Purple Wings

Friday, January 13, 2012

Digested Cases in Taxation

1. CIR V PASCOR REALTY & DEV’T CORP et. al.

GR No. 128315, June 29, 1999

Facts: The CIR authorized certain BIR officers to examine the books of accounts and other accounting
records of Pascor Realty and Development Corp. (PRDC) for 1986, 1987 and 1988. The examination
resulted in recommendation for the issuance of an assessment of P7,498,434.65 and P3,015,236.35 for
1986 and 1987, respectively. The Commissioner filed a criminal complaint for tax evasion against PRDC,
its president and treasurer before the DOJ. Private respondents filed immediately an urgent request for
reconsideration on reinvestigation disputing the tax assessment and tax liability. The Commissioner
denied private respondent’s request for reconsideration/reinvestigation on the ground that no formal
assessment has been issued which the latter elevated to the CTA on a petition for review. The
Commissioner’s motion to dismiss on the ground of the CTA’s lack of jurisdiction denied by CTA and
ordered the Commissioner to file an answer. Instead of complying with the order of CTA, Commissioner
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 the CTA. The CA sustained the CTA decision and dismissed the
petition.

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

Held: The filing of the criminal complaint with the DOJ cannot be construed as a formal assessment.
Neither the Tax Code nor the revenue regulations governing the protest assessments provide a specific
definition or form of an assessment.
An assessment must be sent to and received by the taxpayer, and must demand payment of the taxes
described therein within a specific period. The revenue officer’s affidavit merely contained a
computation of respondent’s tax liability. It did not state a demand or period for payment. It was
addressed to the Secretary of Justice not to the taxpayer. They joint affidavit was meant to support the
criminal complaint for tax evasion; it was not meant to be a notice of tax due and a demand to private
respondents for the payment thereof. The fact that the complaint was sent to the DOJ, and not to private
respondent, shows that commissioner intended to file a criminal complaint for tax evasion, not to issue
an assessment.

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

2. Marcos II vs. CA

273 SCRA 47 1997

Facts: Ferdinand R. Marcos II assailed the decision of the Court of Appeals declaring the deficiency
income tax assessments and estate tax assessments upon the estate and properties of his late father
despite the pendency of the probate proceedings of the will of the late President. On the other hand,
the BIR argued that the State’s authority to collect internal revenue taxes is paramount.

Petitioner further argues that "the numerous pending court cases questioning the late president's
ownership or interests in several properties (both real and personal) make the total value of his estate,
and the consequent estate tax due, incapable of exact pecuniary determination at this time. Thus,
respondents' assessment of the estate tax and their issuance of the Notices of Levy and sale are
premature and oppressive." He points out the pendency of Sandiganbayan Civil Case Nos. 0001-0034
and 0141, which were filed by the government to question the ownership and interests of the late
President in real and personal properties located within and outside the Philippines. Petitioner,
however, omits to allege whether the properties levied upon by the BIR in the collection of estate taxes
upon the decedent's estate were among those involved in the said cases pending in the Sandiganbayan.
Indeed, the court is at a loss as to how these cases are relevant to the matter at issue. The mere fact
that the decedent has pending cases involving ill-gotten wealth does not affect the enforcement of tax
assessments over the properties indubitably included in his estate.
Issue: Is the contention of Marcos correct?

Held: No. The approval of the court, sitting in probate or as a settlement tribunal over the deceased’s
estate, is not a mandatory requirement in the collection of estate taxes.

There is nothing in the Tax Code, and in the pertinent remedial laws that implies the necessity of the
probate or estate settlement court's approval of the state's claim for estate taxes, before the same can
be enforced and collected.

The enforcement of tax laws and the collection of taxes are of paramount importance for the sustenance
of government. Taxes are the lifeblood of government and should be collected without unnecessary
hindrance. However, such collection should be made in accordance with law as any arbitrariness will
negate the existence of government itself.

It is not the Department of Justice which is the government agency tasked to determine the amount of
taxes due upon the subject estate, but the Bureau of Internal Revenue whose determinations and
assessments are presumed correct and made in good faith. The taxpayer has the duty of proving
otherwise. In the absence of proof of any irregularities in the performance of official duties, an
assessment will not be disturbed. Even an assessment based on estimates is prima facie valid and lawful
where it does not appear to have been arrived at arbitrarily or capriciously. The burden of proof is upon
the complaining party to show clearly that the assessment is erroneous. Failure to present proof of error
in the assessment will justify the judicial affirmance of said assessment. In this instance, petitioner has
not pointed out one single provision in the Memorandum of the Special Audit Team which gave rise to
the questioned assessment, which bears a trace of falsity. Indeed, the petitioner's attack on the
assessment bears mainly on the alleged improbable and unconscionable amount of the taxes charged.
But mere rhetoric cannot supply the basis for the charge of impropriety of the assessments made.

3. Meralco Securities Corporation vs. Savellano

GR No. L-36181 October 23, 1982

Facts: On May 22, 1967, the late Juan G. Maniago (substituted in these proceedings by his wife and
children) submitted to petitioner Commissioner of Internal Revenue confidential denunciation against
the Meralco Securities Corporation for tax evasion for having paid income tax only on 25 % of the
dividends it received from the Manila Electric Co. for the years 1962-1966, thereby allegedly
shortchanging the government of income tax due from 75% of the said dividends.

Petitioner Commissioner of Internal Revenue caused the investigation of the denunciation after which he
found and held that no deficiency corporate income tax was due from the Meralco Securities
Corporation on the dividends it received from the Manila Electric Co. and accordingly denied Maniago's
claim for informer's reward on a non-existent deficiency.

On August 28, 1970, Maniago filed a petition for mandamus, and subsequently an amended petition for
mandamus, in the Court of First Instance of Manila, docketed therein as Civil Case No. 80830, against the
Commissioner of Internal Revenue and the Meralco Securities Corporation to compel the Commissioner
to impose the alleged deficiency tax assessment on the Meralco Securities Corporation and to award to
him the corresponding informer's reward under the provisions of R.A. 2338. Respondent judge granted
the said petition and thereafter, denied the motions for reconsideration filed by all the parties.

Issues: (1) Whether or not respondent judge has jurisdiction over the subject matter of the case; (2)
Whether or not respondent heirs of Maniago are entitled to informer’s reward.

Held: (1) Respondent judge has no jurisdiction to take cognizance of the case because the subject matter
thereof clearly falls within the scope of cases now exclusively within the jurisdiction of the Court of Tax
Appeals. Section 7 of Republic Act No. 1125, enacted June 16, 1954, granted to the Court of Tax Appeals
exclusive appellate jurisdiction to review by appeal, among others, 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 or part of law administered by the Bureau of Internal Revenue. The law
transferred to the Court of Tax Appeals jurisdiction over all cases involving said assessments previously
cognizable by courts of first instance, and even those already pending in said courts. The question of
whether or not to impose a deficiency tax assessment on Meralco Securities Corporation undoubtedly
comes within the purview of the words "disputed assessments" or of "other matters arising under the
National Internal Revenue Code . . . .In the case of Blaquera vs. Rodriguez, et al, this Court ruled that "the
determination of the correctness or incorrectness of a tax assessment to which the taxpayer is not
agreeable, falls within the jurisdiction of the Court of Tax Appeals and not of the Court of First Instance,
for under the provisions of Section 7 of Republic Act No. 1125, the Court of Tax Appeals has exclusive
appellate jurisdiction to review, on appeal, any decision of the Collector of Internal Revenue in cases
involving disputed assessments and other matters arising under the National Internal Revenue Code or
other law or part of law administered by the Bureau of Internal Revenue."
(2) Considering then that respondent judge may not order by mandamus the Commissioner to issue the
assessment against Meralco Securities Corporation when no such assessment has been found to be due,
no deficiency taxes may therefore be assessed and collected against the said corporation. Since no taxes
are to be collected, no informer's reward is due to private respondents as the informer's heirs. Informer's
reward is contingent upon the payment and collection of unpaid or deficiency taxes. An informer is
entitled by way of reward only to a percentage of the taxes actually assessed and collected. Since no
assessment, much less any collection, has been made in the instant case, respondent judge's writ for the
Commissioner to pay respondents 25% informer's reward is gross error and without factual nor legal
basis.

Petitions granted and the questioned decision of respondent judge and order reversed and set aside.

4. SY PO vs. CTA

G.R. No. 81446; August 18, 1988

Facts: Po Bien Sing, the sole proprietor of Silver Cup Wine Factory (SCWF), engaged in the business of
manufacture and sale of compounded liquors. On the basis of a denunciation against SCWF allegedly
"for tax evasion amounting to millions of pesos, Secretary of Finance directed the Finance-BIR--NBI team
to investigate.

On the basis of the team's report of investigation, the respondent Commissioner of Internal Revenue
assessed Mr. Po Bien Sing deficiency income tax for 1966 to 1970 in the amount of P7,154,685.16 and
for deficiency specific tax for January 2,1964 to January 19, 1972 in the amount of P5,595,003.68

Petitioner protested the deficiency assessments. The BIR recommended the reiteration of the
assessments in view of the taxpayer's persistent failure to present the books of accounts for
examination.

Issue: WON the assessments have valid and legal basis.

Held: The law is specific and clear. The rule on “The Best Evidence Obtainable” applies when a tax report
required by law for the purpose of assessment is not available or when tax report is incomplete or
fraudulent.

The tax assessment by tax examiners are presumed correct and made in good faith. The taxpayer has the
duty to prove otherwise. In the absence of proof of irregularities in the performance of duties, an
assessment duly made by the BIR examiner and approved by his superior officers will not be disturbed.
All presumptions are in favour of the correctness of tax assessments.

5. CIR vs. CA, CTA and FORTUNE TOBACCO CORP.

G.R. No. 119761; August 29, 1996

Facts: Fortune Tobacco Corporation ("Fortune Tobacco"), engaged in the manufacture of different brands
of cigarettes, registered "Champion," "Hope," and "More" cigarettes. BIR classified them as foreign
brands since they were listed in the World Tobacco Directory as belonging to foreign companies.
However, Fortun changed the names of 'Hope' to 'Hope Luxury' and 'More' to 'Premium More,' thereby
removing the said brands from the foreign brand category.

A 45% Ad Valorem taxes were imposed on these brands. Then Republic Act ("RA") No. 7654 was enacted
– 55% for locally manufactured foreign brand while 45% for locally manufactured brands. 2 days before
the effectivity of RA 7654, Revenue Memorandum Circular No. 37-93 ("RMC 37-93"), was issued by the
BIR saying since there is no showing who the real owner/s are of Champion, Hope and More, it follows
that the same shall be considered locally manufactured foreign brand for purposes of determining the ad
valorem tax - 55%. BIR sent via telefax a copy of RMC 37-93 to Fortune Tobacco addressed to no one in
particular. Then Fortune Tobacco received, by ordinary mail, a certified xerox copy of RMC 37-93. CIR
assessed Fortune Tobacco for ad valorem tax deficiency amounting to P9,598,334.00.

Fortune Tobacco filed a petition for review with the CTA. 8 CTA upheld the position of Fortune. CA
affirmed.

Issue: WON it was necessary for BIR to follow the legal requirements when it issued its RMC
Held. YES. CIR may not disregard legal requirements in the exercise of its quasi-legislative powers which
publication, filing, and prior hearing.

When an administrative rule is merely interpretative in nature, its applicability needs nothing further
than its bare issuance for it gives no real consequence more than what the law itself has already
prescribed. BUT when, upon the other hand, the administrative rule goes beyond merely providing for
the means that can facilitate or render least cumbersome the implementation of the law but
substantially increases the burden of those governed, the agency must accord, at least to those directly
affected, a chance to be heard, before that new issuance is given the force and effect of law.

RMC 37-93 cannot be viewed simply as construing Section 142(c)(1) of the NIRC, as amended, but has, in
fact and most importantly, been made in order to place "Hope Luxury," "Premium More" and
"Champion" within the classification of locally manufactured cigarettes bearing foreign brands and to
thereby have them covered by RA 7654 which subjects mentioned brands to 55% the BIR not simply
interpreted the law; verily, it legislated under its quasi-legislative authority. The due observance of the
requirements of notice, of hearing, and of publication should not have been then ignored.

6. CIR v. Benguet Corp

G.R. Nos. 134587 and 134588; January 8, 2005

Facts: Benguet Corporation is a domestic corporation engaged in the exploration, development and
operation of mineral resources, and the sale or marketing thereof to various entities. It is a VAT
registered enterprise.

The transactions in question occurred during the period between 1988 and 1991. Under Sec. 99 of NIRC
as amended by E.O. 273 s. 1987 then in effect, any person who, in the course of trade or business, sells,
barters or exchanges goods, renders services, or engages in similar transactions and any person who
imports goods is liable for output VAT at rates of either 10% or 0% (zero-rated) depending on the
classification of the transaction under Sec. 100 of the NIRC.

In January of 1988, Benguet applied for and was granted by the BIR zero-rated status on its sale of gold
to Central Bank. On 28 August 1988 VAT Ruling No. 3788-88 was issued which declared that the sale of
gold to Central Bank is considered as export sale subject to zero-rate pursuant to

Section 100 of the Tax Code, as amended by EO 273.

Relying on its zero-rated status and the above issuances, Benguet sold gold to the Central Bank during
the period of 1 August 1989 to 31 July 1991 and entered into transactions that resulted in input VAT
incurred in relation to the subject sales of gold. It then filed applications for tax refunds/credits

corresponding to input VAT.

However, such request was not granted due to BIR VAT Ruling No. 008-92 dated 23 January 1992 that
was issued subsequent to the consummation of the subject sales of gold to the Central Ban`k which
provides that sales of gold to the Central Bank shall not be considered as export sales and thus, shall be
subject to 10% VAT. BIR VAT Ruling No. 008-92 withdrew, modified, and superseded all inconsistent BIR
issuances.

Both petitioner and Benguet agree that the retroactive application of VAT Ruling No. 008-92 is valid only
if such application would not be prejudicial to the Benguet pursuant Sec. 246 of the NIRC.

Issues: (1) WON Benguet’s sale of gold to the Central Bank during the

period when such was classified by BIR issuances as zerorated could be taxed validly at a 10% rate after
the consummation of the transactions involved; (2) WON there was prejudice to Benguet Corp due to
the new BIR VAT Ruling.

Held: (1) NO. At the time when the subject transactions were consummated, the prevailing BIR
regulations relied upon by Benguet ordained that gold sales to the Central Bank were zero-rated.
Benguet should not be faulted for relying on the BIRs interpretation of the said laws and regulations.

While it is true, as CIR alleges, that government is not estopped from collecting taxes which remain
unpaid on account of the errors or mistakes of its agents and/or officials and there could be no vested
right arising from an erroneous interpretation of law, these principles must give way to

exceptions based on and in keeping with the interest of justice and fair play. (then the Court cited the
ABS-CBN case).

(2) YES. The adverse effect is that Benguet Corp became the unexpected and unwilling debtor to the BIR
of the amount equivalent to the total VAT cost of its product, a liability it previously could have
recovered from the BIR in a zero-rated scenario or at least passed on to the Central Bank had it known it
would have been taxed at a 10% rate. Thus, it is clear that Benguet suffered economic prejudice when it
consummated sales of gold to the Central Bank were taken out of the zero-rated category. The change in
the VAT rating of Benguet’s transactions with the Central Bank resulted in the twin loss of its exemption
from payment of output VAT and its opportunity to recover input VAT, and at the same time subjected it
to the 10% VAT sans the option to pass on this cost to the Central Bank, with the total prejudice in
money terms being equivalent to the 10% VAT levied on its sales of gold to the Central Bank.

Even assuming that the right to recover Benguets excess payment of income tax has not yet prescribed,
this relief would only address Benguet’s overpayment of income tax but not the other burdens discussed
above. Verily, this remedy is not a feasible option for Benguet because the very reason why it was issued
a deficiency tax assessment is that its input VAT

was not enough to offset its retroactive output VAT. Indeed, the burden of having to go through an
unnecessary and cumbersome refund process is prejudice enough.

7. CIR v Bursmeiters & Wain Scandinavian

GR 153205; January 22, 2007

Facts: A foreign consortium, parent company of Burmeister, entered into an O&M contract with NPC. The
foreign entity then subcontracted the actual O&M to Burmeister. NPC paid the foreign consortium a
mixture of currencies while the consortium, in turn, paid Burmeister foreign currency inwardly remitted
into the Philippines. BIR did not want to grant refund since the services are “not destined for
consumption abroad” (or the destination principle).

Issue: Are the receipts of Burmeister entitled to VAT zero-rated status?

Held: PARTIALLY. Respondent is entitled to the refund prayed for BUT ONLY for the period covered prior
to the filing of CIR’s Answer in the CTA.

The claim has no merit since the consortium, which was the recipient of services rendered by
Burmeister, was deemed doing business within the Philippines since its 15-year O&M with NPC can not
be interpreted as an isolated transaction.
In addition, the services referring to ‘processing, manufacturing, repacking’ and ‘services other than
those in (1)’ of Sec. 102 both require (i) payment in foreign currency; (ii) inward remittance; (iii)
accounted for by the BSP; AND (iv) that the service recipient is doing business outside the Philippines.
The Court ruled that if this is not the case, taxpayers can circumvent just by stipulating payment in
foreign currency.

The refund was partially allowed since Burmeister secured a ruling from the BIR allowing zero-rating of
its sales to foreign consortium. However, the ruling is only valid until the time that CIR filed its Answer in
the CTA which is deemed revocation of the previously-issued ruling. The Court said the revocation can
not retroact since none of the instances in Section 246 (bad faith, omission of facts, etc.) are present.

8. CIR vs. HANTEX TRADING CO., INC.

G.R. No. 136975; March 31, 2005

Facts: Hantex Trading Co is a company organized under the Philippines. It is engaged in the sale of plastic
products, it imports synthetic resin and other chemicals for the manufacture of its products. For this
purpose, it is required to file an Import Entry and Internal Revenue Declaration (Consumption Entry) with
the Bureau of Customs under Section 1301 of the Tariff and Customs Code. Sometime in October 1989,
Lt. Vicente Amoto, Acting Chief of Counter-Intelligence Division of the Economic Intelligence and
Investigation Bureau (EIIB), received confidential information that the respondent had imported
synthetic resin amounting to P115,599,018.00 but only declared P45,538,694.57. Thus, Hentex receive a
subpoena to present its books of account which it failed to do. The bureau cannot find any original
copies of the products Hentex imported since the originals were eaten by termites. Thus, the Bureau
relied on the certified copies of the respondent’s Profit and Loss Statement for 1987 and 1988 on file
with the SEC, the machine copies of the Consumption Entries, Series of 1987, submitted by the informer,
as well as excerpts from the entries certified by Tomas and Danganan. The case was submitted to the CTA
which ruled that Hentex have tax deficiency and is ordered to pay, per investigation of the Bureau. The
CA ruled that the income and sales tax deficiency assessments issued by the petitioner were unlawful
and baseless since the copies of the import entries relied upon in computing the deficiency tax of the
respondent were not duly authenticated by the public officer charged with their custody, nor verified
under oath by the EIIB and the BIR investigators.
Issue: Whether or not the final assessment of the petitioner against the respondent for deficiency
income tax and sales tax for the latter’s 1987 importation of resins and calcium bicarbonate is based on
competent evidence and the law.

Held: Central to the second issue is Section 16 of the NIRC of 1977, as amended which provides that the
Commissioner of Internal Revenue has the power to make assessments and prescribe additional
requirements for tax administration and enforcement. Among such powers are those provided in
paragraph (b), which provides that “Failure to submit required returns, statements, reports and other
documents. – When a report required by law as a basis for the assessment of any national internal
revenue tax shall not be forthcoming within the time fixed by law or regulation or when there is reason
to believe that any such report is false, incomplete or erroneous, the Commissioner shall assess the
proper tax on the best evidence obtainable.” This provision applies when the Commissioner of Internal
Revenue undertakes to perform her administrative duty of assessing the proper tax against a taxpayer, to
make a return in case of a taxpayer’s failure to file one, or to amend a return already filed in the BIR. The
“best evidence” envisaged in Section 16 of the 1977 NIRC, as amended, includes the corporate and
accounting records of the taxpayer who is the subject of the assessment process, the accounting records
of other taxpayers engaged in the same line of business, including their gross profit and net profit sales.
Such evidence also includes data, record, paper, document or any evidence gathered by internal revenue
officers from other taxpayers who had personal transactions or from whom the subject taxpayer
received any income; and record, data, document and information secured from government offices or
agencies, such as the SEC, the Central Bank of the Philippines, the Bureau of Customs, and the Tariff and
Customs Commission. However, the best evidence obtainable under Section 16 of the 1977 NIRC, as
amended, does not include mere photocopies of records/documents. The petitioner, in making a
preliminary and final tax deficiency assessment against a taxpayer, cannot anchor the said assessment on
mere machine copies of records/documents. Mere photocopies of the Consumption Entries have no
probative weight if offered as proof of the contents thereof. The reason for this is that such copies are
mere scraps of paper and are of no probative value as basis for any deficiency income or business taxes
against a taxpayer.

Companies exempt from zero-rate tax

9. BPI v CIR

G.R No. 139786O; ctober 17, 2005

Facts: The BIR issued an Assessment for a deficiency of Documentary Stamp Tax (DST). The petitioner
filed a protest letter, requesting for reconsideration with BIR however the latter did not reply. Instead,
BIR issued a warrant for distraint/levy against petitioner BPI. The petitioner did not hear from BIR until
September 11, 1997 when then Commissioner Liwayway Vinzons-Chado, denied its request for
reconsideration. Subsequently, the petitioner filed a petition for review with the CTA, raising the defense
of prescription. The CTA denied the petition and held that the period of prescription had not yet
prescribed nonetheless, it held that the petitioner was not liable for the deficiency of DST. On appeal,
the CA reversed the ruling of CTA on the issue of DST tax and held that the petitioner was indeed liable
for DST.

Issue: Whether or not the right of the respondent to collect from petitioner BPIis barred by prescription?

Held : Yes, the Court ruled that the period to collect has already prescribed. 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 or 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.

In their Decisions, both the CTA and the Court of Appeals found that the filing by petitioner BPI of a
protest letter suspended the running of the prescriptive period for collecting the assessed DST. This
Court, however, takes the opposing view, and, based on the succeeding discussion, concludes that there
is no valid ground for suspending the running of the prescriptive period for collection of the deficiency
DST assessed against petitioner BPI.

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

10. ESTATE OF THE LATE JULIANA DIEZ VDA. DE GABRIEL vs. CIR

GR. No. 155541; January 27, 2004

Facts: During the lifetime of the decedent Juliana vda. De Gabriel, her business affairs were managed by
the Philippine Trust Company (PhilTrust). The decedent died on April 3, 1979 but two days after her
death, PhilTrust filed her income tax return for 1978 not indicating that the decedent had died. The BIR
conducted an administrative investigation of the decedent’s tax liability and found a deficiency income
tax for the year 1997 in the amount of P318,233.93. Thus, in November 18, 1982, the BIR sent by
registered mail a demand letter and assessment notice addressed to the decedent “c/o PhilTrust, Sta.
Cruz, Manila, which was the address stated in her 1978 income tax return. On June 18, 1984, respondent
Commissioner of Internal Revenue issued warrants of distraint and levy to enforce the collection of
decedent’s deficiency income tax liability and serve the same upon her heir, Francisco Gabriel. On
November 22, 1984, Commissioner filed a motion to allow his claim with probate court for the deficiency
tax. The Court denied BIR’s claim against the estate on the ground that no proper notice of the tax
assessment was made on the proper party. On appeal, the CA held that BIR’s service on PhilTrust of the
notice of assessment was binding on the estate as PhilTrust failed in its legal duty to inform the
respondent of antecedent’s death. Consequently, as the estate failed to question the assessment within
the statutory period of thirty days, the assessment became final, executory, and incontestable.

Issue: (1) Whether or not the CA erred in holding that the service of deficiency tax assessment on Juliana
through PhilTrust was a valid service as to bind the estate; (2) Whether or not the CA erred in holding
that the tax assessment had become final, executory, and incontestable.

Held: (1) Since the relationship between PhilTrust and the decedent was automatically severed the
moment of the taxpayer’s death, none of the PhilTrust’s acts or omissions could bind the estate of the
taxpayer. Although the administrator of the estate may have been remiss in his legal obligation to inform
respondent of the decedent’s death, the consequence thereof merely refer to the imposition of certain
penal sanction on the administrator. These do not include the indefinite tolling of the prescriptive period
for making deficiency tax assessment or waiver of the notice requirement for such assessment.

(2) The assessment was served not even on an heir or the estate but on a completely disinterested party.
This improper service was clearly not binding on the petitioner. The most crucial point to be
remembered is that PhilTust had absolutely no legal relationship with the deceased or to her Estate.
There was therefore no assessment served on the estate as to the alleged underpayment of tax. Absent
this assessment, no proceeding could be initiated in court for collection of said tax; therefore, it could
not have become final, executory and incontestable. Respondent’s claim for collection filed with the
court only on November 22, 1984 was barred for having been made beyond the five-year prescriptive
period set by law.
11. CIR v. Tulio

GR139858; October 25, 2005.

Facts: This involves the collection of percentage taxes for 1986 and 1987. Tulio did not file tax returns.
BIR discovered on September 14 1989. RTC dismissed BIR collection case on the ground of prescription.
It counted 3 years from the return was supposed to be filed with the BIR instead of 10 yrs from discovery
of omission to file return by the respondent.

Issue: Whether petitioner’s cause of action for the collection of deficiency percentage taxes against
respondent has prescribed.

The lower court erroneously applied Section 203 of the same Code providing for the three-year
prescriptive period from the filing of the tax return within which internal revenue taxes shall be assessed.
It held that such period should be counted from the day the return was filed, or from August 15, 1990 up
to August 15, 1993. However, as shown by the records, respondent failed to file a tax return, forcing
petitioner to invoke the powers of his office in tax administration and enforcement. Respondent’s failure
to file his tax returns is thus covered by Section 223 providing for a ten-year prescriptive period within
which a proceeding in court may be filed.

Here, respondent failed to file his tax returns for 1986 and 1987. On September 14, 1989, petitioner
found respondent’s omission. Hence, the running of the ten-year prescriptive period within which to
assess and collect the taxes due from respondent commenced on that date until September 14, 1999.
The two final assessment notices were issued on February 28, 1991, well within the prescriptive period
of three (3) years. When respondent failed to question or protest the deficiency assessments thirty (30)
days therefrom, or until March 30, 1991, the same became final and executory.

12. Oceanic Wireless v. CIR

GR NO. 148380, December 9, 2005

Facts: On March 17, 1988, petitioner received from the Bureau of Internal Revenue (BIR) deficiency tax
assessments for the taxable year 1984 in the total amount of P8,644,998.71. Petitioner filed its protest
against the tax assessments and requested a reconsideration or cancellation of the same in a letter to
the BIR Commissioner.
Acting in behalf of the BIR Commissioner, then Chief of the BIR Accounts Receivable and Billing Division,
Mr. Severino B. Buot, reiterated the tax assessments while denying petitioner’s request for
reinvestigation. Said letter likewise requested petitioner to pay within 10 days from receipt thereof,
otherwise the case shall be referred to the Collection Enforcement Division of the BIR National Office for
the issuance of a warrant of distraint and levy without further notice.

Upon petitioner’s failure to pay the subject tax assessments within the prescribed period, the Assistant
Commissioner for Collection, acting for the Commissioner of Internal Revenue, issued the corresponding
warrants of distraint and/or levy and garnishment.

Petitioner filed a Petition for Review with the Court of Tax Appeals (CTA) to contest the issuance of the
warrants to enforce the collection of the tax assessments. The CTA dismissed the petition for lack of
jurisdiction.

Petitioner filed a Motion for Reconsideration arguing that the demand letter cannot be considered as the
final decision of the Commissioner of Internal Revenue on its protest because the same was signed by a
mere subordinate and not by the Commissioner himself.

With the denial of its motion for reconsideration, petitioner consequently filed a Petition for Review with
the Court of Appeals contending that there was no final decision to speak of because the Commissioner
had yet to make a personal determination as regards the merits of petitioner’s case.

The Court of Appeals denied the petition.

Issue: Whether the demand letter for tax deficiency issued and signed by a subordinate officer who was
acting in behalf of the CIR is deemed final and executor and subject to an appeal to the CTA.

Held: YES. A demand letter for payment of delinquent taxes may be considered a decision on a disputed
or protested assessment. The determination on whether or not a demand letter is final is conditioned
upon the language used or the tenor of the letter being sent to the taxpayer. In this case, the letter of
demand, unquestionably constitutes the final action taken by the Bureau of Internal Revenue on
petitioner’s request for reconsideration when it reiterated the tax deficiency assessments due from
petitioner, and requested its payment. Failure to do so would result in the “issuance of a warrant of
distraint and levy to enforce its collection without further notice.” In addition, the letter contained a
notation indicating that petitioner’s request for reconsideration had been denied for lack of supporting
documents. The demand letter received by petitioner verily signified a character of finality. Therefore, it
was tantamount to a rejection of the request for reconsideration.

This now brings us to the crux of the matter as to whether said demand letter indeed attained finality
despite the fact that it was issued and signed by the Chief of the Accounts Receivable and Billing Division
instead of the BIR Commissioner.

The general rule is that the Commissioner of Internal Revenue may delegate any power vested upon him
by law to Division Chiefs or to officials of higher rank. He cannot, however, delegate the four powers
granted to him under the National Internal Revenue Code (NIRC) enumerated in Section .

As amended by Republic Act No. 8424, Section 7 of the 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, except the following:

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

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

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

(d) The power to assign or reassign internal revenue officers to establishments where articles subject to
excise tax are produced or kept.
It is clear from the above provision that the act of issuance of the demand letter by the Chief of the
Accounts Receivable and Billing Division does not fall under any of the exceptions that have been
mentioned as non-delegable.

Thus, the authority to make tax assessments may be delegated to subordinate officers. Said assessment
has the same force and effect.

13. Philam Asset Management, Inc. vs CTA

G.R.156637 and 162004; December 14, 2005

Facts: Petitioner acts as investment manager of PFI &PBFI. It provides management &technical services
and thus respectively paid for it’s services. PFI & PBFI withhold the amount of equivalent to 5%
creditable tax regulation. On April 3, 1998, filed ITR with a net loss thus incurred withholding tax.
Petitioner filed for refund from BIR but was unanswered . CTA denied the petition for review. CA held
that to request for either a refund or credit of income tax paid, a corporation must signify it’s intention
by marking the corresponding box on it’s annual corporate adjustment return.

Issue: Whether or not petitioner is entitled to a refund of it’s creditible taxes.

Ruling: Any tax income that is paid in excess of it’s amount due to the government may be refunded,
provided that a taxpayer properly applies for the refund. One can not get a tax refund and a tax credit at
the same time for the same excess to income taxes paid. Failure to signify one’s intention in Final
Assessment Return (FAR) does not mean outright barring of a valid request for a refund

Requiring that the ITR on the FAR of the succeeding year be presented to the BIR in requesting a tax
refund has no basis in law and jurisprudence. The Tax Code likewise allows the refund of taxes to
taxpayer that claims it in writing within 2 years after payment of the taxes. Technicalities and legalism
should not be misused by the government to keep money not belonging to it, and thereby enriched itself
at the expense of it’s law-abiding citizens.
14. Philippine Journalist, Inc. v. CIR

G.R. No. 162852; December 16, 2004

Facts: In 1995, the Bureau of Internal Revenue (BIR) issued Letter of Authority for two Revenue Officers
to examine petitioner’s books of account and other accounting records for internal revenue taxes for the
period January 1, 1994 to December 31, 1994.

In 1997, petitioner’s Comptroller, executed a "Waiver of the Statute of Limitation Under the National
Internal Revenue Code (NIRC)". The document "waive[d] the running of the prescriptive period provided
by Sections 223 and 224 and other relevant provisions of the NIRC and consent[ed] to the assessment
and collection of taxes which may be found due after the examination at any time after the lapse of the
period of limitations fixed by said Sections 223 and 224 and other relevant provisions of the NIRC, until
the completion of the investigation.”

In 1998, Revenue Officer submitted his audit report recommending the issuance of an assessment and
finding that petitioner had deficiency taxes. Subsequently, the Assessment Division of the BIR issued Pre-
Assessment Notices which informed petitioner of the results of the investigation. Thus, BIR issued
Assessment/Demand stating the deficiency taxes, inclusive of interest and compromise penalty

On March 16, 1999, a Preliminary Collection Letter was sent by Deputy Commissioner Romeo S.
Panganiban to the petitioner to pay the assessment within ten (10) days from receipt of the letter. On
November 10, 1999, a Final Notice Before Seizure was issued by the same deputy commissioner giving
the petitioner ten (10) days from receipt to pay. Petitioner received a copy of the final notice on
November 24, 1999. By letters dated November 26, 1999, petitioner asked to be clarified how the tax
liability of P111,291,214.46 was reached and requested an extension of thirty (30) days from receipt of
the clarification within which to reply.

The BIR received a follow-up letter from the petitioner asserting that its (PJI) records do not show receipt
of Tax Assessment/Demand. Petitioner also contested that the assessment had no factual and legal basis.
On March 28, 2000, a Warrant of Distraint and/or Levy was received by the petitioner.

Petitioner filed a Petition for Review with the Court of Tax Appeals (CTA) which was amended on May 12,
2000. Petitioner complains: (a) that no assessment or demand was received from the BIR; (b) that the
warrant of distraint and/or levy was without factual and legal bases as its issuance was premature; (c)
that the assessment, having been made beyond the 3-year prescriptive period, is null and void; (d) that
the issuance of the warrant without being given the opportunity to dispute the same violates its right to
due process; and (e) that the grave prejudice that will be sustained if the warrant is enforced is enough
basis for the issuance of the writ of preliminary injunction.

CTA ruled in favor of PJI. It declared that the deficiency income, value-added and expanded withholding
tax assessments issued by the respondent against the petitioner on December 9, 1998, in the total
amount of P111,291,214.46 for the year 1994 ANCELLED, WITHDRAWN and WITH NO FORCE AND
EFFECT. Likewise, it declared that the Warrant of Distraint and/or Levy No. 33-06-046 NULL and VOID.

On appeal CA ruled that Mere assessment notices which have become final after the lapse of the thirty
(30)-day reglementary period are not appealable. Thus, the CTA should not have entertained the petition
at all. Also, it ruled that there is a valid waiver thus the running of the prescriptive period is tolled.

Issues: (1) whether or not CTA has jurisdiction over the issues in this case. (2) Whether or not the Waiver
of the Statute of Limitations is valid and binding on the petitioner

Held: (1) No. The appellate jurisdiction of the CTA is not limited to cases which involve decisions of the
Commissioner of Internal Revenue on matters relating to assessments or refunds. The second part of the
provision covers other cases that arise out of the NIRC or related laws administered by the Bureau of
Internal Revenue. The wording of the provision is clear and simple. It gives the CTA the jurisdiction to
determine if the warrant of distraint and levy issued by the BIR is valid and to rule if the Waiver of
Statute of Limitations was validly effected.

(2) No. As found by the CTA, the Waiver of Statute of Limitations, signed by petitioner’s comptroller on
September 22, 1997 is not valid and binding because it does not conform with the provisions of RMO
No. 20-90. It did not specify a definite agreed date between the BIR and petitioner, within which the
former may assess and collect revenue taxes. Thus, petitioner’s waiver became unlimited in time,
violating Section 222(b) of the NIRC.

The waiver document is being incomplete and defective, the three-year prescriptive period was not
tolled or extended and continued to run until April 17, 1998. Consequently, the Assessment/Demand No.
33-1-000757-94 issued on December 9, 1998 was invalid because it was issued beyond the three (3) year
period. In the same manner, Warrant of Distraint and/or Levy No. 33-06-046 which petitioner received
on March 28, 2000 is also null and void for having been issued pursuant to an invalid assessment.

15. Rafael Arsenio S. Dizon, v. CTA and CIR

G.R. No. 140944; April 30, 2008

Facts: Jose P. Fernandez died in November 7, 1987. Thereafter, a petition for the probate of his will was
filed. The probate court appointed Atty. Rafael Arsenio P. Dizon as administrator of the Estate of Jose
Fernandez.

An estate tax return was filed later on which showed ZERO estate tax liability. BIR thereafter issued a
deficiency estate tax assessment, demanding payment of Php 66.97 million as deficiency estate tax. This
was subsequently reduced by CTA to Php 37.42 million. The CA affirmed the CTA’s ruling, hence, the
instant petition.

The petitioner claims that in as much as the valid claims of creditors against the Estate are in excess of
the gross estate, no estate tax was due. On the other hand, respondents argue that since the claims of
the Estate’s creditors have been condoned, such claims may no longer be deducted from the gross estate
of the decedent.

Issue: Whether the actual claims of creditors may be fully allowed as deductions from the gross estate of
Jose despite the fact that the said claims were reduced or condoned through compromise agreements
entered into by the Estate with its creditors

Held: YES. Following the US Supreme Court’s ruling in Ithaca Trust Co. v. United States, the Court held
that post-death developments are not material in determining the amount of deduction. This is because
estate tax is a tax imposed on the act of transferring property by will or intestacy and, because the act on
which the tax is levied occurs at a discrete time, i.e., the instance of death, the net value of the property
transferred should be ascertained, as nearly as possible, as of the that time. This is the date-of-death
valuation rule.

The Court, in adopting the date-of-death valuation principle, explained that: First. There is no law, nor
do we discern any legislative intent in our tax laws, which disregards the date-of-death valuation
principle and particularly provides that post-death developments must be considered in determining the
net value of the estate. It bears emphasis that tax burdens are not to be imposed, nor presumed to be
imposed, beyond what the statute expressly and clearly imports, tax statutes being construed strictissimi
juris against the government. Second. Such construction finds relevance and consistency in our Rules on
Special Proceedings wherein the term "claims" required to be presented against a decedent's estate is
generally construed to mean debts or demands of a pecuniary nature which could have been enforced
against the deceased in his lifetime, or liability contracted by the deceased before his death. Therefore,
the claims existing at the time of death are significant to, and should be made the basis of, the
determination of allowable deductions.

16. Pilipinas Shell Petrolium Corp v. CIR

G.R. No. 172598; December 21, 2007

Facts: In 1988, BIR sent a collection letter to Petitioner Pilipinas Shell Petroleum Corporation (PSPC) for
alleged deficiency excise tax liabilities of PhP 1,705,028,008.06 for the taxable years 1992 and 1994 to
1997, inclusive of delinquency surcharges and interest. As basis for the collection letter, the BIR alleged
that PSPC is not a qualified transferee of the TCCs it acquired from other BOI-registered companies.
These alleged excise tax deficiencies covered by the collection letter were already paid by PSPC with
TCCs acquired through, and issued and duly authorized by the Center, and duly covered by Tax Debit
Memoranda (TDM) of both the Center and BIR, with the latter also issuing the corresponding Accept
Payment for Excise Taxes (APETs).

PSPC protested the collection letter, but it was denied. Because of respondent inaction on a motion for
reconsideration PSPC filed a petition for review before the CTA.

In 1999, the CTA ruled that the use by PSPC of the TCCs was legal and valid, and that respondent’s
attempt to collect alleged delinquent taxes and penalties from PSPC without an assessment constitutes
denial of due process. Respondent elevated CTA Decision to the Court of Appeals (CA) through a petition
for review.

Despite the pendency of this case, PSPC received assessment letter from respondent for excise tax
deficiencies, surcharges, and interest based on the first batch of cancelled TCCs and TDM covering PSPC’s
use of the TCCs. All these cancelled TDM and TCCs were also part of the subject matter of the now
pending before the CA.

PSPC protested the assessment letter, but the protest was denied by the BIR, constraining it to file
another case before the CTA. Subsequently, CTA ruled in favor of PSPC and accordingly cancelled and set
aside the assessment issued by the respondent. Respondent motion for reconsideration of the above
decision which was rejected thus respondent appealed the above decision before the CTA En Banc.

The CTA En Banc ruled in favor of respondent and ordered PSPC to pay the amount of P570,577,401.61
as deficiency excise tax for the taxable years 1992 and 1994 to 1997, inclusive of 25% surcharge and 20%
interest.

Issue: Whether or not petitioner is liable for the assessment of deficiency excise tax after the validly
issued TCCs were subsequently cancelled for having been issued fraudulently
Held: No. Petitioner is not liable for the assessment of deficiency excise tax.

In the instant case, with due application, approval, and acceptance of the payment by PSPC of the
subject TCCs for its then outstanding excise tax liabilities in 1992 and 1994 to 1997, the subject TCCs
have been canceled as the money value of the tax credits these represented have been used up.
Therefore, the DOF through the Center may not now cancel the subject TCCs as these have already been
canceled and used up after their acceptance as payment for PSPC’s excise tax liabilities. What has been
used up, debited, and canceled cannot anymore be declared to be void, ineffective, and canceled anew.

Besides, it is indubitable that with the issuance of the corresponding TDM, not only is the TCC canceled
when fully utilized, but the payment is also final subject only to a post-audit on computational errors.
Under RR 5-2000, a TDM is a certification, duly issued by the Commissioner or his duly authorized
representative, reduced in a BIR Accountable Form in accordance with the prescribed formalities,
acknowledging that the taxpayer named therein has duly paid his internal revenue tax liability in the
form of and through the use of a Tax Credit Certificate, duly issued and existing in accordance with the
provisions of these Regulations. The Tax Debit Memo shall serve as the official receipt from the BIR
evidencing a taxpayer’s payment or satisfaction of his tax obligation. The amount shown therein shall be
charged against and deducted from the credit balance of the aforesaid Tax Credit Certificate.

Thus, with the due issuance of TDM by the Center and TDM by the BIR, the payments made by PSPC
with the use of the subject TCCs have been effected and consummated as the TDMs serve as the official
receipts evidencing PSPC’s payment or satisfaction of its tax obligation. Moreover, the BIR not only
issued the corresponding TDM, but it also issued ATAPETs which doubly show the payment of the subject
excise taxes of PSPC.

Based on the above discussion, we hold that respondent erroneously and without factual and legal basis
levied the assessment. Consequently, the CTA En Banc erred in sustaining respondent’s assessment.

17. CIR v. Primetown Property Group

GR 161155; August 28, 2007

Facts: Gilbert Yap, vice chair of respondent Primetown Property Group, Inc., applied for the refund or
credit of income tax respondent’s paid in 1997.
The CTA found that respondent filed its final adjusted return on April 14, 1998. Thus, its right to claim a
refund or credit commenced on that date. According to the CTA, the two-year prescriptive period under
Section 229 of the NIRC for the filing of judicial claims was equivalent to 730 days. Because the year 2000
was a leap year, respondent's petition, which was filed 731 days after respondent filed its final adjusted
return, was filed beyond the reglementary period.

On appeal, the CA reversed and set aside the decision of the CTA. It ruled that Article 13 of the Civil
Code did not distinguish between a regular year and a leap year. According to the CA, even if the year
2000 was a leap year, the periods covered by April 15, 1998 to April 14, 1999 and April 15, 1999 to April
14, 2000 should still be counted as 365 days each or a total of 730 days. A statute which is clear and
explicit shall be neither interpreted nor construed.

Issue: Whether or not the counting of the 2-year prescriptive period for filing claim of refund is
governed by the Civil Code.

Held: Counting of 2-year period for filing claim for refund is no longer in accordance with Art 13 of the
Civil Code but under Sec 31 of EO 227 - The Administrative Code of 1987.

As between the Civil Code, which provides that a year is equivalent to 365 days, and the Administrative
Code of 1987, which states that a year is composed of 12 calendar months, it is the latter that must
prevail being the more recent law, following the legal maxim, Lex posteriori derogat priori.

In the case at bar, there are 24 calendar months in 2 years. For a Final Corporate ITR filed on Apr 14,
1998, the counting should start from Apr 15, 1998 and end on Apr 14, 2000. The procedure is 1st month
-Apr 15, 1998 to May 14, 1998 …. 24th month - Mar 15, 2000 to Apr 14, 2000. National Marketing v.
Tecson, 139 Phil 584 (1969) is no longer controlling. The 2-year period should start to run from filing of
the final adjusted return.

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

18. CIR vs. Reyes and Reyes vs. CIR

 GR Nos. 159694 & 163581

Facts: Decedent Tancinco left a 1,292 square-meter residential lot and an old house thereon. The heirs of
the decedent received a final estate tax assessment notice and a demand letter, both dated April 22,
1998, for the amount of P14,912,205.47, inclusive of surcharge and interest. The CIR issued a preliminary
collection letter to Reyes, followed by a Final Notice Before Seizure. Subsequently, a Warrant of Distraint
and/or Levy was served upon the estate. Reyes initially protested the notice of levy but then the heirs
proposed a compromise settlement of P1,000,000.00. The CIR rejected Reyes’s offer, pointing out that
since the estate tax is a charge on the estate and not on the heirs, the latter’s financial incapacity is
immaterial as, in fact, the gross value of the estate amounting to P32,420,360.00 is more than sufficient
to settle the tax liability. As the estate failed to pay its tax liability within the deadline, BIR notified Reyes
that the subject property would be sold at public auction on August 8, 2000. Reyes filed a protest with
the BIR Appellate Division. Assailing the scheduled auction sale, she asserted that the assessment, letter
of demand, and the whole tax proceedings against the estate are void ab initio. She offered to file the
corresponding estate tax return and pay the correct amount of tax without surcharge or interest.

Issue: WON the assessment in this case can be used as a basis for the perfection of a tax compromise.

Held: NO. The 2nd paragraph of Sec. 228 of NIRC is clear and mandatory insofar as taxpayers shall be
informed in writing of the law and the facts on which the assessment is made, otherwise the assessment
shall be void. RA 8424 has already amended the provisions of Sec. 229 of NIRC on protesting an
assessment. The old requirement of merely notifying the taxpayer of the CIR’s findings was changed in
1998 of informing the taxpayer of not only the law, but also of the facts on which an assessment would
be made, otherwise, the assessment itself would be invalid. Being invalid, the assessment canot be in
turn be used as a basis for the perfection of a tax compromise.

Hence, it is premature to declare the compromise on the tax liability of the estate perfected and
consummated considering that the tax assessment is void. While administrative agencies, like the BIR,
were not bound by procedural requirements, they were still required by law and equity to observe
substantive due process. The reason behind this requirement, said the CA, was to ensure that taxpayers
would be duly apprised of -- and could effectively protest -- the basis of tax assessments against them.7
Since the assessment and the demand were void, the proceedings emanating from them were likewise
void, and any order emanating from them could never attain finality.

20. CIR vs. First Express Pawnshop Company, Inc.

G.R. Nos. 172045-46; June 16 2009

Facts: CIR issued assessment notices against Respondent for deficiency income tax, VAT and
documentary stamp tax on deposit on subscription and on pawn tickets. Respondent filed its written
protest on the assessments. When CIR did not act on the protest during the 180-day period, respondent
filed a petition before the CTA.

Issue: Has Respondent’s right to dispute the assessment in the CTA prescribed?

Held: NO. The assessment against Respondent has not become final and unappealable. 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 all the documents it felt were
necessary to support its claim. Further, CIR 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" are 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 and 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. Since the taxpayer is deemed to have submitted all
supporting documents at the time of filing of its protest, the 180-day period likewise started to run on
that same date.

21. CIR vs. Enron Subic Power Corp

GR No. 166387; January 19, 2009

Facts: The BIR assessed Enron which countered by filing a Petition for Review with the CTA stating that
the assessment disregarded the provisions of the Tax Code and of RR No. 12-99, when the assessment
failed to provide the legal and factual bases of the assessment. The CTA and CA ruled that the
assessment notice must not only refer to the supporting revenue laws or regulations for the assessment
but must also justify their applicability to the factual milieu of the assessment.
Issue: Is the disputed assessment valid?

Held: NO. The assessment is not valid. Although the revenue examiners discussed their findings with
Respondent’s representative during the pre-assessment stage, the same, together with the Preliminary
Five-Day Letter and Petitioner’s Annex G, were not sufficient to comply with the procedural requirement
of due process. The Tax Code provides that a taxpayer shall be informed (and not merely “notified” as
was the requirement before) in writing of the law and the facts on which the assessment is made;
otherwise, the assessment shall be void. The use of the word “shall” indicates the mandatory nature of
the requirement.

22. TFS Inc. v. CIR

G.R. No. 166829; April 19, 2010

Facts: The CTA rendered a Decision upholding the assessment issued against petitioner in the amount of
P11,905,696.32, representing deficiency VAT for the year 1998, inclusive of 25% surcharge and 20%
deficiency interest, plus 20% delinquency interest from February 25, 2002 until full payment, pursuant to
Sections 248 and 249(B) of the National Internal Revenue Code of 1997 (NIRC). The CTA ruled that
pawnshops are subject to VAT under Section 108(A) of the NIRC as they are engaged in the sale of
services for a fee, remuneration or consideration.

Petitioner filed before the Court of Appeals a Petition for Review but it was dismissed by the CA for lack
of jurisdiction in view of the enactment of Republic Act No. 9282 (RA 9282).

Realizing its error, petitioner filed a Petition for Review with the CTA En Banc. The petition, however, was
dismissed for having been filed out of time. Petitioner filed a Motion for Reconsideration but it was
denied.

Issues: (1) Whether the Honorable court of Tax Appeal en banc should have given due course to the
petition for review and not strictly applied the technical rules of procedure to the detriment of justice;
(2) Whether or not petitioner is subject to the 10% VAT.

Held: (1) The petition is meritorious. Jurisdiction to review decisions or resolutions issued by the
Divisions of the CTA is no longer with the CA but with the CTA En Banc. This rule is embodied in Section
11 of RA 9282.
In the instant case, we are constrained to disregard procedural rules because we cannot in conscience
allow the government to collect deficiency VAT from petitioner considering that the government has no
right at all to collect or to receive the same. Besides, dismissing this case on a mere technicality would
lead to the unjust enrichment of the government at the expense of petitioner, which we cannot permit.
Technicalities should never be used as a shield to perpetrate or commit an injustice.

(2) Petitioner disputes the assessment made by the BIR for VAT deficiency in the amount of
P11,905,696.32 for taxable year 1998 on the ground that pawnshops are not included in the coverage of
VAT.

We agree. x x x Since petitioner is a non-bank financial intermediary, it is subject to 10% VAT for the tax
years 1996 to 2002; however, with the levy, assessment and collection of VAT from non-bank financial
intermediaries being specifically deferred by law, then petitioner is not liable for VAT during these tax
years. But with the full implementation of the VAT system on non-bank financial intermediaries starting
January 1, 2003, petitioner is liable for 10% VAT for said tax year. And beginning 2004 up to the present,
by virtue of R.A. No. 9238, petitioner is no longer liable for VAT but it is subject to percentage tax on
gross receipts from 0% to 5%, as the case may be.

Guided by the foregoing, petitioner is not liable for VAT for the year 1998. Consequently, the VAT
deficiency assessment issued by the BIR against petitioner has no legal basis and must therefore be
cancelled. In the same vein, the imposition of surcharge and interest must be deleted.