Archive for April, 2012


CASE 2012-0046: THE INCORPORATORS OF MINDANAO INSTITUTE INC. AND THE BOARD OF TRUSTEES OF MINDANAO INSTITUTE INC., REPRESENTED BY ENGR. VICTORIOSO D. UDARBE VS. THE UNITED CHURCH OF CHRIST IN THE PHILIPPINES, ACTING THROUGH AGUSAN DISTRICT CONFERENCE UNITED CHURCH OF CHRIST IN THE PHILIPPINES, REPRESENTED BY REV. RODOLFO BASLOT (G.R. NO.  171765, MARCH 21, 2012, MENDOZA, J.) SUBJECT/S: WRIT OF PRELINARY INJUNCTION; INHIBITION OF JUDGE (BRIEF TITLE: INCORPORATORS OF MII VS. AGUSAN DISTRICT)

 

=====================

 

DISPOSITIVE:

 

WHEREFORE, the petition is DENIED. The assailed September 30, 2005 Decision and March 1, 2006 Resolution of the Court of Appeals, in CA-G.R. SP No. 79156, are hereby AFFIRMED.

 

=====================

 

 

Republic of the Philippines

Supreme Court

Manila

 

THIRD DIVISION

 

 

THE INCORPORATORS OF MINDANAO INSTITUTE INC. and THE BOARD OF TRUSTEES OF MINDANAO INSTITUTE INC., represented by ENGR. VICTORIOSO D. UDARBE,

Petitioners,

 

 

– versus –

 

 

THE UNITED CHURCH OF CHRIST IN THE PHILIPPINES, acting through AGUSAN DISTRICT CONFERENCE UNITED CHURCH OF CHRIST IN THE PHILIPPINES, represented by REV. RODOLFO BASLOT,

Respondent.

 

 

G.R. No.  171765

 

Present:

 

VELASCO, JR., J., Chairperson,

PERALTA,

ABAD,

MENDOZA, and

PERLAS-BERNABE, JJ.

 

 

 

 

 

 

 

 

 

Promulgated:

 

       March 21, 2012

 

                                                                                                                                               

X ———————————————————————————– X

 

D E C I S I O N

 

MENDOZA, J.:

 

Assailed in this petition for review on certiorari under Rule 45 of the Rules of Court are the September 30, 2005 Decision[1][1] and the March 1, 2006 Resolution[2][2] of the Court of Appeals (CA), in CA-G.R. SP No. 79156, which dissolved the Writ of Preliminary Injunction[3][3] dated July 9, 2003 issued by the Regional Trial Court of Cabadbaran, Agusan del Norte, Branch 34 (RTC).

 

The Factual and Procedural Antecedents

 

On April 29, 2003, Gregorio D. Calo, Zoilito L. Cepeda, Victorioso D. Udarbe, Tita B. Udarbe, Edgar B. Palarca, Louie Libarios, Anna Mae Pelegrino, Cirilia A. Sanchez, Anita V. Carloto and Eduardo Andit, the incorporators of Mindanao Institute Inc. (MI Incorporators), represented by Engineer Victorioso D. Udarbe (Engr. Udarbe),[4][4] filed a Petition for Declaratory Relief with Prayer for a Temporary Restraining Order (TRO) and Preliminary Injunction[5][5] against the  United Church of Christ in the Philippines (UCCP), acting through the Agusan District Conference of the United Church of Christ in the Philippines and represented by Reverend Rodolfo Baslot (Rev. Baslot), before the RTC, which was docketed as Special Civil Action Case No. 03-02.  The incorporators prayed that Mindanao Institute, Inc. (MI) be declared the sole owner of the assets and properties of MI and to prevent the impending takeover by UCCP of MI’s properties. They averred that UCCP was unlawfully claiming ownership of MI’s properties.

 

On June 5, 2003, UCCP filed its Answer with Counterclaim,[6][6] asserting its ownership of MI’s properties based on certain documents.[7][7] It claimed that the question of ownership in this case was a settled issue and required no further discourse because “they constitute a majority of the Board of Trustees and, therefore, in complete control thereof x x x.”[8][8]

On June 10, 2003, the RTC issued a TRO[9][9] against UCCP reasoning out that MI would suffer grave and irreparable damages if the ownership and possession of its assets and properties would be transferred to UCCP.  The RTC disposed:

 

WHEREFORE, it appearing that petitioners will suffer grave injustice and irreparable injury, let a temporary restraining order against respondents be issued restraining respondents, their representatives, attorneys, agents or any other person acting in their behalf from seizing control and management of the assets and properties of Mindanao Institute.

 

IT IS ORDERED.[10][10]

 

Meanwhile, UCCP received copies of MI’s Amended Articles of Incorporation[11][11] (2003 Amended AOI) which was adopted by the MI Incorporators on May 9, 2003 and approved by the Securities and Exchange Commission (SEC) on May 26, 2003.

 

On June 11, 2003, UCCP, represented by Rev. Baslot, and MI, represented by its President Dr. Edgardo R. Batitang (Dr. Batitang), lodged a Complaint for Declaration of Nullity of the 2003 Amended Articles of Incorporation and By-Laws of Mindanao Institute with Prayer for the Issuance of Temporary Restraining Order and Preliminary Injunction and/or Damages[12][12] before the RTC, which was docketed as Civil Case No. 09-2003.  UCCP and MI asserted that the Amendment of MI’s Articles of Incorporation effected by signatories in a reckless and hasty fashion was accomplished without the required majority vote in clear violation of Section 16[13][13] of Corporation Code.[14][14] Of the ten (10) signatures appearing in the 2003 Amended AOI constituting 2/3 of the Board of Trustees of MI, five (5) were affixed by mere representatives who were not duly authorized to vote. Further, UCCP and MI, as represented by Dr. Batitang, stressed that the procedure in the acceptance of corporate members as embodied in the Amended By-Laws contains discriminatory provisions, wherein certain members maybe subjected to confirmation and acceptance or rejection, but aimed specifically at members to be nominated by UCCP.

 

On June 17, 2003, the signatories moved to dismiss[15][15] the complaint for declaration of nullity of the 2003 Amended AOI. They contended that the SEC, in approving the amendments to the Articles of Incorporation and By-Laws, was exercising its quasi-judicial function and, therefore, a co-equal body of the RTC. Thus, the RTC could not grant any of the reliefs prayed for by UCCP.

 

At the scheduled joint hearing of Special Civil Action Case No. 03-02 and Civil Case No. 09-2003 to determine the propriety of the issuance of a writ of preliminary injunction, the Law Office of Bernabe, Doyon, Bringas and Partners entered its appearance[16][16] as collaborating counsel for UCCP. Incidentally, Atty. Roy Doyon (Atty. Doyon), the son of Executive Judge Orlando F. Doyon (Judge Doyon), was one of the partners in the said law firm. This prompted Atty. Nelbert T. Poculan, UCCP’s lead counsel, to move for the inhibition of Judge Doyon from the case. On the other hand, Atty. Rolando F. Carlota, MI Incorporators’ counsel, expressed no objection to the continued participation of Judge Doyon in the proceedings of the case despite the said development.

 

Subsequently, Judge Doyon proceeded with the joint hearing. Thereafter, the RTC granted the MI incorporators’ prayer for preliminary injunction against UCCP in its Omnibus Order[17][17] dated July 4, 2003, the decretal portion of which states:

 

WHEREFORE, the prayer for issuance of a Temporary Restraining Order in Civil Case No. 09-2003 is hereby denied with finality.

 

As prayed for in Special Civil Case No. 03-02, let a Writ of Preliminary Injunction be issued, restraining, prohibiting, and enjoining respondents, UNITED CHURCH OF CHRIST IN THE PHILIPPINES (UCCP) acting thru AGUSAN DISTRICT CONFERENCE (ADC-UCCP), represented by Rev. Rodolfo Baslot, their agents, representatives, attorneys, and any other persons acting for and in their behalf from taking over, seizing control, managing, or administering MINDANAO INSTITUTE and preventing plaintiffs in discharging their functions and duties in the management, control and administration of the school, its premises and assets, upon plaintiffs putting up a bond in the amount of ₱200,000.00 duly approved by the Court, which bond shall be executed in favour of the defendants to answer for whatever damages they may sustain by reason of or arising from the issuance of the writ in the event that the Court will finally rule that the plaintiffs are not entitled thereto.

 

IT IS SO ORDERED.

 

In issuing the preliminary injunction against UCCP, the RTC explained:

 

The prayer for the issuance of a Temporary Restraining Order, hereinafter known as TRO, in Civil Case No. 09-2003, is anchored on the assumption that the Amended Articles of Incorporation and Amended By-Laws of Mindanao Institute adopted on May 26, 2003, is null and void for being ultra vires. However, at this stage of the proceedings where the action of the Court is generally based on initial and incomplete evidence, the Court cannot just precipitately rule that the amendments were ultra vires acts of the respondents.

 

It should be stressed that the questioned Amended Articles of Incorporation and By-Laws is duly approved by the Securities and Exchange Commission, hereinafter referred to as SEC. As such, there being no evidence thus far presented to the contrary, the presumption is that the official duty of the SEC has been regularly performed.

 

 

Thus, the actuations of respondents in Civil Case No. 09-2003 based on those documents are presumptively valid unless declared void by this Court after a full-blown trial. In other words, plaintiffs at this stage, have not shown the existence of a clear legal right which has been violated warranting the issuance of a TRO, because before a TRO or injunction is issued, it is essential that there must be a right in esse or the existence of a right to be protected and that the act against which the injunction is issued is a violation of such right.

 

On the other hand, plaintiffs in Special Civil Case No. 03-02 have shown that they have the legal right in the management and administration of Mindanao Institute because their actuations are based in an Amended Articles of Incorporation and By-Laws duly approved by the SEC. The allegation that it was approved by the SEC in record time cannot be taken as evidence that per se the approval was against any law, rule or regulation.

 

It is precisely for this reason that the Court issued a TRO because from the amendments, plaintiffs in Special Civil Case No. 03-02 and respondents in Civil Case No. 09-2003 have clear legal rights over the management and administration of Mindanao Institute and that the acts of plaintiffs in Civil Case No. 09-2003 and respondents in Special Civil Case No. 03-02 are in violation of those rights. Pending determination, therefore, of the principal action in Special Civil Case No. 03-02, the Court is inclined to issue a preliminary injunction to protect and preserve the rights of plaintiffs.[18][18]

 

UCCP moved for a reconsideration but the same was denied by the RTC in its Resolution[19][19] dated August 15, 2003.

 

In its Omnibus Order[20][20] dated August 20, 2003, Judge Doyon inhibited himself from the cases citing the fact that his son’s law firm entered its appearance as collaborating counsel for UCCP.

 

Disappointed with the unfavorable ruling, UCCP and MI, as represented by Dr. Batitang, sought relief with the CA via a petition for certiorari under Rule 65 of the Rules of Court alleging grave abuse of discretion on the part of the RTC in issuing the assailed order.  

 

The CA granted the petition in its September 30, 2005 Decision, the fallo of which reads:

 

WHEREFORE, above premises considered, the instant Petition is GRANTED. The writ of preliminary injunction issued against the United Church of Christ in the Philippines (UCCP) in Special Civil Case No. 02-03 is hereby DISSOLVED. No pronouncement as to costs.

 

SO ORDERED.[21][21]

 

The CA reasoned, among others, that the petition for certiorari (Civil Case No. 09-2003) having been jointly filed by UCCP and MI, as represented by Dr. Batitang, was adequate evidence to support the conclusion that MI did not require any injunctive relief from UCCP. The CA also stated that in actions for declaratory relief, the court was only called upon to determine the parties’ rights and obligations. Citing Republic v. Court of Appeals,[22][22]  it reasoned out that the RTC could not issue injunction in an action for declaratory relief in as much as the right of the MI incorporators had not yet been violated. Moreover, it stated that the subsequent inhibition of Judge Doyon in the cases was pursuant to the rules on compulsory disqualification of a judge under Rule 3.12(d) of the Code of Judicial Conduct.[23][23]

 

The MI incorporators, represented by Engr. Udarbe, moved for reconsideration but the motion was denied by the CA in its Resolution dated March 1, 2006.

 

Hence, this petition.

 

 

THE ISSUES

 

I

WHETHER OR NOT THE HONORABLE COURT OF APPEALS, SPECIAL TWENTY THIRD DIVISION, IN AN ORIGINAL ACTION FOR CERTIORARI UNDER RULE 65 ERRED IN CONSIDERING AND RULING ON FACTUAL ISSUES NOT YET HEARD AND TRIED IN THE COURT OF ORIGIN AND BASED ITS DECISION THEREON.

 

II

 

WHETHER OR NOT THE HONORABLE COURT OF APPEALS, SPECIAL TWENTY THIRD DIVISION ERRED IN ITS APPLICATION OF RULE 3.12(D) OF THE CODE OF JUDICIAL ETHICS UNDER THE FACTS AND CIRCUMSTANCES SURROUNDING THIS CASE.[24][24]

 

In their Memorandum,[25][25] the petitioners argue that the CA went beyond the province of a writ of certiorari by resolving factual questions, which should appropriately be threshed out in the trial. On the inhibition, they pointed out that it was solely the law partner of Judge Doyon’s son, Atty. J. Ma. James L. Bringas (Atty. Bringas), who personally entered his appearance as collaborating counsel, and not the law firm. Furthermore, they claim that Atty. Doyon, Judge Doyon’s son, was neither present in court on the day Atty. Bringas entered his appearance nor was he present in any of the previous hearings of the subject cases. Hence, petitioners claim that Rule 3.12(d) of the Code of Judicial Conduct[26][26] is not applicable in this case because Atty. Doyon never represented any party in any of the subject cases being heard by Judge Doyon.

 

 

 

 

In its Memorandum,[27][27] respondent claims that the petition for review on certiorari filed by the petitioners was not properly verified as to authorize Engr. Udarbe to file the same – a fatal procedural infirmity. Further, it points out that petitioners are raising questions of fact in their petition not cognizable by this Court.

 

THE COURT’S RULING

 

The petition lacks merit.

 

The Court is called upon to resolve the issue of whether or not the CA erred in dissolving the writ of preliminary injunction issued against UCCP. The writ of preliminary injunction enjoined UCCP from taking control and management of MI and preventing petitioners from discharging their functions in its management. Thus, the Court shall confine itself only with the concerned writ and not the merits of the cases, which are still pending with the RTC. A preliminary injunction, being a preservative remedy for the protection of substantive rights or interests, is not a cause of action in itself but merely a provisional remedy, an adjunct to a main suit.[28][28]

 

A preliminary injunction is defined under Section 1, Rule 58 of the Rules of Court, as follows:

 

Section 1. Preliminary injunction defined; classes. — A preliminary injunction is an order granted at any stage of an action or proceeding prior to the judgment or final order, requiring a party or a court, agency or a person to refrain from a particular act or acts. x x x

 

 

 

 

A preliminary injunction is a provisional remedy that a party may resort to in order to preserve and protect certain rights and interests during the pendency of an action.[29][29] The objective of a writ of preliminary injunction is to preserve the status quo until the merits of the case can be fully heard.  Status quo is the last actual, peaceable and uncontested situation which precedes a controversy.[30][30]

 

Significantly, Section 3, Rule 58 of the Rules of Court, enumerates the grounds for the issuance of a writ of preliminary injunction:

SEC. 3.  Grounds for issuance of preliminary injunction. — A preliminary injunction may be granted when it is established:

 

(a)    That the applicant is entitled to the relief demanded, and the whole or part of such relief consists in restraining the commission or continuance of the act or acts complained of, or in requiring the performance of an act or acts, either for a limited period or perpetually;

 

(b)   That the commission, continuance or non-performance of the act or acts complained of during the litigation would probably work injustice to the applicant; or

 

(c)    That a party, court, agency or a person is doing, threatening, or is attempting to do, or is procuring or suffering to be done, some act or acts probably in violation of the rights of the applicant respecting the subject of the action or proceeding, and tending to render the judgment ineffectual.

 

Based on the foregoing provision, the Court in St. James College of Parañaque v. Equitable PCI Bank[31][31] ruled that the following requisites must be proved before a writ of preliminary injunction will issue:

 

(1) The applicant must have a clear and unmistakable right to be protected, that is, a right in esse;

 

 

(2) There is a material and substantial invasion of such right;

 

(3) There is an urgent need for the writ to prevent irreparable injury to the applicant; and

 

(4) No other ordinary, speedy, and adequate remedy exists to prevent the infliction of irreparable injury.[32][32] [Underscoring supplied]

 

 

It bears stressing that to be entitled to an injunctive writ, the right to be protected and the violation against that right must be shown.  A writ of preliminary injunction may be issued only upon clear showing of an actual existing right to be protected during the pendency of the principal action.[33][33] When the complainant’s right or title is doubtful or disputed, he does not have a clear legal right and, therefore, the issuance of injunctive relief is not proper.[34][34]

 

In the present case, the records fail to reveal any clear and unmistakable right on the part of petitioners. They posit that they are suing in behalf of MI’s interests by preventing UCCP from unlawfully wresting control of MI’s properties. Their claimed derivative interest, however, has been disputed by UCCP in both its Answer with Counterclaim in Special Civil Action Case No. 03-02 and its Complaint in Civil Case No. 09-2003, wherein MI itself, represented by Dr. Batitang himself, is its co-petitioner. Evidently, the conflicting claims of the parties regarding the issue of ownership over MI’s property create the impression that the petitioners’ derivative right, used as basis for the issuance of the preliminary injunction, is far from clear. Petitioners claimed right is still indefinite, at least until it is properly threshed out in a trial, negating the presence of a right in esse that requires the protection of an injunctive writ. Verily, petitioners cannot lay claim to a clear and positive right based on the 2003 Amended AOI, the provisions of which are strongly disputed and alleged to be invalidly obtained. 

 

        As regards the issue of Judge Doyon’s disqualification to sit as judge in the subject cases, the Court agrees with the CA. The pertinent rule on the mandatory disqualification of judicial officers is laid down in Rule 137 of the Rules of Court. Section 1 thereof provides:

 

SECTION 1.  Disqualification of judges. – No judge or judicial officer shall sit in any case in which he, or his wife or child, is pecuniary interested as heir, legatee, creditor or otherwise, or in which he is related to either party within the sixth degree of consanguinity or affinity, or to counsel within the fourth degree, computed according to the rules of the civil law, or in which he has been executor, administrator, guardian, trustee or counsel, or which he has presided in any inferior court when his ruling or decision is the subject of review, without the written consent of all parties in interest, signed by them and entered upon the record. [Underscoring supplied]

 

x x x.

Moreover, Rule 3.12 of Canon 3 of the Code of Judicial Conduct, which took effect from October 20 1989 until May 31, 2004, the applicable rule then, reads as follows:

A judge should take no part in a proceeding where the judge’s impartiality might reasonably be questioned.  These cases include, among others, proceedings where:

x x x

(d)     the judge is related by consanguinity or affinity to a party litigant within the sixth degree or to counsel within the fourth degree. [Underscoring supplied]

 

The prohibitions under the afore-quoted provisions of the Rules are clear. The disqualification is mandatory and gives the judicial officer concerned no discretion but to inhibit himself from trying or sitting in a case. The rationale, therefore, is to preserve the people’s faith and confidence in the judiciary’s fairness and objectivity.[35][35]

 

While the Court finds it ludicrous that it was the counsel of UCCP, Atty. Poculan, who sought the inhibition of Judge Doyon, considering that the law firm of the latter’s son is his collaborating counsel, still the mandatory prohibition applies. Judge Doyon should have immediately inhibited himself from the case upon learning of the entry of appearance of his son’s law firm. Where the disqualifying fact is indubitable and the parties to the case make no waiver of such disqualification, as in the case at bench, Section 1, Rule 137 of the Rules of Court forthwith completely strips the judge of authority to proceed.[36][36]

 

WHEREFORE, the petition is DENIED. The assailed September 30, 2005 Decision and March 1, 2006 Resolution of the Court of Appeals, in CA-G.R. SP No. 79156, are hereby AFFIRMED.

 

SO ORDERED

 

 

 

 

                                               JOSE CATRAL MENDOZA

                                                         Associate Justice

 

 

 

 

WE CONCUR:

 

 

 

 

 

PRESBITERO J. VELASCO, JR.

Associate Justice

Chairperson

 

 

 

 

DIOSDADO M. PERALTA                        ROBERTO A. ABAD

            Associate Justice                                  Associate Justice

 

 

 

 

 

ESTELA M. PERLAS-BERNABE

Associate Justice       

 

A T T E S T A T I O N

 

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

 

 

 

        PRESBITERO J. VELASCO, JR.

                      Associate Justice

                                                               Chairperson, Third Division

 

C E R T I F I C A T I O N

 

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

 

 

 

                                                           RENATO C. CORONA

                                                                   Chief Justice

 


 


[1][1] Rollo, pp. 24-34. Penned by Associate Justice Normandie B. Pizarro and concurred in by Associate Justice Edgardo A. Camello and Associate Justice Rodrigo F. Lim, Jr.

[2][2]Id. at 37-40.

[3][3] Id. at 97-98. Issued by Executive Judge Orlando F. Doyon.

[4][4] Id. at 68-69. Gathered based on the Amended Articles of Incorporation annexed to the petition.

[5][5]Id. at 45-54.

[6][6]Id. at 55-61.

[7][7] Id. at 57. The documents referred to by respondent UCCP in its Answer with Counterclaim are the ff: 1)Articles of Incorporation of MI; 2) Deed of Donation; 3) Deed of Quitclaim.

[8][8] Answer, Par. 5, id. at  57.

[9][9]   Rollo, pp. 61a-62.

[10][10]Id.

[11][11] Id. at 63-69.

[12][12] Id. at 70-87.

[13][13] Sec. 16. Amendment of Articles of Incorporation. Unless otherwise prescribed by this Code or by special law, and for legitimate purposes, any provision or matter stated in the articles of incorporation may be amended by a majority vote of the board of directors or trustees and the vote or written assent of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, without prejudice to the appraisal right of dissenting stockholders in accordance with the provisions of this Code, or the vote or written assent of at least two-thirds (2/3) of the members if it be a non-stock corporation.

x x x

[14][14] Batas Pamabansa Blg. 68.

[15][15] Rollo, pp. 88-90.

[16][16]Id. at 95-96.

[17][17] CA rollo, pp. 36-38.

[18][18]Id. at 34-35. Citations omitted.

[19][19]Id. at 52-55.

[20][20]Id. at 56.

[21][21] Rollo, p. 33.

[22][22] 383 Phil. 398 (2000).

[23][23] A judge should take no part in a proceeding where the judge’s impartiality might reasonably be questioned.  These cases include, among others, proceedings where:

     (d) the judge is related by consanguinity or affinity to a party litigant within the sixth degree or to counsel within the fourth degree.

 

[24][24] Rollo, p. 10.

[25][25]Id. at 190-204.

[26][26] Supra note 23.

[27][27] Rollo, pp. 170-188.

[28][28] Pahila-Garrido v. Tortogo, G.R. 156358,August 17, 2011.

[29][29] Limitless Potentials, Inc. v. Court of Appeals, G.R. No. 164459, April 24, 2007, 522 SCRA 70, 82.

[30][30] Preysler, Jr. v. Court of Appeals, 527 Phil. 129,136 (2006), citing Cortez-Estrada v. Heirs of Domingo Samut/Antonia Samut, 491 Phil. 458, 472 (2005); Los Baños Rural Bank, Inc. v. Africa, 433 Phil. 930, 945 (2002).

[31][31] G.R. No. 179441, August 9, 2010, 627 SCRA 328, 344, citing Biñan Steel Corporation v. Court of Appeals, 439 Phil. 688, 703-704 (2002); Hutchison Ports Philippines Ltd. v. Subic Bay Metropolitan Authority, 393 Phil. 843, 859 (2000).

 

[32][32]Id. 

[33][33] Equitable PCI Bank, Inc. v. OJ-Mark Trading, Inc., G.R. No. 165950, August 11, 2010, 628 SCRA 79, 88, citing Borromeo v. Court of Appeals, G.R. No. 169846, March 28, 2008, 550 SCRA 269, 280; Lim v. Court of Appeals, 517 Phil. 522, 527 (2006).

[34][34] Barayuga v. Adventist University of the Philippines, G.R. No. 168008,August 17, 2011.

[35][35] Busilac Builders, Inc. v. Judge Charles A. Aguilar, A.M. No. RTJ-03-1809, October 17, 2006, 504 SCRA 585, 598, citing Ortiz v. Jaculbe, Jr., 500 Phil. 142, 147 (2005); Pimentel v. Salanga, 128 Phil. 176, 183 (1967); Hacienda Benito, Inc. v. Court of Appeals, 237 Phil. 46, 63 (1987).

[36][36] Geotina v. Gonzales, 148-B Phil. 556, 568-569 (1971).

CASE 2012-0045: COMMISSIONER OF INTERNAL REVENUE VS. PETRON CORPORATION (G. R. No. 185568, March 21, 2012, SERENO, J.) SUBJECT/S: TAX CREDITS; ESTOPPEL; EFFECT OF STIPULATION DURING PRE-TRIAL. (BRIEF TITLE: CIR VS. PETRON)

 

========================

 

DISPOSITIVE:

 

WHEREFORE, the CIR’s Petition is DENIED for lack of merit. The CTA En Banc Decision dated 03 December 2008 in CTA EB No. 311 is hereby AFFIRMED in toto. No pronouncement as to costs.    

 

SO ORDERED.

 

========================

 

 

SUBJECTS/DOCTRINES/DIGEST:

 

 

WHAT IS A TAX CREDIT?

 

 

ARTICLE 21 OF E.O. 226 DEFINES A TAX CREDIT AS FOLLOWS:

 

        ARTICLE 21.         “Tax credit” shall mean any of the credits against taxes and/or duties equal to those actually paid or would have been paid to evidence which a tax credit certificate shall be issued by the Secretary of Finance or his representative, or the Board, if so delegated by the Secretary of Finance. The tax credit certificates including those issued by the Board pursuant to laws repealed by this Code but without in any way diminishing the scope of negotiability under their laws of issue are transferable under such conditions as may be determined by the Board after consultation with the Department of Finance. The tax credit certificate shall be used to pay taxes, duties, charges and fees due to the National Government; Provided, That the tax credits issued under this Code shall not form part of the gross income of the grantee/transferee for income tax purposes under Section 29 of the National Internal Revenue Code and are therefore not taxable: Provided, further, That such tax credits shall be valid only for a period of ten (10) years from date of issuance.

XXXXXXXXXXXXXXXXXXXX

 

 

TO WHOM ARE TAX CREDIT GRANTED?

 

 

TO ENTITIES REGISTERED WITH THE BOARD OF INVESTMENT (BOI) AND ARE GIVEN FOR TAXES AND DUTIES PAID ON RAW MATERIALS USED FOR THE MANUFACTURE OF THEIR EXPORT PRODUCTS.

 

 

        Under Article 39 (j) of the Omnibus Investment Code of 1987,[1][32] tax credits are granted to entities registered with the Bureau of Investment (BOI) and are given for taxes and duties paid on raw materials used for the manufacture of their export products.

 

XXXXXXXXXXXXXXXXX

 

 

 

WHAT IS A TAX CREDIT CERTIFICATE?

 

 

 

A TCC IS DEFINED UNDER SECTION 1 OF  REVENUE REGULATION (RR) NO. 5-2000, ISSUED BY THE BIR ON 15 AUGUST 2000, AS FOLLOWS:

 

B.      Tax Credit Certificate — means a certification, duly issued to the taxpayer named therein, by the Commissioner or his duly authorized representative, reduced in a BIR Accountable Form in accordance with the prescribed formalities, acknowledging that the grantee-taxpayer named therein is legally entitled a tax credit, the money value of which may be used in payment or in satisfaction of any of his internal revenue tax liability (except those excluded), or may be converted as a cash refund, or may otherwise be disposed of in the manner and in accordance with the limitations, if any, as may be prescribed by the provisions of these Regulations.

XXXXXXXXXXXXXXXX

 

 

IS TCC TRANSFERRABLE?

 

 

YES SUBJECT TO THE FOLLOWING CONDITIONS:

 

 

1) THE TCC TRANSFER MUST BE WITH PRIOR APPROVAL OF THE COMMISSIONER OR THE DULY AUTHORIZED REPRESENTATIVE;

 

 

2) THE TRANSFER OF A TCC SHOULD BE LIMITED TO ONE TRANSFER ONLY; AND

 

 

3) THE TRANSFEREE SHALL STRICTLY USE THE TCC FOR THE PAYMENT OF THE ASSIGNEE’S DIRECT INTERNAL REVENUE TAX LIABILITY AND SHALL NOT BE CONVERTIBLE TO CASH.[2][34]

 

 

XXXXXXXXXXXXXXXXXXX

 

 

 FOR HOW LONG WILL A TCC BE VALID?

 

 

10 YEARS SUBJECT TO THE FOLLOWING CONDITIONS:

 

 

(1) IT MUST BE UTILIZED WITHIN FIVE (5) YEARS FROM THE DATE OF ISSUE;

 

 

AND (2) IT MUST BE REVALIDATED

 

RR 5-2000 prescribes the regulations governing the manner of issuance of  TCCs and the conditions for their use, revalidation and transfer. Under the said regulation, a TCC may be used by the grantee or its assignee in the payment of its direct internal revenue tax liability.[3][33] It may be transferred in favor of an assignee subject to the following conditions: 1) the TCC transfer must be with prior approval of the Commissioner or the duly authorized representative; 2) the transfer of a TCC should be limited to one transfer only; and 3) the transferee shall strictly use the TCC for the payment of the assignee’s direct internal revenue tax liability and shall not be convertible to cash.[4][34] A TCC is valid only for 10 years subject to the following rules: (1) it must be utilized within five (5) years from the date of issue; and (2) it must be revalidated thereafter or be otherwise considered invalid.[5][35]

 

 

XXXXXXXXXXXXXXX

 

 

WHO PROCESS THE TCC?

 

 

THE ONE-STOP-SHOP INTER-AGENCY TAX CREDIT AND DUTY DRAWBACK CENTER.

 

 

The processing of a TCC is entrusted to a specialized agency called the “One-Stop-Shop Inter-Agency Tax Credit and DutyDrawbackCenter” (“Center”), created on 07 February 1992 under Administrative Order (A.O.) No. 226. Its purpose is to expedite the processing and approval of tax credits and duty drawbacks.[6][36] The Center is composed of a representative from the DOF as its chairperson; and the members thereof are representatives of the Bureau of Investment (BOI), Bureau of Customs (BOC) and Bureau of Internal Revenue (BIR), who are tasked to process the TCC and approve its application as payment of an assignee’s tax liability.[7][37]

 

XXXXXXXXXXXXXXX

 

 

HOW CAN A TCC BE ASSIGNED?

 

 

THROUGH A DEED OF ASSIGNMENT, WHICH THE ASSIGNEE SUBMITS TO THE CENTER (ONE-STOP SHOP)  FOR ITS APPROVAL.

 

 

XXXXXXXXXXXXXX

 

 

 

AFTER A TCC IS APPROVED, HOW WILL IT BE PROCESSED TO SERVE ITS PURPOSE?

 

 

UPON APPROVAL OF THE DEED, THE CENTER WILL ISSUE A DOF TAX DEBIT MEMO (DOF-TDM),[8][38] WHICH WILL BE UTILIZED BY THE ASSIGNEE TO PAY THE LATTER’S TAX LIABILITIES FOR A SPECIFIED PERIOD. UPON SURRENDER OF THE TCC AND THE DOF-TDM, THE CORRESPONDING AUTHORITY TO ACCEPT PAYMENT OF EXCISE TAXES (ATAPET) WILL BE ISSUED BY THE BIR COLLECTION PROGRAM DIVISION AND WILL BE SUBMITTED TO THE ISSUING OFFICE OF THE BIR FOR ACCEPTANCE BY THE ASSISTANT COMMISSIONER OF COLLECTION SERVICE. THIS ACT OF THE BIR SIGNIFIES ITS ACCEPTANCE OF THE TCC AS PAYMENT OF THE ASSIGNEE’S EXCISE TAXES.

 

 

A TCC may be assigned through a Deed of Assignment, which the assignee submits to the Center for its approval. Upon approval of the deed, the Center will issue a DOF Tax Debit Memo (DOF-TDM),[9][38] which will be utilized by the assignee to pay the latter’s tax liabilities for a specified period. Upon surrender of the TCC and the DOF-TDM, the corresponding Authority to Accept Payment of Excise Taxes (ATAPET) will be issued by the BIR Collection Program Division and will be submitted to the issuing office of the BIR for acceptance by the Assistant Commissioner of Collection Service. This act of the BIR signifies its acceptance of the TCC as payment of the assignee’s excise taxes.

 

Thus, it is apparent that a TCC undergoes a stringent process of verification by various specialized government agencies before it is accepted as payment of an assignee’s tax liability.

 

 

 

XXXXXXXXXXXXXXX

 

 

CTA FOUND PETRON TO HAVE NO PARTICIPATION IN THE FRAUDULENT PROCUREMENT AND TRANSFER OF TCCS. CIR DISPUTES THIS FINDING BY CONTENDING THAT PETRON WAS NOT A QUALIFIED TRANSFEREE OF THE TCCS BECAUSE PETRON DID NOT SUPPLY PETROLEUM PRODUCTS TO ASSIGNOR COMPANIES. WAS CIR CORRECT?

 

 

NO. THE CIR HAD NO ALLEGATION THAT THERE WAS A DEVIATION FROM THE PROCESS FOR THE APPROVAL OF THE TCCS, WHICH PETRON USED AS PAYMENT TO SETTLE ITS EXCISE TAX LIABILITIES FOR THE YEARS 1995 TO 1998.

 

 

ALSO, THE PARTIES DURING THE CASE PROCEEDINGS STIPULATED THAT PETITIONER (PETRON) DID NOT PARTICIPATE IN THE PROCUREMENT AND ISSUANCE OF THE TCCS, WHICH TCCS WERE TRANSFERRED TO PETRON AND LATER UTILIZED BY PETRON IN PAYMENT OF ITS EXCISE TAXES.[10][43]  

 

 

SUCH STIPULATION IS JUDICIAL ADMISSION WHICH THE COURT MUST CONSIDER. THIS STIPULATION OF FACT BY THE CIR AMOUNTS TO AN ADMISSION AND, HAVING BEEN MADE BY THE PARTIES IN A STIPULATION OF FACTS AT PRETRIAL, IS TREATED AS A JUDICIAL ADMISSION. UNDER SECTION 4, RULE 129 OF THE RULES OF COURT, A JUDICIAL ADMISSION REQUIRES NO PROOF.[11][44]  THE COURT CANNOT LIGHTLY SET IT ASIDE, ESPECIALLY WHEN THE OPPOSING PARTY RELIES UPON IT AND ACCORDINGLY DISPENSES WITH FURTHER PROOF OF THE FACT ALREADY ADMITTED. THE EXCEPTION PROVIDED IN RULE 129, SECTION 4 IS THAT AN ADMISSION MAY BE CONTRADICTED ONLY BY A SHOWING THAT IT WAS MADE THROUGH A PALPABLE MISTAKE, OR THAT NO SUCH ADMISSION WAS MADE. IN THIS CASE, HOWEVER, EXCEPTION TO THE RULE DOES NOT EXIST.

 

 

 

In the case at bar, the CIR disputes the ruling of the CTA En Banc, which found Petron to have had no participation in the fraudulent procurement and transfer of the TCCs. Petitioner believes that there was substantial evidence to support its allegation of a fraudulent transfer of the TCCs to Petron.[12][39] The CIR further contends that respondent was not a qualified transferee of the TCCs, because the latter did not supply petroleum products to the companies that were the assignors of the subject TCCs.[13][40]  

 

 The CIR bases its contentions on the DOF’s post-audit findings stating that, for the periods covering 1995 to 1998, Petron did not deliver fuel and other petroleum products to the companies (the transferor companies) that had assigned the subject TCCs to respondent. Petitioner further alleges that the findings indicate that the transferor companies could not have had such a high volume of export sales declared to the Center and made the basis for the issuance of the TCCs assigned to Petron.[14][41] Thus, the CIR impugns the CTA En Banc ruling that respondent was a transferee in good faith and for value of the subject TCCs.[15][42] 

 

Not finding merit in the CIR’s contention, we affirm the ruling of the CTA En Banc finding that Petron is a transferee in good faith and for value of the subject TCCs.

 

From the records, we observe that the CIR had no allegation that there was a deviation from the process for the approval of the TCCs, which Petron used as payment to settle its excise tax liabilities for the years 1995 to 1998.

 

The CIR quotes the CTA Second Division and urges us to affirm the latter’s Decision, which found Petron to have participated in the fraudulent issuance and transfer of the TCCs. However, any merit in the position of petitioner on this issue is negated by the Joint Stipulation it entered into with Petron in the proceedings before the said Division. As correctly noted by the CTA En Banc, herein parties jointly stipulated before the Second Division in CTA Case No. 6423 as follows:

 

13. That petitioner (Petron) did not participate in the procurement and issuance of the TCCs, which TCCs were transferred to Petron and later utilized by Petron in payment of its excise taxes.[16][43]  

 

This stipulation of fact by the CIR amounts to an admission and, having been made by the parties in a stipulation of facts at pretrial, is treated as a judicial admission. Under Section 4, Rule 129 of the Rules of Court, a judicial admission requires no proof.[17][44]  The Court cannot lightly set it aside, especially when the opposing party relies upon it and accordingly dispenses with further proof of the fact already admitted. The exception provided in Rule 129, Section 4 is that an admission may be contradicted only by a showing that it was made through a palpable mistake, or that no such admission was made. In this case, however, exception to the rule does not exist.

 

We agree with the pronouncement of the CTA En Banc that Petron has not been shown or proven to have participated in the alleged fraudulent acts involved in the transfer and utilization of the subject TCCs. Petron had the right to rely on the joint stipulation that absolved it from any participation in the alleged fraud pertaining to the issuance and procurement of the subject TCCs. The joint stipulation made by the parties consequently obviated the opportunity of the CIR to present evidence on this matter, as no proof is required for an admission made by a party in the course of the proceedings.[18][45] Thus, the CIR cannot now be allowed to change its stand and renege on that admission.

XXXXXXXXXXXXX

 

 

CAN SC REVIEW THE SUFFICIENCY OF EVIDENCE IN THE CASE?

 

 

NO. SC IS ONLY CONFINED TO ERRORS OF LAW UNDER RULE 45.

 

 

Moreover, a close examination of  the arguments proffered by the CIR in their Petition calls for a reevaluation of the sufficiency of evidence in the case. The CIR seeks to persuade this Court to believe that there is substantial evidence to prove that Petron committed a misrepresentation, because the petroleum products were delivered not to the transferor but to other companies.[19][46] Thus, the TCCs assigned by the transferor companies to Petron were fraudulent. Clearly, a recalibration of the sufficiency of evidence presented by the CIR is needed for a different conclusion to be reached.

 

The fundamental rule is that the scope of our judicial review under Rule 45 of the Rules of Court is confined only to errors of  law and does not extend to questions of fact.[20][47] It is basic that where it is the sufficiency of evidence that is being questioned, there is a question of fact.[21][48] Evidently, the CIR does not point out any specific provision of law that was wrongly interpreted by the CTA En Banc in the latter’s assailed Decision. Petitioner anchors it contention on the alleged existence of the sufficiency of evidence it had proffered to prove that Petron was involved in the perpetration of fraud in the transfer and utilization of the subject TCCs, an allegation that the CTA En Banc failed to consider. We have consistently held that it is not the function of this Court to analyze or weigh the evidence all over again, unless there is a showing that the findings of the lower court are totally devoid of support or are glaringly erroneous as to constitute palpable error or grave abuse of discretion.[22][49] Such an exception does not obtain in the circumstances of this case.

XXXXXXXXXXXXXXXXX

 

 

THE LIABILITY CLAUSE OF THE TCC PROVIDES THAT LIABILITY OF  TRANSFERROR AND TRANSFERREE SHALL BE SOLIDARY. DOES THIS NOT MAKE PETRON, BEING THE TRANSFEREE, LIABLE?

 

 

JURISPRUDENCE (SHELL CASE) HAS ALREADY ESTABLISHED THAT THE SOLIDARY LIABILITY, IF ANY, APPLIES ONLY TO THE SALE OF THE TCC TO THE TRANSFEREE BY THE ORIGINAL GRANTEE.

 

 

SHELL  RECOGNIZED AN EXCEPTION THAT HOLDS THE TRANSFEREE/ASSIGNEE LIABLE IF PROVEN TO HAVE BEEN A PARTY TO THE FRAUD OR TO HAVE HAD KNOWLEDGE OF THE FRAUDULENT ISSUANCE OF THE SUBJECT TCCS.

 

 

 

The CIR claims that Petron was not an innocent transferee for value, because the TCCs assigned to respondent were void. Petitioner based its allegations on the post-audit report of the DOF, which declared that the subject TCCs were obtained through fraud and, thus, had no monetary value.[23][50] The CIR adds that the TCCs were subject to a post-audit by the Center to complete the payment of the excise tax liability to which they were applied. Petitioner further contends that the Liability Clause of the TCCs makes the transferee or assignee solidarily liable with the original grantee for any fraudulent act pertinent to their procurement and transfer. The CIR assails the contrary ruling of the CTA En Banc, which confined the solidary liability only to the original grantee of the TCCs. Thus, petitioner believes that the correct interpretation of the Liability Clause in the TCCs makes Petron and the transferor companies or the original grantee solidarily liable for any fraudulent act or violation of the pertinent laws relating to the transfers of the TCCs. [24][51]   

 

We are not persuaded by the CIR’s position on this matter.

 

The Liability Clause of the TCCs reads:

Both the TRANSFEROR and the TRANSFEREE shall be jointly and severally liable for any fraudulent act or violation of the pertinent laws, rules and regulations relating to the transfer of this TAX CREDIT CERTIFICATE.

 

The scope of this solidary liability, as stated in the TCCs, was clarified by this Court in Shell, as follows:

 

The above clause to our mind clearly provides only for the solidary liability relative to the transfer of the TCCs from the original grantee to a transferee. There is nothing in the above clause that provides for the liability of the transferee in the event that the validity of the TCC issued to the original grantee by the Center is impugned or where the TCC is declared to have been fraudulently procured by the said original grantee. Thus, the solidary liability, if any, applies only to the sale of the TCC to the transferee by the original grantee. Any fraud or breach of law or rule relating to the issuance of the TCC by the Center to the transferor or the original grantee is the latter’s responsibility and liability. The transferee in good faith and for value may not be unjustly prejudiced by the fraud committed by the claimant or transferor in the procurement or issuance of the TCC from the Center. It is not only unjust but well-nigh violative of the constitutional right not to be deprived of one’s property without due process of law. Thus, a re-assessment of tax liabilities previously paid through TCCs by a transferee in good faith and for value is utterly confiscatory, more so when surcharges and interests are likewise assessed. 

 

A transferee in good faith and for value of a TCC who has relied on the Center’s representation of the genuineness and validity of the TCC transferred to it may not be legally required to pay again the tax covered by the TCC which has been belatedly declared null and void, that is, after the TCCs have been fully utilized through settlement of internal revenue tax liabilities. Conversely, when the transferee is party to the fraud as when it did not obtain the TCC for value or was a party to or has knowledge of its fraudulent issuance, said transferee is liable for the taxes and for the fraud committed as provided for by law.[25][52] (Emphasis supplied.)

We also find that the post-audit report, on which the CIR based its allegations, does not have the effect of a suspensive condition that would determine the validity of the TCCs.

 

We held in Petron v. CIR (Petron),[26][53] which is on all fours with the instant case, that TCCs are valid and effective from their issuance and are not subject to a post-audit as a suspensive condition for their validity. Our ruling in Petron finds guidance from our earlier ruling in Shell, which categorically states that a TCC is valid and effective upon its issuance and is not subject to a post-audit. The implication on the instant case of the said earlier ruling is that Petron has the right to rely on the validity and effectivity of the TCCs that were assigned to it. In finally determining their effectivity in the settlement of respondent’s excise tax liabilities, the validity of those TCCs should not depend on the results of the DOF’s post-audit findings. We held thus in Petron:

As correctly pointed out by Petron, however, the issue about the immediate validity of TCCs and the use thereof in payment of tax liabilities and duties are not matters of first impression for this Court. Taking into consideration the definition and nature of tax credits and TCCs, this Court’s Second Division definitively ruled in the aforesaid Pilipinas Shell case that the post audit is not a suspensive condition for the validity of TCCs, thus:

Art. 1181 tells us that the condition is suspensive when the acquisition of rights or demandability of the obligation must await the occurrence of the condition. However, Art. 1181 does not apply to the present case since the parties did NOT agree to a suspensive condition. Rather, specific laws, rules, and regulations govern the subject TCCs, not the general provisions of the Civil Code. Among the applicable laws that cover the TCCs are EO 226 or the Omnibus Investments Code, Letter of Instructions No. 1355, EO 765, RP-US Military Agreement, Sec. 106 (c) of the Tariff and Customs Code, Sec. 106 of the NIRC, BIR Revenue Regulations (RRs), and others. Nowhere in the aforementioned laws does the post-audit become necessary for the validity or effectivity of the TCCs. Nowhere in the aforementioned laws is it provided that a TCC is issued subject to a suspensive condition.   

           xxx                    xxx                    xxx

. . . (T)he TCCs are immediately valid and effective after their issuance. As aptly pointed out in the dissent of Justice Lovell Bautista in CTA EB No. 64, this is clear from the Guidelines and instructions found at the back of each TCC, which provide:

1.       This Tax Credit Certificate (TCC) shall entitle the grantee to apply the tax credit against taxes and duties until the amount is fully utilized, in accordance with the pertinent tax and customs laws, rules and regulations.

           xxx                    xxx                    xxx

4.       To acknowledge application of payment, theOne-Stop-ShopTaxCreditCentershall issue the corresponding Tax Debit Memo (TDM) to the grantee.

The authorized Revenue Officer/Customs Collector to which payment/utilization was made shall accomplish the Application of Tax Credit at the back of the certificate and affix his signature on the column provided.”   

      The foregoing guidelines cannot be clearer on the validity and effectivity of the TCC to pay or settle tax liabilities of the grantee or transferee, as they do not make the effectivity and validity of the TCC dependent on the outcome of a post-audit. In fact, if we are to sustain the appellate tax court, it would be absurd to make the effectivity of the payment of a TCC dependent on a post-audit since there is no contemplation of the situation wherein there is no post-audit. Does the payment made become effective if no post-audit is conducted? Or does the so-called suspensive condition still apply as no law, rule, or regulation specifies a period when a post-audit should or could be conducted with a prescriptive period? Clearly, a tax payment through a TCC cannot be both effective when made and dependent on a future event for its effectivity. Our system of laws and procedures abhors ambiguity.

 

Moreover, if the TCCs are considered to be subject to post-audit as a suspensive condition, the very purpose of the TCC would be defeated as there would be no guarantee that the TCC would be honored by the government as payment for taxes. No investor would take the risk of utilizing TCCs if these were subject to a post-audit that may invalidate them, without prescribed grounds or limits as to the exercise of said post-audit.  

 

The inescapable conclusion is that the TCCs are not subject to post-audit as a suspensive condition, and are thus valid and effective from their issuance.[27][54]

          In addition, Shell and Petron recognized an exception that holds the transferee/assignee liable if proven to have been a party to the fraud or to have had knowledge of the fraudulent issuance of the subject TCCs. As earlier mentioned, the parties entered into a joint stipulation of facts stating that Petron did not participate in the procurement or issuance of those TCCs. Thus, we affirm the CTA En Banc’s ruling that respondent was an innocent transferee for value thereof.

 

XXXXXXXXXXXXXXXX

 

 

CIR CONTENDS THAT SINCE THE TCCS WERE FOUND VOID, GOVERNMENT IS NOT ESTOPPED FROM COLLECTING FROM PETRON. THE STATE SHOULD NOT BE PREJUDICED BY THE NEGLECT OR OMISSION OF GOVERNMENT EMPLOYEES. IS THIS CONTENTION CORRECT?

 

 

NO. THIS GENERAL RULE CANNOT BE APPLIED IF IT WOULD WORK INJUSTICE AGAINST AN INNOCENT PARTY.[28][57]

 

 

        On the issue of estoppel, petitioner contends that the TCCs, which the Center had continually approved as payment for respondent’s excise tax liabilities, were subsequently found to be void. Thus, the CIR insists that the government is not estopped from collecting from Petron the excise tax liabilities that had accrued to the latter as a result of the voidance of these TCCs. Petitioner argues that the State should not be prejudiced by the neglect or omission of government employees entrusted with the collection of taxes.[29][55]  

             

We are not persuaded by the CIR’s argument.

 

We recognize the well-entrenched principle that estoppel does not apply to the government, especially on matters of taxation. Taxes are the nation’s lifeblood through which government agencies continue to operate and with which the State discharges its functions for the welfare of its constituents.[30][56] As an exception, however, this general rule cannot be applied if it would work injustice against an innocent party.[31][57]

 

Petron, in this case, was not proven to have had any participation in or knowledge of  the CIR’s allegation of  the fraudulent transfer and utilization of  the subject TCCs. Respondent’s status as a transferee in good faith and for value of these TCCs has been established and even stipulated upon by petitioner.[32][58] Respondent was thereby provided ample protection from the adverse findings subsequently made by the Center.[33][59] Given the circumstances, the CIR’s invocation of the non-applicability of estoppel in this case is misplaced.

XXXXXXXXXXXXXXX

 

 

CIR CONTENDS THAT  A 25% SURCHARGE AND A 20% INTEREST PER ANNUM MUST BE IMPOSED UPON PETRON FOR RESPONDENT’S EXCISE TAX LIABILITIES AS MANDATED UNDER SECTIONS 248 AND 249 OF THE NATIONAL INTERNAL REVENUE CODE (NIRC).[34][60]    IS THIS CONTENTION CORRECT?

 

 

 

NO. IN THE LIGHT OF THE MAIN RULING IN THIS CASE, WE AFFIRM THE CTA EN BANC DECISION FINDING PETRON TO BE AN INNOCENT TRANSFEREE FOR VALUE OF THE SUBJECT TCCS. CONSEQUENTLY, THE TAX RETURNS IT FILED FOR THE YEARS 1995 TO 1998 ARE NOT CONSIDERED FRAUDULENT. HENCE, THE CIR HAD NO LEGAL BASIS TO ASSESS THE EXCISE TAXES OR ANY PENALTY SURCHARGE OR INTEREST THEREON, AS RESPONDENT HAD ALREADY PAID THE APPROPRIATE EXCISE TAXES USING THE SUBJECT TCCS.

 

 

 On the final issue it raised, the CIR contends that a 25% surcharge and a 20% interest per annum must be imposed upon Petron for respondent’s excise tax liabilities as mandated under Sections 248 and 249 of the National Internal Revenue Code (NIRC).[35][60] Petitioner considers the tax returns filed by respondent for the years 1995 to 1998 as fraudulent on the basis of the post-audit finding that the TCCs were void. It argues that the prescriptive period within which to lawfully assess Petron for its tax liabilities has not prescribed under Section 222 (a)[36][61] of the Tax Code. The CIR explains that respondent’s assessment on 30 January 2002 of respondent’s deficiency excise tax for the years 1995 to 1998 was well within the ten-year prescription period.[37][62]  

 

In the light of the main ruling in this case, we affirm the CTA En Banc Decision finding Petron to be an innocent transferee for value of the subject TCCs. Consequently, the Tax Returns it filed for the years 1995 to 1998 are not considered fraudulent. Hence, the CIR had no legal basis to assess the excise taxes or any penalty surcharge or interest thereon, as respondent had already paid the appropriate excise taxes using the subject TCCs.

 

 

========================

Republic of the Philippines
Supreme Court
Manila

SECOND DIVISION

 

COMMISSIONER OF INTERNAL REVENUE,

                          Petitioner,

 

 

 

               – versus –

 

 

 

PETRON CORPORATION,

                          Respondent.           

G. R. No. 185568

 

Present:

 

CARPIO, J., Chairperson,

  BRION,

PEREZ,

SERENO, and

REYES, JJ.

 

Promulgated:

 

March 21, 2012

x – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – x

 

D E C I S I O N

 

SERENO, J.:

 

        This is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure filed by the Commissioner of Internal Revenue (CIR) assailing the Decision[38][1] dated 03 December 2008 of the Court of Tax Appeals En Banc (CTA En Banc) in CTA EB No. 311. The assailed Decision reversed and set aside the Decision[39][2] dated 04 May 2007 of the Court of Tax Appeals Second Division (CTA Second Division) in CTA Case No. 6423, which ordered respondent Petron Corporation (Petron) to pay deficiency excise taxes for the taxable years 1995 to 1998, together with surcharges and delinquency interests imposed thereon.    

 

Respondent Petron is a corporation engaged in the production of petroleum products and is a Board of Investment (BOI) – registered enterprise in accordance with the provisions of  the Omnibus Investments Code of 1987 (E.O. 226) under Certificate of Registration Nos. 89-1037 and D95-136.[40][3]  

 

The Facts

 

        The CTA En Banc in CTA EB Case No. 311 adopted the findings of fact by the CTA Second Division in CTA Case No. 6423. Considering that there are no factual issues in this case, we likewise adopt the findings of fact by the CTA En Banc, as follows:

        As culled from the records and as agreed upon by the parties in their Joint Stipulation of Facts and Issues, these are the facts of the case.     

During the period covering the taxable years 1995 to 1998, petitioner (herein respondent Petron) had been an assignee of several Tax Credit Certificates (TCCs) from various BOI-registered entities for which petitioner utilized in the payment of its excise tax liabilities for the taxable years 1995 to 1998. The transfers and assignments of the said TCCs were approved by the Department of Finance’s One Stop Shop Inter-Agency Tax Credit and Duty Drawback Center (DOF Center), composed of representatives from the appropriate government agencies, namely, the Department of Finance (DOF), the Board of Investments (BOI), the Bureau of Customs (BOC) and the Bureau of Internal Revenue (BIR).     

          Taking ground on a BOI letter issued on 15 May 1998 which states that ‘hydraulic oil, penetrating oil, diesel fuels and industrial gases are classified as supplies and considered the suppliers thereof as qualified transferees of tax credit,’ petitioner acknowledged and accepted the transfers of the TCCs from the various BOI-registered entities.

          Petitioner’s acceptance and use of the TCCs as payment of its excise tax liabilities for the taxable years 1995 to 1998, had been continuously approved by the DOF as well as the BIR’s Collection Program Division through its surrender and subsequent issuance by the Assistant Commissioner of the Collection Service of the BIR of the Tax Debit Memos (TDMs).

 

          On January 30, 2002, respondent [herein petitioner CIR] issued the assailed Assessment against petitioner for deficiency excise taxes for the taxable years 1995 to 1998, in the total amount of ₱739,003,036.32, inclusive of surcharges and interests, based on the ground that the TCCs utilized by petitioner in its payment of excise taxes have been cancelled by the DOF for having been fraudulently issued and transferred, pursuant to its EXCOM Resolution No. 03-05-99. Thus, petitioner, through letters dated August 31, 1999 and September 1, 1999, was required by theDOFCenterto submit copies of its sales invoices and delivery receipts showing the consummation of the sale transaction to certain TCC transferors.

 

          Instead of submitting the documents required by the respondent, on February 27, 2002, petitioner filed its protest letter to the ‘Assessment’ on the grounds, among others, that:

 

  1. The BIR did not comply with the requirements of Revenue Regulations 12-99 in issuing the “assessment” letter dated January 30, 2002, hence, the assessment made against it is void;

 

  1. The assignment/transfer of the TCCs to petitioner by the TCC holders was submitted to, examined and approved by the concerned government agencies which processed the assignment in accordance with law and revenue regulations;

 

  1. There is no basis for the imposition of the 50% surcharge in the amount of ₱159,460,900.00 and interest penalties in the amount of ₱260,620,335.32 against it;

 

  1. Some of the items included in the ‘assessment’ are already pending litigation and are subject of the case entitled ‘Commissioner of Internal Revenue vs. Petron Corporation,’ C.A. GR SP No. 55330 (CTA Case No. 5657) and hence, should no longer be included in the ‘assessment’; and

 

  1. The assessment and collection of alleged excise tax deficiencies sought to be collected by the BIR against petitioner through the January 30, 2002 letter are already barred by prescription under Section 203 of the National Internal Revenue Code.

 

On 27 March 2002, respondent, through Assistant Commissioner Edwin R. Abella served a Warrant of Distraint and/or Levy on petitioner to enforce payment of the ₱739,003,036.32 tax deficiencies.

 

Respondent allegedly served the Warrant of Distraint and/or Levy against petitioner without first acting on its letter-protest. Thus, construing the Warrant of Distraint and/or Levy as the final adverse decision of the BIR on its protest of the assessment, petitioner filed the instant petition before this Honorable Court [referring to the CTA Second Division] on April 2, 2002.

 

On April 30, 2002, respondent filed his Answer, raising the following as his Special Affirmative Defenses:       

 

6. In a post-audit conducted by the One-Stop Inter-Agency Tax Credit and Duty Drawback Center (Center) of the Department of Finance (DOF), pursuant to the Center’s Excom Resolution No. 03-05-99, it was found that TCCs issued to Alliance Thread Co., Inc., Allstar Spinning, Inc., Diamond Knitting Corp., Fiber Technology Corp., Filstar Textile Industrial Corp., FLB International Fiber Corp., Jantex Philippines, Inc., Jibtex Industrial Corp., Master Colour System Corp. and Spintex International, Inc. were fraudulently obtained and were fraudulently transferred to petitioner. As a result of said findings, the TCCs and the Tax Debit Memos (TDMs) issued by the Center to petitioner against said TCCs were cancelled by the DOF;

 

7. Prior to the cancellation of the aforesaid TCCs and TDMs, petitioner had utilized the same in the payment of its excise tax liabilities. With such cancellation, the TCCs and TDMs have no value in money or money’s worth and, therefore, the excise taxes for which they were used as payment are now deemed unpaid;

 

8. The cancellation by the DOF of the aforesaid TCCs and TDMs has the presumption of regularity upon which respondent may validly rely;

 

9. Petitioner was informed by the DOF of the post-audit conducted on the TCCs and was given the opportunity to submit documents showing that the TCCs were transferred to it in payment of petroleum products allegedly delivered by it to the TCC transferors upon which the TCC transfers were approved, with the admonition that failure to submit the required documents would result in the cancellation of the transfers. Petitioner was also informed of the cancellation of the TCCs and TDMs and the reason for their cancellation;

 

10. Since petitioner is deemed not to have paid its excise tax liabilities, a pre-assessment notice is not required under Section 228 of the Tax Code;

 

11. The letter dated January 20, 2002 (should be January 30, 2002), demanding payment of petitioner’s excise tax liabilities explicitly states the basis for said demand, i.e., the cancellation of the TCCs and TDMs;

 

12. The government is never estopped from collecting legitimate taxes due to the error committed by its agents (Visayas Cebu Terminal Inc., vs. Commissioner of Internal Revenue, 13 SCRA 257; Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue, 102 SCRA 246). The acceptance by the Bureau of Internal Revenue of the TCCs fraudulently obtained and fraudulently transferred to petitioner as payment of its excise tax liabilities turned out to be a mistake after the post-audit was conducted. Hence, said payments were void and the excise taxes may be validly collected from petitioner.     

 

13. As found in the post-audit, petitioner and the TCC transferors committed fraud in the transfer of the TCCs when they made appear (sic) that the transfers were in consideration for the delivery of petroleum products by petitioner to the TCCs transferors, for which reason said transfers were approved by the Center, when in fact there were no such deliveries;

 

14. Petitioner used the TCCs fraudulently obtained and fraudulently transferred in the payment of excise taxes declared in its excise tax returns with intent to evade tax to the extent of the value represented by the TCCs, thereby rendering the returns fraudulent;  

 

15. Since petitioner wilfully filed fraudulent returns, it is liable for the 50% surcharge and 20% annual interest imposed under Sections 248 and 249 of the Tax Code;

 

16. Since petitioner wilfully filed fraudulent returns with intent to evade tax, the prescriptive period to collect the tax is ten (10) years from the discovery of the fraud pursuant to Section 222 of the Tax Code; and

 

17. The case pending in the Court of Appeals (CA-G.R. Sp. No. 55330 [CTA Case No. 5657]), and the case at bar have distinct causes of action. The former involves the invalid transfers of the TCCs to petitioner on the theory that it is not a qualified transferee thereof, while the latter involves the fraudulent procurement of said TCCs and the fraudulent transfers thereof to petitioner.

 

However, on November 12, 2002, respondent filed a Manifestation informing this Court that on May 29, 2002, it had reduced the amount of deficiency excise taxes to ₱720,923,224.74 as a result of its verification that some of the TCCs which formed part of the original “Assessment” were already included in a case previously filed with this Court. In effect, the amount of deficiency excise taxes is recomputed as follows:

 

Transferor

Basic Tax

Surcharge

Interest

Total

Alliance Thread Co. Inc.  ₱    12,078,823.00 ₱       6,039,411.50 ₱     16,147,293.21 ₱    34,265,527.21
Allstar Spinning, Inc.      37,265,310.00       18,632,655.00       49,781,486.95    105,679,451.95
Diamond  Knitting Corporation      36,764,587.00       18,382,293.50       49,264,758.35    104,411,638.85
Fiber Technology Corp.      25,300,911.00       12,650,455.50       34,295,655.90      72,247,022.40
Filstar Textile Corp.      40,767,783.00       20,383,891.50       54,802,550.16    115,954,224.66
FLB International Fiber Corp.      25,934,695.00       12,967,347.50       34,977,257.14      73,879,299.64
Jantex Philippines, Inc.      12,036,192.00         6,018,096.00       15,812,547.24      33,866,835.24
Jibtex Industrial Corp.      15,506,302.00         7,753,151.00       20,610,319.52      43,869,772.52
Master Colour system Corp.      33,333,536.00       16,666,768.00           44,822,167.06      94,822,471.06
Spintex International Inc.      14,912,408.00         7,456,204.00        19,558,368.71      41,926,980.71
                                          Total 253,900,547.00    126,950,273.50     340,072,404.24   720,923,224.74

                       

          During the pendency of the case, but after respondent had already submitted his Formal Offer of Evidence for this Court’s consideration, he filed an ‘Urgent Motion to Reopen Case’ on August 24, 2004 on the ground that additional evidence consisting of documents presented to the Center in support of the TCC transferor’s claims for tax credit as well as document supporting the applications for approval of the transfer of the TCCs to petitioner, must be presented to prove the fraudulent issuance and transfer of the subject TCCs. Respondent submits that it is imperative on his part to do so considering that, without necessarily admitting that the evidence presented in the case of Pilipinas Shell Petroleum Corporation vs. Commissioner of Internal Revenue, to prove fraud is not clear and convincing, he may suffer the same fate that had befallen upon therein respondent when this Court held, among others, that ‘there is no clear and convincing evidence that the Tax Credit Certificates (TCCs) transferred to Shell (for brevity) and used by it in the payment of excise taxes, were fraudulently issued to the TCC transferors and were fraudulently transferred to Shell.’

 

          An ‘Opposition to Urgent Motion to Reopen Case’ was filed by petitioner on September 3, 2004 contending that to sustain respondent’s motion would ‘smack of procedural disorder and spawn a reversion of the proceedings. While litigation is not a game of technicalities, it is a truism that every case must be presented in accordance with the prescribed procedure to insure an orderly administration of justice.’

 

          On October 4, 2004, this Court resolved to grant respondent’s Motion and allowed respondent to present additional evidence in support of his arguments, but deferred the resolution of respondent’s original Formal Offer of Evidence until after the respondent has terminated his presentation of evidence. Subsequent to this Court’s Resolution, respondent then filed on October 20, 2004, a Request for the Issuance of Subpoena Duces Tecum to the Executive Director of the Center or his duly authorized representative, and on October 21, 2004, a Subpoena Ad Testificandum to Ms. Elizabeth R. Cruz, also of the Center.

 

          Petitioner filed a ‘Motion for Reconsideration (Re: Resolution dated October 4, 2004)’ on October 27, 2004, with respondent filing his ‘Opposition’ on November 4, 2004, and petitioner subsequently filing its ‘Reply to Opposition’ on December 20, 2004. Petitioner’s motion was denied by this Court in a Resolution dated February 28, 2005 for lack of merit.

 

          On March 18, 2005, petitioner filed an ‘Urgent Motion to Revert Case to the First Division’ with respondent’s ‘Manifestation’ filed on April 6, 2005 stating that ‘the question of which Division of this Honorable Court shall hear the instant case is an internal matter which is better left to the sound discretion of this Honorable Court without interference by a party litigant’. On April 28, 2005, this Court denied the Motion of petitioner for lack of merit.   

 

          On November 7, 2005, the Court finally resolved respondent’s ‘Formal Offer of Evidence’ filed on May 7, 2004 and ‘Supplemental Formal Offer of Evidence’ filed on August 25, 2005. On November 22, 2005, respondent filed a ‘Motion for Partial Reconsideration’ of the Court’s Resolution to admit Exhibits 31 and 31-A on the ground that he already submitted and offered certified true copies of said exhibits, which the Court granted in its Resolution on January 19, 2006.

 

          However, on February 10, 2006, respondent filed a ‘Motion to Amend Formal Offer of Evidence’ praying that he be allowed to amend his formal offer since some exhibits although attached thereto were inadvertently not mentioned in the Formal Offer of Evidence. Petitioner’s ‘Opposition’ was filed on March 14, 2006. This Court granted respondent’s motion in the Resolution dated April 24, 2006 and considering that the parties already filed their respective Memoranda, this case was then considered submitted for decision.

 

          On May 16, 2006, however, respondent filed an ‘Omnibus Motion’ praying that this Court take judicial notice of the fact that the TCCs issued by the Center, including the TCCs in this instant case, contained the standard ‘Liability Clause’ and that the case be consolidated with CTA Case No. 6136, on the ground that both cases involve the same parties and common questions of law or fact. An ‘Opposition/Comment on Omnibus Motion’ was filed by petitioner on June 26, 2006, and ‘Reply to Opposition/Comment’ was filed by respondent on July 17, 2006.

 

          In a Resolution promulgated on September 1, 2006, this Court granted respondent’s motion only insofar as taking judicial notice of the fact that each of the dorsal side of the TCCs contains the subject ‘liability clause’, but denied respondent’s motion to consolidate considering that C.T.A. Case No. 6136 was already submitted for decision on April 24, 2006.[41][4]

 

 

The Ruling of the Court of Tax Appeals–Second Division

(CTA Case No. 6423)

 

          On 04 May 2007, the CTA Second Division promulgated a Decision in CTA Case No. 6423, the dispositive portion of which reads:

 

          WHEREFORE, premises considered, the instant Petition for Review is hereby DENIED for lack of merit. Accordingly, petitioner is ORDERED TO PAY the respondent the reduced amount of SIX HUNDRED MILLION SEVEN HUNDRED SIXTY NINE THOUSAND THREE HUNDRED FIFTY THREE AND 95/100 PESOS (P600,769,353.95), representing petitioner’s deficiency excise taxes for the taxable years 1995 to 1998, recomputed as follows:

 

Transferor

Basic Tax

25% Surcharge

20% Interest

Total

Alliance Thread Co. Inc.  ₱    12,078,823.00  ₱       3,019,705.75 ₱     13,456,077.68 ₱    28,554,606.43
Allstar Spinning, Inc.      37,265,310.00         9,316,327.50       41,484,572.46      88,066,209.96
Diamond  Knitting Corporation      36,764,587.00         9,191,146.75       41,053,965.29      87,009,699.04
Fiber Technology Corp.      25,300,911.00         6,325,227.75       28,579,713.25      60,205,852.00
Filstar Textile Corp.      40,767,783.00       10,191,945.75       45,668,791.80      96,628,520.55
FLB International Fiber Corp.      25,934,695.00         6,483,673.75       29,147,714.28      61,566,083.03
Jantex Philippines, Inc.      12,036,192.00         3,009,048.00       13,177,122.70      28,222,362.70
Jibtex Industrial Corp.      15,506,302.00         3,876,575.50             17,175,266.27      36,558,143.77
Master Colour system Corp.      33,333,536.00         8,333,384.00           37,351,805.88      79,018,725.88
Spintex International Inc.      14,912,408.00         3,728,102.00       16,298,640.59      34,939,150.59
                                        Total   253,900,547.00       63,475,136.75    283,393,670.20   600,769,353.95

 

In addition, petitioner is ORDERED TO PAY the respondent TWENTY FIVE PERCENT (25%) LATE PAYMENT SURCHARGE AND TWENTY PERCENT (20%) DELIQUENCY INTEREST per annum on the amount of SIX HUNDRED MILLION SEVEN HUNDRED SIXTY NINE THOUSAND THREE HUNDRED FIFTY THREE & 95/100 PESOS (600,769,353.95), computed from June 27, 2002 until the amount is fully paid.

 

SO ORDERED.[42][5]

 

        The CTA Second Division held Petron liable for deficiency excise taxes on the ground that the cancellation by the DOF of the TCCs previously issued to and utilized by respondent to settle its tax liabilities had the effect of nonpayment of the latter’s excise taxes. These taxes corresponded to the value of the TCCs Petron used for payment. The CTA Second Division ruled that payment can only occur if the instrument used to discharge an obligation represents its stated value.[43][6] It further ruled that Petron’s acceptance of the TCCs was considered a contract entered into by respondent with the CIR and subject to post-audit,[44][7] which was considered a suspensive condition governed by Article 1181 of the Civil Code.[45][8] 

 

Further, the CTA Second Division found that the circumstances pertaining to the issuance of the subject TCCs and their transfer to Petron “brim with fraud.”[46][9] Hence, the said court concluded that since the TCCs used by Petron were found to be spurious, respondent was deemed to have not paid its excise taxes and ought to be liable to the CIR in the amount of ₱600,769,353.95 plus 25% interests and 20% surcharges.[47][10]

 

Petron filed a Motion for Reconsideration[48][11] of the Decision of the CTA Second Division, which denied the motion in a Resolution dated 14 August 2007.[49][12] The court reiterated its conclusion that the TCCs utilized by Petron to pay the latter’s excise tax liabilities did not result in payment after these TCCs were found to be fraudulent in the post-audit by the DOF. The CTA Second Division also affirmed its ruling that Petron was liable for a 25%  late payment surcharge and 20% surcharges under Section 248[50][13] of the National Internal Revenue Code (NIRC) of 1997.[51][14]    

 

Aggrieved, Petron appealed the Decision to the CTA En Banc through a Petition for Review, which was docketed as CTA EB No. 311. In its Petition, Petron alleged that the Second Division erred in holding respondent liable to pay the amount of ₱600,769,353.95 in deficiency excise taxes with penalties and interests covering the taxable years 1995-1998. Petron prayed that the said Decision be reversed and set aside, and that CIR be enjoined from collecting the contested excise tax deficiency assessment.[52][15]

 

The CTA En Banc summed up into one issue the grounds relied upon by Petron in its Petition for Review, as follows:

 

Whether or not the Second Division erred in holding petitioner liable for the amount of ₱600,769,353.95 as deficiency excise taxes for the years 1995-1998, including surcharges and interest, plus 25% surcharge and 20% delinquency interest per annum from June 27, 2002 until the amount is fully paid.[53][16]     

 

The Ruling of the Court of Tax Appeals En Banc

(CTA EB Case No. 311)

 

On 03 December 2008, the CTA En Banc promulgated a Decision, which reversed and set aside the CTA Second Division on 04 May 2007. The former absolved Petron from any deficiency excise tax liability for taxable years 1995 to 1998. Its ruling in favor of  Petron was anchored on this Court’s pronouncements in Pilipinas Shell Petroleum Corp. v. Commissioner of Internal Revenue (Shell),[54][17] which found that the factual background and legal issues therein were similar to those in the present case.

 

In resolving the issues, the CTA En Banc adopted the main points in Shell, which it quoted at length as basis for deciding the appeal in favor of  Petron. The gist of the main points of Shell cited by the said court is as follows:

 

a) The issued TCCs are immediately valid and effective and are not subject to a post-audit as a suspensive condition[55][18]

b) A TCC is subject only to the following conditions:

i) Post-audit in the event of a computational discrepancy

ii) A reduction for any outstanding account with the BIR and/or BOC

iii) A revalidation of the TCC if not utilized within one year from issuance or date of utilization[56][19]          

c) A transferee of a TCC should only be a BOI-registered firm under the Implementing Rules and Regulations of Executive Order (E.O.) No. 226.[57][20]

d) The liability clause in the TCCs provides only for the solidary liability of the transferee relative to its transfer in the event it is a party to the fraud.[58][21]

e) A transferee can rely on the Center’s approval of the TCCs’ transfer and subsequent acceptance as payment of the transferee’s excise tax liability.[59][22]

f) A TCC cannot be cancelled by the Center, as it was already cancelled after the transferee had applied it as payment for the latter’s excise tax liabilities.[60][23]

The CTA En Banc also found that Petron had no participation in or knowledge of the fraudulent issuance and transfer of the subject TCCs. In fact, the parties made a joint stipulation on this matter in CTA Case No. 6423 before the CTA Second Division.[61][24]

 

In resolving the issue of whether the government is estopped from collecting taxes due to the fault of its agents, the CTA En Banc quoted Shell as follows:

 

While we agree with respondent that the State in the performance of government function is not estopped by the neglect or omission of its agents, and nowhere is this truer than in the field of taxation, yet this principle cannot be applied to work injustice against an innocent party.[62][25] (Emphasis supplied.)         

 

          Finally, the CTA En Banc ruled that Petron was considered an innocent transferee of the subject TCCs and may not be prejudiced by a re-assessment of excise tax liabilities that respondent has already settled, when due, with the use of the TCCs.[63][26] Petron is thus considered to have not fraudulently filed its excise tax returns. Consequently, the assessment issued by the CIR against it had no legal basis.[64][27] The dispositive portion of the assailed 03 December 2008 Decision of the CTA En Banc reads:

 

WHEREFORE, the instant petition for Review is hereby GRANTED. Accordingly, the May 4, 2007 Decision and August 14, 2007 Resolution of the CTA Second Division in CTA Case No. 6423 entitled, “Petron Corporation, petitioner vs. Commissioner of Internal Revenue, respondent”, are hereby REVERSED and SET ASIDE. In addition, the demand and collection of the deficiency excise taxes of PETRON in the amount of ₱600,769,353.95 excluding penalties and interest covering the taxable years 1995 to 1998 are hereby CANCELLED and SET ASIDE, and respondent-Commissioner of Internal Revenue is hereby ENJOINED from collecting the said amount from PETRON.

 

SO ORDERED.[65][28]     

 

 

          The CIR moved for the reconsideration of the CTA En Banc Decision, but the motion was denied in a Resolution dated 14 August 2007.[66][29]

 

 

The Issues

 

 

          The CIR appealed the Decision of the CTA En Banc by filing a Petition for Review on Certiorari under Rule 45 of the Rules of Court.[67][30] Petitioner assails the Decision by raising the following issues:

 

The court of tax appeals committed reversible error in holding that respondent petron is not liable for its excise tax liabilities from 1995 to 1998.

 

Arguments

 

I

 

The cta en banc erred in finding that respondent petron was not shown to have participated in the fraudulent acts. The finding of the cta second division that the tax credit certificates were fraudulently transferred by the transferor-companies to respondent is supported by substantial evidence. Respondent was involved in the perpetration of fraud in the tccs’ transfer and utilization.

 

II

 

Respondent cannot validly claim the right of innocent transferee for value. As assignee/transferee of the tccs, respondent merely succeeded to the rights of the tcc assignors/transferors. Accordingly, if the tccs assigned to respondent were void, it did not acquire any valid title over the tccs.

 

III

 

The government is not Estopped from collecting taxes due to the mistakes of its agents.

 

IV

 

Respondent is liable for 25% surcharge and 20% interest per annum pursuant to the provisions of sections 248 and 249 of the NIRC. Moreover, since respondent’s returns were false, the assessment prescribes in ten (10) years from the discovery of the falsity thereof pursuant to section 22 of the same code.[68][31]

The Court’s Ruling

 

        We DENY the CIR’s Petition for lack of merit.

 

        Article 21 of E.O. 226 defines a tax credit as follows:

        ARTICLE 21.         “Tax credit” shall mean any of the credits against taxes and/or duties equal to those actually paid or would have been paid to evidence which a tax credit certificate shall be issued by the Secretary of Finance or his representative, or the Board, if so delegated by the Secretary of Finance. The tax credit certificates including those issued by the Board pursuant to laws repealed by this Code but without in any way diminishing the scope of negotiability under their laws of issue are transferable under such conditions as may be determined by the Board after consultation with the Department of Finance. The tax credit certificate shall be used to pay taxes, duties, charges and fees due to the National Government; Provided, That the tax credits issued under this Code shall not form part of the gross income of the grantee/transferee for income tax purposes under Section 29 of the National Internal Revenue Code and are therefore not taxable: Provided, further, That such tax credits shall be valid only for a period of ten (10) years from date of issuance.

 

        Under Article 39 (j) of the Omnibus Investment Code of 1987,[69][32] tax credits are granted to entities registered with the Bureau of Investment (BOI) and are given for taxes and duties paid on raw materials used for the manufacture of their export products.

 

        A TCC is defined under Section 1 of  Revenue Regulation (RR) No. 5-2000, issued by the BIR on 15 August 2000, as follows:

 

B.      Tax Credit Certificate — means a certification, duly issued to the taxpayer named therein, by the Commissioner or his duly authorized representative, reduced in a BIR Accountable Form in accordance with the prescribed formalities, acknowledging that the grantee-taxpayer named therein is legally entitled a tax credit, the money value of which may be used in payment or in satisfaction of any of his internal revenue tax liability (except those excluded), or may be converted as a cash refund, or may otherwise be disposed of in the manner and in accordance with the limitations, if any, as may be prescribed by the provisions of these Regulations.

 

RR 5-2000 prescribes the regulations governing the manner of issuance of  TCCs and the conditions for their use, revalidation and transfer. Under the said regulation, a TCC may be used by the grantee or its assignee in the payment of its direct internal revenue tax liability.[70][33] It may be transferred in favor of an assignee subject to the following conditions: 1) the TCC transfer must be with prior approval of the Commissioner or the duly authorized representative; 2) the transfer of a TCC should be limited to one transfer only; and 3) the transferee shall strictly use the TCC for the payment of the assignee’s direct internal revenue tax liability and shall not be convertible to cash.[71][34] A TCC is valid only for 10 years subject to the following rules: (1) it must be utilized within five (5) years from the date of issue; and (2) it must be revalidated thereafter or be otherwise considered invalid.[72][35]

 

The processing of a TCC is entrusted to a specialized agency called the “One-Stop-Shop Inter-Agency Tax Credit and DutyDrawbackCenter” (“Center”), created on 07 February 1992 under Administrative Order (A.O.) No. 226. Its purpose is to expedite the processing and approval of tax credits and duty drawbacks.[73][36] The Center is composed of a representative from the DOF as its chairperson; and the members thereof are representatives of the Bureau of Investment (BOI), Bureau of Customs (BOC) and Bureau of Internal Revenue (BIR), who are tasked to process the TCC and approve its application as payment of an assignee’s tax liability.[74][37]

 

A TCC may be assigned through a Deed of Assignment, which the assignee submits to the Center for its approval. Upon approval of the deed, the Center will issue a DOF Tax Debit Memo (DOF-TDM),[75][38] which will be utilized by the assignee to pay the latter’s tax liabilities for a specified period. Upon surrender of the TCC and the DOF-TDM, the corresponding Authority to Accept Payment of Excise Taxes (ATAPET) will be issued by the BIR Collection Program Division and will be submitted to the issuing office of the BIR for acceptance by the Assistant Commissioner of Collection Service. This act of the BIR signifies its acceptance of the TCC as payment of the assignee’s excise taxes.

 

Thus, it is apparent that a TCC undergoes a stringent process of verification by various specialized government agencies before it is accepted as payment of an assignee’s tax liability.

 

In the case at bar, the CIR disputes the ruling of the CTA En Banc, which found Petron to have had no participation in the fraudulent procurement and transfer of the TCCs. Petitioner believes that there was substantial evidence to support its allegation of a fraudulent transfer of the TCCs to Petron.[76][39] The CIR further contends that respondent was not a qualified transferee of the TCCs, because the latter did not supply petroleum products to the companies that were the assignors of the subject TCCs.[77][40]  

 

 The CIR bases its contentions on the DOF’s post-audit findings stating that, for the periods covering 1995 to 1998, Petron did not deliver fuel and other petroleum products to the companies (the transferor companies) that had assigned the subject TCCs to respondent. Petitioner further alleges that the findings indicate that the transferor companies could not have had such a high volume of export sales declared to the Center and made the basis for the issuance of the TCCs assigned to Petron.[78][41] Thus, the CIR impugns the CTA En Banc ruling that respondent was a transferee in good faith and for value of the subject TCCs.[79][42] 

 

Not finding merit in the CIR’s contention, we affirm the ruling of the CTA En Banc finding that Petron is a transferee in good faith and for value of the subject TCCs.

 

From the records, we observe that the CIR had no allegation that there was a deviation from the process for the approval of the TCCs, which Petron used as payment to settle its excise tax liabilities for the years 1995 to 1998.

 

The CIR quotes the CTA Second Division and urges us to affirm the latter’s Decision, which found Petron to have participated in the fraudulent issuance and transfer of the TCCs. However, any merit in the position of petitioner on this issue is negated by the Joint Stipulation it entered into with Petron in the proceedings before the said Division. As correctly noted by the CTA En Banc, herein parties jointly stipulated before the Second Division in CTA Case No. 6423 as follows:

 

13. That petitioner (Petron) did not participate in the procurement and issuance of the TCCs, which TCCs were transferred to Petron and later utilized by Petron in payment of its excise taxes.[80][43]  

 

This stipulation of fact by the CIR amounts to an admission and, having been made by the parties in a stipulation of facts at pretrial, is treated as a judicial admission. Under Section 4, Rule 129 of the Rules of Court, a judicial admission requires no proof.[81][44]  The Court cannot lightly set it aside, especially when the opposing party relies upon it and accordingly dispenses with further proof of the fact already admitted. The exception provided in Rule 129, Section 4 is that an admission may be contradicted only by a showing that it was made through a palpable mistake, or that no such admission was made. In this case, however, exception to the rule does not exist.

 

We agree with the pronouncement of the CTA En Banc that Petron has not been shown or proven to have participated in the alleged fraudulent acts involved in the transfer and utilization of the subject TCCs. Petron had the right to rely on the joint stipulation that absolved it from any participation in the alleged fraud pertaining to the issuance and procurement of the subject TCCs. The joint stipulation made by the parties consequently obviated the opportunity of the CIR to present evidence on this matter, as no proof is required for an admission made by a party in the course of the proceedings.[82][45] Thus, the CIR cannot now be allowed to change its stand and renege on that admission.

 

Moreover, a close examination of  the arguments proffered by the CIR in their Petition calls for a reevaluation of the sufficiency of evidence in the case. The CIR seeks to persuade this Court to believe that there is substantial evidence to prove that Petron committed a misrepresentation, because the petroleum products were delivered not to the transferor but to other companies.[83][46] Thus, the TCCs assigned by the transferor companies to Petron were fraudulent. Clearly, a recalibration of the sufficiency of evidence presented by the CIR is needed for a different conclusion to be reached.

 

The fundamental rule is that the scope of our judicial review under Rule 45 of the Rules of Court is confined only to errors of  law and does not extend to questions of fact.[84][47] It is basic that where it is the sufficiency of evidence that is being questioned, there is a question of fact.[85][48] Evidently, the CIR does not point out any specific provision of law that was wrongly interpreted by the CTA En Banc in the latter’s assailed Decision. Petitioner anchors it contention on the alleged existence of the sufficiency of evidence it had proffered to prove that Petron was involved in the perpetration of fraud in the transfer and utilization of the subject TCCs, an allegation that the CTA En Banc failed to consider. We have consistently held that it is not the function of this Court to analyze or weigh the evidence all over again, unless there is a showing that the findings of the lower court are totally devoid of support or are glaringly erroneous as to constitute palpable error or grave abuse of discretion.[86][49] Such an exception does not obtain in the circumstances of this case.

 

The CIR claims that Petron was not an innocent transferee for value, because the TCCs assigned to respondent were void. Petitioner based its allegations on the post-audit report of the DOF, which declared that the subject TCCs were obtained through fraud and, thus, had no monetary value.[87][50] The CIR adds that the TCCs were subject to a post-audit by the Center to complete the payment of the excise tax liability to which they were applied. Petitioner further contends that the Liability Clause of the TCCs makes the transferee or assignee solidarily liable with the original grantee for any fraudulent act pertinent to their procurement and transfer. The CIR assails the contrary ruling of the CTA En Banc, which confined the solidary liability only to the original grantee of the TCCs. Thus, petitioner believes that the correct interpretation of the Liability Clause in the TCCs makes Petron and the transferor companies or the original grantee solidarily liable for any fraudulent act or violation of the pertinent laws relating to the transfers of the TCCs. [88][51]   

 

We are not persuaded by the CIR’s position on this matter.

 

The Liability Clause of the TCCs reads:

Both the TRANSFEROR and the TRANSFEREE shall be jointly and severally liable for any fraudulent act or violation of the pertinent laws, rules and regulations relating to the transfer of this TAX CREDIT CERTIFICATE.

 

The scope of this solidary liability, as stated in the TCCs, was clarified by this Court in Shell, as follows:

The above clause to our mind clearly provides only for the solidary liability relative to the transfer of the TCCs from the original grantee to a transferee. There is nothing in the above clause that provides for the liability of the transferee in the event that the validity of the TCC issued to the original grantee by the Center is impugned or where the TCC is declared to have been fraudulently procured by the said original grantee. Thus, the solidary liability, if any, applies only to the sale of the TCC to the transferee by the original grantee. Any fraud or breach of law or rule relating to the issuance of the TCC by the Center to the transferor or the original grantee is the latter’s responsibility and liability. The transferee in good faith and for value may not be unjustly prejudiced by the fraud committed by the claimant or transferor in the procurement or issuance of the TCC from the Center. It is not only unjust but well-nigh violative of the constitutional right not to be deprived of one’s property without due process of law. Thus, a re-assessment of tax liabilities previously paid through TCCs by a transferee in good faith and for value is utterly confiscatory, more so when surcharges and interests are likewise assessed. 

 

A transferee in good faith and for value of a TCC who has relied on the Center’s representation of the genuineness and validity of the TCC transferred to it may not be legally required to pay again the tax covered by the TCC which has been belatedly declared null and void, that is, after the TCCs have been fully utilized through settlement of internal revenue tax liabilities. Conversely, when the transferee is party to the fraud as when it did not obtain the TCC for value or was a party to or has knowledge of its fraudulent issuance, said transferee is liable for the taxes and for the fraud committed as provided for by law.[89][52] (Emphasis supplied.)

We also find that the post-audit report, on which the CIR based its allegations, does not have the effect of a suspensive condition that would determine the validity of the TCCs.

 

We held in Petron v. CIR (Petron),[90][53] which is on all fours with the instant case, that TCCs are valid and effective from their issuance and are not subject to a post-audit as a suspensive condition for their validity. Our ruling in Petron finds guidance from our earlier ruling in Shell, which categorically states that a TCC is valid and effective upon its issuance and is not subject to a post-audit. The implication on the instant case of the said earlier ruling is that Petron has the right to rely on the validity and effectivity of the TCCs that were assigned to it. In finally determining their effectivity in the settlement of respondent’s excise tax liabilities, the validity of those TCCs should not depend on the results of the DOF’s post-audit findings. We held thus in Petron:

As correctly pointed out by Petron, however, the issue about the immediate validity of TCCs and the use thereof in payment of tax liabilities and duties are not matters of first impression for this Court. Taking into consideration the definition and nature of tax credits and TCCs, this Court’s Second Division definitively ruled in the aforesaid Pilipinas Shell case that the post audit is not a suspensive condition for the validity of TCCs, thus:

Art. 1181 tells us that the condition is suspensive when the acquisition of rights or demandability of the obligation must await the occurrence of the condition. However, Art. 1181 does not apply to the present case since the parties did NOT agree to a suspensive condition. Rather, specific laws, rules, and regulations govern the subject TCCs, not the general provisions of the Civil Code. Among the applicable laws that cover the TCCs are EO 226 or the Omnibus Investments Code, Letter of Instructions No. 1355, EO 765, RP-US Military Agreement, Sec. 106 (c) of the Tariff and Customs Code, Sec. 106 of the NIRC, BIR Revenue Regulations (RRs), and others. Nowhere in the aforementioned laws does the post-audit become necessary for the validity or effectivity of the TCCs. Nowhere in the aforementioned laws is it provided that a TCC is issued subject to a suspensive condition.   

           xxx                    xxx                    xxx

. . . (T)he TCCs are immediately valid and effective after their issuance. As aptly pointed out in the dissent of Justice Lovell Bautista in CTA EB No. 64, this is clear from the Guidelines and instructions found at the back of each TCC, which provide:

1.       This Tax Credit Certificate (TCC) shall entitle the grantee to apply the tax credit against taxes and duties until the amount is fully utilized, in accordance with the pertinent tax and customs laws, rules and regulations.

           xxx                    xxx                    xxx

4.       To acknowledge application of payment, theOne-Stop-ShopTaxCreditCentershall issue the corresponding Tax Debit Memo (TDM) to the grantee.

The authorized Revenue Officer/Customs Collector to which payment/utilization was made shall accomplish the Application of Tax Credit at the back of the certificate and affix his signature on the column provided.”   

      The foregoing guidelines cannot be clearer on the validity and effectivity of the TCC to pay or settle tax liabilities of the grantee or transferee, as they do not make the effectivity and validity of the TCC dependent on the outcome of a post-audit. In fact, if we are to sustain the appellate tax court, it would be absurd to make the effectivity of the payment of a TCC dependent on a post-audit since there is no contemplation of the situation wherein there is no post-audit. Does the payment made become effective if no post-audit is conducted? Or does the so-called suspensive condition still apply as no law, rule, or regulation specifies a period when a post-audit should or could be conducted with a prescriptive period? Clearly, a tax payment through a TCC cannot be both effective when made and dependent on a future event for its effectivity. Our system of laws and procedures abhors ambiguity.

 

Moreover, if the TCCs are considered to be subject to post-audit as a suspensive condition, the very purpose of the TCC would be defeated as there would be no guarantee that the TCC would be honored by the government as payment for taxes. No investor would take the risk of utilizing TCCs if these were subject to a post-audit that may invalidate them, without prescribed grounds or limits as to the exercise of said post-audit.  

 

The inescapable conclusion is that the TCCs are not subject to post-audit as a suspensive condition, and are thus valid and effective from their issuance.[91][54]

          In addition, Shell and Petron recognized an exception that holds the transferee/assignee liable if proven to have been a party to the fraud or to have had knowledge of the fraudulent issuance of the subject TCCs. As earlier mentioned, the parties entered into a joint stipulation of facts stating that Petron did not participate in the procurement or issuance of those TCCs. Thus, we affirm the CTA En Banc’s ruling that respondent was an innocent transferee for value thereof.

 

        On the issue of estoppel, petitioner contends that the TCCs, which the Center had continually approved as payment for respondent’s excise tax liabilities, were subsequently found to be void. Thus, the CIR insists that the government is not estopped from collecting from Petron the excise tax liabilities that had accrued to the latter as a result of the voidance of these TCCs. Petitioner argues that the State should not be prejudiced by the neglect or omission of government employees entrusted with the collection of taxes.[92][55]  

             

We are not persuaded by the CIR’s argument.

 

We recognize the well-entrenched principle that estoppel does not apply to the government, especially on matters of taxation. Taxes are the nation’s lifeblood through which government agencies continue to operate and with which the State discharges its functions for the welfare of its constituents.[93][56] As an exception, however, this general rule cannot be applied if it would work injustice against an innocent party.[94][57]

 

Petron, in this case, was not proven to have had any participation in or knowledge of  the CIR’s allegation of  the fraudulent transfer and utilization of  the subject TCCs. Respondent’s status as a transferee in good faith and for value of these TCCs has been established and even stipulated upon by petitioner.[95][58] Respondent was thereby provided ample protection from the adverse findings subsequently made by the Center.[96][59] Given the circumstances, the CIR’s invocation of the non-applicability of estoppel in this case is misplaced.

 

 On the final issue it raised, the CIR contends that a 25% surcharge and a 20% interest per annum must be imposed upon Petron for respondent’s excise tax liabilities as mandated under Sections 248 and 249 of the National Internal Revenue Code (NIRC).[97][60] Petitioner considers the tax returns filed by respondent for the years 1995 to 1998 as fraudulent on the basis of the post-audit finding that the TCCs were void. It argues that the prescriptive period within which to lawfully assess Petron for its tax liabilities has not prescribed under Section 222 (a)[98][61] of the Tax Code. The CIR explains that respondent’s assessment on 30 January 2002 of respondent’s deficiency excise tax for the years 1995 to 1998 was well within the ten-year prescription period.[99][62]  

 

In the light of the main ruling in this case, we affirm the CTA En Banc Decision finding Petron to be an innocent transferee for value of the subject TCCs. Consequently, the Tax Returns it filed for the years 1995 to 1998 are not considered fraudulent. Hence, the CIR had no legal basis to assess the excise taxes or any penalty surcharge or interest thereon, as respondent had already paid the appropriate excise taxes using the subject TCCs.

WHEREFORE, the CIR’s Petition is DENIED for lack of merit. The CTA En Banc Decision dated 03 December 2008 in CTA EB No. 311 is hereby AFFIRMED in toto. No pronouncement as to costs.    

 

 

 

SO ORDERED.

 

 

 

 

MARIA LOURDES P. A. SERENO

Associate Justice

 

 

WE CONCUR:

 

 

 

 

ANTONIO T. CARPIO

Associate Justice

Chairperson

 

 

 

 

    ARTURO D. BRION                                JOSE PORTUGAL PEREZ                  

         Associate Justice                                                Associate Justice

 

 

 

 

 

BIENVENIDO L. REYES

Associate Justice

 

 

 

 

A T T E S T A T I O N

 

        I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

 

                                                    ANTONIO T. CARPIO

                                                        Associate Justice

                                                  Chairperson, Second Division      

 

 

C E R T I F I C A T I O N

 

        Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

 

 

RENATO C. CORONA

                                                                   Chief Justice

 

 


 


[1][32] E. O. 226 – The Ominbus Investment Code of 1987:

 

ARTICLE 39. Incentives to Registered Enterprises. — All registered enterprises shall be granted the following incentives to the extent engaged in a preferred area of investment: 

 

xxx                                           xxx                                           xxx

 

(j) Tax Credit for Taxes and Duties on Raw Materials. — Every registered enterprise shall enjoy a tax credit equivalent to the national internal revenue taxes and customs duties paid on the supplies, raw materials and semi-manufactured products used in the manufacture, processing or production of its export products and forming part thereof; Provided, however, That the taxes on the supplies, raw materials and semi-manufactured products domestically purchased are indicated as a separate item in the sales invoice. 

 

Nothing herein shall be construed as to preclude the Board from setting a fixed percentage of exports sales as the approximate tax credit for taxes and duties of raw materials based on an average or standard usage for such materials in the industry.

[2][34] Id. at Sec. 4 (a) & (b).

[3][33] RR 5-2000, Sec. 3.

[4][34] Id. at Sec. 4 (a) & (b).

[5][35] Id. at Sec. 5 (a), (b), (c) & (d).

[6][36] A.O. 226, Sec. 3.

[7][37] Id. at Sec. 2.

[8][38] http://taxcredit.dof.gov.ph/services_hatdm.htm (last visited on 27 February 2012).

[9][38] http://taxcredit.dof.gov.ph/services_hatdm.htm (last visited on 27 February 2012).

[10][43] Rollo, p. 76.

[11][44] 1997 Rules of Court, Rule 129. What Need be Proven:

 

Section 4. Judicial admissions. — An admission, verbal or written, made by the party in the course of the proceedings in the same case, does not require proof. The admission may be contradicted only by showing that it was made through palpable mistake or that no such admission was made.

 

[12][39] Rollo, p. 27.

[13][40] Id. at 28-29.

[14][41] Id. at 100.

[15][42] Supra note 25.

[16][43] Rollo, p. 76.

[17][44] 1997 Rules of Court, Rule 129. What Need be Proven:

 

Section 4. Judicial admissions. — An admission, verbal or written, made by the party in the course of the proceedings in the same case, does not require proof. The admission may be contradicted only by showing that it was made through palpable mistake or that no such admission was made.

 

[18][45] Toshiba v. CIR, G.R. No. 157594, 09 March 2010, 614 SCRA 526.

[19][46] Rollo, p. 28.

[20][47] Republic v. Javier, G.R. No. 179905, 19August 2009, 596 SCRA 481.

[21][48] Land Bank of the Philippines  v. Court of Appeals, 416 Phil. 774 (2001).

[22][49] FGU Insurance Corporation v. Court of Appeals, 494 Phil. 342 (2005).

[23][50] Rollo, p. 32.

[24][51] Id. at 31.

[25][52] G.R. No. 172598, 21 December 2007, 541 SCRA 316.

[26][53] G.R. No. 180385, 28 July 2010, 626 SCRA 100.

[27][54] Supra note 52.

[28][57] Supra note 52.

[29][55] Rollo, pp. 34-35.

[30][56]Secretary of  Finance v. Oro, G.R. No. 156946, 15 July 2009, 593 SCRA 14.

[31][57] Supra note 52.

[32][58] Rollo, p. 76.

[33][59] Supra note 53.

[34][60] National Internal Revenue Code:

Section 248. – Civil Penalties. –

 

(A) There shall be imposed, in addition to the tax required to be paid, a penalty equivalent to twenty-five percent (25%) of the amount due, in the following cases:

 

 xxx                                          xxx                                           xxx

(3) Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment; or

 

Section 249. Interest. –

 

(A)   In General. – There shall be assessed and collected on any unpaid amount of tax, interest at the rate of twenty percent (20%) per annum, or such higher rate as may be prescribed by rules and regulations, from the date prescribed for payment until the amount is fully paid.

 

(B)    Deficiency Interest. – Any deficiency in the tax due, as the term is defined in this Code, shall be subject to the interest prescribed in Subsection (A) hereof, which interest shall be assessed and collected from the date prescribed for its payment until the full payment thereof.

 

(C)    Delinquency Interest. – In case of failure to pay:

 

xxx                                           xxx                                           xxx

 (3) A deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice and demand of the Commissioner, there shall be assessed and collected on the unpaid amount, interest at the rate prescribed in Subsection (A) hereof until the amount is fully paid, which interest shall form part of the tax.

 

[35][60] National Internal Revenue Code:

Section 248. – Civil Penalties. –

 

(A) There shall be imposed, in addition to the tax required to be paid, a penalty equivalent to twenty-five percent (25%) of the amount due, in the following cases:

 

 xxx                                          xxx                                           xxx

(3) Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment; or

 

Section 249. Interest. –

 

(D)    In General. – There shall be assessed and collected on any unpaid amount of tax, interest at the rate of twenty percent (20%) per annum, or such higher rate as may be prescribed by rules and regulations, from the date prescribed for payment until the amount is fully paid.

 

(E)     Deficiency Interest. – Any deficiency in the tax due, as the term is defined in this Code, shall be subject to the interest prescribed in Subsection (A) hereof, which interest shall be assessed and collected from the date prescribed for its payment until the full payment thereof.

 

(F)     Delinquency Interest. – In case of failure to pay:

 

xxx                                           xxx                                           xxx

 (3) A deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice and demand of the Commissioner, there shall be assessed and collected on the unpaid amount, interest at the rate prescribed in Subsection (A) hereof until the amount is fully paid, which interest shall form part of the tax.

 

[36][61] National Internal Revenue Code:

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

 

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

 

[37][62] Rollo, p. 40.

[38][1] Rollo, pp. 47-80. The CTA En Banc Decision dated 03 December 2008 in CTA EB No. 311 penned by CTA Associate Justice Caesar A. Casanova and concurred in by CTA Presiding Justice Ernesto D. Acosta and Associate Justices Juanito C. Castaneda, Jr., Lovell R. Bautista, Erlinda P. Uy and Olga Palanca-Enriquez.

[39][2] Rollo, pp. 81-107. The CTA Second Division Decision dated 04 May 2007 in CTA Case No. 6423 was penned by Associate Justice Erlinda P. Uy and concurred in by Associate Justices Juanito C. Castaneda, Jr., and Olga Palanca-Enriquez.

[40][3] Rollo, p. 48.

[41][4] Rollo, pp. 48-54.

[42][5] Id. at 106-107.

[43][6] Id. at 97.

[44][7] Id. at 98.

[45][8] Civil Code of the Philippines, Art. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition.

[46][9] Rollo, p. 102.

[47][10] Id. at 104.

[48][11] Id. at 108.

[49][12] Id. at 140.

[50][13] The 1997 National Internal Revenue Code–Section 248 – Civil Penalties.

(A) There shall be imposed, in addition to the tax required to be paid, a penalty equivalent to twenty-five percent (25%) of the amount due, in the following cases:

(1) Failure to file any return and pay the tax due thereon as required under the provisions of this Code or rules and regulations on the date prescribed; or

(2) Unless otherwise authorized by the Commissioner, filing a return with an internal revenue officer other than those with whom the return is required to be filed; or

(3) Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment; or

(4) Failure to pay the full or part of the amount of tax shown on any return required to be filed under the provisions of this Code or rules and regulations, or the full amount of tax due for which no return is required to be filed, on or before the date prescribed for its payment.

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

[51][14] Rollo, p. 145.

[52][15] Id. at 151.

[53][16] Id. at 59.

[54][17] G.R. No. 172598, 21 December 2007, 541 SCRA 316.

[55][18] Rollo, p. 62.

[56][19] Id. at 66.

[57][20] Id.

[58][21] Id. at 69.

[59][22] Id. at 70.

[60][23] Id. at 71.

[61][24] Id. at 76.

[62][25] Id. at 77.

[63][26] Supra note 25.

[64][27] Id. at 78.

[65][28] Id. at 79-80.

[66][29] Id. at 12.

[67][30] Id. at 11.

[68][31] Rollo, pp. 25-26.

[69][32] E. O. 226 – The Ominbus Investment Code of 1987:

 

ARTICLE 39. Incentives to Registered Enterprises. — All registered enterprises shall be granted the following incentives to the extent engaged in a preferred area of investment: 

 

xxx                                           xxx                                           xxx

 

(j) Tax Credit for Taxes and Duties on Raw Materials. — Every registered enterprise shall enjoy a tax credit equivalent to the national internal revenue taxes and customs duties paid on the supplies, raw materials and semi-manufactured products used in the manufacture, processing or production of its export products and forming part thereof; Provided, however, That the taxes on the supplies, raw materials and semi-manufactured products domestically purchased are indicated as a separate item in the sales invoice. 

 

Nothing herein shall be construed as to preclude the Board from setting a fixed percentage of exports sales as the approximate tax credit for taxes and duties of raw materials based on an average or standard usage for such materials in the industry.

[70][33] RR 5-2000, Sec. 3.

[71][34] Id. at Sec. 4 (a) & (b).

[72][35] Id. at Sec. 5 (a), (b), (c) & (d).

[73][36] A.O. 226, Sec. 3.

[74][37] Id. at Sec. 2.

[75][38] http://taxcredit.dof.gov.ph/services_hatdm.htm (last visited on 27 February 2012).

[76][39] Rollo, p. 27.

[77][40] Id. at 28-29.

[78][41] Id. at 100.

[79][42] Supra note 25.

[80][43] Rollo, p. 76.

[81][44] 1997 Rules of Court, Rule 129. What Need be Proven:

 

Section 4. Judicial admissions. — An admission, verbal or written, made by the party in the course of the proceedings in the same case, does not require proof. The admission may be contradicted only by showing that it was made through palpable mistake or that no such admission was made.

 

[82][45] Toshiba v. CIR, G.R. No. 157594, 09 March 2010, 614 SCRA 526.

[83][46] Rollo, p. 28.

[84][47] Republic v. Javier, G.R. No. 179905, 19August 2009, 596 SCRA 481.

[85][48] Land Bank of the Philippines  v. Court of Appeals, 416 Phil. 774 (2001).

[86][49] FGU Insurance Corporation v. Court of Appeals, 494 Phil. 342 (2005).

[87][50] Rollo, p. 32.

[88][51] Id. at 31.

[89][52] G.R. No. 172598, 21 December 2007, 541 SCRA 316.

[90][53] G.R. No. 180385, 28 July 2010, 626 SCRA 100.

[91][54] Supra note 52.

[92][55] Rollo, pp. 34-35.

[93][56]Secretary of  Finance v. Oro, G.R. No. 156946, 15 July 2009, 593 SCRA 14.

[94][57] Supra note 52.

[95][58] Rollo, p. 76.

[96][59] Supra note 53.

[97][60] National Internal Revenue Code:

Section 248. – Civil Penalties. –

 

(A) There shall be imposed, in addition to the tax required to be paid, a penalty equivalent to twenty-five percent (25%) of the amount due, in the following cases:

 

 xxx                                          xxx                                           xxx

(3) Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment; or

 

Section 249. Interest. –

 

(G)    In General. – There shall be assessed and collected on any unpaid amount of tax, interest at the rate of twenty percent (20%) per annum, or such higher rate as may be prescribed by rules and regulations, from the date prescribed for payment until the amount is fully paid.

 

(H)    Deficiency Interest. – Any deficiency in the tax due, as the term is defined in this Code, shall be subject to the interest prescribed in Subsection (A) hereof, which interest shall be assessed and collected from the date prescribed for its payment until the full payment thereof.

 

(I)      Delinquency Interest. – In case of failure to pay:

 

xxx                                           xxx                                           xxx

 (3) A deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice and demand of the Commissioner, there shall be assessed and collected on the unpaid amount, interest at the rate prescribed in Subsection (A) hereof until the amount is fully paid, which interest shall form part of the tax.

 

[98][61] National Internal Revenue Code:

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

 

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

 

[99][62] Rollo, p. 40.

CASE 2012-0045: PHILIP SIGFRID A. FORTUN AND ALBERT LEE G. ANGELES VS. GLORIA MACAPAGAL-ARROYO,  AS COMMANDER-IN-CHIEF AND PRESIDENT OF THE REPUBLIC OF THE PHILIPPINES, EDUARDO ERMITA, EXECUTIVE SECRETARY, ARMED FORCES OF THE PHILIPPINES (AFP), OR ANY OF THEIR UNITS, PHILIPPINE NATIONAL POLICE (PNP), OR ANY OF THEIR UNITS, JOHN DOES AND JANE DOES ACTING UNDER THEIR DIRECTION AND CONTROL (G.R. NO. 190293, MARCH 20, 2012, ABAD, J.) AND OTHER RELATED CASES (G.R. NO. 190294, G.R. NO. 190301, G.R. NO. 190302, G.R. NO. 190307, G.R. NO. 190356 AND  G.R. NO. 190380) SUBJECT/S: CONSTITUTIONALITY OF THE PROCLAMATION OF MARTIAL LAW; WHO EXERCISES POWER TO PROCLAIM MARTIAL LAW?; MOOT AND ACADEMIC CASE.

 

============================= 

 

 

DISPOSITIVE:

 

WHEREFORE, the Court DISMISSES the consolidated petitions on the ground that the same have become moot and academic.

 

SO ORDERED.

 

 

=============================

 

 

SUBJECTS/DOCTRINE/ DIGEST

 

 

WHAT IS THE ATTITUDE OF THE COURT IN ENTERTAINING ACTIONS THAT ASSAIL THE CONSITUTIONALITY OF ACTS OF EXECUTIVE OR LEGISLATIVE?

 

 

COURT SHOULD BE CAUTIOUS. PRUDENCE AND RESPECT FOR THE CO-EQUAL DEPARTMENTS OF THE GOVERNMENT DICTATE THAT THE COURT SHOULD BE CAUTIOUS IN ENTERTAINING ACTIONS THAT ASSAIL THE CONSTITUTIONALITY OF THE ACTS OF THE EXECUTIVE OR THE LEGISLATIVE DEPARTMENT.

 

 

        Prudence and respect for the co-equal departments of the government dictate that the Court should be cautious in entertaining actions that assail the constitutionality of the acts of the Executive or the Legislative department.  The issue of constitutionality, said the Court in Biraogo v. Philippine Truth Commission of 2010,[1][1] must be the very issue of the case, that the resolution of such issue is unavoidable. 

XXXXXXXXXXXXX

 

 

 

WHO EXERCISES THE POWER TO PROCLAIM MARTIAL LAW?

 

 

THE PRESIDENT SHARES SUCH POWER WITH CONGRESS. THE PRESIDENT AND THE CONGRESS ACT IN TANDEM IN EXERCISING THE POWER TO PROCLAIM MARTIAL LAW OR SUSPEND THE PRIVILEGE OF THE WRIT OF HABEAS CORPUS.  THEY EXERCISE THE POWER, NOT ONLY SEQUENTIALLY, BUT IN A SENSE JOINTLY SINCE, AFTER THE PRESIDENT HAS INITIATED THE PROCLAMATION OR THE SUSPENSION, ONLY THE CONGRESS CAN MAINTAIN THE SAME BASED ON ITS OWN EVALUATION OF THE SITUATION ON THE GROUND, A POWER THAT THE PRESIDENT DOES NOT HAVE. 

 

 

        Although the above vests in the President the power to proclaim martial law or suspend the privilege of the writ of habeas corpus, he shares such power with the Congress.  Thus:

 

        1.     The President’s proclamation or suspension is temporary, good for only 60 days;

 

        2.     He must, within 48 hours of the proclamation or suspension, report his action in person or in writing to Congress;

 

        3.     Both houses of Congress, if not in session must jointly convene within 24 hours of the proclamation or suspension for the purpose of reviewing its validity; and

 

        4.     The Congress, voting jointly, may revoke or affirm the President’s proclamation or suspension, allow their limited effectivity to lapse, or extend the same if Congress deems warranted.

 

        It is evident that under the 1987 Constitution the President and the Congress act in tandem in exercising the power to proclaim martial law or suspend the privilege of the writ of habeas corpus.  They exercise the power, not only sequentially, but in a sense jointly since, after the President has initiated the proclamation or the suspension, only the Congress can maintain the same based on its own evaluation of the situation on the ground, a power that the President does not have. 

 

        Consequently, although the Constitution reserves to the Supreme Court the power to review the sufficiency of the factual basis of the proclamation or suspension in a proper suit, it is implicit that the Court must allow Congress to exercise its own review powers, which is automatic rather than initiated.  Only when Congress defaults in its express duty to defend the Constitution through such review should the Supreme Court step in as its final rampart.  The constitutional validity of the President’s proclamation of martial law or suspension of the writ of habeas corpus is first a political question in the hands of Congress before it becomes a justiciable one in the hands of the Court.

 

XXXXXXXXXXXX

 

 

THE PRESIDENT WITHDREW HER PROCLAMATION OF MARTIAL LAW EVEN BEFORE CONGRESS CAN ACT ON IT. SHOULD SC STILL ENTERTAIN THE PETITIONS ON THE CONSTITUTIONALITY OF THE PROCLAMATION?

 

 

NO. BECAUSE THE COURT DOES NOT RESOLVE PURELY ACADEMIC QUESTIONS TO SATISFY SCHOLARLY INTEREST, HOWEVER INTELLECTUALLY CHALLENGING THESE ARE.[2][5] 

 

 

The Court does not resolve purely academic questions to satisfy scholarly interest, however intellectually challenging these are.[3][5]  This is especially true, said the Court in Philippine Association of Colleges and Universities  v.  Secretary of Education,[4][6] where  the  issues  “reach constitutional dimensions, for then there comes into play regard for the court’s duty to avoid decision of constitutional issues unless avoidance becomes evasion.”  The Court’s duty is to steer clear of declaring unconstitutional the acts of the Executive or the Legislative department, given the assumption that it carefully studied those acts and found them consistent with the fundamental law before taking them. “To doubt is to sustain.”[5][7]

 

………………………..

 

Of course, the Court has in exceptional cases passed upon issues that ordinarily would have been regarded as moot.  But the present cases do not present sufficient basis for the exercise of the power of judicial review.  The proclamation of martial law and the suspension of the privilege of the writ of habeas corpus in this case, unlike similar Presidential acts in the late 60s and early 70s, appear more like saber-rattling than an actual deployment and arbitrary use of political power.  

 

===========================

 

EN BANC

 

 

PHILIP SIGFRID A. FORTUN                      G.R. No. 190293

and ALBERT LEE G. ANGELES,

Petitioners,                    Present:

                                                                     CORONA, C.J., 

                                                                     CARPIO,

                                                            VELASCO, JR.,

                                                            LEONARDO-DE CASTRO,

                                                            BRION,

– versus –                                            PERALTA,

  BERSAMIN,

  DEL CASTILLO,

  ABAD,

  VILLARAMA, JR.,

  PEREZ,

  MENDOZA,

  SERENO,

  REYES, and

  PERLAS-BERNABE, JJ.

GLORIA MACAPAGAL-ARROYO,  as

Commander-in-Chief and President of the Republic of the Philippines, EDUARDO ERMITA, Executive Secretary, ARMED FORCES OF THE PHILIPPINES (AFP), or any of their units, PHILIPPINE NATIONAL POLICE (PNP), or any of their units, JOHN DOES and JANE DOES acting under their direction and control,

                             Respondents.

 

x —————————————————- x

 

DIDAGEN P. DILANGALEN,                 G.R. No. 190294

Petitioner,

 

– versus –

 

EDUARDO R. ERMITA in his capacity as Executive Secretary, NORBERTO GONZALES in his capacity as Secretary of National Defense, RONALDO PUNO in his capacity as Secretary of Interior and Local Government,

                             Respondents.

 

x —————————————————- x

 

NATIONAL UNION OF PEOPLES’         G.R. No. 190301

LAWYERS (NUPL) SECRETARY GENERAL NERI JAVIER COLMENARES, BAYAN MUNA REPRESENTATIVE SATUR C. OCAMPO, GABRIELA WOMEN’S PARTY REPRESENTATIVE LIZA L. MAZA, ATTY. JULIUS GARCIA MATIBAG, ATTY. EPHRAIM B. CORTEZ, ATTY. JOBERT ILARDE PAHILGA, ATTY. VOLTAIRE B. AFRICA, BAGONG ALYANSANG MAKABAYAN (BAYAN) SECRETARY GENERAL RENATO M. REYES, JR. and ANTHONY IAN CRUZ,

Petitioners,

 

– versus –

 

PRESIDENT GLORIA MACAPAGAL-ARROYO, EXECUTIVE SECRETARY EDUARDO R. ERMITA, ARMED FORCES OF THE PHILIPPINES CHIEF OF STAFF GENERAL VICTOR S. IBRADO, PHILIPPINE NATIONAL POLICE DIRECTOR GENERAL JESUS A. VERZOSA, DEPARTMENT OF JUSTICE SECRETARY AGNES VST DEVANADERA, ARMED FORCES OF THE PHILIPPINES EASTERN MINDANAO COMMAND CHIEF LIEUTENANT GENERAL RAYMUNDO B. FERRER,

                             Respondents.

 

x —————————————————- x

 

JOSEPH NELSON Q. LOYOLA,            G.R. No. 190302

Petitioner,

 

– versus –

 

HER EXCELLENCY PRESIDENT GLORIA MACAPAGAL-ARROYO, ARMED FORCES CHIEF OF STAFF GENERAL VICTOR IBRADO, PHILIPPINE NATIONAL POLICE (PNP), DIRECTOR GENERAL JESUS VERZOSA, EXECUTIVE SECRETARY EDUARDO ERMITA,

                             Respondents.

 

x —————————————————- x

 

JOVITO R. SALONGA, RAUL C.          G.R. No. 190307

PANGALANGAN, H. HARRY L. ROQUE, JR., JOEL R. BUTUYAN, EMILIO CAPULONG, FLORIN T. HILBAY, ROMEL R. BAGARES, DEXTER DONNE B. DIZON, ALLAN JONES F. LARDIZABAL and GILBERT T. ANDRES, suing as taxpayers and as CONCERNED Filipino citizens,

Petitioners,

 

– versus –

 

GLORIA MACAPAGAL-ARROYO, in his (sic) capacity as President of the Republic of the Philippines, HON. EDUARDO ERMITA, JR., in his capacity as Executive Secretary, and HON. ROLANDO ANDAYA in his capacity as Secretary of the Department of Budget and Management, GENERAL VICTOR IBRADO, in his capacity as Armed Forces of the Philippines Chief of Staff, DIRECTOR JESUS VERZOSA, in his capacity as Chief of the Philippine National Police,

                             Respondents.

 

x —————————————————- x

 

BAILENG S. MANTAWIL, DENGCO      G.R. No. 190356

SABAN, Engr. OCTOBER CHIO, AKBAYAN PARTY LIST REPRESENTATIVES WALDEN F. BELLO and ANA THERESIA HONTIVEROS-BARAQUEL, LORETTA ANN P. ROSALES, MARVIC M.V.F. LEONEN, THEODORE O. TE and IBARRA M. GUTIERREZ III,

Petitioners,

 

– versus –

 

THE EXECUTIVE SECRETARY, THE SECRETARY OF NATIONAL DEFENSE, THE SECRETARY OF JUSTICE, THE SECRETARY OF INTERIOR AND LOCAL GOVERNMENT, THE SECRETARY OF BUDGET AND MANAGEMENT, and THE CHIEF OF STAFF OF THE ARMED FORCES OF THE PHILIPPINES, THE DIRECTOR GENERAL OF THE PHILIPPINE NATIONAL POLICE,

                             Respondents.

 

x —————————————————- x

 

CHRISTIAN MONSOD and                  G.R. No. 190380

CARLOS P. MEDINA, JR.,

Petitioners,

 

– versus –

 

EDUARDO R. ERMITA, in his                     Promulgated:

capacity as Executive Secretary,

                             Respondent.                              March 20, 2012                 

 

x —————————————————————————————- x

 

DECISION

 

ABAD, J.:

 

 

        These cases concern the constitutionality of a presidential proclamation of martial law and suspension of the privilege of habeas corpus in 2009 in a province inMindanao which were withdrawn after just eight days.

 

The Facts and the Case

 

        The essential background facts are not in dispute.  On November 23, 2009 heavily armed men, believed led by the ruling Ampatuan family, gunned down and buried under shoveled dirt 57 innocent civilians on a highway in Maguindanao.  In response to this carnage, on November 24 President Arroyo issued Presidential Proclamation 1946, declaring a state of emergency in Maguindanao, Sultan Kudarat, andCotabatoCityto prevent and suppress similar lawless violence inCentral Mindanao.

 

Believing that she needed greater authority to put order in Maguindanao and secure it from large groups of persons that have taken up arms against the constituted authorities in the province, on December 4, 2009 President Arroyo issued Presidential Proclamation 1959 declaring martial law and suspending the privilege of the writ of habeas corpus in that province except for identified areas of the Moro Islamic Liberation Front.

 

Two days later or on December 6, 2009 President Arroyo submitted her report to Congress in accordance with Section 18, Article VII of the 1987 Constitution which required her, within 48 hours from the proclamation of martial law or the suspension of the privilege of the writ of habeas corpus, to submit to that body a report in person or in writing of her action. 

 

In her report, President Arroyo said that she acted based on her finding that lawless men have taken up arms in Maguindanao and risen against the government.  The President described the scope of the uprising, the nature, quantity, and quality of the rebels’ weaponry, the movement of their heavily armed units in strategic positions, the closure of the Maguindanao Provincial Capitol, Ampatuan Municipal Hall, Datu Unsay Municipal Hall, and 14 other municipal halls, and the use of armored vehicles, tanks, and patrol cars with unauthorized “PNP/Police” markings.

 

On December 9, 2009 Congress, in joint session, convened pursuant to Section 18, Article VII of the 1987 Constitution to review the validity of the President’s action.  But, two days later or on December 12 before Congress could act, the President issued Presidential Proclamation 1963, lifting martial law and restoring the privilege of the writ of habeas corpus in Maguindanao.

 

        Petitioners Philip Sigfrid A. Fortun and the other petitioners in G.R. 190293, 190294, 190301,190302, 190307, 190356, and 190380 brought the present actions to challenge the constitutionality of President Arroyo’s Proclamation 1959 affecting Maguindanao.  But, given the prompt lifting of that proclamation before Congress could review it and before any serious question affecting the rights and liberties of Maguindanao’s inhabitants could arise, the Court deems any review of its constitutionality the equivalent of beating a dead horse. 

 

        Prudence and respect for the co-equal departments of the government dictate that the Court should be cautious in entertaining actions that assail the constitutionality of the acts of the Executive or the Legislative department.  The issue of constitutionality, said the Court in Biraogo v. Philippine Truth Commission of 2010,[6][1] must be the very issue of the case, that the resolution of such issue is unavoidable. 

        The issue of the constitutionality of Proclamation 1959 is not unavoidable for two reasons:

 

        One.  President Arroyo withdrew her proclamation of martial law and suspension of the privilege of the writ of habeas corpus before the joint houses of Congress could fulfill their automatic duty to review and validate or invalidate the same.  The pertinent provisions of Section 18, Article VII of the 1987 Constitution state:

 

          Sec. 18.  The President shall be the Commander‑in‑Chief of all armed forces of the Philippinesand whenever it becomes necessary, he may call out such armed forces to prevent or suppress lawless violence, invasion or rebellion. In case of invasion or rebellion, when the public safety requires it, he may, for a period not exceeding sixty days, suspend the privilege of the writ of habeas corpus or place the Philippines or any part thereof under martial law. Within forty‑eight hours from the proclamation of martial law or the suspension of the privilege of writ of habeas corpus, the President shall submit a report in person or in writing to the Congress. The Congress, voting jointly, by a vote of at least a majority of all its Members in regular or special session, may revoke such proclamation or suspension, which revocation shall not be set aside by the President. Upon the initiative of the President, the Congress may, in the same manner, extend such proclamation or suspension for a period to be determined by the Congress, if the invasion or rebellion shall persist and public safety requires it.

 

          The Congress, if not in session, shall, within twenty‑four hours following such proclamation or suspension, convene in accordance with its rules without any need of a call.

 

          x x x x

 

        Although the above vests in the President the power to proclaim martial law or suspend the privilege of the writ of habeas corpus, he shares such power with the Congress.  Thus:

 

        1.     The President’s proclamation or suspension is temporary, good for only 60 days;

 

        2.     He must, within 48 hours of the proclamation or suspension, report his action in person or in writing to Congress;

 

        3.     Both houses of Congress, if not in session must jointly convene within 24 hours of the proclamation or suspension for the purpose of reviewing its validity; and

 

        4.     The Congress, voting jointly, may revoke or affirm the President’s proclamation or suspension, allow their limited effectivity to lapse, or extend the same if Congress deems warranted.

 

        It is evident that under the 1987 Constitution the President and the Congress act in tandem in exercising the power to proclaim martial law or suspend the privilege of the writ of habeas corpus.  They exercise the power, not only sequentially, but in a sense jointly since, after the President has initiated the proclamation or the suspension, only the Congress can maintain the same based on its own evaluation of the situation on the ground, a power that the President does not have. 

 

        Consequently, although the Constitution reserves to the Supreme Court the power to review the sufficiency of the factual basis of the proclamation or suspension in a proper suit, it is implicit that the Court must allow Congress to exercise its own review powers, which is automatic rather than initiated.  Only when Congress defaults in its express duty to defend the Constitution through such review should the Supreme Court step in as its final rampart.  The constitutional validity of the President’s proclamation of martial law or suspension of the writ of habeas corpus is first a political question in the hands of Congress before it becomes a justiciable one in the hands of the Court.

 

Here, President Arroyo withdrew Proclamation 1959 before the joint houses of Congress, which had in fact convened, could act on the same.  Consequently, the petitions in these cases have become moot and the Court has nothing to review.  The lifting of martial law and restoration of the privilege of the writ of habeas corpus in Maguindanao was a supervening event that obliterated any justiciable controversy.[7][2]

        Two.  Since President Arroyo withdrew her proclamation of martial law and suspension of the privilege of the writ of habeas corpus in just eight days, they have not been meaningfully implemented.  The military did not take over the operation and control of local government units in Maguindanao.  The President did not issue any law or decree affecting Maguindanao that should ordinarily be enacted by Congress.  No indiscriminate mass arrest had been reported.  Those who were arrested during the period were either released or promptly charged in court.  Indeed, no petition for habeas corpus had been filed with the Court respecting arrests made in those eight days.  The point is that the President intended by her action to address an uprising in a relatively small and sparsely populated province.  In her judgment, the rebellion was localized and swiftly disintegrated in the face of a determined and amply armed government presence. 

 

        In Lansang v. Garcia,[8][3] the Court received evidence in executive session to determine if President Marcos’ suspension of the privilege of the writ of habeas corpus in 1971 had sufficient factual basis.  In Aquino, Jr. v. Enrile,[9][4] while the Court took judicial notice of the factual bases for President Marcos’ proclamation of martial law in 1972, it still held hearings on the petitions for habeas corpus to determine the constitutionality of the arrest and detention of the petitioners.  Here, however, the Court has not bothered to examine the evidence upon which President Arroyo acted in issuing Proclamation 1959, precisely because it felt no need to, the proclamation having been withdrawn within a few days of its issuance.

 

        Justice Antonio T. Carpio points out in his dissenting opinion the finding of the Regional Trial Court (RTC) of Quezon City that no probable cause exist that the accused before it committed rebellion in Maguindanao since the prosecution failed to establish the elements of the crime.  But the Court cannot use such finding as basis for striking down the President’s proclamation and suspension.  For, firstly, the Court did not delegate and could not delegate to the RTC of Quezon City its power to determine the factual basis for the presidential proclamation and suspension.  Secondly, there is no showing that the RTC of Quezon City passed upon the same evidence that the President, as Commander-in-Chief of the Armed Forces, had in her possession when she issued the proclamation and suspension.

 

The Court does not resolve purely academic questions to satisfy scholarly interest, however intellectually challenging these are.[10][5]  This is especially true, said the Court in Philippine Association of Colleges and Universities  v.  Secretary of Education,[11][6] where  the  issues  “reach constitutional dimensions, for then there comes into play regard for the court’s duty to avoid decision of constitutional issues unless avoidance becomes evasion.”  The Court’s duty is to steer clear of declaring unconstitutional the acts of the Executive or the Legislative department, given the assumption that it carefully studied those acts and found them consistent with the fundamental law before taking them. “To doubt is to sustain.”[12][7]

 

Notably, under Section 18, Article VII of the 1987 Constitution, the Court has only 30 days from the filing of an appropriate proceeding to review the sufficiency of the factual basis of the proclamation of martial law or the suspension of the privilege of the writ of habeas corpus.  Thus –

 

          The Supreme Court may review, in an appropriate proceeding filed by any citizen, the sufficiency of the factual basis of the proclamation of martial law or the suspension of the privilege of the writ of habeas corpus or the extension thereof, and must promulgate its decision thereon within thirty days from its filing. (Emphasis supplied)

 

More than two years have passed since petitioners filed the present actions to annul Proclamation 1959.  When the Court did not decide it then, it actually opted for a default as was its duty, the question having become moot and academic.

 

Justice Carpio of course points out that should the Court regard the powers of the President and Congress respecting the proclamation of martial law or the suspension of the privilege of the writ of habeas corpus as sequential or joint, it would be impossible for the Court to exercise its power of review within the 30 days given it.

 

But those 30 days, fixed by the Constitution, should be enough for the Court to fulfill its duty without pre-empting congressional action.  Section 18, Article VII, requires the President to report his actions to Congress, in person or in writing, within 48 hours of such proclamation or suspension.  In turn, the Congress is required to convene without need of a call within 24 hours following the President’s proclamation or suspension.  Clearly, the Constitution calls for quick action on the part of the Congress.  Whatever form that action takes, therefore, should give the Court sufficient time to fulfill its own mandate to review the factual basis of the proclamation or suspension within 30 days of its issuance.

 

If the Congress procrastinates or altogether fails to fulfill its duty respecting the proclamation or suspension within the short time expected of it, then the Court can step in, hear the petitions challenging the President’s action, and ascertain if it has a factual basis.  If the Court finds none, then it can annul the proclamation or the suspension.  But what if the 30 days given it by the Constitution proves inadequate?  Justice Carpio himself offers the answer in his dissent: that 30-day period does not operate to divest this Court of its jurisdiction over the case.  The settled rule is that jurisdiction once acquired is not lost until the case has been terminated.

 

The problem in this case is that the President aborted the proclamation of martial law and the suspension of the privilege of the writ of habeas corpus in Maguindanao in just eight days.  In a real sense, the proclamation and the suspension never took off.  The Congress itself adjourned without touching the matter, it having become moot and academic.    

 

Of course, the Court has in exceptional cases passed upon issues that ordinarily would have been regarded as moot.  But the present cases do not present sufficient basis for the exercise of the power of judicial review.  The proclamation of martial law and the suspension of the privilege of the writ of habeas corpus in this case, unlike similar Presidential acts in the late 60s and early 70s, appear more like saber-rattling than an actual deployment and arbitrary use of political power.  

 

WHEREFORE, the Court DISMISSES the consolidated petitions on the ground that the same have become moot and academic.

 

SO ORDERED.

 

ROBERTO A. ABAD

                                                    Associate Justice

 

 

WE CONCUR:

 

 

 

RENATO C. CORONA

Chief Justice

 

 

 

 

       ANTONIO T. CARPIO                   PRESBITERO J. VELASCO, JR.    

   Associate Justice                          Associate Justice

 

 

 

TERESITA J. LEONARDO-DE CASTRO       ARTURO D. BRION

                     Associate Justice                                      Associate Justice

 

 

 

                                                                       

       DIOSDADO M. PERALTA               LUCAS P. BERSAMIN

                 Associate Justice                                 Associate Justice       

 

 

 

 

 MARIANO C. DEL CASTILLO                 MARTIN S. VILLARAMA, JR.

              Associate Justice                               Associate Justice

 

 

 

   JOSE PORTUGAL PEREZ                     JOSE CATRAL MENDOZA

             Associate Justice                                           Associate Justice

 

 

 

 

 

 

 

 

 

 

 

MARIA LOURDES P. A. SERENO               BIENVENIDO L. REYES

               Associate Justice                                  Associate Justice

 

 

 

 

ESTELA M. PERLAS-BERNABE

Associate Justice

 

 

 

 

 

CERTIFICATION

 

 

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court.

 

 

 

RENATO C. CORONA

          Chief Justice

 

 


 


[1][1]  G.R. Nos. 192935 & 193036, December 7, 2010, 637 SCRA 78, 147-148.

[2][5]  Sec. Guingona, Jr. v. Court of Appeals, 354 Phil. 415, 426 (1998).

[3][5]  Sec. Guingona, Jr. v. Court of Appeals, 354 Phil. 415, 426 (1998).

[4][6]  97 Phil. 806, 811 (1955), citing Rice v. Sioux City, U.S. Sup. Ct. Adv. Rep., May 23, 1955, Law Ed., Vol. 99, p. 511.

[5][7]  Board of Optometry v. Colet, 328 Phil. 1187, 1207 (1996), citing Drilon v. Lim, G.R. No. 112497, August 4, 1994, 235 SCRA 135, 140.

[6][1]  G.R. Nos. 192935 & 193036, December 7, 2010, 637 SCRA 78, 147-148.

[7][2]  See Funa v. Ermita, G.R. No. 184740, February 11, 2010, 612 SCRA 308, 319.

[8][3]  149 Phil. 547 (1971).

[9][4]  158-A Phil. 1 (1974).

[10][5]  Sec. Guingona, Jr. v. Court of Appeals, 354 Phil. 415, 426 (1998).

[11][6]  97 Phil. 806, 811 (1955), citing Rice v. Sioux City, U.S. Sup. Ct. Adv. Rep., May 23, 1955, Law Ed., Vol. 99, p. 511.

[12][7]  Board of Optometry v. Colet, 328 Phil. 1187, 1207 (1996), citing Drilon v. Lim, G.R. No. 112497, August 4, 1994, 235 SCRA 135, 140.