1

FIRST DIVISION In resolving the issue raised in the petition, the Court may
be guided by its definition of what constitutes grave abuse
[G.R. No. 119322. June 4, 1996] of discretion. By grave abuse of discretion is meant such
capricious and whimsical exercise of judgment as is
equivalent to lack of jurisdiction. The abuse of discretion
COMMISSIONER OF INTERNAL REVENUE, SENIOR STATE
must be patent and gross as to amount to an evasion of
PROSECUTOR AURORA S. LAGMAN, SENIOR STATE
positive duty or a virtual refusal to perform a duty enjoined
PROSECUTOR BERNELITO R. FERNANDEZ, SENIOR STATE
by law, or to act at all in contemplation of law as where
PROSECUTOR HENRICK P. GINGOYON, ROGELIO F. VISTA,
the power is exercised in an arbitrary and despotic manner
STATE PROSECUTOR ALFREDO AGCAOILI, PROSECUTING
by reason of passion and hostility.3
ATTORNEY EMMANUEL VELASCO, CITY PROSECUTOR
CANDIDO V. RIVERA, AND ASSISTANT CITY PROSECUTOR
LEOPOLDO E. BARAQUIA, petitioners, vs. THE HONORABLE On June 1, 1993, the President issued a Memorandum
COURT OF APPEALS, THE HONORABLE TIRSO DC VELASCO, creating a Task Force to investigate the tax liabilities of
PRESIDING JUDGE, REGIONAL TRIAL COURT OF QUEZON manufacturers engaged in tax evasion scheme, such as
CITY, BRANCH 88, FORTUNE TOBACCO CORPORATION, selling products through dummy marketing corporations to
LUCIO TAN, HARRY C. TAN, CARMEN KAO TAN, FLORENCIO avoid payment of correct internal revenue tax, to collect
SANTOS, SALVADOR MISON, CHUNG POE KEE, ROJAS CHUA, from them any tax liabilities discovered from such
MARIANO TANENGLIAN, JUANITA LEE AND ANTONIO P. investigation, and to file the necessary criminal actions
ABAYA, respondents. against those who may have violated the tax code. The task
force was composed of the Commissioner of Internal
Revenue as Chairman, a representative of the Department
DAGUPAN COMBINED COMMODITIES, INC., TOWNSMAN
of Justice and a representative of the Executive Secretary.
COMMERCIALS, INC., LANDMARK SALES AND MARKETING,
INC., CRIMSON CROCKER DISTRIBUTORS, INC., MOUNT
MATUTUM MARKETING CORP., FIRST UNION TRADING On July 1, 1993, the Commissioner of Internal Revenue
CORP., CARLSBURG AND SONS, INC., OMAR ALI issued a Revenue Memorandum Circular No. 37-93
DISTRIBUTORS, INC., ORIEL AND COMPANY, NEMESIO TAN, reclassifying best selling cigarettes bearing the brands
QUINTIN CALLEJA, YOLANDA MANALILI, CARLOS CHAN, Hope, More, and Champion as cigarettes of foreign brands
ROMEO TAN, VICENTE CO, WILLIAM YU, LETICIA LIM, GLORIA subject to a higher rate of tax.
LOPEZ, ROBERT TANTAMCO, FELIPE LOY, ROLANDO CHUA,
HONORINA TAN, WILLIE TANTAMCO, HENRY WEECHEE, On August 3, 1993, respondent Fortune Tobacco
JESUS LIM, TEODORO TAN, ANTONIO APOSTOL, DOMINGO Corporation (Fortune) questioned the validity of the
TENG, CANDELARIO LI, ERLINDA CRUZ, CARLOS TUMPALAN, reclassification of said brands of cigarettes as violative of
LARRY JOHN SY, ERNESTO ONG, WILFREDO MACROHON, its right to due process and equal protection of law.
ANTONIO TIU, ROSARIO LESTER, WILFREDO ONG, BONIFACIA Parenthetically, on September 8, 1993, the Court of Tax
CHUA, GO CHING CHUAN, HENRY CHUA, LOPE LIM GUAN, Appeals by resolution ruled that the reclassification made
EMILIO TAN, FELIPE TAN SHE CHUAN, ANDRES CO, FELIPE by the Commissioner is of doubtful legality and enjoined its
KEE, HENRY GO CO, NARCISO GO, ADOLFO LIM, CO SHU, enforcement.
DANIEL YAO CABIGUN, GABRIEL QUINTELA, NELSON TE,
EMILIO GO, EDWIN LEE, CESAR LEDESMA, JR., JAO CHEP In a letter of August 13, 1993 which was received by Fortune
SENG, ARNULFO TAN, BENJAMIN T. HONG, PHILIP JAO, JOSE on August 24, 1993, the Commissioner assessed against
P. YU, AND DAVID R. CORTES, respondents-intervenors. Fortune the total amount of P7,685,942,221.66
representing deficiency income, ad valorem and value-
DECISION added tax for the year 1992 with the request that the said
amount be paid within thirty (30) days upon receipt
KAPUNAN, J.: thereof.4 Fortune on September 17, 1993 moved for
reconsideration of the assessments.
The pivotal issue in this petition for review is whether or
not respondent Court of Appeals in its decision1 in CA-G.R. On September 7, 1993, the Commissioner of Internal
SP No. 33599 correctly ruled that the Regional Trial Court Revenue filed a complaint with the Department of Justice
of Quezon City (Branch 88) in Civil Case No. Q-94-18790 did against respondent Fortune, its corporate officers, nine (9)
not commit grave abuse of discretion amounting to lack of other corporations and their respective corporate officers
jurisdiction in issuing four (4) orders directing the issuance for alleged fraudulent tax evasion for supposed non-
of writs of preliminary injunction restraining petitioner payment by Fortune of the correct amount of income tax,
prosecutors from continuing with the preliminary injunction ad valorem tax and value-added tax for the year 1992. The
of I.S. Nos. 93-508 and 93-584 in the Department of Justice complaint alleged, among others, that:
and I.S. No. 93-17942 in the Office of the City Prosecutors
of Quezon City wherein private respondents were In the said income tax return, the taxpayer declared a net
respondents and denying petitioners Motion to Dismiss said taxable income of P183,613,408.00 and an income tax due
Civil Case No. 94-18790.2 of P64,264,693.00. Based mainly on documentary evidence
submitted by the taxpayer itself, these declarations are
 2

false and fraudulent because the correct taxable income of and 142, as amended by R.A. 6956, are quoted as follows:
the corporation for the said year is P 1,282,959,399.25. x x x.

This underdeclaration which resulted in the evasion of the The complaint docketed as I.S. No. 93-508, was referred to
amount of P723,773,759.79 as deficiency income tax for the the Department of Justice Task Force on revenue cases
year 1992 is a violation of Section 45 of the Tax Code, which found sufficient basis to further investigate the
penalized under Section 253 in relation to Sections 252(b) allegations that Fortune, through fraudulent means,
and (d) and 253 thereof, thus: x x x. evaded payment of income tax, ad valorem tax, and value-
added tax for the year 1992 thus, depriving the government
xxx xxx xxx of revenues in the amount of Seven and One-half (P7.5)
Billion Pesos.
Fortune Tobacco Corporation, through its Vice-President
for Finance, Roxas Chua, likewise filed value-added tax The fraudulent scheme allegedly adopted by private
returns for the 1st, 2nd, 3rd and 4th quarters of 1992 with respondents consisted of making fictitious and simulated
the Rev. District Office of Marikina, Metro Manila, declaring sales of Fortunes cigarette products to non-existing
therein gross taxable sales, as follows: individuals and to entities incorporated and existing only
for the purpose of such fictitious sales by declaring
registered wholesale prices with the BIR lower than
1st Qtr. P2,924,418,055.00
Fortunes actual wholesale prices which are required for
determination of Fortunes correct income, ad valorem, and
2nd Qtr. 2,980,335,235.00 value-added tax liabilities. The ghosts wholesale buyers
then ostensibly sold the products to customers and other
3rd Qtr. 2,839,519,325.00 wholesalers/retailers at higher wholesale prices
determined by Fortune. The tax returns and manufacturers
4th Qtr. 2,992,386,005.00 sworn statements filed by Fortune would then declare the
fictitious sales it made to the conduit corporators and non-
existing individual buyers as its gross sales.5
However, contrary to what have been reported in the said
value-added tax returns, and based on documentary
evidence obtained from the taxpayer, the total actual On September 8, 1993, the Department of Justice Task
taxable sales of the corporation for the year 1992 amounted Force issued a subpoena directing private respondents to
to P16,158,575,035.00 instead of P 11,929,322,334.52 as submit their counter-affidavits not later than September
declared by the corporation in the said VAT returns. 20, 1993.6

These fraudulent under declarations which resulted in the Instead of filing their counter-affidavits, the private
evasion of value-added taxes in the aggregate amount of P respondents on October 15, 1993 filed a Verified Motion to
1,169,688,645.63 for the entire year 1992 are violations of Dismiss; Alternatively Motion to Suspend,7 based
Section 110 in relation to Section 100 of the Tax Code, principally on the following grounds:
which are likewise penalized under the aforequoted Section
253, in relation to Section 252, thereof. Sections 110 and 1. The complaint of petitioner Commissioner follows
100 provide: a pattern of prosecution against private respondents in
violation of their right to due process and equal protection
xxx xxx xxx of the law.

Furthermore, based on the corporations VAT returns, the 2. Petitioner Commissioner and the Court of Tax
corporation reported its taxable sales for 1992 in the Appeals have still to determine Fortunes tax liability for
amount of P11,736,658,580. This declaration is likewise 1992 in question; without any tax liability, there can be no
false and fraudulent because based on the daily tax evasion.
manufacturers sworn statements submitted to the BIR by
the taxpayer, its total taxable sales during the year 1992 is 3. Exclusive jurisdiction to determine tax liability is
P16,686,372,295.00. As a result thereof, the corporation vested in the Court of Tax Appeals; therefore, the DOJ is
was able to evade the payment of ad valorem taxes in the without jurisdiction to conduct preliminary investigation.
aggregate amount of P5,792,479,816.24 in violation of
Section 127 in relation to Section 142, as amended by R.A. 4. The complaint of petitioner Commissioner is not
6956, penalized under the aforequoted Section 253, in supported by any evidence to serve as adequate basis for
relation to Section 252, all of the Tax Code. Sections 127
 3

the issuance of subpoena to private respondents and to put the prosecutors in I.S. No. 93-508 be dismissed or set aside,
them to their defense. alternatively, the proceedings on the preliminary
investigation be suspended pending final determination by
At the scheduled preliminary investigation on October 15 the Commissioner of Fortunes motion for
1993, private respondents were asked by the panel of reconsideration/reinvestigation of the August 13, 1993
prosecutors to inform it of the aspects of the Verified assessment of the taxes due.12
Motion to Dismiss which counsel for private respondents did
so briefly. Counsel for the Commissioner of Internal On January 17, 1994, petitioners filed a motion to dismiss
Revenue asked for fifteen (15) days within which to file a the petition13 on the grounds that (a) the trial court is
reply in writing to private respondents Verified Motion to bereft of jurisdiction to enjoin a criminal prosecution under
Dismiss. Thereupon, the panel of prosecutors declared a preliminary investigation; (b) a criminal prosecution for tax
recess. Upon reconvening, the panel of prosecutors denied fraud can proceed independently of criminal or
the motion to dismiss and treated the same as private administrative action; (c) there is no prejudicial question
respondents counter-affidavits.8 to justify suspension of the preliminary investigation; (d)
private respondents rights to due process was not violated;
On October 20, 1993, private respondents filed a motion for and (e) selective prosecution is not a valid defense in this
reconsideration of the order of October 15, 1993.9 On jurisdiction.
October 21, 1993, private respondents filed a motion to
require the submission by the Bureau of Internal Revenue On January 19, 1994, at the hearing of the incident for the
of certain documents in further support of their Verified issuance of a writ of preliminary injunction in the petition,
Motion to Dismiss. Among the documents sought to be private respondents offered in evidence their verified
produced are the Daily Manufacturers Sworn Statements petition for certiorari and prohibition and its annexes.
which according to petitioner Commissioner in her Petitioners responded by praying that their motion to
complaint were submitted by Fortune to the BIR and which dismiss the petition for certiorari and prohibition be
were the basis of her conclusion that Fortunes tax considered as their opposition to private respondents
declarations were false and fraudulent. Fortune claimed application for the issuance of a writ of preliminary
that without the Daily Manufacturers Sworn Statements, injunction.
there is no evidence to support the complaint, hence,
warranting its outright dismissal. On January 25, 1994, the trial court issued an order
granting the prayer for the issuance of a preliminary
On October 26, 1993, private respondents moved for the injunction.14 The trial court rationalized its order in this
inhibition of the State Prosecutors assigned to the case for wise:
alleged lack of impartiality.10 Private respondents also
sought the production of the Daily Manufacturers Sworn a) It is private respondents claim that the ad valorem
Statements submitted by certain cigarette companies tax for the year 1992 was levied, assessed and collected by
similarly situated as Fortune but were not proceeded the BIR under Section 142(c) of the Tax Code on the basis
against, thus, private respondents charged that Fortune of the manufacturers registered wholesale price duly
and its officers were being singled out for criminal approved by the BIR. Fortunes taxable sales for 1992 was in
prosecution which is discriminatory and in violation of the the amount of P11,736,658,580.00.
equal protection clause of the Constitution.
b) On the other hand, it is petitioners contention that
On December 20, 1993, the panel of prosecutors issued an Fortunes declaration was false and fraudulent because,
Omnibus Order11 denying private respondents motion for based on its daily manufacturers sworn statements
reconsideration, motion for suspension of investigation, submitted to the BIR, its taxable sales in 1992 were P
motion to inhibit the State Prosecutors, and motion to 16,686,372,295.00, as a result of which, Fortune was able
require submission by the BIR of certain documents to to evade the payment of ad valorem tax in the aggregate
further support private respondents motion to dismiss. amount of P5,792,479,816.24.

On January 4, 1994, private respondents filed a petition for c) At the hearing for preliminary investigation, the
certiorari and prohibition with prayer for preliminary Daily Manufacturers Sworn Statements which, according to
injunction with the Regional Trial Court, Branch 88, Quezon petitioners, were submitted to the BIR by private
City, docketed as Q-94-18790, praying that the complaint respondents and made the basis of petitioner
of the Commissioner of Internal Revenue and the orders of Commissioners complaint that the total taxable sales of
 4

Fortune in 1992 amounted to P16,686,372, 295.00 were not enjoin the State Prosecutors from continuing with the
produced as part of the evidence for petitioners. In fact, preliminary investigation filed by them against private
private respondents had filed a motion to require petitioner respondents with the Quezon City Prosecutors Office,
Commissioner to submit the aforesaid daily manufacturers docketed as I.S. 93-17942, for alleged fraudulent tax
sworn statements before the DOJ panel of prosecutors to evasion, committed by private respondents for the taxable
show that Fortunes actual taxable sales totaled year 1990. Private respondents averred in their motion that
P16,686,373,295.00, but the motion was denied. no supporting documents or copies of the complaint were
attached to the subpoena in I.S. 93-17942; that the
d) There is nothing on record in the preliminary subpoena violates private respondents constitutional right
investigation before the panel of investigators which to due process, equal protection and presumption of
supports the allegation that Fortune made a fraudulent innocence; that IS. 93-17942 is substantially the same as I.
declaration of its 1992 taxable sales. S. 93-508; that no tax assessment has been issued by the
Commission of Internal Revenue and considering that taxes
paid have not been challenged, no tax liability exists; and
e) Since, as alleged by private respondents, the ad
that since Assistant City Prosecutor Baraquia was a former
valorem tax for the year 1992 should be based on the
classmate of Presidential Legal Counsel Antonio T. Carpio,
manufacturers registered wholesale price while, as claimed
the former cannot conduct the preliminary investigation in
by petitioners, the ad valorem taxes should be based on the
an impartial manner.
wholesale price at which the manufacturer sold the
cigarettes, which is a legal issue as admitted by a BIR
lawyer during the hearing for preliminary injunction, the On January 28, 1994, private respondents filed with the
correct interpretation of the law involved, which is Section trial court a second supplemental petition,15 also seeking
142(c) of the Tax Code, constitutes a prejudicial question to stay the preliminary investigation in I.S. 93-584, which
which must first be resolved before criminal proceedings was the third complaint filed against private respondents
for tax evasion may be pursued. In other words, the BIR with the DOJ for alleged fraudulent tax evasion for the
must first make a final determination, which it has not, of taxable year 1991.
Fortunes tax liability relative to its 1992 ad valorem, value-
added and income taxes before the taxpayer can be made On January 31, 1994, the lower court admitted the two (2)
liable for tax evasion. supplemental petitions and issued a temporary restraining
order in I.S. 93-17942 and I.S. 93-584.16 Also, on the same
f) There was a precipitate issuance by the panel of day, petitioners filed an Urgent Motion for Immediate
prosecutors of subpoenas to private respondents, on the Resolution of petitioners motion to dismiss.
very day following the filing of the complaint with the DOJ
consisting of about 600 pages, and the precipitate denial by On February 7, 1994, the trial court issued an order denying
the panel of prosecutors, after a recess of about twenty petitioners motion to dismiss private respondents petition
(20) minutes, of private respondents motion to dismiss, seeking to stay preliminary investigation in I.S. 93-508,
consisting of one hundred and thirty-five (135) pages. ruling that the issue of whether Sec. 127(b) of the National
Tax Revenue Code should be the basis of private
g) Private respondents had been especially targeted respondents tax liability as contended by the Bureau of
by the government for prosecution. Prior to the filing of the Internal Revenue, or whether it is Section 142(c) of the
complaint in I.S. No. 93-508, petitioner Commissioner same Code that applies, as argued by herein private
issued Revenue Memorandum Circular No. 37-93 respondents, should first be settled before any complaint
reclassifying Fortunes best selling cigarettes, namely Hope, for fraudulent tax evasion can be initiated.17
More, and Champion as cigarettes bearing a foreign brand,
thereby imposing upon them a higher rate of tax that would On February 14, 1994, the trial court issued an order
price them out of the market. granting private respondents petition for a supplemental
writ of preliminary injunction, likewise enjoining the
h) While in petitioner Commissioners letter of August preliminary investigation of the two (2) other complaints
13, 1993, she gave Fortune a period of thirty (30) days from filed with the Quezon City Prosecutors Office and the DOJ
receipt thereof within which to pay the alleged tax for fraudulent tax evasion, I.S. 93-17942 and I.S. 93- 584,
deficiency assessments, she filed the criminal complaint for for alleged tax evasion for the taxable years 1990 and 1991,
tax evasion before the period lapsed. respectively.18 In granting the supplemental writ, the trial
court stated that the two other complaints are the same as
in I.S. 93-508, except that the former refer to the taxable
i) Based on the foregoing, the criminal complaint
years 1990 and 1991.
against private respondents was filed prematurely and in
violation of their constitutional right to equal protection of
the laws. On March 7, 1994, petitioners filed a petition for certiorari
and prohibition with prayer forpreliminary injunction
before this Court. However, the petition was referred to
On January 26, 1994, private respondents filed with the
the Court of Appeals for disposition by virtue of its original
trial court a Motion to Admit Supplemental Petition and
concurrent jurisdiction over the petition.
sought the issuance of a writ of preliminary injunction to
 5

On December 19, 1994, the Court of Appeals in CA-G.R. No. personal hostility, amounting to an evasion of positive duty
SP-33599 rendered a decision denying the petition. The or to a virtual refusal to perform the duty enjoined, or to
Court of Appeals ruled that the trial court committed no act at all in contemplation of law (Confederation of Citizens
grave abuse of discretion in ordering the issuance of writs Labor Union vs. NLRC, 60 SCRA 84; Bustamante vs.
of preliminary injunction and in denying petitioners motion Commission on Audit, 216 SCRA 134). For such writs to lie,
to dismiss. In upholding the reasons and conclusions given there must be capricious, arbitrary and whimsical exercise
by the trial court in its orders for the issuance of the of power, the very antithesis of the judicial prerogative in
questioned writs, the Court of Appeals said in part: accordance with centuries of both civil law and common
law traditions (Young vs. Sulit, 162 SCRA 659, 664; FCC vs.
In making such conclusion the respondent Court must have IAC, 166 SCRA 155; Purefoods Corp. vs. NLRC, 171 SCRA 45).
understood from herein petitioner Commissioners letter- Certiorari and prohibition are remedies narrow in scope and
complaint of 14 pages (pp. 477-490, rollo of this case) and inflexible in character. They are not general utility tools in
the joint affidavit of eight revenue officers of 17 pages the legal workshop (Vda. de Guia vs. Veloso, 158 SCRA 340,
attached thereto (pp. 491-507, supra) and its annexes (pp. 344). Their function is but limited to correction of defects
508-1077, supra) , that the charge against herein of jurisdiction solely, not to be used for any other purpose
respondents is for tax evasion for non-payment by herein (Garcia vs. Ranada, 166 SCRA 9), such as to cure errors in
respondent Fortune of the correct amounts of income tax, proceedings or to correct erroneous conclusions of law or
ad valorem tax and value added tax, not necessarily fact (Gold City Integrated Ports Services vs. IAC, 171 SCRA
fraudulent tax evasion. Hence, the need for previous 579). Due regard for the foregoing teachings enunciated in
assessment of the correct amount by herein petitioner the decisions cited can not bring about a decision other
Commissioner before herein respondents may be charged than what has been reached herein.
criminally. Certiorari will not be issued to cure errors in
proceedings or correct erroneous conclusions of law or fact. Needless to say, the case before the respondent court
As long as a Court acts within its jurisdiction, any alleged involving those against herein respondents for alleged non-
error committed in the exercise of its jurisdiction, will payment of the correct amounts due as income tax, ad
amount to nothing more than errors of judgment which are valorem tax and value added tax for the years 1990, 1991
reviewable by timely appeal and not by a special civil action and 1992 (Civil Case No. Q-94-18790) is not ended by this
of certiorari (Santos, Jr. vs. Court of Appeals, 152 SCRA 378; decision. The respondent Court is still to try the case and
Gold City Integrated Port Services, Inc. vs. Intermediate decide it on the merits. All that is decided here is but the
Appellate Court, 171 SCRA 579). validity of the orders of the respondent Court granting
herein respondents application for preliminary njunction
The questioned orders issued after hearing (Annexes A, B, and denying herein petitioners motion to dismiss. If upon
C and D, petition) being but interlocutory, review thereof the facts established after trial and the applicable law,
by this Court is inappropriate until final judgment is dissolution of the writ of preliminary injunction allowed to
rendered, absent a showing of grave abuse of discretion on be issued by the respondent Court is called for and a
the part of the issuing court (See Van Dom vs. Romillo, 139 judgment favorable to herein petitioners is demanded, the
SCRA 139, 141; Newsweek, Inc. vs. IAC, 171, 177; Mendoza respondent Court is duty bound to render judgment
vs. Court of Appeals, 201 SCRA 343, 352). The factual and accordingly.
legal issues involved in the main case still before the
respondent Court are best resolved after trial. Petitioners, WHEREFORE, the instant petition for certiorari and
therefore, instead of resorting to this petition for certiorari prohibition with application for issuance of restraining
and prohibition should have filed an answer to the petition order and writ of preliminary injunction is DISMISSED. Costs
as ordained in Section 4, Rule 16, in connection with Rule de officio.19
11 of the Revised Rules of Court, interposing as defense or
defenses the objection or objections raised in their motion Their motion for reconsideration having been denied by
to dismiss, then proceed to trial in order that thereafter respondent appellate court on February 23, 1995,
the case may be decided on the merits by the respondent petitioners filed the present petition for review based on
Court. In case of an adverse decision, they may appeal the following grounds:
therefrom by which the entire record of the case would be
elevated for review (See Mendoza vs. Court of Appeals,
THE RESPONDENT COURTS COMMITTED GRAVE ABUSE OF
supra). Therefore, certiorari and prohibition resorted to by
DISCRETION AMOUNTING TO LACK OR EXCESS
herein petitioners will not lie in view of the remedy open
OFJURISDICTION IN HOLDING THAT:
to them. Thus, the resulting delay in the final disposition of
the case before the respondent Court would not have been
incurred. I. THERE IS A PREJUDICIAL AND/OR LEGAL QUESTION
TO JUSTIFY THE SUSPENSION OF THE PRELIMINARY
INVESTIGATION.
Grave abuse of discretion as a ground for issuance of writs
of certiorari and prohibition implies capricious and
whimsical exercise of judgment as is equivalent to lack of II. PRIVATE RESPONDENTS RIGHTS TO DUE PROCESS,
jurisdiction, or where the power is exercised in an arbitrary EQUAL PROTECTION AND PRESUMPTION OF INNOCENCE
or despotic manner by reason of passion, prejudice, or
 6

WERE VIOLATED; ON THE CONTRARY, THE STATE ITSELF registered wholesale price in accordance with Section
WAS DEPRIVED OF DUE PROCESS. 142(c) of the Tax Code and paid the amount of
P4,805,254,523 as ad valorem tax.
III. THE ADMISSION OF PRIVATE RESPONDENTS
SUPPLEMENTAL PETITIONS WERE PROPER. On the other hand, petitioners allege, as specifically
worded in the complaint in I.S. No. 93 -508, that based on
IV. THERE WAS SELECTIVE PROSECUTION. the daily manufacturers sworn statements submitted to the
BIR by the Taxpayer (Fortunes) total taxable sales during
the year 1992 is P16,686,372,295.00, as a result of which
V. THE FACTUAL ALLEGATIONS IN THE PETITION ARE
Fortune was able to evade the payment of ad valorem taxes
HYPOTHETICALLY ADMITTED IN A MOTION TO DISMISS BASED
in the aggregate amount of P5,792,479,816.24 xxx.
ON JURISDICTIONAL GROUNDS.

Petitioners now argue that Section 127(b) lays down the

VI. THE ISSUANCE OF THE WRITS OF INJUNCTION IS
rule that in determining the gross selling price of goods
NOT A DECISION ON THE MERITS OF THE PETITION BEFORE
subject to ad valorem tax, it is the price, excluding the
THE LOWER COURT.20
value-added tax, at which the goods are sold at wholesale
price in the place of production or through their sales
The petition is bereft of merit. agents to the public. The registered wholesale price shall
then be used for computing the ad valorem tax which is
In essence, the complaints in I.S. Nos. 93-508, 93-584 and imposable upon removal of the taxable goods from the
93-17942 charged private respondents with fraudulent tax place of production. However, petitioners claim that
evasion or wilfully attempting to evade or defeat payment Fortune used the manufacturers registered wholesale price
of income tax, ad valorem tax and value-added tax for the in selling the goods to alleged fictitious individuals and
year 1992, as well as for the years 1990-1991. dummy corporations for the purpose of evading the
payment of the correct ad valorem tax.
The pertinent provisions of law involved are Sections 127(b)
and 142(c) of the National Internal Revenue Code which There can be no question that under Section 127(b), the ad
state: valorem tax should be based on the correct price excluding
the value-added tax, at which goods are sold at wholesale
Sec. 127.xxx in the place of production. It is significant to note that
among the goods subject to ad valorem tax, the law
specifically Section 142(c) requires that the corresponding
(b) Determination of gross selling price of goods subject tax on cigarettes shall be levied, assessed and collected at
to ad valorem tax. -Unless otherwise provided, the price, the rates based on the manufacturers registered wholesale
excluding the value-added tax, at which the goods are sold price. Why does the wholesale price need to be registered
at wholesale in the place of production or through their and what is the purpose of the registration? The reason is
sales agents to the public shall constitute the gross selling self-evident, which is to ensure the payment of the correct
price. If the manufacturer also sells or allows such goods to taxes by the manufacturers of cigarettes through close
be sold at wholesale price in another establishment of supervision, monitoring and checking of the business
which he is the owner or in the profits at which he has an operations of the cigarette companies. As pointed out by
interest, the wholesale price in such establishment shall private respondents, no industry is as intensely supervised
constitute the gross selling price. Should such price be less by the BIR and also by the National Tobacco Administration
than the costs of manufacture plus expenses incurred until (NTA). Thus, the purchase and use of raw materials are
the goods are finally sold, then a proportionate margin of subject to prior authorization and approval by the NTA.
profit, not less than 10% of such manufacturing costs and Importations of bobbins or cigarette paper, the
expenses, shall be added to constitute the gross selling manufacture, sale, and utilization of the same, are subject
price. to BIR supervision and approval 21

Sec. 142.xxx Moreover, as pointed to by private respondents, for

purposes of closer supervision by the BIR over the
(c) Cigarettes packed in twenties. There shall be levied, production of cigarettes, Revenue Enforcement Officers are
assessed and collected on cigarettes packed in twenties an detailed on a 24-hour basis in the premises of the
ad valorem tax at the rates prescribed below based on the manufacturer to secure production and removal of finished
manufacturers registered wholesale price: products. Composite Mobile Teams conduct counter-
security on the business operations as well as the
xxx xxx xxx performance of the Revenue Enforcement Officers detailed
thereat. Every transfer of any raw material is not allowed
Private respondents contend that per Fortunes VAT returns, unless, in addition to the required permits, accompanied by
correct taxable sales for 1992 was in the amount of Revenue Enforcement Officer. For the purpose of
P11,736,658,580.00 which was the manufacturers determining the Manufacturers Registered Wholesale Price
a cigarette manufacturer is required to file a Manufacturers
 7

Declaration (BIR Form No. 31.03) for each brand of malfeasance. In the very least, there is the presumption
cigarette manufactured, stating: a.) Materials; b) Labor; c) that the BIR personnel performed their duties in the regular
Overhead; d) Tax Burden and the Wholesale Price by Case. course in ensuring that the correct taxes were paid by
The data submitted therewith is verified by the Revenue Fortune.26
Officers and approved by the Commission of Internal
Revenue. Any change in the manufacturers registered It is the opinion of both the trial court and respondent Court
wholesale price of any brand cannot be effected without of Appeals, that before Fortune and the other private
submitting the corresponding Sworn Manufacturers respondents could be prosecuted for tax evasion under
Declaration and verified by the Revenue Officer and Sections 253 and 255 of the Tax Code, the fact that the
approved by the Commissioner on Internal Revenue.22 The deficiency income, ad valorem and value-added taxes were
amount of ad valorem tax payments together with the due from Fortune for the year 1992 should first be
Payment Order and Confirmation Receipt Nos. must be established. Fortune received from the Commissioner of
indicated in the sales and delivery invoices and together Internal Revenue the deficiency assessment notices in the
with the Manufacturers Sworn Declarations on (a) the total amount of P7,685,942,221.06 on August 24, 1993.
quantity of raw materials used during the days operations; However, under Section 229 of the Tax Code, the taxpayer
(b) the total quantity produced according to brand; and (c) has the right to move for reconsideration of the assessment
the corresponding quantity removed during the day, the issued by the Commissioner of Internal Revenue within
corresponding wholesale price thereof, and the VAT paid thirty (30) days from receipt of the assessment; and if the
thereon must be presented to the corresponding BIR motion for reconsideration is denied, it may appeal to the
representative for authentication before removal. Court of Appeals within thirty (30) days from receipt of the
Commissioners decision. Here, Fortune received the
Thus, as observed by the trial court in its order of January Commissioners assessment notice dated August 13, 1993 on
25, 1994 granting private respondents prayer for the August 24, 1993 asking for the payment of the deficiency
issuance of a writ of preliminary injunction, Fortunes taxes. Within thirty (30) days from receipt thereof, Fortune
registered wholesale price (was) duly approved by the BIR, moved for reconsideration. The Commissioner has not
which fact is not disputed by petitioners.23 resolved the request for reconsideration up to the present.

Now, if every step in the production of cigarettes was We share with the view of both the trial court and Court of
closely monitored and supervised by the BIR personnel Appeals that before the tax liabilities of Fortune are first
specifically assigned to Fortunes premises, and considering finally determined, it cannot be correctly asserted that
that the Manufacturers Sworn Declarations on the data private respondents have wilfully attempted to evade or
required to be submitted by the manufacturer were defeat the taxes sought to be collected from Fortune. In
scrutinized and verified by the BIR and, further, since the plain words, before one is prosecuted for wilful attempt to
manufacturers wholesale price was duly approved by the evade or defeat any tax under Sections 253 and 255 of the
BIR, then it is presumed that such registered wholesale Tax Code, the fact that a tax is due must first be proved.
price is the same as, or approximates the price, excluding
the value-added tax, at which the goods are sold at Suppose the Commissioner eventually resolves Fortunes
wholesale in the place production, otherwise, the BIR motion for reconsideration of the assessments by
would not have approved the registered wholesale price of pronouncing that the taxpayer is not liable for any
the goods for purposes of imposing the ad valorem tax due. deficiency assessment, then, the criminal complaints filed
In such case, and in the absence of contrary evidence, it against private respondents will have no leg to stand on.
was precipitate and premature to conclude that private
respondents made fraudulent returns or wilfully attempted
In view of the foregoing reasons, we cannot subscribe to
to evade payment of taxes due. Wilful means
the petitioners thesis citing, Ungad v. Cusi,27 that the lack
premeditated; malicious; done with intent, or with bad
of a final determination of Fortunes exact or correct tax
motive or purpose, or with indifference to the natural
liability is not a bar to criminal prosecution, and that while
consequence x x x24 Fraud in its general sense, is deemed
a precise computation and assessment is required for a civil
to comprise anything calculated to deceive, including all
action to collect tax deficiencies, the Tax Code does not
acts, omissions, and concealment involving a breach of
require such computation and assessment prior to criminal
legal or equitable duty, trust or confidence justly reposed,
prosecution.
resulting in the damage to another, or by which an undue
and unconscionable advantage taken of another.25
Reading Ungad carefully, the pronouncement therein that
deficiency assessment is not necessary prior to prosecution
Fraud cannot be presumed. If there was fraud or wilful attempt to
is pointedly and deliberately qualified by the Court with
evade payment of ad valorem taxes by private respondents
following statement quoted from Guzik v. U.S.:28 The
through the manipulation of the registered wholesale price
crime is complete when the violator has knowingly and
of the cigarettes, it must have been with the connivance or
wilfully filed a fraudulent return with intent to evade and
cooperation of certain BIR officials and employees who
defeat a part or all of the tax. In plain words, for criminal
supervised and monitored Fortunes production activities to
prosecution to proceed before assessment, there must be a
see to it that the correct taxes were paid. But there is no
prima.facie showing of a wilful attempt to evade taxes.
allegation, much less evidence, of BIR personnels
There was a wilful attempt to evade tax in Ungad because
 8

of the taxpayers failure to declare in his income tax return g. Where the court had no jurisdiction over the
his income derived from banana saplings. In the mind of the offense (Lopez vs. City Judge, L-25795, October 29, 1966,
trial court and the Court of Appeals, Fortunes situation is 18 SCRA 616);
quite apart factually since the registered wholesale price
of the goods, approved by the BIR, is presumed to be the h. Where it is a case of persecution rather than
actual wholesale price, therefore, not fraudulent and prosecution (Rustia vs. Ocampo, CA-G.R. No. 4760, March
unless and until the BIR has made a final determination of 25, 1960);
what is supposed to be the correct taxes, the taxpayer
should not be placed in the crucible of criminal
i. Where the charges are manifestly false and
prosecution. Herein lies a whale of difference between
motivated by the lust for vengeance (Recto vs. Castelo, 18
Ungad and the case at bar.
L.J., cited in Rano vs. Alvenia, CA-G.R. No. 30720-R,
October 8, 1962; Cf. Guingona, et al. vs. City Fiscal, L-
This brings us to the erroneous disquisition that private 60033, April 4, 1984, 128 SCRA 577); and
respondents recourse to the trial court by way of special
civil action of certiorari and prohibition was improper
j. When there is clearly no prima facie case against
because:
the accused and a motion to quash on that ground has been
denied (Salonga vs. Pano, et al., L-59524, February 18,
a) the proceedings before the state prosecutors 1985, 134 SCRA 438).
(preliminary injunction) were far from terminated private
respondents were merely subpoenaed and asked to submit
In issuing the questioned orders granting the issuance of a
counter affidavits, matters that they should have appealed
writ of preliminary injunction, the trial court believed that
to the Secretary of Justice; b) it is only after the submission
said orders were warranted to afford private respondents
of private respondents counter affidavits that the
adequate protection of their constitutional rights,
prosecutors will determine whether or not there is enough
particularly in reference to presumption of innocence, due
evidence to file in court criminal charges for fraudulent tax
process and equal protection of the laws. The trial court
evasion against private respondents; and c) the proper
also found merit in private respondents contention that
procedure is to allow the prosecutors to conduct and finish
preliminary injunction should be issued to avoid oppression
the preliminary investigation and to render a resolution,
and because the acts of the state prosecutors were without
after which the aggrieved party can appeal the resolution
or in excess of authority and for the reason that there was
to the Secretary of Justice.
a prejudicial question.

We disagree.
Contrary to petitioners submission, preliminary
investigation may be enjoined where exceptional
As a general rule, criminal prosecutions cannot be circumstances so warrant. In Hernandez v. Albano30 and
enjoined: However, there are recognized exceptions which, Fortun v. Labang,31 injunction was issued to enjoin a
as summarized in Brocka v. Enrile29 are: preliminary investigation. In the case at bar, private
respondents filed a motion to dismiss the complaint against
a. To afford adequate protection to the constitutional them before the prosecution and alternatively, to suspend
rights of the accused (Hernandez vs. Albano, et al., L- the preliminary investigation on the grounds cited
19272, January 25, 1967, 19 SCRA 95); hereinbefore, one of which is that the complaint of the
Commissioner is not supported by any evidence to serve as
b. When necessary for the orderly administration of adequate basis for the issuance of the subpoena to them
justice or to avoid oppression or multiplicity of actions and put them to their defense.
(Dimayuga, et al. vs. Fernandez, 43 Phil. 304; Hernandez
vs. Albano, supra; Fortun vs. Labang, et al., L-38383, May Indeed, the purpose of a preliminary injunction is to secure
27, 1981, 104 SCRA 607); the innocent against hasty, malicious and oppressive
prosecution and to protect him from an open and public
c. When there is a prejudicial question which is sub accusation of crime, from the trouble, expense and anxiety
judice (De Leon vs. Mabanag, 70 Phil. 202); of a public trial and also to protect the state from useless
and expensive trials.32 Thus, the pertinent provisions of
Rule 112 of the Rules of Court state:
d. When the acts of the officer are without or in
excess of authority (Planas vs. Gil, 67 Phil. 62);
SECTION. 3. Procedure. Except as provided for in Section 7
hereof, no complaint or information for an offense
e. Where the prosecution is under an invalid law,
cognizable by the Regional Trial Court shall be filed without
ordinance or regulation (Young vs. Rafferty, 33 Phil. 556;
a preliminary investigation having been first conducted in
Yu Cong Eng vs. Trinidad, 47 Phil. 385, 389);
the following manner:

f. When double jeopardy is clearly apparent

(a) The complaint shall state the known address of the
(Sangalang vs. People and Alvendia, 109 Phil. 1140);
respondent and be accompanied by affidavits of the
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complainant and his witnesses as well as other supporting protection to private respondents constitutional rights and
documents, in such number of copies as there are to avoid oppression does not constitute grave abuse of
respondents, plus two (2) copies for the official file. The discretion amounting to lack of jurisdiction.
said affidavits shall be sworn to before any fiscal, state
prosecutor or government official authorized to administer The complaint filed by the Commissioner on Internal
oath, or, in their absence or unavailability, a notary public, Revenue states itself that the primary evidence establishing
who must certify that he personally examined the affiants the falsity of the declared taxable sales in 1992 in the
and that he is satisfied that they voluntarily executed and amount of P 11,736,658,580.00 were the Daily
understood their affidavits. Manufacturers Sworn Statements submitted by the taxpayer
which would show that the total taxable sales in 1992 are
(b) Within ten (10) days after the filing of the in the amount of P 16,686,372,295.00. However, the
complaint, the investigating officer shall either dismiss the Commissioner did not present the Daily Manufacturers
same if he finds no ground to continue with the inquiry, or Sworn Statements supposedly submitted to the BIR by the
issue a subpoena to the respondent, attaching thereto a taxpayer, prompting private respondents to move for their
copy of the complaint, affidavits and other supporting production in order to verify the basis of petitioners
documents. Within ten (10) days from receipt thereof, the computation. Still, the Commissioner failed to produce the
respondent shall submit counter-affidavits and other declarations. In Borja v. Moreno,33 it was held that the act
supporting documents. He shall have the right to examine of the investigator in proceeding with the hearing without
all other evidence submitted by the complainant. first acting on respondents motion to dismiss is a manifest
disregard of the requirement of due process. Implicit in the
(c) Such counter-affidavits and other supporting opinion of the trial court and the Court of Appeals is that,
evidence submitted by the respondent shall also be sworn if upon the examination of the complaint, it was clear that
to and certified as prescribed in paragraph (a) hereof and there was no ground to continue with the inquiry, the
copies thereof shall be furnished by him to the investigating prosecutor was duty bound to dismiss the
complainant. case. On this point, the trial court stressed that the
prosecutors conducting the preliminary investigation should
have allowed the production of the Daily Manufacturers
(d) If the respondent cannot be subpoenaed, or if
Sworn Statements submitted by Fortune without which
subpoenaed, does not submit counter-affidavits within the
there was no valid basis for the allegation that private
ten (10) day period, the investigating officer shall base his
respondents wilfully attempted to evade payment of the
resolution on the evidence presented by the complainant.
correct taxes. The prosecutors should also have produced
the Daily Manufacturers Sworn Statements by other
(e) If the investigating officer believes that there are cigarette companies, as sought by private respondents, to
matters to be clarified, he may set a hearing to propound show that these companies which had paid the ad valorem
clarificatory questions to the parties or their witnesses, taxes on the same basis and in the same manner as Fortune
during which the parties shall be afforded an opportunity were not similarly criminally charged. But the investigating
to be present but without the right to examine or cross- prosecutors denied private respondents motion, thus,
examine. If the parties so desire, they may submit indicating that only Fortune was singled out for
questions to the investigating officer which the latter may prosecution. The trial court and the Court of Appeals
propound to the parties or witnesses concerned. maintained that at that stage of the preliminary
investigation, where the complaint and the accompanying
(f) Thereafter, the investigation shall be deemed affidavits and supporting documents did not show any
concluded, and the investigating officer shall resolve the violation of the Tax Code providing penal sanctions, the
case within ten (10) days therefrom. Upon the evidence prosecutors should have dismissed the complaint outright
thus adduced, the investigating officer shall determine because of total lack of evidence, instead of requiring
whether or not there is sufficient ground to hold the private respondents to submit their counter affidavits
respondent for trial. under Section 3(b) of Rule 112.

As found by the Court of Appeals, there was obvious haste We believe that the trial court in issuing its questioned
by which the subpoena was issued to private respondents, orders, which are interlocutory in nature, committed no
just the day after the complaint was filed, hence, without grave abuse of discretion amounting to lack of jurisdiction.
the investigating prosecutors being afforded material time There are factual and legal bases for the assailed orders.
to examine and study the voluminous documents appended On the other hand, the burden is upon the petitioners to
to the complaint for them to determine if preliminary demonstrate that the questioned orders constitute a
investigation should be conducted. The Court of Appeals whimsical and capricious exercise of judgment, which they
further added that the precipitate haste in the issuance of have not. For certiorari will not be issued to cure errors in
the subpoena justified private respondents misgivings proceedings or correct erroneous conclusions of law or fact.
regarding the objectivity and neutrality of the prosecutors As long as a court acts within its jurisdiction, any alleged
in the conduct of the preliminary investigation and so, the errors committed in the exercise of its jurisdiction will
appellate court concluded, the grant of preliminary amount to nothing more than errors of judgment which are
investigation by the trial court to afford adequate reviewable by timely appeal and not by a special civil action
 10

of certiorari.34 Consequently, the Regional Trial Court WHEREFORE, the instant petition is hereby DISMISSED.
acted correctly and judiciously, and as demanded by the
facts and the law, in issuing the orders granting the writs SO ORDERED.
of preliminary injunction, in denying petitioners motion to
dismiss and in admitting the supplemental petitions. What
petitioners should have done was to file an answer to the
petition filed in the trial court, proceed to the hearing and
appeal the decision of the court if adverse to them.
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