Ungab vs. Cusi Jr. (GR L-41919-25, 30 May 1980)
Second Division, Concepcion Jr. (J): 4 concur

Facts: In July 1974, BIR Examiner Ben Garcia examined the income tax returns filed by Quirico P. Ungab for the calendar year ending 31 December 1973. In the course of his examination, the examiner discovered that Ungab failed to report his income derived from sales of banana saplings.  As a result, the BIR District Revenue Officer at Davao City sent Ungab a “Notice of Taxpayer” informing him that there is due from him the amount of P104,980.81, representing income, business tax and forest charges for the year 1973 and inviting Ungab to an informal conference where Ungab, duly assisted by counsel, may present his objections to the findings of the BIR Examiner. Upon receipt of the notice, Ungab wrote the BIR District Revenue Officer protesting the assessment, claiming that he was only a dealer or agent on commission basis in the banana sapling business and that his income, as reported in his income tax returns for the said year, was accurately stated. The examiner, however, was fully convinced that Ungab had filed a fraudulent income tax return so that he submitted a “Fraud Referral Report,” to the Tax Fraud Unit of the BIR. After examining the records of the case, the Special Investigation Division of the BIR found sufficient proof that Ungab is guilty of tax evasion for the taxable year 1973 and recommended his prosecution. In a second indorsement to the Chief of the Prosecution Division, dated 12 December 1974, the Commissioner approved Ungab’s prosecution.

The State Prosecutor Jesus Acebes, who had been designated to assist all Provincial and City Fiscals throughout the Philippines in the investigation and prosecution, if the evidence warrants, of all violations of the NIRC, as amended, and other related laws, in Administrative Order 116 dated 5 December 1974, and to whom the case was assigned, conducted a preliminary investigation of the case, and finding probable cause, filed 6 informations against Ungab with the CFI Davao City. On 16 September 1975, Ungab filed a motion to quash the informations upon the grounds that: (1) the informations are null and void for want of authority on the part of the State Prosecutor to initiate and prosecute the said cases; and (2) the trial court has no jurisdiction to take cognizance of the above-entitled cases in view of his pending protest against the assessment made by the BIR Examiner. However, the trial court denied the motion on 22 October 1975.

Ungab filed a petition for certiorari and prohibition with preliminary injunction and restraining order to annul and set aside the informations filed in Criminal Cases 1960 to 1965 of the CFI Davao. The Supreme Court dismissed the petition, and set aside the temporary restraining order issued; with costs against Ungab.

1.    Ruling in Estrella vs. Orendain
“Under Sections 1679 and 1686 of the Revised Administrative Code, in any instance where a provincial or city fiscal fails, refuses or is unable, for any reason, to investigate or prosecute a case and, in the opinion of the Secretary of Justice it is advisable in the public interest to take a different course of action, the Secretary of Justice may either appoint as acting provincial or city fiscal, to handle the investigation or prosecution exclusively and only of such case, any practicing attorney or some competent officer of the Department of Justice or office of any city or provincial fiscal, with complete authority to act therein in all respects as if he were the provincial or city fiscal himself, or appoint any lawyer in the government service, temporarily to assist such city of provincial fiscal in the discharge of his duties, with the same complete authority to act in dependently of and for such city or provincial fiscal, provided that no such appointment may be made without first hearing the fiscal concerned and never after the corresponding information has already been filed with the court by the corresponding city or provincial fiscal without the conformity of the latter, except when it can be patently shown to the court having cognizance of the case that said fiscal is intent on prejudicing the interests of justice. The same sphere of authority is true with the prosecutor directed and authorized under Section 3 of Republic Act 3783, as amended and/or inserted by Republic Act 5184. “

2.    Rule established in Estrella vs. Orendain not violated when State Prosecutor conducted investigation in the 6 cases against Ungab
The rule established in Estrella vs. Orendain had not been violated. The State Prosecutor, although believing that he can proceed independently of the City Fiscal in the investigation and prosecution of these cases, first sought permission from the City Fiscal of Davao City before he started the preliminary investigation of these cases, and the City Fiscal, after being shown Administrative Order 116, dated 5 December 1974, designating the said State Prosecutor to assist all Provincial and City fiscals throughout the Philippines in the investigation and prosecution of all violations of the NIRC, as amended, and other related laws, graciously allowed the State Prosecutor to conduct the investigation of said cases, and in fact, said investigation was conducted in the office of the City Fiscal.

3.    Filing of informations not premature
What is involved herein is not the collection of taxes where the assessment of the Commissioner of Internal Revenue may be reviewed by the Court of Tax Appeals, but a criminal prosecution for violations of the NIRC which is within the cognizance of courts of first instance. While there can be no civil action to enforce collection before the assessment procedures provided in the Code have been followed, there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the Code.

4.    Assessment of deficiency tax not necessarily before criminal prosecution   
An assessment of the deficiency tax due is not necessary before the taxpayer can be prosecuted criminally for the charges preferred. The crime is complete when the violator has, as in this case, knowingly and willfully filed fraudulent returns with intent to evade and defeat a part or all of the tax. An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to defeat and evade the income tax. A crime is complete when the violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat the tax. The perpetration of the crime is grounded upon knowledge on the part of the taxpayer that he has made an inaccurate return, and the government’s failure to discover the error and promptly to assess has no connections with the commission of the crime.

5.    Petition for reconsideration does not suspend prescriptive period of a criminal action for violation of law
A petition for reconsideration of an assessment may affect the suspension of the prescriptive period for the collection of taxes, but not the prescriptive period of a criminal action for violation of law. The protest of the taxpayer against the assessment of the District Revenue Officer cannot stop his prosecution for violation of the NIRC.

Philippine Bank of Communications vs. Commissioner of Internal Revenue (GR 112024, 28 January 1999)
Second Division, Quisumbing (J): 4 concur

Facts: The Philippine Bank of Communications (PBCom), a commercial banking corporation duly organized under Philippine laws, filed its quarterly income tax returns for the first and second quarters of 1985, reported profits, and paid the total income tax of P5,016,954.00. The taxes due were settled by applying PBCom’s tax credit memos and accordingly, the Bureau of Internal Revenue (BIR) issued Tax Debit Memo 0746-85 and 0747-85 for P3,401,701.00 and P1,615,253.00, respectively. Subsequently, however, PBCom suffered losses so that when it filed its Annual Income Tax Returns for the year-ended 31 December 1985, it declared a net loss of P25,317,228.00, thereby showing no income tax liability. For the succeeding year, ending 31 December 31, 1986, PBCom likewise reported a net loss of P14,129,602.00, and thus declared no tax payable for the year. But during these two years, PBCom earned rental income from leased properties. The lessees withheld and remitted to the BIR withholding creditable taxes of P282,795.50 in 1985 and P234,077.69 in 1986. On 7 August 1987, PBCom requested the Commissioner of Internal Revenue, among others, for a tax credit of P5,016,954.00 representing the overpayment of taxes in the first and second quarters of 1985. Thereafter, on 25 July 1988, PBCom filed a claim for refund of creditable taxes withheld by their lessees from property rentals in 1985 for P282,795.50 and in 1986 for P234,077.69.

Pending the investigation of the Commissioner of Internal Revenue, PBCom instituted a Petition for Review on 18 November 1988 before the Court of Tax Appeals (CTA).  On 20 May 1993, the CTA dismissed the petition for lack of merit; and thus denied PBCom’s claim for refund/tax credit of overpaid income tax for 1985 in the amount of P5,299,749.95 for having been filed beyond the reglementary period, and likewise denied the 1986 claim for refund amounting to P234,077.69 since PBCom has opted and automatically credited the same to the succeeding year.  On 22 June 1993, PBCom filed a Motion for Reconsideration of the CTA’s decision but the same was denied due course for lack of merit.

PBCom filed a petition for review of CTA decision and resolution with the Court of Appeals. On 22 September 1993, the Court of Appeals affirmed in toto the CTA’s resolution dated 20 July 1993. Hence the petition for review with the Supreme Court. The Supreme Court denied the petition and affirmed the decision of the Court of Appeals appealed from, with costs against PBCom.

1.    Purpose of taxes, due process of law, and claims for refund or tax credit
Basic is the principle that “taxes are the lifeblood of the nation.” The primary purpose is to generate funds for the State to finance the needs of the citizenry and to advance the common weal. Due process of law under the Constitution does not require judicial proceedings in tax cases. This must necessarily be so because it is upon taxation that the government chiefly relies to obtain the means to carry on its operations and it is of utmost importance that the modes adopted to enforce the collection of taxes levied should be summary and interfered with as little as possible.  From the same perspective, claims for refund or tax credit should be exercised within the time fixed by law because the BIR being an administrative body enforced to collect taxes, its functions should not be unduly delayed or hampered by incidental matters.

2.    Section 230 NIRC (1977)
Section 230 of the National Internal Revenue Code (NIRC) of 1977 (now Sec. 229, NIRC of 1997) provides for the prescriptive period for filing a court proceeding for the recovery of tax erroneously or illegally collected. Section 230 (Recovery of tax erroneously or illegally collected) provides that “no suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. In any case, no such suit or proceeding shall be begun after the expiration of two years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment; Provided however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid.”

3.    Reckoning period for claim of refund or credit
The rule states that the taxpayer may file a claim for refund or credit with the Commissioner of Internal Revenue, within two (2) years after payment of tax, before any suit in CTA is commenced. The two-year prescriptive period provided, should be computed from the time of filing the Adjustment Return and final payment of the tax for the year.

4.    Application of Section 230 of 1977 NIRC; CIR vs. Phil-Am Life Insurance Co. and CIR vs. TMX Sales
In Commissioner of Internal Revenue vs. Philippine American Life Insurance Co., the Supreme Court explained the application of Section 230 of 1977 NIRC. Therein, the Court stated that the prescriptive period of two years should commence to run only from the time that the refund is ascertained, which can only be determined after a final adjustment return is accomplished. As earlier said in the TMX Sales case, Sections 68, 16 69, 17 and 70 18 on Quarterly Corporate Income Tax Payment and Section 321 should be considered in conjunction with it.

5.    RMC 7-85 invalid
When the Acting Commissioner of Internal Revenue issued RMC 7-85, changing the prescriptive period of two years to ten years on claims of excess quarterly income tax payments, such circular created a clear inconsistency with the provision of Section 230 of 1977 NIRC. In so doing, the BIR did not simply interpret the law; rather it legislated guidelines contrary to the statute passed by Congress.

6.    Nature of Revenue memorandum-circulars
It bears repeating that Revenue memorandum-circulars are considered administrative rulings (in the sense of more specific and less general interpretations of tax laws) which are issued from time to time by the Commissioner of Internal Revenue.

7.    Interpretation by executive officers entitled to great respect but not conclusive
It is widely accepted that the interpretation placed upon a statute by the executive officers, whose duty is to enforce it, is entitled to great respect by the courts. Nevertheless, such interpretation is not conclusive and will be ignored if judicially found to be erroneous. Thus, courts will not countenance administrative issuances that override, instead of remaining consistent and in harmony with, the law they seek to apply and implement. As held in the case of People vs. Lim, the rules and regulations issued by administrative officials to implement a law cannot go beyond the terms and provisions of the latter.

8.    Memorandum-circular does not shield taxpayer from judicial action
Fundamental is the rule that the State cannot be put in estoppel by the mistakes or errors of its officials or agents. Article 8 of the Civil Code recognizes judicial decisions, applying or interpreting statutes as part of the legal system of the country. But administrative decisions do not enjoy that level of recognition. A memorandum-circular of a bureau head could not operate to vest a taxpayer with a shield against judicial action. For there are no vested rights to speak of respecting a wrong construction of the law by the administrative officials and such wrong interpretation could not place the Government in estoppel to correct or overrule the same. The non-retroactivity of rulings by the Commissioner of Internal Revenue is not applicable because the nullity of RMC 7-85 was declared by the courts and not by the Commissioner of Internal Revenue. Lastly, it must be noted that a claim for refund is in the nature of a claim for exemption and should be construed in strictissimi juris against the taxpayer.

9.    Section 69 of the 1977 NIRC; Availment of the exclusive relief of refund or automatic tax credit
Section 69 of the 1977 NIRC (now Section 76 of the 1997 NIRC) provides that any excess of the total quarterly payments over the actual income tax computed in the adjustment or final corporate income tax return, shall either (a) be refunded to the corporation, or (b) may be credited against the estimated quarterly income tax liabilities for the quarters of the succeeding taxable year. The corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR form) its intention, whether to request for a refund or claim for an automatic tax credit for the succeeding taxable year. To ease the administration of tax collection, these remedies are in the alternative, and the choice of one precludes the other.

10.    PBCom opted to apply for automatic tax credit
PBCom opted to apply for automatic tax credit. This was the basis used (vis-a-vis the fact that the 1987 annual corporate tax return was not offered by the petitioner as evidence) by the CTA in concluding that PBCom had indeed availed of and applied the automatic tax credit to the succeeding year, hence it can no longer ask for refund, as to [sic] the two remedies of refund and tax credit are alternative.  Since PBCom opted for an automatic tax credit in accordance with Section 69 of the 1977 NIRC, as specified in its 1986 Final Adjusted Income Tax Return, such a finding of fact must be respected by the Supreme Court. This, especially, in light that the 1987 annual corporate tax return of PBCom was not offered as evidence to controvert said fact.

CIR vs. Concepcion (GR L-23912, 15 March 1968)
En Banc, Fernando (J): 8 concur, 1 on leave

Facts: An assessment in the sum of P1,181.33 and P2,616.10 representing estate and inheritance taxes on 50 shares of stock of Edward J. Nell Company issued in the names of both spouses “as joint tenants with full rights of survivorship and not as tenants in common” was made by the Commissioner of Internal Revenue on the ground that there was a transmission to the husband of one-half share thereof upon the death of the wife, the above shares being conjugal property. Jose Concepcion, as ancillary administrator of the estate of Mary H. Mitchell-Roberts, and Jack F. Mitchell-Roberts, husband of the deceased, opposed and maintained that there was no transmission of property since under English law, ownership of all property acquired during the marriage vests in the husband, and that the shares of stock were issued to the spouses “as joint tenants with full rights of survivorship and not as tenants in common. Not being agreeable to the theory entertained by the Commissioner of Internal Revenue, Concepcion and Mitchell-Roberts, in CTA Case 168, appealed such a decision under RA 1125. The Court of Tax Appeals, however and on 29 April 1957, dismissed such an appeal as the petition for review because it was filed beyond the reglementary period of 30 days. That decision became final.

On 14 June 1957, Concepcion and Mitchell-Roberts paid the taxes in question amounting to P1,181.33 (as estate tax) and P2,616.10 (as inheritance tax), inclusive of delinquency penalties, and at the same time filed a claim for the refund of said amounts. Without waiting for the decision of the Commissioner of Internal Revenue on the claim for refund, Concepcion and Mitchell-Roberts instituted an appeal with the Court of Tax Appeals on 11 June 1959 in order to avoid the prescriptive period of two years provided for in Section 306 of the Revenue Code. The Court of Tax Appeals ordered the Commissioner of Internal Revenue to refund the inheritance and estate taxes paid in the amount of P3,797.43. The Commissioner filed a petition for review with the Supreme Court.

The Supreme Court reversed the decision of the Court of Tax Appeals under review; with costs against Concepcion and Mitchell-Roberts.

1.    Reliance on La Paz y Buen Viaje Cigar & Cigarette Factory misplaced
The very same day the decision in La Paz y Buen Viaje Cigar & Cigarette Factory was affirmed, the opinion in Republic of the Philippines v. Lopez  was handed down. The case of Republic vs. Lopez was an appeal by the Republic from an order of the CFI Baguio dismissing its complaint for collection of a deficiency income tax against Lopez on the ground that the action had prescribed. After noting that prescription as a defense did not lie, the Supreme Court statedthat another ground for reversing the dismissal of the complaint is that the proper remedy of the taxpayer against the assessment complained of was to appeal the ruling of the Collector to the Court of Tax Appeals.

2.    Effects of finality of assessment; Republic vs. Lim Tian Teng Sons & Co, Morales vs. Collector of Internal Revenue
The taxpayer’s failure to appeal to the Court of Tax Appeals in due time made the assessment in question final, executory and demandable. A subsequent action to enforce the deficiency assessment was already barred from disputing the correctness of the assessment or invoking any defense that would reopen the question of his tax liability on the merits. Thus, once the matter has reached the stage of finality in view of the failure to appeal, it could no longer be reopened through the expedient of an appeal from the denial of the taxpayer’s request for cancellation of the warrant of distraint and levy.

3.    Procedure in Section 306 NIRC not available to revive right to contest validity of assessment when appeal not taken
In the same way that the expedient of an appeal from a denial of a tax request for cancellation of warrant of distraint and levy cannot be utilized for the purpose of testing the legality of an assessment, which had become conclusive and binding on the taxpayer, there being no appeal, the procedure set forth in Section 306 of the National Internal Revenue Code is not available to revive the right to contest the validity of an assessment once the same had been irretrievably lost not only by the failure to appeal but likewise by the lapse of the reglementary period within which to appeal could have been taken.

4.    Estate administrator and deceased’s husband liable for taxes
The liability of Concepcion as an ancillary administrator of the estate of the deceased wife and of Mitchell-Roberts as the husband for the amount of P1,181.33 as estate tax and P2,616,10 as inheritance tax was beyond question. Having paid the same, they are clearly devoid of any legal right to sue for recovery.

Roman Catholic Archbishop of Cebu vs. Collector of Internal Revenue (GR L-16683, 31 January 1962)
En Banc, Reyes JBL (J): 8 concur, 1 took no part

Facts: On 21 February 1956, the Roman Catholic Archbishop of Cebu, in behalf of the Roman Catholic Church of Cebu, filed an income tax return for 1955, reporting a gross income of P10,356.90 from sales or exchanges of capital assets,  from rentals and royalties, and from dividends received. The Archbishop claimed deductions from depreciation of the Archbishop’s Palace Building, Major Seminary, Minor Seminary, and Furniture and Fixture in the total value of P19,898.09. On 18 February 1957, the Archbishop, in behalf of the Roman Catholic Church in Cebu, filed an income tax return for 1956, showing a gross income of P18,856.42. The Archbishop claimed deductions from depreciation in the total value of P20,226.15. On the theory that the gross incomes in 1955 and 1956 were realized independently of the use of the building, furniture and fixtures, the Collector of Internal Revenue totally disallowed the deductions for depreciation, thereby determining against the Archbishop, on 15 July 1956 and 30 March 1957, income tax liabilities for 1955 and 1956 in the respective amounts of P1,825.00 and P2,493.00. On May 10 and 14, 1957, the Archbishop requested for the reconsideration of the determinations, which requests were denied by the Collector in a letter dated 13 July 1957, wherein he demanded the payment of P1,825.00 and P2,493.00, including 5% surcharge and 1% legal interest on the latter amount. On 28 August 1957, the Archbishop requested for the reconsideration of the denial and the cancellation of the assessments. On 5 November 1957, the Collector denied this request for reconsideration and demanded the payment of P4,318.00, plus delinquency penalties incident to late payment. Again, on 23 November 1957, the Archbishop requested for the reconsideration and cancellation of the assessments, which request was denied on 20 January 1958, with a demand “for the last time to pay the total sum of P4,318.00 plus delinquency penalties incident to late payment immediately upon receipt hereof in order that no drastic action may be taken by this office on the matter.” Meanwhile, on 4 December 4, 1957, the Collector issued a warrant of distraint and levy against the properties of the Roman Catholic Church of D. Jakosalem St., Cebu City, to satisfy the sums of P1,916.25 and P2,617.65 as defficiency income tax and surcharge due for 1955 and 1956. On 7 February 1958, the Archbishop paid under protest the total amount of P5,201.52 as income tax for the years 1955 and 1956, including surcharge and interests.

On 1 February 1958, the Archbishop filed before the Court of Tax Appeals his petition for review. The Tax Court, convinced that the lack of a claim for refund was fatal to the Archbishop’s appeal, dismissed the same for lack of jurisdiction to take cognizance thereof. From this ruling, the Archbishop appealed to the Supreme Court.

The Supreme Court affirmed the dismissal of the Archbishop’s appeal by the Court of Tax Appeals, with costs against the Archbishop.

1.    Section 7 of Republic Act 1125
Section 7 of Republic Act 1125, provides in part that “(1) Decisions of the Collector of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code or other law or part of the law administered by the Bureau of Internal Revenue;”

2.    RA 1125 allows appeal from decision of Collector in cases involving “disputed assessments” as distinguished from cases involving “refunds of internal revenue taxes, fees or other charges “
Section 7 of Republic Act No. 1125, creating the Court of Tax Appeals, allows an appeal from a decision of the Collector in cases involving “disputed assessments” as distinguished from cases involving “refunds of internal revenue taxes, fees or other charges.” To hold that the taxpayer has now lost the right to appeal from the ruling on the disputed assessment but must prosecute his appeal under section 306 of the Tax Code, which requires a taxpayer to file a claim for refund of the taxes paid as a condition precedent to his right to appeal, would in effect require of him to go through a useless and needless ceremony that would only delay the disposition of the case, for the Collector (now Commissioner) would certainly disallow the claim for refund in the same way as he disallowed the protest against the assessment. The law should not be interpreted as to result in absurdities.

3.    Dismissal of appeal correct for being filed out of time
The dismissal of the Archbishop’s appeal is substantially correct, for the reason that said appeal was not taken within the 30 day period prescribed by section 11 of Republic Act 1125. The Archbishop has submitted not less than 3 motions or requests for the reconsideration of his Tax Assessments. All motions for reconsideration were premised on the same grounds, deduction of the depreciation of the buildings in question. The appeal to the Tax Court was filed only on 19 February 1958. By these successive motions for reconsideration, the Archbishop managed to delay the review of his case by the Tax Court for nearly two years. Such delays are plainly inimical to the general interest, ascertainment and collection of taxes being essential to the maintenance of the State. The decision by the Collector dated 5 November 1957, denying the second request for reconsideration of the assessment, was certainly reviewable by the Court of Tax Appeals. Hence, the 30-day appeal period should be counted from 21 November 1957, when the taxpayer received copy of the Collector’s ruling. The running of the period was not interrupted by the filing of the third request for reconsideration, because the latter did not advance new grounds not previously alleged, and was, therefore, merely pro forma. Therefore, the Archbishop’s petition for review should have been lodged with the Tax Court not later than 21 December 1957, but it was actually filed only on 1 February 1958.

4.    Doctrine in North Camarines Lumber Co. vs. Collector of Internal Revenue, (109 Phil., 511)
The Supreme Court cannot countenance the theory that would make the commencement of the statutory 30-day period solely dependent on the will of the taxpayer and place the latter in a position to put off indefinitely and at his convenience the finality of a tax assessment. Such an absurd procedure would be detrimental to the interest of the Government, for ‘taxes are the lifeblood of the government, and their prompt and certain availability an imperious need.’ (Bull vs. U. S. 295, U. S. 247).”

Tuason & Legarda Ltd. vs. Commissioner of Internal Revenue (GR L-18552, 30 September 1965)
En Banc, Dizon (J): 6 concur

Facts: Tuason & Legarda Ltd., a duly organized domestic corporation, is the owner of the “La Rosario” distillery, operating since 1910 where it had in store, for many years, a stock of distilled spirits and compounded liquors. On 16 December 1958 the Commissioner of Internal Revenue served on the company an assessment for specific tax in the amount of P3,525.40 and P300.00 as penalty on the stock of distilled spirits aforesaid. In reply thereto the Company informed the Commissioner on 16 January 1959 that the stock had already oxidized and was unfit for human consumption, and asked for authority to destroy it in the presence of and under the supervision of a government representative. On February 13 and 16, 1959, Restituto Magcase and Herminigildo Velasquez, the company’s distillery supervisor and Chief, Specific Tax Branch, respectively, recommended the destruction of said alcohol and compounded liquors, having found them to be unfit for human consumption. However, on April 29 of the same year, Inocencio Gonzales, Jr., Chief, Laboratory Section, after an analysis of the same substances, made a report to the contrary. As a result, the Commissioner denied the company’s request for authority to destroy the stock, but in his letter of 3 July 1959 the Commissioner reduced the original assessment to P2,814.95, plus P300.00 as a penalty, copy of which amended assessment was received by the Company on 12 August 1959. The Commissioner, in his letter dated 30 September 1959 and received by the company about the middle of October of the same year denied the second written request to destroy the stock made by the Company on 15 August 1959, and demanded payment of the assessment and compromise penalty. In its reply letter dated 25 November 1959 the Company reiterated its stand that the stock of distilled spirits and compounded liquors in question was damaged and unfit for human consumption and asked for the withdrawal of the assessment served on it pursuant to Section 131 of the National Internal Revenue Code (NIRC). The Commissioner, instead of replying to this last request, served on petitioner on 20 January 1960 a warrant of distraint and levy for P3,525.40, (the original assessment) plus P300.00 as a penalty, and the latter, in turn, on 23 January 1960 tendered to the former all the stock of grain alcohol and compounded liquors in question in payment of the specific tax and penalty demanded provided that the warrant of distraint and levy be withdrawn and a full release and discharge be issued to it. The Commissioner never replied to this offer.

On 11 February 1960, the Company filed its petition for review with the Court of Tax Appeals.  After trial on the merits, the Court of Tax Appeals dismissed the petition for review on the ground that the same was not filed on time. A motion for reconsideration and new trial on the ground of accident, mistake and excusable negligence dated 7 April 1961, was denied by the same Court on 14 June 1961 for lack of merit. The Company appealed.

The Supreme Court affirmed the decision appealed from, with costs.

1.    Assessment final when petition for review filed with CTA; Last written request of company did not suspend running of prescriptive period
The letter of the Commissioner dated 3 July 1959 was, in legal contemplation, the ruling or decision from which the Company should have appealed to the Court of Tax Appeals; that from 12 August 1959 — when the Company received said letter — to the 15th of the same month and year — the date when the Company, by way of a motion for reconsideration, reiterated its written request for authority to destroy the distilled spirits and compounded liquors in its possession — the Company consumed three (3) days of the period of appeal that from 15 October 1959 — the date when the Company received the Commissioner’s letter of 30 September 1959 denying his second request for authority to destroy the merchandise taxed — to 11 February 1960 when the petition for review was filed, more than 3 months elapsed. In computing the period of appeal, the company’s last written request for authority to destroy the distilled spirits and compounded liquors in question did not suspend the running of said period, because it was a mere reiteration of two previous petitions already denied by the Commissioner. Consequently, the conclusion is inevitable that when the Company filed its petition for review with the Court of Tax Appeals, the questioned assessment had already become final, executory and incontrovertible.

2.    Motion for reconsideration or new trial on ground of accident, mistake and excusable negligence properly denied
The Company’s motion for reconsideration or new trial on the ground of accident, mistake and excusable negligence was correctly denied. Even assuming in this connection that the Commissioner’s letter dated 30 September 1959 was actually received by the Company on 20 November 1959 and not “in the middle of October” 1959 as admitted by one of the Company’s witnesses, the conclusion would still be that the petition for review was filed out of time because from 20 November 1959 to 11 February 1960 when said petition for review was filed, more than 60 days had elapsed.

Butuan Sawmill vs. Court of Tax Appeals (GR L-20601, 28 February 1966)
En Banc, Reyes JBL (J): 10 concur

Facts: During the period from 31 January 1951 to 8 June 1953, the Butuan Sawmill Inc. sold logs to Japanese firms at prices FOB Vessel Magallanes, Agusan (in some cases FOB Vessel, Nasipit also in Agusan). The FOB prices included costs of loading wharfage stevedoring and other costs in the Philippines. The quality, quantity and measurement specifications of the logs were certified by the Bureau of Forestry. That the freight was paid by the Japanese buyers, and the payments of the logs were effected by means of irrevocable letters of credit in favor of Butuan Sawmill and payable through the Philippine National Bank (PNB) or any other bank named by it. Upon investigation by the Bureau of Internal Revenue (BIR), it was ascertained that no sales tax return was filed by Butuan Sawmill and neither did it pay the corresponding tax on the sales. On the basis of agent Antonio Mole’s report dated 17 September 1957, the Commissioner of Internal Revenue on 27 August 1958, determined against Butuan Sawmill the sum of P40,004.01 representing sales tax, surcharge and compromise penalty of its sales [tax, surcharge and compromise penalty of its sales] of logs from January 1951 to June 1953 pursuant to section 183, 186 and 209 of the National Internal Revenue Code (NIRC). In consequence of a reinvestigation, the Commissioner, on 6 November 1958, amended the amount of the previous assessment to P38,917.74.

Subsequent requests for reconsideration of the amended assessment having been denied, Butuan Sawmill filed a petition for review on 7 November 1960. The Court of Tax Appeals upheld the upheld the legality and correctness of the amended assessment of the sales tax and surcharge. The imposition of the compromise penalty was, however, eliminated therefrom for want of agreement between the taxpayer and the Collector (now Commissioner) of Internal Revenue. A motion to reconsider said decision having been denied, Butuan Sawmill interposed an appeal before the Supreme Court.

The Supreme Court affirmed the decision appealed from, with costs against Butuan Sawmill.

1.    Export sales had been consummated in the Philippines and were subject to sales tax therein; Taligaman Lumber Co. vs. Collector of Internal Revenue
Similar to the case of Taligaman Lumbe Co. vs. Collector of Internal Revenue where “it was admitted that the agreed price was ‘F.O.B. Agusan’, thus indicating, although prima facie, that the parties intended the title to pass to the buyer upon delivery of the log in Agusan, on board the vessels that took the goods to Japan. Moreover, said prima facie proof was bolstered up by the following circumstances, namely: (1) Irrevocable letters of credit were opened by the Japanese buyers in favor of the petitioners. (2) Payment of freight charges of every shipment by the Japanese buyers. (3) The Japanese buyers chartered the ships that carried the logs they purchased from the Philippines to Japan. (4) The Japanese buyers insured the shipment of logs and collected the insurance coverage in case of loss in transit. (5) The petitioner collected the purchase price of every shipment of logs by surrendering the covering letter of credit, bill of lading, which was indorsed in blank, tally sheet, invoice and export entry, to the corresponding bank in Manila of the Japanese agent bank with whom the Japanese buyers opened letters of credit. (6) In case of natural defects in logs shipped to the buyers discovered in Japan instead of returning such defective logs, accepted them, but were granted a corresponding credit based on the contract price. (7) The logs purchased by the Japanese buyers were measured by a representative of the Director of Forestry and such measurement was final, thereby making the Government of the Philippines a sort of agent of the Japanese buyers,” and upon the authority of Bislig Bay Lumber Co., Inc. vs. Collector Internal Revenue, (G.R. No. L-13186 January 28, 1961) Misamis Lumber Co., Inc. vs. Collector of Internal Revenue (56 Off. Gaz. 517) and Western Mindanao Lumber Development Co., Inc. vs. Court of Tax Appeals, et al. (G.R. No. L-11710, June 30, 1958), it is clear that said export sales had been consummated in the Philippines and were accordingly, subject to sales tax therein.”

2.    Paragraph 2, Article 1503 of the Civil Code of the Philippines
That the specification in the bill of lading to the effect that the goods are deliverable to the order of the seller or his agent does not necessarily negate the passing of title to the goods upon delivery to the carrier is clear from the second part of paragraph 2 of article 1503 of the Civil Code of the Philippines. Said provision provides that “Where goods are shipped, and by the bill of lading the goods are deliverable to the seller or his agent, or to the order of the seller or of his agent the seller thereby reserves the ownership in the goods. But, if except for the form of the bill of lading, the ownership would have passed to the buyer on shipment of the goods, the sellers’ property in the goods shall be deemed to be only for the purpose of securing performance by the buyer of his obligation under the contract.”

3.    Only questions of law may be raised in petitions to review decisions of the CTA
It has been “a settled rule that in petitions to review decisions of the Court of Tax Appeals, only questions of law may be raised and may be passed upon by this Court” (Gutierrez vs. Court of Appeals & Collector of Internal Revenue vs. Gutierrez, G.R. Nos. L-7938 & L-9771, May 21, 1957, cited in Sanchez vs. Commissioner of Customs, G.R. No. L-8556, September 30, 1957).

4.    Income tax return cannot be considered as return for compensating tax for purpose of computing prescription under Section 331 of the Tax Code
An income tax return cannot be considered as a return for compensating tax for purposes of computing the period of prescription under Section 331 of the Tax Code, and that the taxpayer must file a return for the particular tax required by law in order to avail himself of the benefits of Section 331 of the Tax Code; otherwise, if he does not file a return, an assessment may be made within the time stated in Section 332(a) of the same Code (Bisaya Land Transportation Co., Inc. vs. Collector of Internal Revenue & Collector of Internal Revenue vs. Bisaya Land Transportation Co., Inc. G.R. Nos. L-12100 & L-11812. May 29, 1959).

5.    10 year prescription for failure to file return for disputed sales
As Butuan Sawmill failed to file a return for the disputed sales corresponding to the year 1951, 1952 and 1953, and this omission was discovered only on September 17, 1957, and that under Section 332(a) of the Tax Code assessment thereof may be made within ten (10) years from and after the discovery of the omission to file the return, the assessment and collection of the sales tax in question has not yet prescribed.