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LIMITS OF RULE-MAKING POWER - 39

CIR v CA, R.O.H. Auto Products Philippines, and Court of Tax Appeals (1995)

Although the Secretary of Finance and the Commissioner of Internal Revenue have the

authority to promulgate rules and regulations for internal revenue laws, they cannotsupplant or modify them.

FactsEO 41 was promulgated on August 22, 1986 . It declared a one-time tax amnesty on unpaidincome taxes. It was later amended to include estate and donor's taxes on business for thetax years of 1981-1985.

In October and November 1986, ROH filed and paid for a Tax Amnesty Return and aSupplemental Tax Amnesty Return, respectively.

Before the filing of these returns, the CIR had assessed ROH with deficiency income andbusiness taxes for the fiscal years of 1981 and 1982. The total amount was P1 410 157.71.ROH claimed that since it availed of amnesty, the deficiency tax notice should be cancelledand withdrawn. CIR denied this, because Revenue Memorandum Order 4-87 (February 1987)implementing EO 41 construed the amnesty coverage to include only assessments issued bythe Bureau of Internal Revenue AFTER the promulgation of the EO.

ROH appealed to the Court of Tax Appeals, who ruled in its favor because the CIR failed topresent any case or law proving that assessments can negate the effects of a tax amnesty.

The CA affirmed this decision, stating that Section 4 of EO 41 specifically lists the taxpayerswho may not avail of amnesty, and ROH does not fall under any of them. It ruled that a taxamnesty is "a general pardon or intentional overlooking by the State of its authority toimpose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law,partakes of an absolute forgiveness or waiver by the Government of its right to collect whatotherwise would be due it, and in this sense, prejudicial thereto, particularly to give taxevaders, who wish to relent and are willing to reform a chance to do so and thereby becomea part of the new society with a clean slate."

IssueIs Revenue Memorandum Order 4-87 valid? NOWere ROH's deficiency assessments extinguished by its availment of amnesty under EO 41?

YESHas ROH overcome the presumption of validity of assessments? YES

HeldAlthough the authority of the Secretary of Finance and the Commissioner of InternalRevenue to promulgate rules and regulations for the enforcement of internal revenue lawscannot be controverted. The courts should give their rules and regulations proper weightand respect. However, administrative rules and regulations are intended to carry out, not to

supplant or modify the law.

EO 41 is specific and does not require any statutory construction. Section 4 and 11 expresslyprovide:

Sec. 4. Exceptions. The following taxpayers may not avail themselves of theamnesty herein granted:a) Those falling under the provisions of Executive Order Nos. 1, 2 and 14;b) Those with income tax cases already filed in Court as of the effectivity hereof;

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c) Those with criminal cases involving violations of the income tax already filed incourt as of the effectivity filed in court as of the effectivity hereof;d) Those that have withholding tax liabilities under the National Internal RevenueCode, as amended, insofar as the said liabilities are concerned;e) Those with tax cases pending investigation by the Bureau of Internal Revenue asof the effectivity hereof as a result of information furnished under Section 316 of the

National Internal Revenue Code, as amended;f) Those with pending cases involving unexplained or unlawfully acquired wealthbefore the Sandiganbayan;g) Those liable under Title Seven, Chapter Three (Frauds, Illegal Exactions and

Transactions) and Chapter Four (Malversation of Public Funds and Property) of theRevised Penal Code, as amended.Sec. 11. This Executive Order shall take effect immediately.DONE in the City of Manila, this 22nd day of August in the year of Our Lord, nineteenhundred and eighty-six.

If EO 41 had intended to exclude 1981-1985 tax liabilities already assessed before August22, 1986, it could have said so in its exclusionary clauses. Thus, it can be concluded that theEO was designed to be a general grant of tax amnesty subject only to the cases itspecifically excludes.

It must be noted that the taxable periods covered by the amnesty cover the years precedingthe EDSA Revolution, where there was much disobedience against the martial law regime. Itis understandable that the new government would promptly provide for tax amnesty with abroad scope.

There is also no issue that the returns and payments made by ROH did not conform with thelaw's conditions. Section 6 of the law provides:

Sec. 6. Immunities and Privileges. Upon full compliance with the conditions of thetax amnesty and the rules and regulations issued pursuant to this Executive order,the taxpayer shall enjoy the following immunities and privileges:a) The taxpayer shall be relieved of any income tax liability on any untaxed incomefrom January 1, 1981 to December 31, 1985, including increments thereto andpenalties on account of the non-payment of the said tax. Civil, criminal oradministrative liability arising from the non-payment of the said tax, which areactionable under the National Internal Revenue Code, as amended, are likewisedeemed extinguished.b) The taxpayer's tax amnesty declaration shall not be admissible in evidence in allproceedings before judicial, quasi-judicial or administrative bodies, in which he is adefendant or respondent, and the same shall not be examined, inquired or lookedinto by any person, government official, bureau or office.c) The books of account and other records of the taxpayer for the period from January1, 1981 to December 31, 1985 shall not be examined for income tax purposes:Provided, That the Commissioner of Internal Revenue may authorize in writing theexamination of the said books of accounts and other records to verify the validity orcorrectness of a claim for grant of any tax refund, tax credit (other than refund on

credit of withheld taxes on wages), tax incentives, and/or exemptions under existinglaws

Digested by Dee Agustin (A2015)