G.R. No. 119322 - Commissioner of Internal Revenue vs. Court of Appeals

On June 1, 1993, the President issued a Memorandum creating a Task Force to investigate tax liabilities of manufacturers allegedly engaged in tax evasion through dummy marketing corporations.
The Task Force comprised the Commissioner of Internal Revenue (CIR) as Chairman, and representatives from the DOJ and Executive Secretary.
On July 1, 1993, CIR issued Revenue Memorandum Circular No. 37-93 reclassifying best-selling cigarettes of Fortune Tobacco Corporation (Fortune) as foreign brands, subjecting them to higher tax rates.

On August 3, 1993, Fortune questioned the validity of the reclassification as violative of due process and equal protection.
The Court of Tax Appeals ruled the reclassification "of doubtful legality" and enjoined enforcement on September 8, 1993.
On August 13, 1993, CIR assessed Fortune with a P7.7 billion tax deficiency for 1992, requiring payment within 30 days.
On September 7, 1993, CIR filed a complaint for fraudulent tax evasion against Fortune, its officers, and nine other corporations and their officers before the DOJ for alleged underdeclaration of income, sales, and taxes for 1992.
The complaint alleged:

Allegedly, Fortune used dummy and fictitious buyers to declare lower wholesale prices resulting in evasion.

The DOJ Task Force subpoenaed respondents to submit counter-affidavits by September 20, 1993.
Instead of filing counter-affidavits, respondents filed a Verified Motion to Dismiss or Alternatively to Suspend the investigation on grounds including:

Violation of due process and equal protection due to prosecutorial haste and premature filing.
Lack of final tax liability determination by CIR and exclusive jurisdiction of Court of Tax Appeals.
Complaint unsupported by evidence to justify subpoena.

On October 15, 1993, the DOJ denied the motion to dismiss and treated it as counter-affidavits; a motion for reconsideration and motions for production of documents were filed by respondents.
Motions for inhibition due to alleged bias of prosecutors were also filed.
The DOJ denied these motions in an omnibus order dated December 20, 1993.

Petition to Regional Trial Court and Issuance of Writs of Preliminary Injunction

On January 4, 1994, respondents filed a petition for certiorari and prohibition with prayer for preliminary injunction before the RTC Quezon City, to stop the DOJ preliminary investigation.
Petitioner prosecutors moved to dismiss the petition arguing lack of jurisdiction by RTC, absence of prejudicial question, and validity of prosecutorial action.
On January 25, 1994, the RTC issued an order granting the writ of preliminary injunction restraining the prosecution from continuing the preliminary investigation, citing:

Absence of final determination of Fortune’s tax liability.
Failure of prosecutors to produce "Daily Manufacturer’s Sworn Statements," a key evidence.
Prejudicial question on proper tax code provision to apply (§127(b) vs. §142(c)) that must first be resolved.
Premature filing of criminal complaint before expiration of payment period.
Possible violation of constitutional rights such as due process and equal protection.

Subsequently, supplemental petitions to enjoin investigations for 1990 and 1991 were filed and temporarily restrained by RTC on January 31 and February 14, 1994.

Petitioners filed certiorari and prohibition before the Supreme Court; jurisdiction was referred to Court of Appeals.
On December 19, 1994, the Court of Appeals denied the petition, upholding the RTC’s issuance of preliminary injunctions and denial of motion to dismiss.
The Court of Appeals held that:

Preliminary injuries were interlocutory and no grave abuse of discretion was shown.
A final determination of tax liability must precede criminal prosecution for tax evasion.
Certiorari is not a proper remedy to review interlocutory orders but errors should be corrected on appeal after trial.

Petitioners’ motion for reconsideration was denied on February 23, 1995.
Petitioners elevated the case to the Supreme Court via petition for review on certiorari.

Whether the RTC committed grave abuse of discretion amounting to lack or excess of jurisdiction when it issued writs of preliminary injunction to stop the DOJ preliminary investigation for alleged fraudulent tax evasion.
Whether the issuance of the writs was justified on grounds that:

There was a prejudicial and/or legal question requiring suspension of the preliminary investigation.
Private respondents’ constitutional rights to due process, equal protection, and presumption of innocence were violated.
There was selective prosecution.
Jurisdictional grounds existed to dismiss or suspend the investigation.

Whether certiorari and prohibition were proper remedies at the interlocutory stage of the investigation instead of awaiting the trial court’s final judgment.