filed
a Verified Motion to Dismiss; Alternatively Motion to Suspend,[7] based principally on the
following grounds:
1. The complaint of petitioner Commissioner follows a pattern of prosecution

against private respondents in violation of their right to due process and equal
protection of the law.
2. Petitioner Commissioner and the Court of Tax Appeals have still to

determine Fortune’s tax liability for 1992 in question; without any tax liability,
there can be no tax evasion.
3. Exclusive jurisdiction to determine tax liability is vested in the Court of Tax

Appeals; therefore, the DOJ is without jurisdiction to conduct preliminary
investigation.
4. The complaint of petitioner Commissioner is not supported by any evidence

to serve as adequate basis for the issuance of subpoena to private respondents
and to put them to their defense.
At the scheduled preliminary investigation on October 15 1993, private respondents were

asked by the panel of prosecutors to inform it of the aspects of the Verified Motion to
Dismiss which counsel for private respondents did so briefly. Counsel for the
Commissioner of Internal Revenue asked for fifteen (15) days within which to file a reply
in writing to private respondents’ Verified Motion to Dismiss. Thereupon, the panel of
prosecutors declared a recess. Upon reconvening, the panel of prosecutors denied the
motion to dismiss and treated the same as private respondents’ counter-affidavits.[8]
On October 20, 1993, private respondents filed a motion for reconsideration of the order of
October 15, 1993.[9] On October 21, 1993, private respondents filed a motion to require the
submission by the Bureau of Internal Revenue of certain documents in further support of
their Verified Motion to Dismiss. Among the documents sought to be produced are the
"Daily Manufacturer’s Sworn Statements" which according to petitioner Commissioner in
her complaint were submitted by Fortune to the BIR and which were the basis of her
conclusion that Fortune’s tax declarations were false and fraudulent. Fortune claimed that
without the "Daily Manufacturer’s Sworn Statements," there is no evidence to support the
complaint, hence, warranting its outright dismissal.
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On October 26, 1993, private respondents moved for the inhibition of the State Prosecutors
assigned to the case for alleged lack of impartiality.[10] Private respondents also sought the
production of the "Daily Manufacturer’s Sworn Statements" submitted by certain cigarette
companies similarly situated as Fortune but were not proceeded against, thus, private
respondents charged that Fortune and its officers were being singled out for criminal
prosecution which is discriminatory and in violation of the equal protection clause of the
Constitution.
On December 20, 1993, the panel of prosecutors issued an Omnibus Order[11] denying
private respondents’ motion for reconsideration, motion for suspension of investigation,
motion to inhibit the State Prosecutors, and motion to require submission by the BIR of
certain documents to further support private respondents’ motion to dismiss.
On January 4, 1994, private respondents filed a petition for certiorari and prohibition with
prayer for preliminary injunction with the Regional Trial Court, Branch 88, Quezon City,
docketed as Q-94-18790, praying that the complaint of the Commissioner of Internal
Revenue and the orders of the prosecutors in I.S. No. 93-508 be dismissed or set aside,
alternatively, the proceedings on the preliminary investigation be suspended pending final
determination by the Commissioner of Fortune’s motion for reconsideration/reinvestigation
of the August 13, 1993 assessment of the taxes due.[12]
On January 17, 1994, petitioners filed a motion to dismiss the petition[13] on the grounds
that (a) the trial court is bereft of jurisdiction to enjoin a criminal prosecution under
preliminary investigation; (b) a criminal prosecution for tax fraud can proceed
independently of criminal or administrative action; (c) there is no prejudicial question to
justify suspension of the preliminary investigation; (d) private respondents’ rights to due
process was not violated; and (e) selective prosecution is not a valid defense in this
jurisdiction.
On January 19, 1994, at the hearing of the incident for the issuance of a writ of preliminary
injunction in the petition, private respondents offered in evidence their verified petition for
certiorari and prohibition and its annexes. Petitioners responded by praying that their
motion to dismiss the petition for certiorari and prohibition be considered as their
opposition to private respondents’ application for the issuance of a writ of preliminary
injunction.
On January 25, 1994, the trial court issued an order granting the prayer for the issuance of
a preliminary injunction.[14] The trial court rationalized its order in this wise:
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a) It is private respondents’ claim that the ad valorem tax for the year 1992 was
levied, assessed and collected by the BIR under Section 142(c) of the Tax Code
on the basis of the "manufacturer’s registered wholesale price" duly approved
by the BIR. Fortune’s taxable sales for 1992 was in the amount of
P11,736,658,580.00.
b) On the other hand, it is petitioners’ contention that Fortune’s declaration was

false and fraudulent because, based on its daily manufacturer’s sworn
statements submitted to the BIR, its taxable sales in 1992 were P
16,686,372,295.00, as a result of which, Fortune was able to evade the payment
of ad valorem tax in the aggregate amount of P5,792,479,816.24.
c) At the hearing for preliminary investigation, the "Daily Manufacturer’s

Sworn Statements" which, according to petitioners, were submitted to the BIR
by private respondents and made the basis of petitioner Commissioner’s
complaint that the total taxable sales of Fortune in 1992 amounted to
P16,686,372, 295.00 were not produced as part of the evidence for petitioners.
In fact, private respondents had filed a motion to require petitioner
Commissioner to submit the aforesaid daily manufacturer’s sworn statements
before the DOJ panel of prosecutors to show that Fortune’s actual taxable sales
totaled P16,686,373,295.00, but the motion was denied.
d) There is nothing on record in the preliminary investigation before the panel

of investigators which supports the allegation that Fortune made a fraudulent
declaration of its 1992 taxable sales.
e) Since, as alleged by private respondents, the ad valorem tax for the year 1992
should be based on the "manufacturer’s registered wholesale price" while, as
claimed by petitioners, the ad valorem taxes should be based on the wholesale
price at which the manufacturer sold the cigarettes, which is a legal issue as
admitted by a BIR lawyer during the hearing for preliminary injunction, the
correct interpretation of the law involved, which is Section 142(c) of the Tax
Code, constitutes a prejudicial question which must first be resolved before
criminal proceedings for tax evasion may be pursued. In other words, the BIR
must first make a final determination, which it has not, of Fortune’s tax liability
relative to its 1992 ad valorem, value-added and income taxes before the
taxpayer can be made liable for tax evasion.
f) There was a precipitate issuance by the panel of prosecutors of subpoenas to

private respondents, on the very day following the filing of the complaint with
the DOJ consisting of about 600 pages, and the precipitate denial by the panel
of prosecutors, after a recess of about twenty (20) minutes, of private
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respondents’ motion to dismiss, consisting of one hundred and thirty-five (135)

pages.
g) Private respondents had been especially targeted by the government for

prosecution. Prior to the filing of the complaint in I.S. No. 93-508, petitioner
Commissioner issued Revenue Memorandum Circular No. 37-93 reclassifying
Fortune’s best selling cigarettes, namely "Hope", "More", and "Champion" as
cigarettes bearing a foreign brand, thereby imposing upon them a higher rate of
tax that would price them out of the market.
h) While in petitioner Commissioner’s letter of August 13, 1993, she gave

Fortune a period of thirty (30) days from receipt thereof within which to pay the
alleged tax deficiency assessments, she filed the criminal complaint for tax
evasion before the period lapsed.
i) Based on the foregoing, the criminal complaint against private respondents

was filed prematurely and in violation of their constitutional right to equal
protection of the laws.
On January 26, 1994, private respondents filed with the trial court a Motion to Admit
Supplemental Petition and sought the issuance of a writ of preliminary injunction to enjoin
the State Prosecutors from continuing with the preliminary investigation filed by them
against private respondents with the Quezon City Prosecutor’s Office, docketed as I.S. 93-
17942, for alleged fraudulent tax evasion, committed by private respondents for the taxable
year 1990. Private respondents averred in their motion that no supporting documents or
copies of the complaint were attached to the subpoena in I.S. 93-17942; that the subpoena
violates private respondents’ constitutional right to due process, equal protection and
presumption of innocence; that IS. 93-17942 is substantially the same as I. S. 93-508; that
no tax assessment has been issued by the Commission of Internal Revenue and considering
that taxes paid have not been challenged, no tax liability exists; and that since Assistant
City Prosecutor Baraquia was a former classmate of Presidential Legal Counsel Antonio T.
Carpio, the former cannot conduct the preliminary investigation in an impartial manner.
On January 28, 1994, private respondents filed with the trial court a second supplemental
petition,[15] also seeking to stay the preliminary investigation in I.S. 93-584, which was the
third complaint filed against private respondents with the DOJ for alleged fraudulent tax
evasion for the taxable year 1991.
On January 31, 1994, the lower court admitted the two (2) supplemental petitions and
issued a temporary restraining order in I.S. 93-17942 and I.S. 93-584.[16] Also, on the same
day, petitioners filed an Urgent Motion for Immediate Resolution of petitioners’ motion to
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dismiss.
On February 7, 1994, the trial court issued an order denying petitioners’ motion to dismiss
private respondents’ petition seeking to stay preliminary investigation in I.S. 93-508, ruling
that the issue of whether Sec. 127(b) of the National Tax Revenue Code should be the basis
of private respondents’ tax liability as contended by the Bureau of Internal Revenue, or
whether it is Section 142(c) of the same Code that applies, as argued by herein private
respondents, should first be settled before any complaint for fraudulent tax evasion can be
initiated.[17]
On February 14, 1994, the trial court issued an order granting private respondents’ petition
for a supplemental writ of preliminary injunction, likewise enjoining the preliminary
investigation of the two (2) other complaints filed with the Quezon City Prosecutor’s
Office and the DOJ for fraudulent tax evasion, I.S. 93-17942 and I.S. 93- 584, for alleged
tax evasion for the taxable years 1990 and 1991, respectively.[18] In granting the
supplemental writ, the trial court stated that the two other complaints are the same as in I.S.
93-508, except that the former refer to the taxable years 1990 and 1991.
On March 7, 1994, petitioners filed a petition for certiorari and prohibition with prayer
forpreliminary injunction before this Court. However, the petition was referred to the Court
of Appeals for disposition by virtue of its original concurrent jurisdiction over the petition.
On December 19, 1994, the Court of Appeals in CA-G.R. No. SP-33599 rendered a
decision denying the petition. The Court of Appeals ruled that the trial court committed no
grave abuse of discretion in ordering the issuance of writs of preliminary injunction and in
denying petitioners’ motion to dismiss. In upholding the reasons and conclusions given by
the trial court in its orders for the issuance of the questioned writs, the Court of Appeals
said in part:
In making such conclusion the respondent Court must have understood from
herein petitioner Commissioner’s letter-complaint of 14 pages (pp. 477-490,
rollo of this case) and the joint affidavit of eight revenue officers of 17 pages
attached thereto (pp. 491-507, supra) and its annexes (pp. 508-1077, supra) ,
that the charge against herein respondents is for tax evasion for non-payment by
herein respondent Fortune of the correct amounts of income tax, ad valorem tax
and value added tax, not necessarily ‘fraudulent tax evasion.’ Hence, the need
for previous assessment of the correct amount by herein petitioner
Commissioner before herein respondents may be charged criminally. Certiorari
will not be issued to cure errors in proceedings or correct erroneous conclusions
of law or fact. As long as a Court acts within its jurisdiction, any alleged error
committed in the exercise of its jurisdiction, will amount to nothing more than
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errors of judgment which are reviewable by timely appeal and not by a special
civil action of certiorari (Santos, Jr. vs. Court of Appeals, 152 SCRA 378; Gold
City Integrated Port Services, Inc. vs. Intermediate Appellate Court, 171 SCRA
579).
The questioned orders issued after hearing (Annexes A, B, C and D, petition)

being but interlocutory, review thereof by this Court is inappropriate until final
judgment is rendered, absent a showing of grave abuse of discretion on the part
of the issuing court (See Van Dom vs. Romillo, 139 SCRA 139, 141;
Newsweek, Inc. vs. IAC, 171, 177; Mendoza vs. Court of Appeals, 201 SCRA
343, 352). The factual and legal issues involved in the main case still before the
respondent Court are best resolved after trial. Petitioners, therefore, instead of
resorting to this petition for certiorari and prohibition should have filed an
answer to the petition as ordained in Section 4, Rule 16, in connection with Rule
11 of the Revised Rules of Court, interposing as defense or defenses the
objection or objections raised in their motion to dismiss, then proceed to trial in
order that thereafter the case may be decided on the merits by the respondent
Court. In case of an adverse decision, they may appeal therefrom by which the
entire record of the case would be elevated for review (See Mendoza vs. Court
of Appeals, supra). Therefore, certiorari and prohibition resorted to by herein
petitioners will not lie in view of the remedy open to them. Thus, the resulting
delay in the final disposition of the case before the respondent Court would not
have been incurred.
Grave abuse of discretion as a ground for issuance of writs of certiorari and

prohibition implies capricious and whimsical exercise of judgment as is
equivalent to lack of jurisdiction, or where the power is exercised in an arbitrary
or despotic manner by reason of passion, prejudice, or personal hostility,
amounting to an evasion of positive duty or to a virtual refusal to perform the
duty enjoined, or to act at all in contemplation of law (Confederation of Citizens
Labor Union vs. NLRC, 60 SCRA 84; Bustamante vs. Commission on Audit,
216 SCRA 134). For such writs to lie, there must be capricious, arbitrary and
whimsical exercise of power, the very antithesis of the judicial prerogative in
accordance with centuries of both civil law and common law traditions (Young
vs. Sulit, 162 SCRA 659, 664; FCC vs. IAC, 166 SCRA 155; Purefoods Corp.
vs. NLRC, 171 SCRA 45). Certiorari and prohibition are remedies narrow in
scope and inflexible in character. They are not general utility tools in the legal
workshop (Vda. de Guia vs. Veloso, 158 SCRA 340, 344). Their function is but
limited to correction of defects of jurisdiction solely, not to be used for any
other purpose (Garcia vs. Ranada, 166 SCRA 9), such as to cure errors in
proceedings or to correct erroneous conclusions of law or fact (Gold City
Integrated Ports Services vs. IAC, 171 SCRA 579). Due regard for the
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foregoing teachings enunciated in the decisions cited can not bring about a
decision other than what has been reached herein.
Needless to say, the case before the respondent court involving those against
herein respondents for alleged non-payment of the correct amounts due as
income tax, ad valorem tax and value added tax for the years 1990, 1991 and
1992 (Civil Case No. Q-94-18790) is not ended by this decision. The
respondent Court is still to try the case and decide it on the merits. All that is
decided here is but the validity of the orders of the respondent Court granting
herein respondents’ application for preliminary njunction and denying herein
petitioners’ motion to dismiss. If upon the facts established after trial and the
applicable law, dissolution of the writ of preliminary injunction allowed to be
issued by the respondent Court is called for and a judgment favorable to herein
petitioners is demanded, the respondent Court is duty bound to render judgment
accordingly.
WHEREFORE, the instant petition for certiorari and prohibition with

application for issuance of restraining order and writ of preliminary injunction
is DISMISSED. Costs de officio.[19]
Their motion for reconsideration having been denied by respondent appellate court on
February 23, 1995, petitioners filed the present petition for review based on the following
grounds:
THE RESPONDENT COURTS COMMITTED GRAVE ABUSE OF

DISCRETION AMOUNTING TO LACK OR EXCESS OFJURISDICTION IN
HOLDING THAT:
I. THERE IS A PREJUDICIAL AND/OR LEGAL QUESTION TO JUSTIFY

THE SUSPENSION OF THE PRELIMINARY INVESTIGATION.
II. PRIVATE RESPONDENTS’ RIGHTS TO DUE PROCESS, EQUAL

PROTECTION AND PRESUMPTION OF INNOCENCE WERE VIOLATED;
ON THE CONTRARY, THE STATE ITSELF WAS DEPRIVED OF DUE
PROCESS.
III. THE ADMISSION OF PRIVATE RESPONDENTS’ SUPPLEMENTAL

PETITIONS WERE PROPER.
IV. THERE WAS SELECTIVE PROSECUTION.
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V. THE FACTUAL ALLEGATIONS IN THE PETITION ARE

HYPOTHETICALLY ADMITTED IN A MOTION TO DISMISS BASED ON
JURISDICTIONAL GROUNDS.
VI. THE ISSUANCE OF THE WRITS OF INJUNCTION IS NOT A

DECISION ON THE MERITS OF THE PETITION BEFORE THE LOWER
COURT.[20]
The petition is bereft of merit.
In essence, the complaints in I.S. Nos. 93-508, 93-584 and 93-17942 charged private
respondents with fraudulent tax evasion or wilfully attempting to evade or defeat payment
of income tax, ad valorem tax and value-added tax for the year 1992, as well as for the
years 1990-1991.
The pertinent provisions of law involved are Sections 127(b) and 142(c) of the National
Internal Revenue Code which state:
Sec. 127.xxx
(b) Determination of gross selling price of goods subject to ad valorem tax.-

Unless otherwise provided, the price, excluding the value-added tax, at which
the goods are sold at wholesale in the place of production or through their sales
agents to the public shall constitute the gross selling price. If the manufacturer
also sells or allows such goods to be sold at wholesale price in another
establishment of which he is the owner or in the profits at which he has an
interest, the wholesale price in such establishment shall constitute the gross
selling price. Should such price be less than the costs of manufacture plus
expenses incurred until the goods are finally sold, then a proportionate margin
of profit, not less than 10% of such manufacturing costs and expenses, shall be
added to constitute the gross selling price.
Sec. 142.xxx
(c) Cigarettes packed in twenties.- There shall be levied, assessed and

collected on cigarettes packed in twenties an ad valorem tax at the rates
prescribed below based on the manufacturer’s registered wholesale price:
xxx.
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Private respondents contend that per Fortune’s VAT returns, correct taxable sales for 1992
was in the amount of P11,736,658,580.00 which was the "manufacturer’s registered
wholesale price" in accordance with Section 142(c) of the Tax Code and paid the amount
of P4,805,254,523 as ad valorem tax.
On the other hand, petitioners allege, as specifically worded in the complaint in I.S. No. 93
-508, that "based on the daily manufacturer’s sworn statements submitted to the BIR by the
Taxpayer (Fortune’s) total taxable sales during the year 1992 is P16,686,372,295.00," as a
result of which Fortune "was able to evade the payment of ad valorem taxes in the
aggregate amount of P5,792,479,816.24 xxx."
Petitioners now argue that Section 127(b) lays down the rule that in determining the gross
selling price of goods subject to ad valorem tax, it is the price, excluding the value-added
tax, at which the goods are sold at wholesale price in the place of production or through
their sales agents to the public. The registered wholesale price shall then be used for
computing the ad valorem tax which is imposable upon removal of the taxable goods from
the place of production. However, petitioners claim that Fortune used the "manufacturer’s
registered wholesale price in selling the goods to alleged fictitious individuals and dummy
corporations for the purpose of evading the payment of the correct ad valorem tax.
There can be no question that under Section 127(b), the ad valorem tax should be based on
the correct price excluding the value-added tax, at which goods are sold at wholesale in the
place of production. It is significant to note that among the goods subject to ad valorem tax,
the law "specifically Section 142(c)- requires that the corresponding tax on cigarettes shall
be levied, assessed and collected at the rates based on the "manufacturer’s registered
wholesale price." Why does the wholesale price need to be registered and what is the
purpose of the registration? The reason is self-evident, which is to ensure the payment of
the correct taxes by the manufacturers of cigarettes through close supervision, monitoring
and checking of the business operations of the cigarette companies. As pointed out by
private respondents, no industry is as intensely supervised by the BIR and also by the
National Tobacco Administration (NTA). Thus, the purchase and use of raw materials are
subject to prior authorization and approval by the NTA. Importations of bobbins or
cigarette paper, the manufacture, sale, and utilization of the same, are subject to BIR
supervision and approval.[21]
Moreover, as pointed to by private respondents, for purposes of closer supervision by the

BIR over the production of cigarettes, Revenue Enforcement Officers are detailed on a 24-
hour basis in the premises of the manufacturer to secure production and removal of
finished products. Composite Mobile Teams conduct counter-security on the business
operations as well as the performance of the Revenue Enforcement Officers detailed
thereat. Every transfer of any raw material is not allowed unless, in addition to the required
[ G.R. No. 119322. June 04, 1996 ] 2/12/23, 12:41 PM
permits, accompanied by Revenue Enforcement Officer. For the purpose of determining the
"Manufacturer’s Registered Wholesale Price" a cigarette manufacturer is required to file a
Manufacturer’s Declaration (BIR Form No. 31.03) for each brand of cigarette
manufactured, stating: a.) Materials; b) Labor; c) Overhead; d) Tax Burden and the
Wholesale Price by Case. The data submitted therewith is verified by the Revenue Officers
and approved by the Commission of Internal Revenue. Any change in the manufacturer’s
registered wholesale price of any brand cannot be effected without submitting the
corresponding Sworn Manufacturer’s Declaration and verified by the Revenue Officer and
approved by the Commissioner on Internal Revenue.[22] The amount of ad valorem tax
payments together with the Payment Order and Confirmation Receipt Nos. must be
indicated in the sales and delivery invoices and together with the Manufacturer’s Sworn
Declarations on (a) the quantity of raw materials used during the day’s operations; (b) the
total quantity produced according to brand; and (c) the corresponding quantity removed
during the day, the corresponding wholesale price thereof, and the VAT paid thereon must
be presented to the corresponding BIR representative for authentication before removal.
Thus, as observed by the trial court in its order of January 25, 1994 granting private
respondents’ prayer for the issuance of a writ of preliminary injunction, Fortune’s
registered wholesale price (was) duly approved by the BIR, which fact is not disputed by
petitioners.[23]
Now, if every step in the production of cigarettes was closely monitored and supervised by
the BIR personnel specifically assigned to Fortune’s premises, and considering that the
Manufacturer’s Sworn Declarations on the data required to be submitted by the
manufacturer were scrutinized and verified by the BIR and, further, since the
manufacturer’s wholesale price was duly approved by the BIR, then it is presumed that
such registered wholesale price is the same as, or approximates "the price, excluding the
value-added tax, at which the goods are sold at wholesale in the place production,"
otherwise, the BIR would not have approved the registered wholesale price of the goods
for purposes of imposing the ad valorem tax due. In such case, and in the absence of
contrary evidence, it was precipitate and premature to conclude that private respondents
made fraudulent returns or wilfully attempted to evade payment of taxes due. "Wilful"
means "premeditated; malicious; done with intent, or with bad motive or purpose, or with
indifference to the natural consequence x x x"[24] "Fraud" in its general sense, "is deemed
to comprise anything calculated to deceive, including all acts, omissions, and concealment
involving a breach of legal or equitable duty, trust or confidence justly reposed, resulting in
the damage to another, or by which an undue and unconscionable advantage taken of
another."[25]
Fraud cannot be presumed. If there was fraud or wilful attempt to evade payment of ad
valorem taxes by private respondents through the manipulation of the registered wholesale
[ G.R. No. 119322. June 04, 1996 ] 2/12/23, 12:41 PM
price of the cigarettes, it must have been with the connivance or cooperation of certain BIR
officials and employees who supervised and monitored Fortune’s production activities to
see to it that the correct taxes were paid. But there is no allegation, much less evidence, of
BIR personnel’s malfeasance. In the very least, there is the presumption that the BIR
personnel performed their duties in the regular course in ensuring that the correct taxes
were paid by Fortune.[26]
It is the opinion of both the trial court and respondent Court of Appeals, that before
Fortune and the other private respondents could be prosecuted for tax evasion under
Sections 253 and 255 of the Tax Code, the fact that the deficiency income, ad valorem and
value-added taxes were due from Fortune for the year 1992 should first be established.
Fortune received from the Commissioner of Internal Revenue the deficiency assessment
notices in the total amount of P7,685,942,221.06 on August 24, 1993. However, under
Section 229 of the Tax Code, the taxpayer has the right to move for reconsideration of the
assessment issued by the Commissioner of Internal Revenue within thirty (30) days from
receipt of the assessment; and if the motion for reconsideration is denied, it may appeal to
the Court of Appeals within thirty (30) days from receipt of the Commissioner’s decision.
Here, Fortune received the Commissioner’s assessment notice dated August 13, 1993 on
August 24, 1993 asking for the payment of the deficiency taxes. Within thirty (30) days
from receipt thereof, Fortune moved for reconsideration. The Commissioner has not
resolved the request for reconsideration up to the present.
We share with the view of both the trial court and Court of Appeals that before the tax
liabilities of Fortune are first finally determined, it cannot be correctly asserted that private
respondents have wilfully attempted to evade or defeat the taxes sought to be collected
from Fortune. In plain words, before one is prosecuted for wilful attempt to evade or defeat
any tax under Sections 253 and 255 of the Tax Code, the fact that a tax is due must first be
proved.
Suppose the Commissioner eventually resolves Fortune’s motion for reconsideration of the
assessments by pronouncing that the taxpayer is not liable for any deficiency assessment,
then, the criminal complaints filed against private respondents will have no leg to stand on.
In view of the foregoing reasons, we cannot subscribe to the petitioners’ thesis citing,
Ungad v. Cusi,[27] 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 Ungad carefully, the pronouncement therein that deficiency assessment is not
necessary prior to prosecution is pointedly and deliberately qualified by the Court with
[ G.R. No. 119322. June 04, 1996 ] 2/12/23, 12:41 PM
following statement quoted from Guzik v. U.S.:[28] "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 Ungad because of the taxpayer’s failure to declare in
his income tax return "his income derived from banana saplings." 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 Ungad
and the case at bar.
This brings us to the erroneous disquisition that private respondents’ recourse to the trial
court by way of special civil action of certiorari and prohibition was improper because:
a) the proceedings before the state prosecutors (preliminary injunction) were far from
terminated " private respondents were merely subpoenaed and asked to submit counter
affidavits, matters that they should have appealed to the Secretary of Justice; b) it is only
after the submission of private respondents’ counter affidavits that the prosecutors will
determine whether or not there is enough evidence to file in court criminal charges for
fraudulent tax evasion against private respondents; and c) the proper procedure is to allow
the prosecutors to conduct and finish the preliminary investigation and to render a
resolution, after which the aggrieved party can appeal the resolution to the Secretary of
Justice.
We disagree.
As a general rule, criminal prosecutions cannot be enjoined: However, there are recognized
exceptions which, as summarized in Brocka v. Enrile[29] are:
a. To afford adequate protection to the constitutional rights of the accused

(Hernandez vs. Albano, et al., L-19272, January 25, 1967, 19 SCRA 95);
b. When necessary for the orderly administration of justice or to avoid

oppression or multiplicity of actions (Dimayuga, et al. vs. Fernandez, 43 Phil.
304; Hernandez vs. Albano, supra; Fortun vs. Labang, et al., L-38383, May 27,
1981, 104 SCRA 607);
c. When there is a prejudicial question which is sub judice (De Leon vs.
Mabanag, 70 Phil. 202);
[ G.R. No. 119322. June 04, 1996 ] 2/12/23, 12:41 PM
d. When the acts of the officer are without or in excess of authority (Planas vs.
Gil, 67 Phil. 62);
e. Where the prosecution is under an invalid law, ordinance or regulation

(Young vs. Rafferty, 33 Phil. 556; Yu Cong Eng vs. Trinidad, 47 Phil. 385, 389);
f. When double jeopardy is clearly apparent (Sangalang vs. People and

Alvendia, 109 Phil. 1140);
g. Where the court had no jurisdiction over the offense (Lopez vs. City Judge,
L-25795, October 29, 1966, 18 SCRA 616);
h. Where it is a case of persecution rather than prosecution (Rustia vs. Ocampo,

CA-G.R. No. 4760, March 25, 1960);
i. Where the charges are manifestly false and motivated by the lust for
vengeance (Recto vs. Castelo, 18 L.J., cited in Rano vs. Alvenia, CA-G.R. No.
30720-R, October 8, 1962; Cf. Guingona, et al. vs. City Fiscal, L-60033, April
4, 1984, 128 SCRA 577); and
j. When there is clearly no prima facie case against the accused and a motion to
quash on that ground has been denied (Salonga vs. Pano, et al., L-59524,
February 18, 1985, 134 SCRA 438).
In issuing the questioned orders granting the issuance of a writ of preliminary injunction,
the trial court believed that said orders were warranted to afford private respondents
adequate protection of their constitutional rights, particularly in reference to presumption
of innocence, due process and equal protection of the laws. The trial court also found merit
in private respondents’ contention that preliminary injunction should be issued to avoid
oppression and because the acts of the state prosecutors were without or in excess of
authority and for the reason that there was a prejudicial question.
Contrary to petitioners’ submission, preliminary investigation may be enjoined where

exceptional circumstances so warrant. In Hernandez v. Albano[30] and Fortun v. Labang,
[31] injunction was issued to enjoin a preliminary investigation. In the case at bar, private
respondents filed a motion to dismiss the complaint against them before the prosecution
and alternatively, to suspend the preliminary investigation on the grounds cited
hereinbefore, one of which is that the complaint of the Commissioner is not supported by
any evidence to serve as adequate basis for the issuance of the subpoena to them and put
them to their defense.
[ G.R. No. 119322. June 04, 1996 ] 2/12/23, 12:41 PM
Indeed, the purpose of a preliminary injunction is to secure the innocent against hasty,
malicious and oppressive prosecution and to protect him from an open and public
accusation of crime, from the trouble, expense and anxiety of a public trial and also to
protect the state from useless and expensive trials.[32] Thus, the pertinent provisions of
Rule 112 of the Rules of Court state:
SECTION. 3. Procedure.- Except as provided for in Section 7 hereof, no

complaint or information for an offense cognizable by the Regional Trial Court
shall be filed without a preliminary investigation having been first conducted in
the following manner:
(a) The complaint shall state the known address of the respondent and be
accompanied by affidavits of the complainant and his witnesses as well as other
supporting documents, in such number of copies as there are respondents, plus
two (2) copies for the official file. The said affidavits shall be sworn to before
any fiscal, state prosecutor or government official authorized to administer oath,
or, in their absence or unavailability, a notary public, who must certify that he
personally examined the affiants and that he is satisfied that they voluntarily
executed and understood their affidavits.
(b) Within ten (10) days after the filing of the complaint, the investigating
officer shall either dismiss the same if he finds no ground to continue with the
inquiry, or issue a subpoena to the respondent, attaching thereto a copy of the
complaint, affidavits and other supporting documents. Within ten (10) days
from receipt thereof, the respondent shall submit counter-affidavits and other
supporting documents. He shall have the right to examine all other evidence
submitted by the complainant.
(c) Such counter-affidavits and other supporting evidence submitted by the

respondent shall also be sworn to and certified as prescribed in paragraph (a)
hereof and copies thereof shall be furnished by him to the complainant.
(d) If the respondent cannot be subpoenaed, or if subpoenaed, does not submit

counter-affidavits within the ten (10) day period, the investigating officer shall
base his resolution on the evidence presented by the complainant.
(e) If the investigating officer believes that there are matters to be clarified, he
may set a hearing to propound clarificatory questions to the parties or their
witnesses, during which the parties shall be afforded an opportunity to be
present but without the right to examine or cross-examine. If the parties so
[ G.R. No. 119322. June 04, 1996 ] 2/12/23, 12:41 PM
desire, they may submit questions to the investigating officer which the latter
may propound to the parties or witnesses concerned.
(f) Thereafter, the investigation shall be deemed concluded, and the

investigating officer shall resolve the case within ten (10) days therefrom. Upon
the evidence thus adduced, the investigating officer shall determine whether or
not there is sufficient ground to hold the respondent for trial.
As found by the Court of Appeals, there was obvious haste by which the subpoena was
issued to private respondents, just the day after the complaint was filed, hence, without the
investigating prosecutors being afforded material time to examine and study the
voluminous documents appended to the complaint for them to determine if preliminary
investigation should be conducted. The Court of Appeals further added that the precipitate
haste in the issuance of the subpoena justified private respondents’ misgivings regarding
the objectivity and neutrality of the prosecutors in the conduct of the preliminary
investigation and so, the appellate court concluded, the grant of preliminary investigation
by the trial court to afford adequate protection to private respondents’ constitutional rights
and to avoid oppression does not constitute grave abuse of discretion amounting to lack of
jurisdiction.
The complaint filed by the Commissioner on Internal Revenue states itself that the primary
evidence establishing the falsity of the declared taxable sales in 1992 in the amount of P
11,736,658,580.00 were the "Daily Manufacturer’s Sworn Statements" submitted by the
taxpayer which would show that the total taxable sales in 1992 are in the amount of P
16,686,372,295.00. However, the Commissioner did not present the "Daily Manufacturer’s
Sworn Statements" supposedly submitted to the BIR by the taxpayer, prompting private
respondents to move for their production in order to verify the basis of petitioners’
computation. Still, the Commissioner failed to produce the declarations. In Borja v.
Moreno,[33] it was held that the act of the investigator in proceeding with the hearing
without first acting on respondents’ motion to dismiss is a manifest disregard of the
requirement of due process. Implicit in the opinion of the trial court and the Court of
Appeals is that, if upon the examination of the complaint, it was clear that there was no
ground to continue with the inquiry, the investigating prosecutor was duty bound to dismiss
the case. On this point, the trial court stressed that the prosecutors conducting the
preliminary investigation should have allowed the production of the "Daily Manufacturer’s
Sworn Statements" submitted by Fortune without which there was no valid basis for the
allegation that private respondents wilfully attempted to evade payment of the correct
taxes. The prosecutors should also have produced the "Daily Manufacturer’s Sworn
Statements" by other cigarette companies, as sought by private respondents, to show that
these companies which had paid the ad valorem taxes on the same basis and in the same
[ G.R. No. 119322. June 04, 1996 ] 2/12/23, 12:41 PM
manner as Fortune were not similarly criminally charged. But the investigating prosecutors
denied private respondents’ motion, thus, indicating that only Fortune was singled out for
prosecution. The trial court and the Court of Appeals maintained that at that stage of the
preliminary investigation, where the complaint and the accompanying affidavits and
supporting documents did not show any violation of the Tax Code providing penal
sanctions, the prosecutors should have dismissed the complaint outright because of total
lack of evidence, instead of requiring private respondents to submit their counter affidavits
under Section 3(b) of Rule 112.
We believe that the trial court in issuing its questioned orders, which are interlocutory in
nature, committed no grave abuse of discretion amounting to lack of jurisdiction. There are
factual and legal bases for the assailed orders. On the other hand, the burden is upon the
petitioners to demonstrate that the questioned orders constitute a whimsical and capricious
exercise of judgment, which they have not. For certiorari will not be issued to cure errors in
proceedings or correct erroneous conclusions of law or fact. As long as a court acts within
its jurisdiction, any alleged errors committed in the exercise of its jurisdiction will amount
to nothing more than errors of judgment which are reviewable by timely appeal and not by
a special civil action of certiorari.34 Consequently, the Regional Trial Court acted correctly
and judiciously, and as demanded by the facts and the law, in issuing the orders granting
the writs of preliminary injunction, in denying petitioners’ motion to dismiss and in
admitting the supplemental petitions. What petitioners should have done was to file an
answer to the petition filed in the trial court, proceed to the hearing and appeal the decision
of the court if adverse to them.
WHEREFORE, the instant petition is hereby DISMISSED.
SO ORDERED.
Hermosisima, Jr., J., concurs.

Bellosillo, J., see concurring and dissenting opinion.
Padilla, J., see dissenting opinion.
Vitug, J., see separate opinion (dissenting).
[5] Id., at 13.
[12] Id., at 156-263.
[13] Id., at 18
[14] Annex "C," Petition, Rollo, pp. 128-142.
[ G.R. No. 119322. June 04, 1996 ] 2/12/23, 12:41 PM
[1] Rollo, pp. 98-129.
[2] Annexes "C", "D", "E", and "F", Petition, Rollo, pp. 128-145; 149-153.
[3]
Philippine Airlines, Inc. v. Confessor, 231 SCRA 41(1994); Sinon v. Civil Service
Commission, 215 SCRA 410 (1992); Producers Bank of the Philippines vs. NLRC, 165
SCRA 248 (1988); Litton Mills, Inc. v. Galleon Trader, Inc., 163 SCRA 494 (1988).
[4] Rollo, pp. 345-346.
[6] id., at 16.
[7] Id., at 264-325.
[8] Id., at 402-405.
[9] Id., at 412-415.
[10] Id., at 416-421.
[11] Rollo, pp. 539-545.
[15] Rollo, p. 21.
[16] Annex "D", Petition, Rollo, pp. 143-145.
[17] Annex "E", Petition, Rollo, pp. 140-148.
[18] Annex "F," Petition, RoIlo, pp. 149-153.
[19] Rollo, pp. 122-129.
[20] Rollo, p. 33.
[21] Private respondent’s "Comment on Petition for Review, "pp. 7-10.
[ G.R. No. 119322. June 04, 1996 ] 2/12/23, 12:41 PM
[22] Id.
[23] Rollo, pp. 135-136.
[24] BLACK’S DICTIONARY, 5th Ed., p. 1434.
[25]People v. Sabio, Sr., 86 SCRA 568 (1978); Philippine Legal Encyclopedia, 1986, Ed.,
p. 352.
[26] Rule 131, Section 3(m), Rules of Court.
[27] 97 SCRA 877 (1980).
[28] 54 F 2d. 618.
[29] 192 SCRA 183 (1990).
[30] 19 SCRA 95 (1967).
[31] 104 SCRA 607 (1981).
[32] Salonga v. Cruz Pano, 134 SCRA 438 (1985).
[33] 11 SCRA 568 (1964).
[34]
New Testament of Church of God v. CA, 246 SCRA 266 (1995); Santos v. CA, 152
SCRA 378 (1987); Villalon v. IAC, 144 SCRA 443 (1986).
BELLOSILLO, J., concurring and dissenting:
I am in full accord with the conclusion of the majority that the trial court committed no
grave abuse of discretion in issuing the assailed injunctive writs. But I am constrained to
dissent insofar as it finds that there was "selective prosecution" in charging private
respondents.
Let me first touch on "selective prosecution." There is no showing that petitioner

Commissioner of Internal Revenue is not going after others who may be suspected of being
big tax evaders and that only private respondents are being prosecuted, or even merely
[ G.R. No. 119322. June 04, 1996 ] 2/12/23, 12:41 PM
investigated, for tax evasion. As pointed out by the Solicitor General, assuming ex
hypothesi that other corporate manufacturers are guilty of using similar schemes for tax
evasion, the proper remedy is not the dismissal of the complaints against private
respondents, but the prosecution of other similar evaders. In this regard, in the absence of
willful or malicious prosecution, or so-called "selective prosecution," the choice on whom
to prosecute ahead of the others belongs legitimately, and rightly so, to the public
prosecutors.
But, I share the view of the majority that the trial court did not commit grave abuse of
discretion amounting to lack of jurisdiction. At once it must be pointed out that the trial
court merely issued writs of preliminary injunction. However to grant the prayer of herein
petitioners would effectively dismiss the petition for certiorari and prohibition filed by
private respondents with the trial court even before the issues in the main case could be
joined, which seems to me to be a procedural lapse since the main case is already being
resolved when the only issue before the Court is the propriety of the ancillary or
provisional remedy.
The trial court granted the writs of preliminary injunction upon finding, after hearing for
the purpose, that private respondents sufficiently established that "they are entitled to
certain constitutional rights and that these rights have been violated,"[1] and that they have
complied with the requirements of Sec. 3, Rule 58, Rules of Court.[2] In support of its
conclusion, the trial court enumerated its reasons: first, inspite of the motion of respondent
Fortune Tobacco Corporation, petitioner Commissioner of Internal Revenue failed to
present the "daily manufacturer’s sworn statements submitted to the BIR by the taxpayer,"
supposedly stating that the total taxable sales of respondent Corporation for the year 1992
is P 16,686,372,295.00, which is the basis of petitioner Commissioner’s allegation that
private respondents failed to pay the correct taxes since it declared in its VAT returns that
its total taxable sales in 1992 was only P 11,736,658.580.00; second, the proper application
of Sec. 142, par. (c), of the National Internal Revenue Code is a prejudicial question which
must first be resolved by the Court of Tax Appeals to determine whether a tax liability
which is an essential element of tax evasion exists before criminal proceedings may be
pursued; third, from the evidence submitted, it appears that the Bureau of Internal Revenue
has not yet made a final determination of the tax liability of private respondents with
respect to its ad valorem, value added and income taxes for 1992; and, fourth, the
precipitate issuance by the prosecutors of subpoenas to private respondents one (1) day
after the filing of the complaint, consisting of about 600 pages, inclusive of the 14-page
complaint, 17-page joint affidavit of eight (8) revenue officers and the annexes attached
thereto, and their hasty denial of private respondents’ 135-page motion to dismiss, after a
recess of only about 20 minutes, show that private respondents’ constitutional rights may
have been violated.
These circumstances as well as the other traces of discrimination mentioned by the trial
[ G.R. No. 119322. June 04, 1996 ] 2/12/23, 12:41 PM
court, i.e., the announcement by the PCGG that it would take over the various corporations
associated with respondent Lucio C. Tan; the creation of the Task Force on Revenue Cases
among the functions of which is to "[i]nvestigate the tax liabilities of manufacturers that
engage in well-known tax evasion schemes, such as selling products through dummy
marketing companies to evade the payment of the correct internal revenue taxes," the very
charge against respondent Tan; the reclassification of respondent corporation’s best selling
cigarettes as foreign brands thereby imposing upon them a higher tax rate that would price
them out of the market without notice and hearing; the singling out of private respondents
as subjects of a complaint for tax evasion when other cigarette manufacturers have been
using the same basis private respondents are using in paying ad valorem, value added and
income taxes; and, the failure of petitioner Commissioner to wait for the expiration of the
30-day period she herself gave to private respondents to pay the supposed tax deficiencies
before the filing of the complaint, obviously impelled the trial court to issue the writ of
preliminary injunction. Practically the same grounds were found by the trial court when it
provisionally restrained the investigation of the two (2) other complaints, i.e, tax evasion
complaints for FYs 1990 and 1991.
On the basis of the findings of the trial court, it indeed appears that private respondents’
constitutional rights to due process of law and equal protection of the laws may have been
for the moment set aside, if not outright violated. The trial court was convinced that the
tell-tale signs of malice and partiality were indications that the constitutional rights of
private respondents may not have been afforded adequate protection. Accordingly I see no
manifest abuse, much less grave, on the part of the trial court in issuing the injunctive
writs. Thus it is my opinion that the trial court did not commit grave abuse of discretion in
granting the assailed writs.
Well entrenched is the rule that the issuance of the writ of preliminary injunction as an
ancillary or preventive remedy to secure the rights of a party in a pending case rests upon
the sound discretion of the court hearing it. The exercise of sound judicial discretion by the
trial court in injunctive matters should not be interfered with except in case of manifest
abuse,[3] which is not true in the case before us. Equally well settled is that under Sec. 7,
Rule 58, Rules of Court,[4] a wide latitude is given to the trial court.[5] This is because the
conflicting claims in an application for a provisional writ more often than not involves a
factual determination which is not the function of this Court, or even respondent appellate
court. Thus in the case at bar the ascertainment of the actual tax liability, if any, based on
the evidence already presented and still to be presented, is more within the competence of
the trial court before which the parties have raised the very same issue in the main case.
The truth or falsity of the divergent statements that there was deliberate haste in issuing the
subpoenas and in denying private respondents’ motion to dismiss may be confirmed not by
this Court but by the trial court during that hearing on the merits.
In fine, no grave abuse of discretion can be attributed to a judge or body in the issuance of
[ G.R. No. 119322. June 04, 1996 ] 2/12/23, 12:41 PM
a writ of preliminary injunction where a party was not deprived of its day in court as it was
heard and had exhaustively presented all its arguments and defenses.[6] It is undisputed that
in the case before us petitioners and private respondents were given sufficient time and
opportunity to present their respective pieces of evidence as well as arguments in support
of their positions.
Consequently, I concur with the finding of the majority that the trial court committed no
grave abuse of discretion. As respondent appellate court said, "[g]rave abuse of discretion
as a ground for issuance of writs of certiorari and prohibition implies capricious and
whimsical exercise of judgment as is equivalent to lack of jurisdiction, or where the power
is exercised in an arbitrary or despotic manner by reason of passion, prejudice or personal
hostility amounting to an evasion of positive duty or to a virtual refusal to perform the duty
enjoined, or to act at all in contemplation of law.[7] For such writs to lie there must be
capricious, arbitrary and whimsical exercise of power, the very antithesis of the judicial
prerogative in accordance with centuries of both civil and common law traditions."[8] The
trial court, to my mind, is not guilty of any of these. Thus I accord respect to the exercise of
the trial court’s sound judicial discretion and hold that the same should not be interfered
with.
To permanently enjoin the trial court from proceeding in any manner in Civil Case No. Q-
94-19790 and allow the preliminary investigation of the complaints docketed as I.S. Nos.
93-508, 93-17942 and 93-584 with the Department of Justice to resume until their final
conclusion and completion would go against the prevailing rule that courts should avoid
issuing a writ or preliminary injunction which would in effect dispose of the main case
without trial.[9] Due process considerations dictate that the assailed injunctive writs are not
judgments on the merits but merely orders for the grant of a provisional and ancillary
remedy to preserve the status quo until the merits of the case can be heard. The hearing on
the application for issuance of a writ of preliminary injunction is separate and distinct from
the trial on the merits of the main case. The quantum of evidence required for one is
different from that for the other, so that it does not necessarily follow that if the court
grants and issues the temporary writ applied for the same court will now have to rule in
favor of the petition for prohibition and ipso facto make the provisional injunction
permanent.
If grave abuse of discretion attended the issuance of the writ of preliminary injunction, then
by all means nullify the abusive act - but only that. The main case should be allowed to
proceed according to due process. The trial court should receive the evidence from the
contending parties, weigh and evaluate the same and then make its findings. Clearly, the
dismissal of the main case as a result of a mere incident relative to the issuance of an
ancillary writ is procedurally awkward and violates due process, as it deprives private
respondents of their right to present their case in court and support it with its evidence.
[ G.R. No. 119322. June 04, 1996 ] 2/12/23, 12:41 PM
In resolving the fundamental issue at hand, i.e., whether the trial court committed grave
abuse of discretion in issuing the subject writs of preliminary injunction, we cannot avoid
balancing on the scales the power of the State to tax and its inherent right to prosecute
perceived transgressors of the law on one side, and the constitutional rights of a citizen to
due process of law and the equal protection of the laws on the other. Obviously the scales
must tilt in favor of the individual, for a citizen’s right is amply protected by the Bill of
Rights of the Constitution. Thus while "taxes are the lifeblood of the government," the
power to tax has its limits, inspite of all its plenitude. Hence in Commissioner of Internal
Revenue v. Algae, Inc.,[10] we said -
Taxes are the lifeblood of the government and so should be collected without
unnecessary hindrance. On the other hand, such collection should be made in
accordance with law as any arbitrariness will negate the very reason for
government itself. It is therefore necessary to reconcile the apparently
conflicting interests of the authorities and the taxpayers so that the real purpose
of taxation, which is the promotion of the common good, may be achieved.
xxx
It is said that taxes are what we pay for civilized society. Without taxes, the
government would be paralyzed for the lack of the motive power to activate and
operate it. Hence, despite the natural reluctance to surrender part of one’s hard-
earned income to taxing authorities, every person who is able to must contribute
his share in the running of the government. The government for its part is
expected to respond in the form of tangible and intangible benefits intended to
improve the lives of the people and enhance their moral and material values.
This symbiotic relationship is the rationale of taxation and should dispel the
erroneous notion that it is an arbitrary method of exaction by those in the seat of
power.
But even as we concede the inevitability and indispensability of taxation, it is a

requirement in all democratic regimes that it be exercised reasonably and in
accordance with the prescribed procedure. If it is not, then the taxpayer has a
right to complain and the courts will then come to his succor. For all the
awesome power of the tax collector, he may still be stopped in his tracks if the
taxpayer can demonstrate x x x that the law has not been observed.
In the instant case, it seems that due to the overzealousness in collecting taxes from private
[ G.R. No. 119322. June 04, 1996 ] 2/12/23, 12:41 PM
respondents and to some accident of immediate overwhelming interest which distressingly

impassions and distorts judgment, the State has unwittingly ignored the citizens’
constitutional rights. Thus even the rule that injunction will not lie to prevent a criminal
prosecution has admitted exceptions, which we enumerated in Brocka v. Enrile[11] and in
Ocampo IV v. Ombudsman[12] -(a) to afford adequate protection to the constitutional rights
of the accused; (b) when necessary for the orderly administration of justice or to avoid
oppression or multiplicity of actions; (c) when there is a prejudicial question which is sub-
judice; (d) when the acts of the officer are without or in excess of authority; (e) where the
prosecution is under an invalid law, ordinance or regulation; (f) when double jeopardy is
clearly apparent; (g) when the court has no jurisdiction over the offense; (h) where it is a
case of persecution rather than prosecution; (i) where the charges are manifestly false and
motivated by lust for vengeance; (j) when there is clearly no prima facie case against the
accused and a motion to quash on that ground has been denied; and, (k) to prevent a
threatened unlawful arrest.
Finally, courts indeed should not hesitate to invoke the constitutional guarantees to give
adequate protection to the citizens when faced with the enormous powers of the State, even
when what is in issue are only provisional remedies, as in the case at hand. In days of great
pressure, it is alluring to take short cuts by borrowing dictatorial techniques. But when we
do, we set in motion an arbitrary or subversive influence by our own design which destroys
us from within. Let not the present case dangerously sway towards that trend.
For all the foregoing, I vote to dismiss the instant petition for lack of merit, and to order the
trial court to proceed with Civil Case No. Q-94-19790 with reasonable dispatch.
[1] Order of 25 January 1994, p. 11.
[2] Section 3, Rule 58, Rules of Court, provides that "[a] preliminary injunction may be
granted at any time after the commencement of the action and before judgment, when it is
established: (a) That the plaintiff is entitled to the relief demanded, and the whole or part of
such relief consists in restraining the commission or continuance of the acts complained of,
or in the performance of an act or acts, either for a limited period or perpetually; (b) That
the commission or continuance of some act complained of during the litigation or the non-
performance thereof would probably work injustice to the plaintiff; or (c) That the
defendant is doing, threatens, or is about to do, or is procuring or suffering to be done,
some act probably in violation of the plaintiff’s rights respecting the subject of the action,
and tending to render the judgment ineffectual."
[3]Searth Commodities Corporation v. Court of Appeals, G.R. No. 64220, 31 March 1992,
207 SCRA 622, S & A Gaisano Incorporated v. Judge Hidalgo, G.R. No. 80397, 10
December 1990, 192 SCRA 224; Government Service Insurance System v. Judge Florendo,
[ G.R. No. 119322. June 04, 1996 ] 2/12/23, 12:41 PM
No. L-48603, 29 September 1989, 178 SCRA 76; Genoblazo v. Court of Appeals, G.R. No.
79303, 20 June 1989, 174 SCRA 124; Belisle Investment and Finance Co. v. State
Investment House, Inc., G.R. No.71917, 30 June 1987, 151 SCRA 630; Yaptinchay v.
Judge Torres, No. L-26462, 9 June 1969, 28 SCRA 489; Detective & Protective Bureau,
Inc. v. Judge Cloribel, No. L-23428, 29 November 1968, 26 SCRA 255; North Negros
Sugar Co. v. Hidalgo, 63 Phil. 664 (1936).
[4]
Section 7, Rule 58, Rules of Court, provides that "[a]fter hearing on the merits that court
may grant or refuse, continue, modify or dissolve the injunction as justice may require."
[5] Detective & Protective Bureau, Inc. v. Judge Cloribel, see Note 3.
[6] Santos v. Court of Appeals, G.R. No. 61218, 23 September 1992, 214 SCRA 162.
[7]Decision of respondent Court of Appeals, p. 29, citing Confederation of Citizens Labor

Union v. NLRC, Nos. L-38955-56, 31 October 1974, 60 SCRA 450; Paredes v.
Commission on Audit, G.R. No. 88177, 4 December 1990, 192 SCRA 84; and Bustamante
v. Commission on Audit, G.R. No. 103309, 27 November 1992, 216 SCRA 134.
[8]Ibid., citing Young v. Sulit, G.R. No. 57839,27 June 1988, 162 SCRA 659; Filinvest
Credit Corp. v. Intermediate Appellate Court, G.R. No.65935, 30 September 1988, 166
SCRA 155; and Pure Foods Corp. v. NLRC, G.R. No. 78591, 21 March 1989, 171 SCRA
415.
[9]Searth Commodities Corporation v. Court of Appeals, See Note 3; Rivas v. Securities

and Exchange Commission, G.R. No. 53772, 4 October 1990, 190 SCRA 295; Government
Service Insurance System v. Judge Florendo, See Note 3; Ortigas & Company Limited
Partnership v Court of Appeals, G.R. No. 79128, 16 June 1988, 162 SCRA 165.
[10] No. L-28896, 17 February 1988, 158 SCRA 9.
[11] G.R. Nos. 69863-65, 10 December 1990, 192 SCRA 183.
[12] G.R. Nos. 103446-47, 30 August 1993, 225 SCRA 725.
PADILLA, J., dissenting:
Because of what I humbly perceive to be the crippling, chilling and fatal effects of the
majority opinion on the power of the state to investigate fraudulent tax evasion in the
country, I am constrained to dissent, as vigorously as I can, from the majority opinion.
[ G.R. No. 119322. June 04, 1996 ] 2/12/23, 12:41 PM
THE ISSUE
The main issue in this petition for review on certiorari is whether or not there are valid
grounds to stop or stay the preliminary investigation of complaints filed by the Bureau of
Internal Revenue (BIR) with the Department of Justice (DOJ) Revenue Cases Task Force
against private respondents for alleged fraudulent tax evasion for the years 1990, 1991 and
1992. Stated differently, the issue is: did respondent trial court commit grave abuse of
discretion amounting to lack or excess of jurisdiction in stopping the subject preliminary
investigation?
THE CASE AND THE FACTS
On 7 September 1993, petitioner Commissioner of Internal Revenue filed a complaint with

the DOJ against private respondents Fortune Tobacco Corporation (hereinafter referred to
simply as "Fortune"), its corporate officers, nine (9) other corporations, and their respective
corporate officers, for alleged fraudulent tax evasion for the year 1992.
The complaint, docketed as I.S. No. 93-508, was referred to the DOJ Task Force on
Revenue Cases which found sufficient grounds to further investigate the allegation that
Fortune fraudulently evaded payment of income, value-added and ad valorem taxes for the
year 1992 thus depriving the Government of revenue allegedly in excess of seven and one-
half (7 1/2) billion pesos.
The fraudulent scheme allegedly adopted and employed by private respondents, is

described by the BIR as follows:
"In order to evade payment of said taxes, [Fortune] made fictitious and
simulated sales of its cigarette products to non-existent individuals and to
entities incorporated and existing only for the purpose of such fictitious sales by
declaring registered wholesale prices with the BIR lower than [Fortune’s] actual
wholesale prices which are required for determination of [Fortune’s] correct ad
valorem, income and value-added tax liabilities. These ‘ghost wholesale buyers’
then ostensibly sold the product to consumers and other wholesalers/retailers at
higher wholesale prices determined by [Fortune]. The tax returns and
manufacturer’s sworn statements filed by [Fortune] as aforesaid declare the
fictitious sales it made to the conduit corporations and non-existent individual
buyers as its gross sales."[1]
[ G.R. No. 119322. June 04, 1996 ] 2/12/23, 12:41 PM
Based on the initial evaluation of the DOJ Task Force, private respondents were
subpoenaed and required to submit their counter-affidavits not later than 20 September
1993.[2] Instead of filing counter-affidavits, private respondents filed a "Verified Motion to
Dismiss; Alternatively, Motion to Suspend."[3] Said motion was denied by the DOJ Task
Force and treated as private respondents’ counter- affidavit, in an order dated 15 October
1993.[4]
Private respondents sought reconsideration of the aforementioned order of denial and

likewise filed motions to require submission by the Bureau of Internal Revenue (BIR) of
certain documents to support the verified motion to dismiss or suspend the investigation,
and for the inhibition of the state prosecutors assigned to the case for alleged lack of
impartiality.[5]
On 20 December 1993, an omnibus order was issued by the investigating Task Force:[6]
a. denying reconsideration;
b. denying suspension of investigation; and
c. denying the motion to inhibit the investigating state prosecutors.
Thereupon, or on 4 January 1994, private respondents went to court. They filed a petition
for certiorari and prohibition with prayer for preliminary injunction in the Regional Trial
Court, Branch 88, Quezon City, praying that the proceedings (investigation) before the
DOJ Task Force be stopped. The petition was docketed as Civil Case No. Q-94-19790.[7]
On 17 January 1994, petitioners filed with the trial court a motion to dismiss the aforesaid
petition.[8] On 25 January 1994, the trial court issued instead an order granting the herein
private respondents’ prayer for a writ of preliminary injunction,[9] to stop the preliminary
investigation in the DOJ Revenue Cases Task Force.
On 26 January 1994, private respondents filed with the trial court a Motion to Admit
Supplemental Petition seeking this time the issuance of another writ of preliminary
injunction against a second complaint of the BIR with the DOJ docketed as I.S. No. 93-
17942 likewise against herein private respondents for fraudulent tax evasion for the year
1990. Private respondents averred in their aforesaid motion with the trial court that -
a. no supporting documents nor copies of the complaint were attached to the subpoena in
[ G.R. No. 119322. June 04, 1996 ] 2/12/23, 12:41 PM
I.S. No. 93-17942;
b. the abovementioned subpoena violates private respondents’ constitutional rights to due

process, equal protection and presumption of innocence;
c. I.S. No. 93-17942 is substantially the same as I.S. No. 93-508 except that it concerns the
year 1990.
d. no tax assessment has been issued by the Commissioner of Internal Revenue and since
taxes already paid have not been challenged by the BIR, no tax liability exists;
e. Assistant Quezon City Prosecutor Leopoldo E. Baraquia was a former classmate of then
Presidential Legal Counsel Antonio T. Carpio, thus, he cannot conduct the preliminary
investigation in an impartial manner.
On 28 January 1994, private respondents file with the trial court a second suplemental
petition[10] this time seeking to stay the preliminary investigation in I.S. No. 93-548, a
third BIR complaint with the DOJ against private respondents for fraudulent tax evasion
for the year 1991.
On 31 January 1994, the trial court admitted the two (2) supplemental petitions and issued
a temporary restraining order stopping the preliminary investigation of the two (2) later
complaints with the DOJ against private respondents for alleged fraudulent tax evasion for
the years 1990 and1991.
On 7 February 1994, the trial court also issued an order denying herein petitioner’s motion
to dismiss private respondents’ petition seeking to stay the preliminary investigation in I.S.
No. 93-508. The trial court ruled that the issue of whether Sec. 127(b) of the National
Internal Revenue (Tax) Code should be the basis of herein private respondents’ tax liability,
as contended by the Bureau of Internal Revenue, or whether it is Sec. 142(c) of the same
code that applies, as argued by herein private respondents, should first be settled before any
criminal complaint for fraudulent tax evasion can be initiated or maintained.
On 14 February 1994, the trial court issued a supplemental writ of preliminary injunction
this time enjoining the preliminary investigations of the two (2) other BIR complaints with
the DOJ for fraudulent tax evasion. The trial court then denied motions to dismiss the two
(2) supplemental petitions, filed by therein respondents Commissioner of Internal Revenue
and the DOJ Revenue Cases Task Force investigators.
On 7 March 1994, herein petitioners filed with this Court a petition for certiorari and
prohibition with prayer for preliminary injunction which questioned the orders issued by
the trial court granting the private respondents’ prayer for preliminary injunction to stop the
[ G.R. No. 119322. June 04, 1996 ] 2/12/23, 12:41 PM
preliminary investigation in the DOJ of the BIR’ s complaints for fraudulent tax evasions
against private respondents and denying petitioners’ motions to dismiss private
respondents’ various petitions with the trial court. The petition was referred by this Court
to the Court of Appeals which has original concurrent jurisdiction over the petition.
On 19 December 1994, the Court of Appeals rendered a decision which, in part, reads:
"In making such conclusion the respondent Court (the Regional Trial Court of
Quezon City, Branch 88) must have understood from herein petitioner
Commissioner’s letter-complaint of 14 pages and the joint affidavit of eight
revenue officers of 17 pages attached thereto and its annexes, that the charge
against herein respondents is for tax evasion for non-payment by herein
respondent Fortune of the correct amounts of income tax, ad valorem tax and
value added tax, not necessarily ‘fraudulent tax evasion.’ Hence, the need for
previous assessment of the correct amount by herein petitioner Commissioner
before herein respondents may be charged criminally. Certiorari will not be
issued to cure errors in proceedings or correct erroneous conclusions of law or
fact. As long as a Court acts within its jurisdiction, any alleged error committed
in the exercise of its jurisdiction, will amount to nothing more than errors of
judgment which are reviewable by timely appeal and not by a special civil
action of certiorari.
The questioned orders issued after hearing being but interlocutory, review
thereof by this court is inappropriate until final judgment is rendered, absent a
showing of grave abuse of discretion on the part of the issuing court. The
factual and legal issues involved in the main case still before the respondent
Court are best resolved after trial. Petitioners, therefore, instead of resorting to
this petition for certiorari and prohibition should have filed an answer to the
petition as ordained in Section 4, Rule 16, in connection with Rule 11 of the
Revised Rules of Court, interposing as defense or defenses the objection or
objections raised in their motion to dismiss, then proceed to trial in order that
thereafter the case may be decided on the merits by the respondent Court. In
case of an adverse decision, they may appeal therefrom by which the entire
record of the case would be elevated for review. Therefore, certiorari and
prohibition resorted to by herein petitioners will not lie in view of the remedy
open to them. Thus, the resulting delay in the final disposition of the case before
the respondent Court would not have been incurred.
Grave abuse of discretion as a ground for issuance of writs of certiorari and

prohibition implies capricious and whimsical exercise of judgment as is
equivalent to lack of jurisdiction, or where the power is exercised in an arbitrary
[ G.R. No. 119322. June 04, 1996 ] 2/12/23, 12:41 PM
or despotic manner by reason of passion, prejudice, or personal hostility,

amounting to an evasion of positive duty or to a virtual refusal to perform the
duty enjoined, or to act at all in contemplation of law. For such writs to lie, there
must be capricious, arbitrary and whimsical exercise of power, the very
antithesis of the judicial prerogative in accordance with centuries of both civil
law and common law traditions. Certiorari and prohibition are remedies narrow
in scope and inflexible in character. They are not general utility tools in the
legal workshop. Their function is but limited to correction of defects of
jurisdiction solely, not to be used for any other purpose, such as to cure errors in
proceedings or to correct erroneous conclusions of law or fact. Due regard for
the foregoing teachings enunciated in the decision cited can not bring about a
decision other than what has been reached herein.
Needless to say, the case before the respondent Court involving those against
herein respondents for alleged non-payment of the correct amount due as
income tax, ad valorem tax and value-added tax for the years 1990, 1991, and
1992 is not ended by this decision. The respondent Court is still to try the case
and decide it on the merits. All that is decided here is but the validity of the
orders of the respondent Court granting herein respondents’ application for
preliminary injunction and denying herein petitioners’ motion to dismiss. If
upon the facts established after trial and the applicable law, dissolution of the
writ of preliminary injunction allowed to be issued by the respondent Court is
called for and a judgment favorable to herein petitioners is demanded, the
respondent Court is duty bound to render judgment accordingly.
WHEREFORE, the instant petition for certiorari and prohibition with

application for issuance of restraining order and writ of preliminary injunction
is DISMISSED. Costs de officio. (references to annexes and citations omitted)
[11]
Petitioners’ motion for reconsideration of the aforequoted judgment was denied by

respondent appellate court on 23 February 1995, hence, the present petition for review on
certiorari based on the following grounds:
GROUNDS FOR THE PETITION
"THE RESPONDENT COURTS COMMITTED GRAVE ABUSE OF

DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION
IN HOLDING THAT:
[ G.R. No. 119322. June 04, 1996 ] 2/12/23, 12:41 PM
I. THERE IS A PREJUDICIAL AND/OR LEGAL QUESTION TO JUSTIFY

THE SUSPENSION OF THE PRELIMINARY INVESTIGATION
II. PRIVATE RESPONDENTS’ RIGHTS TO DUE PROCESS, EQUAL

PROTECTION AND PRESUMPTION OF INNOCENCE WERE VIOLATED;
ON THE CONTRARY, THE STATE ITSELF WAS DEPRIVED OF DUE
PROCESS
III. THE ADMISSION OF PRIVATE RESPONDENTS’ SUPPLEMENTAL

PETITIONS WERE PROPER
IV. THERE WAS SELECTIVE PROSECUTION
V. THE FACTUAL ALLEGATIONS IN THE PETITION ARE

HYPOTHETICALLY ADMITTED IN A MOTION TO DISMISS BASED ON
JURISDICTIONAL GROUNDS
VI. THE ISSUANCE OF THE WRITS OF INJUNCTION IS NOT A

DECISION ON THE MERITS OF THE PETITION BEFORE THE LOWER
COURT[12]
DISCUSSION
At the outset, it should be pointed out that respondent appellate court’s observations to the
effect that herein petitioner’s recourse to said Court through a special civil action of
certiorari and prohibition was improper (as discussed in the aforequoted portion of the CA
decision) actually and appropriately apply to private respondents when they resorted to the
remedy of certiorari and prohibition with application for preliminary injunction with the
respondent Regional Trial Court to stop the preliminary investigation being conducted by
the DOJ Revenue Cases Task Force of the BIR complaints for fraudulent tax evasion
against private respondents. It is to be noted that the proceedings before the investigators
(preliminary investigation before the DOJ Revenue Cases Task Force) are far from
terminated. In fact, private respondents were merely subpoenaed and asked to submit
counter-affidavits. They instead resorted to the courts for redress after denial of their
motion to dismiss. The proper procedure on the part of private respondents after their
motion to dismiss was denied by the investigating panel, should have been an appeal from
such an adverse resolution to the Secretary of Justice, not a special civil action for
certiorari and prohibition with application for preliminary injunction before the respondent
trial court.
[ G.R. No. 119322. June 04, 1996 ] 2/12/23, 12:41 PM
As a corollary, the respondent trial court should have desisted from entertaining private
respondents’ original petition for certiorari and prohibition with prayer for preliminary
injunction because a court order to stop a preliminary investigation is an act of interference
with the investigating officers’ discretion, absent any showing of grave abuse of discretion
on the part of the latter in conducting such preliminary investigation.
The rule is settled that the fiscal (prosecutor) cannot be prohibited from conducting and
finishing his preliminary investigation.[13] The private respondents’ petition before the trial
court in this case was clearly premature since the case did not fall within any of the
exceptions when prohibition lies to stop a preliminary investigation.[14]
The decision of the majority in this case clearly constitutes an untenable usurpation of the
primary duty and function of the prosecutors to conduct the preliminary investigation of a
criminal offense and the power of the Secretary of Justice to review the resolution of said
prosecutors.
In Guingona, supra, the Court en banc ruled thus:
"As a general rule, an injunction will not be granted to restrain a criminal

prosecution." With more reason will injunction not lie when the case is still at
the preliminary investigation stage. This Court should not usurp the primary
function of the City Fiscal to conduct the preliminary investigation of the estafa
charge and of the petitioners’ countercharge for perjury, which was consolidated
with the estafa charge.
The City Fiscal’s office should be allowed to finish its investigation and make
its factual findings. This Court should not conduct the preliminary investigation.
It is not a trier of facts. (Reference to footnotes omitted)
Before resolving the main issue in this petition, as earlier stated in this opinion, several
preliminary issues raised by private respondents in their "Verified Motion To Dismiss,
Alternatively, Motion To Suspend" need to be addressed, namely:
A.) Private respondent Fortune’s right to due process and equal protection of the laws have
been violated because of the subject preliminary investigation before the DOJ Revenue
Cases Task Force.
B.) Jurisdiction over Fortune’s tax liability pertains to the Court of Tax Appeals and not the
Regional Trial Courts, thus, the Department of Justice, through its state prosecutors, is
[ G.R. No. 119322. June 04, 1996 ] 2/12/23, 12:41 PM
without jurisdiction to conduct the subject preliminary investigation.
C.) The complaints for fraudulent tax evasion are unsupported by any evidence to serve as
basis for the issuance of a subpoena.
D.) The lack of final determination of Fortune’s tax liability precludes criminal
prosecution.
1. On the alleged violation of Fortune’s rights to due process and equal protection of the
laws, I fail to see any violation of said rights.
Fortune, its corporate officers, nine (9) other corporations and their respective corporate
officers alleged by the BIR to be mere "dummies" or conduits of Fortune in the fraudulent
tax evasion on the Government, were given the opportunity to file their counter-affidavits
to refute the allegations in the BIR complaints, together with their supporting documents. It
is only after submission of counter-affidavits that the investigators will determine whether
or not there is enough evidence to file in court criminal charges for fraudulent tax evasion
against private respondents or to dismiss the BIR complaints. At this stage of the
preliminary investigation, the constitutional right of private respondents to due process is
adequately protected because they have been given the opportunity to be heard, i.e., to file
counter-affidavits.
Nor can it be said, as respondents falsely argue, that there was no ground or basis for
requiring the private respondents to file such counter-affidavits. As respondent Court of
Appeals admitted in its here assailed decision, the BIR complaint (1st complaint) signed by
the Commissioner of Internal Revenue consisted of fourteen (14) pages supported by an
annex consisting of seventeen (17) pages in the form of a joint affidavit of eight (8)
revenue officers, to which were attached voluminous documents as annexes which, when
put together, constituted a formidable network of evidence tending to show fraudulent tax
evasion on the part of private respondents. When, on the basis of such BIR complaint and
its supporting documents, the investigating Task Force saw a need to proceed with the
inquiry and, consequently, required private respondents to file their counter-affidavits,
grave abuse of discretion could hardly be imputed to said investigators.
2. On respondents’ assertions that there is selective prosecution (no equal protection of the
laws) since other corporations similarly situated as they are, are not being prosecuted
and/or investigated, the argument is quite ludicrous, to say the least. As pointed out by the
Solicitor General, more than one thousand (1,000) criminal cases for tax evasion have been
filed in Metro Manila alone. This number, even if it seems to represent but a small fraction
of cases of actual tax evasion, undoubtedly show that respondents are not being singled
out. It is of note that the memorandum issued by the President of the Philippines creating a
task force to investigate tax evasion schemes of manufacturers was issued three (3) months
[ G.R. No. 119322. June 04, 1996 ] 2/12/23, 12:41 PM
before the complaints against private respondents were filed. This makes any charge of
selective prosecution baseless since it could not then be shown, nor has it been shown by
private respondents that only they (respondents) were being investigated/prosecuted. In
fact, up to this time, respondents have failed to substantiate this allegation of selective
prosecution against them.
Moreover, assuming arguendo that other corporate manufacturers are guilty of using
similar schemes for tax evasion, allegedly used by respondents, the Solicitor General
correctly points out that the remedy is not dismissal of the complaints against private
respondents or stoppage of the investigations of said complaints, but investigation and
prosecution of other similar violators (fraudulent tax evaders).
3. Private respondents’ allegations that the Assistant Quezon City Prosecutor (among those
investigating the complaints against them) lacks impartiality, are so unsubstantiated,
imaginary, speculative and indeed puerile. They need not be elaborately refuted as a mere
denial would suffice under the circumstances.
4. On the issue of jurisdiction, the rule is settled that city and state prosecutors are
authorized to conduct preliminary investigations of criminal offenses under the National
Internal Revenue Code. Said criminal offenses are within the jurisdiction of the Regional
Trial Court.[15]
5. The issue of whether or not the evidence submitted by petitioners is sufficient to warrant
the filing of criminal informations for fraudulent tax evasion is prematurely raised.[16] To
argue, as private respondents do, that one piece of evidence, i.e. the Daily Manufacturer’s
Sworn Statements, should be produced at a particular stage of the investigation, in order to
determine the probable guilt of the accused, is to dictate to the investigating officers the
procedure by which evidence should be presented and examined. Further, "a preliminary
investigation is not the occasion for the full and exhaustive display of the parties’ evidence;
it is for the presentation of such evidence only as may engender a well grounded belief that
an offense has been committed and that the accused is probably guilty thereof x x x."[17]
Besides, the preliminary investigation has not yet been terminated. The proper procedure
then should be to allow the investigators, who undeniably have jurisdiction, to conduct and
finish the preliminary investigation and to render a resolution. The party aggrieved by said
resolution can then appeal it to the Secretary of Justice,[18] as required by the settled
doctrine of exhaustion of administrative remedies. What special qualification or privilege, I
may ask, do private respondents have, particularly Fortune and Lucio Tan, as to exempt
them from the operation of this rooted principle and entitle them to immediate judicial
relief from the respondent trial court in this case?
[ G.R. No. 119322. June 04, 1996 ] 2/12/23, 12:41 PM
6. The respondents Court of Appeals and the trial court maintain, as private respondents
do, that a previous assessment of the correct amount of taxes due is necessary before
private respondents may be charged criminally for fraudulent tax evasion. This view is
decidedly not supported by law and jurisprudence.
The lack of a final determination of respondent Fortune’s exact or correct tax liability is not
a bar to criminal prosecution for fraudulent tax evasion. While a precise computation and
assessment is required for a civil action to collect a tax deficiency, the National Internal
Revenue Code does not require such computation and assessment prior to criminal
prosecution for fraudulent tax evasion. Thus, as this Court had earlier ruled -
"An assessment of a deficiency is not necessary to a criminal prosecution for

willful attempt to defeat and evade the income tax. A crime is complete when
the violator has knowingly and willfully filed a fraudulent return with intent to
evade and defeat the tax. The perpetration of the crime is grounded upon
knowledge on the part of the taxpayer that he has made an inaccurate return,
and the government’s failure to discover the error and promptly to assess has no
connections with the commission of the crime."[19]
It follows that, under the Ungab doctrine, the filing of a criminal complaint for fraudulent
tax evasion would be proper even without a previous assessment of the correct tax.
The argument that the Ungab doctrine will not apply to the case at bar because it involves a
factual setting different from that of the case at bar, is erroneous. The Ungab case involved
the filing of a fraudulent income tax return because the defendant failed to report his
income derived from sale of banana saplings. In the case at bar, the complaints filed before
the DOJ for investigation charge private respondents with fraudulent concealment of the
actual wholesale price of products sold through declaration of registered wholesale prices
lower than the actual wholesale prices, resulting in underpayment of income, ad valorem,
and value-added taxes. Both cases involve, therefore, fraudulent schemes to evade payment
to the Government of correct taxes.
The Court in Ungab stated further as follows:
"The petitioner also claims that the filing of the informations was precipitate
and premature since the Commissioner of Internal Revenue has not yet resolved
his protests against the assessment of the Revenue District Officer; and that he
was denied recourse to the Court of Tax Appeals.
[ G.R. No. 119322. June 04, 1996 ] 2/12/23, 12:41 PM
The contention is without merit. What is involved here is not the collection of
taxes where the assessment of the Commissioner of Internal Revenue may be
reviewed by the Court of Tax Appeals, but a criminal prosecution for violations
of the National Internal Code which is within the cognizance of courts of first
instance. While there can be no civil action to enforce collection before the
assessment procedures provided in the Code have been followed, there is no
requirement for the precise computation and assessment of the tax before there
can be a criminal prosecution under the Code.
"The contention is made, and is here rejected, that an assessment of the

deficiency tax due is necessary before the taxpayer can be prosecuted criminally
for the charges preferred. The crime is complete when the violator has, as in
this case, knowingly and wilfully filed fraudulent returns with intent to
evade and defeat a part or all of the tax. [Guzik vs. U.S., 54 F2d 618.]"
(Italics supplied)
The ruling in the Ungab case is undisputably on all fours with, and conclusive to the
case at bar. It should be stressed and pointed out that in Ungab the Court denied the prayer
of therein petitioner to quash informations for tax evasion that had already been filed in
court. In other words, the prosecutors in Ungab had already found probable cause to try
therein petitioner for tax evasion. Despite this fact there was no finding by the Court of
violation of any of petitioner’s constitutional rights.
In the present case, private respondents were merely being required to submit counter-
affidavits to the complaints filed. If no violation of constitutional rights was committed in
Ungab, upon the filing of the criminal informations in Court, how can there now be a
violation of private respondents’ constitutional rights upon a requirement by the
investigators that private respondents submit their counter-affidavits?
The Court has not been presented any compelling or persuasive argument why the Ungab
doctrine has to be abandoned. It is good law and should be the nemesis of fraudulent tax
evaders. It gives teeth to the proper enforcement of our tax laws.
7. Private respondents argue that a case earlier filed before the Court of Tax Appeals
(CTA) and now before this Court[20] involves a prejudicial question justifying or requiring
suspension of the preliminary investigation of the complaints for fraudulent tax evasion
against private respondents. Said case involves the validity of BIR Revenue Memorandum
Circular No. 37-93 dated 1 July 1993 which reclassified cigarettes manufactured by
respondent Fortune. The circular subjects cigarettes with brand names "Hope," "More" and
"Champion" to a 10% increase in advalorem taxes starting 2 July 1993. Respondent
Fortune has assailed the validity of said revenue circular and the case has yet to be decided
[ G.R. No. 119322. June 04, 1996 ] 2/12/23, 12:41 PM
with finality.
But the foregoing issue is irrelevant to the issue of fraudulent tax evasion involved in this
case. A final decision either upholding or nullifying the aforementioned revenue circular
will not affect private respondents’ criminal liability for fraudulent tax evasion, for the
following reasons:
a) The revenue circular involved in the other case pertains to ad valorem taxes on sales of
Fortune’s named cigarette brands after 1 July 1993 while the fraudulent tax evasion
involved in the present case pertains to years 1990, 1991 and 1992.
b) The fraudulent scheme allegedly utilized by Fortune and its dummies, as described in
the BIR complaints pending with the DOJ Revenue Cases Task Force, which resulted in
the misdeclaration/underdeclaration of Fortune’s gross sales receipts resulting in turn in
underpayment of ad valorem, value-added and income taxes was actually a "built-in" tax
evasion device already in place even before the assailed revenue circular was issued. The
scheme is particularly designed to result in the underpayment of ad valorem, value-added
and income taxes regardless of the tax rate fixed by the government on cigarette products.
8. Respondents also argue that the issue of whether Section 127(b) or Section 142(c) of the
National Internal Revenue Code is applicable to private respondents should first be settled
before any criminal cases can be filed against them. This argument is both misleading and
erroneous.
The aforementioned provisions read:
"Sec 127 x x x
(b) Determination of gross selling price of goods subject to ad valorem tax. -

Unless otherwise provided, the price, excluding the value-added tax, at which
the goods are sold at wholesale in the place of production or through their sales
agents to the public shall constitute the gross selling price. If the manufacturer
also sells or allows such goods to be sold at wholesale price in another
establishment of which he is the owner or in the profits at which he has an
interest, the wholesale price in such establishment shall constitute the gross
selling price. Should such price be less than the cost of manufacture plus
expenses incurred until the goods are finally sold, then a proportionate margin
of profit, not less than 10% of such manufacturing cost and expenses, shall be
added to constitute the gross selling price."
"Sec. 142 xxx
[ G.R. No. 119322. June 04, 1996 ] 2/12/23, 12:41 PM
(c) Cigarettes packed in twenties.- There shall be levied, assessed and

collected on cigarettes packed in twenties an ad valorem tax at the rates
prescribed below based on the manufacturer ‘s registered wholesale price:
(1) On locally manufactured cigarettes bearing a foreign brand, fifty-five

percent (55%). Provided, That this rate shall apply regardless of whether or not
the right to use or title to the foreign brand was sold or transferred by its owner
to the local manufacturer. Whenever it has to be determined whether or not a
cigarette bears a foreign brand, the listing of brands manufactured in foreign
countries appearing in the current World Tobacco Directory shall govern.
(2) On other locally manufactured cigarettes, forty-five percent (45%).
Duly registered or existing brands of cigarettes packed in twenties shall not be

allowed to be packed in thirties.
When the existing registered wholesale price, including tax, of cigarettes packed
in twenties does not exceed P4.00 per pack, the rate shall be twenty percent
(20%)."
As the Solicitor General correctly points out, the two (2) aforequoted provisions of the Tax
Code are both applicable in determining the amount of tax due. Section 127(b) provides for
the method of determining the gross wholesale price to be registered with the BIR while
Section 142(c) provides for the rate of ad valorem tax to be paid. Said rate is expressed as a
percentage of the registered gross selling price which is determined, in turn, based on
Section 127(b).
The aforementioned two (2) provisions of the Tax Code are certainly not determinative of
private respondents’ criminal liability, if any. A reading of the BIR complaints pending
with the DOJ Revenue Cases Task Force shows that private respondent Fortune is being
accused of using "dummy" corporations and business conduits as well as non-existent
individuals and entities to enable the company (Fortune) to report gross receipts from sales
of its cigarette brands lower than gross receipts which are actually derived from such sales.
Such lower gross receipts of the company, as reported by respondent Fortune thus result in
lower ad valorem, value-added and income taxes paid to the government. Stated a little
differently, respondent Fortune is accused of selling at wholesale prices its cigarette brands
through dummy entities in the profits of which it has a controlling interest. Under Section
127(b), the gross selling price of the goods should be the wholesale price of such dummy-
entities to its buyers but it is alleged by the government that respondent Fortune has
purposely made use of such entities to evade payment of higher but legally correct taxes.
[ G.R. No. 119322. June 04, 1996 ] 2/12/23, 12:41 PM
9. As to respondents’ additional claim that with regard to ad valorem tax, they merely
based their liability on the wholesale price registered with the Bureau of Internal Revenue
(BIR) following the method used by all cigarette manufacturers, said claim cannot absolve
Fortune and its officers from criminal liability.[21] Payment of ad valorem and other taxes
based on the wholesale price registered with the BIR presupposes and naturally assumes
that the registered wholesale prices correspond to the actual wholesale prices at which the
manufacturer sells the product. If a manufacturer makes use of a method or device to make
it appear that products are sold at a wholesale price lower than the amounts that the
manufacturer actually realizes from such wholesale of its products, as what respondent
Fortune is accused of doing, through the use of dummy entities, then there arises criminal
liability under the penal provisions of the Tax Code. This is clear from Section 127(b)
aforequoted in relation to the penal provisions of the Tax Code.
10. Private respondents contend that the registration with the BIR of manufacturer’s
wholesale price and the corresponding close supervision and monitoring by BIR officials
of the business operations of cigarette companies, ensure payment of correct taxes. The
argument is baseless. It does not follow that the cited procedure is a guarantee against
fraudulent schemes resorted to by tax-evading individuals or entities. It only indicates that
taxpayers bent on evading payment of taxes would explore more creative devices or
mechanisms in order to defraud the government of its sources of income even under its
very nose. It is precisely to avoid and detect cases like this that the President issued a
Memorandum on 1 June 1993 creating a task force to investigate tax liabilities of
manufacturers engaged in tax evasion schemes, such as selling products through dummy
marketing companies at underdeclared wholesale prices registered with the BIR.
Moreover, the Manufacturer’s Declaration which is the basis for determining the
"Manufacturer’s Registered Wholesale Price" (which in turn becomes the basis for the
imposition of ad valorem tax), even if verified by revenue officers and approved by the
Commissioner of Internal Revenue, does not necessarily reflect the actual wholesale price
at which the cigarettes are sold. This is why manufacturers are still required to file other
documents, like the "daily manufacturer’s sworn statements" in order to assist in
determining whether or not correct taxes have been paid. In fine, even if BIR officials may
have verified Fortunes’ BIR registered wholesale price for its products, the same does not
estop or preclude the Government from filing criminal complaints for fraudulent tax
evasion based on evidence subsequently gathered to the effect that such BIR registered
wholesale prices were a misdeclaration or underdeclaration of the actual wholesale price. It
is hornbook law that the Government is not bound or estopped by the mistakes,
inadvertence, and what more, connivance of its officials and employees with fraudulent
schemes to defraud the Government.[22]
Even on the assumption that official duty of BIR officials and employees has been
[ G.R. No. 119322. June 04, 1996 ] 2/12/23, 12:41 PM
regularly performed, the allegations in the complaints are clear enough in that private
respondents allegedly made use of schemes to make it appear that respondent Fortune’s tax
liabilities are far less than what it (Fortune) should be actually liable for under the law. The
very nature of the offense for which respondents are being investigated, certainly makes
regularity/irregularity in the performance of official duties irrelevant.
It should also be pointed out that the offense allegedly committed by private respondents
consists in the intentional use of "dummy" entities to make it appear that respondent
Fortune sells its products at lower wholesale prices, which prices would correspond to the
wholesale prices registered by Fortune with the BIR, but not to the prices at which its
products are sold by Fortune’s dummies. The difference between Fortune’s BIR-reported
wholesale prices and the prices at which its dummies sell Fortune’s products thus
constitutes amounts for which Fortune should actually incur tax liabilities but for which it
allegedly never paid taxes because of the operation of the tax evasion scheme founded on a
combined underdeclaration with the BIR of Fortune’s wholesale price of its products and
the sale of such products to its "dummy" corporations or to non-existing individuals or
entities. This is the obvious reason why the government has sought to investigate the
alleged tax evasion scheme purportedly utilized by respondent Fortune and its dummy
corporations.
Based on the foregoing discussions, it follows that the answer to the main issue formulated
earlier in this opinion is in the negative since the private respondents have not shown that
there exist, in this case, exceptional grounds removing it from the general rule that
preliminary investigations of criminal offenses and criminal prosecutions cannot be stayed
or enjoined by the courts.[23]
11. The trial court’s ruling that private respondents’ constitutional rights have been
violated, rests on untenable grounds. It must be remembered, in this connection, that
exceptions to a settled rule, by their nature, must be strictly applied. And any claim to an
exception must be fully substantiated. In other words, it must have real basis for existing.
The exceptions to the general rule against restraining orders or injunctions to stop
preliminary investigations or criminal prosecutions are enumerated in Brocka vs. Enrile.
[24] One specific exception is when an injunction is needed for the adequate protection of
the accused’s constitutional rights. The exception definitely does not apply in the case at
bar.
Before proceeding to illustrate this point, it is important to stress that in a preliminary

investigation, the investigating officers’ sole duty is to determine, before the presentation
of evidence by the prosecution and by the defense, if the latter should wish to present any,
whether or not there are reasonable grounds for proceeding formally against the accused.
[ G.R. No. 119322. June 04, 1996 ] 2/12/23, 12:41 PM
[25] This is in conformity with the purpose of a preliminary investigation which is to secure
the innocent against hasty, malicious, and oppressive prosecutions, and to protect him from
an open and public accusation of crime, from the trouble, expense and anxiety of public
trial, and also to protect the state from useless and expensive trials.[26] As restated by the
illustrious late Chief Justice Manuel V. Moran -
"x x x the purpose of a preliminary investigation is to afford the accused an

opportunity to show by his own evidence that there is no reasonable ground to
believe that he is guilty of the offense charged and that, therefore, there is no
good reason for further holding him to await trial in the Court of First Instance."
[27]
Prescinding from the tenets above-discussed, it is clear from the inception that there had
been no violation of private respondents’ constitutional rights to presumption of innocence,
due process and equal protection of the laws. The preliminary investigation, I repeat, has
not yet been terminated. At this stage, only the complainant has finished presenting its
affidavits and supporting documents. Obviously then, the investigating panel found that
there were grounds to continue with the inquiry, hence, the issuance of subpoena and an
order for the submission of counter-affidavits by private respondents. Instead of filing
counter-affidavits, private respondents filed a Verified Motion to Dismiss; Alternatively,
Motion to Suspend. At this point, it may be asked, how could private respondents’
constitutional right to presumption of innocence be violated when, in all stages of the
preliminary investigation, they were presumed innocent? Declaring that there are
reasonable grounds to continue with the inquiry is not the same as pronouncing that a
respondent is guilty or probably guilty of the offense charged.
12. Private respondents cannot also claim that they were not afforded due process and
equal protection of the laws. In fact, the investigating panel was concerned with just that
when it ordered the submission of private respondents’ counter-affidavits. This procedure
afforded private respondents the opportunity to show by their own evidence that no
reasonable grounds exist for the filing of informations against them. Furthermore, contrary
to the findings of the trial court and the Court of Appeals, the alleged haste by which the
subpoena was issued to private respondents (the day after the filing of the 600-page
annexed complaint) does not lessen the investigating panel’s ability to study and examine
the complainant’s evidence. Neither does such act merit the conclusion that the
investigating panel was less than objective in conducting the preliminary investigation.
Consequently, the general and settled rule must apply that the courts cannot interfere with
the discretion of the investigating officer to determine the specificity and adequacy of the
averments in the complaint filed, except in very exceptional circumstances,[28] which do
[ G.R. No. 119322. June 04, 1996 ] 2/12/23, 12:41 PM
not obtain here.
Therefore, private respondents’ act of filing a petition for certiorari and prohibition before
the Regional Trial Court was rather untimely and uncalled for, not only because private
respondents failed to exhaust their administrative remedies but also because the grounds
cited in their petition before the trial court were highly speculative -- more fancied than
real.
Finally, Hernandez v. Albano (19 SCRA 95), cited by the majority to support the
conclusion that preliminary investigation can be stayed by the courts, clearly states that
preliminary investigation can be stayed by court order only in extreme cases. Hernandez
also states that:
"By statute, the prosecuting officer of the City of Manila and his assistants are
empowered to investigate crimes committed within the city’s territorial
jurisdiction. Not a mere privilege, it is the sworn duty of a Fiscal to conduct an
investigation of a criminal charge filed with his office. The power to investigate
postulates the other obligation on the part of the Fiscal to investigate promptly
and file the case of as speedily. Public interest - the protection of society - so
demands. Agreeably to the foregoing, a rule - now of long standing and frequent
application - was formulated that ordinarily criminal prosecution may not be
blocked by court prohibition or injunction. Really, if at every turn investigation
of a crime will be halted by a court order, the administration of criminal justice
will meet with an undue setback. Indeed, the investigative power of the Fiscal
may suffer such a tremendous shrinkage that it may end up in hollow sound
rather than as a part and parcel of the machinery of criminal justice."
It should be noted that while Hernandez lays down the extreme grounds when preliminary
investigation of criminal offenses may be restrained by the courts, the dispositive portion
of the decision affirmed the decision of the trial court dismissing a petition for certiorari
and prohibition with prayer for preliminary injunction filed to stay the preliminary
investigation of criminal complaints against petitioner Hernandez.
The other case cited by the majority to support its decision in this case, Fortun v.
Labang[29] involves criminal complaints filed against a judge of the Court of First Instance
by disgruntled lawyers who had lost their cases in the judge’s sala. Clearly, the basis for the
Court to stay preliminary investigation in Fortun was a finding that said complaints were
filed merely as a form of harassment against the judge and which "could have no other
purpose than to place petitioner-judge in contempt and disrepute." The factual situation in
the case at bar is poles apart from the factual situation in Fortun.
[ G.R. No. 119322. June 04, 1996 ] 2/12/23, 12:41 PM
Further, in Fortun there was an express finding by the Court that complaints against judges
of the Courts of First Instance are properly filed with the Supreme Court under Executive
Order No. 264 (1970) since the Court is considered as the department head of the judiciary.
In the present case it cannot be disputed that jurisdiction to conduct preliminary
investigation over fraudulent tax evasion cases lies with the state prosecutors (fiscals).
It cannot therefore be denied that neither Hernandez nor Fortun supports with any
plausibility the majority’s disposition of the issues in the present case. On the other hand, it
appears to me all too clearly that the majority opinion, in this case, has altered the entire
rationale and concept of preliminary investigation of alleged criminal offenses. That
alteration has, of course, served the purposes of distinguished private respondents. But I
will have no part in the shocking process especially in light of the fact that Government
cries out that the people have been cheated and defrauded of their taxes to the tune
allegedly of P25.6 billion pesos, and yet, it is not given by this Court even a beggar’s
chance to prove it!
13. There is great and vital public interest in the successful investigation and prosecution of
criminal offenses involving fraudulent tax evasion. Said public interest is much more
compelling in the present case since private respondents are not only accused of violating
tax and penal laws but are also, as a consequence of such violations, possibly depriving the
government of a primary source of revenue so essential to the life, growth and
development of the nation and for the prestation of essential services to the people.
14. It should be made clear, at this point, however, that this opinion is not a pre-judgment
or pre-determination of private respondents’ guilt of the offense charged. No one, not even
the prosecutors investigating the cases for fraudulent tax evasion, is, at this stage of the
proceedings, when private respondents have yet to file their counter-affidavits, in a position
to determine and state with finality or conclusiveness whether or not private respondents
are guilty of the offense charged in the BIR complaints, now with the DOJ Revenue Cases
Task Force. It is precisely through the preliminary investigation that the DOJ Task Force on
Revenue Cases can determine whether or not there are grounds to file informations in court
or to dismiss the complaints.
15. I see no grave abuse of discretion committed by the state prosecutors in requiring
private respondents to submit counter-affidavits to the complaints for fraudulent tax
evasion and to determine the existence or absence of probable criminal liability.
The Rules on Criminal Procedure do not even require, as a condition sine qua non to the
validity of a preliminary investigation, the presence of the respondent as long as efforts to
reach him are made and an opportunity to controvert the complainant’s evidence is
accorded him. The purpose of the rule is to check attempts of unscrupulous respondents to
[ G.R. No. 119322. June 04, 1996 ] 2/12/23, 12:41 PM
thwart criminal investigations by not appearing or employing dilatory tactics.[30]
16. Since the preliminary investigation in the DOJ Revenue Cases Task Force against
private respondents for alleged fraudulent tax evasion is well within its jurisdiction and
constitutes no grave abuse of discretion, it was in fact the respondent trial court that
committed grave abuse of discretion, amounting to lack or excess of jurisdiction, when it
stayed such preliminary investigation.
17. The successful prosecution of criminal offenders is not only a right but the duty of the
state. Only when the state’s acts clearly violate constitutional rights can the courts step in to
interfere with the state’s exercise of such right and performance of such duty. I am
indubitably impressed that there is no violation of private respondents’ constitutional rights
in this case.
18. Lastly, the consolidation of the three (3) complaints in the DOJ against private
respondents should be allowed since they all involve the same scheme allegedly used by
private respondents to fraudulently evade payment of taxes. Consolidation will not only
avoid multiplicity of suits but will also enable private respondents to more conveniently
prepare whatever responsive pleadings are required or expected of them.
It is, therefore, my considered view that the decision of the Court of Appeals of 19
December 1994 in CA G.R. SP No. 33599 should be SET ASIDE. The respondent trial
court should be ENJOINED from proceeding in any manner in Civil Case No. Q-94-
19790, or at least until further orders from this Court.
The preliminary investigation of the BIR complaints docketed as I.S. Nos. 93-508, 93-
17942 and 93-584 with the Department of Justice Revenue Cases Task Force, being
constitutionally and legally in order, should be allowed to resume until their final
conclusion or completion, with private respondents given a non-extendible period of ten
(10) days from notice to submit to the investigating panel their respective counter-
affidavits and supporting documents, if any.
[1] Rollo, p.13.
[2] Rollo, p. 16.
[3] Rollo, pp. 264-325.
[4] Rollo, pp. 402-403.
[5] Rollo, pp. 404-415.

[ G.R. No. 119322. June 04, 1996 ] 2/12/23, 12:41 PM
[6] Rollo, pp. 539-545.
[7] Rollo, pp. 156-263.
[8] Rollo, p. 18.
[9] Rollo, pp. 128-142.
[10] Rollo, p. 21.
Annex "A" of the petition.
[12] Rollo, p. 33.
[13] Guingona v. City Fiscal of Manila, G.R. No. L-60033, 18 July 1985, 137 SCRA 597.
[14] Hernandez v. Albano, 125 Phil. 513.
[15] Ungab v. Cusi, L-41919-24, 30 May 1980, 97 SCRA 877.
[16] Astorga v. Puno, L-25600, 30 September 1975, 67 SCRA 182.
[17] Paderanga vs. Drilon, 196 SCRA 86, 92-93.
[18]Guingona, Jr vs City Fiscal of Manila, supra.
[19]Ungab vs. Cusi, Jr., L-41919-24, 30 May 1980, 97 SCRA 877, 884.
[20]Commission of Internal Revenue vs. Court of Appeals, Court of Tax Appeals and
Fortune Tobacco Corp., G.R. No. 119761.
[21] Respondents’ Comment, p. 20.
[22]Republic v. intermediate Appellate Court, 209 SCRA 90; Sharp International

Marketing v. Court of Appeals, 201 SCRA 299.
[ G.R. No. 119322. June 04, 1996 ] 2/12/23, 12:41 PM
[23] Brocka v. Enrile, 192 SCRA 183, 10 December 1990.
[24] Supra.
[25] Francisco, Ricardo, Criminal Procedure 80 (1994).
[26] U.S, vs. Grant, 18 Phil. 122, 147.
[27] IV Moran, Comments on the Rules of Court (1963), p. 91.
[28] Ocampo IV vs. Ombudsman, G.R. Nos. 103446-47, 30 August 1993, 225 SCRA 725.
[29] 104 SCRA 607 (1981).
[30]
Mercado v. The Honorable Court of Appeals, G.R. No. 109036, 5 July 1995, 245
SCRA 594.
VITUG, J., dissenting:
I see in the petition the overriding issue of whether or not judicial relief could be resorted
to in order to stop state prosecutors from going through with their investigation of
complaints lodged against private respondents. Almost invariably, this Court has resolved
not to unduly interfere, let alone to peremptorily prevent, the prosecuting agencies or
offices of the government in their investigatorial work or in their own evaluation of the
results of investigation. It would indeed be, in my view, an act precipitate for the courts to
take on a case even before the complaint or information is filed by the prosecution. Of
course, one cannot preclude the possibility that at times compelling reasons may dictate
otherwise; I do not think, however, that the instant case could be the right occasion for it.
While I do understand the concern expressed by some of my colleagues, i.e., that stopping
the trial court from now proceeding with Civil Case No. Q-94-9 170 would, effectively,
mean a disposition of the main case without its merits having first been fully heard in the
court below, in this particular situation before the Court, however, the parties have since
exhaustively and adequately presented their respective cases. In the interest of good order,
the practical measure of enjoining the trial court from taking further cognizance of the case
would not thus appear to be really all that unwarranted.
A final word: The matter affecting the civil liability for the due payment of internal revenue
taxes, including the applicable remedies and proceedings in the determination thereof, must
[ G.R. No. 119322. June 04, 1996 ] 2/12/23, 12:41 PM
be considered apart from and technically independent of the criminal aspect that may be
brought to bear in appropriate cases. A recourse in one is not necessarily preclusive of, nor
would the results thereof be conclusive on, the other.
Accordingly, I vote to grant the petition.
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CIR vs. CA (Fortune Case) GR No.119322, 4 June 1996

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[ G.R. No. 119322.

June 04, 1996 ] 2/12/23, 12:41 PM

[ G.R. No. 119322. June 04, 1996 ]

On July 1, 1993, the Commissioner of Internal Revenue issued a Revenue Memorandum

On August 3, 1993, respondent Fortune Tobacco Corporation (Fortune) questioned the

doubtful legality" and enjoined its enforcement.

This underdeclaration which resulted in the evasion of the amount of

xxx xxx xxx

Fortune Tobacco Corporation, through its Vice-President for Finance, Roxas

1st Qtr. P2,924,418,055.00

P16,158,575,035.00 instead of P 11,929,322,334.52 as declared by the

These fraudulent under declarations which resulted in the evasion of value-

xxx xxx xxx

Furthermore, based on the corporation’s VAT returns, the corporation reported

The fraudulent scheme allegedly adopted by private respondents consisted of making

1. The complaint of petitioner Commissioner follows a pattern of prosecution

2. Petitioner Commissioner and the Court of Tax Appeals have still to

3. Exclusive jurisdiction to determine tax liability is vested in the Court of Tax

4. The complaint of petitioner Commissioner is not supported by any evidence

At the scheduled preliminary investigation on October 15 1993, private respondents were

b) On the other hand, it is petitioners’ contention that Fortune’s declaration was

c) At the hearing for preliminary investigation, the "Daily Manufacturer’s

d) There is nothing on record in the preliminary investigation before the panel

f) There was a precipitate issuance by the panel of prosecutors of subpoenas to

respondents’ motion to dismiss, consisting of one hundred and thirty-five (135)

g) Private respondents had been especially targeted by the government for

h) While in petitioner Commissioner’s letter of August 13, 1993, she gave

i) Based on the foregoing, the criminal complaint against private respondents

The questioned orders issued after hearing (Annexes A, B, C and D, petition)

Grave abuse of discretion as a ground for issuance of writs of certiorari and

WHEREFORE, the instant petition for certiorari and prohibition with

THE RESPONDENT COURTS COMMITTED GRAVE ABUSE OF

I. THERE IS A PREJUDICIAL AND/OR LEGAL QUESTION TO JUSTIFY

II. PRIVATE RESPONDENTS’ RIGHTS TO DUE PROCESS, EQUAL

III. THE ADMISSION OF PRIVATE RESPONDENTS’ SUPPLEMENTAL

IV. THERE WAS SELECTIVE PROSECUTION.

V. THE FACTUAL ALLEGATIONS IN THE PETITION ARE

VI. THE ISSUANCE OF THE WRITS OF INJUNCTION IS NOT A

The petition is bereft of merit.

(b) Determination of gross selling price of goods subject to ad valorem tax.-

(c) Cigarettes packed in twenties.- There shall be levied, assessed and

Moreover, as pointed to by private respondents, for purposes of closer supervision by the

a. To afford adequate protection to the constitutional rights of the accused

b. When necessary for the orderly administration of justice or to avoid

e. Where the prosecution is under an invalid law, ordinance or regulation

f. When double jeopardy is clearly apparent (Sangalang vs. People and

h. Where it is a case of persecution rather than prosecution (Rustia vs. Ocampo,

Contrary to petitioners’ submission, preliminary investigation may be enjoined where

SECTION. 3. Procedure.- Except as provided for in Section 7 hereof, no

(c) Such counter-affidavits and other supporting evidence submitted by the

(d) If the respondent cannot be subpoenaed, or if subpoenaed, does not submit

(f) Thereafter, the investigation shall be deemed concluded, and the

WHEREFORE, the instant petition is hereby DISMISSED.

Hermosisima, Jr., J., concurs.

[5] Id., at 13.

[12] Id., at 156-263.

[14] Annex "C," Petition, Rollo, pp. 128-142.

[1] Rollo, pp. 98-129.