Republic of the Philippines
SANDIGANBAYAN
Quezon City
---

FOURTH DIVISION


Criminal Case No. 20685, March 2, 2001

PEOPLE OF THE PHILIPPINES, plaintiff
vs.
BIENVENIDO A. TAN, JR. JUANITO P. URBI, JAIME MAZA, NAZARIO L. AVENDANO & JAIME J. DLEA CRUZ, accused,


PALATTAO, J.:


In resolving this case, the Court calls to mind Plato’s immortal words:

"Access to power must not be conferred to

those who are not in love with it."

This is a case for Violation of Section 3 (e) R.A. 3019 filed against accused Bienvenido A. Tan, Jr., former Commissioner of the Bureau of Internal revenue, Juanito P. Urbi, Chief Prosecution Division, BIR, Jaime Maza, Asst. Commissioner, Legal Service Division, BIR Nazario L. Avendano, Senior Vice-President, Comptroller, San Miguel Corporation and Jaime J. Dela Cruz, Asst. Vice-President, SMC committed on December 22, 1988 in Quezon City, Philippines, the corresponding Information textually reading as follows:

"That on or about December 22, 1988 and for sometime prior or subsequent hereto in Quezon City, Philippines, and within the jurisdiction of this Honorable Court, the above-named accused, BIENVENIDO A. TAN, JR, being then the Commissioner, Bureau of Internal Revenue, JUANITO P. URBI, Chief Prosecution Division, BIR, JAIME MAZA, Asst. Commissioner, Legal Service Division, BIR, all public officers while in the performance of their official functions, conspiring and confederating with the accused private individuals NAZARIO AVENDANO, Senior Vice-President/Comptroller San Miguel Corporation and JAIME G. DELA CRUZ, Asst. Vice-President, San Miguel Corporation, through evident bad faith and manifest partially, did then and there willfully, unlawfully and criminally cause undue injury to the Government by effecting a compromise of the tax liabilities of San Miguel Corporation in the total amount of THREE HUNDRED TWO MILLION, NINE HUNDRED FIFTY-ONE THOUSAND, FORTY-EIGHT PESOS and NINETY-THREE CENTAVOS (P302, 951, 043.93) Philippine Currency for TEN MILLION PESOS ONLY (P10,000,000.00), which compromise is grossly disadvantageous to the Government and thus, giving unwarranted benefits to San Miguel Corporation in the amount of TWO HUNDRED NINETY TWO MILLION NINE HUNDRED FIFTY ONE THOUSAND FORTY EIGHT PESOS AND 93/100 (P292, 951, 043.93), to the damage and prejudice of the Government in the aforesaid amount.

Contrary to Law."

Upon being arraigned on July 22, 1994, accused Bienvenido A. Tan entered a plea of "NOT GUILTY".

Commissioner Tan was originally charged in this case with Juanito P. Urbi, Chief prosecution division, BIR, Jaime Maza, Asst. Commissioner, Legal Service Division, Nazario L. Avendano, Senior Vice President/Comptroller of the SMC and Jaime Dela Cruz, Asst. Vice President, SMC. However, said accused, invoking their right granted under Republic Act No. 6770 of the Ombudsman Law, sought a reinvestigation of their cases, so that on January 31, 1994, the Office of the Ombudsman recommended that the four other accused be dropped from the charges and which recommendation was approved by the Sandiganbayan on November 27, 1995 which approval was affirmed by the decision of the Supreme Court in G.R. No. 128764 promulgated on July 10, 1988 so that only accused Bienvenido Tan stands as the sole remaining accused.

During the pre-trial conference, the public prosecutor marked the following exhibits:

Exhibits "A" A certified true copy of the letter of Bienvenido A. Tan, Jr. to San Miguel Corp. (SMC) dated July 13, 1987, consisting of two (2) pages;

"B" A certified true copy of the letter of Jaime J. Dela Cruz, Assistant Vice-President of SMC to Bienvenido A. Tan, Jr. dated August 10, 1987, consisting of six (6) pages;

"C" A certified true copy of the letter of Bienvenido A. Tan, Jr, to San Miguel Corporation dated October 8, 1987, consisting of two (2) pages;

"D" A certified true copy of the letter of Jaime J. dela Cruz, Assistant Vice-President of SMC to Beinvenido A. Tan, Jr. dated November 2, 1987, consisting of eight (8) pages;

"E" A certified true copy of the letter of Nazario L. Avendano, Senior Vice-President and Comptroller to Bienvenido A. Tan Jr. dated August 31, 1988, consisting of four (40 pages;

"F" A certified true copy of the letter of Bienvenido A. Tan, Jr. to San Miguel Corporation dated December 20, 1988;

"G" A certified Xeroxed copy of the copy on file with the BIR of the confirmation Receipt No. B 15514605 dated December 26, 1988; and

"H" The original of the Motion for Reconsideration of Bienvenido A. Tan, Jr. dated April 8, 1994, consisting of six (6) pages.

The defense admitted the existence and genuineness of Exhibits "A" to "H", but manifested that it will contest the correctness of the figures and computations contained therein.

In view of the admissions made by the herein accused, the prosecution manifested that it will no longer present testimonial evidence.

Although the parties did not into any stipulation of facts, they nevertheless agreed that in resolving the case at bar, the facts established by the exhibits of the prosecution and that of the defense, both documentary and testimonial will be considered and that the Court shall limit itself limit itself to the following issues:

"1. Whether the amount of the final tax assessment on San Miguel Corp., subject of this case, is P302, 951, 043.93 as alleged in the Information, or only P8, 001, 977.97, exclusive of interests and penalties, as claimed by the accused;

"2. Whether or not the accused as the then BIR Commissioner acted in evident bad faith and manifest partiality in entering into a compromise with the San Miguel Corporation, as taxpayer, in the reduction of the latter’s tax liability, subject of this case, to only P10, 000, 000.00 including interest and penalties.

On February 19, 1999, the public prosecutor formally offered Exhibits "A" to "H" as heretofore described.

On February 24, 1999, the accused submitted his comment/objection thereto. On March 5, 1999 the court resolved to admit the documentary exhibits of the public prosecutor. Thus, the prosecutor formally rested his case.

Thereafter, the accused filed a request for admission under Rule 26 of the Rules of Court for the public prosecutor to agree on the genuineness and truth of the following documents and matters:

"1. That, as can be gleaned from the Fact Finding report of the Office of the Ombudsman dated August 24, 1992, before the BIR informed SMC in a letter dated December 20, 1998 that its offer to pay P10 million was accepted, the study and review of the SMC tax case passed thru the following:

      1. Letter of SMC to BIR dated April 9, 1986;

      2. Letter of SMC to BIR dated May 5, 1986;

      3. Reply of the BIR to SMC dated May 5, 1986;

      4. Memorandum of Authority dated March 6, 1986;

      5. Pricilla Puno’s Report dated December 8, 1986;

      6. Pre-Assessment Notice from Mr. Larin (undated);

      7. Letter of SMC to Mr. Larin dated June 9, 1987;

      8. BIR letter dated July 13, 1987;

      9. Memorandum of Jesus Bundag to BIR Commissioner dated August 21, 1987;

      10. 1st Endorsement of Mr. Larin dated October 8, 1987;

      11. BIR letter dated November 8, 1987;

      12. BIR letter dated November 2, 1987;

      13. SMC letter dated November 17, 1987;

      14. Memorandum of Mr. Larin dated June 27, 1988;

      15. 1st Endorsement of Mr. Paningbatan dated June 28, 1988;

      16. Referral to Legal Service dated October 27;

      17. SMC letter dated November 2, 1987;

      18. Memorandum of Alicia P. Clemeno to BIR Commissioner dated June 1, 1988;

      19. SMC letter to BIR dated August 31, 1988;

      20. Memorandum of Alicia Clemeno to BIR Commissioner dated September 29, 1988;

      21. 2nd Endorsement dated November 14, 1988;

      22. 1st Endorsement of Mr. Larin dated November 25, 1988 attaching Bundag memo dated November 25, 1988;

      23. Memorandum of Mr. Urbi to BIR Commissioner dated December 20, 1988.

    1. That on August 31, 1992, Christopher S. Soquilon, Graft Investigation Officer II, and Agapito B. Rosales, Director of the FFIB recommended the creation of a panel ‘to investigate irregular and anomalous compromise of the tax liabilities of SMC which were perpetrated by Bienvenido A. Tan, Jr., Jaime Maza, Juanito Urbi, Nazario Avendano and Jaime Dela Cruz."

    2. That on January 25, 1993, Agapito B. Rosales executed a Complaint-Affidavit against the five persons named in the preceding paragraph for "anomalous and irregular compromise settlement of the deficiency specific and ad valorem tax liabilities of SMC."

    3. That Reply to Counter-Affidavit dated July 5, 1993 made under oath by Agapito B. Rosales and Christopher S. Soquilon the following statements were sworn to:

      4.  

      "There is a clear conspiracy in this case."

      "The records are replete with sufficient evidence to show the malfeasance and conspiracy in this case."

    4. That in a Sur Rejoinder dated August 1, 1993 made under oath by Agapito Rosales and Christopher Soquilon, said affidavit stated "We believe that Clemeno was not a party to such conspiracy."

    5. That in Resolution dated November 26, 1993 the Office of the Ombudsman thru Jose S. Santos, Virgillo D. Gongon and Christopher C. Garvides stated:

 

      1. On page 5: "FFIB concluded that all the respondents participated in the orchestration of said anomalous compromise."

      2. On page 18: "The surrounding facts in the case are clear and undebatable."

      3. On page 20: "The expediente shows that conspiracy existed between respondent BIR Officials and private respondents x x x restoring to the strange, convoluted and imaginative interpretation of Sec. 124 of the Tax Code."

    1. That on January 31, 1995, Robert E. Kallos, Special Prosecution Officer, III signed and issued an Order finding that:

      1. a) On page 10: "

    1. That on January 31, 1995, Robert E. Kallos, Special Prosecution Officer, III signed and issued an Order finding that:

      1. On page 10: Avendano and de la Cruz merely acted to serve what is best for their corporation. They did not stand to personally benefit from their acts. All that the prosecutor has is a mere suspicion that they acted in conspiracy with former Com. Bienvenido A. Tan, Jr.,"

      2. On page 5: "The study was made by Millard Mansequiao, Atty. IV of the law Division of the BIR. This study was adopted by the Division Chief, Atty. Alicia P. Clemeno. Mansequiao in fact prepared the draft recommendation. It was this result of study that Maza and Urbi recommended to accused BIR commissioner."

      3. On page 10: "There is no sufficient probable cause to continue the prosecution of accused Jaime Maza, Juanito Urbi, Nazario Avendano and Jaime.

 

    1. That on February 24, 1995 Mr. Aniano Desierto, Special Prosecutor, issued a Memorandum for Manuel C. Domingo, Deputy Ombudsman for Luzon, in which was stated:

      2.  

      "The other accused, Maza and Urbi, who were lower ranking officials merely performed their assigned task of having the better studied and of making their own conclusions therefrom which at the most had only persuasive effect.

      And the record is bereft of evidence to show that Tan connived with his subordinates. The study of Atty. Alicia Clemeno was merely an act of compliance of duty.

      "x x x there is no legal or factual basis to include Urbi and Maza as accused because they merely based their recommendatory actions on the study of Atty. Clemeno. These circumstances certainly conspiring with accused Tan."

      "On the part of the accused SMC officials, there is absolutely no showing that the reduction of the tax liability of SMC was to their personal benefit. IT is highly improbable for them, therefore, to have conspired with accused Tan. The act of SMC’s asking for the reduction of tax liability cannot be considered as evidence of conspiracy because it is natural for every company or individual taxpayer to seek a reduction of its tax liability."

    2. That on une 26, 1996 the Daily Inquirer published a news item that Ombudsman Desierto refused to prosecute Commissioner Liwayway Chato of the Bureau of Internal Revenue for her refusal to collect the amount of P302, 051, 043.93.

    3. a) The Affidavit of Gregorio A. Sabayle, Chief of the Appellate Division of the Bureau of Internal Revenue, dated January 17, 1995 and attachments thereto reciting the procedure followed in matters of a disputed tax cases and in particular the San Miguel case.

      4. b) The Affidavit of Millard Mansequiao, Atty. IV Bureau of Internal Revenue, Assistant Chief, Law Division dated January 17, 1995 with attachments certifying to the fact that he prepared both memorandum dated June 1, 1988 and September 29, 1988 upon referral by Atty. Alicia P. Clemeno.

    4. That, as reported on the Philippine Star issue of September 27, 1998, President Estrada approved the Ad Hoc Council on Taxation "Dream Team" – according to the President "the best and the brightest" in the field of taxation and of proven integrity, expertise and wisdom and that the accused is a member of the said team.

The public prosecutor submitted his Comment on march 24, 1999, and the Court in a Resolution adopted on April 8, 1999, denied the same for lack of merit, considering the prosecution’s comment thereon which reads, to wit:

"1) The documents listed in paragraph 1 of the Request for Admission are admitted as attachments of the Fact Finding Report of the FFIB of the Office of the Ombudsman dated August 24, 1992, with the qualification that only the SMC’s letter to the BIR dated August 31, 1988 and the Memorandum of Mr. Urbi to the BIR Commissioner dated December 20, 1988 were considered by the accused that lead to his acceptance of the P10,000,000.00 in compromise settlement of the tax liabilities of SMC in the amount of P302, 051, 043.93"

 

On April 21, 1999, the accused took the witness stand and upon the termination of his testimony, he formally offered his documentary exhibits and prayed the Court for the admission of the following:

Exhibit "I" Order dated January 31, 1995 in Criminal Case No. 20685 issued by the Special Prosecutor.

"1-A" Submarkings in Exhibit "1".

"1-B"

"1-C" and

"1-D"

"2" Memorandum dated February 24, 1995 issued by Special Prosecutor Aniano A. Desierto.

"2-A" Submarkings in Exhibit "2"

"2-B"

"2-C" &

"2-D"

"3" Rejoinder-Affidavit of Messrs. Nazario L. Avendano and Jaime de la Cruz dated August 20, 1993.

"4" Letter of Commissioner Jose U. Ong addressed to the Senate Blue Ribbon Committee dated may 8, 1989.

"4-A" Paragraph 1, page 2 of Exh. ‘4"

"4-B" Item 2, page 3 Exh. "4"

"4-C" Page 3 of Exh. "4".

"4-D" Concluding paragraph of Exh. "4’

"5" June 1, 1988 Memorandum of Atty. Clemeno to the BIR Commissioner

"5-A" Page 2 of Exh. "5"

"5-B" Last paragraph in Page 6 of Exh. "5"

"6" September 29, 1988 Memorandum of Atty. Alicia P. Clemeco.

"6-A" Concluding paragraph of Exh. "6".

"6-B" page 2 of Exh. "6".

"7" Certified true copy of the letter of Bienvenido Tan, Jr. to SMC dated December 20, 1986;

"8" Letter of SMC addressed to the Commissioner of Internal Revenue dated April 9, 1986;

"9" SMC letter to SMC dated May 5, 1986.

"10" BIR letter to SMC dated May 5, 1986;

"11’ Certified true copy of the letter of Bienvenido Tan, Jr. to SMC dated July 13, 1987.

"12" Memorandum of Jesus Q. Bundang, Supervising Revenue Enforcement Officer of the BIR addressed to the Commissioner of Internal Revenue dated August 21, 1987.

"13" Certified true copy of the letter of Bienvenido Tan, Jr. to SMC dated October 8, 1987.

"14" SMC letter to the Commissioner of Internal Revenue dated November 2, 1987.

"15" Certified true copy of the Memorandum of Priscila Puno to the Commissioner of Internal Revenue dated December 8, 1986.

"15-A" & The amounts of P212, 698, 934.18, respectively, in the second to the last page of Exhibit "15"

"16-A" The amount of P255, 378, 194.01 in page 2 of Exhibit "16"

"17" Certified true copy of SMC letter to Asst. Officer Aquilino Latin dated June 9, 1987.

"18" Certified true copy of SMC letter to Beinvenido Tan. Jr., dated August 10, 1987.

"19" Certified true copy of a handwritten note of Beinvenido Tan. Jr. addressed to Atty. Maza under date of October 27, 1987.

"20" Certified true copy of the 1st Endorsement of Aquilino Larin dated November 25, 1988.

"20-A" Attachments to Exhibit "20"

"20-B"

"20-C" The final figure P8, 001, 977.97 arrived at by Jesus Q. Bundang dated November 21, 1988 appearing at the bottom portion of Exh. "20-B"

"21" Certified true copy of SMC letter to Beinvenido Tan, Jr. dated August 31, 1988.

"22" Certified true copy of the memorandum of Juanito Urbi to the BIR Commissioner dated December 20, 1988.

"22-A" Concluding paragraph of Exhibit ‘22"

"22-B" Name and signature of Juanito P. Urbi, Chief Prosecution Division.

"22-C" name and signature of Jaime M. Maza, Asst. Commissioner for Legal Services of the BIR.

"22-D" Name and signature of Bienvenido Tan, Jr., BIR Commissioner.

On July 26, 1999, the court ordered the admission of the same over the objection prosecutor.

This case is an off-shot of a complaint filed by Congressman Bonifacio Gillego regarding alleged irregularities committed by some BIR officials. The fact-finding and Intelligence Bureau (FFIB) of the Office of the Ombudsman prepared the complaint. In the subsequent investigation, it was revealed that the reported tax compromise was consummated during the time of the herein accused Bienvenido Tan, Jr., and that a tax assessment of P302, 951, 043.93 was compromised for only P10, 000, 000.00. The case was later denominated as Case No. OMB-1-93-0295.

Culled from the evidence of both the prosecution and defense, are the following facts:

Pursuant to Letter of Authority No. ATD-035-STO dated January 2, 1986 and Memorandum of Authority dated March 3, 1986, an investigation was conducted by BIR examiners on the ad valorem and specific tax liabilities of SMC covering the period from January 1, 1085 to March 31, 1986. The result of the investigation showed that SMC-San Miguel Corp. has a deficiency on specific and ad valorem taxes totaling P342, 616, 217.88 broken down as follows:

Specific Tax - - - - - - - - - - - - - - P 33, 817, 613.21

Ad Valorem Tax - - - - - - - - - - - P 308, 798, 604.67

On the basis of these findings, the BIR sent a letter dated July 13, 1987 to SMC demanding the payment of its deficiency tax in the amount of P342, 616, 217.88. Apparently the letter was received by the SMC, as it protested the assessment in its letter dated August 10, 1987 with the information: 1) that the alleged specific tax deficiency was already paid when the BIR approved SMC's request that its excess ad valorem payments be applied to its specific tax balance; 2) that the computation of the ad valorem tax deficiency was erroneous since the BIR examiners disallowed the deduction of the price differential (cost of freight from brewery to warehouse) and ad valorem tax.

The protest was denied by the BIR thru a letter dated October 10, 1987 signed by accused Commissioner Bienvenido Tan, Jr., but the original assessment of P342, 616,217.88 was reduced to P302, 951,048.93 due to the crediting of the taxpayer's excess ad valorem tax deposit of P21, 805, 409.10 with a reiteration of the payment of the assessment of the assessed specific and ad valorem tax as reduced.

On October 27, 1987, herein accused referred the matter to Jaime M. Maza, Assistant BIR Commissioner, Legal Service Division and thereafter different BIR officials also reviewed the case of SMC and rendered varying legal opinions on the issue such as:

On the part of Alicia P. Clemeno, Chief, Legislative Ruling and Research Division, she recommended the reduction of SMC's tax liability, first to P21,856,985.29, and later to P22, 000, 000.00. Balbino E. Gatduala, Jr., Assistant Revenue Service Chief, Legal Service, supported the demand for ad valorem tax deficiency from SMC. In a letter dated August 31, 1988, SMC, thru a certain Avendano offered the amount of P10, 000, 000.00 for the settlement of the assessment. This was concurred in by Juanito Urbi, Chief, Prosecutor Division, BIR in a Memorandum dated December 20, 1988. Jaime Maza, Assistant Commissioner, Legal Service, BIR, also gave his concurrence to the recommendation that the offer of SMC for P10, 000, 000.00 in compromise settlement be accepted. Accused Bienvenido Tan approved the recommendation; and accordingly, in a letter dated December 20, 1988, SMC was informed that its offer to compromise was accepted.

From the foregoing facts, the public prosecutor is now claiming that the circumstances surrounding the controversy was tainted with irregularity and that the compromise appears to be manifestly and grossly disadvantageous to the government. Accordingly, by accepting the compromise settlement, herein-accused Bienvenido Tan, Jr., has given unwarranted benefits to San Miguel Corporation in the amount of P292, 951, 048.93 to the damage and prejudice of the government.

The Court agrees with the public prosecutor.

The assessment dated July 13, 1987 was protested by SMC and as a result of which, after considering relevant matters on the issue, the amount was protested by SMC and as a result of which, after considering relevant matters on the issue, the amount was reduced to P302, 951, 048.93. It was on the basis of this reduced amount that the herein accused, in his letter dated October 8, 1987, demanded the payment of the assessed specific tax and ad valorem tax deficiencies. While apparently, the matter of assessment was made final and executors, yet strangely enough and for unexplained reasons accused Tan on October 27, 1987, referred the matter to his Assistant Jaime Maza, Assistant Commissioner, Legal Service Division, BIR, even though SMC did not protest the assessment as reduced. Hence, such referral of the matter to Mr. Maza for the latter's opinion appears to be an ugly exhibition of raw power and is considered by the court as uncalled for since the matter has already been resolved. The assessment was supposed to be final and executory. And to extend legality to the act, the officials went into the charade of further investigation. But what the BIR officials actually did was not to find ways of coming out with the truth regarding SMC's tax liability. Instead, they sought ways to help SMC not to pay taxes.

We also find it strange how the matter of referral came to the knowledge of SMC. Using the referral as a basis, SMC now assails the demand letter of the herein accused dated October 8, 1987 claiming the same as being premature since the matter is still under investigation. The letter of SMC is dated November 17, 1987.

On the witness stand, the accused maintained that the decision to compromise was arrived at after a long and serious study; that he was convinced that the assessment was unjust and excessive after concluding that the opinions of Ms. Clemeco, respondent Urbi and respondent Maza had more merit than those of Messrs. Bundang, Gatdula and Larin. That under Section 204 of the National Internal Revenue Code, his discretion as Commissioner of Internal Revenue cannot be questioned even by the Supreme Court. This position of the accused calls to mind Lord Action's immortal words:

"power tends to corrupt and absolute

power corrupts absolutely. Responsibility

is the symbolic twin of power."

There is no dispute that SMC was assessed a deficiency of specific tax in the amount of P33, 817, 613.21 and ad valorem tax amounting to P308, 798, 604.67 for the period covering January 1, 1985 to March 31, 1986. A demand letter for the payment of these taxes was sent by the herein accused and the same was protested. On October 8, 1987 the herein accused denied the protest, although, the amount was reduced to P302, 951, 048.93 without any protest coming from SMC. The herein accused in his hand-written not dated October 27, 1987 referred the matter to the Office of his Assistant Mr. Maza for the latter's opinion.

The court finds the referral to Mr. Maza as unusual since there was no request for a reconsideration of the BIR demand letter dated October 8, 1987. The act was uncalled for. By going out of his way to help San Miguel Corporation obtain a reduction of its tax liability in the government suffered undue injury while at the same time undue preference was given to a taxpayer like San Miguel Corporation.

In his memorandum, accused maintains that insofar as the specific tax deficiency is concerned, the same was already paid when the BIR allegedly agreed on the application of SMC's excess ad valorem tax deposits to its unpaid specific tax. As to the ad valorem tax, he claims that a reasonable doubt exists as to the correctness o the deficiency assessment.

The court finds no merit in the claim of the accused that the specific tax assessment of P33, 817, 613.21 has already been paid through the application of SMC's excess ad valorem tax deposits to its unpaid specific tax. In fact no evidence was introduced by the accused to show that he authorized SMC to apply its excess ad valorem deposits in payment of its specific tax deficiency. It is significant to note that the deposits for the specific ad valorem taxes are separately recorded. The letter dated May 5, 1986 sent by the BIR Commissioner to SMC, which the accused claims as the authority given to SMC for the application of its excess ad valorem payment to the specific tax shortfall, does not at all contain or refer to any authority given to the taxpayer to do so. There is nothing in the letter, which shows the approval given by the BIR Commissioner for SMC to apply the ad valorem deposit to its specific tax deficiency. On the contrary, the letter contains conditions requiring SMC to pay any additional specific tax or ad valorem tax, which the BIR may discover in its final computation. This piece of evidence will show that the specific tax deficiency has not been paid, and consequently, the act of the accused in abating the subject assessment is unlawful or is illegal and has caused undue injury to the government.

On the matter of the BIR's cancellation of the ad valorem tax deficiency, the abatement was claimed to be based on the ground that there exits a reasonable doubt as to the correctness of the assessment. Accused cited Section 124 of the National Internal Revenue Code, which provides as follows:

"Section 124. Specific and ad valorem tax on fermented liquors: ad valorem tax – in addition to the specific tax herein imposed there shall be levied, assessed and collected an ad valorem tax equivalent to ten percent of the brewer’s selling price, net of specific tax of the products enumerated under subsection (h) hereof."

The Court finds the cancellation of the ad valorem tax deficiency to be juvenile and estranged from the language of the law, which is very clear on the matter. The law speaks only of the specific tax to be deducted from the selling price. For the accused to claim that the differential price in the ad valorem tax should be deducted from the selling price is an obvious attempt to create uncertainty where there is none. To further justify his claim that the ad valorem tax and price Executive Order No. 273. But the law cited by the herein accused was not yet in effect at the time the assessment was made considering that E.O. No. 273 took effect only on January 1, 1988 whereas the assessment was made on July 13, 1987. Apparently, the same was resorted to only to becloud the provision of the law and to create a situation of doubt that would justify the BIR Commissioner’s exercise of his authority to compromise the assessment.

Finally, on the argument concerning the power of the BIR Commissioner to abate or compromise a tax assessment, which according to the accused is purely discretionary and cannot be interfered with by anybody, even by the courts, the relevant provision of the law on the matter is Section 204 of the NIRC.

"Section 204 – Authority of the Commissioner to Compromise, Abate and Refund/Credit Taxes – The Commissioner may compromise the payment of any internal revenue tax when; (a) a reasonable doubt as to the validity of the claim against taxpayer exists; 2) Abate or cancel a tax liability when – (a) a tax on any portion thereof appears to be unjustly or excessively assessed; or (b) The administration and collection costs involved do not justify the collection of the amount due."

Parenthetically, the exercise by the BIR Commissioner of his power to compromise becomes justified only when the above-enumerated situations exist. As earlier stated, the court cannot perceive any doubt on the validity of the assessment. From all appearances, herein accused tried to create doubt in the assessment when there was none and to escape criminal liability, he invoked his discretionary power which he claimed to be unlimited even though it is not so. The provision of the law on the matter is clear. We cannot likewise overlook the earlier position taken on the assessment by senior BIR officials led by Mr. Aquilino Larin, Assistant Commissioner for Specific Tax. In response to SMC’s contention that its method of computing its ad valorem tax liability was, in principle, with the prior approval of the BIR and that said computation was done by excluding from the base of the ad valorem tax the following: (a) the price differential, which allegedly represents cost of freight from place of production to distribution point; and (b) the ad valorem tax, Asst. Commissioner Larin had this to say:

"This office cannot agree to the contention of the taxpayer considering that first, there is no record or at least the tax docket do not show, that conference were held between the representatives of the SMC, on one hand, and Messrs. Calaguio and Florenza on the other hand to attest that the computation followed by the taxpayer bears the approval of this office. And even assuming that such meeting took place, undersigned is certain that if a verbal agreement was reached on such a substantive precept of taxation, t is almost certain that such agreement would have been documented in the form of query by SMC and a reply or ruling from the BIR upholding such theory as asserted to by the SMC. Moreover, the tax theory adopted by the SMC is not supported by law, specifically the provisions of Sec. 147 (now Sec. 124) of the NIRC, as implemented by Revenue Regulations No. 1584 x x x x ."

"San Miguel operates three (3) breweries in the country, and that the sales of beer is affected not within the premises of these breweries but at various distribution points throughout the country. Obviously the freight costs are passed on the customers and therefore, form part of the gross selling price of the product being sold. Such freight cost should form part of the tax base. As regard the exclusion of the ad valorem tax from the gross selling price of the beer, it is believed such exclusion is without basis in law since the pertinent provision allows only the exclusion of specific tax, not ad valorem tax".

Notably, either by coincidence or with legal significance, the compromise was done on December 23, 1988, just two days before Christmas. The letter of accused to SMC, accepting the offer to compromise its deficiency specific and ad valorem tax liabilities for 1985 and 1986, had the concurrence of Jaime Maza, Assistant Commissioner, BIR Legal Service Division, which concurrence is dated December 20, 1988. While the court concedes that the procedure of reviewing and examining a multi-million tax case observed by the herein accused speaks of unusual efficiency for which he should, under normal circumstances, be commended, nonetheless, we cannot ignore the fact that the same had been resorted to in order to give unwarranted advantage, preference and benefit to a taxpayer. It was not done to benefit the government. On the contrary, the compromise of the tax case resulted in undue injury to the government and must therefore be condemned. Indubitably, there was a lawless exercise of discretion to prejudice the government.

WHEREFORE, premises considered, judgement considered, judgement is hereby rendered convicting the accused for Violation of Section 3 (e) of Republic Act No. 3019 as amended, and appreciating in his favor the presence of the mitigating circumstance of age, accused being over seventy (70) years old, and in the absence of aggravating circumstances to offset the same, applying the Indeterminate Sentence Law, he is hereby sentenced to suffer imprisonment of six (6) years and one (1) month as minimum to fifteen (15) years as maximum. He is further disqualified perpetually from holding public office.

As the Court finds the compromise agreement to have been entered into illegally, the Bureau of Internal Revenue is hereby ordered to collect from San Miguel Corporation the amount of P292, 951, 048.93 representing its tax liabilities covering the period from January 1, 1985 to March 31, 1986.

SO ORDERED.

Quezon City, Philippines.

Nario, Ferrer, JJ: concur.

 The Lawphil Project - Arellano Law Foundation