CIR V PASCOR REALTYG.R 128315

June 29, 1999

Facts:  The  CIR  authorized   certain  BIR  officers   to examine   the books   of accounts   and other accounting records   of   Pascor   Realty   and Development   Corp.   (PRDC)   for   1986,   1987   and 1988.   The   examination   resulted   in recommendation for the issuance of an assessment of P7,498,434.65 and P3,015,236.35 for 1986 and 1987,   respectively.

On March 1,  1995,  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.

On March 23, 1995, private respondents received a subpoena   from   the   DOJ   in   connection  with   the criminal complaint. In a letter dated, May 17, 1995, 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. The Commissioner’s motion to dismiss on   the   ground   of   the   CTA’s   lack   of   jurisdiction inasmuch   as   no   formal   assessment   was   issued against private respondent was denied by CTA and ordered the Commissioner to file an answer but did not   instead  filed  a   petition  with   the  CA  alleging grave abuse of discretion and lack of jurisdiction on the part of CTA for considering the affidavit/report of   the   revenue  officers   and   the  endorsement  of said report as assessment which may be appealed to he CTA. The CA sustained the CTA decision and dismissed   the   petition.

Issues:  1.  Whether  or not the criminal  complaint for tax evasion can be construed as an assessment.2.   Whether   or   not   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.

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.

MARCOS II V CA GR No. 120880, June 5, 1997

Following the death of former President Marcos in 1989,   a   Special   Tax  Audit   Team was   created  on June   27,   1990   to   conduct   investigations   and examinations of tax liabilities of the late president, his family, associates and cronies. The investigation disclosed that the Marcoses failed to file a written notice of death of the decedent estate tax return and income tax returns for the years 1982 to 1986, all   in  violation of  the Tax Code.  Criminal  charges were field against Mrs. Marcos for violation of Secs. 82, 83 and 84, NIRC.

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The   CIR   thereby   caused   the   preparation   of   the estate   tax   return   for   the   estate   of   the   late president,   the   income   returns   of   the   Marcos spouses   for   1985   and  1986   and   the   income   tax returns of petitioner Marcos II for 1982 to 1985. On July 26, 1991, the BIR issued deficiency estate tax assessments   and   the   corresponding   deficiency income   tax   assessments.   Copies   of   deficiency estate   and   income   tax   assessments  were   served personally and constructively  on August  26,  1991 and   September   12,   1991   upon   Mrs.   Marcos. Likewise,   copies   of   the   deficiency   income   tax assessments   against   petitioner   Marcos   were personally   and   constructively   served.   Formal assessment notices were served upon Mrs. Marcos on October 20, 1992.

The   deficiency   tax   assessments   were   not administratively protested by the Marcoses within 30 days from service thereof. Subsequently, the CIR issued a total of 30 notices to levy on real property against   certain   parcels   of   land   and   other   real property owned by Marcoses.

Notices of sale at public auction were duly posted at the Tacloban City Hall and the public auction for the sale of 11 parcels of land took place on July 5, 1993.   There   being   no   bidder,   the   lots   were declared forfeited in favor of the government.

Petitioner   filed   a   petition   for   certiorari   and prohibition with an application for TRO before the CA to annul and set aside the notices of levy as well as  the notice of  sale  and to enjoin  the BIR  from proceeding with the auction. The CA dismissed the petition ruling that the deficiency assessments for the estate and income taxes have already become final and unappealable and may thus be enforced by   summary   remedy   of   levying   upon   the   real property

ISSUE: WON BIR may collect on estate and income tax of a deceased pending probate proceedings 

HELD:   Under   Section   87   of   the   NIRC,   it   is   the probate or settlement court which is bidden not to authorize the executor or  judicial administrator of the   decedent's   estate   to   deliver   any   distributive share to any party interested in the estate, unless it is   shown  a  Certification  by   the  Commissioner  of Internal Revenue that the estate taxes have been paid.

  The Government has two ways of collecting the taxes in question. One, by going after all the heirs and collecting from each one of them the amount of   the   tax   proportionate   to   the   inheritance received.   Another   remedy,   pursuant   to   the   lien created  Sec. 315 of the Tax Code upon all property and rights to property belong to the taxpayer for unpaid income tax, is by subjecting said property of the   estate  which   is   in   the   hands   of   an   heir   or transferee   to   the   payment   of   the   tax   due   the estate.

It has been repeatedly observed, and not without merit,   that   the enforcement  of   tax   laws and the collection of taxes, is of paramount importance for the sustenance of government.

  Taxes  are   the   lifeblood  of   the   government   and should   be   collected   without   unnecessary hindrance.

However,   such   collection   should   be   made   in accordance   with   law   as   any   arbitrariness   will negate the very reason for government itself. It is therefore   necessary   to   reconcile   the   apparently conflicting   interests   of   the   authorities   and   the taxpayers   so   that   the   real   purpose   of   taxation, which is the promotion of the common good, may be   achieved.   The   court   recognized   the   liberal treatment of claims for taxes charged against the 

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estate of the decedent. Such taxes were exempted from the application of the statute of non-claims, and this is justified by the necessity of government funding, immortalized in the maxim that taxes are the  lifeblood of   the government.  Vectigalia nervi sunt rei publicae  —  taxes  are   the   sinews  of   the state. (sinews: source of strength; tendon)

Meralco Securities Corp. vs. Savellano

GR L-36181, 23 October 1982

Facts: In 1967, the late Juan G. Maniago submitted to   the   Commissioner   confidential   denunciation against the Meralco Securities Corp. for tax evasion for   not   having   paid   income   tax   on   25%   of   the dividends it received from the Manila Electric Co. for years 1962 to 1966. The Commissioner caused the   investigation  of   the   denunciation   and   found that   no   deficiency   corporate   tax   was   due   from Meralco Securities.  Maniago was informed of the findings.   The   Secretary   of   Finance   sustained   the Commissioner’s action. Maniago filed a petition for mandamus   against   the   Commissioner   so   as   to compel   it   to   impose   the   alleged   deficiency   tax assessment   against   Meralco   Securities   and   to award him the corresponding informer’s award.

Issue:   Whether   the   Commissioner   may   be compelled   to   impose   the   alleged   deficiency   tax assessment.

Held:   Mandamus   only   lies   to   enforce   the performance of a ministerial act or duty and not to control   the   performance   of   discretionary   power. Mandamus   may   not   be   made   against   the Commissioner   to   compel   him   to   impose   a   tax assessment not found by him to be due or proper, for that would be tantamount to a usurpation of executive   functions.   Purely   administrative   and discretionary functions may not be interfered with by the Courts.  The discretionary power vested  in 

the   proper   executive   official,   in   the   absence   of arbitrariness or grave abuse so as to go beyond the statutory authority,  is not subject to the contrary judgment or control of others

[G.R. No. 139050.  October 2, 2001]

REPUBLIC OF THE PHILIPPINES, represented by the COMMISSIONER OF CUSTOMS, petitioner, vs. THE COURT OF TAX APPEALS and AGFHA, INCORPORATED, VITUG, J.:

On   12   December   1992,   a   shipment   of   bales   of textile   gray   cloth   arrived   at   the   Manila International   Container   Port   (MICP)   aboard   the vessel   "S/S   ACX   Daisy."   The   shipment's   Inward Foreign  Manifest   stated   that   the   bales   of   cloth were consigned to GQ GARMENTS, Inc.   The Clean Report   of   Findings   (CRF)   issued   by   the   Societe Generale   de   Surveilance   (SGS),   however, mentioned   AGFHA,   Incorporated,   to   be   the consignee of the shipment.  Forthwith, the shipping agent, FIL-JAPAN, requested for an amendment of the Inward Foreign Manifest  so as to correct  the name   of   the   consignee   from   that   of   GQ GARMENTS, Inc., to that of AGFHA, Inc.

On   22   January   1993,   FIL-JAPAN   forwarded   to AGFHA, Inc., the amended Inward Foreign Manifest which   the   latter,   in   turn,   submitted   to   the  MICP Law Division.  The MICP indorsed the document to the   Customs   Intelligence   Investigation   Services (CIIS).   The CIIS placed the subject shipment under Hold  Order,  on   the  ground   that  GQ GARMENTS, Inc.,  could not  be  located  in   its  given address  at 244 Escolta Street, Binondo, Manila, and was thus suspected   to   be   a   fictitious   firm.     Forfeiture proceedings under Section 2530(f) and (l) (3-5) of the Tariff and Customs Code were initiated.

AGFHA, Inc., through its president Wilson Kho, filed a motion for intervention contending that AGFHA, 

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Inc.,   is  the  lawful  owner and actual  consignee of the subject shipment.  The motion for intervention was granted on 2 March 1993.  Following a hearing, the   Collector   of   Customs   came   up  with   a   draft decision   ordering   the   lifting   of   the   warrant   of seizure and detention on the basis of  its findings that   GQ   GARMENTS,   Inc.,   was   not   a   fictitious corporation and that  there was a valid waiver of rights  over the bales of  cloth by GQ GARMENTS, Inc., in favor of AGFHA, Inc.  The draft decision was submitted   to   the   Deputy   Commissioner   for clearance and approval, who, in turn, transmitted it to   the  CIIS   for   comment.    The  CIIS  opposed   the draft decision,   insisting that  GQ GARMENTS,   Inc., was a fictitious corporation and that even if it did exist, its president, John Barlin, had no authority to waive the right over the subject shipment in favor of AGFHA, Inc.

The Deputy Commissioner, relying on the comment of   the   CIIS,   rejected   the   draft   decision   of   the Collector of Customs.

GQ GARMENTS, Inc., and AGFHA, Inc., filed a joint motion for  reconsideration which was  in another draft   decision   granted.     The   Office   of   the Commissioner  of  Customs,  however,  disapproved the new draft decision and denied the release of the goods; it ruled:

"1. x x x [I]t  is quite suspicious that it took more than  one  month  before   the  alleged  error   in   the consignee was  discovered by   the shipper  and by AGFHA,   Inc.,   and   by   GQ   Garments   especially considering   the   fact   that   there   is   a   CRF  naming therein   AGFHA   as   consignee   of   the   subject shipment   which   means   that   the   shipper   was contracted by SGS so that the latter can inspect the subject   shipment   to   be   imported   by   consignee; that Mr. Wilson Kho admitted it was AGFHA who ordered the shipment by telephone call; that prior 

to this shipment there was no order placed in the name of  GQ Garments   from  Indonesia;  and   that this   is   already   the   second   of   four   shipments ordered by AGFHA, Inc., from Jakarta, Indonesia.

"2. Mr. Wilson Kho's explanation that the shipper committed an error  in naming GQ GARMENTS as the consignee of the subject shipment because his business   card   contains   the   name   of   both   GQ GARMENTS   and   AGFHA,   Inc.   appears   to   be   an afterthought   and   self-serving.     Moreover,   he admitted   that   he   is   not   an   officer   nor   even   a stockholder  of  GQ GARMENTS so why should his business   card   indicate   his   name   as President/General Manager of GQ GARMENTS and AGFHA, Inc.  That is clearly a misrepresentation.

"3. During the hearing on April 15, 1994, Mr. John John  Barlin  of  GQ GARMENTS  admitted   that   the letter dated February 11, 1993 purportedly signed by   him   (in   which   he   allegedly   informed   the Collector   of   Customs   that   AGFHA,   Inc.,   is   the rightful owner of the subject shipment and that GQ GARMENTS   is   waiving   its   right   over   the   same) actually  came from Wilson Kho.     In  other words, the said letter is spurious.

"4.  From the admissions of  both Mr.  Wilson Kho and   Mr.   John   John   Barlin,   it   is   clear   that   GQ GARMENTS  is  actually  owned by Mr.  Wilson Kho and   its   corporate   franchise   appears   to   be  being used   to   perpetrate   fraud   and   other   scheme   to confuse authorities 

In deference to the directive of the Commissioner, the   District   Collector   of   Customs   ordered   the forfeiture of the shipment.   On 14 October 1994, AGFHA,   Inc.,   interposed   an   appeal   which   was dismissed   consistently   with   the   Commissioner's earlier   stand   that   disapproved   the   Collector   of Customs' draft decision.

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On 5 October 1995, AGFHA, Inc., filed a petition for review with the Court of Tax Appeals questioning the forfeiture of the bales of textile cloth.   Finding merit   in  the plea of  appellants,   the Court  of  Tax Appeals   granted   the   petition   and   ordered   the release of the goods to AGFHA, Inc.

In   its  decision,  dated 31 May 1999,  the Court  of Appeals  dismissed the appeal  and  ruled  that   the Bureau of Customs has failed to satisfy its burden of  proving   fraud  on   the  part  of   the   importer  or consignee.  It expounded thusly:

"Section   2530   (f)   and   (1)   3-5   of   the   Tariff   and Customs   Code,   provide   that   in   order   that   a shipment be liable to forfeiture, it must be proved that   fraud   has   been   committed   by   the importer/consignee   to   evade   payment   of   the duties due.  To establish the existence of fraud, the onus   probandi   is   on   the   part   of   the   Bureau   of Customs who ordered the forfeiture of the subject shipments.  The BOC, however, failed.

"'x x x This Court could not fathom any individual or collective importance of the x x x findings [of the BOC]   as   indicative   of   the   actual   commission   of fraud   or   any   attempt   or   frustration   thereof.   As defined,   actual   or   intentional   fraud   consists   of deception   willfully   and   deliberately   done   or resorted to in order to induce another to give up some right.   It must amount to intentional wrong-doing with the sole object of avoiding the tax.

`The   circumstances  or  findings   presented  by   the [BOC] do not reveal x x x any kind of deception that could have been played upon [the] Bureau to give up some of its right, e.g., to collect correct taxes on properly declared shipment of goods.

`[BOC] is saying that the shipper knew all along that AGFHA, Inc., was the real consignee due to the pre-inspection   done   by   SGS   and   the   corresponding 

issuance   of   the   CRF   naming   AGFHA,   Inc.   as   the consignee.   So that in naming GQ GARMENTS Inc. as the consignee in the Bill  of Lading and Inward Foreign  Manifest,   the   same  was   intentional   and deliberately   done   and   not   a   case   of   error   or inadvertence x x x.

`[The Court] could not believe that [BOC] assumed the above circumstance as a fact in his attempt to forfeit   the   subject   shipment   in   favor   of   the government.    The respondent  is  trying to second guess   the  act  of   the   shipper   that   the   latter  had prior   knowledge   of   AGFHA   Inc.,   as   the   true consignee   before   the   shipment.     [The   Court] deem[s]   such   conclusion   as   pure   hearsay. Obviously,   it   is   only   the   shipper  and/or   the   SGS who   could   personally   vouch   for   events   that transpired   prior   to   the   shipment   of   the   goods subject matter of this case.

`x   x   x   [AGFHA   Inc.]   has   offered   the   following controverting and convincing evidence x x x:

`1.             Telex message from the shipping agent of shipper P.T. Mandala Subur Textile Industry to FIL-JAPAN   Shipping   Company   Manila,   requesting amendment of the Bill of Lading and other shipping records, to change consignee from GQ Garments, Inc. to Agfha, Inc.;

`2.                          Application for Amendment of  the Inward   Foreign   Manifest   filed   by   the   shipper's agent,  FIL-JAPAN Shipping Company,   for approval with   the   Customs   Law   Division,   Manila International Container Port (MICP), to change the name of the consignee from GQ Garments, Inc. to Agfha, Inc.

`3.             Letter dated February 10, 1993 by Wilson Kho,   president   of   Agfha,   Inc.   addressed   to  Atty. Buenaventura   Maniego,   District   Collector   of Customs, MICP, North Harbor, Manila manifesting 

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the former's   intention and willingness to pay the corresponding   duties   and   taxes   on   the   subject shipment based on a higher valuation indicated in the   Clean   Report   of   Findings   (CRF)   as recommended  by   the   SGS,   as   against   the   lower valuation indicated in the invoice.

`4.                          Bill  of  Lading covering the subject shipment   showing   the   shipper   as   P.T.   Mandala Subur   Textile   Industry   and   the   consignee   as  GQ Garments, Inc.

`5.             The Clean Report of Findings (CRF) dated December  9,  1992 showing the consignee of   the subject shipment as Agfha, Inc. and the shipper as P.T. Mandala Subur Textile Industry.

`6.             Import Authority No. (IAN) 18.012.37679, assigned   by   the   Central   Bank   of   the   Philippines appearing on the right hand portion of the CRF.

`The above evidence speak for themselves.   If any deception is intended by petitioner Agfha, Inc., why would   it   apply   for   an   Import   Authority  Number under   its   name?     It   knew   for   certain   that   the subject goods will be pre-inspected by SGS under its name.

`x x x [AGFHA Inc.] expressed its willingness to pay the higher duties and taxes imposed on the subject shipment as indicated in the CRF. x x x From the very   start   up   to   the   end,   petitioner   had   been consistent in its actuations.  It applied for an Import Authority with the Central Bank of the Philippines which authority was used by the SGS in making the necessary  pre-inspection and  issuing   the  CRF.     It undertook   remedial   measures   to   amend   the consignee in the Bill of Lading and Inward Foreign Manifest  when   the   shipper  made   a  mistake.     It then   manifested   to   pay   the   correct   taxes   and duties.     The   government   stands   to   lose nothing.'"[2]

The   Court   of   Appeals   attributed   the   error   in indicating GQ GARMENTS, Inc., instead of AGFHA, Inc.,   in the  Inward Foreign Manifest as being the consignee of the subject shipment to the shipping agent.     It  also noted the finding of the tax court that GQ GARMENTS, Inc., was, in fact, a registered importer   with   Registration   No.   91-5624   per   the Customs Intelligence and Investigation Service List of   Registered   Importers   contained   in   Customs Memorandum Order No. 149-88 for the year 1991.

The BOC instituted the instant petition for review under   Rule   45   of   the   Revised   Rules   of   Court assailing the affirmance by the Court of Appeals of the tax court's decision of 04 November 1996.

The appeal is not meritorious.

Section 2530 (f) and (1) (3-5) provides:

"Section   2530.     Property   Subject   to   Forfeiture Under Tariff and Customs Law. - Any vehicle, vessel or  aircraft,  cargo,  article  and  other  objects   shall, under   the   following   conditions   be   subjected   to forfeiture;

"f.  Any  article   the   importation  or   exportation  of which is effected or attempted contrary to law, or any   article   of   prohibited   importation   or exportation,   and   all   other   articles  which,   in   the opinion of   the Collector,  have been used,  are  or were   entered   to   be   used   as   instruments   in   the importation or exportation of the former.

"1. Any article sought to be imported or exported:

"(3)             On the strength of a false declaration or affidavit executed by the owner, importer, exporter or   consignee concerning   the   importation of   such article;

(4)                         On the strength of a false invoice or other document executed by the owner, importer, 

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exporter or consignee concerning the importation or exportation of such article; and

"(5)                         Through any other practice or device contrary   to   law by  means  of  which  such  articles was   entered   through   a   customhouse   to   the prejudice of the government."

The   requisites   for   the   forfeiture  of   goods   under Section 2530(f), in relation to (1) (3-5), of the Tariff and Customs Code are: (a) the wrongful making by the owner, importer, exporter or consignee of any declaration or affidavit, or the wrongful making or delivery by the same person of any invoice, letter or   paper   -   all   touching   on   the   importation   or exportation of merchandise; (b) the falsity of such declaration, affidavit, invoice, letter or paper; and (c)   an   intention   on   the   part   of   the importer/consignee to evade the payment of  the duties due.[3]

Petitioner  asserts   that  all  of   these   requisites  are present   in   this  case.     It   contends   that   it  did  not presume fraud, rather the events positively point to   the   existence   of   fraud.     Private   respondent AGFHA,   Inc.,   on   the   other   hand,  maintains   that there has only been an inadvertent error and not an intentional wrongful declaration by the shipper to evade payment of any tax due.  The resolution of this   issue   would   entail   a   reevaluation   of   the attendant circumstances, a matter that cannot be freely undertaken by this Tribunal.     It has been a settled rule that the Supreme Court is not a trier of facts.[4]   Findings   of   the   appellate   court   are generally binding and cannot be disturbed by this Court unless it is sufficiently shown that there has been   no   evidence   on   record   to   support   such findings.[5] The assessment made by the appellate court carry even more weight when it is consistent with   that   of   the   trial   court.[6]   Consonantly,   the factual determination of the Court of Tax Appeals, 

when supported by substantial  evidence,  will  not be  reversed on appeal  unless   it   is  clear   that   the said   court   has   committed   gross   error   in   the process.[7] The Collector of Customs, Court of Tax Appeals and the Court of Appeals are unanimous in concluding that no fraud has been committed by private respondent in the importation of the bales of   cloth.     The   records  do  appear   to   sustain   this conclusion.

Fraud  must   be   proved   to   justify   forfeiture.[8]   It must  be  actual,  amounting  to   intentional  wrong-doing with the clear purpose of avoiding the tax.[9] Forfeiture is not favored in law nor in equity.[10] Mere   negligence   is   not   equivalent   to   the   fraud contemplated by law.[11] What is here involved is an honest mistake, not even directly attributable to private   respondent,   which   will   not   deprive   the government of  its right to collect the proper tax. The   conclusion   of   the   appellate   court,   being consistent  with   the   evidence  on   record   and  not contrary  to  law and  jurisprudence,  hardly  can be overturned by this Court.

WHEREFORE,   the   petition   is   hereby  DENIED  and the   assailed   decision   of   the   Court   of   Appeals   is AFFIRMED.

Aznar vs. Court of Tax AppealsGR No. 20569, 23 August 1974

Facts: Petitioner, as administrator of the estate of the deceased, Matias H. Aznar, seeks a review and nullification   of   the   decision   of   the   Court   of   Tax Appeals   ordering   the   petitioner   to   pay   the government the sum of P227,691.77 representing deficiency income taxes for the years 1946 to 1951. An  investigation by  the Commissioner  of   Internal Revenue (CIR) ascertained the assets and liabilities of   the   taxpayer  and  it  was  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 said years. 

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The findings clearly indicated that the taxpayer did not  declare   correctly   the   income reported   in  his income   tax   returns   for   the   aforesaid   years. Petitioner   avers   that   according   to   the  NIRC,   the right of the CIR to assess deficiency income taxes of the late Aznar for the years 1946, 1947, and 1948 had already prescribed at the time the assessment was made on November 28,  1952;  there being a five year limitation upon assessment and collection from   the   filing   of   the   returns.   Meanwhile, respondents believe that the prescription period in the case at bar that is applicable is under Sec. 332 of the NIRC which provides that: "(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".  Petitioner  argues  said provision does not apply because the taxpayer did not file false and fraudulent returns with intent to evade tax. 

Issue:  Whether   or   not   the   deceased  Aznar   filed false   or   fraudulent   income   tax   returns   and subsequently,   whether   the   action   has   not prescribed.

Held: The petition is without merit.

The   respondent   CTA   concluded   that   the   very "substantial  under  declarations  of   income  for   six consecutive   years   eloquently   demonstrate   the falsity   or   fraudulence  of   the   income   tax   returns with an intent to evade the payment of tax." 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 from the time of the discovery of the falsity, fraud or omission even seems to be inadequate.   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.

Commissioner vs. CTA, R.O.H. AUTO PRODUCTSGR 108358, 20 January 1995

Facts: On 22 August 1986, Executive Order 41 was promulgated declaring a one-time tax amnesty on unpaid   income   taxes,   later   amended   to   include estate and donor’s taxes and taxes on business for the taxable years 1981 to 19985.   Availing itself of the amnesty,  ROH Autoparts Philippines  Inc.  filed its Tax Amnesty Return and paid the corresponding amnesty taxes due.   The Company requested that the   deficiency   tax   notice   (13   August   1986)   be cancelled and withdrawn as it has availed of the tax amnesty.    The Commissioner denied the request, construing that the amnesty coverage include only assessments   issued   by   the   BIR   after   the promulgation   of   EO41   and   not   to   assessments theretofore made.

Issue:   Whether   the   assessment   can   withstand effects of tax amnesty.

Held:    A tax amnesty,  being a general  pardon or intentional overlooking by the state its authority to impose   penalties   on   persons   otherwise   guilty   of evasion   or   violation   of   a   revenue   or   tax   law, partakes  of  an absolute  forgiveness  or  waiver  by the government   itself  of   its   right   to collect  what otherwise   would   be   due   it,   and   in   this   sense, prejudicial thereto, to give tax evaders, who wish 

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to relent and are willing to reform a chance to do so and thereby become a part of the new society with a clean slate.  Section 4 of EO 41 enumerated, in no uncertain terms, taxpayers who may not avail to the amnesty granted.  The company does not fall under any of the exceptions.  The added exception urged   by   the   Commissioner   based   on   Revenue Memorandum Order  4-87,   further   restricting   the scope   of   the   amnesty,   work   against   the   raison d’etre of EO 41 and clearly amounts to an alt  of administrative legislation contrary to the mandate of   the   law   which   the   regulation   ought   to implement.     The   rule   in   the   order   that   only assessments issued after 21 August 1986 shall be abated is beyond the contemplation of the law

Commissioner vs. Court of Appeals

GR 119761, 29 August 1996

Facts:   Fortune   Tobacco   is   engaged   in   the manufacture   of   different   brands   of   cigarettes, specifically   “Champion”,   “Hope4”,   and   “More” (which   are   foreign   brands   listed   in   the   World Tobacco   Directory   as   belonging   to   foreign companies.     Fortune  Tobacco,  however,   changed names   of   “Hope”   to   “Luxury”   and   “More”   to “Premium   More”   thereby   removing   said  brands from the foreign brand category.    Proof was also made/ submitted to the BIR that “Champion” was an original Fortune Tobacco Corp. register and thus a  local  brand.    RA 7654 was enacted on 10 June 1993,   levying   a   P5   minimum   tax   on   locally manufactured   cigarettes   taxed   at   55%   or exportation of which is not authorized by contract, and   P2  minimum   tax   per   pack   on   other   locally manufactured cigarette.  The BIR sent the Company a   month   later   a   copy   Revenue   Memorandum Circular   37-93   declaring   “Hope”,   “More”   and “Champion” as foreign brands, and thus subjecting 

them to 55% as valorem tax, a review of RMC 37-93 was denied.

Issue:   Whether the brands may be placed within the scope of   the amendatory   law (RA 7654)  and subject then to an increased, through RMC 37-93.

Held:     Prior   to   the   issuance   of   RMC  37-93,   the brands   were   in   the   category   of   locally manufactured   cigarettes   not   bearing   foreign brands,  subject  to 45% ad valorem tax.    Without RMC 37-93,  the enactment of RA7654 would not have new tax rate consequences on the company’s products.   In issuing RMC 37-93, the BIR legislated under its quasi-legislative authority and not simply interpreted the law.   When an administrative rule goes beyond merely providing for the means that can   facilitate   or   render   least   cumbersome   the implementation of the  law but substantially  adds to or increases the burden of those governed.   It behoves   the   agency   to   accord   at   least   to   those directly affected a chance to be heard, and thereby be duly informed, before that new issuance is given the force and effect of law.

CIR v. BENGUET CORP.G.R. Nos. 134587 & 134588, August 08, 2005

FACTS: Benguet  Corp.   (“Benguet”)   is   a   domestic corporation   engaged   in   mining.   It   is   a   VAT-registered   enterprise.   In   January   1988,   Benguet filed an application  for   zero-rating of   its   sales  of mine products. The application was approved.

1ST VAT RULING (AUG. 1988): The CIR issued VAT Ruling No. 378-88 which declared that the sale of gold   to   the Central  Bank  (“CB”)   is  considered an export sale and therefor subject to 0% VAT. From 1988   to   1990,   the   CIR   (more   than   5   times) reiterated and confirmed its position that the sale 

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of gold by a VAT-registered taxpayer to the CB is subject to 0% VAT.

In   reliance   to   the   CIR’s   position,   Benguet   (from January 1988 to July 1989) sold gold to the CB and treated these sales as 0% VAT rated. In this same period,  Benguet   incurred   input   taxes  attributable to its sale of gold to the CB. Consequently, Benguet filed with the CIR applications for the issuance of Tax   Credit   Certificates   for   input   VAT   Credits attributable to  its export sales (inclusive of direct export sales and sale of gold to the CB).

2ND VAT RULING (JAN. 1992):  The CIR issued VAT Ruling No. 008-92 declaring that the sales of gold to the CB are considered domestic sales subject to 10% VAT (instead of 0% from 1998-1990 in the 1ST

VAT RULING). 

3RD VAT RULING (AUG. 1992):  The CIR issued VAT Ruling   No.   59-92.   It   stated   the   retroactive application of the 2ND VAT RULING to all such sales starting January  1,  1988.   It  also  said   that  mining companies  will   not   be  unduly  prejudiced  by   the retroactive   application   of   the  2ND VAT RULING because their  claim for refund of  input taxes are not lost because they are allowable on its:(1) Output taxes on the sales of gold to CB(2) Output taxes on other sales(3) As a deduction to income tax

The CIR treated Benguet’s sales to CB as domestic sales  subject   to 10% VAT but  allowed Benguet  a total   tax   credit   of   only   around   P81M   which corresponded to VAT input taxes attributable only to its direct EXPORT SALES. Despite this,  Benguet was not refunded the said amounts  of  tax credit claimed. Hence, Benguet prayed for the issuance of Tax   Credit   Certificates   with   the   CTA.   Benguet’s computation   of   tax   credit   amounted   to   P131M 

which  included  input  tax to BOTH EXPORT SALES and SALES OF GOLD TO THE CB. 

CTA: Denied  Benguet’s   claim   for   tax   credit.   The alleged   prejudice   to   Benguet   of   the   retroactive application   is  merely   speculative   and   not   actual and   imminent   so   as   to   prohibit   its   retroactivity. There won’t be any prejudice because the 3RD VAT RULING provides for the remedies for the recovery of the input VAT. 

CA: Affirmed   the   CTA.  On  MR,   the   CA   reversed itself.   Ergo,   the   P131M   tax   credit   claim   was approved!   According   to   the   CA,   the   P131M includes:(1) P81M (input VAT credits attributable to direct EXPORT SALES)(2) P50M (input VAT credits attributable to SALES OF GOLD TO CB which were subject to 0% when the said sales were made)

ISSUES: W/N the 2ND VAT RULING (subjecting sales of gold to the CB to 10% VAT) would be prejudicial to Benguet.

CIR’S POSITION: The   CA   erred   in   rejecting   the retroactive   application   of   the  2ND VAT RULING because   its   retroactive   application   will   not prejudice Benguet. It may:(1) Use said input taxes in paying its output taxes in connection with its other sales transactions which are subject to the 10% VAT(2) If there are no other sales transaction subject to the   10%   VAT,   treat   the   input   VAT   as   cost   and deduct   the   same   from   income   for   income   tax purposes.

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HELD: CIR FAIL!  BENGUET FTW! The prejudice to Benguet is obvious! No retroactive effect! Benguet may claim the P50M input VAT credit!

The VAT system allows a VAT-registered taxpayer to recover its input VAT either by:(1) Passing on the 10% output VAT (now 12%) on the   gross   selling   price   or   gross   receipts   to   its buyers.(2) If the input tax is attributable to the purchase of capital   goods   or   to   zero-rated   sales,   by   filing   a claim for a refund or tax credit with the BIR.  Benguet’s   claimed   tax   credit   of   input   tax amounting   to   P50M   represents   the   costs   or expenses incurred by Benguet  in connection with its gold production. Relying on the 1ST VAT RULING (sales of gold to the CB are considered export sales subject to 0%), Benguet sold gold to the CB without passing   on   CB   its   input   VAT   costs,   obviously intending to obtain a refund or credit thereof from the BIR at the end of the taxable period. 

However, by the time Benguet applied for credit of its   input  VAT  costs,   the  2ND VAT RULING  treated sales of gold to the CB as domestic sales subject to 10%  VAT.  And   the  3RD VAT RULING  retroactively applied   the  2ND VAT RULING  to   such   sales  made from January  1,  1988 onwards.  By reason of   the denial   of   its   claim   for   credit,   Benguet   has   been precluded from recovering its input VAT costs. The CIR’S remedies (set off with other transactions or income deduction) cannot be applied.

(1) Benguet has clearly shown that it has no “other transactions” subject to 10% VAT and CIR has failed to prove the existence of such “other transactions” against which to set off Benguet’s input VAT. (2)   Treating   the   input   VAT   as   an   income   tax deduction will  yield only to a partial benefit.  The 

use of  input VAT as a tax deductions results  in a loss   of   65%  of   the   input  VAT  which   could   have otherwise   fully   utilized   as   a   tax   credit.   There   is substantial difference between a tax credit  and a tax   deduction.   A   tax   credit   reduces   tax   liability, while a tax deduction only reduces taxable income (SEE P.70 OF THE CASE! It illustrates the difference between   using   the   tax   credit   and   tax   deduction methods).

Prejudice   is   all   the  more  highlighted  by   the   fact that it has been issued assessments for deficiency output  VAT  in  the amounts  of  P252M (for  1988) and   P244M   (for   1989)!   Benguet   relied   on   the formal assurances of the BIR’s  1ST VAT RULING. To retroact   a   later   ruling   revoking   the   grant   of   0% rating   status   and   applying   a   new   and   contrary position that such sales are now subject to 10% is inconsistent with justice and fair play.

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