III.

REMEDIES UNDER THE NIRC

Revenue Memorandum Order No. 43-90. (as cited in the SC Cases)

Commissioner of Internal Revenue vs. De La Salle University, Inc.

808 SCRA 156, G.R. No. 196596, G.R. No. 198841, G.R. No. 198941 November 9, 2016

Taxation; The requirement to specify the taxable period covered by the Letter of
Authority (LOA) is simply to inform the taxpayer of the extent of the audit and the
scope of the revenue officer’s authority.

• Read in this light, the requirement to specify the taxable period covered by the LOA is
simply to inform the taxpayer of the extent of the audit and the scope of the revenue
officer‘s authority. Without this rule, a revenue officer can unduly burden the taxpayer by
demanding random accounting records from random unverified years, which may include
documents from as far back as ten years in cases of fraud audit.
• The issue of the LOA' s validity was raised during trial; hence, the issue was deemed
properly submitted for decision and reviewable on appeal.
• Citing jurisprudence, the CTA En Banc held that a LOA should cover only one taxable period
and that the practice of issuing a LOA covering audit of unverified prior years is prohibited.
The prohibition is consistent with Revenue Memorandum Order (RMO) No. 43-90,
which provides that if the audit includes more than one taxable period, the other periods or
years shall be specifically indicated in the LOA.
• In the present case, the LOA issued to DLSU is for Fiscal Year Ending 2003 and Unverified
Prior Years. Hence, the assessments for deficiency income tax, VAT and DST for taxable
years 2001 and 2002 are void, but the assessment for taxable year 2003 is valid.

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
SONY PHILIPPINES, INC., respondent.
G.R. No. 178697. November 17, 2010

DOCTRINE: Based on Section 13 of the Tax Code, a Letter of Authority or LOA is the authority
given to the appropriate revenue officer assigned to perform assessment functions. It empowers
or enables said revenue officer to examine the books of account and other accounting records of a
taxpayer for the purpose of collecting the correct amount of tax. The very provision of the Tax
Code that the CIR relies on is unequivocal with regard to its power to grant authority to examine
and assess a taxpayer. There must be a grant of authority before any revenue officer can conduct
an examination or assessment. Equally important is that the revenue officer so authorized must
not go beyond the authority given. In the absence of such an authority, the assessment or
examination is a nullity.

FACTS:
• On November 24, 1998, the CIR issued Letter of Authority No. 000019734 (LOA 19734)
authorizing certain revenue officers to examine Sony‘s books of accounts and other
accounting records regarding revenue taxes for “the period 1997 and unverified prior
years.”
• On December 6, 1999, a preliminary assessment for 1997 deficiency taxes and penalties
was issued. The audit yielded assessments against Sony Philippines for deficiency VAT and
FWT, viz: (1) late remittance of Final Withholding Tax on royalties for the period January to
March 1998 and (2) deficiency VAT on reimbursable received by Sony Philippines from its
offshore affiliate, Sony International Singapore (SIS). Sony protested these findings.
 Thereafter, acting on the protest, the CIR issued final assessment notices, the formal letter
of demand and the details of discrepancies. Sony sought re-evaluation of the
aforementioned assessment by filing a protest on February 2, 2000. Sony submitted
relevant documents in support of its protest on the 16th of that same month.
• On October 24, 2000, within 30 days after the lapse of 180 days from submission of the
said supporting documents to the CIR, Sony filed a petition for review before the CTA. After
trial, the CTA-First Division partly granted Sony‘s petition by cancelling the deficiency VAT
assessment but upheld a modified deficiency EWT assessment as well as the penalties. The
CIR sought reconsideration, but the same was denied. Unfazed, the CIR filed a petition for
review with the CTA-EB raising identical issue and the same was also denied, hence, this
petition.

ISSUE: Whether the findings on the deficiency assessment for the period January to March 1998
and unverified prior years under the Letter of Authority were valid.

HELD:
• NO.
• The CIR insists that LOA 19734, although it states “the period 1997 and unverified prior
years,” should be understood to mean the fiscal year ending in March 31, 1998. The Court
cannot agree.
• Based on Section 13 of the Tax Code, a Letter of Authority or LOA is the authority given to
the appropriate revenue officer assigned to perform assessment functions. It empowers or
enables said revenue officer to examine the books of account and other accounting records
of a taxpayer for the purpose of collecting the correct amount of tax. The very provision of
the Tax Code that the CIR relies on is unequivocal with regard to its power to grant
authority to examine and assess a taxpayer.
• SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional
Requirements for Tax Administration and Enforcement.—
• (A) Examination of Returns and Determination of Tax Due.—After a return has been filed as
required under the provisions of this Code, the Commissioner or his duly authorized
representative may authorize the examination of any taxpayer and the assessment of the
correct amount of tax: Provided, however, That failure to file a return shall not prevent the
Commissioner from authorizing the examination of any taxpayer.‖
• Clearly, there must be a grant of authority before any revenue officer can conduct an
examination or assessment. Equally important is that the revenue officer so authorized
must not go beyond the authority given. In the absence of such an authority, the
assessment or examination is a nullity.
• As earlier stated, LOA 19734 covered “the period 1997 and unverified prior years.” For said
reason, the CIR acting through its revenue officers went beyond the scope of their
authority because the deficiency VAT assessment they arrived at was based on records
from January to March 1998 or using the fiscal year which ended in March 31, 1998. As
pointed out by the CTA-First Division in its April 28, 2005 Resolution, the CIR knew which
period should be covered by the investigation. Thus, if CIR wanted or intended the
investigation to include the year 1998, it should have done so by including it in the LOA or
issuing another LOA.
• Upon review, the CTA-EB even added that the coverage of LOA 19734, particularly the
phrase ―and unverified prior years,‖ violated Section C of Revenue Memorandum Order
No. 43-90 dated September 20, 1990 the pertinent portion of which reads: “A Letter of
Authority should cover a taxable period not exceeding one taxable year. The
practice of issuing L/As covering audit of ―unverified prior years is hereby
prohibited. If the audit of a taxpayer shall include more than one taxable period,
the other periods or years shall be specifically indicated in the L/A.”
CIR v. DE LA SALLE
G.R. No. 198841, November 9, 2016
DOCTRINE: A LOA is the authority given to the appropriate revenue officer to examine the books
of account and other accounting records of the taxpayer in order to determine the taxpayer's
correct internal revenue liabilities and for the purpose of collecting the correct amount oftax, in
accordance with Section 5 of the Tax Code, which gives the CIR the power to obtain information,
to summon/examine, and take testimony of persons. The LOA commences the audit process and
informs the taxpayer that it is under audit for possible deficiency tax assessment

FACTS:
• Sometime in 2004, the Bureau of Internal Revenue (BIR) issued to DLSU Letter of
Authority (LOA) No. 2794 authorizing its revenue officers to examine the latter's books of
accounts and other accounting records for all internal revenue taxes for the period Fiscal
Year Ending 2003 and Unverified Prior Years.
• On May 19, 2004, BIR issued a Preliminary Assessment Notice to DLSU. Subsequently on
August 18, 2004, the BIR through a Formal Letter of Demand assessed DLSU the following
deficiency taxes: (1) income tax on rental earnings from restaurants/canteens and
bookstores operating within the campus; (2) value-added tax (VAT) on business income;
and (3) documentary stamp tax (DST) on loans and lease contracts. The BIR demanded
the payment of P17,303,001.12, inclusive of surcharge, interest and penalty for taxable
years 2001, 2002 and 2003.DLSU protested the assessment. The Commissioner failed to
act on the protest; thus, DLSU filed on August 3, 2005 a petition for review with the CTA
Division.
• DLSU, a non-stock, non-profit educational institution, principally anchored its petition on
Article XIV, Section 4 (3) of the Constitution, which reads: All revenues and assets of non-
stock, non-profit educational institutions used actually, directly, and exclusively for
educational purposes shall be exempt from taxes and duties. xxx.

ISSUE: Whether the entire assessment should be voided because of the defective LOA.

HELD:
• The LOA issued to DLSU is not entirely void.
• The assessment for taxable year 2003 is valid. DLSU objects to the CTA En Banc's
conclusion that the LOA is valid for taxable year 2003 and insists that the entire LOA
should be voided for being contrary to RMO No. 43-90, which provides that if tax audit
includes more than one taxable period, the other periods or years shall be specifically
indicated in the LOA.
• A LOA is the authority given to the appropriate revenue officer to examine the books of
account and other accounting records of the taxpayer in order to determine the taxpayer's
correct internal revenue liabilities and for the purpose of collecting the correct amount
oftax, in accordance with Section 5 of the Tax Code, which gives the CIR the power to
obtain information, to summon/examine, and take testimony of persons. The LOA
commences the audit process and informs the taxpayer that it is under audit for possible
deficiency tax assessment.
• Given the purposes of a LOA, is there basis to completely nullify the LOA issued to DLSU,
and consequently, disregard the BIR and the CTA's findings of tax deficiency for taxable
year 2003?
• The Court answer in the negative.
• The relevant provision is Section C of RMO No. 43-90, the pertinent portion of which reads:
• A Letter of Authority [LOA] should cover a taxable period not exceeding one taxable year.
The practice of issuing [LOAs] covering audit of unverified prior years is hereby prohibited.
If the audit of a taxpayer shall include more than one taxable period, the other periods or
years shall be specifically indicated in the [LOA].
• What this provision clearly prohibits is the practice of issuing LOAs covering audit of
unverified prior years. RMO 43-90 does not say that a LOA which contains unverified prior
years is void. It merely prescribes that if the audit includes more than one taxable period,
the other periods or years must be specified. The provision read as a whole requires that if
 a taxpayer is audited for more than one taxable year, the BIR must specify each taxable
year or taxable period on separate LOAs. Read in this light, the requirement to specify the
taxable period covered by the LOA is simply to inform the taxpayer of the extent of the
audit and the scope of the revenue officer's authority. Without this rule, a revenue officer
can unduly burden the taxpayer by demanding random accounting records from random
unverified years, which may include documents from as far back as ten years in cases of
fraud audit.
• In the present case, the LOA issued to DLSU is for Fiscal Year Ending 2003 and Unverified
Prior Years. The LOA does not strictly comply with RMO 43-90 because it includes
unverified prior years. This does not mean, however, that the entire LOA is void.
• As the CTA correctly held, the assessment for taxable year 2003 is valid because this
taxable period is specified in the LOA. DLSU was fully apprised that it was being audited for
taxable year 2003. Corollarily, the assessments for taxable years 2001 and 2002 are void
for having been unspecified on separate LOAs as required under RMO No. 43-90. Lastly,
the Commissioner's claim that DLSU failed to raise the issue of the LOA's validity at the
CTA Division, and thus, should not have been entertained on appeal, is not accurate. On
the contrary, the CTA En Banc found that the issue of the LOA's validity came up during the
trial.100 DLSU then raised the issue in its memorandum and motion for partial
reconsideration with the CTA Division. DLSU raised it again on appeal to the CTA En Banc.
• Thus, the CTA En Banc could, as it did, pass upon the validity of the LOA.101 Besides, the
Commissioner had the opportunity to argue for the validity of the LOA at the CTA En Banc
but she chose not to file her comment and memorandum despite notice.

MEDICARD PHILIPPINES, INC. v.COMMISSIONER OF INTERNAL REVENUE

G.R. No. 222743, April 5, 2017

FACTS:
• MEDICARD is a health maintenance organization (HMO) that provides prepaid health and
medical insurance coverage to its clients. Individuals enrolled in its health care programs
pay an annual membership fee and are entitled to various preventive, diagnostic and
curative medical services provided by duly licensed physicians, specialists, and other
professional technical staff participating in the group practice health delivery system at a
hospital or clinic owned, operated or accredited by it.
• MEDICARD filed it first, second, and third quarterly VAT Returns through Electronic Filing
and Payment System (EFPS) on April 20, July 25, and October 25, 2006, respectively, and
its fourth quarterly VAT Return on January 25, 2007.
• Upon finding some discrepancies between MEDICARD‘s Income Tax Returns (ITR) and VAT
Returns, the CIR issued a Letter Notice (LN) dated September 20, 2007. Subsequently, the
CIR also issued a Preliminary Assessment Notice (PAN) against MEDICARD for deficiency
VAT.
• MEDICARD received CIR‘s FAN dated December 10, 2007 for allegedly deficiency VAT for
taxable year 2006 including penalties.
• MEDICARD filed a protest arguing, among others, that that the services it render is not
limited merely to arranging for the provision of medical and/or hospitalization services but
include actual and direct rendition of medical and laboratory services. On June 19, 2009,
MEDICARD received CIR‘s Final Decision denying its protest. The petitioner MEDICARD
proceeded to file a petition for review before the CTA.
• The CTA Division held that the determination of deficiency VAT is not limited to the
issuance of Letter of Authority (LOA) alone and that in lieu of an LOA, an LN was issued to
MEDICARD informing it if the discrepancies between its ITRs and VAT Returns and this
procedure is authorized under Revenue Memorandum Order (RMO) No. 30-2003 and 42-
2003. Also, the amounts that MEDICARD earmarked and eventually paid to doctors,
hospitals and clinics cannot be excluded from the computation of its gross receipts because
 the act of earmarking or allocation is by itself an act of ownership and management over
the funds by MEDICARD which is beyond the contemplation of RR No. 4-2007.
Furthermore, MEDICARD‘s earnings from its clinics and laboratory facilities cannot be
excluded from its gross receipts because the operation of these clinics and laboratory is
merely an incident to MEDICARD‘s line of business as an HMO.
• MEDICARD filed a Motion for Reconsideration but it was denied. Petitioner elevated
the matter to the CTA en banc.
• CTA en banc partially granted the petition only insofar as 10% VAT rate for January 2006
is concerned but sustained the findings of the CTA Division.

ISSUES:
1. Is the absence of the Letter of Authority fatal?
2. Should the amounts that MEDICARD earmarked and eventually paid to the medical service
providers still form part of its gross receipts for VAT purposes?

HELD:
• It is clear that unless authorized by the CIR himself or by his duly authorized
representative, through an LOA, an examination of the taxpayer cannot ordinarily be
undertaken. The circumstances contemplated under Section 6 where the taxpayer may be
assessed through best-evidence obtainable, inventory-taking, or surveillance among others
has nothing to do with the LOA. These are simply methods of examining the taxpayer in
order to arrive at the correct amount of taxes. Hence, unless undertaken by the CIR
himself or his duly authorized representatives, other tax agents may not validly conduct
any of these kinds of examinations without prior authority.

1. Yes.
• The absence of the LOA violated MEDICARD‘s right to due process. An LOA is the authority
given to the appropriate revenue officer assigned to perform assessment functions. Under
the NLRC, unless authorized by the CIR himself or by his duly authorized representative,
through an LOA, an examination of the taxpayer cannot ordinarily be undertaken. An LOA
is premised on the fact that the examination of a taxpayer who has already filed his tax
returns is a power that statutorily belongs only to the CIR himself or his duly authorized
representatives. In this case, there is no dispute that no LOA was issued prior to the
issuance of a PAN and FAN against MEDICARD. Therefore, no LOA was also served on
MEDICARD.

2. No.
• The VAT is a tax on the value added by the performance of the service by the taxpayer. It
is, thus, this service and the value charged thereof by the taxpayer that is taxable under
the NLRC.

COMMISSIONER OF INTERNAL REVENUE s. SONY PHILIPPINES, INC.

G.R. No. 178697, November 17, 2010

DOCTRINE: Letter of Authority – There must be a grant of authority before any revenue officer
can conduct an examination or assessment. Equally important is that the revenue officer so
authorized must not go beyond the authority given. In the absence of such an authority, the
assessment or examination is a nullity
FACTS:
• The CIR issued Letter of Authority (LOA 19734) authorizing certain revenue officers to
examine Sony‘s books of accounts and other accounting records regarding revenue taxes
for the period 1997 and unverified prior years. A preliminary assessment for 1997
deficiency taxes and penalties was issued by the CIR which Sony protested. Thereafter,
acting on the protest, the CIR issued final assessment notices, the formal letter of demand
and the details of discrepancies. The CIR assessed a deficiency VAT - P11,141,014.41

ISSUES:
1. Whether or not he Letter of Authority is Valid
2. Whether or not respondent (Sony) is liable for the deficiency VAT in the amount of
P11,141,014.41

HELD:
1. Based on Section 13 of the Tax Code, a Letter of Authority or LOA is the authority given to
the appropriate revenue officer assigned to perform assessment functions. It empowers or
enables said revenue officer to examine the books of account and other accounting records
of a taxpayer for the purpose of collecting the correct amount of tax.
• There must be a grant of authority before any revenue officer can conduct an examination
or assessment. Equally important is that the revenue officer so authorized must not go
beyond the authority given. In the absence of such an authority, the assessment or
examination is a nullity.
• The LOA 19734 covered the period 1997 and unverified prior years. For said reason, the
CIR acting through its revenue officers went beyond the scope of their authority because
the deficiency VAT assessment they arrived at was based on records from January to March
1998 or using the fiscal year which ended in March 31, 1998.
• It violated also Section C of Revenue Memorandum Order No. 4390 - A Letter of Authority
should cover a taxable period not exceeding one taxable year.

2. CIRs argument that Sonys advertising expense could not be considered as an input VAT
credit because the same was eventually reimbursed by Sony International Singapore (SIS).
• Sonys deficiency VAT assessment stemmed from the CIRs disallowance of the input VAT
credits that should have been realized from the advertising expense of the latter. It is
evident under Section 110 of the 1997 Tax Code that an advertising expense duly covered
by a VAT invoice is a legitimate business expense. There is also no denying that Sony
incurred advertising expense. Aluquin testified that advertising companies issued invoices
in the name of Sony and the latter paid for the same. Indubitably, Sony incurred and paid
for advertising expense/ services. Where the money came from is another matter all
together but will definitely not change said fact.
• The CIR further argues that Sony itself admitted that the reimbursement from SIS was
income and, thus, taxable.
• Insofar as the subsidy may be considered as income and, therefore, subject to income tax,
the Court agrees. However, the Court does not agree that the same subsidy should be
subject to the 10% VAT. To begin with, the said subsidy termed by the CIR as
reimbursement was not even exclusively earmarked for Sonys advertising expense for it
was but an assistance or aid in view of Sonys dire or adverse economic conditions, and was
only equivalent to the latters (Sonys) advertising expenses.
• There must be a sale, barter or exchange of goods or properties before any VAT may be
levied. Certainly, there was no such sale, barter or exchange in the subsidy given by SIS to
Sony. It was but a dole out by SIS and not in payment for goods or properties sold,
bartered or exchanged by Sony.
COMM’R OF IR v. PASCOR REALTY & DEV’T CORP., ROGELIO A. DIO & VIRGINIA S. DIO
G.R. No. 128315, June 29, 1999

DOCTRINE: Tax Assessment - An assessment must be sent to and received by the taxpayer, and
must demand payment of the taxes described therein within a specific period. An assessment is
not necessary before criminal charges can be filed. A criminal charge need not only be supported
by a prima facie showing of failure to file a required return

FACTS:
• The CIR authorized certain BIR officers to examine the books of accounts and other
accounting records of Pascor Realty and Development Corp. (PRDC) for 1986, 1987 and
1988. The examination resulted in recommendation for the issuance of an assessment of
P7,498,434.65 and P3,015,236.35 for 1986 and 1987, respectively. On March 1, 1995,
Commissioner filed a criminal complaint for tax evasion against PRDC, its president and
treasurer before the DOJ. Private respondents filed immediately an urgent request for
reconsideration on reinvestigation disputing the tax assessment and tax liability.
• On March 23, 1995, private respondents received a subpoena from the DOJ in connection
with the criminal complaint. In a letter dated, May 17, 1995, the Commissioner denied
private respondent‘s request for reconsideration (reinvestigation on the ground that no
formal assessment has been issued) which the latter elevated to the CTA on a petition for
review.
• The Commissioner‘s motion to dismiss on the ground of the CTA‘s lack of jurisdiction
inasmuch as no formal assessment was issued against private respondent was denied by
CTA and ordered the Commissioner to file an answer but did not instead filed a petition
with the CA alleging grave abuse of discretion and lack of jurisdiction on the part of CTA for
considering the affidavit/report of the revenue officers and the endorsement of said report
as assessment which may be appealed to he CTA.
• The CA sustained the CTA decision and dismissed the petition.

ISSUES:
1. Whether or not the criminal complaint for tax evasion can be construed as an assessment
2. Whether or not an assessment is necessary before criminal charges for tax evasion may be
instituted

HELD:
1. No.
• The filing of the criminal complaint with the DOJ cannot be construed as a formal
assessment. Neither the Tax Code nor the revenue regulations governing the protest
assessments provide a specific definition or form of an assessment.
• An assessment must be sent to and received by the taxpayer, and must demand payment
of the taxes described therein within a specific period. The revenue officer‘s affidavit
merely contained a computation of respondent‘s tax liability. It did not state a demand or
period for payment. It was addressed to the Secretary of Justice not to the taxpayer. They
joint affidavit was meant to support the criminal complaint for tax evasion; it was not
meant to be a notice of tax due and a demand to private respondents for the payment
thereof. The fact that the complaint was sent to the DOJ, and not to private respondent,
shows that commissioner intended to file a criminal complaint for tax evasion, not to issue
an assessment.

2. No.
• An assessment is not necessary before criminal charges can be filed. A criminal charge
need not only be supported by a prima facie showing of failure to file a required return.
The CIR had, in such tax evasion cases, discretion on whether to issue an assessment, or
to file a criminal case against the taxpayer, or to do both.
 SMI-ED Tech Corp v. CIR
G.R. No. 175410, November 12, 2014

FACTS:
• SMI-Ed Philippines is a PEZA-registered corporation authorized "to engage in the business
of manufacturing ultra high-density microprocessor unit package." After its registration on
June 29, 1998, SMI-Ed Philippines constructed buildings and purchased machineries and
equipment. As of December 31, 1999, the total cost of the properties amounted to
₱3,150,925,917.00. SMI-Ed Philippines "failed to commence operations." Its factory was
temporarily closed, effective October 15, 1999. On August 1, 2000, it sold its buildings and
some of its installed machineries and equipment to Ibiden Philippines, Inc., another PEZA-
registered enterprise, for ¥2,100,000,000.00 (₱893,550,000.00). SMI-Ed Philippines was
dissolved on November 30, 2000.
• In its quarterly income tax return for year 2000, SMI-Ed Philippines subjected the entire
gross sales of itsproperties to 5% final tax on PEZA registered corporations. SMI-Ed
Philippines paid taxes amounting to ₱44,677,500.00.
• On February 2, 2001, after requesting the cancellation of its PEZA registration and
amending its articles of incorporation to shorten its corporate term, SMI-Ed Philippines filed
an administrative claim for the refund of ₱44,677,500.00 with the Bureauof Internal
Revenue (BIR). SMIEd Philippines alleged that the amountwas erroneously paid.
• It also indicated the refundable amount in its final income tax return filed on March 1,
2001. It also alleged that it incurred a net loss of ₱2,233,464,538.00. The BIR did not act
on SMI-Ed Philippines‘ claim, which prompted the latter to file a petition for reviewbefore
the Court of Tax Appeals on September 9, 2002.

ISSUE: Whether or not the honorable CTA En Banc grievously erred and acted beyond its
jurisdiction when it assessed for deficiency tax in the first instance.

HELD:
• The term "assessment" refers to the determination of amounts due from a person
obligated to make payments. In the context of national internal revenue collection, it refers
the determination of the taxes due from a taxpayer under the National Internal Revenue
Code of 1997. The power and duty to assess national internal revenue taxes are lodged
with the BIR. Thus, the BIR first has to make an assessment of the taxpayer‘s liabilities.
When the BIR makes the assessment, the taxpayer is allowed to dispute that assessment
before the BIR. If the BIR issues a decision that is unfavorable to the taxpayer or if the BIR
fails to act on a dispute brought by the taxpayer, the BIR‘s decision or inaction may be
brought on appeal to the Court of Tax Appeals. The Court of Tax Appeals then acquires
jurisdiction over the case.
• When the BIR‘s unfavorable decision is brought on appeal to the Court of Tax Appeals, the
Court of Tax Appeals reviews the correctness of the BIR‘s assessment and decision. In
reviewing the BIR‘s assessment and decision, the Court of Tax Appeals had to make its
own determination of the taxpayer‘s tax liabilities. The Court of Tax Appeals may not make
such determination before the BIR makes its assessment and before a dispute involving
such assessment is brought to the Court of Tax Appeals on appeal. The Court of Tax
Appeals‘ jurisdiction is not limited to cases when the BIR makes an assessment or a
decision unfavorable to the taxpayer. Because Republic Act No. 1125 also vests the Court
of Tax Appeals with jurisdiction over the BIR‘s inaction on a taxpayer‘s refund claim, there
may be instances when the Court of Tax Appeals has to take cognizance of cases that have
nothing to do with the BIR‘s assessments or decisions. When the BIR fails to act on a claim
for refund of voluntarily but mistakenly paid taxes, for example, there is no decision or
assessment involved.
 • Taxes are generally self-assessed. They are initially computed and voluntarily paid by the
taxpayer. The government does not have to demand it. If the tax payments are correct,
the BIR need not make an assessment.The self-assessing and voluntarily paying taxpayer,
however, may later find that he or she has erroneously paid taxes. Erroneously paid taxes
may come in the form of amounts thatshould not have been paid. Thus, a taxpayer may
find that he or she has paid more than the amount that should have been paid under the
law. Erroneously paid taxes may also come in the form of tax payments for the wrong
category of tax. Thus, a taxpayer may find that he or she has paid a certain kindof tax that
he or she is not subject to. In these instances, the taxpayer may ask for a refund. If the
BIR fails to act on the request for refund, the taxpayer may bring the matter to the Court
of Tax Appeals.
• From the taxpayer‘s self-assessment and tax payment up to his or her request for refund
and the BIR‘s inaction,the BIR‘s participation is limited to the receipt of the taxpayer‘s
payment. The BIR does not make an assessment; the BIR issues no decision; and there is
no dispute yet involved. Since there is no BIR assessment yet, the Court of Tax Appeals
may not determine the amount of taxes due from the taxpayer. There is also no decision
yet to review. However, there was inaction on the part of the BIR. That inaction is within
the Court of Tax Appeals‘ jurisdiction. In other words, the Court of Tax Appeals may acquire
jurisdiction over cases even if they do not involve BIR assessments or decisions.
• In this case, the Court of Tax Appeals‘ jurisdiction was acquired because petitioner brought
the case on appeal before the Court of Tax Appeals after the BIR had failed to act on
petitioner‘s claim for refund of erroneously paid taxes. The Court of Tax Appeals did not
acquire jurisdiction as a result of a disputed assessment of a BIR decision.

COMMISSIONER OF INTERNAL REVENUE v. FITNESS BY DESIGN, INC.

DOCTRINE:
• To avail of the extraordinary period of assessment in Section 222(a) of the National
Internal Revenue Code, the Commissioner of Internal Revenue should show that the facts
upon which the fraud is based is communicated to the taxpayer. The burden of proving that
the facts exist in any subsequent proceeding is with the Commissioner. Furthermore, the
Final Assessment Notice is not valid if it does not contain a definite due date for payment
by the taxpayer.
• The formal letter of demand and assessment notice shall state the facts, jurisprudence,
and law on which the assessment was based; otherwise, these shall be void. The taxpayer
or the authorized representative may administratively protest the formal letter of demand
and assessment notice within 30 days from receipt of the notice.

FACTS:
• This is a Petition for Review on Certiorari1 filed by the CIR, which assails the Decision of
the Court of Tax Appeals. The CTA En Banc affirmed the Decision of the First Division,
which declared the assessment issued against Fitness by Design, Inc. (Fitness) as invalid.
• Fitness filed its Annual Income Tax Return for the taxable year of 1995.According to
Fitness, it was still in its pre-operating stage during the covered period.6 Fitness received a
copy of the Final Assessment Notice (FAN). Fitness filed a protest. According to Fitness, the
Commissioner‘s period to assess had already prescribed. Further, the assessment was
without basis since the company was only incorporated on May 30, 1995.Commissioner
issued a Warrant of Distraint and/or Levy. Fitness filed before the First Division of the Court
of Tax Appeals a Petition for Review (With Motion to Suspend Collection of Income Tax,
Value-Added Tax, Documentary Stamp Tax and Surcharges and Interests) .
• CIR filed an Answer to Fitness‘ Petition and raised special and affirmative defenses. The
Commissioner denied that there was a protest to the Final Assessment Notice filed by
Fitness on June 25, 2004.According to the Commissioner, the alleged protest was “nowhere
 to be found in the [Bureau of Internal Revenue] Records nor reflected in the Record Book
of the Legal Division as normally done by [its] receiving clerk when she received [sic] any
document.”Therefore, the Commissioner had sufficient basis to collect the tax deficiency
through the Warrant of Distraint and/or Levy.
• The alleged fraudulent return was discovered through a tip from a confidential informant.
The revenue officers‘ investigation revealed that Fitness had been operating business with
sales operations amounting to P7,156,336.08 in 1995, which it neglected to report in its
income tax return.Fitness‘ failure to report its income resulted in deficiencies to its income
tax and value-added tax of P8,265,568.17 and P2,377,274.02 respectively, as well as the
documentary stamp tax with regard to capital stock subscription.
• CTA First Division granted Fitness‘ Petition on the ground that the assessment has
already prescribed.28 It cancelled and set aside the Final Assessment Notice as well as the
Warrant of Distraint and/or Levy issued by the Commissioner. It ruled that the Final
Assessment Notice is invalid for failure to comply with the requirements of Section 228 of
the National Internal Revenue Code.
• Commissioner filed an appeal before the Court of Tax Appeals En Banc. The
Commissioner asserted that it had 10 years to make an assessment due to the
fraudulent income tax return filed by Fitness.
• It also claimed that the assessment already attained finality due to Fitness‘ failure to file its
protest within the period provided by law.
• Fitness argued that the Final Assessment Notice issued to it could not be claimed as a valid
deficiency assessment that could justify the issuance of a warrant of distraint and/or levy.
It asserted that it was a mere request for payment as it did not provide the period within
which to pay the alleged liabilities.37
• The Court of Tax Appeals En Banc ruled in favor of Fitness.

ISSUE: Whether the Final Assessment Notice issued against respondent Fitness by Design, Inc. is
a valid assessment under Section 228 of the National Internal Revenue Code and Revenue
Regulations No. 12-99.

HELD:
• An assessment ―refers to the determination of amounts due from a person obligated to
make payments. “―In the context of national internal revenue collection, it refers to the
determination of the taxes due from a taxpayer under the National Internal Revenue Code
of 1997.”
• The assessment process starts with the filing of tax return and payment of tax by the
taxpayer. The initial assessment evidenced by the tax return is a self-assessment of the
taxpayer. The tax is primarily computed and voluntarily paid by the taxpayer without need
of any demand from government. If tax obligations are properly paid, the Bureau of
Internal Revenue may dispense with its own assessment.
• After filing a return, the Commissioner or his or her representative may allow the
examination of any taxpayer for assessment of proper tax liability.61 The failure of a
taxpayer to file his or her return will not hinder the Commissioner from permitting the
taxpayer‘s examination. The Commissioner can examine records or other data relevant to
his or her inquiry in order to verify the correctness of any return, or to make a return in
case of noncompliance, as well as to determine and collect tax liability.
• The indispensability of affording taxpayers sufficient written notice of his or her tax liability
is a clear definite requirement. Section 228 of the National Internal Revenue Code and
Revenue Regulations No. 12-99, as amended, transparently outline the procedure in tax
assessment.
• Section 3 of Revenue Regulations No. 12-99, the then prevailing regulation regarding
the due process requirement in the issuance of a deficiency tax assessment, requires a
notice for informal conference. The revenue officer who audited the taxpayer‘s records
shall state in his or her report whether the taxpayer concurs with his or her findings of
 liability for deficiency taxes. If the taxpayer does not agree, based on the revenue officer‘s
report, the taxpayer shall be informed in writing of the discrepancies in his or her payment
of internal revenue taxes for ―Informal Conference.‖ The informal conference gives the
taxpayer an opportunity to present his or her side of the case.
• The taxpayer is given 15 days from receipt of the notice of informal conference to respond.
If the taxpayer fails to respond, he or she will be considered in default. The revenue officer
endorses the case with the least possible delay to the Assessment Division of the Revenue
Regional Office or the Commissioner or his or her authorized representative. The
Assessment Division of the Revenue Regional Office or the Commissioner or his or her
authorized representative is responsible for the “appropriate review and issuance of a
deficiency tax assessment, if warranted.”
• If, after the review conducted, there exists sufficient basis to assess the taxpayer with
deficiency taxes, the officer shall issue a preliminary assessment notice showing in detail
the facts, jurisprudence, and law on which the assessment is based. The taxpayer is given
15 days from receipt of the pre-assessment notice to respond. If the taxpayer fails to
respond, he or she will be considered in default, and a formal letter of demand and
assessment notice will be issued.
• The formal letter of demand and assessment notice shall state the facts, jurisprudence,
and law on which the assessment was based; otherwise, these shall be void. The taxpayer
or the authorized representative may administratively protest the formal letter of demand
and assessment notice within 30 days from receipt of the notice.
• The word “shall” in Section 228 of the National Internal Revenue Code and
Revenue Regulations No. 12-99 means the act of informing the taxpayer of both the
legal and factual bases of the assessment is mandatory. The law requires that the bases
be reflected in the formal letter of demand and assessment notice. This cannot be
presumed. Otherwise, the express mandate of Section 228 and Revenue Regulations No.
12-99 would be nugatory. The requirement enables the taxpayer to make an effective
protest or appeal of the assessment or decision.
• The rationale behind the requirement that taxpayers should be informed of the facts and
the law on which the assessments are based conforms with the constitutional mandate that
no person shall be deprived of his or her property without due process of law. Between the
power of the State to tax and an individual‘s right to due process, the scale favors the right
of the taxpayer to due process.
• The purpose of the written notice requirement is to aid the taxpayer in making a
reasonable protest, if necessary. Merely notifying the taxpayer of his or her tax liabilities
without details or particulars is not enough.
• Commissioner of Internal Revenue v. United Salvage and Towage (Phils.), Inc. held that a
final assessment notice that only contained a table of taxes with no other details was
insufficient:
• In the present case, a mere perusal of the [Final Assessment Notice] for the deficiency
EWT for taxable year 1994 will show that other than a tabulation of the alleged deficiency
taxes due, no further detail regarding the assessment was provided by petitioner. Only the
resulting interest, surcharge and penalty were anchored with legal basis. Petitioner should
have at least attached a detailed notice of discrepancy or stated an explanation why the
amount of P48,461.76 is collectible against respondent and how the same was arrived at.
• Any deficiency to the mandated content of the assessment or its process will not be
tolerated. In Commissioner of Internal Revenue v. Enron, an advice of tax deficiency from
the Commissioner of Internal Revenue to an employee of Enron, including the preliminary
five (5)-day letter, were not considered valid substitutes for the mandatory written notice
of the legal and factual basis of the assessment. The required issuance of deficiency tax
assessment notice to the taxpayer is different from the required contents of the notice.
Thus:
• The law requires that the legal and factual bases of the assessment be stated in the formal
letter of demand and assessment notice. Thus, such cannot be presumed. Otherwise, the
express provisions of Article 228 of the [National Internal Revenue Code] and [Revenue
 Regulations] No. 12-99 would be rendered nugatory. The alleged “factual bases” in the
advice, preliminary letter and “audit working papers” did not suffice. There was no going
around the mandate of the law that the legal and factual bases of the assessment be
stated in writing in the formal letter of demand accompanying the assessment notice.
• However, the mandate of giving the taxpayer a notice of the facts and laws on which the
assessments are based should not be mechanically applied. To emphasize, the purpose of
this requirement is to sufficiently inform the taxpayer of the bases for the assessment to
enable him or her to make an intelligent protest.
• In Samar-I Electric Cooperative v. Commissioner of Internal Revenue, substantial
compliance with Section 228 of the National Internal Revenue Code is allowed, provided
that the taxpayer would be later apprised in writing of the factual and legal bases of the
assessment to enable him or her to prepare for an effective protest. Thus:
• Although the [Final Assessment Notice] and demand letter issued to petitioner were not
accompanied by a written explanation of the legal and factual bases of the deficiency taxes
assessed against the petitioner, the records showed that respondent in its letter dated April
10, 2003 responded to petitioner‘s October 14, 2002 letter-protest, explaining at length
the factual and legal bases of the deficiency tax assessments and denying the protest.
• Considering the foregoing exchange of correspondence and documents between
the parties, we find that the requirement of Section 228 was substantially
complied with. Respondent had fully informed petitioner in writing of the factual
and legal bases of the deficiency taxes assessment, which enabled the latter to
file an “effective” protest, much unlike the taxpayer‘s situation in Enron.
Petitioner‘s right to due process was thus not violated.
• A final assessment notice provides for the amount of tax due with a demand for payment.
This is to determine the amount of tax due to a taxpayer. However, due process requires
that taxpayers be informed in writing of the facts and law on which the assessment is
based in order to aid the taxpayer in making a reasonable protest. To immediately ensue
with tax collection without initially substantiating a valid assessment contravenes the
principle in administrative investigations “that taxpayers should be able to present their
case and adduce supporting evidence.”
• Respondent filed its income tax return in 1995. Almost eight (8) years passed before
the disputed final assessment notice was issued. Respondent pleaded prescription as
its defense when it filed a protest to the Final Assessment Notice. Petitioner claimed fraud
assessment to justify the belated assessment made on respondent. If fraud was indeed
present, the period of assessment should be within 10 years. It is incumbent upon
petitioner to clearly state the allegations of fraud committed by respondent to
serve the purpose of an assessment notice to aid respondent in filing an effective
protest.

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

For purposes of this Section, a return filed before the last day prescribed by law for the filing thereof shall be considered as
filed on such last day.

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

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

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

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

SEC. 248. Civil Penalties. - (B) In case of willful neglect to file the return within the period prescribed by this Code or by
rules and regulations, or in case a false or fraudulent return is willfully made, the penalty to be imposed shall be fifty
percent (50%) of the tax or of the deficiency tax, in case, any payment has been made on the basis of such return before
the discovery of the falsity or fraud: Provided, That a substantial underdeclaration of taxable sales, receipts or income, or a
substantial overstatement of deductions, as determined by the Commissioner pursuant to the rules and regulations to be
promulgated by the Secretary of Finance, shall constitute prima facie evidence of a false or fraudulent return: Provided,
further, That failure to report sales, receipts or income in an amount exceeding thirty percent (30%) of that declared per
return, and a claim of deductions in an amount exceeding (30%) of actual deductions, shall render the taxpayer liable for
substantial underdeclaration of sales, receipts or income or for overstatement of deductions, as mentioned herein.

JOSE B. AZNAR v. CTA & COLLECTOR OF INTERNAL REVENUE

G.R. No. L-20569 August 23, 1974

DOCTRINE:
False Return/Fraudulent Return - In the case of a false or fraudulent return with intent to
evade tax or of a failure to file a return, the tax may be assessed, or a proceeding in court for the
collection of such tax may be begun without assessment, at any time within ten years after the
discovery of the falsity, fraud or omission. Fraud cannot be presumed but must be proven, As a
corollary thereto, we can also state that fraudulent intent could not be deduced from mistakes
however frequent they may be.

FACTS:
• Matias Aznar died, of which predecessors in interest filed an income tax return, however
the veracity of the same was doubted by the BIR Examiner Guerrero, thus caused him to
make investigations.
• The findings clearly indicated that the taxpayer did not declare correctly the income
reported in his income tax returns for the aforesaid years. This was controverted by the
predecessors of Matias and requested for reinvestigation, but even then, more deficiencies
and inconsistencies were dug up.
• Properties of Matias were levied, however he filed a petition for review of the case with a
subsequent petition to restrain the levying of his properties for tax deficiencies. CTA found
in favor of the findings of the lower court and the examiner that there was tax deficiencies
and also include surcharge of 50% for the fraudulent intent to evade tax. Hence the case.

ISSUES:
1. w/n the right of the CIR to assess deficiency income taxes of the deceased Matias Aznar had
already prescribed
2. w/n the deceased was guilty of fraudulent returns with intent to evade tax, thus subjected to
the %50 surcharge

HELD:
1. No.
• Court held that there being an undoubtedly false tax returns, the Sec. 332(a) of the NIRC
shall apply, where In the case of a false or fraudulent return with intent to evade tax or of
a failure to file a return, the tax may be assessed, or a proceeding in court for the
collection of such tax may be begun without assessment, at any time within ten years after
the discovery of the falsity, fraud or omission.

2. No.
• The Court differentiated false returns from fraudulent tax returns, while the first merely
implies deviation from the truth, whether intentional or not, the second implies intentional
 or deceitful entry with intent to evade the taxes due.

• It was held that there were no proven fraudulent returns with intent to evade taxes that
would justify the imposition of the 50% surcharge authorized by law as fraud penalty. The
presumption of the lower court is based on a presumption that fraud can be deduced from
the very substantial disparity of incomes as reported and determined by the inventory
method for six years. Fraud cannot be presumed but must be proven, As a corollary
thereto, we can also state that fraudulent intent could not be deduced from mistakes
however frequent they may be.
• Negligence, whether slight or gross, is not equivalent to the fraud with intent to
evade the tax contemplated by the law. It must amount to intentional wrong-doing
with the sole object of avoiding the tax. It necessarily follows that a mere mistake cannot
be considered as fraudulent.

CIR v. ASALUS CORP

G.R. No. 221590, February 22, 2017

DOCTRINE: A mere showing that the returns filed by the taxpayer were false, notwithstanding
the absence of intent to defraud, is sufficient to warrant the application of the ten (10) year
prescriptive period under Section 222 of the NIRC.

FACTS:
• On December 16, 2010, respondent Asalus Corporation (Asalus) received a Notice of
Informal Conference from Revenue District Office (RDO) No. 47 of the Bureau of Internal
Revenue (BIR). It was in connection with the investigation conducted by Revenue Officer
Fidel M. Bañares II (Bañares) on the Value-Added Tax (VAT) transactions of Asalus for the
taxable year 2007. Asalus filed its Letter-Reply, dated December 29, 2010, questioning the
basis of Bañares' computation for its VAT liability.
• On January 10, 2011, petitioner Commissioner of Internal Revenue (CIR) issued the
Preliminary Assessment Notice (PAN) finding Asalus liable for deficiency VAT for 2007 in
the aggregate amount of ₱413, 378, 058.11, inclusive of surcharge and interest. Asalus
filed its protest against the PAN but it was denied by the CIR. On August 26, 2011, Asalus
received the Formal Assessment Notice (FAN) stating that it was liable for deficiency VAT
for 2007 in the total amount of ₱95,681,988.64, inclusive of surcharge and interest.
Consequently, it filed its protest against the FAN, dated September 6, 2011.
• Thereafter, Asal us filed a supplemental protest stating that the deficiency VAT assessment
had prescribed pursuant to Section 203 of the National Internal Revenue Code (NIRC). On
October 16, 2012, Asal us received the Final Decision on Disputed Assessment8 (FDDA)
showing VAT deficiency for 2007 in the aggregate amount of ₱106,761,025.17, inclusive of
surcharge and interest and ₱25,000.00 as compromise penalty. As a result, it filed a
petition for review before the CTA Division.

ISSUE: Whether or not respondent‘s failure to report in its VAT Returns all the fees it collected
from its members applying for healthcare services constitutes “false” return under Sec 222(A) of
the 1997 NIRC.

HELD:
• Generally, internal revenue taxes shall be assessed within three (3) years after the ,last
day prescribed by law for the filing of the return, or where the return is filed beyond the
period, from the day the return was actually filed. Section 222 of the NIRC, however,
provides for exceptions to the general rule. It states that in the case of a false or
fraudulent return with intent to evade tax or of failure to file a return, the assessment may
be made within ten (10) years from the discovery of the falsity, fraud or omission.
 • The Court believes that the proper and reasonable interpretation of said provision should
be that in the three different cases of (1) false return, (2) fraudulent return with intent to
evade tax, (3) failure to file a return, the tax may be assessed, or a proceeding in court for
the collection of such tax may be begun without assessment, at any time within ten years
after the discovery of the (1) falsity, (2) fraud, (3) omission. Our stand that the law should
be interpreted to mean a separation of the three different situations of false return,
fraudulent return with intent to evade tax, and failure to file a return is strengthened
immeasurably by the last portion of the provision which segregates the situations into
three different classes, namely "falsity", "fraud" and "omission." That there is a difference
between "false return" and "fraudulent return" cannot be denied. While the first merely
implies deviation from the truth, whether intentional or not, the second implies intentional
or deceitful entry with intent to evade the taxes due.
• The ordinary period of prescription of 5 years within which to assess tax liabilities under
Sec. 331 of the NIRC should be applicable to normal circumstances, but whenever the
government is placed, at a disadvantage so as to prevent its lawful agents from proper
assessment of tax liabilities due to false returns, fraudulent return intended to evade
payment of tax or failure to file returns, the period of ten years provided for in Sec. 332
(a) NIRC, from the time of the discovery of the falsity, fraud or omission even seems to be
inadequate and should be the one enforced. There being undoubtedly false tax returns in
this case, We affirm the conclusion of the respondent Court of Tax Appeals that Sec. 332
(a) of the NIRC should apply and that the period of ten years within which to assess
petitioner's tax liability had not expired at the time said assessment was made. (Emphasis
supplied)
• Thus, a mere showing that the returns filed by the taxpayer were false, notwithstanding
the absence of intent to defraud, is sufficient to warrant the application of the ten (10)
year prescriptive period under Section 222 of the NIRC.
• In other words, when there is a showing that a taxpayer has substantially underdeclared
its sales, receipt or income, there is a presumption that it has filed a false return. As such,
the CIR need not immediately present evidence to support the falsity of the return, unless
the taxpayer fails to overcome the presumption against it. Applied in this case, the audit
investigation revealed that there were undeclared VA Table sales more than 30% of that
declared in Asalus' VAT returns. Moreover, Asalus' lone witness testified that not all
membership fees, particularly those pertaining to medical practitioners and hospitals, were
reported in Asalus' VAT returns. The testimony of its witness, in trying to justify why not all
of its sales were included in the gross receipts reflected in the VAT returns, supported the
presumption that the return filed was indeed false precisely because not all the sales of
Asalus were included in the VAT returns. Hence, the CIR need not present further evidence
as the presumption of falsity of the returns was not overcome. Asalus was bound to refute
the presumption of the falsity of the return and to prove that it had filed accurate returns.
• Its failure to overcome the same warranted the application of the ten (10)-year
prescriptive period for assessment under Section 222 of the NIRC. To require the CIR to
present additional evidence in spite of the presumption provided in Section 248(B) of the
NIRC would render the said provision inutile.

CIR v. FITNESS BY DESIGN

G.R. No. 215957 November 9, 2016

DOCTRINE: To avail of the extraordinary period of assessment in Section 222(a) of the National
Internal Revenue Code, the Commissioner of Internal Revenue should show that the facts upon
which the fraud' is based is communicated to the taxpayer. The burden of proving that the facts
exist in any subsequent proceeding is with the Commissioner. Furthermore, the Final Assessment
Notice is not valid if it does not contain a definite due date for payment by the taxpayer.
FACTS:
• On April 11, 1996, Fitness filed its Annual Income Tax Return for the taxable year of 1995.
According to Fitness, it was still in its pre-operating stage during the covered period. On
June 9, 2004, Fitness received a copy of the Final Assessment Notice dated March 17,
2004. The Final Assessment Notice was issued under Letter of Authority.
• The Final Assessment Notice assessed that Fitness had a tax deficiency in the amount of
₱10,647,529.69. Fitness filed a protest to the Final Assessment Notice on June 25, 2004.
According to Fitness, the Commissioner's period to assess had already prescribed. Further,
the assessment was without basis since the company was only incorporated on May 30,
1995.
• On February 2, 2005, the Commissioner issued a Warrant of Distraint and/or Levy to
Fitness. Fitness filed before the First Division of the Court of Tax Appeals a Petition for
Review (With Motion to Suspend Collection of Income Tax, Value Added Tax, Documentary
Stamp Tax and Surcharges and Interests) on March 1, 2005.
• The Commissioner posited that the Warrant of Distraint and/or Levy was issued in
accordance with law. The Commissioner claimed that its right to assess had not yet
prescribed under Section 222(a) of the National Internal Revenue Code. Because the 1995
Income Tax ,Return filed by Fitness was false and fraudulent for its alleged intentional
failure to reflect its true sales, Fitness' respective taxes may be assessed at any time within
10 years from the discovery of fraud or omission.
• The Commissioner asserted further that the assessment already became final and
executory for Fitness' failure , to file a protest within the reglementary period.

ISSUE: W/N or not there is fraud assessment to justify the belated assessment made on
respondent.

HELD:
• The prescriptive period in making an assessment depends upon whether a tax return was
filed or whether the tax return filed was either false or fraudulent.1âwphi1 When a tax
return that is neither false nor fraudulent has been filed, the Bureau of Internal Revenue
may assess within three (3) years, reckoned from the date of actual filing or from the last
day prescribed by law for filing. However, in case of a false or fraudulent return with intent
to evade tax, Section 222(a) provides:
• Section 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes.
• – (a) In the case of a false or fraudulent return with intent to evade tax or of failure to file
a return, the tax may be assessed, or a proceeding in court for the collection of such tax
may be filed without assessment, at any time within ten (10) years after the discovery of
the falsity, fraud or omission: Provided, That in a fraud assessment which has become final
and executory, the fact of fraud shall be judicially taken cognizance of in the civil or
criminal action for the collection thereof. (Emphasis supplied)
• In Aznar v. Court of Tax Appeals, this Court interpreted Section 332 (now Section 222[a]
of the National Internal Revenue Code) by dividing it in three (3) different cases: first, in
case of false return; second, in case of a fraudulent return with intent to evade; and third,
in case of failure to file a return. Thus:
• Our stand that the law should be interpreted to mean a separation of the three different
situations of false return, fraudulent return with intent to evade tax and failure to file a
return is strengthened immeasurably by the last portion of the provision which aggregates
the situations into three different classes, namely "falsity'', "fraud" and "omission."
• This Court held that there is a difference between "false return" and a "fraudulent return."
A false return simply involves a "deviation from the truth, whether intentional or not" while
a fraudulent return "implies intentional or deceitful entry with intent to evade the taxes
due."
• Fraud is a question of fact that should be alleged and duly proven. "The willful
neglect to file the required tax return or the fraudulent intent to evade the payment of
taxes, considering that the same is accompanied by legal consequences, cannot be
 presumed." Fraud entails corresponding sanctions under the tax law. Therefore, it is
indispensable for the Commissioner of Internal Revenue to include the basis for its
allegations of fraud in the assessment notice.
• During the proceedings in the Court of Tax Appeals First Division, respondent presented its
President, Domingo C. Juan Jr. (Juan, Jr.), as witness. Juan, Jr. testified that respondent
was, in its pre-operating stage in 1995. During that period, respondent "imported
equipment and distributed them for market testing in the Philippines without earning any
profit." He also confirmed that the Final Assessment Notice and its attachments failed to
substantiate the Commissioner's allegations of fraud against respondent, thus:
• More than three (3) years from the time petitioner filed its 1995 annual income tax return
on April 11, 1996, respondent issued to petitioner a [Final Assessment Notice] dated March
17, 2004 for the year 1995, pursuant to the Letter of Authority.The attached Details of
discrepancy containing the assessment for income tax (IT), value-added tax (VAT) and
documentary stamp tax (DST) as well as the Audit Result/ Assessment Notice do not
impute fraud on the part of petitioner. Moreover, it was obtained on information and
documents illegally obtained by a [Bureau of Internal Revenue] informant from petitioner's
accountant Elnora Carpio in 1996. (Emphasis supplied)
• Petitioner did not refute respondent's allegations. For its defense, it presented Socrates
Regala (Regala), the Group Supervisor of the team, who examined respondent's tax
liabilities. Regala confirmed that the investigation was prompted by a tip from an informant
who provided them with respondent's list of sales. He admitted that the gathered
information did not show that respondent deliberately failed to reflect its true income in
1995.

CIR v. UNITED SALVAGE AND TOWAGE (PHILS.)

G.R. No. 197515 , July 2, 2014, Peralta, J

DOCTRINE: The Commissioner has 3 years from the date of actual filing of the tax return to
assess a national internal revenue tax or to commence court proceedings for the collection thereof
without an assessment. However, when it validly issues an assessment within the 3-year period, it
has another 3 years within which to collect the tax due by distraint, levy, or court proceeding. The
assessment of the tax is deemed made and the 3-year period for collection of the assessed tax
begins to run on the date the assessment notice had been released, mailed or sent to the
taxpayer.

FACTS:
• Respondent United Salvage and Towage Phils., Inc. (USTP) is engaged in the business of
sub-contracting work for service contractors engaged in petroleum operations in the
Philippines. During the taxable years in question, it had entered into various contracts
and/or sub-contracts with several petroleum service contractors, such as Shell Philippines
Exploration, B.V. and Alorn Production Philippines for the supply of service vessels.
• In the course of USTP‘s operations, petitioner Commissioner of Internal Revenue found
respondent liable for deficiency income tax, withholding tax, VAT and documentary stamp
tax (DST) for taxable years 1992, 1994, 1997 and 1998. Petitioner issued demand letters
with attached assessment notices for withholding tax on compensation (WTC) and
expanded withholding tax (EWT) for taxable years 1992, 1994 and 1998.
• In 1998 and 2001, USTP filed administrative protests against the 1994 and 1998 EWT
assessments, respectively. USTP appealed by way of Petition for Review before the Court in
action (which was thereafter raffled to the CTA-Special First Division) alleging, among
others, that the Notices of Assessment are bereft of any facts, law, rules and regulations or
jurisprudence; thus, the assessments are void and the right of the government to assess
and collect deficiency taxes from it has prescribed on account of the failure to issue a valid
notice of assessment within the applicable period.
 • During the pendency of the proceedings, USTP moved to withdraw the aforesaid Petition
because it availed of the benefits of the Tax Amnesty Program under R.A. No. 9480. Having
complied with all the requirements therefor, the CTA-Special First Division partially granted
the Motion to Withdraw and declared the issues on income tax, VAT and DST deficiencies
closed and terminated.
• The CTA-Special First Division held that the Preliminary Assessment Notices (PANs) for
deficiency EWT for taxable years 1994 and 1998 were not formally offered; hence,
pursuant to Section 34, Rule 132 of the Rules of Court, the Court shall neither consider the
same as evidence nor rule on their validity. As regards the Final Assessment Notices (FANs)
for deficiency EWT for taxable years 1994 and 1998, the CTA-Special First Division held
that the same do not show the law and the facts on which the assessments were based.
Said assessments were, therefore, declared void for failure to comply with Section 228 of
the 1997 NIRC. From the foregoing, the only remaining valid assessment is for taxable
year 1992.
• Nevertheless, the CTA-Special First Division declared that the right of petitioner to collect
the deficiency EWT and WTC, respectively, for taxable year 1992 had already lapsed
pursuant to Section 203 of the Tax Code. Thus, in ruling for USTP, the CTA-Special First
Division cancelled Assessment Notice Nos. 25-1-00546-92 and 25-1-000545-92, both
dated January 9, 1996 and covering the period of 1992, as declared in its Decision dated
March 12, 2010.
• On appeal to the SC, petitioner averred that its right to collect the EWT for taxable year
1992 has not yet prescribed. It argued that while the final assessment notice and demand
letter on EWT for taxable year 1992 were all issued on January 9, 1996, the 5-year
prescriptive period to collect was interrupted when respondent filed its request for
reinvestigation on March 14, 1997 which was granted by petitioner on January 22, 2001
through the issuance of Tax Verification Notice No. 00165498 on even date. Thus, the
period for tax collection should have begun to run from the date of the reconsidered or
modified assessment.

ISSUE: Whether Petitioner‘s right to collect the EWT for taxable year 1992 has prescribed.

HELD: Yes.
• The statute of limitations on assessment and collection of national internal revenue taxes
was shortened from 5 years to 3 years by virtue of BP Blg. 700. Thus, petitioner has 3
years from the date of actual filing of the tax return to assess a national internal revenue
tax or to commence court proceedings for the collection thereof without an assessment.
However, when it validly issues an assessment within the 3-year period, it has another 3
years within which to collect the tax due by distraint, levy, or court proceeding. The
assessment of the tax is deemed made and the 3-year period for collection of the assessed
tax begins to run on the date the assessment notice had been released, mailed or sent to
the taxpayer.
• As correctly held by the CTA En Banc, the Preliminary Collection Letter for deficiency taxes
for taxable year 1992 was only issued on February 21, 2002, despite the fact that the FANs
for the deficiency EWT and WTC for taxable year 1992 was issued as early as January 9,
1996. Clearly, 5 long years had already lapsed, beyond the three (3)-year prescriptive
period, before collection was pursued by petitioner.
• Further, while the request for reinvestigation was made on March 14, 1997, the same was
only acted upon by petitioner on January22, 2001, also beyond the 3 year statute of
limitations reckoned from January 9, 1996, notwithstanding the lack of impediment to rule
upon such issue. We cannot countenance such inaction by petitioner to the prejudice of
respondent pursuant to our ruling in Commissioner of Internal Revenue v. Philippine Global
Communication, Inc., to wit:
• The assessment, in this case, was presumably issued on 14 April 1994 since the
respondent did not dispute the CIR‘s claim. Therefore, the BIR had until 13 April 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 in CTA Case No. 6568 on 9
January 2003, which was several years beyond the three-year prescriptive period. Thus,
the CIR is now prescribed from collecting the assessed tax.
• Here, petitioner had ample time to make a factually and legally well-founded assessment
and implement collection pursuant thereto. Whatever examination that petitioner may
have conducted cannot possibly outlast the entire 3-year prescriptive period provided by
law to collect the assessed tax. Thus, there is no reason to suspend the running of the
statute of limitations in this case.

BANK OF THE PHILIPPINE ISLANDS v. COMMISSIONER OF INTERNAL REVENUE

473 SCRA 205, G.R. No. 139736. October 17, 2005, Chico-Nazario, J.

DOCTRINES:
• Under Section 223(c) of the Tax Code of 1977, as amended, it is not essential that the
Warrant of Distraint and/or Levy be fully executed so that it can suspend the running of the
statute of limitations on the collection of the tax. It is enough that the proceedings have
validly began or commenced and that their execution has not been suspended by reason of
the voluntary desistance of the respondent BIR Commissioner. Existing jurisprudence
establishes that distraint and levy proceedings are validly begun or commenced by the
issuance of the Warrant and service thereof on the taxpayer. It is only logical to require
that the Warrant of Distraint and/or Levy be, at the very least, served upon the taxpayer in
order to suspend the running of the prescriptive period for collection of an assessed tax,
because it may only be upon the service of the Warrant that the taxpayer is informed of
the denial by the BIR of any pending protest of the said taxpayer, and the resolute
intention of the BIR to collect the tax assessed.
• That the BIR Commissioner must first grant the request for reinvestigation as a
requirement for suspension of the statute of limitations is even supported by existing
jurisprudence. The act of requesting a reinvestigation alone does not suspend the period.
The request should first be granted, in order to effect suspension. A mere request for
reconsideration or reinvestigation of an assessment may not suspend the running of the
statute of limitations. It affirmed the need for a waiver of the prescriptive period in order to
effect suspension thereof. However, even without such waiver, the taxpayer may be
estopped from raising the defense of prescription because by his repeated requests or
positive acts, he had induced Government authorities to delay collection of the assessed
tax.

FACTS:
• Petitioner BPI is a commercial banking corporation organized and existing under the laws
of the Philippines. On two separate occasions, particularly on 06 June 1985 and 14 June
1985, it sold United States (US) $500,000.00 to the Central Bank of the Philippines
(Central Bank), for the total sales amount of US$1,000,000.00.
• On 10 October 1989, the Bureau of Internal Revenue (BIR) issued assessment notice
finding petitioner BPI liable for deficiency DST on its afore-mentioned sales of foreign bills
of exchange to the Central Bank. Petitioner BPI received the Assessment, together with the
attached Assessment Notice, on 20 October 1989.
• Petitioner BPI, through its counsel, protested the Assessment in a letter dated 16
November 1989, and filed with the BIR on 17 November 1989. Petitioner BPI did not
receive any immediate reply to its protest letter. However, on 15 October 1992, the BIR
issued a Warrant of Distraint and/or Levy against BPI only on 23 October 1992
• Then again, petitioner BPI did not hear from the BIR until 11 September 1997, when its
counsel received a letter, dated 13 August 1997, signed by then BIR Commissioner
Liwayway Vinzons-Chato, denying its “request for reconsideration,”.
 • Upon receipt of the above-cited letter from the BIR, petitioner BPI proceeded to file a
Petition for Review with the CTA on 10 October 1997.
• Petitioner BPI raised in its Petition for Review before the CTA, in addition to the arguments
presented in its protest letter, dated 16 November 1989, the defense of prescription of the
right of respondent BIR Commissioner to enforce collection of the assessed amount. It
alleged that respondent BIR Commissioner only had three years to collect on Assessment
No. FAS-5-85-89-002054, but she waited for seven years and nine months to deny the
protest.
• The CTA held that the statute of limitations for respondent BIR Commissioner to collect on
the Assessment had not yet prescribed. In resolving the issue of prescription, the CTA
reasoned that—In the case of Commissioner of Internal Revenue vs. Wyeth Suaco
Laboratories, Inc., G.R. No. 76281, September 30, 1991, 202 SCRA 125, the Supreme
Court laid to rest the first issue. It categorically ruled that a “protest” is to be treated as
request for reinvestigation or reconsideration and a mere request for reexamination or
reinvestigation tolls the prescriptive period of the Commissioner to collect on an
assessment. . .
• The CA affirmed the decision of the CTA. Hence, the instant case.

ISSUES:
1. Whether or not the right of respondent BIR Commissioner to collect from petitioner BPI the
alleged deficiency DST for taxable year 1985 had prescribed; and
2. Whether or not a request for reconsideration tolls the prescriptive period of the CIR to collect
on an assessment.

HELD:
• There is no valid ground for suspending the running of the prescriptive period for collection
of the deficiency DST assessed against petitioner BPI.
• Anent the question of prescription, this Court disagrees in the Decisions of the CTA and the
Court of Appeals, and herein determines the statute of limitations on collection of the
deficiency DST in Assessment No. FAS-5-85-89-002054 had already prescribed.
• The statute of limitations on assessment and collection of taxes is for the protection of the
taxpayer and, thus, shall be construed liberally in his favor.
• Though the statute of limitations on assessment and collection of national internal revenue
taxes benefits both the Government and the taxpayer, it principally intends to afford
protection to the taxpayer against unreasonable investigation. The protest filed by
petitioner BPI did not constitute a request for reinvestigation, granted by the respondent
BIR Commissioner, which could have suspended the running of the statute of limitations on
collection of the assessed deficiency DST under Section 224 of the Tax Code of 1977, as
amended.
• The Tax Code of 1977, as amended, also recognizes instances when the running of the
statute of limitations on the assessment and collection of national internal revenue taxes
could be suspended, even in the absence of a waiver.
• Of particular importance to the present case is one of the circumstances enumerated in
Section 224 of the Tax Code of 1977, as amended, wherein the running of the statute of
limitations on assessment and collection of taxes is considered suspended ―when the
taxpayer requests for a reinvestigation which is granted by the Commissioner.‖
• This Court gives credence to the argument of petitioner BPI that there is a distinction
between a request for reconsideration and a request for reinvestigation. Revenue
Regulations (RR) No. 12-85, issued on 27 November 1985 by the Secretary of Finance,
upon the recommendation of the BIR Commissioner, governs the procedure for protesting
an assessment and distinguishes between the two types of protest, as follows—
• a) Request for reconsideration.—refers to a plea for a reevaluation of an assessment on
the basis of existing records without need of additional evidence. It may involve both a
question of fact or of law or both.
• b) Request for reinvestigation.—refers to a plea for reevaluation of an assessment on
 the basis of newly-discovered or additional evidence that a taxpayer intends to present in
the reinvestigation. It may also involve a question of fact or law or both.
• It bears to emphasize that under Section 224 of the Tax Code of 1977, as amended, the
running of the prescriptive period for collection of taxes can only be suspended by a
request for reinvestigation, not a request for reconsideration.
• Undoubtedly, a reinvestigation, which entails the reception and evaluation of additional
evidence, will take more time than a reconsideration of a tax assessment, which will be
limited to the evidence already at hand; this justifies why the former can suspend the
running of the statute of limitations on collection of the assessed tax, while the
latter cannot.

COMM’R OF INTERNAL REVENUE v. BASF COATING + INKS PHILS., INC.

G.R. No. 198677 November 26, 2014, PERALTA, J.:

DOCTRINES:
• Sec. 223. Suspension of Running of Statute of Limitations. - The running of the
Statute of Limitations provided in Sections 203 and 222 on the making of assessment and
the beginning of distraint or levy a proceeding in court for collection, in respect of any
deficiency, shall be suspended for the period during which the Commissioner is prohibited
from making the assessment or beginning distraint or levy or a proceeding in court and for
sixty (60) days thereafter; when the taxpayer requests for a reinvestigation which is
granted by the Commissioner; when the taxpayer cannot be located in the address given
by him in the return filed upon which a tax is being assessed or collected: Provided, that, if
the taxpayer informs the Commissioner of any change in address, the running of the
Statute of Limitations will not be suspended; when the warrant of distraint or levy is duly
served upon the taxpayer, his authorized representative, or a member of his household
with sufficient discretion, and no property could be located; and when the taxpayer is out
of the Philippines.
• It is true that, under Section 223 of the Tax Reform Act of 1997, the running of the Statute
of Limitations provided under the provisions of Sections 203 and 222 of the same Act shall
be suspended when the taxpayer cannot be located in the address given by him in the
return filed upon which a tax is being assessed or collected. In addition, Section 11 of
Revenue Regulation No. 12-85 states that, in case of change of address, the taxpayer is
required to give a written notice thereof to the Revenue District Officer or the district
having jurisdiction over his former legal residence and/or place of business. However, this
Court agrees with both the CTA Special First Division and the CTA En Banc in their ruling
that the above-mentioned provisions on the suspension of the three-year period to assess
apply only if the BIR Commissioner is not aware of the whereabouts of the taxpayer.

FACTS:
• Two-thirds (2/3) of BC's board members and stockholders decided to dissolve the
corporation by cutting its 50-year term of existence (from 1990) short (only until March
31, 2001). Subsequently, BC moved out of its address in Las Piñas City and transferred to
Carmelray Industrial Park, Canlubang, Calamba, Laguna.
• On June 26, 2001, BASF Coating (BC) submitted 2 letters to BIR. The first was a notice of
dissolution. The send was a manifestation with documents supporting said dissolution such
as BIR Form 1905 which refers to an update of information contained in its tax registration.
Thereafter, a FAN was sent to BC's former address in Las Piñas City. The FAN indicated an
amount of 18 million pesos representing income tax, VAT, WTC, EWT and DST for the
taxable year of 1999.
• On March 5, 2004, BIR's RDO No. 39, South Quezon City, issued a First Notice Before
Issuance of Warrant of Distraint and Levy (FNB), which was sent to the residence of one of
BC's directors. On March 19, 2004, BC filed a protest letter citing lack of due process and
 prescription as grounds.
• After 180 days without action on the part of the CIR, BC filed a petition for review with the
CTA. Trial ensued.
• The CTA 1D ruled that since the CIR was actually aware of BC's new address and such
error in sending should not be taken against BC. According to the CTA 1D, since there are
no valid notices sent to BC, the subsequent assessments against it are considered void.
• CIR filed an MR. It was denied. So, it went to CTA en banc. The CTA En Banc held that
CIR's right to assess respondent for deficiency taxes for the taxable year 1999 has already
prescribed and that the FAN issued to respondent never attained finality because BC did
not receive it. CIR filed an MR. Denied.

ISSUE: Whether or not the running of the 3-year prescriptive period to assess was suspended
when BC failed to notify the CIR of its change of address?

HELD:
• No, the 3-year prescriptive period to assess was not suspended in favor of the CIR even if
BC failed notify regarding its change of address.
• It is true that, under Section 223 of the Tax Reform Act of 1997, the running of the Statute
of Limitations provided under the provisions of Sections 203 and 222 of the same Act shall
be suspended when the taxpayer cannot be located in the address given by him in the
return filed upon which a tax is being assessed or collected. In addition, Section 11 of
Revenue Regulation No. 12-85 states that, in case of change of address, the taxpayer is
required to give a written notice thereof to the Revenue District Officer or the district
having jurisdiction over his former legal residence and/or place of business.
• However, this Court agrees with both the CTA Special First Division and the CTA En Banc in
their ruling that the above-mentioned provisions on the suspension of the three-year
period to assess apply only if the BIR Commissioner is not aware of the whereabouts of the
taxpayer.
• However, the Supreme Court ruled that the above-mentioned provisions on the suspension
of the 3-year period to assess apply only if the CIR is not aware of the whereabouts of the
taxpayer.
• In the present case, the CIR, by all indications, was well aware that BC had moved to its
new address in Calamba, Laguna, as shown by the documents which formed part of
respondent's records with the BIR.
• Moreover, before the FAN was sent to BC's old address, the RDO sent BC a letter regarding
the results of its investigation and an invitation to an information conference. This could
not have been done without being aware of BC's new address. Finally, the PAN was
"returned to sender" before the FAN was sent.
• Hence, despite the absence of a formal written notice of Bc's change of address, the fact
remains that petitioner became aware of respondent's new address as shown by
documents replete in its records. As a consequence, the running of the three-year period to
assess respondent was not suspended and has already prescribed.

Waiver of the Statute of Limitations

REVENUE MEMORANDUM ORDER NO. 14-2016 issued on April 18, 2016 revises the guidelines
for the execution of waivers from the defense of prescription pursuant to Section 222 of the
National Internal Revenue Code (NIRC) of 1997, as amended.

• The waiver may be, but not necessarily, in the form prescribed by Revenue Memorandum
Order No. 20-90 or Revenue Delegation Authority Order No. 05-01. The taxpayer's failure
to follow the aforesaid forms does not invalidate the executed waiver for as long as the
 following are complied with:

a) The Waiver of the Statute of Limitations under Section 222 (b) and (d) shall be executed before
the expiration of the period to assess or to collect taxes. The date of execution shall be specifically
indicated in the waiver.
b) The waiver shall be signed by the taxpayer himself or his duly authorized representative. ln the
case of a corporation, the waiver must be signed by any of its responsible officials;
c) The expiry date of the period agreed upon to assess/collect the tax after the regular three-year
period of prescription should be indicated.

• Except for waiver of collection of taxes which shall indicate the particular taxes
assessed, the waiver need not specify the particular taxes to be assessed nor the amount
thereof, and it may simply state "all internal revenue taxes" considering that during the
assessment stage, the Commissioner of Internal Revenue (CIR) or her duly authorized
representative is still in the process of examining and determining the tax liability of the
taxpayer.
• The taxpayer is charged with the burden of ensuring that the waivers of statute of
limitation are validly executed by its authorized representative. The authority of the
taxpayer's representative who participated in the conduct of audit or investigation shall not
be thereafter contested to invalidate the waiver. The waiver may be notarized. However, it
is sufficient that the waiver is in writing as specifically provided by the NIRC, as amended.
The waiver shall take legal effect and be binding on the taxpayer upon its execution
thereof.
• lt shall be the duty of the taxpayer to submit its duly executed waiver to the CIR or officials
previously designated in existing issuances or the concerned revenue district officer or
group supervisor as designated in the Letter of Authority/Memorandum of Assignment who
shall then indicate acceptance by signing the same. Such waiver shall be executed and
duly accepted prior to the expiration of the period to assess or to collect. The taxpayer
shall have the duty to retain a copy of the accepted waiver.
• The two (2) material dates that need to be present on the waiver are the date of execution
of the waiver by the taxpayer or its authorized representative; and the expiry date of the
period the taxpayer waives the statute of limitations. Before the expiration of the period
set on the previously executed waiver, the period earlier set may be extended by
subsequent written waiver made in accordance with this Order.

Philippine Journalists, Inc. vs. Commissioner of Internal Revenue

447 SCRA 214, G.R. No. 162852. December 16, 2004, Ynares-Santiago, J.

FACTS:
• In April 1995, the Philippine Journalists, Inc. (PJI) filed its income tax return for the year
1994. In 1995, a tax audit was conducted by the Bureau of Internal Revenue (BIR) where
it was found that PJI was liable for a tax deficiency. In September 1997, PJI asked that it
be allowed to present its evidence to dispute the finding. In the same month, the
Comptroller of PJI (Lorenza Tolentino) executed a waiver of the statute of limitations
whereby PJI agreed waived the running of the prescriptive period of the government‘s right
to make an assessment. Said right was set to expire on April 17, 1998 but due to the
additional evidence that PJI sought to present, the government needed more time.
• And so a reinvestigation took place which yielded the same result – PJI is liable for tax
deficiencies. In December 1998, a formal assessment notice (FAN) was sent via registered
mail to PJI. Subsequently, a warrant for distraint/levy was issued against the assets of PJI.
• PJI filed a protest which eventually reached the Court of Tax Appeals. PJI averred that the
waiver executed by Tolentino was incomplete; that no acceptance date was indicated to
show that the waiver was accepted by BIR; that no copy was furnished PJI; that the waiver
 was an unlimited waiver because it did not indicate as to how long the extension of the
prescriptive period should last. As such, there was no valid waiver of the statute of
limitations which in turn make the FAN issued in December 1998 void. The Commissioner
of Internal Revenue (CIR) argued that the placing of the acceptance date is merely a
formal requirement and not vital to the validity of the waiver; that there is no need to
furnish PJI a copy of the waiver because in the first place, it was PJI, through its
representative, who was making the waiver so it should know about it; and that there is no
need to place a specific date as to how long the prescriptive period should be extended
because PJI was waiving the prescriptive period and was not asking to extend it.
• The Court of Tax Appeals (CTA) ruled in favor of PJI. But the Court of Appeals reversed the
CTA as it ruled in favor of the CIR.

ISSUES:
1. Whether or not that the assessment having been made beyond the 3-year prescriptive period is
null and void; and
2. Whether or not the CTA gravely erred when it ruled that failure to comply with the provisions of
Revenue Memorandum Order (RMO) No. 20-90 is merely a formal defect that does not invalidate
the waiver of the statute of limitations?

HELD: The answers are in the Negative.

• The requirement to place the acceptance date is not merely formal. The waiver of the
statute of limitations is not a unilateral act by the taxpayer. The BIR has to accept it hence
the need for a BIR representative to affix his signature and the date of acceptance. There
is also therefore a need to furnish a copy to the taxpayer for the latter to be apprised that
his waiver has been accepted. It must be noted that the waiver 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 and not to waive the right to invoke the defense of
prescription.
• 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.

CIR v. KUDOS METAL CORPORATION

G.R. No. 178087 dated May 5, 2010.

DOCTRINE: VALID WAIVER REQUIRES STRICT COMPLIANCE WITH PROCEDURES PRESCRIBED IN

REVENUE MEMORANDUM ORDER NO. (―RMO‖) 20-90 AND REVENUE DELEGATION AUTHORITY
ORDER NO.(―RDAO‖) 05-01.

Short Summary: Kudos Corp, through its accountant, executed two Waivers of Defense of
Prescription. The Bureau of Internal Revenue (―BIR‖) issued an assessment, which K Corp duly
protested. The BIR denied the protest and required K Corp to pay deficiency tax liabilities. In its
petition for review before the Court of Tax Appeals (―CTA‖), K Corp raised the defense of
prescription on the ground that the waivers executed by its accountant were invalid and thus did
not extend the BIR‘s period toassess.

FACTS:
• Pursuant to a Letter of Authority dated September 7, 1999, the BIR served upon Kudos
Metal Corp Notices of Presentation of Records. Kudos failed to comply with these notices.
Hence, the BIR issued a Subpeona Duces Tecum dated September 21, 2006.
 • On December 10, 2001, Kudos‘ accountant, executed a Waiver of the Defense of
Prescription. This was followed by a second Waiver of Defense of Prescription on February
18, 2003.
• On August 25, 2003, the BIR issued a Preliminary Assessment Notice for the taxable year
1998 against the respondent. This was followed by a Formal Letter of Demand with
Assessment Notices.
• CTA Division
• Right to assess has prescribed. Issues of the first waiver: Assistant Commissioner is not
the revenue official authorized to sign the waiver, as the tax case involves more than
P1,000,000. The waiver failed to indicate the date of acceptance. The fact of receipt by the
taxpayer of his file copy was not indicated on the original copy.
• CTA En Banc - Agreed only to the second and third grounds.

ISSUE: Whether the right of the government to assess has expired.

HELD:
• Yes. 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. 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 issued on
April 4, 1990 and RDAO 05-01 issued on August 2, 2001 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.

• The first waiver had 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.

• Estoppel does not apply in this case. In another case, estoppel was applied as an exception
to the statute of limitations on collection of taxes and not on the assessment of taxes.
There was a finding that the taxpayer made several requests or positive acts to convince
the government to postpone the collection of taxes.
• In this case, the assessments were issued beyond the prescribed period. Also, there is no
showing that respondent made any request to persuade the BIR to postpone the issuance
of the assessments.
• The BIR cannot hide behind the doctrine of estoppel to cover its failure to comply with RMO
20-90 and RDAO05-01, which the BIR itself issued. As stated earlier, the BIR failed to
verify whether a notarized written authority was given by the respondent to its accountant,
and to indicate the date of acceptance and the receipt by the respondent of the waivers.
Having caused the defects in the waivers, the BIR must bear the consequence.
• It cannot shift the blame to the taxpayer. To stress, a waiver of the statute of limitations,
being a derogation of the taxpayer‘s right to security against prolonged and unscrupulous
investigations, must be carefully and strictly construed.

RIZAL COMMERCIAL BANKING CORPORATION v. COMM’R OF INTERNAL REVENUE

G.R. No. 170257, September 7, 2011

DOCTRINE:
• Under Article 1431 of the Civil Code, the doctrine of estoppel is anchored on the rule that
"an admission or representation is rendered conclusive upon the person making it, and
cannot be denied or disproved as against the person relying thereon." A party is precluded
from denying his own acts, admissions or representations to the prejudice of the other
party in order to prevent fraud and falsehood.
• Estoppel is clearly applicable to the case at bench. RCBC, through its partial payment of
the revised assessments issued within the extended period as provided for in the
questioned waivers, impliedly admitted the validity of those waivers. Had petitioner truly
believed that the waivers were invalid and that the assessments were issued beyond the
prescriptive period, then it should not have paid the reduced amount of taxes in the
revised assessment.

FACTS:
• Petitioner Rizal Commercial Banking Corporation (RCBC) is a corporation engaged in
general banking operations. It seasonably filed its Corporation Annual Income Tax Returns
for Foreign Currency Deposit Unit for the calendar years 1994 and 1995. On August 15,
1996, RCBC received Letter of Authority No. 133959 issued by then Commissioner of
Internal Revenue (CIR) Liwayway Vinzons-Chato, authorizing a special audit team to
examine the books of accounts and other accounting records for all internal revenue taxes
from January 1, 1994 to December 31, 1995.
• On January 23, 1997, RCBC executed two Waivers of the Defense of Prescription Under the
Statute of Limitations of the National Internal Revenue Code covering the internal revenue
taxes due for the years 1994 and 1995, effectively extending the period of the Bureau of
Internal Revenue (BIR) to assess up to December 31, 2000. Subsequently, on January 27,
2000, RCBC received a Formal Letter of Demand together with Assessment Notices from
the BIR for deficiency tax assessments. On the same day, RCBC paid the following
deficiency taxes as assessed by the BIR. RCBC, however, refused to pay the following
assessments for deficiency onshore tax and documentary stamp tax which remained to be
the subjects of its petition for review.
• RCBC argued that the waivers of the Statute of Limitations which it executed on January
23, 1997 were not valid because the same were not signed or conformed to by the
 respondent CIR as required under Section 222(b) of the Tax Code. As regards the
deficiency FCDU onshore tax, RCBC contended that because the onshore tax was collected
in the form of a final withholding tax, it was the borrower, constituted by law as the
withholding agent, that was primarily liable for the remittance of the said tax.
• While awaiting the decision of this Court, RCBC filed its Manifestation dated July 22, 2009,
informing the Court that this petition, relative to the DST deficiency assessment, had been
rendered moot and academic by its payment of the tax deficiencies on Documentary Stamp
Tax (DST) on Special Savings Account (SSA) for taxable years 1994 and 1995 after the BIR
approved its applications for tax abatement.
• In its November 17, 2009 Comment to the Manifestation, the CIR pointed out that the only
remaining issues raised in the present petition were those pertaining to RCBC‘s deficiency
tax on FCDU Onshore Income for taxable years 1994 and 1995 in the aggregate amount of
₱ 80,161,827.56 plus 20% delinquency interest per annum. The CIR prayed that RCBC be
considered to have withdrawn its appeal with respect to the CTA-En Banc ruling on its DST
on SSA deficiency for taxable years 1994 and 1995 and that the questioned CTA decision
regarding RCBC‘s deficiency tax on FCDU Onshore Income for the same period be affirmed.

ISSUE: Whether petitioner, by paying the other tax assessment covered by the waivers of the
statute of limitations, is rendered estopped from questioning the validity of the said waivers with
respect to the assessment of deficiency onshore tax

HELD: Petitioner is estopped from questioning the validity of the waivers.

• RCBC assails the validity of the waivers of the statute of limitations on the ground that the
said waivers were merely attested to by Sixto Esquivias, then Coordinator for the CIR, and
that he failed to indicate acceptance or agreement of the CIR, as required under Section
223 (b) of the 1977 Tax Code.28 RCBC further argues that the principle of estoppel cannot
be applied against it because its payment of the other tax assessments does not signify a
clear intention on its part to give up its right to question the validity of the waivers.
• The Court disagrees.
• Under Article 1431 of the Civil Code, the doctrine of estoppel is anchored on the rule that
"an admission or representation is rendered conclusive upon the person making it, and
cannot be denied or disproved as against the person relying thereon." A party is precluded
from denying his own acts, admissions or representations to the prejudice of the other
party in order to prevent fraud and falsehood.
• Estoppel is clearly applicable to the case at bench.
• RCBC, through its partial payment of the revised assessments issued within the extended
period as provided for in the questioned waivers, impliedly admitted the validity of those
waivers. Had petitioner truly believed that the waivers were invalid and that the
assessments were issued beyond the prescriptive period, then it should not have paid the
reduced amount of taxes in the revised assessment. RCBC‘s subsequent action effectively
belies its insistence that the waivers are invalid. The records show that on December 6,
2000, upon receipt of the revised assessment, RCBC immediately made payment on the
uncontested taxes. Thus, RCBC is estopped from questioning the validity of the waivers. To
hold otherwise and allow a party to gainsay its own act or deny rights which it had
previously recognized would run counter to the principle of equity which this institution
holds dear.

COMMISSIONER OF INTERNAL REVENUE v. NEXT MOBILE, INC.

G.R. No. 212825, December 07, 2015, Velasco, J.

FACTS:
• On April 15, 2002, respondent filed with the Bureau of Internal Revenue (BIR) its Annual
Income Tax Return (ITR) for taxable year ending December 31, 2001. Respondent also
 filed its Monthly Remittance Returns of Final Income Taxes Withheld (BIR Form No. 1601-
F), its Monthly Remittance Returns of Expanded Withholding Tax (BIR Form No. 1501-E)
and its Monthly Remittance Return of Income Taxes Withheld on Compensation (BIR Form
No. 1601-C) for year ending December 31, 2001.
• On September 25, 2003, respondent received a copy of the Letter of Authority dated
September 8, 2003 signed by Regional Director Nestor S. Valeroso authorizing Revenue
Officer Nenita L. Crespo of Revenue District Office 43 to examine respondent's books of
accounts and other accounting records for income and withholding taxes for the period
covering January 1, 2001 to December 31, 2001.
• Ma. Lida Sarmiento (Sarmiento), respondent's Director of Finance, subsequently executed
several waivers of the statute of limitations to extend the prescriptive period of assessment
for taxes due in taxable year ending December 31, 2001 (Waivers).
• On September 26, 2005, respondent received from the BIR a Preliminary Assessment
Notice dated September 16, 2005 to which it filed a Reply.
• On October 25, 2005, respondent received a Formal Letter of Demand (FLD) and
Assessment Notices/Demand No. 43-734 both dated October 17, 2005 from the BIR,
demanding payment of deficiency income tax, final withholding tax (FWT), expanded
withholding tax (EWT), increments for late remittance of taxes withheld, and compromise
penalty for failure to file returns/late filing/late remittance of taxes withheld, in the total
amount of P313,339,610.42 for the taxable year ending December 31, 2001.
• On November 23, 2005, respondent filed its protest against the FLD and requested the
reinvestigation of the assessments. On July 28, 2009, respondent received a letter from
the BIR denying its protest. Thus, on August 27, 2009, respondent filed a Petition for
Review before the CTA docketed as CTA Case No. 7965.
• Petitioner's Motion for Reconsideration was denied on March 14, 2013. Petitioner filed a
Petition for Review before the CTA En Banc. On May 28, 2014, the CTA En Banc rendered a
Decision denying the Petition for Review and affirmed that of the former CTA First Division.
• It held that the five (5) Waivers of the statute of limitations were not valid and binding;
thus, the three-year period of limitation within which to assess deficiency taxes was not
extended. It also held that the records belie the allegation that respondent filed false and
fraudulent tax returns; thus, the extension of the period of limitation from three (3) to ten
(10) years does not apply.

ISSUE: Whether or not the waiver of the statute of limitations must faithfully comply with RMO
No. 20-90 and RDAO 05-01 in order to be valid?

HELD:
• YES.
• The general rule is that when a waiver does not comply with the requisites for its validity
specified under RMO No. 20-90 and RDAO 01-05, it is invalid and ineffective to extend the
prescriptive period to assess taxes. However, due to its peculiar circumstances, we shall
treat this case as an exception to this rule.
• First, the parties in this case are in pari delicto or ―in equal fault.‖ Second, the Court has
repeatedly pronounced that parties must come to court with clean hands. Parties who do
not come to court with clean hands cannot be allowed to benefit from their own
wrongdoing. Third, respondent is estopped from questioning the validity of its Waivers.
While it is true that the Court has repeatedly held that the doctrine of estoppel must be
sparingly applied as an exception to the statute of limitations for assessment of taxes, the
Court finds that the application of the doctrine is justified in this case. Verily, the
application of estoppel in this case would promote the administration of the law, prevent
injustice and avert the accomplishment of a wrong and undue advantage.
• Respondent executed five Waivers and delivered them to petitioner, one after the other. It
allowed petitioner to rely on them and did not raise any objection against their validity until
petitioner assessed taxes and penalties against it. Moreover, the application of estoppel is
necessary to prevent the undue injury that the government would suffer because of the
 cancellation of petitioner‘s assessment of respondent‘s tax liabilities.

ASIAN TRANSMISSION CORPORATION v. CIR

2018, Bersamin (First Division)

SUMMARY: ATC executed waivers of the defense of prescription. After a Formal Letter of Demand
for deficiency, ATC assailed the validity of the waivers. Despite non-compliance with the requisites
for waiver, the Court nevertheless held that the waivers were valid, hence prescription cannot be
invoked.

DOCTRINE:
• In Commissioner of Internal Revenue v. Next Mobile Inc. , the Court declared that as a
general rule a waiver that did not comply with the requisites for validity specified in RMO
No. 20-90 and RDAO 01-05 was invalid and ineffective to extend the prescriptive period to
assess the deficiency taxes. However, due to peculiar circumstances obtaining, the Court
treated the case as an exception to the rule, and considered the waivers concerned as valid
for the following reasons:
• First, the parties in this case are in pari delicto or "in equal fault." In pari delicto connotes
that the two parties to a controversy are equally culpable or guilty and they shall have no
action against each other. However, although the parties are in pari delicto, the Court may
interfere and grant relief at the suit of one of them, where public policy requires its
intervention, even though the result may be that a benefit will be derived by one party who
is in equal guilt with the other. Here, to uphold the validity of the Waivers would be
consistent with the public policy embodied in the principle that taxes are the lifeblood of
the government, and their prompt and certain availability is an imperious need. Taxes are
the nation's lifeblood through which government agencies continue to operate and which
the State discharges its functions for the welfare of its constituents. As between the
parties, it would be more equitable if petitioner's lapses were allowed to pass and
consequently uphold the Waivers in order to support this principle and public policy.
• Second, the Court has repeatedly pronounced that parties must come to court with clean
hands. Parties who do not come to court with clean hands cannot be allowed to benefit
from their own wrongdoing. Following the foregoing principle, respondent should not be
allowed to benefit from the flaws in its own Waivers and successfully insist on their
invalidity in order to evade its responsibility to pay taxes.
• Third, respondent is estopped from questioning the validity of its Waivers. While it is true
that the Court has repeatedly held that the doctrine of estoppel must be sparingly applied
as an exception to the statute of limitations for assessment of taxes, the Court finds that
the application of the doctrine is justified in this case. Verily, the application of estoppel in
this case would promote the administration of the law, prevent injustice and avert the
accomplishment of a wrong and undue advantage. Respondent executed five Waivers and
delivered them to petitioner, one after the other. It allowed petitioner to rely on them and
did not raise any objection against their validity until petitioner assessed taxes and
penalties against it. Moreover, the application of estoppel is necessary to prevent the
undue injury that the government would suffer because of the cancellation of petitioner's
assessment of respondent's tax liabilities.
• Finally, the Court cannot tolerate this highly suspicious situation. In this case, the
taxpayer, on the one hand, after voluntarily executing waivers, insisted on their invalidity
by raising the very same defects it caused. On the other hand, the BIR miserably failed to
exact from respondent compliance with its rules. The BIR's negligence in the performance
of its duties was so gross that it amounted to malice and bad faith. Moreover, the BIR was
so lax such that it seemed that it consented to the mistakes in the Waivers. Such a
situation is dangerous and open to abuse by unscrupulous taxpayers who intend to escape
 their responsibility to pay taxes by mere expedient of hiding behind technicalities. It is true
that petitioner was also at fault here because it was careless in complying with the
requirements of RMO No. 20-90 and RDAO 01-05. Nevertheless, petitioner's negligence
may be addressed by enforcing the provisions imposing administrative liabilities upon the
officers responsible for these errors. The BIR's right to assess and collect taxes should not
be jeopardized merely because of the mistakes and lapses of its officers, especially in cases
like this where the taxpayer is obviously in bad faith.

FACTS:
• ATC is a manufacturer of motor vehicle transmission component parts and engines of
Mitsubishi vehicles. On January 3, 2003 and March 3, 2003, ATC filed its Annual
Information Return of Income Taxes Withheld on Compensation and Final Withholding
Taxes and Annual Information Return of Creditable Income Taxed Withheld
(Expanded)/Income Payments Exempt from Withholding Tax, respectively.
• On August 11, 2004, ATC received Letter of Authority [(LOA)] No. 200000003557 where
[the CIR] informed ATC that its revenue officers from the Large Taxpayers Audit and
Investigation Division II shall examine its books of accounts and other accounting records
for the taxable year 2002.Thereafter, [the CIR] issued a Preliminary Assessment Notice
(PAN) to ATC. Consequently, on various dates, ATC, through its Vice President for Personnel
and Legal Affairs, Mr. Roderick M. Tan, executed several documents denominated as
"Waiver of the Defense of Prescription Under the Statute of Limitations of the National
Internal Revenue Code". Meanwhile, on February 28, 2008, ATC availed of the Tax Amnesty
[P]rogram under Republic Act No.9480.On July 15, 2008, ATC received a Formal Letter of
Demand from [the] CIR for deficiency [WTC] in the amount of P[hp]62,977,798.02, [EWT]
in the amount of P[hp]6,916,910.51, [FWT] in the amount ofP[hp]501,077.72. On August
14, 2008, ATC filed its Protest Letter in regard thereto. Accordingly, on April 14, 2009, ATC
received the Final Decision on Disputed Assessment where [the]CIR found ATC liable to pay
deficiency tax in the amount of P[hp]75,696,616.75.
• Thus, on May 14, 2009, ATC filed an appeal letter/request for reconsideration with [the]
CIR. On April 10, 2012, ATC received the Decision of [the] CIR dated November 15, 2011,
denying its request or reconsideration. As such, on April 23, 2012, ATC filed the instant
Petition for Review (with Application for Preliminary Injunction and Temporary Restraining
Order)
• On November 28, 2014, the CTA in Division rendered its decision granting the petition for
review of ATC .It held that ATC was not estopped from raising the invalidity of the waivers
inasmuch as the Bureau of Internal Revenue (BIR) had itself caused the defects there of.
On August 9, 2016, the CTA En Banc promulgated the assailed decision reversing and
setting aside the decision of the CTA in Division, and holding that the waivers were valid. It
observed that the CIR's right to assess deficiency withholding taxes for CY 2002 against
ATC had not yet prescribed.

ISSUES: WoN the waivers executed by ATC are valid YES. In this case, the CTA in Division noted
that the eight waivers of ATC contained the following defects, to wit:
1. The notarization of the Waivers was not in accordance with the 2004 Rules on Notarial Practice;
2. Several waivers clearly failed to indicate the date of acceptance by the Bureau of Internal
Revenue;
3. The Waivers were not signed by the proper revenue officer; and
4. The Waivers failed to specify the type of tax and the amount of tax due.

HELD:
• We agree with the holding of the CTA En Banc that ATC's case was similar to the case of
the taxpayer involved in Commissioner of Internal Revenue v. Next Mobile Inc.
• The foregoing defects noted in the waivers of ATC were not solely attributable to the CIR.
Indeed, although RDAO 01-05 stated that the waiver should not be accepted by the
concerned BIR office or official unless duly notarized, a careful reading of RDAO 01-05
 indicates that the proper preparation of the waiver was primarily the responsibility of the
taxpayer or its authorized representative signing the waiver. Such responsibility did not
pertain to the BIR as the receiving party. Consequently, ATC was not correct in insisting
that the act or omission giving rise to the defects of the waivers should be ascribed solely
to the respondent CIR and her subordinates.
• Moreover, the principle of estoppel was applicable. The execution of the waivers was to the
advantage of ATC because the waivers would provide to ATC the sufficient time to gather
and produce voluminous records for the audit. It would really be unfair, therefore, were
ATC to be permitted to assail the waivers only after the final assessment proved to be
adverse.
• Thus, the CTA En Banc did not err in ruling that ATC, after having benefitted from
the defective waivers, should not be allowed to assail them.
• In short, the CTA En Banc properly applied the equitable principles of in pari delicto,
unclean hands, and estoppel as enunciated in Commissioner of Internal Revenue v. Next
Mobile case. Petition for review on certiorari DENIED.
REVENUE REGULATIONS NO. 7-2018 issued on January 31, 2018 amends certain sections of Revenue Regulations (RR)
No. 12-99, as amended by RR No. 18-13, relative to the due process requirement in the issuance of a deficiency tax
assessment.

• The Revenue Officer (RO) who audited the taxpayer‘s records shall, among others, state in his report whether or
not the taxpayer agrees with his findings that the taxpayer is liable for deficiency tax or taxes. If the taxpayer is
not amenable, based on the said Officer‘s submitted report of investigation, the taxpayer shall be informed, in
writing, by the Revenue District Office (RDO) or by the Special Investigation Division (SID), as the case may be
(in the case of Revenue Regional Offices) or by the Chief of Division concerned (in case of the BIR National Office)
of the discrepancy or discrepancies in the taxpayer‘s payment of his internal revenue taxes, for the purpose of
―Informal Conference,‖ in order to afford the taxpayer with an opportunity to present his side of the case.
• The Informal Conference shall, in no case, extend beyond thirty (30) days from receipt of the notice for informal
conference. If it is found that the taxpayer is still liable for deficiency tax or taxes after presenting his side, and
the taxpayer is not amenable, the RDO or the Chief, SID of the Revenue Regional Office, or the Chief of Division in
the National Office, as the case may be, shall endorse the case within seven (7) days from the conclusion of the
Informal Conference to the Assessment Division of the Revenue Regional Office or to the Commissioner or his
duly authorized representative for issuance of a deficiency tax assessment.
• Failure on the part of ROs to comply with the prescribed periods shall be meted with penalty as provided by
existing laws, rules and regulations.

COMMISSIONER OF INTERNAL REVENUE v. METRO STAR SUPERAMA, INC.

G.R. No. 185371, December 8, 2010

FACTS:
• Petitioner is a domestic corporation. On January 26, 2001, the Regional Director of
Revenue in Legazpi City, issued Letter of Authority to examine petitioner‘s books of
accounts and other accounting records for taxable year 1999. For petitioner‘s failure to
comply with several requests to present the records and Subpoena Duces Tecum, BIR Legal
Division issued an Indorsement to proceed with the investigation based on the best
evidence obtainable preparatory to the issuance of assessment notice.
• Then, RDO issued a Preliminary Assessment Notice Letter stating a deficiency in VAT and
withholding taxes in the amount of P292, 874.16 for the year 1999. Thereafer, a formal
letter of demand was sent. The Final Notice of Seizure came next, giving Metro Star
Superama last opportunity to settle its deficiency tax liabilities within ten (10) days from
receipt thereof, otherwise BIR shall be constrained to serve and execute the Warrants of
Distraint and/or Levy and Garnishment to enforce collection.
• Not able to comply, Metro Super Rama received a Warrant of Distraint and/or Levy
demanding payment of deficiency value-added tax and withholding tax payment in the
amount of P292,874.16. The Commissioner denied the MOR filed by Metro Super Rama.
Denying that it received a Preliminary Assessment Notice (PAN) and claiming that it was
not accorded due process, Metro Star filed a petition for review with the CTA.
 • The CTA-Second Division rendered a decision in favor of the Metro Super Rama. The
CTA-Second Division opined that ―while there is a disputable presumption that a ailed
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 found that there was no
clear showing that Metro Star actually received the alleged PAN. It, accordingly, ruled that
the Formal Letter of Demand and the Warrant of Distraint and/or Levy dated were void, as
Metro Star was denied due process. CTA En Banc affirmed in toto the CTA Second
Division‘s decision. Hence, this petition.

ISSUE: Is the failure to strictly comply with notice requirements prescribed under Section 228
(Preliminary Assessment Notice or PAN) of the National Internal Revenue Code of 1997
tantamount to a denial of due process?
HELD:
• YES, not complying strictly with the Preliminary Assessment Notice or PAN is tantamount
to a denial of due process. The Court agrees with the CTA that the CIR failed to discharge
its duty and present any evidence to show that Metro Star indeed received the PAN dated
January 16, 2002. It could have simply presented the registry receipt or the certification
from the postmaster that it mailed the PAN, but failed. Neither did it offer any explanation
on why it failed to comply with the requirement of service of the PAN. It merely accepted
the letter of Metro Star‘s chairman dated April 29, 2002, that stated that he had received
the FAN dated April 3, 2002, but not the PAN.
• Section 228 of the Tax Code clearly requires that the taxpayer must first be informed
that he is liable for deficiency taxes through the sending of a PAN. He must be informed of
the facts and the law upon which the assessment is made. The law imposes a substantive,
not merely a formal, requirement. 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.
• 3.1.2 Preliminary Assessment Notice (PAN). — If after review and evaluation by the
Assessment Division or by the Commissioner or his duly authorized representative, as the
case may be, it is determined that there exists sufficient basis to assess the taxpayer for
any deficiency tax or taxes, the said Office shall issue to the taxpayer, at least by
registered mail, a Preliminary Assessment Notice (PAN) for the proposed assessment,
showing in detail, the facts and the law, rules and. If the taxpayer fails to respond within
fifteen (15) days from date of receipt of the PAN, he shall be considered in default, in
which case, a formal letter of demand and assessment notice shall be caused to be issued
by the said Office, calling for payment of the taxpayer's deficiency tax liability, inclusive of
the applicable penalties. From the provision quoted above, it is clear that the sending of a
PAN to taxpayer to inform him of the assessment made is but 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. The use of the word
―shall‖ in subsection 3.1.2 describes the mandatory nature of the service of a PAN. The
persuasiveness of the right to due process reaches both substantial and procedural rights
and the failure of the CIR to strictly comply with the requirements laid down by law and its
own rules is a denial of Metro Star’s right to due process. Thus, for its failure to send the
PAN stating the facts and the law on which the assessment was made as required by
Section 228 of R.A. No. 8424, the assessment made by the CIR is void.
• It is an elementary rule enshrined in the 1987 Constitution that no person shall be
deprived of property without due process of law. In balancing the scales between the
power of the State to tax and its inherent right to prosecute perceived transgressors of the
law on one side, and the constitutional rights of a citizen to due process of law and the
equal protection of the laws on the other, the scales must tilt in favor of the individual, for
a citizen‘s right is amply protected by the Bill of Rights under the Constitution.
 • Thus, while ―taxes are the lifeblood of the government,‖ the power to tax has its limits,
in spite of all its plenitude.

COMMISSIONER OF INTERNAL REVENUE vs. ASALUS CORPORATION

February 22, 2017 GR No. 221590, MENDOZA, J.:

DOCTRINE: Substantial compliance with the requirement as laid down under Section 228 of the
NIRC suffices, for what is important is that the taxpayer has been sufficiently informed of the
factual and legal bases of the assessment so that it may file an effective protest against the
assessment. In the case at bench, Asalus was sufficiently informed that with respect to its tax
liability, the extraordinary period laid down in Section 222 of the NIRC would apply. This was
categorically stated in the PAN and all subsequent communications from the CIR made reference
to the PAN. Asalus was eventually able to file a protest addressing the issue on prescription,
although it was done only in its supplemental protest to the FAN.

FACTS:
• On December 16, 2010, respondent Asalus Corporation (Asalus) received a Notice of
Informal Conference from Revenue District Office No. 47 of the Bureau of Internal Revenue
(BIR). It was in connection with the investigation conducted by Revenue Officer Fidel M.
Bañares II on the Value-Added Tax transactions of Asalus for the taxable year 2007. Asalus
filed its Letter-Reply, dated December 29, 2010, questioning the basis of Bañares'
computation for its VAT liability.
• On January 10, 2011, petitioner Commissioner of Internal Revenue issued the Preliminary
Assessment Notice finding Asalus liable for deficiency VAT for 2007 in the aggregate
amount of P413,378,058.11.
• On August 26, 2011, Asalus received the Formal Assessment Notice stating that it was
liable for deficiency VAT for 2007 in the total amount of P95,681,988.64, inclusive of
surcharge and interest. Consequently, it filed its protest against the FAN, dated September
6, 2011.
• On October 16, 2012, Asalus received the Final Decision on Disputed Assessment showing
VAT deficiency for 2007 in the aggregate amount of P106,761,025.17, inclusive of
surcharge and interest and P25,000.00 as compromise penalty. As a result, it filed a
petition for review before the CTA Division.
• In its April 2, 2014 Decision, the CTA Division ruled that the VAT assessment issued on
August 26, 2011 had prescribed and consequently deemed invalid.

ISSUE: Whether petitioner had sufficiently apprised respondent that the fan and fdda issued
against the latter falls under section 222(a) of the 1997 NIRC, as amended;

HELD:
• Yes. Generally, internal revenue taxes shall be assessed within three (3) years after the
last day prescribed by law for the filing of the return, or where the return is filed beyond
the period, from the day the return was actually filed. Section 222 of the NIRC, however,
provides for exceptions to the general rule. It states that in the case of a false or
fraudulent return with intent to evade tax or of failure to file a return, the assessment may
be made within ten (10) years from the discovery of the falsity, fraud or omission. Thus, a
mere showing that the returns filed by the taxpayer were false, notwithstanding the
absence of intent to defraud, is sufficient to warrant the application of the ten (10) year
prescriptive period under Section 222 of the NIRC. Under Section 248(B) of the NIRC,
there is a prima facie evidence of a false return if there is a substantial underdeclaration of
taxable sales, receipt or income.
• The failure to report sales, receipts or income in an amount exceeding 30% what is
declared in the returns constitute substantial underdeclaration. In other words, when there
 is a showing that a taxpayer has substantially underdeclared its sales, receipt or income,
there is a presumption that it has filed a false return. As such, the CIR need not
immediately present evidence to support the falsity of the return, unless the taxpayer fails
to overcome the presumption against it.

CIR v. FITNESS BY DESIGN

GR No.
FACTS:
• March 17, 2004: CIR assessed Fitness by Design Inc. for deficiency Income Taxes for the
year of 1995 for P 10,647, 529.69
• February 1, 2005: CIR issued a warrant of distraint and levy against petitioner which
prompted petitioner to file a Petition for Review before the CTA where he alleged his
defense of prescription based on Sec. 203 of the Tax Code.
• CIR answer: Tax return was false and fraudulent for deliberately failing to declare its true
sales of P 7,156,336.08 and failure to file a VAT return for it. Since petitioner failed to file a
protest, it is subject to either distraint or levy. Moreover, it cited Sec. 222 (a) of 1997 Tax
Code where false and fraudulent return with intent to evade tax or failure to file a return
prescribe 10 years after the discovery of the falsity, fraud or omission.
• March 10, 2005: BIR filed a criminal complaint before the DOJ against the officers and
accountant of petitioner for violation against the 1977 NIRC.
• During the preliminary hearing on the issue of prescription, petitioner's former bookkeeper
attested that his former colleague, CPA Sablan, illegally took custody of accounting records
and turned them over to the BIR.
• Petitioner then requested a subpoena ad testificandum for Sablan who failed to appear.
• CTA: Denied the motion for issuance of subpoena and disallowed the submission of written
interrogatories to Sablan who is NOT a party to the case nor was his testimony relevant. It
also violates Section 2 of Republic Act No. 2338, as implemented by Section 12 of Finance
Department Order No. 46-66, proscribing the revelation of identities of informers of
violations of internal revenue laws, except when the information is proven to be malicious
or false. Moreover, the subpoena is NOT needed to obtain affidavit of the informer.

ISSUE: W/N BIR can use the information without petitioner's consent

HELD:
• YES. Sec. 5 of the tax code provides that the BIR is authorized to obtain from any person
other than the person whose internal revenue tax liability is subject to audit or
investigation and can even summon any person having possession, custody or care of the
books of accountants and other accounting records containing entries relating to the
business of the person liable for tax.
• This includes even those which cannot be admitted in a judicial proceeding where the Rules
of Court are strictly observed. CTA case is not a criminal prosecution where he can cross
examine the witness against him. CTA can enforce its order by citing them for indirect
contempt.

CIR v. AVON PRODUCTS MANUFACTURING, INC.

GR No. 201398-99 October 3, 2018

DOCTRINE:
• Tax assessments issued in violation of the due process rights of a taxpayer are null and
void. While the government has an interest in the swift collection of taxes, the Bureau of
Internal Revenue and its officers and agents cannot be overreaching in their efforts, but
 must perform their duties in accordance with law, with their own rules of procedure, and
always with regard to the basic tenets of due process.
• The 1997 National Internal Revenue Code, also known as the Tax Code, and revenue
regulations allow a taxpayer to file a reply or otherwise to submit comments or arguments
with supporting documents at each stage in the assessment process. Due process requires
the Bureau of Internal Revenue to consider the defenses and evidence submitted by the
taxpayer and to render a decision based on these submissions. Failure to adhere to these
requirements constitutes a denial of due process and taints the administrative proceedings
with invalidity.

FACTS:
• Avon filed its Value Added Tax (VAT) Returns and Monthly Remittance Returns of Income
Tax Withheld for the taxable year 1999 on the following dates:
• XXX
• Avon signed two (2) Waivers of the Defense of Prescription dated October 14, 2002 and
December 27, 2002,9 which expired on January 14, 2003 and April 14, 2003,
respectively.10
• On July 14, 2004, Avon was served a Collection Letter11 dated July 9, 2004. It was
required to pay P80,246,459.1512.
• These deficiency assessments were the same deficiency taxes covered by the Preliminary
Assessment Notice14 dated November 29, 2002, received by Avon on December 23,
2002.15
• On February 14, 2003, Avon filed a letter dated February 13, 2003 protesting against the
Preliminary Assessment Notice.
• Without ruling on Avon's protest, the Commissioner prepared the Formal Letter of
Demand17 and Final Assessment Notices,18 all dated February 28, 2003, received by Avon
on April 11, 2003. Except for the amount of interest, the Final Assessment Notices were
the same as the Preliminary Assessment Notice.19
• In a letter dated and filed on May 9, 2003, Avon protested the Final Assessment Notices.
Avon resubmitted its protest to the Preliminary Assessment Notice and adopted the same
as its protest to the Final Assessment Notices.
• A conference was allegedly held on June 26, 2003 where Avon informed the revenue
officers that all the documents necessary to support its defenses had already been
submitted. Another meeting was held on August 4, 2003, where it showed the original
General Ledger Book as previously directed by the revenue officers. During these
meetings, the revenue officers allegedly expressed that they would cancel the assessments
resulting from the alleged discrepancy in sales if Avon would pay part of the
assessments.22 Thus, on January 30, 2004, Avon paid the following portions of the Final
Assessment Notices:
a. Disallowed taxes and licenses/Fringe Benefit Tax adjustment P153,559.37; and
b. Withholding Tax on Compensation - Late Remittance - P32,829.2823

• However, in a Memorandum dated May 27, 2004, the Bureau of Internal Revenue's officers
recommended the enforcement and collection of the assessments on the sole justification
that Avon failed to submit supporting documents within the 60-day period as required
under Section 228 of the Tax Code.
• The Large Taxpayers Collection and Enforcement Division thereafter served Avon with the
Collection Letter dated July 9, 2004.25Avon asserted that even the items already paid on
January 30, 2004 were still included in the deficiency tax assessments covered by this
Collection Letter.26
• In a letter to the Deputy Commissioner for Large Taxpayers Service dated and filed on July
27, 2004, Avon requested the reconsideration and withdrawal of the Collection Letter. It
argued that it was devoid of legal and factual basis, and was premature as the
Commissioner of Internal Revenue had not yet acted on its protest against the Final
Assessment Notices.
 • The Commissioner did not act on Avon's request for reconsideration. Thus, Avon was
constrained to treat the Collection Letter as denial of its protest.
• On August 13, 2004, Avon filed a Petition for Review before the Court of Tax Appeals.30 On
August 24, 2004, it filed an Urgent Motion for Suspension of Collection of Tax.
• On May 13, 2010, the Court of Tax Appeals Special First Division rendered its Decision,
partially granting Avon's Petition for Review insofar as it ordered the cancellation of the
Final Demand and Final Assessment Notices for deficiency excise tax, VAT, withholding tax
on compensation, and expanded withholding tax. However, it ordered Avon to pay
deficiency income tax in the amount of P357,345.88 including 20% deficiency interest on
the total amount due pursuant to Section 249, paragraphs (b) and (c)(3) of the Tax Code.
The Court of Tax Appeals Special First Division also made the following pronouncements:

a) There was no deprivation of due process in the issuance by the CIR of the assessment for
deficiency income tax, deficiency excise tax, deficiency VAT, deficiency final withholding tax on
compensation and deficiency expanded withholding tax against AVON for the latter was afforded
an opportunity to explain and present its evidence;

b) The Waivers of the Statute of Limitations executed by AVON are invalid and ineffective as the
CIR failed to provide [AVON] a copy of the accepted Waivers, as required under Revenue
Memorandum Order No. 20-90. Hence, the assessment of AVON's deficiency VAT, deficiency
expanded withholding tax and deficiency withholding tax on compensation is considered to have
prescribed;

c) AVON's failure to submit the relevant documents in support of its protest did not make the
assessment final and executory;

d) As to assessment on AVON's deficiency Income Tax,

1. there was no undeclared sales/income in the amount of P62,911,619.58 per ITR for the taxable
year 1999;
2. AVON's liability for disallowed taxes and licenses and December 1998 Fringe Benefit Tax
payment adjustment in the amount of P152,632.10 and P927.27, respectively, or a total of
P153,559.37 is extinguished in view of the payment made;
3. The discrepancy between Ending Inventories reflected in Balance Sheet and Cost of Sales
represents variance/adjustments on standard cost to actual cost allocated to ending inventories
and not under-declaration as alleged by CIR;
4. AVON's claimed tax credits in the amount of P203,645.89 was disallowed as the same was
unsupported by withholding tax certificates as required under Section 2.58.3 (B) of Revenue
Regulations No. 2-98. However, the amount of P140,505.28 was upheld as a proper deduction
from its 1999 income tax due; and

e) As to assessment on AVON's deficiency excise tax, the same is deemed cancelled and
withdrawn in view of its Application for Abatement over its deficiency excise tax assessment for
the year 1999 and its corresponding payment.34

• The parties' Motions for Partial Reconsideration were denied in the July 12, 2010
Resolution.36 Both parties filed their respective Petitions for Review before the Court of Tax
Appeals En Banc.37
• In its assailed November 9, 2011 Decision,38 the Court of Tax Appeals En Banc denied the
respective Petitions of the Commissioner and Avon, and affirmed the Court of Tax Appeals
Special First Division May 13, 2010 Decision. It held that the Waivers of the Defense of
Prescription were defective, thereby rendering the assessment of Avon's deficiency VAT,
expanded withholding tax, and withholding tax on compensation to have prescribed.39 It
further ruled that contrary to the Commissioner's argument, the requirement under
Revenue Memorandum Order No. 20-90 to furnish the taxpayer with copies of the accepted
 waivers was not merely formal in nature, and non-compliance with it rendered the Waivers
of the Defense of Prescription invalid and ineffective.
• On the issue of jurisdiction, the Court of Tax Appeals En Banc held that under Section 228
of the Tax Code, the taxpayer has two (2) options in case of inaction of the Commissioner
on disputed assessments. The first option is to file a petition with the Court of Tax Appeals
within 30 days from the lapse of the 180-day period for the Commissioner to decide. The
second option is to await the final decision of the Commissioner and appeal this decision
within 30 days from its receipt. Here, Avon opted for the second remedy by filing its
petition on July 14, 2004, within 30 days from receipt of the July 9, 2004 Collection Letter,
which also served as the final decision denying its protest. Hence, the Court of Tax Appeals
En Banc ruled that it had jurisdiction over the case.
• The Court of Tax Appeals En Banc further affirmed the Court of Tax Appeals Special First
Division's factual findings with regard to the cancellation of deficiency tax assessments42
and disallowance of Avon's claimed tax credits.
• Finally, the Court of Tax Appeals En Banc rejected Avon's contention regarding denial of
due process. It held that Avon was accorded by the Commissioner a reasonable
opportunity to explain and present evidence.44 Moreover, the Commissioner's failure to
appreciate Avon's supporting documents and arguments did not ipso facto amount to
denial of due process absent any proof of irregularity in the performance of duties.
• In its April 10, 2012 Resolution,46 the Court of Tax Appeals En Banc denied the
Commissioner's Motion for Reconsideration and Avon's Motion for Partial Reconsideration.
It held that the "RCBC case," cited by the Commissioner, was not on all fours with, and
therefore not applicable as stare decisis in this case. Instead, the ruling in CIR v. Kudos
Metal Corporation,48 precluding the Bureau of Internal Revenue from invoking the doctrine
of estoppel to cover its failure to comply with the procedures in the execution of a waiver,
would apply.

ISSUE/S: WON the assessments are void ab initio due to the failure of the Commissioner to
observe due process?

HELD:
• Yes.
• The Bureau of Internal Revenue is the primary agency tasked to assess and collect proper
taxes, and to administer and enforce the Tax Code.63 To perform its functions of tax
assessment and collection properly, it is given ample powers under the Tax Code, such as
the power to examine tax returns and books of accounts,64 to issue a subpoena,65 and to
assess based on best evidence obtainable,66 among others. However, these powers must
"be exercised reasonably and [under] the prescribed procedure."67 The Commissioner and
revenue officers must strictly comply with the requirements of the law, with the Bureau of
Internal Revenue's own rules,68 and with due regard to taxpayers' constitutional rights.
• The Commissioner exercises administrative adjudicatory power or quasi-judicial function in
adjudicating the rights and liabilities of persons under the Tax Code.
• Quasi-judicial power has been described as: Quasi-judicial or administrative adjudicatory
power on the other hand is the power of the administrative agency to adjudicate the rights
of persons before it. It is the power to hear and determine questions of fact to which the
legislative policy is to apply and to decide in accordance with the standards laid down by
the law itself in enforcing and administering the same law. The administrative body
exercises its quasi-judicial power when it performs in a judicial manner an act which is
essentially of an executive or administrative nature, where the power to act in such
manner is incidental to or reasonably necessary for the performance of the executive or
administrative duty entrusted to it.69 (Emphasis supplied, citations omitted)
• In carrying out these quasi-judicial functions, the Commissioner is required to "investigate
facts or ascertain the existence of facts, hold hearings, weigh evidence, and draw
conclusions from them as basis for their official action and exercise of discretion in a
judicial nature."70 Tax investigation and assessment necessarily demand the observance of
 due process because they affect the proprietary rights of specific persons.
• This Court has stressed the importance of due process in administrative proceedings:
• The principle of due process furnishes a standard to which governmental action should
conform in order to impress it with the stamp of validity. Fidelity to such standard must of
necessity be the overriding concern of government agencies exercising quasi-judicial
functions. Although a speedy administration of action implies a speedy trial, speed is not
the chief objective of a trial. Respect for the rights of all parties and the requirements of
procedural due process equally apply in proceedings before administrative agencies with
quasi-judicial perspective in administrative decision making and for maintaining the vision
which led to the creation of the administrative office.
• In Ang Tibay v. The Court of Industrial Relations, this Court observed that although
quasi-judicial agencies "may be said to be free from the rigidity of certain procedural
requirements[, it] does not mean that it can, in justiciable cases coming before it, entirely
ignore or disregard the fundamental and essential requirements of due process in trials and
investigations of an administrative character."
• It then enumerated the fundamental requirements of due process that must be
respected in administrative proceedings:

1. The party interested or affected must be able to present his or her own case and submit
evidence in support of it.
2. The administrative tribunal or body must consider the evidence presented.
3. There must be evidence supporting the tribunal's decision.
4. The evidence must be substantial or "such relevant evidence as a reasonable mind might
accept as adequate to support a conclusion."
5. The administrative tribunal's decision must be rendered on the evidence presented, or at least
contained in the record and disclosed to the parties affected.
6. The administrative tribunal's decision must be based on the deciding authority's own
independent consideration of the law and facts governing the case.
7. The administrative tribunal's decision is rendered in a manner that the parties may know the
various issues involved and the reasons for the decision.75Mendoza v. Comelec76 explained that
the first requirement is the party's substantive right at the hearing stage of the proceedings,
which, in essence, is the opportunity to explain one's side or to seek a reconsideration of the
adverse action or ruling.

• It was emphasized, however, that the mere filing of a motion for reconsideration does not
always result in curing the due process defect, "especially if the motion was filed precisely
to raise the issue of violation of the right to due process and the lack of opportunity to be
heard on the merits remained."
• The second to the sixth requirements refer to the party's "inviolable rights applicable at the
deliberative stage." The decision-maker must consider the totality of the evidence
presented as he or she decides the case.
• The last requirement relating to the form and substance of the decision is the decision-
maker's '"duty to give reason' to enable the affected person to understand how the rule of
fairness has been administered in his [or her] case, to expose the reason to public scrutiny
and criticism, and to ensure that the decision will be thought through by the decision-
maker."
• The Ang Tibay safeguards were subsequently "simplified into four basic rights," as follows:

(a) [T]he right to notice, be it actual or constructive, of the institution of the proceedings that may
affect a person's legal right;
(b) reasonable opportunity to appear and defend his rights and to introduce witnesses and
relevant evidence in his favor;
(c) a tribunal so constituted as to give him reasonable assurance of honesty and impartiality, and
one of competent jurisdiction; and
(d) a finding or decision by that tribunal supported by substantial evidence presented at the
hearing or at least ascertained in the records or disclosed to the parties. (Emphasis supplied)

• Saunar v. Ermita expounded on Ang Tibay by emphasizing that while administrative

bodies enjoy a certain procedural leniency, they are nevertheless obligated to inform
themselves of all facts material and relevant to the case, and to render a decision based on
an accurate appreciation of facts. In this regard, this Court held that Ang Tibay did not
necessarily do away with the conduct of hearing and a party may invoke its right to a
hearing to thresh out substantial factual issues, thus:
• A closer perusal of past jurisprudence shows that the Court did not intend to trivialize the
conduct of a formal hearing but merely afforded latitude to administrative bodies especially
in cases where a party fails to invoke the right to hearing or is given the opportunity but
opts not to avail of it. In the landmark case of Ang Tibay, the Court explained that
administrative bodies are free from a strict application of technical rules of procedure and
are given sufficient leeway. In the said case, however, nothing was said that the freedom
included the setting aside of a hearing but merely to allow matters which would ordinarily
be incompetent or inadmissible in the usual judicial proceedings.
• In fact, the seminal words of Ang Tibay manifest a desire for administrative bodies to
exhaust all possible means to ensure that the decision rendered be based on the accurate
appreciation of facts. The Court reminded that administrative bodies have the active duty
to use the authorized legal methods of securing evidence and informing itself of facts
material and relevant to the controversy. As such, it would be more in keeping with
administrative due process that the conduct of a hearing be the general rule rather than
the exception.
• To reiterate, due process is a malleable concept anchored on fairness and equity.
The due process requirement before administrative bodies are not as strict compared to
judicial tribunals in that it suffices that a party is given a reasonable opportunity to be
heard. Nevertheless, such "reasonable opportunity" should not be confined to the mere
submission of position papers and/or affidavits and the parties must be given the
opportunity to examine the witnesses against them. The right to a hearing is a right which
may be invoked by the parties to thresh out substantial factual issues. It becomes even
more imperative when the rules itself of the administrative body provides for one. While
the absence of a formal hearing does not necessarily result in the deprivation of due
process, it should be acceptable only when the party does not invoke the said right or
waives the same. 85(Emphasis supplied)
• In Saunar, this Court held that the petitioner in that case was denied due process when he
was not notified of the clarificatory hearings conducted by the Presidential Anti-Graft
Commission. Under the Presidential Anti-Graft Commission's Rules, in the event that a
clarificatory hearing was determined to be necessary, the Presidential Anti-Graft
Commission must notify the parties of the clarificatory hearings. Further, "the parties shall
be afforded the opportunity to be present in the hearings without the right to examine
witnesses. They, however, may ask questions and elicit answers from the opposing party
coursed through the [Presidential Anti-Graft Commission]."86 This Court held that the
petitioner in Saunar was not treated fairly in the proceedings before the Presidential Anti-
Graft Commission because he was deprived of the opportunity to be present in the
clarificatory hearings and was denied the chance to propound questions through the
Presidential Anti-Graft Commission against the opposing parties.
• "[A] fair and reasonable opportunity to explain one's side"87 is one aspect of due process.
Another aspect is the due consideration given by the decision-maker to the arguments and
evidence submitted by the affected party.
• Baguio Country Club Corp. v. National Labor Relations Commission88 precisely involved the
question of the denial of due process for failure of the labor tribunals to consider the
evidence presented by the employer. The labor tribunals unanimously denied the
employer's application for clearance to terminate the services of an employee on the
ground of insufficient evidence to show a just cause for the employee's dismissal, and
ordered the reinstatement of the employee with backwages.
 • This Court held that "[t]he summary procedures used by the [labor tribunals] were too
summary to satisfy the requirements of justice and fair play."89 It noted the irregular
procedures adopted by the Labor Arbiter. First, "[he] allowed a last minute position paper
of [the] respondent ... to be filed and without requiring a copy to be served upon the
Baguio Country Club and without affording the latter an opportunity to refute or rebut the
contents of the paper, [and] forthwith decided the case."90 Second, "the petitioner
specifically stressed to the arbiter that it was 'adopting the investigations which were
enclosed with the application to terminate, which are now parts of the record of the
Ministry of Labor, as part and parcel of this position paper."'91 But the Labor Arbiter,
instead of calling for the complete records of the conciliation proceedings, "denied the
application for clearance on the ground that all that was before it was a position paper with
mere quotations about an investigation conducted . . ." This Court held that the affirmance
by the Commission of the decision of the Labor Arbiter was a denial of the elementary
principle of fair play.
• [I]t was a denial of elementary principles of fair play for the Commission not to have
ordered the elevation of the entire records of the case with the affidavits earlier submitted
as part of the position paper but completely ignored by the labor arbiter. Or at the very
least, the case should have been remanded to the labor arbiter consonant with the
requirements of administrative due process.
• The ever increasing scope of administrative jurisdiction and the statutory grant of
expansive powers in the exercise of discretion by administrative agencies illustrate our
nation's faith in the administrative process as an efficient and effective mode of public
control over sensitive areas of private activity. Because of the specific constitutional
mandates on social justice and protection to labor, and the fact that major labor¬
management controversies are highly intricate and complex, the legislature and executive
have reposed uncommon reliance upon what they believe is the expertise, the rational and
efficient modes of ascertaining facts, and the unbiased and discerning adjudicative
techniques of the Ministry of Labor and Employment and its instrumentalities.
• The instant petition is a timely reminder to labor arbiters and all who wield quasi-judicial
power to ever bear in mind that evidence is the means, sanctioned by rules, of ascertaining
in a judicial or quasi-judicial proceeding, the truth respecting a matter of fact ... The object
of evidence is to establish the truth by the use of perceptive and reasoning faculties . . .
The statutory grant of power to use summary procedures should heighten a concern for
due process, for judicial perspectives in administrative decision making, and for
maintaining the visions which led to the creation of the administrative office.9
• In Alliance for the Family Foundation, Philippines, Inc. v. Garin, this Court held that
the Food and Drug Administration failed to observe the basic requirements of due process
when it did not act on or address the oppositions submitted by petitioner Alliance for the
Family Foundation, Philippines, Inc., but proceeded with the registration, recertification,
and distribution of the questioned contraceptive drugs and devices. It ruled that petitioner
was not afforded the genuine opportunity to be heard.
• Administrative due process is anchored on fairness and equity in procedure. It is
satisfied if the party is properly notified of the charge against it and is given a fair and
reasonable opportunity to explain or defend itself.96 Moreover, it demands that the party's
defenses be considered by the administrative body in making its conclusions, and that the
party be sufficiently informed of the reasons for its conclusions.

REVENUE REGULATIONS NO. 18-2013 issued on November 28, 2013 amends certain sections of Revenue Regulations
(RR) No. 12-99 relative to the due process requirement in the issuance of a deficiency tax assessment.
Section 3 of RR No. 12-99 was amended by deleting Section 3.1.1 thereof, which provides for the preparation of a Notice
of Informal Conference, thereby renumbering other provisions thereof, and prescribing other provisions for the assessment
of tax liabilities.

• If after review and evaluation by the Commissioner or his duly authorized representative, as the case may be, it is
 determined that there exists sufficient basis to assess the taxpayer for any deficiency tax or taxes, the said office
shall issue to the taxpayer a Preliminary Assessment Notice (PAN) for the proposed assessment. It shall show in
detail the facts and the law, rules and regulations, or jurisprudence on which the proposed assessment is based.
• If the taxpayer fails to respond within 15 days from date of receipt of the PAN, he shall be considered in default,
in which case, a Formal Letter of Demand and Final Assessment Notice (FLD/FAN) shall be issued calling for
payment of the taxpayer's deficiency tax liability, inclusive of the applicable penalties.
• If the taxpayer, within 15 days from date of receipt of the PAN, responds that he/it disagrees with the findings of
deficiency tax or taxes, an FLD/FAN shall be issued within 15 days from filing/submission of the taxpayer‘s
response, calling for payment of the taxpayer's deficiency tax liability, inclusive of the applicable penalties.
• Pursuant to Section 228 of the Tax Code, as amended, a PAN shall not be required in any of the following cases:

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

• In the above-cited cases, a FLD/FAN shall be issued outright by the Commissioner or his duly authorized
representative. The FLD/FAN calling for payment of the taxpayer's deficiency tax or taxes shall state the facts, the
law, rules and regulations, or jurisprudence on which the assessment is based; otherwise, the assessment shall
be void.
• The taxpayer or its authorized representative or tax agent may protest administratively against the aforesaid
FLD/FAN within 30 days from date of receipt thereof. The taxpayer protesting an assessment may file a written
request for reconsideration or reinvestigation, which was defined in the Regulations.
• The taxpayer shall state in his protest (i) the nature of protest, whether reconsideration or reinvestigation,
specifying newly discovered or additional evidence he intends to present if it is a request for reinvestigation; (ii)
date of the assessment notice; and (iii) the applicable law, rules and regulations, or jurisprudence on which his
protest is based; otherwise, his protest shall be considered void and without force and effect.
• If there are several issues involved in the FLD/FAN but the taxpayer only disputes or protests against the validity
of some of the issues raised, the assessment attributable to the undisputed issue or issues shall become final,
executory and demandable The taxpayer shall then be required to pay the deficiency tax or taxes attributable
thereto, in which case, a collection letter shall be issued to the taxpayer calling for payment of the said deficiency
tax or taxes, inclusive of the applicable surcharge and/or interest. If there are several issues involved in the
disputed assessment and the taxpayer fails to state the facts, the applicable law, rules and regulations, or
jurisprudence in support of his protest against some of the several issues on which the assessment is based, the
same shall be considered undisputed issue or issues, in which case, the assessment attributable thereto shall
become final, executory and demandable. The taxpayer shall then be required to pay the deficiency tax or taxes
attributable thereto and a collection letter shall be issued to the taxpayer calling for payment of the said
deficiency tax, inclusive of the applicable surcharge and/or interest.
• For requests for reinvestigation, the taxpayer shall submit all relevant supporting documents in support of his
protest within 60 days from date of filing of his letter of protest, otherwise, the assessment shall become final.
The 60-day period for the submission of all relevant supporting documents shall not apply to requests for
reconsideration. The term ―the assessment shall become final‖ shall mean the taxpayer is barred from disputing
the correctness of the issued assessment by introduction of newly discovered or additional evidence, and the
FDDA shall consequently be denied.
• If the taxpayer fails to file a valid protest against the FLD/FAN within 30 days from date of receipt thereof, the
assessment shall become final, executory and demandable. No request for reconsideration or reinvestigation shall
be granted on tax assessments that have already become final, executory and demandable.
• If the protest is denied, in whole or in part, by the Commissioner‘s duly authorized representative, the taxpayer
may either: (i) appeal to the Court of Tax Appeals (CTA) within 30 days from date of receipt of the said decision;
or (ii) elevate his protest through request for reconsideration to the Commissioner within 30 days from date of
receipt of the said decision. No request for reinvestigation shall be allowed in administrative appeal and only
issues raised in the decision of the Commissioner‘s duly authorized representative shall be entertained by the
Commissioner.
• If the protest is not acted upon by the Commissioner‘s duly authorized representative within 180 days counted
from the date of filing of the protest in case of a request reconsideration; or from date of submission by the
taxpayer of the required documents within 60 days from the date of filing of the protest in case of a request for
reinvestigation, the taxpayer may either: (i) appeal to the CTA within 30 days after the expiration of the 180-day
period; or (ii) await the final decision of the Commissioner‘s duly authorized representative on the disputed
assessment.
• If the protest or administrative appeal, as the case may be, is denied, in whole or in part, by the Commissioner,
the taxpayer may appeal to the CTA within 30 days from date of receipt of the said decision. Otherwise, the
assessment shall become final, executory and demandable. A motion for reconsideration of the Commissioner‘s
 denial of the protest or administrative appeal, as the case may be, shall not toll the 30-day period to appeal to
the CTA.
• If the protest or administrative appeal is not acted upon by the Commissioner within 180 days counted from the
date of filing of the protest, the taxpayer may either: (i) appeal to the CTA within 30 days from after the
expiration of the 180-day period; or (ii) await the final decision of the Commissioner on the disputed assessment
and appeal such final decision to the CTA 30 days after the receipt of a copy of such decision.
• It must be emphasized, however, that in case of inaction on protested assessment within the 180-day period, the
option of the taxpayer to either: (1) file a petition for review with the CTA within 30 days after the expiration of
the 180-day period; or (2) await the final decision of the Commissioner or his duly authorized representative on
the disputed assessment and appeal such final decision to the CTA within 30 days after the receipt of a copy of
such decision, are mutually exclusive and the resort to one bars the application of the other.
• The decision of the Commissioner or his duly authorized representative shall state the (i) facts, the applicable law,
rules and regulations, or jurisprudence on which such decision is based; otherwise, the decision shall be void, and
(ii) that the same is his final decision.
• The notice (PAN/FLD/FAN/FDDA) to the taxpayer herein required may be served by the Commissioner or his duly
authorized representative through several modes specified in the Regulations.
• Section 5 of RR No. 12-99 was amended by modifying Section 5.5 thereof which provides for modes of
procedures in computing for the tax and/or applicable surcharge. In cases of late payment of a deficiency tax
assessed, the taxpayer shall be liable for the delinquency interest provided under Section 249 (C)(3) of the 1997
National Internal Revenue Code, as amended. Section 5.5 of RR No. 12-99 shall now read as follows:
• ―5.5 Late payment of a deficiency tax assessed. – In general, the deficiency tax assessed shall be paid by
the taxpayer within the time prescribed in the notice and demand, otherwise, such taxpayer shall be liable for the
delinquency interest incident to late payment.‖ .
 BANK OF THE PHILIPPINE ISLANDS, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
G.R. No. 139736. October 17, 2005.

DOCTRINE:
1. The BIR has three years, counted from the date of actual filing of the return or from the
last date prescribed by law for the filing of such return, whichever comes later, to assess a
national internal revenue tax or to begin a court proceeding for the collection thereof
without an assessment. In case of a false or fraudulent return with intent to evade tax or
the failure to file any return at all, the prescriptive period for assessment of the tax due
shall be 10 years from discovery by the BIR of the falsity, fraud, or omission. When the BIR
validly issues an assessment, within either the three-year or ten-year period, whichever is
appropriate, then the BIR has another three years after the assessment within which to
collect the national internal revenue tax due thereon by distraint, levy, and/or court
proceeding. The assessment of the tax is deemed made and 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 to the taxpayer.
2. Under Section 223(c) of the Tax Code of 1977, as amended, it is not essential that the
Warrant of Distraint and/or Levy be fully executed so that it can suspend the running of the
statute of limitations on the collection of the tax. It is enough that the proceedings have
validly began or commenced and that their execution has not been suspended by reason of
the voluntary desistance of the respondent BIR Commissioner. Existing jurisprudence
establishes that distraint and levy proceedings are validly begun or commenced by the
issuance of the Warrant and service thereof on the taxpayer. It is only logical to require
that the Warrant of Distraint and/or Levy be, at the very least, served upon the taxpayer in
order to suspend the running of the prescriptive period for collection of an assessed tax,
because it may only be upon the service of the Warrant that the taxpayer is informed of
the denial by the BIR of any pending protest of the said taxpayer, and the resolute
intention of the BIR to collect the tax assessed.
3. Though the statute of limitations on assessment and collection of national internal revenue
taxes benefits both the Government and the taxpayer, it principally intends to afford
protection to the taxpayer against unreasonable investigation. The indefinite extension of
the period for assessment is unreasonable because it deprives the said taxpayer of the
assurance that he will no longer be subjected to further investigation for taxes after the
expiration of a reasonable period of time.
4. A valid waiver of the statute of limitations under paragraphs (b) and (d) of Section 223 of
the Tax Code of 1977, as amended, must be: (1) in writing; (2) agreed to by both the
Commissioner and the taxpayer; (3) before the expiration of the ordinary prescriptive
periods for assessment and collection; and (4) for a definite period beyond the ordinary
prescriptive periods for assessment and collection. The period agreed upon can still be
extended by subsequent written agreement, provided that it is executed prior to the
expiration of the first period agreed upon. The BIR had issued Revenue Memorandum
Order (RMO) No. 20-90 on 04 April 1990 to lay down an even more detailed procedure for
the proper execution of such a waiver. RMO No. 20-90 mandates that the procedure for
execution of the waiver shall be strictly followed, and any revenue official who fails to
comply therewith resulting in the prescription of the right to assess and collect shall be
administratively dealt with.
5. The burden of proof that the taxpayer’s request for reinvestigation had been actually
granted shall be on respondent BIR Commissioner. The grant may be expressed in
communications with the taxpayer or implied from the actions of the respondent BIR
Commissioner or his authorized BIR representatives in response to the request for
reinvestigation.
FACTS:
• Petitioner BPI is a commercial banking corporation organized and existing under the laws
of the Philippines. On two separate occasions, particularly on 06 June 1985 and 14 June
1985, it sold United States (US) $500,000.00 to the Central Bank of the Philippines
(Central Bank), for the total sales amount of US$1,000,000.00.
• On 10 October 1989, the Bureau of Internal Revenue (BIR) issued Assessment No. FAS-5-
85-89-002054,3 finding petitioner BPI liable for deficiency DST on its afore-mentioned
sales of foreign bills of exchange to the Central Bank.
• Petitioner BPI received the Assessment, together with the attached Assessment Notice,4 on
20 October 1989.
• Petitioner BPI, through its counsel, protested the Assessment in a letter dated 16
November 1989, and filed with the BIR on 17 November 1989.
• PROTEST:
• 1. Under established market practice, the documentary stamp tax on telegraphic transfers
or sales of foreign exchange is paid by the buyer. Thus, when BPI sells to any party, the
cost of documentary stamp tax is added to the total price or charge to the buyer and the
seller affixes the corresponding documentary stamp on the document. Similarly, when the
Central Bank sells foreign exchange to BPI, it charges BPI for the cost of the documentary
stamp on the transaction.
• 2. In the two transactions subject of your assessment, no documentary stamps were
affixed because the buyer, Central Bank of the Philippines, was exempt from such tax. And
while it is true that under P.D. 1994, a proviso was added to sec. 222 (now sec. 186) of the
Tax Code “that whenever one party to a taxable document enjoys exemption from the tax
herein imposed, the other party thereto who is not exempt shall be the one directly liable
for the tax,” this proviso (and the other amendments of P.D. 1994) took effect only on
January 1, 1986, according to sec. 49 of P.D. 1994. Hence, the liability for the
documentary stamp tax could not be shifted to the seller.
• Petitioner BPI did not receive any immediate reply to its protest letter. However, on 15
October 1992, the BIR issued a Warrant of Distraint and/or Levy against petitioner BPI for
the assessed deficiency DST for taxable year 1985, in the amount of P27,720.00 (excluding
the compromise penalty of P300.00). It served the Warrant on petitioner BPI only on 23
October 1992.
• Warrant on petitioner BPI only on 23 October 1992.
• Then again, petitioner BPI did not hear from the BIR until 11 September 1997, when its
counsel received a letter, dated 13 August 1997, signed by then BIR Commissioner
Liwayway Vinzons-Chato, denying its “request for reconsideration,” and addressing the
points raised by petitioner BPI in its protest letter.
• Upon receipt of the above-cited letter from the BIR, petitioner BPI proceeded to file a
Petition for Review with the CTA on 10 October 1997; to which respondent BIR
Commissioner, represented by the Office of the Solicitor General, filed an Answer on 08
December 1997.
• Petitioner BPI raised in its Petition for Review before the CTA, in addition to the arguments
presented in its protest letter, dated 16 November 1989, the defense of prescription of the
right of respondent BIR Commissioner to enforce collection of the assessed amount. It
alleged that respondent BIR Commissioner only had three years to collect on Assessment
No. FAS-5-85-89-002054, but she waited for seven years and nine months to deny the
protest.
• In her Answer and subsequent Memorandum, respondent BIR Commissioner merely
reiterated her position, as stated in her letter to petitioner BPI, dated 13 August 1997,
which denied the latter’s protest; and remained silent as to the expiration of the
prescriptive period for collection of the assessed deficiency DST.

CTA (issues):
(1) whether or not the right of respondent BIR Commissioner to collect from petitioner BPI the
 alleged deficiency DST for taxable year 1985 had prescribed; and
(2) whether or not the sales of US$1,000,000.00 on 06 June 1985 and 14 June 1985 by
petitioner BPI to the Central Bank were subject to DST.

CTA (held):

1. NO. In the case of Commissioner of Internal Revenue vs. Wyeth Suaco Laboratories, Inc., G.R.
No. 76281, September 30, 1991, 202 SCRA 125, the Supreme Court laid to rest the first issue. It
categorically ruled that a “protest” is to be treated as request for reinvestigation or
reconsideration and a mere request for reexamination or reinvestigation tolls the prescriptive
period of the Commissioner to collect on an assessment. . .
...
In the case at bar, there being no dispute that petitioner filed its protest on the subject
assessment on November 17, 1989, there can be no conclusion other than that said protest
stopped the running of the prescriptive period of the Commissioner to collect.

2. NO. Referring to its own decision in an earlier case, Consolidated Bank & Trust Co. v. The
Commissioner of Internal Revenue, the CTA reached the conclusion that the sales of foreign
currency by petitioner BPI to the Central Bank in taxable year 1985 were not subject to DST.

From the abovementioned decision of this Court, it can be gleaned that the Central Bank, during
the period June 11, 1984 to March 9, 1987 enjoyed tax exemption privilege, including the
payment of documentary stamp tax (DST) pursuant to Resolution No. 35-85 dated May 3, 1985 of
the Fiscal Incentive Review Board. As such, the Central Bank, as buyer of the foreign currency, is
exempt from paying the documentary stamp tax for the period abovementioned. This Court
further expounded that said tax exemption of the Central Bank was modified beginning January 1,
1986 when Presidential Decree (P.D.) 1994 took effect. Under this decree, the liability for DST on
sales of foreign currency to the Central Bank is shifted to the seller.

Applying the above decision to the case at bar, petitioner cannot be held liable for DST on its 1985
sales of foreign currencies to the Central Bank, as the latter who is the purchaser of the subject
currencies is the one liable thereof. However, since the Central Bank is exempt from all taxes
during 1985 by virtue of Resolution No. 35-85 of the Fiscal Incentive Review Board dated March 3,
1985, neither the petitioner nor the Central Bank is liable for the payment of the documentary
stamp tax for the former’s 1985 sales of foreign currencies to the latter.

In sum, the CTA decided that the statute of limitations for respondent BIR Commissioner to collect
on Assessment No. FAS-5- 85-89-002054 had not yet prescribed; nonetheless, it still ordered the
cancellation of the said Assessment because the sales of foreign currency by petitioner BPI to the
Central Bank in taxable year 1985 were tax-exempt.

CA –
(1) sustained the finding of the CTA on the first issue, that the running of the prescriptive
period for collection on Assessment No. FAS-5-85-89-002054 was suspended when herein
petitioner BPI filed a protest on 17 November 1989 and, therefore, the prescriptive period
for collection on the Assessment had not yet lapsed.
(2) reversed the CTA on the second issue and basically adopted the position of the
respondent BIR Commissioner that the sales of foreign currency by petitioner BPI to the
Central Bank in taxable year 1985 were subject to DST. The Court of Appeals, thus,
ordered the reinstatement of Assessment No. FAS-5-85-89-002054 which required
petitioner BPI to pay the amount of P28,020.00 as deficiency DST for taxable year 1985,
inclusive of the compromise penalty.

ISSUES:
1. W/N the right of respondent BIR Commissioner to collect from petitioner BPI the alleged
 deficiency DST for taxable year 1985 had prescribed.
2. W/N the sales of US$1,000,000.00 on 06 June 1985 and 14 June 1985 by petitioner BPI to
the Central Bank were subject to DST.

HELD:
1. YES. The efforts of respondent Commissioner to collect on Assessment No. FAS-5- 85-89-
002054 were already barred by prescription.

• The BIR has three years, counted from the date of actual filing of the return or from the
last date prescribed by law for the filing of such return, whichever comes later, to assess a
national internal revenue tax or to begin a court proceeding for the collection thereof
without an assessment. In case of a false or fraudulent return with intent to evade tax or
the failure to file any return at all, the prescriptive period for assessment of the tax due
shall be 10 years from discovery by the BIR of the falsity, fraud, or omission. When the BIR
validly issues an assessment, within either the three-year or ten-year period, whichever is
appropriate, then the BIR has another three years after the assessment within which to
collect the national internal revenue tax due thereon by distraint, levy, and/or court
proceeding. The assessment of the tax is deemed made and 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 to the taxpayer.
• Under Section 223(c) of the Tax Code of 1977, as amended, it is not essential that the
Warrant of Distraint and/or Levy be fully executed so that it can suspend the running of the
statute of limitations on the collection of the tax. It is enough that the proceedings have
validly began or commenced and that their execution has not been suspended by reason of
the voluntary desistance of the respondent BIR Commissioner. Existing jurisprudence
establishes that distraint and levy proceedings are validly begun or commenced by the
issuance of the Warrant and service thereof on the taxpayer. It is only logical to require
that the Warrant of Distraint and/or Levy be, at the very least, served upon the taxpayer in
order to suspend the running of the prescriptive period for collection of an assessed tax,
because it may only be upon the service of the Warrant that the taxpayer is informed of
the denial by the BIR of any pending protest of the said taxpayer, and the resolute
intention of the BIR to collect the tax assessed.

2. NO. There is no valid ground for the suspension of the running of the prescriptive period
for collection of the assessed DST under the Tax Code of 1977, as amended.

• Though the statute of limitations on assessment and collection of national internal revenue
taxes benefits both the Government and the taxpayer, it principally intends to afford
protection to the taxpayer against unreasonable investigation. The indefinite extension of
the period for assessment is unreasonable because it deprives the said taxpayer of the
assurance that he will no longer be subjected to further investigation for taxe after the
expiration of a reasonable period of time.
• In order to provide even better protection to the taxpayer against unreasonable
investigation, the Tax Code of 1977, as amended, identifies specifically in Sections 223 and
224 thereof the circumstances when the prescriptive periods for assessing and collecting
taxes could be suspended or interrupted.
• According to paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended,
the prescriptive periods for assessment and collection of national internal revenue taxes,
respectively, could be waived by agreement, to wit—SEC. 223. Exceptions as to period of
limitation of assessment and collection of taxes.—x x x (b) If before the expiration of the
time prescribed in the preceding section for the assessment of the tax, both the
Commissioner and the taxpayer have agreed in writing to its assessment after such time
the tax may be assessed within the period agreed upon. The period so agreed upon may
be extended by subsequent written agreement made before the expiration of the period
previously agreed upon. . . . (d) Any internal revenue tax which has been assessed within
 the period agreed upon as provided in paragraph (b) hereinabove may be collected by
distraint or levy or by a proceeding in court within the period agreed upon in writing before
the expiration of the three-year period. The period so agreed upon may be extended by
subsequent written agreements made before the expiration of the period previously agreed
upon. The agreements so described in the afore-quoted provisions are often referred to as
waivers of the statute of limitations. The waiver of the statute of limitations, whether on
assessment or collection, should not be construed as a waiver of the right to invoke the
defense of prescription but, rather, an agreement between the taxpayer and the BIR to
extend the period to a date certain, within which the latter could still assess or collect taxes
due. The waiver does not mean that the taxpayer relinquishes the right to invoke
prescription unequivocally.
• A valid waiver of the statute of limitations under paragraphs (b) and (d) of Section 223 of
the Tax Code of 1977, as amended, must be: (1) in writing; (2) agreed to by both the
Commissioner and the taxpayer; (3) before the expiration of the ordinary prescriptive
periods for assessment and collection; and (4) for a definite period beyond the ordinary
prescriptive periods for assessment and collection. The period agreed upon can still be
extended by subsequent written agreement, provided that it is executed prior to the
expiration of the first period agreed upon. The BIR had issued Revenue Memorandum
Order (RMO) No. 20-90 on 04 April 1990 to lay down an even more detailed procedure for
the proper execution of such a waiver. RMO No. 20-90 mandates that the procedure for
execution of the waiver shall be strictly followed, and any revenue official who fails to
comply therewith resulting in the prescription of the right to assess and collect shall be
administratively dealt with.
• This Court had consistently ruled in a number of cases that a request for reconsideration or
reinvestigation by the taxpayer, without a valid waiver of the prescriptive periods for the
assessment and collection of tax, as required by the Tax Code and implementing rules, will
not suspend the running thereof.
• The Tax Code of 1977, as amended, also recognizes instances when the running of the
statute of limitations on the assessment and collection of national internal revenue taxes
could be suspended, even in the absence of a waiver, under Section 224 thereof, which
reads—

SEC. 224. Suspension of running of statute.—

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

• With the issuance of RR No. 12-85 on 27 November 1985 providing the above-quoted
distinctions between a request for reconsideration and a request for reinvestigation, the
two types of protest can no longer be used interchangeably and their differences so lightly
brushed aside. It bears to emphasize that under Section 224 of the Tax Code of 1977, as
amended, the running of the prescriptive period for collection of taxes can only be
suspended by a request for reinvestigation, not a request for reconsideration. Undoubtedly,
a reinvestigation, which entails the reception and evaluation of additional evidence, will
take more time than a reconsideration of a tax assessment, which will be limited to the
evidence already at hand; this justifies why the former can suspend the running of the
 statute of limitations on collection of the assessed tax, while the latter can not.
• That the BIR Commissioner must first grant the request for reinvestigation as a
requirement for suspension of the statute of limitations is even supported by existing
jurisprudence. In the case of Republic of the Philippines v. Gancayco, taxpayer Gancayco
requested for a thorough reinvestigation of the assessment against him and placed at the
disposal of the Collector of Internal Revenue all the evidences he had for such purpose;
yet, the Collector ignored the request, and the records and documents were not at all
examined. Considering the given facts, this Court pronounced that—. . . The act of
requesting a reinvestigation alone does not suspend the period. The request should first be
granted, in order to effect suspension. (Collector vs. Suyoc Consolidated, supra; also
Republic vs. Ablaza, supra). Moreover, the Collector gave appellee until April 1, 1949,
within which to submit his evidence, which the latter did one day before. There were no
impediments on the part of the Collector to file the collection case from April 1, 1949. . . .
• The burden of proof that the taxpayer’s request for reinvestigation had been actually
granted shall be on respondent BIR Commissioner. The grant may be expressed in
communications with the taxpayer or implied from the actions of the respondent BIR
Commissioner or his authorized BIR representatives in response to the request for
reinvestigation.
• As had been previously discussed herein, the statute of limitations on assessment and
collection of national internal revenue taxes may be suspended if the taxpayer executes a
valid waiver thereof, as provided in paragraphs (b) and (d) of Section 223 of the Tax Code
of 1977, as amended; and in specific instances enumerated in Section 224 of the same
Code, which include a request for reinvestigation granted by the BIR Commissioner.
Outside of these statutory provisions, however, this Court also recognized one other
exception to the statute of limitations on collection of taxes in the case of Collector of
Internal Revenue v. Suyoc Consolidated Mining Co. x x x In the Suyoc case, this Court
expressly conceded that a mere request for reconsideration or reinvestigation of an
assessment may not suspend the running of the statute of limitations. It affirmed the need
for a waiver of the prescriptive period in order to effect suspension thereof. However, even
without such waiver, the taxpayer may be estopped from raising the defense of prescription
because by his repeated requests or positive acts, he had induced Government authorities
to delay collection of the assessed tax.
• The Wyeth Suaco case cannot be in conflict with the Suyoc case because there are
substantial differences in the factual backgrounds of the two cases. The Suyoc case refers
to a situation where there were repeated requests or positive acts performed by the
taxpayer that convinced the BIR to delay collection of the assessed tax. This Court
pronounced therein that the repeated requests or positive acts of the taxpayer prevented
or estoppedit from setting up the defense of prescription against the Government when the
latter attempted to collect the assessed tax. In the Wyeth Suaco case, taxpayer Wyeth
Suaco filed a request for reinvestigation, which was apparently granted by the BIR and,
consequently, the prescriptive period was indeed suspended as provided under Section 224
of the Tax Code of 1977, as amended.
• WHEREFORE, based on the foregoing, the instant Petition is GRANTED. The Decision of the
Court of Appeals in CA-G.R. SP No. 51271, dated 11 August 1999, which reinstated
Assessment No. FAS-5-85-89-002054 requiring petitioner BPI to pay the amount of
P28,020.00 as deficiency documentary stamp tax for the taxable year 1985, inclusive of
the compromise penalty, is REVERSED and SET ASIDE. Assessment No. FAS-5-85-89-
002054 is hereby ordered CANCELED. SO ORDERED.
 COMM’R OF INTERNAL REVENUE v. FIRST EXPRESS PAWNSHOP COMPANY, INC.
G.R. Nos. 172045-46, June 16, 2009, First Division, CARPIO, J.:

FACTS:
• Respondent First Express Pawnshop (FEP) received the assessment notices from the CIR. It
filed its written protest on the above assessments. Since petitioner did not act on the
protest during the 180-day period, respondent filed a petition before the CTA. Respondent
FEP (a) contended that petitioner CIR did not consider the supporting documents on the
interest expenses and donations which resulted in the deficiency income tax; (b)
maintained that pawnshops are not lending investors whose services are subject to VAT,
hence it was not liable for deficiency VAT; (c) alleged that no deficiency DST was due
because Section 180 of the National Internal Revenue Code (Tax Code) does not cover any
document or transaction which relates to respondent; and, (d) argued that the issuance of
a pawn ticket did not constitute a pledge under Section 195 of the Tax Code.
• The CTA affirmed respondent FEP‘s liability to pay the VAT and ordered it to pay DST on its
pawnshop tickets but held that it‘s deposit on subscription was not subject to DST.

ISSUE: Whether or not the assessment has become final, executory and demandable, hence,
unappealable for failure of respondent First Express Pawnshop to file all relevant supporting
documents?

HELD:
• No. Such assessment may be protested administratively by filing a request for
reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in
such form and manner as may be prescribed by implementing rules and regulations. Within
sixty (60) days from filing of the protest, all relevant supporting documents shall have
been submitted; otherwise, the assessment shall become final.
• If the protest is denied in whole or in part, or is not acted upon within one hundred eighty
(180) days from submission of documents, the taxpayer adversely affected by the decision
or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of
the said decision, or from the lapse of the one hundred eighty (180)-day period; otherwise,
the decision shall become final, executory and demandable.
• Section 228 of the Tax Code 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. Within 60 days from filing of the protest, all relevant supporting documents shall
have been submitted; otherwise, the assessment shall become final.
• Within 60 days from the filing of protest or until 2 April 2002, respondent should submit
relevant supporting documents. Respondent, having submitted the supporting documents
together with its protest, did not present additional documents anymore.
• It cannot be said that respondent failed to submit relevant supporting documents that
would render the assessment final because when respondent submitted its protest,
respondent attached the GIS and Balance Sheet. Further, petitioner cannot insist on the
submission of proof of DST payment because such document does not exist as respondent
claims that it is not liable to pay, and has not paid, the DST on the deposit on subscription.
• The term "relevant supporting documents" should be understood as those documents
necessary to support the legal basis in disputing a tax assessment as determined by the
taxpayer. The BIR can only inform the taxpayer to submit additional documents. The BIR
cannot demand what type of supporting documents should be submitted. Otherwise, a
taxpayer will be at the mercy of the BIR, which may require the production of documents
that a taxpayer cannot submit.
• After respondent submitted its letter-reply stating that it could not comply with the
presentation of the proof of DST payment, no reply was received from petitioner.
• Section 228 states that if the protest is not acted upon within 180 days from submission of
documents, the taxpayer adversely affected by the inaction may appeal to the CTA within
 30 days from the lapse of the 180-day period. Respondent, having submitted its supporting
documents on the same day the protest was filed, had until 31 July 2002 to wait for
petitioner‘s reply to its protest. On 28 August 2002 or within 30 days after the lapse of the
180-day period counted from the filing of the protest as the supporting documents were
simultaneously filed, respondent filed a petition before the CTA.
• Respondent has complied with the requisites in disputing an assessment pursuant to
Section 228 of the Tax Code. Hence, the tax assessment cannot be considered as final,
executory and demandable. Further, respondent‘s deposit on subscription is not subject to
the payment of DST. Consequently, respondent is not liable to pay the deficiency DST of
₱12,328.45.

COMMISSIONER OF INTERNAL REVENUE v. LIQUIGAZ PHILIPPINES CORPORATION

G.R. No. 215534
LIQUIGAZ PHILIPPINES CORPORATION v. COMMISSIONER OF INTERNAL REVENUE
G.R. NO. 215557, April 18, 2016, MENDOZA, J.

TOPIC: Final Decision on a Disputed Assessment (FDDA)

DOCTRINE: The use of the word "shall" in Section 228 of the NIRC and in RR No. 12-99 indicates
that the requirement of informing the taxpayer of the legal and factual bases of the assessment
and the decision made against him is mandatory.The requirement of providing the taxpayer with
written notice of the factual and legal bases applies both to the FLD/FAN and the FDDA.
Section 228 of the NIRC should not be read restrictively as to limit the written notice'only to the
assessment itself. As implemented by RR No. 12-99, the written notice requirement for both the
FLD and the FAN is in observance of due process—to afford the taxpayer adequate opportunity to
file a protest on the assessment and thereafter file an appeal in case of an adverse decision.

FACTS:
• On July 11, 2006, Liquigaz received a copy of Letter of Authority (LOA) No. 00067824,
dated July 4, 2006, issued by the Commissioner of Internal Revenue (CIR), authorizing the
investigation of all internal revenue taxes for taxable year 2005.
• On April 9, 2008, Liquigaz received an undated letter purporting to be a Notice of Informal
Conference (NIC), as well as the detailed computation of its supposed tax liability. On May
28, 2008, it received a copy of the Preliminary Assessment Notice[5] (PAN), dated May 20,
2008, together with the attached details of discrepancies for the calendar year ending
December 31, 2005. Upon investigation, Liquigaz was initially assessed with deficiency
withholding tax liabilities, inclusive of interest, in the aggregate amount of
P23,931,708.72.
• Thereafter, on June 25, 2008, it received a Formal Letter of Demand[7] (FLD)/Formal
Assessment Notice (FAN), together with its attached details of discrepancies, for the
calendar year ending December 31, 2005. The total deficiency withholding tax liabilities,
inclusive of interest, under the FLD was P24,332,347.20.
• Consequently, on July 29, 2010, Liquigaz filed its Petition for Review before the CTA
Division assailing the validity of the FDDA issued by the CIR.
• In its November 22, 2012 Decision, the CTA Division partially granted Liquigaz's petition
cancelling the EWT and FBT assessments but affirmed with modification the WTC
assessment. It ruled that the portion of the FDDA relating to the EWT and the FBT
assessment was void pursuant to Section 228 of the National Internal Revenue Code
(NIRC) of 1997, as implemented by Revenue Regulations (RR) No. 12-99.
• The CTA Division noted that unlike the PAN and the FLD/FAN, the FDDA issued did not
provide the details thereof, hence, Liquigaz had no way of knowing what items were
considered by the CIR in arriving at the deficiency assessments. This was especially true
because the FDDA reflected a different amount from what was stated in the FLD/FAN.Both
 the CIR and Liquigaz moved for reconsideration, but their respective motions were denied
by the CTA Division in its February 20, 2013 Resolution.
• Aggrieved, they filed their respective petitions for review before the CTA En Banc. The CTA
En Banc affirmed the assailed decision of the CTA Division. It reiterated its pronouncement
that the requirement that the taxpayer should be informed in writing of the law and the
facts on which the assessment was made applies to the FDDA— otherwise the assessment
would be void. The CTA En Bane explained that the FDDA determined the final tax liability
of the taxpayer, which may be the subject of an appeal before the CTA.
• The CTA En Banc echoed the findings of the CTA Division that while the FDDA indicated the
legal provisions relied upon for the assessment, the source of the amounts from which the
assessments arose were not shown. It emphasized the need for stating the factual bases
as the FDDA reflected different amounts than that contained in the FLD/FAN.
• Both parties moved for a partial reconsideration of the CTA En Banc Decision, but the latter
denied the motions in its November 26, 2014 Resolution.Not satisfied, both parties filed
their respective petitions for review.
• Liquigaz argues that the FDDA is void as it did not contain the factual bases of the
assessment and merely showed the amounts of its alleged tax liabilities.On the other hand,
the CIR avers that the assessments for EWT and FBT liability should be upheld because the
FDDA must be taken together with the PAN and FAN, where details of the assessments
were attached. Hence, the CIR counters that Liquigaz was fully apprised of not only the
laws, but also the facts on which the assessment was based, which were likewise
evidenced by the fact that it was able to file a protest on the assessment. Further, the CIR
avers that even if the FDDA would be declared void, it should not result in the automatic
abatement of tax liability especially because RR No. 12-99 merely states that a void
decision of the CIR or his representative shall not be considered as a decision on the
assessment.

ISSUE: Whether or not the FDDA is valid.

HELD: No.
• The FDDA is void. Section 228 of the NIRC declares that an assessment is void if the
taxpayer is not notified in writing of the facts and law on which it is made. Again, Section
3.1.4 of RR No. 12-99 requires that the FLD must state the facts and law on which it is
based, otherwise, the FLD/FAN itself shall be void. Meanwhile, Section 3.1.6 of RR No. 12-
99 specifically requires that the decision of the CIR or his duly authorized representative on
a disputed assessment shall state the facts, law and rules and regulations, or jurisprudence
on which the decision is based. Failure to do so would invalidate the FDDA.
• The use of the word "shall" in Section 228 of the NIRC and in RR No. 12-99 indicates that
the requirement of informing the taxpayer of the legal and factual bases of the assessment
and the decision made against him is mandatory.The requirement of providing the taxpayer
with written notice of the factual and legal bases applies both to the FLD/FAN and the
FDDA.
• Section 228 of the NIRC should not be read restrictively as to limit the written notice'only
to the assessment itself. As implemented by RR No. 12-99, the written notice requirement
for both the FLD and the FAN is in observance of due process—to afford the taxpayer
adequate opportunity to file a protest on the assessment and thereafter file an appeal in
case of an adverse decision.
• A VOID FDDA DOES NOT IPSO FACTO RENDER THE ASSESSMENT VOID
• Liquigaz harps that a void FDDA will lead to a void assessment because the FDDA
ultimately determines the final tax liability of a'taxpayer, which may then be appealed
before the CTA. On the other hand, the CIR believes that a void FDDA does not ipso facto
result in the nullification of the assessment.
• In resolving the issue on the effects of a void FDDA, it is necessary to differentiate an
"assessment" from a "decision." In St. Stephen's Association v. Collector of Internal
Revenue,[14] the Court has long recognized that a "decision"- differs from an
 "assessment," to wit:
• In the first place, we believe the respondent court erred in holding that the assessment in
question is the respondent Collector's decision or ruling appealable to it, and that
consequently, the period of thirty days prescribed by section li of Republic Act No. 1125
within which petitioner should have appealed to the respondent court must be counted
from its receipt of said assessment. Where a taxpayer questions an assessment and asks
the Collector to reconsider or cancel the same because he (the taxpayer) believes he is not
liable therefor, the assessment becomes a "disputed assessment" that the Collector must
decide, and the taxpayer can appeal to the Court of Tax Appeals only upon receipt of the
decision of the Collector on the disputed assessment, in accordance with paragraph (1) of
section 7, Republic Act No. 1125, conferring appellate jurisdiction upon the Court of Tax
Appeals to review "decisions of the Collector of Internal Revenue in cases involving
disputed assessment..."
• From the foregoing, it is clear that what is appealable to the CTA is the "decision" of the
CIR on disputed assessment and not the assessment itself.
• An assessment becomes a disputed assessment after a taxpayer has filed its protest to the
assessment in the administrative level. Thereafter, the CIR either issues a decision on the
disputed assessment or fails to act on it and is, therefore, considered denied. The taxpayer
may then appeal the decision on the disputed assessment or the inaction of the CIR. As
such, the FDDA is not the only means that the final tax liability of a taxpayer is fixed,
which may then be appealed by the taxpayer. Under the law, inaction on the part of the
CIR may likewise result in the finality of a taxpayer's tax liability as it is deemed a denial of
the protest filed by the latter, which may also be appealed before the CTA.
• Clearly, a decision of the CIR on a disputed assessment differs from the assessment itself.
Hence, the invalidity of one does not necessarily result to the invalidity of the other—unless
the law or regulations otherwise provide.
• Section 228 of the NIRC provides that an assessment shall be void if the taxpayer is not
informed in writing of the law and the facts on which it is based. It is, however, silent with
regards to a decision on a disputed assessment by the CIR which fails to state the law and
facts on which it is based. This void is filled by RR No. 12-99 where it is stated that failure
of the FDDA to reflect the facts and law on which it is based will make the decision void. It,
however, does not extend to the nullification of the entire assessment.
• THE FDDA MUST STATE THE FACTS AND LAW ON WHICH IT IS BASED TO PROVIDE
THE TAXPAYER THE OPPORTUNITY TO FILE AN INTELLIGENT APPEAL
• It is undisputed that the FDDA merely showed Liquigaz' tax liabilities without any details on
the specific transactions which gave rise to its supposed tax deficiencies. While it provided
for the legal bases of the assessment, it fell short of informing Liquigaz of the factual bases
thereof. Thus, the FDDA as regards the EWT and FBT tax deficiency did not comply with
the requirement in Section 3.1.6 of RR No. 12-99, as amended, for failure to inform
Liquigaz of the factual basis thereof.
• The CIR erred in claiming that Liquigaz was informed of the factual bases of the
assessment because the FDDA made reference to the PAN and FAN/FLD, which were
accompanied by details of the alleged discrepancies. The CTA En Banc highlighted that the
amounts in the FAN and the FDDA were different.
• As such, the Court agrees with the tax court that it becomes even more imperative that the
FDDA contain details of the discrepancy. Failure to do so would deprive Liquigaz adequate
opportunity to prepare an intelligent appeal. It would have no way of determining what
were considered by the CIR in the: defenses it had raised in the protest to the FLD.
Further, without the details of the assessment, it would open the possibility that the
reduction of the assessment could have been arbitrarily or capriciously arrived at.
• The Court, however, finds that the CTA erred in concluding that the assessment on EWT
and FBT deficiency was void because the FDDA covering the same was void. The
assessment remains valid notwithstanding the nullity of the FDDA because as discussed
above, the assessment itself differs from a decision on the disputed assessment.
• As established, an FDDA that does not inform the taxpayer in writing of the facts and law
 on which it is based renders the decision void. Therefore, it is as if there was no decision
rendered by the CIR. It is tantamount to a denial by inaction by the CIR, which may still be
appealed before the CTA and the assessment evaluated on the basis of the available
evidence and documents.
• The merits of the EWT and FBT assessment should have been discussed and not merely
brushed aside on account of the void FDDA.
• On the other hand, the Court agrees that the FDDA substantially informed Liquigaz of its
tax liabilities with regard to its WTC assessment. As highlighted by the CTA, the basis for
the assessment was the same for the FLD and the FDDA, where the salaries reflected in
the ITR and the alphalist were compared resulting in a discrepancy of P9,318,255.84. The
change in the amount of assessed deficiency withholding taxes on compensation merely
arose from the modification of the tax rates used— 32% in the FLD and the effective tax
rate of 25.40% in the FDDA. The Court notes it was Liquigaz itself which proposed the rate
of 25.40% as a more appropriate tax rate as it represented the effective tax on
compensation paid for taxable year 2005.[22] As such, Liquigaz was effectively informed in
writing of the factual bases of its assessment for WTC because the basis for the FDDA, with
regards to the WTC, was identical with the FAN— which had a detail of discrepancy
attached to it.
• To recapitulate, a "decision" differs from an "assessment" and failure of the FDDA to state
the facts and law on which it is based renders the decision void—but not necessarily the
assessment. Tax laws may not be extended by implication beyond the clear import of their
language, nor their operation enlarged so as to embrace matters not specifically provided.

LASCONA LAND CO., INC. v. COMMISSIONER OF INTERNAL REVENUE

G.R. No. 171251, March 5, 2012

DOCTRINE: Inaction during the 180 day period/ appeal to CTA – upon the lapse of the 180
reglementary period for the CIR to act, the taxpayer has 2 options, either to appeal the inaction of
the CTA or to await a final decision by the Commissioner. To argue that the proper action for the
taxpayer was to appeal the inaction of the CIR after lapse of 180 days within 30 days thereafter
would be inconsistent with Sec. 228 providing two options for the taxpayer, which is to appeal
inaction or to await final decision.

FACTS:
• On March 27, 1998, the Commissioner of Internal Revenue (CIR) issued Assessment Notice
No. 0000047-93-4075against Lascona Land Co., Inc. (Lascona) informing the latter of its
alleged deficiency income tax for the year 1993 in the amount of ₱753,266.56.
• There was inaction by the CIR beyond the 180 reglementary period, of which Lascona also
failed to act within the 30 days period provided under Section 228 of the NIRC.
• Petitioners contention: that after the lapse of 180 days, it has the option to either: (1)
appeal to the CTA within 30 days from the lapse of the 180-day period; or (2) await the
final decision of the Commissioner on the disputed assessment even beyond the 180-day
period − in which case, the taxpayer may appeal such final decision within 30 days from
the receipt of the said decision. Corollarily, petitioner posits that when the Commissioner
failed to act on its protest within the 180-day period, it had the option to await for the final
decision of the Commissioner on the protest, which it did.
• CIR contention: that in case of the inaction by the Commissioner on the protested
assessment within the 180-day reglementary period, petitioner should have appealed the
inaction to the CTA. Respondent maintains that due to Lascona's failure to file an appeal
with the CTA after the lapse of the 180-day period, the assessment became final and
executory.

ISSUE: Whether the subject 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
One Hundred Eighty (180)-day period pursuant to Section 228 of the NIRC.

HELD:
• The Court held that In arguing that the assessment became final and executory by the sole
reason that petitioner failed to appeal the inaction of the Commissioner within 30 days
after the 180-day reglementary period, respondent, in effect, limited the remedy of
Lascona, as a taxpayer, under Section 228 of the NIRC to just one, that is - to appeal the
inaction of the Commissioner on its protested assessment after the lapse of the 180-day
period. This is incorrect
• Therefore, as in Section 228, when the law provided for the remedy to appeal the inaction
of the CIR, it did not intend to limit it to a single remedy of filing of an appeal after the
lapse of the 180-day prescribed period. Precisely, when a taxpayer protested an
assessment, he naturally expects the CIR to decide either positively or negatively. A
taxpayer cannot be prejudiced if he chooses to wait for the final decision of the CIR on the
protested assessment. More so, because the law and jurisprudence have always
contemplated a scenario where the CIR will decide on the protested assessment.
• 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, either: (1) file a petition
for review with the CTA within 30 days after the expiration of the 180-day period; or (2)
await the final decision of the Commissioner on the disputed assessment and appeal such
final decision to the CTA within 30 days after the receipt of a copy of such decision, these
options are mutually exclusive and resort to one bars the application of the other.
• Finally, the CIR should be reminded that taxpayers cannot be left in quandary by its
inaction on the protested assessment. It is imperative that the taxpayers are informed of
its action in order that the taxpayer should then at least be able to take recourse to the tax
court at the opportune time
• Revenue Regulations 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.

RCBC v. CIR
G.R. No. 168498, April 24, 2007

DOCTRINE:
• The decisions, rulings or inaction of the Commissioner are necessary in order to vest the
Court of Tax Appeals with jurisdiction to entertain the appeal, provided it is filed within 30
days after the receipt of such decision or ruling, or within 30 days after the expiration of
the 180-day period fixed by law for the Commissioner to act on the disputed assessments.
This 30-day period within which to file an appeal is jurisdictional and failure to comply
therewith would bar the appeal and deprive the Court of Tax Appeals of its jurisdiction to
entertain and determine the correctness of the assessments. Such period is not merely
directory but mandatory and it is beyond the power of the courts to extend the same.
• 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. However, these options are mutually exclusive, and resort to one bars the
application of the other.
FACTS:
• Petitioner reiterates its claim that its former counsel‘s failure to file petition for review with
the Court of Tax Appeals within the period (180 days) set by Section 228 of the National
Internal Revenue Code of 1997 (NIRC) was excusable.

ISSUE: Did petitioner timely filed his its Petition for Review before the CTA, thus, CTA had
jurisdiction over the case?

HELD: NO.
• Petitioner‘ 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.

RULE 8
Procedure in Civil Cases
xxxx

SECTION 3. Who May Appeal; Period to File Petition. — (a) A party adversely affected by a
decision, ruling or the inaction of the Commissioner of Internal Revenue on disputed assessments
or claims for refund of internal revenue taxes, or by a decision or ruling of the Commissioner of
Customs, the Secretary of Finance, the Secretary of Trade and Industry, the Secretary of
Agriculture, or a Regional Trial Court in the exercise of its original jurisdiction may appeal to the
Court by petition for review filed within thirty days after receipt of a copy of such decision or
ruling, or expiration of the period fixed by law for the Commissioner of Internal Revenue to act on
the disputed assessments. In case of inaction of the Commissioner of Internal Revenue on claims
for refund of internal revenue taxes erroneously or illegally collected, the taxpayer must file a
petition for review within the two-year period prescribed by law from payment or collection of the
taxes. (n)

• From the foregoing, it is clear that the jurisdiction of the Court of Tax Appeals has been
expanded to include not only decisions or rulings but inaction as well of the Commissioner
of Internal Revenue. The decisions, rulings or inaction of the Commissioner are necessary
in order to vest the Court of Tax Appeals with jurisdiction to entertain the appeal, provided
it is filed within 30 days after the receipt of such decision or ruling, or within 30 days after
the expiration of the 180-day period fixed by law for the Commissioner to act on the
disputed assessments. This 30-day period within which to file an appeal is jurisdictional
and failure to comply therewith would bar the appeal and deprive the Court of Tax Appeals
of its jurisdiction to entertain and determine the correctness of the assessments. Such
period is not merely directory but mandatory and it is beyond the power of the courts to
extend the same.
• 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. However, these options are mutually exclusive, and resort to one bars the
application of the other.
• In the instant case, the Commissioner failed to act on the disputed assessment within 180
days from date of submission of documents. Thus, petitioner opted to file a petition for
review before the Court of Tax Appeals. Unfortunately, the petition for review was filed out
of time, i.e., it was filed more than 30 days after the lapse of the 180-day period.
Consequently, it was dismissed by the Court of Tax Appeals for late filing. Petitioner did not
file a motion for reconsideration or make an appeal; hence, the disputed assessment
 became final, demandable and executory.
• Based on the foregoing, petitioner can not now claim that the disputed assessment is not
yet final as it remained unacted upon by the Commissioner; that it can still await the final
decision of the Commissioner and thereafter appeal the same to the Court of Tax Appeals.
This legal maneuver cannot be countenanced. After availing the first option, i.e., filing a
petition for review which was however filed out of time, petitioner can not successfully
resort to the second option, i.e., awaiting the final decision of the Commissioner and
appealing the same to the Court of Tax Appeals, on the pretext that there is yet no final
decision on the disputed assessment because of the Commissioner‘ s inaction.

PAGCOR v. BIR
GR. NO. 208731, JAN. 27, 2016

DOCTRINE:
• A textual reading of Section 3.1.5 gives a protesting taxpayer like PAGCOR only three
options:

1. If the protest is wholly or partially denied by the CIR or his authorized representative, then the
taxpayer may appeal to the CTA within 30 days from receipt of the whole or partial denial of the
protest.
2. If the protest is wholly or partially denied by the CIR's authorized representative, then the
taxpayer may appeal to the CIR within 30 days from receipt of the whole or partial denial of the
protest.
3. If the CIR or his authorized representative failed to act upon the protest within 180 days from
submission of the required supporting documents, then the taxpayer may appeal to the CTA within
30 days from the lapse of the 180-day period

FACTS:
• PAGCOR provides a car plan for its qualified employees under the 60% of cost is shudder
by it and the remaining 40% is shouldered by the qualified employee. On October 10,
2007, PAGCOR received a post reporting notice from BIR RR6 Manila for VAT, EWT, and
FBT. The VAT and EWT were late on abandoned by the BIR due to the tax exemption of
PAGCOR for the same. Pertinent dates are as follows:
• On January 17, 2008, PAGCOR received a FAN for the payment of the FBT in the amount of
P48,589,507.65.
• On January 24, 2008, PAGCOR protested the said assessment.
• On August 14, 2008, PAGCOR elevated its protest to the CIR due to the inaction of the RD
of RR6 Manila to its protest.
• On September 23, 2008, PAGCR was informed by RR6 Manila that the Legal Division
sustained the assessment for the FBT.
• On November 19, 2008, PAGCOR received a letter from RR6 Manila informing it that its
protest was forwarded to RDO 33 for appropriate action.
• On March 11, 2009, PAGCOR filed a petition for review with the CTA alleging inaction by
the BIR on it protest on the FBT this was raffled to the first division of the CTA.
• The First Division ruled in favor of the BIR. According to the CTA, PAGCOR belatedly
filed its protest. It should have field its protest on or before August 21, 2008, which is the
30th day after the 180-day period after it filed its protest with h BOR on January 24, 2008.
Having filed the same with the CTA on March 11, 2009, the same was filed beyond the
reglementary period.
• On November 23, 2011, PAGCOR filed a petition for review with the CTA enbanc
which affirmed the first division decision. The CTA En Banc ruled that the protest filed
before the RD is a valid protest; hence, it was superfluous for PAGCOR to raise the protest
before the CIR. When PAGCOR filed its administrative protest on 24 January 2008, the CIR
 or her duly authorized representative had 180 days or until 22 July 2008 to act on the
protest. After the expiration of the 180 days, PAGCOR had 30 days or until 21 August 2008
to assail before the CTA the non-determination of its protest.

ISSUE: Whether te CTA was correct in dismissing PAGCOR‘s petiion.

HELD:
• YES.
• The CTA En Bane and 1st Division were correct in dismissing PAGCOR's petition.
• However, as we shall explain below, the dismissal should be on the ground of premature,
rather than late, filing.
• The relevant portions of Section 228 of the NIRC of 1997 provide:

SEC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized
representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his
findings: x x x.
xxxx

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

Such assessment may be protested administratively by filing a request for reconsideration or

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

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

Section 3.1.5 of Revenue Regulations No. 12-99, implementing Section 228 above,
provides:

3.1.5. Disputed Assessment. - The taxpayer or his duly authorized representative may protest
administratively against the aforesaid formal letter of demand and assessment notice within thirty
(30) days from date of receipt thereof, x x x.

• If the taxpayer fails to file a valid protest against the formal letter of demand and
assessment notice within thirty (30) days from date of receipt thereof, the assessment
shall become final, executory and demandable.
• If the protest is denied, in whole or in part, by the Commissioner, the taxpayer may appeal
to the Court of Tax Appeals within thirty (30) days from the date of receipt of the said
decision, otherwise, the assessment shall become final, executory and demandable.
• In general, if the protest is denied, in whole or in part, by the Commissioner or his duly
authorized representative, the taxpayer may appeal to the Court of Tax Appeals within
thirty (30) days from date of receipt of the said decision, otherwise, the assessment shall
become final executory and demandable: Provided, however, that if the taxpayer elevates
his protest to the Commissioner within thirty (30) days from date of receipt of the final
decision of the Commissioner's duly authorized representative, the latter's decision shall
not be considered final, executory and demandable, in which case, the protest shall be
 decided by the Commissioner.
• If the Commissioner or his duly authorized representative fails to act on the taxpayer's
protest within one hundred eighty (180) days from date of submission, by the taxpayer, of
the required documents in support of his protest, the taxpayer may appeal to the Court of
Tax Appeals within thirty (30) days from the lapse of the said 180-day period, otherwise
the assessment shall become final, executory and demandable.
• A textual reading of Section 3.1.5 gives a protesting taxpayer like PAGCOR only three
options:

1. If the protest is wholly or partially denied by the CIR or his authorized representative, then the
taxpayer may appeal to the CTA within 30 days from receipt of the whole or partial denial of the
protest.
2. If the protest is wholly or partially denied by the CIR's authorized representative, then the
taxpayer may appeal to the CIR within 30 days from receipt of the whole or partial denial of the
protest.
3. If the CIR or his authorized representative failed to act upon the protest within 180 days from
submission of the required supporting documents, then the taxpayer may appeal to the CTA within
30 days from the lapse of the 180-day period.

• To further clarify the three options: A whole or partial denial by the CIR's authorized
representative may be appealed to the CIR or the CTA. A whole or partial denial by the CIR
may be appealed to the CTA. The CIR or the CIR's authorized representative's failure to act
may be appealed to the CTA. There is no mention of an appeal to the CIR from the failure
to act by the CIR's authorized representative.
• PAGCOR did not wait for the RD or the CIR's decision on its protest. PAGCOR made
separate and successive filings before the RD and the CIR before it filed its petition with
the CTA.
• In the instant case, PAGCOR failed t0 make use in any of the three periods stated above:
• Under the third option described above, even if we grant leeway to PAGCOR and consider
its unspecified April 2008 submission, PAGCOR still should have waited for the RD's
decision until 27 October 2008, or 180 days from 30 April 2008. PAGCOR then had 30 days
from 27 October 2008, or until 26 November 2008, to file its petition before the CTA.
PAGCOR, however, did not make use of the third option. PAGCOR did not file a petition
before the CTA on or before 26 November 2008.
• Under the second option, PAGCOR ought to have waited for the RD's whole or partial denial
of its protest before it filed an appeal before the CIR. PAGCOR rendered the second option
moot when it formulated its own rule and chose to ignore the clear text of Section 3.1.5.
PAGCOR "elevated an appeal" to the CIR on 13 August 2008 without any decision from the
RD, then filed a petition before the CTA on 11 March 2009. A textual reading of Section
228 and Section 3.1.5 will readily show that neither Section 228 nor Section 3.1.5 provides
for the remedy of an appeal to the CIR in case of the RD's failure to act. The third option
states that the remedy for failure to act by the CIR or his authorized representative is to
file an appeal to the CTA within 30 days after the lapse of 180 days from the submission of
the required supporting documents. PAGCOR clearly failed to do this.
• When PAGCOR filed its petition before the CTA, it is clear that PAGCOR failed to make use
of any of the three options described above. A petition before the CTA may only be made
after a whole or partial denial of the protest by the CIR or the CIR's authorized
representative. When PAGCOR filed its petition before the CTA on 11 March 2009, there
was still no denial of PAGCOR's protest by either the RD or the CIR. Therefore, under the
first option, PAGCOR's petition before the CTA had no cause of action because it was
prematurely filed. The CIR made an unequivocal denial of PAGCOR's protest only on 18
July 2011, when the CIR sought to collect from PAGCOR the amount of P46,589,507.65.
The CIR's denial further puts PAGCOR in a bind, because it can no longer amend its
petition before the CTA.
 FISHWEALTH CANNING CORP. v. CIR
G.R. No.179343, January 21, 2010

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

FACTS:
• The Commissioner of Internal Revenue (respondent), by Letter of Authority dated May 16,
2000, ordered the examination of the internal revenue taxes for the taxable year 1999 of
Fishwealth Canning Corp. (petitioner).
• The investigation disclosed that petitioner was liable in the amount of ₱2,395,826.88
representing income tax, value added tax (VAT), withholding tax deficiencies and other
miscellaneous deficiencies. Petitioner eventually settled these obligations on August 30,
2000. On August 25, 2000, respondent reinvestigated petitioner‘s books of accounts and
other records of internal revenue taxes covering the same period for the purpose of which
it issued a subpoena duces tecum requiring petitioner to submit its records and books of
accounts. Petitioner requested the cancellation of the subpoena on the ground that the
same set of documents had previously been examined.
• As petitioner did not heed the subpoena, respondent thereafter filed a criminal complaint
against petitioner for violation of Sections 5 (c) and 266 of the 1997 Internal Revenue
Code, which complaint was dismissed for insufficiency of evidence. Respondent sent, on
August 6, 2003, petitioner a Final Assessment Notice of income tax and VAT deficiencies
totalling ₱67,597,336.75 for the taxable year 1999, which assessment petitioner contested
by letter of September 23, 2003.
• Respondent thereafter issued a Final Decision on Disputed Assessment dated August 2,
2005, which petitioner received on August 4, 2005, denying its letter of protest, apprising
it of its income tax and VAT liabilities in the amounts of "₱15,396,905.24 and
₱63,688,434.40 [sic], respectively, for the taxable year 1999," and requesting the
immediate payment thereof, "inclusive of penalties incident to delinquency."
• Respondent added that if petitioner disagreed, it may appeal to the Court of Tax Appeals
(CTA) "within thirty (30) days from date of receipt hereof, otherwise our said deficiency
income and value-added taxes assessments shall become final, executory, and
demandable.

ISSUE: Whether or not CTA En Banc erred in holding that the petition it filed before the CTA First
Division as well as that filed before it (CTA En Banc) was filed out of time.

HELD:
• Section 228 of the 1997 Tax Code provides that an assessment may be protested
administratively by filing a request for reconsideration or reinvestigation within thirty (30)
days from receipt of the assessment in such form and manner as may be prescribed by
implementing rules and regulations. Within sixty (60) days from filing of the protest, all
relevant supporting documents shall have been submitted; otherwise, the assessment shall
become final.
• If the protest is denied in whole or in part, or is not acted upon within one hundred eighty
(180) days from submission of documents, the taxpayer adversely affected by the decision
or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of
the said decision, or from the lapse of the one hundred eighty (180)-day period; otherwise,
the decision shall become final, executory and demandable.
• In the case at bar, petitioner‘s administrative protest was denied by Final Decision on
Disputed Assessment dated August 2, 2005 issued by respondent and which petitioner
 received on August 4, 2005. Under the above-quoted Section 228 of the 1997 Tax Code,
petitioner had 30 days to appeal respondent‘s denial of its protest to the CTA.
• Since petitioner received the denial of its administrative protest on August 4, 2005, it had
until September 3, 2005 to file a petition for review before the CTA Division. It filed one,
however, on October 20, 2005, hence, it was filed out of time.
• For a motion for reconsideration of the denial of the administrative protest does not toll the
30-day period to appeal to the CTA. On petitioner‘s final contention that it has a
meritorious case in view of the dismissal of the above-mentioned criminal case filed against
it for violation of the 1997 Internal Revenue Code,19 the same fails. For the criminal
complaint was instituted not to demand payment, but to penalize the taxpayer for violation
of the Tax Code.

ALLIED BANKING CORPORATIONS v. CIR

G.R. No. 175097 , February 5, 2010, Del Castillo, J.

DOCTRINE: The Commissioner of Internal Revenue (CIR) as well as his duly authorized
representative must indicate clearly and unequivocally to the taxpayer whether an action
constitutes a final determination on a disputed assessment. Words must be carefully chosen in
order to avoid any confusion that could adversely affect the rights and interest of the taxpayer.

FACTS:
• In April 30, 2004, the BIR issued a Preliminary Assessment Notice (PAN) to petitioner Allied
Banking Corporation for deficiency Documentary Stamp Tax (DST) in the amount of
₱12,050,595.60 and Gross Receipts Tax (GRT) in the amount of ₱38,995,296.76 on
industry issue for the taxable year 2001. Petitioner received the PAN on May 18, 2004 and
filed a protest against it on May 27, 2004.
• On July 16, 2004, the BIR wrote a Formal Letter of Demand with Assessment Notices to
petitioner, which partly reads as follows: It is requested that the above deficiency tax be
paid immediately upon receipt hereof, inclusive of penalties incident to delinquency. This is
our final decision based on investigation. If you disagree, you may appeal the final decision
within 30 days from receipt hereof, otherwise said deficiency tax assessment shall become
final, executory and demandable.
• Petitioner received the Formal Letter of Demand with Assessment Notices on August 30,
2004. On September 29, 2004, petitioner filed a Petition for Review with the CTA which
was raffled to its First Division.
• Respondent CIR filed his Answer and filed a Motion to Dismiss on the ground that petitioner
failed to file an administrative protest on the Formal Letter of Demand with Assessment
Notices. Petitioner opposed.
• The First Division of the CTA rendered a Resolution granting respondent‘s Motion to
Dismiss. It ruled that it is neither the assessment nor the formal demand letter itself that is
appealable to this Court. It is the decision of the Commissioner of Internal Revenue on the
disputed assessment that can be appealed to this Court. As correctly pointed out by
respondent, a disputed assessment is one wherein the taxpayer or his duly authorized
representative filed an administrative protest against the formal letter of demand and
assessment notice within 30 days from date of receipt thereof. Petitioner failed to file an
administrative protest on the formal letter of demand with the corresponding assessment
notices. Hence, the assessments did not become disputed assessments as subject to the
Court‘s review under RA No. 9282.
• Petitioner appealed the dismissal to the CTA En Banc which found no reversible error in the
Resolutions and denied the Petition for Review. The CTA En Banc declared that it is
absolutely necessary for the taxpayer to file an administrative protest in order for the CTA
 to acquire jurisdiction. It emphasized that an administrative protest is an integral part of
the remedies given to a taxpayer in challenging the legality or validity of an assessment.

ISSUE: Whether petitioner correctly filed its protest.

HELD:
• YES.
• Sec. 228 of the NIRC provides for the procedure for protesting an assessment. It states:
―If the protest is denied in whole or in part, or is not acted upon within 180 days from
submission of documents, the taxpayer adversely affected by the decision or inaction may
appeal to the CTA within 30 days from receipt of the said decision, or from the lapse of the
180-day period; otherwise, the decision shall become final, executory and demandable.‖
• In the instant case, petitioner timely filed a protest after receiving the PAN. In response
thereto, the BIR issued a Formal Letter of Demand with Assessment Notices. Pursuant to
Sec. 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.
• In this case, records show that petitioner disputed the PAN but not the Formal Letter of
Demand with Assessment Notices. Nevertheless, we cannot blame petitioner for not filing a
protest against the Formal Letter of Demand with Assessment Notices 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 Formal Letter of
Demand with Assessment Notices to be a final decision.
• In the Formal Letter of Demand with Assessment Notices, respondent used the word
"appeal" instead of "protest", "reinvestigation", or "reconsideration". Although there was no
direct reference for petitioner to bring the matter directly to the CTA, it cannot be denied
that the word "appeal" under prevailing tax laws refers to the filing of a Petition for Review
with the CTA.
• As aptly pointed out by petitioner, under Section 228 of the NIRC, the terms "protest",
"reinvestigation" and "reconsideration" refer to the administrative remedies a taxpayer
may take before the CIR, while the term "appeal" refers to the remedy available to the
taxpayer before the CTA. Sec. 9 of RA 9282, amending Sec. 11 of RA 1125, likewise uses
the term "appeal" when referring to the action a taxpayer must take when adversely
affected by a decision, ruling, or inaction of the CIR. As we see it then, petitioner in
appealing the Formal Letter of Demand with Assessment Notices to the CTA merely took
the cue from respondent. Besides, any doubt in the interpretation or use of the word
"appeal" in the Formal Letter of Demand with Assessment Notices should be resolved in
favor of petitioner, and not the respondent who caused the confusion.
• To be clear, we are not disregarding the rules of procedure under Section 228 of the NIRC,
as implemented by Sec. 3 of BIR RR No. 12-99. It is the Formal Letter of Demand and
Assessment Notice 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. Collector of Internal Revenue, 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.
• What we are saying in this particular case is that, the Formal Letter of Demand with
Assessment Notices which was not administratively protested by the petitioner can be
considered a final decision of the CIR appealable to the CTA because the words used,
 specifically the words "final decision" and "appeal", taken together led petitioner to believe
that the Formal Letter of Demand with Assessment Notices was in fact the final decision of
the CIR on the letter-protest it filed and that the available remedy was to appeal the same
to the CTA.

REPUBLIC v. HIZON
320 SCRA 574, G.R. No. 130430, December 13, 1999

DOCTRINES:
• Revenue Administrative Order No. 10-95 specifically authorizes the Litigation and
Prosecution Section of the Legal Division of regional district offices to institute the
necessary civil and criminal actions for tax collection. As the complaint filed in this case
was signed by the BIR‘s Chief of Legal Division for Region 4 and verified by the Regional
Director, there was, therefore, compliance with the law.
• Sec. 229 of the Code mandates that a request for reconsideration must be made within
30 days from the taxpayer‘s receipt of the tax deficiency assessment, otherwise the
assessment becomes final, unappealable and, therefore, demandable. The notice of
assessment for respondent‘s tax deficiency was issued by petitioner on July 18, 1986. On
the other hand, respondent made her request for reconsideration thereof only on
November 3, 1992, without stating when she received the notice of tax assessment. She
explained that she was constrained to ask for a reconsideration in order to avoid the
harassment of BIR collectors. In all likelihood, she must have been referring to the distraint
and levy of her properties by petitioner‘s agents which took place on January 12, 1989.
Even assuming that she first learned of the deficiency assessment on this date, her request
for reconsideration was nonetheless filed late since she made it more than 30 days
thereafter. Hence, her request for reconsideration did not suspend the running of the
prescriptive period provided under §223(c). Although the Commissioner acted on her
request by eventually denying it on August 11, 1994, this is of no moment and does not
detract from the fact that the assessment had long become demandable.

FACTS:
• July 18, 1986, the BIR issued to respondent Hizon a deficiency income tax assessment of
P1,113,359.68 covering the fiscal year 1981-1982. Respondent did not contest the
assessment.
• On January 12, 1989 petitioner served warrants of distraint and levy to collect the tax
deficiency. However, for reasons not known, it did not proceed to dispose of the attached
properties. More than three years later, or on November 3, 1992, respondent wrote the BIR
requesting a reconsideration of her tax deficiency assessment. The BIR, in a letter dated
August 11, 1994, denied the request. On January 1, 1997, BIR filed a case with the
Regional Trial Court to collect the tax deficiency. The complaint was signed by the Chief of
the Legal Division, BIR Region 4, and verified by the Bureau's Regional Director in
Pampanga.
• Respondent moved to dismiss the case on two grounds: (1) that the complaint was not
filed upon authority of the BIR Commissioner as required by the National Internal Revenue
Code and (2) that the action for collection had already prescribed for being filed after 3
years from the assessment of tax.
• As for the first ground, Petitioner argued that Revenue Administrative Order No. 10-95
specifically authorizes the Litigation and Prosecution Section of the Legal Division of
regional district offices to institute the necessary civil and criminal actions for tax
collection. As the complaint filed in this case was signed by the BIR's Chief of Legal Division
for Region 4 and verified by the Regional Director, there was, therefore, compliance with
 the law.
• For the second ground, Petitioner argued that, respondent's request for reinvestigation of
her tax deficiency assessment on November 3, 1992 effectively suspended the running of
the period of prescription such that the government could still file a case for tax collection.
It also argued that the running of the prescriptive period under §223(c) was suspended
when the BIR timely served the warrants of distraint and levy on respondent on January
12, 1989. Petitioner cites for this purpose the ruling in Advertising Associates Inc., v. Court
of Appeals. Because of the suspension, it is argued that the BIR could still avail of the other
remedy under §223(c) of filing a case in court for collection of the tax deficiency, as the
BIR in fact did on January 1, 1997.

ISSUES:
1. WHETHER THE INSTITUTION OF THE CIVIL CASE FOR COLLECTION OF TAXES WAS WITHOUT
THE APPROVAL OF THE COMMISSIONER IS IN VIOLATION OF SECTION 221 OF THE NATIONAL
INTERNAL REVENUE CODE.
2. WHETHER THE ACTION FOR COLLECTION OF TAXES FILED AGAINST RESPONDENT HAD
ALREADY BEEN BARRED BY THE STATUTE OF LIMITATIONS.

HELD:
1. NO.
• Administrative issuances that relate solely to carrying into effect the provisions of the law,
are valid and have the force of law. The governing statutory provision in this case is §4(d)
of the NIRC which provides:
• Specific provisions to be contained in regulations. — The regulations of the Bureau of
Internal Revenue shall, among other things, contain provisions specifying, prescribing, or
defining:
• (d) The conditions to be observed by revenue officers, provincial fiscals and other officials
respecting the institution and conduct of legal actions and proceedings.
• RAO Nos. 5-83 and 10-95 are in harmony with this statutory mandate.
• As amended by R.A. No. 8424, the NIRC is now even more categorical. Sec. 7 of the
present Code authorizes the BIR Commissioner to delegate the powers vested in him under
the pertinent provisions of the Code to any subordinate official with the rank equivalent to
a division chief or higher, subject to certain exceptions therein. None of the exceptions
relates to the Commissioner's power to approve the filing of tax collection cases.

2. YES.
• Sec. 229 of the Code mandates that a request for reconsideration must be made within
30 days from the taxpayer's receipt of the tax deficiency assessment, otherwise the
assessment becomes final, unappealable and, therefore, demandable. The notice of
assessment for respondent's tax deficiency was issued by petitioner on July 18, 1986. On
the other hand, respondent made her request for reconsideration thereof only on
November 3, 1992, without stating when she received the notice of tax assessment.
• She explained that she was constrained to ask for a reconsideration in order to avoid the
harassment of BIR collectors. In all likelihood, she must have been referring to the distraint
and levy of her properties by petitioner's agents which took place on January 12, 1989.
Even assuming that she first learned of the deficiency assessment on this date, her request
for reconsideration was nonetheless filed late since she made it more than 30 days
thereafter. Hence, her request for reconsideration did not suspend the running of the
prescriptive period provided under §223(c). Although the Commissioner acted on her
request by eventually denying it on August 11, 1994, this is of no moment and does not
detract from the fact that the assessment had long become demandable.
• Moreover, Petitioner's reliance on the Court's ruling in Advertising Associates Inc. v. Court
of Appeals is misplaced. What the Court stated in that case and, indeed, in the earlier case
 of Palanca v. Commissioner of Internal Revenue, is that the timely service of a warrant of
distraint or levy suspends the running of the period to collect the tax deficiency in the
sense that the disposition of the attached properties might well take time to accomplish,
extending even after the lapse of the statutory period for collection.
• In those cases, the BIR did not file any collection case but merely relied on the summary
remedy of distraint and levy to collect the tax deficiency. The importance of this fact was
not lost on the Court. Thus, in Advertising Associates, it was held: It should be noted that
the Commissioner did not institute any judicial proceeding to collect the tax. He relied on
the warrants of distraint and levy to interrupt the running of the statute of limitations.
• For the foregoing reasons, we hold that petitioner's contention that the action in this case
had not prescribed when filed has no merit. Our holding, however, is without prejudice to
the disposition of the properties covered by the warrants of distraint and levy which
petitioner served on respondent, as such would be a mere continuation of the summary
remedy it had timely begun. Although considerable time has passed since then, as held in
Advertising Associates Inc. v. Court of Appeals and Palanca v. Commissioner of Internal
Revenue, the enforcement of tax collection through summary proceedings may be carried
out beyond the statutory period considering that such remedy was seasonably availed of.

COMMISSIONER OF INTERNAL REVENUE v.

HAMBRECHT & QUIST PHILIPPINES, INC.

Topic: Collection/Remedies of the Government: Summary Remedies/Judicial Collection

FACTS:
• In a letter dated February 15, 1993, respondent informed the Bureau of Internal Revenue
(BIR), through its West-Makati District Office of its change of business address from the
2nd Floor Corinthian Plaza, Paseo de Roxas, Makati City to the 22nd Floor PCIB Tower II,
Makati Avenue corner H.V. De la Costa Streets, Makati City. Said letter was duly received
by the BIR-West Makati on February 18, 1993.
• On November 4, 1993, respondent received a tracer letter or follow-up letter dated
October 11, 1993 issued by the Accounts Receivable/Billing Division of the BIR‘s National
Office and signed by then Assistant Chief Mr. Manuel B. Mina, demanding for payment of
alleged deficiency income and expanded withholding taxes for the taxable year 1989
amounting to ₱2,936,560.87.
• On December 3, 1993, respondent, through its external auditors, filed with the same
Accounts Receivable/Billing Division of the BIR‘s National Office, its protest letter against
the alleged deficiency tax assessments for 1989 as indicated in the said tracer letter dated
October 11, 1993.
• On November 7, 2001, nearly eight (8) years later, respondent‘s external auditors received
a letter from herein petitioner Commissioner of Internal Revenue dated October 27, 2001.
The letter advised the respondent that petitioner had rendered a final decision denying its
protest on the ground that the protest against the disputed tax assessment was allegedly
filed beyond the 30-day reglementary period prescribed in then Section 229 of the National
Internal Revenue Code.
• On December 6, 2001, respondent filed a Petition for Review before the Court of Tax
Appeals.
• The CTA Original Division held that the subject assessment notice sent by registered
mail on January 8, 1993 to respondent‘s former place of business was valid and binding
since respondent only gave formal notice of its change of address on February 18, 1993.
Thus, the assessment had become final and unappealable for failure of respondent to file a
protest within the 30-day period provided by law. However, the CTA (a) held that the CIR
 failed to collect the assessed taxes within the prescriptive period; and (b) directed the
cancellation and withdrawal of the assessment notice.
• Petitioner argues that the CTA had no jurisdiction over the case since the CTA itself had
ruled that the assessment had become final and unappealable. Citing Protector‘s Services,
Inc. v. Court of Appeals, the CIR argued that, after the lapse of the 30-day period to
protest, respondent may no longer dispute the correctness of the assessment and its
appeal to the CTA should be dismissed. The CIR took issue with the CTA‘s pronouncement
that it had jurisdiction to decide "other matters" related to the tax assessment such as the
issue on the right to collect the same since the CIR maintains that when the law says that
the CTA has jurisdiction over "other matters," it presupposes that the tax assessment has
not become final and unappealable.
• Further, CIR insists that its right to collect the tax deficiency it assessed on respondent is
not barred by prescription since the prescriptive period thereof was allegedly suspended by
respondent‘s request for reinvestigation.

ISSUES:
1. WHETHER OR NOT THE COURT OF TAX APPEALS HAS JURISDICTION TO RULE THAT THE
GOVERNMENT‘S RIGHT TO COLLECT THE TAX HAS PRESCRIBED.
2. WHETHER OR NOT THE PERIOD TO COLLECT THE ASSESSMENT HAS PRESCRIBED.

HELD:
1. YES
• The jurisdiction of the CTA is governed by Section 7 of Republic Act No. 1125, as amended,
and the term "other matters" referred to by the CIR in its argument can be found in
number (1) of the aforementioned provision, to wit:
• Section 7. Jurisdiction. - The Court of Tax Appeals shall exercise exclusive appellate
jurisdiction to review by appeal, as herein provided – Decisions of the Commissioner of
Internal Revenue in cases involving disputed assessments, refunds of internal revenue
taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising
under the National Internal Revenue Code or other law as part of law administered by the
Bureau of Internal Revenue.
• Plainly, the assailed CTA En Banc Decision was correct in declaring that there was nothing
in the foregoing provision upon which petitioner‘s theory with regard to the parameters of
the term "other matters" can be supported or even deduced. What is rather clearly
apparent, however, is that the term "other matters" is limited only by the qualifying phrase
that follows it.
• Thus, on the strength of such observation, we have previously ruled that the appellate
jurisdiction of the CTA is not limited to cases which involve decisions of the CIR on matters
relating to assessments or refunds. The second part of the provision covers other cases
that arise out of the National Internal Revenue Code (NIRC) or related laws administered
by the Bureau of Internal Revenue (BIR).
• In the case at bar, the issue at hand is whether or not the BIR‘s right to collect taxes had
already prescribed and that is a subject matter falling under Section 223(c) of the 1986
NIRC, the law applicable at the time the disputed assessment was made. To quote Section
223(c):
• Any internal revenue tax which has been assessed within the period of limitation above-
prescribed may be collected by distraint or levy or by a proceeding in court within three
years following the assessment of the tax.
• In connection therewith, Section 3 of the 1986 NIRC states that the collection of taxes is
one of the duties of the BIR, to wit:
• Sec. 3. Powers and duties of Bureau. - The powers and duties of the Bureau of Internal
Revenue shall comprehend the assessment and collection of all national internal revenue
taxes, fees, and charges and the enforcement of all forfeitures, penalties, and fines
 connected therewith including the execution of judgments in all cases decided in its favor
by the Court of Tax Appeals and the ordinary courts. Said Bureau shall also give effect to
and administer the supervisory and police power conferred to it by this Code or other laws.
• Thus, from the foregoing, the issue of prescription of the BIR‘s right to collect taxes may
be considered as covered by the term "other matters" over which the CTA has appellate
jurisdiction.
• Furthermore, the phraseology of Section 7, number (1), denotes an intent to view the
CTA‘s jurisdiction over disputed assessments and over "other matters" arising under the
NIRC or other laws administered by the BIR as separate and independent of each other.
This runs counter to petitioner‘s theory that the latter is qualified by the status of the
former, i.e., an "other matter" must not be a final and unappealable tax assessment or,
alternatively, must be a disputed assessment.
• Likewise, the first paragraph of Section 11 of Republic Act No. 1125, as amended
by Republic Act No. 9282, belies petitioner‘s assertion as the provision is explicit that,
for as long as a party is adversely affected by any decision, ruling or inaction of petitioner,
said party may file an appeal with the CTA within 30 days from receipt of such decision or
ruling. The wording of the provision does not take into account the CIR‘s restrictive
interpretation as it clearly provides that the mere existence of an adverse decision, ruling
or inaction along with the timely filing of an appeal operates to validate the exercise of
jurisdiction by the CTA.
• To be sure, the fact that an assessment has become final for failure of the taxpayer to file a
protest within the time allowed only means that the validity or correctness of the
assessment may no longer be questioned on appeal. However, the validity of the
assessment itself is a separate and distinct issue from the issue of whether the right of the
CIR to collect the validly assessed tax has prescribed. This issue of prescription, being a
matter provided for by the NIRC, is well within the jurisdiction of the CTA to decide.

2. YES.
• The pertinent provision of the 1986 NIRC is Section 224, to wit:
• Section 224. Suspension of running of statute. – The running of the statute of
limitations provided in Sections 203 and 223 on the making of assessment and the
beginning of distraint or levy or a proceeding in court for collection, in respect of any
deficiency, shall be suspended for the period during which the Commissioner is prohibited
from making the assessment or beginning distraint or levy or a proceeding in court and for
sixty days thereafter; when the taxpayer requests for a re-investigation which is granted
by the Commissioner; when the taxpayer cannot be located in the address given by him in
the return filed upon which a tax is being assessed or collected: Provided, That, if the
taxpayer informs the Commissioner of any change in address, the statute will not be
suspended; when the warrant of distraint and levy is duly served upon the taxpayer, his
authorized representative, or a member of his household with sufficient discretion, and no
property could be located; and when the taxpayer is out of the Philippines.
• The plain and unambiguous wording of the said provision dictates that two requisites must
concur before the period to enforce collection may be suspended: (a) that the taxpayer
requests for reinvestigation, and (b) that petitioner grants such request.
• Consequently, the mere filing of a protest letter which is not granted does not operate to
suspend the running of the period to collect taxes. In the case at bar, the records show
that respondent filed a request for reinvestigation on December 3, 1993, however, there is
no indication that petitioner acted upon respondent‘s protest.
• It is evident that the respondent did not conduct a reinvestigation, the protest having been
dismissed on the ground that the assessment has become final and executory. There is
nothing in the record that would show what action was taken in connection with the protest
of the petitioner. In fact, petitioner did not hear anything from the respondent nor received
any communication from the respondent relative to its protest, not until eight years later
 when the final decision of the Commissioner was issued. In other words, the request for
reinvestigation was not granted.

SPOUSES PACQUIAO v. THE CTA

GR No. 213394 dated April 6, 2016

DOCTRINE: APPEAL WILL NOT SUSPEND THE COLLECTION OF TAX; EXCEPTIONS

FACTS:
• Manny Pacquiao received a Letter of Authority, dated March 25, 2010, from the Regional
District Office (RDO) of the Bureau of Internal Revenue (BIR) for the examination of his
books of accounts and other accounting records for the period covering January 1, 2008 to
December 31, 2008. It was found that Pacquiao failed to file his VAT returns for the years
2008 and 2009. Furthermore, he also failed to state his US sourced income for the year
2009.
• Pursuant to this, the respondent Commissioner on Internal Revenue (CIR) issued another
Letter of Authority, dated July 27, 2010 (July LA), authorizing the BIR‘s National
Investigation Division (NID) to examine the books of accounts and other accounting
records of both Pacquiao and Jinkee for the last 15 years, from 1995 to 2009.
• The spouses countered that they were already subjected to an investigation for the years
prior to 2007 and no fraud has been found. Moreover, they cannot produce the necessary
documents pertaining to those years since it was has already been disposed of and the
previous counsels that handled their cases and documents were already dead. Due to this,
the CIR resorted to the best evidence available like third party information sources.
Consequently, the CIR issued a Notice of Initial Assessment-Informal Conference (NIC)
informing them that based on the best evidence obtainable, they were liable for deficiency
income taxes in. Subsequently, a Preliminary Assessment Notice (PAN) was issued for
deficiency income taxes, but also for their non-payment of their VAT liabilities. This process
continued until the a Final Decision on Disputed Assessment (FDDA) was issued addressed
to Manny only, informing him that the CIR found him liable for deficiency income tax and
VAT for taxable years 2008 and 2009 which, inclusive of interests and surcharges,
amounted to a total of P2,261,217,439.92.
• The CIR proceeded to affect Warrants of Distraint and Levy and Garnishment on the
properties of the petitioners, who in turn, questioned such collection process in the Court
of Tax Appeals.
• Before the CTA in division, the petitioners contended that the assessment of the CIR was
defective because it was predicated on its mere allegation that they were guilty of fraud.
They also questioned the validity of the attempt by the CIR to collect deficiency taxes from
Jinkee, arguing that she was denied due process. According to the petitioners, as all
previous communications and notices from the CIR were addressed to both petitioners, the
FDDA was void because it was only addressed to Pacquiao. They also contended that the
assessment was merely based on the ―best possible sources‖ and not actual transaction
documents. Lastly, they argued that the methods resorted to by the CIR are mere
summary in nature and deprives them of due process.
• The CTA Second Division issued a decision ordering the CIR to desist from
collecting on the deficiency tax assessments against the petitioners. In its
resolution, the CTA noted that the amount sought to be collected was way beyond the
petitioners‘ net worth, which, based on Pacquiao‘s Statement of Assets, Liabilities and Net
Worth (SALN), only amounted to P1,185,984,697.00. Considering that the petitioners still
needed to cover the costs of their daily subsistence, the CTA opined that the collection of
the total amount of P3,298,514,894.35 from the petitioners would be highly prejudicial to
 their interests and should, thus, be suspended pursuant to Section 11 of R.A. No. 1125, as
amended.
• However, it also ordered petitioners to deposit the amount of P3,298,514,894.35 or post a
bond in the amount of P4,947,772,341.53, an amount which is clearly beyond Pacquiao‘s
net worth. This order was then brought to the Supreme Court under Rule 65.

ISSUE: Whether or not CTA may issue injunctive writs to restraints collection of taxes.

HELD:
• Section 11 of R.A. No. 1125, as amended by R.A. No. 9282, embodies the rule that
an appeal to the CTA from the decision of the CIR will not suspend the payment, levy,
distraint, and/or sale of any property of the taxpayer for the satisfaction of his tax liability
as provided by existing law. When, in the view of the CTA, the collection may jeopardize
the interest of the Government and/or the taxpayer, it may suspend the said collection and
require the taxpayer either to deposit the amount claimed or to file a surety bond.
• The application of the exception to the rule is the crux of the subject controversy.
Specifically, Section 11 provides:
• SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. – Any party adversely
affected by a decision, ruling or inaction of the Commissioner of Internal Revenue, the
Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and Industry or
the Secretary of Agriculture or the Central Board of Assessment Appeals or the Regional
Trial Courts may file an appeal with the CTA within thirty (30) days after the receipt of such
decision or ruling or after the expiration of the period fixed by law for action as referred to
in Section 7(a)(2) herein‖. xxx
**No appeal taken to the CTA from the decision of the Commissioner of Internal Revenue
or the Commissioner of Customs or the Regional Trial Court, provincial, city or municipal
treasurer or the Secretary of Finance, the Secretary of Trade and Industry and Secretary of
Agriculture, as the case may be shall suspend the payment, levy, distraint, and/or sale of
any property of the taxpayer for the satisfaction of his tax liability as provided by existing
law:
**Provided, however, That when in the opinion of the Court the collection by the
aforementioned government agencies may jeopardize the interest of the Government
and/or the taxpayer, the Court at any stage of the proceeding may suspend the said
collection and require the taxpayer either to deposit the amount claimed or to file a surety
bond for not more than double the amount with the Court. xxx
• Despite the amendments to the law, the Court still holds that the CTA has ample authority
to issue injunctive writs to restrain the collection of tax and to even dispense with the
deposit of the amount claimed or the filing of the required bond, whenever the method
employed by the CIR in the collection of tax jeopardizes the interests of a taxpayer for
being patently in violation of the law. Such authority emanates from the jurisdiction
conferred to it not only by Section 11 of R.A. No. 1125, but also by Section 7 of the same
law, which, as amended provides:
• SEC. 7. Jurisdiction. - The Court of Tax Appeals shall exercise:
a. Exclusive appellate jurisdiction to review by appeal, as herein provided:
1. Decisions of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed
in relation thereto, or other matters arising under the National Internal Revenue or other
laws administered by the Bureau of Internal Revenue; xxx
• It is clear that the authority of the courts to issue injunctive writs to restrain the collection
of tax and to dispense with the deposit of the amount claimed or the filing of the required
bond is not simply confined to cases where prescription has set in. As explained by the
Court in those cases, whenever it is determined by the courts that the method employed
by the Collector of Internal Revenue in the collection of tax is not sanctioned by law, the
bond requirement under Section 11 of R.A. No. 1125 should be dispensed with. The
 purpose of the rule is not only to prevent jeopardizing the interest of the taxpayer, but
more importantly, to prevent the absurd situation wherein the court would declare “that
the collection by the summary methods of distraint and levy was violative of law, and then,
in the same breath require the petitioner to deposit or file a bond as a prerequisite for the
issuance of a writ of injunction.”

TRIDHARMA MARKETING CORPORATION v. CTA & COMM’R OF INTERNAL REVENUE

G.R. No. 215950, June 20, 2016

DOCTRINES:
• The CTA may order the suspension of the collection of taxes provided that the taxpayer
either: (1) deposits the amount claimed; or (2) files a surety bond for not more than
double the amount.
• It becomes imperative to reiterate the principle that the power to tax is not the power to
destroy. In Philippine Health Care Providers, Inc. v. Commissioner of Internal Revenue, the
Court has stressed that: As a general rule, the power to tax is an incident of sovereignty
and is unlimited in its range, acknowledging in its very nature no limits, so that security
against its abuse is to be found only in the responsibility of the legislature which imposes
the tax on the constituency who is to pay it. So potent indeed is the power that it was once
opined that the power to tax involves the power to destroy.

FACTS:
• On August 16, 2013, the petitioner received a Preliminary Assessment Notice (PAN) from
the Bureau of Internal Revenue (BIR) assessing it with various deficiency taxes - income
tax (IT), value-added tax (VAT), withholding tax on compensation (WTC), expanded
withholding tax (EWT) and documentary stamp tax (DST) - totalling P4,640,394,039.97,
inclusive of surcharge and interest. A substantial portion of the deficiency income tax and
VAT arose from the complete disallowance by the BIR of the petitioner's purchases from
Etheria Trading in 2010 amounting to P4,942,937,053.82. The petitioner replied to the PAN
through its letter dated August 30, 2013.
• On September 23, 2013, the petitioner received from the BIR a Formal Letter of Demand
assessing it with deficiency taxes for the taxable year ending December 31, 2010
amounting to P4,697,696,275.25, inclusive of surcharge and interest. It filed a protest
against the formal letter of demand. Respondent Commissioner of Internal Revenue (CIR)
required the petitioner to submit additional documents in support of its protest, and the
petitioner complied.
• On February 28, 2014, the petitioner received a Final Decision on Disputed Assessment
• The petitioner filed with the CIR a protest through a Request for Reconsideration. However,
the CIR rendered a decision dated May 26, 2014 denying the request for reconsideration.
• Prior to the CIR's decision, the petitioner paid the assessments corresponding to the WTC,
DST and EWT deficiency assessments, inclusive of interest, amounting to P5,836,786.10. It
likewise reiterated its offer to compromise the alleged deficiency assessments on IT and
VAT.
• On June 13, 2014, the petitioner appealed the CIR's decision to the CTA via its so-called
Petition for Review with Motion to Suspend Collection of Tax which was granted.
• The petitioner filed its Motion for Partial Reconsideration praying, among others, for the
reduction of the bond to an amount it could obtain.
• On December 22, 2014, the CTA in Division issued its second assailed resolution reducing
the amount of the petitioner's surety bond to P4,467,391,881.76, which was the equivalent
of the BIR's deficiency assessment for IT and VAT.
 • Hence, the petitioner has commenced this special civil action for certiorari.

ISSUE: W/N or note the CTA may order the suspension of collection of taxes.

HELD:
• YES.
• Section 11 of Republic Act No. 1125 (R.A. No. 1125), as amended by Republic Act
No. 9282 (RA 9282) it is stated that:
• Sec. 11. Who may appeal; effect of appeal. — x x x
xxxx
**No appeal taken to the Court of Tax Appeals from the decision of the Collector of
Internal Revenue or the Collector of Customs shall suspend the payment, levy, distraint,
and/or sale of any property of the taxpayer for the satisfaction of his tax liability as
provided by existing law: Provided, however, That when in the opinion of the Court the
collection by the Bureau of Internal Revenue or the Commissioner of Customs may
jeopardize the interest of the Government and/or the taxpayer the Court at any stage of
the proceeding may suspend the said collection and require the taxpayer either to deposit
the amount claimed or to file a surety bond for not more than double the amount with the
Court.
• Clearly, the CTA may order the suspension of the collection of taxes provided that the
taxpayer either: (1) deposits the amount claimed; or (2) files a surety bond for not more
than double the amount.
• The Court holds, however, that the CTA in Division gravely abused its discretion under
Section 11 because it fixed the amount of the bond at nearly five times the net worth of
the petitioner without conducting a preliminary hearing to ascertain whether there were
grounds to suspend the collection of the deficiency assessment on the ground that such
collection would jeopardize the interests of the taxpayer.
• Although the amount of P4,467,391,881.76 was itself the amount of the assessment, it
behoved the CTA in Division to consider other factors recognized by the law itself towards
suspending the collection of the assessment, like whether or not the assessment would
jeopardize the interest of the taxpayer, or whether the means adopted by the CIR in
determining the liability of the taxpayer was legal and valid. Simply prescribing such high
amount of the bond like the initial 150% of the deficiency assessment of
P4,467,391,881.76 (or P6,701,087,822.64), or later on even reducing the amount of the
bond to equal the deficiency assessment would practically deny to the petitioner the
meaningful opportunity to contest the validity of the assessments, and would likely even
impoverish it as to force it out of business.
• At this juncture, it becomes imperative to reiterate the principle that the power to tax is
not the power to destroy. In Philippine Health Care Providers, Inc. v. Commissioner of
Internal Revenue, the Court has stressed that: As a general rule, the power to tax is an
incident of sovereignty and is unlimited in its range, acknowledging in its very nature no
limits, so that security against its abuse is to be found only in the responsibility of the
legislature which imposes the tax on the constituency who is to pay it. So potent indeed is
the power that it was once opined that the power to tax involves the power to destroy.
 COMMISSIONER OF INTERNAL REVENUE v. SMART COMMUNICATIONS, INC.
G.R. No. 179045-46, August 25, 2010, Del Castillo, J.

DOCTRINE: Sections 204(c) and 229 of the National Internal Revenue Code (NIRC) provide:

• Sec. 204. Authority of the Commissioner to Compromise, Abate, and Refund or

Credit Taxes. – The Commissioner may – (C) Credit or refund taxes erroneously or
illegally received or penalties imposed without authority, refund the value of internal
revenue stamps when they are returned in good condition by the purchaser, and, in his
discretion, redeem or change unused stamps that have been rendered unfit for use and
refund their value upon proof of destruction. No credit or refund of taxes or penalties shall
be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or
refund within two (2) years after the payment of the tax or penalty: Provided, however,
that a return filed showing an overpayment shall be considered as a written claim for credit
or refund.
• Sec. 229. Recovery of Tax Erroneously or Illegally Collected. – No suit or proceeding
shall be maintained in any court for the recovery of any national internal revenue tax
hereafter alleged to have been erroneously or illegally assessed or collected, or of any
penalty claimed to have been collected without authority, or of any sum alleged to have
been excessively or in any manner wrongfully collected, until a claim for refund or credit
has been duly filed with the Commissioner; but such suit or proceeding may be
maintained, whether or not such tax, penalty, or sum has been paid under protest or
duress.
**In any case, no such suit or proceeding shall be filed after the expiration of two (2)
years from the date of payment of the tax or penalty regardless of any supervening cause
that may arise after payment: Provided, however, That the Commissioner may, even
without a written claim therefor, refund or credit any tax, where on the face of the return
upon which payment was made, such payment appears clearly to have been erroneously
paid.

FACTS:
• Smart Communication (Smart for brevity), is a domestic corporation and duly registered
with the Board of Investment.
• Respondent Smart entered into three agreements for Programming and Consultancy
Services with PRISM Transactive, a non-resident corporation duly organized and existing
under the law of Malaysia. Under the agreement, PRISM was to provide programming and
consultancy service for the installation of SDM and CM, for the implementation of SIM.
• PRISM billed respondent of US$547822.45 and respondent withheld the 25% royalty tax of
US$136,955.61.
• Respondent filed a claim of refund with the BIR of the amount PhP7,008,840. Respondent
claim that it is entitled to a refund because the payment made to PRISM are not royalties
but business profits pursuant to the definition of royalties under the RP-Malaysia Tax
Treaty.
• Due to the failure of the petitioner Commissioner of Internal Revenue (CIR) to act on the
claim for refund, respondent filed a Petition for Review with the CTA, docketed as CTA Case
No. 6782 which was raffled to its Second Division.
• In a Decision dated February 23, 2006, the Second Division of the CTA upheld respondent‘s
right, as a withholding agent, to file the claim for refund. However, as to the claim for
refund, the Second Division found respondent entitled only to a partial refund. Although it
agreed with respondent that the payments for the CM and SIM Application Agreements are
"business profits," and therefore, not subject to tax under the RP-Malaysia Tax Treaty, the
Second Division found the payment for the SDM Agreement a royalty subject to
withholding tax. Accordingly, respondent was granted refund in the amount of
₱3,989,456.43.
 • Both parties moved for partial reconsideration, but the CTA Second Division denied the
motions in a Resolution dated July 18, 2006.
• On June 28, 2007, the CTA En Banc rendered a Decision affirming the partial refund
granted to respondent. In sustaining respondent‘s right to file the claim for refund, the CTA
En Banc said that although respondent "and Prism are unrelated entities, such
circumstance does not affect the status of [as a party-in-interest [as its legal interest] is
based on its direct and independent liability under the withholding tax system." The CTA En
Banc also concurred with the Second Division‘s characterization of the payments made to
Prism, specifically that the payments for the CM and SIM Application Agreements constitute
"business profits," while the payment for the SDM Agreement is a royalty.
• Only petitioner sought reconsideration of the Decision. The CTA En Banc, however, found
no cogent reason to reverse its Decision, and thus, denied petitioner‘s motion for
reconsideration in a Resolution dated July 31, 2007. Hence, this Petition.

ISSUE: Whether or Not respondent has the right to file the claim for refund.

HELD:
• Withholding agent may file a claim for refund.
• Credit or refund taxes erroneously or illegally received, or penalties imposed without
authority, refund the value of internal revenue stamps when they are returned in good
condition by the purchaser, and, in his discretion, redeem or change unused stamps that
have been rendered unfit for use and refund their value upon proof of destruction. No
credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing
with the Commissioner a claim for credit or refund within two (2) years after the payment
of the tax or penalty: Provided, however, that a return filed showing an overpayment shall
be considered as a written claim for credit or refund.
• In any case, no such suit or proceeding shall be filed after the expiration of two (2) years
from the date of payment of the tax or penalty regardless of any supervening cause that
may arise after payment: Provided, however, That the Commissioner may, even without a
written claim therefor, refund or credit any tax, where on the face of the return upon which
payment was made, such payment appears clearly to have been erroneously paid.
• Pursuant to the foregoing, the person entitled to claim a tax refund is the taxpayer.
However, in case the taxpayer does not file a claim for refund, the withholding agent may
file the claim. A withholding agent was considered a proper party to file a claim for refund
of the withheld taxes of its foreign parent company.
• Relation between the taxpayer and the withholding agent is a factor that increases the
latter‘s legal interest to file a claim for refund, there is nothing in the decision to suggest
that such relationship is required or that the lack of such relation deprives the withholding
agent of the right to file a claim for refund. Rather, what is clear in the decision is that a
withholding agent has a legal right to file a claim for refund for two reasons. First, he is
considered a "taxpayer" under the NIRC as he is personally liable for the withholding tax as
well as for deficiency assessments, surcharges, and penalties, should the amount of the
tax withheld be finally found to be less than the amount that should have been withheld
under law. Second, as an agent of the taxpayer, his authority to file the necessary income
tax return and to remit the tax withheld to the government impliedly includes the authority
to file a claim for refund and to bring an action for recovery of such claim.
• In this connection, it is however significant to add that while the withholding agent has the
right to recover the taxes erroneously or illegally collected, he nevertheless has the
obligation to remit the same to the principal taxpayer. As an agent of the taxpayer, it is his
duty to return what he has recovered; otherwise, he would be unjustly enriching himself at
the expense of the principal taxpayer from whom the taxes were withheld, and from whom
he derives his legal right to file a claim for refund.
• As to Silkair (Singapore) Pte, Ltd. v. Commissioner of Internal Revenue cited by the
 petitioner, we find the same inapplicable as it involves excise taxes, not withholding taxes.
In that case, it was ruled that 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."
• In view of the foregoing, we find no error on the part of the CTA in upholding respondent‘s
right as a withholding agent to file a claim for refund.

HONDA CARS PHILIPPINES INC v. HONDA CARS TECHNICAL SPECIALISTS

ANDSUPERVISORS UNION
Nov 19, 2014 | Brion, J.

FACTS:
• Honda Cars Philippines, Inc (company) and respondent union, the exclusive collective
bargaining representative of the company‘s supervisors and technical specialists, entered
into a CBA effective April 1, 2006 to March 31, 2011.Prior to April 1, 2005, the union
members were receiving a transportation allowance (Php3,300/month). But was later
converted to a monthly gasoline allowance.
• The allowance answers for the gasoline consumed by the union members for official
business purposes and for home to office travel and vice-versa.
• The company claimed that the grant of the gasoline allowance is tied up to a similar
company policy for managers and assistant vice-presidents (AVPs), which provides that In
the event the amount of gasoline is not fully consumed, the gasoline not used may be
converted into cash, subject to whatever tax may be applicable.
• Since the cash conversion is paid in the monthly payroll as an excess gas allowance, the
company considers the amount as part of the managers' and AVPs' compensation that is
subject to income tax on compensation.
• The company deducted from the union members‘ salaries the withholding tax
corresponding to the conversion to cash of unused gasoline allowance.
• UNION: the gasoline allowance is a “negotiated item” under the CBA on fringe benefits.
Company should not have treated the gasoline allowance as part of compensation income.
• The issue was submitted to the panel of voluntary arbitrators as required by the CBA
Voluntary Arbitrators: the cash conversion of the unused gasoline allowance enjoyed by the
members of the union is a fringe benefit subject to the fringe benefit tax, NOT income
tax.CA: upheld the VA decision. Cash conversion of the unused gasoline allowance is a
fringe benefit granted under the CBA and should not have been subject to withholding tax.
• It is undisputed that the reason behind the grant of the gasoline allowance to the union
members is primarily for the convenience and advantage of Honda, their employer. The
gasoline allowance orthe cash conversion is not subject to fringe benefit tax.

ISSUE: WON the Voluntary Arbitrator has jurisdiction to settle tax matters.

HELD:
• NO
• VA ’s jurisdiction is limited to labor disputes
• The Labor Code vests the VA original and exclusive jurisdiction to hear and decide all
unresolved grievances arising from the interpretation or implementation of the CBA and
those arising from the interpretation or enforcement of company personnel policies. Upon
agreement of the parties, the VA shall also hear and decide all other labor disputes,
including ULP and bargaining deadlocks.
• Labor dispute - any controversy or matter concerning terms and conditions of
 employment or the association or representation of persons in negotiating fixing
maintaining changing or arranging the terms and conditions or employment regardless of
whether the disputants stand in the proximate relation of employer and employee.
• The VA has no competence to rule on the taxability of the gas allowance and on the
propriety of the withholding of tax, which are tax matters and do not involve labor
disputes.
• They do not require the application of the Labor Code or the interpretation of company
personnel policies. CIR has the exclusive and original jurisdiction to interpret the provisions
of the NIRC and other tax laws. The union/company should have requested fora tax ruling
from the BIR for clarification.

DIAGEO PHILIPPINES, INC. v. CIR

GR No.

DOCTRINE: The statutory taxpayer is the proper party to claim refund of indirect taxes. A
statutory taxpayer 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.

FACTS:
• Diageo is a domestic corporation engaged in the business of importing, exporting,
manufacturing, marketing, distributing, buying and selling, by wholesale, all kinds of
beverages and liquors. Diageo purchased raw alcohol. The supplier imported the raw
alcohol and paid the related excise taxes thereon. The purchase price for the raw alcohol
included, among others, the excise taxes paid by the supplier. Within 2 years from the time
the supplier paid the subject excise taxes, Diageo filed with the BIR applications for tax
refund/issuance of tax credit certificates corresponding to the excise taxes which its
supplier paid but passed on to it as part of the purchase price of the subject raw alcohol
invoking Section 130(D) of the Tax Code.
• The BIR failed to act upon Diageo‘s claims. The CTA Second Division issued a Resolution
dismissing the petition on the ground that Diageo is not the real party in interest to file the
claim for refund. The CTA En Banc affirmed the ruling of the CTA Second Division.

ISSUE: Whether Diageo has the legal personality to file a claim for refund or tax credit

HELD:
• None.
• Diageo bases its claim for refund on Section 130 of the Tax Code which reads:
• Section 130.Filing of Return and Payment of Excise Tax on Domestic Products. –
xxx
• (A) Persons Liable to File a Return, Filing of Return on Removal and Payment of Tax.-
• (1) Persons Liable to File a Return. – Every person liable to pay excise tax imposed under
this Title shall file a separate return for each place of production setting forth, among
others, the description and quantity or volume of products to be removed, the applicable
tax base and the amount of tax due thereon; Provided however, That in the case of
indigenous petroleum, natural gas or liquefied natural gas, the excise tax shall be paid by
the first buyer, purchaser or transferee for local sale, barter or transfer, while the excise tax
on exported products shall be paid by the owner, lessee, concessionaire or operator of the
mining claim.Should domestic products be removed from the place of production without
the payment of the tax, the owner or person having possession thereof shall be liable for
the tax due thereon. x x x x
 **(D) Credit for Excise tax on Goods Actually Exported.- When goods locally produced or
manufactured are removed and actually exported without returning to the Philippines,
whether so exported in their original state or as ingredients or parts of any manufactured
goods or products, any excise tax paid thereon shall be credited or refunded upon
submission of the proof of actual exportation and upon receipt of the corresponding foreign
exchange payment: Provided, That the excise tax on mineral products, except coal and
coke, imposed under Section 151 shall not be creditable or refundable even if the mineral
products are actually exported.
• A reading of the foregoing provision, however, reveals that contrary to the position of
Diageo, the right to claim a refund or be credited with the excise taxes belongs to its
supplier. The phrase "any excise tax paid thereon shall be credited or refunded" requires
that the claimant be the same person who paid the excise tax. In Silkair (Singapore) Pte,
Ltd. v. Commissioner of Internal Revenue, the Court has categorically declared that "[t]he
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."
• Excise taxes partake of the nature of indirect taxes when it is passed on to the subsequent
purchaser. Indirect taxes are defined as those wherein the liability for the payment of the
tax falls on one person but the burden thereof can be shifted to another person. When the
seller passes on the tax to his buyer, he, in effect, shifts the tax burden, not the liability to
pay it, to the purchaser as part of the price of goods sold or services rendered.
• Accordingly, when the excise taxes paid by the supplier were passed on to Diageo, what
was shifted is not the tax per se but an additional cost of the goods sold. Thus, the supplier
remains the statutory taxpayer even if Diageo, the purchaser, actually shoulders the
burden of tax.
• Relevant is Section 204(C) of the Tax Code which provides:
• Section 204. Authority of the Commissioner to Compromise, Abate, and Refund or
Credit Taxes.- The Commissioner may - xxxx
**(C) Credit or refund taxes erroneously or illegally received or penalties imposed without
authority, refund the value of internal revenue stamps when they are returned in good
condition by the purchaser, and, in his discretion, redeem or change unused stamps that
have been rendered unfit for use and refined their value upon proof of destruction. No
credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing
with the Commissioner a claim for credit or refund within two (2) years after the payment
of the tax or penalty: Provided, however, that a return filed showing an overpayment shall
be considered as a written claim for credit or refund.
• Pursuant to the foregoing, the person entitled to claim a tax refund is the statutory
taxpayer or the person liable for or subject to tax. In the present case, it is not disputed
that the supplier of Diageo imported the subject raw alcohol, hence, it was the one directly
liable and obligated to file a return and pay the excise taxes under the Tax Code before the
goods or products are removed from the customs house. It is, therefore, the statutory
taxpayer as contemplated by law and remains to be so, even if it shifts the burden of tax
to Diageo. Consequently, the right to claim a refund, if legally allowed, belongs to it and
cannot be transferred to another, in this case Diageo, without any clear provision of law
allowing the same.
• Unlike the law on Value Added Tax which allows the subsequent purchaser under the tax
credit method to refund or credit input taxes passed on to it by a supplier, no provision for
excise taxes exists granting non-statutory taxpayer like Diageo to claim a refund or credit.
It should also be stressed that when the excise taxes were included in the purchase price
of the goods sold to Diageo, the same was no longer in the nature of a tax but already
formed part of the cost of the goods.
• Finally, statutes granting tax exemptions are construed stricissimi juris against the
taxpayer and liberally in favor of the taxing authority. A claim of tax exemption must be
clearly shown and based on language in law too plain to be mistaken. Unfortunately,
 Diageo failed to meet the burden of proof that it is covered by the exemption granted
under Section 130(D) of the Tax Code.
• In sum, Diageo, not being the party statutorily liable to pay excise taxes and having failed
to prove that it is covered by the exemption granted under Section 130(D) of the Tax Code,
is not the proper party to claim a refund or credit of the excise taxes paid on the
ingredients of its exported locally produced liquor.

PHILIPPINE AIRLINES, INC. v. COMMISSIONER OF INTERNAL REVENUE

G.R. No. 198759, July 01, 2013

DOCTRINE: The law confers an exemption from both direct and indirect taxes, a claimant is
entitled If to a tax refund even if it only bears the economic burden of the applicable tax.

FACTS:
• Caltex Philippines, Inc. (―Caltex‖) imported Jet A-1 fuel for which it pad excise taxes.
Caltex sold the fuel to Philippine Airlines, Inc. (PAL), for which Caltex issued a billing
including the amount of excise tax paid on the imported fuel. PAL filed a claim for refund
with the BIR, seeking the refund of the excise taxes passed on to it by Caltex. PAL hinged
its claim on its 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 BIR‘s inaction, PAL
filed a petition with the CTA. Relying on the case of Silkair(Singapore) Pte. Ltd. vs. CIR1 ,
the CTA denied PAL‘s petition on the ground that only a statutory taxpayer (Caltex, in this
case) may seek a refund of the excise tax it paid. Even if the tax burden was shifted to
PAL, the latter cannot be deemed the statutory taxpayer.

ISSUE: whether PaL can claim for refund

HELD:
• On appeal to the Supreme Court, the Court ruled that while the NIRC mandates the
manufacturer/producer of goods manufactured or produced in the Philippines and the
importer and the owner/importer of imported goods as the persons to pay theapplicable
excise taxes directly to the government, they may, however, shift theeconomic burden of
such payments to someone else – usually the purchaser of thegoods – since excise taxes
are considered as a kind of indirect tax. Even if thepurchaser effectively pays the tax, the
manufacturers/producers 1 or theowners/importers are still regarded as the statutory
taxpayers.
• Section 204(c) of theNIRC states that it is the statutory taxpayer which has the legal
personality to file aclaim for refund. Accordingly, in cases involving excise tax exemptions
on petroleum products underSection 135 of the NIRC, it is the statutory taxpayer who is
entitled to claim a tax refundand not the party who merely bears its economic burden.
However, this rule does notapply to instances where the law clearly grants the party to
which the economic burdenof tax is shifted an exemption from both direct and indirect
taxes. In which case, thelatter must be allowed to claim a tax refund even if it is not
considered as the statutorytaxpayer. if the law confers an exemption from both direct and
indirect tax, a claimant isentitled to a refund even if it only bears the economic burden of
the applicable tax. onthe other hand, if the exemption conferred by law applies to direct
taxes, then thestatutory taxpayer is regarded as the proper party to file the refund claim.
 COMMISSIONER OF INTERNAL REVENUE, v. MANILA ELECTRIC COMPANY (MERALCO)
G.R. No. 181459, June 9, 2014, PERALTA, J.:

DOCTRINE: As can be gleaned from the foregoing, the prescriptive period provided is mandatory
regardless of any supervening cause that may arise after payment. It should be pointed out
further that while the prescriptive period of two (2) years commences to run from the time that
the refund is ascertained, the propriety thereof is determined by law (in this case, from the date
of payment of tax), and not upon the discovery by the taxpayer of the erroneous or excessive
payment of taxes. The issuance by the BIR of the Ruling declaring the tax-exempt status of
NORD/LB, if at all, is merely confirmatory in nature. As aptly held by the CTA-First Division, there
is no basis that the subject exemption was provided and ascertained only through BIR Ruling No.
DA-342-2003, since said ruling is not the operative act from which an entitlement of refund is
determined. In other words, the BIR is tasked only to confirm what is provided under the Tax
Code on the matter of tax exemptions as well as the period within which to file a claim for refund.

FACTS:
• MERALCO obtained loan from Norddeutsche Landesbank Girozentrale (NORD/LB) Singapore
Branch in the amount of USD120,000,000.00 with ING Barings South East Asia Limited
(ING Barings) as the Arranger. On September 4, 2000, respondent MERALCO executed
another loan agreement with NORD/LB Singapore Branch for a loan facility in the amount
of USD100,000,000.00 with Citicorp International Limited as Agent.
• Under the foregoing loan agreements, the income received by NORD/LB, by way of
respondent MERALCO‘s interest payments, shall be paid in full without deductions, as
respondent MERALCO shall bear the obligation of paying/remitting to the BIR the
corresponding ten percent (10%) final withholding tax. Pursuant thereto, respondent
MERALCO paid/remitted to the Bureau of Internal Revenue (BIR) the said withholding tax
on its interest payments to NORD/LB Singapore Branch, covering the period from January
1999 to September 2003 in the aggregate sum of ₱264,120,181.44.
• Upon discovering that NORD/LB is Singapore Branch is a foreign government-owned
financing institution of Germany, MERALCO filed a request for a BIR Ruling with petitioner
Commissioner of Internal Revenue (CIR) with regard to the tax exempt status of NORD/LB
Singapore Branch, in accordance with Section 32(B)(7)(a) of the 1997 NIRC. BIR in turn,
issued a ruling declaring that the interest payments made to NORD/LB Singapore Branch
are exempt from the ten percent (10%) final withholding tax, since it is a financing
institution owned and controlled by the foreign government of Germany.
• Relying on said ruling, MERALCO filed with the BIR a claim for tax refund or issuance of tax
credit certificate in the aggregate amount of ₱264,120,181.44, representing the
erroneously paid or overpaid final withholding tax on interest payments made to NORD/LB
Singapore Branch. BIR however, denied its claim for tax refund on the basis that the same
had already prescribed under Section 204 of the Tax Code, which gives a
taxpayer/claimant a period of two (2) years from the date of payment of tax to file a claim
for refund before the BIR.
• The CTA First Division Ruling: It partially granted MERALCO‘s petition for review. This was
also upheld by the CTA En Banc.

ISSUE: Whether or not MERALCO is entitled to a tax refund/credit lative to its payment of final
withholding taxes on interest payments made to NORD/LB from January 1999 to September 2003.

HELD:
• we are of the considered view that respondent MERALCO has shown clear and convincing
evidence that NORD/LB is owned, controlled or enjoying refinancing from the Federal
Republic of Germany, a foreign government, pursuant to Section 32(B)(7)(a) of the Tax
Code, as amended, which provides that:
• Section 32. Gross Income. – x x x x.
(B) Exclusions from Gross Income. −The following items shall not be included in gross
income and shall be exempt from taxation under this title: x x x x
(7) Miscellaneous Items. −
(a) Income Derived by Foreign Government. − Income derived from investments in the
Philippines in loans, stocks, bonds or other domestic securities, or from interest on
deposits in banks in the Philippines by (i) foreign governments, (ii) financing institutions
owned, controlled, or enjoying refinancing from foreign governments, and (iii) international
or regional financial institutions established by foreign governments.
x x x x.
• Notwithstanding the foregoing, however, we uphold the ruling of the CTA En Banc that the
claim for tax refund in the aggregate amount of Thirty-Nine Million Three Hundred Fifty-
Nine Thousand Two Hundred Fifty-Four Pesos and Seventy-Nine Centavos
(₱39,359,254.79) pertaining to the period from January 1999 to July2002 must fail since
the same has already prescribed under Section 229 of the Tax Code, to wit:
• Section 229. Recovery of Tax Erroneously or Illegally Collected. − No suit or
proceeding shall be maintained in any court for the recovery of any national internal
revenue tax hereafter alleged to have been erroneously or illegally assessed or collected,
or of any penalty claimed to have been collected without authority, of any sum alleged to
have been excessively or in any manner wrongfully collected without authority, or of any
sum alleged to have been excessively or in any manner wrongfully collected, until a claim
for refund or credit has been duly filed with the Commissioner; but such suit or proceeding
may be maintained, whether or not such tax, penalty, or sum has been paid under protest
or duress.
**In any case, no such suit or proceeding shall be filed after the expiration of two (2)
years from the date of payment of the tax or penalty regardless of any supervening cause
that may arise after payment: Provided, however, That the Commissioner may, even
without a written claim therefor, refund or credit any tax, where on the face of the return
upon which payment was made, such payment appears clearly to have been erroneously
paid.
• As can be gleaned from the foregoing, the prescriptive period provided is mandatory
regardless of any supervening cause that may arise after payment. It should be pointed
out further that while the prescriptive period of two (2) years commences to run from the
time that the refund is ascertained, the propriety thereof is determined by law (in this
case, from the date of payment of tax), and not upon the discovery by the taxpayer of the
erroneous or excessive payment of taxes. The issuance by the BIR of the Ruling declaring
the tax-exempt status of NORD/LB, if at all, is merely confirmatory in nature. As aptly held
by the CTA-First Division, there is no basis that the subject exemption was provided and
ascertained only through BIR Ruling No. DA-342-2003, since said ruling is not the
operative act from which an entitlement of refund is determined. In other words, the BIR is
tasked only to confirm what is provided under the Tax Code on the matter of tax
exemptions as well as the period within which to file a claim for refund.
• In this regard, petitioner is misguided when it relied upon the six (6)-year prescriptive
period for initiating an action on the ground of quasi contract or solutio indebiti under
Article 1145 of the New Civil Code. There is solutio indebiti where: (1) payment is made
when there exists no binding relation between the payor, who has no duty to pay, and the
person who received the payment; and (2) the payment is made through mistake, and not
through liberality or some other cause. Here, there is a binding relation between petitioner
as the taxing authority in this jurisdiction and respondent MERALCO which is bound under
the law to act as a withholding agent of NORD/LB Singapore Branch, the taxpayer. Hence,
the first element of solutio indebitiis lacking. Moreover, such legal precept is inapplicable to
the present case since the Tax Code, a special law, explicitly provides for a mandatory
period for claiming a refund for taxes erroneously paid.
• Tax refunds are based on the general premise that taxes have either been erroneously or
 excessively paid. Though the Tax Code recognizes the right of taxpayers to request the
return of such excess/erroneous payments from the government, they must do so within a
prescribed period. Further, "a taxpayer must prove not only his entitlement to a refund, but
also his compliance with the procedural due process as non-observance of the prescriptive
periods within which to file the administrative and the judicial claims would result in the
denial of his claim." In the case at bar, respondent MERALCO had ample opportunity to
verify on the tax-exempt status of NORD/LB for purposes of claiming tax refund. Even
assuming that respondent MERALCO could not have emphatically known the status of
NORD/LB, its supposition of the same was already confirmed by the BIR Ruling which was
issued on October 7, 2003. Nevertheless, it only filed its claim for tax refund on July 13,
2004, or ten (10) months from the issuance of the aforesaid Ruling. We agree with the
CTA-First Division, therefore, that respondent MERALCO's claim for refund in the amount of
Two Hundred Twenty-Four Million Seven Hundred Sixty Thousand Nine Hundred Twenty-Six
Pesos and Sixty-Five Centavos (₱224,760,926.65) representing erroneously paid and
remitted final income taxes for the period January 1999 to July 2002 should be denied on
the ground of prescription.

CIR v. FAR EAST BANK

GR No. 173854 March 15, 2010

DOCTRINE:
• A taxpayer claiming for a tax credit or refund of creditable withholding tax must comply
with the following requisites: 1) The claim must be filed with the CIR within the two-year
period from the date of payment of the tax; 2) It must be shown on the return that the
income received was declared as part of the gross income; and 3) The fact of withholding
must be established by a copy of a statement duly issued by the payor to the payee
showing the amount paid and the amount of the tax withheld.
• Based on the entries in the return, the income derived from rentals and sales of real
property upon which the creditable taxes were withheld were not included in respondent‘s
gross income as reflected in its return. Since no income was reported, it follows that no tax
was withheld. To reiterate, it is incumbent upon the taxpayer to reflect in his return the
income upon which any creditable tax is required to be withheld at the source.
• The fact that the petitioner failed to present any evidence or to refute the evidence
presented by respondent does not ipso facto entitle the respondent to a tax refund. It is
not the duty of the government to disprove a taxpayer‘s claim for refund. Rather, the
burden of establishing the factual basis of a claim for a refund rests on the taxpayer.
• And while the petitioner has the power to make an examination of the returns and to
assess the correct amount of tax, his failure to exercise such powers does not create a
presumption in favor of the correctness of the returns. The taxpayer must still present
substantial evidence to prove his claim for refund. As we have said, there is no automatic
grant of a tax refund.

FACTS:
• On April 10, 1995, respondent filed with the Bureau of Internal Revenue (BIR) two
Corporate Annual Income Tax Returns, one for its Corporate Banking Unit (CBU)4 and
another for its Foreign Currency Deposit Unit (FCDU),5 for the taxable year ending
December 31, 1994. The return for the CBU consolidated the respondent‘s overall income
tax liability for 1994, which reflected a refundable income tax of P12,682,864.00.
• Pursuant to Section 697 of the old National Internal Revenue Code (NIRC), the amount of
P12,682,864.00 was carried over and applied against respondent‘s income tax liability for
the taxable year ending December 31, 1995. On April 15, 1996, respondent filed its 1995
 Annual Income Tax Return, which showed a total overpaid income tax in the amount of
P17,443,133.00, detailed as follows:
• Out of the P17,433,133.00 refundable income tax, only P13,645,109.00 was sought to be
refunded by respondent. As to the remaining P3,798,024.00, respondent opted to carry it
over to the next taxable year.
• On May 17, 1996, respondent filed a claim for refund of the amount of P13,645,109.00
with the BIR. Due to the failure of petitioner Commissioner of Internal Revenue (CIR) to
act on the claim for refund, respondent was compelled to bring the matter to the CTA on
April 8, 1997 via a Petition for Review docketed as CTA Case No. 5487.
• FEBTC submitted its ITR for 1994 and 1995 for CBU and FCDU, Certificates of Creditable
tax withheld, monthly remittance returns of income taxes issued by various withholding
agents. BIR did not present any evidence.
• CTA—rendered a decision denying FEBTC‘s claim for refund on the ground that it failed to
show that the income derived from rentals and sale of property form with the taxes were
withheld were reflected in its 1994 annual ITR. FEBTC filed a motion for new trial based on
excusable negligence and to present additional evidence to support its claim. It was denied
by the CTA.
• CA—FEBTC has duly proven that the income derived from rentals and sale of of real
property upon which the taxes were withheld were included in the return as part of the
gross income.

ISSUE/S: WON the respondent has proved its entitlement to refund?

HELD:
• No.
• A taxpayer claiming for a tax credit or refund of creditable withholding tax must comply
with the following requisites:
• 1. The claim must be filed with the CIR within the two-year period from the date of
payment of the tax;
• 2. It must be shown on the return that the income received was declared as part of the
gross income; and
• 3. The fact of withholding must be established by a copy of a statement duly issued by the
payor to the payee showing the amount paid and the amount of the tax withheld.
• There is no dispute that respondent complied with the first requirement. However,
respondent failed to prove that the income derived from rentals and sale of real property
were included in the gross income as reflected in its return. To establish the fact of
withholding, respondent submitted Certificates of Creditable Tax Withheld at Source and
Monthly Remittance Returns of Income Taxes Withheld, which pertain to rentals and sales
of real property, respectively. However, a perusal of respondent‘s 1994 Annual Income Tax
Return shows that the gross income was derived solely from sales of services. In fact, the
phrase ―NOT APPLICABLE‖ was printed on the schedules pertaining to rent, sale of real
property, and trust income. Thus, based on the entries in the return, the income derived
from rentals and sales of real property upon which the creditable taxes were withheld were
not included in respondent‘s gross income as reflected in its return. Since no income was
reported, it follows that no tax was withheld. To reiterate, it is incumbent upon the
taxpayer to reflect in his return the income upon which any creditable tax is required to be
withheld at the source.
• Also, respondent failed to present all the Certificates of Creditable Tax Withheld at Source.
The CA likewise failed to consider in its Decision the absence of several Certificates of
Creditable Tax Withheld at Source. It immediately granted the refund without first verifying
whether the fact of withholding was established by the Certificates of Creditable Tax
Withheld at Source as required under Section 10 of Revenue Regulation No. 6-85. As
correctly pointed out by the CTA, the certifications (Exhibit UU) issued by respondent
 cannot be considered in the absence of the required Certificates of Creditable Tax Withheld
at Source.

METROPOLITAN BANK & TRUST COMPANY v. THE COMM’R OF INTERNAL REVENUE

G.R. No. 182582.* April 17, 2017

DOCTRINES:
1. Section 204 of the National Internal Revenue Code, as amended, provides the CIR with,
inter alia, the authority to grant tax refunds. Pertinent portions of which read: Section 204.
Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes.—The
Commissioner may — x x x x (C) Credit or refund taxes erroneously or illegally received or
penalties imposed without authority, refund the value of internal revenue stamps when
they are returned in good condition by the purchaser, and, in his discretion, redeem or
change unused stamps that have been rendered unfit for use and refund their value upon
proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the
taxpayer files in writing with the Commissioner a claim for credit or refund within two (2)
years after the payment of the tax or penalty: Provided, however, That a return filed
showing an overpayment shall be considered as a written claim for credit or refund.
2. A claimant for refund must first file an administrative claim for refund before the CIR, prior
and judicial claim before the CTA. Notably, both the administrative and judicial claims for
refund should be filed within two (2)- year prescriptive period indicated therein, and that
the claimant is allowed to file the latter even without waiting for the resolution of the
former in order to prevent the forfeiture of its claim through prescription. In this regard,
case law states that ―the primary purpose of filing an administrative claim [is] to serve as
a notice of warning to the CIR that court action would follow unless the tax or penalty
alleged to have been collected erroneously or illegally is refunded. To clarify, Section 229 of
the Tax Code — then Section 306 of the old Tax Code — however does not mean that the
taxpayer must await the final resolution of its administrative claim for refund, since doing
so would be tantamount to the taxpayer‘s forfeiture of its right to seek judicial recourse
should the two (2)-year prescriptive period expire without the appropriate judicial claim
being filed.‖

FACTS:
• On June 5, 1997, Solidbank Corporation (Solidbank) entered into an agreement with Luzon
Hydro Corporation (LHC), whereby the former extended to the latter a foreign currency
denominated loan in the principal amount of US$123,780,000.00 (Agreement). Pursuant to
the Agreement, LHC is bound to shoulder all the corresponding internal revenue taxes
required by law to be deducted or withheld on the said loan, as well as the filing of tax
returns and remittance of the taxes withheld to the Bureau of Internal Revenue (BIR). On
September 1, 2000, Metrobank acquired Solidbank, and consequently, assumed the latter‘s
rights and obligations under the aforesaid Agreement.
• On March 2, 2001 and October 31, 2001, LHC paid Metroban the total amounts of
US$1,538,122.17 and US$1,333,268.31, respectively. Pursuant to the Agreement, LHC
withheld, and eventually paid to the BIR, the ten percent (10%) final tax on the interest
portions of the aforesaid payments, on the same months that the respective payments
were made to petitioner. In sum, LHC remitted a total of US$106,178.69, or its Philippine
Peso equivalent of P5,296,773.05, as evidenced by LHC‘s Schedules of Final Tax and
Monthly Remittance Returns for the said months.
• According to Metrobank, it mistakenly remitted the aforesaid amounts to the BIR as well
when they were inadvertently included in its own Monthly Remittance Returns of Final
Income Taxes Withheld for the months of March 2001 and October 2001. Thus, on
December 27, 2002, it filed a letter to the BIR requesting for the refund thereof. Thereafter
 and in view of respondent the Commissioner of Internal Revenue‘s (CIR) inaction,
Metrobank filed its judicial claim for refund via a petition for review filed before the CTA on
September 10, 2003, docketed as CTA Case No. 6765.
• In defense, the CIR averred that: (a) the claim for refund is subject to administrative
investigation; (b) Metrobank must prove that there was double payment of the tax sought
to be refunded; (c) such claim must be filed within the prescriptive period laid down by
law; (d) the burden of proof to establish the right to a refund is on the taxpayer; and (e)
claims for tax refunds are in the nature of tax exemptions, and as such, should be
construed strictissimi juris against the taxpayer.
• CTA Division Ruling - denied Metrobank‘s claims for refund for lack of merit.
• Metrobank moved for reconsideration,17 which was partially granted in a Resolution18
dated November 14, 2007, and thus, was allowed to present further evidence regarding its
claim for refund for the October 2001 final tax. However, the CTA Division affirmed the
denial of the claim relative to its March 2001 final tax on the ground of prescription.
• Aggrieved, Metrobank filed a petition for partial review before the CTA En Banc – it
affirmed the CTA Division’s ruling. It held that since Metrobank‘s March 2001 final tax is in
the nature of a final withholding tax, the two (2)- year prescriptive period was correctly
reckoned by the CTA Division from the time the same was paid on April 25, 2001. As such,
Metrobank‘s claim for refund had already prescribed as it only filed its judicial claim on
September 10, 2003.

ISSUE: W/N the CTA En Banc correctly held that Metrobank‘s claim for refund relative to its March
2001 final tax had already prescribed.

HELD:
• YES.
• The petition is without merit.
• Section 204 of the National Internal Revenue Code, as amended, provides the CIR
with, inter alia, the authority to grant tax refunds. Pertinent portions of which read:
Section 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit
Taxes.—The Commissioner may — x x x x (C) Credit or refund taxes erroneously or illegally
received or penalties imposed without authority, refund the value of internal revenue
stamps when they are returned in good condition by the purchaser, and, in his discretion,
redeem or change unused stamps that have been rendered unfit for use and refund their
value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed
unless the taxpayer files in writing with the Commissioner a claim for credit or refund
within two (2) years after the payment of the tax or penalty: Provided, however, That a
return filed showing an overpayment shall be considered as a written claim for credit or
refund.
• A claimant for refund must first file an administrative claim for refund before the CIR, prior
and judicial claim before the CTA. Notably, both the administrative and judicial claims for
refund should be filed within two (2)- year prescriptive period indicated therein, and that
the claimant is allowed to file the latter even without waiting for the resolution of the
former in order to prevent the forfeiture of its claim through prescription. In this regard,
case law states that ―the primary purpose of filing an administrative claim [is] to serve as
a notice of warning to the CIR that court action would follow unless the tax or penalty
alleged to have been collected erroneously or illegally is refunded. To clarify, Section 229 of
the Tax Code — then Section 306 of the old Tax Code — however does not mean that the
taxpayer must await the final resolution of its administrative claim for refund, since doing
so would be tantamount to the taxpayer‘s forfeiture of its right to seek judicial recourse
should the two (2)-year prescriptive period expire without the appropriate judicial claim
being filed.‖
• As aptly put in CIR v. TMX Sales, Inc., 205 SCRA 184 (1992), ―payment of quarterly
 income tax should only be considered [as] mere installments of the annual tax due. These
quarterly tax payments which are computed based on the cumulative figures of gross
receipts and deductions in order to arrive at a net taxable income, should be treated as
advances or portions of the annual income tax due, to be adjusted at the end of the
calendar or fiscal year. x x x Consequently, the two-year prescriptive period x x x should be
computed from the time of filing of the Adjustment Return or Annual Income Tax Return
and final payment of income tax.‖ Verily, since quarterly income tax payments are treated
as mere ―advance payments‖ of the annual corporate income tax, there may arise
certain situations where such ―advance payments‖ would cover more than said corporate
taxpayer‘s entire income tax liability for a specific taxable year. Thus, it is only logical to
reckon the two (2)-year prescriptive period from the time the Final Adjustment Return or
the Annual Income Tax Return was filed, since it is only at that time that it would be
possible to determine whether the corporate taxpayer had paid an amount exceeding its
annual income tax liability.
• It may be gleaned that final withholding taxes are considered as full and final payment of
the income tax due, and thus, are not subject to any adjustments. Thus, the two (2)-year
prescriptive period commences to run from the time the refund is ascertained, i.e., the
date such tax was paid, and not upon the discovery by the taxpayer of the erroneous or
excessive payment of taxes. In the case at bar, it is undisputed that Metrobank‘s final
withholding tax liability in March 2001 was remitted to the BIR on April 25, 2001. As such,
it only had until April 25, 2003 to file its administrative and judicial claims for refund.
However, while Metrobank‘s administrative claim was filed on December 27, 2002, its
corresponding judicial claim was only filed on September 10, 2003. Therefore, Metrobank‘s
claim for refund had clearly prescribed.

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. TMX SALES, INC. and THE
COURT OF TAX APPEALS, respondents.
G.R. No. 83736 January 15, 1992, GUTIERREZ, JR., J.:

FACTS:
• TMX Sales, Inc. thru its external auditor, SGV & Co. filed with the Appellate Division of the
BIR a claim for refund in the amount of P247,010.00 representing overpaid income
tax.This claim was not acted upon by the CIR. On March 14, 1984, TMX Sales, Inc. filed a
petition for review before the CTA against the CIR, praying that the petitioner, as private
respondent therein, be ordered to refund to TMX Sales, Inc. overpaid income tax for the
taxable year ended December 31, 1981.
• In his answer, the CIR averred that "granting, without admitting, the amount in question is
refundable, the petitioner (TMX Sales, Inc.) is already barred from claiming the same
considering that more than two (2) years had already elapsed between the payment (May
15, 1981) and the filing of the claim in Court (March 14, 1984). (Sections 292 and 295 of
the Tax Code of 1977, as amended)."
• CTA rendered a decision granting the petition of TMX Sales, Inc. and ordering the CIR to
refund the amount claimed. The Tax Court, granted the petition.
• Petitioner CIR is now before this Court seeking a reversal of the above decision. Thru the
OSG, he contends that the basis in computing the two-year period of prescription provided
for in Section 292 (now Section 230) of the Tax Code, should be May 15, 1981, the date
when the quarterly income tax was paid and not April 15, 1982, when the Final Adjustment
Return for the year ended December 31, 1981 was filed. He cites the case of Pacific Procon
Limited v. Commissioner of Internal Revenue (G.R. No. 68013, November 12, 1984)
involving a similar set of facts, wherein this Court in a minute resolution affirmed the Court
of Appeals' decision denying the claim for refund of the petitioner therein for being barred
 by prescription.

ISSUE: Whether or not the two-year prescriptive period to claim a refund of erroneously collected
tax provided for in Section 292 (now Section 230) of the National Internal Revenue Code, in a
case involving corporate quarterly income tax, commence to run from the date the quarterly
income tax was paid, as contended by the petitioner, or from the date of filing of the Final
Adjustment Return (final payment), as claimed by the private respondent?

HELD:
• The two-year prescriptive period should be counted from the filing of the Adjustment
Return on April 15, 1982. The case is not yet barred from prescription.
• Section 292 (now Section 230) of the National Internal Revenue Code and other
provisions of the Tax Code, particularly Sections 84, 85 (now both incorporated as Section
68), Section 86 (now Section 70) and Section 87 (now Section 69) on Quarterly Corporate
Income Tax Payment and Section 321 (now Section 232) on keeping of books of accounts
should be harmonized with each other.
• Section 292 (now Section 230) provides a two-year prescriptive period to file a suit for a
refund of a tax erroneously or illegally paid, counted from the tile the tax was paid. But a
literal application of this provision in the case at bar which involves quarterly income tax
payments may lead to absurdity and inconvenience. Section 85 (now Section 68) provides
for the method of computing corporate quarterly income tax which is on a cumulative basis
while Section 87 (now Section 69) requires the filing of an adjustment returns and final
payment of income tax.
• Here, the amount of P247,010.00 claimed by private respondent TMX Sales, Inc. based on
its Adjustment Return required in Section 87 (now Section 69), is equivalent to the tax
paid during the first quarter. A literal application of Section 292 (now Section 230) would
thus pose no problem as the two-year prescriptive period reckoned from the time the
quarterly income tax was paid can be easily determined. However, if the quarter in which
the overpayment is made, cannot be ascertained, then a literal application of Section 292
(Section 230) would lead to absurdity and inconvenience. The following application of
Section 85 (now Section 68) clearly illustrates this point:

FIRST QUARTER:
Gross Income 100,000.00
Less: Deductions 50,000.00
—————
Net Taxable Income 50,000.00
=========
Tax Due & Paid [Sec. 24 NIRC (25%)] 12,500.00
=========
SECOND QUARTER:
Gross Income 1st Quarter 100,000.00
2nd Quarter 50,000.00 150,000.00
—————
Less: Deductions 1st Quarter 50,000.00
2nd Quarter 75,000.00 125,000.00
—————
Net Taxable Income 25,000.00
=========
Tax Due Thereon 6,250.00
Less: Tax Paid 1st Quarter 12,500.00
—————
Creditable Income Tax (6,250.00)
—————
THIRD QUARTER:
Gross Income 1st Quarter 100,000.00
2nd Quarter 50,000.00
3rd Quarter 100,000.00 250,000.00
—————
Less: Deductions 1st Quarter 50,000.00
2nd Quarter 75,000.00
3rd Quarter 25,000.00 150,000.00
————— —————
100,000.00
=========
Tax Due Thereon 25,000.00
Less: Tax Paid 1st Quarter 12,500.00
2nd Quarter — 12,500.00
————— =========
FOURTH QUARTER: (Adjustment Return required in Sec. 87)
Gross Income 1st Quarter 100,000.00
2nd Quarter 50,000.00
3rd Quarter 100,000.00
4th Quarter 75,000.00 325,000.00
————— —————
Less: Deductions 1st Quarter 50,000.00
2nd Quarter 75,000.00
3rd Quarter 25,000.00
4th Quarter 100,000.00 250,000.00
————— —————
Net Taxable Income 75,000.00
=========
Tax Due Thereon 18,750.00
Less: Tax Paid 1st Quarter 12,500.00
2nd Quarter —
3rd Quarter 12,500.00 25,000.00
————— —————
Creditable Income Tax (to be REFUNDED) (6,250.00)
=========

• Based on the above hypothetical data appearing in the Final Adjustment Return, the
taxpayer is entitled under Section 87 (now Section 69) of the Tax Code to a refund of
P6,250.00. If Section 292 (now Section 230) is literally applied, what then is the reckoning
date in computing the two-year prescriptive period? Will it be the 1st quarter when the
taxpayer paid P12,500.00 or the 3rd quarter when the taxpayer also paid P12,500.00?
Obviously, the most reasonable and logical application of the law would be to compute the
two-year prescriptive period at the time of filing the Final Adjustment Return or the Annual
Income Tax Return, when it can be finally ascertained if the taxpayer has still to pay
additional income tax or if he is entitled to a refund of overpaid income tax.
• Furthermore, Section 321 (now Section 232) of the National Internal Revenue Code
requires that the books of accounts of companies or persons with gross quarterly sales or
earnings exceeding Twenty Five Thousand Pesos (P25,000.00) be audited and examined
yearly by an independent Certified Public Accountant and their income tax returns be
accompanied by certified balance sheets, profit and loss statements, schedules listing
income producing properties and the corresponding incomes therefrom and other related
statements.
• It is generally recognized that before an accountant can make a certification on the
financial statements or render an auditor's opinion, an audit of the books of accounts has
to be conducted in accordance with generally accepted auditing standards. Since the audit,
 as required by Section 321 (now Section 232) of the Tax Code is to be conducted yearly,
then it is the Final Adjustment Return, where the figures of the gross receipts and
deductions have been audited and adjusted, that is truly reflective of the results of the
operations of a business enterprise. Thus, it is only when the Adjustment Return covering
the whole year is filed that the taxpayer would know whether a tax is still due or a refund
can be claimed based on the adjusted and audited figures.
• Therefore, the filing of quarterly income tax returns required in Section 85 (now Section
68) and implemented per BIR Form 1702-Q and payment of quarterly income tax should
only be considered mere installments of the annual tax due. These quarterly tax payments
which are computed based on the cumulative figures of gross receipts and deductions in
order to arrive at a net taxable income, should be treated as advances or portions of the
annual income tax due, to be adjusted at the end of the calendar or fiscal year. This is
reinforced by Section 87 (now Section 69) which provides for the filing of adjustment
returns and final payment of income tax. Consequently, the two-year prescriptive period
provided in Section 292 (now Section 230) of the Tax Code should be computed from the
time of filing the Adjustment Return or Annual Income Tax Return and final payment of
income tax.
• In the case of Collector of Internal Revenue v. Antonio Prieto (2 SCRA 1007 [1961]), this
Court held that when a tax is paid in installments, the prescriptive period of two years
provided in Section 306 (Section 292) of the National internal Revenue Code should be
counted from the date of the final payment. This ruling is reiterated in Commission of
Internal Revenue v. Carlos Palanca (18 SCRA 496 [1966]), wherein this Court stated that
where the tax account was paid on installment, the computation of the two-year
prescriptive period under Section 306 (Section 292) of the Tax Code, should be from the
date of the last installment.
• In the instant case, TMX Sales, Inc. filed a suit for a refund on March 14, 1984. Since the
two-year prescriptive period should be counted from the filing of the Adjustment Return on
April 15, 1982, TMX Sales, Inc. is not yet barred by prescription.

SYSTRA PHILIPPINES, INC. v. COMMISSIONER OF INTERNAL REVENUE

G.R. No. 176290, September 21, 2007, CORONA, J.:

FACTS:
• On April 16, 2001, petitioner filed with the [Bureau of Internal Revenue (BIR)] its Annual
Income Tax Return ("ITR") for the taxable year ended December 31, 2000 declaring
revenues in the amount of [₱18,252,719] the bulk of which consists of income from
management consultancy services rendered to the Philippine Branch of Group Systra SA,
France. Subjecting said income from consultancy services of petitioner to 5% creditable
withholding tax, a total amount of [₱4,703,019] was declared by petitioner as creditable
taxes withheld for the taxable year 2000.
• For the same period, petitioner reflected a total gross income of [₱3,752,129], a net loss of
[₱17,930] and a minimum corporate income tax (MCIT) of [₱75,043]. Said MCIT of
₱75,043 was offset against its total tax credits for the year 2000 amounting to
[₱4,703,019] thereby leaving a total unutilized tax credits of [₱4,627,976. Petitioner opted
to carry over the said excess tax credit to the succeeding taxable year 2001.
• For the taxable year ended December 31, 2001, petitioner filed with the BIR its Annual ITR
on April 12, 2002, reflecting a total gross income of [₱4,771,419] and a total creditable
taxes withheld of [₱1,111,587] for consultancy services. It likewise declared a taxable
income of [₱1,936,851] with corresponding normal income tax due in the amount of
[₱619,792]. After deducting the unexpired excess of the previous year MCIT [1999 and
2000] in the amount of [₱222,475] from the normal income tax due for the period,
 petitioner‘s net tax due of [₱397,317] was applied against the accumulated tax credits of
[₱5,739,563]. Said reported tax credits comprised of prior year‘s excess tax credits in the
amount of [₱4,627,976] and creditable taxes withheld during the year 2001 in the sum of
[₱1,111,587]. These excess tax credits were utilized to pay off the income tax still due of
[₱397,317] resulting to an overpayment of [₱5,342,246]. Petitioner indicated in the 2001
ITR the option "To be issued a Tax Credit Certificate" relative to its tax overpayments.
• On August 9, 2002, petitioner instituted a claim for refund or issuance of a tax credit
certificate with the BIR of its unutilized creditable withholding taxes in the amount of
₱5,342,246.00 as of December 31, 2001."
• Due to the inaction of the BIR on petitioner‘s claim for refund and to preserve its right to
claim for the refund to its unutilized CWT for CYs 2000 and 2001 by judicial action,
petitioner filed a petition for review with the Court in Division on April 14, 2003.19
• In its August 3, 2005 decision, the First Division of the CTA partially granted the petition
and ordered the issuance of a tax credit certificate to petitioner in the amount of
₱1,111,587 representing the excess or unutilized creditable withholding taxes for taxable
year 2001. The CTA, however, denied petitioner‘s claim for refund of the excess tax credits
for the year 2000 in the amount of ₱4,627,976. It ruled that petitioner was precluded from
claiming a refund thereof or requesting a tax credit certificate therefor. Once it was made
for a particular taxable period, the option to carry over became irrevocable.
• Petitioner moved for reconsideration but it was denied. Petitioner elevated the case to the
CTA en banc which rendered the assailed decision. Thus, this petition.

ISSUE: Whether or not the exercise of the option to carry-over excess income tax credits under
Section 76 of the Tax Code bars a taxpayer from claiming the excess tax credits for refund even if
the amount remains unutilized in the succeeding taxable year

HELD:
• Yes.
• Section 76 of the Tax Code provides:
• SEC. 76. Final Adjustment Return. – Every corporation liable to tax under Section 27
shall file a final adjustment return covering the total taxable income for the preceding
calendar or fiscal year. If the sum of the quarterly tax payments made during the said
taxable year is not equal to the total tax due on the entire taxable net income of that year
the corporation shall either:
(A) Pay the balance of tax still due; or
(B) Carry-over the excess credit; or
(C) Be credited or refunded with the excess amount paid, as the case may be.
**In case the corporation is entitled to a tax credit or refund of the excess estimated
quarterly income taxes paid, the excess amount shown on its final adjustment return may
be carried over and credited against the estimated quarterly income tax liabilities for the
taxable quarters of the succeeding taxable years. Once the option to carry-over and apply
the excess quarterly income tax against income tax due for the taxable quarters of the
succeeding taxable years has been made, such option shall be considered irrevocable for
that taxable period and no application for cash refund or issuance of a tax credit certificate
shall be allowed therefor.(emphasis supplied)
• A corporation entitled to a tax credit or refund of the excess estimated quarterly income
taxes paid has two options: (1) to carry over the excess credit or (2) to apply for the
issuance of a tax credit certificate or to claim a cash refund. If the option to carry over the
excess credit is exercised, the same shall be irrevocable for that taxable period.
• In exercising its option, the corporation must signify in its annual corporate adjustment
return (by marking the option box provided in the BIR form) its intention either to carry
over the excess credit or to claim a refund. To facilitate tax collection, these remedies are
in the alternative and the choice of one precludes the other.
 • This is known as the irrevocability rule and is embodied in the last sentence of Section 76
of the Tax Code. The phrase "such option shall be considered irrevocable for that taxable
period" means that the option to carry over the excess tax credits of a particular taxable
year can no longer be revoked. The rule prevents a taxpayer from claiming twice the
excess quarterly taxes paid: (1) as automatic credit against taxes for the taxable quarters
of the succeeding years for which no tax credit certificate has been issued and (2) as a tax
credit either for which a tax credit certificate will be issued or which will be claimed for
cash refund.
• In this case, it was in the year 2000 that petitioner derived excess tax credits and
exercised the irrevocable option to carry them over as tax credits for the next taxable year.
Under Section 76 of the Tax Code, a claim for refund of such excess credits can no longer
be made. The excess credits will only be applied "against income tax due for the taxable
quarters of the succeeding taxable years." Since petitioner elected to carry over its excess
credits for the year 2000 in the amount of ₱4,627,976 as tax credits for the following year,
it could no longer claim a refund. Again, at the risk of being repetitive, once the carry over
option was made, actually or constructively, it became forever irrevocable regardless of
whether the excess tax credits were actually or fully utilized. Nevertheless, as held in
Philam Asset Management, Inc., the amount will not be forfeited in favor of the
government but will remain in the taxpayer‘s account. Petitioner may claim and carry it
over in the succeeding taxable years, creditable against future income tax liabilities until
fully utilized.

WINEBRENNER & IÑIGO INSURANCE BROKERS, INC. v. COMM’R OF IR

G.R. No. 206526, January 28, 2015

DOCTRINE: Refunds of corporate Taxpayers - It must be emphasized that once the requirements
laid down by the NIRC have been met, a claimant should be considered successful in discharging
its burden of proving its right to refund. Thereafter, the burden of going forward with the
evidence, as distinct from the general burden of proof, shifts to the opposing party that is, the
CIR. It is then the turn of the CIR to disprove the claim by presenting contrary evidence which
could include the pertinent ITRs easily obtainable from its own files.

FACTS:
• April 7, 2006, petitioner applied for the administrative tax credit/refund claiming
entitlement to the refund of its excess or unutilized CWT for CY 2003.
• When CTA initially granted partially the claim for refund, CIR moved for reconsideration,
praying for the denial of the entire amount of refund because petitioner failed to present
the quarterly Income Tax Returns (ITRs) for CY 2004. To the CIR, the presentation of the
2004 quarterly ITRs was indispensable in proving petitioner's entitlement to the claimed
amount because it would prove that no carry-over of unutilized and excess CWT for the
four (4) quarters of CY 2003 to the succeeding four (4) quarters of CY 2004 was made. In
the absence of said ITRs, no refund could be granted in accordance with the irrevocability
rule under Section 76 of the NIRC.
• CTA then denied the entire claim of petitioner. It reasoned out that petitioner should have
presented as evidence its first, second and third quarterly ITRs for the year 2004 to prove
that the unutilized CWT being claimed had not been carried over to the succeeding
quarters. It stated that before a cash refund or an issuance of tax credit certificate for
unutilized excess tax credits could be granted, it was essential for petitioner to establish
and prove, by presenting the quarterly ITRs of the succeeding years, that the excess CWT
was not carried over to the succeeding taxable quarters considering that the option to
carry over in the succeeding taxable quarters could not be modified in the final adjustment
 returns (FAR). Because petitioner did not present the first, second and third quarterly ITRs
for CY 2004, despite having offered and submitted the Annual ITR/FAR for the same year,
the CTA-En Banc stated that the petitioner failed to discharge its burden, hence, no refund
could be granted

ISSUE: Whether the submission and presentation of the quarterly ITRs of the succeeding quarters
of a taxable year is indispensable in a claim for refund.

HELD:
• The logic in not requiring quarterly ITRs of the succeeding taxable years to be presented
remains true to this day. What Section 76 requires, just like in all civil cases, is to prove
the prima facie entitlement to a claim, including the fact of not having carried over the
excess credits to the subsequent quarters or taxable year. It does not say that to prove
such a fact, succeeding quarterly ITRs are absolutely needed.
• This simply underscores the rule that any document, other than quarterly ITRs may be
used to establish that indeed the non-carry over clause has been complied with, provided
that such is competent, relevant and part of the records.
• It goes without saying that the annual ITR (including any other proof that may be sufficient
to the Court)can sufficiently reveal whether carry over has been made in subsequent
quarters even if the petitioner has chosen the option of tax credit or refund in the
immediately 2003 annual ITR.
• It must be remembered that taxes computed in the quarterly returns are mere estimates.
It is the annual ITR which shows the aggregate amounts of income, deductions, and credits
for all quarters of the taxable year. It is the final adjustment return which shows whether a
corporation incurred a loss or gained a profit during the taxable quarter. Thus, the
presentation of the annual ITR would suffice in proving that prior year's excess credits
were not utilized for the taxable year in order to make a final determination of the total tax
due.
• The absence of any amount written in the Prior Year excess Credit — Tax Withheld portion
of petitioner's 2004 annual ITR clearly shows that no prior excess credits were carried over
in the first four quarters of 2004 . And since petitioner was able to sufficiently prove that
excess tax credits in 2003 were not carried over to taxable year 2004 by leaving the item
"Prior Year's Excess Credits" as blank in its 2004 annual ITR, then petitioner is entitled to a
refund.
• It must be emphasized that once the requirements laid down by the NIRC have been met,
a claimant should be considered successful in discharging its burden of proving its right to
refund. Thereafter, the burden of going forward with the evidence, as distinct from the
general burden of proof, shifts to the opposing party that is, the CIR. It is then the turn of
the CIR to disprove the claim by presenting contrary evidence which could include the
pertinent ITRs easily obtainable from its own files.

UNIVERSITY PHYSICIANS SERVICES, INC.-MANAGEMENT v. CIR

G.R. No. 205955, March 07, 2018

DOCTRINE: When a corporation overpays its income tax liability as adjusted at the close of the
taxable year, it has two options: (1) to be refunded or issued a tax credit certificate, or (2) to
carry over such overpayment to the succeeding taxable quarters to be applied as tax credit
against income tax due. Once the carry-over option is taken, it becomes irrevocable such that the
taxpayer cannot later on change its mind in order to claim a cash refund or the issuance of a tax
credit certificate of the very same amount of overpayment or excess income tax credit.
Irrevocability is limited only to the option of carry-over such that a taxpayer is still free to change
its choice after electing a refund of its excess tax credit. But once it opts to carry over such excess
creditable tax, after electing refund or issuance of tax credit certificate, the carry-over option
becomes irrevocable. Accordingly, the previous choice of a claim for refund, even if subsequently
pursued, may no longer be granted.

FACTS:
• On April 16, 2007, petitioner filed its Annual Income Tax Return (ITR) for the year ended
December 31, 2006 with the Revenue District No. 34 of the Revenue Region No. 6 of the
BIR, reflecting an income tax overpayment of 5,159,341.00.
• Subsequently, on November 14, 2007, petitioner filed an Annual ITR for the short period
fiscal year ended March 31, 2007, ref1ecting the income tax overpayment of 5,159.341
from the previous period as "Prior Year‘s Excess Credit‖
• On the same date, petitioner filed an amended Annual ITR tor the short period fiscal year
ended March 31, 2007, reflecting the removal of the amount of the instant claim in the
''Prior Year's Excess Credit". Thus, the amount thereof was changed from P 5,159,341 to P
2,231,507.
• On October 10, 2008, petitioner filed with the respondent's office, a claim for refund
and/or issuance of a Tax Credit Certificate (TCC) in the amount of P 2,927,834.00,
representing the alleged excess and unutilized creditable withholding taxes for 2006. In
view of the fact that respondent has not acted upon the foregoing claim for refund/tax
credit, petitioner filed with a Petition for Review on April 14, 2009 before the Court in
Division.
• After trial, the CTA Division denied the petition reasoning that UPSI-MI effectively exercised
the carry-over option under Section 76 of the NIRC of 1997. On MR, UPSI-MI argued that
the irrevocability rule under Section 76 of the NIRC is not applicable for the reason that it
did not carry over to the succeeding taxable period the 2006 excess income tax credit.
UPSI-MI added that the subject excess tax credits were inadvertently included in its
original 2007 ITR, and such mistake was rectified in the amended 2007 ITR. Thus, UPSI-MI
insisted that what should control is its election of the option "To be issued a Tax Credit
Certificate" in its 2006 ITR.

ISSUE: Does the irrevocability rule apply exclusively to the carry-over option?

HELD:
• Yes.
• Irrevocability is limited only to the option of carry-over such that a taxpayer is still free to
change its choice after electing a refund of its excess tax credit. But once it opts to carry
over such excess creditable tax, after electing refund or issuance of tax credit certificate,
the carry-over option becomes irrevocable. Accordingly, the previous choice of a claim for
refund, even if subsequently pursued, may no longer be granted.
• SECTION 76. Final Adjustment Return. — Every corporation liable to tax under Section
27 shall file a final adjustment return covering the total taxable income for the preceding
calendar or fiscal year. If the sum of the quarterly tax payments made during the said
taxable year is not equal to the total tax due on the entire taxable income of that year, the
corporation shall either:
(A) Pay the balance of tax still due; or
(B) Carry over the excess credit; or
(C) Be credited or refunded with the excess amount paid, as the case may be.
• In case the corporation is entitled to a tax credit or refund of the excess estimated
quarterly income taxes paid, the excess amount shown on its final adjustment return may
be carried over and credited against the estimated quarterly income tax liabilities for the
taxable quarters of the succeeding taxable years. Once the option to carry-over and apply
the excess quarterly income tax against income tax due for the taxable quarters of the
 succeeding taxable years has been made, such option shall be considered irrevocable for
that taxable period and no application for cash refund or issuance of a tax credit certificate
shall be allowed therefor.
• Under the cited law, there are two options available to the corporation whenever it
overpays its income tax for the taxable year: (1) to carry over and apply the overpayment
as tax credit against the estimated quarterly income tax liabilities of the succeeding
taxable years (also known as automatic tax credit) until fully utilized (meaning, there is no
prescriptive period); and (2) to apply for a cash refund or issuance of a tax credit
certificate within the prescribed period. Such overpayment of income tax is usually
occasioned by the over-withholding of taxes on the income payments to the corporate
taxpayer.
• The irrevocability rule is provided in the last sentence of Section 76. A perfunctory reading
of the law unmistakably discloses that the irrevocable option referred to is the carry-over
option only. There appears nothing therein from which to infer that the other choice, i.e.,
cash refund or tax credit certificate, is also irrevocable. If the intention of the lawmakers
was to make such option of cash refund or tax credit certificate also irrevocable, then they
would have clearly provided so.
• In other words, the law does not prevent a taxpayer who originally opted for a refund or
tax credit certificate from shifting to the carry-over of the excess creditable taxes to the
taxable quarters of the succeeding taxable years. However, in case the taxpayer decides to
shift its option to carry-over, it may no longer revert to its original choice due to the
irrevocability rule.
• Applying the foregoing precepts to the given case, UPSI-MI is barred from recovering its
excess creditable tax through refund or TCC. It is undisputed that despite its initial option
to refund its 2006 excess creditable tax, UPSI-MI subsequently indicated in its 2007 short-
period FAR that it carried over the 2006 excess creditable tax and applied the same against
its 2007 income tax due. The CTA was correct in considering UPSI-MI to have
constructively chosen the option of carry-over, for which reason, the irrevocability rule
forbade it to revert to its initial choice. It does not matter that UPSI-MI had not actually
benefited from the carry-over on the ground that it did not have a tax due in its 2007 short
period. Neither may it insist that the insertion of the carry-over in the 2007 FAR was by
mere mistake or inadvertence. As we previously laid down, the irrevocability rule admits of
no qualifications or conditions.
• In sum, the petitioner is clearly mistaken in its view that the irrevocability rule also applies
to the option of refund or tax credit certificate. In view of the court's finding that it
constructively chose the option of carry-over, it is already barred from recovering its 2006
excess creditable tax through refund or TCC even if it was its initial choice.
• However, the petitioner remains entitled to the benefit of carry-over and thus may apply
the 2006 overpaid income tax as tax credit in succeeding taxable years until fully
exhausted. This is because, unlike the remedy of refund or tax credit certificate, the option
of carry-over under Section 76 is not subject to any prescriptive period.

RHOMBUS ENERGY v. CIR

GR NO. 206362, AUGUST 1, 2018

DOCTRINE: In case the corporation is entitled to a tax credit or refund of the excess estimated
quarterly income taxes paid, the excess amount shown on its final adjustment return may be
carried over and credited against the estimated quarterly income tax liabilities for the taxable
quarters of the succeeding taxable years. Once the option to carry over and apply the excess
quarterly income tax against income tax due for the taxable years of the succeeding taxable years
has been made, such option shall be considered irrevocable for that taxable period and no
application for cash refund or issuance of a tax credit certificate shall be allowed therefor.

FACTS:
• Rhombus fled its annual income tax return for the taxable year 2005 with an overpayment
amounting to P1,500,653.00. in the said ITR, it indicated that the said excess is to be
refunded. For each of the quarterly income tax returns for the taxable period 2006, it
indicated the said amount as a prior year‘s excess credits, but on its Annual ITR for taxable
year 2006, filed on April 2007, it showed prior year‘s excess credits as zero.
• In December 2006, Rhombus filed an administrative claim for refund for alleged excess or
unutilized CWT for the year 2005 in the aforementioned amount. In December 2007,
pending its admin claimed for refund, it filed a petition for review with the CTA. In
response, the CIR alleged that the taxpayer failed to prove that the said taxes were
illegally collected by the BIR and that the said taxes are presumed to have been collected
in accordance with the regulations.
• On appeal to the CTA, the first division granted the petition for review. CIR filed a motion
for reconsideration but was denied, hence it filed a petition for review with the CTA enbanc.
The CTA enbanc reversed the decision for the division holding that based on the
irrevocability rule once the taxpayer chose an option it cannot make another option. Or
once an option for carry over has been made, it cannot thereafter choose to have the taxes
refunded.

ISSUE: Whether or not Rhombus is entitled to refund of its excess CWT.

HELD:
• Yes, Rhombus is still entitled to refund.
• Section 76 of the National Internal Revenue Code (NIRC), viz.:
• Section 76. Final Adjusted Return. - Every corporation liable to tax under Section 27
shall file a final adjustment return covering the total taxable income for the preceding
calendar of fiscal year. If the sum of the quarterly tax payments made during the said
taxable year is not equal to the total tax due on the entire taxable income of that year, the
corporation shall either:
(A) Pay the balance of the tax still due; or
(B) Carry over the excess credit; or
(C) Be credited or refunded with the excess amount paid, as the case may be.
• In case the corporation is entitled to a tax credit or refund of the excess estimated
quarterly income taxes paid, the excess amount shown on its final adjustment return may
be carried over and credited against the estimated quarterly income tax liabilities for the
taxable quarters of the succeeding taxable years. Once the option to carry over and apply
the excess quarterly income tax against income tax due for the taxable years of the
succeeding taxable years has been made, such option shall be considered irrevocable for
that taxable period and no application for cash refund or issuance of a tax credit certificate
shall be allowed therefor.
• In the case of CIR vs. BPI, the Court held that Section 76 of the NIRC is clear and
unequivocal in providing that the carry-0ver option once actually or constructively chosen
by the taxpayer becomes irrevocable. It held that ‗the controlling factor for the operation
of the irrevocability rule is that the taxpayer chose an option; and once it had already done
so, it could no longer make another one. Consequently, after the taxpayer opts to carry-
over its excess tax credit to the following taxable period, the question of whether or not it
actually gets to apply said tax credit is irrelevant. Section 76 of the NIRC of 1997 is explicit
in stating that once the option to carry over has been made, "no application for tax refund
or issuance of a tax credit certificate shall be allowed therefor."
• In the instant case, the evidence on record shows that petitioner clearly signified its
intention to be refunded of its excess creditable tax withheld for calendar year 2005 in its
 Annual ITR for the said year. Petitioner under Line 31 of the said ITR marked "x" on the
box "To be refunded". Moreover, petitioner's 2006 and 2007 Annual ITRs do not have any
entries in Line 28A "Prior Year's Excess Credits" which only prove that petitioner did not
carry-over its 2005 excess/unutilized creditable withholding tax to the succeeding taxable
years or quarters.
• In the case of Republic vs. Team (Phils) Energy Corporation, the requisite for entitlement
of refund are as follows:
1. That the claim for refund is filed within the two-year reglementary period pursuant to
Section 229 of the NIRC;
2. when it it shown on the ITR that the income payment received is being declared part of
the taxoayer‘s gross income;
3. When the fact of withholding is established by a copy of the withholding tax statement,
duly issued by the payor to the payee, showing the amount paid and income tax withheld
from that amount.

CIR v. CTA AND PETRON CORP.

G.R. No. 207843, July 15,1992

DOCTRINE: The power to decide disputed assessments, refunds of internal revenue taxes, fees
or other charges, penalties imposed in relation thereto, or other matters arising under this Code
or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the
Commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals. The CTA
is a court of special jurisdiction, with power to review by appeal decisions involving tax disputes
rendered by either the CIR or the COC. Conversely, it has no jurisdiction to determine the validity
of a ruling issued by the CIR or the COC in the exercise of their quasi-legislative powers to
interpret tax laws.

FACTS:
• Petron, which is engaged in the manufacture and marketing of petroleum products, imports
alkylate as a raw material or blending component for the manufacture of ethanol-blended
motor gasoline. For the period January 2009 to August 2011, as well as for the month of
April 2012, Petron transacted an aggregate of 22 separate importations for which petitioner
the Commissioner of Internal Revenue (CIR) issued Authorities to Release Imported Goods
(ATRIGs), categorically stating that Petron's importation of alkylate is exempt from the
payment of the excise tax because it was not among those articles enumerated as subject
to excise tax under Title VI of Republic Act No. (RA) 8424, as amended, or the 1997
National Internal Revenue Code (NIRC).
• With respect, however, to Petron's alkylate importations covering the period September
2011 to June 2012 (excluding April 2012), the CIR inserted, without prior notice, a
reservation for all ATRIGs issued, stating that:
• This is without prejudice to the collection of the corresponding excise taxes, penalties and
interest depending on the final resolution of the Office of the Commissioner on the issue of
whether this item is subject to the excise taxes under the National Internal Revenue Code
of 1997, as amended. In June 2012, Petron imported 12,802,660 liters of alkylate and paid
value-added tax (VAT) in the total amount of 41,657,533.00 as evidenced by Import Entry
and Internal Revenue Declaration (IEIRD) No. SN 122406532.
• Based on the Final Computation, said importation was subjected by the Collector of
Customs of Port Limay, Bataan, upon instructions of the Commissioner of Customs (COC),
to excise taxes of ₱4.35 per liter, or in the aggregate amount of ₱55,691,571.00, and
consequently, to an additional VAT of 12% on the imposed excise tax in the amount of
₱6,682,989.00.8 The imposition of the excise tax was supposedly premised on Customs
 Memorandum Circular (CMC) No. 164-2012 dated July 18, 2012, implementing the Letter
dated June 29, 2012 issued by the CIR, which states that: [A]lkylate which is a product of
distillation similar to that of naphta, is subject to excise tax under Section 148( e) of the
National Internal Revenue Code (NIRC) of 1997.

ISSUE: Whether or not the CTA properly assumed jurisdiction over the petition assailing the
imposition of excise tax on Petron's importation of alkylate based on Section 148 (e) of the NIRC.

HELD:
• The CIR asserts that the interpretation of the subject tax provision, i.e., Section 148 (e) of
the NIRC, embodied in CMC No. 164-2012, is an exercise of her quasi-legislative function
which is reviewable by the Secretary of Finance, whose decision, in turn, is appealable to
the Office of the President and, ultimately, to the regular courts, and that only her quasi-
judicial functions or the authority to decide disputed assessments, refunds, penalties and
the like are subject to the exclusive appellate jurisdiction of the CTA.
• She likewise contends that the petition suffers from prematurity due to Petron's failure to
exhaust all available remedies within the administrative level in accordance with the Tariff
and Customs Code (TCC). Section 4 of the NIRC confers upon the CIR both: (a) the power
to interpret tax laws in the exercise of her quasi-legislative function; and (b) the power to
decide tax cases in the exercise of her quasi-judicial function. It also delineates the
jurisdictional authority to review the validity of the CIR's exercise of the said powers, thus:
• SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax
Cases. - The power to interpret the provisions of this Code and other tax laws shall be
under the exclusive and original jurisdiction of the Commissioner, subject to review by the
Secretary of Finance.
**The power to decide disputed assessments, refunds of internal revenue taxes, fees or
other charges, penalties imposed in relation thereto, or other matters arising under this
Code or other laws or portions thereof administered by the Bureau of Internal Revenue is
vested in the Commissioner, subject to the exclusive appellate jurisdiction of the Court of
Tax Appeals.
• The CTA is a court of special jurisdiction, with power to review by appeal decisions
involving tax disputes rendered by either the CIR or the COC. Conversely, it has no
jurisdiction to determine the validity of a ruling issued by the CIR or the COC in the
exercise of their quasi-legislative powers to interpret tax laws.
• In this case, Petron's tax liability was premised on the COC's issuance of CMC No. 164-
2012, which gave effect to the CIR's June 29, 2012 Letter interpreting Section 148 (e) of
the NIRC as to include alkyl ate among the articles subject to customs duties, hence,
Petron's petition before the CTA ultimately challenging the legality and constitutionality of
the CIR's aforesaid interpretation of a tax provision. In line with the foregoing discussion,
however, the CIR correctly argues that the CTA had no jurisdiction to take cognizance of
the petition as its resolution would necessarily involve a declaration of the validity or
constitutionality of the CIR's interpretation of Section 148 (e) of the NIRC, which is subject
to the exclusive review by the Secretary of Finance and ultimately by the regular courts. As
the CIR aptly pointed out, the phrase "other matters arising under this Code," as stated in
the second paragraph of Section 4 of the NIRC, should be understood as pertaining to
those matters directly related to the preceding phrase "disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties imposed in relation thereto" and
must therefore not be taken in isolation to invoke the jurisdiction of the CTA. In other
words, the subject phrase should be used only in reference to cases that are, to begin
with, subject to the exclusive appellate jurisdiction of the CTA, i.e., those controversies
over which the CIR had exercised her quasi-judicial functions or her power to decide
disputed assessments, refunds or internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, not to those that involved the CIR's exercise of quasi-
legislative powers.
 • Besides, Petron prematurely invoked the jurisdiction of the CT A. Under Section 7 of RA
1125, as amended by RA 9282, what is appealable to the CT A is the decision of the COC
over a customs collector's adverse ruling on a taxpayer's protest: In this case, there was
even no tax assessment to speak of. While customs collector Federico Bulanhagui himself
admitted during the CTA's November 8, 2012 hearing that the computation he had written
at the back page of the IEIRD served as the final assessment imposing excise tax on
Petron's importation of alkylate, the Court concurs with the CIR's stance that the subject
IEIRD was not yet the customs collector's final assessment that could be the proper
subject of review.
• And even if it were, the same should have been brought first for review before the COC
and not directly to the CTA. It should be stressed that the CTA has no jurisdiction to review
by appeal, decisions of the customs collector. The TCC prescribes that a party adversely
affected by a ruling or decision of the customs collector may protest such ruling or decision
upon payment of the amount due35 and, if aggrieved by the action of the customs
collector on the matter under protest, may have the same reviewed by the COC. It is only
after the COC shall have made an adverse ruling on the matter may the aggrieved party
file an appeal to the CTA.
• Notably, Petron admitted to not having filed a protest of the assessment before the
customs collector and elevating a possible adverse ruling therein to the COC, reasoning
that such a procedure would be costly and impractical, and would unjustly delay the
resolution of the issues which, being purely legal in nature anyway, were also beyond the
authority of the customs collector to resolve with finality.
• This admission is at once decisive of the issue of the CTA's jurisdiction over the petition.
There being no protest ruling by the customs collector that was appealed to the COC, the
filing of the petition before the CTA was premature as there was nothing yet to
review.Verily, the fact that there is no decision by the COC to appeal from highlights
Petron's failure to exhaust administrative remedies prescribed by law. Before a party is
allowed to seek the intervention of the courts, it is a pre-condition that he avail of all
administrative processes afforded him, such that if a remedy within the administrative
machinery can be resorted to by giving the administrative officer every opportunity to
decide on a matter that comes within his jurisdiction, then such remedy must be exhausted
first before the court's power of judicial review can be sought, otherwise, the premature
resort to the court is fatal to one's cause of action. While there are exceptions to the
principle of exhaustion of administrative remedies, it has not been sufficiently shown that
the present case falls under any of the exceptions.

BANCO DE ORO, ET AL. v. REPUBLIC

G.R. No. 198756 , January 13, 2015, Leonen, J.

DOCTRINE 1: The rule on exhaustion of administrative remedies also finds no application when
the exhaustion will result in an exercise in futility.

DOCTRINE 2: The jurisdiction to review the rulings of the Commissioner of Internal Revenue
pertains to the Court of Tax Appeals.

DOCTRINE 3: In exceptional cases the Supreme Court entertains direct recourse to it when
dictated by public welfare and the advancement of public policy, or demanded by the broader
interest of justice, or the orders complained of were found to be patent nullities, or the appeal was
considered as clearly an inappropriate remedy.
FACTS:
• In 2001, the Caucus of Development NGO Networks (CODE-NGO) with the assistance of its
financial advisors, Rizal Commercial Banking Corp. (―RCBC‖), et al. requested an
approval from the Department of Finance for the issuance by the Bureau of Treasury (BOT)
of 10-year zero-coupon Treasury Certificates (T-notes). The T-notes would initially be
purchased by a special purpose vehicle on behalf of CODE-NGO, repackaged and sold at a
premium to investors as the PEACe Bonds.
• The BOT held an auction for the 10-year zero-coupon bonds. The BOT issued another
memorandum quoting excerpts of the ruling issued by the Bureau of Internal Revenue
(BIR) concerning the Bonds‘ exemption from 20% final withholding tax and the opinion of
the Monetary Board on reserve eligibility.
• After the auction, RCBC which participated on behalf of CODE-NGO was declared as the
winning bidder having tendered the lowest bids. Accordingly, the BOT issued P35 billion
worth of Bonds at yield-to-maturity of 12.75% to RCBC for approximately P10.17 billion,
resulting in a discount of approximately P24.83 billion.
• The RCBC entered into an underwriting agreement with CODE-NGO, whereby RCBC was
appointed as the Issue Manager and Lead Underwriter for the offering of the PEACe Bonds.
RCBC agreed to underwrite on a firm basis the offering, distribution and sale of the P35
billion Bonds at the price of P11,995,513,716.51. In Sec. 7(r) of the underwriting
agreement, CODE-NGO represented that “all income derived from the Bonds, inclusive of
premium on redemption and gains on the trading of the same, are exempt from all forms
of taxation as confirmed by BIR letter rulings dated 31 May 2001 and 16 August 2001,
respectively.”
• RCBC sold the Government Bonds in the secondary market for an issue price of
P11,995,513,716.51. Petitioners Banco De Oro, et al. purchased the PEACe Bonds on
different dates.
• On October 7, 2011, the Commissioner of Internal Revenue issued BIR Ruling No. 370-
2011 (2011 BIR Ruling), declaring that the PEACe Bonds being deposit substitutes are
subject to the 20% final withholding tax. Pursuant to this ruling, the Secretary of Finance
directed the Bureau of Treasury to withhold a 20% final tax from the face value of the
PEACe Bonds upon their payment at maturity on October 18, 2011. The BIR Ruling was
issued in response to a query of the Secretary of Finance on the proper tax treatment of
the discount or interest income derived from the Government Bonds.
• Petitioners filed a petition for certiorari, prohibition, and/or mandamus (with urgent
application for a temporary restraining order and/or writ of preliminary injunction) before
the Supreme Court (SC).
• The SC issued a TRO ―enjoining the implementation of BIR Ruling No. 370-2011 against
the PEACe Bonds, subject to the condition that the 20% final withholding tax on interest
income therefrom shall be withheld by the petitioner banks and placed in escrow pending
resolution of the petition.
• Respondents argued that petitioners‘ direct resort to the SC to challenge the 2011 BIR
Ruling violates the doctrines of exhaustion of administrative remedies and hierarchy of
courts, resulting in a lack of cause of action that justifies the dismissal of the petition.
According to them, “the jurisdiction to review the rulings of the Commissioner of Internal
Revenue, after the aggrieved party exhausted the administrative remedies, pertains to the
Court of Tax Appeals.”

ISSUE 1: Whether the petitioners violated the Doctrine of Exhaustion of Administrative remedies.

HELD:
• NO. Under Sec. 4 of the 1997 NIRC, interpretative rulings are reviewable by the Secretary
of Finance.
• SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax
 Cases.- The power to interpret the provisions of this Code and other tax laws shall be
under the exclusive and original jurisdiction of the Commissioner, subject to review by the
Secretary of Finance.
• Thus, it was held that “if superior administrative officers [can] grant the relief prayed for,
[then] special civil actions are generally not entertained.” The remedy within the
administrative machinery must be resorted to first and pursued to its appropriate
conclusion before the court‘s judicial power can be sought.
• Nonetheless, jurisprudence allows certain exceptions to the rule on exhaustion of
administrative remedies:
• [The doctrine of exhaustion of administrative remedies] is a relative one and its
flexibility is called upon by the peculiarity and uniqueness of the factual and circumstantial
settings of a case. Hence, it is disregarded (1) when there is a violation of due process, (2)
when the issue involved is purely a legal question, (3) when the administrative action is
patently illegal amounting to lack or excess of jurisdiction,(4) when there is estoppel on
the part of the administrative agency concerned,(5) when there is irreparable injury, (6)
when the respondent is a department secretary whose acts as an alter ego of the President
bears the implied and assumed approval of the latter, (7) when to require exhaustion of
administrative remedies would be unreasonable, (8) when it would amount to a
nullification of a claim, (9) when the subject matter is a private land in land case
proceedings, (10) when the rule does not provide a plain, speedy and adequate remedy,
(11) when there are circumstances indicating the urgency of judicial intervention.
• The exceptions under (2) and (11) are present in this case. The question involved is
purely legal, 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. Judicial intervention is likewise urgent with 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 Bureau of Internal Revenue. It appears that the
Secretary of Finance adopted the Commissioner of Internal Revenue‘s opinions as his own.
This position was in fact confirmed in the letter dated October 10, 2011 where he ordered
the Bureau of Treasury to withhold the amount corresponding to the 20% final withholding
tax on the interest or discounts allegedly due from the bondholders on the strength of the
2011 BIR Ruling.

ISSUE 2: Whether the petitioners violated the Doctrine of Hierarchy of Courts.

HELD:
• NO.
• We agree with respondents that the jurisdiction to review the rulings of the Commissioner
of Internal Revenue pertains to the Court of Tax Appeals. The questioned BIR Ruling Nos.
370-2011 and DA 378-2011 were issued in connection with the implementation of the
1997 National Internal Revenue Code on the taxability of the interest income from zero-
coupon bonds issued by the government.
• Under R.A. No. 1125 (An Act Creating the Court of Tax Appeals), as amended by R.A. No.
9282, such rulings of the Commissioner of Internal Revenue are appealable to that court,
thus:
• SEC. 7. Jurisdiction. - The CTA shall exercise:
a. Exclusive appellate jurisdiction to review by appeal, as herein provided:
 1. Decisions of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation
thereto, or other matters arising under the National Internal Revenue or other laws
administered by the Bureau of Internal Revenue;
• SEC. 18. Appeal to the Court of Tax Appeals En Banc. - No civil proceeding involving
matters arising under the National Internal Revenue Code, the Tariff and Customs Code or
the Local Government Code shall be maintained, except as herein provided, until and
unless an appeal has been previously filed with the CTA and disposed of in accordance with
the provisions of this Act.
• In Commissioner of Internal Revenue v. Leal, citing Rodriguez v. Blaquera, this court
emphasized the jurisdiction of the Court of Tax Appeals over rulings of the Bureau of
Internal Revenue, thus:
**While the Court of Appeals correctly took cognizance of the petition for certiorari,
however, let it be stressed that the jurisdiction to review the rulings of the Commissioner of
Internal Revenue pertains to the Court of Tax Appeals, not to the RTC. The questioned RMO
No. 15-91 and RMC No. 43-91 are actually rulings or opinions of the Commissioner.
• In exceptional cases, however, this Court entertained direct recourse to it when
―dictated by public welfare and the advancement of public policy, or demanded by the
broader interest of justice, or the orders complained of were found to be patent nullities, or
the appeal was considered as clearly an inappropriate remedy.
• 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.

BANCO DE ORO v. REPUBLIC

G.R. No. 198756 , August 16, 2016, Leonen, J.

DOCTRINE: The Court of Tax Appeals has exclusive jurisdiction to determine the constitutionality
or validity of tax laws, rules and regulations, and other administrative issuances of the
Commissioner of Internal Revenue.

HELD:
• We revert to the earlier rulings in Rodriguez, Leal, and Asia International Auctioneers, Inc.
The Court of Tax Appeals has exclusive jurisdiction to determine the constitutionality or
validity of tax laws, rules and regulations, and other administrative issuances of the
Commissioner of Internal Revenue.
• Article VIII, Section 1 of the 1987 Constitution provides the general definition of
judicial power:
• Section 1. The judicial power shall be vested in one Supreme Court and in such lower
courts as may be established by law.
• Judicial power includes the duty of the courts of justice to settle actual controversies
involving rights which are legally demandable and enforceable, and to determine whether
or not there has been a grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of any branch or instrumentality of the Government.
• This Court further explained that the Court of Tax Appeals' authority to issue writs of
certiorari is inherent in the exercise of its appellate jurisdiction.
• Judicial power likewise authorizes lower courts to determine the constitutionality or validity
of a law or regulation in the first instance. This is contemplated in the Constitution when it
speaks of appellate review of final judgments of inferior courts in cases where such
 constitutionality is in issue.
• In 2004, Republic Act No. 9282 was enacted. It expanded the jurisdiction of the Court of
Tax Appeals and elevated its rank to the level of a collegiate court with special jurisdiction.
Section 1 specifically provides that the Court of Tax Appeals is of the same level as the
Court of Appeals and possesses "all the inherent powers of a Court of Justice."
• Section 7, as amended, grants the Court of Tax Appeals the exclusive jurisdiction to
resolve all tax-related issues.
• The Court of Tax Appeals has undoubted jurisdiction to pass upon the constitutionality or
validity of a tax law or regulation when raised by the taxpayer as a defense in disputing or
contesting an assessment or claiming a refund. It is only in the lawful exercise of its power
to pass upon all maters brought before it, as sanctioned by Section 7 of Republic Act No.
1125, as amended.
• This Court, however, declares that the Court of Tax Appeals may likewise take cognizance
of cases directly challenging the constitutionality or validity of a tax law or regulation or
administrative issuance (revenue orders, revenue memorandum circulars, rulings).
• Section 7 of Republic Act No. 1125, as amended, is explicit that, except for local taxes,
appeals from the decisions of quasi-judicial agencies (Commissioner of Internal Revenue,
Commissioner of Customs, Secretary of Finance, Central Board of Assessment Appeals,
Secretary of Trade and Industry) on tax-related problems must be brought exclusively to
the Court of Tax Appeals.
• In other words, within the judicial system, the law intends the Court of Tax Appeals to have
exclusive jurisdiction to resolve all tax problems. Petitions for writs of certiorari against the
acts and omissions of the said quasi-judicial agencies should, thus, be filed before the
Court of Tax Appeals.
• RA No. 9282, a special and later law than BP Blg. 129 provides an exception to the original
jurisdiction of the Regional Trial Courts over actions questioning the constitutionality or
validity of tax laws or regulations. Except for local tax cases, actions directly challenging
the constitutionality or validity of a tax law or regulation or administrative issuance may be
filed directly before the Court of Tax Appeals.
• Furthermore, with respect to administrative issuances (revenue orders, revenue
memorandum circulars, or rulings), these are issued by the Commissioner under its power
to make rulings or opinions in connection with the implementation of the provisions of
internal revenue laws. Tax rulings, on the other hand, are official positions of the Bureau
on inquiries of taxpayers who request clarification on certain provisions of the National
Internal Revenue Code, other tax laws, or their implementing regulations. Hence, the
determination of the validity of these issuances clearly falls within the exclusive appellate
jurisdiction of the Court of Tax Appeals under Section 7(1) of Republic Act No. 1125, as
amended, subject to prior review by the Secretary of Finance, as required under Republic
Act No. 8424.

• Difference with Petron Case

• As the CIR aptly pointed out, the phrase "other matters arising under this Code," as
stated in the second paragraph of Section 4 of the NIRC, should be understood as
pertaining to those matters directly related to the preceding phrase "disputed assessments,
refunds of internal revenue taxes, fees or other charges, penalties imposed in relation
thereto" and must therefore not be taken in isolation to invoke the jurisdiction of the CTA.
In other words, the subject phrase should be used only in reference to cases that are, to
begin with, subject to the exclusive appellate jurisdiction of the CTA, i.e., those
controversies over which the CIR had exercised her quasi-judicial functions or her power to
decide disputed assessments, refunds or internal revenue taxes, fees or other charges,
penalties imposed in relation thereto, not to those that involved the CIR's exercise of
quasi-legislative powers.
• Hence, as the CIR's interpretation of a tax provision involves an exercise of her quasi-
 legislative functions, the proper recourse against the subject tax ruling expressed in CMC
No. 164-2012 is a review by the Secretary of Finance and ultimately the regular courts.

CITY OF MANILA v. GRECIA-CUERDO

715 SCRA 182, G.R. No. 175723 February 4, 2014

DOCTRINE: On June 16, 1954, Congress enacted Republic Act No. 1125 (RA 1125) creating the
CTA and giving to the said court jurisdiction over the following:
(1) Decisions of the Collector of Internal Revenue in cases involving disputed assessments,
refunds of internal revenue taxes, fees or other charges, penalties imposed in relation
thereto, or other matters arising under the National Internal Revenue Code or other law or
part of law administered by the Bureau of Internal Revenue;
(2) Decisions of the Commissioner of Customs in cases involving liability for customs duties,
fees or other money charges; seizure, detention or release of property affected fines,
forfeitures or other penalties imposed in relation thereto; or other matters arising under
the Customs Law or other law or part of law administered by the Bureau of Customs; and
(3) Decisions of provincial or City Boards of Assessment Appeals in cases involving the
assessment and taxation of real property or other matters arising under the Assessment
Law, including rules and regulations relative thereto.
• On March 30, 2004, the Legislature passed into law Republic Act No. 9282 (RA 9282)
amending RA 1125 by expanding the jurisdiction of the CTA, enlarging its membership and
elevating its rank to the level of a collegiate court with special jurisdiction.

FACTS:
• Petitioner City of Manila, through its treasurer, petitioner Liberty Toledo, assessed taxes for
the taxable period from January to December 2002 against private respondents SM Mart,
Inc., SM Prime Holdings, Inc., Star Appliances Center, Supervalue, Inc., Ace Hardware
Philippines, Inc., Watsons Personal Care Stores Phils., Inc., Jollimart Philippines Corp.,
Surplus Marketing Corp. and Signature Lines. In addition to the taxes purportedly due from
private respondents pursuant to Section 14, 15, 16, 17 of the Revised Revenue Code of
Manila (RRCM), said assessment covered the local business taxes petitioners were
authorized to collect under Section 21 of the same Code. Because payment of the taxes
assessed was a precondition for the issuance of their business permits, private respondents
were constrained to pay the ₱19,316,458.77 assessment under protest.
• Private respondents filed [with the Regional Trial Court of Pasay City] the complaint
denominated as one for "Refund or Recovery of Illegally and/or Erroneously-Collected Local
Business Tax, Prohibition with Prayer to Issue TRO and Writ of Preliminary Injunction"
• RTC granted private respondents' application for a writ of preliminary injunction.
Petitioners filed a Motion for Reconsideration but the RTC denied it in its Order. Petitioners
then filed a special civil action for certiorari with the CA assailing the July 9, 2004 and
October 15, 2004 Orders of the RTC.
• CA dismissed petitioners' petition for certiorari holding that it has no jurisdiction over the
said petition. The CA ruled that since appellate jurisdiction over private respondents'
complaint for tax refund, which was filed with the RTC, is vested in the Court of Tax
Appeals (CTA), pursuant to its expanded jurisdiction under Republic Act No. 9282 (RA
9282), it follows that a petition for certiorari seeking nullification of an interlocutory order
issued in the said case should, likewise, be filed with the CTA.
• Petitioners filed a Motion for Reconsideration, but the CA denied it. Hence, this petition.

ISSUE: Whether or not the CTA has jurisdiction over a special civil action for certiorari assailing
an interlocutory order issued by the RTC in a local tax case.
HELD:
• YES. Legislature passed into law Republic Act No. 9282 (RA 9282) amending RA 1125 by
expanding the jurisdiction of the CTA, enlarging its membership and elevating its rank to
the level of a collegiate court with special jurisdiction.
• While it is clearly stated that the CTA has exclusive appellate jurisdiction over decisions,
orders or resolutions of the RTCs in local tax cases originally decided or resolved by them
in the exercise of their original or appellate jurisdiction, there is no categorical statement
under RA 1125 as well as the amendatory RA 9282, which provides that th e CTA has
jurisdiction over petitions for certiorari assailing interlocutory orders issued by the RTC in
local tax cases filed before it.
• The prevailing doctrine is that the authority to issue writs of certiorari involves the exercise
of original jurisdiction which must be expressly conferred by the Constitution or by law and
cannot be implied from the mere existence of appellate jurisdiction.
• While there is no express grant of such power, with respect to the CTA, Section 1, Article
VIII of the 1987 Constitution provides, nonetheless, that judicial power shall be vested in
one Supreme Court and in such lower courts as may be established by law and that judicial
power includes the duty of the courts of justice to settle actual controversies involving
rights which are legally demandable and enforceable, and to determine whether or not
there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on
the part of any branch or instrumentality of the Government.
• On the strength of the above constitutional provisions, it can be fairly interpreted that the
power of the CTA includes that of determining whether or not there has been grave abuse
of discretion amounting to lack or excess of jurisdiction on the part of the RTC in issuing an
interlocutory order in cases falling within the exclusive appellate jurisdiction of the tax
court. It, thus, follows that the CTA, by constitutional mandate, is vested with jurisdiction
to issue writs of certiorari in these cases.
• Indeed, in order for any appellate court to effectively exercise its appellate jurisdiction, it
must have the authority to issue, among others, a writ of certiorari. In transferring
exclusive jurisdiction over appealed tax cases to the CTA, it can reasonably be assumed
that the law intended to transfer also such power as is deemed necessary, if not
indispensable, in aid of such appellate jurisdiction. There is no perceivable reason why the
transfer should only be considered as partial, not total.
• If this Court were to sustain petitioners' contention that jurisdiction over their certiorari
petition lies with the CA, this Court would be confirming the exercise by two judicial bodies,
the CA and the CTA, of jurisdiction over basically the same subject matter – precisely the
split-jurisdiction situation which is anathema to the orderly administration of justice.35 The
Court cannot accept that such was the legislative motive, especially considering that the
law expressly confers on the CTA, the tribunal with the specialized competence over tax
and tariff matters, the role of judicial review over local tax cases without mention of any
other court that may exercise such power. Thus, the Court agrees with the ruling of the CA
that since appellate jurisdiction over private respondents' complaint for tax refund is
vested in the CTA, it follows that a petition for certiorari seeking nullification of an
interlocutory order issued in the said case should, likewise, be filed with the same court. To
rule otherwise would lead to an absurd situation where one court decides an appeal in the
main case while another court rules on an incident in the very same case.
• Based on the foregoing disquisitions, it can be reasonably concluded that the authority of
the CTA to take cognizance of petitions for certiorari questioning interlocutory orders issued
by the RTC in a local tax case is included in the powers granted by the Constitution as well
as inherent in the exercise of its appellate jurisdiction.
• Finally, it would bear to point out that this Court is not abandoning the rule that, insofar as
quasi-judicial tribunals are concerned, the authority to issue writs of certiorari must still be
expressly conferred by the Constitution or by law and cannot be implied from the mere
existence of their appellate jurisdiction. This doctrine remains as it applies only to quasi-
 judicial bodies.

ASIATRUST DEVELOPMENT BANK, INC. v. COMMISSIONER OF INTERNAL REVENUE

G.R. No. 201530, April 19, 2017, DEL CASTILLO, J.:

FACTS:
• Asiatrust received from CIR three Formal Letters of Demand (FLD) with Assessment
Notices for deficiency internal revenue taxes in the amounts of P131,909,161.85,
P83,012,265.78, and ₱l44,012,918.42 for fiscal years ending June 30, 1996, 1997, and
1998, respectively.
• Asiatrust timely protested the assessment notices. Due to the inaction of the CIR on the
protest, Asiatrust filed before the CTA a Petition for Review.
• CIR issued against Asiatrust new Assessment Notices for deficiency taxes in the amounts of
₱l 12,816,258.73, ₱53,314,512.72, and ₱133,013,458.73, covering the fiscal years ending
June 30, 1996, 1997, and 1998, respectively.
• On the same day, Asiatrust partially paid said deficiency tax assessments. CIR approved
Asiatrust's Offer of Compromise of DST - regular assessments for the fiscal years ending
June 30, 1996, 1997, and 1998.
• CTA Division rendered a Decision partially granting the Petition. The CTA Division
declared void the tax assessments for fiscal year ending June 30, 1996 for having been
issued beyond the three-year prescriptive period.
• Asiatrust filed a Motion for Reconsideration. The CIR, on the other hand, filed a Motion for
Partial Reconsideration of the assessments assailing the CTA Division's finding of
prescription and cancellation of assessment notices for deficiency income, DST - regular,
DST - trust, and fringe benefit tax for fiscal years ending June 30, 1997 and 1998.
• CTA Division issued a Resolution denying the motion of the CIR while partially granting the
motion of Asiatrust. Meanwhile, the CIR appealed however dismissed the Petition for being
premature considering that the proceedings before the CTA Division was still pending.
• Both parties appealed to CTA En Banc which denied both appeals. It denied the CIR' s
appeal for failure to file a prior motion for reconsideration of the Amended Decision, while
it denied Asiatrust's appeal for lack of merit. Hence, this petition.

ISSUE: WHETHER OR NOT THE CTA EN BANC COMMITTED REVERSIBLE ERROR WHEN IT
DISMISSED [THE CIR'S] PETITION FOR REVIEW ON THE GROUND THAT THE LATTER ALLEGEDLY
FAILED TO COMPLY WITH SECTION 1, RULE 8 OF THE REVISED RULES OF THE CTA.

HELD:
• NO. An appeal to the CTA En Banc must be preceded by the filing of a timely motion for
reconsideration or new trial with the CTA Division.
• Section 1, Rule 8 of the Revised Rules of the CTA states:
• SECTION 1. Review of cases in the Court en banc. - In cases falling under the
exclusive appellate jurisdiction of the Court en bane, the petition for review of a decision or
resolution of the Court in Division must be preceded by the filing of a timely motion for
reconsideration or new trial with the Division.
• Thus, in order for the CTA En Banc to take cognizance of an appeal via a petition for
review, a timely motion for reconsideration or new trial must first be filed with the CTA
Division that issued the assailed decision or resolution. Failure to do so is a ground for the
dismissal of the appeal as the word "must" indicates that the filing of a prior motion is
mandatory, and not merely directory.
• The same is true in the case of an amended decision. Section 3, Rule 14 of the same rules
 defines an amended decision as "[a]ny action modifying or reversing a decision of the
Court en bane or in Division." As explained in CE Luzon Geothermal Power Company, Inc.
v. Commissioner of Internal Revenue, an amended decision is a different decision, and
thus, is a proper subject of a motion for reconsideration. In this case, the CIR's failure to
move for a reconsideration of the Amended Decision of the CTA Division is a ground for the
dismissal of its Petition for Review before the CTA En Banc. Thus, the CTA En Banc did not
err in denying the CIR's appeal on procedural grounds. Due to this procedural lapse, the
Amended Decision has attained finality insofar as the CIR is concerned. The CIR, therefore,
may no longer question the merits of the case before this Court. Accordingly, there is no
reason for the Court to discuss the other issues raised by the CIR.
• As the Court has often held, procedural rules exist to be followed, not to be trifled with,
and thus, may be relaxed only for the most persuasive reasons.

POWER SECTOR ASSETS AND LIABILITIES MANAGEMENT CORPORATION v. CIR

GR No. 198146 dated August 8, 2017

DOCTRINE: All disputes and claims solely between government agencies and offices,
government-owned or controlled corporation, shall be administratively settled by the Secretary of
Justice, the Solicitor General or the Government Corporate Counsel.

FACTS:
• Petitioner Power Sector Assets and Liabilities Management Corporation (PSALM) is a
government-owned and controlled corporation created under Republic Act No. 9136 (RA
9136), also known as the Electric Power Industry Reform Act of 2001 (EPIRA). Section 50
of RA 9136 states that the principal purpose of PSALM is to manage the orderly sale,
disposition, and privatization of the National Power Corporation (NPC) generation assets,
real estate and other disposable assets, and Independent Power Producer (IPP) contracts
with the objective of liquidating all NPC financial obligations and stranded contract costs in
an optimal manner.
• PSALM conducted public biddings for the privatization of the Pantabangan-Masiway
Hydroelectric Power Plant (Pantabangan-Masiway Plant) and Magat Hydroelectric Power
Plant (Magat Plant) on 8 September 2006 and 14 December 2006, respectively. First Gen
Hydropower Corporation with its $129 Million bid and SN Aboitiz Power Corporation with its
$530 Million bid were the winning bidders for the PantabanganMasiway Plant and Magat
Plant, respectively.
• On 28 August 2007, the NPC received a letter dated 14 August 2007 from the Bureau of
Internal Revenue (BIR) demanding immediate payment of ₱3,813,080,4726 deficiency
value-added tax (VAT) for the sale of the Pantabangan-Masiway Plant and Magat Plant. The
NPC indorsed BIR's demand letter to PSALM.
• On 30 August 2007, the BIR, NPC, and PSALM executed a Memorandum of Agreement
(MOA). In compliance with the MOA, PSALM remitted under protest to the BIR the amount
of ₱3, 813, 080, 472, representing the total basic VAT due.
• On 21 September 2007, PSALM filed with the Department of Justice (DOJ) a petition for
the adjudication of the dispute with the BIR to resolve the issue of whether the sale of the
power plants should be subject to VAT. The case was docketed as OSJ Case No. 2007-3.
• On 13 March 2008, the DOJ ruled in favor of PSALM. The BIR moved for reconsideration,
alleging that the DOJ had no jurisdiction since the dispute involved tax laws administered
by the BIR and therefore within the jurisdiction of the Court of Tax Appeals (CTA).
Furthermore, the BIR stated that the sale of the subject power plants by PSALM to private
entities is in the course of trade or business, as contemplated under Section 105 of the
National Internal Revenue Code (NIRC) of 1997, which covers incidental transactions.
 Thus, the sale is subject to VAT. But this is to no avail.
• The BIR Commissioner (Commissioner of Internal Revenue) filed with the Court of Appeals
a petition for certiorari, seeking to set aside the DOJ's decision for lack of jurisdiction. In a
Resolution dated 23 April 2009, the Court of Appeals dismissed the petition for failure to
attach the relevant pleadings and documents. Upon motion for reconsideration, the Court
of Appeals reinstated the petition in its Resolution dated 10 July 2009.
• The Court of Appeals held that the petition filed by PSALM with the DOJ was really a
protest against the assessment of deficiency VAT, which under Section 204 of the NIRC of
1997 is within the authority of the Commissioner of Internal Revenue (CIR) to resolve. In
fact, PSALM's objective in filing the petition was to recover the ₱3,813,080,472 VAT which
was allegedly assessed erroneously and which PSALM paid under protest to the BIR.
• Power Sector Assets & Liabilities Management Corporation (PSALM) filed a Petition for
Review seeking the reversal of the earlier decision and resolution of the Court of Appeals
nullifying the decision of the Secretary of Justice.

ISSUE: Whether or not the Secretary of Justice has jurisdiction over the case.

HELD:
• It was noted that the DOJ is vested by law to have jurisdiction over this case pursuant to
Presidential Decree No. 242 which states that all disputes and claims solely between
government agencies and offices, government-owned or controlled corporation, shall be
administratively settled by the Secretary of Justice, the Solicitor General or the
Government Corporate Counsel. The SC ruled that the sale of the power plants is not
subject to VAT since the sale was made pursuant to PSALMS‘s mandate to privatize NPC
assets and was not undertaken in the course of trade or business, thus, PSALM was merely
exercising a governmental function under EPIRA law.