CONFEDERATION FOR UNITY, RECOGNITION AND ADVANCEMENT OF

GOVERNMENT EMPLOYEES (COURAGE) v. COMMISSIONER, BUREAU OF

INTERNAL REVENUE
G.R. No. 213446, July 03, 2018
CAGUIOA, J.:
FACTS:
Commissioner of Internal Revenue (CIR) issued the assailed Revenue
Memorandum Order No. 23-2014 in order to clarify and consolidate the responsibilities
of the public sector to withhold taxes on its transactions as a customer on its purchases
of goods and services, and as an employer on compensation paid to its officials and
employees. Confederation for Unity, Recognition and Advancement of Government
Employees (COURAGE) et al., filed a Petition for Prohibition and Mandamus, imputing
grave abuse of discretion on the part of respondent CIR in issuing RMO No. 23-2014,
as it classified as taxable compensation allowances, bonuses, compensation for
services granted to government employees which are considered by law as non-taxable
fringe and de minimis benefits. COURAGE further claim that the subject RMO
constitutes a usurpation of legislative power and that it violates the equal protection
clause as it discriminates against government officials and employees by imposing
fringe benefit tax upon their allowances and benefits, as opposed to that of the private
sector, the fringe benefit tax of which is borne and paid by their employers.  
 
ISSUE:

Is the filing of administrative appeal to the Secretary of Justice mandatory?

RULING:

Yes.

 Under Section 4 of the NIRC, 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 CIR's exercise of its power to interpret tax laws comes in the form of revenue
issuances, which include RMOs. These revenue issuances are subject to the review of
the Secretary of Finance.  A taxpayer is granted a period of thirty (30) days from receipt
 of the adverse ruling of the CIR to file with the Office of the Secretary of Finance a
request for review in writing and under oath.

 Since COURAGE, et.al. failed to file an administrative appeal to the Office of the
Secretary of Finance and to prove the existence of any of the recognized exceptions to
the salutary rule of the Doctrine of Exhaustion of Administrative Remedy, there exists a
ground to dismiss the Petition.

What are the two (2) functions that can be performed by the CIR?

QUASI-LEGISLATIVE FUNCTION QUASI- JUDICIAL FUNCTION

        power to interpret tax laws comes in the        The power to decide disputed
form of revenue issuances, which include assessments, refunds of internal
RMOs that provide "directives or instructions; revenue taxes, fees or other
prescribe guidelines; and outline processes, charges, penalties imposed in
operations, activities, workflows, methods and relation thereto, or other matters
procedures necessary in the implementation of arising under this Code or other laws
stated policies, goals, objectives, plans and or portions thereof administered by
programs of the Bureau in all areas of the Bureau of Internal Revenue
operations, except auditing."

        These revenue issuances are subject to the  

review of the Secretary of Finance. Elevate
within 30 days to SOF from receipt of ruling or 
from issuance of memo order or circular by
filing a request for review and this must be in
writing  and under oath.

APPEAL PROCESS:  

   

CIR        SOF        CTA     SC CIR          CTA      SC

 
 WHEN WILL THE ACTION OF THE CIR BE ELEVATED TO THE SOF? SHOULD
THE CASE BE ELEVATED TO SOF?

-        A taxpayer is granted a period of thirty (30) days from receipt of the adverse ruling of
the CIR to file with the Office of the Secretary of Finance a request for review in writing
and under oath.

-        YES because it is an exercise of the CIR’s quasi-legislative function.

BUREAU OF INTERNAL REVENUE vs. LEPANTO CERAMICS, INC.

G.R. No. 224764          April 24, 2017

PERLAS-BERNABE,, J.:

FACTS:

 Lepanto Ceramics, Inc. (LCI) filed a petition for corporate rehabilitation pursuant to
Republic Act No. (RA) 10142, otherwise known as the "Financial Rehabilitation and
Insolvency Act (FRIA) of 2010."  LCI alleged that due to the financial difficulties it has
been experiencing dating back to the Asian financial crisis, it had entered into a state of
insolvency considering its inability to pay its obligations as they become due and that its
total liabilities amounting to ₱4,213 ,682, 715. 00 far exceed its total assets worth
₱1,112,723,941.00. Attached to the aforesaid Petition its tax liabilities to the national
government in the amount of at least ₱6,355,368.00. Rehabilitation Court issued a
Commencement Order suspending all actions or proceedings, in court or otherwise, for
the enforcement of claims against LCI, also prohibited LCI from making any payment of
its liabilities outstanding. Despite such order BIR sent LCI a notice of informal
conference informing the latter of its deficiency internal tax liabilities. In response,
Roberto L. Mendoza, sent BIR a letter-reply, reminding the latter of the pendency of
LCI's corporate rehabilitation proceedings. Undaunted, the BIR sent LCI a Formal Letter
of Demand, requiring LCI to pay deficiency taxes in the amount of P567,519,348.39.
This prompted LCI to file a petition for indirect contempt.

ISSUE:

Can the BIR commence tax investigation notwithstanding the issuance of a

Commencement Order by a Rehabilitation Court?

RULING:
 No.

Section 16 of RA 10142 provides, that upon the issuance of a Commencement

Order  which includes a Stay or Suspension Order all actions or proceedings, in court or
otherwise, for the enforcement of "claims" against the distressed company shall be
suspended.

 The acts of sending a notice of informal conference and a Formal Letter of Demand
are part and parcel of the entire process for the assessment and collection of deficiency
taxes from a delinquent taxpayer, - an action or proceeding for the enforcement of a
claim which should have been suspended pursuant to the Commencement Order.
Unmistakably, the CIR’s foregoing acts are in clear defiance of the Commencement
Order.

The CIR could have easily tolled the running of such prescriptive period, and at the
same time, perform their functions as officers of the BIR, without defying the
Commencement Order and without violating the laudable purpose of RA 10142 by
simply ventilating their claim before the Rehabilitation Court.

Therefore,  the creditors must ventilate their claims before the rehabilitation court,
and any "attempts to seek legal or other resource against the distressed corporation
shall be sufficient to support a finding of indirect contempt of court.

What did BIR do in this case?

-        The BIR, through Misajon, et al., still opted to send LCI (lepanto): (a) a notice of
informal conference dated May 27, 2013, informing the latter of its deficiency internal
tax liabilities for the Fiscal Year ending June 30, 2010; and (b) a Formal Letter of
Demand dated May 9, 2014, requiring LCI to pay deficiency taxes in the amount of
P567,5 l 9,348.39, notwithstanding the written reminder coming from LCI's court-
appointed receiver of the pendency of rehabilitation proceedings concerning LCI and
the issuance of a commencement order. Notably, the acts of sending a notice of
informal conference and a Formal Letter of Demand are part and parcel of the entire
process for the assessment and collection of deficiency taxes from a delinquent
taxpayer,  an action or proceeding for the enforcement of a claim which should have
been suspended pursuant to the Commencement Order. Unmistakably, Misajon, et al.
's foregoing acts are in clear defiance of the Commencement Order.

52
BUREAU OF INTERNAL REVENUE vs. OFFICE OF THE OMBUDSMAN
G.R. No. 115103.   April 11, 2002

DE LEON, JR., J.:

FACTS:

Ombudsman issued a subpoena duces tecum addressed to Atty. Millard

Mansequiao of the Legal Department of the Bureau of Internal Revenue (BIR) ordering
him to appear before the Ombudsman and to bring the complete original case dockets
of the refunds granted to Limtuaco and La Tondea. BIR move to vacate the subpoena
and manifested that subpoena duces tecum partook of the nature of an omnibus
subpoena because it did not specifically described the particular documents to be
produced and compliance with the subpoena duces tecum would violate Sec. 269 of the
National Internal Revenue Code (NLRC) on unlawful divulgence of trade secrets and
Sec. 277 on procuring unlawful divulgence of trade secrets. Ombudsman denied the
Motion to Vacate the Subpoena Duces Tecum, pointing out that the Limtuaco tax refund
case then assigned to Baldrias was already referred to the Fact-Finding and
Investigation Bureau of the Ombudsman for consolidation. The Ombudsman also
claimed that the documents submitted by the BIR to Baldrias were incomplete and not
certified. It insisted that the issuance of the subpoena duces tecum was not a fishing
expedition considering that the documents required for production were clearly and
particularly specified.

ISSUE:

Are the documents to be produced would be considered unlawful divulgence of

trade secrets or it is considered confidential?

RULING:
 No.

 The assailed subpoena duces tecum indeed particularly and sufficiently described
the records to be produced. There is every indication that petitioner knew precisely what
records were being referred to as it even suggested that the tax dockets sought to be
produced may not contain evidence material to the inquiry and that it has already
submitted the same to Baldrias.

The records do not show how the production of the subpoenaed documents would
necessarily contravene Sec. 269 of the National Internal Revenue Code (NIRC) on
unlawful divulgence of trade secrets and Sec. 277 of the Code on procuring unlawful
divulgence of trade secrets. The documents sought to be produced were only the case
dockets of the tax refunds granted to Limtuaco and La Tondea which are public records,
and the subpoena duces tecum were directed to the public officials who have the official
custody of the said records.

Therefore, no valid reason why the trade secrets of Limtuaco and La Tondea would
be unnecessarily disclosed if such official records, subject of the subpoena duces
tecum, were to be produced by the petitioner BIR to respondent Office of the
Ombudsman. Further, a governmental privilege against disclosure is recognized with
respect to state secrets bearing on military, diplomatic and similar matters. This
privilege is based upon public interest of such paramount importance as in and of itself
transcending the individual interests of a private citizen, even though, as a consequence
thereof, the plaintiff cannot enforce his legal rights.

Farcon Marketing Corporation vs. Bureau of Internal Revenue

CTA (Second Division) Case 8367 promulgated February 3, 2015

Facts:

Respondent BIR, as represented by the CIR, issued a Tax Verification Notice to

petitioner Farcon Marketing Corp. to verify its supporting documents and pertinent
records relative to all its revenue taxes for taxable year 2007. When required to present
its books of accounts and accounting records, Farcon claimed it cannot comply as the
documents were destroyed and damaged by typhoons Ondoy and Pepeng.
The CIR assessed Farcon for alleged deficiency income tax for taxable year  2007 
arising  from disallowed  expenses, such as gas and oil, postage, telephone and
telegraph, and other purchases.  Farcon protested the assessment. Upon denial of its
protest, Farcon filed a petition for review with the CTA. Farcon argued that the
assessment is without factual and legal bases and  that  its  failure  to  submit  the 
required documents was not willful but was due to reasonable and justifiable causes,
i.e., its records were destroyed by the flood caused by typhoons. Farcon also claimed
that it was able to submit to the BIR reconstructed worksheets and schedules of
purchases and expenses to support its protest, which were not considered by the BIR.

The CIR countered that Farcon’s failure to submit the required supporting documents
within the prescribed period justifies the BIR’s resort to the Best Evidence Obtainable
Rule under Section 6 (B) of the Tax Code. The CIR argued that Farcon failed to
substantiate the expenses claimed as deduction from gross income as provided under
Section 34 (A)(1) of the Tax Code. While the BIR can resort to the Best Evidence
Obtainable Rule and estimate the tax liability of taxpayers who failed to submit their
accounting records lost due to calamities,  it  is  still  required  to  provide  sufficient 
evidence  as  basis  for  its  deficiency  tax assessment.

ISSUES:

1)    Can the CIR assess the tax liability     through estimation?
2)    What was the basis of the assessment in this case? Is the assessment valid?

Ruling:

1.    YES. Section 6(B) of the NIRC as amended states that “when a report required by
law as basis for the assessment of any national internal revenue tax shall not be
forthcoming within the time fixed by law or rules and regulations or when there is reason
to believe that any such report is false, incomplete or erroneous, the Commissioner
shall assess the proper tax on the best evidence obtainable”. Section 2.3 of Revenue
Memorandum Circular No. 23-2000 (RMO No. 23-2000) also states that “an
assessment based on best evidence obtainable is justified when any of the grounds
provided by law is clearly established, viz: (1) the report or records requested from the
taxpayer are not forthcoming, i.e., the records are lost; xxx.”

The BIR may determine Farcon’s tax liability through estimation considering the
absence of accounting records, which were destroyed  by  the  typhoons.  The BIR is
not required  to  compute  such  tax  liabilities  with mathematical exactness.
Approximation in the calculation of the taxes due is justified.

  

2.    The assessment is not VALID. The BIR’s  power  to  estimate  Farcon’s  tax 
liability  has  limits.  Citing the  case  of Commissioner of Internal Revenue vs. Hantex
Trading Co., Inc. (GR No. 136975, March 31, 2005), the CTA said that such estimation
should still be based on sufficient evidence. The CIR failed to present any evidence
which it supposedly procured by resorting to the Best Evidence Obtainable Rule, as
basis for the deficiency tax assessment against Farcon. The rule on the prima facie
correctness of a tax assessment does not apply upon proof that an assessment is
utterly without foundation, meaning it is arbitrary and capricious. Thus, as held by the
Supreme Court in Hantex, the presumption of correctness of an assessment, being a
mere presumption, cannot be made to rest on another presumption.Since respondent
failed to present any evidence which it used as basis or foundation for the subject
deficiency assessment, the Court finds that respondent’s assessment is void for lack of
merit. Accordingly, the deficiency tax assessment as evidenced by the FAN is cancelled
and withdrawn.
 Jacinto Marketing and Trading Corp vs. CIR

CTA Case No. 6616, Feb. 14, 2008

FACTS:

Jacinto is a Domestic Corporation. The CIR issued several letters of assessment (on
different dates ) to examine the books of accounts of Jacinto. CIR also requested
Jacinto to submit its books of accounts and other accounting records for the 1998
taxable year.

For petitioner's repeated failure to submit the required documents, on September 15,
2000, respondent issued to petitioner a subpoena duces tecum addressed at SEDDCO
Bldg., Rada St., Legaspi Village, Makati City.

For petitioner's failure to comply with the subpoena duces tecum, the Chief Legal
Division of the BIR Region 8 recommended an immediate assessment against petitioner
based on the "Best Evidence Obtainable"

Hence, on April 22, 2002 CIR issued to petitioner a Preliminary Assessment Notice with
attached Details of Discrepancies, assessing petitioner for deficiency income tax, VAT,
final tax, EWT and compromise penalty.

ISSUES:

1) Can the CIR assess the tax liability through estimation?

2) What was the basis of the assessment in this case? Is it valid?

3) How will you harmonize this case and the case of Farcon?

RULING:

1) Can the CIR assess the tax liability through estimation?

Yes.

Petitioner deliberately refused to submit its books of accounts and other accounting
records; thus CIR assessed Jacinto on the basis of the “Best Evidence Obtainable Rule”
as provided in Sec. 6(B), NIRC
SEC. 6. Power of the Commissioner to make assessments and prescribe additional
requirements for tax administration and enforcement xx

    (B)  Failure to submit required returns, statements, reports and other documents-
when a report required by law as a basis for the assessment of any national internal
revenue tax shall not be forthcoming within the time fixed by laws or rules and
regulations or when there is reason to believe that any such report is false, incomplete
or erroneous, the Commission shall assess the proper tax on the best evidence
obtainable.

2) What was the basis of the assessment in this case? Is it valid?

The basis of the assessment is the “Best Evidence Obtainable Rule”. The assessment
is valid.

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

Revenue Memorandum Circular No. 23-000

-          provides that in an assessment, the burden of proof is upon the taxpayer-

claimant 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. Moreover,
in the absence of receipt to prove actual amount of expense deduction, it is the duty of
the BIR to make an estimate of the deduction that may be allowable in computing the
taxpayer's taxable income, bearing heavily against the taxpayer whose inexactitude is of
his own making. Thus, the disallowance of 50% of the taxpayers claimed deduction is
valid

Since investigation of the respondent reveals that petitioner incurred the following
expenses, but petitioner failed to substantiate the amount of each expense,
respondent's disallowance of 50% of each expense has legal basis

3) How will you harmonize this case and the case of Farcon?

COMMISSION OF INTERNAL REVENUE, Petitioner, vs. AQUAFRESH SEAFOODS,

INC., Respondent.
FACTS:
Aquafresh sold two parcels of land to Philips Seafoods, Inc.for the consideration of Php
3.1 M. The property is located at Barrio Banica, Roxas City. The subject land was
classified as a residential land.
Aquafresh then filed for Capital Gains Tax Return/Application for Certification
Authorizing Registration with the BIR and paid for the corresponding CGT amounting to
Php186 K and DST amounting to Php 46,500.
Subsequently, the BIR got a report from an informant that the lots sold were
undervalued for taxation purposes. Hence, the Special Investigation Division (SID) of
the BIR conducten an occular inspection over the properties. After the investigation, the
SID concluded that the subject properties were commercial with a zonal value of Php 2k
per square meter.
The Regional Director sent two Assessment Notices to Aquafresh apprising respondent
of CGT and DST defencies in the sum of Php1,372,171.46 and Php356,267.62,
respectively.
Hence, Aquafresh filed for a protest with the Regional Director but it was denied.
Aquafresh then went to the CTA and contested the tax assessment.
The CTA ruled that the two parcels of land were actually residential land and not
commercial land. And such they only have a zonal valuation of Php 650 per square
meter. The CTA ruled in favor of Aquafresh and ruled that the although the BIR has the
authority to reclassify lands, it must be done upon the consultation with competent
appraisers coming from both the public and private sectors. And further ruled that the
reclassification of the lands from residential to commercial land must be done in
compliance with what is prescribed by the law.
Hence, the CIR appealed to the CTA en banc. The CTA en banc also adopted the ruling
of the CTA Division.
Hence, the CIR went to the SC via petition for certiorari.
ISSUE:
Is the requirement of getting consultations coming from competent appraisers both from
the public and private sectors allowed before the reclassification of the subject land from
residential to commercial?
RULING:
Under Sec. 6 E of the NIRC, it provides that the CIR has the power to make zonal
valuation and divide the Philippines into zones, but it must be done with the prior
consultation of the CIR to competent appraisers both from the public and private
sectors.
However in this case, the BIR did not make a consultation from competent appraisers
but only relied on the investigations and findings of the Special Investigation Division
which investigation turned out that the residential lands were actually commercial lands
with the corresponding zonal valuation of 2k per square meter.
For not complying with the Rules under the NIRC, the zonal valuation adopted by the
BIR is incorrect.
While the CIR has the authority to prescribe real property values and divide the
Philippines into zones, the law is clear that the same has to be done upon consultation
with competent appraisers both from the public and private sectors. It is undisputed that
at the time of the sale of the subject properties found in Barrio Banica, Roxas City, the
same were classified as "RR," or residential, based on the 1995 Revised Zonal Value of
Real Properties. CIR, thus, cannot unilaterally change the zonal valuation of such
properties to "commercial" without first conducting a re-evaluation of the zonal values as
mandated under Section 6(E) of the NIRC.
With respect to zonal valuation, zonal valuation is based on the predominant use of the
properties located within the same zone. On the other hand, actual use is not being
factored in the equation when it comes to zonal valuation; rather we use actual use for
real property tax purposes. Predominant use is being factored for zonal valuation
purposes.
In this case, the property is located within a zone that has properties which are
predominantly classified as residential.
Hence, even if the property is being used for commercial purposes, then it will still be
considered as residential property.
According to the SC, if there is a reclassification from residential to commercial, such
must first be done in compliance with Sec. 6 E which requires that there must be
consultation from competent appraisers both from the public and private sectors and
under the T.R.A.I.N Law, there must be notice to all affected taxpayers.
 REPUBLIC OF THE PHILIPPINES, represented by the Commissioner of the
Bureau of Internal Revenue (BIR) v. SALUD V. HIZON

FACTS: On July 18, 1986, the BIR issued to respondent Salud V. Hizon a deficiency
income tax assessment covering the fiscal year 1981-1982. Respondent Hizon not
having contested the assessment, BIR, on January 12, 1989, 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 3 years later, respondent wrote the BIR requesting a reconsideration of her
tax deficiency assessment. The BIR denied the request. On January 1, 1997, it filed a
case with the Regional Trial Court, Branch 44, San Fernando, Pampanga to collect the
tax deficiency.
Respondent moved to dismiss the case on the ground among others that the action had
already prescribed. Over petitioner's objection, the trial court granted the motion and
dismissed the complaint.

BIR on the other hand contends that respondent's request for reinvestigation of her tax
deficiency assessment on November 1992 effectively suspended the running of the
period of prescription.
ISSUE: Is the action for collection of taxes filed against Hizon already been barred by
the statute of limitations?
RULING:
Yes. Sec. 229 of the NIRC 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. Hence, her request for reconsideration did not suspend the running of the
prescriptive period provided under Sec. 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. .
 COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. DEUTSCHE
KNOWLEDGE SERVICES, PTE. LTD., Respondent. G.R. No. 211072, November 07,
2016
FACTS:
DKS is the Philippine branch of a multinational company organized and existing under
and by the virtue of the laws of Singapore. It is licensed to do business as a regional
operating headquarters in the Philippines. On July 25, 2007, DKS filed its original
Quarterly VAT Return for the 2nd quarter of CY 2007 with the BIR. On June 18, 2009,
DKS filed an Application for Tax Credits/Refunds of its excess and unutilized input VAT
for the 2nd quarter of CY 2007. On Jun1e 30, 2009, or even before any action by the
CIR on its administrative claim, DKS filed a Petition for Review with the CTA. On
October 6, 2010, while DKS's claim for refund or tax credit was pending before the CTA
First Division, this Court promulgated Aichi. In that case, the Court held that compliance
with the 120-day period granted to the CIR, within which to act on an administrative
claim for refund or credit of unutilized input VAT, as provided under Section 112(C) of
the NIRC, as amended, is mandatory and jurisdictional in filing an appeal with the CTA.
Thus, the CIR filed a motion to dismiss stating that the CTA First Division lacked
jurisdiction because respondent's Petition for Review was prematurely filed. The CTA
First Division dismissed respondent's judicial claim ruling that the petition for review filed
by DKS on June 30, 2009, or barely twelve (12) days after the filing of its administrative
claim for refund, was clearly premature justifying its dismissal; based on the Aichi case.
KS moved for reconsideration, but the same was denied by the CTA First Division.
Aggrieved, DKS elevated the matter to the CTA En Banc. The CTA En Banc affirmed
the ruling of the CTA Division on January 31, 2013. On February 12, 2013, this Court
decided the consolidated cases of San Roque wherein the Court recognized BIR Ruling
No. DA-489-03 as an exception to the 120-day period. Invoking this Court's
pronouncements in San Roque, DKS moved for reconsideration. The CTA En Banc
found merit in said motion and rendered the assailed Amended Decision. Now, the CIR
filed a petition for review before the SC assailing that BIR Ruling No. DA-489-03 is
invalid because it was merely issued by a Deputy Commissioner and not by the CIR,
who is exclusively authorized by law to interpret the provisions of the NIRC.
Issue:
1. Whether the judicial claim with the CTA was file prematurely filed or not.
2. Whether the delegation of power to interpret the provisions of this Code and
other tax laws was valid or not?
Ruling:
1. The filing of the judicial claim with the CTA was prematurely filed.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on
the part of the Commissioner to act on the application within the period prescribed
above, the taxpayer affected may, within thirty (30) days from the receipt of the decision
denying the claim or after the expiration of the one hundred twenty-day period, appeal
the decision or the unacted claim with the Court of Tax Appeals.
Based on the plain language of the foregoing provision, a VAT registered taxpayer
claiming for a refund or tax credit of its excess and unutilized input VAT must file an
administrative claim within two (2) years from the close of the taxable quarter when the
sales are made. After that, the CIR is given 120 days, from the submission of complete
documents in support of said administrative claim, within which to grant or deny said
claim. Upon receipt of CIR's decision, denying the claim in full or partially, or upon the
expiration of the 120-day period without action from the CIR, the taxpayer has 30 days
within which to file a petition for review with the CTA. If after the 120-day period the CIR
fails to act on the application for tax refund/credit, the remedy of the taxpayer is to
appeal the inaction of the CIR to CTA within 30 days. In the case at hand, the
administrative and the judicial claims were simultaneously filed on September 30, 2004.
Obviously, Deutsche did not wait for the decision of the CIR or the lapse of the 120-day
period. The premature filing of respondent's claim for refund/credit of input VAT before
the CTA warrants a dismissal inasmuch as no jurisdiction was acquired by the CTA.
2. BIR Ruling No.DA-489-03 was valid despite the fact that it was merely
issued by a Deputy Commissioner and not by the CIR, who is exclusively
authorized by law to interpret the provisions of the NIRC.
Although Section 4 of the 1997 Tax Code provides that 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," Section
7 of the same Code does not prohibit the delegation of such power. Thus, the
Commissioner may delegate the powers vested in him under the pertinent provisions of
this Code to any or such subordinate officials with the rank equivalent to a division chief
or higher, subject to such limitations and restrictions as may be imposed under rules
and regulations to be promulgated by the Secretary of Finance, upon recommendation
of the Commissioner.
 PEOPLE OF THE PHILIPPINES, PETITIONERS, VS. SANDIGANBAYAN AND
BIENVENIDO A. TAN JR., RESPONDENT. G.R. NO. 152532. AUGUST 16, 2005
FACTS:
"Pursuant to Letter of Authority, an investigation was conducted by the BIR examiners
on the ad valorem and specific tax liabilities of San Miguel Corp. (SMC). The result of
the investigation showed that SMC has a deficiency on specific and ad valorem taxes
totaling ₱342,616,217.88 broken down as follows:
‘Specific Tax ₱ 33,817,613.21
Ad Valorem Tax ₱308,798,604.67’
The letter was received by the SMC, as it protested the assessment in its letter. "The
protest was denied by the BIR thru a letter by accused Commissioner Bienvenido Tan,
Jr., but the original assessment of ₱342,616,217.88 was reduced to ₱302,051,048.93 or
a reduction of 40,565,168.95 pesos which was due to the crediting of the taxpayer’s
excess ad valorem tax deposit with a reiteration of the payment of the assessed specific
and ad valorem tax as reduced.
In a letter, SMC, offered the amount of ₱10,000,000.00 for the settlement of the
assessment. The acceptance of this offer was concurred in by the Prosecutor Division,
Assistant Commissioner, and the Legal Service of the BIR with the approval by accused
Bienvenido Tan. In a letter, SMC was informed that its offer to compromise was
accepted." This approval caused the conviction by Sandiganbayan of Commissioner
Tan for violation of the Anti-Graft and Corrupt Practices Act. However, in a motion for
reconsideration, the Sandiganbayan reversed its own decision which now acquits Tan
by stating that the abatement of SMC’s ad valorem taxes is proper. The tax base for
computing them should not include the ad valorem tax itself and the price differential. It
affirms general principles of taxation not to impose a tax on a tax. In addition, the
compromise Tan had entered into regarding SMC’s tax did not result in any injury to the
government, thus, presumption of regularity must set in and the prosecution failed to
overcome this presumption.
ISSUE:
1. Was Application of the Ad Valorem Tax to the Specific Tax Deficiency proper?
2. Was the Acceptance of the ₱10 Million Compromise proper or not?
RULING:
1. YES. The approval given by Tan was correct.
First, Ad valorem taxes and specific taxes are both excise taxes on alcohol products.
The payment by installment of a portion of the total specific tax deficiency of SMC plus
the excess and unused ad valorem tax deposits to the remaining portion, it fully covered
the total net specific tax shortfall. In other words, If the same payment by installment is
added to the excess and unused ad valorem tax deposits, their sum result would be
enough to cover the specific tax liability of SMC.
Second, such approval had the concurrence of top tax officials within the Bureau. Not
only was there a presumption of regularity in the performance of official functions but
also, their collective conclusion was controlling.
Third, the law and revenue regulations allowed pre-payment schemes, whereby excise
taxes on alcohol products could be paid in advance of the dates they were due. In this
case, the specific taxes was paid in the form of advance ad valorem tax deposits,
therefore, the government lost nothing. What happened here was that the advance
deposits made on one type of excise tax was used to pay another type of excise tax
which resulted to the massive reduction of SMC’s tax liability, which, for all intent and
purposes, are legal.
2. The acceptance of SMC’s compromise offer of ₱10 million was proper.
However, this is a case of Abatement and Not a Compromise
Although referred to in the pleadings as a compromise, the matter at hand is actually an
abatement or a cancellation. Abatement is the "diminution or decrease in the amount of
tax imposed;" it refers to "the act of eliminating or nullifying; of lessening or moderating.
To abate is "to nullify or reduce in value or amount"; while to cancel is "to obliterate,
cross out, or invalidate"; and "to strike out; delete; erase; make void or invalid; annul;
destroy; revoke or recall."
The BIR may therefore abate or cancel the whole or any unpaid portion of a tax liability,
inclusive of increments, if its assessment is excessive or erroneous; or if the
administration costs involved do not justify the collection of the amount due.56 No
mutual concessions need be made, because an excessive or erroneous tax is not
compromised; it is abated or canceled. Only correct taxes should be paid. In this case,
actually there were two abatements. The first one is the reduction of 42 Million and then
the next one is the reduction to 10 M. Both abatements are proper. The first reason is
that one of the grounds for abatement is if the assessment is unjust or excessive. In this
case, there was an unjust or excessive assessment on the part of the CIR on such case
because under the NIRC, the ad valorem tax cannot be the tax base for another tax
liability; that is called tax pyramiding which is since 1922, the court rejected. The case
was promulgated in 2005. Basically, the ad valorem tax, was taxed by another ad
valorem tax. Then both taxes was again taxed by ad valorem tax, this is the reason
why the tax liability ballooned to such amount. This tax pyramiding was removed from
the equation which resulted to the massive reduction of tax liability of SMC. Another is
the reduction of other expenses or expenses discounts because under the current law
at that time which is the Executive Order 22 and EO 273 stated that the excise tax
should be paid before the alcohol products is removed from the place of production.
However, CIR assessed SMC for excise tax based on the GSP in which it includes the
price in which the SMC and its subsequent agents will sell it at a retail or wholesale
price. Now, that was also erroneous because the law is clear that the payment should
be made before it was removed in the place of production of the SMC. To reiterate,
because of the abovementioned reasons, the amount of tax liability was reduced to
10M.
NOTES:
 Tax assessment may be protested administratively by filing a request for
reconsideration or reinvestigation within thirty (30) days from receipt of the
assessment; otherwise, the assessment shall become final and unappealable.
If the protest is denied in whole or in part, the individual, association or
corporation adversely affected by the decision on the protest may appeal to the
Court of Tax Appeals within thirty (30) days from receipt of the said decision;
otherwise, the decision shall become final, executory and demandable.
 What is appealable to the Tax Court is a decision of the CIR concerning the
protest but not to the assessment itself, but to the decision made on the protest
against such assessment. The commissioner of internal revenue’s action in
response to a taxpayer’s request for reconsideration or reinvestigation of the
assessment constitutes the decision, the receipt of which will start the 30-day
period for appeal.