Case Summary (G.R. No. 206666)
Parties, Places, and Business Operations
Joel C. Mendez operated multiple clinics and businesses with principal office at No. 31 Roces Avenue, Quezon City and branches in Quezon City, Makati, San Fernando (Pampanga) and Dagupan City (Pangasinan). BIR Revenue District Offices (RDOs) involved include RDO‑South Quezon City, RDO‑Calasiao (Pangasinan), RDO‑Cubao, RDO‑San Fernando, and RDO‑East Makati.
Charges and Penal Statute
Criminal Informations (amended) charged Mendez with violations of Section 255 of the 1997 National Internal Revenue Code (RA No. 8424) for: (1) willful failure to file Income Tax Return (ITR) for taxable year 2002 (Crim. Case No. O‑013); and (2) willful failure to supply correct and accurate information in the ITR for taxable year 2003 (Crim. Case No. O‑015). Each offense carries fine and imprisonment under Section 255, with subsidiary imprisonment under Section 280 if fine unpaid.
Key Dates and Procedural Posture
Informations originally filed October 10, 2005; Amended Informations were approved by the CTA (Division) in August 2006. CTA Division convicted Mendez on January 5, 2011 and denied reconsideration May 27, 2011. CTA En Banc affirmed on December 11, 2012 and denied motion for reconsideration July 8, 2013. Supreme Court decision rendered March 28, 2023. The Criminal cases and related civil liability questions were consolidated and became the subject of petitions for review.
Applicable Law and Statutory Provisions Considered
Primary statutes: 1997 National Internal Revenue Code (RA No. 8424), specifically Sections 6, 51, 74, 205, 222, 255, 280; RA No. 9282 (2004) expanding CTA jurisdiction; relevant procedural rules (Rule 9, RRCTA, Section 11). Precedents and doctrines cited in the decision include Ungab v. Judge Cusi, Jr., CIR v. Pascor Realty, Adamson v. CA, Bureau of Internal Revenue v. Court of Appeals, and related jurisprudence concerning assessment, delinquency, and use of third‑party/best‑evidence methods.
Factual Findings Established at Trial
BIR investigation, triggered by a confidential complaint of non‑issuance of official receipts, led to issuance of a Letter of Authority (LoA) to examine 2001–2003 records. Mendez failed to comply with three successive notices to produce books and documents. BIR used third‑party information and best obtainable evidence to reconstruct income (net worth/expenditures methods). Evidence showed numerous branch registrations, substantial expenditures (rent, advertising, vehicle purchases, foreign travel), advertisements, lease contracts, and certifications indicating operations prior to and during the charged years. BIR records showed no ITR filed for 2001 and 2002 and an allegedly irregular filing for 2003 with RDO‑Calasiao despite principal place of business in Quezon City.
CTA Division Ruling (January 5, 2011)
The CTA Division found Mendez guilty beyond reasonable doubt for willful failure to file the 2002 ITR and willful failure to supply correct information in the 2003 ITR. It accepted the net worth/expenditures reconstruction and held Mendez liable criminally, but declined to impose civil liability for deficiency taxes in the criminal judgment absent a final assessment by the Commissioner of Internal Revenue (CIR) under Section 205 of the Tax Code. Fines of P10,000 and indeterminate imprisonment of one to two years (minimum to maximum as imposed) were ordered for each offense.
CTA En Banc and Issues Raised on Appeal
CTA En Banc affirmed the conviction and the non‑imposition of deficiency taxes for lack of a formal CIR assessment. Key issues on Supreme Court review: (1) whether the CTA had jurisdiction over the criminal cases (threshold amounts alleged in Informations); (2) whether evidence established guilt beyond reasonable doubt under Section 255; and (3) whether a CIR final assessment is a prerequisite to impose civil liability for unpaid taxes in the same criminal proceeding.
Supreme Court: Jurisdiction over Criminal Cases
The Court held the CTA had original jurisdiction. Jurisdictional statute is RA No. 9282: CT A exercises exclusive original jurisdiction over criminal tax offenses where the principal amount of taxes claimed (exclusive of penalties/surcharges/interest) is P1,000,000.00 or more. The Amended Informations expressly alleged estimated deficiency amounts of P1,522,152.14 (2002) and P2,107,023.65 (2003). The Court reaffirmed the controlling principle that jurisdiction is determined by the material allegations in the Information; extrinsic proof at that stage is not required. The term “estimated” in the Informations did not divest jurisdiction because probable cause and a reasonable basis for the asserted amounts existed, and the use of estimates was compelled by Mendez’s failure to produce records.
Supreme Court: Proof of Guilt under Section 255
The Court affirmed the conviction. Elements of Section 255 are: (1) taxpayer required to file/declare/pay/withhold; (2) failure to do so; and (3) willfulness. The Court found all elements proven: Mendez (physician and businessman) was subject to filing duties; he did not file the 2002 ITR and filed a 2003 ITR that omitted consolidated income; and his non‑compliance was willful as shown by (a) significant unexplained expenditures, (b) registration and operations of multiple branches, (c) the LoA and repeated notices which he ignored, and (d) his delegation to and alleged concealment by his accountant which did not negate his knowledge and deliberate failure (willful blindness). The Court endorsed use of the expenditure/net worth methods to identify unreported income where appropriate.
Supreme Court: Is a Formal CIR Assessment Required for Civil Liability in Criminal Case?
The Court held that a prior or final CIR assessment is not a prerequisite to determine civil liability for unpaid taxes in a criminal prosecution, in cases of criminal tax violations where the civil action is deemed instituted with the criminal action under RA No. 9282. Rationale and distinctions: historically civil collection required delinquency and a final assessment, but (a) RA No. 9282 mandates that the criminal action and the corresponding civil action for recovery of taxes/penalties be simultaneously instituted and jointly determined by the CTA; and (b) Section 222(a) of the Tax Code independently permits assessment‑less collection proceedings in cases of false or fraudulent returns or failure to file. Thus, while formal assessment remains necessary to trigger certain appellate and suspension remedies in pure civil collection proceedings, RA No. 9282 and existing exceptions permit the government to pursue civil recovery in the criminal proceeding without a prior CIR final assessment, provided the government proves civil liability by competent evidence other than a formal assessment.
Government’s Burden and Permissible Evidence for Civil Liability in Criminal Trial
The Court clarified dual burdens where a criminal action carries deemed civil collection: (1) the government must prove the accused’s guilt beyond reasonable doubt for the criminal offense; and (2) the government must likewise establish the taxpayer’s civil liability for taxes by competent evidence (other than a formal assessment). Competent evidence may include LoA computations, third‑party records, net worth/expenditures reconstructions, contracts, receipts, certifications, and other best obtainable evidence under Section 6 and related provisions. If the CIR issues a formal assessment while the criminal case is pending, that assessment may be introduced; conversely, the t
...continue readingCase Syllabus (G.R. No. 206666)
Case Background and Parties
- Parties: People of the Philippines (petitioner in G.R. Nos. 208310-11, represented by the Office of the Solicitor General) and Joel C. Mendez (respondent in G.R. Nos. 208310-11; petitioner in G.R. No. 208662).
- Nature of consolidated proceedings: Criminal prosecutions for violations of Section 255 of the 1997 National Internal Revenue Code (RA No. 8424), as amended — specifically: willful failure to file an Income Tax Return (ITR) for taxable year 2002 (Crim. Case No. O-013) and willful failure to supply correct and accurate information in ITR for taxable year 2003 (Crim. Case No. O-015).
- Alleged amounts (as stated in the Amended Informations): estimated deficiency taxes of P1,522,152.14 (2002) and P2,107,023.65 (2003), exclusive of penalties, surcharges, and interest.
- Businesses and background: Joel alleged to be a duly registered taxpayer and sole proprietor operating under trade names including Weigh Less Center, Mendez Body and Face Salon and Spa, and Mendez Body and Face Skin Clinic, with principal office at No. 31 Roces Avenue, Quezon City, and branches in Quezon City, Makati, San Fernando (Pampanga) and Dagupan City.
- Procedural posture: CTA Division conviction (Jan. 5, 2011) affirmed by CTA En Banc (Dec. 11, 2012); Motions for Reconsideration denied (May 27, 2011 by Division; July 8, 2013 by En Banc); petitions for review filed with the Supreme Court (consolidated G.R. Nos. 208310-11 and G.R. No. 208662); Supreme Court decision rendered March 28, 2023.
Facts as Found or Adduced by the Prosecution (Trial Record)
- BIR investigation commenced on a confidential letter-complaint for alleged non-issuance of official receipts; a Letter of Authority (LoA) was issued to examine Joel’s books and records for taxable years 2001–2003.
- Joel allegedly failed to comply with the BIR’s First Letter-Notice, Second Letter-Notice, and Final Request to produce records and documents, prompting resort to third-party information and the best obtainable evidence.
- Documentary and third-party evidence produced and relied upon:
- BIR Integrated Tax System (BIR-ITS) records indicating non-filing of Annual ITR for 2001 and 2002, and for 2003 an ITR filed in RDO-Calasiao despite principal place of business being Roces Avenue, Quezon City (RDO-South Quezon City).
- Lease contracts (including a Contract of Lease dated July 12, 2001 for a 220 sqm clinic at Roces Avenue with monthly rental of P27,000); advertising placements (PhilStar and Philippine Daily Inquirer) showing substantial ad expenditures; vehicle purchases (various years); frequent foreign travel records.
- SEC and DTI business registrations reflecting multiple business entities and registrations under Joel’s name and related trade names/branches; advertisement records and other third-party certifications.
- Revenue officers applied net worth and expenditures methods to reconstruct income, yielding computed unreported income/deficiency (prosecution used figures underlying the alleged estimated amounts).
Defense Contentions and Testimony
- Joel testified: doctor by profession; runs several clinics under Mendez Medical Group; did not personally receive the LoA and only became aware of it in February 2005 when BIR representatives sought records; his accountant Richard Bianan (Richard) allegedly concealed notices and may have embezzled funds; clinics became operational in March 2003.
- Defense argued: lack of CTA jurisdiction because the Amended Informations used “estimated” amounts; subpoena duces tecum is mandatory before BIR may resort to third-party evidence; prosecution failed to prove willfulness and guilt beyond reasonable doubt.
Procedural and Evidentiary History (Key Dates & Movements)
- October 10, 2005: Original Informations filed.
- August 8 and 11, 2006: CTA Division granted prosecution’s Motions to Amend Informations (Amended Informations filed).
- January 5, 2011: CTA Division Decision finding Joel guilty on both counts under Section 255; declined to impose civil liability for deficiency taxes absent a final assessment by the Commissioner of Internal Revenue (CIR); imposed indeterminate sentence of 1–2 years and P10,000 fine for each offense.
- May 27, 2011: CTA Division denied Motions for Reconsideration.
- December 11, 2012: CTA En Banc affirmed the Division’s conviction and non-imposition of deficiency taxes.
- July 8, 2013: CTA En Banc denied Motions for Reconsideration.
- Supreme Court review: consolidated petitions filed; Supreme Court rendered decision March 28, 2023 (denied Joel’s petition; partly granted People’s petition; remanded civil liability determination to CTA Division).
Legal Issues Framed by the Court
- Whether the Court of Tax Appeals (CTA) has jurisdiction over the criminal cases against Joel Mendez (given the Amended Informations’ alleged/estimated amounts).
- Whether the prosecution proved Joel’s guilt beyond reasonable doubt for violation of Section 255 (failure to file ITR for 2002; failure to supply correct/accurate information in 2003 ITR).
- Whether a final assessment by the Commissioner of Internal Revenue is a prerequisite for imposing civil liability for deficiency taxes in a criminal prosecution under the tax laws (i.e., whether Section 205’s requirement governs).
Statutes, Rules, and Authorities Directly Applied or Discussed
- Section 255, National Internal Revenue Code (RA No. 8424, 1997) — elements of the offense, penalty framework.
- Section 205 (formerly provisions on remedies for collection of delinquent taxes), Tax Code — “judgment in the criminal case shall not only impose the penalty but shall also order payment of the taxes subject of the criminal case as finally decided by the Commissioner.”
- Section 222(a) (exceptions to the period of limitation for assessment and collection) — allows assessment or court proceeding without assessment in cases of false/fraudulent return or failure to file.
- Section 6(B) (power of the Commissioner to assess on best evidence obtainable).
- Sections of RA No. 9282 (expanded CTA jurisdiction; Section 7(b)(1) providing exclusive original jurisdiction to CTA for criminal offenses where principal taxes claimed are P1,000,000.00 or more; criminal action deemed to carry corresponding civil action).
- Batas Pambansa Blg. 129 and RA No. 11576 (jurisdictional thresholds of regular courts discussed in reconciliation with RA 9282).
- Judicial authorities cited in the decision (as relied upon in the source): Ungab v. Judge Cusi, Jr.; Commissioner of Internal Revenue v. PASCOR Realty & Development Corporation; Bureau of Internal Revenue v. Court of Appeals; Adamson v. Court of Appeals; Gaw v. Commissioner of Internal Revenue; Cheek v. United States (US) for willfulness standard; cases on jurisdiction doctrine and adherence of jurisdiction (e.g., cases mentioned in the A.M. jurisprudence cited in the opinion).
CTA Division’s Ruling (Summary of Findings and Disposition)
- Guilt: Found Joel guilty beyond reasonable doubt of:
- Willful failure to file ITR for taxable year 2002 (Section 255).
- Willful failure to supply correct and accurate information in ITR for taxable year 2003 (Section 255).
- Basis of conviction:
- Joel’s authorization of his accountant to receive BIR notices; notices deemed received.
- Use of third-party evidence and best obtainable evidence was permissible under the Tax Code due to Joel’s noncompliance with repeated notices and requests.
- Expenditures/net worth method established likely unreported income and source from business practice.
- Registered principal place of business in Roces Avenue (RDO-South Quezon City) and no ITR filed there for 2002; filing in RDO-Calasiao for 2003 was irregular and non-consolidated.