Tax Court Acquits Bicol’s Oil Tycoon

By Mark A. Gomez


The Court of Tax Appeals First Division has acquitted the President of COSCO Petroleum Company, Inc., Michael Cosay for violation of Section 255, in relation to Section 253(d) and 256 of the National Internal Revenue Code (NIRC), involving more than twenty three million pesos worth of unpaid taxes.


On January 28, 2020, a case was filed against Michael C. Cosay, as President of COSCO Petroleum Company, Inc. (COSCO), for violation of Section 255, in relation to Section 253(d) and 256 of the National Internal Revenue Code (NIRC), the dispositive portion of which reads as follows:


“On or about November 5, 2015 and thereafter, in Santiago, Pili, Camarines Sur and within the jurisdiction of this Honorable Court, the above-named accused MICHAEL C. COSA Y, being the President and responsible corporate officer of COCOSCO Petroleum Company, Inc ., did then and there willfully and unlawfully fail to pay deficiency Income Tax for taxable year 2008, in the amount of twenty three million nine hundred thirty five six hundred thirty Seven and twenty three centavos P23,935,637.23, exclusive of increments and penalties, despite final assessment notice, including prior and post notices and demands to pay the latest being in the nature of a demand before suit issued by the Bureau of Internal Revenue on November 5, 2015, to the damage and prejudice of the government.”


In a 23 page --decision promulgated on September 21,2022 in PEOPLE OF THE PHILIPPINES, vs COSCO PETROLEUM COMPANY, INC., MICHAEL C. COSA Y with CTA Crim. Case No. 0-804, the Tax Court ruled that the presumption of innocence in favor of an accused in a criminal case is a basic constitutional guarantee. It demands that the State must establish his guilt beyond reasonable doubt. To do so, the Prosecution must rely on the strength of its evidence, not on the weakness of his defense. Every reasonable doubt of his guilt entitles him to an acquittal.


“SEC. 255. Failure to File Return, Supply Correct and Accurate Information, Pay Tax Withhold and Remit Tax and Refund Excess Taxes Withheld on Compensation. - Any person required under this Code or by rules and regulations promulgated thereunder to pay any tax, make a return, keep any record, or supply correct and accurate information, who willfully fails to pay such tax, make such return, keep such record, or supply correct and accurate information, or withhold or remit taxes withheld, or refund excess taxes withheld on compensation, at the time or times required by law or rules and regulations shall, in addition to other penalties provided by law, upon conviction thereof, be punished by a fine of not less than Ten thousand pesos (PlO,OOO) and suffer imprisonment of not less than one (1) year but not more than ten (10) years.”


According to the ruling, indeed, Section 255 of the NIRC, as amended, punishes by fine and imprisonment, any person, who, willfully failed to pay taxes, despite required by law to do so. Corporate taxpayers like COSCO are no exception.


“However, a corporation is an artificial being created by operation of law. Being a juridical entity, it cannot be put to jail. A corporation, too, may act only through its directors, officers and employees, “ and where the business itself involves a violation of the law, the correct rule is that all who participate in it are liable.” Precisely, Section 253(d) of the NIRC, as amended imposes the penalty of imprisonment on tax offenses committed by a corporate taxpayer, to its president, general manager, branch manager, treasurer, officer-in-charge, and the employees responsible for the violation”, the CTA ruled.


In addition, while a corporation may not be imprisoned for criminal infractions under penal laws, it may be punished by law through imposition of a fine. This much is clear from Section 256 of the NIRC, as amended, the Court ruled.


The Tax Appeals Court also ruled that in order to sustain a conviction for willful failure to pay taxes punishable under Section 255, in relation to Section 253(d) and 256 of the NIRC, the prosecution against Cosay must prove beyond reasonable doubt the existence of the following elements: first, a corporate taxpayer is required by the NIRC, as amended, or by duly promulgated rules and regulations, to pay taxes due; second, such corporate taxpayer failed to pay said taxes; and third, such corporate taxpayer’s president, general manager, branch manager, treasurer, officer-in-charge, and the employees responsible for the violation, willfully failed to pay said taxes.


ON BIR illegal examination


In the Letter of Authority (LOA) dated May 7, 2010, Regional Director Diosdado R. Mendoza, CESO VI, authorized RO El-Se H. Vida to conduct the examination of COSCO for TY 2008.However, a perusal of page 2 of the Formal Letter of Demand dated January 9, 2013 reveals the following statement: “The complete details of the aforementioned discrepancies established during the investigation of Revenue Officer Manolito B. Gagalac [RO Gagalac] are shown in the accompanying ANNEX-A and schedules of this letter.” It simply means that the examination conducted by the BIR on COSCO for TY 2008, leading to the issuance of the supposed assessment was made by a certain RO Gagalac, a person not named in said LOA. Therefore, the finding of IT liability against COSCO on TY 2008 is void, the ruling stated.


The Tax Court also ruled that the Formal Letter of Demand (FLD) dated January 9, 2013 alluded COSCO’s period to pay the taxes stated therein, including the IT for TY 2008, to the enclosed Final Assessment Notices (FAN). However, the FAN referred to in such FLD was not presented as evidence by the prosecution. For lack thereof, COSCO’s obligation to pay its IT liability for TY 2008 embodied in said FLD did not arise.


The assumption that the Formal Letter of Demand dated January 9, 2013 was indeed served by the BIR, the prosecution failed to establish actual receipt thereof by COSCO or its duly authorized representatives, the decision concluded.