Commissioner of Internal Revenue vs. Court of Appeals (GR 119322, 4 June 1996)
First Division, Kapunan (J): 1 concur
Facts: On 1 June 1993, the President issued a Memorandum creating a Task Force to investigate the tax liabilities of manufacturers engaged in tax evasion scheme, such as selling products through dummy marketing corporations to avoid payment of correct internal revenue tax, to collect from them any tax liabilities discovered from such investigation, and to file the necessary criminal actions against those who may have violated the tax code. The task force was composed of the Commissioner of Internal Revenue as Chairman, a representative of the Department of Justice and a representative of the Executive Secretary. On 1 July 1993, the Commissioner of Internal Revenue issued a Revenue Memorandum Circular 37-93 reclassifying best selling cigarettes bearing the brands “Hope,” “More,” and “Champion” as cigarettes of foreign brands subject to a higher rate of tax. On 3 August 1993, the Fortune Tobacco Corporation (Fortune) questioned the validity of the reclassification of said brands of cigarettes as violative of its right to due process and equal protection of law. Parenthetically, on 8 September 1993, the Court of Tax Appeals by resolution ruled that the reclassification made by the Commissioner “is of doubtful legality” and enjoined its enforcement.
In a letter of 13 August 1993 which was received by Fortune on 24 August 1993, the Commissioner assessed against Fortune the total amount of P7,685,942,221.66 representing deficiency income, ad valorem and value-added tax for the year 1992 with the request that the said amount be paid within 30 days upon receipt thereof. Fortune on 17 September 1993 moved for reconsideration of the assessments. On 7 September 1993, the Commissioner filed a complaint with the Department of Justice against Fortune, its corporate officers, 9 other corporations and their respective corporate officers for alleged fraudulent tax evasion for supposed non-payment by Fortune of the correct amount of income tax, ad valorem tax and value-added tax for the year 1992. The complaint (IS 93-508), was referred to the Department of Justice Task Force on revenue cases which found sufficient basis to further investigate the allegations that Fortune, through fraudulent means, evaded payment of income tax, ad valorem tax, and value-added tax for the year 1992 thus, depriving the government of revenues in the amount of P7.5 Billion. On 8 September 1993, the Department of Justice Task Force issued a subpoena directing private respondents to submit their counter-affidavits not later than 20 September 1993. Instead of filing their counter-affidavits, Fortune, et. al. on 15 October 1993 filed a Verified Motion to Dismiss; Alternatively Motion to Suspend. The panel of prosecutors denied the motion to dismiss and treated the same as Fortune, et. al.’s counter- affidavits. On 20 October 1993, Fortune, et. al. filed a motion for reconsideration of the order. On 21 October 1993, Fortune, et. al. filed a motion to require the submission by the BIR of certain documents in further support of their Verified Motion to Dismiss. On 26 October 1993, Fortune, et. al. moved for the inhibition of the State Prosecutors assigned to the case for alleged lack of impartiality. Fortune, et. al. also sought the production of the “Daily Manufacturer’s Sworn Statements” submitted by certain cigarette companies similarly situated as Fortune but were not proceeded against, on the premise that Fortune and its officers were being singled out for criminal prosecution which is discriminatory and in violation of the equal protection clause of the Constitution. On 20 December 1993, the panel of prosecutors issued an Omnibus Order denying Fortune, et. al.’s motion for reconsideration, motion for suspension of investigation, motion to inhibit the State Prosecutors, and motion to require submission by the BIR of certain documents to further support Fortune, et. al.’s motion to dismiss.
On 4 January 1994, Fortune, et. al. filed a petition for certiorari and prohibition with prayer for preliminary injunction with the RTC Quezon City (Branch 88, Case Q-94-18790), praying that the complaint of the Commissioner and the orders of the prosecutors be dismissed or set aside, alternatively, the proceedings on the preliminary investigation be suspended pending final determination by the Commissioner of Fortune’s motion for reconsideration/reinvestigation of the 13 August 1993 assessment of the taxes due. On 17 January 1994, the Commissioner, et. al. filed a motion to dismiss the petition. On 25 January 1994, the trial court issued an order granting the prayer for the issuance of a preliminary injunction. On 26 January 1994, Fortune, et. al. filed with the trial court a Motion to Admit Supplemental Petition and sought the issuance of a writ of preliminary injunction to enjoin the State Prosecutors from continuing with the preliminary investigation filed by them against Fortune et. al. with the Quezon City Prosecutor’s Office for alleged fraudulent tax evasion, committed by Fortune, et. al. for the taxable year 1990. On 28 January 1994, Fortune, et. al. filed with the trial court a second supplemental petition, also seeking to stay the preliminary investigation in a third complaint filed against Fortune et. al. with the DOJ for alleged fraudulent tax evasion for the taxable year 1991. On 31 January 1994, the lower court admitted the 2 supplemental petitions and issued a temporary restraining order in I.S. 93-17942 and I.S. 93-584. Also, on the same day, the Commissioner, et. al. filed an Urgent Motion for Immediate Resolution of the Commissioner, et. al.’s motion to dismiss. On 7 February 1994, the trial court issued an order denying the Commissioner, et. al.’s motion to dismiss Fortune, et. al’s petition seeking to stay preliminary investigation in I.S. 93-508. On 14 February 1994, the trial court issued an order granting Fortune, et. al.’s petition for a supplemental writ of preliminary injunction, likewise enjoining the preliminary investigation of the 2 other complaints filed with the Quezon City Prosecutor’s Office and the DOJ for fraudulent tax evasion, I.S. 93-17942 and I.S. 93- 584, for alleged tax evasion for the taxable years 1990 and 1991, respectively.
On 7 March 1994, the Commissioner, et. al. filed a petition for certiorari and prohibition with prayer for preliminary injunction before the Supreme Court. However, the petition was referred to the Court of Appeals for disposition by virtue of its original concurrent jurisdiction over the petition. On 19 December 1994, the Court of Appeals (CA-GR SP- 33599) rendered a decision denying the petition. Their motion for reconsideration having been denied by appellate court on 23 February 1995, the Commissioner, et. al. filed a petition for review. The Supreme Court dismissed the petition.
1. Section 127 (b) NIRC
Section 127 (b) [Determination of gross selling price of goods subject to ad valorem tax] provides that “Unless otherwise provided, the price, excluding the value- added tax, at which the goods are sold at wholesale in the place of production or through their sales agents to the public shall constitute the gross selling price. If the manufacturer also sells or allows such goods to be sold at wholesale price in another establishment of which he is the owner or in the profits at which he has an interest, the wholesale price in such establishment shall constitute the gross selling price. Should such price be less than the costs of manufacture plus expenses incurred until the goods are finally sold, then a proportionate margin of profit, not less than 10% of such manufacturing costs and expenses, shall be added to constitute the gross selling price.
2. Section 142 (c) NIRC
Section 142 (c) [Cigarettes packed in twenties] provides that “There shall be levied, assessed and collected on cigarettes packed in twenties an ad valorem tax at the rates prescribed below based on the manufacturer’s registered wholesale price.”
3. Proper basis of ad valorem tax
Under Section 127(b), the ad valorem tax should be based on the correct price excluding the value-added tax, at which goods are sold at wholesale in the place of production. Among the goods subject to ad valorem tax, the law — specifically Section 142(c) — requires that the corresponding tax on cigarettes shall be levied, assessed and collected at the rates based on the “manufacturer’s registered wholesale price.”
4. Supervision of cigarette companies; BIR and the National Tobacco Administration
The reason “why the wholesale price need to be registered and the purpose of the registration” is self-evident, i.e. to ensure the payment of the correct taxes by the manufacturers of cigarettes through close supervision, monitoring and checking of the business operations of the cigarette companies. No industry is as intensely supervised by the BIR and also by the National Tobacco Administration (NTA). Thus, the purchase and use of raw materials are subject to prior authorization and approval by the NTA. Importations of bobbins or cigarette paper, the manufacture, sale, and utilization of the same, are subject to BIR supervision and approval.
5. Supervision of cigarette companies; Production
For purposes of closer supervision by the BIR over the production of cigarettes, Revenue Enforcement Officers are detailed on a 24-hour basis in the premises of the manufacturer to secure production and removal of finished products. Composite Mobile Teams conduct counter-security on the business operations as well as the performance of the Revenue Enforcement Officers detailed thereat. Every transfer of any raw material is not allowed unless, in addition to the required permits, accompanied by Revenue Enforcement Officer.
6. Supervision of cigarette companies; Filing of Manufacturer’s Declaration
For the purpose of determining the “Manufacturer’s Registered Wholesale Price” a cigarette manufacturer is required to file a Manufacturer’s Declaration (BIR Form 31.03) for each brand of cigarette manufactured, stating: a.) Materials; b) Labor; c) Overhead; d) Tax Burden and the Wholesale Price by Case. The data submitted therewith is verified by the Revenue Officers and approved by the Commission of Internal Revenue. Any change in the manufacturer’s registered wholesale price of any brand cannot be effected without submitting the corresponding Sworn Manufacturer’s Declaration and verified by the Revenue Officer and approved by the Commissioner on Internal Revenue. The amount of ad valorem tax payments together with the Payment Order and Confirmation Receipt Nos. must be indicated in the sales and delivery invoices and together with the Manufacturer’s Sworn Declarations on (a) the quantity of raw materials used during the day’s operations; (b) the total quantity produced according to brand; and (c) the corresponding quantity removed during the day, the corresponding wholesale price thereof, and the VAT paid thereon must be presented to the corresponding BIR representative for authentication before removal.
7. Conclusion that Fortune made fraudulent returns or willfully attempted to evade payment of taxes due premature
If every step in the production of cigarettes was closely monitored and supervised by the BIR personnel specifically assigned to Fortune’s premises, and considering that the Manufacturer’s Sworn Declarations on the data required to be submitted by the manufacturer were scrutinized and verified by the BIR and, further, since the manufacturer’s wholesale price was duly approved by the BIR, then it is presumed that such registered wholesale price is the same as, or approximates “the price, excluding the value-added tax, at which the goods are sold at wholesale in the place production,” otherwise, the BIR would not have approved the registered wholesale price of the goods for purposes of imposing the ad valorem tax due. In such case, and in the absence of contrary evidence, it was precipitate and premature to conclude that Fortune, et. al. made fraudulent returns or wilfully attempted to evade payment of taxes due.
8. “Willful” and “Fraud”
“Wilful” means “premeditated; malicious; done with intent, or with bad motive or purpose, or with indifference to the natural consequence.” “Fraud” in its general sense, “is deemed to comprise anything calculated to deceive, including all acts, omissions, and concealment involving a breach of legal or equitable duty, trust or confidence justly reposed, resulting in the damage to another, or by which an undue and unconscionable advantage taken of another.”
9. Fraud not presumed
Fraud cannot be presumed. If there was fraud or wilful attempt to evade payment of ad valorem taxes by Fortune, et. al. through the manipulation of the registered wholesale price of the cigarettes, it must have been with the connivance or cooperation of certain BIR officials and employees who supervised and monitored Fortune’s production activities to see to it that the correct taxes were paid. But there is no allegation, much less evidence, of BIR personnel’s malfeasance. In the very least, there is the presumption that the BIR personnel performed their duties in the regular course in ensuing that the correct taxes were paid by Fortune.
10. Tax due proved before one is prosecuted for willful attempt to evade
Before one is prosecuted for wilful attempt to evade or defeat any tax under Sections 253 and 255 of the Tax Code, the fact that a tax is due must first be proved. Before Fortune, et. al. could be prosecuted for tax evasion under Sections 253 and 255 of the Tax Code, the fact that the deficiency income, ad valorem and value-added taxes were due from Fortune for the year 1992 should first be established. The Commissioner has not resolved Fortune, et. al.’s request for reconsideration up to the present. The Court cannot subscribe to the Commissioner, et. al.’s’ thesis citing, Ungad v. Cusi, that the lack of a final determination of Fortune’s exact or correct tax liability is not a bar to criminal prosecution, and that while a precise computation and assessment is required for a civil action to collect tax deficiencies, the Tax Code does not require such computation and assessment prior to criminal prosecution.
11. Proper construction of Ungad vs. Cusi ruling; Willful attempt to evade taxes must be shown
Reading Ungad carefully, the pronouncement therein that deficiency assessment is not necessary prior to prosecution is pointedly and deliberately qualified by the Court with following statement quoted from Guzik v. U.S.: “The crime is complete when the violator has knowingly and wilfully filed a fraudulent return with intent to evade and defeat apart or all of the tax.” In plain words, for criminal prosecution to proceed before assessment, there must be a prima facie showing of a wilful attempt to evade taxes. There was a wilful attempt to evade tax in Ungad because of the taxpayer’s failure to declare in his income tax return “his income derived from banana sapplings.”
12. Criminal prosecutions cannot be enjoined; Exceptions
As a general rule, criminal prosecutions cannot be enjoined: However, there are recognized exceptions which, as summarized in Brocka v. Enrile are: (a) To afford adequate protection to the constitutional rights of the accused; (b) When necessary for the orderly administration of justice or to avoid oppression or multiplicity of actions; (c) When there is a prejudicial question which is sub judice; (d) When the acts of the officer are without or in excess of authority; (e) Where the prosecution is under an invalid law, ordinance or regulation; (f) When double jeopardy is clearly apparent; (g) Where the court had no jurisdiction over the offense; (h) Where it is a case of persecution rather than prosecution; (i) Where the charges are manifestly false and motivated by the lust for vengeance; and (j) When there is clearly no prima facie case against the accused and a motion to quash on that ground has been denied.
13. Basis of issuance of writ of preliminary injunction by the trial court
In issuing the orders granting the issuance of a writ of preliminary injunction, the trial court believed that said orders were warranted to afford Fortune, et. al. adequate protection of their constitutional rights, particularly in reference to presumption of innocence, due process and equal protection of the laws. The trial court also found merit in Fortune, et. al.’s contention that preliminary injunction should be issued to avoid oppression and because the acts of the state prosecutors were without or in excess of authority and for the reason that there was a prejudicial question.
14. Preliminary investigation may be enjoined
Preliminary investigation may be enjoined where exceptional circumstances so warrant. In Hernandez v. Albano and Fortun v. Labang, injunction was issued to enjoin a preliminary investigation. Indeed, the purpose of a preliminary injunction is to secure the innocent against hasty, malicious and oppressive prosecution and to protect him from an open and public accusation of crime, from the-trouble, expense and anxiety of a public trial and also to protect the state from useless and expensive trials.
15. Section 3, Rule 112 (Procedure) of the Rules of Court
Section 3 provides that “except as provided for in Section 7 hereof, no complaint or information for an offense-cognizable by the Regional Trial Court shall be filed without a preliminary investigation having been first conducted in the following manner: (a) The complaint shall state the known address of the respondent and be accompanied by affidavits of the complainant and his witnesses as well as other supporting documents, in such number of copies as there are respondents, plus two (2)-copies for the official file. The said affidavits shall be sworn to before any fiscal, state prosecutor or government official authorized to administer oath, or, in their absence or unavailability, a notary public, who must certify that he personally examined the affiants and that he is satisfied that they voluntarily executed and understood their affidavits. (b) Within ten (10) days after the filing of the complaint, the investigating officer shall either dismiss the same if he finds no ground to continue with the inquiry, or issue a subpoena to the respondent, attaching thereto a copy of the complaint, affidavits and other supporting documents. Within ten (10) days from receipt thereof, the respondent shall submit counter-affidavits and other supporting documents. He shall have the right to examine all other evidence submitted by the complainant. (c) Such counter-affidavits and other supporting evidence submitted by the respondent shall also be sworn to and certified as prescribed in paragraph (a) hereof and copies thereof shall be furnished by him to the complainant. (d) If the respondent cannot be subpoenaed, or if subpoenaed does not submit counter-affidavits within the ten (10) day period, the investigating officer shall base his resolution on the evidence presented by the complainant. (e) If the investigating officer believes that there are matters to be clarified, he may set a hearing to propound clarificatory questions to the parties or their witnesses, during which the parties shall be afforded an opportunity to be present but without the right to examine or cross-examine. If the parties so desire, they may submit questions to the investigating officer which the latter may propound to the parties or witnesses concerned. (f) Thereafter, the investigation shall be deemed concluded, and the investigating officer shall resolve the case within ten (10) days therefrom. Upon the evidence thus adduced, the investigating officer shall determine whether or not there is sufficient ground to hold the respondent for trial.
16. Obvious haste in the issuance of subpoena
There was obvious haste by which the subpoena was issued to Fortune, et. al., just the day after the complaint was filed, hence, without the investigating prosecutors being afforded material time to examine and study the voluminous documents appended to the complaint for them to determine if preliminary investigation should be conducted. The precipitate haste in the issuance of the subpoena justified Fortune et. al.’s misgivings regarding the objectivity and neutrality of the prosecutors in the conduct of the preliminary investigation and so, the appellate court concluded, the grant of preliminary investigation by the trial court to afford adequate protection to Fortune, et. al.’s constitutional rights and to avoid oppression does not constitute grave abuse of discretion amounting to lack of jurisdiction.
17. Appeal vis-à-vis special action of Certiorari
The burden is upon the Commissioner, et. al. to demonstrate that the questioned orders constitute a whimsical and capricious exercise of judgment, which they have not. For certiorari will not be issued to cure errors in proceedings or correct erroneous conclusions of law or fact. As long as a court acts within its jurisdiction, any alleged errors committed in the exercise of its jurisdiction will amount to nothing more than errors of judgment which are reviewable by timely appeal and not by a special civil action of certiorari. Herein, the Regional Trial Court acted correctly and judiciously, and as demanded by the facts and the law, in issuing the orders granting the writs of preliminary injunction, in denying the Commissioner’s motion to dismiss and in admitting the supplemental petitions. What they should have was to file an answer to the petition filed in the trial court, proceed to the hearing and appeal the decisions of the court if adverse to them.
