G.R. No. 215534. April 18, 2016.

* the disputed assessment or fails to act on it and is, therefore, considered

  denied. The taxpayer may then appeal the decision on the disputed
COMMISSIONER OF INTERNAL REVENUE, assessment or the inaction of the CIR. As such, the FDDA is not the only
means that the final tax liability of a taxpayer is fixed, which may then be
petitioner, vs. LIQUIGAZ PHILIPPINES CORPORATION,
appealed by the taxpayer. Under the law, inaction on the part of the CIR
respondent. may likewise result in the finality of a taxpayer’s tax liability as it is
deemed a denial of the protest filed by the latter, which may also be
appealed before the CTA.
Same; Same; Final Decision on Disputed Assessment; Failure of
G.R. No. 215557.  April 18, 2016.* the Final Decision on Disputed Assessment (FDDA) to reflect the facts
  and law on which it is based will make the decision void. It, however, does
not extend to the nullification of the entire assessment.—Section 228 of the
LIQUIGAZ PHILIPPINES CORPORATION,
NIRC provides that an assessment shall be void if the taxpayer is not
petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, informed in writing of the law and the facts on which it is based. It is,
respondent. however, silent with regards to a decision on a disputed assessment by the
CIR which fails to state the law and facts on which it is based. This void is
Taxation; National Internal Revenue Code; filled by RR No. 12-99 where it is stated that failure of the FDDA to
Assessments; Under Section 228 of the National Internal Revenue reflect the facts and law on which it is based will make the decision void.
Code (NIRC), a tax- It, however, does not extend to the nullification of the entire assessment.
_______________
 
*  SECOND DIVISION.  
82
 
82 SUPREME COURT REPORTS ANNOTATED
 
80 Commissioner of Internal Revenue vs.Liquigaz
80 SUPREME COURT REPORTS ANNOTATED Philippines Corporation
Commissioner of Internal Revenue vs.Liquigaz Same; Same; Due Process; The reason for requiring that taxpayers
be informed in writing of the facts and law on which the assessment is
Philippines Corporation made is the constitutional guarantee that no person shall be deprived of
payer shall be informed in writing of the law and the facts on his property without due process of law.—The reason for requiring that
which the assessment is made, otherwise, the assessment shall be void.— taxpayers be informed in writing of the facts and law on which the
Central to the resolution of the issue is Section 228 of the NIRC and RR assessment is made is the constitutional guarantee that no person shall be
No. 12-99, as amended. They lay out the procedure to be followed in tax deprived of his property without due process of law. Merely notifying the
assessments. Under Section 228 of the NIRC, a taxpayer shall be informed taxpayer of its tax liabilities without elaborating on its details is
in writing of the law and the facts on which the assessment is made, insufficient.
otherwise, the assessment shall be void. In implementing Section 228 of
the NIRC, RR No. 12-99 reiterates the requirement that a taxpayer must be PETITIONS for review on certiorari of the decision and resolution
informed in writing of the law and the facts on which his tax liability was of the Court of Tax Appeals En Banc.
based. The facts are stated in the opinion of the Court.
Same; Same; Same; Section 3.1.6 of Revenue Regulations (RR) No.   Zambrano & Gruba Law Offices for Liquigaz Philippines
12-99 specifically requires that the decision of the Commissioner of
Corporation.
Internal Revenue (CIR) or his duly authorized representative on a disputed
assessment shall state the facts, law and rules and regulations, or
MENDOZA, J.:
jurisprudence on which the decision is based.—The importance of
providing the taxpayer of adequate written notice of his tax liability is  
undeniable. Section 228 of the NIRC declares that an assessment is void if Presented before us is a novel issue. When may a Final
the taxpayer is not notified in writing of the facts and law on which it is Decision on Disputed Assessment (FDDA) be declared void, and
made. Again, Section 3.1.4 of RR No. 12-99 requires that the FLD must in the event that the FDDA is found void, what would be its effect
state the facts and law on which it is based, otherwise, the FLD/FAN itself on the tax assessment?
shall be void. Meanwhile, Section 3.1.6 of RR No. 12-99 specifically Assailed in these consolidated petitions for review
requires that the decision of the CIR or his duly authorized representative on certiorari filed under Rule 45 of the Rules of Court are the
on a disputed assessment shall state the facts, law and rules and
May 22, 2014 Decision  and the November 26, 2014 Resolution  of
1 2

regulations, or jurisprudence on which the decision is based. Failure to do _______________

so would invalidate the FDDA.
Same; Same; Same; As implemented by Revenue Regulations (RR)
1  Penned by Associate Justice Amelia R. Cotangco-Manalastas, with Associate
No. 12-99, the written notice requirement for both the Formal Letter of Justices Juanito C. Castañeda, Jr., Lovell R. Bautista, Caesar A. Casanova, Esperanza
Demand (FLD) and the Formal Assessment Notice (FAN), is in R. Fabon-Victorino and Cielito N. Mindaro-Grulla, concurring; Presiding Justice
observance of due process — to afford the taxpayer adequate opportunity Roman G. del Rosario, concurring and dissenting, and Associate Justice Ma. Belen
to file a protest on the assessment and thereafter file an appeal in case of M. Ringpis-Liban, dissenting; Associate Justice Erlinda P. Uy, on leave; Rollo (G.R.
an adverse decision.—Section 228 of the NIRC should not be read No. 215557), pp. 44-53.
restrictively as to limit the written notice only to the assessment itself. As 2  Penned by Associate Justice Amelia R. Cotangco-Manalastas, with Associate
implemented by RR No. 12-99, the written notice requirement for both the Justices Juanito C. Castañeda, Jr., Lovell R. Bautista, Erlinda P. Uy, Caesar A.
Casanova, Esperanza R. Fabon-Victorino and Cielito N. Mindaro-Grulla, concurring;
FLD and the FAN is in observance of due process — to afford the taxpayer Presiding Jus-
adequate opportunity to file a protest on the assessment and thereafter file
an appeal in case of an adverse decision. To rule otherwise would tolerate  
abuse and prejudice. Taxpayers will be unable to file an intelligent appeal
 
before the
83
  VOL. 789, APRIL 18, 2016 83
 
81
Commissioner of Internal Revenue vs.Liquigaz
VOL. 789, APRIL 18, 2016 81 Philippines Corporation
the Court of Tax Appeals (CTA) En Banc which affirmed the
Commissioner of Internal Revenue vs.Liquigaz November 22, 2012 Decision  of the CTA Division, Second
3

Philippines Corporation Division (CTA Division).

CTA as they would be unaware on how the CIR or his authorized Liquigaz Philippines Corporation (Liquigaz) is a corporation
representative appreciated the defense raised in connection with the duly organized and existing under Philippine laws. On July 11,
assessment. On the other hand, it raises the possibility that the amounts 2006, it received a copy of Letter of Authority (LOA) No.
reflected in the FDDA were arbitrarily made if the factual and legal bases 00067824, dated July 4, 2006, issued by the Commissioner of
thereof are not shown. Internal Revenue (CIR), authorizing the investigation of all
Same; Assessments; Courts; Court of Tax Appeals; Jurisdiction;
internal revenue taxes for taxable year 2005. 4
The Court of Tax Appeals (CTA) is conferred with appellate jurisdiction
over the decision of the Commissioner of Internal Revenue (CIR) in cases On April 9, 2008, Liquigaz received an undated letter
involving disputed assessments, as well as inaction of the CIR in disputed purporting to be a Notice of Informal Conference (NIC), as well as
assessments.—The CTA is conferred with appellate jurisdiction over the the detailed computation of its supposed tax liability. On May 28,
decision of the CIR in cases involving disputed assessments, as well as 2008, it received a copy of the Preliminary Assessment
inaction of the CIR in disputed assessments. From the foregoing, it is clear Notice  (PAN), dated May 20, 2008, together with the attached
5

that what is appealable to the CTA is the “decision” of the CIR on disputed details of discrepancies for the calendar year ending December 31,
assessment and not the assessment itself. An assessment becomes a 2005.  Upon investigation, Liquigaz was initially assessed with
6

disputed assessment after a taxpayer has filed its protest to the assessment
in the administrative level. Thereafter, the CIR either issues a decision on
deficiency withholding tax liabilities, inclusive of interest, in the tax compensation paid, computed based on the total withholding
aggregate amount of P23,931,708.72, broken down as follows: tax on compensation paid and the total taxable compensation
_______________ income for the taxable year 2005. It did not give credence to
Liquigaz’s explanation that the salaries account included accrued
tice Roman G. del Rosario, concurring and dissenting, and Associate Justice bonus, 13th month pay, de minimis benefits and other benefits and
Ma. Belen M. Ringpis-Liban, dissenting; id., at pp. 70-76.
3  Penned by Associate Justice Caesar A. Casanova, with Associate Justices contributions which were not subject to withholding tax on
Juanito C. Castañeda and Cielito N. Mindaro-Grulla, concurring; id., at pp. 105-129. compensation. The CTA Division relied on the report prepared by
4  Id., at p. 45. Antonio O. Maceda, Jr., the court-commissioned independent
5  Rollo (G.R. No. 215534), pp. 80-83.
6  Id., at p. 46.
accountant, which found that Liquigaz was unable to substantiate
the discrepancy found by
   
   
84 86

84 SUPREME COURT REPORTS ANNOTATED 86 SUPREME COURT REPORTS ANNOTATED

Commissioner of Internal Revenue vs.Liquigaz Commissioner of Internal Revenue vs.Liquigaz
Philippines Corporation Philippines Corporation
Thereafter, on June 25, 2008, it received a Formal Letter of the CIR on its withholding tax liability on compensation. The
Demand  (FLD)/Formal Assessment Notice (FAN), together with
7 dispositive portion of the CTA Division decision reads:
its attached details of discrepancies, for the calendar year ending WHEREFORE, the Petition for Review is
December 31, 2005. The total deficiency withholding tax hereby PARTIALLY GRANTED. Accordingly, the assessments
liabilities, inclusive of interest, under the FLD was for deficiency expanded withholding tax in the amount of
P24,332,347.20, which may be broken down as follows: P3,479,426.75 and fringe benefits tax in the amount of
EWT                                               P5,535,890.38 P14,392,572.51 issued by respondent against petitioner for taxable
year 2005, both inclusive of interest and compromise penalty is
WTC P4,500,169.94
hereby CANCELLED and WITHDRAWN for being void.
FBT P14,296,286.88 However, the assessment for deficiency withholding tax on
TOTAL P24,332,347.20 compensation for taxable year 2005 is
On July 25, 2008, Liquigaz filed its protest against the hereby AFFIRMED with MODIFICATIONS. Accordingly,
FLD/FAN and subsequently submitted its supporting documents petitioner is hereby ORDERED to PAY respondent the amount of
on September 23, 2008. P2,958,546.23, inclusive of the 25% surcharge imposed under
Then, on July 1, 2010, it received a copy of the Section 248(A)(3) of the NIRC of 1997, as amended, computed as
FDDA  covering the tax audit under LOA No. 00067824 for the
8
follows:
calendar year ending December 31, 2005. As reflected in the Salaries per ITR P52,239,313.00
FDDA, the CIR still found Liquigaz liable for deficiency Less: Salaries per Alphalist        P42,921,057.16
withholding tax liabilities, inclusive of interest, in the aggregate
Discrepancy P9,318,255.84
amount of P22,380,025.19, which may be broken down as
follows: Tax rate 25.40%
EWT                                           P3,479,426.75 Basic Withholding Tax on
P2,366,836.98
Compensation
WTC P4,508,025.93
Add: 25% Surcharge P591,709.25
FBT P14,392,572.51
Total Amount Due P2,958,546.23
TOTAL P22,380,025.19
In addition, petitioner is liable to pay: (a) deficiency interest at
Consequently, on July 29, 2010, Liquigaz filed its Petition for
the rate of twenty percent (20%) per annum of the basic deficiency
Review before the CTA Division assailing the validity of the
withholding tax on compensation of P2,958,546.23 computed
FDDA issued by the CIR. 9

_______________ from January 20, 2006 until full payment thereof pursuant to
Section 249(B) of the NIRC of 1997, as amended; and (b)
7  Id., at pp. 87-90. delinquency interest at the rate of twenty percent (20%) per
8  Rollo (G.R. No. 215557), pp. 103-104. annum on the total amount due of P2,958,546.23 and on the
9  Id., at p. 46. deficiency interest which have accrued as aforestated in (a)
computed from July 1, 2010 until full payment thereof, pursuant to
 
Section 249(C)(3) of the NIRC of 1997, as amended.
 
85
 
 
VOL. 789, APRIL 18, 2016 85 87
Commissioner of Internal Revenue vs.Liquigaz VOL. 789, APRIL 18, 2016 87
Philippines Corporation Commissioner of Internal Revenue vs.Liquigaz
The CTA Division’s Ruling Philippines Corporation
 
The compromise penalty of P25,000.00, originally imposed
In its November 22, 2012 Decision, the CTA Division
by respondent is hereby excluded there being no compromise
partially granted Liquigaz’s petition cancelling the EWT and FBT
agreement between the parties.
assessments but affirmed with modification the WTC assessment.
SO ORDERED. 10

It ruled that the portion of the FDDA relating to the EWT and the
 
FBT assessment was void pursuant to Section 228 of the National
Both the CIR and Liquigaz moved for reconsideration, but
Internal Revenue Code (NIRC) of 1997, as implemented by
their respective motions were denied by the CTA Division in its
Revenue Regulations (RR) No. 12-99.
February 20, 2013 Resolution.
The CTA Division noted that unlike the PAN and the
Aggrieved, they filed their respective petitions for review
FLD/FAN, the FDDA issued did not provide the details thereof,
before the CTA En Banc.
hence, Liquigaz had no way of knowing what items were
considered by the CIR in arriving at the deficiency assessments.
The CTA En Banc’s Ruling
This was especially true because the FDDA reflected a different
 
amount from what was stated in the FLD/FAN. The CTA Division
In its May 22, 2014 Decision, the CTA En Banc affirmed the
explained that though the legal bases for the EWT and FBT
assailed decision of the CTA Division. It reiterated its
assessment were stated in the FDDA, the taxpayer was not notified
pronouncement that the requirement that the taxpayer should be
of the factual bases thereof, as required in Section 228 of the
informed in writing of the law and the facts on which the
NIRC.
assessment was made applies to the FDDA — otherwise the
On the other hand, it upheld the WTC assessment against
assessment would be void. The CTA En Banc explained that the
Liquigaz. It noted that the factual bases used in the FLD and the
FDDA determined the final tax liability of the taxpayer, which
FDDA with regard thereto were the same as the difference in the
may be the subject of an appeal before the CTA.
amount merely resulted from the use of a different tax rate.
The CTA En Banc echoed the findings of the CTA Division
The CTA Division agreed with Liquigaz that the tax rate of
that while the FDDA indicated the legal provisions relied upon for
25.40% was more appropriate because it represents the effective
the assessment, the source of the amounts from which the
assessments arose were not shown. It emphasized the need for CIR or his representative shall not be considered as a decision on
stating the factual bases as the FDDA reflected different amounts the assessment.
than that contained in the FLD/FAN.  
On the other hand, the CTA En Banc sustained Liquigaz’ The Court’s Ruling
WTC assessment. It observed that the basis for the assessment was  
the same for the FLD and the FDDA, which was a comparison of Central to the resolution of the issue is Section 228  of the 11

the salaries declared in the Income Tax Return (ITR) and the _______________
Alphalist that resulted in a discrepancy of P9,318,255.84. The
CTA En Banc highlighted that the change 11  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 taxpayers. Provided, however, That a preassessment notice shall not be
required in the following cases:
10  Id., at pp. 127-128. (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
88
88 SUPREME COURT REPORTS ANNOTATED  
Commissioner of Internal Revenue vs.Liquigaz  
90
Philippines Corporation 90 SUPREME COURT REPORTS ANNOTATED
in the amount of assessed WTC deficiency simply arose from
the revision of the tax rate used — from 32% to the effective tax Commissioner of Internal Revenue vs.Liquigaz
rate of 25.40% suggested by Liquigaz. Philippines Corporation
Further, it disregarded the explanation of Liquigaz on the NIRC and RR No. 12-99,  as amended. They lay out the
12

ground of its failure to specify how much of the salaries account procedure to be followed in tax assessments. Under Section 228
pertained to de minimis benefits, accrued bonuses, salaries and _______________
wages, and contributions to the Social Security System, Medicare
and Pag-Ibig Fund. The CTA En Banc reiterated that even the (c) When a taxpayer who opted to claim a refund or tax credit of
court-commissioned independent accountant reported that excess creditable withholding tax for a taxable period was determined to
have carried over and automatically applied the same amount claimed
Liquigaz was unable to substantiate the discrepancy found by the against the estimated tax liabilities for the taxable quarter or quarters of the
CIR. succeeding taxable year; or
Both parties moved for a partial reconsideration of the (d) When the excise tax due on excisable articles had not been paid;
or
CTA En Banc Decision, but the latter denied the motions in its (e) When an article locally purchased or imported by an exempt
November 26, 2014 Resolution. person, such as, but not limited to vehicles, capital equipment, machineries
Not satisfied, both parties filed their respective petitions for and spare parts, has been sold, traded, or transferred to nonexempt persons.
review, anchored on: 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
Sole Issue 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.
WHETHER THE COURT OF TAX APPEALS EN Such assessment may be protested administratively by filing a request for
BANC ERRED IN PARTIALLY UPHOLDING THE reconsideration or reinvestigation within thirty (30) days from receipt of the
VALIDITY OF THE ASSESSMENT AS TO THE assessment in such form and manner as may be prescribed by implementing rules and
WITHHOLDING TAX ON COMPENSATION BUT regulations. Within sixty (60) days from filing of the protest, all relevant supporting
documents shall have been submitted; otherwise, the assessment shall become final.
DECLARING INVALID THE ASSESSMENT ON If the protest is denied in whole or in party, or is not acted upon within one
EXPANDED WITHHOLDING TAX AND FRINGE hundred eighty (180) days from submission of documents, the taxpayer adversely
BENEFITS TAX. 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 the one hundred
  eighty (180)-day period; otherwise, the decision shall become final, executory and
The present consolidated petitions revolve around the same demandable. (Emphases supplied)
FDDA where Liquigaz seeks the cancellation of its remaining tax 12  Implementing the Provisions of the National Internal Revenue Code of 1997
liability and the CIR aims to revive the assessments struck down Governing the Rules on Assessment of National
by the tax court. Basically, Liquigaz asserts that like its assessment
 
for EWT and FBT deficiency, the WTC assessment should have
 
been invalidated because the FDDA did not provide for the facts 91
on which the assessment was based. It argues that it was deprived
of due process because in not stating the factual basis of the VOL. 789, APRIL 18, 2016 91
assessment, the CIR did not consider the defenses and supporting Commissioner of Internal Revenue vs.Liquigaz
documents it presented.
 
Philippines Corporation
  of the NIRC, a taxpayer shall be informed in writing of the law
89 and the facts on which the assessment is made, otherwise, the
assessment shall be void. In implementing Section 228 of the
VOL. 789, APRIL 18, 2016 89 NIRC, RR No. 12-99 reiterates the requirement that a taxpayer
Commissioner of Internal Revenue vs.Liquigaz must be informed in writing of the law and the facts on which his
Philippines Corporation tax liability was based, to wit:
Moreover, Liquigaz is adamant that even if the FDDA would
SECTION 3. Due Process Requirement in the Issuance
be upheld, it should not be liable for the deficiency WTC liability
of a Deficiency Tax Assessment.—
because the CIR erred in comparing its ITR and Alphalist to
determine possible discrepancies. It explains that the salaries of its
3.1 Mode of procedures in the issuance of a deficiency
employees reflected in its ITR does not reflect the total taxable
tax assessment:
income paid and received by the employees because the same
3.1.1 Notice for informal conference.—The Revenue
refers to the gross salaries of the employees, which included
Officer who audited the taxpayer’s records shall, among
amounts that were not subject to WTC.
others, state in his report whether or not the taxpayer
On the other hand, the CIR avers that the assessments for
agrees with his findings that the taxpayer is liable for
EWT and FBT liability should be upheld because the FDDA must
deficiency tax or taxes. If the taxpayer is not amenable,
be taken together with the PAN and FAN, where details of the
based on the said Officer’s submitted report of
assessments were attached. Hence, the CIR counters that Liquigaz
investigation, the taxpayer shall be informed, in writing,
was fully apprised of not only the laws, but also the facts on which
by the Revenue District Office or by the Special
the assessment was based, which were likewise evidenced by the
Investigation Division, as the case may be (in the case
fact that it was able to file a protest on the assessment. Further, the
Revenue Regional Offices) or by the Chief of Division
CIR avers that even if the FDDA would be declared void, it should
concerned (in the case of the BIR National Office) of the
not result in the automatic abatement of tax liability especially
discrepancy or discrepancies in the taxpayer’s payment of
because RR No. 12-99 merely states that a void decision of the
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 based, otherwise, the decision shall be
fails to respond within fifteen (15) days from date of void (see illustration in ANNEX C hereof), in which case,
receipt of the notice for informal conference, he shall be the same shall not be considered a decision on a disputed
considered in default, in which case, the Revenue District assessment; and (b) that the same is his final decision.
Officer or the Chief of the Special Investigation Division [Emphases and underscoring supplied]
of the Revenue Regional Office, or the Chief of Division  
in the National Office, as the case may be, shall endorse The importance of providing the taxpayer of adequate written
the case with the least possible delay to the Assessment notice of his tax liability is undeniable. Section 228 of the NIRC
Division of the Revenue Regional Office or to the declares that an assessment is void if the taxpayer is not notified in
Commissioner or his duly authorized representative, as the writing of the facts and law on which it is made. Again, Section
case may be, for 3.1.4 of RR No. 12-99 requires that the FLD must state the facts
_______________ and law on which it is based, otherwise, the FLD/FAN itself shall
be void. Meanwhile, Section 3.1.6 of RR No. 12-99 specifically
Internal Revenue Taxes, Civil Penalties and Interest and the Extra-Judicial Settlement requires that the decision of the CIR or his duly authorized
of a Taxpayer’s Criminal Violation of the Code Through Payment of a Suggested
Compromise Penalty. representative on a disputed assessment shall state the facts, law
and rules and regulations, or jurisprudence on which the decision
  is based. Failure to do so would invalidate the FDDA.
  The use of the word “shall” in Section 228 of the NIRC and in
92 RR No. 12-99 indicates that the requirement of informing the
92 SUPREME COURT REPORTS ANNOTATED taxpayer of the legal and factual bases of the assessment and the
decision made against him is mandatory.  The re- 13

Commissioner of Internal Revenue vs.Liquigaz _______________

Philippines Corporation
13  Commissioner of Internal Revenue v. United Salvage and Towage (Phils.),
appropriate review and issuance of a deficiency tax Inc., G.R. No. 197515, July 2, 2014, 729 SCRA 113, 128.
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 94
representative, as the case may be, it is determined that 94 SUPREME COURT REPORTS ANNOTATED
there exists sufficient basis to assess the taxpayer for any
deficiency tax or taxes, the said Office shall issue to the Commissioner of Internal Revenue vs.Liquigaz
taxpayer, at least by registered, mail, a Preliminary Philippines Corporation
Assessment Notice (PAN) for the proposed assessment, quirement of providing the taxpayer with written notice of the
showing in detail, the facts and the law, rules and factual and legal bases applies both to the FLD/FAN and the
regulations, or jurisprudence on which the proposed FDDA.
assessment is based (see illustration in ANNEX A hereof). Section 228 of the NIRC should not be read restrictively as to
If the taxpayer fails to respond within fifteen (15) days limit the written notice only to the assessment itself. As
from date of receipt of the PAN, he shall be considered in implemented by RR No. 12-99, the written notice requirement for
default, in which case, a formal letter of demand and both the FLD and the FAN is in observance of due process — to
assessment notice shall be caused to be issued by the said afford the taxpayer adequate opportunity to file a protest on the
Office, calling for payment of the taxpayer’s deficiency assessment and thereafter file an appeal in case of an adverse
tax liability, inclusive of the applicable penalties. x x x decision.
3.1.4 Formal Letter of Demand and Assessment Notice. To rule otherwise would tolerate abuse and prejudice.
—The formal letter of demand and assessment notice shall Taxpayers will be unable to file an intelligent appeal before the
be issued by the Commissioner or his duly authorized CTA as they would be unaware on how the CIR or his authorized
representative. The letter of demand calling for representative appreciated the defense raised in connection with
payment of the taxpayer’s deficiency tax or taxes shall the assessment. On the other hand, it raises the possibility that the
state the facts, the law, rules and regulations, or amounts reflected in the FDDA were arbitrarily made if the factual
jurisprudence on which the assessment is and legal bases thereof are not shown.
based, otherwise, the formal letter of demand and
assessment notice shall be void (see illustration in A void FDDA does not
ANNEX B hereof). x x x ipso facto render the
3.1.5 Disputed Assessment.—The taxpayer or his duly assessment void
authorized representative may protest administratively  
against the aforesaid formal letter of demand and The CIR and Liquigaz are at odds with regards to the effect of
assessment notice within thirty (30) days from date of a void FDDA. Liquigaz harps that a void FDDA will lead to a void
receipt thereof. If there are several issues involved in the assessment because the FDDA ultimately determines the final tax
formal letter of demand and assessment notice but the liability of a taxpayer, which may then be appealed before the
taxpayer only disputes or protests against the validity of CTA. On the other hand, the CIR believes that a void FDDA does
some of the issues raised, the taxpayer shall be required to not ipso facto result in the nullification of the assessment.
pay the deficiency tax or taxes attributable to the In resolving the issue on the effects of a void FDDA, it is
undisputed issues, in which case, a collection letter shall necessary to differentiate an “assessment” from a “decision.”
be issued to the taxpayer calling for payment of the said In St. Stephen’s Association v. Collector of Internal Revenue, 14

de- _______________
 
  14  104 Phil. 314, 317 (1958).
93
 
VOL. 789, APRIL 18, 2016 93
 
Commissioner of Internal Revenue vs.Liquigaz 95

Philippines Corporation VOL. 789, APRIL 18, 2016 95

ficiency tax, inclusive of the applicable surcharge and/or Commissioner of Internal Revenue vs.Liquigaz
interest. No action shall be taken on the taxpayer’s
disputed issues until the taxpayer has paid the deficiency Philippines Corporation
tax or taxes attributable to the said undisputed issues. The the Court has long recognized that a “decision” differs from
prescriptive period for assessment or collection of the tax an “assessment,” to wit:
or taxes attributable to the disputed issues shall be  
suspended. x x x In the first place, we believe the respondent court
3.1.6 Administrative Decision on a Disputed erred in holding that the assessment in question is the
Assessment.—The decision of the Commissioner or his respondent Collector’s decision or ruling appealable to it,
duly authorized representative shall (a) state the facts, and that consequently, the period of thirty days prescribed
the applicable law, rules and regulations, or by Section 11 of Republic Act No. 1125 within which
jurisprudence on which such decision is petitioner should have appealed to the respondent court
 must be counted from its receipt of said assessment. opportunity to file an intelli-
Where a taxpayer questions an assessment and asks the gent appeal
Collector to reconsider or cancel the same because he (the  
taxpayer) believes he is not liable therefor, the assessment The CIR and Liquigaz are also in disagreement whether the
becomes a “disputed assessment” that the Collector must FDDA issued was compliant with the mandatory requirement of
decide, and the taxpayer can appeal to the Court of Tax written notice laid out in the law and implementing rules and
Appeals only upon receipt of the decision of the Collector regulations. Liquigaz argues that the FDDA is void as it did not
on the disputed assessment, in accordance with paragraph contain the factual bases of the assessment and merely showed the
(1) of Section 7, Republic Act No. 1125, conferring amounts of its alleged tax liabilities.
appellate jurisdiction upon the Court of Tax Appeals to A perusal of the FDDA issued in the case at bench reveals that
review “decisions of the Collector of Internal Revenue in it merely contained a table of Liquigaz’s supposed tax liabilities,
cases involving disputed assessment...” without providing any details. The CIR explains that the FDDA
The difference is likewise readily apparent in Section 7  of 15
still complied with the requirements of the law as it was issued in
_______________ connection with the PAN and FLD/FAN, which had an attachment
of the details of discrepancies. Hence, the CIR concludes that
15  SEC. 7. Jurisdiction.—The CTA shall exercise: Liquigaz was sufficiently informed in writing of the factual bases
a. Exclusive appellate jurisdiction to review by appeal, as herein provided:
1. Decisions of the Commissioner of Internal Revenue in cases of the assessment.
involving disputed assessments, refunds of internal revenue taxes, fees or The reason for requiring that taxpayers be informed in writing
other charges, penalties thereto, or other matters arising under the National of the facts and law on which the assessment is made is the
Internal Revenue or other laws administered by the Bureau of Internal
Revenue;
constitutional guarantee that no person shall be deprived of his
2. Inaction by the Commissioner of Internal Revenue in cases property without due process of law.  Merely notifying the
17

involving disputed assessments, refunds of internal revenue taxes, fees or taxpayer of its tax liabilities without elaborating
other charges, penalties thereto, or other matters arising under the National _______________
Internal Revenue or other laws administered by the
17  Commissioner of Internal Revenue v. Bank of the Philippine Islands, 549
  Phil. 886, 899; 521 SCRA 373, 383 (2007).
 
96  
96 SUPREME COURT REPORTS ANNOTATED  
98
Commissioner of Internal Revenue vs.Liquigaz
98 SUPREME COURT REPORTS ANNOTATED
Philippines Corporation
Commissioner of Internal Revenue vs.Liquigaz
R.A. 1125,  as amended, where the CTA is conferred with
16

appellate jurisdiction over the decision of the CIR in cases Philippines Corporation
involving disputed assessments, as well as inaction of the CIR in on its details is insufficient. In CIR v. Reyes,  the Court further
18

disputed assessments. From the foregoing, it is clear that what is explained:

appealable to the CTA is the “decision” of the CIR on disputed  
assessment and not the assessment itself. In the present case, Reyes was not informed in
An assessment becomes a disputed assessment after a writing of the law and the facts on which the assessment
taxpayer has filed its protest to the assessment in the of estate taxes had been made. She was merely notified of
administrative level. Thereafter, the CIR either issues a decision the findings by the CIR, who had simply relied upon the
on the disputed assessment or fails to act on it and is, therefore, provisions of former Section 229 prior to its amendment
considered denied. The taxpayer may then appeal the decision on by Republic Act (RA) No. 8424, otherwise known as the
the disputed assessment or the inaction of the CIR. As such, the Tax Reform Act of 1997.
FDDA is not the only means that the final tax liability of a First, RA 8424 has already amended the provision of
taxpayer is fixed, which may then be appealed by the taxpayer. Section 229 on protesting an assessment. The old
Under the law, inaction on the part of the CIR may likewise result requirement of merely notifying the taxpayer of the CIR’s
in the finality of a taxpayer’s tax liability as it is deemed a denial findings was changed in 1998 to informing the taxpayer of
of the protest filed by the latter, which may also be appealed not only the law, but also of the facts on which an
before the CTA. assessment would be made; otherwise, the assessment
Clearly, a decision of the CIR on a disputed assessment differs itself would be invalid. x x x
from the assessment itself. Hence, the invalidity of one does not At the time the pre-assessment notice was issued to
necessarily result to the invalidity of the other — unless the law or Reyes, RA 8424 already stated that the taxpayer must be
regulations otherwise provide. informed of both the law and facts on which the
Section 228 of the NIRC provides that an assessment shall be assessment was based. Thus, the CIR should have
void if the taxpayer is not informed in writing of the law and the required the assessment officers of the Bureau of Internal
facts on which it is based. It is, however, silent with regards to a Revenue (BIR) to follow the clear mandate of the new
decision on a disputed assessment by the CIR which fails to state law. The old regulation governing the issuance of estate
the law and facts on which it is tax assessment notices ran afoul of the rule that tax
_______________ regulations — old as they were — should be in harmony
with, and not supplant or modify, the law. x x x
Bureau of Internal Revenue, where the National Internal Revenue Code Fourth, petitioner violated the cardinal rule in
provides a specific period of action, in which case the inaction shall be deemed a
denial. x x x administrative law that the taxpayer be accorded due
16  An Act Creating the Court of Tax Appeals. process. Not only was the law here disregarded, but no
valid notice was sent, either. A void assessment bears no
  valid fruit.
  The law imposes a substantive, not merely a formal,
97 requirement. To proceed heedlessly with tax collection
VOL. 789, APRIL 18, 2016 97 without first establishing a valid assessment is evidently
violative of the cardinal principle in administra-
Commissioner of Internal Revenue vs.Liquigaz _______________
Philippines Corporation
based. This void is filled by RR No. 12-99 where it is stated that 18  516 Phil. 176, 186-190; 480 SCRA 382, 393-397 (2006).
failure of the FDDA to reflect the facts and law on which it is
 
based will make the decision void. It, however, does not extend to
 
the nullification of the entire assessment. 99
With the effects of a void FDDA expounded, the next issue to
be addressed is whether the assailed FDDA is void for failure to VOL. 789, APRIL 18, 2016 99
state the facts and law on which it was based. Commissioner of Internal Revenue vs.Liquigaz
The FDDA must state the facts Philippines Corporation
and law on which it is based tive investigations: that taxpayers should be able to
to provide the taxpayer the present their case and adduce supporting evidence. In the
instant case, respondent has not been informed of the
 basis of the estate tax liability. Without complying with
Commissioner of Internal Revenue vs.Liquigaz
the unequivocal mandate of first informing the
taxpayer of the government’s claim, there can be no Philippines Corporation
deprivation of property, because no effective protest The law requires that the legal and factual
can be made. The haphazard shot at slapping an bases of the assessment be stated in the formal
assessment, supposedly based on estate taxation’s general letter of demand and assessment notice. Thus,
provisions that are expected to be known by the taxpayer, such cannot be presumed. Otherwise, the express
is utter chicanery. provisions of Article 228 of the NIRC and RR
Even a cursory review of the preliminary assessment No. 12-99 would be rendered nugatory. The
notice, as well as the demand letter sent, reveals the lack alleged “factual bases” in the advice, preliminary
of basis for — not to mention the insufficiency of — the letter and “audit working papers” did not suffice.
gross figures and details of the itemized deductions There was no going around the mandate of the
indicated in the notice and the letter. This Court cannot law that the legal and factual bases of the
countenance an assessment based on estimates that assessment be stated in writing in the formal letter
appear to have been arbitrarily or capriciously arrived of demand accompanying the assessment notice.
at. Although taxes are the lifeblood of the government, We note that the old law merely required that
their assessment and collection “should be made in the taxpayer be notified of the assessment made
accordance with law as any arbitrariness will negate the by the CIR. This was changed in 1998 and the
very reason for government itself.” taxpayer must now be informed not only of the
[Emphases supplied] law but also of the facts on which the assessment
In CIR v. United Salvage and Towage (Phils.), Inc.,  the Court
19 is made. Such amendment is in keeping with the
struck down an assessment where the FAN only contained a table constitutional principle that no person shall be
of the taxes due without providing further detail thereto, to wit: deprived of property without due process. In view
  of the absence of a fair opportunity for Enron to
In the present case, a mere perusal of the FAN for the be informed of the legal and factual bases of the
deficiency EWT for taxable year 1994 will show that assessment against it, the assessment in question
other than a tabulation of the alleged deficiency taxes due, was void. . . . .
no further detail regarding the assessment was provided x x x
by petitioner. Only the resulting interest, surcharge and Applying the aforequoted rulings to the case at bar, it
penalty were anchored with legal basis. Petitioner should is clear that the assailed deficiency tax assessment for the
have at least attached a detailed notice of discrepancy EWT in 1994 disregarded the provisions of Section 228 of
or stated an explanation why the Tax Code, as amended, as well as Section 3.1.4 of
_______________ Revenue Regulations No. 12-99 by not providing the legal
and factual bases of the assessment. Hence, the formal
19  Supra note 13. letter of demand and the notice of assessment issued
relative thereto are void.
 
[Emphasis supplied]
   
100
 
100 SUPREME COURT REPORTS ANNOTATED 102
Commissioner of Internal Revenue vs.Liquigaz 102 SUPREME COURT REPORTS ANNOTATED
Philippines Corporation Commissioner of Internal Revenue vs.Liquigaz
the amount of P48,461.76 is collectible against Philippines Corporation
respondent and how the same was arrived at. Any Nevertheless, the requirement of providing the taxpayer with
shortcuts to the prescribed content of the assessment or
written notice of the facts and law used as basis for the assessment
the process thereof should not be countenanced, in is not to be mechanically applied. Emphasis on the purpose of the
consonance with the ruling in Commissioner of Internal
written notice is important. The requirement should be in place so
Revenue v. Enron Subic Power Corporation to wit: that the taxpayer could be adequately informed of the basis of the
The CIR insists that an examination of the
assessment enabling him to prepare an intelligent protest or appeal
facts shows that Enron was properly apprised of of the assessment or decision. In Samar-I Electric Cooperative v.
its tax deficiency. During the pre-assessment
CIR,  the Court elaborated:
20

stage, the CIR advised Enron’s representative of  

the tax deficiency, informed it of the proposed tax
The above information provided to petitioner enabled
deficiency assessment through a preliminary five- it to protest the PAN by questioning respondent’s
day letter and furnished Enron a copy of the audit
interpretation of the laws cited as legal basis for the
working paper allegedly showing in detail the computation of the deficiency withholding taxes and
legal and factual bases of the assessment. The
assessment of minimum corporate income tax despite
CIR argues that these steps sufficed to inform petitioner’s position that it remains exempt therefrom. In
Enron of the laws and facts on which the
its letter-reply dated May 27, 2002, respondent answered
deficiency tax assessment was based. the arguments raised by petitioner in its protest, and
We disagree. The advice of tax deficiency,
requested it to pay the assessed deficiency on the date of
given by the CIR to an employee of Enron, as payment stated in the PAN. A second protest letter dated
well as the preliminary five-day letter, were not
June 23, 2002 was sent by petitioner, to which respondent
valid substitutes for the mandatory notice in replied (letter dated July 8, 2002) answering each of the
writing of the legal and factual bases of the
two issues reiterated by petitioner: (1) validity of EO 93
assessment. These steps were mere perfunctory withdrawing the tax exemption privileges under PD 269;
discharges of the CIR’s duties in correctly
and (2) retroactive application of RR No. 8-2000. The
assessing a taxpayer. The requirement for issuing FAN was finally received by petitioner on September 24,
a preliminary or final notice, as the case may be,
2002, and protested by it in a letter dated October 14,
informing a taxpayer of the existence of a 2002 which reiterated in lengthy arguments its earlier
deficiency tax assessment is markedly different
interpretation of the laws and regulations upon which the
from the requirement of what such notice must assessments were based.
contain. Just because the CIR issued an advice, a
Although the FAN and demand letter issued to
preliminary letter during the pre-assessment stage petitioner were not accompanied by a written explanation
and a final notice, in the order required by law,
of the legal and factual bases of the deficiency taxes
does not necessarily mean that Enron was assessed against the petitioner, the records showed that
informed of the law and facts on which the
respondent in its letter dated April 10, 2003 responded to
deficiency tax assessment was made. petitioner’s October 14, 2002 letter-protest, explaining at
  _______________
 
101 20  G.R. No. 193100, December 10, 2014, 744 SCRA 459.
VOL. 789, APRIL 18, 2016 101
   21  Rollo (G.R. No. 215557), p. 50.
 
103  
 
VOL. 789, APRIL 18, 2016 103 105
Commissioner of Internal Revenue vs.Liquigaz VOL. 789, APRIL 18, 2016 105
Philippines Corporation Commissioner of Internal Revenue vs.Liquigaz
length the factual and legal bases of the deficiency tax
Philippines Corporation
assessments and denying the protest.
because as discussed above, the assessment itself differs from
Considering the foregoing exchange of
a decision on the disputed assessment.
correspondence and documents between the parties, we
As established, an FDDA that does not inform the taxpayer in
find that the requirement of Section 228 was substantially
writing of the facts and law on which it is based renders the
complied with. Respondent had fully informed
decision void. Therefore, it is as if there was no decision rendered
petitioner in writing of the factual and legal bases of the
by the CIR. It is tantamount to a denial by inaction by the CIR,
deficiency taxes assessment, which enabled the latter to
which may still be appealed before the CTA and the assessment
file an “effective” protest, much unlike the taxpayer’s
evaluated on the basis of the available evidence and documents.
situation in Enron. Petitioner’s right to due process was
The merits of the EWT and FBT assessment should have been
thus not violated.
discussed and not merely brushed aside on account of the void
 
FDDA.
Thus, substantial compliance with the requirement under
On the other hand, the Court agrees that the FDDA
Section 228 of the NIRC is permissible, provided that the taxpayer
substantially informed Liquigaz of its tax liabilities with regard to
would be eventually apprised in writing of the factual and legal
its WTC assessment. As highlighted by the CTA, the basis for the
bases of the assessment to allow him to file an effective protest
assessment was the same for the FLD and the FDDA, where the
against.
salaries reflected in the ITR and the alphalist were compared
The above cited cases refer to the compliance of the FAN/
resulting in a discrepancy of P9,318,255.84. The change in the
FLD of the due process requirement embodied in Section 228 of
amount of assessed deficiency withholding taxes on compensation
the NIRC and RR No. 12-99. These may likewise applied to the
merely arose from the modification of the tax rates used — 32% in
FDDA, which is similarly required to include a written notice of
the FLD and the effective tax rate of 25.40% in the FDDA. The
the factual and legal bases thereof. Without sounding repetitious, it
Court notes it was Liquigaz itself which proposed the rate of
is important to note that Section 228 of the NIRC did not limit the
25.40% as a more appropriate tax rate as it represented the
requirement of stating the facts and law only to the FAN/FLD. On
effective tax on compensation paid for taxable year 2005.  As 22
the other hand, RR No. 12-99 detailed the process of assessment
such, Liquigaz was effectively informed in writing of the factual
and required that both the FAN/FLD and the FDDA state the law
bases of its assessment for WTC because the basis for the FDDA,
and facts on which it is based.
with regards to the WTC, was identical with the FAN — which
Guided by the foregoing, the Court now turns to the FDDA in
had a detail of discrepancy attached to it.
issue.
Further, the Court sees no reason to reverse the decision of the
It is undisputed that the FDDA merely showed Liquigaz’ tax
CTA as to the amount of WTC liability of Liquigaz. It is a time-
liabilities without any details on the specific transactions which
honored doctrine that the findings and conclusions of the CTA are
gave rise to its supposed tax deficiencies. While it provided for the
accorded the highest respect and will not be lightly set aside
legal bases of the assessment, it fell short of informing Liquigaz of
because by the very nature of the CTA, it is dedi-
the factual bases thereof. Thus, the FDDA as regards the EWT and 22  Id., at p. 123.
FBT tax deficiency did not
   
   
104 106
104 SUPREME COURT REPORTS ANNOTATED 106 SUPREME COURT REPORTS ANNOTATED
Commissioner of Internal Revenue vs.Liquigaz Commissioner of Internal Revenue vs.Liquigaz
Philippines Corporation Philippines Corporation
comply with the requirement in Section 3.1.6 of RR No. 12- cated exclusively to the resolution of tax problems and has
99, as amended, for failure to inform Liquigaz of the factual basis accordingly developed an expertise on the subject.  The issue of
23

thereof. Liquigaz’ WTC liability had been thoroughly discussed in the

The CIR erred in claiming that Liquigaz was informed of the courts a quo and even the court-appointed independent accountant
factual bases of the assessment because the FDDA made reference had found that Liquigaz was unable to substantiate its claim
to the PAN and FAN/FLD, which were accompanied by details of concerning the discrepancies in its WTC.
the alleged discrepancies. The CTA En Banc highlighted that the To recapitulate, a “decision” differs from an “assessment” and
amounts in the FAN and the FDDA were different. As pointed out failure of the FDDA to state the facts and law on which it is based
by the CTA, the FLD/FAN and the FDDA reflected the following renders the decision void — but not necessarily the assessment.
amounts: 21
Tax laws may not be extended by implication beyond the clear
  import of their language, nor their operation enlarged so as to
Basic Withholding Tax on embrace matters not specifically provided. 24

Expanded Withholding Fringe Benefits

Deficiency Com- WHEREFORE, the May 22, 2014 Decision and the
Tax
Tax pensation November 26, 2014 Resolution of the Court of Tax Appeals En
Banc are PARTIALLY AFFIRMED in that the assessment on
Per FLD P3,675,048.78 P2,981,841.84 P9,501,564.07
deficiency Withholding Tax in Compensation is upheld.
The case is REMANDED to the Court of Tax Appeals for the
Per FDDA P1,823,782.67 P2,366,836.98 P7,572,236.16
assessment on deficiency Expanded Withholding Tax and Fringe
Benefits Tax.
Difference P1,851,266.11 P615,004.80 P1,929,327.91
SO ORDERED.
As such, the Court agrees with the tax court that it becomes Carpio (Chairperson), Brion, Del Castillo and Leonen, JJ.,
even more imperative that the FDDA contain details of the concur.
discrepancy. Failure to do so would deprive Liquigaz adequate
opportunity to prepare an intelligent appeal. It would have no way Judgment and resolution partially affirmed.
of determining what were considered by the CIR in the defenses it
had raised in the protest to the FLD. Further, without the details of _______________
the assessment, it would open the possibility that the reduction of
23  Commissioner of Internal Revenue v. Mirant (Philippines) Operations
the assessment could have been arbitrarily or capriciously arrived Corporation, 667 Phil. 208, 222; 652 SCRA 80, 94 (2011).
at. 24  Philippine Health Care Providers, Inc. v. Commissioner of Internal
The Court, however, finds that the CTA erred in concluding Revenue, 616 Phil. 387, 411; 600 SCRA 413, 435 (2009).
that the assessment on EWT and FBT deficiency was void because
the FDDA covering the same was void. The assessment remains  
valid notwithstanding the nullity of the FDDA  
_______________ 107
 VOL. 789, APRIL 18, 2016 107
Commissioner of Internal Revenue vs.Liquigaz
Philippines Corporation
Note.—Under Section 195 of the Local Government Code, a
taxpayer who disagrees with a tax assessment made by a local
treasurer may file a written protest thereof, and from a denial of
the same, either appeal the assessment before the court of
competent jurisdiction or pay the tax and then seek a refund. (San
Juan vs. Castro, 541 SCRA 526 [2007])
 
 
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