1) Philamlife v. Secretary of Finance and CIR

FACTS:Petitioner sold its shareholdings in Philamcare to STI Investments at a price lower than the book value of the shares. Petitioner requested for a BIR ruling to confirm that the sale was not subject to donor’s tax since it was an arm’s length transaction with no donative intent; thus not subject to donor’s tax even if it was a sale for less than an adequate consideration. The CIR issued BIR Ruling No. 015-12 holding that the difference between the selling price and book value of the shares is a taxable donation, and subject to 30% donor’s tax. Petitioner requested the Secretary of Finance to review BIR Ruling No. 015-12, who affirmed the ruling in its entirety.

Petitioner elevated the case to the CA via a petition for review. The CA dismissed the petition for lack of jurisdiction, holding that the assailed ruling was issued in the exercise of the CIR’s power to interpret the NIRC and other tax laws. Requesting for its review can be categorized as “other matters arising under the NIRC or other laws administered by the BIR,” which is under the jurisdiction of the CTA, not the CA.

ISSUES:1) WON the CA erred in dismissing the case for lack of jurisdiction.2) WON the price difference in the sale of shares is subject to donor’s tax.

RULING:1) No, the CA did not err in dismissing the case. It is the CTA who is given jurisdiction over reviews by the Secretary of Finance pursuant to Section 4 of the NIRC.

Sec. 7(a)(1) of RA 1125 vests the CTA, albeit impliedly, with jurisdiction over the CA petition as “other matters” arising under the NIRC or other laws administered by the BIR.

It can be implied from the purpose of RA 1125 and its amendatory laws that the CTA is the proper forum with which to institute the appeal. This is not, and should not, in any way, be taken as a derogation of the power of the Office of President but merely as recognition that matters calling for technical knowledge should be handled by the agency or quasi-judicial body with specialization over the controversy. As the specialized quasi-judicial agency mandated to adjudicate tax, customs, and assessment cases, there can be no other court of appellate jurisdiction that can decide the issues raised in the CA petition, which involves the tax treatment of the shares of stocks sold.

2) Yes, the price difference is subject to donor’s tax.

The absence of donative intent does not exempt the sales of stock transaction from donor’s tax since Sec. 100 of the NIRC categorically states that the amount by which the fair market value of the property exceeded the value of the consideration shall be deemed a gift. Thus, even if there is no actual donation, the difference in price is considered a donation by fiction of law.

2) BDO, et al. v. Republic of the Philippines

DEFINITION OF TERMS:-A zero-coupon bond is a bond bought at a price substantially lower than its face value (or at a deep discount), with the face value repaid at the time of maturity. It does not make periodic interest payments, or have so-called “coupons,” hence the term zero-coupon bond. However, the discount to face value constitutes the return to the bondholder. -a final withholding tax at the rate of 20% is imposed on interest on any currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements. The term ‘deposit substitutes’ shall mean an alternative form of obtaining funds from the public (the term 'public' means borrowing from twenty (20) or more individual or corporate lenders at any one time)

FACTS:CODE-NGO, RCBC, and others requested the DOF to issue a 10-year zero-coupon Treasury Certificates which will be purchased in behalf of CODE-NGO, and will be repackaged and sold as PEACe Bonds. In the year 2001, the BIR issued a ruling on the tax treatment of the PEACe Bonds, confirming that these would not be classified as deposit substitutes since it will be issued to only one entity, CODE-NGO, and therefore not subject to the 20% withholding tax. Subsequent BIR rulings also reaffirmed this. Former Treasurer Edeza questioned the propriety of selling to CODE-NGO, and recommended that bonds be issued to a GSED in its behalf.

The Bureau of Treasury announced a Public Offering of 10-year Zero Coupon Bonds. RCBC participated in behalf of CODE-NGO, and was declared as the winning bidder for having the lowest bid. RCBC entered into an underwriting agreement with CODE-NGO for the distribution and sale of the bonds, with the stipulation that income was tax-exempt. Petitioners purchased the bonds at different dates.

In 2011, after 10 years from the issuance of bonds, BIR issued the assailed 2011 BIR ruling imposing a 20% final withholding tax on the government bonds and directing BIR to withhold the final tax from the maturity value.

ISSUES / RULING:

PROCEDURALThe doctrine of exhaustion of administrative remedies does not apply in this case because: (1) the issue involves purely legal questions namely: (a) the interpretation of the 20-lender rule in the definition of the terms public and deposit substitutes under the 1997 National Internal Revenue Code; and (b) whether the imposition of the 20% final withholding tax on the PEACe Bonds upon maturity violates the constitutional provisions on non-impairment of contracts and due process, and; (2) there are circumstances indicating the urgency of judicial intervention since the impending maturity of the PEACe Bonds on October 18, 2011.

The rule on exhaustion of administrative remedies also finds no application when the exhaustion will result in an exercise in futility. In this case, an appeal to the Secretary of Finance from the questioned 2011 BIR Ruling would be a futile exercise because it was upon the request of the Secretary of Finance that the 2011 BIR Ruling was issued by the BIR. It appears that the Secretary of Finance adopted the CIR’s opinions as his own.

Here, the nature and importance of the issues raised to the investment and banking industry with regard to a definitive declaration of whether government debt instruments are deposit substitutes under existing laws, and the novelty thereof, constitute exceptional and compelling circumstances to justify resort to this court in the first instance.

The tax provision on deposit substitutes affects not only the PEACe Bonds but also any other financial instrument or product that may be issued and traded in the market. Due to the changing positions of the Bureau of Internal Revenue on this issue, there is a need for a final ruling from this court to stabilize the expectations in the financial market.

Finally, non-compliance with the rules on exhaustion of administrative remedies and hierarchy of courts had been rendered moot by this court’s issuance of the temporary restraining order enjoining the implementation of the 2011 BIR Ruling. The temporary restraining order effectively recognized the urgency and necessity of direct resort to this court.

SUBSTANTIVEThe term ‘deposit substitutes’ shall mean an alternative form of obtaining funds from the public (the term 'public' means borrowing from twenty (20) or more individual or corporate lenders at any one time)

Meaning of 20-lender rule at any one time

Petitioners contend that “there [is] only one (1) lender (i.e. RCBC) to whom the BTr issued the Government Bonds.” They allege that the 2004, 2005, and 2011 BIR Rulings “erroneously interpreted that the number of investors that participate in the ‘secondary market’ is the determining factor in reckoning the existence or non-existence of twenty (20) or more individual or corporate lenders

On the other hand, respondents theorize that the word “any” “indicates that the period contemplated is the entire term of the bond and not merely the point of origination or issuance[,]” such that if the debt instruments “were subsequently sold in secondary markets and so on, in such a way that twenty (20) or more buyers eventually own the instruments, then it becomes indubitable that funds would be obtained from the “public” as defined in Section 22(Y) of the NIRC.” From the point of view of the financial market, the phrase “at any one time” for purposes of determining the “20 or more lenders” would mean every transaction executed in the primary or secondary market in connection with the purchase or sale of securities.

When, through any of the foregoing transactions, funds are simultaneously obtained from 20 or more lenders/investors, there is deemed to be a public borrowing and the bonds at that point in time are deemed deposit substitutes. Consequently, the seller is required to withhold the 20% final withholding tax on the imputed interest income from the bonds.

Validity of the BIR RulingsThe Bureau of Internal Revenue’s interpretation as expressed in the three 2001 BIR Rulings is not consistent with law. Its interpretation of “at any one time” to mean at the point of origination alone is unduly restrictive.

BIR Ruling No. 370-2011 is likewise erroneous insofar as it stated (relying on the 2004 and 2005 BIR Rulings) that “all treasury bonds . . . regardless of the number of purchasers/lenders at the time of origination/issuance are considered deposit substitutes.” Being the subject of this petition, it is, thus, declared void because it completely disregarded the 20 or more lender rule added by Congress in the 1997 National Internal Revenue Code. It also created a distinction for government debt instruments as against those issued by private corporations when there was none in the law.

Tax Treatment of income derived from peace bondsIt may seem that there was only one lender — RCBC on behalf of CODE-NGO — to whom the PEACe Bonds were issued at the time of origination. However, the underwriting agreement and term sheet reveals that the settlement dates for the sale and distribution of the Bonds to various undisclosed investors would fall on the same day, October 18, 2001, when the PEACe Bonds were supposedly issued to CODE-NGO/RCBC. Therefore, the entire bonds was sourced directly from the undisclosed number of investors to whom RCBC Capital/CODE-NGO distributed the PEACe Bonds — all at the time of origination or issuance. At this point, however, we do not know as to how many investors the PEACe Bonds were sold to by RCBC Capital.Should there have been a simultaneous sale to 20 or more lenders/investors, the PEACe Bonds are deemed deposit substitutes and RCBC Capital/CODE-NGO would have been obliged to pay the 20% final withholding tax on the interest or discount from the PEACe Bonds. Further, the obligation to withhold the 20% final tax on the corresponding interest from the PEACe Bonds would likewise be required of any lender/investor had the latter turned around and sold said PEACe Bonds, whether in whole or part, simultaneously to 20 or more lenders or investors.

Thus, should the PEACe Bonds be found to be within the coverage of deposit substitutes, the proper procedure was for the Bureau of Treasury to pay the face value of the PEACe Bonds to the bondholders and for the Bureau of Internal Revenue to collect the unpaid final withholding tax directly from RCBC Capital/CODE-NGO, or any lender or investor if such be the case, as the withholding agents.

The collection of the 20% withholding tax is not barred from prescription.

The three (3)-year prescriptive period under Section 203 of the 1997 National Internal Revenue Code to assess and collect internal revenue taxes is extended to 10 years in cases of (1) fraudulent returns; (2) false returns with intent to evade tax; and (3) failure to file a return, to be computed from the time of discovery of the falsity, fraud, or omission

Thus, should it be found that RCBC Capital/CODE-NGO sold the PEACe Bonds to 20 or more lenders/investors, the Bureau of Internal Revenue may still collect the unpaid tax from RCBC Capital/CODE-NGO within 10 years after the discovery of the omission.

Final RulingThe Court ruled that the BIR Rulings directing the Bureau of Treasury to withhold 20% final tax from the face value of the PEACe bonds are nullified; the Bureau of Treasury is reprimanded for not delivering the amounts to the banks to be placed in escrow pending resolution of the case, and is ordered to immediately release and pay to the bondholders the amount withheld.

3) CIR v. Aichi Forging Company

Aichi doctrine only applies to claims for refund or credit of excess input VAT, and not erroneously/illegally collected taxes.

FACTS:Respondent filed a claim for refund/credit of input VAT with the BIR through the DOF One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center. Respondent also filed a petition for review with the CTA. The CTA division partially granted the claim of respondent. Petitioner filed a Motion for Partial Reconsideration insisting that the administrative and the judicial claims were filed beyond the two-year period to claim a tax refund/credit provided for under Sections 112(A) and 229 of the NIRC. He reasoned that since the year 2004 was a leap year, the filing of the claim for tax refund/credit on September 30, 2004 was beyond the two-year period, which expired on September 29, 2004. In addition, petitioner argued that the simultaneous filing of the administrative and the judicial claims contravenes Sections 112 and 229 of the NIRC. According to the petitioner, a prior filing of an administrative claim is a "condition precedent" before a judicial claim can be filed. The MPR was denied. Petitioner elevated the case to the CTA EB, who affirmed the partial tax refund/credit.

ISSUE:WON respondent is entitled to the refund/credit.

RULING:No, respondent is not entitled to the refund/credit for having been filed in violation of Section 112(D) of the NIRC.

Reckoning point for the two-year prescriptive period for claiming input VAT refundSection 112(A) of the NIRC is the applicable provision which provides that the unutilized input VAT must be claimed within 2 years after the close of the taxable quarter when the sales were made. Hence, the 2-year period should be reckoned from the close of the taxable quarter when the sales were made.

Prescriptive period applies only to the administrative claimsSection 112(D) of the NIRC clearly provides that the CIR has 120 days from the date of the submission of the complete documents in support of the application for tax refund/credit within which to grant or deny the claim. In case of full or partial denial by the CIR, the taxpayer’s recourse is to file an appeal before the CTA within 30 days from receipt of the decision of the CIR. However, if after the 120-day period the CIR fails to act on the application for tax refund/credit, the remedy of the taxpayer is to appeal the inaction of the CIR to CTA within 30 days.

Applying the two-year period to judicial claims would render nugatory Section 112(D) of the NIRC, which already provides for a specific period within which a taxpayer should appeal the decision or inaction of the CIR. The second paragraph of Section 112(D) of the NIRC envisions two scenarios: (1) when a decision is issued by the CIR before

the lapse of the 120-day period; and (2) when no decision is made after the 120-day period. In both instances, the taxpayer has 30 days within which to file an appeal with the CTA. Therefore, the 120-day period is crucial in filing an appeal with the CTA.

Mandatory nature of the 120-30 day ruleThe observance of the 120-30 day rule is mandatory and jurisdictional. In other words, the taxpayer may appeal to the CTA within 30 days only in case there is a full or partial denial by the CIR of the application for refund before the lapse of the 120-day period or in case the period lapses without the action on the part of the CIR.

In this case, the administrative and the judicial claims were simultaneously filed on September 30, 2004. Obviously, respondent did not wait for the decision of the CIR or the lapse of the 120-day period before filing the judicial claim with the CTA. Thus, the Court ruled that the respondent’s filing of the judicial claim with the CTA was premature as no jurisdiction was acquired by the CTA.

4) CIR v. San Roque Power Corporation

CIR v. San Roque Corporation FACTS:San Roque filed a claim for refund with the BIR for excess input VAT. The CIR’s inaction on the claim prompted San Roque to file the petition for review with the CTA. The CTA Division initially denied San Roque’s claim but subsequently partially granted the refund. The CIR filed a Motion for Partial Reconsideration praying for the denial of the claim in its entirety. The CTA EB affirmed the decision.

Taganito Mining Corporation v. CIR FACTS:Taganito filed with the CIR a claim for tax credit/refund. Since the statutory period to claim the refund was about to expire without action from the CIR, Taganito filed a petition for review with the CTA. The CTA Division partially granted the claim for refund. CIR filed a Motion for the Partial Reconsideration. The CTA EB reversed the decision of the CTA Division. The CTA EB found that Taganito filed its administrative claim on Nov. 14, 2006, which was well within the period prescribed under Section 112(A) and (B) of the NIRC. However, Taganito’s judicial claim was prematurely filed on Feb. 14, 2007. The judicial claim was filed after the lapse of only 92 days from the filing of its administrative claim before the CIR, in violation of the 120-day period prescribed in Section 112(D) of the NIRC.

In his dissent, Associate Justice Bautista insisted that Taganito timely filed its claim before the CTA, invoking Section 112(C) (Period within which Refund or Tax Credit of Input Taxes shall be Made) in conjunction with Section 229 (Recovery of Tax Erroneously or Illegally Collected), and relying on this Court’s ruling in the Atlas case which stated that refundable or creditable input VAT and illegally or erroneously collected national internal revenue tax are the same, insofar as both are monetary amounts which are currently in the hands of the government but must rightfully be returned to the taxpayer. Justice Bautista concluded: Being merely permissive, a taxpayer claimant has the option of seeking judicial redress for refund or tax credit of excess or unutilized input tax with this Court, either within 30 days from receipt of the denial of its claim, or after the lapse of the 120-day period in the event of inaction by the Commissioner, provided that both administrative and judicial remedies must be undertaken within the 2-year period.

Philex Mining Corporation v. CIR FACTS:Philex filed its claim for refund/tax credit with the One Stop Shop Center of the Department of Finance. However, due to the CIR’s failure to act on such claim, Philex filed a petition for review with the CTA. The CTA Division denied Philex’s claim due to prescription, ruling that the two-year prescriptive period specified in Section 112(A) of RA 8424, as amended, applies not only to the filing of the administrative claim with the BIR, but also to the filing of the judicial claim with the CTA. Since Philex’s claim covered the 3rd quarter of 2005, its administrative claim filed on Mar. 20, 2006 was timely filed, while its judicial claim filed on Oct. 17, 2007 was filed late and therefore barred by prescription. The CTA EB affirmed the decision of the CTA Division.

ISSUES:WON the companies are entitled to their claim for refund/credit.

RULING:

San Roque - No, San Roque is not entitled to the refund because San Roque failed to comply with the 120-day waiting period which is mandatory and jurisdictional.

On Apr. 10, 2003, a mere 13 days after it filed its amended administrative claim with the CIR on Mar. 28, 2003, San Roque filed a Petition for Review with the CTA. San Roque did not wait for the 120-day period to lapse before filing its judicial claim. San Roque filed its judicial claim more than four (4) years before the Atlas doctrine, which was promulgated by the Court on Jun. 8, 2007.

The charter of the CTA expressly provides that its jurisdiction is to review on appeal "decisions of the CIR in cases involving x x x refunds of internal revenue taxes." When a taxpayer prematurely files a judicial claim for tax refund or credit with the CTA without waiting for the decision of the CIR, there is no "decision" of the Commissioner to review and thus the CTA as a court of special jurisdiction has no jurisdiction over the appeal. The charter of the CTA also expressly provides that if the CIR fails to decide within "a specific period" required by law, such "inaction shall be deemed a denial" of the application for tax refund or credit. It is the CIR’s decision, or inaction "deemed a denial," that the taxpayer can take to the CTA for review. Without a decision or an "inaction x x x deemed a denial" of the CIR, the CTA has no jurisdiction over a petition for review.

Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the CTA the decision or inaction of the CIR. The taxpayer may, if he wishes, appeal the decision of the Commissioner to the CTA within 30 days from receipt of the Commissioner’s decision, or if the Commissioner does not act on the taxpayer’s claim within the 120-day period, the taxpayer may appeal to the CTA within 30 days from the expiration of the 120-day period.

Taganito - Yes, Taganito is entitled to the refund on the basis of BIR Ruling No. DA-489-0357.

Like San Roque, Taganito also filed its petition for review with the CTA without waiting for the 120-day period to lapse, and filed its judicial claim before the promulgation of the Atlas doctrine. Taganito is similarly situated as San Roque - both cannot claim being misled, misguided, or confused by the Atlas doctrine.

However, Taganito can invoke BIR Ruling No. DA-489-0357 dated Dec. 10, 2003, which expressly ruled that the "taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with the CTA by way of Petition for Review." Taganito filed its judicial claim after the issuance of the BIR Ruling, but before the adoption of the Aichi doctrine. Thus, as will be explained later, Taganito is deemed to have filed its judicial claim with the CTA on time.

Philex Mining - No, Philex Mining is not entitled to the refund because it filed its judicial claim late.

Philex timely filed its administrative claim on Mar. 20, 2006, within the two-year prescriptive period. The CIR had until Jul. 17, 2006, the last day of the 120-day period, to decide Philex’s claim. Since the CIR did not act on Philex’s claim, Philex had until Aug. 17, 2006, the last day of the 30-day period, to file its judicial claim. However, Philex filed its Petition for Review with the CTA only on Oct. 17, 2007, or four hundred twenty-six (426) days after the last day of filing. In short, Philex was late by one year and 61 days in filing its judicial claim.

Unlike San Roque and Taganito, Philex’s case is not one of premature filing but of late filing. The inaction of the CIR on Philex’s claim during the 120-day period is, by express provision of law, "deemed a denial" of Philex’s claim. Philex had 30 days from the expiration of the 120-day period to file its judicial claim with the CTA. Philex’s failure to do so rendered the "deemed a denial" decision of the Commissioner final and inappealable. The right to appeal to the CTA from a decision or "deemed a denial" decision of the Commissioner is merely a statutory privilege, not a constitutional right. The exercise of such statutory privilege requires strict compliance with the conditions attached by the statute for its exercise. Philex failed to comply with the statutory conditions and must thus bear the consequences.

OTHER DISCUSSIONS:

Prescription Period - The 30-day period need not necessarily fall within the two-year prescriptive period, as long as the administrative claim is filed within the two-year prescriptive period. The taxpayer can file his administrative claim for refund or credit at anytime within the two-year prescriptive period. If he files his claim on the last day of the two-year prescriptive period, his claim is still filed on time. The Commissioner will have 120 days from such filing to decide the claim. If the Commissioner decides the claim on the 120th day, or does not decide it on that day, the taxpayer still has 30 days to file his judicial claim with the CTA.

“Excess” Input VAT and “Excessively” Collected Tax - The input VAT is not "excessively" collected as understood under Section 229 because at the time the input VAT is collected the amount paid is correct and proper. From the plain text of Section 229, it is clear that what can be refunded or credited is a tax that is "erroneously, x x x illegally, x x x excessively or in any manner wrongfully collected." In short, there must be a wrongful payment because what is paid, or part of it, is not legally due. As the Court held in Mirant, Section 229 should "apply only to instances of erroneous payment or illegal collection of internal revenue taxes." Erroneous or wrongful payment includes excessive payment because they all refer to payment of taxes not legally due.

In a claim for refund or credit of "excess" input VAT under Section 110(B) and Section 112(A), the input VAT is not "excessively" collected as understood under Section 229. Under Section 110(B) and Section 112(A), the prescriptive period for filing a judicial claim for "excess" input VAT is two years from the close of the taxable quarter when the sale was made by the person legally liable to pay the output VAT. This prescriptive period has no relation to the date of payment of the "excess" input VAT. The "excess" input VAT may have been paid for more than two years but this does not bar the filing of a judicial claim for "excess" VAT under Section 112(A), which has a different reckoning period from Section 229.

Effectivity and Scope of Previous Cases

Atlas (Jun. 8, 2007 – Sept.12, 2008) – The Atlas doctrine counts the two-year prescriptive period from the date of payment of the output VAT, which means within 20 days after the close of the taxable quarter.Mirant (Sept. 12, 2008-present) – The Mirant doctrine counts the two-year prescriptive period from the "close of the taxable quarter when the sales were made" as expressly stated in the law, which means the last day of the taxable quarter.Aichi (Oct. 6, 2010-present) – Compliance with the 120+30 day period is mandatory and jurisdictional.

BIR Ruling No. DA-489-03 (Dec. 10, 2003-Oct. 6, 2010) expressly states that the "taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with the CTA by way of Petition for Review."

GR: The 120-day period is mandatory and jurisdictional, and the CTA does not acquire jurisdiction over a judicial claim that is filed before the expiration of the 120-day period. Exceptions:1) if the Commissioner, through a specific ruling, misleads a particular taxpayer to prematurely file a judicial claim with the CTA. Such specific ruling is applicable only to such particular taxpayer. 2) where the Commissioner, through a general interpretative rule issued under Section 4 of the Tax Code, misleads all taxpayers into filing prematurely judicial claims with the CTA.

Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers can rely on BIR Ruling No. DA-489-03 from the time of its issuance on Dec. 10, 2003 up to its reversal by this Court in Aichi on Oct. 6, 2010, where this Court held that the 120+30 day periods are mandatory and jurisdictional

However, BIR Ruling No. DA-489-03 cannot be given retroactive effect for four reasons: first, it is admittedly an erroneous interpretation of the law; second, prior to its issuance, the BIR held that the 120-day period was mandatory and jurisdictional, which is the correct interpretation of the law; third, prior to its issuance, no taxpayer can claim that it was misled by the BIR into filing a judicial claim prematurely; and fourth, a claim for tax refund or credit, like a claim for tax exemption, is strictly construed against the taxpayer.

Thus, strict compliance with the 120+30 day periods is necessary for such a claim to prosper, whether before, during, or after the effectivity of the Atlas doctrine, except for the period from the issuance of BIR Ruling No. DA-489-03 on Dec. 10., 2003 to Oct. 6, 2010 when the Aichi doctrine was adopted, which again reinstated the 120+30 day periods as mandatory and jurisdictional.

5) CIR v. Mindanao II Geothermal Partnership

FACTS:On Oct. 6, 2006, Mindanao II filed with the BIR an application for the refund or credit of accumulated unutilized creditable input taxes. The CIR failed to act on the request within a period of 120 days, or on Feb. 3, 2006. Mindanao II did not file an appeal within the 30-day period, or on Mar. 5, 2006, but filed a petition for review with the CTA on Jul. 21, 2006. While the application for refund was pending with the CTA, the Atlas case was promulgated, holding that the two-year prescriptive period for the filing a claim is to be reckoned from the date of filing of the corresponding quarterly VAT return and payment of the tax. The CTA Division partially granted the claim for refund. The CIR filed a Motion for Partial Reconsideration pointing out that prescription had already set in, since the appeal to the CTA was filed beyond the last day to appeal, invoking Section 112(D) of the NIRC. Meanwhile, the Mirant case was promulgated, fixing the reckoning date of the two-year prescriptive period at the close of the taxable quarter when the relevant sales were made, as stated in Section 112(A).

The CTA Division denied the CIR’s Motion for Partial Reconsideration, standing by the Atlas doctrine. The CIR elevated the matter to the CTA EB via a Petition for Review, contending that the judicial claim of Mindanao II was filed beyond the 30-day period, and that Mindanao II erroneously fixed Jul. 26, 2004, the date when the return for the second quarter was filed, as the date from which to reckon the two-year prescriptive period for filing an application for refund or credit of unutilized input VAT. As the two-year prescriptive period ended on Jun. 30, 2006, the Petition for Review of Mindanao II was filed out of time on Jul. 21, 2006. The CIR invoked the recently promulgated Mirant to support this theory.

The CTA EB denied the CIR’s petition, holding that the CTA Division correctly applied the Atlas ruling. It reasoned that Atlas remained to be the controlling doctrine. Mirant was a new doctrine and, as such, the latter should not apply retroactively to Mindanao II who had relied on the old doctrine of Atlas and had acted on the faith thereof.

The CTA EB also held that the 30-day period only applies when the CIR actually denies the claim, but in cases of CIR inaction, the 30-day period is not a mandatory requirement. The judicial claim is seasonably filed as long as it is filed after the lapse of the 120-day waiting period but within two years from the date of filing of the return. The CIR filed a Motion for Partial Reconsideration, but was denied for lack of merit.

ISSUE:WON Mindanao II is entitled to the claim for refund/credit.

RULING:No, Mindanao II is not entitled to the claim for refund or credit because its judicial claims were filed out of time, even if its application for refund was filed on time.

The application for refund was filed on timeAichi case: It is only the administrative claim that must be filed within the two-year prescriptive period; the judicial claim need not fall within the two-year prescriptive period. The reckoning date of the two-year period follows the

rule prior to the advent of either Atlas or Mirant. Accordingly, the proper reckoning date, as provided by Section 112(A) of the NIRC, is the close of the taxable quarter when the relevant sales were made.

The judicial claims were filed out of timeThe 30-day period also applies to appeals from inaction. The San Roque case pronounced that the taxpayer can file the appeal in one of two ways: (1) file the judicial claim within thirty days after the Commissioner denies the claim within the 120-day period, or (2) file the judicial claim within thirty days from the expiration of the 120-day period if the Commissioner does not act within the 120-day period. Mindanao II filed its judicial claim on Jul. 21, 2006, 138 days after the lapse of the 30-day period on Mar. 5, 2006. The San Roque case declared that the 30-day period to appeal is both mandatory and jurisdictional, but provided an exception: BIR Ruling No. DA-489-03 dated Dec. 10, 2003, which declares that the "taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with the CTA by way of Petition for Review."

As mentioned above, Mindanao II filed its judicial claim after the issuance of BIR Ruling No. DA-489-03, but before its reversal on Oct. 5, 2010. However, while the BIR ruling was in effect when Mindanao II filed its judicial claim, the rule cannot be properly invoked since the BIR ruling contemplates premature filing, while Mindanao II’s situation is one of late filing.

SUMMARY OF RULES:

Two-Year Prescriptive Period1. It is only the administrative claim that must be filed within the two-year prescriptive period. (Aichi) 2. The proper reckoning date for the two-year prescriptive period is the close of the taxable quarter when the relevant sales were made. (San Roque)3. The only other rule is the Atlas ruling, applied from Jun. 8, 2007 – Sept. 12, 2008. Atlas states that the two-year prescriptive period for filing a claim for tax refund or credit of unutilized input VAT payments should be counted from the date of filing of the VAT return and payment of the tax. (San Roque)

120+30 Day Period1. The taxpayer can file an appeal in one of two ways: (1) file the judicial claim within thirty days after the Commissioner denies the claim within the 120-day period, or (2) file the judicial claim within thirty days from the expiration of the 120-day period if the Commissioner does not act within the 120-day period.2. The 30-day period always applies, whether there is a denial or inaction on the part of the CIR.3. As a general rule, the 30-day period to appeal is both mandatory and jurisdictional. (Aichi and San Roque)4. As an exception to the general rule, premature filing is allowed only if filed between Dec. 10, 2003 – Oct. 5, 2010, when BIR Ruling No. DA-489-03 was still in force. (San Roque)5. Late filing is absolutely prohibited, even during the time when BIR Ruling No. DA-489-03 was in force. (San Roque)

6) CIR v. Primetown Property

FACTS:Respondent applied for the refund or credit of income tax paid in 1997, alleging that their business suffered losses and was not liable to pay income tax. The claim was not acted upon, prompting respondent to file a petition for review with the CTA. The CTA dismissed the petition for being filed beyond the two-year prescriptive period for filing a judicial claim, invoking Section 229 of the NIRC. Respondent filed its adjusted return on Apr. 14, 1998, and its petition for review with the CTA on Apr. 14, 2000. According to the CTA, the two-year prescriptive period was equivalent to 730 days. Because the year 2000 was a leap year, respondent's petition, filed 731 days after respondent filed its final adjusted return, was filed beyond the reglementary period. Respondent appealed to the CA, which reversed the CTA decision, ruling that Article 13 of the Civil Code did not distinguish between a regular year and a leap year. In other words, even if the year 2000 was a leap year, the periods covered by April 15, 1998 to April 14, 1999 and April 15, 1999 to April 14, 2000 should still be counted as 365 days each or a total of 730 days.

ISSUE:WON the petition for refund/credit was filed within the reglementary period.

RULING:Yes, the petition was filed on time.

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.

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.

We therefore hold that respondent's petition (filed on April 14, 2000) was filed on the last day of the 24th calendar month from the day respondent filed its final adjusted return. Hence, it was filed within the reglementary period.

7) CIR v. Metro Star Superama

PRINCIPLE: The sending of a PAN to the taxpayer to inform the latter of the assessment is made part of the due process requirement in the issuance of a deficiency tax assessment, the absence of which renders nugatory any assessment made by the tax authorities.

FACTS:BIR issued a Preliminary 15-day letter informing respondent of deficiency value-added and withholding taxes. Respondent was then subsequently sent a FLD/AN, Final Notice of Seizure, and Warrant of Distraint and/or Levy. Respondent filed a Motion for Reconsideration with the CIR, which was denied. Respondent filed a petition for review with the CTA denying receipt of the PAN, and claiming that it was not accorded due process. The CTA Division opined that "[w]hile there [is] a disputable presumption that a mailed letter [is] deemed received by the addressee in the ordinary course of mail, a direct denial of the receipt of mail shifts the burden upon the party favored by the presumption to prove that the mailed letter was indeed received by the addressee." It also found that there was no clear showing that Metro Star actually received the alleged PAN. It, accordingly, ruled that the FLD/AN, as well as the Warrant of Distraint and/or Levy were void, as Metro Star was denied due process. The CTA EB affirmed the decision of the Division.

ISSUE:WON the issuance of a FAN without prior issuance of a PAN violates taxpayer’s right to due process.

RULING:Yes, the issuance of a FAN without prior issuance of a PAN is a violation of due process.

Burden of Proof - If the taxpayer denies ever having received an assessment from the BIR, it is incumbent upon the latter to prove by competent evidence that such notice was indeed received by the addressee. The Supreme Court has consistently held that while a mailed letter is deemed received by the addressee in the course of mail, this is merely a disputable presumption subject to controversion and a direct denial thereof shifts the burden to the party favored by the presumption to prove that the mailed letter was indeed received by the addressee

Violation of Due Process – Section 228 of the NIRC clearly states that the taxpayer must be informed of his liability for deficiency taxes through the sending of a PAN. The said provision provides that a PAN should be issued by the CIR or his representative, except in cases enumerated therein. Accordingly, both the sending of the PAN and FAN is

a mandatory requirement in order to inform the taxpayer of his liability for deficiency taxes. If only the FAN is issued, the requirements of due process are deemed unsatisfied, and the assessment shall be deemed void ab initio.

To proceed heedlessly with tax collection without first establishing a valid assessment is evidently violative of the cardinal principle in administrative investigations - that taxpayers should be able to present their case and adduce supporting evidence.

8) Lascona Land v. CIR

FACTS:CIR issued an Assessment Notice to petitioner for deficiency income tax, which the latter protested to. The CIR denied the protest on the grounds that assessment had become final, executory, and demandable since the case was not elevated to the CTA as mandated by Section 228 of the NIRC. Petitioner appealed the decision to the CTA, alleging that BIR-Regional Director erred in ruling that the failure to appeal to the CTA within thirty (30) days from the lapse of the 180-day period rendered the assessment final and executory. The CTA nullified the subject assessment, holding that in cases of inaction by the CIR on the protested assessment, Section 228 of the NIRC provided two options for the taxpayer: (1) appeal to the CTA within thirty (30) days from the lapse of the one hundred eighty (180)-day period, or (2) wait until the Commissioner decides on his protest before he elevates the case.

The CTA, in deciding CIR’s Motion for Reconsideration, held that RR No. 12-99 must conform to Section 228 of the NIRC. It pointed out that the former spoke of an assessment becoming final, executory and demandable by reason of the inaction by the Commissioner, while the latter referred to decisions becoming final, executory and demandable should the taxpayer adversely affected by the decision fail to appeal before the CTA within the prescribed period. Finally, it emphasized that in cases of discrepancy, Section 228 of the NIRC must prevail over the revenue regulations. The CA reversed the decision of the CTA, declaring that the assessment is final, executory and demandable.

ISSUE:WON the assessment has become final, executory and demandable due to the failure of petitioner to file an appeal before the CTA within thirty (30) days from the lapse of the 180-day period pursuant to Section 228 of the NIRC.

RULING:No, the assessment has not become final, executory and demandable.

The Court has held that in case the Commissioner failed to act on the disputed assessment within the 180-day period from date of submission of documents, a taxpayer can either: (1) file a petition for review with the Court of Tax Appeals within 30 days after the expiration of the 180-day period; or (2) await the final decision of the Commissioner on the disputed assessments and appeal such final decision to the Court of Tax Appeals within 30 days after receipt of a copy of such decision. It must be emphasized, however, that in case of the inaction of the CIR on the protested assessment, while we reiterate − the taxpayer has two options, these options are mutually exclusive and resort to one bars the application of the other.

Accordingly, considering that Lascona opted to await the final decision of the Commissioner on the protested assessment, it then has the right to appeal such final decision to the Court by filing a petition for review within thirty days after receipt of a copy of such decision or ruling, even after the expiration of the 180-day period fixed by law for the Commissioner of Internal Revenue to act on the disputed assessments. Thus, Lascona, when it filed an appeal on April 12, 1999 before the CTA, after its receipt of the Letter on March 12, 1999, the appeal was timely made as it was filed within 30 days after receipt of the copy of the decision.

9) Allied Banking Corporation v. CIR

FACTS:Petitioner received a PAN from BIR on May 18, 2004 and filed a protest on May 27, 2004. On July 16, 2004, BIR wrote a FLD/AN informing petitioner that this represented their final decision, and should they disagree, petitioner may appeal within 30 days from receipt hereof, otherwise said deficiency tax assessment shall become final, executory and demandable. Petitioner received the FLD/AN on August 30, 2004. Petitioner filed a petition for review with the CTA. CIR filed a Motion to Dismiss on the ground that petitioner failed to file an administrative protest on the FLD/AN. The CTA Division granted the Motion to Dismiss. The CTA EB affirmed the decision of the Division, declaring that it is absolutely necessary for the taxpayer to file an administrative protest in order for the CTA to acquire jurisdiction.

ISSUE:WON the FLD/AN can be construed as a final decision of the CIR appealable to the CTA.RULING:Yes, the FLD/AN was appealable to the CTA.

Petitioner timely filed a protest after receiving the PAN. In response thereto, the BIR issued a FLD/AN. Pursuant to Section 228 of the NIRC, the proper recourse of petitioner was to dispute the assessments by filing an administrative protest within 30 days from receipt thereof. Petitioner, however, did not protest the final assessment notices. Instead, it filed a Petition for Review with the CTA. Thus, if we strictly apply the rules, the dismissal of the Petition for Review by the CTA was proper.

However, a careful reading of the FLD/AN leads us to agree with petitioner that the instant case is an exception to the rule on exhaustion of administrative remedies, i.e., estoppel on the part of the administrative agency concerned.

We cannot blame petitioner for not filing a protest against the FLD/AN since the language used and the tenor of the demand letter indicate that it is the final decision of the respondent on the matter. We have time and again reminded the CIR to indicate, in a clear and unequivocal language, whether his action on a disputed assessment constitutes his final determination thereon in order for the taxpayer concerned to determine when his or her right to appeal to the tax court accrues. Viewed in the light of the foregoing, respondent is now estopped from claiming that he did not intend the FLD/AN to be a final decision.

We are not disregarding the rules of procedure under Section 228 of the NIRC, as implemented by Section 3 of BIR RR No. 12-99.28 It is the FLD/AN that must be administratively protested or disputed within 30 days, and not the PAN. Neither are we deviating from our pronouncement in St. Stephen’s Chinese Girl’s School v. CIR, that the counting of the 30 days within which to institute an appeal in the CTA commences from the date of receipt of the decision of the CIR on the disputed assessment, not from the date the assessment was issued.

10) Philippine Journalists, Inc. v. CIR

FACTS:BIR invited petitioner to attend an informal conference to dispute its assessment of deficiency taxes. Petitioner’s Comptroller executed a "Waiver of the Statute of Limitation under the NIRC, which waived the running of the prescriptive period provided by Sections 223 and 224 and other relevant provisions of the NIRC and consented to the assessment and collection of taxes which may be found due after the examination at any time, until the completion of the investigation".

BIR issued Pre-Assessment Notices to petitioner and thereafter, sent a Preliminary Collection Letter informing petitioner to pay the assessment within ten (10) days from receipt of the letter. On Nov. 10, 1999, a Final Notice Before Seizure was issued giving the petitioner ten (10) days from receipt to pay. Petitioner received a copy of the final notice on Nov. 24, 1999. Petitioner asked to be clarified how the tax liability was reached and requested an

extension of thirty (30) days from receipt of the clarification within which to reply. On Mar. 28, 2000, a Warrant of Distraint and/or Levy was received by the petitioner.

Petitioner filed a Petition for Review with the CTA complaining: (a) that no assessment or demand was received from the BIR; (b) that the warrant of distraint and/or levy was without factual and legal bases as its issuance was premature; (c) that the assessment, having been made beyond the 3-year prescriptive period, is null and void; (d) that the issuance of the warrant without being given the opportunity to dispute the same violates its right to due process; and (e) that the grave prejudice that will be sustained if the warrant is enforced is enough basis for the issuance of the writ of preliminary injunction.

The CTA ruled that the assessment notices were received by the petitioner, but held that the Waiver of the Statute of Limitations suffered from legal infirmities, rendering the same invalid and ineffective. Since the subject assessments were issued beyond the three-year prescriptive period, the assessments and the corresponding Warrant of Distraint and/or Levy are considered null and void.

CIR filed an appeal with the CA, who disagreed with CTA’s decision ruling that the petition for review filed with CTA was neither timely filed nor the proper remedy. Only decisions of the BIR, denying the request for reconsideration or reinvestigation may be appealed to the CTA. Mere assessment notices which have become final after the lapse of the thirty (30)-day reglementary period are not appealable.

The CA also ruled that the grounds on which the CTA based the invalidity of the waiver were merely formal in nature. The period of prescription for the assessment of taxes may be extended provided that the extension be made in writing and that it be made prior to the expiration of the period of prescription. These are the requirements for a valid extension of the prescriptive period. But the instance case is not an extension of the prescriptive period but a waiver thereof. These are two (2) very different things. What Phil. Journalists executed was a renunciation of its right to invoke the defense of prescription. This is a valid waiver. When one waives the prescriptive period, it is no longer necessary to indicate the length of the extension of the prescriptive period since the person waiving may no longer use this defense.

ISSUE:1) WON the CTA had jurisdiction over the issues in this case.2) WON the waiver was valid.

RULING:

1) Yes, the CTA had jurisdiction.

The appellate jurisdiction of the CTA is not limited to cases which involve CIR’s decisions on matters relating to assessments or refunds. It also covers other cases that arise out of the NIRC or related laws administered by the Bureau of Internal Revenue. The wording of the provision is clear and simple. It gives the CTA the jurisdiction to determine if the warrant of distraint and levy issued by the BIR is valid and to rule if the Waiver of Statute of Limitations was validly effected.

2) No, the waiver is not valid.

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. 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. 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.

As found by the CTA, the Waiver of Statute of Limitations is not valid and binding because it does not conform with the provisions of RMO No. 20-90. 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 because it was signed only by a revenue district officer, not the Commissioner, as mandated by the NIRC and RMO No. 20-90. The other defect noted is the date of acceptance which makes it difficult to fix with certainty if the waiver was actually agreed before the expiration of the three-year prescriptive period. Finally, the records show that petitioner was not furnished a copy of the waiver. Under RMO No. 20-90, the waiver must be executed in three copies with the second copy for the taxpayer. The CA did not think this was important because the petitioner need not have a copy of the document it knowingly executed. The flaw in the appellate court’s reasoning stems from its assumption 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, it was not yet complete and final because the BIR had not assented. There is compliance with the provision of RMO No. 20-90 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 three-year prescriptive period was not tolled or extended and continued to run. Consequently, the Assessment/Demand notice was invalid because it was issued beyond the three (3) year period. The Warrant of Distraint and/or Levy is also null and void for having been issued pursuant to an invalid assessment.

11) CIR v. Kudos Metal Corporation

FACTS:Respondent’s accountant executed two Waivers of the Defense of Prescription, which were received and accepted by the BIR. The BIR issued a PAN, followed by a FLD/AN. Respondent filed its protests, but the BIR required respondent to pay the taxes. Respondent filed a petition for review with the CTA believing that the government’s right to assess taxes had already prescribed. The CTA Division ruled that the assessment notices were issued beyond the prescriptive period, and that the waivers were incomplete and defective. The CTA EB affirmed the cancellation of the assessment notices.

ISSUE:WON the government’s right to assess unpaid taxes of respondent has prescribed.

RULING:Yes, the government’s right to assess unpaid taxes of respondent has already prescribed.

Section 203 of the NIRC mandates the government to assess internal revenue taxes within three years from the last day prescribed by law for the filing of the tax return or the actual date of filing of such return, whichever comes later. Hence, an assessment notice issued after the three-year prescriptive period is no longer valid and effective. Exceptions however are provided under Section 222 of the NIRC.

Section 222 (b) of the NIRC provides that the period to assess and collect taxes may only be extended upon a written agreement between the CIR and the taxpayer executed before the expiration of the three-year period. RMO 20-90 and RDAO 05-01 lay down the procedure for the proper execution of the waiver, to wit:

1. The waiver must be in the proper form prescribed by RMO 20-90. The phrase "but not after ______ 19 ___", which indicates the expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of prescription, should be filled up.

2. The waiver must be signed by the taxpayer himself or his duly authorized representative. In the case of a corporation, the waiver must be signed by any of its responsible officials. In case the authority is delegated by the taxpayer to a representative, such delegation should be in writing and duly notarized.3. The waiver should be duly notarized.4. The CIR or the revenue official authorized by him must sign the waiver indicating that the BIR has accepted and agreed to the waiver. The date of such acceptance by the BIR should be indicated. However, before signing the waiver, the CIR or the revenue official authorized by him must make sure that the waiver is in the prescribed form, duly notarized, and executed by the taxpayer or his duly authorized representative.5. Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the expiration of the period of prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed.6. The waiver must be executed in three copies, the original copy to be attached to the docket of the case, the second copy for the taxpayer and the third copy for the Office accepting the waiver. The fact of receipt by the taxpayer of his/her file copy must be indicated in the original copy to show that the taxpayer was notified of the acceptance of the BIR and the perfection of the agreement.

A perusal of the waivers executed by respondent’s accountant reveals the following infirmities:

1. The waivers were executed without the notarized written authority of Pasco to sign the waiver in behalf of respondent.2. The waivers failed to indicate the date of acceptance.3. The fact of receipt by the respondent of its file copy was not indicated in the original copies of the waivers.

Due to the defects in the waivers, the period to assess or collect taxes was not extended. Consequently, the assessments were issued by the BIR beyond the three-year period and are void.

The doctrine of estoppel cannot be applied in this case as an exception to the statute of limitations on the assessment of taxes considering that there is a detailed procedure for the proper execution of the waiver, which the BIR must strictly follow. The doctrine of estoppel cannot give validity to an act that is prohibited by law or one that is against public policy. It should be resorted to solely as a means of preventing injustice and should not be permitted to defeat the administration of the law, or to accomplish a wrong or secure an undue advantage, or to extend beyond them requirements of the transactions in which they originate.

12) CIR v. Philippine Global Communication

PRINCIPLE: A request for reinvestigation shall be deemed a mere request for reconsideration if the taxpayer continues to refuse or fails to submit new evidence and cooperate in the investigation process.

FACTS:Respondent received a PAN, followed by a FLD/AN. Respondent sent two separate protests, requesting for the cancellation of the tax assessments. More than 8 years after the assessments were issued, respondent received the Final decision of the CIR denying respondent’s request. Respondent filed a petition for review with the CTA. The CTA ruled that the protest letters filed by the respondent cannot constitute a request for reinvestigation, hence, they cannot toll the running of the prescriptive period. The CIR’s right to collect the same has prescribed in conformity with Section 269 of the National Internal Revenue Code of 1977. The CTA EB affirmed such decision.

ISSUE:WON CIR’s right to collect respondent’s alleged deficiency income tax is barred by prescription under Section 269(c) of the Tax Code of 1977.

RULING:Yes, the right of the CIR to collect the alleged deficiency income tax is already barred by prescription.

The law prescribes a period of 3 years from the date the return was actually filed or from the last date prescribed by law for the filing of such return, whichever came later, to assess a national internal revenue tax. For false or fraudulent return, the prescriptive period is 10 years, which begins to run from the date of discovery of the falsity, fraud or omission. The law provides another three years after the assessment for the collection of the tax due thereon through the administrative process of distraint and/or levy or through judicial proceedings. The three-year period for collection of the assessed tax begins to run on the date the assessment notice had been released, mailed or sent by the BIR.

The assessment, in this case, was presumably issued on Apr. 14, 1994 giving BIR until Apr. 13, 1997. However, as there was no Warrant of Distraint and/or Levy served on the respondents nor any judicial proceedings initiated by the BIR, the earliest attempt of the BIR to collect the tax due based on this assessment was when it filed its Answer on Jan. 9, 2003, which was several years beyond the three-year prescriptive period. Thus, the CIR is now prescribed from collecting the assessed tax.

The three-year statute of limitations on the collection of an assessed tax provided under Section 269(c) of the Tax Code of 1977, a law enacted to protect the interests of the taxpayer, must be given effect. In providing for exceptions to such rule in Section 271, the law strictly limits the suspension of the running of the prescription period to, among other instances, protests wherein the taxpayer requests for a reinvestigation. In this case, the taxpayer merely filed two protest letters requesting for a reconsideration, and the BIR could not have conducted a reinvestigation because no new or additional evidence was submitted. Therefore, the running of statute of limitations cannot be interrupted. The tax affirmed by the CIR can no longer be the subject of any proceeding for its collection. Consequently, the right of the government to collect the alleged deficiency tax is barred by prescription.

13) Silkair [Singapore] v. CIR

PRINCIPLE: The proper party to seek a refund of an indirect tax (such as excise tax) is the person on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another. In excise tax, the return shall be filed, and the excise tax is paid by the manufacturer or producer before removal of domestic products from the place of production.

FACTS:Petitioner filed an application with BIR for refund of excise taxes paid on its purchases of jet fuel. On BIR’s inaction, petitioner filed a petition for review with CTA. The CTA Division denied Silkair’s petition on the ground that as the excise tax was imposed on Petron Corporation as the manufacturer of petroleum products, any claim for refund should be filed by the latter; and where the burden of tax is shifted to the purchaser, the amount passed on to it is no longer a tax but becomes an added cost of the goods purchased. The CTA EB dismissed the petition for review for being filed out of time.

ISSUE:WON petitioner is the proper party to claim for refund/credit.

RULING:No, petitioner is not the proper party entitled to claim the refund/credit.

The proper party to question, or seek a refund of, an indirect tax is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another. Section 130 (A) (2) of the NIRC provides that "[u]nless otherwise specifically allowed, the return shall be filed and the excise tax paid by the manufacturer or producer before removal of domestic products from place of production." Thus, Petron Corporation, not Silkair, is the statutory taxpayer which is entitled to claim a refund based on Section 135 of the NIRC of 1997 and Article 4(2) of the Air Transport Agreement between RP and Singapore.

Even if Petron Corporation passed on to Silkair the burden of the tax, the additional amount billed to Silkair for jet fuel is not a tax but part of the price which Silkair had to pay as a purchaser. Silkair nevertheless argues that it is exempt from indirect taxes because the Air Transport Agreement between RP and Singapore grants exemption "from the same customs duties, inspection fees and other duties or taxes imposed in the territory of the first Contracting Party." The exemption granted under Section 135 (b) of the NIRC of 1997 and Article 4(2) of the Air Transport Agreement between RP and Singapore cannot, without a clear showing of legislative intent, be construed as including indirect taxes. Statutes granting tax exemptions must be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority, and if an exemption is found to exist, it must not be enlarged by construction.

14) Philippine Airlines v. CIR

PRINCIPLE: The general rule is that the proper party to ask for a refund of an indirect tax is the statutory taxpayer, not the person on whom it is shifted to. As an exception to the general rule, if the law confers an exemption from both direct and indirect taxes, a claimant is entitled to a tax refund even if it only bears the economic burden of the applicable tax.

FACTS:PAL sought a refund with BIR of the excise taxes passed on to it by Caltex, invoking its operating franchise, PD No. 1590, which conferred upon it certain tax exemption privileges on its purchase and/or importation of aviation gas, fuel and oil, including those which are passed on to it by the seller and/or importer thereof. Due to the CIR’s inaction, petitioner filed a petition for review with the CTA Division which denied PAL’s petition on the ground that PAL did not have legal personality to file the claim since only a statutory taxpayer (referring to Caltex in this case) may seek a refund of the excise taxes it paid. It further ruled that PAL’s claim for refund should be denied altogether on account of Letter of Instruction No. 1483 (LOI 1483) which already withdrew the tax exemption privileges previously granted to PAL on its purchase of domestic petroleum products, of which the transaction between PAL and Caltex was characterized. The CTA EB affirmed the ruling of the CTA Division.

ISSUES:1) WON PAL has the legal personality to file a claim for refund of the passed on excise taxes.2) WON the sale of imported aviation fuel by Caltex to PAL is covered by LOI 1483 which withdrew the tax exemption privileges of PAL on its purchases of domestic petroleum products for use in its domestic operations. 3) WON PAL has sufficiently proved its entitlement to refund.

RULING:1) Yes, PAL had legal personality to file the claim for refund.

While the NIRC mandates the manufacturer/producer of goods manufactured or produced in the Philippines and the owner/importer of imported goods as the persons to pay the applicable excise taxes directly to the government, they may, however, shift the economic burden of such payments to someone else – usually the purchaser of the goods – since excise taxes are considered as a kind of indirect tax. Even if the purchaser effectively pays the tax, the manufacturer/producers or the owners/importers are still regarded as the statutory taxpayers. Section 204(C) of the NIRC states that it is the statutory taxpayer who has the legal personality to file a claim for refund.

Accordingly, in cases involving excise tax exemptions on petroleum products under Section 135 of the NIRC, it is the statutory taxpayer who is entitled to claim a tax refund and not the party who merely bears its economic burden. However, this rule does not apply to instances where the law clearly grants the party to which the economic burden of the tax is shifted an exemption from both direct and indirect taxes. In which case, the latter must be allowed to claim a tax refund even if it is not considered as the statutory taxpayer. If the law confers an exemption from both direct or indirect taxes, a claimant is entitled to a tax refund even if it only bears the

economic burden of the applicable tax. On the other hand, if the exemption conferred only applies to direct taxes, then the statutory taxpayer is regarded as the proper party to file the refund claim.

In this case, PAL’s franchise grants it an exemption from both direct and indirect taxes on its purchase of petroleum products. Therefore, PAL is endowed with the legal standing to file the subject tax refund claim, notwithstanding the fact that it is not the statutory taxpayer as contemplated by law.

2) No, the sale of imported aviation fuel is not covered by LOI 1483.

The Court observes that the phrase "purchase of domestic petroleum products for use in its domestic operations" – which characterizes the tax privilege LOI 1483 withdrew – refers only to PAL’s tax exemptions on passed on excise tax costs due from the seller, manufacturer/producer of locally manufactured/ produced goods for domestic sale and does not, in any way, pertain to any of PAL’s tax privileges concerning imported goods, may it be (a) PAL’s tax exemption on excise tax costs which are merely passed on to it by the importer when it buys imported goods from the latter (the second tax exemption under the second kind of tax privilege); or (b) PAL’s tax exemption on its direct excise tax liability when it imports the goods itself (the third kind of tax privilege).

In this case, records disclose that Caltex imported aviation fuel from abroad and merely re-sold the same to PAL, tacking the amount of excise taxes it paid or would be liable to pay to the government on to the purchase price. Evidently, the said petroleum products are in the nature of "things imported" and thus, beyond the coverage of LOI 1483 as previously discussed. As such, considering the subsistence of PAL’s tax exemption privileges over the imported goods subject of this case, PAL is allowed to claim a tax refund on the excise taxes imposed and due thereon.

3) Yes, PAL has sufficiently proven that it is entitled to the refund.

First, PAL’s administrative and judicial claims for refund were filed on time in accordance with the 2-year prescriptive period. Second, PAL paid the lower of the basic corporate income tax or the franchise tax as provided for in the afore-quoted Section 13 of its franchise. Third, the subject excise taxes were duly declared and remitted to the BIR.

Thus, finding that PAL has sufficiently proved its entitlement to a tax refund of the excise taxes subject of this case, the Court hereby grants its petition and consequently, annuls the assailed CTA resolutions.

15) CIR v. Procter & Gamble

FACTS:Respondent declared dividends in favor of its sole shareholder, PMC-U.S.A. taxed at the rate of 35%. Respondent filed with the BIR a claim for refund of the 20 percentage-point portion of the 35 percentage-point whole tax paid, arising allegedly from the alleged "overpaid withholding tax at source or overpaid withholding tax. On BIR’s inaction, respondent filed a petition for review with the CTA, who ruled that respondent was entitled to the tax credit/refund.

ISSUE:1) WON respondent is the proper party to claim the refund.2) WON respondent is entitled to the preferential 15% tax rate on dividends declared and remitted to its parent corporation.

RULING:1) No, respondent is not the proper party to claim the refund.

The submission of the CIR that respondent is but a withholding agent of the government and therefore cannot claim reimbursement of the alleged over paid taxes, is completely meritorious. The real party in interest being the

mother corporation in the United States, it follows that American entity is the real party in interest, and should have been the claimant in this case.

2) No, respondent is not entitled to the preferential 15% tax rate on dividends declared and remitted to its parent corporation.

On dividends received from a domestic corporation liable to tax, the tax shall be 15% of the dividends received, subject to the condition that the country in which the non-resident foreign corporation is domiciled shall allow a credit against the tax due from the non-resident foreign corporation taxes deemed to have been paid in the Philippines equivalent to 20% which represents the difference between the regular tax (35%) on corporations and the tax (15%) dividends.

There is nothing in the applicable law, Section 902 of the U.S. Internal Revenue Code, as amended by Public Law 87-834, which would justify tax return of the disputed 15% to the private respondent. Furthermore, as ably argued by the petitioner, the private respondent failed to meet certain conditions necessary in order that the dividends received by the non-resident parent company in the United States may be subject to the preferential 15% tax instead of 35%. Among other things, the private respondent failed: (1) to show the actual amount credited by the U.S. government against the income tax due from PMC-U.S.A. on the dividends received from private respondent; (2) to present the income tax return of its mother company for 1975 when the dividends were received; and (3) to submit any duly authenticated document showing that the U.S. government credited the 20% tax deemed paid in the Philippines.

16) CIR v. Wander Philippines

FACTS:Respondent filed with BIR a claim for refund and/or tax credit of taxes paid on dividends remitted to its foreign parent company, the Glaro S.A. Ltd. of Switzerland. Respondent contends that it is liable only to 15% withholding tax in accordance with Section 24 (b) (1) of the Tax Code, as amended by Presidential Decree Nos. 369 and 778, and not on the basis of 35% which was withheld and paid to and collected by the government. On BIR’s inaction, respondent filed petition for review with the CTA, who ruled that respondent was entitled to the refund.

ISSUE:1) WON respondent is the proper party to claim the refund.2) WON respondent is entitled to the preferential 15% tax rate on dividends declared and remitted to its parent corporation.

RULING:1) Yes, respondent is the proper party to claim the refund because it is the Philippine counterpart of Glaro.

Respondent 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.

2) Yes, respondent is entitled to the preferential 15% tax rate on dividends declared and remitted to its parent corporation.

On dividends received from a domestic corporation liable to tax, the tax shall be 15% of the dividends received, subject to the condition that the country in which the non-resident foreign corporation is domiciled shall allow a credit against the tax due from the non-resident foreign corporation taxes deemed to have been paid in the

Philippines equivalent to 20% which represents the difference between the regular tax (35%) on corporations and the tax (15%) dividends.

Switzerland does not impose any income tax on dividends received by Swiss corporation from corporations domiciled in foreign countries. While it may be true that claims for refund are construed strictly against the claimant, nevertheless, the fact that Switzerland did not impose any tax or the dividends received by Glaro from the Philippines should be considered as a full satisfaction of the given condition. For, as aptly stated by respondent Court, to deny private respondent the privilege to withhold only 15% tax provided for under Presidential Decree No. 369, amending Section 24 (b) (1) of the Tax Code, would run counter to the very spirit and intent of said law and definitely will adversely affect foreign corporations" interest here and discourage them from investing capital in our country.

17) CIR v. PASCOR Realty and Development Corporation

FACTS:The CIR filed a criminal complaint with the DOJ against respondent for tax evasion. Respondents filed an Urgent Request for Reconsideration/Reinvestigation disputing the tax assessment and tax liability, which the CIR denied on the ground that no formal assessment has as yet been issued by the Commissioner.

Respondents elevated the case to the CTA. The CIR filed a Motion to Dismiss on the ground that the CTA has no jurisdiction over the subject matter of the petition, as there was no formal assessment issued against the petitioners. The CTA denied the MTD stating that the criminal case for tax evasion is already considered an assessment. The CIR filed a petition with the CA, alleging that the CTA acted with grave abuse of discretion and without jurisdiction in considering the affidavit/report of the revenue officer as assessment which may be appealed to the CTA, and in considering the denial by petitioner of private respondents' Motion for Reconsideration as [a] final decision which may be appealed to the CTA. The CA affirmed the decision of the CTA.

ISSUE:WON the revenue officers' Affidavit-Report, which was attached to criminal revenue Complaint filed the Department of Justice, constituted an assessment that could be questioned before the CTA.

RULING:No, the report attached to the complaint did not constitute an assessment that could be questioned before the CTA.

An assessment must be sent to and received by a taxpayer, and must demand payment of the taxes described therein within a specific period. Indeed, an assessment is deemed made only when the collector of internal revenue releases, mails or sends such notice to the taxpayer. In the present case, the revenue officers' Affidavit merely contained a computation of respondents' tax liability. It did not state a demand or a period for payment. Worse, it was addressed to the justice secretary, not to the taxpayers.

The fact that the Complaint itself was specifically directed and sent to the Department of Justice and not to private respondents shows that the intent of the commissioner was to file a criminal complaint for tax evasion, not to issue an assessment. What private respondents received was a notice from the DOJ that a criminal case for tax evasion had been filed against them, not a notice that the Bureau of Internal Revenue had made an assessment.

ADDITIONAL ISSUES:

The filing of a criminal complaint need not be preceded by an assessment 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 of the same Code clearly mandates that the civil and criminal aspects of the case may be pursued simultaneously. The Court has held that protests could not stop or suspend the criminal action which was independent of the

resolution of the protest in the CTA. This was because the commissioner of internal revenue had, in tax evasion cases, discretion on whether to issue an assessment or to file a criminal case against the taxpayer or to do both.

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.

18) Lucas Adamson v. CA

ISSUES:1) WON the CIR’s recommendation letter can be considered as a formal assessment of private respondents’ tax liability.2) WON the filing of the criminal complaints against the respondents by the DOJ is premature for lack of a formal assessment.3) WON CTA has no jurisdiction to take cognizance of both the criminal and civil cases here at bar.

RULING:1) No, the CIR’s recommendation letter cannot be considered as a formal assessment for the following reasons:

a. It was not addressed to the taxpayers.b. There was no demand made on the taxpayers to pay the tax liability, nor a period for payment set therein.c. The letter was never mailed or sent to the taxpayers by the Commissioner.

2) No, the filing of the criminal complaints is not premature for lack of a formal assessment.

When fraudulent tax returns are involved, a proceeding in court for the collection of such tax may be begun without assessment. An assessment of a deficiency tax is not necessary to a criminal prosecution for willful attempt to defeat and evade the income tax. A crime is complete when the violator has knowingly and willfully filed a fraudulent return, with intent to evade and defeat the tax. The perpetration of the crime is grounded upon knowledge on the part of the taxpayer that he has made an inaccurate return, and the government’s failure to discover the error and promptly to assess has no connections with the commission of the crime.

3) No, the CTA does not have jurisdiction to take cognizance of both the criminal and civil cases.

Our laws have expanded the jurisdiction of the CTA. However, they did not change the jurisdiction of the CTA to entertain an appeal only from a final decision or assessment of the Commissioner, or in cases where the Commissioner has not acted within the period prescribed by the NIRC. In the cases at bar, the Commissioner has not issued an assessment of the tax liability of private respondents.

19) CIR v. Raul Gonzalez, LMCEC, Camus and Mendoza

PRINCIPLE: Best Evidence Obtainable Rule

FACTS:CIR discovered that private respondent filed fraudulent returns. The CIR sent a PAN, followed by the FLD/AN for deficiency income tax and deficiency VAT through personal service, and by constructive service after company representatives refused to receive the documents. CIR referred the matter to the DOJ for preliminary investigation.

The revenue officers alleged private respondents failed to pay the deficiency tax despite the receipt of the FLD/AN, which had become final and executory after the (30)-day reglementary period.

ALLEGATIONS OF PRIVATE RESPONDENTSPrivate respondents alleged that the DOJ is not the proper forum for BIR’s complaint since the suit is a simple civil action and not a tax evasion case. They also assail as invalid the assessment notices which bear no serial numbers and should be shown to have been validly served by an Affidavit of Constructive Service executed and sworn to by the revenue officers who served the same. LMCEC further averred that it had availed of the Bureau’s Tax Amnesty Programs (Economic Recovery Assistance Payment [ERAP] Program and the Voluntary Assessment Program [VAP]) for 1998 and 1999; for 1997, its tax liability was terminated and closed under Letter of Termination. LMCEC argued that petitioner is now estopped from further taking any action against it and its corporate officers concerning the taxable years 1997 to 1999. With the grant of immunity from audit from the company’s availment of ERAP and VAP, which have a feature of a tax amnesty, the element of fraud is negated the moment the Bureau accepts the offer of compromise or payment of taxes by the taxpayer. The act of the revenue officers in finding justification under Section 6(B) of the NIRC (Best Evidence Obtainable) is misplaced and unavailing because they were not able to open the books of the company for the second time, after the routine examination, issuance of termination letter and the availment of ERAP and VAP. LMCEC thus maintained that unless there is a prior determination of fraud supported by documents not yet incorporated in the docket of the case, petitioner cannot just issue LAs without first terminating those previously issued.

LMCEC further asserted that the CIR has yet to resolve its protest on the PAN issued by petitioner for having no basis in fact and law. As to the alleged informant who purportedly supplied the "confidential information," LMCEC believes that such person is fictitious and his true identity and personality could not be produced. Hence, this case is another form of harassment against the company.

ALLEGATIONS OF THE BIRThe complaint filed is criminal in nature since LMCEC and its officers were being charged for the criminal offenses defined and penalized under Sections 254 (Attempt to Evade or Defeat Tax) and 255 (Willful Failure to Pay Tax) of the NIRC. This finds support in Section 205 of the same Code which provides for administrative (distraint, levy, fine, forfeiture, lien, etc.) and judicial (criminal or civil action) remedies in order to enforce collection of taxes. Both remedies may be pursued either independently or simultaneously. In this case, the BIR decided to simultaneously pursue both remedies and thus aside from this criminal action, the Bureau also initiated administrative proceedings against LMCEC.

On the lack of control number in the assessment notice, petitioner explained that such is a mere office requirement in the Assessment Service for the purpose of internal control and monitoring; hence, the unnumbered assessment notices should not be interpreted as irregular or anomalous. Petitioner stressed that LMCEC already lost its right to file a protest letter after the lapse of the thirty (30)-day reglementary period. LMCEC’s protest-letter was disregarded by the petitioner for being filed out of time. Even assuming for the sake of argument that the assessment notices were invalid, petitioner contended that such could not affect the present criminal action, citing the ruling in the landmark case of Ungab v. Cusi, Jr.

As to the Letter of Termination, petitioner pointed out that LMCEC failed to mention that the undated Certification stated that the report of the 1997 Internal Revenue taxes of LMCEC had already been submitted for review and approval of higher authorities. LMCEC also cannot claim as excuse from the reopening of its books of accounts the previous investigations and examinations. Under Section 235 (a), an exception was provided in the rule on once a year audit examination in case of "fraud, irregularity or mistakes, as determined by the Commissioner". Petitioner explained that the distinction between a Regular Audit Examination and Tax Fraud Audit Examination lies in the fact that the former is conducted by the district offices of the Bureau’s Regional Offices, the authority emanating from the Regional Director, while the latter is conducted by the TFD of the National Office only when instances of fraud had been determined by the petitioner.

Petitioner further asserted that LMCEC’s claim that it was granted immunity from audit when it availed of the VAP and ERAP programs is misleading. LMCEC failed to state that its availment of ERAP under RR No. 2-99 is not a grant of absolute immunity from audit and investigation, aside from the fact that said program was only for income tax and did not cover VAT and withholding tax for the taxable year 1998. As for LMCEC’S availment of VAP in 1999 under RR No. 8-2001, as amended by RR No. 10-2001, the company failed to state that it covers only income tax and VAT, and did not include withholding tax. However, LMCEC is not actually entitled to the benefits of VAP under Section 1 (1.1 and 1.2) of RR No. 10-2001. As to the principle of estoppel invoked by LMCEC, estoppel clearly does not lie against the BIR as this involved the exercise of an inherent power by the government to collect taxes. Petitioner also pointed out that LMCEC’s assertion correlating this case with I.S. No. 00-956 is misleading because said case involves another violation and offense (Sections 5 and 266 of the NIRC). Said case was filed by petitioner due to the failure of LMCEC to submit or present its books of accounts and other accounting records for examination despite the issuance of subpoena duces tecum against Camus in his capacity as President of LMCEC. While indeed a Resolution was issued dismissing the complaint, the same is still on appeal and pending resolution by the DOJ. The determination of probable cause in said case is confined to the issue of whether there was already a violation of the NIRC by Camus in not complying with the subpoena duces tecum issued by the BIR.

Petitioner contended that precisely the reason for the issuance to the TFD of LA No. 00009361 by the Commissioner is because the latter agreed with the findings of the investigating revenue officers that fraud exists in this case. In the conduct of their investigation, the revenue officers observed the proper procedure under Revenue Memorandum Order (RMO) No. 49-2000 wherein it is required that before the issuance of a Letter of Authority against a particular taxpayer, a preliminary investigation should first be conducted to determine if a prima facie case for tax fraud exists. As to the allegedly unresolved protest filed on April 20, 2001 by LMCEC over the PAN, this has been disregarded by the Bureau for being pro forma and having been filed beyond the 15-day reglementary period. A subsequent letter dated April 20, 2001 was filed with the TFD and signed by a certain Juan Ventigan. However, this was disregarded and considered a mere scrap of paper since the said signatory had not shown any prior authorization to represent LMCEC. Even assuming said protest letter was validly filed on behalf of the company, the issuance of a FLD/AN through constructive service on October 1, 2002 is deemed an implied denial of the said protest. Lastly, the details regarding the "informer" being confidential, such information is entitled to some degree of protection, including the identity of the informant against LMCEC.

REITERATION OF PRIVATE RESPONDENTS’ ARGUMENTSCamus and Mendoza reiterated their argument that the identity of the alleged informant is crucial to determine if he/she is qualified under Section 282 of the NIRC. Moreover, there was no assessment that has already become final, the validity of its issuance and service has been put in issue being anomalous, irregular and oppressive. It is contended that for criminal prosecution to proceed before assessment, there must be a prima facie showing of a willful attempt to evade taxes. As to LMCEC’s availment of the VAP and ERAP programs, the certificate of immunity from audit issued to it by the BIR is plain and simple, but petitioner is now saying it has the right to renege with impunity from its undertaking. Though petitioner deems LMCEC not qualified to avail of the benefits of VAP, it must be noted that if it is true that at the time the petitioner filed I.S. No. 00-956 sometime in January 2001 it had already in its custody that "Confidential Information No. 29-2000 dated July 7, 2000", these revenue officers could have rightly filed the instant case and would not resort to filing said criminal complaint for refusal to comply with a subpoena duces tecum.

DECISION OF THE CHIEF STATE PROSECUTORThe Chief State Prosecutor found no sufficient evidence to establish probable cause against respondents.It was held that since the payments were made by LMCEC under ERAP and VAP pursuant to the provisions of RR Nos. 2-99 and 8-2001 which were offered to taxpayers by the BIR itself, the latter is now in estoppel to insist on the criminal prosecution of the respondent taxpayer. The voluntary payments made thereunder are in the nature of a tax amnesty. The unnumbered assessment notices were found highly irregular and thus their validity is suspect; if the amounts indicated therein were collected, it is uncertain how these will be accounted for and if it would go to the coffers of the government or elsewhere. On the required prior determination of fraud, the Chief State

Prosecutor declared that the Office of the City Prosecutor in I.S. No. 00-956 has already squarely ruled that (1) there was no prior determination of fraud, (2) there was indiscriminate issuance of LAs, and (3) the complaint was more of harassment. In view of such findings, any ensuing LA is thus defective and allowing the collection on the assailed assessment notices would already be in the context of a "fishing expedition" or "witch-hunting." Petitioner appealed to the respondent Secretary who denied the petition for review.

DECISION OF THE SECRETARY OF JUSTICEThe Secretary of Justice found that petitioner’s claim that there is yet no finality as to LMCEC’s payment of its 1997 taxes since the audit report was still pending review by higher authorities, is unsubstantiated and misplaced. It was noted that the Termination Letter issued by the Commissioner is explicit that the matter is considered closed. As for taxable year 1998, respondent Secretary stated that the record shows that LMCEC paid VAT and withholding taxes. This eventually gave rise to the issuance of a certificate of immunity from audit for 1998 by the CIR. For taxable year 1999, respondent Secretary found that LMCEC’s 1999 tax liabilities were still pending investigation for which reason LMCEC assailed the subsequent issuance of LA No. 00009361 calling for a similar investigation of its alleged 1999 tax deficiencies when no final determination has yet been arrived on the earlier LA No. 38633.

On the allegation of fraud, respondent Secretary ruled that petitioner failed to establish the existence of the following circumstances indicating fraud in the settlement of LMCEC’s tax liabilities: (1) there must be intentional and substantial understatement of tax liability by the taxpayer; (2) there must be intentional and substantial overstatement of deductions or exemptions; and (3) recurrence of the foregoing circumstances. First, petitioner miserably failed to explain why the assessment notices were unnumbered; second, the claim that the tax fraud investigation was precipitated by an alleged "informant" has not been corroborated nor was it clearly established, hence there is no other conclusion but that the Bureau engaged in a "fishing expedition"; and furthermore, petitioner’s course of action is contrary to Section 235 of the NIRC allowing only once in a given taxable year such examination and inspection of the taxpayer’s books of accounts and other accounting records. There was no convincing proof presented by petitioner to show that the case of LMCEC falls under the exceptions provided in Section 235. Respondent Secretary duly considered the issuance of Certificate of Immunity from Audit and Letter of Termination dated June 1, 1999 issued to LMCEC.

Anent the earlier case filed against the same taxpayer (I.S. No. 00-956), the Secretary of Justice found petitioner to have engaged in forum shopping in view of the fact that while there is still pending an appeal from the Resolution of the City Prosecutor of Quezon City in said case, petitioner hurriedly filed the instant case, which not only involved the same parties but also similar substantial issues (the joint complaint-affidavit also alleged the issuance of LA No. 00009361 dated August 25, 2000). Clearly, the evidence of litis pendentia is present. Finally, respondent Secretary noted that if indeed LMCEC committed fraud in the settlement of its tax liabilities, then at the outset, it should have been discovered by the agents of petitioner, and consequently petitioner should not have issued the Letter of Termination and the Certificate of Immunity From Audit. Petitioner thus should have been more circumspect in the issuance of said documents.

Petitioner filed a petition for certiorari in the CA against the respondent secretary. The CA affirmed the decision.

ISSUE:WON LMCEC and its corporate officers may be prosecuted for violation of Sections 254 (Attempt to Evade or Defeat Tax) and 255 (Willful Failure to Supply Correct and Accurate Information and Pay Tax).

RULING:Yes, the LMCEC and its corporate officers may be prosecuted.

As the revenue officers were not given the opportunity to examine the taxpayer’s documents, they are authorized under Section 5 of the NIRC to gather information from third parties. In the absence of the accounting records and other documents necessary for the proper determination of tax liabilities, the revenue officers resorted to the “Best Evidence Obtainable”. The lack of consent of the taxpayer under investigation does not imply that the BIR obtained the information from third parties illegally or that the information received is false or malicious.

Nor does the lack of consent preclude the BIR from assessing deficiency taxes on the taxpayer based on the documents. In the same vein, herein private respondents cannot be allowed to escape criminal prosecution under Sections 254 and 255 of the NIRC by mere imputation of a "fictitious" or disqualified informant under Section 282 simply because other than disclosure of the official registry number of the third party "informer," the Bureau insisted on maintaining the confidentiality of the identity and personal circumstances of said "informer."

A notice of assessment is:[A] declaration of deficiency taxes issued to a [t]axpayer who fails to respond to a Pre-Assessment Notice (PAN) within the prescribed period of time, or whose reply to the PAN was found to be without merit. The Notice of Assessment shall inform the [t]axpayer of this fact, and that the report of investigation submitted by the Revenue Officer conducting the audit shall be given due course.

The formal letter of demand calling for payment of the taxpayer’s deficiency tax or taxes shall state the fact, the law, rules and regulations or jurisprudence on which the assessment is based, otherwise the formal letter of demand and the notice of assessment shall be void.

As it is, the formality of a control number in the assessment notice is not a requirement for its validity but rather the contents thereof which should inform the taxpayer of the declaration of deficiency tax against said taxpayer. Both the formal letter of demand and the notice of assessment shall be void if the former failed to state the fact, the law, rules and regulations or jurisprudence on which the assessment is based, which is a mandatory requirement under Section 228 of the NIRC.

RR No. 2-99 explained in its Policy Statement that considering the scarcity of financial and human resources as well as the time constraints within which the Bureau has to "clean the Bureau’s backlog of unaudited tax returns in order to keep updated and be focused with the most current accounts" in preparation for the full implementation of a computerized tax administration, the said revenue regulation was issued "providing for last priority in audit and investigation of tax returns" to accomplish the said objective "without, however, compromising the revenue collection that would have been generated from audit and enforcement activities." The program named as "Economic Recovery Assistance Payment (ERAP) Program" granted immunity from audit and investigation of income tax, VAT and percentage tax returns for 1998. It expressly excluded withholding tax returns (whether for income, VAT, or percentage tax purposes). Since such immunity from audit and investigation does not preclude the collection of revenues generated from audit and enforcement activities, it follows that the Bureau is likewise not barred from collecting any tax deficiency discovered as a result of tax fraud investigations. Respondent Secretary’s opinion that RR No. 2-99 contains the feature of a tax amnesty is thus misplaced.

Tax amnesty is a general pardon to taxpayers who want to start a clean tax slate. It also gives the government a chance to collect uncollected tax from tax evaders without having to go through the tedious process of a tax case. Even assuming arguendo that the issuance of RR No. 2-99 is in the nature of tax amnesty, it bears noting that a tax amnesty, much like a tax exemption, is never favored nor presumed in law and if granted by statute, the terms of the amnesty like that of a tax exemption must be construed strictly against the taxpayer and liberally in favor of the taxing authority. For the same reason, the availment by LMCEC of VAP under RR No. 8-2001 as amended by RR No. 10-2001, through payment supposedly made in October 29, 2001 before the said program ended on October 31, 2001, did not amount to settlement of its assessed tax deficiencies for the period 1997 to 1999, nor immunity from prosecution for filing fraudulent return and attempt to evade or defeat tax. As correctly asserted by petitioner, from the express terms of the aforesaid revenue regulations, LMCEC is not qualified to avail of the VAP granting taxpayers the privilege of last priority in the audit and investigation of all internal revenue taxes for the taxable year 2000 and all prior years under certain conditions, considering that first, it was issued a PAN on February 19, 2001, and second, it was the subject of investigation as a result of verified information filed by a Tax Informer

under Section 282 of the NIRC duly recorded in the BIR Official Registry as Confidential Information (CI) No. 29-200053 even prior to the issuance of the PAN.

Given the explicit conditions for the grant of immunity from audit under RR No. 2-99, RR No. 8-2001 and RR No. 10-2001, we hold that respondent Secretary gravely erred in declaring that petitioner is now estopped from assessing any tax deficiency against LMCEC after issuance of the aforementioned documents of immunity from audit/investigation and settlement of tax liabilities. It is axiomatic that the State can never be in estoppel, and this is particularly true in matters involving taxation. The errors of certain administrative officers should never be allowed to jeopardize the government’s financial position. Tax assessments by tax examiners are presumed correct and made in good faith, and all presumptions are in favor of the correctness of a tax assessment unless proven otherwise. We have held that a taxpayer’s failure to file a petition for review with the Court of Tax Appeals within the statutory period rendered the disputed assessment final, executory and demandable, thereby precluding it from interposing the defenses of legality or validity of the assessment and prescription of the Government’s right to assess.59 Indeed, any objection against the assessment should have been pursued following the avenue paved in Section 229 (now Section 228) of the NIRC on protests on assessments of internal revenue taxes. Records bear out that the assessment notice and Formal Letter of Demand dated August 7, 2002 were duly served on LMCEC on October 1, 2002. Private respondents did not file a motion for reconsideration of the said assessment notice and formal demand; neither did they appeal to the Court of Tax Appeals. Section 228 of the NIRC61 provides the remedy to dispute a tax assessment within a certain period of time. It states that an assessment may be protested by filing a request for reconsideration or reinvestigation within 30 days from receipt of the assessment by the taxpayer. No such administrative protest was filed by private respondents seeking reconsideration of the August 7, 2002 assessment notice and formal letter of demand. Private respondents cannot belatedly assail the said assessment, which they allowed to lapse into finality, by raising issues as to its validity and correctness during the preliminary investigation after the BIR has referred the matter for prosecution under Sections 254 and 255 of the NIRC.

20) Takenaka Corporation v. CIR

FACTS:Petitioner received a PAN from the BIR, and thereafter filed a protest letter. Subsequently, petitioner received the FLD/AN, and also submitted its formal protest. Petitioner availed of the tax amnesty under RA No. 9480. Due to BIR’s inaction, petitioner filed a petition for review with the CTA, which ordered petitioner to pay the deficiency tax plus 20% deficiency interest and 20% delinquency interest on the unpaid amount. Petitioner filed a Motion for Partial Reconsideration on the separate interests imposed on its alleged deficiency tax, and paid the corresponding taxes based on its own formula. The Motion for Partial Reconsideration was denied. Petitioner appealed to the CTA EB.ISSUE:WON petitioner should be liable to pay both the 20% deficiency interest and 20% delinquency interests.

RULING:Yes, petitioner is liable to pay both interests.

There is no double imposition of interests as the law clearly differentiates deficiency interest from delinquency interest. Deficiency is defined as the amount still due and collectible from a taxpayer upon audit or investigation; whereas delinquency is defined as the failure of the taxpayer to pay the tax due on the date fixed by law or indicated in the assessment notice or letter of demand.

These two (2) interests are different in nature. Deficiency interest is imposed for the shortage of taxes paid, while delinquency interest is imposed for the delay in payment of taxes. Hence, having different nature for their

existence, petitioner cannot assail double imposition of interests as the law itself allows the simultaneous imposition of these two kinds of interests.

The NIRC provides that deficiency interest shall be assessed and collected from the date prescribed for its payment until the full payment thereof. Similarly, delinquency interest shall be assessed and collected on the due date appearing in the notice and demand of the Commissioner until the amount is fully paid.

It states that the interests, both deficiency and delinquency interests, shall be assessed until full payment thereof. It bears stressing that the first and fundamental duty of the Court is to apply the law. When the law is clear and free from any doubt or ambiguity, there is no room for construction or interpretation.