REMEDIES OF THE GOVERNMENT

SEC. 202- 231 OF THE TAX CODE

I. EXAMINATION/INVESTIGATION1. POWER OF THE COMMISSIONER TO EXAMINE

SEC 6(A) -- MEMORIZE

SEC. 6. Power of the Commissioner to Make assessments and Prescribe additional Requirements for Tax Administration and Enforcement. -(A) Examination of Returns and Determination of Tax Due. - After a return has been filed as required under the provisions of this Code, the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax: Provided, however; That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer.

The tax or any deficiency tax so assessed shall be paid upon notice and demand from the Commissioner or from his duly authorized representative.

Any return, statement of declaration filed in any office authorized to receive the same shall not be withdrawn: Provided, That within three (3) years from the date of such filing, the same may be modified, changed, or amended: Provided, further, That no notice for audit or investigation of such return, statement or declaration has in the meantime been actually served upon the taxpayer.

2. PRESERVATION OF BOOKS OF ACCOUNTS SEC. 235

SEC. 235. Preservation of Books and Accounts and Other Accounting Records. -

All the books of accounts, including the subsidiary books and other accounting records of corporations, partnerships, or persons, shall be preserved by them for a period beginning from the last entry in each book until the last day prescribed by Section 203 within which the Commissioner is authorized to make an assessment. The said booksand records shall be subject to examination and inspection by internal revenue officers: Provided, That for income tax purposes, such examination and inspection shall be made only once in a taxable year, except in the following cases:

(a) Fraud, irregularity or mistakes, as determined by the Commissioner;

(b) The taxpayer requests reinvestigation;(c) Verification of compliance with withholding tax laws and

regulations;(d) Verification of capital gains tax liabilities; and(e) In the exercise of the Commissioner's power under Section

5(B) to obtain information from other persons in which case, another or separate examination and inspection may be made. Examination and inspection of books of accounts and other accounting records shall be done in the taxpayer's office or place of business or in the office of the Bureau of Internal Revenue. All corporations, partnerships or persons that retire from business shall, within ten (10) days from the date of retirement or within such period of time as may be allowed by the Commissioner in special cases, submit their books of accounts, including the subsidiary books and other accounting records to the Commissioner or any of his deputies for examination, after which they shall be returned. Corporations and partnerships contemplating dissolution must notify the Commissioner and shall not be dissolved until cleared of any tax liability.

Any provision of existing general or special law to the contrary notwithstanding, the books of accounts and other pertinent records of tax-exempt organizations or grantees of tax incentives shall be subject to examination by the Bureau of Internal Revenue for purposes of ascertaining compliance with the conditions under which they have been granted tax exemptions or tax incentives, and their tax liability, if any.

3. FAILURE TO SUBMIT REQUIRED RETURNS i) ADMINISTRATIVE SEC. 6 (B)

SEC. 6. Power of the Commissioner to Make assessments and Prescribe additional Requirements for Tax Administration and Enforcement. -

(B) Failure to Submit Required Returns, Statements, Reports and other Documents. - When a report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by laws or rules and regulations or when there is reason to believe that any such report is false, incomplete or erroneous, the Commissioner shall assess the proper tax on the best evidence obtainable.

In case a person fails to file a required return or other document at the time prescribed by law, or willfully or otherwise files a false or

Page | 1

fraudulent return or other document, the Commissioner shall make or amend the return from his own knowledge and from such information as he can obtain through testimony or otherwise, which shall be prima facie correct and sufficient for all legal purposes.

ii) CRIMINAL PROSECUTION SEC. 275

SEC. 275. Violation of Other Provisions of this Code or Rules and Regulations in General. - Any person who violates any provision of this Code or any rule or regulation promulgated by the Department of Finance, for which no specific penalty is provided by law, shall, upon conviction for each act or omission, be punished by a fine of not morethan One thousand pesos (P1,000) or suffer imprisonment of not more than six (6) months, or both.

iii) SUBPOENA DUCES TECUM RMO 35-90

The Prosecution Division or Legal Branch shall evaluate the recommendation for issuance of subpoena within 2 working days from receipt and may take the following alternative actions:

1) Return the case to its origin for further documentation or action; 2) Prepare the corresponding subpoena in three copies for initial and/or signature of the officials concerned, the distribution of which shall be as follows:

Original - to be served to the taxpayer Duplicate - attached to the docket of the case

under audit Triplicate - action lawyer file

C. Signatories Only the following revenue officials are hereby authorized to issue subpoenas, to wit:

1) National Office a. Assistant Commissioner, Legal Service

2) Regional Office a. Director, or in his absence, the b. Assistant Director

This does not however preclude the Commissioner and Deputy Commissioners to exercise their authority under the National Internal Revenue Code to issue subpoena in appropriate cases.

D. Service 1) By Whom Served

Ideally, the service of the subpoena should be effected by the revenue officers assigned to investigate the case. However, such service may be made by any internal revenue officer authorized for the purpose.

2) How Service May Be Effected

a. The subpoena shall be served by handing the original copy thereof to the individual named therein in person, or, if he refuses to receive it, by tendering it to him witnessed by another revenue officer accompanying the server. b. If personal service cannot be made, service may be effected by:

1) Leaving a copy of the subpoena at the taxpayer's dwelling place or residence with some person of suitable age and discretion then residing therein; or 2) Leaving the copy at taxpayer's office or regular place of business with some competent person in charge thereof. 3) In both situations, the leaving of the copy of the Subpoena with a competent person and or person of sufficient discretion should be witnessed by another revenue officer accompanying the server.

3) Proof of Service Aside from accomplishing the bottom portion of the subpoena, the server shall make a written report setting forth the manner, place and date of service, the name of the person who received the same and such other relevant information. In case of constructive service, the personal relationship and/or official capacity, if any, of the person receiving should be indicated.

V. Remedies to Enforce Compliance Where the taxpayer fails, refuses or neglects to comply with the commands of the subpoena, he may be proceeded against by:

A. Filing a criminal case for violation of Section 7 , in relation to Sections 17 and 265 of the Tax Code, as amended; and/or B. Initiating proceedings for indirect contempt under Section 3(f), Rule 71 of the Revised Rules of Court.

4. OTHER MODES OF DETERMINING THE TAXi) CONDUCT OF SURVEILLANCE SEC. 6 (C)

SEC. 6. Power of the Commissioner to Make assessments and Prescribe additional Requirements for Tax Administration and Enforcement. –

(C) Authority to Conduct Inventory-taking, surveillance and to Prescribe Presumptive Gross Sales and Receipts. - The Commissioner may, at any

Page | 2

time during the taxable year, order inventory-taking of goods of any taxpayer as a basis for determining his internal revenue tax liabilities, or may place the business operations of any person, natural or juridical, under observation or surveillance if there is reason to believe that such person is not declaring his correct income, sales or receipts for internal revenue tax purposes. The findings may be used as the basis for assessing the taxes for the other months or quarters of the same or different taxable years and such assessment shall be deemed prima facie correct.

When it is found that a person has failed to issue receipts and invoices in violation of the requirements of Sections 113 and 237 of this Code, or when there is reason to believe that the books of accounts or other records do not correctly reflect the declarations made or to be made in a return required to be filed under the provisions of this Code, the Commissioner, after taking into account the sales, receipts, income or other taxable base of other persons engaged in similar businesses under similar situations or circumstances or after considering other relevant information may prescribe a minimum amount of such gross receipts, sales and taxable base, and such amount so prescribed shall be prima facie correct for purposes of determining the internal revenue tax liabilities of such person.

ii) THIRD PARTY INFORMATION SEC. 5

SEC. 5. Power of the Commissioner to Obtain Information, and to Summon, Examine, and Take Testimony of Persons. - In ascertaining the correctness of any return, or in making a return when none has been made, or in determining the liability of any person for any internal revenue tax, or in collecting any such liability, or in evaluating tax compliance, the Commissioner is authorized:

(A) To examine any book, paper, record, or other data which may be relevant or material to such inquiry;

(B) To obtain on a regular basis from any person other than the person whose internal revenue tax liability is subject to audit or investigation, or from any office or officer of the national and local governments, government agencies and instrumentalities, including the Bangko Sentral ng Pilipinas and government-owned or -controlled corporations, any information such as, but not limited to, costs and volume of production, receipts or sales and gross incomes of taxpayers, and the names, addresses, and financial statements of corporations, mutual fund companies, insurance companies, regional operating headquarters of multinational companies, joint accounts, associations, joint ventures or consortia and registered partnerships, and their members;

(C) To summon the person liable for tax or required to file a return, or any officer or employee of such person, or any person having possession, custody, or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax, or any other person, to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books, papers, records, or other data, and to give testimony;(D) To take such testimony of the person concerned, under oath, as may be relevant or material to such inquiry; and

(E) To cause revenue officers and employees to make a canvass from time to time of any revenue district or region and inquire after and concerning all persons therein who may be liable to pay any internal revenue tax, and all persons owning or having the care, management or possession of any object with respect to which a tax is imposed.

The provisions of the foregoing paragraphs notwithstanding, nothing in this Section shall be construed as granting the Commissioner the authority to inquire into bank deposits other than as provided for in Section 6(F) of this Code.

iii) INQUIRE INTO BANK ACCOUNTS SEC 6 (F)

SEC. 6. Power of the Commissioner to Make assessments and Prescribe additional Requirements for Tax Administration and Enforcement. –

(F) Authority of the Commissioner to inquire into Bank Deposit Accounts. - Notwithstanding any contrary provision of Republic Act No. 1405 and other general or special laws, the Commissioner is hereby authorized to inquire into the bank deposits of: MEMORIZE

(1) a decedent to determine his gross estate; and(2) any taxpayer who has filed an application for compromise

of his tax liability under Sec. 204 (A) (2) of this Code by reason of financial incapacity to pay his tax liability.

In case a taxpayer files an application to compromise the payment of his tax liabilities on his claim that his financial position demonstrates a clear inability to pay the tax assessed, his application shall not be considered unless and until he waives in writing his privilege under Republic Act No. 1405 or under other general or special laws, and such waiver shall constitute the authority of the Commissioner to inquire into the bank deposits of the taxpayer.

Page | 3

2. ASSESSMENTS1. POWER OF THE COMMISSIONER TO MAKE

ASSESSMENT SEC 6(A) & (B)

SEC. 6. Power of the Commissioner to Make assessments and Prescribe additional Requirements for Tax Administration and Enforcement. -

(A) Examination of Returns and Determination of Tax Due. - After a return has been filed as required under the provisions of this Code, the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax: Provided, however; That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer.

The tax or any deficiency tax so assessed shall be paid upon notice and demand from the Commissioner or from his duly authorized representative.

Any return, statement of declaration filed in any office authorized to receive the same shall not be withdrawn: Provided, That within three (3) years from the date of such filing, the same may be modified, changed, or amended: Provided, further, That no notice for audit or investigation of such return, statement or declaration has in the meantime been actually served upon the taxpayer.

(B) Failure to Submit Required Returns, Statements, Reports and other Documents. - When a report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by laws or rules and regulations or when there is reason to believe that any such report is false, incomplete or erroneous, the Commissioner shall assess the proper tax on the best evidence obtainable.

In case a person fails to file a required return or other document at the time prescribed by law, or willfully or otherwise files a false or fraudulent return or other document, the Commissioner shall make or amend the return from his own knowledge and from such information as he can obtain through testimony or otherwise, which shall be prima facie correct and sufficient for all legal purposes.

2. DEFINITION OF ASSESSMENT i) BLACK’S LAW DICTIONARY

It is a written notice to a taxpayer to the effect that the amount stated therein is due as tax and containing a demand for the payment. It is a

finding by the taxing agency that the taxpayer has not paid his correct taxes.

Note: A notice of assessment contains not only a computation of tax liabilities but also a demand for the payment within a prescribed period. It also signals the time when penalties and interests begin to accrue.

CIR V. PASCOR REALTY & DEV’T CORP 309 SCRA 402 (1999)FACTS:

The CIR authorized certain BIR officers to examine the books of accounts and other accounting records of Pascor Realty. The examination resulted in recommendation for the issuance of an assessment.

The Commissioner filed a criminal complaint for tax evasion against PRDC, its president and treasurer before the DOJ.

Private respondents filed immediately an urgent request for reconsideration on reinvestigation disputing the tax assessment and tax liability.

The Commissioner denied private respondent’s request for reconsideration/reinvestigation on the ground that no formal assessment has been issued which the latter elevated to the CTA on a petition for review.

ISSUES: (1) WON the criminal complaint for tax evasion can be construed as an assessment. (2) WON an assessment is necessary before criminal charges for tax evasion may be instituted.

HELD: The filing of the criminal complaint with the DOJ cannot be construed as a formal assessment. Neither the Tax Code nor the revenue regulations governing the protest assessments provide a specific definition or form of an assessment.

An assessment must be sent to and received by the taxpayer, and must demand payment of the taxes described therein within a specific period. The revenue officer’s affidavit merely contained a computation of respondent’s tax liability. It did not state a demand or period for payment. It was addressed to the Secretary of Justice not to the taxpayer. They joint affidavit was meant to support the criminal complaint for tax evasion; it was not meant to be a notice of tax due and a demand to private respondents for the payment thereof. The fact that the complaint was sent to the DOJ, and not to private respondent, shows that commissioner intended to file a criminal complaint for tax evasion, not to issue an assessment.

Page | 4

An assessment is not necessary before criminal charges can be filed. A criminal charge need not only be supported by a prima facie showing of failure to file a required return. The CIR had, in such tax evasion cases, discretion on whether to issue an assessment, or to file a criminal case against the taxpayer, or to do both.

3. PRESUMPTION OF REGULARITY OF ASSESSMENT

SY PO V. CTAG.R. NO 81446 (1988)FACTS:

1) the Secretary of Finance directed the Finance-BIR-NBI team to investigate SCWF.

2) Based on the investigation, CIR assessed deficiency income tax and deficiency specific tax.

3) Petitioner protested the deficiency assessments. BIR recommended the reiteration of the assessments in view of the taxpayer’s failure to present the books of accounts for examination

ISSUE: WON the assessments have a valid and legal basis

HELD: Yes. The rule on “the Best Evidence Obtainable” applies when a tax report required by law for the purpose of assessment is not available or when a tax report is incomplete or fraudulent.The tax assessment by tax examiners are presumed correct and made in good faith. The taxpayer has the duty to prove otherwise. In the absence of proof of irregularities in the performance of duties, an assessment duly made by the BIR examiner and approved by his superior officers will not be disturbed. All presumptions are in favor of the correctness of tax assessments.

4. ASSESSMENTS BASED ON “BEST EVIDENCE OBTAINABLE”

i) RMC 23-2000

An assessment based on best evidence obtainable is justified when any of the ff grounds are clearly established:

(1) The report/s requested from the taxpayer are not forthcoming, i.e. records are lost, refusal of taxpayer to submit such records

(2) The report/s are false, incomplete or erroneous

NOTE: Where a taxpayer is ordered to be examined and he refuses or fails to submit his records giving rise to a subpoena duces tecum, the assessment shall only be issued after a criminal case has been instituted for failure to obey summons.

ii) ASSESSMENTS BASED ON ACTUAL FACTS

CIR V. EMBROIDERY & GARMENTS INDUSTRIES PHILSG.R. NO 96262 (1999)FACTS: CFI issued search warrants for the seizure of certain documents from the offices of Embroidery and Garments.  Armed with the warrants, agents of the Anti-Technical Smuggling Unit, BIR, seized various business records and documents from respondent’s offices.

1) CIR subsequently issued a revised assessment for deficiency income tax.

2) respondent filed with the BIR a protest disputing the revised assessments and requesting further investigation which was subsequently denied.

3) Respondent filed with the CTA a petition for review of the disputed tax assessments.

4) CTA held that the assessments were of doubtful validity as they were based on incompetent evidence consisting of an informant’s report and the sworn statement of a disgruntled former general manager of respondent.  On the other hand, respondent adduced evidence consisting of official records of the Bureau of Customs.  The tax court ruled that the assessments must be based on actual facts and proved by competent evidence, not imposed based on unverified information supplied by an informant, or disputed presumptions.

HELD: The issues raised are clearly factual and must be resolved on the basis of the evidence adduced before the tax court.  

5. PROCEDURES IN PREPARING ASSESSMENTS RR 12-99

i) INFORMAL CONFERENCES

(1) The Revenue Officer who audited the taxpayer’s records, shall state whether the taxpayer agrees with the findings that he is liable for deficiency tax

(2) If not amenable, the taxpayer shall be informed by the RDO or Chief of Division of the discrepancies in the taxpayer’s payment of his internal revenue taxes for Informal Conference

Page | 5

(3) Purpose: Due process; to afford the taxpayer an opportunity to present his side

(4) Failure to respond within 15 days from date of receipt, the taxpayer shall be considered in default

(5) Effect of failure to respond: The case shall be endorsed to the Assessment Division of Revenue Regional Office (RRO) or CIR for appropriate review and issuance of deficiency tax assessment

ii) PRELIMINARY ASSESSMENT NOTICES (PAN)

(1) If after review there is sufficient basis to assess the taxpayer deficiency taxes, the RRO shall issue a Preliminary Notice of Assessment (PAN), showing in detail: facts, law and rules and regulations, and jurisprudence on which the proposed assessment is based

(2) If taxpayer fails to respond within 15 days from date of receipt of PAN, he shall be considered in default

(3) Effect: A formal letter of demand and assessment notice shall be sent to taxpayer, calling for payment of tax deficiency and applicable penalties

EXCEPTIONS TO PANPAN shall not be required:

(a) When the finding of any deficiency tax is the result of mathematical error in computing the tax filed by taxpayer

(b) When the discrepancy has been determined between tax withheld and amount actually remitted by the withholding agent

(c) When a taxpayer has opted to claim a tax credit or refund of excess withholding tax for a taxable period was determined to have carried over and automatically applied the same amount against the estimated tax liabilities for the taxable quarter/s of the succeeding taxable year

(d) When the excise tax due on excisable articles has not been paid; or

(e) When an article locally purchased or imported by an exempt person, e.g. vehicles, capital equipment, machineries and spare parts, have been sold, traded or transferred to non-exempt persons

CIR V. METRO STAR SUPERAMAG.R. NO 185371 (2010)FACTS: Regional Director issued a letter authority to examine petitioner’s books of accounts and other records for income tax and other internal revenue taxes. However, petitioner failed to comply with several requests for presentation of records

1) As such, the RDO proceeded with the investigation based on the best evidence obtainable preparatory to issuance of an assessment notice

2) In 2002, petitioner received a formal letter of demand (FAN), assessing the petitioner for deficiency taxes

3) Subsequently, RDO sent a final notice of seizure which petitioner received

4) Petitioner denied that it received a PAN and claimed that it was denied due process

ISSUES:1. WON Metro Star was denied due process2. Is the failure to strictly comply with notice requirements

prescribed by Sec 228 NIRC and RR 12-99 tantamount to denial of due process

HELD:FIRST ISSUE: Yes.

CAB: CIR failed to discharge its duty to present any evidence to show that Metro Star indeed received the PAN. It could have presented the registry receipt or the certification from the postmaster that it mailed the PAN, but failed to do so. Neither did it offer any explanation on why it failed to comply with the requirement of service of PAN.

SECOND ISSUE: Yes. Both Sec 228 and RR 12-99 clearly show that the sending of PAN to a taxpayer to inform him of the assessment made is part of the “due process requirement in the issuance of a deficiency tax assessment,” the absence of which renders VOID any assessment made by the tax authorities. Thus, for its failure to send a PAN stating the facts and law on which the assessment was made as required by law, the assessment by CIR is void.

iii) FINAL ASSESSMENT NOTICES (FAN)

(1) FAN shall state the facts, law, rules and regulations, or jurisprudence on which the assessment is based otherwise, FAN shall be void

(2) It shall be sent only by registered mail or personal delivery

(3) If sent by personal delivery: the taxpayer shall acknowledge receipt of the duplicate copy of FAN showing the ff: (a) name; (b) signature; (c) designation and authority to for taxpayer; and (d) date of receipt

3. COLLECTION1. SUMMARY REMEDIES

(1) DISTRAINT OF PERSONAL PROPERTY SEC. 205 (A)

Page | 6

SEC. 205. Remedies for the Collection of Delinquent Taxes. - The civil remedies for the collection of internal revenue taxes, fees or charges, and any increment thereto resulting from delinquency shall be:

(a) By distraint of goods, chattels, or effects, and other personal property of whatever character, including stocks and other securities, debts, credits, bank accounts and interest in and rights to personal property, and by levy upon real property and interest in rights to real property; and

a) ACTUAL DISTRAINT SEC 207 (A)

SEC. 207. Summary Remedies. -(A) Distraint of Personal Property. - Upon the failure of the person owing any delinquent tax or delinquent revenue to pay the same at the time required, the Commissioner or his duly authorized representative, if the amount involved is in excess of One million pesos (P1,000,000), or the Revenue District Officer, if the amount involved is One million pesos (P1,000,000) or less, shall seize and distraint any goods, chattels or effects, and the personal property, including stocks and other securities, debts, credits, bank accounts, and interests in and rights to personal property of such persons in sufficient quantity to satisfy the tax, or charge, together with any increment thereto incident to delinquency, and the expenses of the distraint and the cost of the subsequent sale.

A report on the distraint shall, within ten (10) days from receipt of the warrant, be submitted by the distraining officer to the Revenue District Officer, and to the Revenue Regional Director: Provided, That the Commissioner or his duly authorized representative shall, subject to rules and regulations promulgated by the Secretary of Finance, upon recommendation of the Commissioner, have the power to lift such order of distraint: Provided, further, That a consolidated report by the Revenue Regional Director may be required by the Commissioner as often as necessary.

b) CONSTRUCTIVE DISTRAINT SEC. 206, RMC 5-2001

SEC. 206. Constructive Distraint of the Property of a Taxpayer. - To safeguard the interest of the Government, the Commissioner may place under constructive distraint the property of a delinquent taxpayer or any taxpayer who, in his opinion, is retiring from any business subject to tax, or is intending to leave the Philippines or to remove his property therefrom or to hide or conceal his property or to perform any act tending to obstruct the proceedings for collecting the tax due or which may be due from him.

The constructive distraint of personal property shall be effected by requiring the taxpayer or any person having possession or control of such property to sign a receipt covering the property distrained and obligate himself to preserve the same intact and unaltered and not to dispose of the same in any manner whatever, without the express authority of the Commissioner.

In case the taxpayer or the person having the possession and control of the property sought to be placed under constructive distraint refuses or fails to sign the receipt herein referred to, the revenue officer effecting the constructive distraint shall proceed to prepare a list of such property and, in the presence of two (2) witnessed, leave a copy thereof in the premises where the property distrained is located, after which the said property shall be deemed to have been placed under constructive distraint.

RMC. 5-2001

When to Issue Notice or Warrant of Constructive Distraint on the Property of a Taxpayer. — In order to safeguard the interest of the government, the Commissioner may place under constructive distraint the personal or movable property/ies of —

a.) a delinquent taxpayer, orb.) any taxpayer who, in his opinion, is retiring from any business subject to tax, or intending to leave the Philippines, or intending to remove his property/ies from the Philippines, or intending to hide or conceal his property/ies, or intending to perform any act tending to obstruct the proceedings for collecting the tax due or which may be due from him.

Specific Cases When a Notice or Warrant of Constructive Distraint over the Property/ies of a Taxpayer may be Issued. —

a.) When a taxpayer who applies for retirement from business has a huge amount of assessment pending with the BIR. An assessment is huge if the amount thereof is equal to or bigger than the networth or equity of the taxpayer;

b.) When a taxpayer who is under tax investigation has a record of leaving the Philippines at least twice a year, unless such trips

Page | 7

are justified and/or connected with his business, profession or employment;

c.) When a taxpayer, other than a banking institution, who is under tax investigation has a record of transferring his bank deposits and other valuable personal property/ies from the Philippines to any foreign country;

d.) When the taxpayer uses aliases in bank accounts, other than the name for which he is legally and/or popularly known;

e.) When the taxpayer keeps bank deposits and owns other property/ies under the name of other persons, whether or not related to him, and the same are not under any lawful fiduciary or trust capacity;

f.) When a taxpayer's big amount of undeclared income is known to the public or to the BIR by credible means and there is a strong reason to believe that the taxpayer, in the natural course of events, will have a great tendency to hide or conceal his property/ies. For this purpose, the term "big amount of undeclared income" means an amount exceeding thirty percent (30%) of the gross sales, gross receipts or gross revenue declared per return;

g.) When the BIR receives information or complaint pertaining to undeclared income in an amount exceeding 30% of gross sales, gross receipts or gross revenue declared per return of a particular taxpayer and there is enough reason to believe that the said information is correct as when the complaint or information is supported by substantial and credible evidence.

Persons Who May Conduct the Constructive Distraint. — In general, it is only the Commissioner. However, the Commissioner may delegate this power by specific orders since this power is not one of those which cannot be delegated as enunciated in Section 7 of the Tax Code of 1997. Thus, pursuant to aforesaid section, this power can be delegated to any subordinate official with the rank equivalent to a Division Chief or higher.

Procedures in Conducting Constructive Distraint. — The constructive distraint of personal or movable property/ies of a taxpayer shall be effected by requiring him or any person having possession or control of

such property/ies to sign a receipt covering the property/ies distrained. He shall obligate himself to preserve the same intact and unaltered and not to dispose of the same in any manner whatever without the express authority of the Commissioner. Provided, however, that if the subject of the constructive distraint is a bank deposit, the mere service of the notice is sufficient for this purpose.

In case the subject taxpayer or the person having the possession and control of the property/ies sought to be placed under constructive distraint refuses or fails to sign the receipt herein referred to, the Revenue Officer effecting the constructive distraint shall proceed to prepare a list of such property/ies. He shall thereafter leave a copy of the Notice of Constructive Distraint and the list of such property/ies distrained in the premises where the said property/ies are located in the presence of at least two (2) witnesses, who may or may not be revenue officers, after which the subject personal or movable property/ies shall be deemed to have been placed under constructive distraint.

c) PROCEDURE IN DISTRAINT SEC 208

SEC. 208. Procedure for Distraint and Garnishment. - The officer serving the warrant of distraint shall make or cause to be made an account of the goods, chattels, effects or other personal property distrained, a copy of which, signed by himself, shall be left either with the owner or person from whose possession such goods, chattels, or effects or other personal property were taken, or at the dwelling or place of business of such person and with someone of suitable age and discretion, to which list shall be added a statement of the sum demanded and note of the time and place of sale.

Stocks and other securities shall be distrained by serving a copy of the warrant of distraint upon the taxpayer and upon the president, manager, treasurer or other responsible officer of the corporation, company or association, which issued the said stocks or securities.

Debts and credits shall be distrained by leaving with the person owing the debts or having in his possession or under his control such credits, or with his agent, a copy of the warrant of distraint. The warrant of distraint shall be sufficient authority to the person owing the debts or having in his possession or under his control any credits belonging to

Page | 8

the taxpayer to pay to the Commissioner the amount of such debts or credits.

Bank accounts shall be garnished by serving a warrant of garnishment upon the taxpayer and upon the president, manager, treasurer or other responsible officer of the bank. Upon receipt of the warrant of garnishment, the bank shall turn over to the Commissioner so much of the bank accounts as may be sufficient to satisfy the claim of the Government.

d) SALE OF PROPERTY DISTRAINT SEC 209, SEC 211, SEC 212, SEC 224, SEC 225

SEC. 209. Sale of Property Distrained and Disposition of Proceeds. - The Revenue District Officer or his duly authorized representative, other than the officer referred to in Section 208 of this Code shall, according to rules and regulations prescribed by the Secretary of Finance, upon recommendation of the Commissioner, forthwith cause a notification to be exhibited in not less than two (2) public places in the municipality or city where the distraint is made, specifying the time and place of sale and the articles distrained. The time of sale shall not be less than twenty (20) days after notice to the owner of possessor of the property as above specified and the publication or posting of such notice . One place for the posting of such notice shall be at the Office of the Mayor of the city or municipality in which the property is distrained.

At the time and place fixed in such notice, the said revenue officer shall sell the goods, chattels, or effects, or other personal property, including stocks and other securities so distrained, at public auction, to the highest bidder for cash, or with the approval of the Commissioner, through duly licensed commodity or stock exchanges.

In the case of Stocks and other securities, the officer making the sale shall execute a bill of sale which he shall deliver to the buyer, and a copy thereof furnished the corporation, company or association which issued the stocks or other securities. Upon receipt of the copy of the bill of sale, the corporation, company or association shall make the corresponding entry in its books, transfer the stocks or other securities sold in the name of the buyer, and issue, if required to do so, the corresponding certificates of stock or other securities.

Any residue over and above what is required to pay the entire claim, including expenses, shall be returned to the owner of the property sold. The expenses chargeable upon each seizure and sale shall embrace only the actual expenses of seizure and preservation of the property pending the sale, and no charge shall be imposed for the services of the local internal revenue officer or his deputy.

SEC. 211. Report of Sale to Bureau of Internal Revenue. - Within two (2) days after the sale, the officer making the same shall make a report of his proceedings in writing to the Commissioner and shall himself preserve a copy of such report as an official record.

SEC. 212. Purchase by Government at Sale Upon Distraint. - When the amount bid for the property under distraint is not equal to the amount of the tax or is very much less than the actual market value of the articles offered for sale, the Commissioner or his deputy may purchase the same in behalf of the national Government for the amount of taxes, penalties and costs due thereon.

Property so purchased may be resold by the Commissioner or his deputy, subject to the rules and regulations prescribed by the Secretary of Finance, the net proceeds therefrom shall be remitted to the National Treasury and accounted for as internal revenue.

SEC. 224. Remedy for Enforcement of Forfeitures. - The forfeiture of chattels and removable fixtures of any sort shall be enforced by the seizure and sale, or destruction, of the specific forfeited property. The forfeiture of real property shall be enforced by a judgment of condemnation and sale in a legal action or proceeding, civil or criminal, as the case may require.

SEC. 225. When Property to be Sold or Destroyed. - Sales of forfeited chattels and removable fixtures shall be effected, so far as practicable, in the same manner and under the same conditions as the public notice and the time and manner of sale as are prescribed for sales of personal property distrained for the non-payment of taxes.

Distilled spirits, liquors, cigars, cigarettes, other manufactured products of tobacco, and all apparatus used in or about the illicit production of such articles may, upon forfeiture, be destroyed by order of the Commissioner, when the sale of the same for consumption or use would be injurious to public health or prejudicial to the enforcement of the law.

All other articles subject to excise tax, which have been manufactured or removed in violation of this Code, as well as dies for the printing or making of internal revenue stamps and labels which are in imitation of or purport to be lawful stamps, or labels may, upon forfeiture, be sold or destroyed in the discretion of the Commissioner.Forfeited property shall not be destroyed until at least twenty (20) days after seizure.

e) RELEASE OF DISTRAINT PROPERTY SEC. 210

Page | 9

SEC. 210. Release of Distrained Property Upon Payment Prior to Sale. - If at any time prior to the consummation of the sale all proper charges are paid to the officer conducting the sale, the goods or effects distrained shall be restored to the owner.

(2) LEVY OF REAL PROPERTY SEC. 205 (A)SEC. 205. Remedies for the Collection of Delinquent Taxes. - The civil remedies for the collection of internal revenue taxes, fees or charges, and any increment thereto resulting from delinquency shall be:(a) By distraint of goods, chattels, or effects, and other personal property of whatever character, including stocks and other securities, debts, credits, bank accounts and interest in and rights to personal property, and by levy upon real property and interest in rights to real property; and

a) PROCEDURE OF LEVY SEC. 207 (B)

SEC. 207. Summary Remedies. -

(B) Levy on Real Property. - After the expiration of the time required to pay the delinquent tax or delinquent revenue as prescribed in this Section, real property may be levied upon, before, simultaneously or after the distraint of personal property belonging to the delinquent. To this end, any internal revenue officer designated by the Commissioner or his duly authorized representative shall prepare a duly authenticated certificate showing the name of the taxpayer and the amounts of the tax and penalty due from him. Said certificate shall operate with the force of a legal execution throughout the Philippines.

Levy shall be affected by writing upon said certificate a description of the property upon which levy is made. At the same time, written notice of the levy shall be mailed to or served upon the Register of Deeds of the province or city where the property is located and upon the delinquent taxpayer, or if he be absent from the Philippines, to his agent or the manager of the business in respect to which the liability arose, or if there be none, to the occupant of the property in question.

In case the warrant of levy on real property is not issued before or simultaneously with the warrant of distraint on personal property, and the personal property of the taxpayer is not sufficient to satisfy his tax delinquency, the Commissioner or his duly authorized representative shall, within thirty (30) days after execution of the distraint, proceed with the levy on the taxpayer's real property.

Within ten (10) days after receipt of the warrant, a report on any levy shall be submitted by the levying officer to the Commissioner

or his duly authorized representative: Provided, however, That a consolidated report by the Revenue Regional Director may be required by the Commissioner as often as necessary: Provided, further, That the Commissioner or his duly authorized representative, subject to rules and regulations promulgated by the Secretary of Finance, upon recommendation of the Commissioner, shall have the authority to lift warrants of levy issued in accordance with the provisions hereof.

b) ADVERTISEMENT AND SALE SEC. 213

SEC. 213. Advertisement and Sale. - Within twenty (20) days after levy, the officer conducting the proceedings shall proceed to advertise the property or a usable portion thereof as may be necessary to satisfy the claim and cost of sale; and such advertisement shall cover a period of a least thirty (30) days. It shall be effectuated by posting a notice at the main entrance of the municipal building or city hall and in public and conspicuous place in the barrio or district in which the real estate lies and by publication once a week for three (3) weeks in a newspaper of general circulation in the municipality or city where the property is located. The advertisement shall contain a statement of the amount of taxes and penalties so due and the time and place of sale, the name of the taxpayer against whom taxes are levied, and a short description of the property to be sold. At any time before the day fixed for the sale, the taxpayer may discontinue all proceedings by paying the taxes, penalties and interest. If he does not do so, the sale shall proceed and shall be held either at the main entrance of the municipal building or city hall, or on the premises to be sold, as the officer conducting the proceedings shall determine and as the notice of sale shall specify.

Within five (5) days after the sale, a return by the distraining or levying officer of the proceedings shall be entered upon the records of the Revenue Collection Officer, the Revenue District officer and the Revenue Regional Director. The Revenue Collection Officer, in consultation with the Revenue district Officer, shall then make out and deliver to the purchaser a certificate from his records, showing the proceedings of the sale, describing the property sold stating the name of the purchaser and setting out the exact amount of all taxes, penalties and interest: Provided, however, That in case the proceeds of the sale exceeds the claim and cost of sale, the excess shall be turned over to the owner of the property.

The Revenue Collection Officer, upon approval by the Revenue District Officer may, out of his collection, advance an amount sufficient to defray the costs of collection by means of the summary remedies provided for in this Code, including the preservation or transportation in case of personal property, and the advertisement and subsequent sale, both in cases of personal and real property including improvements

Page | 10

found on the latter. In his monthly collection reports, such advances shall be reflected and supported byreceipts.

FAILURE OF NOTICE

CABRERA V. PROVINCIAL TREASURER OF TAYABAS75 PHIL 780FACTS: The Provincial Treasurer of Tayabas issued a notice for the sale at public auction of the real properties of Nemesio Cabrera forfeited for tax delinquency.

The letter sent to Nemesio Cabrera was returned marked “Unclaimed” for the latter was already dead.

The land was actually sold in a rescheduled public auction sale. Basilia Cabrera, the registered owner of the land subject to

attachment, filed a complaint against the Provincial Treasurer and Catigbac attacking the validity of the sale on the grounds that she was not notified, even though the property had remained in the assessment book in the name of Nemesio Cabrera, because she became the registered owner thereof when a Torrens Title was issued to her by the Register of Deeds of Tayabas.

ISSUE: Is there a need for new notices if the land was not sold on the date specified in the previous notice?

HELD: Yes. Under the law, even if the notice state that the sale would take place on a specified date and every day thereafter, it is a general and indefinite notice. In order to protect the taxpayer’s rights, the taxpayer should at least be apprised of the exact date of the proceeding by which she is to lose her property. Besides, the appellee admittedly being not notified also vitiates the proceeding. She is the registered owner of the land and had become liable for taxes thereon. For all purposes, she is the delinquent taxpayer "against whom the taxes were assessed." It cannot be Nemesio for the latter's obligation to pay ended where Basilia's liability began.

Basilia may be criticized for failure to have changed the name in the assessment record. However, such circumstance, nevertheless, cannot supplant the absence of notice.

DEFECT NAME / DESCRIPTION

VELAYO V. ORDONEZA102 PHIL 385It is hardly possible to sanction the tax sale of a property with a description distinct and different from that which appears in its certificate of title, without impairing the full and credence with the

same in meant to command and, hence, without effecting the essence of the Torrens Systems.

This suggest the advisability or need of adopting means and ways tending to insure that the records of the assessment for purpose of real estate tax on registered properties contain a description thereof which dovetails with that of the records of the corresponding registration proceedings. Thus, instead of being merely a formality, which often does not really give the notice demanded by the requirements of due process, the advertisement of tax sales prescribed by law would furnished substantially the information and warning it is meant to convey to, among others, the owner and delinquent taxpayer, in order that he may either make payment before the sale, and thus suspend the same, or redeem his property within the statutory period.

MARCOS II V. CA273 SCRA 46 (1997)FACTS: "The approval of the court sitting in probate is not a mandatory requirement in the collection of estate taxes.""In case of failure to file a return, the tax may be assessed at anytime within 10 years after the omission."

Bongbong Marcos sought for the reversal of the ruling of the Court of Appeals to grant CIR's petition to levy the properties of the late Pres.

Marcos to cover the payment of his tax delinquencies during the period of his exile in the US.

The Marcos family was assessed by the BIR after it failed to file estate tax returns.

However the assessment were not protested administratively by Mrs. Marcos and the heirs of the late president so that they became final and unappealable after the period for filing of opposition has prescribed. Marcos contends that the properties could not be levied to cover the tax dues because they are still pending probate with the court, and settlement of tax deficiencies could not be had, unless there is an order by the probate court or until the probate proceedings are terminated.

Issue: WON the proper avenue of assessment and collection was taken by respondent bureau.

HELD: Apart from failing to file the required estate tax return within the time required for filing the same, petitioner and other Marcos heirs never questioned the assessment served upon them, allowing

Page | 11

the same to lapse into finality, and prompting the BIR to collect said taxes by levying upon the properties left by the late President Marcos.

The Notice of Levy upon real property were issued within the prescriptive period and in accordance with Sec. 222 of the Tax Code. The deficiency tax assessment, having become final, executory and demandable, the same can now be collected through the summary remedy of distraint and levy pursuant to Sec. 205 of the Tax Code.

c) REDEMPTION SEC 214

SEC. 214. Redemption of Property Sold. - Within one (1) year from the date of sale, the delinquent taxpayer, or any one for him, shall have the right of paying to the Revenue District Officer the amount of the public taxes, penalties, and interest thereon from the date of delinquency to the date of sale, together with interest on said purchase rice at the rate of fifteen percent (15%) per annum from the date of purchase to the date of redemption, and such payment shall entitle the person paying to the delivery of the certificate issued to the purchaser and a certificate from the said Revenue District Officer that he has thus redeemed the property, and the Revenue District Officer shall forthwith pay over to the purchaser the amount by which such property has thus been redeemed, and said property thereafter shall be free from the lien of such taxes and penalties.

The owner shall not, however, be deprived of the possession of the said property and shall be entitled to the rents and other income thereof until the expiration of the time allowed for its redemption.

d) FAILURE TO REDEEM SEC 202

SEC. 202. Final Deed to Purchaser. - In case the taxpayer shall not redeem the property as herein provided the Revenue District Officer shall, as grantor, execute a deed conveying to the purchaser so much of the property as has been sold, free from all liens of any kind whatsoever, and the deed shall succintly recite all the proceedings upon which the validity of the sale depends.

e) FORFEITURE TO GOVERNMENT SEC 215, SEC 216, SEC 224

SEC. 215. Forfeiture to Government for Want of Bidder. - In case there is no bidder for real property exposed for sale as hereinabove provided or if the highest bid is for an amount insufficient to pay the taxes, penalties and costs, the Internal Revenue Officer conducting the

sale shall declare the property forfeited to the Government in satisfaction of the claim in question and within two (2) days thereafter, shall make a return of his proceedings and the forfeiture which shall be spread upon the records of his office. It shall be the duty of the Register of Deeds concerned, upon registration with his office of any such declaration of forfeiture, to transfer the title of the property forfeited to the Government without the necessity of an order from a competent court.

Within one (1) year from the date of such forfeiture, the taxpayer, or any one for him may redeem said property by paying to the Commissioner or the latter's Revenue Collection Officer the full amount of the taxes and penalties, together with interest thereon and the costs of sale, but if the property be not thus redeemed, the forfeiture shall become absolute.

SEC. 216. Resale of Real Estate Taken for Taxes. - The Commissioner shall have charge of any real estate obtained by the Government of the Philippines in payment or satisfaction of taxes, penalties or costs arising under this Code or in compromise or adjustment of any claim therefore, and said Commissioner may, upon the giving of not less than twenty (20) days notice, sell and dispose of the same at public auction, or with prior approval of the Secretary of Finance, dispose of the same at private sale. In either case, the proceeds of the sale shall be deposited with the National Treasury, and an accounting of the same shall rendered to the Chairman of the Commission on Audit.

SEC. 224. Remedy for Enforcement of Forfeitures. - The forfeiture of chattels and removable fixtures of any sort shall be enforced by the seizure and sale, or destruction, of the specific forfeited property. The forfeiture of real property shall be enforced by a judgment of condemnation and sale in a legal action or proceeding, civil or criminal, as the case may require.

(3) FURTHER DISTRAINT & LEVY SEC. 217

SEC. 217. Further Distraint or Levy. - The remedy by distraint of personal property and levy on realty may be repeated if necessary until the full amount due, including all expenses, is collected.

(4) INJUNCTION a) SEC. 218

SEC. 218. Injunction not Available to Restrain Collection of Tax. - No court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by this Code.

Page | 12

CIR V. CEBU PORTLAND CEMENT G.R. NO L-29059 (1987)FACTS:

CTA decision ordered the petitioner CIR to refund to the Cebu Portland Cement Company overpayments of ad valorem taxes on cement sold by it.

Execution of judgment was opposed by the petitioner citing that respondent had an outstanding sales tax liability to which the judgment debt had already been credited. In fact, there was still a P4 M plus balance they owed.

The CTA, in holding that the alleged sales tax liability of the private respondent was still being questioned and therefore could not be set-off against the refund, granted private respondent's motion.

Respondent questioned the assessed tax, contending that cement was adjudged a mineral and not a manufactured product; and thusly they were not liable for their alleged tax deficiency. Thereby, petitioner filed this petition for review.

ISSUE: WON assessment of taxes can be enforced even if there is a case contesting it.

HELD: The argument that the assessment cannot as yet be enforced because it is still being contested loses sight of the urgency of the need to collect taxes as "the lifeblood of the government." If the payment of taxes could be postponed by simply questioning their validity, the machinery of the state would grind to a halt and all government functions would be paralyzed. That is the reason why, save for the exception in RA 1125 , the Tax Code provides that injunction is not available to restrain collection of tax. Thereby, we hold that the respondent Court of Tax Appeals erred in its order.

EXCEPTION: COLLECTOR V. ZULUETA100 PHIL 872 (1957)Section 11 of Republic Act No. 1125 is therefore premised on the assumption that the collection by summary proceedings is by itself in accordance with existing laws; and then what is suspended is the act of collecting, whereas, in the case at bar, what the respondent Court suspended was the use of the method employed to verify the collection which was evidently illegal after the lapse of the three-year limitation period. The respondent Court issued the injunction in question on the basis of its findings that the means intended to be used by petitioner in the collection of the alleged deficiency taxes were in violation of law. It would certainly be an absurdity on the part of the Court of Tax Appeals

to declare that the collection by the summary methods of distraint and levy was violative of the law, and then, on the same breath, require the petitioner to deposit or file a bond as a pre-requisite of the issuance of a writ of injunction.

2. JUDICIAL ACTION(f) CIVIL ACTION SEC 228, SEC 220

SEC. 228. Protesting of Assessment. – When the Commissioner or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings: Provided, however, That a preassessment notice shall not be required in the following cases:

(a) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as appearing on the face of the return; or(b) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent; or© When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year; or(d) When the excise tax due on exciseable articles has not been paid; or(e) When the article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons.

The taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void.

Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an assessment based on his findings.

Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become final.

Page | 13

If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of one hundred eighty (180)-day period; otherwise, the decision shall become final, executory and demandable.

SEC. 220. Form and Mode of Proceeding in Actions Arising under this Code. – Civil and criminal actions and proceedings instituted in behalf of the Government under the authority of this Code or other law enforced by the Bureau of Internal Revenue shall be brought in the name of the Government of the Philippines and shall be conducted by legal officers of the Bureau of Internal Revenue but no civil or criminal action for the recovery of taxes or the enforcement of any fine, penalty or forfeiture under this Code shall be filed in court without the approval of the Commissioner.

a) APPROVAL OF CIR

ARCHES V. BELOSILLO20 SCRA 32 (1967)FACTS: Petitioner filed his income tax return. Within five years thereafter, deficiency income tax and residence tax assessments were issued against him.

Said assessments not having been disputed BIR filed suit to recover from petitioner the deficiency income tax.

Arches moved to dismiss the complaint on the ground that it did not expressly show the approval of the Revenue Commissioner.

ISSUE: WON the CFI correctly dismissed the petition of the petitioner?

HELD: YES.

Lack of approval of the Revenue Commissioner is not jurisdictional, but one relating to capacity to sue or affecting the cause of action only. So, in ruling on said question, whatever error — if any — the municipal court committed, was merely an error of judgment, not correctible by certiorari.

The court relied upon Memorandum Order of the Revenue Commissioner, approved by the Finance Secretary, wherein the former's functions regarding the administration and enforcement of revenue laws and regulations covering the approval of court actions— were expressly delegated to the Regional Directors. This regulation, the issuance of which was authorized by statute, has the force and effect of law.

The verification by the Regional Director of the complaint constitutes sufficient approval thereof already. It states that said Director has caused the preparation of the complaint and that he has read the allegations thereof and they are true and correct to the best of his knowledge and belief.

We have already ruled8 that the proper prescriptive period for bringing civil actions is five years from the date of the assessment. Here, the action was commenced one year, ten months and three days after the assessments were made; hence, well within the period.

b) CAN THE POWER TO APPROVE FILING OR CIVIL AND CRIMINAL ACTIONS BE DELEGATED?

Two ways to enforce civil liability through civil actions:1. By filing a civil case for collection of a sum of money with

proper regular court (MTC or RTC); or2. By filing an answer to the petition for review filed by taxpayer

with CTA.

Resorted to:1. When a tax is assessed and the assessment becomes final and

unappealable because the taxpayer fails to file an administrative protest with the CIR within 30 days from receipt; or

2. When a protest against assessment is filed and a decision becomes final, executory and demandable for failure of the taxpayer to appeal the decision to the CTA within 30 days for receipt of the decision.

3. When the protest is not acted upon within 180 days from submission of documents and the taxpayer failed to appeal with the CTA within 30 days from the lapse of the 180-day period.

NOTE: JUDICIAL ACTION may be resorted to even before assessment, although impractical, as stated in SEC. 203, NIRC, and no proceeding in court without assessment for the collection of such taxes shall be instituted after the expiration of such (3-year) period.”

REPUBLIC v. HIZON320 SCRA 573 (1999)FACTS:

In 1986, the BIR issued to respondent a deficiency income tax assessment. Respondent not having contested the assessment, the petitioner served warrants of distraint and levy to collect the tax deficiency.  However it did not proceed to dispose of the attached properties.

Page | 14

Respondent wrote the BIR requesting a reconsideration of her tax deficiency assessment.  The BIR denied the request. Respondent filed a case with the RTC to collect the tax deficiency.  The complaint was signed by the Chief of the Legal Division and verified by the Bureau’s Regional Director.

Respondent moved to dismiss the case on two grounds:  (1) that the complaint was not filed upon authority of the BIR

Commissioner; and (2) that the action had already prescribed.  

The trial court granted the motion and dismissed the complaint.  Hence, this petition.  

ISSUES: I.   WON the institution of the civil case for collection of taxes was without the approval of Commissioner. NO.II. WON the action or collection of taxes had been barred by prescription. YES.

HELD:

1. the trial court stated The NIRC explicitly provides that the absence of the approval of the commissioner in the institution of the action is fatal to the cause of the plaintiff . . . .The trial court arrived at this conclusion because the complaint filed by the BIR was not signed by then Commissioner.

SC held that, Revenue Administrative Order No. 5-83 of the BIR provides that the Regional Director is authorized to sign all pleadings which requires the signature of the Commissioner. AND Revenue Administrative Order No. 10-95 authorizes the Litigation and Prosecution Section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection.     As the complaint filed in this case was signed by the BIR’s Chief of Legal Division for Region 4 and verified by the Regional Director, there was compliance with the law.

However, the lower court refused to recognize said Revenue Administrative Order saying that:[M]emorand[a], circulars and orders are not laws which courts can take judicial notice of.  As such, they have no binding effect upon the courts for such memorand[a] and circulars are not the official acts of the legislative, executive and judicial departments of the Philippines . . .

This is erroneous. NIRC authorizes the BIR Commissioner to delegate the powers vested in him to any subordinate official with the rank equivalent to a division chief or higher, EXCEPT the following:

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

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

(c) The power to compromise or abate under §204(A) and (B) of this Code, any tax deficiency; and

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

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

2. Petitioner argued that respondent’s request for reinvestigation of her tax deficiency assessment suspended the running of the period of prescription such that the government could still file a case for tax collection. The court does not agree with the petitioner. The request for reconsideration was not filed within the 30 day period hence no request for reconsideration was actually made. So, the period for prescription was not suspended. Consequently, the action is barred by the 3 year prescription period.

RE: PARTICIPATION OF THE SOLICITOR GENERALThe Solicitor General is the principal law officer and legal defender of the government – sec. 220, NIRC must not understood as overturning the long established procedure before this court (SC) in requiring the Sol Gen to represent the interest of the Republic. This court continues to maintain that it is the Sol Gen who has primary responsibility to appear for the government in APPELLATE proceedings. This pronouncement fins justification in the various laws defining the Office of the Sol Gen. beginning with ACT No. 135 (June 16, 1901) up to the present Administrative Code of 1987.

JURISDICTION:1. CTA – where the principal amount of taxes and fees, exclusive

of charges and penalties claimed is 1Million and above.2. RTC/MTC/MeTC – where the principal amount of taxes and

fees, exlcusive of charges and penalties claimed is less than 1Million

DEFENSES PRECLUDED BY FINAL AND EXECUTORY ASSESSMENTS:

1. Validity or legality of the assessments; and

Page | 15

2. Prescription of the Government’s right to assess.

c) COLLECTION CASE UPON FINALITY OF ASSESSMENT

DAYRIT ET AL V. CRUZG.R. NO L-39910 (1988)FACTS: Dayrit filed with the CFI testate and intestate proceedings for the settlement of the Spouses Teodoro’s estates.  

The notice of deficiency assessments was received by Dayrit. Petitioners asked for a reconsideration of the said assessments alleging that the same are contrary to law and not supported by sufficient evidence and requested a period of 30 days within which to submit their position paper in support of their claim.

Meanwhile, on October 16, 1972, P.D No. 23 amended by P.D. No. 67 was entitled Proclaiming Tax Amnesty Subject to Certain Conditions.

1974, CIR filed a motion for Allowance of Claim against the estates of spouses Teodoro and for an order of payment of taxes in Special Proceeding with the CFI praying that petitioner Dayrit be ordered to pay the BIR the sum of P6Million plus surcharges and interest.

Petitioners filed 2 separate oppositions alleging that the estate and inheritance taxes sought to be collected have already been settled in accordance with the provisions of P.D. No. 23, as amended by P.D. No. 67 and that at any rate, the assessments have not become final and executory .    

In reply thereto, the Commissioner alleged that petitioners could not avail of the tax amnesty in view of the existence of a prior assessment.  

HELD:1. Anent petitioners' claim that the tax assessments against

the estates of the Teodoro spouses are not yet final, the court finds the claim untenable. In petitioners' MR of the aforementioned assessments, petitioners requested then Commissioner for a period of thirty (30) days from October 7, 1972 within which to submit a position paper that would embody their grounds for reconsideration. However, no position paper was ever filed.  Such failure to file a position paper may be construed as abandonment of the petitioners' request for reconsideration.

The court notes that it took the respondent Commissioner a period of more than one (1) year and five (5) months, before finally instituting the action for collection. Under the circumstances of the case, the act of the Commissioner in filing an action for allowance of the claim for estate and inheritance taxes, may be considered as an outright denial of petitioners' request for reconsideration.

From the date of receipt of the copy of the Commissioner's letter for collection of estate and inheritance taxes against the estates of the late Teodoro spouses, petitioners must contest or dispute the same and, upon a denial thereof, the petitioners have a period of thirty (30) days within which to appeal the case to the Court of Tax Appeals.  This they failed to avail of.

Tax assessments made by tax examiners are presumed correct and made in good faith. A taxpayer has to prove otherwise.  Failure of the petitioners to appeal to the Court of Tax Appeals in due time made the assessments final, executory and demandable. 

2. The petitioners' allegation that the CFI lacks jurisdiction over the subject of the case is likewise untenable. The assessments having become final and executory, the CFI properly acquired jurisdiction. 

Petitioners' contention that the absence of a decision on their request for reconsideration of the assessments is a bar to granting the claim for collection is likewise without merit. This Court ruled that "nowhere in the Tax Code is the Collector of Internal Revenue required to rule first on a taxpayer's request for reconsideration before he can go to court for the purpose of collecting the tax assessed.

3. The requirement for the Commissioner to rule on disputed assessments before bringing an action for collection is applicable only in cases where the assessment was actually disputed, adducing reasons in support thereto. In the present case where the petitioners did not actually contest the assessments by stating the basis thereof, the respondent Commissioner need not rule on their request.

Considering that P.D. No. 23 was issued on October 16, 1972, the court rules that the said decree embraces only those income declared in pursuance thereof within the taxable year 1972. The time frame cannot be stretched to include declarations made prior to the issuance of the said decree or those made outside of the time frame as envisioned in the said decree. Thus, the estates of the Teodoro spouses which have been declared separately sometime in the 1960's are clearly outside the coverage of the tax amnesty provision.

Page | 16

(2) CRIMINAL ACTIONa) AS A COLLECTION REMEDY SEC. 205 (B) (2)

SEC. 205. Remedies for the Collection of Delinquent Taxes. - The civil remedies for the collection of internal revenue taxes, fees or charges, and any increment thereto resulting from delinquency shall be:

(b) By civil or criminal action.The judgment in the criminal case shall not only impose the penalty but shall also order payment of the taxes subject of the criminal case as finally decided by the Commissioner.

b) AS ENFORCEMENT OF STATUTORY PENALTIES SEC 221

SEC. 221. Remedy for Enforcement of Statutory Penal Provisions. - The remedy for enforcement of statutory penalties of all sorts shall be by criminal or civil action, as the particular situation may require, subject to the approval of the Commissioner.

*STATUTORY OFFENSES AND PENALTIES

Statutory offenses and penalties secs. 250-2681. Willful failure to file return, statement or list, or keep any record

or supply information required on the date prescribed. PENALTY, P1,000 per failure but the aggregate amount shall not exceed P25,000 for all such failure during a calendar year; (se. 250)

2. Failure of a withholding agent to withhold and remit tax or aids or abets to evade payment of tax. PENALTY, equal to the amount of the tax not withheld, counted for, or remitted; (sec. 251)

3. Failure of a withholding agent to refund excess withholding tax. PENALTY, equal to the amount of refunds not refunded. (sec. 252)

4. Attempt to evade or defeat tax. PENALTY, fine not less P30,000 but not more than P100,000 and IMPRISONMENT of not less 2 years but not more than 4 years. Provided that the conviction and acquittal obtained shall not be a bar to the filing of a civil suit for the collection of taxes. (sec. 254)

5. Failure to file return, supply correct and Accurate information, pay tax, withhold and remit tax and refund excess taxes withheld on compensation at the time required by law. PENALTY, not less than P10,000, IMPRISONMENT, not less than 1year BUT not more than 10years. (sec. 255)

6. Attempt to make it appear that a return or statement is actually filed or the withdrawal of a return or statement that actually filed after securing the official receiving seal or stamp of receipt of an internal revenue officer. PENALTY, not less than P10,000 BUT not more than P20,000 and IMPRISONMENT not less than 1year BUT not less than 3years. (sec. 255)

NOTE: in case of CORPORATION, ASSOCIATION, OR GENERAL CO-PARTNERSHIP, in addition to the penalties imposed to the responsible corporate officers, partners, or employees. PENALTY, not less than P50,000 but not more than P100,000

7. Making false entries, records, or reports, or using falsified or fake accountable forms. (sec. 257)

Any financial officer or independent CPA engaged to examine and audit books of accounts of corporations, companies, partnerships, or persons required to keep book of acconunts who:

(a) Willfully falsifies report or statement bearing on any examination or audit, or renders a report, including exhibits, statements, schedules or other forms of accountancy work which has not been verified by him personally or under his supervision or by a member of his firm or by a member of his staff in accordance with sound auditing practices; or

(b) Certifies financial statements of a business enterprise containing an essential misstatement of facts or omission in respect of the transactions, taxable income, deduction and exemption of his client; or

Any person who:(a) Not being an independent CPA or a financial

officer, examines and audits books of accounts of taxpayers; or

(b) Offers to sign and certify financial statements without audit; or

(c) Offers any taxpayer the use of accounting bookkeeping records for internal revenue

Page | 17

purposes not in conformity with the requirements prescribed in this Code or rules and regulations promulgated thereunder; or

(d) Knowingly makes any false or fictitious name in the books of accounts or record mentioned in the preceding paragraphs; or

(e) Keeps 2 or more sets of such records or books of accounts; or

(f) In any way commits an act or omission, in violation of the provisions of this Section; or

(g) Fails to keep the books of accounts or records in a native language, English or Spanish, or to make a true and complete translation, or whose books of accounts or records kept in a native language, English or Spanish, and found to be at material variance with books or records kept by him in another language; or

(h) Willfully attempts to evade or defeat any tax imposed under this Code, or knowingly uses fake or falsified revenue official receipts, Letters of Authority, certificates authorizing registration, Tax Credit Certificates, Tax Debit Memoranda and other accountable forms. PENALTY, for each act or omission, not less than P50,000 but not more than P100,000. IMPRISONMENT, not less than 2years BUT not more than 6 years.

NOTE: Offender is a CPA, his certificate as a CPA shall be automatically revoked or cancelled upon conviction.

IF FOREIGNERS, immediate deportation after serving sentence, without further proceedings for deportation. (sec. 257)

8. Carrying on a business without paying the corresponding annual registration fee. PENALTY, not less than P5,000 BUT not more than P20,000. IMPRISONMENT, not less than 6months BUT not more than 2years.

In case of a person engaged in the business of distilling, rectifying, repacking, compounding or manufacturing article subject

to excise tax. PENALTY, not less than P30,000 BUT not more than P50,000. IMPRISONMENT, not less than 2years BUT not more than 4years. (sec. 258)

9. Knowingly undertaking the collection of foreign payments as provided under sec. 67 without having obtained a license therefor, or without complying with its implementing rules and regulations. PENALTY, not less than P20,000 BUT not more than P50,000. IMPRISONMENT, not less than 1year BUT not more than 2years. (sec. 259)

10. Possession of cigarette paper in bobbins or rolls, cigarette tipping paper or cigarette filter tips by any person, importer, manufacturer or cigar and cigarettes without the corresponding authority therefor issued by the Commissioner. PENALTY, not less than P20,000 BUT not more than P100,000. IMPRISONMENT, not less than 6years and 1day BUT not more than 12 years. (sec. 260)

11. Unlawful use of denatured alcohol. PENALTY, not less than P20,000 BUT not more than P100,000. IMPRISONMENT, not less than 6years and 1day BUT not more than 12years.

Any person who unlawfully recover or attempt to recover by distillation or other process any denatured alcohol or knowingly sells or offers for sale, conceals or disposes of alcohol so recovered or redistilled shall be subject to the same penalties. (sec. 261)

12. Shipment or removal of liquor or tobacco products under false name or brand or as an imitation of any existing or otherwise known product name or brand. PENALTY, not less than P20,000 BUT not more than P100,000. IMPRISONMENT, not less than 6years and 1day BUT not more than 12 years. (sec. 262)

13. Unlawful possession or removal of imported articles subject to excise tax without payment of the tax.

(a) if the appraised value does not exceed P1,000. PENALTY, Not less than P1,000 nor more than P2,000. IMPRISONMENT, not less than 60days BUT not more than 100 days.

(b) If the appraised value exceeds P1,000 BUT does not exceed P50,000. PENALTY, not less than P10,000 BUT not more than P20,000. IMPRISONMENT, not less than 2years BUT not more than 4years.

(c) If the appraised value is more than P50,000 BUT does not exceed P150,000. PENALTY, not less than

Page | 18

P30,000 BUT not more than P60,000. IMPRISONMENT, not less than 4years BUT not more than 6years.

(d) If the appraised value is more than P100,000 . PENALTY, not less than P50,00 BUT not more than P100,000. IMPRISONMENT, not less than 10years BUT not more than 12 years.

Unlawful possession of locally manufactured articles subject to excise tax without payment of the tax. PENALTY, not less than 10times the amount of excise tax due on the articles found BUT not less than P500. IMPRISONMENT, not less than 2years BUT not more than 4years.

Manufacturer, owner or person in charge of article subject to tax who removes or allows or causes the unlawful removal such articles from the place of production or warehouse which the excise tax has not been paid, or any person who knowingly aids or abets in the removal of such articles, or conceals the same after illegal removal shall for the first offense, PENALTY, not less than 10times the amount of excise tax due on the articles but not less than P1,000. IMPRISONMENT, not less than 1 year BUT not more than 2 years. (sec. 263)

14. Failure or refusal to issue receipts or sales or commercial

invoices that do not truly reflect or contain all the information required to be shown. For each act or commission, PENALTY, not less than P1,000 BUT not more than P50,000. IMPRISONMENT, not less than 2 years BUT not more than 4 years.

Any person who commits the acts below shall be penalized in the same manner:

(a) Printing of receipts or sales or commercial invoices without authority from the BIR; or

(b) Printing of double or multiple sets of invoices or receipts; or

(c) Printing of unnumbered receipts or sales or commercial invoices, not bearing the name, business style, taxpayer Identification number, and business address of the person or entity. (sec. 264)

15. The following acts will have a PENALTY, not less than P20,000 BUT not more than P50,000. IMPRISONMENT, not less than P4years BUT not more than 8years.

(a) Making, importing, selling, using or processing without express authority from the Commissioner, any die for

printing or making stamps, labels, tags, or playing cards;

(b) Erasing the cancellation marks of any stamp previously used, or altering the written figures or letters or cancellation marks on internal revenue stamps;

(c) Possessing false, counterfeit, restored or altered stamps, labels or tags or causing the commission of any such offense by another;

(d) Selling or offering for sale any box or package containing articles subject to excise tax with false, spurious or counterfeit stamps or labels or selling from any such fraudulent box, package or container as aforementioned; or

(e) Giving away or accepting from another, or selling, buying or using containers on which the stamps are not completely destroyed.

16. Failure to obey summons. PENALTY, not less than P5,000 BUT not more than P10,000. IMPRISONMENT, not less than 1year BUT not more than 2years.

17. Willful filing of a declaration, return or statement containing information which is not true and correct as to every material matter. Subject to penalties prescribed for PERJURY under RPC.

18. Misdeclaration or misrepresentation of Manufacturers subject to excise tax. PENALTY, summary cancellation or withdrawal of the permit to engage in business as a manufacture of articles subject to excise tax.

19. Chattels, machinery and removal of fixtures used in Unlicensed Business of articles subject to excise tax or Dies Used for Printing False Stamps Etc. – shall be forfeited.

20. All articles subject to excise tax stored or allowed to remain in the distillery warehouse, bonded warehouse or other place where has been paid or withdrawn from any such place or any article from customs custody or imported into the country without the payment of the required tax shall be forfeited.

c) CIVIL LIABILITY IN CASE OF ACQUITTAL OF CRIMINAL LIABILITY

REPUBLIC V. PATANAO

In the complaint filed by the Republic of the Philippines, through the Solicitor General, against Patanao. It is alleged that:

Page | 19

1. defendant failed to file income tax returns for 1953 and 1954, and although he filed income tax returns for 1951, 1952 and 1955, the same were false and fraudulent because he did not report substantial income earned by him from his business;

2. that it was ascertained that deficiency of income taxes and additional residence taxes is due from defendant;

3. that plaintiff sent a letter of demand with enclosed income tax assessment to the defendant requiring him to pay the said amount;

4. that notwithstanding repeated demands the defendant refused, failed and neglected to pay said taxes;

5. and that the assessment for the payment of the taxes has become final, executory and demandable, because it was not contested before the Court of Tax Appeals.

Defendant moved to dismiss the complaint that the action is barred by prior judgment, defendant having been acquitted in two criminal cases of the same court, which were prosecutions for failure to file income tax returns and for non-payment of income taxes.

The lower court held in favor of Patanao. It reasoned that the accused once acquitted is exempt from both criminal and civil responsibility because when a criminal action is instituted, civil action arising from the same offense is impliedly instituted unless the offended party expressly waives the civil action or reserves the right to file it separately.

ISSUE: WON the acquittal of the taxpayer in a criminal action result in the exoneration of taxpayer from his civil liability to pay taxes?

HELD: NO.

The acquittal in the said criminal cases cannot operate to discharge defendant appellee from the duty of paying the taxes which the law requires to be paid, since that duty is imposed by statute prior to and independently of any attempts by the taxpayer to evade payment. It is neither a mere consequence of the felonious acts charged nor is it a mere civil liability arising from crime that could be wiped out by the judicial declaration of non-existence of the criminal acts charged.

The civil liability to pay taxes arises not because of felony but upon taxpayer’s failure to pay taxes. Criminal liability in taxation arises as a result of one’s liability to pay taxes.

d) IMPOSITION OF SUBSIDIARY IMPRISONMENT

PEOPLE V. BALAGTAS105 PHIL 1362FACTS: Appeal from a decision of the Court of First Instance of Manila finding appellant guilty of violation of Section 51 of NIRC. The Information filed by the government on August 17, 1954, alleged that the said appellant failed to pay his income taxes for the years 1946, 1947, 1948 and 1949m, in the total amount of Php 10, 431.22.Upon his plea of guilty, he was sentenced to pay a fine of Php 300.00with subsidiary imprisonment in case of insolvency, to indemnify the Republic the sum of Php 10, 431.00, also with subsidiary imprisonment in case of insolvency.

ISSUES:

1. Whether the lower court erred in not holding that the violation alleged in the information has already prescribed, and;

2. in imposing subsidiary imprisonment relative to his civil liability.

HELD: 1. Section 51, paragraphs (b) and (c) of the Internal Revenue Code provide that the tax imposed by that title shall be paid on or before the 15 th day of May following the close of the calendar year, and in case of installment the close of the calendar year, and in case of installment payments, the second installment shall be paid on or before the 15 th day of August of the following year .

Section 354 of the same Code provides that violations of any provision thereof shall prescribe after (5) five years. With respect, to the failure of Appellants to pay his income taxes for 1946, 1947, and 1948 on or before May 15th or August 15th as the case may be, of the year 1947, 1948 and 1949, respectively, the same could not have been prosecuted by reason of prescription, as the information was filed on August 17, 1954 or before more than five years have elapsed counted from August 16, 1949. With respect to his tax for 1949 which should have been paid on or before May 15th or August 15th, as the case may be, of 1950, the violation has not yet prescribed, it appearing that only 4 years and a few days have elapsed when the information was filed.

2. Relative to the imposition of subsidiary imprisonment in case of insolvency, Section 358 is clear that the subsidiary penalty provided therein refers only to non-payment of the fine and not of the taxes due. For want of express provision of law, subsidiary imprisonment cannot be imposed in this case.

e) IS DEFICIENCY ASSESSMENT NECESSARY BEFORE FILING A CRIMINAL CASE?

CIR V.PASCOR REALTY

Page | 20

G.R. NO 128315 (1999)The filing of the criminal complaint with the DOJ cannot be construed as a formal assessment.

Accordingly, an affidavit, which was executed by revenue officers stating the tax liabilities of a taxpayer and attached to a criminal complaint for tax evasion, cannot be deemed an assessment that can be questioned before the CTA.

The recommendation letter of the Commissioner addressed to the DOJ for the filing of a criminal complaint against the taxpayer cannot be considered a formal assessment. Even a cursory perusal of the said letter would reveal three key points:

1. It was not addressed to the taxpayer;2. There was no demand made on the taxpayer to pay the tax

liability, nor a period for payment set therein. 3. The letter was never mailed or sent to the taxpayer by the

Commissioner.

An assessment is not necessary before criminal charges can be filed. A criminal charge need not only be supported by a prima facie showing of failure to file a required return. The CIR had, in such tax evasion cases, discretion on whether to issue an assessment, or to file a criminal case against the taxpayer, or to do both.

UNGAB V. CUSI97 SCRA 877 (1980)On the second issue, the Court ruled that what is involved here is not the collection of taxes where the assessment of the CIR may be reviewed by the Court of Tax Appeals, but a criminal prosecution for violations of the National Internal Revenue Code which is within the cognizance of CFI.

While there can be no civil action to enforce collection before the assessment procedures provided in the Code have been followed it is NOT a requirement for the filing thereof that there be a precise computation and assessment of the tax, since what is involved in the criminal action is not the collection of tax but a criminal prosecution for the violation of the NIRC. Provided, however, that there is a prima facie showing of a willful attempt to evade taxes or failure to file the required return.

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

CIR V. CAG.R. NO 119322 (1996)FACTS: Respondent moved for reconsideration of the assessment. Meanwhile the Commissioner filed a complaint with the DOJ against private respondent Fortune for alleged fraudulent tax evasion for non-payment of the correct income, ad valorem and VAT for 1992. The complaint was referred to the DOJ Task Force on revenue cases which found sufficient basis to further investigate the charges against Fortune.

Respondents filed a petition that the preliminary investigation be suspended pending determination by CIR of Fortune’s motion for reconsideration/reinvestigation of the August 13, 1993 assessment of taxes due.

The trial court granted the petition for a writ of preliminary injunction to enjoin the preliminary investigation on the complaint for tax evasion pending before the DOJ, ruling that the tax liability of private respondents first be settled before any complaint for fraudulent tax evasion can be initiated.

ISSUE: Whether the basis of private respondent’s tax liability first be settled before any complaint for fraudulent tax evasion can be initiated.

HELD: Fraud cannot be presumed. If there was fraud on willful attempt to evade payment of ad valorem taxes by private respondent through the manipulation of the registered wholesale price of the cigarettes, it must have been with the connivance of cooperation of certain BIR officials and employees who supervised and monitored Fortune’s production activities to see to it that the correct taxes were paid. But there is no allegation, much less evidence, of BIR personnel’s malfeasance at the very least, there is the presumption that BIR personnel performed their duties in the regular course in ensuring that the correct taxes were paid by Fortune.

Before the tax liabilities of Fortune are finally determined, it cannot be correctly asserted that private respondents have willfully attempted to evade or defeat any tax under Secs. 254 and 256, 1997 NIRC, the fact that a tax is due must first be proved.

ADAMSON V. CAG.R. NO 120935 (2009)FACTS: Commissioner filed with the DOJ her Affidavit of Complaint against petitioners.

Petitioners filed with the DOJ a motion to suspend proceedings on the ground of prejudicial question, pendency of a civil case

Page | 21

with the Supreme Court, and pendency of their letter-request for re-investigation with the Commissioner.

After the preliminary investigation, State Prosecutor found probable cause. Lucas G. Adamson, Therese JuneD. Adamson and Sara S. de los Reyes were charged before the RTC.

They filed a Motion to Dismiss or Suspend the Proceedings. They invoked the grounds that there was yet no final assessment of their tax liability, and there were still pending relevant Supreme Court and CTA cases.

ISSUES: 1. WON the Commissioner's recommendation letter can be

considered as a formal assessment of private respondents' tax liability- NO

2. WON the filing of the criminal complaints against the private respondents by the DOJ is premature for lack of a formal assessment- NO

3. WON t he CTA has jurisdiction to take cognizance of both the criminal and civil cases here at bar. YES

HELD:

The law (SEC 269 of NIRC) is clear. When fraudulent tax returns are involved as in the cases at bar, a proceeding in court after the collection of such tax may be begun without assessment.

In this seminal case, the Court ruled that there was no need for precise computation and formal assessment in order for criminal complaints to be filed against him.

3. OTHERS(1) TAX LIEN

a) SEC 219

SEC. 219. Nature and Extent of Tax Lien. - If any person, corporation, partnership, joint-account (cuentas en participacion), association or insurance company liable to pay an internal revenue tax, neglects or refuses to pay the same after demand, the amount shall be a lien in favor of the Government of the Philippines from the time when the assessment was made by the Commissioner until paid, with interests, penalties, and costs that may accrue in addition thereto upon all property and rights to property belonging to the taxpayer: Provided, That this lien shall not be valid against any mortgagee, purchaser or judgment creditor until notice of such lien shall be filed by the

Commissioner in the office of the Register of Deeds of the province or city where the property of the taxpayer is situated or located.

b) PREFERENCE OF LIENS

NATURE OF TAX LIENIt Is enforced as payment of tax, interest, penalties, costs upon the entire property and rights to the property of the taxpayer, however, to be valid, against any mortgagee, purchaser or judgment creditor, notice of such lien must be filed by CIR with the Registry of Deeds (Sec 219 NIRC)

NOTE: A valid assessment is required before a tax lien shall be annotated at the proper registry of property.

(1) Preference of Liens – A tax lien created in favor of the government is superior to all other claims or preferences

CIR V. NLRC238 SCRA 42 (1994)FACTS: CIR sent two demand letters to Maritime Company of the Phils for deficiency common carrier’s tax, fixed tax, 6% Commercial Broker’s tax, documentary stamp tax, income tax and withholding tax

1) The assessment became final and executory. For failure to pay the deficiency taxes, CIR issued warrants of distraint on personal property and levy of real property of Maritime Co.

2) 4 of the barges placed under constructive distraint by CIR were levied upon execution by the deputy sheriff of Manila to satisfy a judgment for unpaid wages and other benefits of employees of Maritime Co

3) CIR asked the labor arbiter (LA) to annul the sale and enjoin the sheriff from disposing of the proceeds of the sale, or in the alternative, remit them to BIR so that the amount could be applied to the payment of Maritime Co’s tax liabilities

4) LA denied the motion on the ground that CIR failed to show that the barges had been validly placed under constructive distraint. LA also rejected petitioner’s contention that the government’s claim for taxes was preferred under Art 2247 NCC since only taxes and fees which are due on specific movables enjoy preference, whereas the taxes claimed by CIR were not due on the 4 barges in question

ISSUE: WON the constructive distraint on the barges in question are valid

Page | 22

HELD: Yes.

It is settled that the claim of the government predicated on a tax lien is superior to the claim of a private litigant predicated on judgment. The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable. Besides, the distraint on the subject properties of Maritime Co as well as the notice of their seizure were made by petitioner CIR long before the writ of execution was issued by RTC Manila.

There is no question then that at the time of the writ of execution was issued, the two barges were no longer property of Maritime Co. the power of the court in execution of judgments extends only to properties unquestionably belonging to the judgment debtor. Execution sales affect the rights of the judgment debtor only, and the purchaser in an auction sale acquires only such right as the judgment debtor had at the time of sale. It is also well-settled that the sheriff is not authorized to attach or levy on property not belonging to the debtor.

c) OTHER LIENS SEC 107 (B), SEC 131 (A)

SEC. 107. Value-Added Tax on Importation of Goods. –

(B) Transfer of Goods by Tax-Exempt Persons. - In the case of tax-free importation of goods into the Philippines by persons, entities or agencies exempt from tax where such goods are subsequently sold, transferred or exchanged in the Philippines to nonexempt persons or entities, the purchasers, transferees or recipients shall be considered the importers thereof, who shall be liable for any internal revenue tax on such importation. The tax due on such importation shall constitute a lien on the goods superior to all charges or liens on the goods, irrespective of the possessor thereof.

SEC. 131. Payment of Excise Taxes on Importer Articles. -(A) Persons Liable. - Excise taxes on imported articles shall be paid by the owner or importer to the Customs Officers, conformably with the regulations of the Department of Finance and before the release of such articles from the customs house, or by the person who is found in possession of articles which are exempt from excise taxes other than those legally entitled to exemption.

In the case of tax-free articles brought or imported into the Philippines by persons, entitles, or agencies exempt from tax which are subsequently sold, transferred or exchanged in the Philippines to non-exempt persons or entitles, the purchasers or recipients shall be considered the importers thereof, and shall be liable for the duty and internal revenue tax due on such importation.

The provision of any special or general law to the contrary notwithstanding, the importation of cigars and cigarettes, distilled spirits and wines into the Philippines, even if destined for tax and duty-free shops, shall be subject to all applicable taxes, duties, charges, including excise taxes due thereon. This shall apply to cigars, and cigarettes, distilled spirits fermented liquors and wines brought directly into the duly chartered or legislated freeports of the Subic Special Economic and Freeport Zone, created under Republic Act No. 7227; the Cagayan Special Economic Zone and Freeport, created under Republic Act No. 7922; and the Zamboanga City Special Economic Zone, created under Republic Act No. 7903, and such other Freeport as may hereafter established or created by law: Provided, further, That importations of cigars and cigarettes, distilled spirits and wines made directly by a government-owned and operated duty-free shop, like the Duty-Free Philippines (DFP), shall be exempted from all applicable duties only: Provided, still further, That such articles directly imported by a government-owned and operated duty-free shop like the Duty-Free Philippines, shall be labeled "duty-free" and "not for resale":Provided, finally, That the removal and transfer of tax and duty-free goods, products, machinery, equipment and other similar articles, other than cigars and cigarettes, distilled spirits, fermented liquors and wines, from one Freeport to another Freeport, shall not be deemed an introduction into the Philippine customs territory.

Cigars and cigarettes, distilled spirits and wines within the premises of all duty-free shops which are not labelled as hereinabove required, as well as tax and duty-free articles obtained from duty-free shop and subsequently found in a non-duty-free shop to be offered for resale shall be confiscated, and the perpetrator of such non-labelling or re-selling shall be punishable under the applicable provisions of this code.

Articles confiscated shall be disposed of in accordance with the rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner of Customs and Internal Revenue, upon consultation with the Secretary of Tourism and the General manager of the Philippine Tourism Authority.

The tax due on any such goods, products, machinery, equipment or other similar articles shall constitute a lien on the article itself, and such lien shall be superior to all other charges or liens, irrespective of the possessor thereof.

(2) COMPROMISE SEC 204 (A)

SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. - The Commissioner may –

Page | 23

(A) Compromise the Payment of any Internal Revenue Tax, when:

(1) A reasonable doubt as to the validity of the claim against the taxpayer exists; or

(2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax.

The compromise settlement of any tax liability shall be subject to the following minimum amounts:

For cases of financial incapacity, a minimum compromise rate equivalent to ten percent (10%) of the basic assessed tax; and

For other cases, a minimum compromise rate equivalent to forty percent (40%) of the basic assessed tax.

Where the basic tax involved exceeds One million pesos (P1,000.000) or where the settlement offered is less than the prescribed minimum rates, the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the four (4) Deputy Commissioners.

a) GROUNDS TO ACCEPT COMPROMISE

l. Doubtful validity of the assessment. — The offer to compromise a delinquent account or disputed assessment under these Regulations on the ground of reasonable doubt as to the validity of the assessment may be accepted when it is shown that:

(a) The delinquent account or disputed assessment is one resulting from a jeopardy assessment (For this purpose, "jeopardy assessment" shall refer to a tax assessment which was assessed without the benefit of complete or partial audit by an authorized revenue officer, who has reason to believe that the assessment and collection of a deficiency tax will be jeopardized by delay because of the taxpayer's failure to comply with the audit and investigation requirements to present his books of accounts and/or pertinent records, or to substantiate all or any of the deductions, exemptions, or credits claimed in his return); or(b) The assessment seems to be arbitrary in nature, appearing to be based on presumptions and there is reason to believe that it is lacking in legal and/or factual basis; or(c) The taxpayer failed to file an administrative protest on account of the alleged failure to receive notice of assessment or preliminary assessment and there is reason to believe that the assessment is lacking in legal and/or factual basis; or

(d) The taxpayer failed to file a request for reinvestigation/reconsideration within 30 days from receipt of final assessment notice and there is reason to believe that the assessment is lacking in legal and/or factual basis; or(e) The taxpayer failed to elevate to the Court of Tax Appeals (CTA) an adverse decision of the Commissioner, or his authorized representative, in some cases, within 30 days from receipt thereof and there is reason to believe that the assessment is lacking in legal and/or factual basis; or(f) The assessments were issued on or after January 1, 1998, where the demand notice allegedly failed to comply with the formalities prescribed under Sec. 228 of the Tax Code of 1997; or(g) Assessments made based on the "Best Evidence Obtainable Rule" and there is reason to believe that the same can be disputed by sufficient and competent evidence.

2. Financial incapacity. — The offer to compromise based on financial incapacity may be accepted upon showing that:

(a) The corporation ceased operation or is already dissolved; or (b) The taxpayer is suffering from surplus or earnings deficit

resulting to impairment in the original capital by at least 50%; or

(c) The taxpayer is suffering from a networth deficit computed by deducting total liabilities (net of deferred credits) from total assets (net of prepaid expenses, deferred charges, pre-operating expenses, as well as appraisal increases in fixed assets), taken from the latest audited financial statements; or

(d) The taxpayer is a compensation income earner with no other source of income and the family's gross monthly compensation income does not exceed the levels of compensation income provided for under Sec. 4.1.1 of these Regulations, and it appears that the taxpayer possesses no other leviable/distrainable assets, other than his family home; or

(e) The taxpayer has been granted by the Securities and Exchange Commission (SEC) or by any competent tribunal a moratorium or suspension of payments to creditors, or otherwise declared bankrupt or insolvent.

The Commissioner shall not consider any offer for compromise settlement by reason of financial incapacity unless and until the taxpayer waives in writing his privilege of the secrecy of bank deposits under Republic Act No. 1405 or under other general or special laws, and such waiver shall constitute as the authority of the Commissioner to inquire into the bank deposits of the taxpayer.

Page | 24

For purposes of these Regulations, the term "assessment" includes the preliminary assessment notice (PAN) issued as of June 30, 2001 by the appropriate "Review Office". In fine, it does not include the post reporting notice issued by the head of the investigating unit.

b) CASES WHICH MAY BE COMPROMISED

3. Delinquent accounts;4. Cases under administrative protest pending in the Regional

Offices, Revenue District Offices, Legal Service, Large Taxpayer Service (LTS), Collection Service, Enforcement Service and other offices in the National Office;

5. Civil tax cases being disputed before the courts, e.g., MTC, RTC, CTA, CA, SC;

6. Collection cases filed in courts; 7. Criminal violations, other than those already filed in court or those

involving criminal tax fraud; and8. Cases covered by pre-assessment notices but taxpayer is not

agreeable to the findings of the audit office as confirmed by the review office.

c) CASE WHICH MAY NOT BE COMPROMISED

1. Withholding tax cases;2. Criminal tax fraud cases;3. Criminal violations already filed in court;4. Delinquent accounts with duly approved schedule of installment

payments;5. Cases where final reports of reinvestigation or reconsideration

have been issued resulting to reduction in the original assessment and the taxpayer is agreeable to such decision. On the other hand, other protested cases shall be handled by the Regional Evaluation Board (REB) or the National Evaluation Board (NEB) on a case to case basis; and

6. Cases which become final and executory after final judgment of a court.

d) DELEGATION OF POWER TO COMPROMISE SEC. 7 (C)

SEC. 7. Authority of the Commissioner to Delegate Power. - The Commissioner may delegate the powers vested in him under the pertinent provisions of this Code to any or such subordinate officials with the rank equivalent to a division chief or higher, subject to such limitations and restrictions as may be imposed under rules and regulations to be promulgated by the Secretary of finance, upon recommendation of the Commissioner: Provided, however, That the following powers of the Commissioner shall not be delegated:

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

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

(c) The power to compromise or abate, under Sec. 204 (A) and (B) of this Code, any tax liability: Provided, however, That assessments issued by the regional offices involving basic deficiency taxes of Five hundred thousand pesos (P500,000) or less, and minor criminal violations, as may be determined by rules and regulations to be promulgated by the Secretary of finance, upon recommendation of the Commissioner, discovered by regional and district officials, may be compromised by a regional evaluation board which shall be composed of the Regional Director as Chairman, the Assistant Regional Director, the heads of the Legal, Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer, as members;

e) IMPOSITION OF COMPROMISE PENALTY RR 12-99,

Suggested Compromise Penalty in Extra-judicial Settlement of a Taxpayer's Criminal Violation. — Section 204 of the Tax Code of 1997 provides that "All criminal violations may be compromised except: (a) those already filed in court, or (b) those involving fraud." This means that, in general, the taxpayer's criminal liability arising from his violation of the pertinent provision of the Code may be settled extra-judicially instead of the BIR instituting against the taxpayer a criminal action in Court. A compromise in extra-judicial settlement of the taxpayer's criminal liability for his violation is consensual in character, hence, may not be imposed on the taxpayer without his consent. Hence, the BIR may only suggest settlement of the taxpayer's liability through a compromise.

The extra-judicial settlement of the taxpayer's criminal liability and the amount of the suggested compromise penalty shall conform with the schedule of compromise penalties provided under Revenue Memorandum Order No. 1-90 or as hereafter revised.

RR 7-2001 IMPLEMENTING SEC 7(C), 204(A) AND 290 NIRC ON COMPROMISE SETTLEMENT

SECTION 2. CASES WHICH MAY BE COMPROMISED. — The following cases may, upon taxpayer's compliance with the basis set

Page | 25

forth under Section 3 of these Regulations, be the subject matter of compromise settlement, viz:

1. Delinquent accounts;2. Cases under administrative protest pending in the Regional

Offices, Revenue District Offices, Legal Service, Large Taxpayer Service (LTS), Collection Service, Enforcement Service and other offices in the National Office;

3. Civil tax cases being disputed before the courts, e.g., MTC, RTC, CTA, CA, SC;

4. Collection cases filed in courts; 5. Criminal violations, other than those already filed in court or

those involving criminal tax fraud; and6. Cases covered by pre-assessment notices but taxpayer is not

agreeable to the findings of the audit office as confirmed by the review office.

EXCEPTIONS:1. Withholding tax cases;2. Criminal tax fraud cases;3. Criminal violations already filed in court;4. Delinquent accounts with duly approved schedule of installment

payments;5. Cases where final reports of reinvestigation or reconsideration

have been issued resulting to reduction in the original assessment and the taxpayer is agreeable to such decision. On the other hand, other protested cases shall be handled by the Regional Evaluation Board (REB) or the National Evaluation Board (NEB) on a case to case basis; and

6. Cases which become final and executory after final judgment of a court.

SECTION 3. BASIS FOR ACCEPTANCE OF COMPROMISE SETTLEMENT. — The Commissioner may compromise the payment of any internal revenue tax on the following grounds:

1. Doubtful validity of the assessment. — The offer to compromise a delinquent account or disputed assessment under these Regulations on the ground of reasonable doubt as to the validity of the assessment may be accepted when it is shown that:

(a) The delinquent account or disputed assessment is one resulting from a jeopardy assessment (For this purpose, "jeopardy assessment" shall refer to a tax assessment which was assessed without the benefit of complete or partial audit by an authorized revenue officer, who has reason to believe that the assessment and collection of a deficiency tax will be jeopardized by delay because of the taxpayer's failure to comply with the audit and investigation requirements to present his books of accounts and/or pertinent records, or to substantiate all

or any of the deductions, exemptions, or credits claimed in his return); or

(b) The assessment seems to be arbitrary in nature, appearing to be based on presumptions and there is reason to believe that it is lacking in legal and/or factual basis; or

(c) The taxpayer failed to file an administrative protest on account of the alleged failure to receive notice of assessment or preliminary assessment and there is reason to believe that the assessment is lacking in legal and/or factual basis; or

(d) The taxpayer failed to file a request for reinvestigation/reconsideration within 30 days from receipt of final assessment notice and there is reason to believe that the assessment is lacking in legal and/or factual basis; or

(e) The taxpayer failed to elevate to the Court of Tax Appeals (CTA) an adverse decision of the Commissioner, or his authorized representative, in some cases, within 30 days from receipt thereof and there is reason to believe that the assessment is lacking in legal and/or factual basis; or

(f) The assessments were issued on or after January 1, 1998, where the demand notice allegedly failed to comply with the formalities prescribed under Sec. 228 of the Tax Code of 1997; or

(g) Assessments made based on the "Best Evidence Obtainable Rule" and there is reason to believe that the same can be disputed by sufficient and competent evidence.

2. Financial incapacity. — The offer to compromise based on financial incapacity may be accepted upon showing that:

(a) The corporation ceased operation or is already dissolved; or

(b) The taxpayer is suffering from surplus or earnings deficit resulting to impairment in the original capital by at least 50%; or

(c) The taxpayer is suffering from a networth deficit computed by deducting total liabilities (net of deferred credits) from total assets (net of prepaid expenses, deferred charges, pre-operating expenses, as well as appraisal increases in fixed assets), taken from the latest audited financial statements; or

(d) The taxpayer is a compensation income earner with no other source of income and the family's gross monthly compensation income does not exceed the levels of compensation income provided for under Sec. 4.1.1 of these Regulations, and it appears that the taxpayer

Page | 26

possesses no other leviable/distrainable assets, other than his family home; or

(e) The taxpayer has been granted by the Securities and Exchange Commission (SEC) or by any competent tribunal a moratorium or suspension of payments to creditors, or otherwise declared bankrupt or insolvent.

The Commissioner shall not consider any offer for compromise settlement by reason of financial incapacity unless and until the taxpayer waives in writing his privilege of the secrecy of bank deposits under Republic Act No. 1405 or under other general or special laws, and such waiver shall constitute as the authority of the Commissioner to inquire into the bank deposits of the taxpayer.

For purposes of these Regulations, the term "assessment" includes the preliminary assessment notice (PAN) issued as of June 30, 2001 by the appropriate "Review Office". In fine, it does not include the post reporting notice issued by the head of the investigating unit.

SECTION 4. PRESCRIBED MINIMUM PERCENTAGES OF COMPROMISE SETTLEMENT. — The compromise settlement of the internal revenue tax liabilities of taxpayers, reckoned on a per tax type assessment basis, shall be subject to the following minimum rates based on the basic assessed tax:1. For cases of "financial incapacity" —1.1. If taxpayer is an individual whose only source of income is from employment and whose monthly salary, if single, is P10,500 or less, or if married, whose salary together with his spouse is P21,000 per month, or less 10%1.2. If taxpayer is an individual without any source of income

10%1.3. Where the taxpayer is under any of the following conditions:1.3.1. Zero networth computed in accordance with Sec. 3.2(c) hereof

10%1.3.2. Negative networth computed in accordance with Sec. 3.2(c) hereof 10%1.3.3. Dissolved corporations 20%1.3.4. Already non-operating companies for a period of:

(a) three (3) years or more as of the date of application for compromise settlement 10%

(b) Less than 3 years 20%1.3.5. Surplus or earnings deficit resulting to impairment in the original capital by at least 50% 20%1.3.6. With moratorium/suspension of payments; declared insolvent or bankrupt 10%2. For cases of "doubtful validity" — A minimum compromise rate equivalent to forty percent (40%) of the basic assessed tax.

The taxpayer may, nevertheless, request for a compromise rate lower than forty percent (40%): Provided, however, that he shall be required to submit his request in writing stating therein the reasons, legal and/or factual, why he should be entitled to such lower rate: Provided, further, that for applications of compromise settlement based on doubtful validity of the assessment involving an offer lower than the minimum forty percent (40%) compromise rate, the same shall be subject to the prior approval by the NEB.The herein prescribed minimum percentages shall likewise apply in compromise settlement of assessments consisting solely of increments, i.e., surcharge, interest, etc., based on the total amount assessed.

SECTION 5. DOCUMENTARY REQUIREMENTS. —1. If the application for compromise is premised under Sec. 4.1.1

hereof, the taxpayer-applicant shall submit with his application (a) a certification from his employer on his prevailing monthly salary, including allowances; and (b) a sworn statement that he has no other source of income other than from employment.

2. If the application is premised under Sec. 4.1.2 hereof, the taxpayer-applicant shall submit with his application a sworn statement that he derives no income from any source whatever.

3. If the application is premised under Sec. 4.1.3 hereof, a copy of the applicant's latest audited financial statements or audited Account Information Form filed with the BIR shall be submitted with the application. Nonetheless, for situation under Sec. 4.1.3.3 hereof, the "Notice of Dissolution" submitted to SEC or other similar or equivalent document should likewise be submitted. For situation under Sec. 4.1.3.6, a copy of the order granting the moratorium or suspension of payments or of bankruptcy or insolvency shall be submitted. DHSCEc

SECTION 6. APPROVAL OF OFFER OF COMPROMISE. — Except for offers of compromise where the approval is delegated to the REB pursuant to the succeeding paragraph, all compromise settlements within the jurisdiction of the National Office (NO) shall be approved by the NEB composed of the Commissioner and the four (4) Deputy Commissioners. All decisions of the NEB, whether favorable or otherwise, shall have the concurrence of the Commissioner.

Offers of compromise of assessments issued by the Regional Offices involving basic deficiency taxes of Five Hundred Thousand Pesos (P500,000) or less and for minor criminal violations discovered by the Regional and District Offices, shall be subject to the approval by the Regional Evaluation Board (REB), comprised of the following Officers of the Region:Regional Director — ChairmanMembers:

• Assistant Regional Director

Page | 27

• Chief, Legal Division• Chief, Assessment Division• Chief, Collection Division• Revenue District Officer having jurisdiction over the

taxpayer-applicantProvided, however, that if the offer of compromise is less than the prescribed rates set forth in Sec. 4 hereof, the same shall always be subject to the approval of the NEB.

If the compromise offer meets the conditions for availment set forth in Sections 3, 4, and 5 of these Regulations, the case is considered provisionally closed on the day compromise amount is fully paid and the approval of the compromise offer becomes a matter of course on the part of the approving authority referred to in this Section.

SECTION 7. REPORT OF THE COMMISSIONER ON THE EXERCISE OF HIS AUTHORITY TO COMPROMISE TO THE CONGRESSIONAL OVERSIGHT COMMITTEE. — The Commissioner shall submit to the Congressional Oversight Committee through the Chairmen of the Committee on Ways and Means of both the Senate and House of Representatives, every six (6) months of each calendar year, a report on the exercise of his powers to compromise the tax liabilities of taxpayers. In this regard, the REB should submit to the Commissioner all the necessary reports and data in due time for the latter to be able to submit the required reports to the Congressional Oversight Committee.

(3) ABATEMENT SEC 204 (B)

a) GROUNDS TO ACCEPT ABATE

SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. - The Commissioner may –

(B) Abate or Cancel a Tax Liability, when:

(1) The tax or any portion thereof appears to be unjustly or excessively assessed; or

(2) The administration and collection costs involved do not justify the collection of the amount due.

All criminal violations may be compromised except: (a) those already filed in court, or (b) those involving fraud.

(4) FORFEITURE SEC 224, SEC 225, SEC 226, SEC 230, SEC 231

SEC. 224. Remedy for Enforcement of Forfeitures. - The forfeiture of chattels and removable fixtures of any sort shall be enforced by the seizure and sale, or destruction, of the specific forfeited property. The forfeiture of real property shall be enforced by a judgment of condemnation and sale in a legal action or proceeding, civil or criminal, as the case may require.SEC. 225. When Property to be Sold or Destroyed. - Sales of forfeited chattels and removable fixtures shall be effected, so far as practicable, in the same manner and under the same conditions as the public notice and the time and manner of sale as are prescribed for sales of personal property distrained for the non-payment of taxes.

Distilled spirits, liquors, cigars, cigarettes, other manufactured products of tobacco, and all apparatus used in or about the illicit production of such articles may, upon forfeiture, be destroyed by order of the Commissioner, when the sale of the same for consumption or use would be injurious to public health or prejudicial to the enforcement of the law.

All other articles subject to excise tax, which have been manufactured or removed in violation of this Code, as well as dies for the printing or making of internal revenue stamps and labels which are in imitation of or purport to be lawful stamps, or labels may, upon forfeiture, be sold or destroyed in the discretion of the Commissioner.

Forfeited property shall not be destroyed until at least twenty (20) days after seizure.

SEC. 226. Disposition of funds Recovered in Legal Proceedings or Obtained from Forfeitures. - all judgments and monies recovered and received for taxes, costs, forfeitures, fines and penalties shall be paid to the Commissioner or his authorized deputies as the taxes themselves are required to be paid, and except as specially provided, shall be accounted for and dealt within the same way.

SEC. 230. Forfeiture of Cash Refund and of Tax Credit. –(A) Forfeiture of Refund. - A refund check or warrant issued in

accordance with the pertinent provisions of this Code, which shall remain unclaimed or uncashed within five (5) years from the date the said warrant or check was mailed or delivered, shall be forfeited in favor of the Government and the amount thereof shall revert to the general fund.

(B) Forfeiture of Tax Credit. - A tax credit certificate issued in accordance with the pertinent provisions of this Code, which shall remain unutilized after five (5) years from the date of issue, shall, unless revalidated, be considered invalid, and shall not be allowed as payment for internal revenue tax

Page | 28

liabilities of the taxpayer, and the amount covered by the certificate shall revert to the general fund.

(C) Transitory Provision. - For purposes of the preceding Subsection, a tax credit certificate issued by the Commissioner or his duly authorized representative prior to January 1, 1998, which remains unutilized or has a creditable balance as of said date, shall be presented for revalidation with the Commissioner or his duly authorized representative or on before June 30, 1998.

SEC. 231. Action to Contest Forfeiture of Chattel. - In case of the seizure of personal property under claim of forfeiture, the owner desiring to contest the validity of the forfeiture may, at any time before sale or destruction of the property, bring an action against the person seizing the property or having possession thereof to recover the same, and upon giving proper bond, may enjoin the sale; or after the sale and within six (6) months, he may bring an action to recover the net proceeds realized at the sale.

a) FORFEITURE V.SEIZURE

BPI V. TRINIDAD41 PHIL 220 Forfeiture is "the divestiture of property without compensation, in consequence of an offense. The effect of such forfeiture is to transfer the title to the specific thing from the owner to the sovereign power." There is a great difference between a seizure under forfeiture and a seizure to enforce a tax lien. In the former all the proceeds derived from the sale of the thing forfeited are turned over to the CIR (sec. 148, Act No. 2339); in the latter, the residue of such proceeds over and above what is required to pay the tax sought to be realized, including expenses, is returned to the owner of the property (second paragraph, sec. 152, Act No. 2339).

A chattel mortgage is a conditional sale of personal property as security for the payment of a debt, or the performance of some other obligation specified therein, the condition being that the sale shall be void upon the seller paying the purchaser a sum of money or doing some other act named. Therefore, as long as the mortgage exists, the dominion with respect to the mortgaged personal property rests with the creditor-pledgee from the time of the inscription of the mortgage in the registry, and the furniture ceases to be the property of the debtor for the reason that it has become the property of the creditor, in like manner as the dominion of a thing sold is transferred to the purchaser and ceases to belong to the vendor from the moment of the delivery thereof, as a result of the sale.

US V. SURLA20 PHIL 163FACTS: This is an appeal from a judgment of the Court of First Instance of the Province of Pampanga, convicting the accused of a violation of Section 57 of Act No. 1189 and sentencing him to one year in prison to the payment of the costs of the action, and confiscating in favor of the Insular Government of the cigarettes sold in violation of the Internal Revenue Law, the factory, the land upon which it stands, the machinery, fixtures, and all other property located therein, and ordering the disposition of the goods and the rendition of an account of the proceeds of the same in the manner provided by law.

The court has arrived at the conclusion that the accused Surla maliciously and criminally transferred to the transfer from his factory of the 42, 000 cigarettes in question without paying the tax imposed by law on or before the amount of such transfer, and it appearing that the accused, according to Exhibit A, was convicted on the 20th of March, 1908, for a similar infraction of the law, he must by virtue of Section 56 of the Internal Revenue Law be punished as a second offender.

The accused asserts that the act, in declaring forfeited the factory and all of its contents and the ground upon which stands, is unconstitutional. Contents that the judgment of the trial court is fatally defective in that it fails to state how the property forfeited shall be disposed of and its proceeds accounted for.

ISSUE: Whether the form of the judgment of confiscation is proper

RULING: As to the form of the judgment of confiscation, it is sufficient to say that it is entirely immaterial to the defendant, legally speaking, how the property confiscated is disposed of and where, its proceeds go. The property, having been forfeited, belongs absolutely to the government, and the proceeds arising from the disposal thereof, also belong to the Government. (US vs Stowell, 133 US, 1). Section 42 (1189) invoked by the accused for the purpose of demonstrating how the forfeited property should be disposed of, and its proceeds divided, he asserting that under the terms thereof he is entitled to have the balance returned to him after the liquidation of the unpaid taxes and expenses of sale, is entirely inapplicable to forfeited property. It relates solely to the sale of property distrained to pay taxes of delinquents and the disposition of the proceeds thereof. The title of such property remains in the delinquent until the sale. It is never forfeited and is never on the government unless it becomes a purchaser of the sale. The property being his he is entitled to whatever surplus there may be after the payment of the taxes and all the expenses of the distraint and sale. In case of a forfeiture of property of crime, however, the title and ownership of the convict are absolutely divested and pass to the

Page | 29

government. He ceases to have any interest in its proceeds. Section 50 (1189) prescribes the disposition of the property in such cases.

b) STILL SUBJECT TO CRIMINAL ACTION

GARCIA V. COLLECTOR66 phil 441FACTS: Collector required respondent Garcia to pay a specific tax of P204.07 after the latter had been sentenced to a criminal case to pay a fine for having taken 1606 liters of alcohol from the distillery of Suntay without having paid the corresponding specific tax therefor

1) However, the court in its decision refused to impose the same for the alleged reason that as the alcohol in question had been confiscated and as the value of the same was probably greater than the amount of the tax, the Government already has had an opportunity to recover it

ISSUE: WON Collector is barred from collecting the tax due

HELD: No. The payment of the tax was not sought in the criminal case because the object of the information was the imposition upon the offender of the corresponding penalty for violation of Sec 2727 of the Revised Administrative Code. The tax should have been recovered by CIR independently of the criminal action instituted against Garcia. Therefore, the fact that in the judgment rendered ins aid case no pronouncement whatsoever as regard said tax had been made, was no bar to the Government’s recovering it afterwards, as the CIR, has done.

Moreover, the confiscation in the criminal case was an accessory penalty imposed by Art 25 RPC, which is entirely different from the payment of tax.

(5) SUSPENSION OF BUSINESS OPERATION OF VAT TAXPAYER SEC 115

SEC. 115. Power of the Commissioner to Suspend the Business Operations of a Taxpayer. - The Commissioner or his authorized representative is hereby empowered to suspend the business operations and temporarily close the business establishment of any person for any of the following violations:

(a) In the case of a VAT-registered Person. -(1) Failure to issue receipts or invoices;(2) Failure to file a value-added tax return as required

under Section 114; or(3) Understatement of taxable sales or receipts by thirty

percent (30%) or more of his correct taxable sales or receipts for the taxable quarter.

(b) Failure of any Person to Register as Required under Section 236. - The temporary closure of the establishment shall be for the duration of not less than five (5) days and shall be lifted only upon compliance with whatever requirements prescribed by the Commissioner in the closure order.

SEC. 114. Return and Payment of Value-Added Tax. -

(A) In General. - Every person liable to pay the value-added tax imposed under this Title shall file a quarterly return of the amount of his gross sales or receipts within twenty-five (25) days following the close of each taxable quarter prescribed for each taxpayer: Provided, however, That VAT-registered persons shall pay the value-added tax on a monthly basis.

Any person, whose registration has been cancelled in accordance with Section 236, shall file a return and pay the tax due thereon within twenty-five (25) days from the date of cancellation of registration: Provided, That only one consolidated return shall be filed by the taxpayer for his principal place of business or head office and all branches.

(B) Where to File the Return and Pay the Tax. - Except as the Commissioner otherwise permits, the return shall be filed with and the tax paid to an authorized agent bank, Revenue Collection Officer or duly authorized city or municipal Treasurer in the Philippines located within the revenue district where the taxpayer is registered or required to register.

(C) Withholding of Creditable Value-Added Tax. - The Government or any of its political subdivisions, instrumentalities or agencies, including government-owned or - controlled corporations (GOCCs) shall, before making payment on account of each purchase of goods and services which are subject to the value-added tax imposed in Sections 106 and 108 of this Code, deduct and withhold the value-added tax due at the rate of five percent (5%) of the gross payment thereof: Provided, that the payment for lease or use of properties or property rights to nonresident owners shall be subject to twelve percent (12%) withholding tax at the time of payment. For purposes of this section, the payor or person in control of the payment shall be considered as the withholding agent.

The value-added tax withheld under this Section shall be remitted within ten (10) days following the end of the month the withholding was made.

(6) ENFORCEMENT OF CIVIL PENALTIES

Page | 30

a) RR 12-99

SECTION 4. Civil Penalties. —

4.1 25% Surcharge. — There shall be imposed, in addition to the basic tax required to be paid, a penalty equivalent to twenty-five percent (25%) thereof, in any the following cases:

4.1.1 Failure to file any return and pay the tax due thereon as required under the provisions of this Code or rules and regulations on the date prescribed; or4.1.2 Unless otherwise authorized by the Commissioner, filing a return with an internal revenue officer other than those with whom the return is required to be filed; or4.1.3 Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment; or4.1.4 Failure to pay the full or part of the amount of tax shown on any return required to be filed under the provisions of this Code or rules and regulations, or the full amount of tax due for which no return is required to be filed, on or before the date prescribed for its payment.

4.2 50% Surcharge:4.2.1 In case of willful neglect to file the return within the period prescribed by the Code, or in case a false or fraudulent return is willfully made, the penalty to be imposed shall be fifty percent (50%) of the tax or of the deficiency tax, in case any payment has been made on the basis of such return before the discovery of the falsity or fraud: Provided, That a substantial underdeclaration of taxable sales, receipts or income, or a substantial overstatement of deductions, as determined by the Commissioner or his duly authorized representative, shall constitute prima facie evidence of a false or fraudulent return: Provided, further, That failure to report sales, receipts or income in an amount exceeding thirty percent (30%) of that declared per return, and a claim of deductions in an amount exceeding thirty percent (30%) of actual deductions, shall render the taxpayer liable for substantial underdeclaration of sales, receipts or income or for overstatement of deductions, as mentioned herein: Provided, further, that the term "willful neglect to file the return within the period prescribed by the Code" shall not apply in case the taxpayer, without notice from the Commissioner or his authorized representative, voluntarily files the said return, in which case, only 25% surcharge shall be imposed for late filing and late payment of the tax in lieu of the above 50% surcharge. Conversely, the 50% surcharge shall be imposed in case the taxpayer files the return only after prior notice in writing from the Commissioner or his duly authorized representative.

4.2.2 Section 6 (A) of the Code provides that any tax return filed by a taxpayer "may be modified, changed or amended" by the taxpayer "within three (3) years from date of such filing" provided, however, that "no notice for audit or investigation of such return, statement or declaration has, in the meantime, been actually served upon the taxpayer." Thus, if upon investigation, it is determined that the taxpayer's originally filed tax return is false or fraudulent, such taxpayer shall remain liable to the 50% civil penalty regardless that the taxpayer has filed his amended tax return, if the said amended tax return, however, has been filed only after issuance of the Letter of Authority for the investigation of the taxpayer's tax return or such amendment has been made in the course of the said investigation.

b) SEC. 248 -249

SEC. 248. Civil Penalties. - (A) There shall be imposed, in addition to the tax required to be paid, a penalty equivalent to twenty-five percent (25%) of the amount due, in the following cases:

(1) Failure to file any return and pay the tax due thereon as required under the provisions of this Code or rules and regulations on the date prescribed; or

(2) Unless otherwise authorized by the Commissioner, filing a return with an internal revenue officer other than those with whom the return is required to be filed; or

(3) Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment; or

(4) Failure to pay the full or part of the amount of tax shown on any return required to be filed under the provisions of this Code or rules and regulations, or the full amount of tax due for which no return is required to be filed, on or before the date prescribed for its payment.

(B) In case of willful neglect to file the return within the period prescribed by this Code or by rules and regulations, or in case a false or fraudulent return is willfully made, the penalty to be imposed shall be fifty percent (50%) of the tax or of the deficiency tax, in case, any payment has been made on the basis of such return before the discovery of the falsity or fraud: Provided, That a substantial underdeclaration of taxable sales, receipts or income, or a substantial overstatement of deductions, as determined by the Commissioner pursuant to the rules and regulations to be promulgated by the Secretary of Finance, shall constitute prima facie evidence of a false or fraudulent return: Provided, further, That failure to report sales, receipts or income in an amount exceeding thirty percent (30%) of that declared per return, and a claim of deductions in an amount exceeding (30%) of

Page | 31

actual deductions, shall render the taxpayer liable for substantial underdeclaration of sales, receipts or income or for overstatement of deductions, as mentioned herein.

SEC. 249. Interest. -

(A) In General. - There shall be assessed and collected on any unpaid amount of tax, interest at the rate of twenty percent (20%) per annum, or such higher rate as may be prescribed by rules and regulations, from the date prescribed for payment until the amount is fully paid.

(B) Deficiency Interest. - Any deficiency in the tax due, as the term is defined in this Code, shall be subject to the interest prescribed in Subsection (A) hereof, which interest shall be assessed and collected from the date prescribed for its payment until the full payment thereof.

(C) Delinquency Interest. - In case of failure to pay:(1) The amount of the tax due on any return to be filed, or(2) The amount of the tax due for which no return is required, or(3) A deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice and demand of the Commissioner, there shall be assessed and collected on the unpaid amount, interest at the rate prescribed in Subsection (A) hereof until the amount is fully paid, which interest shall form part of the tax.

(D) Interest on Extended Payment. - If any person required to pay the tax is qualified and elects to pay the tax on installment under the provisions of this Code, but fails to pay the tax or any installment hereof, or any part of such amount or installment on or before the date prescribed for its payment, or where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof, there shall be assessed and collected interest at the rate hereinabove prescribed on the tax or deficiency tax or any part thereof unpaid from the date of notice and demand until it is paid.

STATUTE OF LIMITATIONS

A. PRESCRIPTION OF RIGHT TO ASSESS1. GENERAL RULE SEC 203

SEC. 203. Period of Limitation Upon Assessment and Collection. - Except as provided in Section 222, internal revenue taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the return, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period: Provided, That in a case where a return is filed beyond the period prescribed by law, the three (3)-year period shall be counted from the day the return was filed. For purposes of this Section, a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day.

2. COUNTING THE PRESCRIPTIVE PERIOD

a) COUNTING OF THE 3 YEARS RMC 48-90

The 3-year prescriptive period expires on the 1095th day notwithstanding the fact that within the period, there is a leap year which is of 366 days (RMC 48-90).

The 3-year period of assessment shall be computed from:1. if the return was filed on or before the deadline for filing – within 3 years after the last prescribed by law; and2. If the return was filed beyond or after the deadline – within 3 years from the date of such filing.3. the tax may be assessed within the period agreed upon by the taxpayer and the commissioner.

NOTE: sec. 222 provides:b. if before the expiration of the time prescribed in sec. 203 for the assessment of the tax, both the Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be assessed within the period agreed upon. The period so agreed upon may be extended by subsequent written agreement made before the expiration of the period previously agreed upon.

b) DATE OF FILING TAX RETURNS/AMENDED RETURNS/WRONG RETURN

1) Before the deadline2) On the date of the deadline3) After the deadline

In the case of Phoenix v. Commissioner (14 SCRA 52), the SC explained the following rules in case there is an amendment of the return:

Page | 32

o If the amendment is substantial, the counting of the prescriptive period shall be reckoned on the date the substantial amendment was made

o If the amendment was superficial, the counting of the prescriptive period is still the original period

c) FAILURE TO FILE RETURN

d) WHEN LAW DOES NOT PRESCRIBE FILING OF RETURN

The Government has 2 remedies (options) under ABNORMAL assessment and collection:

1. Assessment and Collection o Prescriptive Period for Assessment – Within 10 years from

the discovery of the non-filing of the return or the fraudulent or false return

o Prescriptive Period for Collection – 5 years from the date of the Final Assessment (FAN)

2. Collection without Assessment through Judicial Action o Prescriptive Period for Assessment – There would be NO

prescriptive period for assessment as there is no assessment

o Prescriptive Period for Collection – 10 years from the date of discovery of the non-filing of the return or the fraudulent or false return

3. EXCEPTION SEC 222

SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes. -

(a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be filed without assessment, at any time within ten (10) years after the discovery of the falsity, fraud or omission: Provided, That in a fraud assessment which has become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal action for the collection thereof.

(b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both the Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be assessed within the period agreed upon. The period so agreed upon may be extended by subsequent written agreement made before the expiration of the period previously agreed upon.

(c) Any internal revenue tax which has been assessed within the period of limitation as prescribed in paragraph (a) hereof may be collected by distraint or levy or by a proceeding in court within five (5) years following the assessment of the tax.

(d) Any internal revenue tax, which has been assessed within the period agreed upon as provided in paragraph (b) hereinabove, may be collected by distraint or levy or by a proceeding in court within the period agreed upon in writing before the expiration of the five (5) -year period. The period so agreed upon may be extended by subsequent written agreements made before the expiration of the period previously agreed upon.

(e) Provided, however, That nothing in the immediately preceding and paragraph (a) hereof shall be construed to authorize the examination and investigation or inquiry into any tax return filed in accordance with the provisions of any tax amnesty law or decree.

4. WAIVER OF PRESCRIPTIONTO CONSTITUTE A VALID WAIVER, THE FOLLOWING REQUIREMENTS MUST BE MET:

1. Valid form in conformity with RMO 20-90;2. Before the expiration of the ordinary prescriptive periods for

assessment and collection;3. For a definite period beyond the ordinary prescriptive

periods for assessment and collection;4. signed by the taxpayer and the CIR or authorized RDO

indicating that the bureau has accepted and agreed to the waiver;

5. the date of such acceptance by the Bureau should be indicated specify a definite agreed date between the BIR and petitioner, within which the former may assess and collect revenue taxes; and

6. Notice to the taxpayer or the second copy must be furnished to the taxpayer

Page | 33

CIR V. WESTERN PACIFIC CORPG.R. NO 18804 (1965)FACTS: On March 2, 1959, respondent Western Pacific Corp was assessed deficiency income tax for the year 1953. The assessment was brought about by the disallowance listed in respondent’s return as bad debts

1. The assessment was received by respondent on the same date (March 2, 1959).

2. On March 5, 1959, CIR wrote a demand letter with the final breakdown of the assessment.

3. However, on June 29, 1959, Western Pacific Corp requested for non-assessment, claiming that the claim had prescribed and that said items should be considered as allowable deductions

4. On July 30, 1959, CIR denied the request and demanded payment of the same within 30 days from receipt of demand

5. Respondent corporation, on September 19, 1959, requested that it be allowed until September 25 to submit its formal objections to the assessment. The formal objections submitted by Western Pacific were identical to its former objections and as such, CIR denied the request.

6. The CIR, then, sent on October 28, 1959 a letter demanding payment within 10 days

7. On appeal, CA absolved the respondent from the assessment however it ruled out that the assessment letter dated March 2, 1959 was within 5-year prescriptive period

ISSUE: WON the assessment had prescribed

HELD: No. February 28, 1959 fell on a Saturday. Pursuant to Republic Act No. 1880, as, implemented by Executive Order No. 25, effective July 1, 1959, all bureaus and offices of the government, except schools, court, hospitals and health clinics, hold office only five days a week or from Monday to Friday. Saturday and Sunday, are constituted public holidays or days of exemption from labor or work as far as government offices, including that of respondent Commissioner, are concerned. The offices and bureaus concerned are officially closed on those days. So that on February 28, 1959 and March 1, 1959, which were Saturday and Sunday, respectively, the office of respondent was officially closed. And where the last day for doing an act required by law falls on a holiday, the act may be done on the next succeeding business day. (Section 31, Revised Administrative Code.) Similarly, in computing any period of time prescribed by statute, the day of the act after which the designated period of time begins to run is not included. But the last day of the period so computed is to be included, unless it is a Sunday or a legal holiday, in which event the time shall run until the end of the next day which is neither a Sunday or a holiday (Section 1, Rule 28, Rules of Court). Consequently, since February 28, 1959 was a Saturday and the next day, March 1,

1959, a Sunday, respondent had until the next succeeding business day, March 2, 1959, Monday, within which to issue the deficiency assessment. The assessment in question having been issued on March 2, 1959, it was, therefore, seasonably made.

However, contrary to the ruling of the CTA, the assessment made by the Commissioner should be maintained, for the simple reason that when the petition for review was brought to the CTA by the respondent corporation, the said Court no longer had jurisdiction to entertain the same. The assessment had long become final. A petition for review should be presented, within the reglementary period, as provided for in Section 11, Republic Act No. 1125, which is "thirty (30) days from receipt of the assessment." The thirty (30) day period is jurisdictional.

CAB: The assessment was received by the respondent corporation on March 2, 1959. It was only on June 29, 1959, when said corporation formally assailed the assessment, on the grounds of prescription in making the assessment and the impropriety of the disallowance of the listed deductions. From March 3 to June 29, 1959, manifestly more than thirty (30) days had lapsed and the assessment became final, executory and demandable.

CIR V. PHOENIX ASSURANCE COG.R. NO L-19127 (1965)FACTS: Phoenix Assurance is a foreign insurance company organized under the laws of Great Britain, is licensed to do business in the Philippines.

1. Through its head office, it entered in London into worldwide reinsurance treaties with various foreign insurance companies.

2. It agree to cede a portion of premiums received on original insurances underwritten by its head office, subsidiaries, and branch offices throughout the world, in consideration for assumption by the foreign insurance companies of an equivalent portion of the liability from such original insurances.

3. Pursuant to such reinsurance treaties, Phoenix Assurance Co., Ltd., ceded portions of the premiums it earned from its underwriting business in the Philippines on the years 1952 to 1954.

4. Upon which the Commissioner of Internal Revenue, by letter of May 6, 1958, assessed the withholding tax for each year from 1952-1954.

5. On April 1, 1951, Phoenix Assurance Co., Ltd. filed its Philippine income tax return for 1950, claiming therein, among others, a deduction of P37,147.04 as net addition to marine insurance reserve equivalent to 40% of the gross marine insurance premiums received during the year. 

Page | 34

a.  The Commissioner of Internal Revenue disallowed P11,772.57 of such claim for deduction and subsequently assessed against Phoenix Assurance Co., Ltd. the sum of P1,884.00 as deficiency income tax. 

b.  The Commissioner assumed that "ninety and third, days are approximately the length of time required before shipments reach their destination or before claims are received by the insurance companies."

6. On April 1, 1953, Phoenix Assurance Co., Ltd. filed its Philippine income tax return for 1952, declaring therein a deduction from gross income of P35,912.25 as part of the head office expenses incurred for its Philippine business, computed at 5% on its gross Philippine income.

7. On August 30, 1955 it amended its income tax return for 1952 by excluding from its gross income the amount of P316,526.75 representing reinsurance premiums ceded to foreign reinsurers and further eliminating deductions corresponding to the coded premiums. 

8. The Commissioner of Internal Revenue disallowed P15,826.35 of the claimed deduction for head office expenses and assessed a deficiency tax of P5,667.00 on July 24, 1958.

9. On April 30, 1954, Phoenix Assurance Co., Ltd. filed its Philippine income tax return for 1953.. 

10. On August 30, 1955 it amended its 1953 income tax return. 11. To avoid the prescriptive period provided for in Section 306 of

the Tax Code, it filed a petition for review on April 11, 1956 in the Court of Tax Appeals praying for such refund. After verification of the amended income tax return the Commissioner of Internal Revenue disallowed P12,304.10 of the deduction representing head office expenses allocable to Philippine business thereby reducing the refundable amount to P20,180.00.

12. On April 29, 1955, Phoenix Assurance Co., Ltd. filed its Philippine income tax return for 1954.

13. On August 1, 1958 the Bureau of Internal Revenue released the for deficiency income tax for the years 1952 and 1954 against Phoenix Assurance Co., Ltd.

a. The above assessment resulted from the disallowance of a portion of the deduction claimed by Phoenix Assurance Co., Ltd. as head office expenses allocable to its business in the Philippines fixed by the Commissioner at 5% of the net Philippine income instead of 5% of the gross Philippine income as claimed in the returns.

b. Phoenix Assurance Co., Ltd. protested against the aforesaid assessments for withholding tax and deficiency income tax. However, the Commissioner of Internal Revenue denied such protest.

14. Subsequently, Phoenix Assurance Co., Ltd. appealed to the Court of Tax Appeals.

15. In a decision dated February 14, 1962, the Court of Tax Appeals allowed in full the decision claimed by Phoenix Assurance Co., Ltd. for 1950 as net addition to marine insurance reserve; determined the allowable head office expenses allocable to Philippine business to be 5% of the net income in the Philippines; declared the right of the Commissioner of Internal Revenue to assess deficiency income tax for 1952 to have prescribed; absolved Phoenix Assurance Co., Ltd. from payment of the statutory penalties for non-filing of withholding tax return.

ISSUE: WON the right of CIR to assess the deficiency income tax for 1952 has already prescribed

HELD: NO.

Phoenix Assurance Co., Ltd. filed its income tax return for 1952 on April 1, 1953 showing a loss of P199,583.93. It amended said return on August 30, 1955 reporting a tax liability of P2,502.00. On July 24, 1958, after examination of the amended return, the Commissioner of Internal Revenue assessed deficiency income tax in the sum of P5,667.00.

The Court of Tax Appeals found the right of the Commissioner of Internal Revenue barred by prescription, the same having been exercised more than five years from the date the original return was filed.

On the other hand, the Commissioner of Internal Revenue insists that his right to issue the assessment has not prescribed inasmuch as the same was availed of before the 5-year period provided for in Section 331 of the Tax Code expired, counting the running of the period from August 30, 1955, the date when the amended return was filed.

Should the running of the prescriptive period commence from the filing of the original or amended return? Prescriptive period shall commence from the filing of the AMENDED RETURN.The Court of Tax Appeals that the original return was a complete return containing "information on various items of income and deduction from which respondent may intelligently compute and determine the tax liability of petitioner, hence, the prescriptive period should be counted from the filing of said original return.THE SC RULED IN FAVOR OF THE CIR: The changes and alterations embodied in the amended income tax return substantially MODIFIED the original return.

Page | 35

Considering that the deficiency assessment was based on the amended return which, as aforestated, is substantially different from the original return, the period of limitation of the right to issue the same should be counted from the filing of the amended income tax return. From August 30, 1955, when the amended return was filed, to July 24, 1958, when the deficiency assessment was issued, less than five years elapsed. The right of the Commissioner to assess the deficiency tax on such amended return has not prescribed.

To strengthen our opinion, we believe that to hold otherwise, we would be paving the way for taxpayers to evade the payment of taxes by simply reporting in their original return heavy losses and amending the same more than five years later when the Commissioner of Internal Revenue has lost his authority to assess the proper tax thereunder. The object of the Tax Code is to impose taxes for the needs of the Government, not to enhance tax avoidance to its prejudice.

BUTUAN SAWMILL INC V. CTAG.R. NO L-20601 (1966)FACTS: Butuan Sawmill, Inc. (BSI) sold logs to Japanese firms at prices FOB Agusan. The FOB feature of the sales indicated that the parties intended the title to pass to the buyer upon delivery of the logs in Agusan on board the vessels that took the goods to Japan. The sales, being domestic or local, are subject to sales tax under Sec. 186 of the Tax Code as amended.

1. 2. Upon investigation by the BIR, it was ascertained that no sales tax return was filed and neither did BSI pay the corresponding sales tax. For the period Jan. 31, 1951 to June 8, 1953, the CIR assessed initially assessed BSI the amount of P40,004.01 but as a result of reinvestigation, the amount was reduced to P38,917.74, as deficiency sales tax and surcharge due on its sales of logs to the Japanese buyers.

2. The lower court held that the amended assessment of the sales tax and surcharge were domestic or local sales and therefore subject to sales tax and that the assessment thereof was made well within the ten year period prescribed by Sec. 332(a) of the same Code since petitioners herein omitted to file its sales tax returns for the years 1951-53, and this omission was discovered only on Sept. 17.1957.

3. It is clear that the said export sales had been consummated in the Philippines and hence, subject to sales tax. Petitioner allege that the filing of its income tax return, wherein the proceeds of the disputed sales were declared, is substantial compliance with the requirements of filing a sales tax return, and if there should be deemed a return filed, Sec. 331 and not

Sec. 332(a) of the Tax Code providing for a five year prescriptive period within which to make an assessment and collection of the tax in question from the time the return was deemed filed, should be applied to the case at bar.

4. Since petitioner filed its income tax returns for the years 1951, 1952 and 1953, and the assessment was made in 1957 only it further contends that the assessment of the sales tax corresponding to the years 1951 and 1952 had already prescribed for having been made outside the five year period prescribed in Sec. 331 of the Tax Code and should, therefore, be deducted from the assessment of the deficiency sales tax made by the BIR.

ISSUE: WON the assessment was made within the prescriptive period provided by the law.

HELD: Yes.1. An income tax return cannot be considered as a return

for compensating tax for purposes of computing the period of prescription under Sec. 331 of the Tax Code and that the taxpayer must file a return for the particular tax required by law in order to avail himself of the benefits of Sec. 331 of the Tax Code; otherwise, if he does not file a return, an assessment may be made within the time stated in Sec. 332(a) of the same Code.

2. It is undisputed that petitioner failed to file a return for the disputed sales corresponding to the years 1951, 1952 and 1953, and this omission was discovered only on September 17, 1957, and that under Section 332(a) of the Tax Code assessment thereof may be made within ten (10) years from and after the discovery of the omission to file the return, it is evident that the lower court correctly held that the assessment and collection of the sales tax in question has not yet prescribed.

BISAYA LAND TRANSPORATION CO INC V. CIR105 PHIL 1338 (1960)DOCTRINE: In order that the filing of a return may serve as the starting point of the period for the making of an assessment, the return must be as substantive complete as to include the needed details on which the full assessment may be made, and appellants have not shown that such was the nature of the return they would infer had been filed by the corporation.

When there is no provision in the law requiring the filing of return but the tax is such that its amount cannot be ascertained without the date

Page | 36

that is pertinent thereto, the Commissioner may, by appropriate regulations, require the filing of the necessary returns. In any event, with or without such regulations, it is to the interest of the taxpayer to file said return if he wishes to avail himself of the benefits of the three-year prescriptive period. If this notwithstanding, he does not file return at all, then an assessment may be made at anytime within the ten-year prescriptive period.

FACTS: BLTC acquired equipment from US Commercial Co. which it used in the operation of its buses without paying the corresponding taxes.

1. The revenue agents who investigated its books discovered that its gross receipts of the transportation business from 1946-1951 were not declared for taxation. And from 1945-1952, petitioner issued freight receipts but the corresponding documentary stamps were not affixed; deficiency additional tax was also determined.

2. CIR assessed and demanded P4,949.91consisting of 1) compensating tax, 2) common carrier’s percentage tax, 3) documentary stamp tax, and 4) additional residence tax.

3. January 11, 1955, BLTC filed a petition for review with the CTA which upheld the assessment. But ruled that the deficiency common carrier’s percentage tax for 1946, the 1st quarter of 1947, and the additional residence tax of 1947 were barred by the statute of limitations. Both parties appealed.

4. Petitioner alleged that CTA erred in not holding that the compensating and residence tax have also prescribed because the period of prescription should be computed from the filing of its income tax returns. And that the compensating, documentary stamp, and common carrier’ percentage tax were not chargeable.

ISSUE: Has the assessment made by the CIR been barred by Statute of Limitations?

HELD: No.

The income tax returns were not introduced in evidence, therefore, there was no means to determine what data were included to apprise the BIR that the company should pay the compensating tax.

When there is no provision in the law requiring the filing of return but the tax is such that its amount cannot be ascertained without the date that is pertinent thereto, the Commissioner may, by appropriate regulations, require the

filing of the necessary returns. In any event, with or without such regulations, it is to the interest of the taxpayer to file said return if he wishes to avail himself of the benefits of the three-year prescriptive period. If this notwithstanding, he does not file return at all, then an assessment may be made at anytime within the ten-year prescriptive period.

TUPAZ V. HON ULEP G.R. NO 12777 (1999)DOCTRINE: By its nature, the tax violation can only be committed after service of notice and demand for payment of the deficiency taxes upon the tax payer.  Hence, it cannot be said that the offense been committed as early as 1980 upon filing of the income tax return.  FACTS: State Prosecutor filed with the Metropolitan Trial Court (MeTC), Quezon City an information against herein petitioner Petronila C. Tupaz and her late husband, Jose J. Tupaz, Jr., as corporate officers of El Oro Engravers Corporation for nonpayment of deficiency in corporate income tax for the year 1979 but was later dismissed and denied upon reconsideration. Subsequently, the same prosecutor filed two (2) informations before Regional Trial Court (RTC), for the same alleged non-payment of deficiency of corporate income tax for the year 1979, one was raffled to Branch 105 while the other to Branch 86.  Respondent Judge Ulep issued an order directing the prosecution to withdraw the information in Branch 86 after discovering that said information was identical to that filed with Branch 105.  The prosecutor withdrew the information but later on filed a motion to reinstate the same, stating that the motion to withdraw information was made through palpable mistake, and the result of excusable neglect—to which the respondent Judge granted the motion over the objections of the petitioner.  Petitioner files this petition assailing that respondent Judge committed a grave abuse of discretion in reinstating the information because the offense has prescribed and exposed her to double jeopardy.  Petitioner argues that while Section 318 and 319 of the National Internal Revenue Code (NIRC) of 1997 provide a five (5) year period of limitation for the assessment and collection of internal revenue taxes, Batas Pambansa Blg. 700 (enacted on February 22, 1984), amended the two (2) sections and reduced the period to three (3) years.  As provided under B.P. Blg. 700, the Bureau of Internal Revenue (BIR) has three (3) years to assess the tax liability, counted from the last day of filing the return or from the date the return is filed, whichever comes later. Since the tax return was filed in April 1980, the assessment made on July 1984 was beyond the three (3) year prescriptive period. ISSUES: Whether or not the offense has prescribed

Page | 37

HELD: As to the first issue, the Supreme Court ruled in the negative.  The shortened period of three (3) years prescribed under B.P. Blg. 700 is not applicable to petitioner.  B.P. Blg. 700 specifically states that the shortened period of three years shall apply to assessments and collections of internal revenue beginning taxable year 1984.  The deficiency income tax under consideration is for taxable year 1979.  Thus, the period of assessment is still five (5) years, under the old law.  The income tax return was filed in April 1980.  Hence, the July 16, 1984 tax assessment was issued within the prescribed period of five (5) years, from the last day of filing the return, or from the date the returns is filed, whichever comes later. Neither is there prescription for the prescription of criminal action by the BIR on June 8, 1989. Petitioner was charged with failure to pay deficiency income tax after repeated demands by the taxing authority. In Lim, Sr. v. Court of Appeals, we stated that by its nature the violation could only be committed after service of notice and demand for payment of the deficiency taxes upon the taxpayer. Hence, it cannot be said that the offense has been committed as early as 1980, upon filing of the income tax return. This is so because prior to the finality of the assessment, the taxpayer has not committed any violation for nonpayment of the tax. The offense was committed only after the finality of the assessment coupled with taxpayer's willful refusal to pay the taxes within the allotted period. In this case, when the notice of assessment was issued on July 16, 1984, the taxpayer still had thirty (30) days from receipt thereof to protest or question the assessment. Otherwise, the assessment would become final and unappealable.  As he did not protest, the assessment became final and unappealable on August 16, 1984. Consequently, when the complaint for preliminary investigation was filed with the Department of Justice on June 8, 1989, the criminal action was instituted within the five (5) year prescriptive period.

AZNAR V. CIR58 SCRA 519Matias H. Aznar who died on May 18, 1958, predecessor in interest of herein petitioner, during his lifetime as a resident of Cebu City, filed his income tax returns on the cash and disbursement basis.

B.I.R. Examiner Honorio Guerrero ascertain the taxpayer's true income and discovered that from 1946 to 1951, his net worth had increased every year, which increases in net worth was very much more than the income reported during 1946-1951

Based on the above findings of Examiner Guerrero, respondent Commissioner, in his letter dated November 28, 1952, notified the taxpayer (Matias H. Aznar) of the assessed tax delinquency.

CIR, thru the City Treasurer of Cebu, placed the properties of Matias H. Aznar under distraint and levy to secure payment of the deficiency income tax in question. Aznar filed his petition for review of the case with the Court of Tax Appeals..

Court of Tax Appeals - the lower court concluded that the tax liability of the late Matias H. Aznar for the year 1946 to 1951, inclusive should be P227,788.64 minus P96.87 representing the tax credit for 1945, or P227,691.77

ISSUE/HELD: Petitioner's contention is that the provision of law applicable to this case is the period of five years limitation upon assessment and collection from the filing of the returns provided for in See. 331 of the National Internal Revenue Code. He argues that since the 1946 income tax return could be presumed filed before March 1, 1947 and the notice of final and last assessment was received by the taxpayer on March 2, 1955, a period of about 8 years had elapsed and the five year period provided by law (Sec. 331 of the National Internal Revenue Code) had already expired. The same argument is advanced on the taxpayer's return for 1947, which was filed on March 1, 1948, and the return for 1948, which was filed on February 28, 1949.

Respondents, on the other hand, are of the firm belief that regarding the prescriptive period for assessment of tax returns, Section 332 of the National Internal Revenue Code should apply because, as in this case, "(a) In the case of a false or fraudulent return with intent to evade tax or of a failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within ten years after the discovery of the falsity, fraud or omission" (Sec. 332 (a) of the NIRC).

We believe that the proper and reasonable interpretation of said provision should be that in the three different cases of (1) false return, (2) fraudulent return with intent to evade tax, (3) failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within ten years after the discovery of the (1) falsity, (2) fraud, (3) omission.

Our stand that the law should be interpreted to mean a separation of the three different situations of false return, fraudulent return with intent to evade tax, and failure to file a return is strengthened immeasurably by the last portion of the provision which segregates the situations into three different classes, namely "falsity", "fraud" and "omission". That there is a difference between "false return" and "fraudulent return" cannot be denied. While the first merely implies deviation from the

Page | 38

truth, whether intentional or not, the second implies intentional or deceitful entry with intent to evade the taxes due.

The ordinary period of prescription of 5 years within which to assess tax liabilities under Sec. 331 of the NIRC should be applicable to normal circumstances, but whenever the government is placed at a disadvantage so as to prevent its lawful agents from proper assessment of tax liabilities due to false returns, fraudulent return intended to evade payment of tax or failure to file returns, the period of ten years provided for in Sec. 332 (a) NIRC, from the time of the discovery of the falsity, fraud or omission even seems to be inadequate and should be the one enforced. There being undoubtedly false tax returns in this case, We affirm the conclusion of the respondent Court of Tax Appeals that Sec. 332 (a) of the NIRC should apply and that the period of ten years within which to assess petitioner's tax liability had not expired at the time said assessment was made.

The lower court's conclusion regarding the existence of fraudulent intent to evade payment of taxes was based merely on a presumption and not on evidence establishing a willful filing of false and fraudulent returns so as to warrant the imposition of the fraud penalty. The fraud contemplated by law is actual and not constructive. It must be intentional fraud, consisting of deception willfully and deliberately done or resorted to in order to induce another to give up some legal right. Negligence, whether slight or gross, is not equivalent to the fraud with intent to evade the tax contemplated by the law. It must amount to intentional wrong-doing with the sole object of avoiding the tax. It necessarily follows that a mere mistake cannot be considered as fraudulent intent, and if both petitioner and respondent Commissioner of Internal Revenue committed mistakes in making entries in the returns and in the assessment, respectively, under the inventory method of determining tax liability, it would be unfair to treat the mistakes of the petitioner as tainted with fraud and those of the respondent as made in good faith.

REPUBLIC V. LIM DE YU10 SCRA 738 (1964)FACTS: Respondent Lim de Yu filed her yearly income tax returns from 1948 through 1953. BIR assed the taxes due thereon and respondent paid them accordingly

1. On July 17, 1956, BIR assessed respondent deficiency income tax for the years 1945 to 1953.

2. Lim de Yu protested the assessment and requested a reinvestigation.

3. On August 30, 1956, respondent signed a “waiver” of the statute of limitations under NIRC as a condition to the reinvestigation requested.

4. Thereafter, on July 18, 1958, BIR issued respondent income tax notices for the year 1948 to 1953 amounting to P35,379.63. The last assessment included the basic deficiency income tax and 50% surcharge

5. Petitioner claims that the lower court erred in ruling that (1) the deficiency income taxes due from Lim for the years 1049, 1949 and 1956 were not assessed on tine; and (2) in dismissing the case, CIR’s right to collect had already prescribed. Petitioner maintains that since the respondent filed false or fraudulent returns (the annual net income reported in the returns were much less than what was computed by BIR), under Sec 332(a) NIRC, BIR had 10 years from the date of the discovery of the fraud or falsity, i.e. May 25, 1955, to assess the taxes or file a collection suit.

ISSUE: WON CIR’s right to collect based on the assessment had already prescribed

HELD: As to the years 1948 to 1950, it had already prescribed.

Fraud must not only be alleged in the complaint, it should also be established. It appears that BIR was not sure as to the amounts of respondent’s net income since it arrived at different computations on 3 different occasions. Fraud not having been proven, the period of limitation for assessment was five years from the filing of the return (Sec 331). The right to assess or collected for the years 1948 to 1950 had already prescribed when BIR issued the deficiency tax assessment on July 17, 1956.The tax years 1948 to 1950 cannot be deemed included in the “waiver of the statute of limitations under the NIRC” executed by the respondent on August 30, 1956. The 5-year period assessment, counted from the date the return is filed, may be extended upon the agreement of the CIR and the taxpayer, but such agreement must be made before the expiration of the original period.

However, the waiver validly covers the tax years 1951 and 1952, since the 5-year period had not yet elapsed when the said waiver was executed. With respect to the tax year 1953, the waiver was not necessary because the assessment was within the original 5-year period provided by law (July 18, 1958).

Respondent’s theory that collection could be made only up to the end of the period of extension stated in the waiver (December 31, 1958) is without merit. Assessment and collection are different. Thus, although under the waiver Lim consented to the “assessment and collection” if not made later than December 31, 1958, such

Page | 39

expiration must be deemed to refer only to the extension of the assessment period. Insofar as collection is concerned, the period does not apply because otherwise the effect of the waiver would be to shorten the legal period for that purpose. As such, BIR had within 5 years from 1958 within which to file his action, which was actually filed in 1959.

Hence, respondent is liable to pay the deficiency income taxes due for the years 1951, 1952 and 1953 plus 5% surcharge and 1% monthly interest until full satisfaction.

BASILAN ESTATES V. CIRThe reckoning point of prescription would be the date when the demand letter or notice of assessment is released, mailed or sent to the taxpayer that constitutes actual assessment (Basilan Estates Inc v. CIR, G.R. no L-22492)

ARCHES V. BELLOSILLOThe court relied upon Memorandum Order No. V-634 of the Revenue Commissioner, approved by the Finance Secretary, wherein the former's functions regarding the administration and enforcement of revenue laws and regulations — powers broad enough to cover the approval of court actions as required in the Tax Code — were expressly delegated to the Regional Directors. This regulation, the issuance of which was authorized by statute, has the force and effect of law. To rely upon it, hence, would not be tantamount to whimsical and arbitrary exercise of judgment.The verification by the Regional Director of the complaint constitutes sufficient approval thereof already. It states, that said Director has caused the preparation of the complaint and that he has read the allegations thereof and they are true and correct to the best of his knowledge and belief.

Petitioner-appellant would also raise the question of prescription. Again, this is not jurisdictional. And, We have already ruled that the proper prescriptive period for bringing civil actions is five years from the date of the assessment. The three-year period urged by petitioner under Section 51 (d) refers only to the summary remedies of distraint and levy. Here, the action was commenced one year, ten months and three days after the assessments were made; hence, well within the period.

SY CHUICO V. COLLECTOR107 PHIL 428

DOCTRINE: For the purposes of amusement tax, the term "GROSS RECEIPTS" embraces all the receipts of the proprietor or operator of the business. Prescription is evidentiary in nature.

FACTS: Petitioner was the owner and operator of the La Loma Cabaret in QC from 1926 to January 1956. It charged its customers P0.30 per dance: P0.10 entrance fee and the remaining P0.20 to be paid to the "bailarinas" after the dance. The customers were informed of the fees by means of posters found in conspicuous places of the cabaret stating:

1. From January 1947 - August 1950, petitioner declared in his return only the following gross receipts: o receipts from gate admissions at P0.10 each, P59,160.40; o receipts from restaurant sales, P5,339.90; o receipts from bar sales, P47,459.10, o --- and paid thereon a 10 % amusement tax of

P11,197.40.

2. Petitioner failed to declare for tax purposes the P0.20 dance fee. Thus, respondent assessed against him a deficiency amusement tax, including50 % surcharge of P17,616.05. As well as P300.00 penalty in settlement of his violation of Section 260 of the Tax Code and the Bookkeeping Regulations.

3. Petitioner appealed to the CTA which affirmed the contention of respondent holding petitioner liable to pay P17,616.05 as deficiency amusement tax and surcharge for January 1947 - August, 1950; but, CTA rejected the P300.00 penalty alleging lack of power or authority to order the payment of such penalty. Hence, this petition.

4. Petitioner contends that because those dance fees go to the "bailarinas", they could not be considered as part of the gross receipts of the cabaret.

ISSUES: 1. Should the gross receipts include the dance fee charged by the

cabaret for its "bailarinas"? YES.2. Has the collection of the tax in question already prescribed? SC

considered that petitioner waived this defense.

HELD: Section 260 of the Tax Code applies. The owner or operator of a cabaret is required to pay an amusement tax equivalent to 10 % of the gross receipts of his business irrespective of whether or not any amount is charged or paid for admission. The law further adds that, for the purposes of amusement tax, the term "GROSS RECEIPTS" embraces all the receipts of the proprietor or operator of the business.

Page | 40

A cabaret is a place of amusement where customers go because of their desire to dance and where the "bailarinas" are the main attraction. Dancing is the main business and customers patronize the place attracted by the "bailarinas". As a matter of fact, "bailarinas" are the indispensable factor in the operation of the business. Whatever is paid to them should, therefore, be considered as paid on account of the business, and as such it should be considered as part of petitioner's gross receipts.

RE SURCHARGE: While there is no direct evidence to show actual fraud on the part of petitioner, the circumstances found by the CTA indicate that he has deliberately omitted in his book a sizeable portion of his taxable income which in substance amounts to fraud.

RE PRESCRIPTION: This was not raised as an issue in the petition for review filed in the CTA. It was not even touched by him in the memorandum he submitted. There is, therefore, enough reason to believe that petitioner has waived this defense and so it cannot now be entertained. To hold otherwise would be to deprive respondent of his right to show the contrary, this matter being evidentiary in nature.

CIR V. CA & CARNATION PHILS INCG.R. NO 115712 (2000)Sec. 318 (now Section 203) of the National Internal Revenue Code, the law then applicable reads:

Sec 318.Period of Limitations upon assessment and collection. — Except as provided in the succeeding section, internal revenue taxes shall be assessed within five years after the return was filed, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period. For the purpose of this section, a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day: Provided, That this limitation shall not apply to cases already investigated prior to the approval of this Code.  (emphasis ours)

Carnation filed its annual income tax and percentage tax returns for the fiscal year ending September 30, 1981 on January 15, 1982   and November 20, 1981,   respectively. In accordance with the above-quoted provision of law, private respondent's 1981 income and sales taxes could have been validly assessed only until January 14, 1987 and November 19, 1986, respectively.   However, Carnation's income and sales taxes were assessed only on July 29, 1987, beyond the five-year prescriptive period.  

Petitioner BIR Commissioner contends that the waivers signed by Carnation were valid although not signed by the BIR Commissioner because (a) when the BIR agents/examiners extended the period to audit and investigate Carnation's tax returns, the BIR gave its implied consent to such waivers; (b) the signature of the Commissioner is a mere formality and the lack of it does not vitiate binding effect of the waivers; and (c) that a waiver is not a contract but a unilateral act of renouncing ones right to avail of the defense of prescription and remains binding in accordance with the terms and conditions set forth in the waiver. 

Petitioner's submission is inaccurate. The same tax code is clear on the matter, to wit:

Sec. 319.Exceptions as to period of limitation of assessment and collection of taxes.—(a) . . .(b) Where before the expiration of the time prescribed in the preceding section for the assessment of the tax, both the Commissioner of Internal Revenue and the taxpayer have consented in writing to its assessment after such time, the tax may be assessed at anytime prior to the expiration of the period agreed upon. The period so agreed upon may be extended by subsequent agreement in writing made before the expiration of the period previously agreed upon.

Verily, we discern no basis for overruling the aforesaid conclusions arrived at by the Court of Appeals. In fact, there is every reason to leave undisturbed the said conclusions, having in mind the precept that all doubts as to the correctness of such conclusions will be resolved in favor of the Court of Appeals. 

What is more, the waivers in question reveal that they are in no wise unequivocal, and therefore necessitates for its binding effect the concurrence of the Commissioner of Internal Revenue. In fact, in his reply dated April 18, 1995, the Solicitor General, representing the Commissioner of Internal Revenue, admitted that subject waivers executed by Carnation were "for end in consideration of the approval by the Commissioner of Internal Revenue of its request for reinvestigation and/or reconsideration of its internal revenue case involving tax assessments for the fiscal year ended September 30, 1981 which were all pending at the time". On this basis neither implied consent can be presumed nor can it be contended that the waiver required under Sec. 319 of the Tax Code is one which is unilateral nor can it be said that concurrence to such an agreements a mere formality because it is the very

Page | 41

signatures of both the Commissioner of Internal Revenue and the taxpayer which give birth to such a valid agreement.

CIR V. BF GOODRICH PHILSG.R. NO 104171 (1999)FACTS: BF Goodrich was an American-owned and controlled corporation. As a condition for approving the manufacture of tires and other rubber products, the Central Bank required that it should develop a rubber plantation.

1. In compliance with this requirement, it purchased from the Philippine government, certain parcels of land and there developed a rubber plantation.

2. On August 2, 1973, the justice secretary rendered an opinion stating that, upon the expiration of the Parity Amendment, the ownership rights over public agricultural lands, including the right to dispose or sell their real estate, would be lost.

3. On the basis of this Opinion, private respondent sold to Siltown Realty, its Basilan landholding for P500,000. In accord with the terms of the sale, Siltown Realty, leased the land to private respondent for a period of 25 years, with an extension of another 25 years at the latter's option.

4. The books and accounts of private respondent were examined for the purpose of determining its tax liability for taxable year 1974. The examination resulted in the April 23, 1975 assessment of for deficiency income tax, which it duly paid.

5. Subsequently, the BIR also examined Siltown's business, income and tax liabilities. The BIR issued against private respondent on October 10, 1980, an assessment for deficiency in donor's tax in relation to the sale of its Basilan landholdings to Siltown. The BIR deemed the consideration for the sale insufficient.

6. On November 24, 1980, private respondent contested this assessment. On April 9, 1981, it received another assessment dated March 16, 1981, which increased the amount demanded for the alleged deficiency donor's tax, surcharge, interest and compromise penalty.

7. Private respondent appealed the correctness and the legality of these last two assessments.

ISSUE: WON petitioner's right to assess herein deficiency donor's tax has indeed prescribed as ruled by public respondent Court of Appeals.

HELD: The petition has no merit. Applying this provision of law to the facts at hand, it is clear that the October 16, 1980 and the March 1981 assessments were issued by the BIR beyond the five-year statute of limitations.

The subsequent assessment made by the respondent Commissioner on October 40, 1980, modified by that of March 16, 1981, violates the law. Involved in this petition is the income of the petitioner for the year 1974, the returns for which were required to be filed on or before April 15 of the succeeding year. The returns for the year 1974 were duly filed by the petitioner, and assessment of taxes due for such year — including that on the transfer of properties on June 21, 1974 — was made on April 13, 1975 and acknowledged by Letter of Confirmation terminating the examination on this subject.

For the purpose of safeguarding taxpayers from any unreasonable examination, investigation or assessment, our tax law provides a statute of limitations in the collection of taxes. Thus, the law on prescription, being a remedial measure, should be liberally construed in order to afford such protection.     As a corollary, the exceptions to the law on prescription should perforce be strictly construed.

Sec. 15 of the NIRC, on the other hand, provides that "[w]hen a report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by law or regulation, or when there is reason to believe that any such report is false, incomplete, or erroneous, the Commissioner of Internal Revenue shall assess the proper tax on the best evidence obtainable." Clearly, Section 15 does not provide an exception to the statute of limitations on the issuance of an assessment, by allowing the initial assessment to be made on the basis of the best evidence available. Having made its initial assessment in the manner prescribed, the commissioner could not have been authorized to issue, beyond the five-year prescriptive period, the second and the third assessments under consideration before us.

Nor is petitioner's claim of falsity sufficient to take the questioned assessments out of the ambit of the statute of limitations. It is possible that real property may be sold for less than adequate consideration for a bona fide business purpose; in such event, the sale remains an "arm's length" transaction.

Since the BIR failed to demonstrate clearly that private respondent had filed a fraudulent return with the intent to evade tax, or that it had failed to file a return at all, the period for assessments has obviously prescribed. Such instances of negligence or oversight on the part of the BIR cannot prejudice taxpayers, considering that the prescriptive period was precisely intended to give them peace of mind.

Based on the foregoing, a discussion of the validity and legality of the assailed assessments has become moot and unnecessary.

Page | 42

CIR V. PASCOR REALTYAn assessment contains not only a computation of tax liabilities, but also a demand for payment within a prescribed period. It also signals the time when penalties and interests begin to accrue against the taxpayer. To enable the taxpayer to determine his remedies thereon, due process requires that it must be served on and received by the taxpayer. Accordingly, an affidavit, which was executed by revenue officers stating the tax liabilities of a taxpayer and attached to a criminal complaint for tax evasion, cannot be deemed an assessment that can be questioned before the Court of Tax Appeals.

Private respondents maintain that the filing of a criminal complaint must be preceded by an assessment. This is incorrect, because Section 222 of the NIRC specifically states that in cases where a false or fraudulent return is submitted or in cases of failure to file a return such as this case, proceedings in court may be commenced without an assessment.

Furthermore, Section 205 mandates that the civil and criminal aspects of the case may be pursued simultaneously.

To reiterate, said Section 222 states that an assessment is not necessary before a criminal charge can be filed. This is the general rule. Private respondents failed to show that they are entitled to an exception. Moreover, the criminal charge need only be supported by a prima facie showing of failure to file a required return. This fact need not be proven by an assessment.

PROCEDURE: The issuance of an assessment must be distinguished from the filing of a complaint. Before an assessment is issued, there is, by practice, a pre-assessment notice sent to the taxpayer. The taxpayer is then given a chance to submit position papers and documents to prove that the assessment is unwarranted. If the commissioner is unsatisfied, an assessment signed by him or her is then sent to the taxpayer informing the latter specifically and clearly that an assessment has been made against him or her. In contrast, the criminal charge need not go through all these. The criminal charge is filed directly with the DOJ. Thereafter, the taxpayer is notified that a criminal case had been filed against him, not that the commissioner has issued an assessment. It must be stressed that a criminal complaint is instituted not to demand payment, but to penalize the taxpayer for violation of the Tax Code.

CIR V. SUYOC CONSOLIDATED MINING104 PHIL 819FACTS: Due to the chaos caused by World War II, Congress extended the filing of income tax returns for the year 1941. The

extension was up to December 31, 1945. However, Suyoc Consolidated Mining Company (SCMC) due to lost records requested the Commissioner of Internal Revenue (CIR) for further extension. The same was granted and SCMC was allowed to file its return until February 15, 1946. On February 12, 1946, SCMC filed a tentative income tax return. On November 28, 1946, SCMC filed a second final return. In February 1947, the CIR made an assessment notifying SCMC that is liable for P33k in taxes. The CIR gave SCMC 3 months to pay but the latter failed to make payment.

What followed was a series of negotiations as SCMC repeatedly asked for reconsideration and reinvestigation. Due to SCMC’s requests, the CIR had to revise the assessment several times. Eventually in July 1955, the CIR made a final assessment notice (FAN) notifying SCMC that it is liable for P24k in taxes. This time, SCMC questioned the validity of the assessment as it now alleged that it was issued beyond the 5 year prescriptive period.

(NOTE: Under the National Internal Revenue Code of 1997, prescriptive period for normal assessment is 3 years).

The issue reached CTA and ruled that the assessment issued  is void because in the first place, when SCMC requested for a  reinvestigation, there was no agreement as to the extension of the prescriptive period; that a mere request for reinvestigation does not automatically suspend the running of the prescriptive period. The CTA ruled that the FAN issued in 1955 was already way beyond the 5 year prescriptive period.

ISSUE: WON the CTA is correct

HELD: No. This is one case where a taxpayer is barred from setting up the defense of prescription even though there was not a written agreement. It is true that when a request for reinvestigation is made   by the taxpayer, the same does not   toll   the running of the prescriptive period unless there is a written agreement between the CIR and the taxpayer. However, in this case, due to the repeated requests of SCMC which were acted upon by the government for good reasons   the government was persuaded to delay the final assessment. The applicable principle is fundamental and unquestioned. ‘He who prevents a thing from being done may not avail himself of the nonperformance which he has himself occasioned, for the law says to him in effect “this is your own act, and therefore you are not damnified.” The tax could have been collected, but the government withheld action at the specific request of SCMC. SCMC is now estopped and should not be permitted to raise the defense of the Statute of Limitations.

Page | 43

PHILIPPINE JOURNALISTS INC V. CIRG.R. NO 162582 (2004)DOCTRINE: The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the Government and to its citizens; to the Government because tax officers would be obliged to act promptly in the making of assessment, and to citizens because after the lapse of the period of prescription citizens would have a feeling of security against unscrupulous tax agents who will always find an excuse to inspect the books of taxpayers, not to determine the latter’s real liability, but to take advantage of every opportunity to molest peaceful, law-abiding citizens. Without such a legal defense taxpayers would furthermore be under obligation to always keep their books and keep them open for inspection subject to harassment by unscrupulous tax agents. The law on prescription being a remedial measure should be interpreted in a way conducive to bringing about the beneficent purpose of affording protection to the taxpayer within the contemplation of the Commission which recommend the approval of the law. (Republic of the Phils. v. Ablaza)

A waiver of the statute of limitations under the NIRC, to a certain extent, is a derogation of the taxpayers’ right to security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed.

It is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due is extended to a date certain. The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally particularly where the language of the document is equivocal. For the purpose of safeguarding taxpayers from any unreasonable examination, investigation or assessment, our tax law provides a statute of limitations in the collection of taxes. Thus, the law on prescription, being a remedial measure, should be liberally construed in order to afford such protection. As a corollary, the exceptions to the law on prescription should perforce be strictly construed.

The waiver is not a unilateral act by the taxpayer or the BIR, but is a bilateral agreement between two parties to extend the period to a date certain. The conformity of the BIR must be made by either the Commissioner or the Revenue District Officer.

RE RMO NO.20-90 (RMO No. 20-90) VALID WAIVER OF THE STATUTE OF LIMITATIONS. CA held that the requirements and procedures laid down in the RMO are only formal in nature and did not invalidate the waiver that was signed even if the requirements were not strictly observed.

Sections 203 and 222 of NIRC provides for a statute of limitations on the assessment and collection of internal revenue taxes in order to

safeguard the interest of the taxpayer against unreasonable investigation. Unreasonable investigation contemplates cases where the period for assessment extends indefinitely because this deprives the taxpayer of the assurance that it will no longer be subjected to further investigation for taxes after the expiration of a reasonable period of time.

RMO No. 20-90 implements these provisions of the NIRC relating to the period of prescription for the assessment and collection of taxes. The Order supports petitioner’s argument that the RMO must be strictly followed. Any revenue official found not to have complied shall be administratively dealt with.

The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the Court of Appeals. RMO No. 20-90 explains the rationale of a waiver:

The phrase "but not after _________ 19___" should be filled up. This indicates the expiry date of the period agreed upon to assess/collect the tax after the regular 3-year period of prescription. The period agreed upon shall constitute the time within which to effect the assessment/collection of the tax in addition to the ordinary prescriptive period.

As found by the CTA, the Waiver of Statute of Limitations, signed by petitioner’s comptroller (September 22, 1997) is not valid and binding because it does not conform with the provisions of the RMO. It did not specify a definite agreed date between the BIR and petitioner, within which the former may assess and collect revenue taxes. Thus, petitioner’s waiver became unlimited in time, violating Section 222(b) of the NIRC.

The waiver is also defective from the government side because it was signed only by a revenue district officer, NOT the Commissioner, as mandated by the NIRC and RMO No. 20-90. The waiver is not a unilateral act by the taxpayer or the BIR, but is a bilateral agreement between two parties to extend the period to a date certain. The conformity of the BIR must be made by either the Commissioner or the Revenue District Officer.

This case involves taxes amounting to more than P1M and executed almost seven months before the expiration of the three-year prescription period. For this, the RMO requires the Commissioner of Internal Revenue to sign for the BIR.

Page | 44

Section 319 of NIRC is clear and explicit that the waiver of the 5-year prescriptive period must be in writing and signed by both the BIR Commissioner and the taxpayer. RE DEFECT IN THE DATE OF ACCEPTANCE. CA held that the date of the execution of the waiver on September 22, 1997 could reasonably be understood as the same date of acceptance by the BIR. Petitioner points out however that Revenue District Officer (Ms.Sarmiento) could not have accepted the waiver yet because she was not the Revenue District Officer on such date. Sarmiento’s transfer and assignment to RDO was only signed by the BIR Commissioner on January 16, 1998. CTA noted that it is unlikely as well that Ms. Sarmiento made the acceptance on January 16, 1998 because "Revenue Officials normally have to conduct first an inventory of their pending papers and property responsibilities."

RE PETITIONER WAS NOT FURNISHED A COPY OF THE WAIVER. Under RMO No. 20-90, the waiver must be executed in 3 copies with the 2 nd

copy for the taxpayer. CA did not think this was important because the petitioner need not have a copy of the document it knowingly executed. It stated that the reason copies are furnished is for a party to be notified of the existence of a document, event or proceeding. CA assumes that the waiver is a unilateral act of the taxpayer when it is in fact and in law an agreement between the taxpayer and the BIR. When the petitioner’s comptroller signed the waiver on September 22, 1997, it was not yet complete and final because the BIR had not assented. There is compliance with the provision only after the taxpayer received a copy of the waiver accepted by the BIR. The requirement to furnish the taxpayer with a copy of the waiver is not only to give notice of the existence of the document but of the acceptance by the BIR and the perfection of the agreement.

The waiver document is incomplete and defective and thus the 3-year rescriptive period was not tolled or extended and continued to run until April 17, 1998. Consequently, the Assessment issued on December 9, 1998 was invalid because it was issued beyond the (3) year period. Similarly, the Warrant of Distraint and/or Levy is also null and void for having been issued pursuant to an invalid assessment. WHEREFORE, the instant petition for review is GRANTED.

TAXATION : Three-year period within which to assess Internal Revenue Taxes, Waiver and Extension, Requisites for Validity.

B. PRESCRIPTION OF RIGHT TO COLLECT SEC 203 & SEC 222

PRESCRIPTIVE PERIOD FOR COLLECTION – The NIRC does not provide for a prescriptive period for the collection of taxes under Sec 203There are 2 views regarding the prescriptive period for collection

a. 1st VIEW: 5 years from FINAL ASSESSMENT. Under the old Code, the prescriptive period for both normal and abnormal assessment is 3 years. Under the new Code, the prescriptive period fro abnormal is 5 years, hence it can be concluded that the prescriptive period for normal is also 5 yers (Sababan, Taxation Law Review 2008 ed., p. 182)

b. 2nd VIEW: Within 3 years from the issuance of an assessment notice where the was a return filed. The 5-year period refers to an instance where there is an assessment issued on the basis of false or fraudulent return , the absence of a return [Sec 222(c) in relation to Sec 222(a)] or in the instance of an extended assessment under Sec 222(d). The interpretation should be in favor of the taxpayer, providing for a shorter period of 3 years from the issuance of an assessment, because the 5-year period places a “law-abiding” taxpayer in the same category as the one who is not “law-abiding” i.e., one who files a false or fraudulent return, who does not file a return etc (Domondon, Bar Reviewer in Taxation Vol 1, 2008 ed, p. 414-415)

TABLE OF PRESCRIPTIVE PERIODSNORMAL OR ORDINARY ASSESSMENT

ABNORMAL OR EXTRAORDINARY ASSESSMENT

COLLECTION WITHOUT ASSESSMENT

PRESCRIPTIVE PERIOD FOR ASSESSMENT3 years from the last day prescribed by law for the filing of the return, of if filed beyond the period prescribed by law, from the day the return was filed

10 years from discovery of non-filing of return or filing of false or fraudulent return

No prescriptive period for assessment when the Government opts to collect without assessment

PRESCRIPTIVE PERIOD FOR COLLECTION3 years from issuance of assessment unless there is fraud in which case it is 5 years, or a period agreed upon between the CIR and the taxpayer (which may be less than 7 years) in case of an

5 years from the date of Final Assessment

10 years from discovery of non-filing of the return or filing of fraudulent or false return

Page | 45

extended assessment agreed upon under Sec 222 (b)

C. SUSPENSION OF RUNNING OF PRESCRIPTION SEC. 223

SEC. 223. Suspension of Running of Statute of Limitations. - The running of the Statute of Limitations provided in Sections 203 and 222 on the making of assessment and the beginning of distraint or levy a proceeding in court for collection, in respect of any deficiency, shall be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for sixty (60) days thereafter; when the taxpayer requests for a reinvestigation which is granted by the Commissioner; when the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed or collected: Provided, that, if the taxpayer informs the Commissioner of any change in address, the running of the Statute of Limitations will not be suspended; when the warrant of distraint or levy is duly served upon the taxpayer, his authorized representative, or a member of his household with sufficient discretion, and no property could be located; and when the taxpayer is out of the Philippines.

GROUNDS FOR SUSPENSION OF THE RUNNING OF THE STATUTE OF LIMITATIONS (PRA PO)

1. When the CIR is PROHIBITED from making the assessment or beginning the distraint or levy or a proceeding in court AND for 60 days thereafter

NOTE: This may happen where there is a pending petition for review in the CTA from the decision on the protested assessment. The filing o such petition interrupts the running of the prescriptive period for collection.

But the filing of a criminal case against he taxpayer does not suspend the prescriptive period; such is entirely separate and distinct from the civil action (Dimaampao, Tax Principles and Remedies, 2002 ed)

2. When the taxpayer requests for a REINVESTIGATION which is granted by CIR

NOTES:

o The above Section is plainly worded in order to suspend the running of the prescriptive periods for assessment and collection, the request for reinvestigation must be granted by CIR. The act of requesting a reinvestigation alone does not suspend the period. The request should first be granted, in order to effect suspension. The burden of proof that the request for reinvestigation had been actually granted shall be on the CIR. Such grant may be expressed in its communications with the taxpayer or implied from the action of the CIR or his authorized representative in response to the request for reinvestigation (BPI v. CIR, G.R. no 174942, March 07, 2008)

o The only agreement that can suspend the running of the prescriptive period for collection of taxes is a WRITTEN agreement by the taxpayer and CIR before the expiration of the 5-year period extending the period of limitation (Mamalateo, Tax Reviewer)

REPUBLIC V. ACEBEDOG.R. NO L-20477 (1968)FACTS: This is a suit for collection of deficiency income tax for the year 1948 in the amount of P5,962.83.

1. The corresponding notice of assessment was issued on September 24, 1949.

2. The complaint was filed on December 27, 1961. 3. After the defendant filed his answer but before trial started he

moved to dismiss on the ground of prescription.4. The court received evidence on the motion, and on September

1, 1962 issued an order finding the same meritorious and hence dismissing the complaint.

5. Plaintiff appealed from the order of dismissal.

ISSUE: WON the right to collect has already prescribed.

HELD: YESThe statute of limitations which governs this case is Section 332, subsection (c), of the National Internal Revenue Code, which provides for an exemption as to the period of limitation that tax may be collected by distraint or levy or by a proceeding in court, but only if begun (1) within five years after the assessment of the tax, or (2) prior to the expiration of any period for collection agreed upon in writing by the Collector of Internal Revenue and the taxpayer before the expiration of such five-year period. The period so agreed upon may be extended by subsequent agreements in writing made before the expiration of the period previously agreed upon.

Page | 46

The present suit was not begun within five years after the assessment of the tax, which was in 1949.

Was it, however, begun prior to the expiration of any period for collection agreed upon in writing by the Commissioner of Internal Revenue and the defendant before the expiration of such five-year period? NO.

The only evidence of such written agreement, in the form of a "waiver of the statute of limitations" signed by the defendant, dated December 17, 1959. But this waiver was ineffective because it was executed beyond the original five-year limitation.

The plaintiff contends that the period of prescription was suspended by the defendant's various requests for reinvestigation or reconsideration of the tax assessment. The trial court rejected this contention, saying that a mere request for reinvestigation or reconsideration of an assessment does not have the effect of such suspension. The ruling is logical, otherwise there would be no point to the legal requirement that the extension of the original period be agreed upon in writing.

There are certain decisions where the taxpayer may be in estoppel to claim prescription as a defense even if he has not previously waived it in writing:

IN the case of CIR vs Consolidated Mining the SC ruled that when by his repeated requests or positive acts, the government has been for good reasons, persuaded to postpone collection.Likewise, when a taxpayer asks for a reinvestigation of the tax assessment issued to him and such reinvestigation is made, on the basis of which the Government makes another assessment, the five-year period with which an action for collection may be commenced should be counted from this last assessment. 

 In the case at bar, the defendant, after receiving the assessment notice of September 24, 1949, asked for a reinvestigation thereof on October 11, 1949. There is no evidence that this request was considered or acted upon. In fact, on October 23, 1950 the then Collector of Internal Revenue issued a warrant of distraint and levy for the full amount of the assessment at (Exh. D), but there was no follow up of this warrant. Consequently, the request for reinvestigation did not suspend the running of the period for filing an action for collection.

 The next communication of record is a letter signed for the defendant by one Troadio Concha and dated October 6, 1951, again requesting a

reinvestigation of his tax liability (Exh. B). Nothing came of this request either. 

Then on February 9, 1954, the defendant's lawyers wrote the Collector of Internal Revenue informing him that the books of their client were ready at their office for examination (Exh. C). The reply was dated more than a year later, or on October 4, 1955, when the Collector bestirred himself for the first time in connection with the reinvestigation sought, and required that the defendants specify his objections to the assessment and execute "the enclosed forms for waiver, of the statute of limitations." The last part of the letter was a warning that unless the waiver "was accomplished and submitted within 10 days the collection of the deficiency taxes would be enforced by means of the remedies provided for by law."

It will be noted that up to October 4, 1955 the delay in collection could not be attributed to the defendant at all. His requests in fact had been unheeded until then, and there was nothing to impede enforcement of the tax liability by any of the means provided by law.

By October 4, 1955, more than five years had elapsed since assessment in question was made, and hence prescription had already set in, making subsequent events in connection with the said assessment entirely immaterial. Even the written waiver of the statute signed by the defendant on December 17, 1959 could no longer revive the right of action, for under the law such waiver must be executed within the original five-year period within which suit could be commenced.

CIR V. WYETH SUACO LABORATORIES & CTA202 SCRA 125 (1991)Settled is the rule that the prescriptive period provided by law to make a collection by distraint or levy or by a proceeding in court is interrupted once a taxpayer requests for reinvestigation or reconsideration of the assessment, and starts to run again when said request is denied (CIR vs. Capitol Subdivision, Inc).

Partial payment would not prevent the government from suing the taxpayer. Because, by such act of payment, the government is not thereby "persuaded to postpone collection to make him feel that the demand was not unreasonable or that no harassment or injustice is meant." This is the underlying reason behind the rule that the prescriptive period is arrested by the taxpayer's request for re-examination or reinvestigation - even if he "has not previously waived it (prescription in writing)".

BPI (FEBTC) V. CIR

Page | 47

G.R. NO 174942 (2008)The statute of limitations on assessment and collection of national internal revenue taxes was shortened from 5 years to 3 years by Batas PambansaBlg. 700. Thus, the CIR has 3 years from the date of actual filing of the tax return to assess a national internal revenue tax or to commence court proceedings for the collection thereof without an assessment.

When it validly issues an assessment within the 3-year period, it has another 3 years within which to collect the tax due by distraint, levy, or court proceeding. The assessment of the tax is deemed made and the 3-year period for collection of the assessed tax begins to run on the date the assessment notice had been released, mailed or sent to the taxpayer.

As applied to the present case, the CIR had 3 years from the time he issued assessment notices to BPI on 7 April 1989 or until 6 April 1992 within which to collect the deficiency DST. However, it was only on 9 August 2002 that the CIR ordered BPI to pay the deficiency.

In order to determine whether the prescriptive period for collecting the tax deficiency was effectively tolled by BPI’s filing of the protest letters dated 20 April and 8 May 1989 as claimed by the CIR, Section 320 is plainly worded. In order to suspend the running of the prescriptive periods for assessment and collection, the request for reinvestigation must be granted by the CIR. The act of requesting a reinvestigation alone does not suspend the period. The request should first be granted, in order to effect suspension.

The Court went on to declare that the burden of proof that the request for reinvestigation had been actually granted shall be on the CIR. Such grant may be expressed in its communications with the taxpayer or implied from the action of the CIR or his authorized representative in response to the request for reinvestigation.

There is nothing in the records of this case which indicates, expressly or impliedly, that the CIR had granted the request for reinvestigation filed by BPI.

CIR V. PHIL. GLOBAL COMMUNICATIONReinvestigation tolls the running of the Statute of Limitations because it entails reception and evaluation of additional, which will take more time than the Reconsideration, which will be limited to the evidence already at hand (CIR v. Philippine Global Communications Inc, G.R. no 167146, October 31, 2006)

REMEDIES OF THE TAXPAYER

A. PROTESTING AN ASSESSMENT SEC. 228.

SEC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings: Provided, however, That a pre-assessment notice shall not be required in the following cases:

(a) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as appearing on the face of the return; or

(b) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent; or

(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year; or

(d) When the excise tax due on exciseable articles has not been paid; or

(e) When the article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons.

The taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void.

Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an assessment based on his findings.

Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations.

Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become final.

Page | 48

If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of one hundred eighty (180)-day period; otherwise, the decision shall become final, executory and demandable.

RR 12-99

SECTION 3. Due Process Requirement in the Issuance of a Deficiency Tax Assessment. —

3.1 Mode of procedures in the issuance of a deficiency tax assessment:

3.1.1 Notice for informal conference. — The Revenue Officer who audited the taxpayer's records shall, among others, state in his report whether or not the taxpayer agrees with his findings that the taxpayer is liable for deficiency tax or taxes. If the taxpayer is not amenable, based on the said Officer's submitted report of investigation, the taxpayer shall be informed, in writing, by the Revenue District Office or by the Special Investigation Division, as the case may be (in the case Revenue Regional Offices) or by the Chief of Division concerned (in the case of the BIR National Office) of the discrepancy or discrepancies in the taxpayer's payment of his internal revenue taxes, for the purpose of "Informal Conference," in order to afford the taxpayer with an opportunity to present his side of the case. If the taxpayer fails to respond within fifteen (15) days from date of receipt of the notice for informal conference, he shall be considered in default, in which case, the Revenue District Officer or the Chief of the Special Investigation Division of the Revenue Regional Office, or the Chief of Division in the National Office, as the case may be, shall endorse the case with the least possible delay to the Assessment Division of the Revenue Regional Office or to the Commissioner or his duly authorized representative, as the case may be, for appropriate review and issuance of a deficiency tax assessment, if warranted.

3.1.2 Preliminary Assessment Notice (PAN). — If after review and evaluation by the Assessment Division or by the Commissioner or his duly authorized representative, as the case may be, it is determined that there exists sufficient basis to assess the taxpayer for any deficiency tax or taxes, the said Office shall issue to the taxpayer, at least by registered mail, a Preliminary Assessment Notice (PAN) for the proposed assessment,

showing in detail, the facts and the law, rules and regulations, or jurisprudence on which the proposed assessment is based (see illustration in ANNEX A hereof). If the taxpayer fails to respond within fifteen (15) days from date of receipt of the PAN, he shall be considered in default, in which case, a formal letter of demand and assessment notice shall be caused to be issued by the said Office, calling for payment of the taxpayer's deficiency tax liability, inclusive of the applicable penalties.

3.1.3 Exceptions to Prior Notice of the Assessment. — The notice for informal conference and the preliminary assessment notice shall not be required in any of the following cases, in which case, issuance of the formal assessment notice for the payment of the taxpayer's deficiency tax liability shall be sufficient:

(i) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax appearing on the face of the tax return filed by the taxpayer; or

(ii) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent; or

(iii) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year; or

(iv) When the excise tax due on excisable articles has not been paid; or

(v) When an article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons.

3.1.4 Formal Letter of Demand and Assessment Notice. — The formal letter of demand and assessment notice shall be issued by the Commissioner or his duly authorized representative. The letter of demand calling for payment of the taxpayer's deficiency tax or taxes shall state the facts, the law, rules and regulations, or jurisprudence on which the assessment is based, otherwise, the formal letter of demand and assessment notice shall be void (see illustration in ANNEX B hereof). The same shall be sent to the taxpayer only by registered mail or by personal delivery. If sent by personal delivery, the taxpayer or his duly authorized representative shall acknowledge receipt thereof in the duplicate copy of the letter of demand, showing the following: (a) His name; (b) signature; (c) designation and authority to act for and in behalf of the taxpayer, if acknowledged received by a person other than the taxpayer himself; and (d) date of receipt thereof.

Page | 49

3.1.5 Disputed Assessment. — The taxpayer or his duly authorized representative may protest administratively against the aforesaid formal letter of demand and assessment notice within thirty (30) days from date of receipt thereof. If there are several issues involved in the formal letter of demand and assessment notice but the taxpayer only disputes or protests against the validity of some of the issues raised, the taxpayer shall be required to pay the deficiency tax or taxes attributable to the undisputed issues, in which case, a collection letter shall be issued to the taxpayer calling for payment of the said deficiency tax, inclusive of the applicable surcharge and/or interest. No action shall be taken on the taxpayer's disputed issues until the taxpayer has paid the deficiency tax or taxes attributable to the said undisputed issues. The prescriptive period for assessment or collection of the tax or taxes attributable to the disputed issues shall be suspended.

The taxpayer shall state the facts, the applicable law, rules and regulations, or jurisprudence on which his protest is based, otherwise, his protest shall be considered void and without force and effect. If there are several issues involved in the disputed assessment and the taxpayer fails to state the facts, the applicable law, rules and regulations, or jurisprudence in support of his protest against some of the several issues on which the assessment is based, the same shall be considered undisputed issue or issues, in which case, the taxpayer shall be required to pay the corresponding deficiency tax or taxes attributable thereto.

The taxpayer shall submit the required documents in support of his protest within sixty (60) days from date of filing of his letter of protest, otherwise, the assessment shall become final, executory and demandable. The phrase "submit the required documents" includes submission or presentation of the pertinent documents for scrutiny and evaluation by the Revenue Officer conducting the audit. The said Revenue Officer shall state this fact in his report of investigation.

If the taxpayer fails to file a valid protest against the formal letter of demand and assessment notice within thirty (30) days from date of receipt thereof, the assessment shall become final, executory and demandable.If the protest is denied, in whole or in part, by the Commissioner, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from date of receipt of the said decision, otherwise, the assessment shall become final, executory and demandable.

In general, if the protest is denied, in whole or in part, by the Commissioner or his duly authorized representative, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from date of receipt of the said decision, otherwise, the assessment shall become final, executory and demandable: Provided, however, that if the taxpayer elevates his protest to the Commissioner within thirty (30) days from date of receipt of the final decision of the Commissioner's duly authorized representative, the latter's decision shall not be considered final, executory and demandable, in which case, the protest shall be decided by the Commissioner.

If the Commissioner or his duly authorized representative fails to act on the taxpayer's protest within one hundred eighty (180) days from date of submission, by the taxpayer, of the required documents in support of his protest, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from the lapse of the said 180-day period, otherwise, the assessment shall become final, executory and demandable.

3.1.6 Administrative Decision on a Disputed Assessment. — The decision of the Commissioner or his duly authorized representative shall (a) state the facts, the applicable law, rules and regulations, or jurisprudence on which such decision is based, otherwise, the decision shall be void (see illustration in ANNEX C hereof), in which case, the same shall not be considered a decision on a disputed assessment; and (b) that the same is his final decision.

3.1.7 Constructive Service. — If the notice to the taxpayer herein required is served by registered mail, and no response is received from the taxpayer within the prescribed period from date of the posting thereof in the mail, the same shall be considered actually or constructively received by the taxpayer. If the same is personally served on the taxpayer or his duly authorized representative who, however, refused to acknowledge receipt thereof, the same shall be constructively served on the taxpayer. Constructive service thereof shall be considered effected by leaving the same in the premises of the taxpayer and this fact of constructive service is attested to, witnessed and signed by at least two (2) revenue officers other than the revenue officer who constructively served the same. The revenue officer who constructively served the same shall make a written report of this matter which shall form part of the docket of this case (see illustration in ANNEX D hereof).

Page | 50

1. WHAT CONSTITUTE A FINAL DECISION OF THE CIR ON A DISPUTED ASSESSMENT

CIR V. UNION SHIPPING CORP & CTAFACTS:

COMMISSIONER assessed against YEE Fong Hong Corp. and respondent Union shipping the total sun of 580K as deficiency income tax.

Respondent received by petitioner. Petitioner without ruling on the protest, issued a warrant of

Distraint and Levy. Respondent reiterated its request for reinvestigation of the

assessment and for the reconsideration of the summary collection thru the Warrant of Distraint and Levy.

Petitioner, again, without acting on the request for reinvestigation and reconsideration of the Warrant of Distraint and Levy, filed a collection suit.

13 days after the summons was received, respondent filed with CTA petition for review of the petitioner’s assessment of its deficiency income taxes.

Petitioner contends that: The period to appeal to the CTA commenced to run from receipt

of said Warrant so that when respondent sought redress from the Tax Court, petitioner’s decision has long become final and executor.

CTA: NOT TIME BARRED

ISSUE: WON the respondent’s appeal with the CTA was time-barred?

HELD: NO.

The Commissioner not having clearly signified his final action on the disputed assessment, legally the period to appeal has not commenced to run.

Thus, it was only when respondent received the summons the civil suit for collection of deficiency income that the period to appeal commenced to run.

The request for reinvestigation and reconsideration was in effect considered denied by the petitioner when the latter filed a civil suit for collection of deficiency income.

Thus, when respondent filed the appeal with CTA it consumed a total of only 13 days well within the 30-day period to appeal.

The commissioner opined that respondent being merely a husbanding agent is not liable for the payment of the income taxes due from the foreign ship owners loading cargoes in the Philippines.

Neither can respondent be liable for withholding tax since it is not in possession, custody or control of the funds received by and remitted to Yee Fong Hong.

DISPOSITION: DECISION OF CTA AFFIRMED

SURIGAO ELECTRIC V. CTA FACTS: Petitioner Surigao received a warrant of distraint and levy to enforce the collection of a deficiency franchise tax.

The petitioner asked for reconsideration of the assessment, admitting liability only for the 2% tax franchise tax in accordance with its legislative franchise and not a higher rate of 5% imposed by NLRC.

The controversy culminated in a revised assessment dated April 29, 1963 which was received by petitioner on May 8, 1963.

The petitioner then requested a recomputation of the revised assessment.

The Commissioner, however, denied the request for recomputation on June 28, 1963 which was received by the petitioner on July 16, 1963.

August 1, 1963 petitioner appealed to the CTA. The CTA dismissed the appeal on the ground that the appeal was filed beyond the 30-day period of appeal.

ISSUE: WON the petitioner’s appeal to the CTA was time-barred?

HELD: YES.The letter of demand dated April 29, 1963 unquestionably constitutes the final action taken by the Commissioner on the petitioner’s several requests for reconsideration and recomputation. In this letter, the Commissioner not only in effect demanded that the petitioner to pay but also gave a warning that in the event it failed to pay, the said Commissioner would be constrained to enforce the collection by means of the remedies provided by law.

The tenor of the letter, especially statement regarding the resort to legal remedies unmistakably indicates the final nature of the determination made by the Commissioner of the petitioner’s deficiency franchise tax liability.

Page | 51

The following sent by the Commissioner to taxpayers as embodying rulings appealable to the tax court:

(a) A letter which stated the result of the reinvestigation requested by the taxpayer and the consequent modification of the assessment;

(b) A letter which denied the request of the taxpayer for the reconsideration, cancellation, or withdrawal of the original assessment;

(c) A letter which contained a demand on the taxpayer fro the payment of the revised or reduced assessment; and

(d) A letter which notified the taxpayer of a revision of previous assessment.

The revised assessment dated April 29, 1963 being the final ruling reviewable by the tax court, the 30-day appeal period should be counted from May 8, 1963, the day the petitioner received a copy of the said letter.

The 30-day period to file his appeal is a jurisdictional requirement, and the failure of a taxpayer to lodge his appeal within the prescribed period bars his appeal and renders the questioned decision final and executor.

We deem it appropriate to state that the CIR should always indicate to the taxpayer in clear and unequivocal language whenever his action on an assessment questioned by a taxpayer constitutes his final determination on the disputed assessment. On the basis of this indicium indubitably showing that the Commissioner’s communicated action is his final decision on the contested assessment, the aggrieved taxpayer would then be able to take recourse to the tax court at the opportune time.

DISPOSITION: DECISION AFFIRMED

Teehankee, J. Separate Opinionsince petitioner’s request for recomputation of the revised assessment was but a pro forma and did not adduce new facts or arguments and that a taxpayer may not delay indefinitely a tax assessment by reiterating his original defenses over and over again, without substantial variation.

CIR V. ISABELA CULTURAL CORPFACTS: Commissioner had the preliminary finding that respondent incurred a total income tax deficiency.

Upon protest by respondent, the said preliminary assessment was reduced.

Feb. 23, 1990 respondent received from petitioner an assessment letter demanding payment of the amounts of deficiency income tax.

March 22, 1990 respondent requested a reconsideration of the subject assessment.

Feb. 9, 1995 respondent received from petitioner a Final Notice Before Seizure. In said letter, petitioner demanded payment of the subject assessment within 10 days from receipt thereof. Otherwise, failure on its part would constrain petitioner to collect the subject assessment through summary remedies.

Respondent considered said final notice of seizure as final decision. Hence, this petition for review.

CTA dismissed the petition. Respondent argued that the Final Notice Before Seizure

constitutes its decision on respondent’s request for reinvestigation, which the respondent may appeal to the CTA. The Notice should be deemed as petitioner’s last act, since failure to comply with it would lead to the distraint and levy of respondent’s properties.

CA reversed the decision of the CTA. Considered that the final notice before seizure had effectively denied petitioner’s request for a reconsideration of the commissioner’s assessment, which was appealable to the CTA.

PETITTIONER CONTENDS THAT the final notice was a mere reiteration of the delinquent taxpayer’s obligation to pay the taxes due. It was a mere demand that should not have been mistaken for a decision on a protested assessment.

ISSUES:WON final notice before constitutes the final decision of the CIR appealable to the CTA.

HELD: YES

Indisputably, respondent received an assessment letter dated February 9, 1990, stating that it had delinquent taxes due; and it subsequently filed its motion for reconsideration on March 23, 1990. In support of its request fro reconsideration, it sent to the CIR additional documents on April 18, 1990. The next communication respondent received was already the Final notice before seizure dated November 10, 1994.

Thus, the final notice before seizure should be considered as the commissioner’s decision disposing of the request for reconsideration. Its content and tenor supported the theory that it was the CIR’s final act regarding the request for reconsideration. The

Page | 52

very title indicated that it was a final notice prior to seizure of property. The letter itself clearly stated that respondent was being given “this LAST OPPORTUNITY” to pay, otherwise, its properties would be subjected to distraint and levy.

Furthermore, section 228 of the NILRC states that a delinquent taxpayer may nevertheless directly appeal a disputed assessment, if its request for reconsideration remains unacted upon 180 days after submission thereof. In this case, the said period of 180 days had already lapsed when respondent filed its request for reconsideration on March 23, 1990, without any action on the part of the CIR.

Lastly, jurisprudence dictates that a final demand letter for payment of delinquent taxes may be considered a decision on a disputed or protested assessment

OCEANIC WIRELESS NETWORK INC. V. CIR, CTA and CAFACTS:

Petitioner received from BIR deficiency tax assessment. Petitioner filed its protest against the tax assessments and

requested a reconsideration. January 24, 1991, acting in behalf of the BIR Commissioner, the

Chief of the BIR Accounts Receivable and Billing Division, reiterated the tax assessments while denying petitioner’s request for reinvestigation.

Said letter likewise requested petitioner to pay within 10 days from receipt thereof, otherwise warrants of distraint and levy shall be issued.

Upon petitioner’s failure to pay the subject tax assessments within the prescribed period, warrants of distraint and levy was issued on October 10, 1991.

November 8, 1991, petitioner filed a petition for review with the CTA.

CTA dismissed for filing it beyond the 30-day period to appeal reckoned from the time when the demand letter of January 24, 1991 was received by petitioner.

Petitioner filed a MR arguing that the demand letter of Jan. 24, 1990 cannot be considered as the final decision of the CIR on its protest because the same was signed by a mere subordinate and not by the Commissioner himself.

CA denied the petition.

ISSUE: WON a demand letter for tax deficiency assessments issued and signed by a subordinate officer who was acting in behalf of the CIR is deemed final and executory and subject to an appeal of the CTA.

HELD: YES.

A demand letter for payment of delinquent taxes may be considered a decision on a disputed or protested assessment. The determination on whether or not a demand letter is final is conditioned upon the language used or the tenor of the letter being sent to the taxpayer.

We laid down the rule that the CIR should always indicate to the taxpayer in clear and unequivocal language what constitutes his final determination of the disputed assessment. On the basis of his statement indubitably showing that the Commissioner’s communicated action is his final decision on the contested assessment, the aggrieved taxpayer would then be able to take recourse to the tax court at the opportune time. Without needless difficulty, the taxpayer would be able to determine when his right to appeal to the tax court accrues.

In this case, the letter of demand dated January 1991, unquestionably constitutes the final action taken by the BIR on petitioner’s request for reconsideration when it reiterated the tax deficiency assessments due from petitioner and requested its payment. Failure to do so would result in the issuance of a warrant of distraint and levy to enforce its collection without further notice. In addition, the letter contained a notation indicating that petitioner’s request for reconsideration had been denied for lack of supporting documents.

The demand letter received by petitioner signified a character of finality. Therefore, it was tantamount to a rejection of the request for reconsideration.

Regarding the matter as to whether said demand letter indeed attained finality despite the fact that it was issued and signed by the Chief of Accounts Receivable and Billing Division instead of the BIR Commissioner.

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

Page | 53

A request for reconsideration must be made within 30 days from the taxpayer’s receipt of the tax deficiency assessment, otherwise, the decision becomes final, unappealable and demandable and cannot be contested.Here, petitioner failed to avail of its right to bring the matter before the CTA within the reglementary period upon the receipt of the demand letter reiterating the assessed delinquent taxes and denying its request for reconsideration which constituted the final determination by the BIR on petitioner’s protest. Being a final disposition by said agency, the same would have been a proper subject for appeal to the CTA.

For the CTA to acquire jurisdiction, an assessment must first be disputed by the taxpayer and ruled upon by the CIR to warrant a decision from which a petition fro review may be taken to CTA.

Where an adverse ruling has been rendered by the CIR with reference to a disputed assessment or a claim for refund or credit, the taxpayer may appeal the same within 30 days after receipt thereof

2. RIGHT TO BE INFORMED IN WRITINGCIR V. ENRON SUBIC POWER CORP.FACTS:

ENRON filed its annual income tax return where he indicated a net loss.

Subsequently, the BIR through a preliminary 5-day letter, informed it of a proposed assessment of an alleged deficiency income tax. Enron disputed the proposed deficiency assessment in its first protest letter.

Enron then received from the CIR a formal assessment notice requiring it to pay the alleged deficiency income tax. Enron protested this deficiency tax assessment.

Due to the non-resolution of its protest within the 180-day period, Enron filed a petition for review in the CTA. It argued that the deficiency tax assessment disregarded the provisions of sec. 228 of the NIRC and RR 12-99 by not providing the legal and factual bases of the assessment.

CTA granted Enron’s petition and ordered the cancellation of its deficiency tax assessment reasoning that the assessment notice failed to comply with the requirements of a valid written notice under sec. 228 and RR 12-99.

CA affirmedCIR insists that an examination of the facts shows that Enron was properly apprised of its tax deficiency by informing it of the proposed tax deficiency tax assessment thru a preliminary 5-day letter and

furnished Enron a copy of the audit working paper allegedly showing in detail the legal and factual bases of the CIR argues that these steps sufficed to inform Enron of the laws and facts on which the deficiency tax assessments was based.

HELD:

A taxpayer must be informed in writing of the legal and factual bases of the tax assessment made against him.

In this case, the CIR merely issued a formal assessment and indicated therein the supposed tax, surcharge, interest and compromise penalty due thereon. The revenue officers of the CIR in the issuance of the Final Assessment Notice did not provide Enron with the written bases of the law and facts on which the subject assessment is based.

The CIR did not bother to explain how it arrived at such an assessment. CIR (Moreso) failed to mention the specific provision of the Tax Code or rules and regulations which were not complied with by Enron.

The advice of tax deficiency, given by the CIR to an employee of Enron, as well as the preliminary 5-day letter, were not valid substitutes for the mandatory notice in writing of the legal and factual bases of the assessment.

These steps were mere perfunctory discharges of the CIR’s duties in correctly assessing a taxpayer. The requirement for issuing a preliminary or final notice, as the case may be, informing a taxpayer of the existence of a deficiency tax assessment in markedly different from the requirement of what such notice must contain. Just because the CIR issued an advice, a preliminary letter during the pre-assessment stage and a final notice, in the order required by law, does not necessarily mean that Enron was informed of the law and facts on which the deficiency tax assessment was based.

In view of the absence of a fair opportunity for Enron to be informed of the legal and factual bases of the assessment against it, the assessment in question was void.This is in keeping with the constitutional principle that no person shall be deprived of property without due process.

Such collection should be made in accordance with law as any arbitrariness will negate the very reason for the Government itself.

Page | 54

B. RECOVERY OF TAX ERRONEOUSLY OR ILLEGALLY PAID

SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. - The Commissioner may –

(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction.

No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return filed showing an overpayment shall be considered as a written claim for credit or refund.

A Tax Credit Certificate validly issued under the provisions of this Code may be applied against any internal revenue tax, excluding withholding taxes, for which the taxpayer is directly liable. Any request for conversion into refund of unutilized tax credits may be allowed, subject to the provisions of Section 230 of this Code: Provided, That the original copy of the Tax Credit Certificate showing a creditable balance is surrendered to the appropriate revenue officer for verification and cancellation: Provided, further, That in no case shall a tax refund be given resulting from availment of incentives granted pursuant to special laws for which no actual payment was made.

The Commissioner shall submit to the Chairmen of the Committee on Ways and Means of both the Senate and House of Representatives, every six (6) months, a report on the exercise of his powers under this Section, stating therein the following facts and information, among others: names and addresses of taxpayers whose cases have been the subject of abatement or compromise; amount involved; amount compromised or abated; and reasons for the exercise of power: Provided, That the said report shall be presented to the Oversight Committee in Congress that shall be constituted to determine that said powers are reasonably exercised and that the government is not unduly deprived of revenues.

SEC. 229. Recovery of Tax Erroneously or Illegally Collected. - no suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, of any

sum alleged to have been excessively or in any manner wrongfully collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.

In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid.

1. FILING OF REFUND

CIR V. ACOSTAFACTS:

Respondent is an employee of Intel Manufacturing and for the period of Jan. 1996 – Dec. 1996, respondent was assigned in a foreign country.

During that period, Intel withheld the taxes due on respondent’s compensation income and remitted to the BIR.

In March 1997, respondent and her husband filed with the BIR their joint individual Income Tax Return for the year 1996.

Later, in June 1997, respondent filed an amended return and a Non-resident Citizen Income Tax Return.

October 1997, she filed another amended return indicating an overpayment.

Claiming that the income taxes withheld and paid by Intel and respondent resulted in an overpayment, respondent filed a petition for review with the CTA.

The CIR moved to dismiss the petition for failure of the respondent to file a mandatory written claim for refund before the CIR.

CTA dismissed respondent’s petition. It held that respondent failed to file a written claim for refund with the CIR, a condition precedent to the filing of a petition for review before the CTA.

CA reversed CTA ruling that respondent’s filing an amended return indicating an overpayment was sufficient compliance with the requirement of a written claim for refund.

Page | 55

Petitioner’s avers that an amended return showing an overpayment does not constitute the written claim for refund required under the old tax code. He claims that an actual written claim for refund is necessary before a suit for its recovery may proceed in any court.

Respondent contends that the filing of an amended return indicating overpayment constitutes a written claim for refund pursuant to the clear provision stated in the last sentence of sec. 204 (c) of the 1997 NILRC.

ISSUE:1. Does the amended return filed by respondent indicating

overpayment constitute the written claim for refund required by law?

2. Can the 1997 NLRC be applied retroactively?

HELD:

The applicable law on refund pertaining to the 1996 compensation income is the old tax code. The requirements under the old tax code for claims are as follows:

a) A written claim for refund or tax credit must be filed by the taxpayer with the Commissioner;

b) The claim for refund must be a categorical demand for reimbursement;

c) The claim for refund or tax credit must be filed, or the suit or proceeding therefore must be commenced in court within 2 years from the date of payment of the tax or penalty regardless of any supervening cause.

The law is clear. A claimant must first file a written claim for refund, categorically demanding recovery of overpaid taxes with the CIR, before resorting to an action in court – this obviously is intended, first, to afford the CIR an opportunity to correct the action of subordinate officers; and second, to notify the government that such taxes have been questioned, and the notice should then be borne in mind in estimating the revenue available for expenditure.

1. NO.

Entrenched in our jurisprudence is the principle that tax refunds are in the nature of tax exemptions which are construed strictissimi juris against the tax payer and liberally in favor of the government.

A tax refunds involve a return of revenue from the government, the claimant must show indubitably the specific provision of law from which her right arises; it cannot be allowed to exist upon a mere vague implication or inference nor can it be extended beyond the ordinary and reasonable intendment of the language actually used by the legislature in granting the refund.

We cannot agree that the amended return filed by respondent constitutes the written claim for refund required by the old tax code.

2. NO.

Tax laws are prospective in operation, unless the language of the statute clearly provides otherwise.

Note that the issue on the retroactivity of sec. 204 (c) of the 1997 NIRC arose because the last paragraph of sec. 204 (c) was not found in sec. 230 of the Old Code.

A party seeking an administrative remedy must not merely initiate the prescribed administrative procedure to obtain relief, but also pursue it to its appropriate conclusion before seeking judicial intervention in order to give the administrative agency an opportunity to decide the matter itself correctly and prevent unnecessary and premature resort to court action.

It could not escape notice that at the time respondent filed her amended return, the 1997 NIRC was not yet in effect. Hence, respondent had no reason at that time to think that the filing of an amended return would constitute the written claim fro refund required by applicable law.

We cannot agree with the CA finding that the nature of the instant case calls for the application of remedial laws. Revenue statutes are substantive laws and in no sense must their application be equated with that of remedial laws. Revenue laws are not intended to be liberally construed. Tax laws must be faithfully and strictly implemented.

2. ALTERNATIVE REMEDIES

DR. FELISA VDA DE SAN AGUSTIN V. CIRFACTS: Petitioner received a pre-assessment notice from the BIR showing a deficiency estate tax including surcharge, interest and penalties.

Page | 56

Within the 10-day period given in the pre-assessment notice, the executor filed a letter with the petitioner Commissioner expressing readiness to pay the basic deficiency estate tax (500k) as soon as the RTC approves withdrawal of that sum from the estate but requesting that the surcharge, interest, and other penalties be waived.

However, petitioner received from the commissioner Assessment Notice insisting payment of the tax due on or before 30 days upon receipt thereof.

The executor requested the reconsideration of the assessment and waiver of the surcharge.

The request for reconsideration was not acted upon and the executor received a letter stating that there is no legal justification for the waiver of the interests, surcharge and compromise penalty and requiring full payment of such charges within 10 days from receipt thereof.

The petitioner estate paid the amount said charges under protest.

A petition for review was filed by the executor with the CTA praying that the Commissioner’s decision be reversed and that a refund of the paid charges be ordered.

The Commissioner opposed the said petition, alleging that the CTA’s jurisdiction was not properly invoked inasmuch as no claim fro a tax refund of the deficiency tax collected was filed with the BIR before the petition was filed in violation of sec. 204 & 230 of NIRC. Moreover, there is no statutory basis for the refund of the deficiency surcharges, interests and penalties charged by the Commissioner upon the estate of the decedent.

CTA ordered the reimbursement.CA held that CTA did not acquire jurisdiction over the subject matter and that, accordingly, its decision was null and void.

ISSUE: WON the filing of a claim for refund is essential before the filing of the petition for review.

HELD:

The case has a striking resemblance to the controversy in Roman Catholic V. CIR. The petitioner in that case paid under protest certain amount by way of income tax, surcharge and interest and then filed a petition for review before the CTA.

Then CIR set up several defenses, one of which was that petitioner had failed to first file a written claim for refund of the amounts paid.

Convinced that the lack of a written claim for refund was fatal to petitioner’s recourse to it, the CTA dismissed the petition fro lack of jurisdiction.

On appeal to this court, the tax court’s ruling was reversed; the court held: “we agree with petitioner that sec. 7 of RA 1125, creating the CTA in providing fro appeals from – allows an appeal from a decision of the Collector in cases involving disputed assessments’ as distinguished from cases involving refunds of internal revenue taxes, fees or other charges, that the present action involves a disputed assessment; because from the time petitioner received assessment disallowing certain deductions claimed by him in his income tax returns, he already protested and refused to pay the same, questioning the correctness and legality of such assessments; and that the petitioner paid the disputed assessments under protest before filing his petition for review with the court a quo, only to forestall the sale of his properties that had been placed under distraint by the respondent Collector.

To hold that the taxpayer has now lost the right to appeal from the ruling on the disputed assessment but must prosecute his appeal under section 306 of the Tax Code, which requires a taxpayer to file a claim for refund of the taxes paid as a condition precedent to his right to appeal, would in effect require of him to go through a useless and needless ceremony that would only delay the disposition of the case, for the Collector (now Commissioner) would certainly disallow the claim for refund in the same way as he disallowed the protest against the assessment.

The law, should not be interpreted as to result in absurdities. The Court sees no cogent reason to abandon the above dictum and to require a useless formality that can serve the interest of neither the government nor the taxpayer. The tax court has aptly acted in taking cognizance of the taxpayer’s appeal to it.

3. COUNTING OF 2-YEAR PRESCRIPTIVE PERIOD TO CLAIM FOR REFUND

BPI V. CIR

FACTS: Prior to its merger with petitioner BPI, on July 1, 1985 FBTC

earned income consisting of rentals from its leased properties and interest from its treasury notes from Jan. 1 to Jan. 30, 1985.

FBTC remitted to CIR the creditable withholding taxes. FBTC however, suffered a net loss during the period in question. It also had an excess credit from the previous year.

Page | 57

Thus, upon its dissolution, FBTC had a refundable amount representing that year’s tax credit of 174K and the previous year’s excess credit of 2M.

BPI as successor in interest, claimed tax refund but CIR refunded only the tax credit of the previous year leaving a balance of 174K.

Petitioner filed a petition for review in the CTA seeking the refund of the said amount.

CTA denied its claim for refund on the ground that the claim had already prescribed. It ruled that the prescriptive period should be counted 30 days after the approval by the SEC of the plan of dissolution in view of sec. 78 of the NIRC. Where one corporation succeeds another both are separate entities and the income earned by the predecessor corporation before organization of its successor is not income to the successor. That FBTC after the end of its corporate life should have filed its income tax return within 30 days after the cessation of its business or 30 days after the approval of merger.

CA affirmed the decision of the CTA.ISSUE:WON petitioner’s claim is barred by prescription?When is the 2-year period of prescription started to run?

HELD:

In case of the dissolution of a corporation, the period of prescription should be reckoned from the date of filing of the return required by sec. 78 of the Tax Code. Accordingly, we hold that petitioner’s claim for refund is barred by prescription.

Generally speaking, it is the Final Adjustment Return, in which amounts of the gross receipts and deductions have been audited and adjusted, which is reflective of the results of the operations of a business enterprise. It is only when the return, covering the whole year, is filed that the taxpayer will be able to ascertain whether a tax is still due or a refund can be claimed based on the adjusted and audited figures. Hence, this Court has ruled that at the earliest, the two-year prescriptive period for claiming a refund commences to run on the date of filing of the adjusted final tax return.

Sec. 46 (a) applies only to instances in which the corporation remains subsisting and its business operations are continuing. As FBTC did not file its quarterly income tax returns for the year 1985, there was no need for it to file a Final adjustment Return because there was nothing for it to adjust or to audit.  After it ceased operations on June 30, 1985, its taxable year was

shortened to six months, from January 1, 1985 to June 30, 1985. The situation of FBTC is precisely what was contemplated under §78 of the Tax Code.  It thus became necessary for FBTC to file its income tax return within 30 days after approval by the SEC of its plan or resolution of dissolution. Indeed, it would be absurd for FBTC to wait until the fifteenth day of April, or almost 10 months after it ceased its operations, before filing its income tax return.

Petitioner contends that it is not feasible for the certified public accountants to complete their report and audited financial statements, which are required to be submitted together with the plan of dissolution to the SEC, within the period contemplated by §78. It maintains that, in turn, the SEC would not have sufficient time to process the papers considering that §78 also requires the submission of a tax clearance certificate before the SEC, can approve the plan of dissolution.

Petitioner could have asked for an extension of time to file its income tax return under §47 of the NIRC.

Any corporation contemplating dissolution must submit tax return on the income earned by it from the beginning of the year up to the date of its dissolution or retirement and pay the corresponding tax due upon demand by the Commissioner of Internal Revenue. Nothing in §78 of the Tax Code limited the return to be filed by the corporation concerned to a mere information return.

Considering that §78 of the Tax Code, in relation to §244 of Revenue Regulation No. 2, applies to FBTC, the two-year prescriptive period should be counted from July 30, 1985, i.e., 30 days after the approval by the SEC of its plan for dissolution. In accordance with §292 of the Tax Code, July 30, 1985 should be considered the date of payment by FBTC of the taxes withheld on the earned income. Consequently, the two-year period of prescription ended on July 30, 1987. As petitioner’s claim for tax refund before the Court of Tax Appeals was filed only on December 29, 1987, it is clear that the claim is barred by prescription.

CIR V. CA, CTA AND BPI AS LIQUIDATORFACTS: BPI acts as liquidator of Paramount corporation. April 2, 1986, Paramount filed its corporate annual income tax return and paid the BIR its quarterly income tax.

After deducting Paramount’s total quarterly income tax payments from its income tax, the return showed a refundable amount.

BPI filed a letter reiterating its claim for refund. And on the following day or on April 15, 1988, BPI filed the petition to toll

Page | 58

the running of the prescriptive period for filing a claim for refund of overpaid income taxes.

CTA ruled that the 2-year period of prescription to have commenced to run from April 15, 1986, the last day for filing the corporate income tax return, and, since the claim for refund was filed on April 14, 1988 and the action was brought on April 15, 1988, it held that prescription had not set in.CA affirmed the CTA’s decision.Petitioner contends that the two-year prescriptive period should be computed from April 2, 1984, when the final adjustment return was actually filed, because that is the time of payment of the tax, within the meaning of §230 of the NIRC.

ISSUE:WHETHER the 2-year period of prescription for filing a claim for refund is to be counted from the time the corporate income tax was filed or from the final adjustment return could still be filed without incurring any penalty

HELD: FROM THE FILING OF FINAL ADJUSTMENT RETURN.

It can be deduced from the foregoing that, in the contest of §230, which provides for a two-year period of prescription counted "from the date of payment of the tax" for actions for refund of corporate income tax, the two-year period should be computed from the time of actual filing of the Adjustment Return or Annual Income Tax Return. This is so because at that point, it can already be determined whether there has been an overpayment by the taxpayer. Moreover, under §49(a) of the NIRC, payment is made at the time the return is filed.

In the case at bar, Paramount filed its corporate annual income tax return on April 2, 1986. However, private respondent BPI, as liquidator of Paramount, filed a written claim for refund only on April 14, 1988 and a petition for refund only on April 15, 1988. Both claim and action for refund were thus barred by prescription.

GIBBS V. CIRFACTS: CIR issued against the petitioners deficiency income tax assessment notice with the demand that the said amount should be paid on or before March 15, 1956.

Allusion signing as attorney-in-fact acknowledged receipt of the above assessment.

In the same letter, Allison questioned the disallowance of the items which gave rise to the deficiency assessment and requested for a correction of it.

CIR denied said request and instead requested to pay the deficiency tax within 10 days from receipt of the order.

Having deemed the above reply as the final decision of the CIR, Allison wrote CIR and sent a check to cover the deficiency assessment and at the same time demanded the refund of the same.

Oct. 26, 1956 CIR denied the said refund. Said letter denying the refund was received by Allison on

November 14, 1956. Sept. 29, 2958, Allison wrote another letter to CIR reiterating its

demand for refund. CIR never replied to this letter. Oct. 1, 1958, the petitioners filed a petition for review and

refund of income tax.

CIR contends that petition for review praying for the credit of said amounts was filed beyond the 2-year prescriptive period, hence the court lost its jurisdiction.

CTA ruled in favor of the CIR.

PETITIONER CONTENDS THAT CTA erred in ruling that their petition for review was filed outside the 30-day period because there is neither evidence nor record that the petitioner received a copy of the letter denying their claim for refund and the aforesaid letter is not a denial of their claim for refund.

Petitioners also contends that the statute of limitation of two years prescribed in Section 306 of the NIRC does not start to run until respondent Commissioner has acted on the claim for refund or credit by the non-resident taxpayer and so notified the taxpayer because until then the withholding tax cannot be treated as a payment by the alien-resident taxpayer; until then it is a mere deposit held by respondent Commissioner for the account of the non-resident alien taxpayer.

HELD:

ALLISON, signing as attorney-in-fact, acknowledged fro petitioners receipt of the deficient income tax assessment; formally protested the same in writing, paid the assessment and likewise formally demanded in writing its refund.

Page | 59

Besides, in one of his letters to the CIR, he stated that if his demand for refund was not effected, he would collect from the said respondent certain charges including certain charges including attorney’s fees.

The foregoing circumstances show that Allison acted not merely as an agent or attorney-in-fact but as their legal counsel.

The receipt therefore by Allison of the CIR’s decision denying the claim fro refund was receipt of the same by the petitioners, and the 30-day prescriptive period fro the filing of a petition fro review should be computed from the date of such receipt.

Parenthetically, it may be observed, that in view of our finding that the respondent court had no jurisdiction over the petition for review because it was filed beyond the 30-day period, hence, there is no need for extensive discussion of the second issue, namely: Whether the withholding tax credits amount to payment for the purpose of determining the two-year period as provided for by Section 306 of the Internal Revenue Code.

A taxpayer, resident or non-resident, who contributes to the withholding tax system, does so not really to deposit an amount to the Commissioner of Internal Revenue, but, in truth, to perform and extinguish his tax obligation for the year concerned. In other words, he is paying his tax liabilities for that year. Consequently, a taxpayer whose income is withheld at the source will be deemed to have paid his tax liability when the same falls due at the end of the tax year. It is from this latter date then, or when the tax liability falls due, that the two-year prescriptive period under Section 306 of the Revenue Code starts to run with respect to payments effected through the withholding tax system. It is of no consequence whatever that a claim for refund or credit against the amount withheld at the source may have been presented and may have remained unresolved since the delay of the CIR rendering decision does not extend the peremptory period fixed by the statute.

GIBBS V. COLLECTORFACTS:

Petitioners protested the deficiency income tax assessment issued by CIR on the ground that said deficiency assessment was based on a disallowance of bad debts and losses claimed in their income tax return.

CIR rejected petitioners’ protest and reiterated his demand. Petitioners then sent a check to CIR as payment of said

deficiency assessment and at the same time demanding the immediate refund of the amount paid.

CIR denied the request for refund. Notice of said denial was received by petitioners on Nov. 14, 1956.

Sept. 27, 1957, petitioners filed a petition for review and refund. CIR filed a motion to dismiss on the ground that the petition

was filed beyond the 30-day period. CTA dismissed the petition for having filed it more than 10

months .

ISSUE:WON the petitioner’s appeal for review and refund from the decision of the CIR was filed with CTA within the statutory period?

HELD: NO

It is not disputed that petitioners received on November 14, 1956, notice of respondent Collector's decision denying their request for a refund of the deficiency assessment paid by them. Pursuant to the above-quoted provision of Section 11 of Republic Act 1125, they had 30 days from said date within which to file their appeal (petition for review and refund) with respondent court. However, they filed said appeal only on September 27, 1957, or more than ten (10) months thereafter, much beyond the aforementioned 30-day period within which to file the same. Consequently, respondent court had acquired no jurisdiction to entertain said appeal and the dismissal of the same was proper.

Any person adversely affected by a decision or ruling of the CIR, may file an appeal in the CTA within 30 days after the receipt of such decision or ruling. In this case, petitioner had filed their appeal beyond the 30-day period, the respondent CTA had acquired no jurisdiction to entertain said appeal, and the dismissal of the same was proper.

A taxpayer who has paid the tax, whether under protest or not, and who is claiming a refund of the same, must comply with the requirements of both sections, that is, he must file a claim for refund with the Collector of Internal Revenue within 2 years from the date of his payment of the tax, as required by said Section 306 of the National Internal Revenue Code, and appeal to the Court of Tax Appeals within 30 days from receipt of the Collector's decision or ruling denying his claim for refund, as required by said Section 11 of Republic Act No. 1125. If, however, the Collector takes time in deciding the claim, and the period of two years is about to end, the suit or proceeding must be started in the Court of Tax Appeals before the end of the two-year period without awaiting the decision of the Collector. This is so because of the positive requirement of Section 306 and the doctrine that delay of the Collector in rendering decision does not extend the peremptory period fixed by the statute.

Page | 60

In the case of a taxpayer who has not yet paid the tax and who is protesting the assessment made by the Collector of Internal Revenue, he must file his appeal with the Court of Tax Appeals within 30 days from his receipt of the Collector's assessment, as required by said Section 11 of Republic Act No. 1125. Otherwise, his failure to comply with said statutory requirement would bar his appeal and deprive the Court of Tax Appeals of its jurisdiction to entertain or determine the same.

Appellants contend that under the above-quoted provisions, only the Collector has the authority to deal in refund cases. This is fallacious. In the first place, the cited provisions refer to the authority of the Collector of Internal Revenue to compromise, or to credit or refund taxes erroneously or illegally received, that is, when the action, in a manner of speaking, is against the Government. In such case, the authority is vested exclusively in the Collector himself. The purpose is to assure that no improper compromise, credit, or refund is made to the prejudice of the Government. But in the case before us, the action taken by the Deputy Collector in his letter of October 26, 1956, was precisely to deny the request for refund and demand the payment of the deficiency tax from petitioners. Certainly, this is well within the authority of the Deputy Collector and is final and binding unless revoked by the Collector.

CIR AND PARCERO V. PRIMETOWN PROPERTY GROUPFACTS:

March 11, 1999, Yap applied for the refund or credit of income tax which the respondent paid.

He explained that the increase in the cost of labor and materials and difficulty in obtaining financing for projects and collecting receivables caused the real estate industry to slowdown.

According to yap, because respondent suffered losses, it was not liable for income taxes.

Nevertheless, respondent paid its quarterly income tax and remitted creditable withholding tax from real estate sales to the BIR. Therefore, respondent was entitled to tax refund or tax credit.

Revenue officer required respondent to submit additional documents to support its claim. Respondent complied but its claim was not acted upon. Thus, respondent filed a petition for review in the CTA.

CTA dismissed the petition as it was filed beyond the 2-year prescriptive period for filing a judicial claim for tax refund or tax credit.

CTA found that respondent filed its final adjusted return on April 14, 1998. Thus, its right to claim a refund or credit commenced on that date.

That the 2-year prescriptive period was equivalent to 730 days and because the year 2000 was a leap year, respondent’s petition, which was filed 731 days after respondent filed its final adjusted return, was filed beyond the reglementary period.

CA reversed the decision of the CTA. It ruled that civil code did not extinguish between a regular year and a leap year.

Petitioner contends that tax refunds being in the nature of an exemption should be strictly construed against claimants and that prescriptive period begins to run on the day claimants file their final adjusted returns. Hence the claim should have been filed on or before April 13, 2000 or within the 730 days, reckoned from the time respondent files its final adjusted return.

ISSUE: How should the two-year prescriptive period be computed?

HELD:

As already quoted, Article 13 of the Civil Code provides that when the law speaks of a year, it is understood to be equivalent to 365 days. In National Marketing Corporation v. Tecson, we ruled that a year is equivalent to 365 days regardless of whether it is a regular year or a leap year.

A calendar month is “a month designated in the calendar without regard to the number of days it may contain.”[28] It is the “period of time running from the beginning of a certain numbered day up to, but not including, the corresponding numbered day of the next month, and if there is not a sufficient number of days in the next month, then up to and including the last day of that month.”[29] To illustrate, one calendar month from December 31, 2007 will be from January 1, 2008 to January 31, 2008; one calendar month from January 31, 2008 will be from February 1, 2008 until February 29, 2008.

Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the Administrative Code of 1987 deal with the same subject matter — the computation of legal periods. Under the Civil Code, a year is equivalent to 365 days whether it be a regular year or a leap year. Under the Administrative Code of 1987, however, a year is composed of 12 calendar months. Needless to state, under the Administrative Code of 1987, the number of days is irrelevant.

Page | 61

There obviously exists a manifest incompatibility in the manner of computing legal periods under the Civil Code and the Administrative Code of 1987. For this reason, we hold that Section 31, Chapter VIII, Book I of the Administrative Code of 1987, being the more recent law, governs the computation of legal periods. Lex posteriori derogat priori.

ATLAS CONSOLIDATED V. CIRFACTS: Atlas Consolidated is a zero-rated VAT person for being an exporter of copper concentrates.

On January 1994, Atlas filed its VAT return for the fourth quarter of 1993, showing a total input tax and an excess VAT credit.

Then, on January 1996, Atlas filed for a tax refund or tax credit certificate with CIR. However, the CTA denied Atlas claim for refund due to Atlas’ failure to comply with the documentary requirements prescribed under Sec. 16 of RR No. 5-87, as amended by RR No. 3-88.

CTA denied Atlas’ MR stating that Atlas has failed to substantiate its claim that it has not applied its alleged excess in put taxes to any of its subsequent quarter’s output tax liability.

The CA affirmed CTA’s ruling.

ISSUE: What are the documents required to claim for VAT input refund?W/N Atlas is entitled to claim to a tax refund.

RULING:When claiming tax refund/credit, the VAT-registered taxpayer must be able to establish that it does not have refundable or creditable input VAT, and the same has not been applied against its output VAT liabilities – information which are supposed to be reflected in the taxpayer’s VAT returns.

Thus, an application for tax refund/credit must be accompanied by copies of the taxpayer’s VAT return/s for the taxable quarter/s concerned. The formal offer of evidence of Atlas failed to include photocopy of its export documents, as required. Without the export documents, the purchase invoice/receipts submitted by Atlas as proof of its input taxes cannot be verified as being directly attributable to the goods so exported.

Atlas claim for credit or refund of input taxes cannot be granted due to its failure to show convincingly that the same has not been applied to any of its output tax liability as provided under Sec.106(a) of the Tax Code. National Internal Revenue Code; value-added tax; claim for creditor refund of input value-added tax; documentary requirements. When claiming tax refund or credit, the value-added taxpayer must be able to establish that it does have refundable or creditable input value-added tax (VAT), and the same has not been applied against its output VAT liabilities-information which are supposed to be reflected in the taxpayer’s VAT returns.

Thus, an application for tax refund or credit must be accompanied by copies of the taxpayer’s VAT return or returns for taxable quarter or quarters concerned. Atlas Consolidated Mining and Development Corporation vs Commissioner of Internal Revenue, G.R. No. 159471, January 26, 2011. In the recent case of Mirant Pagbilao Corporation V. CIR (G.R. No. 172129, September 12, 2008) , the Supreme Court had ruled that the claim for refund of unutilized input VAT payments must be filed within two (2) years from the close of the taxable quarter when the relevant sales were made.

Said ruling, however, should not be made to apply to the present case but should be applied prospectively pursuant to and consistent with the numerous rulings of the Supreme Court, given that petitioner Kepco's claim involves unutilized input taxes for the3rd quarter of 2000. Hence, the prescriptive period applicable in the instant case would still be the period enunciated in the case of Atlas Consolidated Mining and Development Corporation V. CIR(G.R. Nos. 141104 & 148763, June 8, 2007), where it was held that the counting of the two-year prescriptive period is reckoned from the filing of the quarterly VAT returns. Kepco Ilijan Corporation v. Commissioner of Internal Revenue, C.T.A. E.B.Case No. 528 (C.T.A. Case No. 6550), October 14, 20

4. RELIANCE ON AN ADMINISTRATIVE ISSUANCE

PBCOM V. CIR, CTA & CAFACTS: Petitioner PBCom filed its first and second quarter income tax returns, reported profits, and paid income taxes amounting to P5.2M in 1985. However, at the end of the year PBCom suffered losses so that when it filed its Annual Income Tax Returns for the year-ended December 31,

Page | 62

1986, the petitioner likewise reported a net loss of P14.1 M, and thus declared no tax payable for the year. In 1988, the bank requested from CIR for a tax credit and tax refunds representing overpayment of taxes. Pending investigation of the respondent CIR, petitioner instituted a Petition for Review before the Court of Tax Appeals (CTA). CTA denied its petition for tax credit and refund for failing to file within the prescriptive period to which the petitioner belies arguing the Revenue Circular No.7-85 issued by the CIR itself states that claim for overpaid taxes are not covered by the two-year prescriptive period mandated under the Tax Code.

ISSUE: Is the contention of the petitioner correct? Is the revenue circular a valid exemption to the NIRC?

HELD: No. The rule states that the taxpayer may file a claim for refund or credit with the Commissioner of Internal Revenue, within two (2) years after payment of tax, before any suit in CTA is commenced. The two-year prescriptive period provided, should be computed from the time of filing the Adjustment Return and final payment of the tax for the year.

Basic is the principle that “taxes are the lifeblood of the nation.” Due process of law under the Constitution does not require judicial proceedings in tax cases. This must necessarily be so because it is upon taxation that the government chiefly relies to obtain the means to carry on its operations and it is of utmost importance that the modes adopted to enforce the collection of taxes levied should be summary and interfered with as little as possible.

From the same perspective, claims for refund or tax credit should be exercised within the time fixed by law because the BIR being an administrative body enforced to collect taxes, its functions should not be unduly delayed or hampered by incidental matters.

Any excess of the total quarterly payments over the actual income tax computed in the adjustment or final corporate income tax return, shall either (a) be refunded to the corporation, or (b) may be credited against the estimated quarterly income tax liabilities for the quarters of the succeeding taxable year.

The corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR form) its intention, whether to request for a refund or claim for an automatic tax credit for the succeeding taxable year. To ease the administration of tax collection, these remedies are in the alternative, and the choice of one precludes the other.

A memorandum-circular of a bureau head could not operate to vest a taxpayer with shield against judicial action. For there are no vested rights to speak of respecting a wrong construction of the law by the administrative officials and such wrong interpretation could not place the Government in estoppel to correct or overrule the same [Tan Guan V. Court of Tax Appeals, 19 SCRA 903 (1967)].

5. BASIS OF FILING REFUND: QUARTERLY OR FINAL RETURNS?

CITIBANK NA V. CAFACTS: From the pleadings and supporting papers on hand, it can be gathered that Citibank N.A. Philippine Branch (CITIBANK) is a foreign corporation doing business in the Philippines. In 1979 and 1980, its tenants withheld and paid to the Bureau of Internal Revenue the following taxes on rents due to Citibank, pursuant to Section 1(c) of the Expanded Withholding Tax Regulations (BIR Revenue Regulations No. 13-78, as amended) On April 15, 1980, Citibank filed its corporate income tax returns for the year ended December 31, 1979, showing a net loss of P74,854,916.00 and its tax credits totalled P6,257,780.00, even without including the amounts withheld on rental income under the Expanded Withholding Tax System, the same not having been utilized or applied for the reason that the year's operation resulted in a loss. The taxes thus withheld by the tenants from rentals paid to Citibank in 1979 were not included as tax credits although a rental income amounting to P7,796,811.00 was included in its income declared for the year ended December 31, 1979.

• For the year ended December 31, 1980, Citibank's corporate income tax returns, filed on April 15, 1981, showed a net loss of P77,071,790.00 for income tax purposes. Its available tax credit (refundable) at the end of 1980amounting to P11,532,855.00 was not utilized or applied. The said available tax credits did not include the amounts withheld by Citibank's tenants from rental payments in 1980 but the rental payments for that year were declared as part of its gross income included in its annual income tax returns.

ISSUEFirst Issue : Determination of the Illegality or Error in Assessment or Collection

Second Issue : Onus of Disputing a Claim for Refund • The appellate court ruled that it was not enough for petitioner to show its lack of income tax liability against which the five percent withholding tax could be credited. Petitioner should have also shown that the withholding tax was illegally or erroneously collected and remitted by the tenants. On the other hand, petitioner counters that Respondent

Page | 63

Court failed to grasp "two fundamental concepts in the present income tax system, namely: (1) the yearly computation of the corporate income tax and (2) the nature of the creditable withholding tax."

In the main, petitioner thus raises the following issues: (1) for creditable withholding tax to be refundable, when should the illegality or error in its assessment or collection be reckoned: at the time of withholding or at the end of the taxable year? (2) Where the income tax returns show that no income tax is payable to the government, is acreditable withholding tax, as contradistinguished from a final tax, refundable (or creditable) at the end of the taxable year?

RESOLUTIONThe assailed Decision is hereby REVERSED and the decision of the Court of Tax Appealsis REINSTATED. No costs.

CIR V. TMXThe claim for refund has prescribed. The counting of the two year prescriptive periodfor filing a claim for refund is counted not from the date when the quarterly income taxes were paid but on the date when the final adjustment return was filed.

CIR V. PHILAMLIFEFor VAT refunds, the counting of the two year prescriptive period is counted from the close of the taxable quarter.

6. GRANT OF REFUND DESPITE EXISTENCE OF TAX LIABILITY

CIR V. CA, CITYTRUST & CTACitytrust filed a claim for refund with BIR in the amount of P19,971,745.00 representing the alleged overpayment of income tax as computed in its final income tax return for the calendar year ending December 31, 1985. To interrupt the prescriptive period, Citytrust filed a petition with the Court of Tax Appeals, claiming the refund of its income tax overpayments for the years 1983, 1984 and 1985. The OSG in their answer contended that the claim of Citytrust from 1983 was not properly documented and that even if they are entitled for such claim the right to claim the same has prescribed with respect to income tax payments prior to August 28, 1984, pursuant to Sections 292 and 295 of the National Interna lRevenue Code of 1977, as amended, since the petition was filed only on August 28, 1986. The case was submitted for decision based solely on the pleadings and evidence submitted by herein private respondent Citytrust because the petitioner failed to present evidence due to the failure of Tax Credit/Refund Division of the BIR to transmit the records of the case, as well as the investigation report thereon, to the Solicitor General. The petitioner filed a motion to

suspend the proceedings but the same was denied. The case was decided and the Tax court ruled in ordering BIR to refund the overpaid tax for the year 1984 and 1985 only. Petitioner filed a motion for reconsideration contending that Citytrust has an outstanding tax liability amounting to P56M in 1984. Both parties filed a motion for reconsideration which was denied by the CA and the court affirmed the decision of CTA. Hence this petition.

Issue: Whether or not the state is bound to the mistakes committed by its agents

Ruling:It is a long and firmly settled rule of law that the Government is not bound by the errors committed by its agents. In the performance of its governmental functions, the State cannot be stopped by the neglect of its agent and officers. Although the Government may generally be estopped through the affirmative acts of public officers acting within their authority, their neglect or omission of public duties as exemplified in this case will not and should not produce that effect. Nowhere is the aforestated rule more true than in the field of taxation. It is axiomatic that the Government cannot and must not be estopped particularly in matters involving taxes.

Taxes are the lifeblood of the nation through which the government agencies continue to operate and with which the State effects its functions for the welfare of its constituents.

The errors of certain administrative officers should never be allowed to jeopardize the Government's financial position, especially in the case at bar where the amount involves millions of pesos the collection whereof, if justified, stands to be prejudiced just because of bureaucratic lethargy. Wherefore the Judgment of CA is hereby set aside and the case is remanded to CTA

7. WHO CAN CLAIM REFUND?

CIR V. PROCTER AND GAMBLEA "person liable for tax" has been held to be a "person subject to tax" and properly considered a "taxpayer." 4 The terms liable for tax" and "subject to tax" both connote legal obligation or duty to pay a tax. It is very difficult, indeed conceptually impossible, to consider a person who is statutorily made "liable for tax" as not "subject to tax." By any reasonable standard, such a person should be regarded as a party in interest, or as a person having sufficient legal interest, to bring a suit for refund of taxes he believes were illegally collected from him.

Page | 64

If, as pointed out in Philippine Guaranty, the withholding agent is also an agent of the beneficial owner of the dividends with respect to the filing of the necessary income tax return and with respect to actual payment of the tax to the government, such authority may reasonably be held to include the authority to file a claim for refund and to bring an action for recovery of such claim. This implied authority is especially warranted where, is in the instant case, the withholding agent is the wholly owned subsidiary of the parent-stockholder and therefore, at all times, under the effective control of such parent-stockholder. In the circumstances of this case, it seems particularly unreal to deny the implied authority of P&G-Phil. to claim a refund and to commence an action for such refund.

CIR V. WANDER PHILS.In any event, the submission of petitioner that Wander is but a withholding agent of the government and therefore cannot claim reimbursement of the alleged overpaid taxes, is untenable. It will be recalled, that said corporation is first and foremost a wholly owned subsidiary of Glaro. The fact that it became a withholding agent of the government which was not by choice but by compulsion under Section 53 (b) of the Tax Code, cannot by any stretch of the imagination be considered as an abdication of its responsibility to its mother company. Thus, this Court construing Section 53 (b) of the Internal Revenue Code held that "the obligation imposed thereunder upon the withholding agent is compulsory." It is a device to insure the collection by the Philippine Government of taxes on incomes, derived from sources in the Philippines, by aliens who are outside the taxing jurisdiction of this Court (Commissioner of Internal Revenue V. Malayan Insurance Co., Inc., 21 SCRA 944). In fact, Wander may be assessed for deficiency withholding tax at source, plus penalties consisting of surcharge and interest (Section 54, NLRC). Therefore, as the Philippine counterpart, Wander is the proper entity who should for the refund or credit of overpaid withholding tax on dividends paid or remitted by Glaro.

C. APPEAL TO CTA

1. WHEN TO ELEVATE ASSESSMENT TO CTA?

RCBC V. CIR

If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within (30) days from receipt of the said decision, or from the lapse of the

one hundred eighty (180)-day period; otherwise the decision shall become final, executory and demandable.

2. SUBMISSION OF RELEVANT DOCUMENTS

CIR V. FIRST EXPRESS PAWNSHOP

An assessment may be protested by filing a request for reconsideration or reinvestigation within 30 days from receipt of the assessment by the taxpayer. Within 60 days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become final.

The term “relevant supporting documents” should be understood as those documents necessary to support the legal basis in disputing a tax assessment as determined by the taxpayer. The BIR can only inform the taxpayer to submit additional documents. The BIR cannot demand what type of supporting documents should be submitted. Otherwise, a taxpayer will be at the mercy of the BIR, which may require the production of documents that a taxpayer cannot submit

After respondent submitted its letter-reply stating that it could not comply with the presentation of the proof of DST payment, no reply was received from petitioner. Section 228 states that if the protest is not acted upon within 180 days from submission of documents, the taxpayer adversely affected by the inaction may appeal to the CTA within 30 days from the lapse of the 180-day period. Respondent, having submitted its supporting documents on the same day the protest was filed, had until 31 July 2002 to wait for petitioner’s reply to its protest. On 28 August 2002 or within 30 days after the lapse of the 180-day period counted from the filing of the protest as the supporting documents were simultaneously filed, respondent filed a petition before the CTA. Respondent has complied with the requisites in disputing an assessment pursuant to Section 228 of the Tax Code. Hence, the tax assessment cannot be considered as final, executory and demandable.

Page | 65

CUSTOMS OUTLINE

TARIFF AND CUSTOMS CODE OF THE PHILIPPINES

1. POWERS AND JURISDICTION OF CUSTOMS

Section 601. Chief Officials of Bureau of Customs. — The Bureau of Customs shall have one chief and one assistant chief, to be known respectively at the Commissioner (hereinafter known as the "Commissioner") and Assistant Commissioner of Customs, who shall each receive an annual compensation in accordance with the rates prescribed by existing laws. The Assistant Commissioner of Customs shall be appointed by the proper department head.

Sec. 602. Functions of the Bureau. — The general duties, powers and jurisdiction of the bureau shall include:

a. The assessment and collection of the lawful revenues from imported articles and all other dues, fees, charges, fines and penalties accruing under the tariff and customs laws.

b. The prevention and suppression of smuggling and other frauds upon the customs.

c. The supervision and control over the entrance and clearance of vessels and aircraft engaged in foreign commerce.

d. The general supervision, control and regulation of vessels engaged in the carrying of passengers and freight or in towage in coastwise trade and in the bays and rivers of the Philippines.

e. The prohibition and suppression of unnecessary noises, such as explosion of gasoline engines, the excessive blowing of whistles or sirens, and other needless and disturbing sounds made by water craft in the ports of the Philippines or in parts of rivers included in such ports.

f. The exclusion, if the conditions of traffic should at any time so require, of vessels of more than one hundred and fifty tons from entering, berthing or mooring in the Pasig River.

g. The admeasurement, registration, documenting and licensing of vessels built or owned in the Philippines, the recording of sales, transfers and encumbrances of such vessels, and the performance of all the duties pertaining to marine registry.

h. The inspection of Philippine vessels, and supervision over the safety and sanitation of such vessels.

i. The enforcement of the lawful quarantine regulations for vessels entering Philippine ports.

j. The enforcement of the tariff and customs laws and all other laws, rules and regulations relating to the tariff and customs administration.

k. The licensing of marine officers who have qualified in the examination required by law to be carried on Philippine vessels, the determination of the qualifications of pilots, the regulation of this service, and the fixing of the fees which they may charge.

l. The supervision and control over the handling of foreign mails arriving in the Philippines, for the purpose of the collection of the lawful duty on dutiable articles thus imported and the prevention of smuggling through the medium of such mails.

Page | 66

Sec. 603. Territorial Jurisdiction. — For the due and effective exercise of the powers conferred by law and to the extent requisite therefor, said bureau shall have the right of supervision and police authority over all seas within the jurisdiction of the Philippines and over all coasts, ports, airports, harbors, bays, rivers and inland waters navigable from the sea.

When a vessel becomes subject to seizure by reason of an act done in Philippine waters in violation of the tariff and customs laws, a pursuit of such vessel begun within the jurisdictional waters may continue beyond the maritime zone, and the vessel may be seized on the high sea. Imported articles which may be subject to seizure for violation of the tariff and customs laws may be pursued in their transportation in the Philippines by land, water or air and such jurisdiction exerted over it at any place therein as may be necessary for the due enforcement of the law.

Sec. 604. Jurisdiction over Premises Used for Customs Purposes. — The Bureau of Customs shall, for customs purposes, have exclusive control, direction and management of custom-houses, warehouses, offices, wharves, and other premises in the respective ports of entry, in all cases without prejudice to the general police powers of the city or municipality wherein such premises are situated.

Sec. 605. Enforcement of Port Regulation of Bureau of Quarantine. — Customs officials and employees shall cooperate with the quarantine authorities in the enforcement of the port quarantine regulations promulgated by the Bureau of Quarantine and shall give effect to the same in so far as they are connected with matters of shipping and navigation.

Sec. 606. Power of the President to Subject Premises to Jurisdiction of Bureau of Customs. — When any public wharf, landing place, street or land, not previously under the jurisdiction of the Bureau of Customs, in any port of entry, is necessary or desirable for any proper customs purpose, the President of the Philippines may, by executive order, declare such premises to be under the jurisdiction of the Bureau of Customs, and thereafter the authority of such Bureau in respect thereto shall be fully effective. Sec. 607. Annual Report of Commissioner. — The annual report of the Commissioner shall, among other things, contain a compilation of the (a) volume and value of articles imported into the Philippines and the corresponding customs duties assessed and collected thereon itemized in accordance with the tariff classification provided in this Code and (b) volume and value of articles exported from the Philippines for the preceding year.

Sec. 608. Commissioner to Make Rules and Regulations. — The Commissioner shall, subject to the approval of the department head, make all rules and regulations necessary to enforce the provisions of this Code.

Sec. 2208. Right of Police Officer to Enter Inclosure. — For the more effective discharge of his official duties, any person exercising the powers herein conferred, may at anytime enter, pass through, or search any land or inclosure or any warehouse, store or other building, not being a dwelling house.

A warehouse, store or other building or inclosure used for the keeping of storage of articles does not become a dwelling house within the meaning hereof merely by reason of the fact that a person employed as watchman lives in the place, nor will the fact that his family stays there with him alter the case.

Sec. 2209. Search of Dwelling House. — A dwelling house may be entered and searched only upon warrant issued by a judge or justice of the peace, upon sworn application showing probable case and particularly describing the place to be searched and person or thing to be seized.

Sec. 2210. Right to Search Vessels or Aircrafts and Persons or Articles Conveyed Therein. — It shall be lawful for any official or person exercising police authority under the provisions of this Code to go abroad any vessel or aircraft within the limits of any collection to go aboard any vessel or aircraft within the limits of any collection district, and to inspect, search and examine said vessel or aircraft and any trunk, package, box or envelope on board, and to search any person on board the said vessel or aircraft and to this end to hail and stop such vessel or aircraft if under way, to use all necessary force to compel compliance; and if it shall appear that any breach or violation of the customs and tariff laws of the Philippines has been committed, whereby or in consequence of which such vessels or aircrafts, or the article, or any part thereof, on board of or imported by such vessel or aircraft, is liable to forfeiture, to make seizure of the same or any part thereof. The power of search hereinabove given shall extend to the removal of any false bottom, partition, bulkhead or other obstruction, so far as may be necessary to enable the officer to discover whether any dutiable or forfeitable articles may be concealed therein.

No proceeding herein shall give rise to any claim for the damage thereby caused to article or vessel or aircraft.

Page | 67

Sec. 2211. Right to Search Vehicles, Beasts and Persons. — It shall also be lawful for a person exercising authority as aforesaid to open and examine any box, trunk, envelope or other container, wherever found where he has reasonable cause to suspect the presence therein of dutiable or prohibited article or articles introduced into the Philippines contrary to law, and likewise to stop, search and examine any vehicle, beast or person reasonably suspected of holding or conveying such article as aforesaid.

Sec. 2212. Search of Persons Arriving From Foreign Countries. — All persons coming into the Philippines from foreign countries shall be liable to detention and search by the customs authorities under such regulations as may be prescribed relative thereto.

Female inspectors may be employed for the examination and search of persons of their own sex.

JAO V. CAISSUE: WON the RTC has jurisdiction over cases questioning the validity of seizure and forfeiture proceedings conducted by the Bureau of Customs

HELD: NO.

The RTC is devoid of any competence to pass upon the validity or regularity of seizure and forfeiture proceedings conducted by the Bureau of Customs and to enjoin or otherwise interfere with these proceedings .

The Collector of Customs sitting in seizure and forfeiture proceedings has exclusive jurisdiction to hear and determine all questions touching on the seizure and forfeiture of dutiable goods. The Regional Trial Courts are precluded from assuming cognizance over such matters even through petitions of certiorari, prohibition or mandamus.

It is likewise well-settled that the provisions of the Tariff and Customs Code and RA1125 "An Act Creating the Court of Tax Appeals," specify the proper for a and procedure for the ventilation of any legal objections or issues raised concerning these proceedings.

Actions of the Collector of Customs are appealable to the Commissioner of Customs, whose decision, in turn, is subject to the exclusive appellate jurisdiction of the Court of Tax Appeals and from there to the Court of Appeals.

ENRILE V. VINUYA

ISSUE: WON the court of first instance is vested with jurisdiction to entertain a complaint for replevin for the recovery of a Cadillac car, subject of a seizure and forfeiture proceeding in the Bureau of Customs

HELD NO.

The prevailing doctrine is that the exclusive jurisdiction in seizure and forfeiture cases vested in the Collector of Customs precludes a court of first instance from assuming cognizance over such a matter.

Section 2303 of the Tariff and Customs Code requires the Collector of Customs to give to the owner of the property sought to be forfeited written notice of the seizure and to give him the opportunity to be heard in his defense. This provision clearly indicates the intention of the law to confine in the Bureau of Customs the determination of all questions affecting the disposal of property proceeded against in a seizure and forfeiture case. The judicial recourse of the property owner is not in the Court of First Instance but in the Court of Tax Appeals, and only after exhausting administrative remedies in the Bureau of Customs."

PAPA V. MAGO"Petitioner Martin Alagao and his companion policemen had authority to effect the seizure without any search warrant issued by a component court. The Tariff and Customs Code does not require said warrant in the instant case. The Code authorizes persons having police authority under Section 2203 of the Tariff and Customs Code to enter, pass through or search any land, inclosure, warehouse, store or building, not being a dwelling house and also to inspect, search and examine any vessel or aircraft and any trunk, package, box or envelope or any person on board, or stop and search and examine any vehicle, beast or person suspected of holding or conveying any dutiable or prohibited article introduced into the Philippines contrary to law, without mentioning the need of a search warrant in said cases. But in the search of a dwelling house, the Code provides that said "dwelling house may be entered and searched only upon warrant issued by a judge or justice of the peace. It is our considered view, therefore, that except in the case of the search of a dwelling house, persons exercising police authority under the customs law may effect search and seizure without a search warrant in the enforcement of customs laws."

2. ADMINISTRATIVE PROCEEDINGS

Sec. 2301. Warrant for Detention of Property — Bond. — Upon making any seizure, the Collector shall issue a warrant for the detention of the property; and if the owner or importer desires to secure the release of the property for legitimate use, the Collector may surrender

Page | 68

it upon the filing of a sufficient bond, in an amount to be fixed by him, conditioned for the payment of the appraised value of the article and/or any fine, expenses and costs which may be adjudged in the case: Provided, That articles the importation of which is prohibited by law shall not be released under bond.

Sec. 2302. Report of Seizure To Commissioner and Auditor. — When a seizure is made for any cause, the Collector of the district wherein the seizure is effected shall immediately make report thereof to the Commissioner and to the Auditor General.

Sec. 2303. Notification to Owner or Importer. — The Collector shall give the owner or importer of the property or his agent a written notice of the seizure and shall give him an opportunity to be heard in reference to the delinquency which was the occasion of such seizure.

For the purpose of giving such notice and of all other proceedings in the matter of such seizure, the importer, consignee or person holding the bill of lading shall be deemed to be the "owner" of the article included in the bill.

For the same purpose, "agent" shall be deemed to include not only any agent in fact of the owner of the seized property but also any person having responsible possession of the property at the (missing) of the seizure, if the owner or his agent in fact is unknown or cannot be reached.

Sec. 2304. Notification to Unknown Owner. — Notice to an unknown owner shall be effected by posting a notice for fifteen days in the public corridor of the customhouse of the district in which the seizure was made, and, in the discretion of the Commissioner, by publication in a newspaper or by such other means as he shall consider desirable.

Sec. 2305. Description and Appraisal and Classification of Seized Property. — The Collector shall also cause a list and particular description of the property seized to be prepared and an appraisement or classification of the same at its wholesale value in the local market in the usual wholesale quantities to be made by at least two appraising officials, if there are such officials at or near the place of seizure; in the absence of such officials, then by two competent and disinterested citizens of the Philippines, to be selected by him for that purpose, residing at or near the place of seizure, which list and appraisement shall be properly attested to by such Collector and the persons making the appraisal.

Sec. 2306. Proceedings in Case of Property Belonging to Unknown Parties. — If, within fifteen days after the notification prescribed in section twenty-three hundred and four of this Code, no owner or agent can be found or appears before the Collector, the latter shall declare the property forfeited to the government to be sold at auction in accordance with law.

Sec. 2307. Settlement of Case by Payment of Fine or Redemption of Forfeited Property. — If, in any seizure case, the owner or agent shall, while the case is yet before the Collector of the district of seizure, pay to such Collector the fine imposed by him or, in case of forfeiture, shall pay the appraised value of the property, or, if after appeal of the case, he shall pay to the Commissioner the amount of the fine as finally determined by him, or, in case of forfeiture, shall pay the appraised value of the property, such property shall be forthwith surrendered, and all liability which may or might attach to the property by virtue of the offense which was the occasion of the seizure and all liability which might have been incurred under any bond given by the owner or agent in respect to such property shall thereupon be deemed to be discharged.

Redemption of forfeited property shall not be allowed in any case where the importation is absolutely prohibited or where the surrender of the property to the person offering to redeem the same would be contrary to law.

Sec. 2308. Protest and Payment upon Protest in Civil Matters. — When a ruling or decision of the Collector is made whereby liability for duties, fees, or other money charge is determined, except the fixing of fines in seizure cases, the party adversely affected may protest such ruling or decision by presenting to the Collector at the time when payment of the amount claimed to be due the Government is made, or within thirty days thereafter, a written protest setting forth his objections to the ruling or decision in question, together with the reasons therefor. No protest shall be considered unless payment of the amount due after final liquidation has first been made.

Sec. 2309. Protest Exclusive Remedy in Protestable Case. — In all cases subject to protest, the interested party who desires to have the action of the Collector reviewed, shall make a protest, otherwise, the action of the Collector shall be final and conclusive against him, except as to matters correctible for manifest error in the manner prescribed in section one thousand seven hundred and seven hereof.

Sec. 2310. Form and Scope of Protest. — Every protest shall be filed in accordance with the prescribed rules and regulations promulgated under this section and shall point out the particular

Page | 69

decision or ruling of the Collector to which exception is taken or objection made, and shall indicate with reasonable precision the particular ground or grounds upon which the protesting party bases his claim for relief.

The scope of a protest shall be limited to the subject matter of a single adjustment or other independent transaction; but any number of issue may be raised in a protest with reference to the particular item or items constituting the subject matter of the protest.

"Single adjustment", as hereinabove used, refers to the entire content of one liquidation, including all duties, fees, surcharges or fines incident thereto.

Sec. 2311. Samples to be Furnished by Protesting Parties. — If the nature of the articles permit, importers filing protests involving questions of fact must, upon demand, supply the Collector with samples of the articles which are the subject matter of the protests. Such samples shall be verified by the custom official who made the classification against which the protest are filed.

Sec. 2312. Decision or Action by Collector in Protest and Seizure Cases. — When a protest in proper form is presented in a case where protest in required, the Collector shall reexamine the matter thus presented, and if the protest is sustained, in whole or in part, he shall enter the appropriate order, the entry reliquidated if necessary.

In seizure cases, the Collector, after a hearing, shall in writing make a declaration of forfeiture or fix the amount of the fine or take such other action as may be proper.

Sec. 2313. Review by Commissioner. — T he person aggrieved by the decision or action of the Collector in any matter presented upon protest or by his action in any case of seizure may, within fifteen days after notification in writing by the Collector of his action or decision, give written notice to the Collector of his desire to have the matter reviewed by the Commissioner. Thereupon the Collector shall forthwith transmit all the records of the proceedings to the Commissioner, who shall approve, modify or reverse the action or decision of the Collector and take such steps and make such orders as may be necessary to give effect to his decision.

Sec. 2314. Notice of Decision of Commissioner. — Notice of the decision of the Commissioner shall be given to the party by whom the case was brought before him for review, and in seizure cases such notice shall be effected by personal service if practicable.

Sec. 2315. Supervisory Authority of Commissioner And of Department Head in Certain Cases. — If in any case involving the assessment of duties the importer shall fail to protest the ruling of the Collector, and the Commissioner shall be of the opinion that the ruling was erroneous and unfavorable to the Government, the latter may order a reliquidation; and if the ruling of the Commissioner in any unprotested case should, in the opinion of the department head, be erroneous and unfavorable to the Government, the department head may require the Commissioner to order a reliquidation.

Except as in the preceding paragraph provided, the supervisory authority of the department head over the Bureau of Customs shall not extend to the administrative review of the ruling of the Commissioner in matters appealed to the Court of Tax Appeals.

3. WHEN IMPORTATION BEGINS AND TERMINATED

Section 1201. Articles to Be Imported Only Through Customhouse. — All articles imported into the Philippines, whether subject to duty or not, shall be entered through a customhouse at a port of entry.

Sec. 1202. When Importation Begins and Deemed Terminated. — Importation begins when the carrying vessel or aircraft enters the jurisdiction of the Philippines with intention to unlade therein. Importation is deemed terminated upon payment of the duties, taxes and other charges due upon the articles, or secured to be paid, at a port of entry and the legal permit for withdrawal shall have been granted, or in case said articles are free of duties, taxes and other charges, until they have legally left the jurisdiction of the customs.

Sec. 1210. Disposition of Imported Articles Remaining on Vessel After Time for Unlading. — Imported articles remaining on board any vessel after the expiration of the said period for discharge, and not reported for transshipment to another port, may be unladen by the customs authorities and stored at the vessel's expense.

Articles so stored may be claimed and entered at any time within fifteen days after discharge or such longer period not beyond thirty days as the Collector shall approve. If not entered it shall be sold at public auction at the next ensuing regular sale, though at any time prior to sale it may be entered for consumption or warehouse, and be withdrawn upon payment of duties, taxes and other charges, and expenses.

Page | 70

EFFECT OF FAILURE TO FILE ENTRY

ABANDONMENT OF IMPORTED ARTICLES

Sec. 1801. Abandonment, Kinds and Effect of— Abandonment is express when it is made direct to the Collector by the interested party in writing, and it is implied when, from the action or omission of the interested party, an intention to abandon can be clearly inferred. The failure of any interested party to file the import entry within fifteen days or any extension thereof from the discharge of the vessel or aircraft, shall be implied abandonment. An implied abandonment shall not be effective until the article is declared by the Collector to have been abandoned after notice thereof is given to the interested party as in seizure cases.

Any person who abandons an imported article renounces all his interests and property rights therein.

Sec. 1802. Abandonment of Imported Articles. — The owner or importer of any articles may, within ten days after filing of the import entry, abandon to the Government all or a part of the articles included in an invoice, and, thereupon, he shall be relieved from the payment of duties, taxes and all other charges and expenses due thereon: Provided, That the portion so abandoned is not less than ten per cent of the total invoice and is not less than one package, except in cases of articles imported for personal or family use. The article so abandoned shall be delivered by the owner or importer at such place within the port of arrival as the Collector shall designate, and upon his failure to so comply, the owner or importer shall be liable for all expenses that may be incurred in connection with the disposition of the articles.

Nothing in this section shall be construed as relieving such owner or importer from any criminal liability which may arise from any violation of law committed in connection with the importation of the abandoned article.

CHEVRON PHILIPPINES V. COMMISSIOER OF CUSTOMSwhether “entry” under Section 1301 in relation to Section 1801 of the TCC refers to the IED or the IEIRD? both

The filing of the Import Entry Declaration and Import Entry Internal Revenue Declaration has several important purposes: to ascertain the value of the imported articles, collect the correct and final amount of customs duties and avoid smuggling of goods into the country. Entry refers to both. They must be filed within 30 days.

4. ARTICLES SUBJECT TO DUTY

Section 101. Imported Articles Subject to Duty. — All articles, when imported from any foreign country into the Philippines, shall be subject to duty upon each importation, even though previously exported from the Philippines, except as otherwise specifically provided for in this Code or in other laws.

Sec. 1205. Importations by the Government. — Except as otherwise specifically provided, all importations by the government for its own use or that of its subordinate branches on instrumentalities, or corporations, agencies or instrumentalities owned or controlled by the government, shall be subject to the duties, taxes, fees and other charges provided for in this Code: Provided, however, That upon certification of the head of the department or political subdivision concerned, with the approval of the Auditor General, that the imported article is actually being used by the government or any of its political subdivision concerned, the amount of duty, tax, fee or charge shall be refunded to the government or the political subdivision which paid it.

EFFECTIVITY DATE OF RATE OF DUTY

Sec. 205. Effective Date of Rates of Import Duty. — Imported articles shall be subject to the rate or rates of import duty existing at the time of entry, or withdrawal from warehouse in the Philippines, for consumption.

On and after the day when this Code shall go into effect all articles previously imported, for which no entry has been made, and all articles previously entered without payment of duty and under bond for warehousing, transportation, or any other purpose, for which no permit of delivery to the importer or his agent has been issued, shall be subject to the rates of duty imposed by this Code and to no other duty, upon the entry, or withdrawal thereof from warehouse, for consumption.

On articles abandoned or forfeited to, or seized by, the government, and then sold at public auction, the rate of duty and the tariff in force on the date of the auction shall apply: Provided, That duty based on the weight, volume and quantity of articles shall be levied and collected on the weight, volume and quantity at the time of their entry into the warehouse or the date of abandonment, forfeiture and/or seizure.

TYPES OF DUTIES

Page | 71

kinds of tariffs or customs duties

1. Regular tariff or customs duties - these are taxes imposed or assessed upon merchandise from, or exported to, a foreign country for the purpose of raising revenues.

2. Special tariffs or custom duties - these are additional import duties imposed on specific kinds of imported articles under certain conditions. They are imposed for the protection of consumers and manufacturers, as well as Philippine products from undue competition posed by foreign made products, specifically:

a. Safeguard dutiesb. Dumping dutiesc. Countervailing dutiesd. Marking dutiese. Retaliatory duties

a. SAFEGUARD DUTIES

Safeguard measures are defined as “emergency" actions with respect to increased imports of particular products, where such imports have caused or threaten to cause serious injury to the importing Member's domestic industry.

It is a measure provided by the State to protect domestic industries and producers from increased imports which cause or threaten to cause serious injury to those domestic industries and producers.

Authorized person to impose safeguard measures1. Secretary of Agriculture – If the article in question is an agricultural product;2. Secretary of Trade and Industry – If the article is non-agricultural product.

The factual findings of the Tariff Commission on the existence or non-existence of conditions warranting the imposition of general safeguard measures binding upon the DTI Secretary

The positive final determination by the Tariff Commission operates as an indispensable requisite to the imposition of the safeguard measure. Congress in enacting the SMA and prescribing the roles to be played therein by the Tariff Commission and the DTI Secretary did not envision that the President, or his/her alter ego, could exercise supervisory powers over the Tariff Commission- the Tariff Commission does not fall under the administrative supervision of the DTI.

B. DUMPING DUTIESSec. 301. Dumping Duty. —

a. Whenever the Secretary of Finance (hereinafter called the Secretary") has reason to believe, from invoices or other papers or from information made available to him by any government agency or interested party, that a specific kind or class of foreign article, whether dutiable or duty-free, is being sold or is likely to be sold for exportation to, or in, the Philippines, at a price less than its fair value, as hereinafter defined, the importation or sale of which might injure, or prevent the establishment of, or is likely to injure an industry in the Philippines, he shall so advise the Tariff Commission>

b. The Commission, upon receipt of such advice from the Secretary, shall conduct an investigation to —

1. Verify if the kind or class of articles in question is being sold or is likely to be sold for exportation to, or in, the Philippines at a price less than its fair value;

2. Determine if , as a result thereof, an industry in the Philippines is being injured or is likely to be injured or is prevented from being established by reason of the importation or sale of such kind or class of article into the Philippines; and

3. Ascertain the difference, if any, between the purchase price or, in the absence thereof, the exporter's sales price, and the fair value of the article. The Commission shall submit its findings to the Secretary within one month after receipt of the aforesaid advice.

c. The Secretary shall, within fifteen days from the report of the Commission, decide whether the article in question is being imported in violation of this section and shall give due notice of such finding and shall direct the Commissioner of Customs to cause the dumping duty, to be levied, collected and paid, as prescribed in this section, in addition to any other duties, taxes and charges imposed by law on such article.

d. The "dumping duty" as provided for in subsection "e" hereof shall be equal to the difference between the purchase price or, in the absence thereof, the exporter's sales price, and the fair value of the article.

e. For the purpose of this section —

Page | 72

1. The "fair value" of an article shall be its foreign market value, or, in the absence of such value, its cost of production.

2. The "purchase price" of an imported article shall be the price at which such article has been purchased or agreed to be purchased, prior to the time of exportation, by the person by whom or for whose account the article is imported, plus, when not included in such price —

(a) The cost of all containers and coverings and all other costs, charges and expenses incident to placing the article in condition, packed ready for shipment to the Philippines;

(b) The amount of any export tax paid in the country of exportation on the exportation of the article to the Philippines;

(c) The amount of any import duties imposed by the country of exportation which have been rebated, or which have not been collected, by reason of the exportation of the article to the Philippines; and

(d) The amount of any taxes imposed in the country of exportation upon the manufacturer, producer or seller, in respect to the manufacture, production or sale of the article, which have been rebated, or which have not been collected, be reason of the exportation of the article of the Philippines.

Any additional costs, charges and expenses incident to bringing the article from the place of shipment in the country of exportation to the place of delivery in the Philippines and Philippine customs duties imposed thereon shall not be included.

3. The "exporter's sale price" of an imported article shall be the price at which such article is sold or agreed to be sold in the Philippines, before or after the time of exportation, by or for the account of the exporter, including —

(a) The cost of all containers and coverings and all other costs, charges and expenses incident to placing the article in condition, packed ready for shipment to the Philippines;

(b) The amount of any import duties imposed by the country of exportation which have been rebated, or which have not been collected, by reason of the exportation of the article to the Philippines; and

(c) The amount of any taxes imposed in the country of exportation upon the manufacturer, producer or seller in respect to the manufacture, production or sale of the

article, which have been rebated, or which have not been collected, by reason of its exportation to the Philippines. The following amount, if included, shall be deducted —

(1) The amount of costs, charges and expenses, and Philippine customs duties, incident to bringing the article from the place of shipment in the country of exportation to the place of delivery in the Philippines;

(2) The amount of commissions, if any, for selling in the Philippines the particular article under consideration;

(3) An amount equal to the expenses, if any, generally incurred by or for the account of the exporter in the Philippines in selling identical or substantially identical article; and

(4) The amount of any export tax paid in the country of exportation on the exportation of the article to the Philippines.

4. The "foreign market value" of an imported article shall be the price, at the time of exportation of such article to the Philippines, at which such or similar article is sold or freely offered for sale to all purchasers in the principal markets of the country from which exported, in the usual wholesale quantities and in the ordinary course of trade for home consumption (or, if not sold or offered for sale for home consumption, then for exportation to countries other than the Philippines), including the cost of all containers and coverings and all other costs, charges and expenses incident to placing the article in condition packed ready for shipment to the Philippines, except that in the case of articles purchased or agreed to be purchased by the person by whom or for whose account the article is imported, prior to the time of exportation, the foreign market value shall be ascertained as of the date of such purchase or agreement to purchase. In the ascertainment of foreign market value for the purpose of this section, no pretended sale or offer for sale, and no sale or offer for sale intended to establish a fictitious market, shall be taken into account.

5. The "cost of production" of an imported article shall be the sum of —

(a) The cost of materials of, and of fabrication, manipulation or other process employed in manufacturing or producing, identical or substantially identical article, at a time preceding the date of shipment of the particular article under consideration which would ordinarily permit the manufacture or production of the particular article under consideration in the usual course of business;

Page | 73

(b) The usual general expenses not less than 10 per cent of such cost, in the case of identical or substantially identical articles; (c) The cost of all containers and coverings, and all other costs, charges and expenses incident to placing the particular article under consideration in condition, packed ready for shipment to the Philippines; and (d) An addition for profit not less than 8 per cent of the sum of the amounts determined under subparagraphs (a) and (b) hereof, equal to the profit which is originally added, in the case of articles of the same general character as the particular article under consideration, by manufacturers or producers in the country of manufacture or production who are engaged in the same general trade as the manufacturer or producer of the particular article under consideration.

f. For the purposes of this section the "exporter" of an imported article shall be the person by whom or for whose account the article is imported into the Philippines —

1. If such person is the agent or principal of the exporter, manufacturer or producer; or

2. If such person owns or controls, directly or indirectly, through stock ownership or control or otherwise, any interest in the business of the exporter, manufacturer or producer; or

3. If the exporter, manufacturer or producer owns or controls, directly or indirectly, through stock ownership or control or otherwise, any interest in any business conducted by such persons; or

4. If any person or persons, jointly or severally, directly or indirectly, through stock ownership or control or otherwise, own or control in the aggregate 20 per cent or more of the voting power or control in the business carried on by the person by whom or for whose account the article is imported into the Philippines, and also 20 per cent or more of such power or control in the business of the exporter, manufacturer or producer.

g. Pending investigation and final decision of the case, the article in question, and articles of the same specific kind or class subsequently imported under similar circumstances, shall be released to the owner, importer, consignee or agent upon the giving of a bond in an amount equal to the double the estimated value thereof. Articles which may have been delivered under the provision of section fifteen hundred and three of this Code prior to the institution of the investigation provided in this section shall, pending final decision, be ordered returned to the custody of the collectors of customs unless released under bond in accordance with this section.

h. Any aggrieved party may only appeal the amount of dumping duty that is levied and collected by the Commissioner of

Customs to the Court of Tax Appeals in the same manner and within the same period provided for by law in the case of appeals from decisions of the Commissioner of Customs.

i. (1) The article, if it has not been previously released under bond as

provided in subsection "g" hereof, shall be released after payment by the party concerned of the corresponding dumping duty in addition to any other duties, taxes and charges, if any, or re-exported by the owner, importer, consignee or agent, at his option and expense, upon the filing of a bond in an amount equal to double the estimated value of the article, conditioned upon the presentation of a landing certificate issued by a consular officer of the Philippines at the country of destination; or

(2) If the article has been previously released under bond , as provided in subsection "g" hereof, the party concerned shall be required to pay the corresponding dumping done in addition to any other duties, taxes and charges, if any.

j. Any investigation to be conducted by the Commission under this section shall include a hearing or hearings where the owner, importer, consignee or agent of the imported article, the local producers of a like article, other parties directly affected, and such other parties as in the judgment of the Commission are entitled to appear, shall be given an opportunity to be heard and to present evidence bearing on the subject matter.

k. It shall be the duty of collectors of customs at all ports of entry to levy and collect the dumping duty in accordance with subsection "d" hereof on the specific kind or class of article as to which the Secretary has made a decision of dumping.

It shall also be their duty to bring to the attention of the Secretary, thru the Commissioner of Customs, any case coming within their notice which may, in their opinion, require action as provided in this section.

l. The Secretary shall promulgate all rules and regulations necessary to carry out the provisions of this section.

f. COUNTERVAILING DUTIES

Sec. 302. Countervailing Duty. — a. On articles dutiable under this Code, upon the production, manufacture or export of which any bounty, subsidy or subvention is directly or indirectly granted in the country of origin and/or exportation, and the importation of which has been determined by the Secretary, after investigation and report of the

Page | 74

Commission, as likely to materially injure an established industry, or prevent or considerably retard the establishment of an industry in the Philippines, there shall be levied a countervailing duty equal to the ascertained or estimated amount of such bounty, subsidy or subvention: Provided, That the exception of any exported article from a duty or tax imposed on like articles when destined for consumption in the country of origin and/or exportation or the refunding of such duty or tax, shall not be deemed to constitute a grant of a bounty, subsidy or subvention within the meaning of this section; however, should an article be allowed drawback by the country of origin and/or exportation, only the ascertained or estimated excess of the amount of the drawback over the total amount of the duties and/or internal taxes, if any, shall constitute a bounty, subsidy or subvention.

b. The Commission, on its own motion or upon application of any interested party, when in its judgment there is good and sufficient reason therefor, shall ascertain, determine or estimate the net amount of such bounty, subsidy or subvention and shall transmit to the Secretary the amounts so ascertained, determined or estimated, if any. Wherever it is ascertained that the conditions which necessitated the imposition of the countervailing duty have ceased to exist, and the Commission shall so certify to the Secretary, the latter shall take the necessary steps to suspend or discontinue the imposition of such duty.

c. The Secretary shall make all rules and regulations necessary to carry out the provisions of this section.

g. Marking dutiesSec. 303. Marking of Imported Articles and Containers. —

a. Marking of Articles. — Except as hereinafter provided, every article of foreign origin (or its container, as provided in subsection "b" hereof) imported into the Philippines shall be marked in any official language of the Philippines and in a conspicuous place as legibly, indelibly and permanently as the nature of the article (or container) will permit in such manner as to indicate to an ultimate purchaser in the Philippines the name of the country of origin of the article. The Commissioner of Customs shall, with the approval of the department head, issue rules and regulations to —

(1) Determine the character of words and phrases or abbreviations thereof which shall be acceptable as indicating the country of origin and prescribe any reasonable method of marking, whether by printing, stenciling, stamping, branding, labeling or by any other reasonable method, and a conspicuous place on the article or container where the marking shall appear;

(2) Require the addition of any other words or symbols which may be appropriate to prevent deception or mistake as to the origin of the article or as to the origin of any other article with which such imported article is usually combined subsequent to importation but before delivery to an ultimate purchaser; and

(3) Authorize the exception of any article from the requirements of marking if —

(a) Such article is incapable of being marked; (b) Such article cannot be marked prior to shipment to the

Philippines without injury; (c) Such article cannot be marked prior to shipment to the

Philippines, except at an expense economically prohibitive of its importation;

(d) The marking of a container of such article will reasonably indicate the origin of such article;

(e) Such article is a crude substance; (f) Such article is imported for use by the importer and not

intended for sale in its imported or any other form; (g) Such article is to be processed in the Philippines by the importer

or for his account otherwise than for the purpose of concealing the origin of such article and in such manner that any mark contemplated by this section would necessarily be obliterated, destroyed or permanently concealed;

(h) An ultimate purchaser, by reason of the character of such article or by reason of the circumstance of its importation, must necessarily know the country of origin of such article even though it is not marked to indicate its origin;

(i) Such article was produced more than twenty years prior to its importation into the Philippines; or

(j) Such article cannot be marked after importation except at an expense which is economically prohibitive, and the failure to mark the article before importation was not due to any purpose of the importer, producer, seller or shipper to avoid compliance with this section.

b. Marking of Containers. — Whenever an article is excepted under subdivision (3) of subsection "a" of this section from the requirements of marking, the immediate container, if any, of such article, or such other container or containers of such article as may be prescribed by the Commissioner of Customs with the approval of the department head, shall be marked in such manner as to indicate to an ultimate purchaser in the Philippines the name of the country of origin of such article in any official language of the Philippines, subject to all provisions of this section, including the same exceptions as are applicable to articles under subdivision (3) of subsection "a".

Page | 75

c. Marking Duty for Failure to Mark. — If at the time of importation any article (or its container, as provided in subsection "b" hereof), is not marked in accordance with the requirements of this section, there shall be levied, collected and paid upon such article a marking duty of 5 per cent ad valorem, which shall be deemed to have accrued at the time of importation, except when such article is exported or destroyed under customs supervision and prior to the final liquidation of the corresponding entry.

d. Delivery Withheld until Marked. — No imported article held in customs custody for inspection, examination or appraisement shall be delivered until such articles and/or their containers, whether released or not from customs custody, shall have been marked in accordance with the requirements of this section and until the amount of duty estimated to be payable under subsection "c" of this section shall have been deposited. Nothing in this section shall be construed as excepting any article or its container from the particular requirements of marking provided for in any provisions of law.

e. The failure or refusal of the owner or importer to mark the articles as herein required within a period of thirty days after due notice shall constitute as an act of abandonment of said articles and their disposition shall be governed by the provisions of this Code relative to abandonment of imported articles.

h. Retaliatory dutiesSec. 304. Discrimination by Foreign Countries. —

a. The President, when he finds that the public interest will be served thereby, shall by proclamation specify and declare new or additional duties in an amount not exceeding 50 per cent of the existing rates as hereinafter provided upon articles wholly or in part the growth or product of, or imported in a vessel of, any foreign country whenever he shall find as a fact that such country —

(1) Imposes, directly or indirectly, upon the disposition in, or transportation in transit through or re-exportation from such country of any article wholly or in part the growth or product of the Philippines any unreasonable charge, exaction, regulation or limitation which is not equally enforced upon the like articles of every foreign country; or

(2) Discriminates in fact against the commerce of the Philippines, directly or indirectly, by law or administrative regulation or practice, by or in respect to any customs, tonnage, or port duty, fee, charge, exaction, classification, regulation, condition, restriction or prohibition, in such manner as to place the commerce of the Philippines at a disadvantage compared with the commerce of any foreign country.

b. If at any time the President shall find it to be a fact that any foreign country has not only discriminated against the commerce of the Philippines, as aforesaid but has, after the issuance of a proclamation as authorized in subsection "a" of this section, maintained or increased its said discriminations against the commerce of the Philippines, the President is hereby authorized, if he deems it consistent with the interests of the Philippines, to issue a further proclamation directing that such product of said country or such articles imported in its vessels as he shall deem consistent with the public interests, shall be excluded from importation into the Philippines.

c. Any proclamation issued by the President under the authority of this section shall, if he deems it consistent with the interests of the Philippines, extend to the whole of any foreign country or may be confined to any subdivision or subdivisions thereof; and the President shall, whenever he deems the public interests require, suspend, revoke, supplement or amend any such proclamation.

d. All articles imported contrary to the provisions of this section shall be forfeited to the Government of the Philippines and shall be liable to be seized, prosecuted and condemned in like manner and under the same regulations, restrictions and provisions as may from time to time be established for the recovery, collection, distribution and remission of forfeiture to the government by the tariff and customs laws. Whenever the provision of this section shall be applicable to importations into the Philippines of articles wholly or in part the growth or product of any foreign country, they shall be applicable thereto whether such articles are imported directly or indirectly.

e. It shall be the duty of the Commission to ascertain and at all times to be informed whether any of the discriminations against the commerce of the Philippines enumerated in subsections "a" and "b" of this section are practiced by any country; and if and when such discriminatory acts are disclosed, it shall be the duty of the Commission to bring the matter to the attention of the President, together with recommendation.

f. The Secretary shall make such rules and regulations as are necessary for the execution of such proclamation as the President may issue in accordance with the provisions of this section.

g. The authority granted herein to the President shall be exercised only when Congress is not in session.

Other types of fees charged by the Bureau of Customs

1. Arrastre charge – is the amount due for the handling, receiving and custody of the imported or exported article or the baggage of the passenger.

Page | 76

2. Wharfage dues – counterpart of license, charged not for the use of any wharf but for a special fund known as the Port Works Fund

3. Berthing fee – are levied on a vessel coming or mooring within specified places or waters of a port. No berthing charges may be collected from vessels moored at municipal/private ports.

4. Harbor fee – collected port charges on the different activities of a vessel engaged in foreign trade for entrance into or departure from a port of entry.

5. Tonnage dues—collected port charges on the different activities of a vessel engaged in foreign trade for coming to the Philippines from a foreign port or for going to a foreign port from the Philippines.

PROHIBITED IMPORTATIONS

Sec. 102. Prohibited Importations. — The importation into the Philippines of the following articles is prohibited:

a. Dynamite, gunpowder, ammunitions and other explosives, firearm and weapons of war, and detached parts thereof, except when authorized by law.

b. Written or printed article in any form containing any matter advocating or inciting treason, rebellion, insurrection or sedition against the Government of the Philippines, of forcible resistance to any law of the Philippines, or containing any threat to take the life of or inflict bodily harm upon any person in the Philippines.

c. Written or printed articles, photographs, engravings, lithographs, objects, paintings, drawings or other representation of an obscene or immoral character.

d. Articles, instruments, drugs and substances designed, intended or adapted for preventing human conception or producing unlawful abortion, or any printed matter which advertises or describes or gives directly or indirectly information where, how or by whom human conception is prevented or unlawful abortion produced.

e. Roulette wheels, gambling outfits, loaded dice, marked cards, machines, apparatus or mechanical devices used in gambling, or in the distribution of money, cigars, cigarettes or other articles when such distribution is dependent upon chance, including jackpot and pinball machines or similar contrivances.

f. Lottery and sweepstakes tickets except those authorized by the Philippine Government, advertisements thereof and lists of drawings therein.

g. Any article manufactured in whole or in part of gold silver or other precious metal, or alloys thereof, the stamps brands or marks of which do not indicate the actual fineness or quality of said metals or alloys.

h. Any adulterated or misbranded article of food or any adulterated or misbranded drug in violation of the provisions of the "Food and Drugs Act."

i. Marihuana, opium poppies, coca leaves, or any other narcotics or synthetic drugs which are or may hereafter be declared habit forming by the President of the Philippines, any compound, manufactured salt, derivative, or preparation thereof, except when imported by the Government of the Philippines or any person duly authorized by the Collector of Internal Revenue, for medicinal purposes only.

j. Opium pipes and parts thereof, of whatever material.

k. All other articles the importation of which is prohibited by law.

CUSTOMS VALUATION

R.A. 9135

(a) TRANSACTION VALUE SYSTEM

"SEC. 201. Basis of Dutiable Value. –

(A) Method One. – Transaction Value. - The dutiable value of an imported article subject to an ad valorem rate of duty shall be the transaction value, which shall be the price actually paid or payable for the goods when sold for export to the Philippines, adjusted by adding:

(1) The following to the extent that they are incurred by the buyer but are not included in the price actually paid or payable for the imported goods:

(a) Commissions and brokerage fees (except buying commissions);

(b) Cost of containers;

Page | 77

(c) The cost of packing, whether for labour or materials;

(d) The value, apportioned as appropriate, of the following goods and services: materials, components, parts and similar items incorporated in the imported goods; tools; dies; moulds and similar items used in the production of imported goods; materials consumed in the production of the imported goods; and engineering, development, artwork, design work and plans and sketches undertaken elsewhere than in the Philippines and necessary for the production of imported goods, where such goods and services are supplied directly or indirectly by the buyer free of charge or at a reduced cost for use in connection with the production and sale for export of the imported goods;(e) The amount of royalties and license fees related to the goods being valued that the buyer must pay, either directly or indirectly, as a condition of sale of the goods to the buyer;

(2) The value of any part of the proceeds of any subsequent resale, disposal or use of the imported goods that accrues directly or indirectly to the seller;

(3) The cost of transport of the imported goods from the port of exportation to the port of entry in the Philippines;

(4) Loading, unloading and handling charges associated with the transport of the imported goods from the country of exportation to the port of entry in the Philippines; and

(5) The cost of insurance.

All additions to the price actually paid or payable shall be made only on the basis of objective and quantifiable data.

No additions shall be made to the price actually paid or payable in determining the customs value except as provided in this Section: Provided, That Method One shall not be used in determining the dutiable value of imported goods if:

(a) There are restrictions as to the disposition or use of the goods by the buyer other than restrictions which:

(i) Are imposed or required by law or by Philippine authorities;

(ii) Limit the geographical area in which the goods may be resold; or

(iii) Do not substantially affect the value of the goods.

(b) The sale or price is subject to some condition or consideration for which a value cannot be determined with respect to the goods being valued;

(c) Part of the proceeds of any subsequent resale, disposal or use of the goods by the buyer will accrue directly or indirectly to the seller, unless an appropriate adjustment can be made in accordance with the provisions hereof; or

(d) The buyer and the seller are related to one another, and such relationship influenced the price of the goods. Such persons shall be deemed related if:

(i) They are officers or directors of one another’s businesses;

(ii) They are legally recognized partners in business;

(iii) There exists an employer-employee relationship between them;

(iv) Any person directly or indirectly owns, controls or holds five percent (5%) or more of the outstanding voting stock or shares of both seller and buyer;

(v) One of them directly or indirectly controls the other;

(vi) Both of them are directly or indirectly controlled by a third person;

(vii) Together they directly or indirectly control a third person; or

(viii) They are members of the same family, including those related by affinity or consanguinity up to the fourth civil degree.

Persons who are associated in business with one another in that one is the sole agent, sole distributor or sole concessionaire, however described, of the other shall be deemed to be related for the purposes of this Act if they fall within any of the eight (8) cases above.

(B) Method Two. – Transaction Value of Identical Goods. – Where the dutiable value cannot be determined under method one, the dutiable value shall be the transaction value of identical goods sold for export to the Philippines and exported at or about the same time as the goods being valued. "Identical goods" shall mean goods which are the same in all respects, including physical characteristics, quality and reputation. Minor differences in appearances shall not preclude goods otherwise conforming to the definition from being regarded as identical.

Page | 78

(C) Method Three. – Transaction Value of Similar Goods. – Where the dutiable value cannot be determined under the preceding method, the dutiable value shall be the transaction value of similar goods sold for export to the Philippines and exported at or about the same time as the goods being valued. "Similar goods" shall mean goods which, although not alike in all respects, have like characteristics and like component materials which enable them to perform the same functions and to be commercially interchangeable. The quality of the goods, their reputation and the existence of a trademark shall be among the factors to be considered in determining whether goods are similar. If the dutiable value still cannot be determined through the successive application of the two immediately preceding methods, the dutiable value shall be determined under method four or, when the dutiable value still cannot be determined under that method, under method five, except that, at the request of the importer, the order of application of methods four and five shall be reversed: Provided, however, That if the Commissioner of Customs deems that he will experience real difficulties in determining the dutiable value using method five, the Commissioner of Customs may refuse such a request in which event the dutiable value shall be determined under method four, if it can be so determined.

(D) Method Four. – Deductive Value. – The dutiable value of the imported goods under this method shall be the deductive value which shall be based on the unit price at which the imported goods or identical or similar imported goods are sold in the Philippines, in the same condition as when imported, in the greatest aggregate quantity, at or about the time of the importation of the goods being valued, to persons not related to the persons from whom they buy such goods, subject to deductions for the following:

(1) Either the commissions usually paid or agreed to be paid or the additions usually made for profit and general expenses in connection with sales in such country of imported goods of the same class or kind;

(2) The usual costs of transport and insurance and associated costs incurred within the Philippines; and

(3) Where appropriate, the costs and charges referred to in subsection (A) (3), (4) and (5); and

(4) The customs duties and other national taxes payable in the Philippines by reason of the importation or sale of the goods.

If neither the imported goods nor identical nor similar imported goods are sold at or about the time of importation of the goods being

valued in the Philippines in the conditions as imported, the customs value shall, subject to the conditions set forth in the preceding paragraph hereof, be based on the unit price at which the imported goods or identical or similar imported goods sold in the Philippines in the condition as imported at the earliest date after the importation of the goods being valued but before the expiration of ninety (90) days after such importation.

If neither the imported goods nor identical nor similar imported goods are sold in the Philippines in the condition as imported, then, if the importer so requests, the dutiable value shall be based on the unit price at which the imported goods, after further processing, are sold in the greatest aggregate quantity to persons in the Philippines who are not related to the persons from whom they buy such goods, subject to allowance for the value added by such processing and deductions provided under Subsections (D)(1), (2), (3) and (4) hereof.

(E) Method Five. – Computed Value. – The dutiable value under this method shall be the computed value which shall be the sum of:

(1) The cost or the value of materials and fabrication or other processing employed in producing the imported goods;

(2) The amount for profit and general expenses equal to that usually reflected in the sale of goods of the same class or kind as the goods being valued which are made by producers in the country of exportation for export to the Philippines;

(3) The freight, insurance fees and other transportation expenses for the importation of the goods;

(4) Any assist, if its value is not included under paragraph (1) hereof; and

(5) The cost of containers and packing, if their values are not included under paragraph (1) hereof.

The Bureau of Customs shall not require or compel any person not residing in the Philippines to produce for examination, or to allow access to, any account or other record for the purpose of determining a computed value. However, information supplied by the producer of the goods for the purposes of determining the customs value may be verified in another country with the agreement of the producer and provided they will give sufficient advance notice to the government of the country in question and the latter does not object to the investigation.

Page | 79

(F) Method Six. – Fallback Value. – If the dutiable value cannot be determined under the preceding methods described above, it shall be determined by using other reasonable means and on the basis of data available in the Philippines.

If the importer so requests, the importer shall be informed in writing of the dutiable value determined under Method Six and the method used to determine such value.

No dutiable value shall be determined under Method Six on the basis of:

(1) The selling price in the Philippines of goods produced in the Philippines;

(2) A system that provides for the acceptance for customs purposes of the higher of two alternative values;

(3) The price of goods in the domestic market of the country of exportation;

(4) The cost of production, other than computed values, that have been determined for identical or similar goods in accordance with Method Five hereof;

(5) The price of goods for export to a country other than the Philippines;

(6) Minimum customs values; or

(7) Arbitrary or fictitious values.

If in the course of determining the dutiable value of imported goods, it becomes necessary to delay the final determination of such dutiable value, the importer shall nevertheless be able to secure the release of the imported goods upon the filing of a sufficient guarantee in the form of a surety bond, a deposit, cash or some other appropriate instrument in an amount equivalent to the imposable duties and taxes on the imported goods in question conditioned upon the payment of customs duties and taxes for which the imported goods may be liable: Provided, however, That goods, the importation of which is prohibited by law shall not be released under any circumstance whatsoever.

Nothing in this Section shall be construed as restricting or calling into question the right of the Collector of Customs to satisfy himself as to the truth or accuracy of any statement, document or declaration presented for customs valuation purposes. When a declaration has been presented and where the customs administration has reason to

doubt the truth or accuracy of the particulars or of documents produced in support of this declaration, the customs administration may ask the importer to provide further explanation, including documents or other evidence, that the declared value represents the total amount actually paid or payable for the imported goods, adjusted in accordance with the provisions of Subsection (A) hereof.

If, after receiving further information, or in the absence of a response, the customs administration still has reasonable doubts about the truth or accuracy of the declared value, it may, without prejudice to an importer’s right to appeal pursuant to Article 11 of the World Trade Organization Agreement on customs valuation, be deemed that the customs value of the imported goods cannot be determined under Method One. Before taking a final decision, the Collector of Customs shall communicate to the importer, in writing if requested, his grounds for doubting the truth or accuracy of the particulars or documents produced and give the importer a reasonable opportunity to respond. When a final decision is made, the customs administration shall communicate to the importer in writing its decision and the grounds therefor."

(b) POST ENTRY AUDIT

"SEC. 3515. Compliance Audit or Examination of Records. - The importers/customs brokers shall allow any customs officer authorized by the Bureau of Customs to enter during office hours any premises or place where the records referred to in the preceding section are kept to conduct audit examination, inspection, verification and/or investigation of those records either in relation to specific transactions or to the adequacy and integrity of the manual or electronic system or systems by which such records are created and stored. For this purpose. A duty authorized customs officer shall be full and free access to all books, records, and documents necessary or relevant for the purpose of collecting the proper duties and taxes.

In addition, the authorized customs officer may make copies of, or take extracts from any such documents. The records or documents must, as soon as practicable after copies of such have been taken, be returned to the person in charge of such documents.

A copy of any such document certified by or on behalf of the importer/broker is admissible in evidence in all courts as if it were the original.

An authorized customs officer is not entitled to enter any premises under this Section unless, before so doing, the officer

Page | 80

produces to the person occupying or apparently in charge of the premises written evidence of the fact that he or she is an authorized officer. The person occupying or apparently in charge of the premises entered by an officer shall provide the officer with all reasonable facilities and assistance for the effective exercise of powers under this Section.

Unless otherwise provided herein or in other provisions of law, the Bureau of Customs may, in case of disobedience, invoke the aid of the proper regional trial court within whose jurisdiction the matter falls. The court may punish contumacy or refusal as contempt. In addition, the fact that the importer/broker denies the authorized customs officer full and free access to importation records during the conduct of a post-entry audit shall create a presumption of inaccuracy in the transaction value declared for their imported goods and constitute grounds for the Bureau of Customs to conduct a re-assessment of such goods.

This is without prejudice to the criminal sanctions imposed by this Code and administrative sanctions that the Bureau of Customs may impose against contumacious importers under existing laws and regulations including the authority to hold delivery or release of their imported articles."

"SEC. 3516. Scope of the Audit. –

(a) The audit of importers shall be undertaken:

(1) When firms are selected by a computer-aided risk management system, the parameters of which are to be based on objective and quantifiable data and are to be approved by the Secretary of Finance upon recommendation of the Commissioner of Customs. The criteria for selecting firms to be audited shall include, but not be limited to, the following:

(a) Relative magnitude of customs revenue from the firm;(b) The rates of duties of the firm’s imports;(c) The compliance tract records of the firm; and(d) An assessment of the risk to revenue of the firm’s import activities.

(2) When errors in the import declaration are detected;

(3) When firms voluntarily request to be audited, subject to the approval of the Commissioner of Customs.

(b) Brokers shall be audited to validate audits of their importer clients and/or fill information gaps revealed during an audit of their importers clients."

"SEC. 3517. Documents in Foreign Language. - Where a document in a foreign language is presented to a customs officer in relation to the carrying out of any duty or the exercise of any power of the Bureau of Customs under this Code, said document in a foreign language must be accompanied with a translation in the official language of this country."

"Sec. 3518. Records to Be Kept by Customs. – The Bureau of Customs shall likewise keep a record of audit results in a database of importer and broker profiles, to include but not be limited to:

(a) Articles of Incorporation;(b) The company structure, which shall include but not be limited to: (1) Incorporators and Board of Directors;

(2) Key officers; and(3) Organizational structure;

(c) Key importations;(d) Privileges enjoyed;(e) Penalties; and(f) Risk category (ies)."

6. IMPORTATION IN VIOLATION OF TCCP

PENAL PROVISION

Sec. 3601. Unlawful Importation. — Any person who shall fraudulently import or bring into the Philippines, or assist in so doing, any article, contrary to law, or shall receive, conceal, buy, sell, or in any manner facilitate the transportation, concealment, or sale of such article after importation, knowing the same to have been imported contrary to law…PUNISHABLE BY a fine of not less than P600 nor more than P5,000 and imprisonment for not less than 6 months nor more than 2years and, if the offender is an alien, he shall be deported after serving the sentence.

When, upon trial for a violation of this section, the defendant is shown to have or to have had possession of the article in question, such possession shall be deemed sufficient evidence to authorize conviction, unless the defendant shall explain the possession to the satisfaction of the court.

Sec. 3602. Various Fraudulent Practices Against Customs Revenue. — Any person who makes or attempts to make any entry of

Page | 81

imported or exported article by means of any false or fraudulent invoice, declaration, affidavit, letter, paper, or by means of any false statement, written or verbal, or by means of any false or fraudulent practice whatsoever, or shall be guilty of any willful act or omission by means of whereof the Government might be deprived of the lawful duties, taxes and other charges, or any portion thereof, accruing from the article or any portion thereof, embraced or referred to in such invoice, declaration, affidavit, letter, paper, or statement, or affected by such act or omission, shall, for each offense…PUNISHABLE BY a fine of not less than P600 nor more than P5,000 and by imprisonment for not less than 6months nor more than 2years and if the offender is an alien, he shall be deported after serving the sentence.

PROPERTIES SUBJECT TO FORFEITURE

Sec. 2530.Property Subject to Forfeiture Under Tariff and Customs Laws. — Any vessel or aircraft, cargo, articles and other objects shall, under the following conditions, be subject to forfeiture:

a. Any vessel or aircraft, including cargo, which shall be used lawfully in the importation or exportation of articles into or from any Philippine port or place except a port of entry; and any vessel which, being of less than thirty tons capacity shall be used in the importation of articles into any Philippine port or place except into a port of the Sulu sea where importation in such vessel may be authorized by the Commissioner, with the approval of the department head.

b. Any vessel engaging in the coastwise trade which shall have on board any article of foreign growth, product or manufacture in excess of the amount necessary for sea stores, without such article having been properly entered or legally imported.

c. Any vessel or aircraft into which shall be transferred cargo unladen contrary to law prior to the arrival of the importing vessel or aircraft at her port of destination.

d. Any part of the cargo of a vessel or aircraft arriving from a foreign port which is unladen before arrival at the vessel's or aircraft's port of destination and without authority from the proper customs official; but such cargo shall not be forfeited if such unlading was due to accident, stress of weather or other necessity and is subsequently approved by the Collector.

e. Any article which is fraudulently concealed in or removed from any public or private warehouse under customs supervision.

f. Any article of prohibited importation or exportation, the importation or exportation of which is effected or attempted contrary to law, and all other articles which, in the opinion of the Collector, have been used, are or were intended to be used as instrument in the importation or exportation of the former.

g. Unmanifested article found on any vessel or aircraft, if manifest therefor is required.

h. Sea stores or stores for aircraft adjudged by the Collector to be excessive, when the duties assessed by the Collector thereon are not paid or secured forthwith upon assessment of the same.

i. Any package of imported article which is found by the examining official to contain any article not specified in the invoice or entry, including all other packages purportedly containing imported articles similar to those declared in the invoice or entry to be the contents of the misdeclared package, provided the Collector is of the opinion that the misdeclaration was caused with fraudulent intent.

j. Boxes, cases, trunks, envelopes and other containers of whatever character used as receptacles or as devices to conceal article which is itself subject to forfeiture under the customs and tariff laws or which is so designed as to conceal the character of such article.

k. Any beast actually being used for the conveyance of article subject to forfeiture under the customs and tariff laws with its equipage or trappings, and any vehicles similarly used, together with its equipage and appurtenances, including the beast, team or other motive power drawing or propelling the same; but the forfeiture shall not be effected if it is established that the owner of the means of conveyance used as aforesaid or his agent in charge thereof at the time, has no knowledge of the unlawful act.

l. Any money or thing of value offered as a bribe or for the purpose of exerting improper influence over a customs official or employee.

m. Any article sought to be imported or exported: (1) Without going through a customhouse, whether the act was

consummated, frustrated or attempted;

(2) By failure to mention to a customs official, articles found in the baggage of a person arriving from abroad.

(3) On the strength of a false declaration or affidavit executed by the owner, importer, exporter or consignee concerning the importation or exportation of such article.

Page | 82

(4) On the strength of a false invoice or other document executed by the owner, importer, exporter or consignee concerning the importation or exportation of such article.

(5) Through any other fraudulent practice or device by means of which such articles was entered through a customhouse to the prejudice of the government.

Sec. 2531. Conditions Affecting Forfeiture of Article. — As regards imported or exported article or articles whereof the importation or exportation is merely attempted, the forfeiture shall be effected only when and while the article is in the custody or within the jurisdiction of the customs authorities or in the hands or subject to the control of the importer, exporter, original owner, consignee, agent or other person effecting the importation, entry or exportation in question, or in the hands or subject to the control of some person who shall receive, conceal, buy, sell or transport the same or aid in any such acts, with knowledge that the article was imported, or was the subject of an attempt at importation or exportation, contrary to law.

COMMISSIONER OF CUSTOM V. MANILA STAR FERRYSection 2530(a) of the Tariff and Customs Code in unmistakable terms provides that a vessel engaged in smuggling "in a port of entry" cannot be forfeited. This is the clear and plain meaning of the law. It is not within the province of the Court to inquire into the wisdom of the law, for indeed, we are bound by the words of the statute.

Forfeiture proceedings are proceedings in rem and are directed against the res. It is no defense that the owner of the vessel sought to be forfeited had no actual knowledge that his property was used illegally. The absence or lack of actual knowledge of such use is a defense personal to the owner himself which cannot in any way absolve the vessel from the liability of forfeiture.

LOCAL GOVERNMENT TAXATION

II. LOCAL GOVERNMENT TAXATION

A. REQUIREMENTS FOR IMPOSITION OF LOCAL TAXES BY LGUs – SECS. 132, 186-192, LGC

Section 132. Local Taxing Authority. - The power to impose a tax, fee, or charge or to generate revenue under this Code shall be exercised by the sanggunian of the local government unit concerned through an appropriate ordinance.

Section 186. Power To Levy Other Taxes, Fees or Charges. - Local government units may exercise the power to levy taxes, fees or charges on any base or subject not otherwise specifically enumerated herein or taxed under the provisions of the National Internal Revenue Code, as amended, or other applicable laws: Provided, That the taxes, fees, or charges shall not be unjust, excessive, oppressive, confiscatory or contrary to declared national policy: Provided, further, That the ordinance levying such taxes, fees or charges shall not be enacted without any prior public hearing conducted for the purpose.

Section 187. Procedure for Approval and Effectivity of Tax, Ordinances and Revenue Measures; Mandatory Public Hearings. - The procedure for approval of local tax ordinances and revenue measures shall be in accordance with the provisions of this Code: Provided, That public hearings shall be conducted for the purpose prior to the enactment thereof: Provided, further, That any question on the constitutionality or legality of tax ordinances or revenue measures may be raised on appeal within thirty (30) days from the effectivity thereof to the Secretary of Justice who shall render a decision within sixty (60) days from the date of receipt of the appeal: Provided, however, That such appeal shall not have the effect of suspending the effectivity of the ordinance and the accrual and payment of the tax, fee, or charge levied therein: Provided, finally, That within thirty (30) days after receipt of the decision or the lapse of the sixty-day period without the Secretary of Justice acting upon the appeal, the aggrieved party may file appropriate proceedings with a court of competent jurisdiction.

Section 188. Publication of Tax Ordinances and Revenue Measures. - Within ten (10) days after their approval, certified true copies of all provincial, city, and municipal tax ordinances or revenue measures shall be published in full for three (3) consecutive days in a newspaper of local circulation: Provided, however, That in provinces, cities and municipalities where there are no newspapers of local circulation, the same may be posted in at least two (2) conspicuous and publicly accessible places.

Section 189. Furnishing of Copies of Tax Ordinances and Revenue Measures. - Copies of all provincial, city, and municipal and barangay tax ordinances and revenue measures shall be furnished the respective local treasurers for public dissemination.

Page | 83

Section 190. Attempt to Enforce Void or Suspended Tax Ordinances and revenue measures. - The enforcement of any tax ordinance or revenue measure after due notice of the disapproval or suspension thereof shall be sufficient ground for administrative disciplinary action against the local officials and employees responsible therefor.

Section 191. Authority of Local Government Units to Adjust Rates of Tax Ordinances. - Local government units shall have the authority to adjust the tax rates as prescribed herein not oftener than once every five (5) years, but in no case shall such adjustment exceed ten percent (10%) of the rates fixed under this Code.

Section 192. Authority to Grant Tax Exemption Privileges. - Local government units may, through ordinances duly approved, grant tax exemptions, incentives or reliefs under such terms and conditions as they may deem necessary.

DRILON V.LIMISSUE: WON the RTC was correct in declaring the ordinance unconstitutional.

HELD: We do not share that view. Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and, if warranted, to revoke it on either or both of these grounds. When he alters or modifies or sets aside a tax ordinance, he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure.

Secretary Drilon did set aside the Manila Revenue Code, but he did not replace it with his own version of what the Code should be. He did not pronounce the ordinance unwise or unreasonable as a basis for its annulment. He did not say that in his judgment it was a bad law. What he found only was that it was illegal. All he did in reviewing the said measure was determine if the petitioners were performing their functions in accordance with law, that is, with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code. As we see it, that was an act not of control but of mere supervision.

An officer in control lays down the rules in the doing of an act. If they are not followed, he may, in his discretion, order the act undone or re-done by his subordinate or he may even decide to do it himself. Supervision does not cover such authority. The supervisor or superintendent merely sees to it that the rules are followed, but he himself does not lay down such rules, nor does he have the discretion

to modify or replace them. If the rules are not observed, he may order the work done or re-done but only to conform to the prescribed rules. He may not prescribe his own manner for the doing of the act. He has no judgment on this matter except to see to it that the rules are followed. In the opinion of the Court, Secretary Drilon did precisely this, and no more nor less than this, and so performed an act not of control but of mere supervision.

The issue of non-compliance with the prescribed procedure in the enactment of the Manila Revenue Code is another matter.

In his resolution, Secretary Drilon declared that there were no written notices of public hearings on the proposed Manila Revenue Code that were not sent to interested parties, nor were copies of the proposed ordinance published in three successive issues of a newspaper of general circulation. No minutes were submitted to show that the obligatory public hearings had been held. Neither were copies of the measure as approved posted in prominent places in the city. Finally, the Manila Revenue Code was not translated into Pilipino or Tagalog and disseminated among the people for their information and guidance. Judge Palattao found otherwise. He declared that all the procedural requirements had been observed in the enactment of the Manila Revenue Code and that the City of Manila had not been able to prove such compliance before the Secretary only because he had given it only five days within which to gather and present to him all the evidence which was later submitted to the trial court.

We have carefully examined every one of these exhibits and agree with the trial court that the procedural requirements have indeed been observed. Notices of the public hearings were sent to interested parties. The minutes of the hearings are found in the Exhibits. The proposed ordinances were published in the Balita and the Manila Standard respectively, and the approved ordinance was published in the Manila Standard and Balita.

The only exceptions are the posting of the ordinance as approved but this omission does not affect its validity, considering that its publication in three successive issues of a newspaper of general circulation will satisfy due process. It has also not been shown that the text of the ordinance has been translated and disseminated, but this requirement applies to the approval of local development plans and public investment programs of the local government unit and not to tax ordinances.

COCA-COLA BOTTLERS PHIL V. CITY OF MANILAISSUE: Whether or not Tax Ordinance no. 7988 is null and void.

Page | 84

HELD: YES. It is undisputed from the facts of the case that Tax Ordinance No. 7988 has already been declared by the DOJ Secretary, in its Order, dated 17 August 2000, as null and void and without legal effect due to respondents’ failure to satisfy the requirement that said ordinance be published for three consecutive days as required by law. Neither is there quibbling on the fact that the said Order of the DOJ was never appealed by the City of Manila, thus, it had attained finality after the lapse of the period to appeal.

Furthermore, the RTC of Manila, Branch 21, in its Decision dated 28 November 2001, reiterated the findings of the DOJ Secretary that respondents failed to follow the procedure in the enactment of tax measures as mandated by Section 188 of the Local Government Code of 1991, in that they failed to publish Tax Ordinance No. 7988 for three consecutive days in a newspaper of local circulation. From the foregoing, it is evident that Tax Ordinance No. 7988 is null and void as said ordinance was published only for one day in the 22 May 2000 issue of the Philippine Post in contravention of the unmistakable directive of the Local Government Code of 1991.

Despite the nullity of Tax Ordinance No. 7988, the court a quo, in the assailed Order, dated 8 May 2002, went on to dismiss petitioner’s case on the force of the enactment of Tax Ordinance No. 8011, amending Tax Ordinance No. 7988. Significantly, said amending ordinance was likewise declared null and void by the DOJ Secretary in a Resolution, dated 5 July 2001, elucidating that "[I]nstead of amending Ordinance No. 7988, [herein] respondent should have enacted another tax measure which strictly complies with the requirements of law, both procedural and substantive. The passage of the assailed ordinance did not have the effect of curing the defects of Ordinance No. 7988 which, any way, does not legally exist." Said Resolution of the DOJ Secretary had, as well, attained finality by virtue of the dismissal with finality by this Court of respondents’ Petition for Review .

B. AUTHORITY TO ADJUST RATES AND GRANT EXEMPTIONS – SECS. 191, 192 LGC

Section 191. Authority of Local Government Units to Adjust Rates of Tax Ordinances. - Local government units shall have the authority to adjust the tax rates as prescribed herein not oftener than once every five (5) years, but in no case shall such adjustment exceed ten percent (10%) of the rates fixed under this Code.

Section 192. Authority to Grant Tax Exemption Privileges. - Local government units may, through ordinances duly approved, grant tax

exemptions, incentives or reliefs under such terms and conditions as they may deem necessary.

C. COMMON LIMITATIONS ON TAXING POWERS OF THE LGU – SEC. 133, LGC

Section 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: (DICE-OtABEV-TR2ExCoopGov)

(a) INCOME tax, EXCEPT when levied on banks and other financial institutions;

(b) DOCUMENTARY stamp tax (DST);

(c) Taxes on ESTATES, inheritance, gifts, legacies and other acquisitions mortis causa, except as otherwise provided herein;

(d) CUSTOMS DUTIES, registration fees of vessel and wharfage on wharves, tonnage dues, and all other kinds of customs fees, charges and dues except wharfage on wharves constructed and maintained by the local government unit concerned;

(e) Taxes, fees, and charges and OTHER IMPOSITIONS upon goods carried into or out of, or passing through, the territorial jurisdictions of local government units in the guise of charges for wharfage, tolls for bridges or otherwise, or other taxes, fees, or charges in any form whatsoever upon such goods or merchandise;

(f) Taxes, fees or charges on AGRICULTURAL and aquatic products when sold by marginal farmers or fishermen;

(g) Taxes on BUSINESS enterprises certified to by the Board of Investments as pioneer or non-pioneer for a period of six (6) and four (4) years, respectively from the date of registration;

(h) EXCISE TAXES on articles enumerated under the national Internal Revenue Code, as amended, and taxes, fees or charges on petroleum products;

(i) Percentage OR VALUE-ADDED TAX (VAT) on sales, barters or exchanges or similar transactions on goods or services except as otherwise provided herein;

Page | 85

(j) Taxes on the gross receipts of TRANSPORTATION CONTRACTORS and persons engaged in the transportation of passengers or freight by hire and common carriers by air, land or water, except as provided in this Code;

(k) Taxes on premiums paid by way or REINSURANCE or retrocession;

(l) Taxes, fees or charges for the REGISTRATION of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof, except tricycles;

(m) Taxes, fees, or other charges on Philippine products actually EXPORTED, except as otherwise provided herein;

(n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and COOPERATIVES duly registered under R.A. No. 6810 and Republic Act Numbered Sixty-nine hundred thirty-eight (R.A. No. 6938) otherwise known as the "Cooperative Code of the Philippines" respectively; and

(o) Taxes, fees or charges of any kind on the National GOVERNMENT, its agencies and instrumentalities, and local government units.

PROVINCE OF BULACAN V. CAG.R. NO 126232 (1998)FACTS: On June 26, 1992, the SangguniangPanlalawigan of Bulacan passed Provincial Ordinance No. 3, known as "An ordinance Enacting the Revenue Code of the Bulacan Province," which was to take effect on July 1, 1992. Section 21 of the ordinance provides as follows:Section 21.  Imposition of Tax.  There is hereby levied and collected a tax of 10% of the fair market value in the locality per cubic meter of ordinary stones, sand, gravel, earth and other quarry resources, such, but not limited to marble, granite, volcanic cinders, basalt, tuff and rock phosphate, extracted from public lands or from beds of seas, lakes, rivers, streams, creeks and other public waters within its territorial jurisdiction.  

1. The Provincial Treasurer of Bulacan then assessed Republic Cement Corporation (RCC) the amount of P2.5 million for extracting limestone, shale and silica from several parcels of private land in the province during the third quarter of 1992 up to the second quarter of 1993.

2. RCC, believing that the province on the basis of the above ordinance had no authority to impose taxes on quarry resources extracted from private land, formally contested the same on Dec. 23, 1993. The same was denied by the Provincial Treasurer. RCC filed a petition for declaratory relief with the RTC of Bulacan which ruled that such relief was improper

allegedly because a breach of the ordinance had been committed by RCC.

3. RCC then filed a petition for certiorari with the SC seeking to reverse the RTC decusuib, The SC referred the case to the CA.

4. Pending resolution in the CA, the Province of Bulacan (Bulacan) issued a warrant of levy against RCC because of its unpaid tax liabilities. Negotiations between Bulacan and RCC resulted in an agreement and modus vivendi whereby RCC paid P1.2 million under protest, representing 50% of the assessed tax, in exchange for the lifting of the warrant of levy.

ISSUE: WON the provincial government could impose and/or assess taxes on quarry resources extracted by RCC from private lands pursuant to the Ordinance.

HELD: NO. A province has no authority to impose taxes on stones, sand, gravel and earth and other quarry resources extracted from private lands.

The pertinent provisions of the Local Government Code are as follows:Sec. 134.  Scope of Taxing Powers. - Except as otherwise provided in this Code, the province may levy only the taxes, fees, and charges as provided in this Article.

Sec. 138. Tax on Sand, Gravel and Other Quarry Resources. - The province may levy and collect not more than ten percent (10%) of fair market value in the locality per cubic meter of ordinary stones, sand, gravel, earth, and other quarry resources, as defined under the National Internal Revenue Code, as amended, extracted from public lands or from the beds of seas, lakes, rivers, streams, creeks, and other public waters within its territorial jurisdiction.

Bulacan claims that the tax imposed is an excise tax, being a tax upon the performance, carrying on or exercise of an activity. A province may not levy excise taxes on articles already taxed by the NIRC. The NIRC clearly provides a tax on ALL quarry resources, regardless of origin, whether extracted from public or private lands. Section 151. - Mineral Products. -NIRC(A)   Rates of Tax. - There shall be levied, assessed and collected on minerals, mineral products and quarry resources, excise tax as follows:(2)       On all nonmetallic minerals and quarry resources, a tax of two percent (2%) based on the actual market value of the gross output thereof at the time of removal, in case of those locally extracted or produced; or the values used by the Bureau of Customs in determining tariff and customs duties, net of excise tax and value-added tax, in the case of importation.

Page | 86

Thus, a province may not ordinarily impose taxes on stones, sand, gravel, earth and other quarry resources, as the same are already taxed under the National Internal Revenue Code.  The province can, however, impose a tax on stones, sand, gravel, earth and other quarry resources extracted from public land because it is expressly empowered to do so under the Local Government Code.  As to stones, sand, gravel, earth and other quarry resources extracted from private land, however, it may not do so, because of the limitation provided by Section 133 of the Code in relation to Section 151 of the National Internal Revenue Code.

PETRON CORP V. TIANGCOG.R. NO 15881 (2008)FACTS: Petron maintains a depot at the NavotasFishport Complex. Through that depot, it has engaged in the selling of diesel fuels to vessels used in commercial fishing in and around Manila Bay. 1 March 2002, Petron received a tax assessment from the office of

Mayor Tiangco covering sale of diesel from 1997 to 2001 amounting to P6,259,087.62, (derived from the gross sales of the depot). The computation sheets that were attached to the letter in reference to Ordinance 92-03 (New Navotas Revenue Code).

Petron filed with Navotas a letter-protest to the notice of assessment pursuant to Section 195 of the Code. It argued that it was exempt from local business taxes in view of :

o Art. 232(h) of the IRR of the Code, and o ruling of the Bureau of Local Government Finance of the

Department of Finance stating that sales of petroleum fuels are not subject to local taxation.

The letter-protest was denied by the Municipal Treasurer. This was followed by a “Final Demand to Pay” letter from the Mayor requiring Petron to pay the assessed amount within (5) days from its receipt, with a threat of closure of Petron's operations should there be no payment. Petron replied objecting to the threat of closure. The Mayor did not respond to this last letter.

20 May 2002, Petron filed with the Malabon-RTC a Complaint for Cancellation of Assessment for Deficiency Taxes. While the case was pending, respondents refused to issue a business permit, prompting Petron to file a Supplemental Complaint with Prayer for Preliminary Mandatory Injunction against Respondents.

5 May 2003, RTC dismissed Petron's complaint and ordered it to pay the assessed amount. 11 days later, Petron received a Closure Order from the Mayor. Petron sought a TRO from the RTC, but this was denied. MR was also denied.

SC issued a TRO, enjoining the respondents from closing Petron's Navotas plant. The controversy hinges on the correct interpretation of Section 133(h) of the LGC, and the applicability of Article 232 (h) of the IRR.

Section 133(h) of the LGC reads as follows:

Sec. 133.Common Limitations on the Taxing Powers of Local Government Units. - Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and Barangays shall not extend to the levy of the following:…(h) Excise taxes on articles enumerated under the NIRC, as amended, AND taxes, fees or charges on petroleum products;

ISSUE: Is an LGU empowered under the Local Government Code to impose business taxes on persons or entities engaged in the sale of petroleum products? NO.

HELD: Section 133 prescribes the limitations on the capacity of LGU to exercise their taxing powers otherwise granted to them under the LGC. Apparently, paragraph (h) mentions two kinds of taxes which cannot be imposed by LGU, namely: "excise taxes on articles enumerated under the NIRC, as amended;" and "taxes, fees or charges on petroleum products."

The power of a municipality to impose business taxes is provided for in Section 143 of the LGC. A municipality is authorized to impose business taxes on a whole host of business activities. Unless there is another provision of law which states otherwise.

Nonetheless, Article 232 of the IRR defines with more particularity the capacity of a municipality to impose taxes on businesses. The enumeration that follows is generally a positive list of businesses which may be subjected to business taxes, and paragraph (h) of Article 232 does allow the imposition of local business taxes "[o]n any business not otherwise specified in the preceding paragraphs which the sanggunian concerned may deem proper to tax," but subject to this important qualification, thus:"xxx provided further, that in line with existing national policy, any business engaged in the production, manufacture, refining, distribution or sale of oil, gasoline and other petroleum products shall not be subject to any local tax imposed on this article.

RE BUSINESS TAX:Petron argues that the "business taxes" on its sale of diesel fuels partakes of an excise tax, which if true, could invalidate the challenged tax solely on the basis of the phrase "excise taxes on articles enumerated under the NIRC”. It cites Cordero v. Conda, as having explained that "an excise tax is a tax upon the performance, carrying on, or the exercise of an activity." Respondents, on the other hand, argue that what the provision prohibits is the imposition of excise taxes on petroleum products, but not the imposition of business taxes on the same citing Philippine Petroleum Corporation v. Municipality of Pililia.

Page | 87

NIRC categorize two different kinds of excise taxes: "specific tax" which is imposed and based on weight or volume capacity or any other physical unit of measurement; and "ad valorem tax" which is imposed and based on the selling price or other specified value of the goods.The current definition of an excise tax is that of a tax levied on a specific article, rather than one "upon the performance, carrying on, or the exercise of an activity." This current definition was already in place when the LGC was enacted in 1991, and we can only presume that it was what the Congress had intended as it specified that local government units could not impose "excise taxes on articles enumerated under the [NIRC]."

Thus, Petron's argument concerning excise taxes is founded not on what the NIRC or the Code actually provides, but on a non-statutory definition sourced from a legal paradigm that is no longer applicable in this jurisdiction.

EXCISE TAXES as imposed under the NIRC, DO NOT pertain to "the performance, carrying on, or exercise of an activity," at least not to the extent of equating excise with business taxes.

RE BUSINESS TAXES BASED ON THE SALE OF PETROLEUM PRODUCTS:The power of a municipality to impose business taxes derives from Section 143 of the Code that specifically enumerates several types of business on which it may impose taxes, including manufacturers, wholesalers, distributors, dealers of any article of commerce of whatever nature. This ability of LGUs to impose business or other local taxes is rooted in the 1987 Constitution. Section 5, Article X assures that "[e]ach local government unit shall have the power to create its own sources of revenues and to levy taxes, fees and charges," though the power is "subject to such guidelines and limitations as the Congress may provide." The FISCAL AUTONOMY of LGUs has received greater affirmation than ever. Section 5(b) then proceeds to assert that "[i]n case of doubt, any tax ordinance or revenue measure shall be construed strictly against the LGU enacting it, and liberally in favor of the taxpayer." Evidently, local fiscal autonomy should not necessarily translate into abject deference to the power of local government units to impose taxes.

Respondents assert that the phrase "taxes, fees or charges on petroleum products" pertains to the imposition of direct or excise taxes on petroleum products, and not business taxes. If the phrase actually pertains to excise taxes, then it would be an exercise in utter redundancy, since the preceding phrase already prohibits the imposition of excise taxes on articles already subject to such taxes under the NIRC, such as petroleum products.

SC concedes that a tax on a business is distinct from a tax on the article itself, that a business tax is distinct from an excise tax. However, such distinction is immaterial insofar as the latter part of Section 133(h) is concerned, for the phrase "taxes, fees or charges on petroleum products" does not qualify the kind of taxes, fees or charges that could withstand the absolute prohibition imposed by the provision. The absence of such a qualification leads to the CONCLUSION that all sorts of taxes on petroleum products, including business taxes, are prohibited by Section 133(h). Where the law does not distinguish, we should not distinguish.

While LGUs are authorized to burden all such other class of goods with "taxes, fees and charges," excepting excise taxes, a specific prohibition is imposed barring the levying of any other type of taxes with respect to petroleum products.

RE OIL DEREGULATION LAW:Respondents argue that since the oil industry is presently deregulated the basis for exempting petroleum products from business taxes no longer exists. The Code itself does not connect its prohibition on taxation of petroleum products with any existing or future national oil policy, so the change in such national policy with the regime of oil deregulation is ultimately of no moment.

The reasoning behind singling out petroleum products, among all other commodities, as beyond the power of local government units to levy local taxes: There is an inevitable link between the fluctuation of oil prices and the prices of every other commodity. The reality, indeed, is oil is a political commodity. Its shortage of supply or a slight, upward spiral in its price shakes our economic foundation. It can be reasonably presumed that if municipalities, cities and provinces were authorized to impose business taxes on manufacturers and retailers of petroleum products, the resulting losses to these enterprises would be passed on to the consumers, triggering the chain of increases that normally accompany the increase in oil prices. No similarly massive trigger effect would ensue upon the imposition of business taxes on other commodities, including those already subject to excise taxation under the NIRC.

While Section 133(h) does not generally bar the imposition of business taxes on articles burdened by excise taxes under the NIRC, it specifically prohibits local government units from extending the levy of any kind of "taxes, fees or charges on petroleum products." Accordingly, the subject tax assessment is ultra vires and void.

CITY OF MANILA V. COCA-COLA BOTTLERS PHILS G.R. NO 181845 (2009)

Page | 88

FACTS: Respondent paid the local business tax only as a manufacturers as it was expressly exempted from the business tax under a different section and which applied to businesses subject to excise, VAT or percentage tax under the Tax Code. The City of Manila subsequently amended the ordinance by deleting the provision exempting businesses under the latter section if they have already paid taxes under a different section in the ordinance. This amending ordinance was later declared by the Supreme Court null and void. Respondent then filed a protest on the ground of double taxation. RTC decided in favor of Respondent and the decision was received by Petitioner on April 20, 2007. On May 4, 2007, Petitioner filed with the CTA  a Motion for Extension of Time to File Petition for Review asking for a 15-day extension or until May 20, 2007 within which to file its Petition. A second Motion for Extension was filed on May 18, 2007, this time asking for a 10-day extension to file the Petition. Petitioner finally filed the Petition on May 30, 2007 even if the CTA had earlier issued a resolution dismissing the case for failure to timely file the Petition.

HELD:  There is indeed double taxation if respondent is subjected to the taxes under both Sections 14 and 21 of the tax ordinance since these are being imposed: (1) on the same subject matter — the privilege of doing business in the City of Manila; (2) for the same purpose — to make persons conducting business within the City of Manila contribute to city revenues; (3) by the same taxing authority — petitioner City of Manila; (4) within the same taxing jurisdiction — within the territorial jurisdiction of the City of Manila; (5) for the same taxing periods — per calendar year; and (6) of the same kind or character — a local business tax imposed on gross sales or receipts of the business.

FIRST PHIL INDUSTRIAL CORP V. CAG.R. NO 125948 (2000)FACTS: FPIC – grantee of a pipeline concession under Republic Act No. 387, as amended, to contract, install and operate oil pipelines

It applied for a mayor’s permit with the Office of the Mayor of Batangas City. Before the permit could be issued, it was required by the City Treasurer to pay a local tax based on its gross receipts for the fiscal year 1993 pursuant to the Local Government Code. It paid the tax under protest.

It filed a complaint for tax refund alleging that 1) the imposition and collection of the business tax on its gross receipts violates Section 133 of the Local Government Code which grants tax exemption to common carriers; 2) the authority of cities to impose and collect a tax on the gross receipts of “contractors and independent contractors” under Sec. 141 (e) and 151 does not include the authority to collect such taxes on transportation contractors for, as defined under Sec. 131 (h), the term “contractors” excludes transportation contractors; and, 3) the City Treasurer illegally and erroneously imposed and collected

the said tax, thus meriting the immediate refund of the tax paid.

ISSUES: 1. WON FPIC is a common carrier; 2. WON it is exempted from paying the taxes required by the City Treasurer

HELD: 1. Yes. FPIC is engaged in the business of transporting or carrying goods, i.e. petroleum products, for hire as a public employment. It undertakes to carry for all persons indifferently, that is, to all persons who choose to employ its services, and transports the goods by land and for compensation.

common carrier - holds himself out to the public as engaged in the business of transporting persons or property from place to place, for compensation, offering his services to the public generally (see also Art. 1732)

test for determining whether a party is a common carrier of goods:

a. engaged in the business of carrying goods for others as a public employment, and must hold himself out as ready to engage in the transportation of goods for person generally as a business and not as a casual occupation;

b. undertakes to carry goods of the kind to which his business is confined

c. undertakes to carry by the method by which his business is conducted and over his established roads

d. transportation is for hire common service coincides with public service public service – includes every person that now or hereafter

may own, operate. manage, or control in the Philippines, for hire or compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for general business purposes, any common carrier, railroad, street railway, traction railway, subway motor vehicle, either for freight or passenger, or both, with or without fixed route and whatever may be its classification, freight or carrier service of any class, express service, steamboat, or steamship line, pontines, ferries and water craft, engaged in the transportation of passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation system gas, electric light heat and power, water supply and power petroleum, sewerage system, wire or wireless communications systems, wire or wireless broadcasting stations and other similar public services (CA No. 1416, as amended, otherwise known as the Public Service Act)

FPIC - considered a common carrier under Art. 86 of the Petroleum Act of the Philippines (RA 387), which provides that: Art. 86. Pipe line concessionaire as common carrier. — A pipe line shall have the preferential right to utilize installations for

Page | 89

the transportation of petroleum owned by him, but is obligated to utilize the remaining transportation capacity pro rata for the transportation of such other petroleum as may be offered by others for transport, and to charge without discrimination such rates as may have been approved by the Secretary of Agriculture and Natural Resources.

FPIC is also a public utility pursuant to Art. 7 of RA 387 which states that “everything relating to the exploration for and exploitation of petroleum . . . and everything relating to the manufacture, refining, storage, or transportation by special methods of petroleum, is hereby declared to be a public utility”

2. Yes. Legal basis is Section 133 (j), of the Local Government Code which provides that “Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air, land or water, except as provided in this Code”.

Reason for the exception: to avoid duplication of tax

LTO V. CITY OF BUTUANG.R. NO 131512 (2000)The SC ruled that the registration and licensing functions are vested in the LTO while franchising and regulatory responsibilities are vested in the LTFRB. Under the Local Government Code, LGUs have the power to regulate the operation of tricycle for hire and to grant franchise for the operation thereof.

MIAA V. COURT OF APPEALSG.R. NO 155650 (2006)FACTS: MIAA received Final Notices of Real Estate Tax Delinquency from the City of Parañaque for the taxable years 1992 to 2001. MIAA’s real estate tax delinquency was estimated at P624 million.The City of Parañaque, through its City Treasurer, issued notices of levy and warrants of levy on the Airport Lands and Buildings. The Mayor of the City of Parañaque threatened to sell at public auction the Airport Lands and Buildings should MIAA fail to pay the real estate tax delinquency.

MIAA filed with the Court of Appeals an original petition for prohibition and injunction, with prayer for preliminary injunction or temporary restraining order. The petition sought to restrain the City of Parañaque from imposing real estate tax on, levying against, and auctioning for public sale the Airport Lands and Buildings.

Paranaque’s Contention: Section 193 of the Local Government Code expressly withdrew the tax exemption privileges of “government-owned

and-controlled corporations” upon the effectivity of the Local Government Code. Respondents also argue that a basic rule of statutory construction is that the express mention of one person, thing, or act excludes all others. An international airport is not among the exceptions mentioned in Section 193 of the Local Government Code. Thus, respondents assert that MIAA cannot claim that the Airport Lands and Buildings are exempt from real estate tax.

MIAA’s contention: Airport Lands and Buildings are owned by the Republic. The government cannot tax itself. The reason for tax exemption of public property is that its taxation would not inure to any public advantage, since in such a case the tax debtor is also the tax creditor.

ISSUE: WON Airport Lands and Buildings of MIAA are exempt from real estate tax under existing laws? Yes. Ergo, the real estate tax assessments issued by the City of Parañaque, and all proceedings taken pursuant to such assessments, are void.

HELD:1. MIAA is Not a Government-Owned or Controlled CorporationMIAA is not a government-owned or controlled corporation but an instrumentality of the National Government and thus exempt from local taxation.

MIAA is not a stock corporation because it has no capital stock divided into shares. MIAA has no stockholders or voting shares. MIAA is also not a non-stock corporation because it has no members. A non-stock corporation must have members.

MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental functions. MIAA is like any other government instrumentality, the only difference is that MIAA is vested with corporate powers.

When the law vests in a government instrumentality corporate powers, the instrumentality does not become a corporation. Unless the government instrumentality is organized as a stock or non-stock corporation, it remains a government instrumentality exercising not only governmental but also corporate powers. Thus, MIAA exercises the governmental powers of eminent domain, police authority and the levying of fees and charges. At the same time, MIAA exercises “all the powers of a corporation under the Corporation Law, insofar as these powers are not inconsistent with the provisions of this Executive Order.”

2. Airport Lands and Buildings of MIAA are Owned by the Republica. Airport Lands and Buildings are of Public Dominion

Page | 90

The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned by the State or the Republic of the Philippines.

No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like “roads, canals, rivers, torrents, ports and bridges constructed by the State,” are owned by the State. The term “ports” includes seaports and airports. The MIAA Airport Lands and Buildings constitute a “port” constructed by the State. Under Article 420 of the Civil Code, the MIAA Airport Lands and Buildings are properties of public dominion and thus owned by the State or the Republic of the Philippines.

The Airport Lands and Buildings are devoted to public use because they are used by the public for international and domestic travel and transportation. The fact that the MIAA collects terminal fees and other charges from the public does not remove the character of the Airport Lands and Buildings as properties for public use.The charging of fees to the public does not determine the character of the property whether it is of public dominion or not. Article 420 of the Civil Code defines property of public dominion as one “intended for public use.” The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines, constitute the bulk of the income that maintains the operations of MIAA. The collection of such fees does not change the character of MIAA as an airport for public use. Such fees are often termed user’s tax. This means taxing those among the public who actually use a public facility instead of taxing all the public including those who never use the particular public facility.b. Airport Lands and Buildings are Outside the Commerce of ManThe Court has also ruled that property of public dominion, being outside the commerce of man, cannot be the subject of an auction sale.Properties of public dominion, being for public use, are not subject to levy, encumbrance or disposition through public or private sale. Any encumbrance, levy on execution or auction sale of any property of public dominion is void for being contrary to public policy. Essential public services will stop if properties of public dominion are subject to encumbrances, foreclosures and auction sale. This will happen if the City of Parañaque can foreclose and compel the auction sale of the 600-hectare runway of the MIAA for non-payment of real estate tax.

c. MIAA is a Mere Trustee of the RepublicMIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic. Section 48, Chapter 12, Book I of the Administrative Code allows instrumentalities like MIAA to hold title to real properties owned by the Republic. n MIAA’s case, its status as a mere trustee of the Airport Lands and Buildings is clearer because even its executive head cannot sign the deed of conveyance on behalf of the Republic. Only the President of the Republic can sign such deed of conveyance.

d. Transfer to MIAA was Meant to Implement a ReorganizationThe transfer of the Airport Lands and Buildings from the Bureau of Air Transportation to MIAA was not meant to transfer beneficial ownership of these assets from the Republic to MIAA. The purpose was merely toreorganize a division in the Bureau of Air Transportation into a separate and autonomous body. The Republic remains the beneficial owner of the Airport Lands and Buildings. MIAA itself is owned solely by the Republic. No party claims any ownership rights over MIAA’s assets adverse to the Republic.

e. Real Property Owned by the Republic is Not TaxableSec 234 of the LGC provides that real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person following are exempted from payment of the real property tax. However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt from real estate tax. For example, the land area occupied by hangars that MIAA leases to private corporations is subject to real estate tax.

D. SCOPE OF TAXING POWERS OF PROVINCES, MUNICIPALITIES, CITIES AND BARANGAY

1. COMMON REVENUE-RAISING POWERS – SECS. 153-155, LGC

Section 153. Service Fees and Charges. - Local government units may impose and collect such reasonable fees and charges for services rendered.

Section 154. Public Utility Charges. - Local government units may fix the rates for the operation of public utilities owned, operated and maintained by the m within their jurisdiction .

Section 155. Toll Fees or Charges. - The sanggunian concerned may prescribe the terms and conditions and fix the rates for the imposition of toll fees or charges for the use of any public road, pier, or wharf, waterway, bridge, ferry or telecommunication system funded and constructed by the local government unit concerned: Provided, That no such toll fees or charges shall be collected from officers and enlisted men of the Armed Forces of the Philippines and members of the

Page | 91

Philippine National Police on mission, post office personnel delivering mail, physically-handicapped, and disabled citizens who are sixty-five (65) years or older.

When public safety and welfare so requires, the sanggunian concerned may discontinue the collection of the tolls, and thereafter the said facility shall be free and open for public use.

2. CITIES – SEC. 151, LGC

Section 151. Scope of Taxing Powers. - Except as otherwise provided in this Code, the city, may levy the taxes, fees, and charges which the province or municipality may impose: Provided, however, That the taxes, fees and charges levied and collected by highly urbanized and independent component cities shall accrue to them and distributed in accordance with the provisions of this Code.

The rates of taxes that the city may levy may exceed the maximum rates allowed for the province or municipality by not more than fifty percent (50%) except the rates of professional and amusement taxes.

3. PROVINCES – SECS. 134-141, LGC

Section 134. Scope of Taxing Powers. - Except as otherwise provided in this Code, the province may levy only the taxes, fees, and charges as provided in this Article.

Section 135. Tax on Transfer of Real Property Ownership.

(a) The province may impose a tax on the sale , donation, barter, or on any other mode of transferring ownership or title of real property at the rate of not more than fifty percent (50%) of the one percent (1%) of the total consideration involved in the acquisition of the property or of the fair market value in case the monetary consideration involved in the transfer is not substantial, whichever is higher. The sale, transfer or other disposition of real property pursuant to R.A. No. 6657 shall be exempt from this tax.

(b) For this purpose, the Register of Deeds of the province concerned shall, before registering any deed, require the presentation of the evidence of payment of this tax. The provincial assessor shall likewise make the same requirement before cancelling an old tax declaration and issuing a new one in place thereof, Notaries public shall furnish the provincial treasurer with a copy of any deed transferring ownership or title to any real property within thirty (30) days from the date of notarization.

It shall be the duty of the seller, donor, transferor, executor or administrator to pay the tax herein imposed within sixty (60) days from the date of the execution of the deed or from the date of the decedent's death.

Section 136. Tax on Business of Printing and Publication. - The province may impose a tax on the business of persons engaged in the printing and/or publication of books, cards, posters, leaflets, handbills, certificates, receipts, pamphlets, and others of similar nature, at a rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year.

In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one percent (1%) of the capital investment. In the succeeding calendar year, regardless of when the business started to operate, the tax shall be based on the gross receipts for the preceding calendar year, or any fraction thereof, as provided herein.

The receipts from the printing and/or publishing of books or other reading materials prescribed by the Department of Education, Culture and Sports as school texts or references shall be exempt from the tax herein imposed.

Section 137. Franchise Tax. - Notwithstanding any exemption granted by any law or other special law, the province may impose a tax on businesses enjoying a franchise, at the rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the incoming receipt, or realized, within its territorial jurisdiction.

In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one percent (1%) of the capital investment. In the succeeding calendar year, regardless of when the business started to operate, the tax shall be based on the gross receipts for the preceding calendar year, or any fraction thereon, as provided herein.

Section 138. Tax on Sand, Gravel and Other Quarry Resources. - The province may levy and collect not more than ten percent (10%) of fair market value in the locality per cubic meter of ordinary stones, sand, gravel, earth, and other quarry resources, as defined under the National Internal Revenue Code, as amended, extracted from public lands or from the beds of seas, lakes, rivers, streams, creeks, and other public waters within its territorial jurisdiction.

The permit to extract sand, gravel and other quarry resources shall be issued exclusively by the provincial governor, pursuant to the ordinance of the sangguniang panlalawigan.

Page | 92

The proceeds of the tax on sand, gravel and other quarry resources shall be distributed as follows:

(1) Province - Thirty percent (30%);

(2) Component City or Municipality where the sand, gravel, and other quarry resources are extracted - Thirty percent (30%); and

(3) Barangay where the sand, gravel, and other quarry resources are extracted - Forty percent (40%).

Section 139. Professional Tax. -

(a) The province may levy an annual professional tax on each person engaged in the exercise or practice of his profession requiring government examination at such amount and reasonable classification as the sangguniang panlalawigan may determine but shall in no case exceed Three hundred pesos (P300.00).

(b) Every person legally authorized to practice his profession shall pay the professional tax to the province where he practices his profession or where he maintains his principal office in case he practices his profession in several places: Provided, however, That such person who has paid the corresponding professional tax shall be entitled to practice his profession in any part of the Philippines without being subjected to any other national or local tax, license, or fee for the practice of such profession.

(c) Any individual or corporation employing a person subject to professional tax shall require payment by that person of the tax on his profession before employment and annually thereafter.

(d) The professional tax shall be payable annually, on or before the thirty-first (31st) day of January. Any person first beginning to practice a profession after the month of January must, however, pay the full tax before engaging therein. A line of profession does not become exempt even if conducted with some other profession for which the tax has been paid. Professionals exclusively employed in the government shall be exempt from the payment of this tax.

(e) Any person subject to the professional tax shall write in deeds, receipts, prescriptions, reports, books of account, plans and designs, surveys and maps, as the case may be, the number of the official receipt issued to him.

Section 140. Amusement Tax. -

(a) The province may levy an amusement tax to be collected from the proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses, boxing stadia, and other places of amusement at a rate of not more than thirty percent (30%) of the gross receipts from admission fees.

(b) In the case of theaters or cinemas, the tax shall first be deducted and withheld by their proprietors, lessees, or operators and paid to the provincial treasurer before the gross receipts are divided between said proprietors, lessees, or operators and the distributors of the cinematographic films.

(c) The holding of operas, concerts, dramas, recitals, painting and art exhibitions, flower shows, musical programs, literary and oratorical presentations, except pop, rock, or similar concerts shall be exempt from the payment of the tax hereon imposed.

(d) The sangguniang panlalawigan may prescribe the time, manner, terms and conditions for the payment of tax. In case of fraud or failure to pay the tax, the sangguniang panlalawigan may impose such surcharges, interest and penalties as it may deem appropriate.

(e) The proceeds from the amusement tax shall be shared equally by the province and the municipality where such amusement places are located.

Section 141. Annual Fixed Tax For Every Delivery Truck or Van of Manufacturers or Producers, Wholesalers of, Dealers, or Retailers in, Certain Products. -

(a) The province may levy an annual fixed tax for every truck, van or any vehicle used by manufacturers, producers, wholesalers, dealers or retailers in the delivery or distribution of distilled spirits, fermented liquors, soft drinks, cigars and cigarettes, and other products as may be determined by the sangguniang panlalawigan, to sales outlets, or consumers, whether directly or indirectly, within the province in an amount not exceeding Five hundred pesos (P500.00).

(b) The manufacturers, producers, wholesalers, dealers and retailers referred to in the immediately foregoing paragraph shall be exempt from the tax on peddlers prescribed elsewhere in this Code.

A. FRANCHISE TAX

PLDT V. CITY OF DAVAOFACTS: Petitioner PLDT paid a franchise tax equal to three percent (3%) of its gross receipts. 

Page | 93

1. The franchise tax was paid "in lieu of all taxes on this franchise or earnings thereof" pursuant to R.A. No. 7082 amending its charter, Act. No. 3436. 

2. The exemption from "all taxes on this franchise or earnings thereof" was subsequently withdrawn by R.A. No. 7160 (Local Government Code of 1991), which at the same time gave local government units the power to tax businesses enjoying a franchise on the basis of income received or earned by them within their territorial jurisdiction.

3. The Local Government Code (LGC) took effect on January 1, 1992.

The pertinent provisions of the LGC state:Sec. 137. Franchise Tax. — Notwithstanding any exemption granted by any law or other special law, the province may impose a tax on businesses enjoying a franchise, at a rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the incoming receipt, or realized, within its territorial jurisdiction. .Sec. 193. Withdrawal of Tax Exemption Privileges. — Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or -controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.

4. Pursuant to these provisions, the City of Davao enacted Ordinance No. 519, Series of 1992, which in pertinent part provides:

Notwithstanding any exemption granted by any law or other special law, there is hereby imposed a tax on businesses enjoying a franchise, at a rate of Seventy-five percent (75%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the income or receipts realized within the territorial jurisdiction of Davao City.

5. Subsequently, Congress granted in favor of Globe Mackay Cable and Radio Corp. (Globe)2 and Smart Information Technologies, Inc. (Smart)3 franchises which contained "in lieu of all taxes" provisos.

6.  In 1995, it enacted R.A. No. 7925 (Public Telecommunications Policy of the Philippines), § 23 of which provides that "Any advantage, favor, privilege, exemption, or immunity granted under existing franchises, or may hereafter be granted, shall ipso factobecome part of previously granted telecommunications franchises and shall be accorded immediately and unconditionally to the grantees of such franchises." The law took effect on March 16, 1995.

7. In January 1999, when PLDT applied for a mayor’s permit to operate its Davao Metro Exchange, it was required to pay the

local franchise tax for the first to the fourth quarter of 1999 which then had amounted to P3,681,985.72.

8. PLDT challenged the power of the city government to collect the local franchise tax and demanded a refund of what it had paid as local franchise tax for the year 1997 and for the first to the third quarters of 1998.

9. PLDT filed a petition in the RTC. 10. RTC- dismissed the petition.

a. The trial court ruled that the LGC had withdrawn tax exemptions previously enjoyed by persons and entities and authorized local government units to impose a tax on businesses enjoying franchises within their territorial jurisdictions, notwithstanding the grant of tax exemption to them. 

ISSUE: Whether, by virtue of R.A. No. 7925, § 23, PLDT is again entitled to exemption from the payment of local franchise tax in view of the grant of tax exemption to Globe and Smart.

HELD: NO1. Petitioner contends that because their existing franchises

contain "in lieu of all taxes" clauses, the same grant of tax exemption must be deemed to have become ipso facto part of its previously granted telecommunications franchise.

But the rule is that tax exemptions should be granted only by clear and unequivocal provision of law "expressed in a language too plain to be mistaken."4 If, as PLDT contends, the word "exemption" in R.A. No. 7925 means "tax exemption" and assuming for the nonce that the charters of Globe and of Smart grant tax exemptions, then this runabout way of granting tax exemption to PLDT is not a direct, "clear and unequivocal" way of communicating the legislative intent.The best refutation of PLDT’s claim that R.A. No. 7925, § 23 grants tax exemption is the fact that after its enactment on March 16, 1995, Congress granted several franchises containing both an "equality clause" similar to § 23 and an "in lieu of all taxes" clause. If the equality clause automatically extends the tax exemption of franchises with "in lieu of all taxes" clauses, there would be no need in the same statute for the "in lieu of all taxes" clause in order to extend its tax exemption to other franchises not containing such clause.

2. Petitioner contends that the legislative intent to promote the development of the telecommunications industry is evident in the use of words as "development," "growth," and "financial viability," and that the way to achieve this purpose is to grant tax exemption or exclusion to franchises belonging in this industry. 

The contention is untenable. The thrust of the law is to promote the gradual deregulation of entry, pricing, and operations of all public telecommunications entities and thus to level the playing field in the

Page | 94

telecommunications industry. An intent to grant tax exemption cannot even be discerned from the law. The records of Congress are bereft of any discussion or even mention of tax exemption. Nor does the term "exemption" in § 23 of R.A. No. 7925 mean tax exemption. The term refers to exemption from certain regulations and requirements imposed by the National Telecommunications Commission (NTC). 

3.  PLDT says that the policy of the law is to promote healthy competition in the telecommunications industry.10According to PLDT, the LGC did not repeal the "in lieu of all taxes" provision in its franchise but only excluded from it local taxes, such as the local franchise tax.

One can speak of healthy competition only between equals. For this reason, the law seeks to break up monopoly in the telecommunications industry by gradually dismantling the barriers to entry and granting to new telecommunications entities protection against dominant carriers through equitable access charges and equal access clauses in interconnection agreements and through the strict policing of predatory pricing by dominant carriers.

SMART C OMMUNICATIONS V. CITY OF DAVAO On “In lieu of all taxes“ Clause in RA 7294:R.A. No. 7294 is not definite in granting exemption to Smart from local taxation. Section 9 of R.A. No. 7294 imposes on Smart a franchise tax equivalent to three percent (3%) of all gross receipts of the business transacted under the franchise and the said percentage shall be in lieu of all taxes on the franchise or earnings thereof. R.A. No 7294 does not expressly provide what kind of taxes Smart is exempted from. It is not clear whether the “in lieu of all taxes” provision in the franchise of Smart would include exemption from local or national taxation. What is clear is that Smart shall pay franchise tax equivalent to three percent (3%) of all gross receipts of the business transacted under its franchise. But whether the franchise tax exemption would include exemption from exactions by both the local and the national government is not unequivocal. In this case, the doubt must be resolved in favor of the City of Davao. The “in lieu of all taxes” clause applies only to national internal revenue taxes and not to local taxes. It is clear that the “in lieu of all taxes” clause apply only to taxes under the NIRC and not to local taxes. It is not even applied to income tax, as shown in the provision itself, to wit:

proviso in the first paragraph of Section 9, Smart's franchise states that the grantee shall "continue to be liable for income taxes payable under Title II of the National Internal Revenue

Code." second paragraph of Section 9, speaks of tax

returns filed and taxes paid to the "Commissioner of Internal Revenue or his duly authorized representative in accordance with the National Internal Revenue Code."

same paragraph, declares that the tax returns "shall be subject to audit by the Bureau of Internal Revenue."

If Congress intended the "in lieu of all taxes" clause in Smart's franchise to also apply to local taxes, Congress would have expressly mentioned the exemption from municipal and provincial taxes.

It should be noted that the “in lieu of all taxes” clause in R.A. No. 7294 has become functus officio with the abolition of the franchise tax on telecommunications companies. Currently, Smart along with other telecommunications companies pays the uniform 10% value-added tax. The VAT on sale of services of telephone franchise grantees is equivalent to 10% of gross receipts derived from the sale or exchange of services, as provided in R.A. No. 7716, as amended by the Expanded Value Added Tax Law (R.A. No. 8241).

  On the burden of grant to Tax exemptions: Tax exemptions are never presumed and are strictly construed against the taxpayer and liberally in favor of the taxing authority. They can only be given force when the grant is clear and categorical. If the intention of the legislature is open to doubt, then the intention of the legislature must be resolved in favor of the State.

QUEZON CITY V. ABS-CBN CORPNow to go back to the Quezon City Revenue Code which imposed real estate taxes on all real properties within the city's territory and removed exemptions theretofore "previously granted to, or presently enjoyed by all persons, whether natural or juridical … " there can really be no dispute that the power of the QC Government to tax is limited by Section 232 of the LGC which expressly provides that "a province or city or municipality within the Metropolitan Manila Area may levy an annual ad valorem tax on real property such as land, building, machinery, and other improvement not hereinafter specifically exempted." Under this law, the Legislature highlighted its power to thereafter exempt certain realties from the taxing power of local government units.

Page | 95

The Philippine Congress enacted R.A. No. 7966 (March 30, 1995) subsequent to the effectivity of the LGC (January 1, 1992). Under it, ABS-CBN was granted the franchise to install and operate radio and television broadcasting stations in the Philippines. Section 8 imposed on ABS-CBN the duty of paying 3% franchise tax. Payment of the percentage franchise tax shall be "in lieu of all taxes" on the said franchise.

Congress has the inherent power to tax, which includes the power to grant tax exemptions. On the other hand, the power of Quezon City to tax is prescribed by Section 151 in relation to Section 137 of the LGC which expressly provides that notwithstanding any exemption granted by any law or other special law, the City may impose a franchise tax. It must be noted that Section 137 of the LGC does not prohibit grant of future exemptions. SC in Quezon City v. Bayan Telecommunications, sustained the power of Congress to grant tax exemptions over and above the power of the local government's delegated power to tax.

A claim of tax exemption must be clearly shown and based on language in law too plain to be mistaken. The burden of proof rests upon the party claiming the exemption to prove that it is in fact covered by the exemption so claimed.

Section 8 of R.A. No. 7966 imposes on ABS-CBN a franchise tax equivalent to 3% of all gross receipts of the radio/television business transacted under the franchise and the franchise tax shall be "in lieu of all taxes" on the franchise or earnings thereof.

The "in lieu of all taxes" provision in the franchise of ABS-CBN does not expressly provide what kind of taxes ABS-CBN is exempted from. It is not clear whether the exemption would include both local, whether municipal, city or provincial, and national tax. What is clear is that ABS-CBN shall be liable to pay 3% percent franchise tax and income taxes under Title II of the NIRC. But whether the "in lieu of all taxes provision" would include exemption from local tax is not unequivocal.

As adverted to earlier, the right to exemption from local franchise tax must be clearly established and cannot be made out of inference or implications but must be laid beyond reasonable doubt. Verily, the uncertainty in the "in lieu of all taxes" provision should be construed against ABS-CBN.ABS-CBN has the burden to prove that it

is in fact covered by the exemption so claimed. ABS-CBN miserably

failed in this regard.

4. MUNICIPALITIES – SECS. 142, 143, 147 – 149, LGC

Section 142. Scope of Taxing Powers. - Except as otherwise provided in this Code, municipalities may levy taxes, fees, and charges not otherwise levied by provinces.

Section 143. Tax on Business. - The municipality may impose taxes on the following businesses:

(a) On manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers, and compounders of liquors, distilled spirits, and wines or manufacturers of any article of commerce of whatever kind or nature, in accordance with the following schedule:

With gross sales or receipts for the preceding calendar year in the amount of:

Amount of Tax Per Annum

Less than 10,000.00 165.00

P 10,000.00 or more but less than 15,000.00

220.00

15,000.00 or more but less than 20,000.00 202.00

20,000.00 or more but less than 30,000.00 440.00

30,000.00 or more but less than 40,000.00 660.00

40,000.00 or more but less than 50,000.00 825.00

50,000.00 or more but less than 75,000.00 1,320.00

75,000.00 or more but less than 100,000.00 1,650.00

100,000.00 or more but less than 150,000.00

2,200.00

150,000.00 or more but less than 200,000.00

2,750.00

Page | 96

200,000.00 or more but less than 300,000.00

3,850.00

300,000.00 or more but less than 500,000.00

5,500.00

500,000.00 or more but less than 750,000.00

8,000.00

750,000.00 or more but less than 1,000,000.00

10,000.00

1,000,000.00 or more but less than 2,000,000.00

13,750.00

2,000,000.00 or more but less than 3,000,000.00

16,500.00

3,000,000.00 or more but less than 4,000,000.00

19,000.00

4,000,000.00 or more but less than 5,000,000.00

23,100.00

5,000,000.00 or more but less than 6,500,000.00

24,375.00

6,000,000.00 or more at a rate not exceeding thirty-seven and a half percent (37½%) of one percent (1%)

(b) On wholesalers, distributors, or dealers in any article of commerce of whatever kind or nature in accordance with the following schedule:

With gross sales or receipts for the preceding calendar year in the amount of:

Amount of Tax Per Annum

Less than 1,000.00 18.00

P 1,000.00 or more but less than 2,000.00 33.00

2,000.00 or more but less than 3,000.00 50.00

3,000.00 or more but less than 4,000.00 72.00

4,000.00 or more but less than 5,000.00 100.00

5,000.00 or more but less than 6,000.00 121.00

6,000.00 or more but less than 7,000.00 143.00

7,000.00 or more but less than 8,000.00 165.00

8,000.00 or more but less than 10,000.00 187.00

10,000.00 or more but less than 15,000.00 220.00

15,000.00 or more but less than 20,000.00 275.00

20,000.00 or more but less than 30,000.00 330.00

30,000.00 or more but less than 40,000.00 440.00

40,000.00 or more but less than 50,000.00 660.00

50,000.00 or more but less than 75,000.00 990.00

75,000.00 or more but less than 100,000.00 1,320.00

100,000.00 or more but less than 150,000.00

1,870.00

150,000.00 or more but less than 200,000.00

2,420.00

200,000.00 or more but less than 300,000.00

3,300.00

300,000.00 or more but less than 500,000.00

4,400.00

500,000.00 or more but less than 750,000.00

6,600.00

750,000.00 or more but less than 1,000,000.00

8,800.00

1,000,000.00 or more but less than 2,000,000.00

10,000.00

2,000,000.00 or more at a rate not exceeding fifty percent (50%) of one percent (1%).

(c) On exporters, and on manufacturers , millers, producers, wholesalers, distributors, dealers or retailers of essential commodities enumerated hereunder at a rate not exceeding one-half (½) of the rates prescribed under subsection (a), (b) and (d) of this Section:

(1) Rice and corn;

(2) Wheat or cassava flour, meat, dairy products, locally manufactured, processed or preserved food, sugar, salt

Page | 97

and other agricultural, marine, and fresh water products, whether in their original state or not;

(3) Cooking oil and cooking gas;

(4) Laundry soap, detergents, and medicine;

(5) Agricultural implements. equipment and post-harvest facilities, fertilizers, pesticides, insecticides, herbicides and other farm inputs;

(6) Poultry feeds and other animal feeds;

(7) School supplies; and

(8) Cement.

(d) On retailers.

With gross sales or receipts for the preceding calendar year in the amount of:

Rate of Tax Per Annum

P400,000.00 or less 2%

more than P400,000.00 1%

Provided, however, That barangays shall have the exclusive power to levy taxes, as provided under Section 152 hereof, on gross sales or receipts of the preceding calendar year of Fifty thousand pesos (P50,000.00) or less, in the case of cities, and Thirty thousand pesos (P30,000.00) or less, in the case of municipalities.

(d) On contractors and other independent contractors, in accordance with the following schedule:

With gross sales or receipts for the preceding calendar year in the amount of:

Amount of Tax Per Annum

Less than 5,000.00 27.50

P 5,000.00 or more but less than P 10,000.00

61.60

10,000.00 or more but less than 15,000.00 104.50

15,000.00 or more but less than 20,000.00 165.00

20,000.00 or more but less than 30,000.00 275.00

30,000.00 or more but less than 40,000.00 385.00

40,000.00 or more but less than 50,000.00 550.00

50,000.00 or more but less than 75,000.00 880.00

75,000.00 or more but less than 100,000.00 1,320.00

100,000.00 or more but less than 150,000.00

1,980.00

150,000.00 or more but less than 200,000.00

2,640.00

200,000.00 or more but less than 250,000.00

3,630.00

250,000.00 or more but less than 300,000.00

4,620.00

300,000.00 or more but less than 400,000.00

6,160.00

400,000.00 or more but less than 500,000.00

8,250.00

500,000.00 or more but less than 750,000.00

9,250.00

750,000.00 or more but less than 1,000,000.00

10,250.00

1,000,000.00 or more but less than 2,000,000.00

11,500.00

2,000,000.00 or more at a rate not exceeding fifty percent (50%) of one percent (1%)

(f) On banks and other financial institutions, at a rate not exceeding fifty percent (50%) of one percent (1%) on the gross receipts of the preceding calendar year derived from interest, commissions and discounts from lending activities, income from financial leasing, dividends, rentals on property and profit from exchange or sale of property, insurance premium.

(g) On peddlers engaged in the sale of any merchandise or article of commerce, at a rate not exceeding Fifty pesos (P50.00) per peddler annually.

(h) On any business, not otherwise specified in the preceding paragraphs, which the sanggunian concerned may deem proper to tax: Provided, That on any business subject to the excise, value-added or percentage tax under the National Internal Revenue Code, as amended, the rate of tax shall not exceed

Page | 98

two percent (2%) of gross sales or receipts of the preceding calendar year.

The sanggunian concerned may prescribe a schedule of graduated tax rates but in no case to exceed the rates prescribed herein.

Section 147. Fees and Charges. - The municipality may impose and collect such reasonable fees and charges on business and occupation and, except as reserved to the province in Section 139 of this Code, on the practice of any profession or calling, commensurate with the cost of regulation, inspection and licensing before any person may engage in such business or occupation, or practice such profession or calling.

Section 148. Fees for Sealing and Licensing of Weights and Measures. -

(a) The municipality may levy fees for the sealing and licensing of weights and measures at such reasonable rates as shall be prescribed by the sangguniang bayan.

(b) The sangguniang bayan shall prescribe the necessary regulations for the use of such weights and measures, subject to such guidelines as shall be prescribed by the Department of Science and Technology. The sanggunian concerned shall, by appropriate ordinance, penalize fraudulent practices and unlawful possession or use of instruments of weights and measures and prescribe the criminal penalty therefor in accordance with the provisions of this Code. Provided, however, That the sanggunian concerned may authorize the municipal treasurer to settle an offense not involving the commission of fraud before a case therefor is filed in court, upon payment of a compromise penalty of not less than Two hundred pesos (P200.00).

Section 149. Fishery Rentals, Fees and Charges. -

(a) Municipalities shall have the exclusive authority to grant fishery privileges in the municipal waters and impose rentals, fees or charges therefor in accordance with the provisions of this Section.

(b) The sangguniang bayan may:

(1) Grant fishery privileges to erect fish corrals, oysters, mussels or other aquatic beds or bangus fry areas, within a definite zone of the municipal waters, as determined by it: Provided, however, That duly registered organizations and cooperatives of marginal fishermen shall have the preferential right to such fishery privileges: Provided, further, That the sangguniang bayan may require a public bidding in

conformity with and pursuant to an ordinance for the grant of such privileges: Provided, finally, That in the absence of such organizations and cooperatives or their failure to exercise their preferential right, other parties may participate in the public bidding in conformity with the above cited procedure.

(2) Grant the privilege to gather, take or catch bangus fry, prawn fry or kawag-kawag or fry of other species and fish from the municipal waters by nets, traps or other fishing gears to marginal fishermen free of any rental, fee, charge or any other imposition whatsoever.

(3) Issue licenses for the operation of fishing vessels of three (3) tons or less for which purpose the sangguniang bayan shall promulgate rules and regulations regarding the issuances of such licenses to qualified applicants under existing laws.

Provided, however, That the sanggunian concerned shall, by appropriate ordinance, penalize the use of explosives, noxious or poisonous substances, electricity, muro-ami, and other deleterious methods of fishing and prescribe a criminal penalty therefor in accordance with the provisions of this Code: Provided, finally, That the sanggunian concerned shall have the authority to prosecute any violation of the provisions of applicable fishery laws.

A. BUSINESS TAX

ERICSSON COMMUNICATIONS V. CITY OF PASIGFACTS: In an Assessment Notice, petitioner was assessed a business tax deficiency for the years 1998 and 1999 amounting to P9,466,885.00 and P4,993,682.00, respectively, based on its gross revenues as reported in its audited financial statements for the years1997 and 1998. Petitioner filed a Protest claiming that the computation of the local business tax should be based on gross receipts and not on gross revenue. The City of Pasig (respondent) issued another Notice of Assessment to petitioner on November 19, 2001, this time based on business tax deficiencies for the years 2000 and2001, amounting to P4,665,775.51 and P4,710,242.93, respectively, based on its gross revenues for the years 1999 and 2000. Again, petitioner filed a Protest on January 21,2002, reiterating its position that the local business tax should be based on gross receipts and not gross revenue. Respondent denied the protest. The RTC, however, canceled and set aside the assessments made by respondent and its City Treasurer. The CA reversed and set aside the complaint for lack of authority.

Page | 99

ISSUE: Whether or not the local business tax on contractors should be based on gross receipts or gross revenue.

RULING: Insofar as petitioner is concerned, the applicable provision is subsection (e), Section 143 of the same Code covering contractors and other independent contractors. The provision specifically refers to gross receipts which is defined under Section 131 of the Local Government Code, as follows:

(n) “Gross Sales or Receipts” include the total amount of money or its equivalent representing the contract price, compensation or service fee, including the amount charged or materials supplied with the services and the deposits or advance payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person excluding discounts if determinable at the time of sales, sales return, excise tax, and value-added tax (VAT);

The law is clear. Gross receipts include money or its equivalent actually or constructively received in consideration of services rendered or articles sold, exchanged or leased, whether actual or constructive. In Commissioner of Internal Revenue v. Bank of Commerce, the Court interpreted gross receipts as including those which were actually or constructively received, viz.:

Actual receipt of interest income is not limited to physical receipt. Actual receipt may either be physical receipt or constructive receipt. When the depository bank withholds the final tax to pay the tax liability of the lending bank, there is prior to the withholding a constructive receipt by the lending bank of the amount withheld. From the amount constructively received by the lending bank, the depository bank deducts the final withholding tax and remits it to the government for the account of the lending bank. Thus, the interest income actually received by the lending bank, both physically and constructively, is the net interest plus the amount withheld as final tax.

There is constructive receipt, when the consideration for the articles sold, exchanged or leased, or the services rendered has already been placed under the control of the person who sold the goods or rendered the services without any restriction by the payor. In contrast, gross revenue covers money or its equivalent actually or constructively received, including the value of services rendered or articles sold, exchanged or leased, the payment of which is yet to be received. This is in consonance with the International Financial Reporting Standards, which defines revenue as the gross inflow of economic benefits (cash, receivables, and other assets) arising from the ordinary operating activities of an enterprise (such as sales of goods, sales of services, interest, royalties, and dividends),which is measured at the fair value of the consideration received or receivable. The imposition of local business tax based on petitioner’s gross revenue will inevitably result in the constitutionally proscribed double taxation – taxing of the same person twice by the same jurisdiction for the same thing – inasmuch as petitioner’s revenue or income for a taxable year will definitely include

its gross receipts already reported during the previous year and for which local business tax has already been paid. Thus, respondent committed a palpable error when it assessed petitioner’s local business tax based on its gross revenue as reported in its audited financial statements, as Section 143 of the Local Government Code and Section 22(e) of the Pasig Revenue Code clearly provide that the tax should be computed based on gross receipts.

YAMANE V. BA LEPANTOFacts: Petitioner City Treasurer of Makati holds respondent, in a Notice of Assessment, liable to pay the correct business taxes, fees and charges totaling to P1.6M in which the respondents protested contending that condominium does not fall under the definition of a business, thus, they are not liable for such taxes.

Issue: Whether or not the City Treasurer of Makati may collect business taxes on condominium corporations

Held: Petition denied. Accordingly, and with significant degree of comfort, we hold that condominium corporations are generally exempt from local business taxation under the LGC, irrespective of any local ordinance that seeks to declare otherwise.

The power of the local government units to impose taxes within its territorial jurisdiction derives from the Constitution itself, which recognizes the power of these units “to create its own sources of revenue and to levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy.”

5. BARANGAY – SEC. 152, LGC

Section 152. Scope of Taxing Powers. - The barangays may levy taxes, fees, and charges, as provided in this Article, which shall exclusively accrue to them:

(a) Taxes - On stores or retailers with fixed business establishments with gross sales of receipts of the preceding calendar year of Fifty thousand pesos (P50,000.00) or less, in the case of cities and Thirty thousand pesos (P30,000.00) or less, in the case of municipalities, at a rate not exceeding one percent (1%) on such gross sales or receipts.

(b) Service Fees or Charges. - Barangays may collect reasonable fees or charges for services rendered in connection with the regulations or the use of barangay-owned properties or service facilities such as palay, copra, or tobacco dryers.

Page | 100

(c) Barangay Clearance. - No city or municipality may issue any license or permit for any business or activity unless a clearance is first obtained from the barangay where such business or activity is located or conducted. For such clearance, the sangguniang barangay may impose a reasonable fee. The application for clearance shall be acted upon within seven (7) working days from the filing thereof. In the event that the clearance is not issued within the said period, the city or municipality may issue the said license or permit.

(d) Other fees and Charges. - The barangay may levy reasonable fees and charges:

(1) On commercial breeding of fighting cocks, cockfights and cockpits;

(2) On places of recreation which charge admission fees; and

(3) On billboards, signboards, neon signs, and outdoor advertisements.

6. RATES IN METRO MANILA – SEC. 144, LGC

Section 144. Rates of Tax within the Metropolitan Manila Area. - The municipalities within the Metropolitan Manila Area may levy taxes at rates which shall not exceed by fifty percent (50%) the maximum rates prescribed in the preceding Section.

7. PAYMENT OF BUSINESS TAXES – SEC. 146, LGC

Section 146. Payment of Business Taxes. -

(a) The taxes imposed under Section 143 shall be payable for every separate or distinct establishment or place where business subject to the tax is conducted and one line of business does not become exempt by being conducted with some other business for which such tax has been paid. The tax on a business must be paid by the person conducting the same.

(b) In cases where a person conducts or operates two (2) or more of the businesses mentioned in Section 143 of this Code which are subject to the same rate of tax, the tax shall be

computed on the combined total gross sales or receipts of the said two (2) or more related businesses.

(c) In cases where a person conducts or operates two (2) or more businesses mentioned in Section 143 of this Code which are subject to different rates of tax, the gross sales or receipts of each business shall be separately reported for the purpose of computing the tax due from each business.

8. RETIREMENT OF BUSINESS – SEC. 145, LGC

Section 145. Retirement of Business. - A business subject to tax pursuant to the preceding sections shall, upon termination thereof, submit a sworn statement of its gross sales or receipts for the current year. If the tax paid during the year be less than the tax due on said gross sales or receipts of the current year, the difference shall be paid before the business is considered officially retired.

MOBIL PHIL INC V. CITY TREASURER OF MAKATIOn the year an establishment retires or terminates its business within the municipality, it would be required to pay the difference in the amount if the tax collected, based on the previous year’s gross sales or receipts, is less than the actual tax due based on the current year’s gross sales or receipts.For the year 1998, petitioner paid a total of P2,262,122.48 to the City Treasurer of Makati as business taxes for the year 1998. The amount of tax as computed based on petitioner’s gross sales for 1998 is only P1,331,638.84.

Since the amount paid is more than the amount computed based on petitioner’s actual gross sales for 1998, petitioner upon its retirement is not liable for additional taxes to the City of Makati. Thus, we find that the respondent erroneously treated the assessment and collection of business tax as if it were income tax, by rendering an additional assessment of P1,331,638.84 for the revenue generated for the year 1998.

9. SITUS OF TAX – SEC. 150, LGC

Section 150. Situs of the Tax. -

(a) For purposes of collection of the taxes under Section 143 of this Code, manufacturers, assemblers, repackers, brewers, distillers, rectifiers and compounders of liquor, distilled spirits and wines, millers, producers, exporters, wholesalers,

Page | 101

distributors, dealers, contractors, banks and other financial institutions, and other businesses, maintaining or operating branch or sales outlet elsewhere shall record the sale in the branch or sales outlet making the sale or transaction, and the tax thereon shall accrue and shall be paid to the municipality where such branch or sales outlet is located. In cases where there is no such branch or sales outlet in the city or municipality where the sale or transaction is made, the sale shall be duly recorded in the principal office and the taxes due shall accrue and shall be paid to such city or municipality.

(b) The following sales allocation shall apply to manufacturers, assemblers, contractors, producers, and exporters with factories, project offices, plants, and plantations in the pursuit of their business:

(1) Thirty percent (30%) of all sales recorded in the principal office shall be taxable by the city or municipality where the principal office is located; and

(2) Seventy percent (70%) of all sales recorded in the principal office shall be taxable by the city or municipality where the factory, project office, plant, or plantation is located.

(c) In case of a plantation located at a place other than the place where the factory is located, said seventy percent (70%) mentioned in subparagraph (b) of subsection (2) above shall be divided as follows:

(1) Sixty percent (60%) to the city or municipality where the factory is located; and

(2) Forty percent (40%) to the city or municipality where the plantation is located.

(d) In cases where a manufacturer, assembler, producer, exporter or contractor has two (2) or more factories, project offices, plants, or plantations located in different localities, the seventy percent (70%) sales allocation mentioned in subparagraph (b) of subsection (2) above shall be prorated among the localities where the factories, project offices, plants, and plantations are located in proportion to their respective volumes of production during the period for which the tax is due.

(e) The foregoing sales allocation shall be applied irrespective of whether or not sales are made in the locality where the factory, project office, plant, or plantation is located.

LINBERG PHILS V. CITY OF MAKATIFACTS: Linberg is a duly organized corporation, with principal office in Ayala Avenue, Makati City. It is engaged in the business of financing the construction and operation of power plants primarily through "Build Operate -Transfer" (BOT) agreements with its customers.

1. Respondent City of Makati is a public corporation created and existing pursuant to law. Co-respondent Nelia A. Barlis is the incumbent Treasurer of the City of Makati and is impleaded in her official capacity.

2. On March 7, 2003, Linberg received the questioned Notice of Assessment for deficiency business taxes plus surcharges and interests covering the taxable years 2000, 2001 and 2002. The alleged deficiency business taxes arose from respondent's reclassification of petitioner's business from a "holding or investment" company to a "contractor”.

3. Not in agreement with the questioned assessment, petitioner filed a Letter Protest, but this was denied by respondent City Treasurer. Linberg assailed the denial of the protest before the RTC of Makati City. The case was dismissed for lack of merit. The Motion for Reconsideration was likewise denied. Petitioner appealed the said denial before this Court which partially granted the petition and reduced the deficiency taxes of petitioner.

ISSUE: whether or not the Court in Division committed errors of fact or law that would warrant a reversal or modification of it’s assailed.

Petitioner's Arguments

Petitioner submits that upholding the taxing jurisdiction of respondent Makati City on thirty percent (30%) of sales made in the locality where petitioner has a branch office is contrary to the situs rules under Section 150 of the Local Government Code and Article 243 of its Implementing Rules and Regulations (IRR). The Court in Division allegedly assumed that petitioner and its customers negotiated and planned the construction of the power plants in Makati City, and that its sales are recorded in Makati City because its sales invoices are reviewed and approved in its principal office in Makati.

However, petitioner contends that these are merely assumptions that are not supported by evidence. If petitioner is classified as a contractor,

Page | 102

as respondent Makati City maintains , all if not substantially all, of the controlling or operative acts that constitute petitioner's sale of services, must be done in Makati City .

Further, petitioner argues that Section 150 of the Local Government Code and Article 243 of the IRR of said Code clearly provide that if a sale made in a locality where the taxpayer maintains a branch or sales office , the tax thereon shall accrue and be paid to the city or municipality where such branch or sales office is located . It is only in a case when there is no branch office in the locality where the sale transaction is made, that the sale shall allegedly be duly recorded in the principal office, and the taxes due thereon shall be allocated between the principal office and the factory, project office, plant or plantation using the 30-70 formula prescribed in Section 150.

Respondents' Counter-arguments

Respondents counter-argue that the existence of petitioner's principal office in Makati City, and the admission thereof, constitutes prima facie evidence that it is conducting business in said territorial jurisdiction, and therefore, respondent Makati City has jurisdiction to tax petitioner.

Although petitioner has been insistent, contradicting itself at times, that it has not been doing business in Makati City but only in its branch offices, it is necessarily obligated to prove its claim that indeed, the offices maintained outside the City of Makati are branch offices as defined by law, and that, it has been paying its due taxes thereat, otherwise, such bare and naked argument, allegedly stays as it is, bare and naked.

THE COURT EN BANC'S RULING

Petitioner's arguments are devoid of merit.

At the outset, petitioner questions the jurisdiction of respondent City of Makati to tax its business. The Court in Division settled this issue by pronouncing that the City of Makati, where petitioner's principal office is found , has the power to tax its business , but as much as only thirty (30%) percent of petitioner's gross sales/receipts .

We note that aside from petitioner's admission that its principal office is in Makati City, the Court in Division found that its principal office is in charge of reviewing and approving the correctness of the invoices issued by the branch offices. Such activities done in the principal office is evident of business transactions which should necessarily be recorded. This, petitioner failed to refute as it did not adduce evidence to prove that there are no recorded sales or business transactions in its

office in Makati City, and its alleged payments of its business taxes to the municipalities where it has its branch offices were also not proven .

It bears emphasizing that petitioner cannot merely deny the fact that it is covered by the taxing jurisdiction of Makati City without adducing evidence to prove otherwise.

Petitioner's business involves financing the construction and operation of private power plants through a Built-Operate-Transfer (BOT) arrangements with its customers. Admittedly, under the BOT arrangement, petitioner advances the necessary capital by employing and paying for the services of a contractor which will build the power plant. These transactions, prior to the completion of the power plants and branch offices of petitioner, are considered as activities of doing business, which are necessarily taxable in its principal office, considering that all the documents and deals were arranged in its principal office in Makati City .

In this regard, petitioner is correct in invoking the applicability of Section 150 of the Local Government Code for purposes of determining the situs of tax in the instant case. However, we would like to stress the importance of the relevant portion of said provision, to wit:

"Section 150.Situs of the Tax .-(a) xxx. In cases where there is no such branch or sales outlet in the city or municipality where the sale or transaction is made, the sale shall be duly recorded in the principal office and the taxes due shall accrue and shall be paid to such city or municipality."

We reiterate that in the ordinary course of business, particularly in the nature of a BOT business, prior to the building and construction of any power plant at any locality, the usual negotiations thereon, until the full completion of the contract of BOT, is usually done in the principal office. Naturally, this transaction is taxable as it is an exercise of a business. Although the power plants, which are subject of petitioner's contract of BOT, are situated at different localities, still the act of financing the construction and operation thereof, are considered as "doing business" which appears to have been performed at petitioner's principal office in Makati City . It is therefore clear that respondent City of Makati has jurisdiction to tax petitioner.

We maintain that petitioner is a contractor, and not a financing or holding company. Contractor is referred to in the Local Government Code of 1991 as to include persons, natural or juridical, not subject to professional tax under Section 139 of this Code whose activity consists essentially of the sale of all kinds of services for a fee regardless of whether or not the performance of the service calls for the exercise or

Page | 103

use of the physical or mental faculties of such contractor or his employees.

Finally, on the issue regarding the imposition of surcharge and penalties, we find that the same to be in accordance with law. Consequently, upon discovery by the local government that petitioner misrepresented itself and caused a different tax rate to be applied to it, there is legal basis to impose surcharge and penalties.

Even granting for the sake of argument that it was respondent who classified petitioner as a holding or investment company, still, it was petitioner who submitted certain documents which misled or caused respondent to believe that petitioner was engaged in an investment business.

10. COLLECTION OF TAXES – SECS. 165 – 171, LGC

Section 165. Tax Period and Manner of Payment. - Unless otherwise provided in this Code, the tax period of all local taxes, fees and charges shall be the calendar year. Such taxes, fees and charges may be paid in quarterly installments.

Section 166. Accrual of Tax. - Unless otherwise provided in this Code, all local taxes, fees, and charges shall accrue on the first (1st) day of January of each year. However, new taxes, fees or charges, or changes in the rates thereof, shall accrue on the first (1st) day of the quarter next following the effectivity of the ordinance imposing such new levies or rates.

Section 167. Time of Payment. - Unless otherwise provided in this Code, all local taxes, fees, and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter, as the case may be. The sanggunian concerned may, for a justifiable reason or cause, extend the time for payment of such taxes, fees, or charges without surcharges or penalties, but only for a period not exceeding six (6) months.

Section 168. Surcharges and Penalties on Unpaid Taxes, Fees, or Charges. - The sanggunian may impose a surcharge not exceeding twenty-five (25%) of the amount of taxes, fees or charges not paid on time and an interest at the rate not exceeding two percent (2%) per month of the unpaid taxes, fees or charges including surcharges, until such amount is fully paid but in no case shall the total thirty-six (36%) months.

Section 169. Interests on Other Unpaid Revenues. - Where the amount of any other revenue due a local government unit, except voluntary contributions or donations, is not paid on the date fixed in the ordinance, or in the contract, expressed or implied, or upon the occurrence of the event which has given rise to its collection, there shall be collected as part of that amount an interest thereon at the rate not exceeding two percent (2%) per month from the date it is due until it is paid, but in no case shall the total interest on the unpaid amount or a portion thereof exceed thirty-six (36) months.

Section 170. Collection of Local Revenue by Treasurer. - All local taxes, fees, and charges shall be collected by the provincial, city, municipal, or barangay treasurer, or their duly authorized deputies.

The provincial, city or municipal treasurer may designate the barangay treasurer as his deputy to collect local taxes, fees, or charges. In case a bond is required for the purpose, the provincial, city or municipal government shall pay the premiums thereon in addition to the premiums of bond that may be required under this Code.

Section 171. Examination of Books of Accounts and Pertinent Records of Businessmen by Local Treasurer. - The provincial, city, municipal or barangay treasurer may, by himself or through any of his deputies duly authorized in writing, examine the books, accounts, and other pertinent records of any person, partnership, corporation, or association subject to local taxes, fees and charges in order to ascertain. assess, and collect the correct amount of the tax, fee, or charge. Such examination shall be made during regular business hours, only once for every tax period, and shall be certified to by the examining official. Such certificate shall be made of record in the books of accounts of the taxpayer examined.

In case the examination herein authorized is made by a duly authorized deputy of the local treasurer, the written authority of the deputy concerned shall specifically state the name, address, and business of the taxpayer whose books, accounts, and pertinent records are to be examined, the date and place of such examination and the procedure to be followed in conducting the same.

For this purpose, the records of the revenue district office of the Bureau of Internal Revenue shall be made available to the local treasurer, his deputy or duly authorized representative.

E. REMEDIES

Page | 104

A. GOVERNMENT’S REMEDIES, SEC. 172-185, LGC

Section 172. Application of Chapter. - The provisions of this Chapter and the remedies provided hereon may be availed of for the collection of any delinquent local tax, fee, charge, or other revenue.

Section 173. Local Government's Lien. - Local taxes, fees, charges and other revenues constitute a lien, superior to all liens, charges or encumbrances in favor of any person, enforceable by appropriate administrative or judicial action, not only upon any property or rights therein which may be subject to the lien but also upon property used in business, occupation, practice of profession or calling, or exercise of privilege with respect to which the lien is imposed. The lien may only be extinguished upon full payment of the delinquent local taxes fees and charges including related surcharges and interest.

Section 174. Civil Remedies. - The civil remedies for the collection of local taxes, fees, or charges, and related surcharges and interest resulting from delinquency shall be:

(a) By administrative action thru distraint of goods, chattels, or effects, and other personal property of whatever character, including stocks and other securities, debts, credits, bank accounts, and interest in and rights to personal property, and by levy upon real property and interest in or rights to real property;

(b) By judicial action.

Either of these remedies or all may be pursued concurrently or simultaneously at the discretion of the local government unit concerned.

Section 175. Distraint of Personal Property. - The remedy by distraint shall proceed as follows:

(a) Seizure - Upon failure of the person owing any local tax, fee, or charge to pay the same at the time required, the local treasurer or his deputy may, upon written notice, seize or confiscate any personal property belonging to that person or any personal property subject to the lien in sufficient quantity to satisfy the tax, fee, or charge in question, together with any increment thereto incident to delinquency and the expenses of seizure. In such case, the local treasurer or his deputy shall issue a duly authenticated certificate based upon the records of

his office showing the fact of delinquency and the amounts of the tax, fee, or charge and penalty due. Such certificate shall serve as sufficient warrant for the distraint of personal property aforementioned, subject to the taxpayer's right to claim exemption under the provisions of existing laws. Distrained personal property shall be sold at public auction in the manner hereon provided for.

(b) Accounting of distrained goods. - The officer executing the distraint shall make or cause to be made an account of the goods, chattels or effects distrained, a copy of which signed by himself shall be left either with the owner or person from whose possession the goods, chattels or effects are taken, or at the dwelling or place or business of that person and with someone of suitable age and discretion, to which list shall be added a statement of the sum demanded and a note of the time and place of sale.

(c) Publication - The officer shall forthwith cause a notification to be exhibited in not less than three (3) public and conspicuous places in the territory of the local government unit where the distraint is made, specifying the time and place of sale, and the articles distrained. The time of sale shall not be less than twenty (20) days after the notice to the owner or possessor of the property as above specified and the publication or posting of the notice. One place for the posting of the notice shall be at the office of the chief executive of the local government unit in which the property is distrained.

(d) Release of distrained property upon payment prior to sale - If at any time prior to the consummation of the sale, all the proper charges are paid to the officer conducting the sale, the goods or effects distrained shall be restored to the owner.

(e) Procedure of sale - At the time and place fixed in the notice, the officer conducting the sale shall sell the goods or effects so distrained at public auction to the highest bidder for cash. Within five (5) days after the sale, the local treasurer shall make a report of the proceedings in writing to the local chief executive concerned.

Should the property distrained be not disposed of within one hundred and twenty (120) days from the date of distraint, the same shall be considered as sold to the local government unit concerned for the amount of the assessment made thereon by the Committee on Appraisal and to the extent of the same amount, the tax delinquencies shall be cancelled.

Page | 105

Said Committee on Appraisal shall be composed of the city or municipal treasurer as chairman, with a representative of the Commission on Audit and the city or municipal assessor as members.

(f) Disposition of proceeds - The proceeds of the sale shall be applied to satisfy the tax, including the surcharges, interest, and other penalties incident to delinquency, and the expenses of the distraint and sale. The balance over and above what is required to pay the entire claim shall be returned to the owner of the property sold. The expenses chargeable upon the seizure and sale shall embrace only the actual expenses of seizure and preservation of the property pending the sale, and no charge shall be imposed for the services of the local officer or his deputy. Where the proceeds of the sale are insufficient to satisfy the claim, other property may, in like manner, be distrained until the full amount due, including all expenses, is collected.

Section 176. Levy on Real Property. - After the expiration of the time required to pay the delinquent tax, fee, or charge, real property may be levied on before, simultaneously, or after the distraint of personal property belonging to the delinquent taxpayer. To this end, the provincial, city or municipal treasurer, as the case may be, shall prepare a duly authenticated certificate showing the name of the taxpayer and the amount of the tax, fee, or charge, and penalty due from him. Said certificate shall operate with the force of a legal execution throughout the Philippines. Levy shall be effected by writing upon said certificate the description of the property upon which levy is made. At the same time, written notice of the levy shall be mailed to or served upon the assessor and the Register of Deeds of the province or city where the property is located who shall annotate the levy on the tax declaration and certificate of title of the property, respectively, and the delinquent taxpayer or, if he be absent from the Philippines, to his agent or the manager of the business in respect to which the liability arose, or if there be none, to the occupant of the property in question.

In case the levy on real property is not issued before or simultaneously with the warrant of distraint on personal property, and the personal property of the taxpayer is not sufficient to satisfy his delinquency, the provincial, city or municipal treasurer, as the case may be, shall within thirty (30) days after execution of the distraint, proceed with the levy on the taxpayer's real property.

A report on any levy shall, within ten (10) days after receipt of the warrant, be submitted by the levying officer to the sanggunian concerned.

Section 177. Penalty for Failure to Issue and Execute Warrant. - Without prejudice to criminal prosecution under the Revised Penal Code and other applicable laws, any local treasurer who fails to issue or execute the warrant of distraint or levy after the expiration of the time prescribed, or who is found guilty of abusing the exercise thereof by competent authority shall be automatically dismissed from the service after due notice and hearing.

Section 178. Advertisement and Sale. - Within thirty (30) days after the levy, the local treasurer shall proceed to publicly advertise for sale or auction the property or a usable portion thereof as may be necessary to satisfy the claim and cost of sale; and such advertisement shall cover a period of at least thirty (30) days. It shall be effected by posting a notice at the main entrance of the municipal building or city hall, and in a public and conspicuous place in the barangay where the real property is located, and by publication once a week for three (3) weeks in a newspaper of general circulation in the province, city or municipality where the property is located. The advertisement shall contain the amount of taxes, fees or charges, and penalties due thereon, and the time and place of sale, the name of the taxpayer against whom the taxes, fees, or charges are levied, and a short description of the property to be sold. At any time before the date fixed for the sale, the taxpayer may stay they proceedings by paying the taxes, fees, charges, penalties and interests. If he fails to do so, the sale shall proceed and shall be held either at the main entrance of the provincial, city or municipal building, or on the property to be sold, or at any other place as determined by the local treasurer conducting the sale and specified in the notice of sale.

Within thirty (30) days after the sale, the local treasurer or his deputy shall make a report of the sale to the sanggunian concerned, and which shall form part of his records. After consultation with the sanggunian, the local treasurer shall make and deliver to the purchaser a certificate of sale, showing the proceeding of the sale, describing the property sold, stating the name of the purchaser and setting out the exact amount of all taxes, fees, charges, and related surcharges, interests, or penalties: Provided, however, That any excess in the proceeds of the sale over the claim and cost of sales shall be turned over to the owner of the property.

The local treasurer may, by ordinance duly approved, advance an amount sufficient to defray the costs of collection by means of the remedies provided for in this Title, including the preservation or transportation in case of personal property, and the advertisement and subsequent sale, in cases of personal and real property including improvements thereon.

Page | 106

Section 179. Redemption of Property Sold. - Within one (1) year from the date of sale, the delinquent taxpayer or his representative shall have the right to redeem the property upon payment to the local treasurer of the total amount of taxes, fees, or charges, and related surcharges, interests or penalties from the date of delinquency to the date of sale, plus interest of not more than two percent (2%) per month on the purchase price from the date of purchase to the date of redemption. Such payment shall invalidate the certificate of sale issued to the purchaser and the owner shall be entitled to a certificate of redemption from the provincial, city or municipal treasurer or his deputy.

The provincial, city or municipal treasurer or his deputy, upon surrender by the purchaser of the certificate of sale previously issued to him, shall forthwith return to the latter the entire purchase price paid by him plus the interest of not more than two percent (2%) per month herein provided for, the portion of the cost of sale and other legitimate expenses incurred by him, and said property thereafter shall be free from the lien of such taxes, fees, or charges, related surcharges, interests, and penalties.

The owner shall not, however, be deprived of the possession of said property and shall be entitled to the rentals and other income thereof until the expiration of the time allowed for its redemption.

Section 180. Final Deed to Purchaser. - In case the taxpayer fails to redeem the property as provided herein, the local treasurer shall execute a deed conveying to the purchaser so much of the property as has been sold, free from liens of any taxes, fees, charges, related surcharges, interests, and penalties. The deed shall succinctly recite all the proceedings upon which the validity of the sale depends.

Section 181. Purchase of Property By the Local Government Units for Want of Bidder. - In case there is no bidder for the real property advertised for sale as provided herein, or if the highest bid is for an amount insufficient to pay the taxes, fees, or charges, related surcharges, interests, penalties and costs, the local treasurer conducting the sale shall purchase the property in behalf of the local government unit concerned to satisfy the claim and within two (2) days thereafter shall make a report of his proceedings which shall be reflected upon the records of his office. It shall be the duty of the Registrar of Deeds concerned upon registration with his office of any such declaration of forfeiture to transfer the title of the forfeited property to the local government unit concerned without the necessity of an order from a competent court.

Within one (1) year from the date of such forfeiture, the taxpayer or any of his representative, may redeem the property by paying to the local treasurer the full amount of the taxes, fees, charges, and related surcharges, interests, or penalties, and the costs of sale. If the property is not redeemed as provided herein, the ownership thereof shall be fully vested on the local government unit concerned.

Section 182. Resale of Real Estate Taken for Taxes, Fees, or Charges. - The sanggunian concerned may, by ordinance duly approved, and upon notice of not less than twenty (20) days, sell and dispose of the real property acquired under the preceding section at public auction. The proceeds of the sale shall accrue to the general fund of the local government unit concerned.

Section 183. Collection of Delinquent Taxes, Fees, Charges or other Revenues through Judicial Action. - The local government unit concerned may enforce the collection of delinquent taxes, fees, charges or other revenues by civil action in any court of competent jurisdiction. The civil action shall be filed by the local treasurer within the period prescribed in Section 194 of this Code.

Section 184. Further Distraint or Levy. - The remedies by distraint and levy may be repeated if necessary until the full amount due, including all expenses, is collected.

Section 185. Personal Property Exempt from Distraint or Levy. - The following property shall be exempt from distraint and the levy, attachment or execution thereof for delinquency in the payment of any local tax, fee or charge, including the related surcharge and interest:

(a) Tools and implements necessarily used by the delinquent taxpayer in his trade or employment;

(b) One (1) horse, cow, carabao, or other beast of burden, such as the delinquent taxpayer may select, and necessarily used by him in his ordinary occupation;

(c) His necessary clothing, and that of all his family;

(d) Household furniture and utensils necessary for housekeeping and used for that purpose by the delinquent taxpayer, such as he may select, of a value not exceeding Ten thousand pesos (P10,000.00);

Page | 107

(e) Provisions, including crops, actually provided for individual or family use sufficient for four (4) months;

(f) The professional libraries of doctors, engineers, lawyers and judges;

(g) One fishing boat and net, not exceeding the total value of Ten thousand pesos (P10,000.00), by the lawful use of which a fisherman earns his livelihood; and

(h) Any material or article forming part of a house or improvement of any real property.

B. TAXPAYER’S REMEDIES – SECS. 194-196, LGC

Section 194. Periods of Assessment and Collection. -

(a) Local taxes, fees, or charges shall be assessed within five (5) years from the date they became due. No action for the collection of such taxes, fees, or charges, whether administrative or judicial, shall be instituted after the expiration of such period: Provided, That. taxes, fees or charges which have accrued before the effectivity of this Code may be assessed within a period of three (3) years from the date they became due.

(b) In case of fraud or intent to evade the payment of taxes, fees, or charges, the same may be assessed within ten (10) years from discovery of the fraud or intent to evade payment.

(c) Local taxes, fees, or charges may be collected within five (5) years from the date of assessment by administrative or judicial action. No such action shall be instituted after the expiration of said period: Provided, however, That, taxes, fees or charges assessed before the effectivity of this Code may be collected within a period of three (3) years from the date of assessment.

(d) The running of the periods of prescription provided in the preceding paragraphs shall be suspended for the time during which:

(1) The treasurer is legally prevented from making the assessment of collection;

(2) The taxpayer requests for a reinvestigation and executes a waiver in writing before expiration of the period within which to assess or collect; and

(3) The taxpayer is out of the country or otherwise cannot be located.

Section 195. Protest of Assessment. - When the local treasurer or his duly authorized representative finds that correct taxes, fees, or charges have not been paid, he shall issue a notice of assessment stating the nature of the tax, fee, or charge, the amount of deficiency, the surcharges, interests and penalties. Within sixty (60) days from the receipt of the notice of assessment, the taxpayer may file a written protest with the local treasurer contesting the assessment; otherwise, the assessment shall become final and executory. The local treasurer shall decide the protest within sixty (60) days from the time of its filing. If the local treasurer finds the protest to be wholly or partly meritorious, he shall issue a notice cancelling wholly or partially the assessment. However, if the local treasurer finds the assessment to be wholly or partly correct, he shall deny the protest wholly or partly with notice to the taxpayer. The taxpayer shall have thirty (30) days from the receipt of the denial of the protest or from the lapse of the sixty (60) day period prescribed herein within which to appeal with the court of competent jurisdiction otherwise the assessment becomes conclusive and unappealable.

Section 196. Claim for Refund of Tax Credit. - No case or proceeding shall be maintained in any court for the recovery of any tax, fee, or charge erroneously or illegally collected until a written claim for refund or credit has been filed with the local treasurer. No case or proceeding shall be entertained in any court after the expiration of two (2) years from the date of the payment of such tax, fee, or charge, or from the date the taxpayer is entitled to a refund or credit.

JARDINE DAVIES INSURANCE BROKERS INC V. ALIPOSAISSUE: Whether or not petitioner  was proscribed from filing its complaint with the RTC and for a refund of its alleged overpayment, petitioner having paid without any protest the taxes due to respondent Makati under the ordinance.

HELD: YESThe Court agrees with petitioner that as a general precept, a taxpayer may file a complaint assailing the validity of the ordinance and praying for a refund of its perceived overpayments without first filing a protest to the payment of taxes due under the ordinance.

Page | 108

Petitioner, relying on the resolution of the Secretary of Justice in The Philippine Racing Club, Inc. v. Municipality of Makati case, posited in its complaint that the ordinance which was the basis of respondent Makati for the collection of taxes from petitioner was null and void. However, the Court agrees with the contention of respondents that petitioner was proscribed from filing its complaint with the RTC of Makati for the reason that petitioner failed to appeal to the Secretary of Justice within 30 days from the effectivity date of the ordinance as mandated by Section 187 of the Local Government Code.

Failure of a taxpayer to interpose the requisite appeal to the Secretary of Justice is fatal to its complaint for a refund.Clearly, the law requires that the dissatisfied taxpayer who questions the validity or legality of a tax ordinance must file his appeal to the Secretary of Justice, within 30 days from effectivity thereof. In case the Secretary decides the appeal, a period also of 30 days is allowed for an aggrieved party to go to court. But if the Secretary does not act thereon, after the lapse of 60 days, a party could already proceed to seek relief in court. These three separate periods are clearly given for compliance as a prerequisite before seeking redress in a competent court. Such statutory periods are set to prevent delays as well as enhance the orderly and speedy discharge of judicial functions. For this reason the courts construe these provisions of statutes as mandatory.

A municipal tax ordinance empowers a local government unit to impose taxes. The power to tax is the most effective instrument to raise needed revenues to finance and support the myriad activities of local government units for the delivery of basic services essential to the promotion of the general welfare and enhancement of peace, progress, and prosperity of the people. Consequently, any delay in implementing tax measures would be to the detriment of the public. It is for this reason that protests over tax ordinances are required to be done within certain time frames. In the instant case, it is our view that the failure of petitioners to appeal to the Secretary of Justice within 30 days as required by Sec. 187 of R.A. 7160 is fatal to their cause.

Moreover, petitioner even paid without any protest the amounts of taxes assessed by respondents Makati and Acting Treasurer as provided for in the ordinance. Evidently, the complaint of petitioner with the Regional Trial Court was merely an afterthought.

SAN JUAN V. CASTROFACTS: Romulo D. San Juan (petitioner), registered owner of real properties in Rancho Estate I, Concepcion II, Marikina City covered by Transfer Certificates of Title ,] with the consent of his wife, conveyed on August 24, 2004, by Deed of Assignment, the properties to the Saints

and Angels Realty Corporation (SARC), then under the process of incorporation, in exchange for 258,434 shares of stock therein with a total par value of P2,584,340.  Two hundred thousand (200,000) of the said shares of stock with a par value of P2,000,000 were placed in San Juan’s name while the remaining 58,434 shares of stock with a par value of P584,340 were placed in the name of his wife.

1. On June 24, 2005, the Securities and Exchange Commission approved the Articles of Incorporation of SARC.

2. San Juan’s representative thereafter went to the Office of the Marikina City Treasurer to pay the transfer tax based on the consideration stated in the Deed of Assignment.  Ricardo L. Castro (respondent), the City Treasurer, informed him that the tax due should be based on the fair market value of the property, which is P7.0 million and not on what is stated in the Deed of Assignment.

3. San Juan protested the basis of the tax due. Castro replied that in cases of transfer of real property not involving monetary consideration, it is certain that the fair market value or zonal value of the property is the basis of the tax rate. As provided in the Local Government Code (LGC), fair market value is defined as the price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy. Hence, the computation based on fair market value is correct.

4. San Juan then filed with the RTC of Marikina a petition for mandamus and damages against Castro in his capacity as City Treasurer of Marikina praying that Castro be compelled to perform a ministerial duty, that is, to accept the payment of transfer tax based on the actual consideration of the transfer/assignment.

ISSUE: Is Mandamus the proper procedure adopted by San Juan? NO.

HELD: 1. Under Section 195 of the Local Government Code which is quoted immediately below, a taxpayer who disagrees with a tax assessment made by a local treasurer may file a written protest thereof:SECTION 195.  Protest of Assessment. – When the local treasurer or his duly authorized representative finds that the correct taxes, fees, or charges have not been paid, he shall issue a notice of assessment stating the nature of the tax, fee, or charge, the amount of deficiency, the surcharges, interests and penalties.  Within sixty (60) days from the

Page | 109

receipt of the notice of assessment, the taxpayer may file a written protest with the local treasurer contesting the assessment; otherwise, the assessment shall become final and executory.  

The local treasurer shall decide the protest within sixty (60) days from the time of its filing.  If the local treasurer finds the protest to be wholly or partly meritorious, he shall issue a notice cancelling wholly or partially the assessment.  However, if the local treasurer finds the assessment to be wholly or partly correct, he shall deny the protest wholly or partly with notice to the taxpayer.  The taxpayer shall have thirty (30) days from the receipt of the denial of the protest or from the lapse of the sixty-day (60) period prescribed herein within which to appeal with the court of competent jurisdiction, otherwise the assessment becomes conclusive and unappealable.

That petitioner protested in writing against the assessment of tax due and the basis thereof is on record as in fact it was on that account that respondent sent him the above-quoted July 15, 2005 letter which operated as a denial of petitioner’s written protest.  Petitioner should thus have, following the earlier above-quoted Section 195 of the Local Government Code, either appealed the assessment before the court of competent jurisdiction or paid the tax and then sought a refund.

 Petitioner did not observe any of these remedies available to him, however.  He instead opted to file a petition for mandamus to compel respondent to accept payment of transfer tax as computed by him. Mandamus lies only to compel an officer to perform a ministerial duty (one which is so clear and specific as to leave no room for the exercise of discretion in its performance) but not a discretionary function (one which by its nature requires the exercise of judgment). Respondent’s  argument that “mandamus cannot lie to compel the City Treasurer to accept as full compliance a tax payment which in his reasoning and assessment is deficient and incorrect” is thus persuasive.

III. REAL PROPERTY TAXATION

A. FUNDAMENTAL PRINCIPLES – SEC. 198, LGC

Section 198. Fundamental Principles. - The appraisal, assessment, levy and collection of real property tax shall be guided by the following fundamental principles:

(a) Real property shall be appraised at its current and fair market value;

(b) Real property shall be classified for assessment purposes on the basis of its actual use;

(c) Real property shall be assessed on the basis of a uniform classification within each local government unit;

(d) The appraisal, assessment, levy and collection of real property tax shall not be let to any private person; and

(e) The appraisal and assessment of real property shall be equitable

B. ASSESSMENT APPEALS1. LOCAL BOARD OF ASSESSMENT APPEALS –

SEC. 226, LGC

Section 226. Local Board of Assessment Appeals. - Any owner or person having legal interest in the property who is not satisfied with the action of the provincial, city or municipal assessor in the assessment of his property may, within sixty (60) days from the date of receipt of the written notice of assessment, appeal to the Board of Assessment Appeals of the provincial or city by filing a petition under oath in the form prescribed for the purpose, together with copies of the tax declarations and such affidavits or documents submitted in support of the appeal.

2. ACTION OF THE LBAA – SEC. 229, LGC

Section 229. Action by the Local Board of Assessment Appeals. -

(a) The Board shall decide the appeal within one hundred twenty (120) days from the date of receipt of such appeal. The Board, after hearing, shall render its decision based on substantial evidence or such relevant evidence on record as a

Page | 110

reasonable mind might accept as adequate to support the conclusion.

(b) In the exercise of its appellate jurisdiction, the Board shall have the power to summon witnesses, administer oaths, conduct ocular inspection, take depositions, and issue subpoena and subpoena duces tecum. The proceedings of the Board shall be conducted solely for the purpose of ascertaining the facts without necessarily adhering to technical rules applicable in judicial proceedings.

(c) The secretary of the Board shall furnish the owner of the property or the person having legal interest therein and the provincial or city assessor with a copy of the decision of the Board. In case the provincial or city assessor concurs in the revision or the assessment, it shall be his duty to notify the owner of the property or the person having legal interest therein of such fact using the form prescribed for the purpose. The owner of the property or the person having legal interest therein or the assessor who is not satisfied with the decision of the Board, may, within thirty (30) days after receipt of the decision of said Board, appeal to the Central Board of Assessment Appeals, as herein provided. The decision of the Central Board shall be final and executory.

3. PAYMENT UNDER PROTEST – SEC. 152, LGC

Section 152. Scope of Taxing Powers. - The barangays may levy taxes, fees, and charges, as provided in this Article, which shall exclusively accrue to them:

(a) Taxes - On stores or retailers with fixed business establishments with gross sales of receipts of the preceding calendar year of Fifty thousand pesos (P50,000.00) or less, in the case of cities and Thirty thousand pesos (P30,000.00) or less, in the case of municipalities, at a rate not exceeding one percent (1%) on such gross sales or receipts.

(b) Service Fees or Charges. - Barangays may collect reasonable fees or charges for services rendered in connection with the regulations or the use of barangay-owned properties or service facilities such as palay, copra, or tobacco dryers.

(c) Barangay Clearance. - No city or municipality may issue any license or permit for any business or activity unless a clearance is first obtained from the barangay where such business or activity is located or conducted. For such clearance, the sangguniang barangay may impose a reasonable fee. The application for clearance shall be acted upon within seven (7) working days from the filing thereof. In the event that the clearance is not issued within the said period, the city or municipality may issue the said license or permit.

(d) Other fees and Charges. - The barangay may levy reasonable fees and charges:

(1) On commercial breeding of fighting cocks, cockfights and cockpits;

(2) On places of recreation which charge admission fees; and

(3) On billboards, signboards, neon signs, and outdoor advertisements.

Page | 111