People v. Ongsiako, Jr.

SPECIAL FIRST DIVISION [C.T.A. CRIM. CASE NO. O-196. July 22, 2014.] (I.S. No. 06B-03333) For: Violation of Sec. 255 in rel. to Sec. 253 (d) and 256, Tax Code of 1997, as amended by RA 8424 PEOPLE OF THE PHILIPPINES , plaintiff, vs . EDMUNDO T. ONGSIAKO, JR., H. Tambunting Pawnshop, Inc., 822 M. Dela Fuente St., Sampaloc, Manila , accused. AMENDED DECISION UY , J p : For resolution are: (a) plaintiff's "MOTION FOR PARTIAL RECONSIDERATION (Re: Decision promulgated on 26 February 2014)" 1 filed on March 10, 2014, with accused's "COMMENT & OPPOSITION (Re: Motion for Partial Reconsideration)" 2 filed on March 31, 2014; and (b) accused's "MOTION FOR RECONSIDERATION" 3 filed on March 13, 2014, with plaintiff's "COMMENT/OPPOSITION (Re: Accused Motion for Reconsideration dated 13 March 2014)" 4 filed on March 31, 2014. Both motions are seeking the reconsideration of this Court's Decision dated February 26, 2014, the dispositive portion of which reads: " WHEREFORE , accused EDMUNDO T. ONGSIAKO, JR. is hereby found GUILTY BEYOND REASONABLE DOUBT of violation of Section 255, in relation to Section 253 (d) and 256 of the National Internal Revenue Code of 1997, and is hereby SENTENCED to suffer an indeterminate penalty of imprisonment of one (1) year as minimum, to two (2) years as maximum, and is ORDERED to pay a fine in the amount of P10,000.00, with subsidiary imprisonment in case accused has no property with which to meet the said fine, pursuant to Section 280 of the NIRC of 1997. TcDaSI With regard to the civil liability, H. TAMBUNTING PAWNSHOP, INC. is hereby ORDERED TO PAY the amount of TWO MILLION SIX HUNDRED TEN THOUSAND FOUR HUNDRED SEVENTY EIGHT PESOS AND TWENTY ONE CENTAVOS (P2,610,478.21) , representing the deficiency documentary stamp tax for the taxable year 1999, inclusive of surcharge and interest, plus 20% delinquency interest per annum from the total amount of P2,610,478.21, counted from February 24, 2003 until fully paid, pursuant to Section 249 (C) (3) of the NIRC of 1997. In addition, H. TAMBUNTING PAWNSHOP, INC. is further ORDERED TO PAY a fine of FIFTY THOUSAND PESOS (P50,000.00) , pursuant to Section 256 of the NIRC of 1997. SO ORDERED. " Plaintiff raises its sole ground for its Motion for Partial Reconsideration, to wit: 1. Accused Edmundo T. Ongsiako, Jr., being the president and responsible officer of H. Tambunting Pawnshop, Inc., is the person required to pay the tax. In his Comment & Opposition, accused counters that: 1. The civil liability corresponds and pertains to respondent corporate taxpayer H. Tambunting Pawnshop, and not to accused Edmundo T. Ongsiako, Jr., because Section 253 of the NIRC of 1997, as amended, points to a penalty, and upon whom such penalty shall be imposed. A corporation, being a juridical entity, cannot be made to serve the penalty of imprisonment. By virtue of Section 253, it is the person responsible for the violation, which serves the penalty prescribed by Section 255 of the Tax Code; and DAHCaI 2. The application of the case of Michel J. Lhuillier Pawnshop, Inc. vs. Commissioner of Internal Revenue 5 will call for the deletion of surcharges and interest in the assessment that brought forth the criminal action, and the BIR should have issued a new assessment and/or demand letter, right after September 11, 2006, to reflect the changes as directed by the Supreme Court. However, for failure of the BIR to re-assess and demand from the taxpayer his proper tax liability, the taxpayer was never properly assessed. Consequently, he could not have been held in default, nor could he have failed to pay taxes. In support of his Motion for Reconsideration, accused advances the following arguments, to wit: 1. The Honorable Court erred in not ascribing good faith to accused, which the Supreme Court, by judicial edict, ascribed to all taxpayers who did not pay documentary stamp taxes (DST) on pawn tickets before September 11, 2006, the date when the Supreme Court decided with finality in the case of Michel J. Lhuillier Pawnshop, Inc. vs. Commissioner of Internal Revenue , 6 the issue regarding the liability of pawnshops for DST on pawn tickets. The Supreme Court's ascription of good faith forecloses any finding of "willfulness" in accused's failure to pay DST; SDIaHE 2. The Honorable Court erred in not retroactively applying said good faith ascribed by the Supreme Court in the Michel J. Lhuillier Pawnshop, Inc. vs. Commissioner of Internal Revenue 7 decision, thus violating the well-entrenched criminal law principle of giving retroactive application to a law or judicial interpretation when favorable to the accused; 3. The Honorable Court erred in concluding that the supposed liability of accused for DST had become final and therefore due and demandable, when in truth and in fact said DST liability never became due for the reason that the supposed liability includes surcharge and interest, which the Supreme Court already categorically stated should not be imposed. The absence of a new demand letter for the basic DST liability means an absence of a due and demandable obligation under the Civil Code and the absence of the corresponding criminal liability. Accused is therefore not precluded from raising the good faith ascribed by the Supreme Court in the Michel J. Lhuillier Pawnshop, Inc. vs. Commissioner of Internal Revenue 8 decision as a defense; 4. The Honorable Court erred in not appreciating the fact that accused was advised by his lawyer not to pay the supposed liability for the 1999 DST, which was never controverted by the prosecution, thus showing the absence of "willfulness" in failing to pay the supposed DST; 5. The Honorable Court erred in ordering H. Tambunting Pawnshop, Inc. to pay the amount of Php2,610,478.21, representing the deficiency documentary stamp tax for taxable year 1999, inclusive of surcharge and interest, for the reason that the surcharge and interest were not supposed to be collected pursuant to the Michel J. Lhuillier Pawnshop, Inc. vs. Commissioner of Internal Revenue 9 decision; ADCEcI 6. The Honorable Court erred in ordering H. Tambunting Pawnshop, Inc. to pay the basic DST liability, the same being not yet due and demandable since there is yet no new demand letter calling for the payment of basic DST; and 7. The law requires proof beyond reasonable doubt. Assuming, without admitting, that the arguments hereinbefore raised are not sufficient to totally erase the alleged criminal liability, said arguments raise, at the very least, reasonable doubt on the culpability of the accused, therefore, making him not criminally liable. There is reasonable doubt as to the willfulness of the accused in failing to pay taxes. With the element of willful failure to pay taxes seriously lacking, the Honorable Court is most respectfully urged to acquit the accused. In its Comment/Opposition, the plaintiff contends that: 1. The arguments raised by accused have already been duly considered, thoroughly and exhaustively discussed by this Court in its Decision dated February 26, 2014; 2. The guilt of the accused has been established beyond reasonable doubt and all the elements of Section 255 of the NIRC of 1997, as amended, has been proven; 3. In the case of Michel J. Lhuillier Pawnshop, Inc. vs. Commissioner of Internal Revenue , 10 the Supreme Court categorically held that the liability of pawnshops for DST was rooted as early as January 1, 1998, when the NIRC of 1997, as amended, was enacted. cTCADI THE COURT'S RULING Plaintiff's Motion for Partial Reconsideration Plaintiff's Motion for Partial Reconsideration has merit. Accused Edmundo T. Ongsiako, Jr. should be held solidarily liable with the corporate taxpayer, H. Tambunting Pawnshop, Inc., for the civil liability to pay the assessed deficiency Documentary Stamp Tax, as well as the corresponding interest and surcharges. The liability of corporate officers vis--vis the obligations incurred by the corporation, as a distinct juridical entity, has been delineated by the Supreme Court in the case of Heirs of Fe Tan Uy vs. International Exchange Bank , 11 to wit: "Basic is the rule in corporation law that a corporation is a juridical entity which is vested with a legal personality separate and distinct from those acting for and in its behalf and, in general, from the people comprising it. Following this principle, obligations incurred by the corporation, acting through its directors, officers and employees, are its sole liabilities. A director, officer or employee of a corporation is generally not held personally liable for obligations incurred by the corporation. Nevertheless, this legal fiction may be disregarded if it is used as a means to perpetrate fraud or an illegal act, or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, or to confuse legitimate issues ." 12 (Bold Emphasis supplied.) TAIEcS A few of these grounds for disregarding the legal fiction and imposing solidary liability upon the corporate officers, can be found in the first paragraph of Section 31 of Batas Pambansa Bilang (B.P.) No. 68, otherwise known as "The Corporation Code of the Philippines," which states: " Sec. 31. Liability of directors, trustees or officers . Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons. . . . ." Based on the foregoing provision, solidary liability will then attach to the directors, officers or employees of the corporation in certain circumstances, such as: "1. When directors and trustees or, in appropriate cases, the officers of a corporation : (a) vote for or assent to patently unlawful acts of the corporation ; (b) act in bad faith or with gross negligence in directing the corporate affairs; and (c) are guilty of conflict of interest to the prejudice of the corporation, its stockholders or members, and other persons; 2. When a director or officer has consented to the issuance of watered stocks or who, having knowledge thereof, did not forthwith file with the corporate secretary his written objection thereto; AHacIS 3. When a director, trustee or officer has contractually agreed or stipulated to hold himself personally and solidarily liable with the corporation; or 4. When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate action. (However), before a director or officer of a corporation can be held personally liable for corporate obligations, however, the following requisites must concur: (1) the complainant must allege in the complaint that the director or officer assented to patently unlawful acts of the corporation, or that the officer was guilty of gross negligence or bad faith; and (2) the complainant must clearly and convincingly prove such unlawful acts, negligence or bad faith. " 13 (Emphases supplied.) In this case, both requisites are present. First, it was sufficiently alleged that accused, in his capacity as the President and responsible officer, willfully and knowingly assented to the non-payment of the deficiency Documentary Stamp Taxes (DST), without formally protesting against or appealing the same, despite due assessment, notice and demand to do so. 14 As for the second element, the prosecution was able to prove that accused was guilty of willfully refusing to pay the said taxes, and knowingly sanctioned such patently unlawful act of the corporation. ICTacD For despite receipt and knowledge of the Pre-Assessment Notice, 15 Assessment Notice No. 32-99 with accompanying Demand Letters for deficiency DST, including increments, and compromise penalty in the amounts of P2,610,478.21 and P25,000.00, respectively, 16 Assessment Notices, 17 Demand Letter, 18 and the Warrant of Distraint and/or Levy, 19 the accused, in his capacity as the President of the corporate taxpayer charged, deliberately refused to pay the subject assessment. In fact, in his testimony during the hearing on October 24, 2012, accused admitted his willful refusal to pay the subject DST assessment, despite knowledge of the same, to wit: "ATTY. EUGENIO Q: Am I also correct that you were aware at that time of the assessment of the company particularly on the DST assessment of the company for taxable year 1999 Mr. Witness? MR. ONGSIAKO A: Yes, we were given a Letter of Authority, they went to the process, yes. ATTY. EUGENIO Q: And am I also correct that despite knowledge of that assessment, you deliberately refuse to pay the said assessment because of your position of the BIR Ruling issued by the BIR, am I correct? MR. ONGSIAKO A: Yes because I relied on that ruling of the BIR." 20 At this juncture, it bears noting that even if there were administrative and judicial measures readily available to the corporate taxpayer to challenge the subject assessment, the accused, as the responsible officer, failed to resort to any of the proper legal remedies. HIEASa If the accused, in good faith, truly believed in the strength of the corporation's defense, he could have easily contested the subject assessment through the proper avenues. However, instead of refuting the assessment, the accused chose to simply ignore the same. Because of this failure to negate the corporation's liability for the subject DST assessment, within the period allowed by law, the assessment can no longer be questioned as it has already become final, executory, and demandable. 21 After all, the remedies available to an aggrieved taxpayer are not without its limitations. A taxpayer's right to contest assessments may be waived or lost, as in this case. Thus, it has been held that, "in a suit for the collection of internal revenue taxes, where the assessment has already become final and executory, the action to collect is akin to an action to enforce the judgment. No inquiry can be made therein as to the merits of the original case or the justness of the judgment relied upon." 22 In the case at bench, despite the final and executory nature of the subject assessment, the prosecution was able to prove that the accused, in his capacity as the President of the corporation, still deliberately refused to pay the DST assessment, and in effect, knowingly steered the corporation into evading its legal duty to pay the DST assessment. For this reason, this Court is constrained to disregard the legal fiction of the corporation in this case, and make the accused solidarily liable with the corporate taxpayer, H. Tambunting Pawnshop, Inc., for the civil liability to pay the assessed deficiency DST, as well as the interest and surcharges thereto. CSTEHI Accused's Motion for Reconsideration Accused's Motion for Reconsideration is bereft of merit. The subject DST assessment is already final and executory for the corporate taxpayer's failure to appeal. The merits of the assessment can no longer be disputed. In his Motion, the accused asserts that the supposed liability of the corporate taxpayer in this case is not yet final and executory, nor is it due and demandable, for failure of the BIR to issue a new demand letter for the basic DST liability, without the surcharges and interest, pursuant to the case of Michel J. Lhuillier Pawnshop, Inc. vs. Commissioner of Internal Revenue . 23 We are not convinced. In this case, the accused was served with the following notices: the Pre-Assessment Notice, 24 Assessment Notice No. 32-99 with accompanying Demand Letters, 25 Assessment Notices, 26 Demand Letter, 27 and the Warrant of Distraint and/or Levy. 28 For taxpayers, such as the accused, who received such deficiency tax assessments, and believe, in good faith, that they should not be held liable for it, there are various legal remedies that are available for disputing the same. Any objections to such deficiency assessments, should have been raised, within the period allowed by law, following the procedure clearly laid out in Section 228 of the NIRC, as amended, to wit: cASEDC "SEC. 228. Protesting of Assessment. When the Commissioner or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings: Provided, however , That a pre-assessment notice shall not be required in the following cases: xxx xxx xxx The taxpayer shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void. Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an assessment based on his findings. Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become final. CEaDAc If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of the one hundred eighty (180)-day period; otherwise, the decision shall become final, executory and demandable." (Emphasis supplied.) It bears stressing that in this case, the accused was not deprived of legal remedies within which he could have asserted his defense. If the accused believed, in good faith, that the corporation was not liable for the subject assessment, he could have directed the filing of an administrative protest and subsequently raised an appeal before this Court. However, the accused chose to ignore the subject assessments and allowed the same to become final, pursuant to Section 228 of the NIRC of 1997, as amended. This failure of the accused to appeal the disputed assessment against him is fatal, making it final, executory, and demandable, to wit: "Tax assessments by tax examiners are presumed correct and made in good faith, and all presumptions are in favor of the correctness of a tax assessment unless proven otherwise. We have held that a taxpayer's failure to file a petition for review with the Court of Tax Appeals within the statutory period rendered the disputed assessment final, executory and demandable, thereby precluding it from interposing the defenses of legality or validity of the assessment and prescription of the Government's right to assess. Indeed, any objection against the assessment should have been pursued following the avenue paved in Section 229 (now Section 228) of the NIRC on protests on assessments of internal revenue taxes ." 29 (Emphasis supplied.) IDcAHT As a result, the taxpayer is "barred from disputing the correctness of the assessment or from invoking any defense that would reopen the question of its liability on the merits." 30 Thus, even assuming that the assessment should not have included surcharges and penalties, pursuant to the case of Michel J. Lhuillier Pawnshop, Inc. vs. Commissioner of Internal Revenue , 31 the subject assessment can no longer be disturbed. Good faith cannot be ascribed to the accused, as the factual milieu in the case of Michel J. Lhuillier Pawnshop, Inc. vs. Commissioner of Internal Revenue 32 is different from this case. The case of Michel J. Lhuillier Pawnshop, Inc. vs. Commissioner of Internal Revenue , 33 is not applicable to the case against the accused as the factual milieu, as discussed therein, are not obtaining in this case. It should be noted that the aforementioned case cited by the accused to bolster his defense, is a civil case, which originated from an assessment of deficiency DST, which the corporation therein, Michel J. Lhuillier Pawnshop, Inc., actively contested, until the finality of the Decision of the Supreme Court on the matter. In the said case, the corporation not only filed a motion for reconsideration of the assessment notices against it, but it also filed a petition for review before this Court, the Court of Appeals, and subsequently elevated the case before the Supreme Court. Thus, in contrast to the case at bar, the assessment against Michel J. Lhuillier Pawnshop, Inc. never became final and executory, as the said corporation took legal steps to dispute the assessment against it and prevent the same from attaining finality. EcAHDT Considering the fact that Michel J. Lhuillier Pawnshop, Inc. availed of the proper legal remedies to refute the deficiency DST assessment against it, the Supreme Court ascribed good faith and honest belief to the said corporation, and deleted the surcharges and penalties imposed therein. However, in this case, the accused did not take any legal action to question the deficiency DST assessment against the corporate taxpayer, and allowed the time allotted by law to contest the same to lapse, without any action on its part. It is precisely this inaction on the part of the accused that not only rendered the deficiency assessment against it final, executory, and demandable, but also precludes any defense of good faith on his part. The alleged reliance of the accused on the advice of his lawyer does not negate the fact that he willfully failed to pay the subject assessment, which was already final, executory, and demandable. The defense of the accused, that he merely relied on the advice of his lawyer, is not well-received. This is because apart from the self-serving allegations of the accused, there was no corroborating evidence to establish the fact that he was in fact, advised by his lawyer to simply refuse to pay the subject DST assessment, without taking any legal action to contest the same. ACaTIc In any case, even if it was indeed established that the accused was given erroneous information by his lawyer, the fact remains that the accused is guilty of violating Section 255 of the NIRC of 1997, as amended, because of his willful failure to pay the subject assessment, during the time or times required by law. At the risk of being repetitive, it bears stressing that the failure of the corporate taxpayer and/or the accused to timely dispute the assessment rendered it final and executory, and made the corporate taxpayer liable for the same. Bearing in mind the finality of the subject assessment against the corporation, it became incumbent upon the accused, in his capacity as the responsible officer of the corporation, to direct payment of the deficiency taxes. However, in an act of intentional defiance to the BIR, accused willfully refused to pay for the same, without any justification therefor. Now, he cannot be allowed to evade criminal liability by shifting the blame onto his counsel and alleging incorrect legal advice as an excuse, nor can he belatedly attempt to question the merits of the subject assessment. Time and again, it has been held that, "taxes are the lifeblood of the nation through which the government agencies continue to operate and with which the State effects its functions for the welfare of its constituents. We cannot tolerate taxpayers hampering expedient collection of taxes by their failure to act within a reasonable period. No government could exist if all litigants were permitted to delay the collection of its taxes." 34 WHEREFORE , premises considered, plaintiff's Motion for Partial Reconsideration (Re: Decision promulgated on 26 February 2014) is PARTLY GRANTED . The Decision dated February 26, 2014 of the Special First Division of this Court is hereby AFFIRMED with MODIFICATION as regards the civil liability of accused Edmundo T. Ongsiako, Jr. ECHSDc Accused EDMUNDO T. ONGSIAKO, JR. is hereby found GUILTY BEYOND REASONABLE DOUBT of violation of Section 255, in relation to Section 253 (d) and 256 of the National Internal Revenue Code of 1997, and is hereby SENTENCED to suffer an indeterminate penalty of imprisonment of one (1) year as minimum, to two (2) years as maximum, and is ORDERED TO PAY a fine in the amount of P10,000.00, with subsidiary imprisonment in case accused has no property with which to meet the said fine, pursuant to Section 280 of the NIRC of 1997. With regard to the civil liability, H. TAMBUNTING PAWNSHOP, INC. and accused EDMUNDO T. ONGSIAKO, JR., are hereby held JOINTLY and SEVERALLY LIABLE TO PAY the amount of TWO MILLION SIX HUNDRED TEN THOUSAND FOUR HUNDRED SEVENTY EIGHT PESOS AND TWENTY ONE CENTAVOS (P2,610,478.21) , representing the deficiency documentary stamp tax for the taxable year 1999, inclusive of surcharge and interest, plus 20% delinquency interest per annum from the total amount of P2,610,478.21, counted from February 24, 2003 until fully paid, pursuant to Section 249 (C) (3) of the NIRC of 1997. In addition, H. TAMBUNTING PAWNSHOP, INC. is further ORDERED TO PAY a fine of FIFTY THOUSAND PESOS (P50,000.00) , pursuant to Section 256 of the NIRC of 1997. As for accused's Motion for Reconsideration , the same is hereby DENIED for lack of merit. SO ORDERED . (SGD.) ERLINDA P. UY Associate Justice Esperanza Fabon-Victorino, J., concurs. Footnotes 1. Docket, pp. 578 to 583. 2. Docket, pp. 641 to 645. 3. Docket, pp. 586 to 603. 4. Docket, pp. 646 to 649. 5. G.R. No. 166786, May 3, 2006 and September 11, 2006. 6. Supra . 7. Supra . 8. Supra . 9. Supra . 10. Supra . 11. Heirs of Fe Tan Uy vs. International Exchange Bank, etseq , G.R. Nos. 166282 and 166283, February 13, 2013. 12. Heirs of Fe Tan Uy vs. International Exchange Bank, etseq, supra . 13. Heirs of Fe Tan Uy vs. International Exchange Bank, etseq, supra . 14. Information filed on February 14, 2011; Docket, pp. 1 to 2. 15. Exhibits "L" to "L-1," Docket, pp. 179 to 180. 16. Exhibits "S" to "U," Docket, pp. 192 to 194. 17. Exhibits "FF" to "GG," Docket, pp. 205 to 206. 18. Exhibit "HH," Docket, p. 207. 19. Exhibit "II," Docket, p. 208. 20. TSN dated October 24, 2012, pp. 30 to 31. 21. Commissioner of Internal Revenue vs. Hon. Raul M. Gonzalez, etc., et al. , G.R. No. 177279, October 13, 2010. 22. Cecilia Teodoro Dayrit, et al. vs. The Honorable Fernando A. Cruz, etc., et al. , G.R. No. L-39910, September 26, 1988. 23. Supra. 24. Exhibits "L" to "L-1," Docket, pp. 179 to 180. 25. Exhibits "S" to "U," Docket, pp. 192 to 194. 26. Exhibits "FF" to "GG," Docket, pp. 205 to 206. 27. Exhibit "HH," Docket, p. 207. 28. Exhibit "II," Docket, p. 208. 29. Commissioner of Internal Revenue vs. Hon. Raul M. Gonzalez, etc., et al. , G.R. No. 177279, October 13, 2010; Rizal Commercial Banking Corporation vs. Commissioner of Internal Revenue , G.R. No. 168498, April 24, 2007. 30. Republic of the Philippines vs. Court of Appeals , G.R. No. L-38540, April 30, 1987. 31. Supra . 32. Supra . 33. Supra . 34. Cecilia Teodoro Dayrit, et al. vs. The Honorable Fernando A. Cruz, etc., et al. , supra .