SECOND DIVISION
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COMMISSIONER OF INTERNAL REVENUE, Petitioner, - versus - METRO STAR SUPERAMA, INC., Respondent. |
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G.R. No. 185371 Present: CARPIO, J., Chairperson, NACHURA, PERALTA, ABAD,
and MENDOZA, JJ. Promulgated: December 8, 2010 |
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D E C I S I O N
MENDOZA, J.:
This petition for review on certiorari under
Rule 45 of the Rules of Court filed by the petitioner Commissioner of Internal Revenue (CIR) seeks to reverse and set
aside the 1] September 16, 2008 Decision[1]
of the Court of Tax Appeals En Banc (CTA-En Banc), in C.T.A. EB No. 306 and 2] its November
18, 2008 Resolution[2] denying petitioner’s motion for
reconsideration.
The
CTA-En Banc affirmed in toto the decision of its Second
Division (CTA-Second Division) in CTA Case No. 7169 reversing the February 8, 2005 Decision of the CIR which assessed
respondent Metro Star Superama, Inc. (Metro Star) of deficiency
value-added tax and withholding tax for the taxable year 1999.
Based on a Joint Stipulation of Facts and Issues[3] of
the parties, the CTA Second Division summarized the factual and procedural
antecedents of the case, the pertinent portions of which read:
Petitioner
is a domestic corporation duly organized and existing by virtue of the laws of
the Republic of the
On
For
petitioner’s failure to comply with several requests for the presentation of
records and Subpoena Duces Tecum, [the] OIC of BIR Legal Division issued an Indorsement
dated
On P 292,874.16.
On
April 11, 2002, petitioner received a Formal Letter of Demand dated April 3,
2002 from Revenue District No. 67, Legazpi City, assessing petitioner the
amount of Two Hundred Ninety Two Thousand Eight Hundred Seventy Four Pesos and
Sixteen Centavos (P292,874.16.) for deficiency value-added and
withholding taxes for the taxable year 1999, computed as follows:
ASSESSMENT
NOTICE NO. 067-99-003-579-072
VALUE ADDED TAX
Gross Sales P1,697,718.90
Output Tax P 154,338.08
Less: Input Tax
VAT Payable P 154,338.08
Add: 25% Surcharge P 38,584.54
20% Interest 79,746.49
Compromise Penalty
Late Payment P16,000.00
Failure to File VAT returns 2,400.00
18,400.00 136,731.01
TOTAL P 291,069.09
WITHHOLDING TAX
Compensation 2,772.91
Expanded 110,103.92
Total Tax Due P
112,876.83
Less: Tax Withheld 111,848.27
Deficiency Withholding Tax P
1,028.56
Add: 20% Interest p.a. 576.51
Compromise Penalty 200.00
TOTAL P 1,805.07
*Expanded Withholding Tax P1,949,334.25 x 5%
97,466.71
Film Rental 10,000.25 x 10% 1,000.00
Audit Fee 193,261.20
x 5% 9,663.00
Rental Expense
41,272.73 x
1% 412.73
Security Service 156,142.01 x
1% 1,561.42
Service Contractor P 110,103.92
Total
SUMMARIES OF DEFICIENCIES
VALUE ADDED TAX P
291,069.09
WITHHOLDING TAX 1,805.07
TOTAL P 292,874.16
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
On
x x x.
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 parties then stipulated on
the following issues to be decided by the tax court:
1.
Whether the respondent complied with the due process requirement as provided
under the National Internal Revenue Code and Revenue Regulations No. 12-99 with
regard to the issuance of a deficiency tax assessment;
1.1
Whether petitioner is liable for the respective amounts of P291,069.09
and P1,805.07 as deficiency VAT and withholding tax for the year 1999;
1.2.
Whether the assessment has become final and executory and demandable for
failure of petitioner to protest the same within 30 days from its receipt
thereof on
2. Whether the deficiency assessments issued by
the respondent are void for failure to state the law and/or facts upon which
they are based.
2.2
Whether petitioner was informed of the law and facts on which the assessment is
made in compliance with Section 228 of the National Internal Revenue Code;
3. Whether or not petitioner, as owner/operator
of a movie/cinema house, is subject to VAT on sales of services under Section
108(A) of the National Internal Revenue Code;
4. Whether or not the assessment is based on the
best evidence obtainable pursuant to Section 6(b) of the National Internal
Revenue Code.
The
CTA-Second Division found merit in the petition of Metro Star and, on
WHEREFORE, premises considered, the Petition for Review is hereby GRANTED. Accordingly, the assailed
Decision dated
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
The CIR sought reconsideration[7] of
the decision of the CTA-Second Division, but the motion was denied in the
latter’s
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 CTA-En Banc disposed:
WHEREFORE, the instant Petition for Review is
hereby DENIED DUE COURSE and DISMISSED for lack of merit. Accordingly, the
March 21, 2007 Decision and July 27, 2007 Resolution of the CTA Second Division in CTA Case No. 7169
entitled, “Metro Star Superama, Inc.,
petitioner vs. Commissioner of Internal Revenue, respondent” are hereby
AFFIRMED in toto.
SO ORDERED.
The motion for reconsideration[10] filed
by the CIR was likewise denied by the CTA-En Banc in its
The
CIR, insisting that Metro Star received the PAN, dated
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:
Jurisprudence
has consistently shown that this Court accords the findings of fact by the CTA
with the highest respect. In Sea-Land Service Inc. v. Court of Appeals [G.R. No.
122605, 30 April 2001, 357 SCRA 441, 445-446], this Court recognizes
that the Court of Tax Appeals, which by the very nature of its function is
dedicated exclusively to the consideration of tax problems, has necessarily
developed an expertise on the subject, and its conclusions will not be
overturned unless there has been an abuse or improvident exercise of
authority. 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 taxpayer’s 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 government’s 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.)
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
This
now leads to the question: 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?
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 Star’s 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 CIR’s 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 Star’s 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 citizen’s 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. Hence in Commissioner
of Internal Revenue v. Algue, Inc.,[20] it was said –
Taxes
are the lifeblood of the government and so should be collected without
unnecessary hindrance. On the other hand, such collection should be made in
accordance with law as any arbitrariness will negate the very reason for
government itself. It is therefore necessary to reconcile the apparently
conflicting interests of the authorities and the taxpayers so that the real
purpose of taxation, which is the promotion of the common good, may be
achieved.
xxx xxx xxx
It is
said that taxes are what we pay for civilized society. Without taxes, the
government would be paralyzed for the lack of the motive power to activate and
operate it. Hence, despite the natural reluctance to surrender part of one’s
hard-earned income to taxing authorities, every person who is able to must
contribute his share in the running of the government. The government for its
part is expected to respond in the form of tangible and intangible benefits
intended to improve the lives of the people and enhance their moral and
material values. This symbiotic relationship is the rationale of taxation and
should dispel the erroneous notion that it is an arbitrary method of exaction
by those in the seat of power.
But even as we concede the
inevitability and indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably and in accordance with the
prescribed procedure. If
it is not, then the taxpayer has a right to complain and the courts will then
come to his succor. For all the awesome power of the tax collector, he may
still be stopped in his tracks if the taxpayer can demonstrate x x x that the
law has not been observed.[21] (Emphasis
supplied).
WHEREFORE, the petition is DENIED.
SO ORDERED.
JOSE CATRAL
Associate Justice
WE CONCUR:
ANTONIO
T. CARPIO
Associate Justice
Chairperson
ANTONIO EDUARDO B. NACHURA DIOSDADO M. PERALTA
Associate Justice Associate Justice
ROBERTO A. ABAD
Associate Justice
A T T
E S T A T I O N
I attest that the conclusions in the above Decision
had been reached in consultation before the case was assigned to the writer of
the opinion of the Court’s Division.
ANTONIO T. CARPIO
Associate
Justice
Chairperson, Second Division
C E R
T I F I C A T I O N
Pursuant to Section 13, Article VIII of the
Constitution and the Division Chairperson’s Attestation, I certify that the
conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Court’s Division.
RENATO C. CORONA
Chief Justice
[1] Rollo, pp. 32-75.
Penned by Associate Justice Caesar A. Casanova, with Associate Justices
Erlinda P. Uy,
Olga Palanca-Enriquez, concurring and
Associate Justices Ernesto D. Acosta and Lovell R. Bautista, dissenting.
[2]
[3]
[4]
[5]
[6]
[7]
[8]
[9]
[10]
[11]
[12] Toshiba Information Equipment (Phils), Inc. v. Commissioner of Internal Revenue, G.R. No. 157594
[13]
G.R. No. 150764,
[14]
Ang Tibay v. Court of Industrial Relations, 69 Phil. 635 (1940).
[15]
Tupas v. Court of Appeals, G.R. No. 89571,
[16]
G.R. No. 167560,
[17] Commissioner of Internal Revenue v. Azucena T. Reyes, G.R. No. 159694
& G.R. No. 163581 January 27, 2006, 382 SCRA 480.
[18]
[19]
Section 1, Article III, 1987 Constitution.
[20]
241 Phil. 829 (1988).
[21]