Commissioner of Internal Revenue vs. Ariete

For a person to be excluded from the coverage of the VAP, the verified information filed by an informer under Section 281 of the Tax Code must not only be filed but must also be duly recorded in the Official Registry Book of the BIR before the date of availment under the VAP. The BIR’s failure to comply with the recording requirement means the taxpayer, even if under investigation, can avail of the VAP and is relieved from criminal or civil liability incident to non-filing of a return.

The Commissioner of Internal Revenue and Julieta Ariete are the parties in a tax dispute governed by the Voluntary Assessment Program (VAP), implemented through RMO No. 59-97, as amended by RMO Nos. 60-97 and 63-97. The VAP was intended to give erring taxpayers a final opportunity to come up with a clean slate, and its exclusion clause covers persons under investigation as a result of verified information filed by an informer under Section 281 of the Tax Code and duly recorded in the Official Registry Book of the BIR before the date of availment.

On 21 May 1997, George P. Mercado filed an Affidavit with the Special Investigation Division, Revenue Region No. 19, Davao City, attesting that Julieta Ariete earned substantial income in 1994, 1995, and 1996 without paying income tax. The Chief of the Special Investigation Division issued Mission Order No. 118-97 dated 23 May 1997, directing a Revenue Officer to conduct preliminary verification of the denunciation and submit a progress report. The SID Chief also requested access to the BIR records of Revenue District No. 112, Tagum, Davao del Norte, inquiring whether Ariete’s income tax returns for 1993 to 1996 were available for examination; the RDO replied that Ariete had no records of income tax returns for those years.

On 15 October 1997, the Revenue Officer submitted a report stating that Ariete admitted her non-filing of income tax returns. On 2 December 1997, Ariete filed her income tax returns for 1993, 1994, 1995, and 1996 under RMO No. 59-97 as amended by RMO Nos. 60-97 and 63-97, otherwise known as the Voluntary Assessment Program. On 28 July 1998, the Regional Director issued a Letter of Authority to investigate Ariete for tax purposes covering 1993 to 1996.

On 14 October 1998, the Revenue Officer submitted a Memorandum to the SID Chief recommending that Ariete be assessed with deficiency income taxes for 1993 to 1996. On 22 January 1999, four assessment notices were issued against her for total deficiency income taxes, inclusive of interests and surcharges, of ₱191,463.04, broken down as follows: 1993 — ₱6,462.18; 1994 — ₱47,187.39; 1995 — ₱24,729.64; and 1996 — ₱113,083.83. On 22 February 1999, Ariete filed an Assessment Protest with Prayer for Reinvestigation; the protest was denied on 30 March 1999. On 16 April 1999, she offered a compromise settlement, but it was denied.

Ariete then filed a petition for review with the CTA assailing the BIR’s decision denying with finality her request for reinvestigation and disapproving her availment of the VAP, and contesting the four assessment notices. The CTA found that neither the verified information nor the investigation was recorded in the Official Registry Book of the BIR. The CA affirmed this finding and also quoted the CTA’s finding that, although the Letter of Authority was issued only on 28 July 1998, Mission Order No. 118-97 had already been issued on 23 May 1997 authorizing monitoring and surveillance, preceded by George Mercado’s verified information alleging Ariete’s failure to pay income taxes for 1994 to 1996.

• Strict Construction of Tax Amnesty: Petitioner contended that the VAP, being in the nature of a tax amnesty, must be strictly construed against the taxpayer-applicant, so the BIR’s failure to record the information in the Official Registry Book does not affect Ariete’s disqualification from the VAP.
• Investigation Before Availment: Petitioner argued that taxpayers under investigation for non-filing of income tax returns before their availment of the VAP are not covered by the program and are not entitled to its benefits.
• Voluntariness: Petitioner alleged that the underlying reason for disqualification is that availment of the VAP by such a taxpayer is no longer voluntary, and asserted that voluntariness is the very essence of the VAP.
• Recording as Procedural: Petitioner claimed that the recording in the Official Registry Book was a mere procedural omission that does not affect Ariete’s exclusion from the VAP.

• Literal Application / Verba Legis: Respondent claimed that where the terms of a statute are clear and unambiguous, no interpretation is called for, and the law is applied as written, because application is the first duty and interpretation is only for when literal application is impossible or inadequate.

• VAP Exclusion — Official Registry Book: Whether the CA erred in holding that the recording in the Official Registry Book of the BIR of the information filed by the informer under Section 281 of the Tax Code is a mandatory requirement before a taxpayer-applicant may be excluded from the coverage of the VAP.

• VAP Exclusion — Official Registry Book: No. The CA correctly held that recording is mandatory; the RMOs consistently use the conjunctive “and,” requiring both the verified information and its recording in the Official Registry Book before a taxpayer may be excluded from the VAP.

• VAP Exclusion — Official Registry Book: The SC applied the plain meaning rule: where the language of the law is clear and unequivocal, it must be given literal application and applied without interpretation, and this rule applies with particular strictness to tax laws, whose provisions are not extended by implication. RMO No. 59-97, as amended by RMO Nos. 60-97 and 63-97, Item 3.4, excludes from VAP coverage persons under investigation by the Tax Fraud Division and/or Regional Special Investigation Divisions as a result of verified information filed by an informer under Section 281 of the Tax Code, and duly recorded in the Official Registry Book of the BIR before the date of availment. The CIR consistently used the word “and” and even underscored it in RMO No. 63-97; “and” means “in addition to” and implies conjunction or union. Thus, for exclusion, the verified information must not only be filed under Section 281 but must also be duly recorded in the Official Registry Book before availment. The SC noted that RR No. 18-2005 reiterated the same recording requirement for the Enhanced VAP. When a tax provision speaks unequivocally, it is not the province of a court to scan its wisdom or policy; the words must mean exactly what they say, and a provision expressly limiting its application cannot be extended by interpretation. The CTA’s findings, affirmed by the CA, were final, binding, and conclusive: neither the verified information nor the investigation was recorded in the Official Registry Book. Therefore, Ariete, even if under investigation, could avail of the VAP, and she was relieved from criminal or civil liability incident to non-filing of a return.

• Verba Legis / Plain Meaning Rule — Where the language of the law is clear and unequivocal, it must be given literal application and applied without interpretation; the rule applies with particular strictness to tax laws, and tax provisions are not extended by implication. The SC applied it to Item 3.4 of the VAP RMOs, finding the word “and” clear and the recording requirement mandatory.
• Conjunctive “And” — “And” means “in addition to” and implies conjunction or union; it binds together the words, phrases, or sentences it connects. The SC held that the verified information must be filed and the investigation must be recorded in the Official Registry Book before VAP availment.
• VAP Exclusion Requisites — For a person to be excluded from VAP coverage, the following must concur: (a) the person is under investigation by the Tax Fraud Division and/or the Regional Special Investigation Divisions; (b) the investigation is as a result of a verified information filed by an informer under Section 281 of the NIRC; and (c) the investigation is duly recorded in the Official Registry Book of the BIR before the date of availment under the VAP. The SC affirmed that the absence of the recording requisite means the taxpayer is not excluded.

• “It is well-settled that where the language of the law is clear and unequivocal, it must be given its literal application and applied without interpretation.” — The SC used this plain meaning rule to construe the VAP RMOs literally.
• “The conjunctive word "and" is not without legal significance. It means "in addition to."” — The SC relied on this to hold that recording in the Official Registry Book is required in addition to the filing of the verified information.
• “It is sufficiently clear that for a person to be excluded from the coverage of the VAP, the verified information must not only be filed under Section 281 of the Tax Code, it must also be duly recorded in the Official Registry Book of the BIR before the date of availment under the VAP.” — This is the ratio decidendi on the sole issue.
• “Petitioner’s failure to effect compliance with the requirement of recording the verified information or investigation in the Official Registry Book of the BIR means that respondent, even if under investigation, can avail of the benefits of the VAP.” — The SC applied the mandatory recording requirement to Ariete’s case.

• Commissioner of Internal Revenue vs. Central Luzon Drug Corporation, G.R. No. 159610, 12 June 2008, 554 SCRA 398, 409 — Relied on for the rule that clear and unequivocal language must be given literal application without interpretation.
• CIR vs. Court of Appeals, 338 Phil. 322, 330 (1997) — Relied on for the rule that tax laws are construed strictly and their provisions are not extended by implication.
• LICOMCEN, Incorporated vs. Foundation Specialists, Inc., G.R. No. 167022, 31 August 2007, 531 SCRA 705, 722 — Relied on for the rule that “and” in statutory construction implies conjunction or union.
• Commissioner of Customs vs. Manila Star Ferry, Inc., G.R. Nos. 31776-78, 21 October 1993, 227 SCRA 317, 322 — Relied on for the rule that when a tax provision speaks unequivocally, it is not the province of a court to scan its wisdom or policy.
• Canet vs. Decena, 465 Phil. 325, 333 (2004) — Relied on for the rule that where a provision expressly limits its application to certain transactions, it cannot be extended to other transactions by interpretation.
• Philippine Long Distance Telephone Company vs. Commissioner of Internal Revenue, G.R. No. 157264, 31 January 2008, 543 SCRA 329, 338, citing Far East Bank and Trust Company vs. Court of Appeals, G.R. No. 129130, 9 December 2005, 477 SCRA 49, 54 — Relied on for the rule that CTA findings of fact are final, binding, and conclusive, especially if similar to the CA’s findings.

• Section 281 (now Section 282), National Internal Revenue Code — Defines the verified information filed by an informer that, together with recording in the Official Registry Book, triggers exclusion from the VAP; the SC used it as one component of Item 3.4.
• RMO No. 59-97, as amended by RMO Nos. 60-97 and 63-97, Item 3.4 — Implements the VAP and excludes persons under investigation as a result of verified information filed by an informer under Section 281 and duly recorded in the Official Registry Book before availment; the SC read “and” conjunctively to require both filing and recording.
• Revenue Regulations No. 18-2005, Section 1 — Implements the Enhanced VAP and reiterates the recording requirement; the SC cited it to bolster its interpretation of Item 3.4.
• Rule 45, Rules of Court — The CIR’s petition for review was filed under this rule; the SC denied it and affirmed the CA.