PEOPLE vs MENDEZ
GR No. 208310-11 & 208662
FACTS:
The Bureau of Internal Revenue (BIR) issued a Letter of Authority (LOA) to examine Joel
Mendez's books of accounts and other accounting records for taxable years 2001, 2002, and
2003. However, Mendez failed to comply with the Letter-Notice. In the investigation, Mendez
was found to be a single proprietor doing business under several trade names and addresses
since 1996. While Mendez had several businesses registered, it was revealed that Mendez
did not file an Annual Income Tax Return (ITR) for 2001 and 2002 and while having his
principal business at Quezon City, he filed his ITR in Pangasinan.
It was determined that Mendez had unreported income in the amount of P1,089,439.08 for
2001, another P 1,522,152.14 for 2002, and that the filing of ITR in Pangasinan is irregular
since he should have filed his consolidated ITR with the Revenue District Office (RDO) in
South Quezon City and declared a net loss in the amount of P38,893.91. Two information
was filed against Mendez - failure to file ITR for taxable year 2002 and failure to supply correct
and accurate information in the ITR for taxable year 2003.
For the defense, Mendez testified that he is running several clinics under the banner of
Mendez Medical Group. He also contended that he did not personally receive the LOA and
became aware of its existence only in February 2005 when the BIR came to his office asking
for records and documents. He claims that his accountant Richard Bianan deliberately
concealed the notices. Lastly, he contended that the clinics became operational only in
March 2003.
The Court of Tax Appeals (CTA) found Mendez guilty of all charges. It held that the notices
were deemed received by Mendez since he authorized his accountant to receive documents
and notices on his behalf.
For failure to file ITR for taxable year 2002, first, it was found that Mendez is a sole proprietor
of Mendez Body and Face Salon and Spa and had spent large sums of money for the
advertisements, rent and purchase of many vehicles in 2002. It was concluded that the
expenditures came from his income earned from the practice of his profession. Thus, he
should have filed his ITR and reported his income made during the taxable year 2002.
Second, it was also found that the registered place of business is at Quezon City, which is
within the jurisdiction of RDO-South Quezon City, however no record of ITR of Mendez was
filed for taxable year 2002 with the same. Third, Mendez's denial of earning substantial
income despite his purchases and expenditures signified the attempt to conceal his income
by not filing his ITR. His habitual failure to file his ITR for taxable years 2001 and 2002 showed
his willfulness not to file a return.
For failure to supply correct and accurate information in the ITR for taxable year 2003, first,
it was found that Mendez had several clinics; however, he only declared the income earned
from his clinic in Pangasinan and even indicated net loss. Second, he cannot blame his
accountant who allegedly embezzled the money intended as payment of the tax obligation
as there was lack of proof that the accountant misappropriated the supposed income tax.
Aggrieved, both parties sought reconsideration, but the same were denied. Hence, this
present case.
The State argued that the computation of deficiency taxes may be the basis of the imposition
of civil liability and that Mendez is barred by estoppel in raising the defense of lack of
jurisdiction.
On the other hand, Mendez counter-argued that the assessment procedure must be
complied with before being held liable for deficiency taxes and insisted that the tax court
had no jurisdiction over the criminal case because the amounts stated in the information
were merely estimates.
ISSUES:
1. Whether or not CTA has jurisdiction over the case.
2. Whether or not an assessment for deficiency taxes is a pre-requisite for the collection of
the taxpayer's civil liability for unpaid taxes in a criminal prosecution for tax law violations.
HELD:
(1) The Supreme Court ruled in the affirmative.
For criminal offenses with an attendant claim amounting to P1,000,000.00 or more,
exclusive original jurisdiction is vested with the CTA Division. Whereas, when the tax claim
is below P1,000,000.00 or there is no specified amount or no attendant claim, as when the
offense is only punishable by a fine and/or imprisonment, original jurisdiction is vested with
the regular courts.
Conflict, however, arose as regards the jurisdiction of the CTA and the regular courts with the
advent of RA No. 11576, which increased the threshold values for civil cases falling within
the exclusive original jurisdiction of the first and second level courts. Particularly, upon the
effectivity of RA No. 11576 on August 21, 2021, exclusive original jurisdiction over civil
actions involving claims amounting to P2,000,000.00 and below shall be with the first-level
courts. Those with claims amounting to more than P2,000,000.00 shall be with the RTCs. It
would now appear, considering the pertinent provisions of RA No. 9282, that both the CTA
and the regular courts have exclusive and original jurisdiction over criminal offenses
entailing tax claims amounting to P1,000,000.00 and above and purely tax collection cases
where the principal amount of claim is also P1,000,000.00 and above.
It must be emphasized, however, that the foregoing clarification shall apply to cases filed
upon the effectivity of RA No. 11576 on August 21, 2021 since jurisdiction over the subject
matter in criminal cases is determined by the statute in force at the time of commencement
of the action.
Here, the criminal cases involved violations of the Tax Code for failure to file ITR for the year
2002 and for failure to supply correct and accurate information in the return for the year
2003. The two information were first filed on November 25, 2005, and the CTA approved the
Amended Information on August 11 and 8, 2006, respectively. The Amended Information
stated Mendez''s potential liability for deficiency taxes of P1,522,152.14 and P2,107,023.65.
Clearly, pursuant to RA No. 9282, the statute in force when the criminal actions at bar were
instituted, jurisdiction over the cases is with the CTA Division.
(2) The Supreme Court ruled in the negative.
The Court has ruled that when a criminal action for violation of the tax law is filed, a prior
assessment is not required. Neither a final assessment is a precondition to collection of the
delinquent taxes in the criminal tax case. The criminal action is deemed a collection case.
Therefore, the government must prove two things: (1) guilt of the accused by proof beyond
reasonable doubt, and (2) accused's civil liability for taxes by competent evidence. The
reason is that the crime is committed by the mere conduct of the taxpayer and not because
he had delinquent taxes.
The Court takes notice that in various tax-related criminal actions filed before the CTA, the
CTA rules on the innocence or guilt of the accused, without a finding for the taxpayer-
accused's civil liability for taxes in the criminal case because of the absence of a formal
assessment issued by the CIR.
