753 Phil.

58

FIRST DIVISION
[ G.R. No. 172509. February 04, 2015 ]
CHINA BANKING CORPORATION, PETITIONER, VS.
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

DECISION

SERENO, C.J.:

This Rule 45 Petition[1] requires this Court to address the question of prescription of

the government’s right to collect taxes. Petitioner China Banking Corporation (CBC)
assails the Decision[2] and Resolution[3] of the Court of Tax Appeals (CTA) En
Banc in CTA En Banc Case No. 109. The CTA En Banc affirmed the Decision[4] in CTA
Case No. 6379 of the CTA Second Division, which had also affirmed the validity of
Assessment No. FAS-5-82/85-89-000586 and FAS-5-86-89-00587. The Assessment
required petitioner CBC to pay the amount of P11,383,165.50, plus increments
accruing thereto, as deficiency documentary stamp tax (DST) for the taxable years
1982 to 1986.

FACTS

Petitioner CBC is a universal bank duly organized and existing under the laws of the
Philippines. For the taxable years 1982 to 1986, CBC was engaged in transactions
involving sales of foreign exchange to the Central Bank of the Philippines
(now Bangko Sentral ng Pilipinas), commonly known as SWAP transactions.
[5]
 Petitioner did not file tax returns or pay tax on the SWAP transactions for those
taxable years.

On 19 April 1989, petitioner CBC received an assessment from the Bureau of

Internal Revenue (BIR) finding CBC liable for deficiency DST on the sales of foreign
bills of exchange to the Central Bank. The deficiency DST was computed as follows:

Deficiency Documentary Stamp Tax                                                                              
Amount
For the years 1982 to 1985  P 8,280,696.00
For calendar year 1986 P 2,481 ,975.60
Add : Surcharge  P 620,493.90 P 3,102.469.50
    P11 ,383,165.50[6]
On 8 May 1989, petitioner CBC, through its vice-president, sent a letter of protest
to the BIR. CBC raised the following defenses: (1) double taxation, as the bank had
previously paid the DST on all its transactions involving sales of foreign bills of
exchange to the Central Bank; (2) absence of liability, as the liability for the DST in
a sale of foreign exchange through telegraphic transfers to the Central Bank falls on
the buyer ? in this case, the Central Bank; (3) due process violation, as the bank’s
records were never formally examined by the BIR examiners; (4) validity of the
assessment, as it did not include the factual basis therefore; (5) exemption, as
neither the tax-exempt entity nor the other party was liable for the payment of DST
before the effectivity of Presidential Decree Nos. (PD) 1177 and 1931 for the years
1982 to 1986.[7] In the protest, the taxpayer requested a reinvestigation so as to
substantiate its assertions.[8]

On 6 December 2001, more than 12 years after the filing of the protest, the

Commissioner of Internal Revenue (CIR) rendered a decision reiterating the
deficiency DST assessment and ordered the payment thereof plus increments within
30 days from receipt of the Decision.[9]

On 18 January 2002, CBC filed a Petition for Review with the CTA. On 11 March
2002, the CIR filed an Answer with a demand for CBC to pay the assessed
DST.[10]

On 23 February 2005, and after trial on the merits, the CTA Second Division denied
the Petition of CBC. The CTA ruled that a SWAP arrangement should be treated as a
telegraphic transfer subject to documentary stamp tax. [11]

On 30 March 2005, petitioner CBC filed a Motion for Reconsideration, but it was
denied in a Resolution dated 14 July 2005.

On 5 August 2005, petitioner appealed to the CTA En Banc. The appellate tax court,
however, dismissed the Petition for Review in a Decision dated 1 December 2005.
CBC filed a Motion for Reconsideration on 21 December 2005, but it was denied in a
20 March 2006 Resolution.

The taxpayer now comes to this Court with a Rule 45 Petition, reiterating the
arguments it raised at the CTA level and invoking for the first time the argument of
prescription. Petitioner CBC states that the government has three years from 19
April 1989, the date the former received the assessment of the CIR, to collect the
tax. Within that time frame, however, neither a warrant of distraint or levy was
issued, nor a collection case filed in court.

On 17 October 2006, respondent CIR submitted its Comment in compliance with

the Court’s Resolution dated 26 June 2006. [12] The Comment did not have any
discussion on the question of prescription.

On 21 February 2007, the Court issued a Resolution directing the parties to file
their respective Memoranda. Petitioner CBC filed its Memorandum [13] on 26 April
2007. The CIR, on the other hand, filed on 17 April 2007 a Manifestation stating
that it was adopting the allegations and authorities in its Comment in lieu of the
required Memorandum.[14]

ISSUE

Given the facts and the arguments raised in this case, the resolution of this case
hinges on this issue: whether the right of the BIR to collect the assessed DST from
CBC is barred by prescription.[15]

RULING OF THE COURT

We grant the Petition on the ground that the right of the BIR to collect the assessed
DST is barred by the statute of limitations.

Prescription Has Set In.

To recall, the Bureau of Internal Revenue (BIR) issued the assessment for
deficiency DST on 19 April 1989, when the applicable rule was Section 319(c) of the
National Internal Revenue Code of 1977, as amended. [16]  In that provision, the
time limit for the government to collect the assessed tax is set at three years, to be
reckoned from the date when the BIR mails/releases/sends the assessment notice
to the taxpayer. Further, Section 319(c) states that the assessed tax must be
collected by distraint or levy and/or court proceeding within the three-year period.

With these rules in mind, we shall now determine whether the claim of the BIR is
barred by time.

In this case, the records do not show when the assessment notice was mailed,
released or sent to CBC. Nevertheless, the latest possible date that the BIR could
have released, mailed or sent the assessment notice was on the same date that
CBC received it, 19 April 1989. Assuming therefore that 19 April 1989 is the
reckoning date, the BIR had three years to collect the assessed DST. However, the
records of this case show that there was neither a warrant of distraint or levy
served on CBC's properties nor a collection case filed in court by the BIR within the
three-year period.

The attempt of the BIR to collect the tax through its Answer with a demand for CBC
to pay the assessed DST in the CTA on 11 March 2002 did not comply with
Section 319(c) of the 1977 Tax Code, as amended. The demand was made almost
thirteen years from the date from which the prescriptive period is to be reckoned.
Thus, the attempt to collect the tax was made way beyond the three-year
prescriptive period.

The BIR’s Answer in the case filed before the CTA could not, by any means, have
qualified as a collection case as required by law. Under the rule prevailing at the
time the BIR filed its Answer, the regular courts, and not the CTA, had jurisdiction
over judicial actions for collection of internal revenue taxes. It was only on 23 April
2004, when Republic Act Number 9282 took effect, [17] that the jurisdiction of the
CTA was expanded to include, among others, original jurisdiction over collection
cases in which the principal amount involved is one million pesos or more.

Consequently, the claim of the CIR for deficiency DST from petitioner is forever
lost, as it is now barred by time. This Court has no other option but to dismiss the
present case.

The running of the statute of

limitations was not suspended
by the request for reinvestigation.

The fact that the taxpayer in this case may have requested a reinvestigation did not
toll the running of the three-year prescriptive period. Section 320 of the 1977 Tax
Code states:

Sec. 320. Suspension of running of statute.—The running of the statute of

limitations provided in Sections 318 or 319 on the making of assessment and the
beginning of distraint or levy or a proceeding in court for collection, in respect of
any deficiency, shall be suspended for the period during which the Commissioner is
prohibited from making the assessment or beginning distraint or levy or a
proceeding in court and for sixty days thereafter; when the taxpayer requests
for a re-investigation which is granted by the Commissioner; when the
taxpayer cannot be located in the address given by him in the return filed upon
which a tax is being assessed or collected: Provided, That if the taxpayer informs
the Commissioner of any change in address, the running of the statute of
limitations will not be suspended; when the warrant of distraint and levy is duly
served upon the taxpayer, his authorized representative, or a member of his
household with sufficient discretion, and no property could be located; and when
the taxpayer is out of the Philippines. (Emphasis supplied)

The provision is clear.  A request for reinvestigation alone will not suspend the
statute of limitations. Two things must concur: there must be a request for
reinvestigation and the CIR must have granted it. BPI v. Commissioner of Internal
Revenue[18] emphasized this rule by stating:

In the case of Republic of the Philippines v. Gancayco, taxpayer Gancayco

requested for a thorough reinvestigation of the assessment against him and placed
at the disposal of the Collector of Internal Revenue all the [evidence] he had for
such purpose; yet, the Collector ignored the request, and the records and
documents were not at all examined. Considering the given facts, this Court
pronounced that—
x x x. The act of requesting a reinvestigation alone does not suspend the
period. The request should first be granted, in order to effect suspension.
(Collector v. Suyoc Consolidated, supra; also Republic v. Ablaza, supra). Moreover,
the Collector gave appellee until April 1, 1949, within which to submit his evidence,
which the latter did one day before. There were no impediments on the part of the
Collector to file the collection case from April 1, 1949 x x x.
In Republic of the Philippines v. Acebedo, this Court similarly found that —
. . . [T]he defendant, after receiving the assessment notice of September 24, 1949,
asked for a reinvestigation thereof on October 11, 1949 (Exh. “A”). There is no
evidence that this request was considered or acted upon. In fact, on October 23,
1950 the then Collector of Internal Revenue issued a warrant of distraint and levy
for the full amount of the assessment (Exh. “D”), but there was follow-up of this
warrant. Consequently, the request for reinvestigation did not suspend the running
of the period for filing an action for collection. (Emphasis in the original)
The Court went on to declare that the burden of proof that the request for
reinvestigation had been actually granted shall be on the CIR. Such grant may be
expressed in its communications with the taxpayer or implied from the action of the
CIR or his authorized representative in response to the request for reinvestigation.

There is nothing in the records of this case which indicates, expressly or impliedly,
that the CIR had granted the request for reinvestigation filed by BPI. What is
reflected in the records is the piercing silence and inaction of the CIR on the request
for reinvestigation, as he considered BPI's letters of protest to be.

In the present case, there is no showing from the records that the CIR ever granted
the request for reinvestigation filed by CBC. That being the case, it cannot be said
that the running of the three-year prescriptive period was effectively suspended.

Failure to raise prescription at the

administrative level/lower court as a
defense is of no moment.
When the pleadings or the evidence on record
show that the claim is barred by prescription,
the court must dismiss the claim even if prescription
is not raised as a defense.

We note that petitioner has raised the issue of prescription for the first time only
before this Court. While we are mindful of the established rule of remedial law that
the defense of prescription must be raised at the trial court that has also been
applied for tax cases.[19]  Thus, as a rule, the failure to raise the defense of
prescription at the administrative level prevents the taxpayer from raising it at the
appeal stage.

This rule, however, is not absolute.

The facts of the present case are substantially identical to those in the 2014
case, Bank of the Philippine Islands (BPI) v. Commissioner of Internal Revenue.
[20]
 In that case, petitioner received an assessment notice from the BIR for
deficiency DST based on petitioner’s SWAP transactions for the year 1985 on 16
June 1989. On 23 June 1989, BPI, through its counsel, filed a protest requesting
the reinvestigation and/or reconsideration of the assessment for lack of legal or
factual bases. Almost ten years later,  the CIR, in a letter dated 4 August 1998,
denied the protest. On 4 January 1999, BPI filed a Petition for Review with the
CTA. On 23 February 1999, the CIR filed an Answer with a demand for BPI to pay
the assessed DST. It was only when the case ultimately reached this Court that the
issue of prescription was brought up. Nevertheless, the Court ruled that the CIR
could no longer collect the assessed tax due to prescription. Basing its ruling on
Section 1, Rule 9 of the Rules of Court and on jurisprudence, the Court held as
follows:

In a Resolution dated 5 August 2013, the Court, through the Third Division, found
that the assailed tax assessment may be invalidated because the statute of
limitations on the collection of the alleged deficiency DST had already expired,
conformably with Section 1, Rule 9 of the Rules of Court and the Bank of the
Philippine Islands v. Commissioner of Internal Revenue decision. However, to afford
due process, the Court required both BPI and CIR to submit their respective
comments on the issue of prescription.

Only the CIR filed his comment on 9 December 2013. In his Comment, the CIR
argues that the issue of prescription cannot be raised for the first time on appeal.
The CIR further alleges that even assuming that the issue of prescription can be
raised, the protest letter interrupted the prescriptive period to collect the assessed
DST, unlike in the Bank of the Philippine Islands case.

xxxx

We deny the right of the BIR to collect the assessed DST on the ground of
prescription.

Section 1, Rule 9 of the Rules of Court expressly provides that:

Section 1. Defenses and objections not pleaded. - Defenses and objections not
pleaded either in a motion to dismiss or in the answer are deemed
waived. However, when it appears from the pleadings or the evidence on
record that the court has no jurisdiction over the subject matter, that there is
another action pending between the same parties for the same cause, or that the
action is barred by prior judgment or by the statute of limitations, the court shall
dismiss the claim.
If the pleadings or the evidence on record show that the claim is barred by
prescription, the court is mandated to dismiss the claim even if
prescription is not raised as a defense. In Heirs of Valientes v. Ramas, we ruled
that the CA may motu proprio dismiss the case on the ground of prescription
despite failure to raise this ground on appeal. The court is imbued with sufficient
discretion to review matters, not otherwise assigned as errors on appeal, if it finds
that their consideration is necessary in arriving at a complete and just resolution of
the case. More so, when the provisions on prescription were enacted to benefit and
protect taxpayers from investigation after a reasonable period of time.

Thus, we proceed to determine whether the period to collect the assessed DST for
the year 1985 has prescribed.

To determine prescription, what is essential only is that the facts demonstrating the
lapse of the prescriptive period were sufficiently and satisfactorily apparent on the
record either in the allegations of the plaintiff’s complaint, or otherwise established
by the evidence. Under the then applicable Section 319(c) [now, 222(c)] of the
National Internal Revenue Code (NIRC) of 1977, as amended, any internal revenue
tax which has been assessed within the period of limitation may be collected by
distraint or levy, and/or court proceeding within three years following the
assessment of the tax. The assessment of the tax is deemed made and the three-
year period for collection of the assessed tax begins to run on the date the
assessment notice had been released, mailed or sent by the BIR to the taxpayer.

In the present case, although there was no allegation as to when the assessment
notice had been released, mailed or sent to BPI, still, the latest date that the BIR
could have released, mailed or sent the assessment notice was on the date BPI
received the same on 16 June 1989. Counting the three-year prescriptive period
from 16 June 1989, the BIR had until 15 June 1992 to collect the assessed DST. But
despite the lapse of 15 June 1992, the evidence established that there was no
warrant of distraint or levy served on BPI’s properties, or any judicial proceedings
initiated by the BIR.

The earliest attempt of the BIR to collect the tax was when it filed its answer in the
CTA on 23 February 1999, which was several years beyond the three-year
prescriptive period. However, the BIR’s answer in the CTA was not the collection
case contemplated by the law. Before 2004 or the year Republic Act No. 9282 took
effect, the judicial action to collect internal revenue taxes fell under the jurisdiction
of the regular trial courts, and not the CTA. Evidently, prescription has set in to bar
the collection of the assessed DST. (Emphasis supplied)

BPI  thus provides an exception to the rule against raising the defense of
prescription for the first time on appeal: the exception arises when the pleadings
or the evidence on record show that the claim is barred by prescription.

In this case, the fact that the claim of the government is time-barred is a matter of
record. As can be seen from the previous discussion on the determination of the
prescription of the right of the government to claim deficiency DST, the conclusion
that prescription has set in was arrived at using the evidence on record. The date of
receipt of the assessment notice was not disputed, and the date of the attempt to
collect was determined by merely checking the records as to when the Answer of
the CIR containing the demand to pay the tax was filed.

Estoppel or waiver prevents the government

from invoking the rule against raising the
issue of prescription for the first time on appeal.

In this case, petitioner may have raised the question of prescription only on appeal
to this Court. The BIR could have crushed the defense by the mere invocation of
the rule against setting up the defense of prescription only at the appeal stage. The
government, however, failed to do so.
On the contrary, the BIR was silent despite having the opportunity to invoke the
bar against the issue of prescription. It is worthy of note that the Court ordered the
BIR to file a Comment. The government, however, did not offer any argument in its
Comment about the issue of prescription, even if petitioner raised it in the latter’s
Petition. It merely fell silent on the issue. It was given another opportunity to meet
the challenge when this Court ordered both parties to file their respective
memoranda. The CIR, however, merely filed a Manifestation that it would no longer
be filing a Memorandum and, in lieu thereof, it would be merely adopting the
arguments raised in its Comment. Its silence spoke loudly of its intent to waive its
right to object to the argument of prescription.

We are mindful of the rule in taxation that estoppel does not prevent the

government from collecting taxes; it is not bound by the mistake or negligence of
its agents. The rule is based on the political law concept “the king can do no
wrong,”[21] which likens a state to a king: it does not commit mistakes, and it does
not sleep on its rights. The analogy fosters inequality between the taxpayer and the
government, with the balance tilting in favor of the latter. This concept finds
justification in the theory and reality that government is necessary, and it must
therefore collect taxes if it is to survive. Thus, the mistake or negligence of
government officials should not bind the state, lest it bring harm to the government
and ultimately the people, in whom sovereignty resides.[22]

Republic v. Ker & Co. Ltd.[23] involved a collection case for a final and executory
assessment. The taxpayer nevertheless raised the prescription of the right to assess
the tax as a defense before the Court of First Instance. The Republic, instead of
objecting to the invocation of prescription as a defense by the taxpayer, litigated on
the issue and thereafter submitted it for resolution. The Supreme Court ruled for
the taxpayer, treating the actuations of the government as a waiver of the right to
invoke the defense of prescription. Ker effectively applied to the government the
rule of estoppel. Indeed, the no-estoppel rule is not absolute.

The same ingredients in Ker - procedural matter and injustice - obtain in this case.
The procedural matter consists in the failure to raise the issue of prescription at the
trial court/administrative level, and injustice in the fact that the BIR has unduly
delayed the assessment and collection of the DST in this case.  The fact is that it
took more than 12 years for it to take steps to collect the assessed tax.  The BIR
definitely caused untold prejudice to petitioner, keeping the latter in the dark for so
long, as to whether it is liable for DST and, if so, for how much.

CONCLUSION

Inasmuch as the government’s claim for deficiency DST is barred by prescription, it

is no longer necessary to dwell on the validity of the assessment.

WHEREFORE, the Petition is GRANTED. The Court of Tax Appeals En

Banc Decision dated 1 December 2005 and its Resolution dated 20 March 2006 in
CTA EB Case No. 109 are hereby REVERSED and SET ASIDE. A new ruling is
entered DENYING respondent’s claim for deficiency DST in the amount of
P11,383,165.50.

SO ORDERED.

Leonardo-De Castro, Bersamin, Perez, and Perlas-Bernabe, JJ., concur.

[1]
 Rollo, pp. 16-53.

[2]
 Id. at 152-167; dated 1 December 2005,  penned by Associate Justice Olga
Palanca-Enriquez and concurred in by Presiding Justice Ernesto D. Acosta, Juanito
C. Castañeda, Associate Justices Lovell R. Bautista, Erlinda P. Uy, and Caesar A.
Casanova, Jr.

[3]
 20 March 2006.

[4]
 Id. at 112-124; dated 23 February 2005, penned by Associate Justice Erlinda P.
Uy and concurred in by Associate Justices Juanito C. Castañeda, Jr. and Olga
Palanca-Enriquez.

[5]
 Rollo, p. 113.

[6]
 Id.

[7]
 Id. at 91-93.

[8]
 Id. at p. 93.

[9]
 Id. at 114-115; See also CIR Decision on the protest dated 6 December 2001,
pp. 94-99.
[10]
 Id. at p. 115.

[11]
 Id. at 115-116.

[12]
 Id. at 218-242.

[13]
 Id. at 264-302.

[14]
 Id. at 261.

[15]
 Id. at 43-47.

[16]
 SEC. 319. Exceptions as to period of limitations of assessment and collection of
taxes. —
(c) Where the assessment of any internal revenue tax has been made within the
period of limitation above-prescribed such tax may be collected by distraint or levy
by a proceeding in court, but only if began (1) within five years after the
assessment of the tax, or (2) prior the expiration of any period for collection agreed
upon in writing by the Commissioner and the taxpayer before the expiration of such
five-year period. The period so agreed upon may be extended by subsequent
agreements in writing made before the expiration of the period previously agreed
upon. (Emphasis supplied)
Batas Pambansa Blg. 700, which was approved on 5 April 1984, shortened the
statute of limitations on the assessment and collection of national internal revenue
taxes from 5 years to 3 years.

[17]
 < http://sc.judiciary.gov.ph/pio/annualreports/CTA2005.pdf. > (Last visited 23
November 2014).

[18]
 571 Phil. 535.

[19]
 Aguinaldo Industries Corp. v. CIR, 197 Phil. 822 (1982).

[20]
 G.R. No. 181836, 9 July 2014.

[21]
 Eric R. Recalde, A Treatise on Tax Principles and Remedies, p. 33 (2009).

[22]
 Id., citing Vera v. Fernandez, id. at 33.

[23]
 Republic v. Ker & Co., 124 Phil. 822 (1966).

 
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