CIR vs Hantex (On Best Evidence Obtainable)

Short Digest

One-liner title: Photocopies of tax assessments due to termite-eaten originals are not sufficient evidence to establish tax liability.

Nutshell Facts

Hantex is an importer of synthetic resin (for glues and plastics). An agency of the DoF investigated Handex for alleged underdeclared taxes. The agency was not able to secure copies from the BoC because the latter claimed they were eaten by termites, so the investigators reled on the machine copies of the Consumption Entries from the BoC etc. The DOF’s agency ruled that Hantex underreported an amount of more than P63M plus tax liability of around P41M. 

Issue:
Is the absence of original records fatal?

Ruling:

Yes.

1. Originals are necessary to avoid tampering.
2. The best evidence rule of the NIRC cannot supplant that of the Rules of Court. 
3. BIR could have secured copies from other sources. 
4. The prima facie correctness of assessments does not apply if the assessment is utterly without foundation.

 the government must never be over-reaching and tyrannical, neither should the taxpayer be permitted to escape payment by concealment of material facts.

Long Digest

Facts:

Hantex is an importer of synthetic resin (used to make plastics, glues, and a type of textile). In 1989, an attached investigative agency of the DoF (Economic Intelligence and Investigation Bureau) conducted an investigation after receiving reports that Hantex had underdeclared its taxes. The Inquiry Office (IIPO) of the said agency was not able to secure certified copies from the Bureau of Customs (BOC) because BOC said they were eaten by termites. The investigators relied on the machine copies of the Consumption Entries from the BoC, certified copies of the SEC, and excerpts from the certified entries made by the Chief of the Collecting Division in the Port of Manila (which also relied on the CE). Based on these records, the importations of Hantex totalled to P105M+, and Hantex had unreported sales amounting to P63M+ with tax liability of around P41M including penalties and interests.

Arguments and Rulings:

• Hantex:
  • (1) Investigations and reinvestigations have been made but tax evasion was never proven;
  • (2) EIIB failed to present original records;
  • (3) Investigators are unreliable.
• CIR: “Consumption Entries are tampered but they are admissible evidence.”
• CTA: Ruled against Hantex because “it failed to prove that the assessment was erroneous.”
• CA: Favored Hantex
  • Tax assessments were unlawful because they were not authenticated nor verified.
  • The public docs must follow Rule 132
  • Best evidence rule under the Tax Code should not supplant best evidence rule of the ROC (RUle 130 Sec. 7)
  • The prima facie correctness of tax assessments does not apply if the assessment is utterly without foundation.
  • Repeated examinations were already conducted by the BIR.

Ruling:

1. For the accuracy of tax liabilities, the Government must use original copies to avoid the risk of tampering. While it is true that the BIR is not bound by the technical rules of evidence and may have hearsay evidence as BEO (Best Evidence Obtainable), the machine copies have no probative weight. The reason for this is that when the accuracy of the taxpayer’s return is being checked, the government must use original records and not purported copies which present the risk of error or tampering.
2. BIR could have secured original copies from other sources. While EIIB failed to secure original copies from BoC, it ignored to secure original copies from other sources such as Tariff and Customs Commission or NSO. 
3. It is arbitrary to rely on machine copies. In giving weight to machine copies of the Consumption Entries, the BIR acted arbitrarily and capriciously. 
4. No prima facie correctness if assessments are without foundation. It is true that tax assessments are prima facie correct but this does not apply if the assessment is utterly without foundation. To stand judicial scrutiny, the assessment must be based on facts and not another presumption.
5. BIR District Revenue Office had already performed repeated examinations and found minimal tax liability.
6. The failure of Hantex to prove its correct tax liability cannot serve as a basis for the Court to rule that it is liable. 
7. Taxation is vital but it must also be fair and reciprocal. Hence, the government must never be over-reaching and tyrannical, neither should the taxpayer be permitted to escape payment by concealment of material facts.

Decision: Remand the case to CTA for BIR to adduce evidence of certified true copies or duplicate original copies of the Consumption Entries for Hantex’s 1987 importations.