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FIRST DIVISION

G.R. No. 119322. June 4, 1996

COMMISSIONER OF INTERNAL REVENUE, SENIOR STATE PROSECUTOR AURORA S. LAGMAN, SENIOR STATE PROSECUTOR BERNELITO R. FERNANDEZ, SENIOR STATE PROSECUTOR HENRICK P. GINGOYON, ROGELIO F. VISTA, STATE PROSECUTOR ALFREDO AGCAOILI, PROSECUTING ATTORNEY EMMANUEL VELASCO, CITY PROSECUTOR CANDIDO V. RIVERA, AND ASSISTANT CITY PROSECUTOR LEOPOLDO E. BARAQUIA, Petitioners, v. THE HONORABLE COURT OF APPEALS, THE HONORABLE TIRSO DC VELASCO, PRESIDING JUDGE, REGIONAL TRIAL COURT OF QUEZON CITY, BRANCH 88, FORTUNE TOBACCO CORPORATION, LUCIO TAN, HARRY C. TAN, CARMEN KAO TAN, FLORENCIO SANTOS, SALVADOR MISON, CHUNG POE KEE, ROJAS CHUA, MARIANO TANENGLIAN, JUANITA LEE AND ANTONIO P. ABAYA, Respondents.

DAGUPAN COMBINED COMMODITIES, INC., TOWNSMAN COMMERCIALS, INC., LANDMARK SALES AND MARKETING, INC., CRIMSON CROCKER DISTRIBUTORS, INC., MOUNT MATUTUM MARKETING CORP., FIRST UNION TRADING CORP., CARLSBURG AND SONS, INC., OMAR ALI DISTRIBUTORS, INC., ORIEL AND COMPANY, NEMESIO TAN, QUINTIN CALLEJA, YOLANDA MANALILI, CARLOS CHAN, ROMEO TAN, VICENTE CO, WILLIAM YU, LETICIA LIM, GLORIA LOPEZ, ROBERT TANTAMCO, FELIPE LOY, ROLANDO CHUA, HONORINA TAN, WILLIE TANTAMCO, HENRY WEECHEE, JESUS LIM, TEODORO TAN, ANTONIO APOSTOL, DOMINGO TENG, CANDELARIO LI, ERLINDA CRUZ, CARLOS TUMPALAN, LARRY JOHN SY, ERNESTO ONG, WILFREDO MACROHON, ANTONIO TIU, ROSARIO LESTER, WILFREDO ONG, BONIFACIA CHUA, GO CHING CHUAN, HENRY CHUA, LOPE LIM GUAN, EMILIO TAN, FELIPE TAN SHE CHUAN, ANDRES CO, FELIPE KEE, HENRY GO CO, NARCISO GO, ADOLFO LIM, CO SHU, DANIEL YAO CABIGUN, GABRIEL QUINTELA, NELSON TE, EMILIO GO, EDWIN LEE, CESAR LEDESMA, JR., JAO CHEP SENG, ARNULFO TAN, BENJAMIN T. HONG, PHILIP JAO, JOSE P. YU, AND DAVID R. CORTES, respondents-intervenors.

D E C I S I O N

KAPUNAN, J.:

The pivotal issue in this petition for review is whether or not respondent Court of Appeals in its decision1 in CA-G.R. SP No. 33599 correctly ruled that the Regional Trial Court of Quezon City (Branch 88) in Civil Case No. Q-94-18790 did not commit grave abuse of discretion amounting to lack of jurisdiction in issuing four (4) orders directing the issuance of writs of preliminary injunction restraining petitioner prosecutors from continuing with the preliminary injunction of I.S. Nos. 93-508 and 93-584 in the Department of Justice and I.S. No. 93-17942 in the Office of the City Prosecutors of Quezon City wherein private respondents were respondents and denying petitioners Motion to Dismiss said Civil Case No. 94-18790.2

In resolving the issue raised in the petition, the Court may be guided by its definition of what constitutes grave abuse of discretion. By grave abuse of discretion is meant such capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction. The abuse of discretion must be patent and gross as to amount to an evasion of positive duty or a virtual refusal to perform a duty enjoined by law, or to act at all in contemplation of law as where the power is exercised in an arbitrary and despotic manner by reason of passion and hostility.3

On June 1, 1993, the President issued a Memorandum creating a Task Force to investigate the tax liabilities of manufacturers engaged in tax evasion scheme, such as selling products through dummy marketing corporations to avoid payment of correct internal revenue tax, to collect from them any tax liabilities discovered from such investigation, and to file the necessary criminal actions against those who may have violated the tax code. The task force was composed of the Commissioner of Internal Revenue as Chairman, a representative of the Department of Justice and a representative of the Executive Secretary.

On July 1, 1993, the Commissioner of Internal Revenue issued a Revenue Memorandum Circular No. 37-93 reclassifying best selling cigarettes bearing the brands "Hope", "More", and "Champion" as cigarettes of foreign brands subject to a higher rate of tax.

On August 3, 1993, respondent Fortune Tobacco Corporation (Fortune) questioned the validity of the reclassification of said brands of cigarettes as violative of its right to due process and equal protection of law. Parenthetically, on September 8, 1993, the Court of Tax Appeals by resolution ruled that the reclassification made by the Commissioner "is of doubtful legality" and enjoined its enforcement.

In a letter of August 13, 1993 which was received by Fortune on August 24, 1993, the Commissioner assessed against Fortune the total amount of P7,685,942,221.66 representing deficiency income, ad valorem and value-added tax for the year 1992 with the request that the said amount be paid within thirty (30) days upon receipt thereof.4 Fortune on September 17, 1993 moved for reconsideration of the assessments.

On September 7, 1993, the Commissioner of Internal Revenue filed a complaint with the Department of Justice against respondent Fortune, its corporate officers, nine (9) other corporations and their respective corporate officers for alleged fraudulent tax evasion for supposed non-payment by Fortune of the correct amount of income tax, ad valorem tax and value-added tax for the year 1992. The complaint alleged, among others, that:

In the said income tax return, the taxpayer declared a net taxable income of P183,613,408.00 and an income tax due of P64,264,693.00. Based mainly on documentary evidence submitted by the taxpayer itself, these declarations are false and fraudulent because the correct taxable income of the corporation for the said year is P 1,282,959,399.25.

This underdeclaration which resulted in the evasion of the amount of P723,773,759.79 as deficiency income tax for the year 1992 is a violation of Section 45 of the Tax Code, penalized under Section 253 in relation to Sections 252(b) and (d) and 253 thereof, thus: x x x.

xxx xxx xxx

Fortune Tobacco Corporation, through its Vice-President for Finance, Roxas Chua, likewise filed value-added tax returns for the 1st, 2nd, 3rd and 4th quarters of 1992 with the Rev. District Office of Marikina, Metro Manila, declaring therein gross taxable sales, as follows:

1st Qtr. P2,924,418,055.00

2nd Qtr. 2,980,335,235.00

3rd Qtr. 2,839,519,325.00

4th Qtr. 2,992,386,005.00

However, contrary to what have been reported in the said value-added tax returns, and based on documentary evidence obtained from the taxpayer, the total actual taxable sales of the corporation for the year 1992 amounted to P16,158,575,035.00 instead of P 11,929,322,334.52 as declared by the corporation in the said VAT returns.

These fraudulent under declarations which resulted in the evasion of value-added taxes in the aggregate amount of P 1,169,688,645.63 for the entire year 1992 are violations of Section 110 in relation to Section 100 of the Tax Code, which are likewise penalized under the aforequoted Section 253, in relation to Section 252, thereof. Sections 110 and 100 provide:

xxx xxx xxx

Furthermore, based on the corporations VAT returns, the corporation reported its taxable sales for 1992 in the amount of P11,736,658,580. This declaration is likewise false and fraudulent because based on the daily manufacturers sworn statements submitted to the BIR by the taxpayer, its total taxable sales during the year 1992 is P16,686,372,295.00. As a result thereof, the corporation was able to evade the payment of ad valorem taxes in the aggregate amount of P5,792,479,816.24 in violation of Section 127 in relation to Section 142, as amended by R.A. 6956, penalized under the aforequoted Section 253, in relation to Section 252, all of the Tax Code. Sections 127 and 142, as amended by R.A. 6956, are quoted as follows: x x x.

The complaint docketed as I.S. No. 93-508, was referred to the Department of Justice Task Force on revenue cases which found sufficient basis to further investigate the allegations that Fortune, through fraudulent means, evaded payment of income tax, ad valorem tax, and value-added tax for the year 1992 thus, depriving the government of revenues in the amount of Seven and One-half (P7.5) Billion Pesos.

The fraudulent scheme allegedly adopted by private respondents consisted of making fictitious and simulated sales of Fortunes cigarette products to non-existing individuals and to entities incorporated and existing only for the purpose of such fictitious sales by declaring registered wholesale prices with the BIR lower than Fortunes actual wholesale prices which are required for determination of Fortunes correct income, ad valorem, and value-added tax liabilities. The "ghosts wholesale buyers" then ostensibly sold the products to customers and other wholesalers/retailers at higher wholesale prices determined by Fortune. The tax returns and manufacturers sworn statements filed by Fortune would then declare the fictitious sales it made to the conduit corporators and non-existing individual buyers as its gross sales.5

On September 8, 1993, the Department of Justice Task Force issued a subpoena directing private respondents to submit their counter-affidavits not later than September 20, 1993.6

Instead of filing their counter-affidavits, the private respondents on October 15, 1993 filed a Verified Motion to Dismiss; Alternatively Motion to Suspend,7 based principally on the following grounds:

1. The complaint of petitioner Commissioner follows a pattern of prosecution against private respondents in violation of their right to due process and equal protection of the law.

2. Petitioner Commissioner and the Court of Tax Appeals have still to determine Fortunes tax liability for 1992 in question; without any tax liability, there can be no tax evasion.

3. Exclusive jurisdiction to determine tax liability is vested in the Court of Tax Appeals; therefore, the DOJ is without jurisdiction to conduct preliminary investigation.

4. The complaint of petitioner Commissioner is not supported by any evidence to serve as adequate basis for the issuance of subpoena to private respondents and to put them to their defense.

At the scheduled preliminary investigation on October 15 1993, private respondents were asked by the panel of prosecutors to inform it of the aspects of the Verified Motion to Dismiss which counsel for private respondents did so briefly. Counsel for the Commissioner of Internal Revenue asked for fifteen (15) days within which to file a reply in writing to private respondents Verified Motion to Dismiss. Thereupon, the panel of prosecutors declared a recess. Upon reconvening, the panel of prosecutors denied the motion to dismiss and treated the same as private respondents counter-affidavits.8

On October 20, 1993, private respondents filed a motion for reconsideration of the order of October 15, 1993.9 On October 21, 1993, private respondents filed a motion to require the submission by the Bureau of Internal Revenue of certain documents in further support of their Verified Motion to Dismiss. Among the documents sought to be produced are the "Daily Manufacturers Sworn Statements" which according to petitioner Commissioner in her complaint were submitted by Fortune to the BIR and which were the basis of her conclusion that Fortunes tax declarations were false and fraudulent. Fortune claimed that without the "Daily Manufacturers Sworn Statements," there is no evidence to support the complaint, hence, warranting its outright dismissal.

On October 26, 1993, private respondents moved for the inhibition of the State Prosecutors assigned to the case for alleged lack of impartiality.10 Private respondents also sought the production of the "Daily Manufacturers Sworn Statements" submitted by certain cigarette companies similarly situated as Fortune but were not proceeded against, thus, private respondents charged that Fortune and its officers were being singled out for criminal prosecution which is discriminatory and in violation of the equal protection clause of the Constitution.

On December 20, 1993, the panel of prosecutors issued an Omnibus Order11 denying private respondents motion for reconsideration, motion for suspension of investigation, motion to inhibit the State Prosecutors, and motion to require submission by the BIR of certain documents to further support private respondents motion to dismiss.

On January 4, 1994, private respondents filed a petition for certiorari and prohibition with prayer for preliminary injunction with the Regional Trial Court, Branch 88, Quezon City, docketed as Q-94-18790, praying that the complaint of the Commissioner of Internal Revenue and the orders of the prosecutors in I.S. No. 93-508 be dismissed or set aside, alternatively, the proceedings on the preliminary investigation be suspended pending final determination by the Commissioner of Fortunes motion for reconsideration/reinvestigation of the August 13, 1993 assessment of the taxes due.12

On January 17, 1994, petitioners filed a motion to dismiss the petition13 on the grounds that (a) the trial court is bereft of jurisdiction to enjoin a criminal prosecution under preliminary investigation; (b) a criminal prosecution for tax fraud can proceed independently of criminal or administrative action; (c) there is no prejudicial question to justify suspension of the preliminary investigation; (d) private respondents rights to due process was not violated; and (e) selective prosecution is not a valid defense in this jurisdiction.

On January 19, 1994, at the hearing of the incident for the issuance of a writ of preliminary injunction in the petition, private respondents offered in evidence their verified petition for certiorari and prohibition and its annexes. Petitioners responded by praying that their motion to dismiss the petition for certiorari and prohibition be considered as their opposition to private respondents application for the issuance of a writ of preliminary injunction.

On January 25, 1994, the trial court issued an order granting the prayer for the issuance of a preliminary injunction.14 The trial court rationalized its order in this wise:

a) It is private respondents claim that the ad valorem tax for the year 1992 was levied, assessed and collected by the BIR under Section 142(c) of the Tax Code on the basis of the "manufacturers registered wholesale price" duly approved by the BIR. Fortunes taxable sales for 1992 was in the amount of P11,736,658,580.00.

b) On the other hand, it is petitioners contention that Fortunes declaration was false and fraudulent because, based on its daily manufacturers sworn statements submitted to the BIR, its taxable sales in 1992 were P 16,686,372,295.00, as a result of which, Fortune was able to evade the payment of ad valorem tax in the aggregate amount of P5,792,479,816.24.

c) At the hearing for preliminary investigation, the "Daily Manufacturers Sworn Statements" which, according to petitioners, were submitted to the BIR by private respondents and made the basis of petitioner Commissioners complaint that the total taxable sales of Fortune in 1992 amounted to P16,686,372, 295.00 were not produced as part of the evidence for petitioners. In fact, private respondents had filed a motion to require petitioner Commissioner to submit the aforesaid daily manufacturers sworn statements before the DOJ panel of prosecutors to show that Fortunes actual taxable sales totaled P16,686,373,295.00, but the motion was denied.

d) There is nothing on record in the preliminary investigation before the panel of investigators which supports the allegation that Fortune made a fraudulent declaration of its 1992 taxable sales.

e) Since, as alleged by private respondents, the ad valorem tax for the year 1992 should be based on the "manufacturers registered wholesale price" while, as claimed by petitioners, the ad valorem taxes should be based on the wholesale price at which the manufacturer sold the cigarettes, which is a legal issue as admitted by a BIR lawyer during the hearing for preliminary injunction, the correct interpretation of the law involved, which is Section 142(c) of the Tax Code, constitutes a prejudicial question which must first be resolved before criminal proceedings for tax evasion may be pursued. In other words, the BIR must first make a final determination, which it has not, of Fortunes tax liability relative to its 1992 ad valorem, value-added and income taxes before the taxpayer can be made liable for tax evasion.

f) There was a precipitate issuance by the panel of prosecutors of subpoenas to private respondents, on the very day following the filing of the complaint with the DOJ consisting of about 600 pages, and the precipitate denial by the panel of prosecutors, after a recess of about twenty (20) minutes, of private respondents motion to dismiss, consisting of one hundred and thirty-five (135) pages.

g) Private respondents had been especially targeted by the government for prosecution. Prior to the filing of the complaint in I.S. No. 93-508, petitioner Commissioner issued Revenue Memorandum Circular No. 37-93 reclassifying Fortunes best selling cigarettes, namely "Hope", "More", and "Champion" as cigarettes bearing a foreign brand, thereby imposing upon them a higher rate of tax that would price them out of the market.

h) While in petitioner Commissioners letter of August 13, 1993, she gave Fortune a period of thirty (30) days from receipt thereof within which to pay the alleged tax deficiency assessments, she filed the criminal complaint for tax evasion before the period lapsed.

i) Based on the foregoing, the criminal complaint against private respondents was filed prematurely and in violation of their constitutional right to equal protection of the laws.

On January 26, 1994, private respondents filed with the trial court a Motion to Admit Supplemental Petition and sought the issuance of a writ of preliminary injunction to enjoin the State Prosecutors from continuing with the preliminary investigation filed by them against private respondents with the Quezon City Prosecutors Office, docketed as I.S. 93-17942, for alleged fraudulent tax evasion, committed by private respondents for the taxable year 1990. Private respondents averred in their motion that no supporting documents or copies of the complaint were attached to the subpoena in I.S. 93-17942; that the subpoena violates private respondents constitutional right to due process, equal protection and presumption of innocence; that IS. 93-17942 is substantially the same as I. S. 93-508; that no tax assessment has been issued by the Commission of Internal Revenue and considering that taxes paid have not been challenged, no tax liability exists; and that since Assistant City Prosecutor Baraquia was a former classmate of Presidential Legal Counsel Antonio T. Carpio, the former cannot conduct the preliminary investigation in an impartial manner.

On January 28, 1994, private respondents filed with the trial court a second supplemental petition,15 also seeking to stay the preliminary investigation in I.S. 93-584, which was the third complaint filed against private respondents with the DOJ for alleged fraudulent tax evasion for the taxable year 1991.

On January 31, 1994, the lower court admitted the two (2) supplemental petitions and issued a temporary restraining order in I.S. 93-17942 and I.S. 93-584.16 Also, on the same day, petitioners filed an Urgent Motion for Immediate Resolution of petitioners motion to dismiss.

On February 7, 1994, the trial court issued an order denying petitioners motion to dismiss private respondents petition seeking to stay preliminary investigation in I.S. 93-508, ruling that the issue of whether Sec. 127(b) of the National Tax Revenue Code should be the basis of private respondents tax liability as contended by the Bureau of Internal Revenue, or whether it is Section 142(c) of the same Code that applies, as argued by herein private respondents, should first be settled before any complaint for fraudulent tax evasion can be initiated.17

On February 14, 1994, the trial court issued an order granting private respondents petition for a supplemental writ of preliminary injunction, likewise enjoining the preliminary investigation of the two (2) other complaints filed with the Quezon City Prosecutors Office and the DOJ for fraudulent tax evasion, I.S. 93-17942 and I.S. 93- 584, for alleged tax evasion for the taxable years 1990 and 1991, respectively.18 In granting the supplemental writ, the trial court stated that the two other complaints are the same as in I.S. 93-508, except that the former refer to the taxable years 1990 and 1991.

On March 7, 1994, petitioners filed a petition for certiorari and prohibition with prayer forpreliminary injunction before this Court. However, the petition was referred to the Court of Appeals for disposition by virtue of its original concurrent jurisdiction over the petition.

On December 19, 1994, the Court of Appeals in CA-G.R. No. SP-33599 rendered a decision denying the petition. The Court of Appeals ruled that the trial court committed no grave abuse of discretion in ordering the issuance of writs of preliminary injunction and in denying petitioners motion to dismiss. In upholding the reasons and conclusions given by the trial court in its orders for the issuance of the questioned writs, the Court of Appeals said in part:

In making such conclusion the respondent Court must have understood from herein petitioner Commissioners letter-complaint of 14 pages (pp. 477-490, rollo of this case) and the joint affidavit of eight revenue officers of 17 pages attached thereto (pp. 491-507, supra) and its annexes (pp. 508-1077, supra) , that the charge against herein respondents is for tax evasion for non-payment by herein respondent Fortune of the correct amounts of income tax, ad valorem tax and value added tax, not necessarily fraudulent tax evasion. Hence, the need for previous assessment of the correct amount by herein petitioner Commissioner before herein respondents may be charged criminally. Certiorari will not be issued to cure errors in proceedings or correct erroneous conclusions of law or fact. As long as a Court acts within its jurisdiction, any alleged error committed in the exercise of its jurisdiction, will amount to nothing more than errors of judgment which are reviewable by timely appeal and not by a special civil action of certiorari (Santos, Jr. vs. Court of Appeals, 152 SCRA 378; Gold City Integrated Port Services, Inc. vs. Intermediate Appellate Court, 171 SCRA 579).

The questioned orders issued after hearing (Annexes A, B, C and D, petition) being but interlocutory, review thereof by this Court is inappropriate until final judgment is rendered, absent a showing of grave abuse of discretion on the part of the issuing court (See Van Dom vs. Romillo, 139 SCRA 139, 141; Newsweek, Inc. vs. IAC, 171, 177; Mendoza vs. Court of Appeals, 201 SCRA 343, 352). The factual and legal issues involved in the main case still before the respondent Court are best resolved after trial. Petitioners, therefore, instead of resorting to this petition for certiorari and prohibition should have filed an answer to the petition as ordained in Section 4, Rule 16, in connection with Rule 11 of the Revised Rules of Court, interposing as defense or defenses the objection or objections raised in their motion to dismiss, then proceed to trial in order that thereafter the case may be decided on the merits by the respondent Court. In case of an adverse decision, they may appeal therefrom by which the entire record of the case would be elevated for review (See Mendoza vs. Court of Appeals, supra). Therefore, certiorari and prohibition resorted to by herein petitioners will not lie in view of the remedy open to them. Thus, the resulting delay in the final disposition of the case before the respondent Court would not have been incurred.

Grave abuse of discretion as a ground for issuance of writs of certiorari and prohibition implies capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction, or where the power is exercised in an arbitrary or despotic manner by reason of passion, prejudice, or personal hostility, amounting to an evasion of positive duty or to a virtual refusal to perform the duty enjoined, or to act at all in contemplation of law (Confederation of Citizens Labor Union vs. NLRC, 60 SCRA 84; Bustamante vs. Commission on Audit, 216 SCRA 134). For such writs to lie, there must be capricious, arbitrary and whimsical exercise of power, the very antithesis of the judicial prerogative in accordance with centuries of both civil law and common law traditions (Young vs. Sulit, 162 SCRA 659, 664; FCC vs. IAC, 166 SCRA 155; Purefoods Corp. vs. NLRC, 171 SCRA 45). Certiorari and prohibition are remedies narrow in scope and inflexible in character. They are not general utility tools in the legal workshop (Vda. de Guia vs. Veloso, 158 SCRA 340, 344). Their function is but limited to correction of defects of jurisdiction solely, not to be used for any other purpose (Garcia vs. Ranada, 166 SCRA 9), such as to cure errors in proceedings or to correct erroneous conclusions of law or fact (Gold City Integrated Ports Services vs. IAC, 171 SCRA 579). Due regard for the foregoing teachings enunciated in the decisions cited can not bring about a decision other than what has been reached herein.

Needless to say, the case before the respondent court involving those against herein respondents for alleged non-payment of the correct amounts due as income tax, ad valorem tax and value added tax for the years 1990, 1991 and 1992 (Civil Case No. Q-94-18790) is not ended by this decision. The respondent Court is still to try the case and decide it on the merits. All that is decided here is but the validity of the orders of the respondent Court granting herein respondents application for preliminary njunction and denying herein petitioners motion to dismiss. If upon the facts established after trial and the applicable law, dissolution of the writ of preliminary injunction allowed to be issued by the respondent Court is called for and a judgment favorable to herein petitioners is demanded, the respondent Court is duty bound to render judgment accordingly.

WHEREFORE, the instant petition for certiorari and prohibition with application for issuance of restraining order and writ of preliminary injunction is DISMISSED. Costs de officio.19

Their motion for reconsideration having been denied by respondent appellate court on February 23, 1995, petitioners filed the present petition for review based on the following grounds:

THE RESPONDENT COURTS COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OFJURISDICTION IN HOLDING THAT:

I. THERE IS A PREJUDICIAL AND/OR LEGAL QUESTION TO JUSTIFY THE SUSPENSION OF THE PRELIMINARY INVESTIGATION.

II. PRIVATE RESPONDENTS RIGHTS TO DUE PROCESS, EQUAL PROTECTION AND PRESUMPTION OF INNOCENCE WERE VIOLATED; ON THE CONTRARY, THE STATE ITSELF WAS DEPRIVED OF DUE PROCESS.

III. THE ADMISSION OF PRIVATE RESPONDENTS SUPPLEMENTAL PETITIONS WERE PROPER.

IV. THERE WAS SELECTIVE PROSECUTION.

V. THE FACTUAL ALLEGATIONS IN THE PETITION ARE HYPOTHETICALLY ADMITTED IN A MOTION TO DISMISS BASED ON JURISDICTIONAL GROUNDS.

VI. THE ISSUANCE OF THE WRITS OF INJUNCTION IS NOT A DECISION ON THE MERITS OF THE PETITION BEFORE THE LOWER COURT.20

The petition is bereft of merit.

In essence, the complaints in I.S. Nos. 93-508, 93-584 and 93-17942 charged private respondents with fraudulent tax evasion or wilfully attempting to evade or defeat payment of income tax, ad valorem tax and value-added tax for the year 1992, as well as for the years 1990-1991.

The pertinent provisions of law involved are Sections 127(b) and 142(c) of the National Internal Revenue Code which state:

Sec. 127.xxx

(b) Determination of gross selling price of goods subject to ad valorem tax. -Unless otherwise provided, the price, excluding the value-added tax, at which the goods are sold at wholesale in the place of production or through their sales agents to the public shall constitute the gross selling price. If the manufacturer also sells or allows such goods to be sold at wholesale price in another establishment of which he is the owner or in the profits at which he has an interest, the wholesale price in such establishment shall constitute the gross selling price. Should such price be less than the costs of manufacture plus expenses incurred until the goods are finally sold, then a proportionate margin of profit, not less than 10% of such manufacturing costs and expenses, shall be added to constitute the gross selling price.

Sec. 142.xxx

(c) Cigarettes packed in twenties. There shall be levied, assessed and collected on cigarettes packed in twenties an ad valorem tax at the rates prescribed below based on the manufacturers registered wholesale price:

xxx xxx xxx

Private respondents contend that per Fortunes VAT returns, correct taxable sales for 1992 was in the amount of P11,736,658,580.00 which was the "manufacturers registered wholesale price" in accordance with Section 142(c) of the Tax Code and paid the amount of P4,805,254,523 as ad valorem tax.

On the other hand, petitioners allege, as specifically worded in the complaint in I.S. No. 93 -508, that "based on the daily manufacturers sworn statements submitted to the BIR by the Taxpayer (Fortunes) total taxable sales during the year 1992 is P16,686,372,295.00," as a result of which Fortune "was able to evade the payment of ad valorem taxes in the aggregate amount of P5,792,479,816.24 xxx."

Petitioners now argue that Section 127(b) lays down the rule that in determining the gross selling price of goods subject to ad valorem tax, it is the price, excluding the value-added tax, at which the goods are sold at wholesale price in the place of production or through their sales agents to the public. The registered wholesale price shall then be used for computing the ad valorem tax which is imposable upon removal of the taxable goods from the place of production. However, petitioners claim that Fortune used the "manufacturers registered wholesale price in selling the goods to alleged fictitious individuals and dummy corporations for the purpose of evading the payment of the correct ad valorem tax.

There can be no question that under Section 127(b), the ad valorem tax should be based on the correct price excluding the value-added tax, at which goods are sold at wholesale in the place of production. It is significant to note that among the goods subject to ad valorem tax, the law specifically Section 142(c) requires that the corresponding tax on cigarettes shall be levied, assessed and collected at the rates based on the "manufacturers registered wholesale price." Why does the wholesale price need to be registered and what is the purpose of the registration? The reason is self-evident, which is to ensure the payment of the correct taxes by the manufacturers of cigarettes through close supervision, monitoring and checking of the business operations of the cigarette companies. As pointed out by private respondents, no industry is as intensely supervised by the BIR and also by the National Tobacco Administration (NTA). Thus, the purchase and use of raw materials are subject to prior authorization and approval by the NTA. Importations of bobbins or cigarette paper, the manufacture, sale, and utilization of the same, are subject to BIR supervision and approval 21

Moreover, as pointed to by private respondents, for purposes of closer supervision by the BIR over the production of cigarettes, Revenue Enforcement Officers are detailed on a 24-hour basis in the premises of the manufacturer to secure production and removal of finished products. Composite Mobile Teams conduct counter-security on the business operations as well as the performance of the Revenue Enforcement Officers detailed thereat. Every transfer of any raw material is not allowed unless, in addition to the required permits, accompanied by Revenue Enforcement Officer. For the purpose of determining the "Manufacturers Registered Wholesale Price" a cigarette manufacturer is required to file a Manufacturers Declaration (BIR Form No. 31.03) for each brand of cigarette manufactured, stating: a.) Materials; b) Labor; c) Overhead; d) Tax Burden and the Wholesale Price by Case. The data submitted therewith is verified by the Revenue Officers and approved by the Commission of Internal Revenue. Any change in the manufacturers registered wholesale price of any brand cannot be effected without submitting the corresponding Sworn Manufacturers Declaration and verified by the Revenue Officer and approved by the Commissioner on Internal Revenue.22 The amount of ad valorem tax payments together with the Payment Order and Confirmation Receipt Nos. must be indicated in the sales and delivery invoices and together with the Manufacturers Sworn Declarations on (a) the quantity of raw materials used during the days operations; (b) the total quantity produced according to brand; and (c) the corresponding quantity removed during the day, the corresponding wholesale price thereof, and the VAT paid thereon must be presented to the corresponding BIR representative for authentication before removal.

Thus, as observed by the trial court in its order of January 25, 1994 granting private respondents prayer for the issuance of a writ of preliminary injunction, Fortunes registered wholesale price (was) duly approved by the BIR, which fact is not disputed by petitioners.23

Now, if every step in the production of cigarettes was closely monitored and supervised by the BIR personnel specifically assigned to Fortunes premises, and considering that the Manufacturers Sworn Declarations on the data required to be submitted by the manufacturer were scrutinized and verified by the BIR and, further, since the manufacturers wholesale price was duly approved by the BIR, then it is presumed that such registered wholesale price is the same as, or approximates "the price, excluding the value-added tax, at which the goods are sold at wholesale in the place production," otherwise, the BIR would not have approved the registered wholesale price of the goods for purposes of imposing the ad valorem tax due. In such case, and in the absence of contrary evidence, it was precipitate and premature to conclude that private respondents made fraudulent returns or wilfully attempted to evade payment of taxes due. "Wilful" means "premeditated; malicious; done with intent, or with bad motive or purpose, or with indifference to the natural consequence x x x"24 "Fraud" in its general sense, "is deemed to comprise anything calculated to deceive, including all acts, omissions, and concealment involving a breach of legal or equitable duty, trust or confidence justly reposed, resulting in the damage to another, or by which an undue and unconscionable advantage taken of another."25

Fraud cannot be presumed. If there was fraud or wilful attempt to evade payment of ad valorem taxes by private respondents through the manipulation of the registered wholesale price of the cigarettes, it must have been with the connivance or cooperation of certain BIR officials and employees who supervised and monitored Fortunes production activities to see to it that the correct taxes were paid. But there is no allegation, much less evidence, of BIR personnels malfeasance. In the very least, there is the presumption that the BIR personnel performed their duties in the regular course in ensuring that the correct taxes were paid by Fortune.26

It is the opinion of both the trial court and respondent Court of Appeals, that before Fortune and the other private respondents could be prosecuted for tax evasion under Sections 253 and 255 of the Tax Code, the fact that the deficiency income, ad valorem and value-added taxes were due from Fortune for the year 1992 should first be established. Fortune received from the Commissioner of Internal Revenue the deficiency assessment notices in the total amount of P7,685,942,221.06 on August 24, 1993. However, under Section 229 of the Tax Code, the taxpayer has the right to move for reconsideration of the assessment issued by the Commissioner of Internal Revenue within thirty (30) days from receipt of the assessment; and if the motion for reconsideration is denied, it may appeal to the Court of Appeals within thirty (30) days from receipt of the Commissioners decision. Here, Fortune received the Commissioners assessment notice dated August 13, 1993 on August 24, 1993 asking for the payment of the deficiency taxes. Within thirty (30) days from receipt thereof, Fortune moved for reconsideration. The Commissioner has not resolved the request for reconsideration up to the present.

We share with the view of both the trial court and Court of Appeals that before the tax liabilities of Fortune are first finally determined, it cannot be correctly asserted that private respondents have wilfully attempted to evade or defeat the taxes sought to be collected from Fortune. In plain words, before one is prosecuted for wilful attempt to evade or defeat any tax under Sections 253 and 255 of the Tax Code, the fact that a tax is due must first be proved.

Suppose the Commissioner eventually resolves Fortunes motion for reconsideration of the assessments by pronouncing that the taxpayer is not liable for any deficiency assessment, then, the criminal complaints filed against private respondents will have no leg to stand on.

In view of the foregoing reasons, we cannot subscribe to the petitioners thesis citing, Ungad v. Cusi, 27 that the lack of a final determination of Fortunes exact or correct tax liability is not a bar to criminal prosecution, and that while a precise computation and assessment is required for a civil action to collect tax deficiencies, the Tax Code does not require such computation and assessment prior to criminal prosecution.

Reading Ungad carefully, the pronouncement therein that deficiency assessment is not necessary prior to prosecution is pointedly and deliberately qualified by the Court with following statement quoted from Guzik v. U.S.: 28 "The crime is complete when the violator has knowingly and wilfully filed a fraudulent return with intent to evade and defeat a part or all of the tax." In plain words, for criminal prosecution to proceed before assessment, there must be a prima.facie showing of a wilful attempt to evade taxes. There was a wilful attempt to evade tax in Ungad because of the taxpayers failure to declare in his income tax return "his income derived from banana saplings." In the mind of the trial court and the Court of Appeals, Fortunes situation is quite apart factually since the registered wholesale price of the goods, approved by the BIR, is presumed to be the actual wholesale price, therefore, not fraudulent and unless and until the BIR has made a final determination of what is supposed to be the correct taxes, the taxpayer should not be placed in the crucible of criminal prosecution. Herein lies a whale of difference between Ungad and the case at bar.

This brings us to the erroneous disquisition that private respondents recourse to the trial court by way of special civil action of certiorari and prohibition was improper because:

a) the proceedings before the state prosecutors (preliminary injunction) were far from terminated private respondents were merely subpoenaed and asked to submit counter affidavits, matters that they should have appealed to the Secretary of Justice; b) it is only after the submission of private respondents counter affidavits that the prosecutors will determine whether or not there is enough evidence to file in court criminal charges for fraudulent tax evasion against private respondents; and c) the proper procedure is to allow the prosecutors to conduct and finish the preliminary investigation and to render a resolution, after which the aggrieved party can appeal the resolution to the Secretary of Justice.

We disagree.

As a general rule, criminal prosecutions cannot be enjoined: However, there are recognized exceptions which, as summarized in Brocka v. Enrile 29 are:

a. To afford adequate protection to the constitutional rights of the accused (Hernandez vs. Albano, et al., L-19272, January 25, 1967, 19 SCRA 95);

b. When necessary for the orderly administration of justice or to avoid oppression or multiplicity of actions (Dimayuga, et al. vs. Fernandez, 43 Phil. 304; Hernandez vs. Albano, supra; Fortun vs. Labang, et al., L-38383, May 27, 1981, 104 SCRA 607);

c. When there is a prejudicial question which is sub judice (De Leon vs. Mabanag, 70 Phil. 202);

d. When the acts of the officer are without or in excess of authority (Planas vs. Gil, 67 Phil. 62);

e. Where the prosecution is under an invalid law, ordinance or regulation (Young vs. Rafferty, 33 Phil. 556; Yu Cong Eng vs. Trinidad, 47 Phil. 385, 389);

f. When double jeopardy is clearly apparent (Sangalang vs. People and Alvendia, 109 Phil. 1140);

g. Where the court had no jurisdiction over the offense (Lopez vs. City Judge, L-25795, October 29, 1966, 18 SCRA 616);

h. Where it is a case of persecution rather than prosecution (Rustia vs. Ocampo, CA-G.R. No. 4760, March 25, 1960);

i. Where the charges are manifestly false and motivated by the lust for vengeance (Recto vs. Castelo, 18 L.J., cited in Rano vs. Alvenia, CA-G.R. No. 30720-R, October 8, 1962; Cf. Guingona, et al. vs. City Fiscal, L-60033, April 4, 1984, 128 SCRA 577); and

j. When there is clearly no prima facie case against the accused and a motion to quash on that ground has been denied (Salonga vs. Pano, et al., L-59524, February 18, 1985, 134 SCRA 438).

In issuing the questioned orders granting the issuance of a writ of preliminary injunction, the trial court believed that said orders were warranted to afford private respondents adequate protection of their constitutional rights, particularly in reference to presumption of innocence, due process and equal protection of the laws. The trial court also found merit in private respondents contention that preliminary injunction should be issued to avoid oppression and because the acts of the state prosecutors were without or in excess of authority and for the reason that there was a prejudicial question.

Contrary to petitioners submission, preliminary investigation may be enjoined where exceptional circumstances so warrant. In Hernandez v. Albano 30 and Fortun v. Labang, 31 injunction was issued to enjoin a preliminary investigation. In the case at bar, private respondents filed a motion to dismiss the complaint against them before the prosecution and alternatively, to suspend the preliminary investigation on the grounds cited hereinbefore, one of which is that the complaint of the Commissioner is not supported by any evidence to serve as adequate basis for the issuance of the subpoena to them and put them to their defense.

Indeed, the purpose of a preliminary injunction is to secure the innocent against hasty, malicious and oppressive prosecution and to protect him from an open and public accusation of crime, from the trouble, expense and anxiety of a public trial and also to protect the state from useless and expensive trials.32 Thus, the pertinent provisions of Rule 112 of the Rules of Court state:

SECTION. 3. Procedure. Except as provided for in Section 7 hereof, no complaint or information for an offense cognizable by the Regional Trial Court shall be filed without a preliminary investigation having been first conducted in the following manner:

(a) The complaint shall state the known address of the respondent and be accompanied by affidavits of the complainant and his witnesses as well as other supporting documents, in such number of copies as there are respondents, plus two (2) copies for the official file. The said affidavits shall be sworn to before any fiscal, state prosecutor or government official authorized to administer oath, or, in their absence or unavailability, a notary public, who must certify that he personally examined the affiants and that he is satisfied that they voluntarily executed and understood their affidavits.

(b) Within ten (10) days after the filing of the complaint, the investigating officer shall either dismiss the same if he finds no ground to continue with the inquiry, or issue a subpoena to the respondent, attaching thereto a copy of the complaint, affidavits and other supporting documents. Within ten (10) days from receipt thereof, the respondent shall submit counter-affidavits and other supporting documents. He shall have the right to examine all other evidence submitted by the complainant.

(c) Such counter-affidavits and other supporting evidence submitted by the respondent shall also be sworn to and certified as prescribed in paragraph (a) hereof and copies thereof shall be furnished by him to the complainant.

(d) If the respondent cannot be subpoenaed, or if subpoenaed, does not submit counter-affidavits within the ten (10) day period, the investigating officer shall base his resolution on the evidence presented by the complainant.

(e) If the investigating officer believes that there are matters to be clarified, he may set a hearing to propound clarificatory questions to the parties or their witnesses, during which the parties shall be afforded an opportunity to be present but without the right to examine or cross-examine. If the parties so desire, they may submit questions to the investigating officer which the latter may propound to the parties or witnesses concerned.

(f) Thereafter, the investigation shall be deemed concluded, and the investigating officer shall resolve the case within ten (10) days therefrom. Upon the evidence thus adduced, the investigating officer shall determine whether or not there is sufficient ground to hold the respondent for trial.

As found by the Court of Appeals, there was obvious haste by which the subpoena was issued to private respondents, just the day after the complaint was filed, hence, without the investigating prosecutors being afforded material time to examine and study the voluminous documents appended to the complaint for them to determine if preliminary investigation should be conducted. The Court of Appeals further added that the precipitate haste in the issuance of the subpoena justified private respondents misgivings regarding the objectivity and neutrality of the prosecutors in the conduct of the preliminary investigation and so, the appellate court concluded, the grant of preliminary investigation by the trial court to afford adequate protection to private respondents constitutional rights and to avoid oppression does not constitute grave abuse of discretion amounting to lack of jurisdiction.

The complaint filed by the Commissioner on Internal Revenue states itself that the primary evidence establishing the falsity of the declared taxable sales in 1992 in the amount of P 11,736,658,580.00 were the "Daily Manufacturers Sworn Statements" submitted by the taxpayer which would show that the total taxable sales in 1992 are in the amount of P 16,686,372,295.00. However, the Commissioner did not present the "Daily Manufacturers Sworn Statements" supposedly submitted to the BIR by the taxpayer, prompting private respondents to move for their production in order to verify the basis of petitioners computation. Still, the Commissioner failed to produce the declarations. In Borjav. Moreno, 33 it was held that the act of the investigator in proceeding with the hearing without first acting on respondents motion to dismiss is a manifest disregard of the requirement of due process. Implicit in the opinion of the trial court and the Court of Appeals is that, if upon the examination of the complaint, it was clear that there was no ground to continue with the inquiry, the investigating prosecutor was duty bound to dismiss the case. On this point, the trial court stressed that the prosecutors conducting the preliminary investigation should have allowed the production of the "Daily Manufacturers Sworn Statements" submitted by Fortune without which there was no valid basis for the allegation that private respondents wilfully attempted to evade payment of the correct taxes. The prosecutors should also have produced the "Daily Manufacturers Sworn Statements" by other cigarette companies, as sought by private respondents, to show that these companies which had paid the ad valorem taxes on the same basis and in the same manner as Fortune were not similarly criminally charged. But the investigating prosecutors denied private respondents motion, thus, indicating that only Fortune was singled out for prosecution. The trial court and the Court of Appeals maintained that at that stage of the preliminary investigation, where the complaint and the accompanying affidavits and supporting documents did not show any violation of the Tax Code providing penal sanctions, the prosecutors should have dismissed the complaint outright because of total lack of evidence, instead of requiring private respondents to submit their counter affidavits under Section 3(b) of Rule 112.

We believe that the trial court in issuing its questioned orders, which are interlocutory in nature, committed no grave abuse of discretion amounting to lack of jurisdiction. There are factual and legal bases for the assailed orders. On the other hand, the burden is upon the petitioners to demonstrate that the questioned orders constitute a whimsical and capricious exercise of judgment, which they have not. For certiorari will not be issued to cure errors in proceedings or correct erroneous conclusions of law or fact. As long as a court acts within its jurisdiction, any alleged errors committed in the exercise of its jurisdiction will amount to nothing more than errors of judgment which are reviewable by timely appeal and not by a special civil action of certiorari.34 Consequently, the Regional Trial Court acted correctly and judiciously, and as demanded by the facts and the law, in issuing the orders granting the writs of preliminary injunction, in denying petitioners motion to dismiss and in admitting the supplemental petitions. What petitioners should have done was to file an answer to the petition filed in the trial court, proceed to the hearing and appeal the decision of the court if adverse to them.

WHEREFORE, the instant petition is hereby DISMISSED.

SO ORDERED.

Hermosisima, Jr., J., concurs.

Bellosillo, J., see concurring and dissenting opinion.

Padilla, J., see dissenting opinion.

Vitug, J., see separate opinion (dissenting).