Taxation Cases 2005

8/13/2019 Taxation Cases 2005

http://slidepdf.com/reader/full/taxation-cases-2005 1/53

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. SEAGATE TECHNOLOGY

(PHILIPPINES, respon!ent. "G.R. No. #$%&''. Fer)*r+ ##, --$.

Business companies registered in and operating from the Special Economic Zone in Naga, Cebu — like

herein respondent — are entities exempt from all internal revenue taxes and the implementing rulesrelevant thereto, including the value-added taxes or !"# !lthough export sales are not deemed exempt

transactions, the$ are nonetheless %ero-rated# &ence, in the present case, the distinction bet'een exemptentities and exempt transactions has little significance, because the net result is that the taxpa$er is not

liable for the !"# (espondent, a !"-registered enterprise, has complied 'ith all re)uisites for claiming

a tax refund of or credit for the input !" it paid on capital goods it purchased# "hus, the Court of "ax

!ppeals and the Court of !ppeals did not err in ruling that it is entitled to such refund or credit#

*acts+

# (espondent. is a resident foreign corporation dul$ registered 'ith the Securities and Exchange

Commission to do business in the /hilippines, 'ith principal office address at the ne' Cebu "o'nship

0ne, Special Economic Zone, Baranga$ Cantao-an, Naga, Cebu1

2# /etitioner. is sued in his official capacit$, having been dul$ appointed and empo'ered to perform

the duties of his office, including, among others, the dut$ to act and approve claims for refund or tax credit1

3# (espondent. is registered 'ith the /hilippine Export Zone !uthorit$ 4/EZ!5 and has been issued

/EZ! Certificate No# 67-899 pursuant to /residential :ecree No# ;;, as amended, to engage in themanufacture of recording components primaril$ used in computers for export# Such registration 'as made

on ; <une 6671

9# (espondent. is !" 4alue !dded "ax5.-registered entit$ as evidenced b$ !" (egistration

Certification No# 67-8=3-888;88- issued on 2 !pril 6671

># !" returns for the period !pril 66= to 38 <une 666 have been filed b$ respondent.1

;# !n administrative claim for refund of !" input taxes in the amount of /2=,3;6,22;#3= 'ith

supporting documents 4inclusive of the /2,2;7,6=#89 !" input taxes sub?ect of this /etition for

(evie'5, 'as filed on 9 0ctober 666 'ith (evenue :istrict 0ffice No# =3, "alisa$ Cebu1

7# No final action has been received b$ respondent. from petitioner. on respondent@s. claim for

!" refund#

A"he administrative claim for refund b$ the respondent. on 0ctober 9, 666 'as not acted upon b$ thepetitioner. prompting the respondent. to elevate the case to the C"!. on <ul$ 2, 2888 b$ 'a$ of /etition

for (evie' in order to toll the running of the t'o-$ear prescriptive period#

A*or his part, petitioner. # # # raised the follo'ing Special and !ffirmative :efenses, to 'it+

# (espondent@s. alleged claim for tax refundcredit is sub?ect to administrative routinar$

investigationexamination b$ petitioner@s. Bureau1

2# Since @taxes are presumed to have been collected in accordance 'ith la's and regulations,@ the

respondent. has the burden of proof that the taxes sought to be refunded 'ere erroneousl$ or illegall$collected # # #1

3# n Citibank, N#!# vs# Court of !ppeals, 2=8 SC(! 9>6 46675, the Supreme Court ruled that+

A! claimant has the burden of proof to establish the factual basis of his or her claim for tax creditrefund#A

9# Claims for tax refundtax credit are construed in @strictissimi ?uris@ against the taxpa$er# "his is due

to the fact that claims for refundcredit partake of. the nature of an exemption from tax# "hus, it is

incumbent upon the respondent. to prove that it is indeed entitled to the refundcredit sought# *ailure onthe part of the respondent. to prove the same is fatal to its claim for tax credit# &e 'ho claims exemption

must be able to ?ustif$ his claim b$ the clearest grant of organic or statutor$ la'# !n exemption from the

common burden cannot be permitted to exist upon vague implications1

># Dranting, 'ithout admitting, that respondent. is a /hilippine Economic Zone !uthorit$ 4/EZ!5

registered Eco%one Enterprise, then its business is not sub?ect to !" pursuant to Section 29 of (epublic

!ct No# 4(!.5 76; in relation to Section 83 of the "ax Code, as amended# !s respondent@s. business is

not sub?ect to !", the capital goods and services it alleged to have purchased are considered not used in!" taxable business# !s such, respondent. is not entitled to refund of input taxes on such capital goods

pursuant to Section 9#8;# of (evenue (egulations No# 4((.57-6>, and of input taxes on services

pursuant to Section 9#83 of said regulations#

;# (espondent. must sho' compliance 'ith the provisions of Section 289 4C5 and 226 of the 667

"ax Code on filing of a 'ritten claim for refund 'ithin t'o 425 $ears from the date of pa$ment of tax#@



A0n <ul$ 6, 288, the "ax Court rendered a decision granting the claim for refund#A

Sole ssue

/etitioner submits this sole issue for our consideration+

Ahether or not respondent is entitled to the refund or issuance of "ax Credit Certificate in the amount of

/2,22,622#;; representing alleged unutili%ed input !" paid on capital goods purchased for the period

!pril , 66= to <une 38, 666#A

"he Court@s (uling

"he /etition is unmeritorious#

Sole ssue+

Entitlement of a !"-(egistered /EZ! Enterprise to a (efund of or Credit for nput !"

No doubt, as a /EZ!-registered enterprise 'ithin a special economic %one, respondent is entitled to thefiscal incentives and benefits = provided for in either /: ;; 6 or E0 22;# 8 t shall, moreover, en?o$ all

privileges, benefits, advantages or exemptions under both (epublic !ct Nos# 4(!5 7227 and 7=99#

/referential "ax "reatment

Fnder Special Ga's

f it avails itself of /: ;;, not'ithstanding the provisions of other la's to the contrar$, respondent shall not

be sub?ect to internal revenue la's and regulations for ra' materials, supplies, articles, e)uipment,

machineries, spare parts and 'ares, except those prohibited b$ la', brought into the %one to be stored,

broken up, repacked, assembled, installed, sorted, cleaned, graded or other'ise processed, manipulated,manufactured, mixed or used directl$ or indirectl$ in such activities# 3 Even so, respondent 'ould en?o$ a

net-operating loss carr$ over1 accelerated depreciation1 foreign exchange and financial assistance1 and

exemption from export taxes, local taxes and licenses#

Comparativel$, the same exemption from internal revenue la's and regulations applies if E0 22; > is

chosen# Fnder this la', respondent shall further be entitled to an income tax holida$1 additional deduction

for labor expense1 simplification of customs procedure1 unrestricted use of consigned e)uipment1 access to

a bonded manufacturing 'arehouse s$stem1 privileges for foreign nationals emplo$ed1 tax credits ondomestic capital e)uipment, as 'ell as for taxes and duties on ra' materials1 and exemption from

contractors@ taxes, 'harfage dues, taxes and duties on imported capital e)uipment and spare parts, export

taxes, duties, imposts and fees, ; local taxes and licenses, and real propert$ taxes#

! privilege available to respondent under the provision in (! 7227 on tax and dut$-free importation of ra'

materials, capital and e)uipment = — is, ipso facto, also accorded to the %one 6 under (! 76;#

*urthermore, the latter la' — not'ithstanding other existing la's, rules and regulations to the contrar$ —

extends to that %one the provision stating that no local or national taxes shall be imposed therein# Noexchange control polic$ shall be applied1 and free markets for foreign exchange, gold, securities and future

shall be allo'ed and maintained# Banking and finance shall also be liberali%ed under minimum BangkoSentral regulation 'ith the establishment of foreign currenc$ depositor$ units of local commercial banks

and offshore banking units of foreign banks#

n the same vein, respondent benefits under (! 7=99 from negotiable tax credits for locall$-produced

materials used as inputs# !side from the other incentives possibl$ alread$ granted to it b$ the Board of

nvestments, it also en?o$s preferential credit facilities and exemption from /: =>3#

Fro/ t0e *ove12ite! 3*4s, it is i//e!i*te3+ 23e*r t0*t petitioner en5o+s pre6erenti*3 t*7 tre*t/ent. t isnot sub?ect to internal revenue la's and regulations and is even entitled to tax credits# "he !" on capital

goods is an internal revenue tax from 'hich petitioner as an entit$ is exempt# !lthough the transactions

involving such tax are not exempt, petitioner as a !"-registered person, ho'ever, is entitled to theircredits#

Nature of the !" and

the "ax Credit Hethod

ie'ed broadl$, the !" is a uniform tax ranging, at present, from 8 percent to 8 percent levied on ever$

importation of goods, 'hether or not in the course of trade or business, or imposed on each sale, barter,

exchange or lease of goods or properties or on each rendition of services in the course of trade or business

as the$ pass along the production and distribution chain, the tax being limited onl$ to the value added to

such goods, properties or services b$ the seller, transferor or lessor# t is an indirect tax that ma$ be shifted

or passed on to the bu$er, transferee or lessee of the goods, properties or services# !s such, it should be



understood not in the context of the person or entit$ that is primaril$, directl$ and legall$ liable for its

pa$ment, but in terms of its nature as a tax on consumption# n either case, though, the same conclusion is

arrived at#

"he la' that originall$ imposed the !" in the countr$, as 'ell as the subse)uent amendments of that la',has been dra'n from the tax credit method# Such method adopted the mechanics and self-enforcement

features of the !" as first implemented and practiced in Europe and subse)uentl$ adopted in Ne'Zealand and Canada# Fnder the present method that relies on invoices, an entit$ can credit against or

subtract from the !" charged on its sales or outputs the !" paid on its purchases, inputs and imports#

f at the end of a taxable )uarter the output taxes charged b$ a seller are e)ual to the input taxes passed on

b$ the suppliers, no pa$ment is re)uired# t is 'hen the output taxes exceed the input taxes that the excess

has to be paid# f, ho'ever, the input taxes exceed the output taxes, the excess shall be carried over to thesucceeding )uarter or )uarters# Should the input taxes result from %ero-rated or effectivel$ %ero-rated

transactions or from the ac)uisition of capital goods, an$ excess over the output taxes shall instead be

refunded to the taxpa$er or credited against other internal revenue taxes#

Zero-(ated and Effectivel$

Zero-(ated "ransactions

A3t0o)80 ot0 *re t*7*3e *n! si/i3*r in e66e2t, 9ero1r*te! tr*ns*2tions !i66er 6ro/ e66e2tive3+ 9ero1r*te!

tr*ns*2tions *s to t0eir so)r2e.

Zero-rated transactions generally refer to the export sale of goods and supply of services# "he tax rate is set

at %ero# hen applied to the tax base, such rate obviousl$ results in no tax chargeable against the purchaser#

T0e se33er o6 s)20 tr*ns*2tions 20*r8es no o)tp)t t*7, )t 2*n 23*i/ * re6)n! o6 or * t*7 2re!it

2erti6i2*te 6or t0e VAT previo)s3+ 20*r8e! + s)pp3iers#

Effectivel$ %ero-rated transactions, ho'ever, refer to the sale of goods or supply of services to persons or

entities whose exemption under special laws or international agreements to which the Philippines is a

signatory effectively subjects such transactions to a zero rate # !gain, as applied to the tax base, such ratedoes not $ield an$ tax chargeable against the purchaser# T0e se33er 40o 20*r8es 9ero o)tp)t t*7 on s)20

tr*ns*2tions 2*n *3so 23*i/ * re6)n! o6 or * t*7 2re!it 2erti6i2*te 6or t0e VAT previo)s3+ 20*r8e! +

s)pp3iers.

Zero (ating and

Exemption

n terms of the !" computation, %ero rating and exemption are the same, but the extent of relief that

results from either one of them is not#

!ppl$ing the destination principle to the exportation of goods, automatic zero rating is

pri/*ri3+ inten!e! to e en5o+e! + t0e se33er 40o is !ire2t3+ *n! 3e8*33+ 3i*3e 6or t0e VAT, /*:in8 s)20se33er intern*tion*33+ 2o/petitive + *33o4in8 t0e re6)n! or 2re!it o6 inp)t t*7es t0*t *re *ttri)t*3e to

e7port s*3es# Effective zero rating, on the contrar$, is inten!e! to ene6it t0e p)r20*ser 40o, not

ein8 !ire2t3+ *n! 3e8*33+ 3i*3e 6or t0e p*+/ent o6 t0e VAT, 4i33 )3ti/*te3+ e*r t0e )r!en o6 t0e t*7

s0i6te! + t0e s)pp3iers.

n both instances of %ero rating, there is total relief for the purchaser from the burden of the tax# But in an

exemption there is onl$ partial relief, because the purchaser is not allo'ed an$ tax refund of or credit for

input taxes paid#

Exempt "ransactionand Exempt /art$

"he ob?ect of exemption from the !" ma$ either be the transaction itself or an$ of the parties to the

transaction#

!n exempt transaction, on the one hand, involves goods or services 'hich, b$ their nature, are specificall$

listed in and expressl$ exempted from the !" under the "ax Code, 'ithout regard to the tax status —

!"-exempt or not — of the part$ to the transaction# ;8 ndeed, such transaction is not sub?ect to the!", but the seller is not allo'ed an$ tax refund of or credit for an$ input taxes paid#

!n exempt part$, on the other hand, is a person or entit$ granted !" exemption under the "ax Code, a

special la' or an international agreement to 'hich the /hilippines is a signator$, and b$ virtue of 'hich its

taxable transactions become exempt from the !"# Such part$ is also not sub?ect to the !", but ma$ be



allo'ed a tax refund of or credit for input taxes paid, depending on its registration as a !" or non-!"

taxpa$er#

!s mentioned earlier, the !" is a tax on consumption, the amount of 'hich ma$ be shifted or passed on

b$ the seller to the purchaser of the goods, properties or services# hile the liabilit$ is imposed on one person, the burden ma$ be passed on to another# "herefore, if a special la' merel$ exempts a part$ as a

seller from its direct liabilit$ for pa$ment of the !", but does not relieve the same part$ as a purchaserfrom its indirect burden of the !" shifted to it b$ its !"-registered suppliers, the purchase transaction is

not exempt# !ppl$ing this principle to the case at bar, the purchase transactions entered into b$ respondent

are not !"-exempt#

Special la's ma$ certainl$ exempt transactions from the !"# &o'ever, the "ax Code provides that those

falling under /: ;; are not# /: ;; is the precursor of (! 76; — the special la' under 'hich respondent'as registered# "he purchase transactions it entered into are, therefore, not !"-exempt# "hese are sub?ect

to the !"1 respondent is re)uired to register#

ts sales transactions, ho'ever, 'ill either be %ero-rated or taxed at the standard rate of 8 percent,

depending again on the application of the destination principle#

f respondent enters into such sales transactions 'ith a purchaser — usuall$ in a foreign countr$ — for use

or consumption outside the /hilippines, these shall be sub?ect to 8 percent# f entered into 'ith a purchaserfor use or consumption in the /hilippines, then these shall be sub?ect to 8 percent, unless the purchaser is

exempt from the indirect burden of the !", in 'hich case it shall also be %ero-rated#

Since the purchases of respondent are not exempt from the !", the rate to be applied is %ero# ts

exemption under both /: ;; and (! 76; effectivel$ sub?ects such transactions to a %ero rate, because the

eco%one 'ithin 'hich it is registered is managed and operated b$ the /EZ! as a separate customs territor$#

"his means that in such %one is created the legal fiction of foreign territor$# Fnder the cross-border

principle of the !" s$stem being enforced b$ the Bureau of nternal (evenue 4B(5, no !" shall be

imposed to form part of the cost of goods destined for consumption outside of the territorial border of the

taxing authorit$# f exports of goods and services from the /hilippines to a foreign countr$ are free of the!", then the same rule holds for such exports from the national territor$ — except specificall$ declared

areas — to an eco%one#

Sales made b$ a !"-registered person in the customs territor$ to a /EZ!-registered entit$ are considered

exports to a foreign countr$1 conversel$, sales b$ a /EZ!-registered entit$ to a !"-registered person in

the customs territor$ are deemed imports from a foreign countr$# !n eco%one — indubitabl$ a geographical

territor$ of the /hilippines — is, ho'ever, regarded in la' as foreign soil# "his legal fiction is necessar$ to

give meaningful effect to the policies of the special la' creating the %one# f respondent is located in anexport processing %one 'ithin that eco%one, sales to the export processing %one, even 'ithout being

actuall$ exported, shall in fact be vie'ed as constructivel$ exported under E0 22;# Considered as export

sales, such purchase transactions b$ respondent 'ould indeed be sub?ect to a %ero rate#

"ax Exemptions

Broad and Express

!ppl$ing the special la's 'e have earlier discussed, respondent as an entit$ is exempt from internalrevenue la's and regulations#

"his exemption covers both direct and indirect taxes, stemming from the ver$ nature of the !" as a tax

on consumption, for 'hich the direct liabilit$ is imposed on one person but the indirect burden is passed on

to another# Respon!ent, *s *n e7e/pt entit+, 2*n neit0er e !ire2t3+ 20*r8e! 6or t0e VAT on its s*3es nor

in!ire2t3+ /*!e to e*r, *s *!!e! 2ost to s)20 s*3es, t0e e;)iv*3ent VAT on its p)r20*ses. Ubi lex non

distinguit, nec nos distinguere debemus# here the la' does not distinguish, 'e ought not to distinguish#

Horeover, the exemption is both express and pervasive for the follo'ing reasons+

*irst, (! 76; states that Ano taxes, local and national, shall be imposed on business establishments

operating 'ithin the eco%one#A = Since this la' does not exclude the !" from the prohibition, it is

deemed included# Exceptio firmat regulam in casibus non exceptis# !n exception confirms the rule in casesnot excepted1 that is, a thing not being excepted must be regarded as coming 'ithin the purvie' of the

general rule#

Horeover, even though the !" is not imposed on the entit$ but on the transaction, it ma$ still be passed

on and, therefore, indirectl$ imposed on the same entit$ — a patent circumvention of the la'# "hat no !"shall be imposed directl$ upon business establishments operating 'ithin the eco%one under (! 76; also

means that no !" ma$ be passed on and imposed indirectl$# Iuando ali)uid prohibetur ex directo

prohibetur et per obli)uum# hen an$thing is prohibited directl$, it is also prohibited indirectl$#

Second, 'hen (! =79= 'as enacted to amend (! 76;, the same prohibition applied, except for real

propert$ taxes that presentl$ are imposed on land o'ned b$ developers# "his similar and repeated



prohibition is an unambiguous ratification of the la'@s intent in not imposing local or national taxes on

business enterprises 'ithin the eco%one#

"hird, foreign and domestic merchandise, ra' materials, e)uipment and the like Ashall not be sub?ect to # # #

internal revenue la's and regulationsA under /: ;; — the original charter of /EZ! 4then E/Z!5 that 'aslater amended b$ (! 76;# No provisions in the latter la' modif$ such exemption#

!lthough this exemption puts the government at an initial disadvantage, the reduced tax collection

ultimatel$ redounds to the benefit of the national econom$ b$ enticing more business investments and

creating more emplo$ment opportunities#

*ourth, even the rules implementing the /EZ! la' clearl$ reiterate that merchandise — except those

prohibited b$ la' — Ashall not be sub?ect to # # # internal revenue la's and regulations # # #A if brought to theeco%one@s restricted area for manufacturing b$ registered export enterprises, of 'hich respondent is one#

"hese rules also appl$ to all enterprises registered 'ith the E/Z! prior to the effectivit$ of such rules#

*ifth, export processing %one enterprises registered 'ith the Board of nvestments 4B05 under E0 22;

patentl$ en?o$ exemption from national internal revenue taxes on imported capital e)uipment reasonabl$

needed and exclusivel$ used for the manufacture of their products1 on re)uired supplies and spare part for

consigned e)uipment1 and on foreign and domestic merchandise, ra' materials, e)uipment and the like —

except those prohibited b$ la' — brought into the %one for manufacturing# n addition, the$ are givencredits for the value of the national internal revenue taxes imposed on domestic capital e)uipment also

reasonabl$ needed and exclusivel$ used for the manufacture of their products, as 'ell as for the value ofsuch taxes imposed on domestic ra' materials and supplies that are used in the manufacture of their export

products and that form part thereof#

Sixth, the exemption from local and national taxes granted under (! 7227 are ipso facto accorded to

eco%ones# n case of doubt, conflicts 'ith respect to such tax exemption privilege shall be resolved in favor

of the eco%one#

!nd seventh, the tax credits under (! 7=99 — given for imported ra' materials primaril$ used in the production of export goods, and for locall$ produced ra' materials, capital e)uipment and spare parts used

b$ exporters of non-traditional products — shall also be continuousl$ en?o$ed b$ similar exporters 'ithin

the eco%one# ndeed, the latter exporters are like'ise entitled to such tax exemptions and credits#

"ax (efund as

"ax Exemption

"o be sure, statutes that grant tax exemptions are construed strictissimi ?uris against the taxpa$er andliberall$ in favor of the taxing authorit$#

"ax refunds are in the nature of such exemptions# !ccordingl$, the claimants of those refunds bear the

burden of proving the factual basis of their claims1 and of sho'ing, b$ 'ords too plain to be mistaken, that

the legislature intended to exempt them# n the present case, all the cited legal provisions are teeming 'ith

life 'ith respect to the grant of tax exemptions too vivid to pass unnoticed# n addition, respondent easil$

meets the challenge#

(espondent, 'hich as an entit$ is exempt, is different from its transactions 'hich are not exempt# "he end

result, ho'ever, is that it is not sub?ect to the !"# "he non-taxabilit$ of transactions that are other'isetaxable is merel$ a necessar$ incident to the tax exemption conferred b$ la' upon it as an entit$, not upon

the transactions themselves# Nonetheless, its exemption as an entit$ and the non-exemption of its

transactions lead to the same result for the follo'ing considerations+

*irst, the contemporaneous construction of our tax la's b$ B( authorities 'ho are called upon to execute

or administer such la's 'ill have to be adopted# "heir prior tax issuances have held inconsistent positions

brought about b$ their probable failure to comprehend and full$ appreciate the nature of the !" as a tax

on consumption and the application of the destination principle# (evenue Hemorandum Circular No#4(HC5 79-66, ho'ever, no' clearl$ and correctl$ provides that an$ !"-registered supplier@s sale of

goods, propert$ or services from the customs territor$ to an$ registered enterprise operating in the eco%one

— regardless of the class or t$pe of the latter@s /EZ! registration — is legall$ entitled to a %ero rate#

Second, the policies of the la' should prevail# (atio legis est anima# "he reason for the la' is its ver$ soul#

n /: ;;, the urgent creation of the E/Z! 'hich preceded the /EZ!, as 'ell as the establishment of export

processing %ones, seeks Ato encourage and promote foreign commerce as a means of # # # strengthening ourexport trade and foreign exchange position, of hastening industriali%ation, of reducing domestic

unemplo$ment, and of accelerating the development of the countr$#A

(! 76;, as amended b$ (! =79=, declared that b$ creating the /EZ! and integrating the special

economic %ones, Athe government shall activel$ encourage, promote, induce and accelerate a sound and

balanced industrial, economic and social development of the countr$ # # # through the establishment, among



others, of special economic %ones # # # that shall effectivel$ attract legitimate and productive foreign

investments#A

Fnder E0 22;, the AState shall encourage # # # foreign investments in industr$ # # # 'hich shall # # meet the

tests of international competitiveness,. accelerate development of less developed regions of the countr$,.and result in increased volume and value of exports for the econom$#A *iscal incentives that are cost-

efficient and simple to administer shall be devised and extended to significant pro?ects Ato compensate formarket imperfections, to re'ard performance contributing to economic development,A and Ato stimulate the

establishment and assist initial operations of the enterprise#A

isel$ accorded to eco%ones created under (! 76; 'as the government@s polic$ — spelled out earlier in

(! 7227 — of converting into alternative productive uses the former militar$ reservations and theirextensions, as 'ell as of providing them incentives to enhance the benefits that 'ould be derived from

them in promoting economic and social development#

*inall$, under (! 7=99, the State declares the need Ato evolve export development into a national effortA in

order to 'in international markets# B$ providing man$ export and tax incentives, the State is able to drive

home the point that exporting is indeed Athe ke$ to national survival and the means through 'hich the

economic goals of increased emplo$ment and enhanced incomes can most expeditiousl$ be achieved#A

"he "ax Code itself seeks to Apromote sustainable economic gro'th # # #1 # # # increase economic activit$1

and # # # create a robust environment for business to enable firms to compete better in the regional as 'ell asthe global market#A !fter all, international competitiveness re)uires economic and tax incentives to lo'er

the cost of goods produced for export# State actions that affect global competition need to be specific and

selective in the pricing of particular goods or services#

!ll these statutor$ policies are congruent to the constitutional mandates of providing incentives to needed

investments, 2= as 'ell as of promoting the preferential use of domestic materials and locall$ produced

goods and adopting measures to help make these competitive# 26 "ax credits for domestic inputs

strengthen back'ard linkages# (ightl$ so, Athe rule of la' and the existence of credible and efficient publicinstitutions are essential prere)uisites for sustainable economic development#A

!" (egistration, Not !pplicationfor Effective Zero (ating,

ndispensable to !" (efund

(egistration is an indispensable re)uirement under our !" la'# /etitioner alleges that respondent did

register for !" purposes 'ith the appropriate (evenue :istrict 0ffice# &o'ever, it is no' too late in theda$ for petitioner to challenge the !"-registered status of respondent, given the latter@s prior

representation before the lo'er courts and the mode of appeal taken b$ petitioner before this Court#

"he /EZ! la', 'hich carried over the provisions of the E/Z! la', is clear in exempting from internal

revenue la's and regulations the e)uipment — including capital goods — that registered enterprises 'ill

use, directl$ or indirectl$, in manufacturing# E0 22; even reiterates this privilege among the incentives it

gives to such enterprises# /etitioner merel$ asserts that b$ virtue of the /EZ! registration alone of

respondent, the latter is not sub?ect to the !"# Conse)uentl$, the capital goods and services respondenthas purchased are not considered used in the !" business, and no !" refund or credit is due# "his is a

non se)uitur# B$ the !"@s ver$ nature as a tax on consumption, the capital goods and services respondenthas purchased are sub?ect to the !", although at %ero rate# (egistration does not determine taxabilit$

under the !" la'#

Horeover, the facts have alread$ been determined b$ the lo'er courts# &aving failed to present evidence to

support its contentions against the income tax holida$ privilege of respondent, petitioner is deemed to have

conceded# t is a cardinal rule that Aissues and arguments not ade)uatel$ and seriousl$ brought belo'

cannot be raised for the first time on appeal#A "his is a Amatter of procedureA and a A)uestion of fairness#A

*ailure to assert A'ithin a reasonable time 'arrants a presumption that the part$ entitled to assert it eitherhas abandoned or declined to assert it#A

"he B( regulations additionall$ re)uiring an approved prior application for effective %ero rating cannot prevail over the clear !" nature of respondent@s transactions# "he scope of such regulations is not A'ithin

the statutor$ authorit$ # # # granted b$ the legislature#

*irst, a mere administrative issuance, like a B( regulation, cannot amend the la'1 the former cannot

purport to do an$ more than interpret the latter# "he courts 'ill not countenance one that overrides thestatute it seeks to appl$ and implement#

0ther than the general registration of a taxpa$er the !" status of 'hich is aptl$ determined, no provision

under our !" la' re)uires an additional application to be made for such taxpa$er@s transactions to be

considered effectivel$ %ero-rated# !n effectivel$ %ero-rated transaction does not and cannot become exempt

simpl$ because an application therefor 'as not made or, if made, 'as denied# "o allo' the additional



re)uirement is to give unfettered discretion to those officials or agents 'ho, 'ithout fluid consideration, are

bent on den$ing a valid application# Horeover, the State can never be estopped b$ the omissions, mistakes

or errors of its officials or agents#

Second, grantia argumenti that such an application is re)uired b$ la', there is still the presumption ofregularit$ in the performance of official dut$# (espondent@s registration carries 'ith it the presumption that,

in the absence of contradictor$ evidence, an application for effective %ero rating 'as also filed and approvalthereof given# Besides, it is also presumed that the la' has been obe$ed b$ both the administrative officials

and the applicant#

"hird, even though such an application 'as not made, all the special la's 'e have tackled exempt

respondent not onl$ from internal revenue la's but also from the regulations issued pursuant thereto#

Genienc$ in the implementation of the !" in eco%ones is an imperative, precisel$ to spur economicgro'th in the countr$ and attain global competitiveness as envisioned in those la's#

! !"-registered status, as 'ell as compliance 'ith the invoicing re)uirements, is sufficient for the

effective %ero rating of the transactions of a taxpa$er# "he nature of its business and transactions can easil$

be perused from, as alread$ clearl$ indicated in, its !" registration papers and photocopied documents

attached thereto# &ence, its transactions cannot be exempted b$ its mere failure to appl$ for their effective

%ero rating# 0ther'ise, their !" exemption 'ould be determined, not b$ their nature, but b$ the

taxpa$er@s negligence — a result not at all contemplated# !dministrative convenience cannot th'artlegislative mandate#

"ax (efund or

Credit in 0rder

&aving determined that respondent@s purchase transactions are sub?ect to a %ero !" rate, the tax refund or

credit is in order#

!s correctl$ held b$ both the C! and the "ax Court, respondent had chosen the fiscal incentives in E0 22;

over those in (! 76; and /: ;;# t opted for the income tax holida$ regime instead of the > percent preferential tax regime#

"he latter scheme is not a perfunctor$ aftermath of a simple registration under the /EZ! la', for E0 22;also has provisions to contend 'ith# "hese t'o regimes are in fact incompatible and cannot be availed of

simultaneousl$ b$ the same entit$# hile E0 22; merel$ exempts it from income taxes, the /EZ! la'

exempts it from all taxes#

"herefore, respondent can be considered exempt, not from the !", but onl$ from the pa$ment of incometax for a certain number of $ears, depending on its registration as a pioneer or a non-pioneer enterprise#

Besides, the remittance of the aforesaid > percent of gross income earned in lieu of local and national taxes

imposable upon business establishments 'ithin the eco%one cannot outrightl$ determine a !" exemption#

Being sub?ect to !", pa$ments erroneousl$ collected thereon ma$ then be refunded or credited#

Even if it is argued that respondent is sub?ect to the > percent preferential tax regime in (! 76;, Section

29 thereof does not preclude the !"# 0ne can, therefore, counterargue that such provision merel$

exempts respondent from taxes imposed on business# "o repeat, the !" is a tax imposed on consumption,not on business# !lthough respondent as an entit$ is exempt, the transactions it enters into are not

necessaril$ so# "he !" pa$ments made in excess of the %ero rate that is imposable ma$ certainl$ berefunded or credited#

Compliance 'ith !ll (e)uisites

for !" (efund or Credit

!s further enunciated b$ the "ax Court, respondent complied 'ith all the re)uisites for claiming a !"

refund or credit#

*irst, respondent is a !"-registered entit$# "his fact alone distinguishes the present case from Contex, in

'hich this Court held that the petitioner therein 'as registered as a non-!" taxpa$er# &ence, for being

merel$ !"-exempt, the petitioner in that case cannot claim an$ !" refund or credit#

Second, the input taxes paid on the capital goods of respondent are dul$ supported b$ !" invoices and

have not been offset against an$ output taxes# !lthough enterprises registered 'ith the B0 after :ecember

3, 669 'ould no longer en?o$ the tax credit incentives on domestic capital e)uipment — as provided for

under !rticle 364d5, "itle , Book of E0 22; — starting <anuar$ , 66;, respondent 'ould still have thesame benefit under a general and express exemption contained in both !rticle 7745, Book of E0 22;1

and Section 2, paragraph 2 4c5 of (! 7227, extended to the eco%ones b$ (! 76;#

"here 'as a ver$ clear intent on the part of our legislators, not onl$ to exempt investors in eco%ones from

national and local taxes, but also to grant them tax credits# "his fact 'as revealed b$ the sponsorship



speeches in Congress during the second reading of &ouse Bill No# 926>, 'hich later became (! 76;, as

sho'n belo'+

AH(# (EC"0# # # # Some of the incentives that this bill provides are exemption from national and local

taxes1 # # # tax credit for locall$-sourced inputs # # #A

xxx xxx xxx

AH(# :EG H!(# # # # "o advance its cause in encouraging investments and creating an environment

conducive for investors, the bill offers incentives such as the exemption from local and national taxes, # # #

tax credits for locall$ sourced inputs # # #A

!nd third, no )uestion as to either the filing of such claims 'ithin the prescriptive period or the validit$ ofthe !" returns has been raised# Even if such a )uestion 'ere raised, the tax exemption under all the

special la's cited above is broad enough to cover even the enforcement of internal revenue la's, including

prescription#

Summar$

"o summari%e, special la's expressl$ grant preferential tax treatment to business establishments registered

and operating 'ithin an eco%one, 'hich b$ la' is considered as a separate customs territor$# !s such,respondent is exempt from all internal revenue taxes, including the !", and regulations pertaining

thereto# t has opted for the income tax holida$ regime, instead of the > percent preferential tax regime# !sa matter of la' and procedure, its registration status entitling it to such tax holida$ can no longer be

)uestioned# ts sales transactions intended for export ma$ not be exempt, but like its purchase transactions,

the$ are %ero-rated# No prior application for the effective %ero rating of its transactions is necessar$# <ein8

VAT1re8istere! *n! 0*vin8 s*tis6*2tori3+ 2o/p3ie! 4it0 *33 t0e re;)isites 6or 23*i/in8 * t*7 re6)n! o6 or

2re!it 6or t0e inp)t VAT p*i! on 2*pit*3 8oo!s p)r20*se!, respon!ent is entit3e! to s)20 VAT re6)n! or

2re!it.

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. CE<U TOYO CORPORATION,

respon!ent. "G.R. No. #=>-?%. Fer)*r+ #', --$.

(uling+

Both the Commissioner of nternal (evenue and the 0ffice of the Solicitor Deneral argue that respondent

Cebu "o$o Corporation, as a /EZ!-registered enterprise, is exempt from national and local taxes,

including !", under Section 29 of (ep# !ct No# 76; and Section 86 2 of the N(C# "hus, the$contend that respondent Cebu "o$o Corporation is not entit3e! to *n+ re6)n! or 2re!it on inp)t t*7es it

previo)s3+ p*i! *s provi!e! )n!er Se2tion =.#-%1# o6 Reven)e Re8)3*tions No. ?1>$, not4it0st*n!in8

its re8istr*tion *s * VAT t*7p*+er. For petitioner 23*i/s t0*t s*i! re8istr*tion 4*s erroneo)s *n! !i! not

2on6er )pon t0e respon!ent *n+ ri80t to 23*i/ re2o8nition o6 t0e inp)t t*7 2re!it.

"he respondent counters that it availed of the income tax holida$ under E#0# No# 22; for four $ears from

!ugust 7, 66> making it exempt from income tax but not from other taxes such as !"# &ence, according

to respondent, its export sales are not exempt from !", contrar$ to petitioner@s claim, but its export salesis sub?ect to 8J !"# Horeover, it argues that it 'as able to establish through a report certified b$ an

independent Certified /ublic !ccountant that the input taxes it incurred from !pril , 66; to :ecember3, 667 'ere directl$ attributable to its export sales# Since it did not have an$ output tax against 'hich

said input taxes ma$ be offset, it had the option to file a claim for refundtax credit of its unutili%ed input

taxes#

Considering the submission of the parties and the evidence on record, 'e find the petition bereft of merit#

/etitioner@s contention that respondent is not entitled to refund for being exempt from !" is untenable#

"his argument turns a blind e$e to the fiscal incentives granted to /EZ!-registered enterprises underSection 23 of (ep# !ct No# 76;# Note t0*t )n!er s*i! st*t)te, t0e respon!ent 0*! t4o options 4it0

respe2t to its t*7 )r!en. It 2o)3! *v*i3 o6 *n in2o/e t*7 0o3i!*+ p)rs)*nt to provisions o6 E.O. No. ',

t0)s e7e/pt it 6ro/ in2o/e t*7es 6or * n)/er o6 +e*rs )t not 6ro/ ot0er intern*3 reven)e t*7es s)20*s VAT@ or it 2o)3! *v*i3 o6 t0e t*7 e7e/ptions on *33 t*7es, in23)!in8 VAT )n!er P.. No. '' *n! p*+

on3+ t0e pre6erenti*3 t*7 r*te o6 $B )n!er Rep. A2t No. ?>#'. Both the Court of !ppeals and the Court of

"ax !ppeals found that respondent availed of the income tax holida$ for four 495 $ears starting from

!ugust 7, 66>, as clearl$ reflected in its 66; and 667 !nnual Corporate ncome "ax (eturns, 'here

respondent specified that it 'as availing of the tax relief under E#0# No# 22;# &ence, respondent is notexempt from !" and it correctl$ registered itself as a !" taxpa$er# n fine, it is engaged in taxable

rather than exempt transactions#

T*7*3e tr*ns*2tions *re t0ose tr*ns*2tions 40i20 *re s)5e2t to v*3)e1*!!e! t*7 eit0er *t t0e r*te o6 ten

per2ent (#-B or 9ero per2ent (-B# n taxable transactions, the seller shall be entitled to tax credit for the

value-added tax paid on purchases and leases of goods, properties or services#



An e7e/ption /e*ns t0*t t0e s*3e o6 8oo!s, properties or servi2es *n! t0e )se or 3e*se o6 properties is

not s)5e2t to VAT (o)tp)t t*7 *n! t0e se33er is not *33o4e! *n+ t*7 2re!it on VAT (inp)t t*7 previo)s3+

p*i! # "he person making the exempt sale of goods, properties or services shall not bill an$ output tax to his

customers because the said transaction is not sub?ect to !"# T0)s, * VAT1re8istere! p)r20*ser o6 8oo!s,

properties or servi2es t0*t *re VAT1e7e/pt, is not entit3e! to *n+ inp)t t*7 on s)20 p)r20*ses !espite t0e

iss)*n2e o6 * VAT invoi2e or re2eipt #

No', having determined that respondent is engaged in taxable transactions sub?ect to !", let us then

proceed to determine 'hether it is sub?ect to 8J or %ero 48J5 rate of !"# "o begin 'ith, it must be

recalled that generall$, sale of goods and suppl$ of services performed in the /hilippines are taxable at the

rate of 8J# &o'ever, export sales, or sales outside the /hilippines, shall be sub?ect to value-added tax at

8J if made b$ a !"-registered person# Un!er t0e v*3)e1*!!e! t*7 s+ste/, * 9ero1r*te! s*3e + * VAT1

re8istere! person, 40i20 is * t*7*3e tr*ns*2tion 6or VAT p)rposes, s0*33 not res)3t in *n+ o)tp)t t*7.

Ho4ever, t0e inp)t t*7 on 0is p)r20*se o6 8oo!s, properties or servi2es re3*te! to s)20 9ero1r*te! s*3e

s0*33 e *v*i3*3e *s t*7 2re!it or re6)n!.

n principle, the purpose of appl$ing a %ero percent 48J5 rate on a taxable transaction is to exempt the

transaction completel$ from !" previousl$ collected on inputs# t is thus the onl$ true 'a$ to ensure that

goods are provided free of !"# hile the %ero rating and the exemption are computationall$ the same,

the$ actuall$ differ in several aspects, to 'it+

4a5 ! %ero-rated sale is a taxable transaction but does not result in an output tax 'hile an exemptedtransaction is not sub?ect to the output tax1

4b5 "he input !" on the purchases of a !"-registered person 'ith %ero-rated sales ma$ be allo'ed

as tax credits or refunded 'hile the seller in an exempt transaction is not entitled to an$ input tax on his

purchases despite the issuance of a !" invoice or receipt#

4c5 /ersons engaged in transactions 'hich are %ero-rated, being sub?ect to !", are re)uired to

register 'hile registration is optional for !"-exempt persons#

n this case, it is undisputed that respondent is engaged in the export business and is registered as a !"

taxpa$er per Certificate of (egistration of the B(# *urther, the records sho' that the respondent is sub?ectto !" as it availed of the income tax holida$ under E#0# No# 22;# /erforce, respondent is sub?ect to !"

at 8J rate and is entitled to a refund or credit of the unutili%ed input taxes, 'hich the Court of "ax !ppeals

computed at /2,>=,79#9;, but 'hich 'e find — after recomputation — should be /2,>=,79#>2#

"he Supreme Court 'ill not set aside lightl$ the conclusions reached b$ the Court of "ax !ppeals 'hich,

b$ the ver$ nature of its functions, is dedicated exclusivel$ to the resolution of tax problems and has

accordingl$ developed an expertise on the sub?ect, unless there has been an abuse or improvident exercise

of authorit$# n this case, 'e find no cogent reason to deviate from this 'ell-entrenched principle# "hus, 'eare persuaded that indeed the Court of !ppeals committed no reversible error in affirming the assailed

ruling of the Court of "ax !ppeals#

MANUEL G. A<ELLO, OSE C. CONCEPCION, TEOORO . REGALA, AVELINO V. CRUD,

petitioners, vs. COMMISSIONER OF INTERNAL REVENUE *n! COURT OF APPEALS,

respon!ents. "G.R. No. #-?#. Fer)*r+ %, --$.

*acts+

:uring the 6=7 national elections, petitioners, 'ho are partners in the !ngara, !bello, Concepcion, (egala

and Cru% 4!CC(!5 la' firm, contributed /==2,;;#3 each to the campaign funds of Senator Edgardo

!ngara, then running for the Senate# n letters dated !pril 2, 6==, the Bureau of nternal (evenue 4B(5

assessed each of the petitioners /2;3,832#;; for their contributions# 0n !ugust 2, 6==, petitioners

)uestioned the assessment through a letter to the B(# "he$ claimed that political or electoral contributions

are not considered gifts under the National nternal (evenue Code 4N(C5, and that, therefore, the$ are not

liable for donor@s tax# "he claim for exemption 'as denied b$ the Commissioner#

(uling+

Section 6 of the National nternal (evenue Code 4N(C5 reads+

4!5 "here shall be levied, assessed, collected and paid upon the transfer b$ an$ person, resident or

nonresident, of the propert$ b$ gift, a tax, computed as provided in Section 62

4B5 "he tax shall appl$ 'hether the transfer is in trust or other'ise, 'hether the gift is direct orindirect, and 'hether the propert$ is real or personal, tangible or intangible#

"he N(C does not define transfer of propert$ b$ gift# &o'ever, !rticle = of the Civil Code, states+

n matters 'hich are governed b$ the Code of Commerce and special la's, their deficienc$ shall be

supplied b$ the provisions of this Code#



"hus, reference ma$ be made to the definition of a donation in the Civil Code# !rticle 72> of said Code

defines donation as+

# # # an act of liberalit$ 'hereb$ a person disposes gratuitousl$ of a thing or right in favor of another, 'ho

accepts it#

:onation has the follo'ing elements+ 4a5 the reduction of the patrimon$ of the donor1 4b5 the increase in the patrimon$ of the donee1 and, 4c5 the intent to do an act of liberalit$ or animus donandi#

"he present case falls s)uarel$ 'ithin the definition of a donation# /etitioners, the late Hanuel D# !bello ,

<ose C# Concepcion, "eodoro :# (egala and !velino # Cru%, each gave /==2,;;#3 to the campaign

funds of Senator Edgardo !ngara, 'ithout an$ material consideration# !ll three elements of a donation are

present# "he patrimon$ of the four petitioners 'ere reduced b$ /==2,;;#3 each# Senator Edgardo!ngara@s patrimon$ correspondingl$ increased b$ /3,>38,;9>#296 # "here 'as intent to do an act of

liberalit$ or animus donandi 'as present since each of the petitioners gave their contributions 'ithout an$

consideration#

"aken together 'ith the Civil Code definition of donation, Section 6 of the N(C is clear and

unambiguous, thereb$ leaving no room for construction# n (i%al Commercial Banking Corporation v#

ntermediate !ppellate Court 8 the Court enunciated+

t bears stressing that the first and fundamental dut$ of the Court is to appl$ the la'# hen the la' is clear

and free from an$ doubt or ambiguit$, there is no room for construction or interpretation# !s has been ourconsistent ruling, 'here the la' speaks in clear and categorical language, there is no occasion for

interpretation1 there is onl$ room for application 4Cebu /ortland Cement Co# v# Hunicipalit$ of Naga, 29

SC(! 78= 6;=.5

here the la' is clear and unambiguous, it must be taken to mean exactl$ 'hat it sa$s and the court has no

choice but to see to it that its mandate is obe$ed 4Chartered Bank Emplo$ees !ssociation v# 0ple, 3=

SC(! 273 6=>.1 Gu%on Suret$ Co#, nc# v# :e Darcia, 38 SC(! 6;6.1 Iui?ano v# :evelopment

Bank of the /hilippines, 3> SC(! 278 678.5#

0nl$ 'hen the la' is ambiguous or of doubtful meaning ma$ the court interpret or construe its true intent#

!mbiguit$ is a condition of admitting t'o or more meanings, of being understood in more than one 'a$, or

of referring to t'o or more things at the same time# ! statute is ambiguous if it is admissible of t'o or more

possible meanings, in 'hich case, the Court is called upon to exercise one of its ?udicial functions, 'hich is

to interpret the la' according to its true intent#

Second ssue

Since animus donandi or the intention to do an act of liberalit$ is an essential element of a donation,

petitioners argue that it is important to look into the intention of the giver to determine if a political

contribution is a gift# /etitioners@ argument is not tenable# *irst of all, donative intent is a creature of the

mind# t cannot be perceived except b$ the material and tangible acts 'hich manifest its presence# "his

being the case, donative intent is presumed present 'hen one gives a part of ones patrimon$ to another'ithout consideration# Second, donative intent is not negated 'hen the person donating has other

intentions, motives or purposes 'hich do not contradict donative intent# "his Court is not convinced thatsince the purpose of the contribution 'as to help elect a candidate, there 'as no donative intent# /etitioners@

contribution of mone$ 'ithout an$ material consideration evinces animus donandi# "he fact that their

purpose for donating 'as to aid in the election of the donee does not negate the presence of donative intent#

"hird ssue

/etitioners maintain that the definition of an Aelectoral contributionA under the 0mnibus Election Code is

essential to appreciate ho' a political contribution differs from a taxable gift# Section 694a5 of the saidCode defines electoral contribution as follo's+

"he term AcontributionA includes a gift, donation, subscription, loan, advance or deposit of mone$ oran$thing of value, or a contract, promise or agreement to contribute, 'hether or not legall$ enforceable,

made for the purpose of influencing the results of the elections but shall not include services rendered

'ithout compensation b$ individuals volunteering a portion or all of their time in behalf of a candidate or

political part$# t shall also include the use of facilities voluntaril$ donated b$ other persons, the mone$

value of 'hich can be assessed based on the rates prevailing in the area#

Since the purpose of an electoral contribution is to influence the results of the election, petitioners again

claim that donative intent is not present# /etitioners attempt to place the barrier of mutual exclusivit$

bet'een donative intent and the purpose of political contributions# "his Court reiterates that donative intent

is not negated b$ the presence of other intentions, motives or purposes 'hich do not contradict donative

intent#



/etitioners 'ould distinguish a gift from a political donation b$ sa$ing that the consideration for a gift is

the liberalit$ of the donor, 'hile the consideration for a political contribution is the desire of the giver to

influence the result of an election b$ supporting candidates 'ho, in the perception of the giver, 'ould

influence the shaping of government policies that 'ould promote the general 'elfare and economic 'ell- being of the electorate, including the giver himself#

/etitioners@ attempt is strained# "he fact that petitioners 'ill someho' in the future benefit from the election

of the candidate to 'hom the$ contribute, in no 'a$ amounts to a valuable material consideration so as to

remove political contributions from the purvie' of a donation# Senator !ngara 'as under no obligation to

benefit the petitioners# "he proper performance of his duties as a legislator is his obligation as an elected

public servant of the *ilipino people and not a consideration for the political contributions he received# n

fact, as a public servant, he ma$ even be called to enact la's that are contrar$ to the interests of his benefactors, for the benefit of the greater good#

n fine, the purpose for 'hich the sums of mone$ 'ere given, 'hich 'as to fund the campaign of Senator

!ngara in his bid for a senatorial seat, cannot be considered as a material consideration so as to negate a

donation#

*ourth ssue

/etitioners raise the fact that since 636 'hen the first "ax Code 'as enacted, up to 6== the B( never

attempted to sub?ect political contributions to donor@s tax# "he$ argue that+# # # t is a familiar principle of la' that prolonged practice b$ the government agenc$ charged 'ith the

execution of a statute, ac)uiesced in and relied upon b$ all concerned over an appreciable period of time, is

an authoritative interpretation thereof, entitled to great 'eight and the highest respect# # # #

"his Court holds that the B( is not precluded from making a ne' interpretation of the la', especiall$

'hen the old interpretation 'as fla'ed# t is a 'ell-entrenched rule that

# # # erroneous application and enforcement of the la' b$ public officers do not block subse)uent correct

application of the statute 4/G:" v# Collector of nternal (evenue, 68 /hil# ;7;5, and that the Dovernment isnever estopped b$ mistake or error on the part of its agents 4/ineda v# Court of *irst nstance of "a$abas,

>2 /hil# =83, =871 Benguet Consolidated Hining Co# v# /ineda, 6= /hil# 7, 7295#

Seventh ssue

/etitioners )uestion the fact that the Court of !ppeals decision is based on a B( ruling, namel$ B(

(uling No# ==-399, 'hich 'as issued after the petitioners 'ere assessed for donor@s tax# "his Court does

not need to delve into this issue# t is immaterial 'hether or not the Court of !ppeals based its decision onthe B( ruling because it is not pivotal in deciding this case# !s discussed above, Section 6 4no' Section

6=5 of the N(C as supplemented b$ the definition of a donation found in !rticle 72> of the Civil Code, is

clear and unambiguous, and needs no further elucidation#

Eighth ssue

/etitioners next contend that tax la's are construed liberall$ in favor of the taxpa$er and strictl$ against the

government# "his rule of construction, ho'ever, does not benefit petitioners because, as stated, there is hereno room for construction since the la' is clear and unambiguous#

Fin*33+, t0is Co)rt t*:es note o6 t0e 6*2t t0*t s)se;)ent to t0e !on*tions invo3ve! in t0is 2*se, Con8ress

*pprove! Rep)3i2 A2t No. ?#'' on Nove/er $, #>>#, provi!in8 in Se2tion #% t0ereo6 t0*t

po3iti2*3e3e2tor*3 2ontri)tions, !)3+ reporte! to t0e Co//ission on E3e2tions, *re not s)5e2t to t0e

p*+/ent o6 *n+ 8i6t t*7 # "his all the more sho's that the political contributions herein made are sub?ect to

the pa$ment of gift taxes, since the same 'ere made prior to the exempting legislation, and (epublic !ct

No# 7;; provides no retroactive effect on this point#

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. HANTE TRAING CO., INC.,

respon!ent. "G.R. No. #%'>?$. M*r20 %#, --$.

: E C S 0 N

C!GGE<0, S(#, < p+

"he !ntecedents

"he respondent is a corporation dul$ organi%ed and existing under the la's of the /hilippines# Being

engaged in the sale of plastic products, it imports s$nthetic resin and other chemicals for the manufacture of

its products# *or this purpose, it is re)uired to file an mport Entr$ and nternal (evenue :eclaration

4Consumption Entr$5 'ith the Bureau of Customs under Section 38 of the "ariff and Customs Code#



Sometime in 0ctober 6=6, Gt# icente !moto, !cting Chief of Counter-ntelligence :ivision of the

Economic ntelligence and nvestigation Bureau 4EB5, received confidential information that the

respondent had imported s$nthetic resin amounting to />,>66,8=#88 but onl$ declared /9>,>3=,;69#>7#

!ccording to the informer, based on photocopies of 77 Consumption Entries furnished b$ another informer,

the 6=7 importations of the respondent 'ere understated in its accounting records# !moto submitted areport to the EB Commissioner recommending that an inventor$ audit of the respondent be conducted b$

the nternal n)uir$ and /rosecution 0ffice 4/05 of the EB#

!cting on the said report, <ose "# !lmonte, then Commissioner of the EB, issued Hission 0rder No# 36=-

=6 ; dated November 9, 6=6 for the audit and investigation of the importations of &antex for 6=7# "he

/0 issued subpoena duces tecum and ad testificandum for the president and general manager of the

respondent to appear in a hearing and bring the follo'ing+

# Books of !ccounts for the $ear 6=71

2# (ecord of mportations of S$nthetic (esin and Calcium Carbonate for the $ear 6=71

3# ncome tax returns K attachments for 6=71 and

9# (ecord of tax pa$ments#

&o'ever, the respondent@s president and general manager refused to compl$ 'ith the subpoena, contending

that its books of accounts and records of importation of s$nthetic resin and calcium bicarbonate had been

investigated repeatedl$ b$ the Bureau of nternal (evenue 4B(5 on prior occasions# "he /0 explainedthat despite such previous investigations, the EB 'as still authori%ed to conduct an investigation pursuant

to Section 2;-! of Executive 0rder No# 27# Still, the respondent refused to compl$ 'ith the subpoenaissued b$ the /0# "he latter forth'ith secured certified copies of the /rofit and Goss Statements for 6=7

filed b$ the respondent 'ith the Securities and Exchange Commission 4SEC5# &o'ever, the /0 failed to

secure certified copies of the respondent@s 6=7 Consumption Entries from the Bureau of Customs since,

according to the custodian thereof, the original copies had been eaten b$ termites#

n a Getter dated <une 2=, 668, the /0 re)uested the Chief of the Collection :ivision, Hanila

nternational Container /ort, and the !cting Chief of the Collection :ivision, /ort of Hanila, to

authenticate the machine copies of the import entries supplied b$ the informer# &o'ever, Chief of theCollection :ivision Herlita :# "omas could not do so because the Collection :ivision did not have the

original copies of the entries# nstead, she 'rote the /0 that, as gleaned from the records, the follo'ing

entries had been dul$ processed and released after the pa$ment of duties and taxes+

H/0("E( — &!N"EL "(!:ND C0#, NC# — SE(ES 0* 6=7

EN"(M N0# :!"E (EGE!SE: EN"(M N0# :!"E (EGE!SE:

838>=-=7 -38-=7 >82;>-=7 2-86-=7

8628-=7 3-28-=7 9;927-=7 -27-=7=8=6-=7 >-2-=7 387;9-=7 =-2-=7

6936-=7 ;-2-=7 38=33-=7 =-28-=7

699-=7 ;-3-=7 39;68-=7 6-;-=7

;;7-=7 9->-=7 39722-=7 6--=7

23269-=7 7-7-=7 93239-=7 -2-=7

9>97=-=7 -;-=7 99=>8-=7 -;-=7

9>;6-=7 2-2-=7 99=>-=7 -;-=7

2>9;9-=7 7-;-=7 9;9;-=7 -6-=72;9=3-=7 7-23-=7 9;9;7-=7 -=-=7

266>8-=7 =--=7 9=86-=7 -27-=7

!cting Chief of the Collection :ivision of the Bureau of Customs !ugusto S# :anganan could not

authenticate the machine copies of the import entries as 'ell, since the original copies of the said entries

filed 'ith the Bureau of Customs had apparentl$ been eaten b$ termites# &o'ever, he issued a certification

that the follo'ing enumerated entries 'ere filed b$ the respondent 'hich 'ere processed and released from

the /ort of Hanila after pa$ment of duties and taxes, to 'it+

&antex "rading Co#, nc#

Entr$ No# :ate (eleased Entr$ No# :ate (eleased

83683 -26-=7 22=;6 9-=-=78999 -28-=7 699 3-3-=7

8;=3 2-7-=7 29=6 9-2-=7

2; 2-29-=7 2;93 9-28-=7

26=6 2-2;-=7 9>97= 7-3-=7

78>8 3-3-=7 2;76; 9-23-=77;6 3-3-=7 2==27 9-38-=7

=8=6 3-;-=7 3;7 >-9-=7

6936 9--=7 368;= ;->-=7

2=6 9-3-=7 92>= ;-2-=7

939> ;-26-=7 92763 ;-23-=7

9276> ;-23-=7 9>977 7-3-=7



3>>=2 not received =>=38 -3-=7

9>;6 7-3-=7 =;;>8 not received

9;=7 7-=-=7 =7;97 -=-=7

9;927 7-3-=7 ===26 -23-=7

>7;;6 =-2-=7 62263 2-3-=7;297 =-2=-=7 63262 2-7-=7

;3=7 6-2-=7 6;3>7 2-;-=7;;=>6 6->-=7 6;=22 2->-=7

;7=68 6-7-=7 6==23 not received

;=> 6->-=7 6692= 2-2=-=7

;6679 6-29-=7 66926 2-2=-=7

7223 8-2-=7 6699 2-2=-=7

77;== 8-;-=7 898; ->-=7=92>3 -8-=7 8987 -=-=7

=>>39 --=7 83= -6-=7 2

Bienvenido D# *lores, Chief of the nvestigation :ivision, and Gt# Geo :ionela, Gt# icente !moto and Gt#

(olando Datmaitan conducted an investigation# "he$ relied on the certified copies of the respondent@s

/rofit and Goss Statement for 6=7 and 6== on file 'ith the SEC, the machine copies of the Consumption

Entries, Series of 6=7, submitted b$ the informer, as 'ell as excerpts from the entries certified b$ "omas

and :anganan#

Based on the documentsrecords on hand, inclusive of the machine copies of the Consumption Entries, theEB found that for 6=7, the respondent had importations totaling /8>,7;,>27#88 4inclusive of advance

sales tax5# Compared 'ith the declared sales based on the /rofit and Goss Statements filed 'ith the SEC,

the respondent had unreported sales in the amount of /;3,832,6=6#7, and its corresponding income tax

liabilit$ 'as /9,6;,637#7=, inclusive of penalt$ charge and interests#

EB Commissioner !lmonte transmitted the entire docket of the case to the B( and recommended the

collection of the total tax assessment from the respondent#

0n *ebruar$ 2, 66, :eput$ Commissioner :eoferio, <r# issued a Hemorandum to the B( !ssistant

Commissioner for Special 0perations Service, directing the latter to prepare a conference letter advising the

respondent of its deficienc$ taxes#

Hean'hile, as ordered b$ the (egional :irector, (evenue Enforcement 0fficers Saturnino :# "orres and

ilson *ilamor conducted an investigation on the 6=7 importations of the respondent, in the light of the

records elevated b$ the EB to the B(, inclusive of the photocopies of the Consumption Entries# "he$

'ere to ascertain the respondent@s liabilit$ for deficienc$ sales and income taxes for 6=7, if an$# /er"orres@ and *ilamor@s (eport dated Harch ;, 66 'hich 'as based on the report of the EB and the

documentsrecords appended thereto, there 'as a prima facie case of fraud against the respondent in filing

its 6=7 Consumption Entr$ reports 'ith the Bureau of Customs# "he$ found that the respondent had

unrecorded importation in the total amount of /78,;;,;69#88, and that the amount 'as not declared in its

income tax return for 6=7# "he :istrict (evenue 0fficer and the (egional :irector of the B( concurred

'ith the report#

Based on the said report, the !cting Chief of the Special nvestigation Branch 'rote the respondent andinvited its representative to a conference at 8+88 a#m# of Harch 9, 66 to discuss its deficienc$ internal

revenue taxes and to present 'hatever documentar$ and other evidence to refute the same# ; !ppended tothe letter 'as a computation of the deficienc$ income and sales tax due from the respondent, inclusive of

increments+

B# Computations+

# Cost of Sales (atio !2! =>#962623J

2# Fndeclared Sales — mported !3B 8,876,96#;

3# Fndeclared Dross /rofit B2-!3 >,6;6,3;#;

C# :eficienc$ "axes :ue+

# :eficienc$ ncome "ax B3 x 3>J >,>=6,2;#88

>8J Surcharge C x >8J 2,769,;38#>8

nterest to 22=6 C x >7#>J 3,23,=2>#8=

"otal ,>67,=2>#>=2# :eficienc$ Sales "ax

at 8J 7,268,8=2#72

at 28J 8,963,32#3

"otal :ue 7,7=3,36>#83



Gess+ !dvanced Sales "axes /aid ,;3;,3>2#88

:eficienc$ Sales "ax ;,97,893#83

>8J Surcharge C2 x >8J 3,873,>2#>2

nterest to 22=6 >,>32,33=#73

"otal 9,7>2,683#2= 7OOOOOOOOOOOOO

"he invitation 'as reiterated in a Getter dated Harch >, 66# n his (epl$ dated Harch >, 66, Hariano

0# Chua, the /resident and Deneral Hanager of the respondent, re)uested that the report of "orres and

*ilamor be set aside on the follo'ing claim+

# # # .e had alread$ been investigated b$ (:0 No# 23 under Getters of !uthorit$ Nos# 83226== (( dated

0ct# , 6=7, 8363>; (( dated !ug# 7, 6== and 8397=3= (( dated Harch 2, 6==, and re-investigated

b$ the Special nvestigation "eam on !ug# 7, 6== under Getter of !uthorit$ No# 83>79;9 ((, and the

ntelligence and nvestigation 0ffice on Sept# 27, 6== under Getter of !uthorit$ No# 8828== N!, all for

income and business tax liabilities for 6=7# "he Economic ntelligence and nvestigation Bureau on Nov#

28, 6=6, like'ise, confronted us on the same information for the same $ear#

n all of these investigations, save $our re)uest for an informal conference, 'e 'elcomed them and provedthe contrar$ of the allegation# No', 'ith $our ne' in)uir$, 'e think that there 'ill be no end to the

problem#

Hadam, 'e had been sub?ected to so man$ investigations and re-investigations for 6=7 and nothing came

out except the pa$ment of deficienc$ taxes as a result of oversight# "ax evasion through underdeclaration of

income had never been proven#

nvoking Section 23> of the 677 National nternal (evenue Code 4N(C5, as amended, Chua re)uested

that the in)uir$ be set aside#

"he petitioner, the Commissioner of nternal (evenue, through !ssistant Commissioner for Collection

<aime H# Ha%a, sent a Getter dated !pril >, 66 to the respondent demanding pa$ment of its deficienc$

income tax of /3,99,22;#98 and deficienc$ sales tax of /9,7>2,683#2>, inclusive of surcharge andinterest# !ppended thereto 'ere the !ssessment Notices of "ax :eficienc$ Nos# *!S--=7-6-88;>9 and

*!S-9-=7-6-88;>>#

0n *ebruar$ 2, 662, the Chief of the !ccounts (eceivablesBilling :ivision of the B( sent a letter to

the respondent demanding pa$ment of its tax liabilit$ due for 6=7 'ithin ten 485 da$s from notice, on pain of the collection tax due via a 'arrant of distraint and lev$ andor ?udicial action# "he arrant of

:istraint andor Gev$ 'as actuall$ served on the respondent on <anuar$ 2, 662# 0n September 7, 662, it

'rote the Commissioner of nternal (evenue protesting the assessment on the follo'ing grounds+

# "&!" "&E !SSESSHEN" &!S N0 *!C"F!G !S EGG !S GED!G B!SS, "&E *!C"

"&!" N0 NES"D!"0N 0* 0F( (EC0(:S !S EE( H!:E BM "&E EB &C&

(EC0HHEN:E: "S SSF!NCE#

# "&!" D(!N"ND BF" "&0F" !:H""ND "&!" 0F( /F(C&!SES *0( 6=7

!H0FN"E: "0 /8>,7;,>27#88 !S CG!HE: BM "&E EB, "&E !SSESSHEN" 0* !:E*CENCM NC0HE "!L S S"GG :E*EC"E *0( " *!GE: "0 C0NS:E( 0F( (E!G

/F(C&!SES 0* /9>,>3=,;69#>7#

# "&!" "&E !SSESSHEN" 0* ! :E*CENCM S!GES "!L S !GS0 B!SEGESS !N:

FN*0FN:E: C0NS:E(ND "&!" E &!E :F"*FGGM /!: "&E S!GES "!L :FE *(0H

0F( BFSNESS#

n vie' of the impasse, administrative hearings 'ere conducted on the respondent@s protest to theassessment# :uring the hearing of !ugust 28, 663, the /0 representative presented the photocopies of

the Consumption and mport Entries and the Certifications issued b$ "omas and :anganan of the Bureau

of Customs# "he /0 representative testified that the Bureau of Customs failed to furnish the EB 'ithcertified copies of the Consumption and mport Entries1 hence, the EB relied on the machine copies from

their informer#

"he respondent 'rote the B( Commissioner on <ul$ 2, 663 )uestioning the assessment on the ground

that the EB representative failed to present the original, or authenticated, or dul$ certified copies of theConsumption and mport Entr$ !ccounts, or excerpts thereof if the original copies 'ere not readil$

available1 or, if the originals 'ere in the official custod$ of a public officer, certified copies thereof as

provided for in Section 2, Chapter 3, Book , !dministrative /rocedure, !dministrative 0rder of 6=7#

t stated that the onl$ copies of the Consumption Entries submitted to the &earing 0fficer 'ere mere

machine copies furnished b$ an informer of the EB# t asserted that the letters of "omas and :anganan

'ere unreliable because of the follo'ing+



n the said letters, the t'o collection officers merel$ submitted a listing of alleged import entr$ numbers

and dates released of alleged importations b$ &antex "rading Co#, nc# of merchandise in 6=7, for 'hich

the$ certified that the corresponding duties and taxes 'ere paid after being processed in their offices# n

said letters, no amounts of the landed costs and advance sales tax and duties 'ere stated, and no particularsof the duties and taxes paid per import entr$ document 'as presented#

"he contents of the t'o letters failed to indicate the particulars of the importations per entr$ number, and

the said letters do not constitute as evidence of the amounts of importations of &antex "rading Co#, nc# in

6=7#

"he respondent cited the follo'ing findings of the &earing 0fficer+

# # # ".hat the import entr$ documents do not constitute evidence onl$ indicate that the tax assessments in

)uestion have no factual basis, and must, at this point in time, be 'ithdra'n and cancelled# !n$ ne'

findings b$ the /0 representative 'ho attended the hearing could not be used as evidence in this hearing,

because all the issues on the tax assessments in )uestion have alread$ been raised b$ the herein taxpa$er#

"he respondent re)uested ane' that the income tax deficienc$ assessment and the sales tax deficienc$

assessment be set aside for lack of factual and legal basis#

"he B( Commissioner 38 'rote the respondent on :ecember 8, 663, den$ing its letter-re)uest for the

dismissal of the assessments# 3 "he B( Commissioner admitted, in the said letter, the possibilit$ that thefigures appearing in the photocopies of the Consumption Entries had been tampered 'ith# She averred,

ho'ever, that she 'as not proscribed from rel$ing on other admissible evidence, namel$, the Getters of

"orres and *ilamor dated !ugust 7 and 22, 668 on their investigation of the respondent@s tax liabilit$# "he

Commissioner emphasi%ed that her decision 'as final#

"he respondent forth'ith filed a petition for revie' in the C"! of the Commissioner@s *inal !ssessment

Getter dated :ecember 8, 663 on the follo'ing grounds+

*irst# "he alleged 6=7 deficienc$ income tax assessment 4including increments5 and the alleged 6=7

deficienc$ sales tax assessment 4including increments5 are void ab initio, since under Sections ;4a5 and

964b5 of the "ax Code, the Commissioner shall examine a return after it is filed and, thereafter, assess thecorrect amount of tax# "he follo'ing facts obtaining in this case, ho'ever, are indicative of the

incorrectness of the tax assessments in )uestion+ the deficienc$ interests imposed in the income and

percentage tax deficienc$ assessment notices 'ere computed in violation of the provisions of Section

2964b5 of the N(C of 677, as amended1 the percentage tax deficienc$ 'as computed on an annual basis

for the $ear 6=7 in accordance 'ith the provision of Section 63, 'hich should have been computed inaccordance 'ith Section ;2 of the 677 N(C, as amended b$ /res# :ecree No# 669 on a )uarterl$ basis1

and the B( official 'ho signed the deficienc$ tax assessments 'as the !ssistant Commissioner for

Collection, 'ho had no authorit$ to sign the same under the N(C#

Second# Even granting arguendo that the deficienc$ taxes and increments for 6=7 against the respondent

'ere correctl$ computed in accordance 'ith the provisions of the "ax Code, the facts indicate that the

above-stated assessments 'ere based on alleged documents 'hich are inadmissible in either administrative

or ?udicial proceedings# Horeover, the alleged bases of the tax computations 'ere anchored on mere presumptions and not on actual facts# "he alleged undeclared purchases for 6=7 'ere based on mere

photocopies of alleged import entr$ documents, not the original ones, and 'hich had never been dul$certified b$ the public officer charged 'ith the custod$ of such records in the Bureau of Customs#

!ccording to the respondent, the alleged undeclared sales 'ere computed based on mere presumptions as

to the alleged gross profit contained in its 6=7 financial statement# Horeover, even the alleged financial

statement of the respondent 'as a mere machine cop$ and not an official cop$ of the 6=7 income and

business tax returns# *inall$, the respondent 'as follo'ing the accrual method of accounting in 6=7, $et,

the B( investigator 'ho computed the 6=7 income tax deficienc$ failed to allo' as a deductible item the

alleged sales tax deficienc$ for 6=7 as provided for under Section 384c5 of the N(C of 6=;#

"he Commissioner did not adduce in evidence the original or certified true copies of the 6=7 Consumption

Entries on file 'ith the Commission on !udit# nstead, she offered in evidence as proof of the contents

thereof, the photocopies of the Consumption Entries 'hich the respondent ob?ected to for beinginadmissible in evidence# She also failed to present an$ 'itness to prove the correct amount of tax due from

it# Nevertheless, the C"! provisionall$ admitted the said documents in evidence, sub?ect to its final

evaluation of their relevanc$ and probative 'eight to the issues involved#

0n :ecember , 667, the C"! rendered a decision, the dispositive portion of 'hich reads+

N "&E GD&" 0* !GG "&E *0(ED0ND, ?udgment is hereb$ rendered :ENMND the herein petition#

/etitioner is hereb$ 0(:E(E: "0 /!M the respondent Commissioner of nternal (evenue its deficienc$

income and sales taxes for the $ear 6=7 in the amounts of /,=2,3>8#2; and /2,;;8,3=2#9;,

respectivel$, plus 28J delin)uenc$ interest per annum on both deficienc$ taxes from !pril >, 66 until

full$ paid pursuant to Section 2=34c5435 of the 6=7 "ax Code, 'ith costs against the petitioner#



S0 0(:E(E:#

"he C"! ruled that the respondent 'as burdened to prove not onl$ that the assessment 'as erroneous, but

also to adduce the correct taxes to be paid b$ it# "he C"! declared that the respondent failed to prove thecorrect amount of taxes due to the B(# t also ruled that the respondent 'as burdened to adduce in

evidence a certification from the Bureau of Customs that the Consumption Entries in )uestion did not belong to it#

0n appeal, the C! granted the petition and reversed the decision of the C"!# "he dispositive portion of the

decision reads+

*0(ED0ND /(EHSES C0NS:E(E:, the /etition for (evie' is D(!N"E: and the :ecember ,667 decision of the C"! in C"! Case No# >;2 affirming the 6=7 deficienc$ income and sales tax

assessments and the increments thereof, issued b$ the B( is hereb$ (EE(SE:# No costs#

"he (uling of the Court of !ppeals

The CA held that the income and sales tax deficiency assessments issued by the petitioner were unlawful

and baseless since the copies of the import entries relied upon in computing the deficiency tax of the

respondent were not duly authenticated by the public officer charged with their custody, nor verified underoath by the !!" and the "!# investigators$ The CA also noted that the public officer charged with the

custody of the import entries was never presented in court to lend credence to the alleged loss of theoriginals$ The CA pointed out that an import entry is a public document which falls within the provisions of

%ection &', #ule &() of the #ules of Court, and to be admissible for any legal purpose, %ection )*, #ule

&() of the #ules of Court should apply$ Citin8 t0e r)3in8 o6 t0is Co)rt in Co33e2tor o6 Intern*3 Reven)e v.

<enip*+o, t0e CA r)3e! t0*t t0e *ssess/ents 4ere )n3*46)3 e2*)se t0e+ 4ere *se! on 0e*rs*+

evi!en2e. The CA also ruled that the respondent was deprived of its right to due process of law$

"he C! added that the C"! should not have ?ust brushed aside the legal re)uisites provided for under the

pertinent provisions of the (ules of Court in the matter of the admissibilit$ of public documents,considering that substantive rules of evidence should not be disregarded# t also ruled that the certifications

made b$ the t'o Customs Collection Chiefs under the guise of supporting the respondent@s alleged tax

deficienc$ assessments invoking the best evidence obtainable rule under the "ax Code should not be permitted to supplant the best evidence rule under Section 7, (ule 38 of the (ules of Court#

*inall$, the C! noted that the tax deficienc$ assessments 'ere computed 'ithout the tax returns# "he C!

opined that the use of the tax returns is indispensable in the computation of a tax deficienc$1 hence, this

essential re)uirement must be complied 'ith in the preparation and issuance of valid tax deficienc$assessments#

"he /resent /etition

"he Commissioner of nternal (evenue, the petitioner herein, filed the present petition for revie' under

(ule 9> of the (ules of Court for the reversal of the decision of the C! and for the reinstatement of theruling of the C"!#

!s gleaned from the pleadings of the parties, the threshold issues for resolution are the follo'ing+ 4a5

'hether the petition at bench is proper and complies 'ith Sections 9 and >, (ule 7 of the (ules of Court1

4b5 'hether the :ecember 8, 66 final assessment of the petitioner against the respondent for deficienc$

income tax and sales tax for the latter@s 6=7 importation of resins and calcium bicarbonate is based on

competent evidence and the la'1 and 4c5 the total amount of deficienc$ taxes due from the respondent for

6=7, if an$#

On t0e 6irst iss)e, the respondent points out that the petition raises both )uestions of facts and la' 'hichcannot be the sub?ect of an appeal b$ certiorari under (ule 9> of the (ules of Court# T0e respon!ent notes

t0*t t0e petition is !e6e2tive e2*)se t0e veri6i2*tion *n! t0e 2erti6i2*tion *8*inst 6or)/ s0oppin8 4ere

not si8ne! + t0e petitioner 0erse36, )t on3+ + t0e Re8ion*3 ire2tor o6 t0e <IR. T0e respon!ents)/its t0*t t0e petitioner s0o)3! 0*ve 6i3e! * /otion 6or re2onsi!er*tion 4it0 t0e CA e6ore 6i3in8 t0e

inst*nt petition 6or revie4.

e find and so rule that the petition is sufficient in form# A verification and certification against forum

shopping signed by the #egional +irector constitutes sufficient compliance with the reuirements of%ections * and -, #ule . of the #ules of Court$ Under %ection &/ of the 0!#C of &''., the #egional

+irector has the power to administer and enforce internal revenue laws, rules and regulations, including

the assessment and collection of all internal revenue taxes, charges and fees$ %uch power is broad enough

to vest the #evenue #egional +irector with the authority to sign the verification and certification against

forum shopping in behalf of the Commissioner of !nternal #evenue$ There is no other person in a better

position to 1now the collection cases filed under his jurisdiction than the #evenue #egional +irector$



Moreover, )n!er Reven)e A!/inistr*tive Or!er No. $1&%, =$ t0e Re8ion*3 ire2tor is *)t0ori9e! to si8n

*33 p3e*!in8s 6i3e! in 2onne2tion 4it0 2*ses re6erre! to t0e Reven)e Re8ions + t0e N*tion*3 O66i2e

40i20, ot0er4ise, re;)ire t0e si8n*t)re o6 t0e petitioner.

e do not agree 'ith the contention of the respondent that a motion for reconsideration ought to have been

filed before the filing of the instant petition# ! motion for reconsideration of the decision of the C! is not acondition sine )ua non for the filing of a petition for revie' under (ule 9># !s 'e held in !lmora v# Court

of !ppeals+

(ule 9>, Sec# of the (ules of Court, ho'ever, distinctl$ provides that+

! part$ ma$ appeal b$ certiorari from a ?udgment of the Court of !ppeals, b$ filing 'ith the SupremeCourt a petition for certiorari 'ithin fifteen 4>5 da$s from notice of ?udgment, or of the denial of his

motion for reconsideration filed in due time# 4Emphasis supplied5

"he con?unctive AorA clearl$ indicates that the >-da$ reglementar$ period for the filing of a petition for

certiorari under (ule 9> commences either from notice of the )uestioned ?udgment or from notice of denial

of the appellant@s motion for reconsideration# ! prior motion for reconsideration is not indispensable for a

petition for revie' on certiorari under (ule 9> to prosper# # # # 97

hile (ule 9> of the (ules of Court provides that onl$ )uestions of la' ma$ be raised b$ the petitioner and

resolved b$ the Court, under exceptional circumstances, the Court ma$ take cogni%ance thereof and resolve)uestions of fact# n this case, the findings and conclusion of the C! are inconsistent 'ith those of the

C"!, not to mention those of the Commissioner of nternal (evenue# "he issues raised in this case relate to

the propriet$ and the correctness of the tax assessments made b$ the petitioner against the respondent, as

'ell as the propriet$ of the application of Section ;, paragraph 4b5 of the 677 N(C, as amended b$ /res#

:ecree Nos# 78>, 773, 669 and Executive 0rder No# 273, in relation to Section 3, (ule 32 of the (ules

of Evidence# "here is also an imperative need for the Court to resolve the threshold factual issues to give

?ustice to the parties, and to determine 'hether the C! capriciousl$ ignored, misunderstood or

misinterpreted cogent facts and circumstances 'hich, if considered, 'ould change the outcome of the case#0n the second issue, the petitioner asserts that since the respondent refused to cooperate and sho' its 6=7

books of account and other accounting records, it 'as proper for her to resort to the best evidence

obtainable — the photocopies of the import entries in the Bureau of Customs and the respondent@s financialstatement filed 'ith the SEC# 9= "he petitioner maintains that these import entries 'ere admissible as

secondar$ evidence under the best evidence obtainable rule, since the$ 'ere dul$ authenticated b$ the

Bureau of Customs officials 'ho processed the documents and released the cargoes after pa$ment of the

duties and taxes due# *urther, the petitioner points out that under the best evidence obtainable rule, the tax

return is not important in computing the tax deficienc$#

"he petitioner avers that the best evidence obtainable rule under Section ; of the 677 N(C, as amended,

legall$ cannot be e)uated to the best evidence rule under the (ules of Court1 nor can the best evidence rule,

being procedural la', be made strictl$ operative in the interpretation of the best evidence obtainable rule

'hich is substantive in character# "he petitioner posits that the C"! is not strictl$ bound b$ technical rules

of evidence, the reason being that the )uantum of evidence re)uired in the said court is merel$ substantial

evidence#

*inall$, the petitioner avers that the respondent has the burden of proof to sho' the correct assessments1

other'ise, the presumption in favor of the correctness of the assessments made b$ it stands# Since therespondent 'as allo'ed to explain its side, there 'as no violation of due process#

"he respondent, for its part, maintains that the resort to the best evidence obtainable method 'as illegal# n

the first place, the respondent argues, the EB agents are not dul$ authori%ed to undertake examination of

the taxpa$er@s accounting records for internal revenue tax purposes# &ence, the respondent@s failure to

accede to their demands to sho' its books of accounts and other accounting records cannot ?ustif$ resort to

the use of the best evidence obtainable method# Secondl$, 'hen a taxpa$er fails to submit its tax records

upon demand b$ the B( officer, the remed$ is not to assess him and resort to the best evidence obtainablerule, but to punish the taxpa$er according to the provisions of the "ax Code#

n an$ case, the respondent argues that the photocopies of import entries cannot be used in making theassessment because the$ 'ere not properl$ authenticated, pursuant to the provisions of Sections 29 >7 and

2> >= of (ule 32 of the (ules of Court# t avers that 'hile the C"! is not bound b$ the technical rules of

evidence, it is bound b$ substantial rules# "he respondent points out that the petitioner did not even secure a

certification of the fact of loss of the original documents from the custodian of the import entries# t simpl$

relied on the report of the EB agents that the import entr$ documents 'ere no longer available becausethe$ 'ere eaten b$ termites# "he respondent posits that the t'o collectors of the Bureau of Customs never

authenticated the xerox copies of the import entries1 instead, the$ onl$ issued certifications stating therein

the import entr$ numbers 'hich 'ere processed b$ their office and the date the same 'ere released#

"he respondent argues that it 'as not necessar$ for it to sho' the correct assessment, considering that it is

)uestioning the assessments not onl$ because the$ are erroneous, but because the$ 'ere issued 'ithout



factual basis and in patent violation of the assessment procedures laid do'n in the N(C of 677, as

amended# t is also pointed out that the petitioner failed to use the tax returns filed b$ the respondent in

computing the deficienc$ taxes 'hich is contrar$ to la'1 as such, the deficienc$ assessments constituted

deprivation of propert$ 'ithout due process of la'#

Centr*3 to t0e se2on! iss)e is Se2tion #' o6 t0e NIRC o6 #>??, *s */en!e!, 'hich provides that the

Commissioner of nternal (evenue has the po'er to make assessments and prescribe additionalre)uirements for tax administration and enforcement# !mong such po'ers are those provided in paragraph

4b5 thereof, 'hich 'e )uote+

4b5 *ailure to submit re)uired returns, statements, reports and other documents# —

hen a report re)uired b$ la' as a basis for the assessment of an$ national internal

revenue tax shall not be forthcoming 'ithin the time fixed b$ la' or regulation or 'henthere is reason to believe that an$ such report is false, incomplete or erroneous, the

Commissioner shall assess the proper tax on the best evidence obtainable#

n case a person fails to file a re)uired return or other document at the time prescribed b$ la', or 'illfull$

or other'ise files a false or fraudulent return or other document, the Commissioner shall make or amend

the return from his o'n kno'ledge and from such information as he can obtain through testimon$ or

other'ise, 'hich shall be prima facie correct and sufficient for all legal purposes#

"his provision applies 'hen the Commissioner of nternal (evenue undertakes to perform her

administrative dut$ of assessing the proper tax against a taxpa$er, to make a return in case of a taxpa$er@sfailure to file one, or to amend a return alread$ filed in the B(#

"he petitioner ma$ avail herself of the best evidence or other information or testimon$ b$ exercising her

po'er or authorit$ under paragraphs 45 to 495 of Section 7 of the N(C+

45 "o examine an$ book, paper, record or other data 'hich ma$ be relevant or material to such

in)uir$1

425 "o obtain information from an$ office or officer of the national and local governments,

government agencies or its instrumentalities, including the Central Bank of the /hilippines and government

o'ned or controlled corporations1

435 "o summon the person liable for tax or re)uired to file a return, or an$ officer or emplo$ee of such

person, or an$ person having possession, custod$, or care of the books of accounts and other accounting

records containing entries relating to the business of the person liable for tax, or an$ other person, to appear

before the Commissioner or his dul$ authori%ed representative at a time and place specified in the summonsand to produce such books, papers, records, or other data, and to give testimon$1

495 "o take such testimon$ of the person concerned, under oath, as ma$ be relevant or material to such

in)uir$1 # # #

T0e est evi!en2e envis*8e! in Se2tion #' o6 t0e #>?? NIRC, *s */en!e!, in23)!es t0e 2orpor*te *n!

*22o)ntin8 re2or!s o6 t0e t*7p*+er 40o is t0e s)5e2t o6 t0e *ssess/ent pro2ess, t0e *22o)ntin8 re2or!s

o6 ot0er t*7p*+ers en8*8e! in t0e s*/e 3ine o6 )siness, in23)!in8 t0eir 8ross pro6it *n! net pro6it s*3es. S)20 evi!en2e *3so in23)!es !*t*, re2or!, p*per, !o2)/ent or *n+ evi!en2e 8*t0ere! + intern*3 reven)e

o66i2ers 6ro/ ot0er t*7p*+ers 40o 0*! person*3 tr*ns*2tions or 6ro/ 40o/ t0e s)5e2t t*7p*+er

re2eive! *n+ in2o/e@ *n! re2or!, !*t*, !o2)/ent *n! in6or/*tion se2)re! 6ro/ 8overn/ent o66i2es or

*8en2ies, s)20 *s t0e SEC, t0e Centr*3 <*n: o6 t0e P0i3ippines, t0e <)re*) o6 C)sto/s, *n! t0e T*ri66

*n! C)sto/s Co//ission.

The law allows the "!# access to all relevant or material records and data in the person of the taxpayer$ !t

places no limit or condition on the type or form of the medium by which the record subject to the order of

the "!# is 1ept$ The purpose of the law is to enable the "!# to get at the taxpayer2s records in whatever

form they may be 1ept$ %uch records include computer tapes of the said records prepared by the taxpayerin the course of business$ !n this era of developing information3storage technology, there is no valid reason

to immunize companies with computer3based, record31eeping capabilities from "!# scrutiny$ The standard

is not the form of the record but where it might shed light on the accuracy of the taxpayer2s return$

n Campbell, <r# v# Duetersloh, the Fnited States 4F#S#5 Court of !ppeals 4>th Circuit5 declared that it is the

dut$ of the Commissioner of nternal (evenue to investigate an$ circumstance 'hich led him to believe

that the taxpa$er had taxable income larger than reported# Necessaril$, this in)uir$ 'ould have to be

outside of the books because the$ supported the return as filed# &e ma$ take the s'orn testimon$ of thetaxpa$er1 he ma$ take the testimon$ of third parties1 he ma$ examine and subpoena, if necessar$, traders@

and brokers@ accounts and books and the taxpa$er@s book accounts# "he Commissioner is not bound to

follo' an$ set of patterns# "he existence of unreported income ma$ be sho'n b$ an$ practicable proof that

is available in the circumstances of the particular situation# Citing its ruling in Penne$ v# Commissioner,

the F#S# appellate court declared that 'here the records of the taxpa$er are manifestl$ inaccurate and



incomplete, the Commissioner ma$ look to other sources of information to establish income made b$ the

taxpa$er during the $ears in )uestion#

4e agree with the contention of the petitioner that the best evidence obtainable may consist of hearsayevidence, such as the testimony of third parties or accounts or other records of other taxpayers similarly

circumstanced as the taxpayer subject of the investigation, hence, inadmissible in a regular proceeding in

the regular courts$ Moreover, t0e 8ener*3 r)3e is t0*t *!/inistr*tive *8en2ies s)20 *s t0e <IR *re not

o)n! + t0e te20ni2*3 r)3es o6 evi!en2e. It 2*n *22ept !o2)/ents 40i20 2*nnot e *!/itte! in * 5)!i2i*3

pro2ee!in8 40ere t0e R)3es o6 Co)rt *re stri2t3+ oserve!. It 2*n 20oose to 8ive 4ei80t or !isre8*r! s)20

evi!en2e, !epen!in8 on its tr)st4ort0iness#

Ho4ever, t0e est evi!en2e ot*in*3e )n!er Se2tion #' o6 t0e #>?? NIRC, *s */en!e!, !oes not in23)!e

/ere p0oto2opies o6 re2or!s!o2)/ents. T0e petitioner, in /*:in8 * pre3i/in*r+ *n! 6in*3 t*7 !e6i2ien2+

*ssess/ent *8*inst * t*7p*+er, 2*nnot *n20or t0e s*i! *ssess/ent on /ere /*20ine 2opies o6

re2or!s!o2)/ents. Mere p0oto2opies o6 t0e Cons)/ption Entries 0*ve no pro*tive 4ei80t i6 o66ere! *s

proo6 o6 t0e 2ontents t0ereo6. T0e re*son 6or t0is is t0*t s)20 2opies *re /ere s2r*ps o6 p*per *n! *re o6

no pro*tive v*3)e *s *sis 6or *n+ !e6i2ien2+ in2o/e or )siness t*7es *8*inst * t*7p*+er. In!ee!, in

Unite! St*tes v. *ve+, t0e U.S. Co)rt o6 Appe*3s (n! Cir2)it r)3e! t0*t 40ere t0e *22)r*2+ o6 *

t*7p*+ers ret)rn is ein8 20e2:e!, t0e 8overn/ent is entit3e! to )se t0e ori8in*3 re2or!s r*t0er t0*n e

6or2e! to *22ept p)rporte! 2opies 40i20 present t0e ris: o6 error or t*/perin8.

n Collector of nternal (evenue v# Benipa$o, the Court ruled that the assessment must be based on actual

facts# "he rule assumes more importance in this case since the xerox copies of the Consumption Entries

furnished b$ the informer of the EB 'ere furnished b$ $et another informer# hile the EB tried to

secure certified copies of the said entries from the Bureau of Customs, it 'as unable to do so because the

said entries 'ere allegedl$ eaten b$ termites# "he Court can onl$ surmise 'h$ the EB or the B(, for that

matter, failed to secure certified copies of the said entries from the "ariff and Customs Commission or from

the National Statistics 0ffice 'hich also had copies thereof# t bears stressing that under Section 38; ofthe "ariff and Customs Code, the Consumption Entries shall be the re)uired number of copies as prescribed

b$ regulations# "he Consumption Entr$ is accomplished in sextuplicate copies and )uadruplicate copies in

other places# n Hanila, the six copies are distributed to the Bureau of Customs, the "ariff and CustomsCommission, the :eclarant 4mporter5, the "erminal 0perator, and the Bureau of nternal (evenue#

nexplicabl$, the Commissioner and the B( personnel ignored the cop$ of the Consumption Entries filed

'ith the B( and relied on the photocopies supplied b$ the informer of the EB 'ho secured the same

from another informer# "he B(, in preparing and issuing its preliminar$ and final assessments against the

respondent, even ignored the records on the investigation made b$ the :istrict (evenue officers on therespondent@s importations for 6=7#

"he original copies of the Consumption Entries 'ere of prime importance to the B(# "his is so because

such entries are under oath and are presumed to be true and correct under penalt$ of falsification or per?ur$#

!dmissions in the said entries of the importers@ documents are admissions against interest and

presumptivel$ correct#

n fine, then, the petitioner acted arbitraril$ and capriciousl$ in rel$ing on and giving 'eight to the machinecopies of the Consumption Entries in fixing the tax deficienc$ assessments against the respondent#

"he rule is that in the absence of the accounting records of a taxpa$er, his tax liabilit$ ma$ be determined

b$ estimation# "he petitioner is not re)uired to compute such tax liabilities 'ith mathematical exactness#

!pproximation in the calculation of the taxes due is ?ustified# "o hold other'ise 'ould be tantamount to

holding that skillful concealment is an invincible barrier to proof# &o'ever, the rule does not appl$ 'here

the estimation is arrived at arbitraril$ and capriciousl$#

e agree 'ith the contention of the petitioner that, as a general rule, tax assessments b$ tax examiners are

presumed correct and made in good faith# !ll presumptions are in favor of the correctness of a taxassessment# t is to be presumed, ho'ever, that such assessment 'as based on sufficient evidence# Fpon the

introduction of the assessment in evidence, a prima facie case of liabilit$ on the part of the taxpa$er is

made# f a taxpa$er files a petition for revie' in the C"! and assails the assessment, the prima facie presumption is that the assessment made b$ the B( is correct, and that in preparing the same, the B(

personnel regularl$ performed their duties# "his rule for tax initiated suits is premised on several factors

other than the normal evidentiar$ rule imposing proof obligation on the petitioner-taxpa$er+ the

presumption of administrative regularit$1 the likelihood that the taxpa$er 'ill have access to the relevant

information1 and the desirabilit$ of bolstering the record-keeping re)uirements of the N(C#

&o'ever, the prima facie correctness of a tax assessment does not appl$ upon proof that an assessment is

utterl$ 'ithout foundation, meaning it is arbitrar$ and capricious# here the B( has come out 'ith a

Anaked assessment,A i#e#, 'ithout an$ foundation character, the determination of the tax due is 'ithout

rational basis# n such a situation, the F#S# Court of !ppeals ruled that the determination of the



Commissioner contained in a deficienc$ notice disappears# &ence, the determination b$ the C"! must rest

on all the evidence introduced and its ultimate determination must find support in credible evidence#

The issue that now comes to fore is whether the tax deficiency assessment against the respondent

based on the certified copies of the Profit and Loss Statement submitted by the respondent to the

SEC in 19! and 19" as we## as certifications of Tomas and $anganan" is arbitrary" capricious and

i##ega#% The CT& ru#ed that the respondent fai#ed to overcome the prima facie correctness of the tax

deficiency assessment issued by the petitioner" to wit'

The issue should be ruled in the affirmative as petitioner has failed to rebut the validity orcorrectness of the aforementioned tax assessments. It is incongruous for petitioner to prove itscause by simply drawing an inference unfavorable to the respondent by attacking the sourcedocuments (Consumption Entries) which were the bases of the assessment and which werecertified by the Chiefs of the Collection ivision! "anila International Container #ort and the#ort of "anila! as having been processed and released in the name of the petitioner afterpayment of duties and taxes and the duly certified copies of $inancial %tatements secured fromthe %ecurities and Exchange Commission. &ny such inference cannot operate to relievepetitioner from bearing its burden of proof and this Court has no warrant of absolution. TheCourt should have been persuaded to grant the reliefs sought by the petitioner should it havepresented any evidence of relevance and competence re'uired! like that of a certification fromthe ureau of Customs or from any other agencies! attesting to the fact that those consumptionentries did not really belong to them.

The burden of proof is on the taxpayer contesting the validity or correctness of an assessmentto prove not only that the Commissioner of Internal evenue is wrong but the taxpayer is right(Tan *uan v. CT&! +, %C& ,-)! otherwise! the presumption in favor of the correctness of taxassessment stands (%y #o v. CT&! +/0 %C& 120). The burden of proving the illegality of theassessment lies upon the petitioner alleging it to be so. In the case at bar! petitioner miserablyfailed to discharge this duty.

4e are not in full accord with the findings and ratiocination of the CTA$ "ased on the letter of the

petitioner to the respondent dated +ecember &/, &''(, the tax deficiency assessment in uestion was based

on 5a6 the findings of the agents of the !!" which was based, in turn, on the photocopies of the

Consumption ntries7 5b6 the Profit and 8oss %tatements of the respondent for &'9. and &'997 and 5c6 thecertifications of Tomas and +anganan dated August ., &''/ and August )), &''/:

n repl$, please be informed that after a thorough evaluation of the attending facts, as 'ell as the la's and

?urisprudence involved, this 0ffice holds that $ou are liable to the assessed deficienc$ taxes# "he

conclusion 'as arrived at based on the findings of agents of the Economic ntelligence K nvestigation

Bureau 4EB5 and of our o'n examiners 'ho have painstakingl$ examined the records furnished b$ theBureau of Customs and the Securities K Exchange Commission 4SEC5# "he examination conducted

disclosed that 'hile $our actual sales for 6=7 amounted to /8,73,>>6#88, $ou declared for taxation

purposes, as sho'n in the /rofit and Goss Statements, the sum of /97,;6=,>;6#=3 onl$# "he difference,

therefore, of /;3,832,6=6#7 constitutes as undeclared or unrecorded sales 'hich must be sub?ected to the

income and sales taxes#

Mou also argued that our assessment has no basis since the alleged amount of underdeclared importations'ere lifted from uncertified or unauthenticated xerox copies of consumption entries 'hich are notadmissible in evidence# 0n this issue, it must be considered that in letters dated !ugust 7 and 22, 668, the

Chief and !cting Chief of the Collection :ivision of the Hanila nternational Container /ort and /ort of

Hanila, respectivel$, certified that the enumerated consumption entries 'ere filed, processed and released

from the port after pa$ment of duties and taxes# t is noted that the certification does not touch on the

genuineness, authenticit$ and correctness of the consumption entries 'hich are all xerox copies, 'herein

the figures therein appearing ma$ have been tampered 'hich ma$ render said documents inadmissible in

evidence, but for tax purposes, it has been held that the Commissioner is not re)uired to make his

determination 4assessment5 on the basis of evidence legall$ admissible in a formal proceeding in Court

4Hertens, ol# 6, p# 29, citing Cohen v# Commissioner5# ! statutor$ notice ma$ be based in 'hole or in

part upon admissible evidence 4Glorente v# Commissioner, 79 "C 2;8 46=851 eimerskirch v#Commissioner, ;7 "C ;72 467751 and (osano v# Commissioner, 9; "C ;= 46;;5# n the case also of

eimerskirch v# Commissioner 46775, the assessment 'as given due course in the presence of admissibleevidence as to ho' the Commissioner arrived at his determination, although there 'as no admissible

evidence 'ith respect to the substantial issue of 'hether the taxpa$er had unreported or undeclared income

from narcotics sale# # # #

ased on a "emorandum dated 3ctober 2! +,,- of the II#3! the source documents for theactual cost of importation of the respondent are the machine copies of the ConsumptionEntries from the informer which the II#3 claimed to have been certified by Tomas andanganan4

The source documents for the total actual cost of importations! abovementioned! were thedifferent copies of Consumption Entries! %eries of +,56! filed by sub7ect with the ureau of



Customs! marked &nnexes 8$9+8 to 8$9/5.8 The total cost of importations is the sum of the:anded Costs and the &dvance %ales Tax as shown in the annexed entries. These entries wereduly authenticated as having been processed and released! after payment of the duties andtaxes due thereon! by the Chief! Collection ivision! "anila International Container #ort! dated&ugust 6! +,,-! 8&nnex9*!8 and the #ort of "anila! dated &ugust 22! +,,-! 8&nnex9;.8 %o! it wasestablished that sub7ect9importations! mostly resins! really belong to ;&<TE= T&I<* C3.!

I<C. t also appears on the 'orksheet of the /0, as culled from the photocopies of the Consumption Entries

from its informer, that the total cost of the respondent@s importation for 6=7 'as /8>,7;,>27#88# /er the

report of "orres and *ilamor, the$ also relied on the photocopies of the said Consumption Entries+

"he importations made b$ taxpa$er verified b$ us from the records of the Bureau of

Customs and xerox copies of 'hich are hereto attached sho's the big volume of

importations made and not declared in the income tax return filed b$ taxpa$er#

Based on the above findings, it clearl$ sho's that a prima facie case of fraud exists in the herein transaction

of the taxpa$er, as a conse)uence of 'hich, said transaction has not been possibl$ entered into the books ofaccounts of the sub?ect taxpa$er#

In 6ine, t0e petitioner *se! 0er 6in!in8 t0*t t0e #>&? i/port*tion o6 t0e respon!ent

4*s )n!er!e23*re! in t0e */o)nt o6 P#-$,?'#,$?.-- on t0e 4ort03ess /*20ine 2opies

o6 t0e Cons)/ption Entries# !side from such copies, the petitioner has no other evidence to prove

that the respondent imported goods costing /8>,7;,>27#88# The petitioner cannot find solace on thecertifications of Tomas and anganan because they did not authenticate the machine copies ofthe Consumption Entries! and merely indicated therein the entry numbers of ConsumptionEntries and the dates when the ureau of Customs released the same # The certifications of Tomas

and +anganan do not even contain the landed costs and the advance sales taxes paid by the importer, if

any$ Comparing the certifications of Tomas and +anganan and the machine copies of the Consumption

ntries, only (; of the entry numbers of such copies are included in the said certifications7 the entry

numbers of the rest of the machine copies of the Consumption ntries are not found therein$

Even if the Court 'ould concede to the petitioner@s contention that the certification of "omas and :angananauthenticated the machine copies of the Consumption Entries referred to in the certification, it appears that

the total cost of importations inclusive of advance sales tax is onl$ /;9,329,6>3#88 — far from the amount

of /8>,7;,>27#88 arrived at b$ the EB and the B(, == or even the amount of /8,876,96#; arrived

at b$ :eput$ Commissioner :eoferio, <r# !s gleaned from the certifications of "omas and :anganan, the

goods covered b$ the Consumption Entries 'ere released b$ the Bureau of Customs, from 'hich it can be

presumed that the respondent must have paid the taxes due on the said importation# "he petitioner did not

adduce an$ documentar$ evidence to prove other'ise#

"hus, the computations of the EB and the B( on the )uantit$ and costs of the importations of the

respondent in the amount of /8>,7;,>27#88 for 6=7 have no factual basis, hence, arbitrar$ and

capricious# T0e petitioner 2*nnot re3+ on t0e pres)/ption t0*t s0e *n! t0e ot0er

e/p3o+ees o6 t0e <IR 0*! re8)3*r3+ per6or/e! t0eir !)ties. As t0e Co)rt 0e3! in

Co33e2tor o6 Intern*3 Reven)e v. <enip*+o, in or!er to st*n! 5)!i2i*3 s2r)tin+, t0e*ssess/ent /)st e *se! on 6*2ts. T0e pres)/ption o6 t0e 2orre2tness o6 *n

*ssess/ent, ein8 * /ere pres)/ption, 2*nnot e /*!e to rest on *not0er

pres)/ption.

(oreover" the uncontroverted fact is that the )*+ $istrict +evenue ,ffice had repeated#y examined

the 19! boo-s of accounts of the respondent showing its importations" and found that the #atter had

minima# business tax #iabi#ity% *n this case" the presumption that the $istrict +evenue officers

performed their duties in accordance with #aw sha## app#y% There is no evidence on record that the

said officers neg#ected to perform their duties as mandated by #aw. neither is there evidence a#iunde

that the contents of the 19! and 19 Profit and Loss Statements submitted by the respondent with

the SEC are incorrect%

&dmitted#y" the respondent did not adduce evidence to prove its correct tax #iabi#ity% /owever"

considering that it has been estab#ished that the petitioner0s assessment is barren of factua# basis"

arbitrary and i##ega#" such fai#ure on the part of the respondent cannot serve as a basis for a finding

by the Court that it is #iab#e for the amount contained in the said assessment. otherwise" the Court

wou#d thereby be committing a travesty%

,n the disposition of the case" the Court has two options" name#y" to deny the

petition for #ac- of merit and affirm the decision of the C&" without preudice to the

petitioner0s issuance of a new assessment against the respondent based on credib#e

evidence. or" to remand the case to the CT& for further proceedings" to enab#e the



petitioner to adduce in evidence certified true copies or dup#icate origina# copies of

the Consumption Entries for the respondent0s 19! importations" if there be any"

and the correct tax deficiency assessment thereon" without preudice to the right of

the respondent to adduce controverting evidence" so that the matter may be reso#ved

once and for a## by the CT&% *n the higher interest of ustice to both the parties" the

Court has chosen the #atter option% &fter a##" as the Tax Court of the 2nited Statesemphasized in /arbin v% Commissioner of *nterna# +evenue" taxation is not on#y

practica#. it is vita#% The ob#igation of good faith and fair dea#ing in carrying out its

provision is reciproca# and" as the government shou#d never be over3reaching or

tyrannica#" neither shou#d a taxpayer be permitted to escape payment by the

concea#ment of materia# facts%

N GD&" 0* !GG "&E *0(ED0ND, the petition is D(!N"E:# "he :ecision of the Court of !ppeals

is SE" !S:E# "he records are (EH!N:E: to the Court of "ax !ppeals for further proceedings,

conformabl$ 'ith the decision of this Court# No costs#

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. CENTRAL LUDON RUG

CORPORATION, respon!ent. "G.R. No. #$>'=?. Apri3 #$, --$.

: E C S 0 N

/!ND!NB!N, < p+

"he 28 percent discount re)uired b$ the la' to be given to senior citi%ens is a tax credit, not merel$ a tax

deduction from the gross income or gross sale of the establishment concerned# ! tax credit is used b$ a

private establishment onl$ after the tax has been computed1 a tax deduction, before the tax is computed# (!

7932 unconditionall$ grants a tax credit to all covered entities# "hus, the provisions of the revenue

regulation that 'ithdra' or modif$ such grant are void# Basic is the rule that administrative regulationscannot amend or revoke the la'#

"he Case

Before us is a /etition for (evie' under (ule 9> of the (ules of Court, seeking to set aside the !ugust 26,

2882 :ecision and the !ugust , 2883 (esolution of the Court of !ppeals 4C!5 in C!-D( S/ No# ;7936#

"he assailed :ecision reads as follo's+

A&E(E*0(E, premises considered, the (esolution appealed from is !**(HE: in toto# No costs#A

"he assailed (esolution denied petitioner@s Hotion for (econsideration#

"he *acts

"he C! narrated the antecedent facts as follo's+

A(espondent is a domestic corporation primaril$ engaged in retailing of medicines and other

pharmaceutical products# n 66;, it operated six 4;5 drugstores under the business name and st$le @Hercur$:rug#@

A*rom <anuar$ to :ecember 66;, respondent granted t'ent$ 428J5 percent sales discount to )ualified

senior citi%ens on their purchases of medicines pursuant to (epublic !ct No# (#!#. 7932 and its

mplementing (ules and (egulations# *or the said period, the amount allegedl$ representing the 28J sales

discount granted b$ respondent to )ualified senior citi%ens totaled /689,7;6#88#

A0n !pril >, 667, respondent filed its !nnual ncome "ax (eturn for taxable $ear 66; declaring therein

that it incurred net losses from its operations#

A0n <anuar$ ;, 66=, respondent filed 'ith petitioner a claim for tax refundcredit in the amount of

/689,7;6#88 allegedl$ arising from the 28J sales discount granted b$ respondent to )ualified senior

citi%ens in compliance 'ith (#!#. 7932# Fnable to obtain affirmative response from petitioner, respondentelevated its claim to the Court of "ax !ppeals 4C"! or "ax Court5. via a /etition for (evie'#

A0n *ebruar$ 2, 288, the "ax Court rendered a :ecision dismissing respondent@s /etition for lack of

merit# n said decision, the C"!. ?ustified its ruling 'ith the follo'ing ratiocination+

@# # #, if no tax has been paid to the government, erroneousl$ or illegall$, or if no amount is due and

collectible from the taxpa$er, tax refund or tax credit is unavailing# Horeover, 'hether the recover$ of the

tax is made b$ means of a claim for refund or tax credit, before recover$ is allo'ed,. it must be first

established that there 'as an actual collection and receipt b$ the government of the tax sought to be

recovered# # # #



@xxx xxx xxx

@/rescinding from the above, it could logicall$ be deduced that tax credit is premised on the existence of tax

liabilit$ on the part of taxpa$er# n other 'ords, if there is no tax liabilit$, tax credit is not available#@

A(espondent lodged a Hotion for (econsideration# "he C"!., in its assailed resolution, granted

respondent@s motion for reconsideration and ordered herein petitioner to issue a "ax Credit Certificate infavor of respondent citing the decision of the then Special *ourth :ivision of the C!. in C! D#(# S/ No#

;88>7 entitled @Central Gu%on. :rug Corporation vs# Commissioner of nternal (evenue@ promulgated on

Ha$ 3, 288, to 'it+

@

&o'ever, Sec# 226 clearl$ does not appl$ in the instant case because the tax sought to be refunded or

credited b$ petitioner 'as not erroneousl$ paid or illegall$ collected# e take exception to the C"!@ss'eeping but unfounded statement that Qboth tax refund and tax credit are modes of recovering taxes 'hich

are either erroneousl$ or illegall$ paid to the government#@ "ax refunds or credits do not exclusivel$ pertain

to illegall$ collected or erroneousl$ paid taxes as the$ ma$ be other circumstances 'here a refund is

'arranted# "he tax refund provided under Section 226 deals exclusivel$ 'ith illegall$ collected or

erroneousl$ paid taxes but there are other possible situations, such as the refund of excess estimated

corporate )uarterl$ income tax paid, or that of excess input tax paid b$ a !"-registered person, or that of

excise tax paid on goods locall$ produced or manufactured but actuall$ exported# "he standards and

mechanics for the grant of a refund or credit under these situations are different from that under Sec# 226#Sec# 9#a5. of (#!# 7932, is $et another instance of a tax credit and it does not in an$ 'a$ refer to illegall$

collected or erroneousl$ paid taxes, # # #@A

(uling of the Court of !ppeals

"he C! affirmed in toto the (esolution of the Court of "ax !ppeals 4C"!5 ordering petitioner to issue a

tax credit certificate in favor of respondent in the reduced amount of /683,83=#36# t reasoned that (epublic

!ct No# 4(!5 7932 re)uired neither a tax liabilit$ nor a pa$ment of taxes b$ private establishments prior to

the availment of a tax credit# Horeover, such credit is not tantamount to an unintended benefit from the

la', but rather a ?ust compensation for the taking of private propert$ for public use#

&ence this /etition# =

"he ssues

/etitioner raises the follo'ing issues for our consideration+

Ahether the Court of !ppeals erred in holding that respondent ma$ claim the 28J sales discount as a taxcredit instead of as a deduction from gross income or gross sales#

Ahether the Court of !ppeals erred in holding that respondent is entitled to a refund#A

"hese t'o issues ma$ be summed up in onl$ one+ 'hether respondent, despite incurring a net loss, ma$ still

claim the 28 percent sales discount as a tax credit#

"he Court@s (uling

"he /etition is not meritorious#

Sole ssue+

Claim of 28 /ercent Sales :iscount

as "ax Credit :espite Net Goss

Section 9a5 of (! 7932 8 grants to senior citi%ens the privilege of obtaining a 28 percent discount on their

purchase of medicine from an$ private establishment in the countr$# "he latter ma$ then claim the costof the discount as a tax credit# 2 But can such credit be claimed, even though an establishment operates at

a lossR

e ans'er in the affirmative#

"ax Credit versus

"ax :eduction

!lthough the term is not specificall$ defined in our "ax Code , t*7 2re!it 8ener*33+ re6ers to *n */o)nt

t0*t is s)tr*2te! !ire2t3+ 6ro/ ones tot*3 t*7 3i*i3it+. It is *n *33o4*n2e *8*inst t0e t*7 itse36 or *

!e!)2tion 6ro/ 40*t is o4e! + * t*7p*+er to t0e 8overn/ent. E7*/p3es o6 t*7 2re!its *re 4it00e3!

t*7es, p*+/ents o6 esti/*te! t*7, *n! invest/ent t*7 2re!its.

"ax credit should be understood in relation to other tax concepts# 0ne of these is t*7 !e!)2tion !e6ine!

*s * s)tr*2tion 6ro/ in2o/e 6or t*7 p)rposes, or *n */o)nt t0*t is *33o4e! + 3*4 to re!)2e



in2o/e prior to "t0e *pp3i2*tion o6 t0e t*7 r*te to 2o/p)te t0e */o)nt o6 t*7 40i20 is !)e. !n example

of a tax deduction is an$ of the allo'able deductions enumerated in Section 39 of the "ax Code#

A t*7 2re!it !i66ers 6ro/ * t*7 !e!)2tion# 0n the one hand, * t*7 2re!it re!)2es t0e t*7 !)e,

in23)!in8 40enever *pp3i2*3e t0e in2o/e t*7 t0*t is !eter/ine! *6ter *pp3+in8 t0e 2orrespon!in8

t*7 r*tes to t*7*3e in2o/e# A t*7 !e!)2tion, on t0e ot0er, re!)2es t0e in2o/e t0*t is s)5e2t to t*7 in

or!er to *rrive *t t*7*3e in2o/e. To t0in: o6 t0e 6or/er *s t0e 3*tter is to *voi!, i6 not entire3+ 2on6)se,t0e iss)e. A t*7 2re!it is )se! on3+ *6ter t0e t*7 0*s een 2o/p)te!@ * t*7 !e!)2tion, e6ore.

"ax Giabilit$ (e)uired

for "ax Credit

Since a tax credit is used to reduce directl$ the tax that is due, there ought to be a tax liabilit$ before the taxcredit can be applied# ithout that liabilit$, an$ tax credit application 'ill be useless# "here 'ill be no

reason for deducting the latter 'hen there is, to begin 'ith, no existing obligation to the government#

&o'ever, as 'ill be presented shortl$, the existence of a tax credit or its grant b$ la' is not the same as the

availment or use of such credit# hile the grant is mandator$, the availment or use is not#

f a net loss is reported b$, and no other taxes are currentl$ due from, a business establishment, there 'ill

obviousl$ be no tax liabilit$ against 'hich an$ tax credit can be applied# *or the establishment to choosethe immediate availment of a tax credit 'ill be premature and impracticable# Nevertheless, the irrefutablefact remains that, under (! 7932, Congress has granted 'ithout conditions a tax credit benefit to all

covered establishments#

!lthough this tax credit benefit is available, it need not be used b$ losing ventures, since there is no tax

liabilit$ that calls for its application# Neither can it be reduced to nil b$ the )uick $et callo' stroke of an

administrative pen, simpl$ because no reduction of taxes can instantl$ be effected# B$ its nature, the tax

credit ma$ still be deducted from a future, not a present, tax liabilit$, 'ithout 'hich it does not have an$

use# n the meantime, it need not move# But it breathes#

/rior "ax /a$ments Not

(e)uired for "ax Credit

hile a tax liabilit$ is essential to the availment or use of an$ tax credit, prior tax pa$ments are not# 0n the

contrar$, for the existence or grant solel$ of such credit, neither a tax liabilit$ nor a prior tax pa$ment is

needed# "he "ax Code is in fact replete 'ith provisions granting or allo'ing tax credits, even though no

taxes have been previousl$ paid#

*or example, in computing the estate tax due, Section =;4E5 allo's a tax credit — sub?ect to certainlimitations — for estate taxes paid to a foreign countr$# !lso found in Section 84C5 is a similar provision

for donor@s taxes — again 'hen paid to a foreign countr$ — in computing for the donor@s tax due# "he tax

credits in both instances allude to the prior pa$ment of taxes, even if not made to our government#

Fnder Section 8, a !" 4alue-!dded "ax5 — registered person engaging in transactions — 'hether or

not sub?ect to the !" — is also allo'ed a tax credit that includes a ratable portion of an$ input tax not

directl$ attributable to either activit$# "his input tax ma$ either be the !" on the purchase or importation

of goods or services that is merel$ due from — not necessaril$ paid b$ — such !"-registered person inthe course of trade or business1 or the transitional input tax determined in accordance 'ith Section 4!5#

"he latter t$pe ma$ in fact be an amount e)uivalent to onl$ eight percent of the value of a !"-registered

person@s beginning inventor$ of goods, materials and supplies, 'hen such amount — as computed — is

higher than the actual !" paid on the said items# Clearl$ from this provision, the tax credit refers to an

input tax that is either due onl$ or given a value b$ mere comparison 'ith the !" actuall$ paid — then

later prorated# No tax is actuall$ paid prior to the availment of such credit#

n Section 4B5, a one and a half percent input tax credit that is merel$ presumptive is allo'ed# *or the purchase of primar$ agricultural products used as inputs — either in the processing of sardines, mackerel

and milk, or in the manufacture of refined sugar and cooking oil — and for the contract price of public

'ork contracts entered into 'ith the government, again, no prior tax pa$ments are needed for the use of the

tax credit#

Hore important, a !"-registered person 'hose sales are %ero-rated or effectivel$ %ero-rated ma$, under

Section 24!5, appl$ for the issuance of a tax credit certificate for the amount of creditable input taxes

merel$ due — again not necessaril$ paid to — the government and attributable to such sales, to the extent

that the input taxes have not been applied against output taxes# 2; here a taxpa$er is engaged in %ero-

rated or effectivel$ %ero-rated sales and also in taxable or exempt sales, the amount of creditable input taxesdue that are not directl$ and entirel$ attributable to an$ one of these transactions shall be proportionatel$

allocated on the basis of the volume of sales# ndeed, in availing of such tax credit for !" purposes, this

provision — as 'ell as the one earlier mentioned — sho's that the prior pa$ment of taxes is not a re)uisite#

t ma$ be argued that Section 2=4B54>54b5 of the "ax Code is another illustration of a tax credit allo'ed,

even though no prior tax pa$ments are not re)uired# Specificall$, in this provision, the imposition of a final



'ithholding tax rate on cash andor propert$ dividends received b$ a nonresident foreign corporation from

a domestic corporation is sub?ected to the condition that a foreign tax credit 'ill be given b$ the

domiciliar$ countr$ in an amount e)uivalent to taxes that are merel$ deemed paid# !lthough true, this

provision actuall$ refers to the tax credit as a condition onl$ for the imposition of a lo'er tax rate, not as a

deduction from the corresponding tax liabilit$# Besides, it is not our government but the domiciliar$countr$ that credits against the income tax pa$able to the latter b$ the foreign corporation, the tax to be

foregone or spared#n contrast, Section 394C5435, in relation to Section 394C54754b5, categoricall$ allo's as credits, against the

income tax imposable under "itle , the amount of income taxes merel$ incurred — not necessaril$ paid

— b$ a domestic corporation during a taxable $ear in an$ foreign countr$# Horeover, Section 394C54>5

provides that for such taxes incurred but not paid, a tax credit ma$ be allo'ed, sub?ect to the condition

precedent that the taxpa$er shall simpl$ give a bond 'ith sureties satisfactor$ to and approved b$

petitioner, in such sum as ma$ be re)uired1 and further conditioned upon pa$ment b$ the taxpa$er of an$tax found due, upon petitioner@s redetermination of it#

n addition to the above-cited provisions in the "ax Code, there are also tax treaties and special la's that

grant or allo' tax credits, even though no prior tax pa$ments have been made#

Fnder the treaties in 'hich the tax credit method is used as a relief to avoid double taxation, income that is

taxed in the state of source is also taxable in the state of residence, but the tax paid in the former is merel$

allo'ed as a credit against the tax levied in the latter# !pparentl$, pa$ment is made to the state of source,not the state of residence# No tax, therefore, has been previousl$ paid to the latter#

Fnder special la's that particularl$ affect businesses, there can also be tax credit incentives# "o illustrate,

the incentives provided for in !rticle 9= of /residential :ecree No# 4/:5 7=6, as amended b$ Batas

/ambansa Blg# 4B/5 36, include tax credits e)uivalent to either five percent of the net value earned, or five

or ten percent of the net local content of exports# 38 n order to avail of such credits under the said la' and

still achieve its ob?ectives, no prior tax pa$ments are necessar$#

*rom all the foregoing instances, it is evident that prior tax pa$ments are not indispensable to the availment

of a tax credit# "hus, the C! correctl$ held that the availment under (! 7932 did not re)uire prior tax pa$ments b$ private establishments concerned# &o'ever, 'e do not agree 'ith its finding 32 that the carr$-

over of tax credits under the said special la' to succeeding taxable periods, and even their application

against internal revenue taxes, did not necessitate the existence of a tax liabilit$#

"he examples above sho' that a tax liabilit$ is certainl$ important in the availment or use, not the

existence or grant, of a tax credit# (egarding this matter, a private establishment reporting a net loss in its

financial statements is no different from another that presents a net income# Both are entitled to the tax

credit provided for under (! 7932, since the la' itself accords that unconditional benefit# &o'ever, for thelosing establishment to immediatel$ appl$ such credit, 'here no tax is due, 'ill be an improvident usance#

Sections 2#i and 9 of (evenue

(egulations No# 2-69 Erroneous

(! 7932 specificall$ allo's private establishments to claim as tax credit the amount of discounts the$

grant# n turn, the mplementing (ules and (egulations, issued pursuant thereto, provide the procedures for

its availment# "o den$ such credit, despite the plain mandate of the la' and the regulations carr$ing outthat mandate, is indefensible#

*irst, the definition given b$ petitioner is erroneous# t refers to tax credit as the amount representing the 28

percent discount that Ashall be deducted b$ the said establishments from their gross income for income tax

purposes and from their gross sales for value-added tax or other percentage tax purposes#A n ordinar$

business language, the tax credit represents the amount of such discount# &o'ever, the manner b$ 'hich

the discount shall be credited against taxes has not been clarified b$ the revenue regulations#

B$ ordinar$ acceptation, a discount is an Aabatement or reduction made from the gross amount or value of

an$thing#A "o be more precise, it is in business parlance Aa deduction or lo'ering of an amount of mone$1Aor Aa reduction from the full amount or value of something, especiall$ a price#A n business there are man$

kinds of discount, the most common of 'hich is that affecting the income statement or financial report

upon 'hich the income tax is based#

Business :iscounts

:educted from Dross Sales

! cash discount, for example, is one granted b$ business establishments to credit customers for their prompt pa$ment# t is a Areduction in price offered to the purchaser if pa$ment is made 'ithin a shorter

period of time than the maximum time specified#A !lso referred to as a sales discount on the part of the

seller and a purchase discount on the part of the bu$er, it ma$ be expressed in such terms as A>8, n38#A

! )uantit$ discount, ho'ever, is a Areduction in price allo'ed for purchases made in large )uantities,

?ustified b$ savings in packaging, shipping, and handling#A t is also called a volume or bulk discount#



! Apercentage reduction from the list price # # # allo'ed b$ manufacturers to 'holesalers and b$ 'holesalers

to retailersA is kno'n as a trade discount# No entr$ for it need be made in the manual or computeri%ed

books of accounts, since the purchase or sale is alread$ valued at the net price actuall$ charged the bu$er#

"he purpose for the discount is to encourage trading or increase sales, and the prices at 'hich the purchasedgoods ma$ be resold are also suggested# Even a chain discount — a series of discounts from one list price

— is recorded at net#

*inall$, akin to a trade discount is a functional discount# t is Aa supplier@s price discount given to a

purchaser based on the latter@s. role in the former@s. distribution s$stem#A "his role usuall$ involves

'arehousing or advertising#

Based on this discussion, 'e find that the nature of a sales discount is peculiar# !ppl$ing generall$accepted accounting principles 4D!!/5 in the countr$, this t$pe of discount is reflected in the income

statement as a line item deducted — along 'ith returns, allo'ances, rebates and other similar expenses —

from gross sales to arrive at net sales# "his t$pe of presentation is resorted to, because the accounts

receivable and sales figures that arise from sales discounts, — as 'ell as from )uantit$, volume or bulk

discounts — are recorded in the manual and computeri%ed books of accounts and reflected in the financial

statements at the gross amounts of the invoices# "his manner of recording credit sales — kno'n as the

gross method — is most 'idel$ used, because it is simple, more convenient to appl$ than the net method,

and produces no material errors over time#

&o'ever, under the net method used in recording trade, chain or functional discounts, onl$ the net amountsof the invoices — after the discounts have been deducted — are recorded in the books of accounts and

reflected in the financial statements# ! separate line item cannot be sho'n, because the transactions

themselves involving both accounts receivable and sales have alread$ been entered into, net of the said

discounts#

"he term sales discounts is not expressl$ defined in the "ax Code, but one provision adverts to amounts

'hose sum — along 'ith sales returns, allo'ances and cost of goods sold — is deducted from gross sales

to come up 'ith the gross income, profit or margin derived from business# n another provision therein,

sales discounts that are granted and indicated in the invoices at the time of sale — and that do not dependupon the happening of an$ future event — ma$ be excluded from the gross sales 'ithin the same )uarter

the$ 'ere given# hile determinative onl$ of the !", the latter provision also appears as a suitable

reference point for income tax purposes alread$ embraced in the former# !fter all, these t'o provisionsaffirm that sales discounts are amounts that are al'a$s deductible from gross sales#

(eason for the Senior Citi%en :iscount+

"he Ga', Not /rompt /a$ment

! distinguishing feature of the implementing rules of (! 7932 is the private establishment@s outright

deduction of the discount from the invoice price of the medicine sold to the senior citi%en# t is, therefore,

expected that for each retail sale made under this la', the discount period lasts no more than a da$, because

such discount is given — and the net amount thereof collected — immediatel$ upon perfection of the sale#

!lthough prompt pa$ment is made for an arm@s-length transaction b$ the senior citi%en, the real and

compelling reason for the private establishment giving the discount is that the la' itself makes it

mandator$#

hat (! 7932 grants the senior citi%en is a mere discount privilege, not a sales discount or an$ of the

above discounts in particular# /rompt pa$ment is not the reason for 4although a necessar$ conse)uence of5such grant# "o be sure, the privilege en?o$ed b$ the senior citi%en must be e)uivalent to the tax credit

benefit en?o$ed b$ the private establishment granting the discount# Met, under the revenue regulations

promulgated b$ our tax authorities, this benefit has been erroneousl$ likened and confined to a sales

discount#

"o a senior citi%en, the monetar$ effect of the privilege ma$ be the same as that resulting from a sales

discount# &o'ever, to a private establishment, the effect is different from a simple reduction in price that

results from such discount# n other 'ords, the tax credit benefit is not the same as a sales discount# "o

repeat from our earlier discourse, this benefit cannot and should not be treated as a tax deduction#

"o stress, the effect of a sales discount on the income statement and income tax return of an establishment

covered b$ (! 7932 is different from that resulting from the availment or use of its tax credit benefit#hile the former is a deduction before, the latter is a deduction after, the income tax is computed# !s

mentioned earlier, a discount is not necessaril$ a sales discount, and a tax credit for a simple discount

privilege should not be automaticall$ treated like a sales discount# Fbi lex non distinguit, nec nos

distinguere debemus# here the la' does not distinguish, 'e ought not to distinguish#

Sections 2#i and 9 of (evenue (egulations No# 4((5 2-69 define tax credit as the 28 percent discount

deductible from gross income for income tax purposes, or from gross sales for !" or other percentage tax

purposes# n effect, the tax credit benefit under (! 7932 is related to a sales discount# "his contrived

definition is improper, considering that the latter has to be deducted from gross sales in order to compute

the gross income in the income statement and cannot be deducted again, even for purposes of computing

the income tax#



hen the la' sa$s that the cost of the discount ma$ be claimed as a tax credit, it means that the amount —

'hen claimed — shall be treated as a reduction from an$ tax liabilit$, plain and simple# "he option to avail

of the tax credit benefit depends upon the existence of a tax liabilit$, but to limit the benefit to a sales

discount — 'hich is not even identical to the discount privilege that is granted b$ la' — does not define itat all and serves no useful purpose# "he definition must, therefore, be stricken do'n#

Ga's Not !mended

b$ (egulations

Se2on!, t0e 3*4 2*nnot e */en!e! + * /ere re8)3*tion. In 6*2t, * re8)3*tion t0*t oper*tes to 2re*te *

r)3e o)t o6 0*r/on+ 4it0 t0e st*t)te is * /ere n)33it+@ ' it 2*nnot prev*i3.

t is a cardinal rule that courts A'ill and should respect the contemporaneous construction placed upon a

statute b$ the executive officers 'hose dut$ it is to enforce it # # #A n the scheme of ?udicial tax

administration, the need for certaint$ and predictabilit$ in the implementation of tax la's is crucial# 0ur tax

authorities fill in the details that ACongress ma$ not have the opportunit$ or competence to provide#A "he

regulations these authorities issue are relied upon b$ taxpa$ers, 'ho are certain that these 'ill be follo'ed

b$ the courts# Courts, ho'ever, 'ill not uphold these authorities@ interpretations 'hen clearl$ absurd,

erroneous or improper#

n the present case, the tax authorities have given the term tax credit in Sections 2#i and 9 of (( 2-69 a

meaning utterl$ in contrast to 'hat (! 7932 provides# "heir interpretation has muddled up the intent ofCongress in granting a mere discount privilege, not a sales discount# "he administrative agenc$ issuing

these regulations ma$ not enlarge, alter or restrict the provisions of the la' it administers1 it cannot engraft

additional re)uirements not contemplated b$ the legislature#

n case of conflict, the la' must prevail# ! Aregulation adopted pursuant to la' is la'#A ;6 Conversel$, a

regulation or an$ portion thereof not adopted pursuant to la' is no la' and has neither the force nor the

effect of la'#

!vailment of "ax

Credit oluntar$

"hird, the 'ord ma$ in the text of the statute implies that the availabilit$ of the tax credit benefit is neither

unrestricted nor mandator$# "here is no absolute right conferred upon respondent, or an$ similar taxpa$er,

to avail itself of the tax credit remed$ 'henever it chooses1 Aneither does it impose a dut$ on the part of the

government to sit back and allo' an important facet of tax collection to be at the sole control and discretion

of the taxpa$er#A *or the tax authorities to compel respondent to deduct the 28 percent discount from eitherits gross income or its gross sales is, therefore, not onl$ to make an imposition 'ithout basis in la', but

also to blatantl$ contravene the la' itself#

hat Section 9#a of (! 7932 means is that the tax credit benefit is merel$ permissive, not imperative#

(espondent is given t'o options — either to claim or not to claim the cost of the discounts as a tax credit#

n fact, it ma$ even ignore the credit and simpl$ consider the gesture as an act of beneficence, an

expression of its social conscience#

Dranting that there is a tax liabilit$ and respondent claims such cost as a tax credit, then the tax credit caneasil$ be applied# f there is none, the credit cannot be used and 'ill ?ust have to be carried over and

revalidated accordingl$# f, ho'ever, the business continues to operate at a loss and no other taxes are due,thus compelling it to close shop, the credit can never be applied and 'ill be lost altogether#

n other 'ords, it is the existence or the lack of a tax liabilit$ that determines 'hether the cost of the

discounts can be used as a tax credit# (! 7932 does not give respondent the unfettered right to avail itself

of the credit 'henever it pleases# Neither does it allo' our tax administrators to expand or contract the

legislative mandate# A"he @plain meaning rule@ or verba legis in statutor$ construction is thus applicable # # #

here the 'ords of a statute are clear, plain and free from ambiguit$, it must be given its literal meaning

and applied 'ithout attempted interpretation#

"ax Credit Benefit

:eemed <ust Compensation

*ourth, Sections 2#i and 9 of (( 2-69 den$ the exercise b$ the State of its po'er of eminent domain# Be it

stressed that the privilege en?o$ed b$ senior citi%ens does not come directl$ from the State, but rather from

the private establishments concerned# !ccordingl$, the tax credit benefit granted to these establishments

can be deemed as their ?ust compensation for private propert$ taken b$ the State for public use#

"he concept of public use is no longer confined to the traditional notion of use b$ the public, but held

s$non$mous 'ith public interest, public benefit, public 'elfare, and public convenience# "he discount

privilege to 'hich our senior citi%ens are entitled is actuall$ a benefit en?o$ed b$ the general public to

'hich these citi%ens belong# "he discounts given 'ould have entered the coffers and formed part of the

gross sales of the private establishments concerned, 'ere it not for (! 7932# "he permanent reduction in



their total revenues is a forced subsid$ corresponding to the taking of private propert$ for public use or

benefit#

!s a result of the 28 percent discount imposed b$ (! 7932, respondent becomes entitled to a ?ust

compensation# "his term refers not onl$ to the issuance of a tax credit certificate indicating the correctamount of the discounts given, but also to the promptness in its release# E)uivalent to the pa$ment of

propert$ taken b$ the State, such issuance — 'hen not done 'ithin a reasonable time from the grant of thediscounts — cannot be considered as ?ust compensation# n effect, respondent is made to suffer the

conse)uences of being immediatel$ deprived of its revenues 'hile a'aiting actual receipt, through the

certificate, of the e)uivalent amount it needs to cope 'ith the reduction in its revenues#

Besides, the taxation po'er can also be used as an implement for the exercise of the po'er of eminent

domain# "ax measures are but Aenforced contributions exacted on pain of penal sanctionsA and Aclearl$imposed for a public purpose#A n recent $ears, the po'er to tax has indeed become a most effective tool to

reali%e social ?ustice, public 'elfare, and the e)uitable distribution of 'ealth#

hile it is a declared commitment under Section of (! 7932, social ?ustice Acannot be invoked to

trample on the rights of propert$ o'ners 'ho under our Constitution and la's are also entitled to

protection# "he social ?ustice consecrated in our C.onstitution is. not intended to take a'a$ rights from a

person and give them to another 'ho is not entitled thereto#A *or this reason, a ?ust compensation for

income that is taken a'a$ from respondent becomes necessar$# t is in the tax credit that our legislators findsupport to reali%e social ?ustice, and no administrative bod$ can alter that fact#

"o put it differentl$, a private establishment that merel$ breaks even — 'ithout the discounts $et — 'ill

surel$ start to incur losses because of such discounts# "he same effect is expected if its mark-up is less than

28 percent, and if all its sales come from retail purchases b$ senior citi%ens# !side from the observation 'e

have alread$ raised earlier, it 'ill also be grossl$ unfair to an establishment if the discounts 'ill be treated

merel$ as deductions from either its gross income or its gross sales# 0perating at a loss through no fault of

its o'n, it 'ill reali%e that the tax credit limitation under (( 2-69 is inutile, if not improper# orse, profit-

generating businesses 'ill be put in a better position if the$ avail themselves of tax credits denied those that

are losing, because no taxes are due from the latter#

Drant of "ax Credit

ntended b$ the Gegislature

*ifth, (! 7932 itself seeks to adopt measures 'hereb$ senior citi%ens are assisted b$ the communit$ as a

'hole and to establish a program beneficial to them# "hese ob?ectives are consonant 'ith the constitutional

polic$ of making Ahealth # # # services available to all the people at affordable costA and of giving Apriorit$

for the needs of the # # # elderl$#A Sections 2#i and 9 of (( 2-69, ho'ever, contradict these constitutional policies and statutor$ ob?ectives#

*urthermore, Congress has allo'ed all private establishments a simple tax credit, not a deduction# n fact,

no cash outla$ is re)uired from the government for the availment or use of such credit# "he deliberations on

*ebruar$ >, 662 of the Bicameral Conference Committee Heeting on Social <ustice, 'hich finali%ed (!

7932, disclose the true intent of our legislators to treat the sales discounts as a tax credit, rather than as a

deduction from gross income# e )uote from those deliberations as follo's+

A"&E C&!(H!N 4(ep# Fnico5+

B$ the 'a$, before that ano, about deductions from taxable income# think 'e incorporated there

a provision na — on the responsibilit$ of the private hospitals and drugstores, hindi baR

SEN# !ND!(!+

0o#

"&E C&!(H!N# 4(ep# Fnico5+

So, think 'e have to put in also a provision here about the deductions from taxable income of

that private hospitals, di ba ganon @$anR

HS# !:EN"0+

Pa$a lang po sir, ang mga discounts po nila affecting government and public institutions, so,

pu'ede na po nating hindi isama $ung mga less deductions ng taxable income#


/u'ede na# Mung about the private hospitals# Mung isiningit natinR

HS# !:EN"0+



Singit na po ba $ung >J on credit# 4inaudibledid not use the microphone5#

SEN# !ND!(!+

&indi pa, hindi pa#


!h, @di pa ba naisama natinR

SEN# !ND!(!+

0o# Mou 'ant to insert thatR

"&E C&!(H!N 4(ep# Fnico5+

Mung ang proposal ni Senator Shahani, e#

SEN# !ND!(!+

n the case of private hospitals the$ got the grant of >J discount, provided that, the private

hospitals can claim the expense as a tax credit#

(E/# !IFN0+

Mah could be allo'ed as deductions in the perpetrations of 4inaudible5 income#

SEN# !ND!(!+

-tax credit na lang natin para 'alang cash-out anoR

(E/# !IFN0+

0o, tax credit# "ama, 0ka$# &ospitals ba o lahat ng establishments na covered#


Sa ku'an lang $on, as private hospitals lang#

(E/# !IFN0+

!no ba $ung establishments na coveredR

SEN# !ND!(!+

(estaurant lodging houses, recreation centers#

(E/# !IFN0+

!ll establishments covered siguroR

SEN# !ND!(!+

*rom all establishments# !lisin na natin @Mung ku'an kung ganon# Can 'e go back to Section 9

haR

(E/# !IFN0+

0ho#

SEN# !ND!(!+

Getter !# "o capture that thought, 'e@ll sa$ the grant of 28J discount from all establishments et

cetera, et cetera, provided that said establishments — provided that private establishments ma$ claim the

cost as a tax credit# Danon ba @$onR

(E/# !IFN0+

Mah#

SEN# !ND!(!+



:ahil kung government, the$ don@t need to claim it#


"ax credit#

SEN# !ND!(!+

!s a tax credit rather. than a ku'an — deduction, 0ka$#

(E/# !IFN0+

0ka$#

SEN# !ND!(!+

Sige 0ka$# :i sub?ect to st$le na lang sa Getter !A#

Special Ga'

0ver Deneral Ga'

Sixth and last, (! 7932 is a special la' that should prevail over the "ax Code — a general la'# A# # # ".he

rule is that on a specific matter the special la' shall prevail over the general la', 'hich shall be resorted to

onl$ to suppl$ deficiencies in the former#A n addition, A'.here there are t'o statutes, the earlier special

and the later general — the terms of the general broad enough to include the matter provided for in thespecial — the fact that one is special and the other is general creates a presumption that the special is to be

considered as remaining an exception to the general, one as a general la' of the land, the other as the la'

of a particular case#A 62 At is a canon of statutor$ construction that a later statute, general in its terms andnot expressl$ repealing a prior special statute, 'ill ordinaril$ not affect the special provisions of such

earlier statute#A

(! 7932 is an earlier la' not expressl$ repealed b$, and therefore remains an exception to, the "ax Code

— a later la'# hen the former states that a tax credit ma$ be claimed, then the re)uirement of prior tax pa$ments under certain provisions of the latter, as discussed above, cannot be made to appl$# Neither can

the instances of or references to a tax deduction under the "ax Code be made to restrict (! 7932# No

provision of an$ revenue regulation can supplant or modif$ the acts of Congress#



D#(# No# 8667;# !pril 2;, 288>#./&G//NE N!"0N!G 0G C0H/!NM, petitioner, vs# "&E &0N# C0F(" 0* !//E!GS, "&E

C0HHSS0NE( 0* N"E(N!G (EENFE and "(S0 S!EGG!N0, respondents#D#(# No# 2=88# !pril 2;, 288>#.

/&G//NE N!"0N!G B!NP, petitioner, vs# "&E &0N# C0F(" 0* !//E!GS, C0F(" 0* "!L

!//E!GS, "(S0 B# S!EGG!N0 and C0HHSS0NE( 0* N"E(N!G (EENFE, respondents#

: E C S 0 N

C&C0-N!Z!(0, < p+

"his is a consolidation of t'o /etitions for (evie' on Certiorari filed b$ the /hilippine National 0il

Compan$ 4/N0C5 and the /hilippine National Bank 4/NB5, 2 assailing the decisions of the Court of

!ppeals in C!-D#(# S/ No# 26>=3 3 and C!-D#(# S/ No# 26>2;, 9 respectivel$, 'hich both affirmed thedecision of the Court of "ax !ppeals 4C"!5 in C"! Case No# 9296# >

"he /etitions before this Court originated from a s'orn statement submitted b$ private respondent "irso B#

Savellano 4Savellano5 to the Bureau of nternal (evenue 4B(5 on 29 <une 6=;# "hrough his s'ornstatement, private respondent Savellano informed the B( that /NB had failed to 'ithhold the >J final

tax on interest earnings andor $ields from the mone$ placements of /N0C 'ith the said bank, in violation

of /residential :ecree 4/#:#5 No# 63# /#:# No# 63, 'hich took effect on <une 6=9, 'ithdre' all tax

exemptions of government-o'ned and controlled corporations# a"!:c&

n a letter, dated 8= !ugust 6=;, the B( re)uested /N0C to settle its liabilit$ for taxes on the interestsearned b$ its mone$ placements 'ith /NB and 'hich /NB did not 'ithhold# ; /N0C 'rote the B( on 2>

September 6=;, and made an offer to compromise its tax liabilit$, 'hich it estimated to be in the sum of

/389,96,36;#=3, excluding interest and surcharges, as of 3 <ul$ 6=;# /N0C proposed to set-off its tax

liabilit$ against a claim for tax refundcredit of the National /o'er Corporation 4N!/0C0(5, then pending

'ith the B(, in the amount of /33>,2>6,9>8#2# "he amount of the claim for tax refundcredit 'as

supposedl$ a receivable account of /N0C from N!/0C0(# 7

0n 8= 0ctober 6=;, the B( sent a demand letter to /NB, as 'ithholding agent, for the pa$ment of the

final tax on the interest earnings andor $ields from /N0C@s mone$ placements 'ith the bank, from >0ctober 6=9 to > 0ctober 6=;, in the total amount of /37;,38,33#33# = 0n the same date, the B(

also mailed a letter to /N0C informing it of the demand letter sent to /NB# 6/N0C, in another letter, dated 9 0ctober 6=;, reiterated its proposal to settle its tax liabilit$ through the

set-off of the said tax liabilit$ against N!/0C0(@S pending claim for tax refundcredit# 8 "he B(

replied on November 6=; that the proposal for set-off 'as premature since N!/0C0(@s claim 'as

still under process# 0nce more, B( re)uested /N0C to settle its tax liabilit$ in the total amount of

/3=>,6;,>=8#=2, consisting of /383,393,7;>#32 final tax, plus /=2,;7,=>#>8 interest computed until >

November 6=;#

0n 86 <une 6=7, /N0C made another offer to the B( to settle its tax liabilit$# "his time, ho'ever, /N0C

proposed a compromise b$ pa$ing /6,883,26#=6, representing 38J of the /383,393,7;;#26 basic tax, inaccordance 'ith the provisions of Executive 0rder 4E#0#5 No# 99# 2

"hen B( Commissioner Bienvenido !# "an, in a letter, dated 22 <une 6=7, accepted the compromise# "he

B( received a total tax pa$ment on the interest earnings andor $ields from /N0C@s mone$ placements'ith /NB in the amount of /63,6>>,976#2, broken do'n as follo's+

/revious pa$ment made b$ /NB /2,6>2,396#23

!dd+ /a$ment made b$ /N0C pursuant

to the compromise agreement of <une

22, 6=7/6,883,26#=6

"otal tax pa$ment /63,6>>,976#2 3

OOOOOOOOOOOO

/rivate respondent Savellano, through four installments, 'as paid the informer@s re'ard in the total amount

of /9,863,32#=6, representing >J of the /63,6>>,976#2 tax collected b$ the B( from /N0C and

/NB# &e received the last installment on 8 :ecember 6=7# 9



0n 87 <anuar$ 6==, private respondent Savellano, through his legal counsel, 'rote the B( to demand

pa$ment of the balance of his informer@s re'ard, computed as follo's+

B( tax assessment /3=>,6;,>=8#=2

*inal tax rate 8#>

nformer@s re'ard due

4B( deficienc$ tax assessment x *inaltax rate5 />7,=69,237#2

Gess+ /a$ment received b$ private

respondent Savellano /9,863,32#=6

0utstanding balance /93,=88,6>#2> >

OOOOOOOOOOOOB( Commissioner "an replied through a letter, dated 8= Harch 6==, that private respondent Savellano

'as alread$ full$ paid the informer@s re'ard e)uivalent to >J of the amount of tax actuall$ collected b$

the B( pursuant to its compromise agreement 'ith /N0C# B( Commissioner "an further explained that

the compromise 'as in accordance 'ith the provisions of E#0# No# 99, (evenue Hemorandum 0rder

4(H05 No# 36-=;, and (H0 No# 9-=7# ;

/rivate respondent Savellano submitted another letter, dated 29 Harch 6==, to B( Commissioner "an,

seeking reconsideration of his decision to compromise the tax liabilit$ of /N0C# n the same letter, private

respondent Savellano )uestioned the legalit$ of the compromise agreement entered into b$ the B( and/N0C and claimed that the tax liabilit$ should have been collected in full# 7

0n 8= !pril 6==, 'hile the aforesaid Hotion for (econsideration 'as still pending 'ith the B(, privaterespondent Savellano filed a /etition for (evie' ad cautelam 'ith the C"!, docketed as C"! Case No#

9296# &e claimed therein that B( Commissioner "an acted A'ith grave abuse of discretion andor

'himsical exercise of ?urisdictionA in entering into a compromise agreement that resulted in Aa gross and

unconscionable diminutionA of his re'ard# /rivate respondent Savellano pra$ed for the enforcement and

collection of the total tax assessment against taxpa$er /N0C andor 'ithholding agent /NB1 and the

pa$ment to him b$ the B( Commissioner of the >J informer@s re'ard on the total tax collected# = &e

'ould later amend his /etition to implead /N0C and /NB as necessar$ and indispensable parties since

the$ 'ere parties to the compromise agreement# 6n his !ns'er filed 'ith the C"!, B( Commissioner "an asserted that the /etition stated no cause of

action against him, and that private respondent Savellano 'as alread$ paid the informer@s re'ard due him#

!lleging that the /etition 'as baseless and malicious, B( Commissioner "an filed a counterclaim forexemplar$ damages against private respondent Savellano# 28

/N0C and /NB filed separate Hotions to :ismiss, both arguing that the C"! lacked ?urisdiction to decide

the case# 2 n its (esolution, dated 2= November 6==, the C"! denied the Hotions to :ismiss since the

)uestion of lack of ?urisdiction andor cause of action do not appear to be indubitable# 22

!fter their Hotions to :ismiss 'ere denied b$ the C"!, /N0C and /NB filed their respective !ns'ers tothe amended /etition# /N0C averred, among other things, that 45 it had no privit$ 'ith private respondent

Savellano1 425 the B( Commissioner@s discretionar$ act in entering into the compromise agreement had

legal basis under E#0# No# 99 and (H0 No# 36-=; and (H0 No# 9-=71 and 435 the C"! had no ?urisdiction

to resolve the case against it# 23 0n the other hand, /NB asserted that 45 the C"! lacked ?urisdiction over

the case1 and 425 the B( Commissioner@s decision to accept the compromise 'as discretionar$ on his part

and, therefore, cannot be revie'ed or interfered 'ith b$ the courts# 29 /N0C and /NB later filed their

amended !ns'er invoking an opinion of the Commission on !udit 4C0!5 disallo'ing the pa$ment b$ the

B( of informer@s re'ard to private respondent Savellano# 2>"he C"!, thereafter, ordered the parties to submit their evidence, 2; to be follo'ed b$ their respective

Hemoranda# 270n 23 November 668, private respondent Savellano, filed a Hanifestation 'ith Hotion for Suspension of

/roceedings, claiming that his pending Hotion for (econsideration 'ith the B( Commissioner ma$ soon

be resolved# 2= Both /N0C and /NB opposed the said Hotion# 26

Subse)uentl$, the ne' B( Commissioner, <ose F# 0ng, in a letter to /NB, dated ; <anuar$ 66,

demanded that /NB pa$ deficienc$ 'ithholding tax on the interest earnings andor $ields from /N0C@s

mone$ placements, in the amount of /269,6>=,9>8#73, computed as follo's+

ithholding tax, plus interest under the

letter of demand dated November , 6=; /3=>,6;,>=8#=2Gess+ !mount paid under E#0# No# 99 /6,883,26#=6

!mount still due and collectible /269,6>=,9>8#73 38OOOOOOOOOOOOO

"his B( letter 'as received b$ /NB on 8; *ebruar$ 66, 3 and 'as protested b$ it through a letter,

dated !pril 66# 32 "he B( denied /NB@s protest on the ground that it 'as filed out of time and, thus,

the assessment had alread$ become final# 33

/rivate respondent Savellano, on 22 *ebruar$ 66, filed an 0mnibus Hotion moving to 'ithdra' his previous Hotion for Suspension of /roceeding since B( Commissioner 0ng had finall$ resolved his

Hotion for (econsideration, and submitting b$ 'a$ of supplemental offer of evidence 45 the letter of B(

Commissioner 0ng, dated 3 *ebruar$ 66, informing private respondent Savellano of the action on his

Hotion for (econsideration1 and 425 the demand-letter of B( Commissioner 0ng to /NB, dated ;

<anuar$ 66# 39



:espite the oppositions of /N0C and /NB, the C"!, in a (esolution, dated 82 Ha$ 66, resolved to

allo' private respondent Savellano to 'ithdra' his previous Hotion for Suspension of /roceeding and to

admit the supplementar$ evidence being offered b$ the same part$# 3>

n its 0rder, dated 83 <une 66, the C"! considered the case submitted for decision as of the follo'ing

da$, 89 <une 66# 3;0n <une 66, /NB appealed to the :epartment of <ustice 4:0<5 the B( assessment, dated ; <anuar$

66, for deficienc$ 'ithholding tax in the sum of /269,6>=,9>8#73# /NB alleged that its appeal to the :0<'as sanctioned under /#:# No# 292, 'hich provided for the administrative settlement of disputes bet'een

government offices, agencies, and instrumentalities, including government-o'ned and controlled

corporations# 37

"hree da$s later, on 9 <une 66, /NB filed a Hotion to Suspend /roceedings before the C"! since it had

a pending appeal before the :0<# 3= 0n 89 <ul$ 66, /NB filed 'ith the C"! a Hotion for

(econsideration of its 0rder, dated 83 <une 66, submitting the case for decision as of 89 <une 66, and pra$ed that the C"! hold its resolution of the case in vie' of /NB@s appeal pending before the :0<# 36

0n 7 <ul$ 66, /NB filed a Hotion to Suspend the Collection of "ax b$ the B(# t alleged that despite

its re)uest for reconsideration of the deficienc$ 'ithholding tax assessment, dated ; <anuar$ 66, B(

Commissioner 0ng sent another letter, dated 23 !pril 66, demanding pa$ment of the /269,6>=,9>8#73

deficienc$ 'ithholding tax on the interest earnings andor $ields from /N0C@s mone$ placements# "he

same letter informed /NB that this 'as the B( Commissioner@s final decision on the matter and that the

B( Commissioner 'as set to issue a 'arrant of distraint andor lev$ against /NB@s deposits 'ith the

Central Bank of the /hilippines# /NB further alleged that the lev$ and distraint of /NB@s deposits, unlessrestrained b$ the C"!, 'ould cause great and irreparable pre?udice not onl$ to /NB, a government-o'ned

and controlled corporation, but also to the Dovernment itself# 98/ursuant to the 0rder of the C"!, during the hearing on 6 <ul$ 66, 9 the parties submitted their

respective Hemoranda on /NB@s Hotion to Suspend /roceedings# 92

0n 28 September 66, private respondent Savellano filed another 0mnibus Hotion calling the attention of

the C"! to the fact that the B( alread$ issued, on 2 !ugust 66, a 'arrant of garnishment addressed to

the Central Bank Dovernor and against /NB# n compliance 'ith the said 'arrant, the Central Bank issued,

on 23 !ugust 66, a debit advice against the demand deposit account of /NB 'ith the Central Bank for

the amount of /269,6>=,9>8#73, 'ith a corresponding transfer of the same amount to the demand deposit-

in-trust of B( 'ith the Central Bank# Since the assessment had alread$ been enforced, /NB@s Hotion toSuspend /roceedings became moot and academic# /rivate respondent Savellano, thus, moved for the denial

of /NB@s Hotion to Suspend /roceedings and for an order re)uiring B( to deposit 'ith the C"! the

amount of /99,293,7;7#88 as his informer@s re'ard, representing >J of the deficienc$ 'ithholding taxcollected# 93

Both /N0C and /NB opposed private respondent Savellano@s 0mnibus Hotion, dated 28 September 66,

arguing that the :0< alread$ ordered the suspension of the collection of the tax deficienc$# "here 'as

therefore no basis for private respondent Savellano@s Hotion as the same 'as premised on the erroneous

assumption that the tax deficienc$ had been collected# hen the :0< denied the B( Commissioner@sHotion to :ismiss and re)uired him to file his ans'er, the :0< assumed ?urisdiction over /NB@s appeal,

and the C"! should first suspend its proceedings to give the :0< the opportunit$ to decide the validit$ and

propriet$ of the tax assessment against /NB# 99

"he C"!, on 2= Ha$ 662, rendered its decision, 'herein it upheld its ?urisdiction and disposed of the case

as follo's+

&E(E*0(E, ?udgment is rendered declaring the C0H/(0HSE !D(EEHEN" bet'een the Bureau of

nternal (evenue, on the one hand, and the /hilippine National 0il Compan$ and /hilippine National

Bank, on the other, as "&0F" *0(CE !N: E**EC"1 :c"aC"he Commissioner of nternal (evenue is hereb$ ordered to EN*0(CE the !SSESSHEN" of <anuar$ ;,

66 against /hilippine National Bank 'hich has become final and unappealable b$ collecting from/hilippine National Bank the deficienc$ 'ithholding tax, plus interest totalling 4sic5 /269,6>=,9>8#731

/etitioner ma$ be paid, upon collection of the deficienc$ 'ithholding tax, the balance of his entitlement to

informer@s re'ard based on fifteen percent 4>J5 of the deficienc$ 'ithholding total tax collected in this

case or /99,293#7;7#88 sub?ect to existing rules and regulations governing pa$ment of re'ard to informers#

9>

n a (esolution, dated ; November 662, the C"! denied the Hotions for (econsideration filed b$ /N0C

and /NB since the$ substantiall$ raised the same issues in their previous pleadings and 'hich had alread$

been passed upon and resolved adversel$ against them# 9;/N0C and /NB filed separate appeals 'ith the Court of !ppeals seeking the reversal of the C"! decision

in C"! Case No# 9296, dated 2= Ha$ 662, and the C"! (esolution in the same case, dated ; November

662# /N0C@s appeal 'as docketed as C!-D#(# S/ No# 26>=3, 'hile /NB@s appeal 'as C!-D#(# S/ No#26>2;# n both cases, the Court of !ppeals affirmed the decision of the C"!#

n the meantime, the Central Bank again issued on 82 September 662 a debit advice against the demand

deposit account of /NB 'ith the Central Bank for the amount of /269,6>=,9>8#73, 97 and on > September

662, credited the same amount to the demand deposit account of the "reasurer of the (epublic of the

/hilippines# 9= 0n 89 November 662, the "reasurer of the (epublic issued a ?ournal voucher transferring/269,6>=,9>8#73 to the account of the B(# 96 /NB, in turn, debited /269,6>=,9>8#73 from the deposit

account of /N0C 'ith /NB# >8

/N0C and /NB then filed separate /etitions for (evie' on Certiorari 'ith this Court, pra$ing that the

decisions of the Court of !ppeals in C!-D#(# S/ No# 26>=3 and C!-D#(# S/ No# 26>2;, respectivel$, both

affirming the decision of the C"! in C"! Case No# 9296, be reversed and set aside# "hese t'o /etitions



'ere consolidated since the$ involved identical parties and factual background, and the resolution of

related, if not exactl$, the same issues#

n its /etition for (evie', /N0C alleged the follo'ing errors committed b$ the Court of !ppeals in C!-

D#(# S/ No# 26>=3+

# "he Court of !ppeals erred in holding that the deficienc$ taxes of /N0C could not be the sub?ectof a compromise under Executive 0rder No# 991 and

2# "he Court of !ppeals erred in holding that Savellano is entitled to additional informer@s re'ard# >/NB, in its o'n /etition for (evie', assailed the decision of the Court of !ppeals in C!-D#(# S/ No#

26>2;, assigning the follo'ing errors+

# (espondent Court erred in not finding that the Court of "ax !ppeals lacks ?urisdiction on the

controvers$ involving B( and /NB 4both government instrumentalities5 regarding the ne' assessment of

B( against /NB1 a&:c"

2# "he respondent Court erred in not finding that the Court of "ax !ppeals has no ?urisdiction to)uestion the compromise agreement entered into b$ the Commissioner of nternal (evenue1 and

3# "he respondent Court erred in not ruling that the Commissioner of nternal (evenue cannot

unilaterall$ annul tax compromises validl$ entered into b$ his predecessor# >2

"he decisions of the Court of !ppeals in C!-D( S/ No# 26>=3 and C!-D#(# S/ No# 26>2;, affirmed the

decision of the C"! in C"! Case No# 9296# "he resolution, therefore, of the assigned errors in the Court of

!ppeals@ decisions essentiall$ re)uires a revie' of the C"! decision itself#

n consolidating the present /etitions, this Court finds that /N0C and /NB are basicall$ )uestioning the 45

<urisdiction of the C"! in C"! Case No# 92961 425 :eclaration b$ the C"! that the compromiseagreement 'as 'ithout force and effect1 435 *inding of the C"! that the deficienc$ 'ithholding tax

assessment against /NB had alread$ become final and unappealable and, thus, enforceable1 and 495 0rderof the C"! directing pa$ment of additional informer@s re'ard to private respondent Savellano#

<urisdiction of the C"!

!# "he demand letter, dated ; <anuar$ 66 did not constitute a ne' assessment against /NB#

"he main argument of /NB in assailing the ?urisdiction of the C"! in C"! Case No# 9296 is that the B(

demand letter, dated ; <anuar$ 66, >3 should be considered as a ne' assessment against /NB# !s a ne'

assessment, it gave rise to a ne' dispute and controvers$ solel$ bet'een the B( and /NB that should be

administrativel$ settled or ad?udicated, as provided in /#:# No# 292#"his argument is 'ithout merit# "he issuance b$ the B( of the demand letter, dated ; <anuar$ 66, 'as

merel$ a development in the continuing effort of the B( to collect the tax assessed against /N0C and

/NB 'a$ back in 6=;#B(@s first letter, dated 8= !ugust 6=;, 'as addressed to /N0C, re)uesting it to settle its tax liabilit$# "he

B( subse)uentl$ sent another letter, dated 8= 0ctober 6=;, to /NB, as 'ithholding agent, demanding

pa$ment of the tax it had failed to 'ithhold on the interest earnings andor $ields from /N0C@s mone$

placements# /N0C 'rote the B( three succeeding letters offering to compromise its tax liabilit$1 /NB, on

the other hand, did not act on the demand letter it received, dated 8= 0ctober 6=;# "he B( and /N0Ceventuall$ reached a compromise agreement on 22 <une 6=7# /rivate respondent Savellano )uestioned the

validit$ of the compromise agreement because the reduced amount of tax collected from /N0C, b$ virtue

of the compromise agreement, also proportionatel$ reduced his informer@s re'ard# /rivate respondent

Savellano then re)uested the B( Commissioner to revie' and reconsider the compromise agreement#

!cting on the re)uest of private respondent Savellano, the ne' B( Commissioner declared the

compromise agreement to be 'ithout basis and issued the demand letter, dated ; <anuar$ 66, against

/NB, as the 'ithholding agent for /N0C# !EcSa

t is clear from the foregoing that the B( demand letter, dated ; <anuar$ 66, could not stand alone as ane' assessment# t should al'a$s be considered in the factual context summari%ed above#

n fact, the demand letter, dated ; <anuar$ 66, actuall$ referred to the 'ithholding tax assessment firstissued in 6=; and its eventual settlement through a compromise agreement# n addition, the computation

of the deficienc$ 'ithholding tax 'as based on the figures from the 6=; assessments against /N0C and

/NB, and B( no longer conducted a ne' audit or investigation of either /N0C and /NB before it issued

the demand letter on ; <anuar$ 66#

"hese constant references to past events and circumstances demonstrate that the demand letter, dated ;

<anuar$ 66, 'as not a ne' assessment, but rather, the latest action taken b$ the B( to collect on the tax

assessments issued against /N0C and /NB in 6=;#

/NB argues that the demand letter, dated ; <anuar$ 66, introduced a ne' controvers$# e see itdifferentl$ as the said demand letter presented the resolution b$ B( Commissioner 0ng of the previous

controvers$ involving the compromise of the 6=; tax assessments# B( Commissioner 0ng explicitl$

declared therein that the compromise agreement 'as 'ithout legal basis, and re)uested /NB, as the'ithholding agent, to pa$ the amount of 'ithholding tax still due#

B# "he C"! correctl$ retained ?urisdiction over C"! Case No# 9296 b$ virtue of (epublic !ct No#

2>#

&aving established that the B( demand letter, dated ; <anuar$ 66, did not constitute a ne' assessment,

then, there could be no basis for /NB@s claim that an$ dispute arising from the ne' assessment should onl$ be bet'een B( and /NB#

Still proceeding from the argument that there 'as a ne' dispute bet'een /NB and B(, /NB sought the

suspension of the proceedings in C"! Case No# 9296, after it contested the deficienc$ 'ithholding tax

assessment against it and the demand for pa$ment thereof before the :0<, pursuant to /#:# No# 292# "he

C"!, ho'ever, correctl$ sustained its ?urisdiction and continued the proceedings in C"! Case No# 92961



and, in effect, re?ected :0<@s claim of ?urisdiction to administrativel$ settle or ad?udicate B(@s assessment

against /NB#

"he C"! assumed ?urisdiction over the /etition for (evie' filed b$ private respondent Savellano based on

the follo'ing provision of (ep# !ct No# 2>, the !ct creating the Court of "ax !ppeals+

SEC"0N 7# <urisdiction# — "he Court of "ax !ppeals shall exercise exclusive appellate ?urisdiction torevie' b$ appeal, as herein provided —

45 :ecisions of the Collector of nternal (evenue in cases involving disputed assessments, refunds ofinternal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising

under the National nternal (evenue Code or other la' or part of la' administered b$ the Bureau of

nternal (evenue1 # # # 4Fnderscoring ours#5 !ECacS

n his /etition before the C"!, private respondent Savellano re)uested a revie' of the decisions of then

B( Commissioner "an to enter into a compromise agreement 'ith /N0C and to re?ect his claim for

additional informer@s re'ard# &e submitted before the C"! )uestions of la' involving the interpretationand application of 45 E#0# No# 99, and its implementing rules and regulations, 'hich authori%ed the B(

Commissioner to compromise delin)uent accounts and disputed assessments pending as of 3 :ecember

6=>1 and 425 Section 3;45 of the National nternal (evenue Code of 677 4N(C of 6775, as amended,

'hich granted to the informer a re'ard e)uivalent to >J of the actual amount recovered or collected b$

the B(# >9 "hese should undoubtedl$ be considered as matters arising from the N(C and other la's

being administered b$ the B(, thus, appealable to the C"! under Section 745 of (ep# !ct No# 2>#

/NB, ho'ever, insists on the ?urisdiction of the :0< over its appeal of the deficienc$ 'ithholding tax

assessment b$ virtue of /#:# No# 292# /rovisions on ?urisdiction of /#:# No# 292 read+SEC"0N # /rovisions of la' to the contrar$ not'ithstanding, all disputes, claims and controversies

solel$ bet'een or among the departments, bureaus, offices, agencies, and instrumentalities of the NationalDovernment, including government-o'ned or controlled corporations, but excluding constitutional offices

or agencies, arising from the interpretation and application of statutes, contracts or agreements, shall

henceforth be administrativel$ settled or ad?udicated as provided hereinafter1 /rovided, "hat this shall not

appl$ to cases alread$ pending in court at the time of the effectivit$ of this decree#

SEC"0N 2# n all cases involving onl$ )uestions of la', the same shall be submitted to and settled or

ad?udicated b$ the Secretar$ of <ustice, as !ttorne$ Deneral and ex officio legal adviser of all government-

o'ned or controlled corporations and entities, in consonance 'ith Section =3 of the (evised !dministrative

Code# &is ruling or determination of the )uestion in each case shall be conclusive and binding upon all the parties concerned#

SEC"0N 3# Cases involving mixed )uestions of la' and of fact or onl$ factual issues shall be submitted

to and settled or ad?udicated b$+4a5 "he Solicitor Deneral, 'ith respect to disputes or claims controversies bet'een or among the

departments, bureaus, offices and other agencies of the National Dovernment1

4b5 "he Dovernment Corporate Counsel, 'ith respect to disputes or claims or controversies bet'een

or among government-o'ned or controlled corporations or entities being served b$ the 0ffice of the

Dovernment Corporate Counsel1 and4c5 "he Secretar$ of <ustice, 'ith respect to all other disputes or claims or controversies 'hich do not

fall under the categories mentioned in paragraphs 4a5 and 4b5#

"he /NB and :0< are of the same position that /#:# No# 292, the more recent la', repealed Section 745 of

(ep# !ct No# 2>, >> based on the pronouncement of this Court in :evelopment Bank of the /hilippines

v# Court of !ppeals, et al#, >; )uoted belo'+

"he Court # # # expresses its entire agreement 'ith the conclusion of the Court of !ppeals — and the basic

premises thereof — that there is an Airreconcilable repugnanc$ # # # bet'een Section 7425 of (#!# No# 2>

and /#:# No# 292,A and hence, that the later enactment 4/#:# No# 2925, being the latest expression of thelegislative 'ill, should prevail over the earlier# !":&SC

n the said case, it 'as expressl$ declared that /#:# No# 292 repealed Section 7425 of (ep# !ct No# 2>,'hich provides for the exclusive appellate ?urisdiction of the C"! over decisions of the Commissioner of

Customs# /NB contends that /#:# No# 292 should be deemed to have like'ise repealed Section 745 of

(ep# !ct No# 2>, 'hich provide for the exclusive appellate ?urisdiction of the C"! over decisions of the

B( Commissioner# >7

!fter re-examining the provisions on ?urisdiction of (ep# !ct No# 2> and /#:# No# 292, this Court finds

itself in disagreement 'ith the pronouncement made in :evelopment Bank of the /hilippines v# Court of

!ppeals, et al#, >= and refers to the earlier case of Gichauco K Compan$, nc# v# !postol, et al#, >6 for the

guidelines in determining the relation bet'een the t'o statutes in )uestion, to 'it+"he cases relating to the sub?ect of repeal b$ implication all proceed on the assumption that if the act of

later date clearl$ reveals an intention on the part of the la' making po'er to abrogate the prior la', this

intention must be given effect1 but there must al'a$s be a sufficient revelation of this intention, and it has become an unbending rule of statutor$ construction that the intention to repeal a former la' 'ill not be

imputed to the Gegislature 'hen it appears that the t'o statutes, or provisions, 'ith reference to 'hich the

)uestion arises bear to each other the relation of general to special# 4Fnderscoring ours#5

hen there appears to be an inconsistenc$ or conflict bet'een t'o statutes and one of the statutes is a

general la', 'hile the other is a special la', then repeal b$ implication is not the primar$ rule applicable#"he follo'ing rule should principall$ govern instead+

Specific legislation upon a particular sub?ect is not affected b$ a general la' upon the same sub?ect unless

it clearl$ appears that the provisions of the t'o la's are so repugnant that the legislators must have

intended b$ the later to modif$ or repeal the earlier legislation# "he special act and the general la' must

stand together, the one as the la' of the particular sub?ect and the other as the general la' of the land# 4Ex



/arte Fnited States, 22; F# S#, 9281 >7 G# ed#, 2=1 Ex /arte Cro' :og, 86 F# S#, >>;1 27 G# ed#, 8381

/artee vs# St# Gouis K S# *# (# Co#, 289 *ed# (ep#, 678#5

here there are t'o acts or provisions, one of 'hich is special and particular, and certainl$ includes the

matter in )uestion, and the other general, 'hich, if standing alone, 'ould include the same matter and thus

conflict 'ith the special act or provision, the special must be taken as intended to constitute an exception tothe general act or provision, especiall$ 'hen such general and special acts or provisions are

contemporaneous, as the Gegislature is not to be presumed to have intended a conflict# 4Crane v# (eederand (eeder, 22 Hich#, 322, 3391 Fniversit$ of Ftah vs# (ichards, 77 !m# St# (ep#, 62=#5 ;8

t has, thus, become an established rule of statutor$ construction that bet'een a general la' and a special

la', the special la' prevails — Deneralia specialibus non derogant# ;

Sustained herein is the contention of private respondent Savellano that /#:# No# 292 is a general la' that

deals 'ith administrative settlement or ad?udication of disputes, claims and controversies bet'een or

among government offices, agencies and instrumentalities, including government-o'ned or controlledcorporations# ts coverage is broad and s'eeping, encompassing all disputes, claims and controversies# t

has been incorporated as Chapter 9, Book of E#0# No# 262, other'ise kno'n as the (evised

!dministrative Code of the /hilippines# ;2 0n the other hand, (ep# !ct No# 2> is a special la' ;3

dealing 'ith a specific sub?ect matter — the creation of the C"!, 'hich shall exercise exclusive appellate

?urisdiction over the tax disputes and controversies enumerated therein#

*ollo'ing the rule on statutor$ construction involving a general and a special la' previousl$ discussed,

then /#:# No# 292 should not affect (ep# !ct No# 2># (ep# !ct No# 2>, specificall$ Section 7 thereof

on the ?urisdiction of the C"!, constitutes an exception to /#:# No# 292# :isputes, claims andcontroversies, falling under Section 7 of (ep# !ct No# 2>, even though solel$ among government offices,

agencies, and instrumentalities, including government-o'ned and controlled corporations, remain in theexclusive appellate ?urisdiction of the C"!# Such a construction resolves the alleged inconsistenc$ or

conflict bet'een the t'o statutes, and the fact that /#:# No# 292 is the more recent la' is no longer

significant# ESa"!

Even if, for the sake of argument, that /#:# No# 292 should prevail over (ep# !ct No# 2>, the present

dispute 'ould still not be covered b$ /#:# No# 292# Section of /#:# No# 292 explicitl$ provides that onl$

disputes, claims and controversies solel$ bet'een or among departments, bureaus, offices, agencies, and

instrumentalities of the National Dovernment, including constitutional offices or agencies, as 'ell as

government-o'ned and controlled corporations, shall be administrativel$ settled or ad?udicated# hile theB( is obviousl$ a government bureau, and both /N0C and /NB are government-o'ned and controlled

corporations, respondent Savellano is a private citi%en# &is standing in the controvers$ could not be lightl$

brushed aside# t 'as private respondent Savellano 'ho gave the B( the information that resulted in theinvestigation of /N0C and /NB1 'ho re)uested the B( Commissioner to reconsider the compromise

agreement in )uestion1 and 'ho initiated C"! Case No# 9296 b$ filing a /etition for (evie'#

n Ba$ ie' &otel, nc# v# Hanila &otel orkers@ Fnion-/"D0, et al#, ;9 this Court upheld the

?urisdiction of the Court of ndustrial (elations over the ordinar$ courts and ?ustified its decision in thefollo'ing manner+

e are unprepared to break a'a$ from the teaching in the cases ?ust adverted to# "o dra' a tenuous

?urisdictional line is to undermine stabilit$ in labor litigations# ! piecemeal resort to one court and another

gives rise to multiplicit$ of suits# "o force the emplo$ees to shuttle from one court to another to secure full

redress is a situation gravel$ pre?udicial# "he time to be lost, effort 'asted, anxiet$ augmented, additional

expense incurred — these are considerations 'hich 'eigh heavil$ against split ?urisdiction# ndeed, it is

more in keeping 'ith orderl$ administration of ?ustice that all the causes of action here Abe cogni%able and

heard b$ onl$ one court+ the Court of ndustrial (elations#A"he same ?ustification is used in the present case to re?ect :0<@s ?urisdiction over the B( and /NB, to the

exclusion of the other parties# "he rights of all four parties in C"! Case No# 9296, namel$ the B(, as thetax collector1 /N0C, the taxpa$er1 /NB, the 'ithholding agent1 and private respondent Savellano, the

informer claiming his re'ard1 arose from the same factual background and 'ere so closel$ interrelated, that

a pronouncement as to one 'ould definitel$ have repercussions on the others# "he ends of ?ustice 'ere best

served 'hen the C"! continued to exercise its ?urisdiction over C"! Case No# 9296# "he C"!, 'hich had

assumed ?urisdiction over all the parties to the controvers$, could render a comprehensive resolution of the

issues raised and grant complete relief to the parties#

alidit$ of the Compromise !greement!# /N0C could not appl$ for a compromise under E#0# No# 99 because its tax liabilit$ 'as not a

delin)uent account or a disputed assessment as of 3 :ecember 6=>#

/N0C and /NB, on different grounds, dispute the decision of the C"! in C"! Case No# 9296 declaringthe compromise agreement bet'een B( and /N0C 'ithout force and effect# &SaE!:

/N0C asserts that the compromise agreement 'as in accordance 'ith E#0# No# 99, and its implementing

rules and regulations, and should be binding upon the parties thereto#

E#0# No# 99 granted the B( Commissioner or his dul$ authori%ed representatives the po'er to

compromise an$ disputed assessment or delin)uent account pending as of 3 :ecember 6=>, upon the pa$ment of an amount e)ual to 38J of the basic tax assessed1 in 'hich case, the corresponding interests

and penalties shall be condoned# E#0# No# 99 took effect on 89 September 6=; and remained effective

until 3 Harch 6=7#

"he disputed assessments or delin)uent accounts that the B( Commissioner could compromise under E#0#

No# 99 are defined under (evenue (egulation 4((5 No# 7-=;, as follo's+



a5 :elin)uent account — (efers to the amount of tax due on or before :ecember 3, 6=> from a

taxpa$er 'ho failed to pa$ the same 'ithin the time prescribed for its pa$ment arising from 45 a self

assessed tax, 'hether or not a tax return 'as filed, or 425 a deficienc$ assessment issued b$ the B( 'hich

has become final and executor$#

here no return 'as filed, the taxpa$er shall be considered delin)uent as of the time the tax onsuch return 'as due, and in availing of the compromise, a tax return shall be filed as a basis for computing

the amount of compromise to be paid# b5 :isputed assessment — refers to a tax assessment disputed or protested on or before :ecember

3, 6=> under an$ of the follo'ing categories+

5 if the same is administrativel$ protested 'ithin thirt$ 4385 da$s from the date the taxpa$er received

the assessment, or

25 if the decision of the B( on the taxpa$er@s administrative protest is appealed b$ the taxpa$er

before an appropriate court#/N0C@s tax liabilit$ could not be considered a delin)uent account since 45 it 'as not self-assessed,

because the B( conducted an investigation and assessment of /N0C and /NB after obtaining information

regarding the non-'ithholding of tax from private respondent Savellano1 and 425 the demand letter, issued

against it on 8= !ugust 6=;, could not have been a deficienc$ assessment that became final and executor$

b$ 3 :ecember 6=>#

"he dissenting opinion contends, ho'ever, that the tax liabilit$ of /N0C constitutes a self-assessed tax,

and is, therefore, a delin)uent account as of 3 :ecember 6=>, )ualif$ing for a compromise under E#0#

No# 99# t anchors its argument on the declaration made b$ this Court in "upa% v# Flep, ;> that internalrevenue taxes are self-assessing#

t is not denied herein that the self-assessing s$stem governs /hilippine internal revenue taxes# "hedissenting opinion itself defines self-assessed tax as, Aa tax that the taxpa$er himself assesses or computes

and pa$s to the taxing authorit$#A Clearl$, such a s$stem imposes upon the taxpa$er the obligation to

conduct an assessment of himself so he could determine and declare the amount to be used as tax basis, an$

deductions therefrom, and finall$, the tax due#

E#0# No# 99 covers self-assessed tax, 'hether or not a tax return 'as filed# "he phrase A'hether or not a tax

return 'as filedA onl$ refers to the compliance b$ the taxpa$er 'ith the obligation to file a return on the

dates specified b$ la', but it does not do a'a$ 'ith the re)uisite that the tax must be self-assessed in order

for the taxpa$er to avail of the compromise# "he second paragraph of Section 24a5 of (( No# 7-=;expressl$ commands, and still imposes upon the taxpa$er, 'ho is availing of the compromise under E#0#

No# 99, and 'ho has not previousl$ filed an$ return, the dut$ to conduct self-assessment b$ filing a tax

return that 'ould be used as the basis for computing the amount of compromise to be paid#Section 24a545 of (( No# 7-=; thus involves a situation 'herein a taxpa$er, after conducting a self-

assessment, discovers or becomes a'are that he had failed to pa$ a tax due on or before 3 :ecember 6=>,

regardless of 'hether he had previousl$ filed a return to reflect such tax1 voluntaril$ comes for'ard and

admits to the B( his tax liabilit$1 and applies for a compromise thereof# n case the taxpa$er has not

previousl$ filed an$ return, he must fill out such a return reflecting therein his o'n declaration of thetaxable amount and computation of the tax due# "he compromise pa$ment shall be computed based on the

amount reflected in the tax return submitted b$ the taxpa$er himself# :E!C&

Neither /N0C nor /NB, the taxpa$er and the 'ithholding agent, respectivel$, conducted self-assessment

in this case# "here is no sho'ing that in the absence of the tax assessment issued b$ the B( against them,

that /N0C andor /NB 'ould have voluntaril$ admitted their tax liabilities, alread$ amounting to

/3=>,6;,>=8#=2, as of > November 6=;, and 'ould have offered to compromise the same# n fact, both

/N0C and /NB 'ere conspicuousl$ silent about their tax liabilities until the$ 'ere assessed thereon#

!n$ attempt b$ /N0C and /NB to assess and declare b$ themselves their tax liabilities had alread$ beenovertaken b$ the B(@s conduct of its audit and investigation and subse)uent issuance of the assessments,

dated 8= !ugust 6=; and 8= 0ctober 6=;, against /N0C and /NB, respectivel$# "he said taxassessments, uncontested and undisputed, presented the results of the B( audit and investigation and the

computation of the total amount of tax liabilities of /N0C and /NB# "he$ should be controlling in this

case, and should not be so easil$ and convenientl$ ignored and set aside# t 'ould be a contradiction to

claim that the tax liabilities of /N0C and /NB are self-assessed and, at the same time, B(-assessed1 'hen

it is clear and simple that it had been the B( that conducted the assessment and determined the tax

liabilities of /N0C and /NB#

"hat the B(-assessed tax liabilit$ should be differentiated from a self-assessed one, is supported b$ the

provisions of (( No# 7-=; on the basis for computing the amount of compromise pa$ment# Note that'here tax liabilities are self-assessed, the compromise pa$ment shall be computed based on the tax return

filed b$ the taxpa$er# ;; 0n the other hand, 'here the B( alread$ issued an assessment, the compromise

pa$ment shall be computed based on the tax due on the assessment notice# ;7*or instances 'here the B( had alread$ issued an assessment against the taxpa$er, the tax liabilit$ could

still be compromised under E#0# No# 99 onl$ if+ 45 the assessment had been final and executor$ on or

before 3 :ecember 6=> and, therefore, considered a delin)uent account as of said date1 ;= or 425 the

assessment had been disputed or protested on or before 3 :ecember 6=># ;6

(H0 No# 36-=;, 'hich provides the guidelines for the implementation of E#0# No# 99, does mentiondifferent t$pes of assessments that ma$ be compromised under said statute 4i#e#, ?eopard$ assessments,

arbitrar$ assessments, and tax assessments of doubtful validit$5# (H0 No# 36-=; ma$ not have expressl$

stated an$ )ualification for these particular t$pes of assessments1 nonetheless, E#0# No# 99 specificall$

refers onl$ to assessments that 'ere delin)uent or disputed as of 3 :ecember 6=>#

E#0# No# 99 and all B( issuances to implement said statute should be interpreted so that the$ are

harmoni%ed and consistent 'ith each other# !ccordingl$, this Court finds that the different t$pes of



assessments mentioned in (H0 No# 36-=; 'ould still have to )ualif$ as delin)uent accounts or disputed

assessments as of 3 :ecember 6=>, so that the$ could be compromised under E#0# No# 99#

"he B( had first 'ritten to /N0C on 8= !ugust 6=;, demanding pa$ment of the income tax on the

interest earnings andor $ields from /N0C@s mone$ placements 'ith /NB from > 0ctober 6=9 to >

0ctober 6=;# "his demand letter could be regarded as the first assessment notice against /N0C#Such an assessment, issued onl$ on 8= !ugust 6=;, could not have been final and executor$ as of 3

:ecember 6=> so as to constitute a delin)uent account# Neither 'as the assessment against /N0C anassessment that could have been disputed or protested on or before 3 :ecember 6=>, having been issued

on a later date#

Diven that /N0C@s tax liabilit$ did not constitute a delin)uent account or a disputed assessment as of 3

:ecember 6=>, then it could not be compromised under E#0# No# 99#

"he assessment against /N0C, instead, 'as more appropriatel$ covered b$ (evenue Hemorandum

Circular 4(HC5 No# 3-=;# (HC No# 3-=; clarifies the scope of availment of the tax amnest$ under E#0# No# 9 78 and compromise pa$ments on delin)uent accounts and disputed assessments under E#0# No# 99#

"he third paragraph of (HC No# 3-=; reads+

".axpa$ers against 'hom assessments had been issued from <anuar$ to !ugust 2, 6=; ma$ settle their

tax liabilities b$ 'a$ of compromise under Section 29; of the "ax Code as amended b$ pa$ing 38J of the

basic assessment excluding surcharge, interest, penalties and other increments thereto#

"he above-)uoted paragraph supports the position that onl$ assessments that 'ere disputed or that 'ere

final and executor$ b$ 3 :ecember 6=> could be the sub?ect of a compromise under E#0# No# 99#

!ssessments issued bet'een 8 <anuar$ to 2 !ugust 6=; could still be compromised b$ pa$ment of 38Jof the basic tax assessed, not an$more pursuant to E#0# No# 99, but pursuant to Section 29; of the N(C of

677, as amended#Section 29; of the N(C of 677, as amended, granted the B( Commissioner the authorit$ to compromise

the pa$ment of an$ internal revenue tax under the follo'ing circumstances+ 45 there exists a reasonable

doubt as to the validit$ of the claim against the taxpa$er1 or 425 the financial position of the taxpa$er

demonstrates a clear inabilit$ to pa$ the assessed tax# 7

"here are substantial differences in circumstances under 'hich compromises ma$ be granted under Section

29; of the N(C of 677, as amended, and E#0# No# 99# !lthough /N0C and /NB have extensivel$

argued their entitlement to compromise under E#0# No# 99, neither of them has alleged, much less, has

presented an$ evidence to prove that it ma$ compromise its tax liabilit$ under Section 29; of the N(C of677, as amended# "!ECa:

B# "he tax liabilit$ of /NB as 'ithholding agent also did not )ualif$ for compromise under E#0# No#

99#Before proceeding an$ further, this Court reconsiders the conclusion made b$ B( Commissioner 0ng in

his demand letter, dated ; <anuar$ 66, that the compromise settlement executed bet'een the B( and

/N0C 'as 'ithout legal basis because 'ithholding taxes 'ere not actuall$ taxes that could be

compromised, but a penalt$ for /NB@s failure to 'ithhold and for 'hich it 'as made personall$ liable#

E#0# No# 99 covers disputed or delin)uenc$ cases 'here the person assessed 'as himself the taxpa$errather than a mere agent# 72 (H0 No# 36-=; expressl$ allo's a 'ithholding agent, 'ho failed to 'ithhold

the re)uired tax because of neglect, ignorance of the la', or his belief that he 'as not re)uired b$ la' to

'ithhold tax, to appl$ for a compromise settlement of his 'ithholding tax liabilit$ under E#0# No# 99# !

'ithholding agent, in such a situation, ma$ compromise the 'ithholding tax assessment against him

precisel$ because he is being held directl$ accountable for the tax# 73

(H0 No# 36-=; distinguishes bet'een the 'ithholding agent in the foregoing situation from the

'ithholding agent 'ho 'ithheld the tax but failed to remit the amount to the Dovernment# ! 'ithholding

agent in the latter situation is the one dis)ualified from appl$ing for a compromise settlement because he is being made accountable as an agent, 'ho held funds in trust for the Dovernment# 79

Both situations, ho'ever, involve 'ithholding agents# "he right to compromise under these provisionsshould have been claimed b$ /NB, the 'ithholding agent for /N0C# "he B( held /NB personall$

accountable for its failure to 'ithhold the tax on the interest earnings andor $ields from /N0C@s mone$

placements 'ith /NB# "he B( sent a demand letter, dated 8= 0ctober 6=;, addressed directl$ to /NB,

for pa$ment of the 'ithholding tax assessed against it, but /NB failed to take an$ action on the said

demand letter# Met, all the offers to compromise the 'ithholding tax assessment came from /N0C and

/N0C did not claim that it made the offers to compromise on behalf of /NB#

Horeover, the general re)uirement of E#0# No# 99 still applies to 'ithholding agents — that the

'ithholding tax liabilit$ must either be a delin)uent account or a disputed assessment as of 3 :ecember6=> to )ualif$ for compromise settlement# "he demand letter against /NB, 'hich also served as its

assessment notice, had been issued on 8= 0ctober 6=; or t'o months later than /N0C@s# /NB@s

'ithholding tax liabilit$ could not be considered a delin)uent account or a disputed assessment, as definedunder (( No# 7-=;, for the same reasons that /N0C@s tax liabilit$ did not constitute as such# "he tax

liabilit$ of /NB, therefore, 'as also not eligible for compromise settlement under E#0# No# 99#

C# Even assuming arguendo that /N0C andor /NB )ualified under E#0# No# 99, their application for

compromise 'as filed be$ond the deadline#

:espite alread$ ruling that the tax liabilities of /N0C and /NB could not be compromised under E#0# No#99, this Court still deems it necessar$ to discuss the finding of the C"! that the compromise agreement had

been filed be$ond the effectivit$ of E#0# No# 99, since the C"! made a declaration in relation thereto that

paragraph 2 of (H0 No# 36-=; 'as null and void for undul$ extending the effectivit$ of E#0# No# 99#

/aragraph 2 of (H0 No# 36-=; provides that+

2# /eriod for availment# — *iling of application for compromise settlement under the said la' shall

be effective onl$ until Harch 3, 6=7# !pplications filed on or before this date shall be valid even if the



pa$ment or pa$ments of the compromise amount shall be made after the said date, sub?ect, ho'ever, to the

provisions of Executive 0rder No# 99 and its implementing (evenue (egulations No# 7-=;# ca:S&

t is 'ell-settled in this ?urisdiction that administrative authorities are vested 'ith the po'er to make rules

and regulations because it is impracticable for the la'makers to provide general regulations for various and

var$ing details of management# "he interpretation given to a rule or regulation b$ those charged 'ith itsexecution is entitled to the greatest 'eight b$ the court construing such rule or regulation, and such

interpretation 'ill be follo'ed unless it appears to be clearl$ unreasonable or arbitrar$# 7>(H0 No# 36-=;, particularl$ paragraph 2 thereof, does not appear to be unreasonable or arbitrar$# t does

not undul$ expand the coverage of E#0# No# 99 b$ merel$ providing that applications for compromise filed

until 3 Harch 6=7 are still valid, even if pa$ment of the compromised amount is made on a later date#

t cannot be expected that the compromise allo'ed under E#0# No# 99 can be automaticall$ granted upon

mere filing of the application b$ the taxpa$er# rrefutabl$, the applications 'ould still have to be processed

b$ the B( to determine compliance 'ith the re)uirements of E#0# No# 99# !s it is uncontested that ataxpa$er could still file an application for compromise on 3 Harch 6=7, the ver$ last da$ of effectivit$ of

E#0# No# 99, it 'ould be unreasonable to expect the B( to process and approve the taxpa$er@s application

'ithin the same date considering the volume of applications filed and pending approval, plus the other

matters the B( personnel 'ould also have to attend to# "hus, (H0 No# 36-=; merel$ assures the

taxpa$ers that their applications 'ould still be processed and could be approved on a later date# /a$ment, of

course, shall be made b$ the taxpa$er onl$ after his application had been approved and the compromised

amount had been determined#

Diven that paragraph 2 of (H0 No# 36-=; is valid, the next )uestion that needs to be addressed is 'hether/N0C had been able to submit an application for compromise on or before 3 Harch 6=7 in compliance

thereof# !lthough the compromise agreement 'as executed onl$ on 22 <une 6=7, /N0C is claiming that ithad alread$ 'ritten a letter to the B(, as earl$ as 2> September 6=;, offering to compromise its tax

liabilit$, and that the said letter should be considered as /N0C@s application for compromise settlement#

! perusal of /N0C@s letter, dated 2> September 6=;, 'ould reveal, ho'ever, that the terms of its

proposed compromise did not conform to those authori%ed b$ E#0# No# 99# /N0C did not offer to pa$

outright 38J of the basic tax assessed against it as re)uired b$ E#0# No# 991 and instead, made the

follo'ing offer+

425 "hat /N0C be permitted to set-off its foregoing mentioned tax liabilit$ of /389,96,36;#=3

against the tax refundcredit claims of the National /o'er Corporation 4N/C5 for specific taxes on fuel oilsold to N/C totaling /33>,2>6,9>8#2, 'hich tax refundscredits are actuall$ receivable accounts of our

Compan$ from N/C# 7;

/N0C reiterated the offer in its letter to the B(, dated 9 0ctober 6=;# 77 "he B(, in its letters to/N0C, dated = 0ctober 6=; 7= and November 6=;, 76 consistentl$ denied /N0C@s offer because the

claim for tax refundcredit of N!/0C0( 'as still under process, so that the offer to set-off such claim

against /N0C@s tax liabilit$ 'as premature#

*urthermore, E#0# No# 99 does not contemplate compromise pa$ment b$ set-off of a tax liabilit$ against a

claim for tax refundcredit# Compromise under E#0# No# 99 ma$ be availed of onl$ in the follo'ingcircumstances+

SEC# 3# ho ma$ avail# — !n$ person, natural or ?uridical, ma$ settle thru a compromise an$ delin)uent

account or disputed assessment 'hich has been due as of :ecember 3, 6=>, b$ pa$ing an amount e)ual

to thirt$ percent 438J5 of the basic tax assessed#

xxx xxx xxx

SEC# ;# Hode of /a$ment# — Fpon acceptance of the proposed compromise, the amount offered as

compromise in complete settlement of the delin)uent account shall be paid immediatel$ in cash or

manager@s certified check#:eferred or staggered pa$ments of compromise amounts over />8,888 ma$ be considered on a case to case

basis in accordance 'ith the extant regulations of the Bureau upon approval of the Commissioner ofnternal (evenue, his :eput$ or !ssistant as delineated in their respective ?urisdictions# :E&a!S

f the Compromise amount is not paid as re)uired herein, the compromise agreement is automaticall$

nullified and the delin)uent account reverted to the original amount plus the statutor$ increments, 'hich

shall be collected thru the summar$ andor ?udicial processes provided b$ la'#

E#0# No# 99 is not for the benefit of the taxpa$er alone, 'ho can extinguish his tax liabilit$ b$ pa$ing the

compromise amount e)uivalent to 38J of the basic tax# t also benefits the Dovernment b$ making

collection of delin)uent accounts and disputed assessments simpler, easier, and faster# /a$ment of the

compromise amount must be made immediatel$, in cash or in manager@s check# !lthough deferred orstaggered pa$ments ma$ be allo'ed on a case-to-case basis, the mode of pa$ment remains unchanged, and

must still be made either in cash or in manager@s check#

/N0C@s offer to set-off 'as obviousl$ made to avoid actual cash-out b$ the compan$# "he offer defeatedthe purpose of E#0# No# 99 because it 'ould not onl$ dela$ collection, but more importantl$, it 'ould not

guarantee collection# *irst of all, B(@s collection 'as contingent on 'hether the claim for tax refundcredit

of N!/0C0( 'ould be subse)uentl$ granted# Second, collection could not be made immediatel$ and

'ould have to 'ait until the resolution of the claim for tax refundcredit of N!/0C0(# "hird, there is no

proof, other than the bare allegation of /N0C, that N!/0C0(@s claim for tax refundcredit is an accountreceivable of /N0C# ! possible dispute bet'een N!/0C0( and /N0C as to the proceeds of the tax

refundcredit 'ould onl$ dela$ collection b$ the B( even further#

t 'as onl$ in its letter, dated 86 <une 6=7, that /N0C actuall$ offered to compromise its tax liabilit$ in

accordance 'ith the terms and circumstances prescribed b$ E#0# No# 99 and its implementing rules and

regulations, b$ stating that+



Conse)uentl$, 'e reiterate our previous re)uest for compromise under E#0# No# 99, and conve$ our

preparedness to settle the sub?ect tax assessment liabilit$ b$ pa$ment of the compromise amount of

/6,883,26#=6, representing thirt$ percent 438J5 of the basic tax assessment of /383,393,7;;#26, in

accordance 'ith E#0# No# 99 and its implementing B( (evenue Hemorandum 0rder No# 36-=;# =8

/N0C claimed in the same letter that it had previousl$ re)uested for a compromise under the terms of E#0# No# 99, but this Court could not find evidence of such previous re)uest# "here are stark and substantial

differences in the terms of /N0C@s offer to compromise in its earlier letters, dated 2> September 6=; and9 0ctober 6=; 4set-off of the entire amount of its tax liabilit$ against the claim for tax refundcredit of

N!/0C0(5, to those in its letter, dated 86 <une 6=7 4pa$ment of the compromise amount representing

38J of the basic tax assessed against it5, making it difficult for this Court to accept that the letter of 86

<une 6=7 merel$ reiterated /N0C@s offer to compromise in its earlier letters#

"his Court like'ise cannot give credence to /N0C@s allegation that beginning 2> September 6=;, the date

of its first letter to the B(, there 'ere continuing negotiations bet'een /N0C and B( that culminated inthe compromise agreement on 22 <une 6=7# !side from the exchange of letters recounted in the preceding

paragraphs, both /N0C and /NB failed to present an$ other proof of the supposed negotiations#

!fter the B( denied the second offer of /N0C to set-off its tax liabilit$ against the claim for tax

refundcredit of N!/0C0( in a letter, dated November 6=;, there is no other evidence of subse)uent

communication bet'een /N0C and the B(# t 'as onl$ after almost seven months, or on 86 <une 6=7,

that /N0C again 'rote a letter to the B(, this time offering to pa$ the compromise amount of 38J of the

basic tax assessed against# "his letter 'as alread$ filed be$ond 3 Harch 6=7, after the lapse of the

effectivit$ of E#0# No# 99 and the deadline for filing applications for compromise under the said statute#Evidence of meetings bet'een /N0C and the B(, or an$ other form of communication, 'herein the

parties presented their offer and counter-offer to the other, 'ould have been ver$ valuable in explaining andsupporting B( Commissioner "an@s decision to accept /N0C@s third offer to compromise after den$ing the

previous t'o# "he absence of such evidence herein negates /N0C@s claim of actual negotiations 'ith the

B(# !"&Cac

"herefore, even assuming arguendo that the tax liabilities of /N0C and /NB )ualif$ as delin)uent

accounts or disputed assessments as of 3 :ecember 6=>, the application for compromise filed b$ /N0C

on 86 <une 6=7, and accepted b$ then B( Commissioner "an on 22 <une 6=7, 'as still filed 'a$ be$ond

3 Harch 6=7, the expiration date of the effectivit$ of E#0# No# 99 and the deadline for filing of

applications for compromise under (H0 No# 36-=;#:# "he B( Commissioner@s discretionar$ authorit$ to enter into a compromise agreement is not

absolute and the C"! ma$ in)uire into allegations of abuse thereof #

"he foregoing discussion supports the C"!@s conclusion that the compromise agreement bet'een /N0Cand the B( 'as indeed 'ithout legal basis# :espite this lack of legal support for the execution of the said

compromise agreement, /NB argues that the C"! still had no ?urisdiction to revie' and set aside the

compromise agreement# t contends that the authorit$ to compromise is purel$ discretionar$ on the B(

Commissioner and the courts cannot interfere 'ith his exercise thereof#

t is generall$ true that purel$ administrative and discretionar$ functions ma$ not be interfered 'ith b$ thecourts1 but 'hen the exercise of such functions b$ the administrative officer is tainted b$ a failure to abide

b$ the command of the la', then it is incumbent on the courts to set matters right, 'ith this Court having

the last sa$ on the matter# =

"he manner b$ 'hich B( Commissioner "an exercised his discretionar$ po'er to enter into a compromise

'as brought under the scrutin$ of the C"! amidst allegations of Agrave abuse of discretion andor

'himsical exercise of ?urisdiction#A =2 "he discretionar$ po'er of the B( Commissioner to enter into

compromises cannot be superior over the po'er of ?udicial revie' b$ the courts#

"he discretionar$ authorit$ to compromise granted to the B( Commissioner is never meant to be absolute,uncontrolled and unrestrained# No such unlimited po'er ma$ be validl$ granted to an$ officer of the

government, except perhaps in cases of national emergenc$# =3 n this case, the B( Commissioner@sauthorit$ to compromise, 'hether under E#0# No# 99 or Section 29; of the N(C of 677, as amended, can

onl$ be exercised under certain circumstances specificall$ identified in said statutes# "he B(

Commissioner 'ould have to exercise his discretion 'ithin the parameters set b$ the la', and in case he

abuses his discretion, the C"! ma$ correct such abuse if the matter is appealed to them# =9

/etitioners /N0C and /NB both contend that B( Commissioner "an merel$ exercised his authorit$ to

enter into a compromise speciall$ granted b$ E#0# No# 99# Since this Court has alread$ made a

determination that the compromise agreement did not )ualif$ under E#0# No# 99, B( Commissioner "an@s

decision to agree to the compromise should have been revie'ed in the light of the general authorit$ grantedto the B( Commissioner to compromise taxes under Section 29; of the N(C of 677, as amended# "hen

again, petitioners /N0C and /NB failed to allege, much less present evidence, that B( Commissioner "an

acted in accordance 'ith Section 29; of the N(C of 677, as amended, 'hen he entered into thecompromise agreement 'ith /N0C# E&a:C

E# "he C"! ma$ set aside a compromise agreement that is contrar$ to la' and public polic$#

/NB also asserts that the C"! had no ?urisdiction to set aside a compromise agreement entered into in

good faith# t relies on the decision of this Court in (epublic v# Sandiganba$an => that a compromise

agreement cannot be set aside merel$ because it is too one-sided# ! compromise agreement should berespected b$ the courts as the res ?udicata bet'een the parties thereto#

"his Court, though, finds that there are substantial differences in the factual background of (epublic v#

Sandiganba$an and the present case#

"he compromise agreement executed bet'een the /residential Commission on Dood Dovernment 4/CDD5

and (oberto S# Benedicto in (epublic v# Sandiganba$an 'as ?udiciall$ approved b$ the Sandiganba$an#

"he Sandiganba$an had ample opportunit$ to examine the validit$ of the compromise agreement since t'o



$ears elapsed from the time the agreement 'as executed up to the time it 'as ?udiciall$ approved# "his

Court even stated in the said case that, Ae are not dealing 'ith the usual compromise agreement

perfunctoril$ submitted to a court and approved as a matter of course# "he /CDD-Benedicto agreement

'as thoroughl$ and, at times, disputatiousl$ discussed before the respondent court# "here could be no

deception or misrepresentation foisted on either the /CDD or the Sandiganba$an#A =;n addition, the ne' /CDD Chairman originall$ pra$ed for the re-negotiation of the compromise agreement

so that it could be more ?ust, fair, and e)uitable, an action considered b$ this Court as an implied admissionthat the agreement 'as not contrar$ to la', public polic$ or morals nor 'as there an$ circumstance 'hich

had vitiated consent# =7

"he above-mentioned circumstances strongl$ supported the validit$ of the compromise agreement in

(epublic v# Sandiganba$an, 'hich 'as 'h$ this Court refused to set it aside# Fnfortunatel$ for the

petitioners in the present case, the same cannot be said herein#

"he Court of !ppeals, in upholding the ?urisdiction of the C"! to set aside the compromise agreement,ruled that+

e are unable to accept petitioner@s submissions# ts formulation of the issues on C( and C"!@s lack of

?urisdiction to disturb a compromise agreement presupposes a compromise agreement validl$ entered into

b$ the C( and not, 'hen as in this case, it 'as indubitabl$ sho'n that the supposed compromise

agreement is 'ithout legal support# n case of arbitrar$ or capricious exercise b$ the Commissioner or if the

proceedings 'ere fatall$ defective, the compromise can be attacked and reversed through the ?udicial

process 4Heralco Securities Corporation v# Savellano, 7 SC(! =8>, =2 6=2.1 Sarah E# (amsa$, et# al#

v# F#S# 2 Ct# C 993, aff@d 28 F#S# 29, 38 G# Ed# >=21 "$son v# F#S#, 36 *# Supp# 3> cited in page = ofdecision5 # # # ==

!lthough the general rule is that compromises are to be favored, and that compromises entered into in goodfaith cannot be set aside, =6 this rule is not 'ithout )ualification# ! court ma$ still re?ect a compromise or

settlement 'hen it is repugnant to la', morals, good customs, public order, or public polic$# 68

"he compromise agreement bet'een the B( and /N0C 'as contrar$ to la' having been entered into b$

B( Commissioner "an in excess or in abuse of the authorit$ granted to him b$ legislation# E#0# No# 99

and the N(C of 677, as amended, had identified the situations 'herein the B( Commissioner ma$

compromise tax liabilities, and none of these situations existed in this case#

"he compromise, moreover, 'as contrar$ to public polic$# "he primar$ dut$ of the B( is to collect taxes,

since taxes are the lifeblood of the Dovernment and their prompt and certain availabilit$ are imperiousneeds# 6 n the present case, ho'ever, B( Commissioner "an, b$ entering into the compromise

agreement that 'as bereft of an$ legal basis, 'ould have caused the Dovernment to lose almost /388

million in tax revenues and 'ould have deprived the Dovernment of much needed monetar$ resources#!llegations of good faith and previous execution of the terms of the compromise agreement on the part of

/N0C 'ould not be enough for this Court to disregard the demands of la' and public polic$# Compromise

ma$ be the favored method to settle disputes, but 'hen it involves taxes, it ma$ be sub?ect to closer

scrutin$ b$ the courts# ! compromise agreement involving taxes 'ould affect not ?ust the taxpa$er and the

B(, but also the 'hole nation, the ultimate beneficiar$ of the tax revenues collected# "!SCEc

*# "he Dovernment cannot be estopped from collecting taxes b$ the mistake, negligence, or omission

of its agents#

"he ne' B( Commissioner, Commissioner 0ng, had acted 'ell 'ithin his po'ers 'hen he set aside the

compromise agreement, dated 22 <une 6=7, after finding that the said compromise agreement 'as 'ithout

legal basis# hen he took over from his predecessor, there 'as still a pending motion for reconsideration of

the said compromise agreement, filed b$ private respondent Savellano on 29 Harch 6==# "o resolve the

said motion, he revie'ed the compromise agreement and, thereafter, came upon the conclusion that it didnot compl$ 'ith E#0# No# 99 and its implementing rules and regulations#

t had been declared b$ this Court in &ilado v# Collector of nternal (evenue, et al#, 62 that anadministrative officer, such as the B( Commissioner, ma$ revoke, repeal or abrogate the acts or previous

rulings of his predecessor in office# "he construction of a statute b$ those administering it is not binding on

their successors if, thereafter, the latter becomes satisfied that a different construction should be given#

t is evident in this case that the ne' B( Commissioner, Commissioner 0ng, construed E#0# No# 99 and its

implementing rules and regulations differentl$ from that of his predecessor, former Commissioner "an,

'hich led to Commissioner 0ng@s revocation of the B( approval of the compromise agreement, dated 22

<une 6=7# Such a revocation 'as onl$ proper considering that the former B( Commissioner@s decision to

approve the said compromise agreement 'as based on the erroneous construction of the la' 4i#e#, E#0# No#99 and its implementing rules and regulations5 and should not give rise to an$ vested right on /N0C# 63

*urthermore, approval of the compromise agreement and acceptance of the compromise pa$ment b$ his

predecessor cannot estop B( Commissioner 0ng from setting aside the compromise agreement, dated 22<une 6=7, for lack of legal basis1 and from demanding pa$ment of the deficienc$ 'ithholding tax from

/NB# !s a general rule, the Dovernment cannot be estopped from collecting taxes b$ the mistake,

negligence, or omission of its agents 69 because+

# # # Fpon taxation depends the Dovernment abilit$ to serve the people for 'hose benefit taxes are collected#

"o safeguard such interest, neglect or omission of government officials entrusted 'ith the collection oftaxes should not be allo'ed to bring harm or detriment to the people, in the same manner as private persons

ma$ be made to suffer individuall$ on account of his o'n negligence, the presumption being that the$ take

good care of their personal affairs# "his should not hold true to government officials 'ith respect to matters

not of their o'n personal concern# "his is the philosoph$ behind the government@s exception, as a general

rule, from the operation of the principle of estoppel# 4(epublic vs# Caballero, G-27937, September 38,

677, 76 SC(! 771 Hanila Godge No# 7;, Benevolent and /rotective 0rder of the Elks, nc# vs# Court of



!ppeals, G-988, September 38, 67;, 73 SC(! ;21 S$ vs# Central Bank of the /hilippines, G-99=8,

!pril 38, 67;, 78 SC(! >71 Balmaceda vs# Corominas K Co#, nc#, ;; SC(! >>31 !u$ong &ian vs#

Court of "ax !ppeals, >6 SC(! 81 (epublic vs# /hilippine (abbit Bus Gines, nc#, ;; SC(! >>31

(epublic vs# /hilippine Gong :istance "elephone Compan$, G-==9, <anuar$ 27, 6;6, 2; SC(! ;281

Zamora vs# Court of "ax !ppeals, G-23272, November 2;, 678, 3; SC(! 771 E# (odrigue%, nc# vs#Collector of nternal (evenue, G-2389, <ul$ 3, 6;6, 2= SC(! 65# 6>

*inalit$ of the "ax !ssessment

!# "he issue on 'hether the B( complied 'ith the notice re)uirements under (( No# 2-=> is raised

for the first time on appeal and should not be given due course#

/NB, in another effort to block the collection of the deficienc$ 'ithholding tax, this time raises doubts as to

the validit$ of the deficienc$ 'ithholding tax assessment issued against it on ; <anuar$ 66# t submits

that the B( failed to compl$ 'ith the notice re)uirements set forth in (( No# 2-=># 6;hether or not the B( complied 'ith the notice re)uirements of (( No# 2-=> is a ne' issue raised b$

/NB onl$ before this Court# Such a )uestion has not been ventilated before the lo'er courts# *or an

appellate tribunal to consider a legal )uestion, it should have been raised in the court belo'# 67 f raised

earlier, the matter 'ould have been seriousl$ delved into b$ the C"! and the Court of !ppeals# 6=

B# "he assessment against /NB had become final and unappealable, and therefore, enforceable#

"he C"! and the Court of !ppeals declared as final and unappealable, and thus, enforceable, the

assessment against /NB, dated ; <anuar$ 66, since /NB failed to protest said assessment 'ithin the 38-

da$ prescribed period# "his Court, though, finds that the significant B( assessment, as far as this case isconcerned, should be the one issued b$ the B( against /NB on 8= 0ctober 6=;#

"he B( issued on 8= 0ctober 6=; an assessment against /NB for its 'ithholding tax liabilit$ on theinterest earnings andor $ields from /N0C@s mone$ placements 'ith the bank# t had 38 da$s from receipt

to protest the B(@s assessment# 66 /NB, ho'ever, did not take an$ action as to the said assessment so that

upon the lapse of the period to protest, the 'ithholding tax assessment against it, dated = 0ctober 6=;,

became final and unappealable, and could no longer be disputed# 88 "he courts ma$ therefore order the

enforcement of this assessment# "aSE&C

t is the enforcement of this B( assessment against /NB, dated 8= 0ctober 6=;, that is in issue in the

instant case# f the compromise agreement is valid, it 'ould effectivel$ bar the B( from enforcing the

assessment and collecting the assessed tax1 on the other hand, if the compromise agreement is void, thenthe courts can order the B( to enforce the assessment and collect the assessed tax#

!s has been previousl$ discussed b$ this Court, the B( demand letter, dated ; <anuar$ 66, is not a ne'

assessment against /NB# t onl$ demanded from /NB the pa$ment of the balance of the 'ithholding taxassessed against it on 8= 0ctober 6=;# "he same demand letter also has no substantial effect or impact on

the resolution of the present case# t is alread$ unnecessar$ and superfluous, having been issued b$ the B(

'hen C"! Case No# 9296 'as alread$ pending before the C"!# !t best, the demand letter, dated ;

<anuar$ 66, constitute a useful reference for the courts in computing the balance of /NB@s tax liabilit$,

after appl$ing as partial pa$ment thereon the amount previousl$ received b$ the B( from /N0C pursuantto the compromise agreement#

/rescription

!# "he defense of prescription 'as never raised b$ petitioners /N0C and /NB, and should be

considered 'aived#

"he dissenting opinion takes the position that the right of the B( to assess and collect income tax on the

interest earnings andor $ields from /N0C@s mone$ placements 'ith /NB, particularl$ for taxable $ear

6=>, had alread$ prescribed, based on Section 2;= of the N(C of 677, as amended#Section 2;= of the N(C of 677, as amended, provides a three-$ear period of limitation for the assessment

and collection of internal revenue taxes, 'hich begins to run after the last da$ prescribed for filing of thereturn# 8

"he dissenting opinion points out that more than four $ears have elapsed from 2> <anuar$ 6=; 4the last

da$ prescribed b$ la' for /NB to file its 'ithholding tax return for the fourth )uarter of 6=>5 to ;

<anuar$ 66 4the date 'hen the alleged final assessment of /NB@s tax liabilit$ 'as issued5#

"he issue of prescription, ho'ever, 'as brought up onl$ in the dissenting opinion and 'as never raised b$

/N0C and /NB in the proceedings before the B( nor in an$ of their pleadings submitted to the C"! and

the Court of !ppeals#

Section , (ule 6 of the (ules of Civil /rocedure la$s do'n the rule on defenses and ob?ections not pleaded, and reads+

SEC"0N # :efenses and 0b?ections Not /leaded# — :efenses and ob?ections not pleaded either in a

motion to dismiss or in the ans'er are deemed 'aived# &o'ever, 'hen it appears from the pleadings or theevidence on record that the court has no ?urisdiction over the sub?ect matter, that there is another action

pending bet'een the parties for the same cause, or that the action is barred b$ prior ?udgment or b$ the

statute of limitations, the court shall dismiss the claim#

"he general rule enunciated in the above-)uoted provision governs the present case, that is, the defense of

prescription, not pleaded in a motion to dismiss or in the ans'er, is deemed 'aived# "he exception in same provision cannot be applied herein because the pleadings and the evidence on record do not sufficientl$

sho' that the action is barred b$ prescription#

t has been consistentl$ held in earlier tax cases that the defense of prescription of the period for the

assessment and collection of tax liabilities shall be deemed 'aived 'hen such defense 'as not properl$

pleaded and the facts alleged and evidences submitted b$ the parties 'ere not sufficient to support a finding

b$ this Court on the matter# 82 n Iuerol v# Collector of nternal (evenue, 83 this Court pronounced that



prescription, being a matter of defense, imposes the burden on the taxpa$er to prove that the full period of

the limitation has expired1 and this re)uires him to positivel$ establish the date 'hen the period started

running and 'hen the same 'as full$ accomplished#

n making its conclusion that the assessment and collection in this case had prescribed, the dissenting

opinion took liberties to assume the follo'ing facts even in the absence of allegations and evidences to theeffect that+ 45 /NB filed returns for its 'ithholding tax obligations for taxable $ear 6=>1 425 /NB reported

in the said returns the interest earnings of /N0C@s mone$ placements 'ith the bank1 and 435 that the returns'ere filed on or before the prescribed date, 'hich 'as 2> <anuar$ 6=;# ESC:&!

t is not safe to adopt the first and second assumptions in this case considering that Section 2;6 of the

N(C of 677, as amended, provides for a different period of limitation for assessment and collection of

taxes in case of false or fraudulent return or for failure to file a return# n such cases, the B( is given 8

$ears after discover$ of the falsit$, fraud, or omission 'ithin 'hich to make an assessment# 89

t is also not safe to accept the third assumption since there can be a possibilit$ that /NB filed the'ithholding tax return later than the prescribed date, in 'hich case, follo'ing the dictates of Section 2;= of

the N(C of 677, as amended, the three-$ear prescriptive period shall be counted from the date the return

'as actuall$ filed# 8>

/NB@s 'ithholding tax returns for taxable $ear 6=>, dul$ received b$ the B(, 'ould have been the best

evidence to prove actual filing, the date of filing and the contents thereof# "hese facts are relevant in

determining 'hich prescriptive period should appl$, and 'hen such prescriptive period should begin to run

and 'hen it had lapsed# Met, the pleadings did not refer to an$ return, and no return 'as made part of the

records of the present case#"his Court could not make a proper ruling on the matter of prescription on the mere basis of assumptions1

such an issue should have been properl$ raised, argued, and supported b$ evidences submitted b$ the parties themselves before the B( and the courts belo'#

B# Dranting that this Court can take cogni%ance of the defense of prescription, this Court finds that

the assessment of the 'ithholding tax liabilit$ against /N0C and collection of the tax assessed 'ere done

'ithin the prescriptive period#

!ssuming, for the sake of argument, that this Court can give due course to the defense of prescription, it

finds that the assessment against /NB for its 'ithholding tax liabilit$ for taxable $ear 6=> and the

collection of the tax assessed therein 'ere accomplished 'ithin the prescribed periods for assessment and

collection under the N(C of 677, as amended#f this Court adopts the assumption made b$ the dissenting opinion that /NB filed its 'ithholding tax return

for the last )uarter of 6=> on 2> <anuar$ 6=;, then the B( had until 29 <anuar$ 6=6 to assess /NB# "he

original assessment against /NB 'as issued as earl$ as 8= 0ctober 6=;, 'ell-'ithin the three-$ear prescriptive period for making the assessment as prescribed b$ the follo'ing provisions of the N(C of

677, as amended+

SEC# 2;=# /eriod of limitation upon assessment and collection# — Except as provided in the

succeeding section, internal revenue taxes shall be assessed 'ithin three $ears after the last da$ prescribed

b$ la' for the filing of the return, and no proceeding in court 'ithout assessment for the collection of suchtaxes shall be begun after the expiration of such period# # # #

SEC# 2;6# Exceptions as to period of limitation of assessment and collection of taxes# —

xxx xxx xxx

4c5 !n$ internal revenue tax 'hich has been assessed 'ithin the period of limitation above-prescribed

ma$ be collected b$ distraint or lev$ or b$ a proceeding in court 'ithin three $ears follo'ing the

assessment of the tax#

Sections 2;= and 2;64c5 of the N(C of 677, as amended, should be read in con?unction 'ith one another#

Section 2;= re)uires that assessment be made 'ithin three $ears from the last da$ prescribed b$ la' for thefiling of the return# Section 2;64c5, on the other hand, provides that 'hen an assessment is issued 'ithin the

prescribed period provided in Section 2;=, the B( has three $ears, counted from the date of theassessment, to collect the tax assessed either b$ distraint, lev$ or court action# "herefore, 'hen an

assessment is timel$ issued in accordance 'ith Section 2;=, the B( is given another three-$ear period,

under Section 2;64c5, 'ithin 'hich to collect the tax assessed, reckoned from the date of the assessment#

n the case of /NB, an assessment 'as issued against it b$ the B( on 8= 0ctober 6=;, so that the B(

had until 87 0ctober 6=6 to enforce it and to collect the tax assessed# "he filing, ho'ever, b$ private

respondent Savellano of his !mended /etition for (evie' before the C"! on 82 <ul$ 6== alread$

constituted a ?udicial action for collection of the tax assessed 'hich stops the running of the three-$ear

prescriptive period for collection thereof# &C"E:a! ?udicial action for the collection of a tax ma$ be initiated b$ the filing of a complaint 'ith the proper

regular trial court1 or 'here the assessment is appealed to the C"!, b$ filing an ans'er to the taxpa$er@s

petition for revie' 'herein pa$ment of the tax is pra$ed for# 8;"he present case is uni)ue, ho'ever, because the /etition for (evie' 'as filed b$ private respondent

Savellano, the informer, against the B(, /N0C, and /NB# "he B(, the collecting government agenc$1

/N0C, the taxpa$er1 and /NB, the 'ithholding agent, initiall$ found themselves on the same side# "he

pra$er in the !mended /etition for (evie' of private respondent Savellano reads+

&E(E*0(E, in vie' of the foregoing, petitioner respectfull$ pra$s that the compromise agreement of<une 22, 6=7 be revie'ed and declared null and void, and that this Court directs+

a5 respondent Commissioner to enforce and collect and respondents /NB andor /N0C to pa$ in a

?oint and several capacit$, the total tax liabilit$ of /3=7,6=7,7=>#73, plus interests from 3 0ctober 6=;1

and

b5 respondent Commissioner to pa$ unto petitioner, as informer@s re'ard, >J of the tax liabilit$

collected under clause 4a5 hereof#



0ther e)uitable reliefs under the premises are like'ise pra$ed for# 87 4Fnderscoring ours#5

/rivate respondent Savellano, in his !mended /etition for (evie' in C"! Case No# 9296, pra$ed for 45

the C"! to direct the B( Commissioner to enforce and collect the tax, and 425 /NB andor /N0C to pa$

the tax — making C"! Case No# 9296 a collection case# "hat the !mended /etition for (evie' 'as filed

b$ the informer and not the taxpa$er1 and that the pra$er for the enforcement of the tax assessment and pa$ment of the tax 'as also made b$ the informer, not the B(, should not affect the nature of the case as a

?udicial action for collection# n case the C"! grants the /etition and the pra$er therein, as 'hat hashappened in the present case, the ultimate result 'ould be the collection of the tax assessed# Conse)uentl$,

upon the filing of the !mended /etition for (evie' b$ private respondent Savellano, ?udicial action for

collection of the tax had been initiated and the running of the prescriptive period for collection of the said

tax 'as terminated#

Supposing that C"! Case No# 9296 is not a collection case 'hich stops the running of the prescriptive

period for the collection of the tax, C"! Case No# 9296, at the ver$ least, suspends the running of the said prescriptive period# Fnder Section 27 of the N(C of 677, as amended, the running of the prescriptive

period to collect deficienc$ taxes shall be suspended for the period during 'hich the B( Commissioner is

prohibited from beginning a distraint or lev$ or instituting a proceeding in court, and for ;8 da$s thereafter#

8= <ust as in the cases of (epublic v# Per K Co#, Gtd# 86 and /rotector@s Services, nc# v# Court of

!ppeals, 8 this Court declares herein that the pendenc$ of the present case before the C"!, the Court of

!ppeals and this Court, legall$ prevents the B( Commissioner from instituting an action for collection of

the same tax liabilities assessed against /N0C and /NB in the C"! or the regular trial courts# "o rule

other'ise 'ould be to violate the ?udicial polic$ of avoiding multiplicit$ of suits and the rule on lis pendens#

0nce again, that C"! Case No# 9296 'as initiated b$ private respondent Savellano, the informer, insteadof /N0C, the taxpa$er, or /NB, the 'ithholding agent, 'ould not prevent the suspension of the running of

the prescriptive period for collection of the tax# hat is controlling herein is the fact that the B(

Commissioner cannot file a ?udicial action in an$ other court for the collection of the tax because such a

case 'ould necessaril$ involve the same parties and involve the same issues alread$ being litigated before

the C"! in C"! Case No# 9296# "he three-$ear prescriptive period for collection of the tax shall

commence to run onl$ after the promulgation of the decision of this Court in 'hich the issues of the present

case are resolved 'ith finalit$#

hether the filing of the !mended /etition for (evie' b$ private respondent Savellano entirel$ stops ormerel$ suspends the running of the prescriptive period for collection of the tax, it had been premature for

the B( Commissioner to issue a 'rit of garnishment against /NB on 2 !ugust 66 and for the Central

Bank of the /hilippines to debit the account of /NB on 82 September 662 pursuant to the said 'rit, because the case 'as b$ then, pending revie' b$ the Court of !ppeals# &o'ever, since this Court alread$

finds that the compromise agreement is 'ithout force and effect and hereb$ orders the enforcement of the

assessment against /NB, then, an$ issue or controvers$ arising from the premature garnishment of /NB@s

account and collection of the tax b$ the B( has become moot and academic at this point# :Ec"Ca

!dditional nformer@s (e'ard

/rivate respondent Savellano is entitled to additional informer@s re'ard since the B( had alread$ collected

the full amount of the tax assessment against /NB#

/N0C insists that private respondent Savellano is not entitled to additional informer@s re'ard because there

'as no voluntar$ pa$ment of the 'ithholding tax liabilit$# /N0C, ho'ever, fails to state an$ legal basis for

its argument#

Section 3;45 of the N(C of 677, as amended, granted a re'ard to an informer e)uivalent to >J of the

revenues, surcharges, or fees recovered, plus, an$ fine or penalt$ imposed and collected# "he provision'as clear and uncomplicated — an informer 'as entitled to a re'ard of >J of the total amount actuall$

recovered or collected b$ the B( based on his information# "he provision did not make an$ distinction asto the manner the tax liabilit$ 'as collected — 'hether it 'as through voluntar$ pa$ment b$ the taxpa$er

or through garnishment of the taxpa$er@s propert$# !pplicable herein is another 'ell-kno'n maxim in

statutor$ construction — Fbi lex non distinguit nec nos distinguere debemos — 'hen the la' does not

distinguish, 'e should not distinguish# 2

/ursuant to the 'rit of garnishment issued b$ the B(, the Central Bank issued a debit advice against the

demand deposit account of /NB 'ith the Central Bank for the amount of /269,6>=,9>8#73, and credited the

same amount to the demand deposit account of the "reasurer of the (epublic of the /hilippines# "he

"reasurer of the (epublic, in turn, alread$ issued a ?ournal voucher transferring /269,6>=,9>8#73 to theaccount of the B(#

Since the B( had alread$ collected /269,6>=,9>8#73 from /NB through the execution of the 'rit of

garnishment over /NB@s deposit 'ith the Central Bank, then private respondent Savellano should bea'arded >J thereof as re'ard since the said collection could still be traced to the information he had

given#



D#(# No# >=>7# !pril 2=, 288>#.

C!G!HB! S"EEG CEN"E(, NC# 4formerl$ <S S"EEG C0(/0(!"0N5, petitioner, vs#

C0HHSS0NE( 0* N"E(N!G (EENFE, respondent#

: E C S 0 N

/!ND!NB!N, < p+

! tax refund ma$ be claimed even be$ond the taxable $ear follo'ing that in 'hich the tax credit arises#

&ence, excess income taxes paid in 66> that have not been applied to or used in 66; ma$ still be the

sub?ect of a tax refund in 667, provided that the claim for such refund is filed 'ith the internal revenuecommissioner 'ithin t'o $ears after pa$ment of said taxes# !s a caveat, the Court stresses that the

recognition of the entitlement to a tax refund does not necessaril$ mean the automatic pa$ment of the sumclaimed in the final ad?ustment return of the taxpa$er# "he amount of the claim must still be proven in the

normal course# "C:&aE

"he Case

Before us is a /etition for (evie' under (ule 9> of the (ules of Court, assailing the <anuar$ 8, 2882

:ecision 2 of the Court of !ppeals 4C!5 in C!-D( S/ No# >==3=# "he assailed :ecision disposed as

follo's+

AN E 0* !GG "&E *0(ED0ND, the instant petition is :SHSSE: and the assailed :ecision and

(esolution are !**(HE:# Costs against /etitioner#A 3"he *acts

Iuoting the Court of "ax !ppeals 4C"!5, the C! narrated the antecedents as follo's+

A/etitioner is a domestic corporation engaged in the manufacture of steel blanks for use b$ manufacturersof automotive, electrical, electronics in industrial and household appliances#

A/etitioner filed an !mended Corporate !nnual ncome "ax (eturn on <une 9, 66; declaring a net taxable

income of /6,9;,>67#88, tax credits of /;,97,29;#88 and tax due in the amount of /3,3,>>6#88#

A/etitioner also reported )uarterl$ pa$ments for the second and third )uarters of 66> in the amounts of

/2,32=,797#2; and /,8=2,8=#88, respectivel$# E!S:"At is the proposition of the p.etitioner that for the $ear 66>, several of its clients 'ithheld taxes from their

income pa$ments to p.etitioner and remitted the same to the Bureau of nternal (evenue 4B(5 in the sum

of /3,>6,;=7#88# /etitioner further alleged that due to its incomeloss positions for the three )uarters of

66;, it 'as unable to use the excess tax paid for and in its behalf b$ the 'ithholding agents#

A"hus, an administrative claim 'as filed b$ the p.etitioner on !pril 8, 667 for the refund of

/3,>6,;=7#88 representing excess or unused creditable 'ithholding taxes for the $ear 66># "he instant

petition 'as subse)uentl$ filed on !pril =, 667#

A(espondent, in his !ns'er, averred, among others, that+@5 /etitioner has no cause of action1

@25 /etitioner failed to compl$ 'ith the procedural re)uirements set out in Section > of (evenue(egulations No# 4((5. 2-691

@35 t is incumbent upon p.etitioner to prove b$ competent and sufficient evidence that the tax refund

or tax credit being sought is allo'ed under the National nternal (evenue Code and its implementing rules

and regulations1 and

@95 Claims for tax refund or tax credit are construed strictl$ against the taxpa$er as the$ partake the

nature of tax exemption# &SacE

A"o buttress its claim, p.etitioner presented documentar$ and testimonial evidence# (espondent, on the

other hand, presented the r.evenue o.fficer 'ho conducted the examination of p.etitioner@s claim andfound petitioner liable for deficienc$ value added tax# /etitioner also presented rebuttal evidence#

A"he sole issue submitted for o.ur determination is 'hether or not p.etitioner is entitled to the refund of

/3,>6,;=7#88 representing excess or overpaid income tax for the taxable $ear 66>#A 9(uling of the Court of !ppeals

n den$ing petitioner@s refund, the C! reasoned out that no evidence other than that presented before the

C"! 'as adduced to prove that excess tax pa$ments had been made in 66># *rom the inception of the

case to the formal offer of its evidence, petitioner did not present its 66; income tax return to disclose its

total income tax liabilit$, thus making it difficult to determine 'hether such excess tax pa$ments 'ereutili%ed in 66;#

&ence, this /etition# >

"he ssue

/etitioner raises this sole issue for our consideration+ &Ca:S

Ahether the Court of !ppeals gravel$ erred 'hen, 'hile purportedl$ re)uiring petitioner to submit its

66; annual income tax return to support its claim for refund, nonetheless ignored the existence of the tax



return extant on the record the authenticit$ of 'hich has not been denied or its admissibilit$ opposed b$ the

Commissioner of nternal (evenue#A ;

"he Court@s (uling

"he /etition is partl$ meritorious#

Sole ssue+Entitlement to "ax (efund

Section ;6 of the National nternal (evenue Code 4N(C5 7 provides+ASec# ;6# *inal ad?ustment return# — Ever$ corporation liable to tax under Section 29 shall file a

final ad?ustment return covering the total taxable income for the preceding calendar or fiscal $ear# f the

sum of the )uarterl$ tax pa$ments made during the said taxable $ear is not e)ual to the total tax due on the

entire taxable net income of that $ear the corporation shall either+

@4a5 /a$ the excess tax still due1 or

@4b5 Be refunded the excess amount paid, as the case ma$ be#An case the corporation is entitled to a refund of the excess estimated )uarterl$ income taxes paid, the

refundable amount sho'n on its final ad?ustment return ma$ be credited against the estimated )uarterl$

income tax liabilities for the taxable )uarters of the succeeding taxable $ear#A aSE&:!

"ax (efund

!llo'ed b$ N(C

! perusal of this provision sho's that a taxable corporation is entitled to a tax refund 'hen the sum of the

)uarterl$ income taxes it paid during a taxable $ear exceeds its total income tax due also for that $ear#

Conse)uentl$, the refundable amount that is sho'n on its final ad?ustment return ma$ be credited, at itsoption, against its )uarterl$ income tax liabilities for the next taxable $ear#

/etitioner is a corporation liable to pa$ income taxes under Section 29 of the N(C# &ence, it is a taxablecorporation# n 66>, it reported that it had excess income taxes that had been paid for and on its behalf b$

its 'ithholding agents1 and that, appl$ing the above-)uoted Section ;6, this excess should be credited

against its income tax liabilities for 66;# &o'ever, it claimed in 667 that it should get a refund, because

it 'as still unable to use the excess income taxes paid in 66> against its tax liabilities in 66;# s this

possibleR Stating the argument other'ise, ma$ excess income taxes paid in 66> that could not be applied

to taxes due in 66; be refunded in 667R

"he ans'er is in the affirmative# &ere are the reasons+

Claim of "ax (efund Be$ond theSucceeding "axable Mear

*irst, a tax refund ma$ be claimed even be$ond the taxable $ear follo'ing that in 'hich the tax credit

arises# S:"&! No provision in our tax la' limits the entitlement to such a refund, other than the re)uirement that the filing

of the administrative claim for it be made b$ the taxpa$er 'ithin a t'o-$ear prescriptive period# Section

289435 of the N(C states that no refund of taxes Ashall be allo'ed unless the taxpa$er files in 'riting 'ith

the Commissioner the. claim for # # # refund 'ithin t'o $ears after the pa$ment of the tax#A

!ppl$ing the afore)uoted legal provisions, if the excess income taxes paid in a given taxable $ear have not been entirel$ used b$ a taxable corporation against its )uarterl$ income tax liabilities for the next taxable

$ear, the unused amount of the excess ma$ still be refunded, provided that the claim for such a refund is

made 'ithin t'o $ears after pa$ment of the tax# /etitioner filed its claim in 667 — 'ell 'ithin the t'o-

$ear prescriptive period# "hus, its unused tax credits in 66> ma$ still be refunded#

Even the phrase Asucceeding taxable $earA in the second paragraph of the said Section ;6 is a limitation that

applies onl$ to a tax credit, not a tax refund# /etitioner herein does not claim a tax credit, but a tax refund#

"herefore, the statutor$ limitation does not appl$#

ncome /a$ments Herel$:eclared /art of Dross ncome

Second, to be able to claim a tax refund, a taxpa$er onl$ needs to declare the income pa$ments it receivedas part of its gross income and to establish the fact of 'ithholding# :a"Sc

Section > of (( 2-69 = states+

xxx xxx xxx

A4a5 Claims for "ax Credit or (efund of income tax deducted and 'ithheld on income pa$ments shall

be given due course onl$ 'hen it is sho'n on the return that the income pa$ment received has been

declared as part of the gross income and the fact of 'ithholding is established b$ a cop$ of the ithholding

"ax Statement dul$ issued b$ the pa$or to the pa$ee sho'ing the amount paid and the amount of tax

'ithheld therefrom#A4b5 Excess Credits# — ! taxpa$er@s excess expanded 'ithholding tax credits for the taxable

)uartertaxable $ear shall automaticall$ be allo'ed as a credit for purposes of filing his income tax return

for the taxable )uartertaxable $ear immediatel$ succeeding the taxable )uartertaxable $ear in 'hich theaforesaid excess credit arose, provided, ho'ever, he submits 'ith his income tax return a cop$ of his

income tax return for the aforesaid previous taxable period sho'ing the amount of his aforementioned

excess 'ithholding tax credits#

Af the taxpa$er, in lieu of the aforesaid automatic application of his excess credit, 'ants a cash refund or a

tax credit certificate for use in pa$ment of his other national internal tax liabilities, he shall make a 'rittenre)uest therefor# Fpon filing of his re)uest, the taxpa$er@s income tax return sho'ing the excess expanded

'ithholding tax credits shall be examined# "he excess expanded 'ithholding tax, if an$, shall be

determined and refundedcredited to the taxpa$er-applicant# "he refundcredit shall be made 'ithin a

period of sixt$ 4;85 da$s from date of the taxpa$er@s re)uest provided, ho'ever, that the taxpa$er-applicant

submitted for audit all his pertinent accounting records and that the aforesaid records established the

veracit$ of his claim for a refundcredit of his excess expanded 'ithholding tax credits#A !c"aC





46675 taxable $ear# ts final ad?ustment return 'as instead attached to its (epl$ to Comment filed before

the C!# S:!a"C

Horeover, in B/-*amil$ Savings Bank, petitioner 'as able to sho' Athe undisputed fact+ that petitioner

had suffered a net loss in 668 # # #A 32 n the instant case, there is no such Aundisputed factA as $et# "he

mere admission into the records of petitioner@s 66; final ad?ustment return is not a sufficient proof of thetruth of the contents of or entries in that return#

n addition, the B( in B/-*amil$ Savings Bank did not controvert the veracit$ of the return or file anopposition to the Hotion and the return# :espite the fact that the return 'as ignored b$ both the C! and the

C"!, the latter even declared in another case 4C"! Case No# 9=675 that petitioner had suffered a net loss

for taxable $ear 668# hen attached to the /etition for (evie' filed before this Court, that :ecision 'as

not at all claimed b$ the B( to be fraudulent or nonexistent# "he Bureau merel$ contended that this Court

should not take ?udicial notice of the said :ecision#

n this case, ho'ever, the B( has not been given the chance to challenge the veracit$ of petitioner@s finalad?ustment return# Neither has the C"! decided an$ other case categoricall$ declaring a net loss for

petitioner in taxable $ear 66;# !fter this return 'as attached to petitioner@s (epl$ to Comment before the

C!, the appellate court should have re)uired the filing of other responsive pleadings from respondent, as

'as necessar$ and proper for it to rule upon the return# "E&:C

!dmissibilit$ ersus eight

ndeed, Aa.dmissibilit$ # # # is one thing, 'eight is another#A 33 A"o admit evidence and not to believe it are

not incompatible 'ith each other # # #A 39 Here allegations b$ petitioner of the figures in its 66; final

ad?ustment return are not a sufficient proof of the amount of its refund entitlement# "he$ do not evenconstitute evidence 3> adverse to respondent, against 'hom the$ are being presented# 3;

hile it seems that the Anon-production. of a document 'hich courts almost invariabl$ expect 'ill be produced @unavoidabl$ thro's a suspicion over the cause,@A 37 this is not reall$ the conclusion to be arrived

at here# hen petitioner purportedl$ filed its administrative claim for a tax refund on !pril 8, 667, the

deadline for filing the 66; final ad?ustment return 'as not $et over# &ence, it could not have attached this

return to its claim#

*or reasons unkno'n even to this Court, petitioner failed to offer such return as evidence during the trial

phase of this case# *or its negligence, petitioner Acannot be allo'ed to seek refuge in a liberal application of

the r.ulesA 3= b$ giving it a blanket approval of the total refund it claims# Ahile in certain instances, 'e

allo' a relaxation in the application of the rules, 'e never intend to forge a 'eapon for erring litigants toviolate the rules 'ith impunit$# "he liberal interpretation and application of rules appl$ onl$ in proper cases

of demonstrable merit and under ?ustifiable causes and circumstances#A 36

t 'ould not be proper to allo' petitioner to simpl$ prevail and compel a refund in the amount it claims,'ithout affording the government a reasonable opportunit$ to contest the former@s allegations# 98

Negligence consisting of the unexplained failure to offer the exhibit should not be re'arded 'ith

undeserved lenienc$# /etitioner still bears the burden of proving the amount of its claim for tax refund#

!fter all, At.ax refunds are in the nature of tax exemptionsA 9 and are to be construed strictissimi ?uris

against the taxpa$er# c!SE:*inall$, even in the absence of a final ad?ustment return or an$ claim for a tax refund, respondent is

authori%ed b$ la' to examine an$ book, paper, record or other data that ma$ be relevant or material to such

in)uir$# 92 *ailure to make an assessment of petitioner@s proper tax liabilit$ or to contest the return could

be errors or omissions of administrative officers that should never be allo'ed to ?eopardi%e the

government@s financial position#

eril$, Athe officers of the Bureau of nternal (evenue should receive the support of the courts 'hen these

officers attempt to perform in a conscientious and la'ful manner the duties imposed upon them b$ la'#A 93

0nl$ after it is sho'n that Aif something is received 'hen there is no right to demand it, and it 'as dul$delivered through mistake, the obligation to return it arises#A 99

n brief, 'e hold that petitioner is entitled to a refund1 ho'ever, the amount must still be proved in proper proceedings before the C"!#



D#(# No# 27=2# Ha$ 6, 288>#.

"he &onorable Secretar$ of *inance, petitioner, vs# "&E &0N0(!BGE (C!(:0 H# G!(:E,

/residing <udge, (egional "rial Court, ;th <udicial (egion, Branch 2;, loilo Cit$, and C/(!N0 /#C!B!GFN!, <(#, respondents#

: E C S 0 N

C&C0-N!Z!(0, < p+

!t the fulcrum in the case before Fs is the constitutional )uestion of 'hether or not the then Hinistr$ of

*inance could legall$ promulgate regulations prescribing a rate of penalt$ on delin)uent taxes other thanthat provided for under /residential :ecree 4/#:#5 No# 9;9, also kno'n as the (eal /ropert$ "ax Code#

"CaS!&

n this petition for revie', petitioner Secretar$ of *inance seeks to reverse and set aside the :ecision

dated 2= !ugust 66> rendered b$ respondent <udge (icardo H# larde of the (egional "rial Court 4("C5,

;th <udicial (egion, Branch 2;, loilo Cit$, in Civil Case No# 2287 for :eclarator$ (elief 'ith :amages,

declaring as null and void <oint !ssessment (egulations No# -=> and Gocal "reasur$ (egulations No# 2-=>

of the Hinistr$ 4no' :epartment5 of *inance for being contrar$ to Section ;; of /#:# No# 9;9 or the (eal

/ropert$ "ax Code, 'hich pegged the maximum penalt$ for delin)uenc$ in the pa$ment of real estate taxesat 29J of the delin)uent tax#

/rivate respondent Cipriano /# Cabaluna, <r#, 'as the (egional :irector of (egional 0ffice No# of the:epartment of *inance in loilo Cit$# &e co-o'ns 'ith his 'ife certain properties, namel$, Got No# 69-:-

, Got No# 69-:-2, and a residential house on Got No# 692-:-, all situated in 9 <alandoni St#, <aro, loilo

Cit$# !side from these properties, the Cabaluna spouses o'n Got No# 2 4996-E and *5 and Got No# 9

4996>-E and *5, both situated in Baranga$ "acas, <aro, loilo Cit$# 2

/rivate respondent failed to pa$ the land taxes on Got No# 2 4996-E and *5 and Got No# 9 4996>-E and

*5 for the $ears 6=; to 662# *or the $ears 66 to 662, taxes 'ere also unpaid on Got No# 69-:-2, on

the residential house, and on Got No# 69-:-# 3

! breakdo'n of the computation of the delin)uent taxes and penalties, both Basic and Special Education*und 4SE*5, 9 for private respondent@s lots and residential house as of Ha$ 663 as reflected in the various

receipts issued b$ the Cit$ "reasurer@s 0ffice of loilo Cit$, sho's that more than t'ent$-four percent

429J5 of the delin)uent taxes 'ere charged and collected from private respondent b$ 'a$ of penalties# 0nthe ;th and 7th of Ha$ 663, private respondent paid his land taxes and the corresponding receipts 'ere

issued to him b$ the Cit$ "reasurer@s 0ffice 'ith the notation Apaid under protest#A Ca:&"

0n 27 Ha$ 663, soon after private respondent retired from his post as (egional :irector of (egional

0ffice No# of the :epartment of *inance in loilo Cit$, he filed a formal letter of protest 'ith the Cit$

"reasurer of loilo Cit$ > 'herein he contends that the Cit$ "reasurer@s computation of penalties 'aserroneous since the rate of penalt$ applied exceeded t'ent$-four percent 429J5 in contravention of Section

;; of /#:# No# 9;9, other'ise kno'n as the (eal /ropert$ "ax Code, as amended#

n response, ho'ever, respondent !ssistant Cit$ "reasurer, (i%alina *# "ulio, for and in behalf of the Cit$

"reasurer of loilo Cit$, turned do'n private respondent@s protest, citing Sec# 94c5 of <oint !ssessment

(egulations No# -=> and Gocal "reasur$ (egulations No# 2-=> of the then Hinistr$ 4no' :epartment5 of

*inance 'hich reads+





No# 73 and its implementing guidelines, <oint Gocal !ssessment"reasur$ (egulations No# 2-=;# <oint

Gocal !ssessment"reasur$ (egulations No# 2-=;, 'hich provides in material parts+

SEC"0N # Computation of (eal /ropert$ "axes# — Effective <anuar$ , 6=7 the assessed values of

real properties determined b$ the assessors during the latest general revision of real propert$ assessments,

'hich ended in :ecember 6=9, shall be used as the basis for the computation of the basic and additionalJ 4SE*5 real propert$ taxes#

&o'ever, in order to ease the tax burden, and pursuant to the provisions of Section 67-! of the (eal/ropert$ "ax Code 4/: 9;9, as amended5, increases in real propert$ taxes arising from the 6=9 ne' or

revised assessments shall become due and collectible, in addition to the preceding $ear@s tax, as follo's+

4a5 in CM 6=7, a maximum increase of fift$ percent 4>8J5 over the 6=; tax,

4b5 in CM 6==, the remaining increase in tax but not exceeding a second fift$ percent 4>8J5 increase,

or a total of 88J, over the 6=; tax, and

4c5 in CM 6=6, the remaining increase in tax shall not exceed the $earl$ increments originall$ arrivedat in appl$ing the 6=9 ne' or revised assessment of the propert$ sub?ect to tax# !:aSE&

t is understood that the herein-authori%ed annual increases but not exceeding a third fift$ percent 4>8J5

increase, or a total of >8J, over the 6=; tax#

!n$ increase in tax in excess of the maximum authori%ed for CM 6=6 shall no longer be collectible#

"he annual >8J increase ceiling prescribed in the foregoing provisions ma$ be availed of, ho'ever, onl$

b$ taxpa$ers 'ho shall meet the )uarterl$ deadlines provided for in the (eal /ropert$ "ax Code and 'here

the sub?ect propert$ has no outstanding real propert$ tax delin)uenc$ except those that are covered b$

!mnest$ Compromise !greements executed b$ and bet'een the taxpa$er and the local government pursuant to the provisions of Executive 0rder No# 92, dated !ugust 22, 6=;, of the /resident, as

implemented b$ <oint !ssessment"reasur$ (egulations No# 2-=;, dated !ugust 2;, 6=; of this Hinistr$#"!E:cS

n case of failure to make prompt pa$ments, the taxpa$er shall be re)uired to pa$ in full the increase in tax

due and demandable for the tax $ear as a result of the full application of the 6=9 ne' or revised

assessment of the sub?ect propert$# n addition, the t'o percent 42J5 per month penalt$ shall be imposed

on the amount due in the manner provided for under existing regulations# 4Fnderscoring supplied#5 2

/etitioner Secretar$ of *inance avers in his petition that the last paragraph of Section , <oint Gocal

!ssessment"reasur$ (egulations No# 2-=;, explicitl$ provides for a 2J per month penalt$ 'ithout an$

limitation as to the maximum amount thereof, 'hich is entirel$ consistent 'ith the then existing(egulations, the no' challenged <oint !ssessment (egulations No# -=> and Gocal "reasur$ (egulations

No# 2-=># 3 /etitioner further asserts that inasmuch as <oint Gocal !ssessment"reasur$ (egulations No#

2-=;, 'hich echoes the disputed (egulations, 'as issued to implement E#0# No# 73, private respondent@srecourse is to file a case )uestioning the validit$ of <oint Gocal !ssessment"reasur$ (egulations No# 2-=;

in the same 'a$ that he has assailed <oint !ssessment (egulations No# -=> and Gocal "reasur$

(egulations No# 2-=># 9

/etitioner@s reasoning is, to our mind, but a futile attempt to muddle the facts of the case and the issues

involved# (ecall that the present controvers$ cropped up 'hen private respondent Cabaluna protested the pa$ment of penalties on his delin)uent taxes for being in excess of the 29J cap provided in /#:# No# 9;9

or the (eal /ropert$ "ax Code# n response to his letter of protest, the !ssistant "reasurer of loilo Cit$

?ustified the assessment b$ citing Sec# 94c5 of <oint !ssessment (egulations No# -=> and Gocal "reasur$

(egulations No# 2-=> issued b$ petitioner Hinister 4no' Secretar$5 of *inance# "his has lead to the filing

of the present case b$ Cabaluna to )uestion the validit$ of the said regulations# t is the validit$ of said

regulations, not <oint Gocal !ssessment"reasur$ (egulations No# 2-=;, that is sought to be resolved herein

and petitioner should not depart from the issue on hand# Ca!cSE

/etitioner urges this Court that inasmuch as <oint Gocal !ssessment"reasur$ (egulations No# 2-=; 'hich'as allegedl$ borne out of E#0# No# 73 is consistent 'ith the <oint !ssessment (egulations No# -=> and

Gocal "reasur$ (egulations No# 2-=> no' under scrutin$, E#0# No# 73 had the effect of validating thelatter#

"he Court harbors doubts on the veracit$ of petitioner@s contention that the (egulations at issue are

sanctioned b$ E#0# No# 73# "he underl$ing principle behind E#0# No# 73, as gleaned from the 'hereas

clauses and Section thereof as )uoted above, is to advance the date of effectivit$ of the application of the

(eal /ropert$ "ax alues of 6=9 from 8 <anuar$ 6==, the original date it 'as intended b$ E#0# No#

86 to take effect for purposes stated therein, to 8 <anuar$ 6=7# E#0# No# 73 did not, in an$ 'a$, alter

the structure of the real propert$ tax assessments as provided for in /#:# No# 9;9 or the (eal /ropert$ "ax

Code# Neither is this Court easil$ dissuaded b$ the submission of the Secretar$ of *inance that E#0# No# 73,

'hich provides in Section 2 thereof that+ A"he Hinister of *inance shall promulgate the necessar$ rules and

regulations to implement this Executive 0rder,A has the effect of according petitioner the blanket authorit$to tinker 'ith the rates of penalt$ on delin)uenc$ taxes as provided for in /#:# No# 9;9, the general la' on

real propert$ taxation# "he Court takes notice that E#0# No# 73 did not touch at all on the topic of

amendment of rates of delin)uent taxes or the amendment of rates of penalt$ on delin)uent taxes# E#0# No#

73, particularl$ in Section 2 thereof, has merel$ designated the Hinister of *inance to promulgate the rules

and regulations to'ards the implementation of E#0# No# 73, particularl$ on the application of the (eal/ropert$ alues as of 3 :ecember 6=9, 'hich is the general purpose for enacting said executive order#

C&!E:

n our mind, 'hat is patent from the above-)uoted Section 3 of E#0# No# 73 is the repeal of E#0# No# 86,

not Section ;; of /#:# No# 9;9# Said E#0# No# 86 is kno'n as the la' A(eorgani%ing the "ax Collection

and !ssessment Hachiner$ in the /rovinces, Hunicipalities, Hunicipalities and Cities, and 0ther /urpose,A

'hich 'as signed into la' b$ deposed /resident *erdinand E# Harcos on = !pril 6=>, reads+



&E(E!S, there have been numerous re)uests from people in the provinces and to'ns proclaimed as

calamit$ areas to allo' them temporar$ respite from the pa$ment of the increase in real propert$ taxes1

&E(E!S, there is a resolution in the Batasang /ambansa asking the /resident of the /hilippines to

suspend the accrual of real propert$ taxes based on the general revision of real propert$ assessments

undertaken from <ul$ , 6= to <une 38, 6=>1xxx xxx xxx

SEC"0N # "he Hinistr$ of *inance and the Hinistr$ of Gocal Dovernment shall immediatel$establish a more efficient tax collecting s$stem to strengthen the present machiner$ in order to maximi%e

the collection of taxes on the province, municipalit$ or cit$ levels1

SEC# 2# *or the above purpose, responsibilities no' being performed b$ the province, municipalit$ or cit$

treasurers 'hich do not pertain directl$ to treasur$ service, especiall$ tax collection, shall be removed from

said treasurers in order to enable them to concentrate on the collection of taxes# S"a&C

SEC# 3# "he Hinistr$ of *inance and the Hinistr$ of Gocal Dovernment shall like'ise revise andstrengthen the present tax assessment process in order to obtain a more efficient, e)uitable and realistic

s$stem#

SEC# 9# "he present distribution of shares from real propert$ tax revenues among the provinces and

municipalities or cities namel$, 9>J to the province, 9>J to the municipalit$ or cit$, and 8 J for the

baranga$s, shall be maintained# # # #

SEC# ># "he increase in real propert$ taxes resulting from the revised real propert$ assessments as

provided for under Section 2 of /residential :ecree No# 9;9, as amended b$ /residential :ecree No#

;2, shall be collected beginning <anuar$ , 6== instead of <anuar$ , 6=> in order to enable theHinistr$ of *inance and the Hinistr$ of Gocal Dovernment to establish the ne' s$stems of tax collection

and assessment provided herein and in order to alleviate the condition of the people, including real propert$o'ners, as a result of temporar$ economic difficulties#

SEC# ;# /a$ments alread$ made pursuant to the revised real propert$ assessments shall be credited to

future real propert$ taxes due on the same propert$# # # # 4Emphases supplied5

Neither did E#0# No# 86 directl$ or indirectl$ vest upon the :epartment of *inance the right to fiddle

'ith the rates of penalt$ to be assessed on delin)uenc$ taxes as contained in the (eal /ropert$ "ax Code#

Even assuming that E#0# No# 86 had vested the then Hinistr$ of *inance 'ith the authorit$ to impose

ne' rates of penalt$ on delin)uenc$ taxes, as petitioner 'ould have us believe, such authorit$ 'ould have

been automaticall$ stripped off from it upon the express repeal of E#0# No# 86 b$ E#0# No# 73 on the2>th of November 6=;# Ec&!aS

:espite the promulgation of E#0# No# 73, /#:# No# 9;9 in general and Section ;; in particular, remained to

be good la'# "o accept petitioner@s premise that E#0# No# 73 had accorded the Hinistr$ of *inance theauthorit$ to alter, increase, or modif$ the tax structure 'ould be tantamount to sa$ing that E#0# No# 73 has

repealed or amended /#:# No# 9;9# (epeal of la's should be made clear and expressed# (epeals b$

implication are not favored as la's are presumed to be passed 'ith deliberation and full kno'ledge of all

la's existing on the sub?ect# Such repeals are not favored for a la' cannot be deemed repealed unless it is

clearl$ manifest that the legislature so intended it# > "he failure to add a specific repealing clause indicatesthat the intent 'as not to repeal an$ existing la', unless an irreconcilable inconsistenc$ and repugnanc$

exist in the terms of the ne' and old la's# e find, as the trial court has found, no such inconsistenc$ or

repugnanc$ bet'een E#0# No# 73 and Section ;; of /#:# No# 9;9# <urisprudence thrives to the effect that it

is onl$ (epublic !ct No# 7;8 or the Gocal Dovernment Code of 66, 'hich repealed the (eal /ropert$

"ax Code or /#:# No# 9;9# ;

!ssuming argumenti that E#0# No# 73 has authori%ed the petitioner to issue the ob?ected (egulations, such

conferment of po'ers is void for being repugnant to the 'ell-encrusted doctrine in political la' that the

po'er of taxation is generall$ vested 'ith the legislature# 7 Mes, /resident Cora%on !)uino, at that time,'as exercising both executive and legislative po'ers# But, the po'er delegated to the executive branch, in

this case the Hinistr$ of *inance, to la$ do'n implementing rules must, nevertheless, be germane to thegeneral la' it seeks to appl$# "he implementing rules cannot add to or detract from the provisions of the

la' it is designed to implement# = !dministrative regulations adopted under legislative authorit$ b$ a

particular department must be in harmon$ 'ith the provisions of the la' the$ are intended to carr$ into

effect, 6 'hich in this case is merel$ to antedate the effectivit$ of the 6=9 (eal /ropert$ "ax values

inasmuch as this is the raison d@Ttre of E#0# No# 73# S"a!cC

n a last-ditch effort to salvage the impugned (egulations, petitioner pushes on that <oint Gocal

!ssessment"reasur$ (egulations No# 2-=;, or the so-called implementing rules of E#0# No# 73, is not

contrar$ to Section ;; of /#:# No# 9;9 inasmuch as the latter applies merel$ to simple delin)uenc$ in the pa$ment of real propert$ taxes 'hile the former covers cases 'herein there 'as failure to promptl$ pa$ the

real propert$ tax due, including the increase in tax due and demandable for the tax $ear as a result of the

application of the 6=9 Ne' or (evised !ssessment of the value of the sub?ect propert$# 28Such rationali%ation lacks legal traction# /#:# No# 9;9 makes no distinction as to 'hether it is simple

delin)uenc$ or other forms thereof# "he (eal /ropert$ "ax Code covers the 'ide ilk of failure to promptl$

pa$ the real propert$ taxes due and demandable for a particular period# Fbi lex non distinguit nec nos

distinguere debemus# hen the la' does not distinguish, 'e must not distinguish# *urther, /#:# No# 9;9

covers all real propert$ titled to individuals 'ho become delin)uents in pa$ing real estate tax# /#:# No# 9;9is a la' of general application# 2

0n the second assigned error, the fact that private respondent Cabaluna 'as responsible for the issuance

and implementation of (egional 0ffice Hemorandum Circular No# 89-=6 'hich implemented <oint

!ssessment (egulations No# -=> and Gocal "reasur$ (egulations No# 2-=> does not put him in estoppel

from seeking the nullification of said (egulations at this point# !s adroitl$ elucidated b$ the trial court —



"hat petitioner had previousl$ endorsed implementation of sub?ect regulations is of no moment# *or he did

so then in his capacit$ as the (egional :irector of (egional 0ffice No# of the :epartment of *inance in

loilo Cit$# !s such (egional :irector, he 'as a subordinate of the Secretar$ of *inance so that he 'as dut$

bound to implement sub?ect regulations# /etitioner had no alternative but to carr$ out the orders and

issuances of his superior# a!:Scn the case at bar, ho'ever, petitioner is suing as a plain taxpa$er, he having alread$ retired as (egional

:irector# &is official acts as (egional :irector could not have stripped him of his rights as a taxpa$er# "o be sure, the official acts of petitioner as (egional :irector cannot serve as estoppel for him to pursue the

present course of action that he has taken as a taxpa$er#

n an$ event, a regulation 'hich is in itself invalid for being contrar$ to la' cannot be validated b$ an$ act

of endorsement of an$ official, much less, b$ a subordinate of the official 'ho issued such regulation#

Estoppel, certainl$, cannot make an invalid regulation valid# 22

!t bottom, the la' applicable, in the case at bar, for purposes of computation of the real propert$ taxes duefrom private respondent for the $ears 6=; to 66, including the penalties and interests, is still Section ;;

of the (eal /ropert$ "ax Code of 679 or /#:# No# 9;9# "he penalt$ that ought to be imposed for

delin)uenc$ in the pa$ment of real propert$ taxes should, therefore, be that provided for in Section ;; of

/#:# No# 9;9, i#e#, t'o per centum on the amount of the delin)uent tax for each month of delin)uenc$ or

fraction thereof but Ain no case shall the total penalt$ exceed t'ent$-four per centum of the delin)uent tax#A

!ccordingl$, the penalties imposed b$ respondents Cit$ "reasurer and !ssistant Cit$ "reasurer of loilo

Cit$ on the propert$ of private respondent are valid onl$ up to 29J of the delin)uent taxes# "he excess

penalties paid b$ the private respondent should, in vie' of that, be refunded b$ the latter# &Cac"&o'ever, from 8 <anuar$ 662 on'ards, the proper basis for the computation of the real propert$ tax

pa$able, including penalties or interests, if applicable, must be (ep# !ct No# 7;8, kno'n as the GocalDovernment Code, 'hich took effect on the st of <anuar$ 662 23 inasmuch as Section >39 29 thereof had

expressl$ repealed /#:# No# 9;9 or the (eal /ropert$ "ax Code# Section >4d5 of (ep# !ct No# 7;8

provides that rights and obligations existing on the date of effectivit$ of the ne' Code and arising out of

contracts or an$ source of prestation involving a local government unit shall be governed b$ the original

terms and conditions of the said contracts or the la' in force at the time such contracts 'ere vested#

Documents

Taxation Cases 2005