Petitioners: First Division

FIRST DIVISION
[G.R. No. 119322. June 4, 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,
BONIFACIO CHUA, GO CHING CHUAN, HENRY CHUA, LOPE
LIM GUAN, EMILIO TAN, FELIPE TAN SEH 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. CORTES , respondents-
intervenors.
Ocampo, Quiroz, Mina & Associates and Estelito P. Mendoza for private
respondents.
Douglas G. Baarde for David R. Cortes.

CD Technologies Asia, Inc. © 2022 cdasiaonline.com
Abad & Associates for respondents-intervenors.
SYLLABUS
1. TAXATION; NATIONAL INTERNAL REVENUE CODE; BEFORE ONE IS

PROSECUTED FOR WILLFUL ATTEMPT TO EVADE OR DEFEAT ANY TAX UNDER
SECTIONS 253 AND 255 THEREOF THE FACT THAT A TAX IS DUE MUST FIRST BE
PROVED. — 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.
2. ID.; ID.; FOR CRIMINAL PROSECUTION TO PROCEED BEFORE
ASSESSMENT, THERE MUST BE A PRIMA FACIE SHOWING OF A WILLFUL
ATTEMPT TO EVADE TAXES. — We cannot subscribe to the petitioners' thesis
citing Ungad vs. Cusi, that the lack of 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 following statement
quoted from Guzik vs. U.S. (54 F2d. 618): "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 inUngad
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 had
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.
3. REMEDIAL LAW; CRIMINAL PROCEDURE; PRELIMINARY INVESTIGATION;
MAY BE ENJOINED WHERE EXCEPTIONAL CIRCUMSTANCES SO WARRANT. — 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 vs. Albano and Fortun vs. Labang,
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. 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.
4. ID.; 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 REVIEWABLE BY
TIMELY APPEAL AND NOT BY SPECIAL CIVIL ACTION OF CERTIORARI. — 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.
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.
BELLOSILLO, J., concurring and dissenting:

1. REMEDIAL LAW; PROVISIONAL REMEDIES; INJUNCTIVE WRITS; THE
EXERCISE OF SOUND JUDICIAL DISCRETION BY THE TRIAL COURT IN INJUNCTIVE
MATTERS SHOULD NOT BE INTERFERED WITH EXCEPT IN CASE OF MANIFEST
ABUSE. — 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 which is not true in the case before us. Equally well settled is that under
Sec. 7, Rule 58, Rules of Court, a wide latitude is given to the trial court. 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.
2. ID.; ID.; ID.; NO GRAVE ABUSE OF DISCRETION CAN BE ATTRIBUTED TO

A JUDGE OR BODY IN THE ISSUANCE THEREOF WHERE A PARTY WAS NOT
DEPRIVED OF ITS DAY IN COURT AS IT WAS HEARD AND HAS EXHAUSTIVELY
PRESENTED ALL ITS ARGUMENTS AND DEFENSES. — No grave abuse of
discretion can be attributed to a judge or body in the issuance of 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. 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. 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." 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.
3. ID.; ID.; ID.; DUE PROCESS CONSIDERATIONS DICTATE THAT

INJUNCTIVE WRITS ARE NOT JUDGMENT 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; CASE AT
BAR. — 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. 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.
4. POLITICAL LAW; POWERS OF THE STATE; IN BALANCING ON THE

SCALES THE POWERS OF THE STATE TO TAX, TO PROSECUTE PERCEIVED
TRANSGRESSORS OF THE LAW AND THE RIGHTS OF A CITIZEN TO DUE
PROCESS AND EQUAL PROTECTION, THE SCALES MUST TILT IN FAVOR OF AN
INDIVIDUAL, FOR A CITIZEN'S RIGHT IS AMPLY PROTECTED BY THE BILL OF
RIGHTS OF THE CONSTITUTION. — 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. In the instant case, it seems that due to the overzealousness in
collecting taxes from private respondents and to some accident of immediate
overwhelming interest which distressingly impassions and distorts judgment,
the State has unwittingly ignored the citizens' constitutional rights.
5. ID.; ID.; COURTS SHOULD NOT HESITATE TO INVOKE THE
CONSTITUTIONAL GUARANTEES TO GIVE ADEQUATE PROTECTION TO CITIZENS
WHEN FACED WITH THE ENORMOUS POWERS OF THE STATE, EVEN WHEN
WHAT IS IN ISSUE ARE ONLY PROVISIONAL REMEDIES. — 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.
PADILLA, J., dissenting:
1. REMEDIAL LAW; PROVISIONAL REMEDIES; 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; CASE AT BAR. — 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. 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.
2. ID.; ID.; DOCTRINE OF EXHAUSTION OF ADMINISTRATIVE REMEDIES;
NOT COMPLIED WITH IN CASE AT BAR. — 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. 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 . . ." 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, 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?
3. TAXATION; NATIONAL INTERNAL REVENUE CODE; THE LACK OF A FINAL

DETERMINATION OF TAXPAYER'S EXACT OR CORRECT TAX LIABILITY IS NOT A
BAR TO CRIMINAL PROSECUTION FOR FRAUDULENT TAX EVASION. — 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 no 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.
4. ID.; ID.; 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.
5. ID.; ID.; SECTIONS 127(b) AND 142(c) THEREOF ARE NOT
DETERMINATIVE OF THE TAXPAYER'S CRIMINAL LIABILITY IN CASE AT BAR. — As
the Solicitor General correctly points out, Sections 127(b) and 142(c) 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.
6. ID.; ID.; THE USE OF A METHOD OR DEVICE BY A MANUFACTURER 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 THROUGH THE USE OF DUMMY ENTITIES
IS A CLEAR VIOLATION OF SECTION 127(b) IN RELATION TO THE PENAL
PROVISIONS OF THE TAX CODE; CASE AT BAR. — 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.
7. CONSTITUTIONAL LAW; BILL OF RIGHTS; TAXPAYER'S RIGHT TO DUE
PROCESS, EQUAL PROTECTION AND PRESUMPTION OF INNOCENCE IS NOT
VIOLATED IN CASE AT BAR. — 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. 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. As restated by
the illustrious late Chief Justice Manuel V. Moran — ". . . 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." 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.
VITUG, J., separate opinion:
1. REMEDIAL LAW; PROVISIONAL REMEDIES; PRELIMINARY INJUNCTION; IT
WOULD BE AN ACT PRECIPITATE FOR THE COURTS TO TAKE ON A CASE EVEN
BEFORE THE COMPLAINT OR INFORMATION IS FILED BY THE PROSECUTION. — 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.
2. TAXATION; THE MATTER AFFECTING THE CIVIL LIABILITY FOR DUE
PAYMENT OF INTERNAL REVENUE TAXES, INCLUDING THE APPLICABLE
REMEDIES AND PROCEEDINGS IN THE DETERMINATION THEREOF, MUST BE
CONSIDERED APART FROM AND TECHNICALLY INDEPENDENT OF THE CRIMINAL
ASPECT THAT MAY BE BROUGHT TO BEAR IN APPROPRIATE CASES. — 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 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.
DECISION
KAPUNAN, J : p
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. cdasia
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
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
P1,282,959,399.25.
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: . . .
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 P16,158,575,035.00 instead of
P11,929,322,334.52 as declared by the corporation in the said VAT
returns.
These fraudulent underdeclarations which resulted in the evasion
of value-added taxes in the aggregate amount of P1,169,688,645.63
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: . . .
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 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.
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. LLjur
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:
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 P16,686,372,295.00, 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 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
I.S. 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 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 for preliminary 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 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
Dorn 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 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 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 oficio. 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 OF JURISDICTION 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.

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. . . .
(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. . . .
(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 xxx xxx
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 . . ."
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 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 of 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 . . ." 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 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. dctai
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 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);
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. [1953], 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 a n d 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.
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 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. LLjur
The complaint filed by the Commissioner of Internal Revenue states

itself that the primary evidence establishing the falsity of the declared
taxable sales in 1992 in the amount of P11,736,658,580.00 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
P16,686,372,295.00. 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 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).
Separate Opinions
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. cdlex
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 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
P16,686,372,295.00, 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
P11,736,658.580.00; 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 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 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
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.
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. Algue, 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 xxx 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. cdll
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 . . . that the law has not been observed.
In the instant case, it seems that due to the overzealousness in
collecting taxes from private 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.
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. cdasia
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
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 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 filed with the trial court a
second supplemental 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 and 1991.
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. LLjur
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 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
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. 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 the 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:
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.
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 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 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 .
. ." 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?
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.
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
Revenue 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.]" (Emphasis 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 ad valorem taxes starting 2 July 1993.
Respondent Fortune has assailed the validity of said revenue circular and the
case has yet to be decided 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 . . .
(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 . . .
(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
f o r 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.
9. As to respondents' additional claim that with regard toad 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 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.
LLjur
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. 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 —
". . . 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 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.
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 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.
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. LexLib
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-94-9170 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 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.
Footnotes
1. Rollo , pp. 98-129.

2. Annexes "C," "D," "E," and "F," Petition, Rollo, pp. 128-145; 149-153.
3. Philippine Airlines, Inc. v. Confesor , 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.
5. Id., at 13.
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.
12. Id., at 156-263.
13. Id., at 18.
14. Annex "C," Petition, Rollo , pp. 128-142.
15. Rollo , p. 21.

16. Annex "D," Petition, Rollo , pp. 143-145.
17. Annex "E," Petition, Rollo , pp. 140-148.
18. Annex "F," Petition, Rollo , pp. 149-153.
19. Rollo , pp. 122-129.
20. Rollo , p. 33.
21. Private respondent's "Comment on Petition for Review, " pp. 7-10.
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 Paño, 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:

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 , 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:
1. Rollo , p. 13.
2. Rollo , p. 16.
3. Rollo , pp. 264-325.
4. Rollo , pp. 402-403.
5. Rollo , pp. 404-415.
6. Rollo , pp. 539-545.
7. Rollo , pp. 156-263.
8. Rollo , p. 18.
9. Rollo , pp. 128-142.
10. Rollo , p. 21.
11. 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.
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 v. 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.

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FIRST DIVISION

[G.R. No. 119322. June 4, 1996.]

COMMISSIONER OF INTERNAL REVENUE, SENIOR STATE

DAGUPAN COMBINED COMMODITIES, INC., TOWNSMAN

Douglas G. Baarde for David R. Cortes.

1. TAXATION; NATIONAL INTERNAL REVENUE CODE; BEFORE ONE IS

BELLOSILLO, J., concurring and dissenting:

2. ID.; ID.; ID.; NO GRAVE ABUSE OF DISCRETION CAN BE ATTRIBUTED TO

3. ID.; ID.; ID.; DUE PROCESS CONSIDERATIONS DICTATE THAT

4. POLITICAL LAW; POWERS OF THE STATE; IN BALANCING ON THE

PADILLA, J., dissenting:

1. REMEDIAL LAW; PROVISIONAL REMEDIES; A COURT ORDER TO STOP A

3. TAXATION; NATIONAL INTERNAL REVENUE CODE; THE LACK OF A FINAL

4. ID.; ID.; THE RULING IN THE UNGAB CASE IS UNDISPUTABLY ON ALL

The pivotal issue in this petition for review is whether or not

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

On January 4, 1994, private respondents ﬁled a petition for certiorari

criminal prosecution under preliminary investigation; (b) a criminal

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II. PRIVATE RESPONDENTS' RIGHTS TO DUE PROCESS, EQUAL

IV. THERE WAS SELECTIVE PROSECUTION.

The petition is bereft of merit.

The complaint ﬁled by the Commissioner of Internal Revenue states

Let me ﬁrst touch on "selective prosecution." There is no showing that

But even as we concede the inevitability and indispensability of

On 20 December 1993, an omnibus order was issued by the

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

V. THE FACTUAL ALLEGATIONS IN THE PETITION ARE HYPOTHETICALLY

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

It should also be pointed out that the oﬀense allegedly committed by

While I do understand the concern expressed by some of my

1. Rollo , pp. 98-129.

15. Rollo , p. 21.

32. Salonga v. Cruz Paño, 134 SCRA 438 (1985).

BELLOSILLO, J., concurring and dissenting:

12. G.R. Nos. 103446-47, 30 August 1993, 225 SCRA 725.

18. Guingona, Jr. vs. City Fiscal of Manila, supra.

25. Francisco, Ricardo, Criminal Procedure 80 (1994).

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