25631039 part 1 remedies under nirc compiled

8/8/2019 25631039 Part 1 Remedies Under NIRC Compiled

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UNDER: ATTY. BOBBY LOCKBY: MEL ANDREW YU REYES

TAXATION 02

PART IREMEDIES UNDER THE NIRC

I. ASSESSMENT OF INTERNAL REVENUE TAXES

A. DEFINITION, NATURE, EFFECT AND BASIS

1) LOA, AUDIT NOTICE, TAX VERIFICATION NOTICERAMO 1-00

CIR v. SONY PHILIPPINES, INC.MAY 17, 2007 CTA 90

The revenue examiner went beyond the authority conferred by LOA. A LOA authorizes or empowers a designatedrevenue officer to examine, verify and scrutinize a taxpayers books and records in relation to his internal revenue taxliability for a particular period. The LOA, the examiners were authorize to examine Sonys book of accounts and otheraccounting records for the period 1997 and unverified prior years. However, CIRs basis for deficiency vat for 1997was 1998. They acted without authority in arriving at the deficiency vat assessment. It should be considered withoutforce and effect a nullity.

A LOA should cover a taxable period not exceeding 1 year. The practice of issuing LOA covering audit of unverifiedprior years is prohibited.

2) TAX ASSESSMENT

CIR v. PASCOR REALTY AND DEVELOPMENT CORPORATIONJUNE 29, 1999 GR. 128315

An assessment contains not only a computation of tax liabilities, but also a demand for payment within a prescribedperiod. It also signals the time when penalties and interests begin to accrue against the taxpayer. To enable thetaxpayer to determine the remedies thereon, due process requires that it must be served and received by thetaxpayer. Accordingly, an affidavit which was executed by the revenue officer stating the tax liabilities of a taxpayerand attached to a criminal complaint for tax evasion cannot be deemed an assessment that can be questioned beforethe CTA. The fact that the complaint itself was specifically directed and sent to DOJ and not to Pascor shows that theintent of the CIR was to file a criminal complaint for tax evasion and not to issue an assessment.

B. PERIOD TO ASSESS DEFICIENCY TAX

1) PRESCRIPTION

a) RATIONALE, CONSTRUCTION, INTERPRETATION

REPUBLIC OF THE PHILIPPINES v. LUIS ABLAZA

The law prescribing a limitation of actions for collection of income tax is beneficial both to the government and to itscitizens.

a) The Government because tax officers would be obliged to act promptly in making of assessment.

b) The Citizens because after the lapse of the period of prescription, citizens would have the feeling of securityagainst unscrupulous tax agents who will always find an excuse to inspect the books of taxpayers, not todetermine the latters real liability, but to take advantage of every opportunity to molest, peaceful law-abidingcitizens. Without such legal defenses, taxpayers would furthermore be under obligation to always keep theirbooks and keep them open for inspection subject to harassment by unscrupulous tax agents. The law onprescription being a remedial measure should be interpreted in a way conducive to bring about the beneficenpurpose of affording protection to the taxpayer within the contemplation of the Commissioner whichrecommends the approval of the law.

b) COUNTING OF PERIODS

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CIR v. PRIMETOWN PROPERTY GROUPAUG. 28, 2007 GR. 162155

The 2-year prescriptive period is reckoned from the filing of the final adjusted return. Art. 13 NCC, provides that whenthe law speaks of a year, it is understood to be equivalent to 365 days. A year is equivalent to 365 days regardless of

whether it is a regular year or a leap year.

c) RULE ON WRONG RETURNS OR AMENDED RETURNS

CIR v. AYALA SECURITIES CO.NOV. 21, 1980 GR. L-29485

The SC is persuaded by the fundamental principle invoked by CIR that limitations upon the right of the government toassess and collect taxes will not be presumed in the absence of clear legislation to the contrary and that where thegovernment has not by express statutory provision provided a limitation upon its right to assess unpaid taxes, suchright is imprescriptible.

The SC, therefore, reconsiders its ruling in its decision under reconsideration that the right to assess and collect theassessment in question had prescribed after 5 years, and instead rules that there is no such time limit on the right of

the CIR to assess the 25% tax on unreasonably accumulated surplus provided in Sec. 25 of NIRC, since there is noexpress statutory provision limiting such right or providing for its prescription. The underlying purpose of the additionaltax in question on a corporation's improperly accumulated profits or surplus is as set forth in the text of Sec. 25 ofNIRC itself to avoid the situation where a corporation unduly retains its surplus instead of declaring and pavingdividends to its shareholders or members who would then have to pay the income tax due on such dividends receivedby them. The record amply shows that Ayala Securities is a mere holding company of its shareholders through itsmother company, a registered co-partnership then set up by the individual shareholders belonging to the same familyand that the prima facie evidence and presumption set up by the Tax Code, therefore applied without having beenadequately rebutted by the Ayala Securities.

CIRs plausible alternative contention is that even if the 25% surtax were to be deemed subject to prescriptioncomputed from the filing of the income tax return in 1955, the intent to evade payment of the surtax is an inherentquality of the violation and the return filed must necessarily partake of a false and/or fraudulent character which wouldmake applicable the 10-year prescriptive period provided in Sec. 332(a) of the Tax Code and since the assessment wasmade in 1961 (the 6th year), the assessment was clearly within the 10-year prescriptive period. The Court sees no

necessity, however, for ruling on this point in view of its adherence to the ruling in the earlier raise of UnitedEquipment & Supply Co., supra, holding that the 25% surtax is not subject to any statutory prescriptive period.

BUTUAN SAWMILL INC. v. CTAFEB. 28, 1966 GR. L-20601

FILING OF WRONG RETURN

Since no percentage tax return was actually filed by taxpayer to reflect the sales of its logs to Japan, the 10-yearprescriptive period for cases where returns are not filed applies. Even if an ITR which happens to be the wrong returnhad been filed, and even considering that the income from said sales were all reflected therein, still, this would nottake the place of the correct return which for purposes of tax in question should actually be the percentage tax return.

The percentage tax on sale has now been replaced by the 10% VAT.

WHEN THERE IS FRAUD

Mere understatement of gross earnings not of itself proves fraud. The allegation of fraud with intention to evade thefranchise tax has not been proved satisfactorily. The 1st quarter of 1960, the gross receipts of Butuan Sawmill as afranchise grantee amounted to P1,369,383.10. Only P16,799.56 represented the alleged unrecorded and undereported receipts of Butuan Sawmill. However, a big portion of the unrecorded receipts of P16,799.56 was not reflectedin the book of accounts of the taxpayer because it represented the cost f the electric current used free of charge by itsofficer and employees. It cannot be charged that Butuan Sawmill intended to defraud the government of the franchisetax. Fraud, being absent, the right of the government to assess the franchise tax had already prescribed.

CIR v. PHOENIX ASSURANCE CO.

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MAY 20, 1965 GR. L-19727

Where the amended return is substantially different from the original return, the right of the BIR to assess the taxcounted from the filing of the amended return. If the assessment is counted from the filing of the original return, thiswould permit taxpayers to evade taxes by simply reporting in their original return, heavy losses and amending thesame after the lapse of the prescriptive period when the Commissioner has already lost his authority to assess the taxThe objective of the Tax Code is to impose taxes, not to enhance tax avoidance to the prejudice of the government.

CIR. v. LILIA GONZALES

Where the return was made in the wrong form, the filing thereof did not start the running of the period of limitations,and where the return was very deficient; there was no return at all. If the taxpayer failed to observe the law, Sec. 332of NIRC grants CIR a 10 year period within which to bring an action for tax collection, applies. Sec. 94 obligates himto make a return or amend one already filed based on his own knowledge and information obtained through testimonyor otherwise, and subsequently to assess thereon the taxes due. The running of the period of limitations should bereckoned from the date the fraud was discovered.

2) SUSPENSION OF PRESCRIPTIVE PERIODS/ EXCEPTIONSSEC. 203, 222, 223 OF NIRCRMO 20-90ORDER 05-01

CIR v. CTA

MAR. 20, 1991 GR. 44007

Sec. 203 of NIRC states that internal revenue taxes shall be assessed within 5 years after the taxpayers return wasfiled. It is undisputed that Eastern failed to file any corporate ITR for a period of 20-years from 1952-1971. CIR arguedthat under Sec. 223(a), Easterns failure to file ITR authorizes him to assess income tax due from Eastern with 10years, after the discovery of falsity, fraud or omission. The omission was discovered only in 1971. CIR has 10 yearsfrom 1971 or until 1981 within which to assess. The assessment of deficiency income tax was issued on 1973, which iswell within the period prescribed by law. But while it is true that the assessment is within the prescribed period, it doesnot follow that it is a valid statement in its entirety. RA 808 is an operative act. Eastern is exempted from payment ofall taxes, whether local, provincial or national, except franchise and real property taxes. It goes without saying that theassessment cannot be held valid against the income derived from Easterns operation authorized by the franchise. Itcan only stand valid insofar as the assessment is for income derived from services within the Philippines and which isbeyond the scope of RA 808.

REPUBLIC OF THE PHILIPPINES v. DAMIAN RET

MAR. 31, 1962 GR. L-13754

The cause of action has already prescribed. Sec. 332 of NIRC does not apply to income taxes if the collection of saidtaxes will be made by summary proceedings, but if the collection is to be effected by court action, Sec. 332 of NIRC willbe the controlling provision. The BIR only made the assessment on 1951 and had up to 1956 to file the necessaryaction. It was only on 1957 that the action was filed in court for collection of alleged deficiency income tax farbeyond the 5 year period.

BANK OF THE PHILIPPINE ISLANDS (BPI) v. CIROCT. 17, 2005 GR. 139736

PHILIPPINE JOURNALISTS, INC. v. CIRDEC. 16, 2004 GR. 162852

A waiver of statute of limitations, to a certain extent, s a derogation of the taxpayers right to security againstprolonged and unscrupulous investigations and must therefore be carefully and strictly construed. The waiver ostatute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the CA. Itis an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due isextended to a date certain. The waiver does not mean that the taxpayer relinquishes the right to invoke prescriptionunequally particular where the language of the document is equivocal. For the purpose of safeguarding taxpayers froman unreasonable examination, investigation or assessment, our tax law provides a statute of limitations in thecollection of taxes. The law of prescription being a remedial measure should be liberally construed in order to affordsuch protection. The exception to the law on prescription should perforce be strictly construed.

JOSE AZNAR v. CTA, & CIRAUG. 23, 1974 GR. 20569

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In three different cases of (1) false return, (2) fraudulent return with intent to evade tax, and (3) failure to file a returnthe tax may be assessed, or a proceeding in court for the collection of such tax may begin without assessment, atanytime within 10 years after discovery of the falsity, fraud or omission.

The ordinary period of prescription of 5 years within which to assess tax liabilities under Sec. 331 of NIRC should beapplicable to normal circumstances, but where the government is placed at a disadvantage so as to prevent its lawfuagents from proper assessment of tax liabilities due to false return, fraudulent returns intended to evade payment oftax or failure to file returns, the period of 10 years provided in Sec. 332(a) of NIRC, from time of discovery of the

falsity, fraud or omission even seems to be inadequate and should be the one enforced.

REPUBLIC OF THE PHILIPPINES v. KER & CO., LTD.SEP. 29, 1966 GR. L-21609

Under Sec. 333 of the Tax Code, the running of the prescriptive period to collect deficiency taxes shall be suspendedfor the period during which the BIR Commissioner is prohibited from beginning a distraint and levy or instituting aproceeding in court, and for 60 days thereafter. In the case at bar, the pendency of the taxpayers appeal in CTA and inSC had the effect of temporarily staying the hands o the Commissioner. If the taxpayers stand that the pendency ofthe appeal did not stop the running of the period because the CTA did not have jurisdiction over the case is upheld,taxpayers would be encouraged to delay the payment of taxes in the hope of ultimately avoiding the same. Under thecircumstances, the running of the prescriptive period was suspended.

CIR v. SUYOC CONSOLIDATED MINING CO.NOV. 25, 1958 GR. L-11527

A mere request for re-examination or reinvestigation of assessment may not suspend the running of the period oflimitation for in such a case there is a need of a written agreement to extend the period between the collector and thetaxpayer. There are cases, however, where a taxpayer may be prevented from setting-up the defense of prescriptioneven if he has not previously waived it in writing as when by his repeated requests or positive acts, the governmenthas been for good reasons persuaded to postponed collection to make himself feel that the demand was nounreasonable or that no harassment or injustice is meant by the government, and when such situation comes to passthere are authorities that hold, based on weighty reason, that such an attitude or behaviour should not becountenanced if only to protect the interest of the government.

He who prevents a thing from being done may not avail himself of the non-performance which he has himselfoccasioned, for the law says to him in effect this is your own act, and therefore you are damnified. The tax could

have been collected, but the government withheld action at the specific request of plaintiff. The plaintiff is nowstopped and should not b permitted to raise the defense of statute of limitations.

CIR v. PHILIPPINE GLOBAL COMMUNICATION, INC.OCT. 31, 2006 GR. 167146

The 3 year statute of limitations on the tax collection of an assessed tax provided under Sec. 269(c) of the Tax Code of1977, a law enacted to protect the interests of taxpayers, must be given effect. In providing for exception, the lawstrictly limits the suspension of the running of the prescription period to, among other instances, protest wherein thetaxpayer requests for a reinvestigation. In this case, the taxpayer merely filed 2 protest letters requesting foreconsideration, and where the BIR could not have conducted a reinvestigation because of new or additional evidencewas submitted, the running of statute of limitations cannot be interrupted. The tax which is the subject of the decisionissued by CIR on October 08, 2002 affirming the formal assessment issued on April 14, 1994 can no longer be thesubject of any proceeding for its collection. The right of the government to collect the alleged deficiency tax is barredby prescription.

C. REQUISITES OF A VALID ASSESSMENTSEC. 3, RR 12-99

1) DUE PROCESS

CIR v. ALBERTO BENIPAYOJAN. 31, 1962 GR. L-13656

To sustain the deficiency tax assessed against Benipayo would amount to a finding that he had, for a considerableperiod of time, cheated and defrauded the government by selling each adult patron 2 childrens tax-free tickets

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instead of 1 ticket subject to the amusement tax. Fraud is a serious charge and to sustained, must be supported byclear and convincing proof which, in this case, is lacking.

BONIFACIA SY PO v. CTA, & CIR

The law is specific and clear. The rule on The Best Evidence Obtainable applies when a tax report required by law forthe purpose of assessment is not available or when tax report is incomplete or fraudulent.

The tax assessment by tax examiners are presumed correct and made in good faith. The taxpayer has the duty to

prove otherwise. In the absence of proof of an irregularities in the performance of duties, an assessment duly made bythe BIR examiner and approved by his superior officers will not b disturbed. All presumptions are in favour of thecorrectness of tax assessments. The fraudulent acts detailed in the decision under review had not been satisfactorilyrebutted by Sy Po. There are indeed clear indications on the part of taxpayer to deprive the government of the tax due.

CIR v. AZUCENA REYESJAN. 27, 2006 GR. 159694

The 2nd paragraph of Sec. 228 of NIRC is clear and mandatory. The taxpayers shall be informed in writing of the lawand the facts on which the assessment is made, otherwise the assessment shall be void. RA 8424 has alreadyamended the provisions of Sec. 229 of NIRC on protesting an assessment. The old requirement of merely notifying thetaxpayer of the CIRs findings was changed in 1998 of informing the taxpayer of not only the law, but also of the factson which an assessment would be made, otherwise, the assessment itself would be invalid.

A. BROWN CO., INC. v. CIRJUN. 07, 2004 CTA 6357

The record shows that CIR failed to comply with the procedural due process requirement in order to sustain the validityand legality of an assessment.

First, the report of investigation sent prior to the issuance of PAN indicated that there is a finding of deficiency incometax of only P4,511,035.67. If ever they should properly issue against ABC the same should have reflected the findingmade on report. Instead, the PAN completely departed from the result by increasing the alleged tax liability of ABC.

Secondly, the law and rules and regulation is issued pursuant thereto clearly gives the taxpayer the right to reply tothe PAN. The period given to taxpayer is 15 days from receipt of PAN. Here, the CIR withheld PAN to ABC. CIR throughregistered mail sent the PAN to ABCs former address. Further, merely 4 days after the PAN was received and withoutwaiting for the lapse of the mandatory 15 day period to reply, CIR issued the assessment, even before it could begiven a chance to be heard.

The sending of PAN and assessment notice to the wrong address may only be seen as an attempt to mislead orconfuse ABC.

In the observance of procedural due process, the SC is always mindful that a taxpayer being made liable with hisproperty be given an opportunity to be heard which is one of its essential elements. With the failure of CIR to strictlycomply with the procedure prescribed by law, and failure of ABC to receive a copy of the alleged assessment, the latterwas not afforded its right to be heard for it was denied the opportunity to protest or dispute the alleged assessment.

CIR v. METRO SUPERAMA, INC.SEP. 16, 2008 CTA 306

Assessment is a notice to the effect that the amount stated is due as a tax and a demand for the payment thereof. Itfixes and determines the tax liability of a taxpayer. As soon as it served, an obligation arises on the part of thetaxpayer concerned to pay the amount assessed and demanded. Sec. 228 of NIRC does not only require that theremust be an investigation and determination of taxpayers liability. The Commissioner or his duly authorizedrepresentative is required to send notice of assessment to the taxpayer in order to give the latter an opportunity to filea protest. An assessment is deemed made only when the same is actually received by the taxpayer.

The document is a notice duly sent to the taxpayer. Indeed, an assessment is deemed made only when the CIRreleases, mails or sends such notice to the taxpayer. Although, there is no specific requirement that the taxpayershould receive the notice within the prescriptive period, due process requires at the very least that such notice actuallybe received. If it appears that the person liable for payment did not receive the assessment, the assessment could notbecome final and executory.

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CIR v. DOMINADOR MENGUITOSEP. 17, 2008 GR. 167560

While the lack of PRN and PAN is a deviation from the requirements under Sec. 1 and 2 of RR 12-85, the same cannotdetract from the fact that the FAN were issued to and actually received by Menguito in accordance with Sec. 228 ofNIRC. The stringent requirement that an assessment notice be satisfactorily proven to have been issued and releasedor, if receipt thereof is denied that the said assessment notice have been served on taxpayer, applies only to FAN butnot PRN or PAN. The issuance of valid FAN is a substantive pre-requisite to tax collection, for it contains not only acomputation of tax liabilities but also a demand for payment within a prescribed period, thereby signalling the time

when penalties and interests begin to accrue against the taxpayer and enabling the latter to determine his remediesthereof. Due process requires that it must be served on and received by taxpayer.

A PRN and PAN do not bear the gravity of a PAN. The PRN and PAN merely hint at the initial findings of the BIR againsta taxpayer and invited the latter to an Informal Conference or Clarificatory Meeting. Neither notice contains adeclaration of the tax liability of the taxpayer or a demand for payment thereof. Hence, the lack of such notices inflictsno prejudice on taxpayer for as long as the latter is properly served with FAN. In the case of Menguito, a FAN wasreceived by him as acknowledge in his petition for review and joint stipulation, and on the basis thereof, he filed aprotest with the BIR and eventually a petition for CA.

2) POWER OF CIR TO ISSUE ASSESSMENTS

MERALCO SECURITIES CORPORATION v. VICTORINO SAVELLANOOCT. 23, 1982 GR. L-36748

Since the office of the CIR is charged with the administration of revenue laws, which is the primary responsibility of theexecutive branch of the government, mandamus may not lie against the Commissioner to compel him t impose a taxassessment not found by him to be due or proper for that would be tantamount to a usurpation of executive function.

Such absence of arbitrariness or grave abuse so as to go beyond the statutory authority is not subject to the contraryjudgment or control of others. Discretion when applied to public functionaries, means a power or right conferredupon them by law of acting officially, under certain circumstances, uncontrollable by the judgment or conscience ofothers. A purely ministerial act or duty in contradiction to a discretional act is one which an officer or tribunal performsin a given state of facts, in a prescribed manner in obedience to the mandate of a legal authority, without regard to orthe exercise of his own judgment upon the propriety or impropriety of the act done. If the law imposes a duty upon apublic officer and gives him the right to decide how or when the duty shall be performed, such duty is discretionaryand not ministerial. The duty is ministerial only when the discharge of the same requires neither the exercise of officiadiscretion or judgment.

ERNESTO MACEDA v. CATALINO MACARAIG

NPC availed of subsidy granted to GOCC that were made subject to tax payments. Sec. 23 of PD 1177, mandates thatthe Secretary of Finance and Commissioner of Budget had to establish the necessary procedures to accomplish the taxpayment/ tax subsidy scheme of the government in effect, NPC did not put out any cash to pay any tax as it got fromthe general fund the amounts necessary to pay the different revenue collector for the taxes it had to pay.

The tax exemption withdrawn by Sec. 1 of PD 1931 was therefore the same NPC tax exemption privileges withdrawnby Sec. 23 of PD 1177. NPC could no longer obtain a subsidy for the taxes t had to pay. It could however, under PD1931 ask for a total restoration of its tax exemption privileges, which it did, and the same were granted under FIRBResolution 10-85 and 1-86 as approved by the Minister of Finance.

The oil companies which supply bunker fuel oil to NPC have to pay taxes imposed upon said bunker fuel oil sold to NPC.By indirect taxation, the economic burden is expected to be passed on through the channels of commerce to the useror consumer of the goods sold. The NPC has been exempted from both direct and indirect taxation, the NPC must beheld exempted from absorbing the economic burden of indirect taxation.

3) WHEN ASSESSMENT MADE

GONZALO NAVA v. CIRJAN. 30, 1965 GR. L-19470

The presumption that a letter duly directed and mailed was received in the regular course of mail cannot apply wherenone of the required facts to raise this presumption, i.e., that the letter was properly addressed with postage prepaidand that it was mailed, have been shown.

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Mere notations on the records of the tax collector of the mailing of a notice of a deficiency tax assessment to ataxpayer, made without the supporting evidence, cannot suffice to prove that such notice was sent and received;otherwise, the taxpayer would be at the mercy of the revenue officers, without adequate protection or defense.

BARCELON, ROXAS SECURITIES, INC. v. CIRAUG. 07, 2006 GR. 157064

When a mail matter is sent by registered mail, there exists a presumption set forth under Sec. 3(v) Rule 131 of theRules of Court, that it was received in the regular course of mail. The facts to be proved in order to raise this

presumption are:

a) The letter was properly addressed with postage prepaid; andb) That it was mailed.

While a mailed letter is deemed received by the addressee in the ordinary course of mail, this is still merely adisputable presumption subject to contravention, and a direct denial of the receipt thereof shifts the burden upon theparty favoured by the presumption to prove that the mailed letter was indeed received by the addressee.

Entries in official records made in the performance of a duty specially enjoined by law, are prima facie evidence of thefacts therein stated. Where it has been held that an entrant must have personal knowledge of the facts stated by himor such facts were acquired by him from reports made by persons under a legal duty to submit the same. There are 3requisites for admissibility:

a) Entry was made by a public officer, or by another person specially enjoined by law to do so;b) It was made by public officer in the performance of his duties; andc) The public officer or other person had sufficient knowledge of facts by him.

In this case, the entries made by Versola were not based on her personal knowledge as she did not attest to the factthat she personally prepared and mailed the assessment notice, nor was it stated in the transcript of stenographicnotes how and from whom she obtained the pertinent information.

II. PROTESTING AN ASSESSMENT/ REMEDY BEFORE PAYMENT

A. HOW TO PROTEST OR DISPUTE AN ASSESSMENT ADMINISTRATIVELYSEC. 228 OF NIRCSEC. 3.1.5, RR 12-99

1) REINVESTIGATION v. RECONSIDERATION

BANK OF THE PHILIPPINE ISLANDS (BPI) v. CIROCT. 17, 2005 GR. 139736

With the issuance of RR 12-85 providing for the distinction between a request for reconsideration and a request forreinvestigation. It bears to emphasize that under Sec. 224 of NIRC the running of the prescriptive period for collectionof taxes can only be suspended by a request for reinvestigation, and not a request for reconsideration.

a) Request for Reinvestigation - Entails the reception and evaluation of additional evidences.- Can suspend the running of the statute of limitations on collection of assessed tax.

b) Request for Reconsideration - Is limited to the evidence already at hand.

- Does not suspend the running of the statute of limitations on collection of assessed tax.

The BIR Commissioner must first grant the request for reinvestigation as a requirement for suspension of the statute oflimitations. The act of requesting a reinvestigation alone does not suspend the period. The request should first begranted in order to effect suspension.

2) EFFECTS OF FAILURE TO FILE PROTEST/ FAILURE TO SUBMIT RELEVANT DOCUMENTS

FERDINAND MARCOS II v. CA, & CIRJUNE 05, 1997 GR. 120880

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The objections to the assessment should have been raised, considering the ample remedies afforded the taxpayer bythe Tax Code, with the BIR and the CTA, and cannot be raised now via Petition for Certiorari, under the pretext of graveabuse of discretion. The course of action taken by Marcos II reflects his disregard or even repugnance of theestablished institutions for governance in the scheme of a well-ordered society. The subject tax assessments havingbecome final, executory and enforceable, the same can no longer be contested by means of a disguise protest.Certiorari may not be used as a substitute for a lost appeal or remedy. This judicial policy becomes more pronouncedin view of the absence of sufficient attack against the actuations of government.

Where there was an opportunity to raise objections to government action, and such opportunity was disregarded, for

no justifiable reason, the party claiming oppression then becomes the oppressor of the orderly functions of thegovernment. He who comes to court must come with clean hands. Otherwise, he not only taints his name, but ridiculesthe very structure of established authority.

RIZAL COMMERCIAL BANKING CORP. (RCBC) v. CIRJUNE 16, 2006 GR. 168498

As provided in Sec. 228, the failure of the taxpayer to appeal from an assessment on time rendered the assessmentfinal, executory and demandable. RCBC is precluded from disputing the correctness of the assessment. While the rightto appeal a decision of the Commissioner of CTA is merely a statutory remedy, nevertheless the requirement that itmust be brought within 30 days is jurisdictional. If a statutory remedy provides as a condition precedent that theaction to enforce it must be commenced within a prescribed time, such requirement is jurisdictional and failure tocomply therewith may be raised in a MTD.

REPUBLIC OF THE PHILIPPINES v. KER & CO., LTD.SEP. 29, 1966 GR. L-21609

The assessment for deficiency income tax for 1947 has become final and executory, and therefore, Ker, may notanymore raise defenses which go into the merits of assessment, i.e. prescription of the Commissioners right to assessthe tax. However, Ker raised the defense of prescription in the proceedings below, and the Republic, instead ofquestioning the right of Ker to raise such defense, litigated on it and submitted the issue for resolution of the court. Byits actuation, the government should be considered to have waived its right to object to the setting up of suchdefenses.

MAMBULAO LUMBER COMPANY v. REPUBLIC OF THE PHILIPPINESSEP. 05, 1984

The commencement of the 5-year period should be counted from Aug. 29, 1958, the date of the letter of demand ofthe BIR Commissioner to Mambulao. It is this demand or assessment that is appealable to the CTA. The complaint for

collection was filed in the CFI on Aug. 25, 1961, very much within the 5-year period prescribed by Sec. 332 (c) of theTax Code. The right of the Commissioner to collect the forest charges and surcharges in the amount of P15, 443.55 hasnot prescribed.

It is also not disputed the Mambulao requested for a reinvestigation of its tax liability. In reply, Republic gaveMambulao 20-days from receipt thereto to submit the results of its verification of payments and failure to complywould be an abandonment of the request for reinvestigation. Neither did it appeal to the CTA within 30-days fromreceipt of the letter, thus making the assessment final and executory.

PRULIFE OF UK INSURANCE CORPORATION v. CIRSEP. 11, 207 CTA 6774

The effect of Prulifes lack of supporting documents submitted is that, it lost its chance to further contesting thepremium tax assessment. The finality of the assessment simply means that where the taxpayer decides to forgo withthe opportunity to present the documents in support of its claim within 60 days from the filing of its protest, it merelylost its chance to further contest the assessment.

Its non-compliance with the submission of the necessary documents would either mean that Prulife no longer wishes tofurther submit any document for the reason that its protest letter filed was more than enough to support its claim, orthat Prulife failed to comply thus it can no longer give justification with regard to its objections as to the correctness othe assessment notices.

The necessity of the submission of the supporting documents lies on Prulife. It cannot be left to the discretion of theCIR for in doing so would leave Prulifes case at the mercy of the whims of the CIR. It is for Prulife to decide whether ornot supporting documents are necessary to support its protest for it is the best position, being the affected party tothe assessment to determine which documents are necessary and essential to garner a favourable decision from CIR.

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The mere claim of Prulife that its cash collection did not comprise entirely of premiums collected cannot be givencredence. Prulife should have presented supporting documents to prove such claim. Since Prulife failed to present ascintilla of evidence to that effect, CTA sustains CIRs basis of such collections. Assessments should not be based onpresumption no matter how logical the presumption might be. In order to stand the test of judicial scrutiny, theassessment must be based on actual facts.

ABN-AMRO SAVINGS BANK CORP. v. CIRSEP. 10, 2008 CTA 7089

Where a taxpayer failed to submit relevant supporting documents within the 60-day period from filing of the protest,and in case of inaction by CIR and the taxpayer chooses to appeal to the CTA, the same must be made within 30-daysfrom the lapse of the 180-day period, the 180-day period must be reckoned from the date the protest was filed. The60-day period shall not be added to the computation of the 180-days because in case the taxpayer fails to submitrelevant supporting documents, the assessment becomes final. The 180 day period, therefore, commenced to run fromthe date protest was filed. Failure on the part of ABN-AMRO to file a Petition for Review with the CTA within 30-daysfrom the lapse of 180-day period reckoned from the date the protest was filed, renders the assessment final, executoryand demandable.

The case at bar, reveals that ABN-AMRO filed its letter of protest on January 28, 2004, it has 60-days until March 28,2004 within which to submit the relevant supporting documents. Records of the case, is bereft of proof that ABN-AMROhad submitted the relevant documents on or before March 28, 2004. The 180-day period shall be reckoned from thefiling of the protest on January 28, 2004 which ends on July 26, 2004.

CIR v. JOSE CONCEPCIONMAR. 15, 1968 GR. L-23912

Where a taxpayer seeking a refund of estate and inheritance taxes whose request is denied and whose appeal to theCTA was dismissed for being filed out of time, sues anew to recover such taxes already paid under protest, his action isdevoid of merit. For in the same way that the expedient of an appeal from a denial of a tax request for cancellation ofwarrant of distraint and levy cannot be utilized to test the legality of an assessment which is Sec. 360 of the Tax Codenot available to revive the right to contest the validity of an assessment which had become final for failure to appealthe same on time.

B. COMMISSIONER OF INTERNAL REVENUE RENDERS DECISION ON DISPUTED ASSESSMENT

1) PERIOD TO DECIDESEC. 228 OF NIRC

OCEANIC WIRELESS NETWORK, INC. v. CIR, CTA, & CADEC. 09, 2005 GR. 148380

The general rule is that the CIR Commissioner may delegate any power vested upon him by law to Division Chiefs or toofficials of higher rank. He cannot, however, delegate the four powers granted to him under Sec. 7 of NIRC.

Sec. 7. Authority of the Commissioner to Delegate Power The Commissioner may delegate the power vested in himunder the pertinent provisions of this Code to any or such subordinate officials with the rank equivalent to a divisionchief or higher, subject to such limitations and restrictions as may be imposed under rules and regulations to bepromulgated by the Secretary of Finance, upon recommendation of the Commissioner. Provided, however, that thefollowing powers of the Commissioner shall not be delegated:

a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance;

b) The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the Bureau;

c) The power to compromise or abate;

d) The power to assign or reassign internal revenue officers to establishment where articles subject to excise taxare produce and kept.

The authority to make tax assessments may be delegated to subordinate officers. Said assessment has the same forceand effect as that issued by the Commissioner himself, if not reviewed or revised by the latter such as in the case.

C. REMEDY OF TAXPAYER

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SEC. 3.5.1, RR 12-99SEC. 228 OF NIRCRA 9282, as amended by RA 9503RR OF CTA, AM 05-11-07-CTA

1) CIR FAILS TO ACT ON PROTEST WITHIN 180 DAYS FROM SUBMISSION OF RELEVANTDOCUMENTS

LASCONA LAND CO., INC. v. CIR, & NORBERTO ODULIO

JAN. 04, 2000 CTA 5777

Lascona argues that its failure to appeal to the CTA within 30 days from the lapse of the 180-day period did not makethe assessment final and executory simply because CIR did not act upon the protest within the 180-day period. In sucha situation, Lascona contends that it had the option to appeal to the CTA or to continue with the proceedings on itsprotest in the administrative level. Once a decision is rendered by the Commissioner on the protest, the 30-day periodto appeal from receipt of the decision is mandatory.

In case of inaction, Sec. 228 of the Tax Code merely gave the taxpayer an option: first, he may appeal to the CTAwithin 30 days from the lapse of the 180-day period; or second, he may wait until the Commissioner decides on hisprotest before he elevates his case. The court believes that the taxpayer was given this option so that in case hisprotest is not acted upon within the 180-day period, he may be able to seek immediate relief and need not wait for anindefinite period of time for the Commissioner to decide. But if he chooses to wait for a positive action on the part ofthe Commissioner, then the same could not result in the assessment becoming final, executory and demandable.

RIZAL COMMERCIAL BANKING CORPORATION (RCBC) v. CIRJUNE 16, 2006 GR. 168498

As provided in Sec. 228, the failure of a taxpayer to appeal from an assessment on time rendered the assessmentfinal, executory and demandable. Consequently, RCBC is precluded from disputing the correctness of the assessmentWhile the right to appeal a decision o the Commissioner to the CTA is merely a statutory remedy, nevertheless therequirement that it must be brought within 30 days is jurisdictional. If a statutory remedy provides as a conditionprecedent that the action to enforce it must be commenced within a prescribed time, such requirement is jurisdictionaand failure to comply therewith may be raised in a MTD.

2) APPEAL TO THE CTA EN BANC, SC

REPUBLIC OF THE PHILIPPINES v. LIM TIAN SONS & CO., INC.

MAR. 31, 1966 GR. L-21731

Nowhere in the Tax Code is the CIR required to rule first on a taxpayer's request for reinvestigation before he can go tocourt for the purpose of collecting the tax assessed. On the contrary, Sec. 305 withholds from all courts, except theCTA the authority to restrain the collection of any national internal-revenue tax, free or charge, thereby indicating thelegislative policy to allow the CIR much latitude in the speedy and prompt collection of taxes.

Before the creation of the CTA the remedy of a taxpayer who desired to contest an assessment issued by the CIR wasto pay the tax and bring an action in the ordinary courts for its recovery pursuant to Sec. 306 of the Tax CodeCollection or payment of the tax was not made to wait until after the CIR has resolved all issues raised by thetaxpayer against an assessment. RA 1125 creating the CTA allows the taxpayer to dispute the correctness of legality ofan assessment both in the purely administrative level and in said court, but it does not stop or prohibit the CIR fromcollecting the tax through any of the means provided in Sec. 316 of the Tax Code, except when enjoined by CTA.

ADVERTISING ASSOCIATES, INC. v. CA, & CIRDEC. 26, 1984 GR. L-59758

Acting Commissioner Plana wrote a letter in an answer to the request of the taxpayer for the cancellation of theassessments and the withdrawal of the warrants of distraint. He justified the assessments by stating that the rentalincome of Advertising Associates from the billboards and neon signs constituted fees or compensation for itsadvertising services. He requested the taxpayer to pay the deficiency taxes with 10-days from receipt of the demandotherwise, the Bureau would enforce the warrants of distraint. In his demand letter, he states that:

This constitutes our final decision on the matter. If you are not agreeable, you may appeal to the CTA within 30 daysfrom receipt of this letter.

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No amount of quibbling or sophistry can blink the fact that said letter, as its tenor shows, embodies theCommissioner's final decision within the meaning of Sec. 7 RA 1125. The Commissioner said so. He even directed thetaxpayer to appeal it to the Tax Court. The directive is in consonance with this Court's dictum that the Commissionershould always indicate to the taxpayer in clear and unequivocal language what constitute his final determination of thedisputed assessment. That procedure is demanded by the pressing need for fair play, regularity and orderliness inadministrative action.

CIR v. ALGUE, INC., & CTAFEB. 17, 1988 GR. L-28896

The record shows that on January 14, 1965, Algue received a letter from CIR assessing it for delinquency income taxesfor 1958 and 1959. Four days thereafter, Algue filed a letter of protest or request for reconsideration which letter wasstamp-received on the same day in the office of the CIR. On March 12, 1965, a warrant of distraint and levy waspresented to Algue who refused to receive it on the ground of the pending protest. A photocopy was given to the BIRagent, who deferred service of the warrant. On April 7, 1965, Algue was finally informed that the BIR was not takingany action on the protest and it was only then that he accepted the warrant of distraint and levy. 16 days later, Alguefiled a petition for review on the decision of the CIR with the CTA.

The forgoing circumstances show that the petition was filed seasonably. RA 1125 states that the appeal may be madewithin 30 days after receipt of the decision or ruling challenged.

It is true that as a rule the warrant of distraint and levy is proof of the finality of the assessment and rendershopeless a request for reconsideration, being tantamount to an outright denial thereof and makes the said request

deemed rejected. But there is a special circumstance in the case at bar that prevents application of this accepteddoctrine. The proven fact is that 4 days after Algue received the notice of assessment; it filed its letter of protest. Thiswas apparently not taken into account before the warrant of distraint and levy was issued; indeed, such protest couldnot be located in the office of CIR. It was only after Atty. Guevara gave the BIR a copy of the protest that it was, if atall, considered by the tax authorities. During the intervening period, the warrant was premature and could thereforenot be served.

ELPIDIO YABES & SEVERINO YABES v. HON. NAPOLEON FLOJOJULY 20, 1982 GR. L-46954

There is no reason for the Court to disagree from or reverse the CTAs conclusion that under the circumstances of thecase, what may be considered as final decision or assessment of the Commissioner is the filing of the complaint forcollection in the CFI. The summons of which was served on Yabes on January 20, 1971, and that therefore the appealwith the CTA was filed on time.

The dismissal of the complaint is not sufficient. The ends of justice would best be served by considering the complaintfiled in the Civil case not only as a final notice of assessment but also as a counterclaim in the CTA case, in order toavoid multiplicity of suits, as well as to expedite the settlement of the controversy between the parties. The 2 caseinvolves the same parties, the same subject matter and the same issue, which is the liability of the heirs of Yabes forcommercial brokers fixed and percentage taxes due from Yabes. Wherefore, the petition is granted and the writsprayed for are issued. The question orders are annulled and set aside and the complaint in the Civil case should bedismissed, the same to be transferred to the CTA to be considered therein as a counterclaim in the CTA case. The TROis made permanent.

CIR v. UNION SHIPPING CORPORATION, & CTAMAY 21, 1990 GR. 66160

There appears to be no dispute that CIR did not rule on Union Shippings motion for reconsideration but contrary to theruling of the Court, left Union Shipping in the dark as to which action of the Commissioner is the decision appealable toCTA. Had he categorically stated that he denies Union Shippings motion for reconsideration and that his actionconstitutes his final determination of the disputed assessment, Union Shipping without needless difficulty would havebeen able to determine when his right to appeal accrues and the resulting confusion would have been avoided.

Under the circumstances, CIR, not having clearly signified his final action on the disputed assessment, legally theperiod to appeal has not commenced to run. Thus, it was only when Union Shipping received the summons on the civisuit for collection of deficiency income on December 1978 that the period to appeal commenced to run.

The request for reinvestigation and reconsideration was in effect considered denied by CIR when the latter filed a civisuit for collection of deficiency income. So that when Union Shipping filed an appeal with the CTA, it consumed a totaof only 13 days, well within the 30 day period to appeal.

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CIR v. ISABELA CULTURAL CORPORATIONJULY 11, 2001 GR. 135210

The Final Notice Before Seizure cannot but be considered as the Commissioners decision disposing of the request forreconsideration filed by Isabela, who received no other response to its request. Not only was the Notice the onlyresponse received; its content and tenor supported the theory that it was the CIRs final act regarding the request forreconsideration. The very title expressly indicated that it was a final notice prior to seizure of property. The letter itselfclearly stated that Isabela was being given this Last Opportunity to pay; otherwise, its properties would be subjectedto distraint and levy.

Sec. 228 of NIRC states that a delinquent taxpayer may nevertheless directly appeal a disputed assessment, if itsrequest for reconsideration remains unacted upon 180 days after submission thereof. In this case, the period of 180days had already lapsed when Isabela filed its request for reconsideration on March 1990, without any action on thepart of the CIR.

Jurisprudence dictates that a final demand letter for payment of delinquent taxes may be considered a decision on adisputed or protested assessment.

D. NON-RETROACTIVITY OF RULINGSSEC. 246 OF NIRC

1) REVIEW, APPEAL TO SECRETARY OF FINANCESEC. 4 OF NIRC

CIR v. PHILIPPINE HEALTH CARE PROVIDERS INC.APR. 24, 2007 GR. 168129

Sec. 246 of the 1997 Tax Code, as amended provides that rulings, circulars, rules and regulations promulgated by theCIR Commissioner have no retroactive application if to apply them would prejudice the taxpayer. The exceptions to thisrule are:

Where the taxpayer deliberately misstates or omits material facts from his return or in any document required of himby the BIR;Where the facts subsequently gathered by the BIR are materially different from the facts on which the ruling is based;Where the taxpayer acted in bad faith.

Philhealths failure to describe itself as a health maintenance organization which is subject to VAT, is not tantamountto bad faith. It is apparent that when VAT Ruling was issued in Philhealths favor, the term health maintenance

organization was yet unknown or had no significance for taxation purposes.

Under Sec. 246, the CIR Commissioner is precluded from adopting a position contrary to one previously taken whereinjustice would result to the taxpayer. Hence, where an assessment for deficiency withholding income taxes was made,3 years after a new BIR Circular reversed a previous one, upon which the taxpayer had relied upon; such anassessment was prejudicial to the taxpayer. The rule, otherwise, opined the Court, would be contrary to the tenets ofgood faith, equity and fair play. The rule is that the BIR rulings have no retroactive effect where a grossly unfair dealwould result to the prejudice of the taxpayer, as in this case.

PHILIPPINE BANK OF COMMUNICATIONS (PBCOM) v. CIR, CTA, & CAJAN. 28, 1999 GR. 112024

The rule states that the taxpayer may file a claim for refund or credit with the BIR Commissioner, within 2 years afterpayment of tax, before any suit in CTA is commenced. The 2-year prescriptive period provided, should be computedfrom the time of filing the Adjustment Return and final payment of the tax for the year. When the Acting Commissionerissued RMC 7-85, changing the prescriptive period of 2 years to 10 years on claims of excess quarterly income taxpayments, such circular created a clear inconsistency with the provision of Sec. 230 of NIRC. The BIR did not simplyinterpret the law; rather it legislated guidelines contrary to the statute passed by the Congress.

The Revenue Memorandum circulars are considered administrative rulings which are issued from time to time by theBIR Commissioner. The interpretation placed upon a statute by the executive officers, whose duty is to enforce it, isentitled to great respect by the courts. Nevertheless, such interpretation is not conclusive and will be ignored if judicially found to be erroneous. Courts will not countenance administrative issuances that override, instead oremaining consistent and in harmony with, the law they seek to apply and implement.

III. JURISDICTION OF CTA

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RA 9282, as amended by RA 9503RR OF CTA, AM 05-11-07-CTA

1) WHY WAS CTA CREATED?

PHILIPPINE REFINING COMPANY (UNILEVER PHILS., INC.) v. CA, CTA, & CIRMAY 08, 1996 GR. 118794

The contentions of PRC that nobody is in a better position to determine when an obligation becomes a bad debt that

the creditor itself, and that its judgment should not be substituted by that of CTA as it is the PRC which has thefacilities in ascertaining the collectability or un-collectability of these debts, are presumptuous and uncalled for. TheCTA is a highly specialized body specifically created for the purpose of reviewing tax cases. Through its expertise, it isundeniably competent to determine the issue of whether or not the debt is deductible through the evidence presentedbefore it. Because of this recognizable expertise, the finding of the CTA will not ordinarily be reviewed absent ashowing of gross error or abuse on its part. The findings of fact of the CTA are binding on the SC and in the absence ofstrong reason for the SC to delve into facts, only questions of law are open for determination.

IV. REMEDIES AVAILABLE TO GOVERNMENT

A. ADMINISTRATIVE REMEDIES, SUMMARY REMEDIES

1) TAX LIENSEC. 219 OF NIRC

REPUBLIC v. RAMON ENRIQUEZOCT. 21, 1988 GR. L- 78391

It is settled that the claim of the government predicated on a tax lien is superior to the claim of a private litigant on ajudgment. The tax lien attaches not only from the service of the warrant of distraint of personal property but from thetime the tax become due and payable.

CIR v. NLRCNOV. 09, 1994 GR. 74965

It is settled that the claim of the government predicated on a tax lien is superior to the claim of a private litigantpredicated on a judgment. The tax lien attaches not only from the service of the warrant of distraint of personalproperty but from the time the tax became due and payable. Besides, the distraint on the subject properties ofMaritime Company of the Philippines as well as the notice of their seizure were made by CIR, through the

Commissioner, long before the writ of execution was issued by the RTC. There is no question then that at the time thewrit of execution was issued, the 2 barges were no longer properties of the Maritime Company of the Philippines. Thepower of the court in execution of judgments extends only to the properties unquestionably belonging to the judgmentdebtor.

Art. 110 of the Labour Code do not purport to create a lien in favour of workers or employees for unpaid wages eitherupon all of the properties or upon any particular property owned by their employer. Claims for unpaid wages do not falat all time within the category of specially preferred claims established under Art. 2241 and Art. 2242 of the CC, exceptto the extent that such claims for unpaid wages are already covered by Art. 2241(6): claims for labourers wages, onthe goods manufactured or the work done; or by Art. 2242(3): claims of labourers and other workers engaged in theconstruction, reconstruction or repair of buildings, canals and other works, upon said buildings, canals and otheworks. To the extent that claims for unpaid wages fall outside the scope of Art. 2241(6) and Art. 2242(3), they wouldcome within the ambit of the category of ordinary preferred credits under Art. 2244.

Art. 110 of the Labour Code applies only in case of bankruptcy or judicial liquidation of an employers business, hisworkers shall enjoy first preference as regards wages due them for services rendered during the period prior to thebankruptcy or liquidation, any provision of law to the contrary notwithstanding. Unpaid wages shall be paid in fulbefore other creditors may establish any claims to a share in the assets of the employer.

THE HONGKONG & SHANGHAI BANKING CORP. (HSBC) v. JAMES REFFERTYNOV. 15, 1918 GR. 13188

A lien in its modern acceptation is understood to denote a legal claim or charge on property, either real or personal, assecurity for the payment of some debt or obligation. The tax lien does not establish itself upon property which has

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been transferred to innocent purchasers prior to demand. In order that a lien may follow the property into the hands ofa third party; it is further essential that the latter should have notice, either actual or constructive.

B. JUDICIAL REMEDIESSEC. 205SEC. 220-221, OF NIRC

MAMBULAO LUMBER COMPANY v. REPUBLIC OF THE PHILIPPINESSEP. 05, 1984 GR. L-37061

The taxpayers defenses are similar to those of the Republic in a case for the enforcement of a judgement by judicialaction under Sec. 6 of Rule 39 of Rules of Court. No inquiry can be made therein as to the merits of the original case orthe justness of the judgement relied upon, other than by evidence of want of jurisdiction, of collusion between theparties, or of fraud in the party offering the record with respect to the proceedings. The taxpayer may raise only thequestion whether or not the Collector of Internal Revenue had jurisdiction to do the particular act, and whether anyfraud was committed in the doing of that act.

FERNANDEZ HERMANOS, INC. v. CIR, & CTASEP. 30, 1969 GR. L-21551

A judicial action for the collection of a tax begins by the filing of a complaint with the proper court of first instance orwhere the assessment is appealed to the CTA, by filing an answer to the taxpayers petition for review whereinpayment of the tax is prayed for. This is but logical for where the taxpayer avails of the right to appeal the tax

assessment to the CTA, the said Court is vested with the authority to pronounce judgment as to the taxpayers liabilityto the exclusion of any other court.

The capital investment method is not a method of depletion, but the Tax Code provision, prior to its amendment bySec. 1 of RA 3698, expressly provided that when the allowances shall equal the capital invested no further allowancesshall be made; in other words, the capital investment was but the limitation of the amount of depletion that could beclaimed. The outright deduction by the taxpayer of 1/5 of the cost of the mines, as if it were a straight line rate ofdepreciation is not authorized by the Tax Code.

V. STATUTORY OFFENSES AND PENALTIESA. CIVIL PENALTIES, SURCHARGES, INTEREST

SEC. 247-251 OF NIRCRR 12-99

1) RULES ON INTEREST

BANK OF THE PHILIPPINE ISLAND (BPI) v. CIRJUL. 27, 2006 GR. 137002

In the case of PRC v. CA, the SC ruled that even if an assessment was later reduced by the courts, a delinquencyinterest should still be imposed from the time demand was made by the CIR. As correctly pointed out by the SolicitorGeneral, the deficiency tax assessment, which was the subject of the demand letter of the Commissioner, should havebeen paid within 30 days from receipt thereof. By reason of PRC's default thereon, the delinquency penalties of 25%surcharge and interest of 20% accrued from April 11, 1989. The fact that PRC appealed the assessment to the CTA andthat the same was modified does not relieve PRC of the penalties incident to delinquency. The reduced amount ofP237,381.25 is but a part of the original assessment of P1,892,584.00.

The legal provision makes no distinctions nor does it establish exceptions. It directs the collection of the surchargeand interest at the stated rate upon any sum/s due and unpaid after the dates prescribed in subsections (b), (c), and(d) of the Act for the payment of the amounts due. The provision therefore is mandatory in case of delinquency. This isjustified because the intention of the law is precisely to discourage delay in the payment of taxes due to the State and,in this sense, the surcharge and interest charged are not penal but compensatory in nature they are compensation tothe State for the delay in payment, or for the concomitant use of the funds by the taxpayer beyond the date he issupposed to have paid them to the State.

In Ross v. U.S., When the U.S. SC ruled that it was only equitable for the government to collect interest from a taxpayerwho, by the government's error, received a refund which was not due him. Even though the taxpayer did not requestthe refund made to him, and the situation is entirely due to an error on the part of the government, taxpayer and notthe government has had the use of the money during the period involved and it is not unjustly penalizing taxpayer torequire him to pay compensation for this use of money.

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Based on established doctrine, these charges incident to delinquency are compensatory in nature and are imposed forthe taxpayers' use of the funds at the time when the State should have control of said funds. Collecting such chargesis mandatory. Therefore, the Decision of the CA imposing a 20% delinquency interest over the assessment reduced bythe CTA was justified and in accordance with Sec. 249(c)(3) of NIRC.

2) SURCHARGE: 25% OR 50%SEC. 248 OF NIRC

a) MANDATORY IMPOSITION OF PENALTIES

PHILIPPINE REFINING COMPANY (UNILEVER PHILS., INC.) v. CA, CTA, & CIRMAY 08, 1996 GR. 118794

Tax laws imposing penalties for delinquencies, are intended to hasten tax payments by punishing evasions or neglecof duty in respect thereof. If penalties could be condoned for flimsy reasons, the law imposing penalties fodelinquencies would be rendered nugatory, and the maintenance of the Government and its multifarious activities wilbe adversely affected. The intention of the law is to discourage delay in the payment of taxes due the Governmentand, the penalty and interest are not penal but compensatory for the concomitant use of the funds by the taxpayerbeyond the date when he is supposed to have paid them to the Government. Unquestionably, PRC chose to turn a deafear to these injunctions.

CIR v. AIR INDIA, & CTAJAN. 29, 1998 GR. 72443

The 50% surcharge or fraud penalty provided in Sec. 72 of the NIRC is imposed on a delinquent taxpayer who willfullyneglects to file the required tax return within the period prescribed by the law, or who willfully files a false orfraudulent tax return. On the other hand, if the failure to file the required tax return is not due to willful neglect, apenalty of 25% is to be added to the amount of the tax due from the taxpayer.

The SC is not convinced that Air India can be considered to have willfully neglected to file the required tax returnthereby warranting the imposition of the 50% fraud penalty provided in Sec. 72. At the most, there is the barren claimthat such failure was fraudulent in character, without any evidence or justification for the same. The willful neglect tofile the required tax return or the fraudulent intent to evade the payment of taxes, considering that the same isaccompanied by legal consequences, cannot be presumed.

In the case of Aznar v. CA. The lower court's conclusion regarding the existence of fraudulent intent to evade paymentof taxes was based merely on a presumption and not on evidence establishing a willful filing of false and fraudulentreturns so as to warrant the imposition of the fraud penalty. The fraud contemplated by law is actual and no

constructive. It must be intentional fraud, consisting of deception willfully and deliberately done or resorted to in orderto induce another to give up some legal right. Negligence, whether slight or gross, is not equivalent to the fraud withintent to give up some legal right or to evade the tax contemplated by the law. It must amount to intentionalwrongdoing with the sole object of avoiding the tax. It necessarily follows that a mere mistake cannot be considered asfraudulent intent, and if both Aznar and the CIR committed mistakes in making entries in the returns and in theassessment, respectively, under the inventory method of determining tax liability, it would be unfair to treat themistakes of Aznar as tainted with fraud and those of the CIR as made in good faith.

There being no cogent basis to find willful neglect to file the required tax return on the part of Air India, the 50%surcharge or fraud penalty imposed upon it is improper. Nonetheless, such failure subjects Air India to a 25% penaltypursuant to Section 72 of NIRC. P74,203.90 constitutes the tax deficiency of Air India. 25% of this amount isP37,101.95.

MICHEL J. LHUILLIER PAWNSHOP, INC. v. CIRSEP. 11, 2006 GR. 166786

Documentary Stamp Tax (DST) is essentially an excise tax; it is not an imposition on the document itself but on theprivilege to enter into a taxable transaction of pledge. Sec. 195 of NIRC imposes a DST on every pledge regardless ofwhether the same is a conventional pledge governed by the Civil Code or one that is governed by the provision of PD114. All pledges are subject to DST, unless there is a law exempting them in clear and categorical language. Thisexplains why the Legislature did not see the need to explicitly impose a DST on pledges entered into by pawnshops.These pledges are already covered by Sec. 195 and to create a separate provision especially for them would besuperfluous.

It is the exercise of the privilege to enter into an accessory contract of pledge, as distinguished from contract of loan,which give rise to the obligation to pay DST. If the DST under Sec. 195 is levied on the loan or the exercise of the

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privilege to contract a loan, then there would be no use for Sec. 179 of the NIRC, to separately impose stamp tax on aldebt instruments, like a simple loan agreement. It is for this reason why the definition of pawnshop ticket, as not anevidence of indebtedness, is inconsequential to and has no bearing on the taxability of contracts of pledge enteredinto by pawnshops. For purposes of Sec. 195, pawnshop tickets need not be an evidence of indebtedness nor a debtinstrument because it taxes the same as a pledge instrument. Neither should the definition of pawnshop ticket, as nota security, exempt it from the imposition f DST. It was correctly defined as such because the ticket itself is not thesecurity but the pawn or the personal property pledge to the pawnbroker.

b) RULE ON PRIMA FACIE FRAUD

SEC. 248(B) OF NIRC

JOSE AZNAR v. CTA, & CIRAUG. 23, 1974 GR. L-20569

The lower courts conclusion regarding the existence of fraudulent intent to evade payment of taxes was based merelyon a presumption and not on evidence establishing a wilful filing of false and fraudulent returns as to warrant theimposition of the fraud penalty. The fraud contemplated by law is actual and not constructive. It must be intentionafraud, consisting of deception wilfully and deliberately done or resorted to in order to induce another to give up somelegal right. Negligence, whether slight or gross, is not equivalent to the fraud with intent to evade the taxcontemplated by law. It must amount to intentional wrong-doing with the sole object of avoiding the tax.

CIR v. MELCHOR JAVIER JR., & CTA

JULY 31, 1991 GR. 78953

Fraud is never imputed and the courts never sustain findings of fraud upon circumstances which, at most, create onlysuspicion and the mere understatement of a tax is not itself proof of fraud for the purpose of tax evasion.

In the case at bar, there was no actual and intentional fraud through wilful and deliberate misleading of thegovernment agency concerned, the BIR, headed by CIR. The government was not induced to give up some legal rightand place itself at a disadvantage so as to prevent its lawful agents from proper assessment of tax liabilities becauseJavier did not conceal anything. Error or mistake of law is not fraud. The CIRs zealousness to collect taxes from theunearned windfall to Javier is highly commendable. Unfortunately, the imposition of the fraud penalty in this case isnot justified by the extant facts.

B. CRIMES, OFFENSES, PENALTIES, FORFEITURESSEC. 220-221, 224-226 OF NIRCSEC. 253-281 OF NIRC

RMC 101-90

1) PRECONDITIONED BEFORE A CRIMINAL CASE MAY BE FILED

REPUBLIC OF THE PHILIPPINES v. SALUD HIZONDEC. 31, 1999 GR. 130430

Sec. 221 of NIRC provides:

Form and mode of proceeding in actions arising under this Code. Civil and criminal actions andproceedings instituted in behalf of the Government under the authority of this Code or other lawenforced by the BIR shall be brought in the name of the Government of the Philippines and shall beconducted by the provincial or city fiscal, or the Solicitor General, or by the legal officers of the BIRdeputized by the Secretary of Justice, but no civil and criminal actions for the recovery of taxes or theenforcement of any fine, penalty or forfeiture under this Code shall begun without the approval of theCommissioner.

To implement this provision RAO 5-83 of the BIR provides in pertinent portions:

The following civil and criminal cases are to be handled by Special Attorneys and Special Counsels assigned in theLegal Branches of Revenues Regions:

xxx xxx xxxII. Civil Cases1. Complaints for collection on cases falling within the jurisdiction of the Region . . . .

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In all the above mentioned cases, the Regional Director is authorized to sign all pleadings filed inconnection therewith which, otherwise, requires the signature of the Commissioner.xxx xxx xxx

RAO 10-95 specifically authorizes the Litigation and Prosecution Section of the Legal Division of RDO to institute thenecessary civil and criminal actions for tax collection. As the complaint filed in this case was signed by the BIR's Chiefof Legal Division for Region 4 and verified by the Regional Director, there was, therefore, compliance with the law.

However, the lower court refused to recognize RAO 10-95 and, by implication, RAO 5-83. It held:

Memoranda, circulars and orders emanating from bureaus and agencies whether in the purely public orquasi-public corporations are mere guidelines for the internal functioning of the said offices. They arenot laws which courts can take judicial notice of. As such, they have no binding effect upon the courtsfor such memoranda and circulars are not the official acts of the legislative, executive and judicialdepartments of the Philippines. . . .

This is erroneous. The rule is that as long as administrative issuances relate solely to carrying into effect the provisionsof the law, they are valid and have the force of law. The governing statutory provision in this case is Sec. 4(d) of theNIRC which provides:

Specific provisions to be contained in regulations. The regulations of the BIR shall, among otherthings, contain provisions specifying, prescribing, or defining:xxx xxx xxx

(d) The conditions to be observed by revenue officers, provincial fiscals and other officials respectingthe institution and conduct of legal actions and proceedings.

RAO 5-83 and 10-95 are in harmony with this statutory mandate.

As amended by R.A. 8424, the NIRC is now even more categorical. Sec. 7 of the present Code authorizes the BIRCommissioner to delegate the powers vested in him under the pertinent provisions of the Code to any subordinateofficial with the rank equivalent to a division chief or higher, except the following:

a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance;

b) The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the Bureau;

c) The power to compromise or abate under Sec. 204 (A) and (B) of this Code, any tax deficiency: Providedhowever, that assessment issued by the Regional Offices involving basic deficiency taxes of five hundred

thousand pesos (P500,000.00) or less, and minor criminal violations as may be determined by rules andregulations to be promulgated by the Secretary of Finance, upon the recommendation of the Commissionerdiscovered by regional and district officials, may be compromised by a regional evaluation board which shallbe composed of the Regional Director as Chairman, the Assistant Regional Director, heads of the LegalAssessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer, asmembers; and

d) The power to assign or reassign internal revenue officers to establishments where articles subject to excise taxare produced or kept.

None of the exceptions relates to the Commissioner's power to approve the filing of tax collection cases.

QUIRICO UNGAB v. HON. VICENTE CUSI, CIR COMMISSIONER, & JESUS ACEBESMAY 30, 1980 GR. L-41919-24

What is involved is not the collection of taxes where the assessment of the CIR Commissioner may be reviewed byCTA, but a criminal prosecution for violations of NIRC which is within the recognizance of CFI. While there can be nocivil action to enforce collection before the assessment procedures provided in the Code have been followed, there isno requirement for the precise computation and assessment of the tax before there can be a criminal prosecutionunder the Code.

It has been ruled that a petition for reconsideration of an assessment ay affect the suspension of the prescriptiveperiod for the collection of taxes, but not the prescriptive period of a criminal action for violation of law. The protest ofUngab against the assessment of the District Revenue Officer cannot stop his prosecution for violation of NIRCAccordingly, Judge Cusi did not abuse his discretion in denying the motion to quash filed by Ungab.

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CIR v. CA, FORTUNE TOBACCO CORP., & LUCIO TANJUNE 04, 1996 GR. 119322

In every step in the production of cigarettes was closely monitored and supervised by the BIR personnel specifically

assigned to Fortunes premises, and considering that the Manufacturers Sworn Declarations on the data required to besubmitted by the manufacturer were scrutinized and verified by the BIR, and since the manufacturers wholesale pricewas duly approved by the BIR, then it is presumed that such registered wholesale price is the same as, oapproximates the price, excluding the VAT, at which the goods are sold at wholesale in the place of production,otherwise, the BIR would not have approved the registered wholesale price of the goods for purposes of imposing thead valorem tax due. In such case, and in the absence of contrary evidence, it was precipitate and premature toconclude that Fortune made fraudulent returns or wilfully attempted to evade payment of taxes due.

If there was fraud or wilful attempt to evade payment of ad valorem taxes by Fortune through the manipulation of theregistered wholesale price of the cigarettes, it must have been with the connivance or cooperation of certain BIRofficials and employees who supervised and monitored Fortunes production activities to see to it that the correct taxeswere paid. But there is no allegation, much less evidence of BIR personnels malfeasance. There is the presumptionthat the BIR personnel performed their duties in the regular course in ensuing that the correct taxes were paid byFortune.

The SC share the same view of both the trial court and CA that before the tax liabilities of Fortune are first finallydetermined, it cannot be correctly asserted that Fortune have wilfully attempted to evade or defeat the taxes soughtto be collected from Fortune. Before one is prosecuted for wilful attempt to evade or defeat any tax under Sec. 253and Sec. 255 of the Tax Code, the fact that a tax is due must first be proved.

DISTINGUISHED FROM UNGAB v. CUSI

The pronouncement therein that deficiency assessment is not necessary prior to prosecution is pointed anddeliberately qualified by the Court. The crime is complete when the violator has knowingly and wilfully filed afraudulent return with the intent to evade and defeat a part or all of the tax. For criminal prosecution to proceedbefore assessment there must be a prima facie showing of a wilful attempt to evade taxes. There was a wilful attemptto evade taxes because of the taxpayers failure to declare in his ITR his income derived from banana saplings. In themind of the trial court and CA, Fortunes situation is quite apart factually since the registered wholesale price of thegoods, 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 beplaced in the crucible f criminal prosecution. Herein lies a WHALE of difference between Ungab and Fortune.

CIR v. PASCOR REALTY AND DEVELOPMENT CORPORATIONJUNE 29, 1999 GR. 128315

Pascor maintain that the filing of a criminal complaint must be preceded by an assessment. This is incorrect, becauseSec. 222 of NIRC specifically states that in cases where false or fraudulent return is submitted or in case of failure tofile a return such as in this case, proceedings in court may be commenced without an assessment. Sec. 205 clearlymandates that the civil and criminal aspects of the case may be pursued simultaneously. In Ungab v. Cusi, Ungabsought the dismissal of the criminal complaints for being premature since his protest to the CTA had not yet beenresolved. The Court held that such protests could not stop or suspend the criminal action which was independent ofthe resolution of the protest in the CTA. This was because the CIR Commissioner had, in such tax evasion casesdiscretion on whether to issue an assessment or to file a criminal case against the taxpayer or to do both.

Pascor insist that Sec. 222 should be read in relation to Sec. 255 of NIRC, which penalizes failure to file a return. Pascoradd that a tax assessment should precede a criminal indictment. The SC disagrees. Sec. 222 states that anassessment is not necessary before a criminal charge can be filed. This is the general rule. Pascor failed to show thatthey are entitled to an exception. The criminal charge need only be supported by a prima facie showing of failure tofile a required return. This fact need not be proven by an assessment.

The issuance of an assessment must be distinguished from the filing of a complaint. Before an assessment is issuedthere is a PAN sent to the taxpayer. The taxpayer is then given a chance to submit position papers and documents toprove that the assessment is unwarranted. If the Commissioner is unsatisfied, an assessment signed by him is thensent to the taxpayer informing the latter specifically and clearly that an assessment has been made against him. Incontrast, the criminal charge need not go through all these. The criminal charge is filed directly with the DOJ

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Thereafter, the taxpayer is notified that a criminal case had been filed against him, not that the Commissioner hasissued an assessment. It must be stressed that a criminal complaint is institute not to demand payment, but topenalize the taxpayer for violation of the Tax Code.

2) COMPROMISE PENALTYRMO 19-07

CIR v. LIANGA BAY LOGGING CO., INC., & CTAJAN. 21, 1991 GR. 35266

Sec. 11 of Regulations No. 85 applies, as the CTA points out, to a forest concessionaire who is the holder of anordinary license;but there are separate provisions on invoicing and payment of forest charges in the case of ownersor operators of sawmills who are forest concessionaire, like Lianga. For purposes of said regulations, sawmills areclassified into Class A, B, C and D. The Tax Courts finding on the basis of the evidence is that Lianga is a Class Csawmill. The record does indeed establish its character as such: in accordance with said regulation, forest officers havebeen permanently assigned to its concession for the purpose of scaling all logs felled and it has posted a bond toguarantee the payment of the forest charges that may be due from it. It is not therefore required by the regulation toaccomplish and submit auxiliary invoices required only of Class A sawmills, i.e., holders of ordinary timber licensesWhat is required in lieu thereof, pursuant to said regulation, are monthly scale reports (BIR Form 14.15) as well as theDaily Trimmer Tally (BIR Form 14.11), and monthly Abstract of Sawmill invoice (BIR Form 14.14). It is noteworthy that

the CIR does not claim and has made no effort whatever to prove that these forms were not accomplished. Thus, asthe Tax Court declares, it is presumed that Lianga has complied with the requirements regarding the keeping and useof the records and documents required of Class C sawmills, among which are the Daily Trimmer Tally and commerciainvoices. In fact, it appears that the forest officers reports and computations were the basis for the payment of forestcharges by Lianga, and the basis, as well of the Commissioners computation of the alleged 25% surcharge. Sec. 267imposing a surcharge of 25% of the regular forest charges if forest products are removed from the forest concessionwithout invoice does not specify the nature of the invoice contemplated. The term is not limited to auxiliary invoicesIt may refer as well to official or commercial invoices such as those prepared by Class C sawmills. This is theinterpretation placed on the term by said regulation themselves, which declare that the 25% surcharge is imposable onForest products transported without official invoice or commercial invoice, as the case requires. And since sawmill orcommercial invoices were in fact prepared by Lianga, no violation of the rule may be imputed to it at all.

3) ELEMENTS OF TAX EVASION

CIR v. THE ESTATE OF BENIGNO TODA, JR.

SEP. 14, 2006 GR. 147188

4) PAYMENT OF TAX IN CRIMINAL CASESSEC. 253(d) OF NIRCSEC. 205 (b)

REPUBLIC v. PEDRO PATANAOJULY 21, 1967 GR. L-22356

Under the Penal Coe, the civil liability is incurred by reason of the offenders criminal act. The criminal liability givesbirth to the civil obligation such that, generally, if one is not criminally liable under the Penal Code, he cannot be civillyliable there under. The situation under the income tax law is the exact opposite. Civil liability to pay taxes arises fromthe fact, for instance, that one has engaged himself in business and not because of any criminal at committed by himThe criminal liability arises upon failure of the debtor to satisfy his civil obligation. The incongruity of the factualpremises and foundation principles of the two cases is one of the reasons for not imposing civil indemnity on thecriminal infractor of the income tax law. Another reason, while Sec. 73 of NIRC has provided for the imposition of thepenalty of imprisonment or fine, or both, for refusal or neglect to pay income tax or to make a return thereof, it doesnot provide the collection of said tax in criminal proceedings.

Since taxpayers civil liability is not included in the criminal action, his acquittal in the criminal proceeding does notnecessarily entail exoneration from his liability to pay the taxes. His legal duty to pay taxes cannot be affected by hisattempt to evade payment. Said obligation is not a consequence of the felonious acts charged in the criminaproceeding nor is it a mere civil liability arising from a crime that could be wiped out by the judicial declaration of nonexistence of the criminal acts charged.

MARIA B. CASTRO v. CIR

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APR. 26, 1962 GR. L-12174

With regard to the tax proper, the state correctly points out in its brief that the acquittal in the criminal case could notoperate to discharge Castro from the duty to pay the tax, since that duty is imposed by statute prior to andindependently of any attempts on the part of the taxpayer to evade payment. The obligation to pay the tax is not amere consequence of the felonious acts charged in the information, nor is it a mere civil liability derived from crimethat would be wiped out by the judicial declaration that the criminal acts charged did not exist.

As to the 50% surcharge, in Coffey v. U.S., the U.S. SC states that additions of this kind to the main tax are not

penalties but civil administrative sanctions, provided primarily as a safeguard for the protection of the state revenueand to reimburse the government for the heavy expense of investigation and the loss resulting from the taxpayer'sfraud. This is made plain by the fact that such surcharges are enforceable, like the primary tax itself, by distraint orcivil suit, and that they are provided in a section of Sec. 5 and Sec. 7, RA 55 that is separate and distinct from thatproviding for criminal prosecution. The SC concludes that the defense of jeopardy and estoppel by reason of Castrosacquittal is untenable and without merit. Whether or not there was fraud committed by the taxpayer justifying theimposition of the surcharge is an issue of fact to be inferred from the evidence and surrounding circumstances; and thefinding of its existence by the Tax Court is conclusive upon the SC.

5) PRESCRIPTION OF VIOLATION OF NIRC

EMILIO S. LIM, SR. & ANTONIA SUN LIM v. CA & PEOPLE OF THE PHILIPPINESOCT. 18, 1990 GR. 48134-37

Relative to Criminal Cases Nos. 1788 and 1789 which involved Lims refusal to pay deficiency income taxes due, againboth parties are in accord that by their nature, the violations as charged could only be committed after service ofnotice and demand for payment of the deficiency taxes upon the taxpayers. Lim maintains that the 5-year period oflimitation under Sec. 354 should be reckoned from April 7, 1965, the date of the original assessment while theGovernment insist that it should be counted from July 3, 1968 when final notice and demand was served on Limsdaughter-in-law. The SC holds for the Government.

Sec. 51 (b) of the Tax Code provides: (b) Assessment and payment of deficiency tax After the return is filed, the BIRCommissioner shall examine it and assess the correct amount of the tax. The tax or deficiency in tax so discoveredshall be paid upon notice and demand from the BIR Commissioner. Inasmuch as the final notice and demand forpayment of the deficiency taxes was served on Lim on July 3, 1968, it was only then that the cause of action on thepart o the BIR accrued. This is so because prior to the receipt of the letter-assessment, no violation has yet beencommitted by the taxpayers. The offense was committed only after receipt was coupled with the wilful refusal to paythe taxes due within the allotted period. The two criminal information, having been filed on June 23, 1970, are welwithin the 5-year prescriptive period and are not time-barred.

VI. CLAIMS FOR REFUND AND CREDIT OF TAXES/ REMEDY AFTER PAYMENT

A. WHO MAY FILE CLAIM FOR REFUND/ TAX CREDIT

1) BASIS OF TAX REFUNDS

CIR v. ACESITE (PHILIPPINES) HOTEL CORPORATIONFEB. 16, 2007 GR. 147295

Tax refunds are based on the principle of quasi-contract or solutio indebeti and the pertinent laws governing thisprinciple are found in Art. 2142 and Art. 2154 of the NCC. When money is paid to another under the influence of amistake of fact, on the mistaken supposition of the existence of a specific fact, where it would not have been knownthat the fact was otherwise, it may be recovered. The ground upon which the right of recovery rests is that money paidthrough misapprehension of facts belon

25631039 part 1 remedies under nirc compiled

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