CIR vs Metro Star Suprema
FACTS:
Petitioner is a domestic corporation.
The Regional Director of Revenue Region No. 10, Legazpi City,
issued Letter of Authority for Revenue Officer Daisy G. Justiniana to
examine petitioners books of accounts and other accounting records for
income tax and other internal revenue taxes for the taxable year 1999.
[the] OIC of BIR Legal Division issued an Indorsement
dated September 26, 2001 informing Revenue District Officer of Revenue
Region No. 67, Legazpi City to proceed with the investigation based on the
best evidence obtainable preparatory to the issuance of assessment notice.
On November 8, 2001, Revenue District Officer Socorro O. Ramos-
Lafuente issued a Preliminary 15-day Letter, which petitioner received
on November 9, 2001. The said letter stated that a post audit review was
held and it was ascertained that there was deficiency value-added and
withholding taxes due from petitioner in the amount of P 292,874.16.
On April 11, 2002, petitioner received a Formal Letter of Demand
dated April 3, 2002 assessing petitioner the amount (P292,874.16.) for
deficiency value-added and withholding taxes for the taxable year 1999.
CIR - It merely accepted the letter of Metro Stars chairman dated April 29,
2002, that stated that he had received the FAN dated April 3, 2002, but not
the PAN; that he was willing to pay the tax as computed by the CIR; and that he
just wanted to clarify some matters with the hope of lessening its tax liability.
Subsequently, Revenue District Office No. 67 sent a copy of the
Final Notice of Seizure dated May 12, 2003, which petitioner received on
May 15, 2003, giving the latter last opportunity to settle its deficiency tax
liabilities within ten (10) [days] from receipt thereof, otherwise
respondent BIR shall be constrained to serve and execute the Warrants of
Distraint and/or Levy and Garnishment to enforce collection.
On February 6, 2004, petitioner received from Revenue District
Office No. 67 a Warrant of Distraint and/or Levy No. 67-0029-23 dated
May 12, 2003 demanding payment of deficiency value-added tax and
withholding tax payment in the amount of P292,874.16.
On July 30, 2004, petitioner filed with the Office of respondent
Commissioner a Motion for Reconsideration pursuant to Section 3.1.5 of
Revenue Regulations No. 12-99.
On February 8, 2005, respondent Commissioner, through its
authorized representative, Revenue Regional Director of Revenue Region
10, Legaspi City, issued a Decision denying petitioners Motion for
Reconsideration. Petitioner, through counsel received said Decision
on February 18, 2005.
Denying that it received a Preliminary Assessment
Notice (PAN) and claiming that it was not accorded due process, Metro Star filed a
petition for review[4] with the CTA.
The CTA-Second Division found merit in the petition of Metro
Star and, on March 21, 2007, rendered a decision,
The CTA-Second Division opined that [w]hile there [is] a disputable
presumption that a mailed letter [is] deemed received by the addressee in the
ordinary course of mail, a direct denial of the receipt of mail shifts the burden upon
the party favored by the presumption to prove that the mailed letter was indeed
received by the addressee.[5] It also found that there was no clear showing that
Metro Star actually received the alleged PAN, dated January 16, 2002. It,
accordingly, ruled that the Formal Letter of Demand dated April 3, 2002, as well as
the Warrant of Distraint and/or Levy dated May 12, 2003 were void, as Metro Star
was denied due process.[6]
The CIR sought reconsideration[7] of the decision of the CTA-Second Division, but
the motion was denied in the latters July 24, 2007 Resolution.[8]
Aggrieved, the CIR filed a petition for review [9] with the CTA-
En Banc, but the petition was dismissed after a determination that no
new matters were raised.
The CIR, insisting that Metro Star received the PAN, dated January 16,
2002, and that due process was served nonetheless because the latter received the
Final Assessment Notice (FAN), comes now before this Court with the sole issue
of whether or not Metro Star was denied due process.
The general rule is that the Court will not lightly set aside the conclusions reached
by the CTA which, by the very nature of its functions, has accordingly developed
an exclusive expertise on the resolution unless there has been an abuse or
improvident exercise of authority.[12]
In Barcelon, Roxas Securities, Inc. (now known as UBP Securities, Inc.) v.
Commissioner of Internal Revenue,[13] the Court wrote:
Such findings can only be disturbed on appeal if they are not
supported by substantial evidence or there is a showing of gross error or
abuse on the part of the Tax Court. In the absence of any clear and
convincing proof to the contrary, this Court must presume that the CTA
rendered a decision which is valid in every respect.
On the matter of service of a tax assessment, a further perusal of our
ruling in Barcelon is instructive, viz:
Jurisprudence is replete with cases holding that if the taxpayer
denies ever having received an assessment from the BIR, it is incumbent
upon the latter to prove by competent evidence that such notice was indeed
received by the addressee. The onus probandi was shifted to respondent to
prove by contrary evidence that the Petitioner received the assessment in the
due course of mail. The Supreme Court has consistently held that while a
mailed letter is deemed received by the addressee in the course of mail,
this is merely a disputable presumption subject to controversion and a
direct denial thereof shifts the burden to the party favored by the
presumption to prove that the mailed letter was indeed received by the
addressee (Republic vs. Court of Appeals, 149 SCRA 351). Thus as held by
the Supreme Court in Gonzalo P. Nava vs. Commissioner of Internal
Revenue, 13 SCRA 104, January 30, 1965:
"The facts to be proved to raise this presumption are (a)
that the letter was properly addressed with postage prepaid,
and (b) that it was mailed. Once these facts are proved, the
presumption is that the letter was received by the addressee
as soon as it could have been transmitted to him in the
ordinary course of the mail. But if one of the said facts fails
to appear, the presumption does not lie. (VI, Moran,
Comments on the Rules of Court, 1963 ed, 56-57 citing
Enriquez vs. Sunlife Assurance of Canada, 41 Phil 269)."
x x x. What is essential to prove the fact of mailing is the registry
receipt issued by the Bureau of Posts or the Registry return card which
would have been signed by the Petitioner or its authorized representative.
And if said documents cannot be located, Respondent at the very least,
should have submitted to the Court a certification issued by the Bureau of
Posts and any other pertinent document which is executed with the
intervention of the Bureau of Posts. This Court does not put much credence
to the self serving documentations made by the BIR personnel especially if
they are unsupported by substantial evidence establishing the fact of
mailing. Thus:
"While we have held that an assessment is made when
sent within the prescribed period, even if received by the
taxpayer after its expiration (Coll. of Int. Rev. vs. Bautista, L-
12250 and L-12259, May 27, 1959), this ruling makes it the
more imperative that the release, mailing or sending of the
notice be clearly and satisfactorily proved. Mere notations
made without the taxpayers intervention, notice or control,
without adequate supporting evidence cannot suffice;
otherwise, the taxpayer would be at the mercy of the revenue
offices, without adequate protection or defense." (Nava vs.
CIR, 13 SCRA 104, January 30, 1965).
x x x.
The failure of the respondent to prove receipt of the assessment by
the Petitioner leads to the conclusion that no assessment was issued.
Consequently, the governments right to issue an assessment for the said
period has already prescribed. (Industrial Textile Manufacturing Co. of the
Phils., Inc. vs. CIR CTA Case 4885, August 22, 1996). (Emphases
supplied.)
ISSUE:
Is the failure to strictly comply with notice requirements prescribed under Section
228 of the National Internal Revenue Code of 1997 and Revenue Regulations
(R.R.) No. 12-99 tantamount to a denial of due process? Specifically, are the
requirements of due process satisfied if only the FAN stating the computation of
tax liabilities and a demand to pay within the prescribed period was sent to the
taxpayer?
HELD:
NO. The Court agrees with the CTA that the CIR failed to discharge its duty
and present any evidence to show that Metro Star indeed received the PAN
dated January 16, 2002. It could have simply presented the registry receipt or the
certification from the postmaster that it mailed the PAN, but failed. Neither did it
offer any explanation on why it failed to comply with the requirement of service of
the PAN. It merely accepted the letter of Metro Stars chairman dated April 29,
2002, that stated that he had received the FAN dated April 3, 2002, but not
the PAN; that he was willing to pay the tax as computed by the CIR; and that he
just wanted to clarify some matters with the hope of lessening its tax liability.
The answer to these questions require an examination of Section 228 of the
Tax Code which reads:
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
preassessment notice shall not be required in the following cases:
(a) When the finding for any deficiency tax is the result of
mathematical error in the computation of the tax as appearing on the face
of the return; or
(b) When a discrepancy has been determined between the tax
withheld and the amount actually remitted by the withholding agent; or
(c) When a taxpayer who opted to claim a refund or tax credit of
excess creditable withholding tax for a taxable period was determined to
have carried over and automatically applied the same amount claimed
against the estimated tax liabilities for the taxable quarter or quarters of
the succeeding taxable year; or
(d) When the excise tax due on exciseable articles has not been
paid; or
(e) When the article locally purchased or imported by an exempt
person, such as, but not limited to, vehicles, capital equipment,
machineries and spare parts, has been sold, traded or transferred to non-
exempt persons.
The taxpayers 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.
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 one hundred eighty (180)-day period;
otherwise, the decision shall become final, executory and demandable.
(Emphasis supplied).
Indeed, Section 228 of the Tax Code clearly requires that the taxpayer
must first be informed that he is liable for deficiency taxes through the
sending of a PAN. He must be informed of the facts and the law upon which the
assessment is made. The law imposes a substantive, not merely a formal,
requirement. To proceed heedlessly with tax collection without first establishing a
valid assessment is evidently violative of the cardinal principle in administrative
investigations - that taxpayers should be able to present their case and adduce
supporting evidence.[14]
This is confirmed under the provisions R.R. No. 12-99 of the BIR which
pertinently provide:
SECTION 3. Due Process Requirement in the Issuance of a
Deficiency Tax Assessment.
3.1 Mode of procedures in the issuance of a deficiency tax
assessment:
3.1.1 Notice for informal conference. The Revenue Officer who
audited the taxpayer's records shall, among others, state in his report
whether or not the taxpayer agrees with his findings that the taxpayer is
liable for deficiency tax or taxes. If the taxpayer is not amenable, based on
the said Officer's submitted report of investigation, the taxpayer shall be
informed, in writing, by the Revenue District Office or by the Special
Investigation Division, as the case may be (in the case Revenue Regional
Offices) or by the Chief of Division concerned (in the case of the BIR
National Office) of the discrepancy or discrepancies in the taxpayer's
payment of his internal revenue taxes, for the purpose of "Informal
Conference," in order to afford the taxpayer with an opportunity to present
his side of the case. If the taxpayer fails to respond within fifteen (15) days
from date of receipt of the notice for informal conference, he shall be
considered in default, in which case, the Revenue District Officer or the
Chief of the Special Investigation Division of the Revenue Regional Office,
or the Chief of Division in the National Office, as the case may be, shall
endorse the case with the least possible delay to the Assessment Division
of the Revenue Regional Office or to the Commissioner or his duly
authorized representative, as the case may be, for appropriate review and
issuance of a deficiency tax assessment, if warranted.
3.1.2 Preliminary Assessment Notice (PAN). If after review and
evaluation by the Assessment Division or by the Commissioner or his duly
authorized representative, as the case may be, it is determined that there
exists sufficient basis to assess the taxpayer for any deficiency tax or taxes,
the said Office shall issue to the taxpayer, at least by registered mail, a
Preliminary Assessment Notice (PAN) for the proposed assessment,
showing in detail, the facts and the law, rules and regulations, or
jurisprudence on which the proposed assessment is based (see illustration
in ANNEX A hereof). If the taxpayer fails to respond within fifteen (15)
days from date of receipt of the PAN, he shall be considered in default, in
which case, a formal letter of demand and assessment notice shall be
caused to be issued by the said Office, calling for payment of the taxpayer's
deficiency tax liability, inclusive of the applicable penalties.
3.1.3 Exceptions to Prior Notice of the Assessment. The notice for
informal conference and the preliminary assessment notice shall not be
required in any of the following cases, in which case, issuance of the
formal assessment notice for the payment of the taxpayer's deficiency tax
liability shall be sufficient:
(i) When the finding for any deficiency tax is the result of
mathematical error in the computation of the tax
appearing on the face of the tax return filed by the
taxpayer; or
(ii) When a discrepancy has been determined between the
tax withheld and the amount actually remitted by the
withholding agent; or
(iii) When a taxpayer who opted to claim a refund or tax
credit of excess creditable withholding tax for a taxable
period was determined to have carried over and
automatically applied the same amount claimed against
the estimated tax liabilities for the taxable quarter or
quarters of the succeeding taxable year; or
(iv) When the excise tax due on excisable articles has not
been paid; or
(v) When an article locally purchased or imported by an
exempt person, such as, but not limited to, vehicles,
capital equipment, machineries and spare parts, has been
sold, traded or transferred to non-exempt persons.
3.1.4 Formal Letter of Demand and Assessment Notice. The formal
letter of demand and assessment notice shall be issued by the
Commissioner or his duly authorized representative. The letter of demand
calling for payment of the taxpayer's deficiency tax or taxes shall state the
facts, the law, rules and regulations, or jurisprudence on which the
assessment is based, otherwise, the formal letter of demand and
assessment notice shall be void (see illustration in ANNEX B hereof).
The same shall be sent to the taxpayer only by registered mail or by
personal delivery.
If sent by personal delivery, the taxpayer or his duly authorized
representative shall acknowledge receipt thereof in the duplicate copy of
the letter of demand, showing the following: (a) His name; (b) signature;
(c) designation and authority to act for and in behalf of the taxpayer, if
acknowledged received by a person other than the taxpayer himself; and
(d) date of receipt thereof.
x x x.
From the provision quoted above, it is clear that the sending of a PAN to
taxpayer to inform him of the assessment made is but part of the due process
requirement in the issuance of a deficiency tax assessment , the absence of which
renders nugatory any assessment made by the tax authorities. The use of the
word shall in subsection 3.1.2 describes the mandatory nature of the service of a
PAN. The persuasiveness of the right to due process reaches both substantial and
procedural rights and the failure of the CIR to strictly comply with the
requirements laid down by law and its own rules is a denial of Metro Stars right to
due process.[15] Thus, for its failure to send the PAN stating the facts and the law on
which the assessment was made as required by Section 228 of R.A. No. 8424, the
assessment made by the CIR is void.
The case of CIR v. Menguito[16] cited by the CIR in support of its argument
that only the non-service of the FAN is fatal to the validity of an assessment,
cannot apply to this case because the issue therein was the non-compliance with
the provisions of R. R. No. 12-85 which sought to interpret Section 229 of the old
tax law. RA No. 8424 has already amended the provision of Section 229 on
protesting an assessment. The old requirement of merely notifying the taxpayer of
the CIRs findings was changed in 1998 to informing the taxpayer of not only the
law, but also of the facts on which an assessment would be made. Otherwise, the
assessment itself would be invalid.[17] The regulation then, on the other hand,
simply provided that a notice be sent to the respondent in the form prescribed, and
that no consequence would ensue for failure to comply with that form.
The Court need not belabor to discuss the matter of Metro Stars failure to
file its protest, for it is well-settled that a void assessment bears no fruit.[18]
It is an elementary rule enshrined in the 1987 Constitution that no person shall be
deprived of property without due process of law.[19] In balancing the scales between
the power of the State to tax and its inherent right to prosecute perceived
transgressors of the law on one side, and the constitutional rights of a citizen to due
process of law and the equal protection of the laws on the other, the scales must tilt
in favor of the individual, for a citizens right is amply protected by the Bill of
Rights under the Constitution. Thus, while taxes are the lifeblood of the
government, the power to tax has its limits, in spite of all its plenitude.
