G.R. No. 222837 - Gaw, Jr. vs. Commissioner of Internal Revenue

Case Summary (G.R. No. 222837)

Antecedent Facts: acquisitions, financing and disposition

Petitioner acquired six parcels in November 2007 and four more parcels between April and June 2008, each acquisition financed by substantial short-term loan facilities from BDO. Petitioner entered an Agreement to Sell with Azure Corporation for sale and transfer of the real properties to a joint venture company, which later became Eagle I. On July 11, 2008 petitioner conveyed all ten parcels to Eagle I. Pursuant to RMO No. 15-2003 and ONETT procedures, petitioner requested BIR computations and paid capital gains tax (P505,177,213.81 total) and documentary stamp tax; corresponding Certificates Authorizing Registration (CARs) and tax clearance certificates were issued on July 23, 2008.

Administrative and criminal actions initiated by the BIR and DOJ

Two years after the transfer, the CIR concluded petitioner should have been subject to regular income tax (32%) and VAT (12%) on the theory the properties were ordinary assets, and accused petitioner of misdeclaration and tax avoidance practices. On August 25, 2010 the CIR issued a Letter of Authority; the next day a Joint Complaint Affidavit for tax evasion was filed with the DOJ, which resulted in two criminal informations (CTA Criminal Cases O-206 and O-207). At the time the criminal informations were filed, the CIR had not issued a final administrative deficiency assessment. During the criminal proceedings, the CIR issued a FDDA (May 18, 2012) assessing deficiency income tax and VAT for 2007–2008.

Parallel administrative appeal, clarification motions and early CTA actions

Petitioner filed a petition for review with the CTA contesting the FDDA for 2007 (CTA Case No. 8502) and paid the required filing fees. For the FDDA covering 2008 — the same liabilities implicated in the criminal cases — petitioner sought clarification from the CTA whether a separate petition for review and filing fees were required because the civil recovery of taxes could be “deemed instituted” in the criminal proceedings. The CTA First Division issued a June 6, 2012 Resolution granting petitioner’s motion in part, holding that the civil action for recovery of the 2008 liabilities was deemed instituted with the consolidated criminal cases, and the clerk of court computed “zero filing fees” for the Petition for Review Ad Cautelam which petitioner nonetheless filed ad cautelam.

Criminal disposition and CTA dismissal sequence

The CTA First Division later granted petitioner’s demurrer to evidence and acquitted petitioner in the consolidated criminal cases (Resolution dated January 3, 2013). Respondent moved to dismiss petitioner’s Petition for Review Ad Cautelam on the ground of nonpayment of docket fees. The CTA First Division granted the motion and dismissed the petition on March 1, 2013; petitioner’s motion for reconsideration was denied. The CTA En Banc affirmed the dismissal in a Decision dated December 22, 2014 and denied reconsideration in a Resolution dated February 2, 2016. Petitioner then filed a petition for review on certiorari under Rule 45 to the Supreme Court.

Issues presented to the Supreme Court

The case presented three principal issues: (1) whether the CTA erred in dismissing CTA Case No. 8503 for petitioner’s alleged failure to pay docket fees; (2) if the dismissal was erroneous, whether the Supreme Court could resolve the merits of the tax assessment itself; and (3) whether petitioner is liable for the assessed tax deficiencies. Petitioner advanced multiple sub-arguments asserting deprivation of due process, the deemed institution of the civil action in the criminal cases, invalidity of the Letter of Authority, improper service of demand and FDDA, and lack of factual/legal basis for the 2008 assessments. Respondent maintained the civil remedy to challenge an FDDA under Section 9 of R.A. No. 9282 is distinct from the government’s civil recovery included in criminal proceedings and defended the CTA’s jurisdictional dismissal remedy.

Petitioner’s primary contentions regarding fees and deemed institution

Petitioner argued that because the FDDA for 2008 was the subject of the criminal prosecution, the civil action for recovery of taxes was deemed instituted in the criminal cases by operation of RRCTA provisions; therefore the State — not petitioner — would be the party advancing the civil recovery, and petitioner need not pay filing fees for the Petition for Review Ad Cautelam. Petitioner relied on the CTA First Division’s June 6, 2012 pronouncement and the subsequent “zero filing fee” assessment by the clerk of court, asserting good-faith reliance and that dismissal for nonpayment was a denial of due process.

Respondent’s arguments and procedural objections

Respondent, through the OSG, distinguished the government’s inclusion of a civil recovery in a criminal prosecution (i.e., the State’s action to recover taxes and penalties incidental to the criminal action) from the taxpayer’s statutory remedy under Section 9 of R.A. No. 9282 to file a petition for review challenging an FDDA. Respondent argued the Petition for Review Ad Cautelam is a distinct remedy for the taxpayer and is not “deemed instituted” with the criminal action; the court should not resolve factual disputes on certiorari and, if fees were unpaid, the proper course would be remand for computation and payment of fees rather than outright denial on the merits.

Applicable statutory provisions and controlling precedents relied on by the Court

The Court analyzed RRCTA Sec. 11 (inclusion of civil action in criminal action), Rule 111 Sec. 1(a) of the Rules of Court (what civil liabilities are deemed instituted with a criminal action), RRCTA Rule 6 Sec. 3 (payment of docket fees), and Section 9 of R.A. No. 9282 (taxpayer’s remedy to appeal FDDA). The Court relied on prior jurisprudence it had earlier articulated: Republic v. Patanao (civil tax liability arises independently of criminal prosecution and is not deemed instituted in the criminal case), Proton Pilipinas Corp. v. Republic (similar principle regarding civil collection actions for taxes), Ungab v. Judge Cusi (no requirement of a preliminary assessment for criminal prosecution where statutory elements of tax evasion are present), and procedural precedent on fee payment in Camaso v. TSM Shipping (nonpayment of docket fees at filing does not automatically cause dismissal if paid within a reasonable period and absence of intent to defraud).

Court’s analysis and holdings on deemed institution and fees

The Supreme Court held that the civil action “deemed instituted” with a criminal action under RRCTA and Rule 111 is limited to the government’s claim to recover civil liability arising from the offense charged; it does not extend to the taxpayer’s separate statutory remedy to appeal a FDDA under Section 9 of R.A. No. 9282. The petition for review fil

Case Syllabus (G.R. No. 222837)

Citation and Court

Reported at 836 Phil. 773; G.R. No. 222837; Decision promulgated July 23, 2018 by the Supreme Court, First Division.
Petition for Review on Certiorari under Rule 45 of the Rules of Court.
Decision penned by Justice Tijam; concurrence by Justices Leonardo-De Castro (Chairperson), Peralta, Del Castillo, and Gesmundo; additional/acting member designations noted in the record.

Parties

Petitioner: Macario Lim Gaw, Jr.
Respondent: Commissioner of Internal Revenue (CIR).
Respondent appeared through the Office of the Solicitor General in argument.

Nature of the Case

Petition for review of the Court of Tax Appeals (CTA) En Banc Decision dated December 22, 2014 and Resolution dated February 2, 2016 in CTA EB Criminal Case No. 026.
Central legal controversy: whether petitioner must pay docket fees for a Petition for Review Ad Cautelam challenging a Final Decision on Disputed Assessment (FDDA) covering taxable year 2008 that was also the subject of criminal tax evasion cases; and relatedly, whether the petitioner is liable for assessed tax deficiencies (classification of sold real properties as capital assets or ordinary assets and the correct taxes thereon).

Antecedent Facts — Transactional and Tax Events

November 2007: Petitioner acquired six (6) parcels of land.
Financing for the November 2007 acquisitions: Short Term Loan facility from Banco De Oro (BDO) in the amount of ₱2,021,154,060.00.
April to June 2008: Petitioner acquired four (4) additional parcels of land.
Financing for the April–June 2008 acquisitions: Short Term Loan facility from BDO in the amount of ₱2,732,666,785.00.
Petitioner entered into an Agreement to Sell with Azure Corporation for sale/transfer of real properties to a joint venture company to be formed; on July 11, 2008 petitioner conveyed ten (10) parcels of land to Eagle I Landholdings, Inc. (Eagle I), the joint venture company referred to in the Agreement to Sell.
In compliance with Revenue Memorandum Order No. 15-2003 and the ONETT procedures, petitioner requested BIR-RDO No. 52 for computation of tax liabilities on the sale of the ten parcels to Eagle I.
Pursuant to ONETT computation sheets, petitioner paid Capital Gains Tax amounting to ₱505,177,213.81 and Documentary Stamp Tax amounting to ₱330,390.00.
July 23, 2008: BIR-RDO No. 52 issued the corresponding Certificates Authorizing Registration (CAR) and Tax Clearance Certificates.

Government Investigation and Criminal Prosecution

Approximately two years after the transactions, the Commissioner of Internal Revenue opined that:
- The properties sold were ordinary assets, not capital assets.
- Petitioner was therefore liable for 32% regular income tax and 12% value added tax (VAT), rather than 6% capital gains tax.
- Petitioner had misdeclared income, misclassified properties, and used multiple tax identification numbers to evade correct tax assessment.
August 25, 2010: CIR issued a Letter of Authority to commence investigation into petitioner’s tax account.
August 26, 2010: CIR filed a Joint Complaint Affidavit with the Department of Justice (DOJ) for tax evasion under Sections 254 and 255 of the NIRC.
DOJ filed two criminal informations for tax evasion against petitioner, docketed as CTA Criminal Case Nos. O-206 and O-207.
At the time of filing of the Informations, respondent had not issued a final decision on the deficiency assessment.

FDDA, Petitions, and Concurrent Proceedings

Mid-trial in the criminal cases: respondent issued a Final Decision on Disputed Assessment (FDDA) assessing petitioner for deficiency income tax and VAT for taxable years 2007 and 2008.
Petitioner filed a Petition for Review with the CTA for the deficiency assessment covering taxable year 2007, docketed as CTA Case No. 8502; the clerk of court assessed filing fees, which petitioner paid.
The FDDA’s deficiency assessment for 2008 involved the same tax liabilities being recovered in the pending criminal cases, creating confusion whether a separate petition and fee payment were required to challenge the 2008 assessment.
Petitioner filed a Motion to Clarify before the CTA on whether a separate petition was required to question the 2008 assessment.
June 6, 2012: CTA issued a Resolution granting petitioner’s motion, holding that the civil action for recovery of civil liabilities for taxable year 2008 stated in the FDDA was deemed instituted with the consolidated criminal cases, without prejudice to petitioner’s right to avail additional legal remedies to prevent the FDDA from becoming final and executory. The CTA also admitted an amended information and set re-arraignment.
Nevertheless, petitioner filed a Petition for Review Ad Cautelam as a precaution, with a Motion for Consolidation with CTA Criminal Case Nos. O-206 and O-207.
Upon filing, the CTA clerk of court assessed “zero filing fees” for the Petition for Review Ad Cautelam.
January 3, 2013: CTA acquitted petitioner in Criminal Case Nos. O-206 and O-207 (granted demurrer to evidence) and directed that the civil aspect be litigated in CTA Case No. 8503; the court set CTA Case No. 8503 for pre-trial.
Respondent filed a Motion to Dismiss the Petition for Review Ad Cautelam on the ground that the CTA First Division lacked jurisdiction due to petitioner’s non-payment of filing fees.
March 1, 2013: CTA First Division issued a Resolution granting respondent’s motion to dismiss.
Petitioner’s motion for reconsideration was denied by the CTA First Division; petitioner elevated the case to the CTA En Banc.
December 22, 2014: CTA En Banc affirmed dismissal of the petition for lack of merit and ordered costs against the petitioner.
Petitioner’s motion for reconsideration to the CTA En Banc was denied in its Resolution dated February 2, 2016.
Petitioner then filed the present petition for review on certiorari to the Supreme Court.

Issues Presented to the Supreme Court

Whether the CTA erred in dismissing CTA Case No. 8503 for failure of petitioner to pay docket fees.
If the CTA erred in dismissing the case, whether the Supreme Court may rule on the merits of the Petition for Review Ad Cautelam.
Whether the petitioner is liable for the assessed tax deficiencies (i.e., classification of the ten parcels as capital assets or ordinary assets and proper tax treatment).

Petitioner’s Principal Arguments

The FDDA covering 2008 was also the subject of the tax evasion criminal cases; therefore, the civil action for recovery of civil liability for taxes and penalties was deemed instituted in the consolidated criminal cases as a matter of law.
If the civil liability is deemed instituted with the criminal case, it is the State that files the Information and pays filing fees; there is no law requiring the taxpayer to pay filing fees for the CTA to rule on the civil aspect of the consolidated criminal cases.
The clerk’s “zero filing fee” assessment for the Petition for Review Ad Cautelam is clear evidence that the civil action for recovery of taxes was deemed instituted with the criminal actions, and that the CTA had acquired jurisdiction over the civil aspect.
CTA erred in dismissing the case for nonpayment of docket fees because petitioner relied in good faith on the CTA First Division’s pronouncement and the clerk’s zero-fee assessment.
Petitioner requested that, to avoid prolongation and because the record is sufficient, the Supreme Court exercise its prerogative to rule on the civil aspect on the merits.

Respondent’s Principal Arguments

Tax evasion cases filed against petitioner were instituted under Sections 254 and 255 of the NIRC; in all criminal cases before the CTA, the civi