TAXATION I CASESPage 42
CASES IN TAXATION I
Submitted to:
JUDGE LORETO ALOG
-Professor-
Submitted by:
EVANGELINE O. PESCADOR
UPANG-Phinma
College of Law
COMMISSIONER OF INTERNAL REVENUE v. SAN ROQUE POWER CORPORATION,
G.R. No. 196113
Facts
San Roque is a domestic corporation duly organized and existing under and by virtue of the laws of the Philippines with principal office at Barangay San Roque, San Manuel, Pangasinan. It was incorporated in October 1997 to design, construct, erect, assemble, own, commission and operate power-generating plants and related facilities pursuant to and under contract with the Government of the Republic of the Philippines, or any subdivision, instrumentality or agency thereof, or any governmentowned or controlled corporation, or other entity engaged in the development, supply, or distribution of energy.
As a seller of services, San Roque is duly registered with the BIR with TIN/VAT No. 005-017-501. It is likewise registered with the Board of Investments ("BOI") on a preferred pioneer status, to engage in the design, construction, erection, assembly, as well as to own, commission, and operate electric power-generating plants and related activities, for which it was issued Certificate of Registration No. 97-356 on February 11, 1998.
On October 11, 1997, San Roque entered into a Power Purchase Agreement ("PPA") with the National Power Corporation to develop hydro-potential of the Lower Agno River and generate additional power and energy for the Luzon Power Grid, by building the San Roque Multi-Purpose Project located in San Manuel, Pangasinan. The PPA provides, among others, that [San Roque] shall be responsible for the design, construction, installation, completion, testing and commissioning of the Power Station and shall operate and maintain the same, subject to NPC instructions. During the cooperation period of twenty-five (25) years commencing from the completion date of the Power Station, NPC will take and pay for all electricity available from the Power Station.
On the construction and development of the San Roque Multi- Purpose Project which comprises of the dam, spillway and power plant, San Roque allegedly incurred, excess input VAT in the amount of ?559,709,337.54 for taxable year 2001 which it declared in its Quarterly VAT Returns filed for the same year. [San Roque] duly filed with the BIR separate claims for refund, in the total amount of ?559,709,337.54, representing unutilized input taxes as declared in its VAT returns for taxable year 2001.
However, on March 28, 2003,San Roque filed amended Quarterly VAT Returns for the year 2001 since it increased its unutilized input VAT to the amount of ?560,200,283.14. Consequently, [San Roque] filed with the BIR on even date, separate amended claims for refund in the aggregate amount of ?560,200,283.14.
CIRs inaction on the subject claims led to the filing by San Roque of the Petition for Review with the Court [of Tax Appeals] in Division on April 10, 2003.
The CTA Second Division initially denied San Roques claim. The CTA Second Division required San Roque to show that it complied with the requirements of Section 112(B) of Republic Act No. 8424 (RA 8424) to be entitled to a tax refund or credit of input VAT attributable to capital goods imported or locally purchased. San Roque filed a Motion for New Trial and/or Reconsideration on 7 April 2006. In its 29 November 2007 Amended Decision, the CTA Second Division found legal basis to partially grant San Roques claim.
The Commissioner filed a Petition for Review before the CTA EB praying for the denial of San Roques claim for refund or tax credit in its entirety as well as for the setting aside of the 29 November 2007 Amended Decision and the 11 July 2008 Resolution in CTA Case No. 6647.
The CTA EB dismissed the CIRs petition for review and affirmed the challenged decision and resolution.
ISSUES:
I. Whether or not the Court of Tax Appeals En Banc erred in holding that San Roques claim for refund was not prematurely filed.
II. Whether or not the Court of Tax Appeals En Banc erred in affirming the amended decision of the Court of Tax Appeals (Second Division) granting San Roques claim for refund of alleged unutilized input VAT on its purchases of capital goods and services for the taxable year 2001
RULING:
On 10 April 2003, a mere 13 days after it filed its amended administrative claim with the Commissioner on 28 March 2003, San Roque filed a Petition for Review with the CTA docketed as CTA Case No. 6647. From this we gather two crucial facts: first, San Roque did not wait for the 120-day period to lapse before filing its judicial claim; second, San Roque filed its judicial claim more than four (4) years before the Atlas doctrine, which was promulgated by the Court on 8 June 2007.
Clearly, San Roque failed to comply with the 120-day waiting period, the time expressly given by law to the Commissioner to decide whether to grant or deny San Roques application for tax refund or credit. It is indisputable that compliance with the 120-day waiting period is mandatory and jurisdictional. The waiting period, originally fixed at 60 days only, was part of the provisions of the first VAT law, Executive Order No. 273, which took effect on 1 January 1988. The waiting period was extended to 120 days effective 1 January 1998 under RA 8424 or the Tax Reform Act of 1997. Thus, the waiting period has been in our statute books for more than fifteen (15) years before San Roque filed its judicial claim.
Failure to comply with the 120-day waiting period violates a mandatory provision of law. It violates the doctrine of exhaustion of administrative remedies and renders the petition premature and thus without a cause of action, with the effect that the CTA does not acquire jurisdiction over the taxpayers petition. Philippine jurisprudence is replete with cases upholding and reiterating these doctrinal principles. San Roques failure to comply with the 120-day mandatory period renders its petition for review with the CTA void. Article 5 of the Civil Code provides, "Acts executed against provisions of mandatory or prohibitory laws shall be void, except when the law itself authorizes their validity." San Roques void petition for review cannot be legitimized by the CTA or this Court because Article 5 of the Civil Code states that such void petition cannot be legitimized "except when the law itself authorizes validity." There is no law authorizing the petitions validity.
It is hornbook doctrine that a person committing a void act contrary to a mandatory provision of law cannot claim or acquire any right from his void act. A right cannot spring in favor of a person from his own void or illegal act. This doctrine is repeated in Article 2254 of the Civil Code, which states, "No vested or acquired right can arise from acts or omissions which are against the law or which infringe upon the rights of others." For violating a mandatory provision of law in filing its petition with the CTA, San Roque cannot claim any right arising from such void petition. Thus, San Roques petition with the CTA is a mere scrap of paper. Well-settled is the rule that tax refunds or credits, just like tax exemptions, are strictly construed against the taxpayer. The burden is on the taxpayer to show that he has strictly complied with the conditions for the grant of the tax refund or credit.
This Court cannot disregard mandatory and jurisdictional conditions mandated by law simply because conditions.
What is important, as far as the present cases are concerned, is that the mere filing by a taxpayer of a judicial claim with the CTA before the expiration of the 120-day period cannot operate to divest the Commissioner of his jurisdiction to decide an administrative claim within the 120-day mandatory period, unless the Commissioner has clearly given cause for equitable estoppel to apply as expressly recognized in Section 246 of the Tax Code.
A final word. Taxes are the lifeblood of the nation. The Philippines has been struggling to improve its tax efficiency collection for the longest time with minimal success. Consequently, the Philippines has suffered the economic adversities arising from poor tax collections, forcing the government to continue borrowing to fund the budget deficits. This Court cannot turn a blind eye to this economic malaise by being unduly liberal to taxpayers who do not comply with statutory requirements for tax refunds or credits. The tax refund claims in the present cases are not a pittance. Many other companies stand to gain if this Court were to rule otherwise. The dissenting opinions will turn on its head the well-settled doctrine that tax refunds are strictly construed against the taxpayer.
COMMISSIONER OF INTERNAL REVENUE v. TEAM SUAL CORPORATION (FORMERLY MIRANT SUAL CORPORATION)
G.R. No. 194105, February 05, 2014
FACTS:
TSC is a corporation that is principally engaged in the business of power generation and the subsequent sale thereof solely to National Power Corporation (NPC); it is registered with the Bureau of Internal Revenue (BIR) as a VAT taxpayer.
On November 26, 1999, the CIR granted TSC's application for zero–rating arising from its sale of power generation services to NPC for the taxable year 2000. As a VAT–registered entity, TSC filed its VAT returns for the first, second, third, and fourth quarters of taxable year 2000 on April 24, 2000, July 25, 2000, October 25, 2000, and January 25, 2001, respectively.
On March 11, 2002, TSC filed with the BIR an administrative claim for refund, claiming that it is entitled to the unutilized input VAT in the amount of 179,314,926.56 arising from its zero–rated sales to NPC for the taxable year 2000.
On April 1, 2002, without awa1tmg the CIR's resolution of its administrative claim for refund/tax credit, TSC filed a petition for review with the CTA seeking the refund or the issuance of a tax credit certificate in the amount of 179,314,926.56 for its unutilized input VAT for the taxable year 2000. The case was subsequently raffled to the CTA First Division.
In his Answer, the CIR claimed that TSC's claim for refund/tax credit should be denied, asserting that TSC failed to comply with the conditions precedent for claiming refund/tax credit of unutilized input VAT. The CIR pointed out that TSC failed to submit complete documents in support of its application for refund/tax credit contrary to Section 112 (C) of the National Internal Revenue Code (NIRC).
On January 26, 2009, the CTA First Division rendered a Decision, which granted TSC's claim for refund/tax credit of input VAT. Nevertheless, the CTA First Division found that, from the total unutilized input VAT of 179,314,926.56 that it claimed, TSC was only able to substantiate the amount of 173,265,261.30. Thus, the instant Petition for Review was granted. The CIR sought a reconsideration of the CTA First Division Decision dated January 26, 2009 maintaining that TSC is not entitled to a refund/tax credit of its unutilized input VAT for the taxable year 2000 since it failed to submit all the necessary and relevant documents in support of its administrative claim.
ISSUES
1. Whether or not the CTA en banc erred in holding that TSC's petition for review with the CTA was not prematurely filed.
RULING:
The petition is meritorious.
Section 112 of the NIRC provides for the rules to be followed in claiming a refund/tax credit of unutilized input VAT.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty–day period, appeal the decision or the unacted claim with the Court of Tax Appeals. Any unutilized input VAT attributable to zero–rated or effectively zero–rated sales may be claimed as a refund/tax credit. Initially, claims for refund/tax credit for unutilized input VAT should be filed with the BIR, together with the complete documents in support of the claim. Pursuant to Section 112(A) of the NIRC, the administrative claim for refund/tax credit must be filed with the BIR within two years after the close of the taxable quarter when the sales were made. Under Section 112(C) of the NIRC, the CIR is given 120 days from the submission of complete documents in support of the application for refund/tax credit within which to either grant or deny the claim. In case of (1) full or partial denial of the claim or (2) the failure of the CIR to act on the claim within 120 days from the submission of complete documents, the taxpayer–claimant may, within 30 days from receipt of the CIR decision denying the claim or after the lapse of the 120–day period, file a petition for review with the CTA.
In this case, the administrative and the judicial claims were simultaneously filed on September 30, 2004. Obviously, respondent did not wait for the decision of the CIR or the lapse of the 120–day period. For this reason, we find the filing of the judicial claim with the CTA premature.
Finally, even if TSC was able to substantiate, through the documents it submitted, that it is indeed entitled to a refund/tax credit of its unutilized input VAT for the taxable year 2000, its claim would still have to be denied. "Tax refunds are in the nature of tax exemptions, and are to be construed strictissimi juris against the entity claiming the same. "The taxpayer is charged with the heavy burden of proving that he has complied with and satisfied all the statutory and administrative requirements to be entitled to the tax refund. TSC, in prematurely filing a petition for review with the CTA, failed to comply with the 120–day mandatory period under Section 112(C) of the NIRC. Thus, TSC's claim for refund/tax credit of its unutilized input VAT should be denied.
COMMISSIONER OF INTERNAL REVENUEv. MANILA ELECTRIC COMPANY (MERALCO)
G.R. No. 181459, June 09, 2014
FACTS
On July 6, 1998, respondent Manila Electric Company (MERALCO) obtained a loan from Norddeutsche Landesbank Girozentrale (NORD/LB) Singapore Branch in the amount of USD120,000,000.00 with ING Barings South East Asia Limited (ING Barings) as the Arrange On September 4, 2000, respondent MERALCO executed another loan agreement with NORD/LB Singapore Branch for a loan facility in the amount of USD100,000,000.00 with Citicorp International Limited as Agentcralawred
Under the foregoing loan agreements, the income received by NORD/LB, by way of respondent MERALCO's interest payments, shall be paid in full without deductions, as respondent MERALCO shall bear the obligation of paying/remitting to the BIR the corresponding ten percent (10%) final withholding tax. Pursuant thereto, respondent MERALCO paid/remitted to the Bureau of Internal Revenue (BIR) the said withholding tax on its interest payments to NORD/LB Singapore Branch, covering the period from January 1999 to September 2003.
However, sometime in 2001, respondent MERALCO discovered that NORD/LB Singapore Branch is a foreign government-owned financing institution of Germany. Thus, on December 20, 2001, respondent MERALCO filed a request for a BIR Ruling with petitioner Commissioner of Internal Revenue (CIR) with regard to the tax exempt status of NORD/LB Singapore Branch, in accordance with Section 32(B)(7)(a) of the 1997 National Internal Revenue Code (Tax Code), as amended
On October 7, 2003, the BIR issued Ruling No. DA-342-2003 declaring that the interest payments made to NORD/LB Singapore Branch are exempt from the ten percent (10%) final withholding tax, since it is a financing institution owned and controlled by the foreign government of Germany.
On November 5, 2004, respondent MERALCO received a letter from petitioner denying its claim for tax refund on the basis that the same had already prescribed under Section 204 of the Tax Code, which gives a taxpayer/claimant a period of two (2) years from the date of payment of tax to file a claim for refund before the BIR
Aggrieved, respondent MERALCO filed a Petition for Review with the Court of Tax Appeals (CTA) on December 6, 2004.12 After trial on the merits, the CTA-First Division rendered a Decision partially granting respondent MERALCO's Petition for Review . In the same vein, the motions for reconsideration filed by the respective parties were also denied in a Resolution dated January 9, 2008, Hence, the instant petition.
ISSUE:
1. Whether or not respondent MERALCO is entitled to a tax refund/credit relative to its payment of final withholding taxes on interest payments made to NORD/LB from January 1999 to September 2003.
RULING
After a careful scrutiny of the records and evidence presented before us, we find that respondent MERALCO has discharged the requisite burden of proof in establishing the factual basis for its claim for tax refund.
Tax refunds are based on the general premise that taxes have either been erroneously or excessively paid. Though the Tax Code recognizes the right of taxpayers to request the return of such excess/erroneous payments from the government, they must do so within a prescribed period. Further, "a taxpayer must prove not only his entitlement to a refund, but also his compliance with the procedural due process as non-observance of the prescriptive periods within which to file the administrative and the judicial claims would result in the denial of his claim." red
In the case at bar, respondent MERALCO had ample opportunity to verify on the tax-exempt status of NORD/LB for purposes of claiming tax refund. Even assuming that respondent MERALCO could not have emphatically known the status of NORD/LB, its supposition of the same was already confirmed by the BIR Ruling which was issued on October 7, 2003. Nevertheless, it only filed its claim for tax refund on July 13, 2004, or ten (10) months from the issuance of the aforesaid Ruling. We agree with the CTA-First Division, therefore, that respondent MERALCO's claim for refund in the amount of Two Hundred Twenty-Four Million Seven Hundred Sixty Thousand Nine Hundred Twenty-Six Pesos and Sixty-Five Centavos (P224,760,926.65) representing erroneously paid and remitted final income taxes for the period January 1999 to July 2002 should be denied on the ground of prescription.
Finally, we ought to remind petitioner that the arguments it raised in support of its position have already been thoroughly discussed both by the CTA-First Division and the CTA En Banc. Oft-repeated is the rule that the Court will not lightly set aside the conclusions reached by the CTA which, by the very nature of its function of being dedicated exclusively to the resolution of tax problems, has accordingly developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority. This Court recognizes that the CTA's 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. It has been a long-standing policy and practice of the Court to respect the conclusions of quasi-judicial agencies such as the CTA, a highly specialized body specifically created for the purpose of reviewing tax cases.
PHILIPPINE AIRLINES, INC. v. COMMISSIONER OF INTERNAL REVENUE
G.R. No. 198759, July 01, 2013
FACTS
For the period July 24 to 28, 2004, Caltex sold 804,370 liters of imported Jet A-1 fuel to PAL for the latter's domestic operations. Consequently, on July 26, 27, 28 and 29, 2004, Caltex electronically filed with the Bureau of Internal Revenue (BIR) its Excise Tax Returns for Petroleum Products, declaring the amounts of P1,232,798.80, P686,767.10, P623,422.90 and P433,904.10, respectively, or a total amount of P2,975,892.90, as excise taxes due thereon
On October 29, 2004, PAL, through a letter-request dated October 15, 2004 addressed to respondent Commissioner of Internal Revenue (CIR), sought a refund of the excise taxes passed on to it by Caltex. It hinged its tax refund claim on its operating franchise, i.e., Presidential Decree No. 1590 issued on June 11, 1978 (PAL's franchise), which conferred upon it certain tax exemption privileges on its purchase and/or importation of aviation gas, fuel and oil, including those which are passed on to it by the seller and/or importer thereof. Further, PAL asserted that it had the legal personality to file the aforesaid tax refund claim.
Due to the CIR's inaction, PAL filed a Petition for Review with the CTA on July 25, 2006. In its Answer, the CIR averred that since the excise taxes were paid by Caltex, PAL had no cause of action.
The CTA Second Division denied PAL's petition on the ground that only a statutory taxpayer (referring to Caltex in this case) may seek a refund of the excise taxes it paid. It added that even if the tax burden was shifted to PAL, the latter cannot be deemed a statutory taxpayer.
It further ruled that PAL's claim for refund should be denied altogether on account of Letter of Instruction No. 1483 (LOI 1483) which already withdrew the tax exemption privileges previously granted to PAL on its purchase of domestic petroleum products, of which the transaction between PAL and Caltex was characterized.
PAL moved for reconsideration, but the same was denied in a Resolution dated January 14, 2010, prompting it to elevate the matter to the CTA En Banc, which affirmed the ruling of the CTA 2nd Division. Aggrieved, PAL filed a motion for reconsideration which was, however, denied in a Resolution dated September 16, 2011, hence, the instant petition.
ISSUES
1. Whether or not PAL has the legal personality to file a claim for refund of the passed on excise taxes;
2. Whether or not the sale of imported aviation fuel by Caltex to PAL is covered by LOI 1483 which withdrew the tax exemption privileges of PAL on its purchases of domestic petroleum products for use in its domestic operations; and
3. Whether or not PAL has sufficiently proved its entitlement to refund.
RULING
The court held that the petition is meritorious.
A. PAL's legal personality to file a claim for refund of excise taxes.
The Court ruled it had the legal personality to file a claim for refund
Section 204(c) of the NIRC states that it is the statutory taxpayer which has the legal personality to file a claim for refund. Accordingly, in cases involving excise tax exemptions on petroleum products under Section 135 of the NIRC, the Court has consistently held that it is the statutory taxpayer who is entitled to claim a tax refund based thereon and not the party who merely bears its economic burden.
B. Coverage of LOI 1483.
LOI 1483 amended PAL's franchise by withdrawing the tax exemption privilege granted to PAL on its purchase of domestic petroleum products for use in its domestic operations.
In this case, records disclose that Caltex imported aviation fuel from abroad and merely re-sold the same to PAL, tacking the amount of excise taxes it paid or would be liable to pay to the government on to the purchase price. Evidently, the said petroleum products are in the nature of "things imported" and thus, beyond the coverage of LOI 1483 as previously discussed. As such, considering the subsistence of PAL's tax exemption privileges over the imported goods subject of this case, PAL is allowed to claim a tax refund on the excise taxes imposed and due thereon.
C. PAL's entitlement to refund.
It is hornbook principle that the Court is not a trier of facts and often, remands cases to the lower courts for the determination of questions of such character. However, when the trial court had already received all the evidence of the parties, the Court may resolve the case on the merits instead of remanding them in the interest of expediency and to better serve the ends of justice.
Applying these principles, the Court finds that the evidence on record shows that PAL was able to sufficiently prove its entitlement to the subject tax refund. Thus, finding that PAL has sufficiently proved its entitlement to a tax refund of the excise taxes subject of this case, the Court hereby grants its petition and consequently, annuls the assailed CTA resolutions.
COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. PL MANAGEMENT INTERNATIONAL PHILIPPINES, INC., RESPONDENT.
G.R. No. 160949, April 04 ,2011
FACTS
The inaction of petitioner Commissioner of Internal Revenue (Commissioner) on the respondent's written claim for tax refund or tax credit impelled the latter to commence judicial action for that purpose in the CTA. However, the CTA denied the claim on December 10, 2001 for being brought beyond two years from the accrual of the claim.
On appeal, the Court of Appeals (CA) reversed the CTA's denial through the decision promulgated in C.A.-G.R. Sp. No. 68461 on November 28, 2002, and directed the petitioner to refund the unutilized creditable withholding tax to the respondent, hence, the petitioner appeals. It was denied by the CTA because of prescription. Aggrieved, the respondent appealed to the CA, assailing the correctness of the CTA's denial of its judicial claim for refund on the ground of bar by prescription. The CA partly granted the petition. The CA rejected the petitioner's motion for reconsideration
Issues
ISSUES
WHETHER OR NOT THE COURT OF APPEALS ERRED IN HOLDING THAT THE TWO-YEAR PRESCRIPTIVE PERIOD UNDER SECTION 229 OF THE TAX CODE IS NOT JURISDICTIONAL, THUS THE CLAIM FOR REFUND OF RESPONDENT IS SUSPENDED FOR REASONS OF EQUITY.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENT'S JUDICIAL RIGHT TO CLAIM FOR REFUND BROUGHT BEFORE THE COURT OF APPEALS ON APRIL 14, 2000 WAS ONE DAY LATE ONLY.
RULING
We reverse and set aside the decision of the CA to the extent that it orders the petitioner to refund to the respondent the P1,200,000.00 representing the unutilized creditable withholding tax in taxable year 1997, but permit the respondent to apply that amount as tax credit in succeeding taxable years until fully exhausted.
Section 76 of the NIRC of 1997 provides:
Section 76. Final Adjustment Return. - Every corporation liable to tax under Section 27 shall file a final adjustment return covering the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable income of that year the corporation shall either:
(A) Pay the balance of tax still due; or
(B) Carry over the excess credit; or
(C) Be credited or refunded with the excess amount paid, as the case may be.
The predecessor provision of Section 76 of the NIRC of 1997 is Section 79 of the NIRC of 1985, which provides:
Section 79. Final Adjustment Return. - Every corporation liable to tax under Section 24 shall file a final adjustment return covering the total net income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable net income of that year the corporation shall either:
(a) Pay the excess tax still due; or
(b) Be refunded the excess amount paid, as the case may be.
These two options under Section 76 are alternative in nature. The choice of one precludes the other. One cannot get a tax refund and a tax credit at the same time for the same excess income taxes paid.
Inasmuch as the respondent already opted to carry over its unutilized creditable withholding tax of P1,200,000.00 to taxable year 1998, the carry-over could no longer be converted into a claim for tax refund because of the irrevocability rule provided in Section 76 of the NIRC of 1997. Thereby, the respondent became barred from claiming the refund. However, in view of it irrevocable choice, the respondent remained entitled to utilize that amount of P1,200,000.00 as tax credit in succeeding taxable years until fully exhausted. In this regard, prescription did not bar it from applying the amount as tax credit considering that there was no prescriptive period for the carrying over of the amount as tax credit in subsequent taxable years.
ALLIED BANKING CORPORATION, VS. COMMISSIONER OF INTERNAL REVENUE
G.R. No. 175097 : February 05, 2010
DEL CASTILLO, J.:
FACTS
On April 30, 2004, the Bureau of Internal Revenue (BIR) issued a Preliminary Assessment Notice (PAN) to petitioner Allied Banking Corporation for deficiency Documentary Stamp Tax (DST) in the amount of P12,050,595.60 and Gross Receipts Tax (GRT) in the amount of P38,995,296.76 on industry issue for the taxable year 2001. Petitioner received the PAN on May 18, 2004 and filed a protest against it on May 27, 2004.
On July 16, 2004, the BIR wrote a Formal Letter of Demand with Assessment Notices to petitioner, which partly reads as follows; It is requested that the above deficiency tax be paid immediately upon receipt hereof, inclusive of penalties incident to delinquency. This is our final decision based on investigation. If you disagree, you may appeal the final decision within thirty (30) days from receipt hereof, otherwise said deficiency tax assessment shall become final, executory and demandable.
On September 29, 2004, petitioner filed a Petition for Review with the CTA which was raffled to its
On October 12, 2005, the First Division of the CTA rendered a Resolution granting respondent's Motion to Dismiss. Aggrieved, petitioner moved for reconsideration but the motion was denied by the First Division in its Resolution dated February 1, 2006. On February 22, 2006, petitioner appealed the dismissal to the CTA En Banc. The CTA En Banc declared that it is absolutely necessary for the taxpayer to file an administrative protest in order for the CTA to acquire jurisdiction. It emphasized that an administrative protest is an integral part of the remedies given to a taxpayer in challenging the legality or validity of an assessment. According to the CTA En Banc, although there are exceptions to the doctrine of exhaustion of administrative remedies, the instant case does not fall in any of the exceptions.
ISSUE
1. Whether or not the Formal Letter of Demand dated July 16, 2004 can be construed as a final decision of the CIR appealable to the CTA under RA 9282.
RULING
The court found the petition meritorious
The CTA, being a court of special jurisdiction, can take cognizance only of matters that are clearly within its jurisdiction. 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 the one hundred eighty (180)-day period; otherwise, the decision shall become final, executory and demandable. In the instant case, petitioner timely filed a protest after receiving the PAN. In response thereto, the BIR issued a Formal Letter of Demand with Assessment Notices. Pursuant to Section 228 of the NIRC, the proper recourse of petitioner was to dispute the assessments by filing an administrative protest within 30 days from receipt thereof. Petitioner, however, did not protest the final assessment notices. Instead, it filed a Petition for Review with the CTA. Thus, if we strictly apply the rules, the dismissal of the Petition for Review by the CTA was proper.The case is an exception to the rule on exhaustion of administrative remedies. Similarly, in this case, we find the CIR estopped from claiming that the filing of the Petition for Review was premature because petitioner failed to exhaust all administrative remedies.
.
G.R. No. 173854 : March 15, 2010
COMMISSIONER OF INTERNAL REVENUE VS. FAR EAST BANK & TRUST COMPANY (NOW BANK OF THE PHILIPPINE ISLANDS)
FACTS
On April 10, 1995, respondent filed with the Bureau of Internal Revenue (BIR) two Corporate Annual Income Tax Returns, one for its Corporate Banking Unit (CBU) and another for its Foreign Currency Deposit Unit (FCDU) for the taxable year ending December 31, 1994. The return for the CBU consolidated the respondent's overall income tax liability for 1994, which reflected a refundable income tax of P12,682,864.00. Petitioner, on the other hand, did not present any evidence.
On October 4, 1999, the CTA rendered a Decision denying respondent's claim for refund on the ground that respondent failed to show that the income derived from rentals and sale of real property from which the taxes were withheld were reflected in its 1994 Annual Income Tax Return. On October 20, 1999, respondent filed a Motion for New Trial based on excusable negligence. It prayed that it be allowed to present additional evidence to support its claim for refund. However, the motion was denied on December 16, 1999 by the CTA. On appeal, the CA reversed the Decision of the CTA. The CA found that respondent has duly proven that the income derived from rentals and sale of real property upon which the taxes were withheld were included in the return as part of the gross income.
Hence, this present recourse.
ISSUE
1. Whether or not the respondent has proven its entitlement to the refund
RULING
The respondent miserably failed to prove its entitlement to the refund. A taxpayer claiming for a tax credit or refund of creditable withholding tax must comply. The two-year period requirement is based on Section 229 of the NIRC of 1997. Respondent timely filed its claim for refund. There is no dispute that respondent complied with the first requirement. The filing of respondent's administrative claim for refund on May 17, 1996 and judicial claim for refund on April 8, 1997 were well within the two-year period from the date of the filing of the return on April 10, 1995.Respondent failed to prove that the income derived from rentals and sale of real property were included
in the gross income as reflected in its return.
Based on the foregoing, respondent has failed to comply with two essential requirements for a valid claim for refund. Consequently, the same cannot be given due course. Incidentally, under Sec. 16 of the NIRC, the Commissioner of the BIR is tasked to make an examination of returns and assess the correct amount of tax. Respondent failed to present all the Certificates of Creditable Tax Withheld at Source. The burden is on the taxpayerto prove its entitlement to the refund.
Hence, for failing to prove its entitlement to a tax refund, respondent's claim must be denied. Since tax refunds partake of the nature of tax exemptions, which are construed strictissimi juris against the taxpayer, evidence in support of a claim must likewise be strictissimi scrutinized and duly proven
G.R. No. 178087 : May 05, 2010
COMMISSIONER OF INTERNAL REVENUE VS. KUDOS METAL CORPORATION
D E C I S I O N
FACTS
On April 15, 1999, respondent Kudos Metal Corporation filed its Annual Income Tax Return (ITR) for the taxable year 1998. Pursuant to a Letter of Authority dated September 7, 1999, the Bureau of Internal Revenue (BIR) served upon respondent three Notices of Presentation of Records. Respondent failed to comply with these notices, hence, the BIR issued a Subpeona Duces Tecum dated September 21, 2006, receipt of which was acknowledged by respondent's President, Mr. Chan Ching Bio, in a letter dated October 20, 2000. A review and audit of respondent's records then ensued.
On August 25, 2003, the BIR issued a Preliminary Assessment Notice for the taxable year 1998 against the respondent. This was followed by a Formal Letter of Demand with Assessment Notices for taxable year 1998, dated September 26, 2003 which was received by respondent on November 12, 2003. Respondent challenged the assessments by filing its "Protest on Various Tax Assessments" on December 3, 2003 and its "Legal Arguments and Documents in Support of Protests against Various Assessments" on February 2, 2004. On October 4, 2005, the CTA Second Division issued a Resolution canceling the assessment notices issued against respondent for having been issued beyond the prescriptive period. It found the first Waiver of the Statute of Limitations incomplete and defective for failure to comply with the provisions of Revenue Memorandum Order (RMO) No. 20-90. On appeal, the CTA En Banc affirmed the cancellation of the assessment notices. Although it ruled that the Assistant Commissioner was authorized to sign the waiver pursuant to Revenue Delegation Authority Order (RDAO) No. 05-01, it found that the first waiver was still invalid based on the second and third grounds stated by the CTA Second Division. Pertinent portions of the Decision read as follows:
In the case at bar, the period agreed upon in the subject first waiver expired on December 31, 2002. The second waiver in the instant case which was supposed to extend the period to assess to December 31, 2003 was executed on February 18, 2003 and was notarized on February 19, 2003. Clearly, the second waiver was executed after the expiration of the first period agreed upon. Consequently, the same could not have tolled the 3-year prescriptive period to assess. Petitioner sought reconsideration but the same was unavailing.
ISSUE
1. WHETHER OR NOT THE COURT OF TAX APPEALS EN BANC ERRED IN RULING THAT THE GOVERNMENT'S RIGHT TO ASSESS UNPAID TAXES OF RESPONDENT PRESCRIBED.
RULING
The petition is bereft of merit.
Section 203 of the National Internal Revenue Code of 1997 (NIRC) mandates the government to assess internal revenue taxes within three years from the last day prescribed by law for the filing of the tax return or the actual date of filing of such return, whichever comes later. Hence, an assessment notice issued after the three-year prescriptive period is no longer valid and effective. Exceptions however are provided under Section 222 of the NIRC. The waivers executed by respondent's
accountant did not extend the period within which the assessment can be made. Estoppel does not apply in this case
Conversely, in this case, the assessments were issued beyond the prescribed period. Also, there is no showing that respondent made any request to persuade the BIR to postpone the issuance of the assessments.
The doctrine of estoppel cannot be applied in this case as an exception to the statute of limitations on the assessment of taxes considering that there is a detailed procedure for the proper execution of the waiver, which the BIR must strictly follow. As we have often said, the doctrine of estoppel is predicated on, and has its origin in, equity which, broadly defined, is justice according to natural law and right. As such, the doctrine of estoppel cannot give validity to an act that is prohibited by law or one that is against public policy.It should be resorted to solely as a means of preventing injustice and should not be permitted to defeat the administration of the law, or to accomplish a wrong or secure an undue advantage, or to extend beyond them requirements of the transactions in which they originate.Simply put, the doctrine of estoppel must be sparingly applied.
As to the alleged delay of the respondent to furnish the BIR of the required documents, this cannot be taken against respondent. Neither can the BIR use this as an excuse for issuing the assessments beyond the three-year period because with or without the required documents, the CIR has the power to make assessments based on the best evidence obtainable.
G.R. No. 166829 : April 19, 201
TFS, INCORPORATED VS. COMMISSIONER OF INTERNAL REVENUE
FACTS
Petitioner TFS, Incorporated is a duly organized domestic corporation engaged in the pawnshop business. On January 15, 2002, petitioner received a Preliminary Assessment Notice (PAN) for deficiency value added tax (VAT), expanded withholding tax (EWT), and compromise penalty in the amounts of P11,764,108.74, P183,898.02 and P25,000.00, respectively, for the taxable year 1998. Insisting that there was no basis for the issuance of PAN, petitioner through a letter dated January 28, 2002 requested the Bureau of Internal Revenue (BIR) to withdraw and set aside the assessments.
During trial, petitioner offered to compromise and to settle the assessment for deficiency EWT with the BIR. Hence, on September 24, 2003, it filed a Manifestation and Motion withdrawing its appeal on the deficiency EWT, leaving only the issue of VAT on pawnshops to be threshed out. Since no opposition was made by the CIR to the Motion, the same was granted by the CTA on November 4, 2003.
On April 29, 2004, the CTA rendered a Decision upholding the assessment issued against petitioner in the amount of P11,905,696.32, representing deficiency VAT for the year 1998, inclusive of 25% surcharge and 20% deficiency interest, plus 20% delinquency interest from February 25, 2002 until full payment, pursuant to Sections 248 and 249(B) of the National Internal Revenue Code of 1997 (NIRC). The CTA ruled that pawnshops are subject to VAT under Section 108(A) of the NIRC as they are engaged in the sale of services for a fee, remuneration or consideration.
Aggrieved, petitioner moved for reconsideration but the motion was denied by the CTA in its Resolution dated July 20, 2004,which was received by petitioner on July 30, 2004.
On August 16, 2004, petitioner filed before the Court of Appeals (CA) a Motion for Extension of Time to File Petition for Review. On August 24, 2004, it filed a Petition for Review but it was dismissed by the CA in its Resolution dated August 31, 2004, for lack of jurisdiction in view of the enactment of Republic Act No. 9282 (RA 9282). The petition, however, was dismissed for having been filed out of time per Resolution dated November 18, 2004. Petitioner filed a Motion for Reconsideration but it was denied in a Resolution dated January 24, 2005. Hence, this petition.
ISSUES
1. WHETHER OR NOT THE HONORABLE COURT OF TAX APPEALS EN BANC SHOULD HAVE GIVEN DUE COURSE TO THE PETITION FOR REVIEW AND NOT STRICTLY APPLIED THE TECHNICAL RULES OF PROCEDURE TO THE DETRIMENT OF JUSTICE.
2. WHETHER OR NOT PETITIONER IS SUBJECT TO THE 10% VAT.
RULING
The petition is meritorious.
Jurisdiction to review decisions or resolutions issued by the Divisions of the CTA is no longer with the CA but with the CTA En Banc. This rule is embodied in Section 11 of RA 9282. A party adversely affected by a resolution of a Division of the CTA on a motion for reconsideration or new trial, may file a petition for review with the CTA en banc. Procedural rules may be relaxed in the interest of substantial justice. It is settled that an appeal must be perfected within the reglementary period provided by law; otherwise, the decision becomes final and executory. However, as in all cases, there are exceptions to the strict application of the rules for perfecting an appeal.
Imposition of VAT on pawnshops for the tax years 1996 to 2002 was deferred
In fine, although strict compliance with the rules for perfecting an appeal is indispensable for the prevention of needless delays and for the orderly and expeditious dispatch of judicial business, strong compelling reasons such as serving the ends of justice and preventing a grave miscarriage may nevertheless warrant the suspension of the rules.In the instant case, we are constrained to disregard procedural rules because we cannot in conscience allow the government to collect deficiency VAT from petitioner considering that the government has no right at all to collect or to receive the same. Besides, dismissing this case on a mere technicality would lead to the unjust enrichment of the government at the expense of petitioner, which we cannot permit. Technicalities should never be used as a shield to perpetrate or commit an injustice.
COMMISSIONER OF INTERNAL REVENUE v. HON. RAUL M. GONZALEZ, Secretary of Justice, L. M. CAMUS ENGINEERING CORPORATION (represented by LUIS M. CAMUS and LINO D. MENDOZA)
G.R. No. 177279 : October 13, 2010
FACTS
Pursuant to Letter of Authority (LA) No. 00009361 dated August 25, 2000 issued by then Commissioner of Internal Revenue (petitioner) Dakila B. Fonacier, Revenue Officers Remedios C. Advincula, Jr., Simplicio V. Cabantac, Jr., Ricardo L. Suba, Jr. and Aurelio Agustin T. Zamora supervised by Section Chief Sixto C. Dy, Jr. of the Tax Fraud Division (TFD), National Office, conducted a fraud investigation for all internal revenue taxes to ascertain/determine the tax liabilities of respondent L. M. Camus Engineering Corporation (LMCEC) for the taxable years 1997, 1998 and 1999. cr1aw The audit and investigation against LMCEC was precipitated by the information provided by an "informer" that LMCEC had substantial underdeclared income for the said period. For failure to comply with the subpoena duces tecum issued in connection with the tax fraud investigation, a criminal complaint was instituted by the Bureau of Internal Revenue (BIR) against LMCEC on January 19, 2001 for violation of Section 266 of the NIRC In view of the above findings, assessment notices together with a formal letter of demand dated August 7, 2002 were sent to LMCEC through personal service on October 1, 2002. Since the company and its representatives refused to receive the said notices and demand letter, the revenue officers resorted to constructive servicecra1aw in accordance with Section 3, Revenue Regulations (RR) No. 12-99
LMCEC argued that petitioner is now estopped from further taking any action against it and its corporate officers concerning the taxable years 1997 to 1999. With the grant of immunity from audit from the companys availment of ERAP and VAP, which have a feature of a tax amnesty, the element of fraud is negated the moment the Bureau accepts the offer of compromise or payment of taxes by the taxpayer. The act of the revenue officers in finding justification under Section 6(B) of the NIRC (Best Evidence Obtainable) is misplaced and unavailing because they were not able to open the books of the company for the second time, after the routine examination, issuance of termination letter and the availment of ERAP and VAP. LMCEC thus maintained that unless there is a prior determination of fraud supported by documents not yet incorporated in the docket of the case, petitioner cannot just issue LAs without first terminating those previously issued. It emphasized the fact that the BIR officers who filed and signed the Affidavit-Complaint in this case were the same ones who appeared as complainants in an earlier case filed against Camus for his alleged "failure to obey summons in violation of Section 5 punishable under Section 266 of the NIRC of 1997" (I.S. No. 00-956 of the Office of the City Prosecutor of Quezon City). After preliminary investigation, said case was dismissed for lack of probable cause in a Resolution issued by the Investigating Prosecutor on May 2, 2001. awPetitioner filed a motion for reconsideration which was denied by the Chief State Prosecutor. lPetitioner appealed to respondent Secretary of Justice but the latter denied its petition for review under Resolution dated December 13, 2005.
Its motion for reconsideration having been denied, petitioner challenged the ruling of respondent Secretary via a certiorari petition in the CA. On October 31, 2006, the CA rendered the assailed decisionaw denying the petition and concurred with the findings and conclusions of respondent Secretary. Petitioners motion for reconsideration was likewise denied by the appellate
ISSUES
1. Whether or not the Court of Appeals erroneously sustained the findings of the Secretary of Justice who gravely abused his discretion by dismissing the complaint based on grounds which are not even elements of the offenses charged.
2. Whether or not the Court of Appeals erroneously sustained the findings of the Secretary of Justice who gravely abused his discretion by dismissing petitioners evidence, contrary to law.
3. Whether or not the Court of Appeals erroneously sustained the findings of the Secretary of Justice who gravely abused his discretion by inquiring into the validity of a Final Assessment Notice which has become final, executory and demandable pursuant to Section 228 of the Tax Code of 1997 for failure of private respondent to file a protest against the same.37chanroblesvirtuallawlibrary
RULING
The court granted the petition.
There is no dispute that prior to the filing of the complaint with the DOJ, the report on the tax fraud investigation conducted on LMCEC disclosed that it made substantial underdeclarations in its income tax returns for 1997, 1998 and 1999. Pursuant to RR No. 12-99 a PAN was sent to and received by LMCEC on February 22, 2001 wherein it was notified of the proposed assessment of deficiency taxes amounting to P430,958,005.90 (income tax - P318,606,380.19 and VAT - P112,351,625.71) covering taxable years 1997, 1998 and 1999. ra1aw In response to said PAN, LMCEC sent a letter-protest to the TFD, which denied the same on April 12, 2001 for lack of legal and factual basis and also for having been filed beyond the 15-day reglementary period. allawlibraryPrivate respondents assertions regarding the qualifications of the "informer" of the Bureau deserve scant consideration. We have held that the lack of consent of the taxpayer under investigation does not imply that the BIR obtained the information from third parties illegally or that the information received is false or malicious. Nor does the lack of consent preclude the BIR from assessing deficiency taxes on the taxpayer based on the documents. cra1aw In the same vein, herein private respondents cannot be allowed to escape criminal prosecution under Sections 254 and 255 of the NIRC by mere imputation of a "fictitious" or disqualified informant under Section 282 simply because other than disclosure of the official registry number of the third party "informer," the Bureau insisted on maintaining the confidentiality of the identity and personal circumstances of said "informer."
The formal letter of demand calling for payment of the taxpayers deficiency tax or taxes shall state the fact, the law, rules and regulations or jurisprudence on which the assessment is based, otherwise the formal letter of demand and the notice of assessment shall be void. l
From the documents gathered and the data obtained therein, the substantial underdeclaration as defined under Section 248(B) of the NIRC of 1997 by your corporation of its income had been confirmed. Tax amnesty is a general pardon to taxpayers who want to start a clean tax slate. It also gives the government a chance to collect uncollected tax from tax evaders without having to go through the tedious process of a tax case. Even assuming arguendo that the issuance of RR No. 2-99 is in the nature of tax amnesty, it bears noting that a tax amnesty, much like a tax exemption, is never favored nor presumed in law and if granted by statute, the terms of the amnesty like that of a tax exemption must be construed strictly against the taxpayer and liberally in favor of the taxing authority.
The determination of probable cause is part of the discretion granted to the investigating prosecutor and ultimately, the Secretary of Justice. However, this Court and the CA possess the power to review findings of prosecutors in preliminary investigations. Although policy considerations call for the widest latitude of deference to the prosecutors findings, courts should never shirk from exercising their power, when the circumstances warrant, to determine whether the prosecutors findings are supported by the facts, or by the law. In so doing, courts do not act as prosecutors but as organs of the judiciary, exercising their mandate under the Constitution, relevant statutes, and remedial rules to settle cases and controversies. Clearly, the power of the Secretary of Justice to review does not preclude this Court and the CA from intervening and exercising our own powers of review with respect to the DOJs findings, such as in the exceptional case in which grave abuse of discretion is committed, as when a clear sufficiency or insufficiency of evidence to support a finding of probable cause is ignored.
COMMISSIONER OF INTERNAL REVENUE, v. McGEORGE FOOD INDUSTRIES, INC.
G.R. No. 174157 : October 20, 2010
FACTS
On 15 April 1998, more than three months after Republic Act No. 8424 or the Tax Reform Act of 1997 (1997 NIRC) took effect on 1 January 1998, respondent McGeorge Food Industries, Inc. (respondent) filed with the Bureau of Internal Revenue (BIR) its final adjustment income tax return for the calendar year ending 31 December 1997. The return indicated a tax liability of P5,393,988 against a total payment of P10,130,176 for the first three quarters,3cra1aw resulting in a net overpayment of P4,736,188. Exercising its option to either seek a refund of this amount or carry it over to the succeeding year as tax credit, respondent chose the latter, indicating in its 1997 final return that it wished the amount "to be applied as credit to next year.
On 15 April 1999, respondent filed its final adjustment return for the calendar year ending 31 December 1998, indicating a tax liability of P5,799,056. Instead of applying to this amount its unused tax credit carried over from 1997 (P4,736,188), as it was supposed to do, respondent merely deducted from its tax liability the taxes withheld at source for 1998 (P217,179) and paid the balance of P5,581,877.
On 14 April 2000, respondent simultaneously filed with the BIR and the Court of Tax Appeals (CTA) a claim for refund of its overpayment in 1997 of P4,736,188. Petitioner Commissioner of Internal Revenue (petitioner) opposed the suit at the CTA, alleging that the action preempted his own resolution of respondents parallel claim for refund, and, at any rate, respondent has to prove its entitlement to refund. The CTAa1aw ruled for respondent and ordered petitioner to refund the reduced amount of P4,598,716.98 to account for two tax payments allegedly withheld at source which respondent failed to substantiate. The CTA held that refund was proper because respondent complie.d Petitioner appealed to the Court of Appeals.
The Court of Appeals affirmed the CTA, upholding the applicability of Section 69 of the 1977 NIRC. The Court of Appeals likewise sustained the CTAs finding on the timeliness and substantiation of respondents refund claim. Petitioner sought but was denied reconsideration, hence, this petition.
ISSUE
Whether or not respondent is entitled to a tax refund for overpayment in 1997 after it opted, but failed, to credit such to its tax liability in 1998.
RULING
We hold that respondent is not entitled to a refund under Section 76 of the 1997 NIRC, the law in effect at the time respondent made known to the BIR its preference to carry over and apply its overpayment in 1997 to its tax liability in 1998. In lieu of refund, respondents overpayment should be applied to its tax liability for the taxable years following 1998 until it is fully credited. Section 76 of the 1997 NIRC Controls
As respondent opted to carry-over and credit its overpayment in 1997 to its tax liability in 1998, Section 76 makes respondents exercise of such option irrevocable, barring it from later switching options to "[apply] for cash refund." Instead, respondents overpayment in 1997 will be carried over to the succeeding taxable years until it has been fully applied to respondents tax liabilities.
Section 76 remains clear and unequivocal. Once the carry-over option is taken, actually or constructively, it becomes irrevocable. Petitioner has chosen that option for its 1998 creditable withholding taxes. Thus, it is no longer entitled to a tax refund of P459,756.07, which corresponds to its 1998 excess tax credit. Nonetheless, the amount will not be forfeited in the government's favor, because it may be claimed by petitioner as tax credits in the succeeding taxable years. Accordingly, we hold that under Section 76 of the 1997 NIRC, respondents claim for refund is unavailing. However, respondent is entitled to apply its unused creditable overpayment in 1997 to its tax liability arising after 1998 until such has been fully applied.
COMMISSIONER OF INTERNAL REVENUE v. HAMBRECHT & QUIST PHILIPPINES, INC.,
G.R. No. 169225 : November 17, 2010
FACTS
In a letter dated February 15, 1993, respondent informed the Bureau of Internal Revenue (BIR), through its West-Makati District Office of its change of business address from the 2nd Floor Corinthian Plaza, Paseo de Roxas, Makati City to the 22nd Floor PCIB Tower II, Makati Avenue corner H.V. De la Costa Streets, Makati City. Said letter was duly received by the BIR-West Makati on February 18, 1993. On November 4, 1993, respondent received a tracer letter or follow-up letter dated October 11, 1993 issued by the Accounts Receivable/Billing Division of the BIR's National Office and signed by then Assistant Chief Mr. Manuel B. Mina, demanding for payment of alleged deficiency income and expanded withholding taxes for the taxable year 1989 amounting to P2,936,560.87. On December 3, 1993, respondent, through its external auditors, filed with the same Accounts Receivable/Billing Division of the BIR's National Office, its protest letter against the alleged deficiency tax assessments for 1989 as indicated in the said tracer letter dated October 11, 1993.
The alleged deficiency income tax assessment apparently resulted from an adjustment made to respondent's taxable income for the year 1989, on account of the disallowance of certain items of expense, namely, professional fees paid, donations, repairs and maintenance, salaries and wages, and management fees. The latter item of expense, the management fees, made up the bulk of the disallowance, the examiner alleging, among others, that petitioner failed to withhold the appropriate tax thereon. This is also the same basis for the imposition of the deficiency withholding tax assessment on the management fees. Revenue Regulations No. 6-85 (EWT Regulations) does not impose or prescribe EWT on management fees paid to a non-resident.
On November 7, 2001, nearly eight (8) years later, respondent's external auditors received a letter from herein petitioner Commissioner of Internal Revenue dated October 27, 2001. The letter advised the respondent that petitioner had rendered a final decision denying its protest on the ground that the protest against the disputed tax assessment was allegedly filed beyond the 30-day reglementary period prescribed in then Section 229 of the National Internal Revenue Code.
On December 6, 2001, respondent filed a Petition for Review docketed as CTA Case No. 6362 before the then Court of Tax Appeals, pursuant to Section 7 of Republic Act No. 1125, otherwise known as an 'Act Creating the Court of Tax Appeals' and Section 228 of the NIRC, to appeal the final decision of the Commissioner of Internal Revenue denying its protest against the deficiency income and withholding tax assessments issued for taxable year 1989.[3]cralaw
In a Decision dated September 24, 2004, the CTA Original Division held that the subject assessment notice sent by registered mail on January 8, 1993 to respondent's former place of business was valid and binding since respondent only gave formal notice of its change of address on February 18, 1993. Thus, the assessment had become final and unappealable for failure of respondent to file a protest within the 30-day period provided by law. However, the CTA (a) held that the CIR failed to collect the assessed taxes within the prescriptive period; and (b) directed the cancellation and withdrawal of Assessment Notice No. 001543-89-5668. Petitioner's Motion for Reconsideration and Supplemental Motion for Reconsideration of said Decision filed on October 14, 2004 and November 22, 2004, respectively, were denied for lack of merit.
Hence, the instant Petition
ISSUES
1. WHETHER OR NOT THE COURT OF TAX APPEALS HAS JURISDICTION TO RULE THAT THE GOVERNMENT'S RIGHT TO COLLECT THE TAX HAS PRESCRIBED.
2. WHETHER OR NOT THE PERIOD TO COLLECT THE ASSESSMENT HAS PRESCRIBED.[5]cralaw
RULING
The court held that the petition was without merit
The jurisdiction of the CTA is governed by Section 7 of Republic Act No. 1125, as amended, and the term "other matters" referred to by the CIR in its argument can be found in number (1) of the aforementioned provision.
Plainly, the assailed CTA En Banc Decision was correct in declaring that there was nothing in the foregoing provision upon which petitioner's theory with regard to the parameters of the term "other matters" can be supported or even deduced. What is rather clearly apparent, however, is that the term "other matters" is limited only by the qualifying phrase that follows it.
In the case at bar, the issue at hand is whether or not the BIR's right to collect taxes had already prescribed and that is a subject matter falling under Section 223(c) of the 1986 NIRC, the law applicable at the time the disputed assessment was made. Thus, from the foregoing, the issue of prescription of the BIR's right to collect taxes may be considered as covered by the term "other matters" over which the CTA has appellate jurisdiction.
With respect to the second issue, the CIR insists that its right to collect the tax deficiency it assessed on respondent is not barred by prescription since the prescriptive period thereof was allegedly suspended by respondent's request for reinvestigation. Based on the facts of this case, we find that the CIR's contention is without basis.
The plain and unambiguous wording of the said provision dictates that two requisites must concur before the period to enforce collection may be suspended: (a) that the taxpayer requests for reinvestigation, and (b) that petitioner grants such request. Consequently, the mere filing of a protest letter which is not granted does not operate to suspend the running of the period to collect taxes. In the case at bar, the records show that respondent filed a request for reinvestigation on December 3, 1993, however, there is no indication that petitioner acted upon respondent's protest.
Since the CIR failed to disprove the aforementioned findings of fact of the CTA which are borne by substantial evidence on record, this Court is constrained to uphold them as binding and true. This is in consonance with our oft-cited ruling that instructs this Court to not lightly set aside the conclusions reached by the CTA, which, by the very nature of its functions, is dedicated exclusively to the resolution of tax problems and has accordingly developed an expertise on the subject unless there has been an abuse or improvident exercise of authority.
COMMISSIONER OF INTERNAL REVENUE VS. METRO STAR SUPERAMA, INC
G.R. No. 185371 : December 08, 2010
FACTS
Petitioner is a domestic corporation duly organized and existing by virtue of the laws of the Republic of the Philippines. On January 26, 2001, the Regional Director of Revenue Region No. 10, Legazpi City, issued Letter of Authority No. 00006561 for Revenue Officer Daisy G. Justiniana to examine petitioner's books of accounts and other accounting records for income tax and other internal revenue taxes for the taxable year 1999. Said Letter of Authority was revalidated on August 10, 2001 by Regional Director Leonardo Sacamos. 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:
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 petitioner's 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 with the CTA.
The CTA-Second Division found merit in the petition of Metro Star and, on March 21, 2007. The CIR sought reconsideration of the decision of the CTA-Second Division, but the motion was denied in the latter's July 24, 2007 Resolution Aggrieved, the CIR filed a petition for review with the CTA-En Banc, but the petition was dismissed after a determination that no new matters were raised. The motion for reconsideration filed by the CIR was likewise denied by the CTA-En Banc in its November 18, 2008 Resolution
ISSUE
WHWTHER OR NOT METROSTAR WAS DENIED DUE PROCESS
RULING
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.
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 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.
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 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 Star's 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 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.
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. It is an elementary rule enshrined in the 1987 Constitution that no person shall be deprived of property without due process of law. 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.
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.
LASCONA LAND CO., INC. VS. COMMISSIONER OF INTERNAL REVENUE
G.R. No. 171251 : March 05, 2012
FACTS
On March 27, 1998, the Commissioner of Internal Revenue (CIR) issued Assessment Notice No. 0000047-93-407 against Lascona Land Co., Inc. (Lascona) informing the latter of its alleged deficiency income tax for the year 1993 in the amount of P753,266.56. Consequently, on April 20, 1998, Lascona filed a letter protest, but was denied by Norberto R. Odulio, Officer-in-Charge (OIC), Regional Director, Bureau of Internal Revenue, Revenue Region No. 8, Makati City, On April 12, 1999, Lascona appealed the decision before the CTA and was docketed as C.T.A. Case No. 5777. Lascona alleged that the Regional Director erred in ruling that the failure to appeal to the CTA within thirty (30) days from the lapse of the 180-day period rendered the assessment final and executory. The CIR, however, maintained that Lascona's failure to timely file an appeal with the CTA after the lapse of the 180-day reglementary period provided under Section 228 of the National Internal Revenue Code (NIRC) resulted to the finality of the assessment. On January 4, 2000, the CTA, in its Decision nullified the subject assessment. It held that in cases of inaction by the CIR on the protested assessment, Section 228 of the NIRC provided two options for the taxpayer: (1) appeal to the CTA within thirty (30) days from the lapse of the one hundred eighty (180)-day period, or (2) wait until the Commissioner decides on his protest before he elevates the case. The CIR moved for reconsideration. On March 3, 2000, the CTA denied the CIR's motion for reconsideration for lack of meritDissatisfied, the CIR filed an appeal before the CA. In the disputed Decision dated October 25, 2005, the Court of Appeals granted the CIR's petition and set aside the Decision dated January 4, 2000 of the CTA and its Resolution dated March 3, 2000. It further declared that the subject Assessment Notice No. 0000047-93-407 dated March 27, 1998 as final, executory and demandable. Lascona moved for reconsideration, but was denied for lack of merit, thus, the instant petition.
ISSUES
1. WHETHER OR NOT THE SUBJECT ASSESSMENT HAS BECOME FINAL, EXECUTORY AND DEMANDABLE DUE TO THE FAILURE OF THE PETITIONER TO FILE AN APPEAL ON TIME.
RULING
The court found merit in the petition 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 (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 demandable.
In arguing that the assessment became final and executory by the sole reason that petitioner failed to appeal the inaction of the Commissioner within 30 days after the 180-day reglementary period, respondent, in effect, limited the remedy of Lascona, as a taxpayer, under Section 228 of the NIRC to just one, that is - to appeal the inaction of the Commissioner on its protested assessment after the lapse of the 180-day period. This is incorrect.
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. Thus, 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
COMMISSION OF INTERNAL REVENUE v. HANTEX TRADING CO., INC.
G.R. NO. 136975 : March 31, 2005
FACTS
The respondent is a corporation duly organized and existing under the laws of the Philippines. Being engaged in the sale of plastic products, it imports synthetic resin and other chemicals for the manufacture of its products. For this purpose, it is required to file an Import Entry and Internal Revenue Declaration (Consumption Entry) with the Bureau of Customs under Section 1301 of the Tariff and Customs Code. Sometime in October 1989, Lt. Vicente Amoto, Acting Chief of Counter-Intelligence Division of the Economic Intelligence and Investigation Bureau (EIIB), received confidential information that the respondent had imported synthetic resin amounting to P115,599,018.00 but only declaredP45,538,694.57. According to the informer, based on photocopies of 77 Consumption Entries furnished by another informer, the 1987 importations of the respondent were understated in its accounting records. Amoto submitted a report to the EIIB Commissioner recommending that an inventory audit of the respondent be conducted by the Internal Inquiry and Prosecution Office (IIPO) of the EIIB.
Acting Chief of the Collection Division of the Bureau of Customs Augusto S. Danganan could not authenticate the machine copies of the import entries as well, since the original copies of the said entries filed with the Bureau of Customs had apparently been eaten by termites. However, he issued a certification that the following enumerated entries were filed by the respondent which were processed and released from the Port of Manila after payment of duties and taxes, to wit:
The CTA ruled that the respondent was burdened to prove not only that the assessment was erroneous, but also to adduce the correct taxes to be paid by it. The CTA declared that the respondent failed to prove the correct amount of taxes due to the BIR. It also ruled that the respondent was burdened to adduce in evidence a certification from the Bureau of Customs that the Consumption Entries in question did not belong to it. On appeal, the CA granted the petition and reversed the
ISSUES
1. WHETHER OR NOT THE PETITION WAS DEFECTIVE BECAUSE THE VERIFICATION OR CERTIFICATION OF NO FORUM SHOPPING WAS NOT SIGNED BY THE PETITIONER
RULING
The petition is sufficient in form. A verification and certification against forum shopping signed by the Regional Director constitutes sufficient compliance with the requirements of Sections 4 and 5, Rule 7 of the Rules of Court. Under Section 10 of the NIRC of 1997, the Regional Director has the power to administer and enforce internal revenue laws, rules and regulations, including the assessment and collection of all internal revenue taxes, charges and fees. Such power is broad enough to vest the Revenue Regional Director with the authority to sign the verification and certification against forum shopping in behalf of the Commissioner of Internal Revenue. There is no other person in a better position to know the collection cases filed under his jurisdiction than the Revenue Regional Director.
While Rule 45 of the Rules of Court provides that only questions of law may be raised by the petitioner and resolved by the Court, under exceptional circumstances, the Court may take cognizance thereof and resolve questions of fact. In this case, the findings and conclusion of the CA are inconsistent with those of the CTA, not to mention those of the Commissioner of Internal Revenue. The issues raised in this case relate to the propriety and the correctness of the tax assessments made by the petitioner against the respondent, as well as the propriety of the application of Section 16, paragraph (b) of the 1977 NIRC, as amended by Pres. Decree Nos. 1705, 1773, 1994 and Executive Order No. 273, in relation to Section 3, Rule 132 of the Rules of Evidence. There is also an imperative need for the Court to resolve the threshold factual issues to give justice to the parties, and to determine whether the CA capriciously ignored, misunderstood or misinterpreted cogent facts and circumstances which, if considered, would change the outcome of the case.
On the second issue, the petitioner asserts that since the respondent refused to cooperate and show its 1987 books of account and other accounting records, it was proper for her to resort to the best evidence obtainable - the photocopies of the import entries in the Bureau of Customs and the respondent's financial statement filed with the SEC. The petitioner maintains that these import entries were admissible as secondary evidence under the best evidence obtainable rule, since they were duly authenticated by the Bureau of Customs officials who processed the documents and released the cargoes after payment of the duties and taxes due. Further, the petitioner points out that under the best evidence obtainable rule, the tax return is not important in computing the tax deficiency.50
The petitioner avers that the best evidence obtainable rule under Section 16 of the 1977 NIRC, as amended, legally cannot be equated to the best evidence rule under the Rules of Court; nor can the best evidence rule, being procedural law, be made strictly operative in the interpretation of the best evidence obtainable rule which is substantive in character. The petitioner posits that the CTA is not strictly bound by technical rules of evidence, the reason being that the quantum of evidence required in the said court is merely substantial evidence.
Finally, the petitioner avers that the respondent has the burden of proof to show the correct assessments; otherwise, the presumption in favor of the correctness of the assessments made by it stands. Since the respondent was allowed to explain its side, there was no violation of due process.
The obligation of good faith and fair dealing in carrying out its provision is reciprocal and, as the government should never be over-reaching or tyrannical, neither should a taxpayer be permitted to escape payment by the concealment of material facts.
BANK OF THE PHILIPPINE ISLANDS v. COMMISSIONER OF INTERNAL REVENUE
G.R. NO. 139736. October 17, 2005
FACTS
Petitioner BPI is a commercial banking corporation organized and existing under the laws of the Philippines. On two separate occasions, particularly on 06 June 1985 and 14 June 1985, it sold United States (US) $500,000.00 to the Central Bank of the Philippines (Central Bank), for the total sales amount of US$1,000,000.00. On 10 October 1989, the Bureau of Internal Revenue (BIR) issued Assessment No. FAS-5-85-89-002054,3finding petitioner BPI liable for deficiency DST on its afore-mentioned sales of foreign bills of exchange to the Central Bank. Petitioner BPI received the Assessment, together with the attached Assessment Notice,4 on 20 October 1989. Petitioner BPI, through its counsel, protested the Assessment in a letter dated 16 November 1989, and filed with the BIR on 17 November 1989. Petitioner BPI did not receive any immediate reply to its protest letter. However, on 15 October 1992, the BIR issued a Warrant of Distraint and/or Levy6 against petitioner BPI for the assessed deficiency DST for taxable year 1985, in the amount of P27,720.00 (excluding the compromise penalty of P300.00). It served the Warrant on petitioner BPI only on 23 October 1992.
Petitioner BPI raised in its Petition for Review before the CTA, in addition to the arguments presented in its protest letter, dated 16 November 1989, the defense of prescription of the right of respondent BIR Commissioner to enforce collection of the assessed amount. It alleged that respondent BIR Commissioner only had three years to collect on Assessment No. FAS-5-85-89-002054, but she waited for seven years and nine months to deny the protest. In her Answer and subsequent Memorandum, respondent BIR Commissioner merely reiterated her position, as stated in her letter to petitioner BPI, dated 13 August 1997, which denied the latter's protest; and remained silent as to the expiration of the prescriptive period for collection of the assessed deficiency DST. After due trial, the CTA rendered a Decision on 02 February 1999, in which it identified two primary issues in the controversy between petitioner BPI and respondent BIR Commissioner
ISSUES
1. Whether or not the right of respondent BIR Commissioner to collect from petitioner BPI the alleged deficiency DST for taxable year 1985 had prescribed; and
2. Whether or not the sales of US$1,000,000.00 on 06 June 1985 and 14 June 1985 by petitioner BPI to the Central Bank were subject to DST.
RULING
The statute of limitations on collection may only be interrupted or suspended by a valid waiver executed in accordance with paragraph (d) of Section 223 of the Tax Code of 1977, as amended, and the existence of the circumstances enumerated in Section 224 of the same Code, which include a request for reinvestigation granted by the BIR Commissioner.
Even when the request for reconsideration or reinvestigation is not accompanied by a valid waiver or there is no request for reinvestigation that had been granted by the BIR Commissioner, the taxpayer may still be held in estoppel and be prevented from setting up the defense of prescription of the statute of limitations on collection when, by his own repeated requests or positive acts, the Government had been, for good reasons, persuaded to postpone collection to make the taxpayer feel that the demand is not unreasonable or that no harassment or injustice is meant by the Government, as laid down by this Court in the Suyoc case.
Applying the given rules to the present Petition, this Court finds that -
(a) The statute of limitations for collection of the deficiency DST in Assessment No. FAS-5-85-89-002054, issued against petitioner BPI, had already expired; andcralawlibrary
(b) None of the conditions and requirements for exception from the statute of limitations on collection exists herein: Petitioner BPI did not execute any waiver of the prescriptive period on collection as mandated by paragraph (d) of Section 223 of the Tax Code of 1977, as amended; the protest filed by petitioner BPI was a request for reconsideration, not a request for reinvestigation that was granted by respondent BIR Commissioner which could have suspended the prescriptive period for collection under Section 224 of the Tax Code of 1977, as amended; and, petitioner BPI, other than filing a request for reconsideration of Assessment No. FAS-5-85-89-002054, did not make repeated requests or performed positive acts that could have persuaded the respondent BIR Commissioner to delay collection, and that would have prevented or estopped petitioner BPI from setting up the defense of prescription against collection of the tax assessed, as required in the Suyoc case.
This is a simple case wherein respondent BIR Commissioner and other BIR officials failed to act promptly in resolving and denying the request for reconsideration filed by petitioner BPI and in enforcing collection on the assessment. They presented no reason or explanation as to why it took them almost eight years to address the protest of petitioner BPI. The statute on limitations imposed by the Tax Code precisely intends to protect the taxpayer from such prolonged and unreasonable assessment and investigation by the BIR.
Considering that the right of the respondent BIR Commissioner to collect from petitioner BPI the deficiency DST in Assessment No. FAS-5-85-89-002054 had already prescribed, then, there is no more need for this Court to make a determination on the validity and correctness of the said Assessment for the latter would only be unenforceable.
OCEANIC WIRELESS NETWORK, INC v. COMMISSIONER OF INTERNAL REVENUE, THE COURT OF TAX APPEALS, and THE COURT OF APPEALS
G.R. NO. 148380 December 9, 2005
FACTS
On March 17, 1988, petitioner received from the Bureau of Internal Revenue (BIR) deficiency tax assessments for the taxable year 1984 in the total amount of P8,644,998.71. Petitioner filed its protest against the tax assessments and requested a reconsideration or cancellation of the same in a letter to the BIR Commissioner dated April 12, 1988. Acting in behalf of the BIR Commissioner, then Chief of the BIR Accounts Receivable and Billing Division, Mr. Severino B. Buot, reiterated the tax assessments while denying petitioner's request for reinvestigation in a letter 1 dated January 24, 1999. Upon petitioner's failure to pay the subject tax assessments within the prescribed period, the Assistant Commissioner for Collection, acting for the Commissioner of Internal Revenue, issued the corresponding warrants of distraint and/or levy and garnishment. These were served on petitioner on October 10, 1991 and October 17, 1991, respectively. On November 8, 1991, petitioner filed a Petition for Review with the Court of Tax Appeals (CTA) to contest the issuance of the warrants to enforce the collection of the tax assessments. This was docketed as CTA Case No. 4668. The CTA dismissed the petition for lack of jurisdiction in a decision dated September 16, 1994, declaring that said petition was filed beyond the thirty (30)-day period reckoned from the time when the demand letter of January 24, 1991 by the Chief of the BIR Accounts Receivable and Billing Division was presumably received by petitioner, i.e., "within a reasonable time from said date in the regular course of mail pursuant to Section 2(v) of Rule 131 of the Rules of Court." Petitioner filed a Motion for Reconsideration arguing that the demand letter of January 24, 1991 cannot be considered as the final decision of the Commissioner of Internal Revenue on its protest because the same was signed by a mere subordinate and not by the Commissioner himself. With the denial of its motion for reconsideration, petitioner consequently filed a Petition for Review with the Court of Appeals contending that there was no final decision to speak of because the Commissioner had yet to make a personal determination as regards the merits of petitioner's case. The Court of Appeals denied the petition in a decision dated October 31, 2000, hence, this petition.
ISSUES
1. WHETHER OR NOT THE HONORABLE RESPONDENT CA ERRED IN FINDING THAT THE DEMAND LETTER ISSUED BY THE (THEN) ACCOUNTS RECEIVABLE/BILLING DIVISION OF THE BIR NATIONAL OFFICE WAS THE FINAL DECISION OF THE RESPONDENT CIR ON THE DISPUTED ASSESSMENTS, AND HENCE CONSTITUTED THE DECISION APPEALABLE TO THE HONORABLE RESPONDENT CTA; AND,
2. WHETHER OR NOT THE HONORABLE RESPONDENT CA ERRED IN DECLARING THAT THE DENIAL OF THE PROTEST OF THE SUBJECT ALLEGED DEFICIENCY TAX ASSESSMENTS HAD LONG BECOME FINAL AND EXECUTORY FOR FAILURE OF THE PETITIONER TO INSTITUTE THE APPEAL FROM THE DEMAND LETTER OF THE CHIEF OF THE ACCOUNTS RECEIVABLE/BILLING DIVISION, BIR NATIONAL OFFICE, TO THE HONORABLE RESPONDENT CTA, WITHIN THIRTY (30) DAYS FROM RECEIPT THEREOF.
RULING
The court rules in the affirmative. A demand letter for payment of delinquent taxes may be considered a decision on a disputed or protested assessment. The determination on whether or not a demand letter is final is conditioned upon the language used or the tenor of the letter being sent to the taxpayer.
In this case, the letter of demand dated January 24, 1991, unquestionably constitutes the final action taken by the Bureau of Internal Revenue on petitioner's request for reconsideration when it reiterated the tax deficiency assessments due from petitioner, and requested its payment. Failure to do so would result in the "issuance of a warrant of distraint and levy to enforce its collection without further notice." In addition, the letter contained a notation indicating that petitioner's request for reconsideration had been denied for lack of supporting documents. The demand letter received by petitioner verily signified a character of finality. Therefore, it was tantamount to a rejection of the request for reconsideration. As correctly held by the Court of Tax Appeals, "while the denial of the protest was in the form of a demand letter, the notation in the said letter making reference to the protest filed by petitioner clearly shows the intention of the respondent to make it as [his] final decision.
The general rule is that the Commissioner of Internal Revenue may delegate any power vested upon him by law to Division Chiefs or to officials of higher rank. He cannot, however, delegate the four powers granted to him under the National Internal Revenue Code (NIRC).
If the protest is denied in whole or in part, or is not acted upon within one hundred (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 the one hundred eighty (180) - day period; otherwise, the decision shall become final, executory and demandable." Here, petitioner failed to avail of its right to bring the matter before the Court of Tax Appeals within the reglementary period upon the receipt of the demand letter reiterating the assessed delinquent taxes and denying its request for reconsideration which constituted the final determination by the Bureau of Internal Revenue on petitioner's protest. Being a final disposition by said agency, the same would have been a proper subject for appeal to the Court of Tax Appeals. The rule is that for the Court of Tax Appeals to acquire jurisdiction, an assessment must first be disputed by the taxpayer and ruled upon by the Commissioner of Internal Revenue to warrant a decision from which a Petition for Review may be taken to the Court of Tax Appeals. Where an adverse ruling has been rendered by the Commissioner of Internal Revenue with reference to a disputed assessment or a claim for refund or credit, the taxpayer may appeal the same within thirty (30) days after receipt thereof.
PHILIPPINE JOURNALISTS, INC.,v. COMMISSIONER OF INTERNAL REVENUE
G.R. NO. 162852 : December 16, 2004
FACTS
The case arose from the Annual Income Tax Return filed by petitioner for the calendar year ended December 31, 1994 which presented a net income of P30,877,387.00 and the tax due of P10,807,086.00. After deducting tax credits for the year, petitioner paid the amount of P10,247,384.00. On August 10, 1995, Revenue District Office No. 33 of the Bureau of Internal Revenue (BIR) issued Letter of Authority No. 87120 for Revenue Officer Federico de Vera, Jr. and Group Supervisor Vivencio Gapasin to examine petitioner's books of account and other accounting records for internal revenue taxes for the period January 1, 1994 to December 31, 1994. On July 2, 1998, Revenue Officer De Vera submitted his audit report recommending the issuance of an assessment and finding that petitioner had deficiency taxes in the total amount of P136,952,408.97. On October 5, 1998, the Assessment Division of the BIR issued Pre-Assessment Notices which informed petitioner of the results of the investigation. Thus, BIR Revenue Region No. 6, Assessment Division/Billing Section, issued Assessment/Demand No. 33-1-000757-94 on December 9, 1998 stating the following deficiency taxes, inclusive of interest and compromise penalty
Petitioner filed a Petition for Review with the Court of Tax Appeals (CTA) which was amended on May 12, 2000. Petitioner complains: (a) that no assessment or demand was received from the BIR; (b) that the warrant of distraint and/or levy was without factual and legal bases as its issuance was premature; (c) that the assessment, having been made beyond the 3-year prescriptive period, is null and void; (d) that the issuance of the warrant without being given the opportunity to dispute the same violates its right to due process; and (e) that the grave prejudice that will be sustained if the warrant
After the motion for reconsideration of the Commissioner of Internal Revenue was denied by the CTA in a Resolution dated August 2, 2002, an appeal was filed with the Court of Appeals on August 12, 2002. In its decision dated August 5, 2003, the Court of Appeals disagreed with the ruling of the CTA.
Petitioner's Motion for Reconsideration was denied in a Resolution dated March 31, 2004. Hence, this appeal
ISSUES
1. Whether or not The Honorable Court of Appeals committed grave error in ruling that it is outside the jurisdiction of the Court of Tax Appeals to entertain the Petition for Review filed by the herein Petitioner at the CTA despite the fact that such case inevitably rests upon the validity of the issuance by the BIR of warrants of distraint and levy contrary to the provisions of Section 7(1) of Republic Act No. 1125.
2. Whether or not The Honorable Court of Appeals gravely erred when it ruled that failure to comply with the provisions of Revenue Memorandum Order (RMO) No. 20-90 is merely a formal defect that does not invalidate the waiver of the statute of limitations without stating the legal justification for such conclusion. Such ruling totally disregarded the mandatory requirements of Section 222(b) of the Tax Code and its implementing regulation, RMO No. 20-90 which are substantive in nature. The RMO provides that violation thereof subjects the erring officer to administrative sanction. This directive shows that the RMO is not merely cover forms.
3. The Honorable Court of Appeals gravely erred when it ruled that the assessment notices became final and unappealable. The assessment issued is void and legally non-existent because the BIR has no power to issue an assessment beyond the three-year prescriptive period where there is no valid and binding waiver of the statute of limitation.
4. The Honorable Court of Appeals gravely erred when it held that the assessment in question has became final and executory due to the failure of the Petitioner to protest the same. Respondent had no power to issue an assessment beyond the three year period under the mandatory provisions of Section 203 of the NIRC. Such assessment should be held void and non-existent, otherwise, Section 203, an expression of a public policy, would be rendered useless and nugatory. Besides, such right to assess cannot be validly granted after three years since it would arise from a violation of the mandatory provisions of Section 203 and would go against the vested right of the Petitioner to claim prescription of assessment.
5. The Honorable Court of Appeals committed grave error when it HELD valid a defective waiver by considering the latter a waiver of the right to invoke the defense of prescription rather than an extension of the three year period of prescription (to make an assessment) as provided under Section 222 in relation to Section 203 of the Tax Code, an interpretation that is contrary to law, existing jurisprudence and outside of the purpose and intent for which they were enacted.
RULING
The court found merit in the appeal.The first assigned error relates to the jurisdiction of the CTA over the issues in this case. The Court of Appeals ruled that only decisions of the BIR denying a request for reconsideration or reinvestigation may be appealed to the CTA. Since the petitioner did not file a request for reinvestigation or reconsideration within thirty (30) days, the assessment notices became final and unappealable. The petitioner now argue that the case was brought to the CTA because the warrant of distraint or levy was illegally issued and that no assessment was issued because it was based on an invalid waiver of the statutes of limitations.
The second and fifth assigned errors both focus on Revenue Memorandum Circular No. 20-90 (RMO No. 20-90) on the requisites of a valid waiver of the statute of limitations. The Court of Appeals held that the requirements and procedures laid down in the RMO are only formal in nature and did not invalidate the waiver that was signed even if the requirements were not strictly observed.
The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the Government and to its citizens; to the Government because tax officers would be obliged to act promptly in the making of assessment, and to citizens because after the lapse of the period of prescription citizens would have a feeling of security against unscrupulous tax agents who will always find an excuse to inspect the books of taxpayers, not to determine the latter's real liability, but to take advantage of every opportunity to molest peaceful, law-abiding citizens. Without such a legal defense taxpayers would furthermore be under obligation to always keep their books and keep them open for inspection subject to harassment by unscrupulous tax agents. The law on prescription being a remedial measure should be interpreted in a way conducive to bringing about the beneficent purpose of affording protection to the taxpayer within the contemplation of the Commission which recommend the approval of the law.
The waiver document is incomplete and defective and thus the three-year prescriptive period was not tolled or extended and continued to run until April 17, 1998. Consequently, the Assessment/Demand No. 33-1-000757-94 issued on December 9, 1998 was invalid because it was issued beyond the three (3) year period. In the same manner, Warrant of Distraint and/or Levy No. 33-06-046 which petitioner received on March 28, 2000 is also null and void for having been issued pursuant to an invalid assessment.
COMMISSIONER OF INTERNAL REVENUE v. ENRON SUBIC POWERCORPORATION
G.R. NO. 166387 - January 19, 2009
FACTS
In this Petition for Review on Certiorari under Rule 45 of the Rules of Court, petitioner Commissioner of Internal Revenue (CIR) assails the November 24, 2004 decision of the Court of Appeals (CA) annulling the formal assessment notice issued by the CIR against respondent Enron Subic Power Corporation (Enron) for failure to state the legal and factual bases for such assessment.
On May 26, 1999, Enron received from the CIR a formal assessment notice requiring it to pay the alleged deficiency income tax of P2,880,817.25 for the taxable year 1996. Enron protested this deficiency tax assessment. Due to the non-resolution of its protest within the 180-day period, Enron filed a Petition for Review in the Court of Tax Appeals (CTA). It argued that the deficiency tax assessment disregarded the provisions of Section 228 of the National Internal Revenue Code (NIRC), as amended, and Section 3.1.4 of Revenue Regulations (RR) No. 12-99 by not providing the legal and factual bases of the assessment. Enron likewise questioned the substantive validity of the assessment.
In a decision dated September 12, 2001, the CTA granted Enron's petition and ordered the cancellation of its deficiency tax assessment for the year 1996. The CTA reasoned that the assessment notice sent to Enron failed to comply with the requirements of a valid written notice under Section 228 of the NIRC and RR No. 12-99. The CIR's motion for reconsideration of the CTA decision was denied in a resolution dated November 12, 2001.
The CIR appealed the CTA decision to the CA but the CA affirmed it. The CA held that the audit working papers did not substantially comply with Section 228 of the NIRC and RR No. 12-99 because they failed to show the applicability of the cited law to the facts of the assessment. The CIR filed a motion for reconsideration but this was deemed abandoned when he filed a motion for extension to
ISSUE
Whether or not the formal assessment notice issued by the CIR against respondent Enron Subic Power Corporation (Enron) should be annulled for failure to state the legal and factual bases for such assessment
RULING
It is clear from the foregoing that a taxpayer must be informed in writing of the legal and factual bases of the tax assessment made against him. The use of the word 'shall' in these legal provisions indicates the mandatory nature of the requirements laid down therein. We note the CTA's findings:
Both the CTA and the CA concluded that the deficiency tax assessment merely itemized the deductions disallowed and included these in the gross income. It also imposed the preferential rate of 5% on some items categorized by Enron as costs. The legal and factual bases were, however, not indicated. The CIR insists that an examination of the facts shows that Enron was properly apprised of its tax deficiency. During the pre-assessment stage, the CIR advised Enron's representative of the tax deficiency, informed it of the proposed tax deficiency assessment through a preliminary five-day letter and furnished Enron a copy of the audit working paper allegedly showing in detail the legal and factual bases of the assessment. The CIR argues that these steps sufficed to inform Enron of the laws and facts on which the deficiency tax assessment was based.
The law requires that the legal and factual bases of the assessment be stated in the formal letter of demand and assessment notice. Thus, such cannot be presumed. Otherwise, the express provisions of Article 228 of the NIRC and RR No. 12-99 would be rendered nugatory. The alleged 'factual bases' in the advice, preliminary letter and 'audit working papers' did not suffice. There was no going around the mandate of the law that the legal and factual bases of the assessment be stated in writing in the formal letter of demand accompanying the assessment notice. The old law merely required that the taxpayer be notified of the assessment made by the CIR. This was changed in 1998 and the taxpayer must now be informed not only of the law but also of the facts on which the assessment is made. Such amendment is in keeping with the constitutional principle that no person shall be deprived of property without due process. In view of the absence of a fair opportunity for Enron to be informed of the legal and factual bases of the assessment against it, the assessment in question was void. Verily, taxes are the lifeblood of the Government and so should be collected without unnecessary hindrance. However, such collection should be made in accordance with law as any arbitrariness will negate the very reason for the Government itself.
COMMISSIONER OF INTERNAL REVENUE v. AZUCENA T. REYES
G.R. NO. 159694 - January 27, 2006
On July 8, 1993, Maria C. Tancinco (or 'decedent' ) died, leaving a 1,292 square-meter residential lot and an old house thereon (or 'subject property' ) located at 4931 Pasay Road, Dasmariñas Village, Makati City. On the basis of a sworn information-for-reward filed on February 17, 1997 by a certain Raymond Abad (or 'Abad' ), Revenue District Office No. 50 (South Makati) conducted an investigation on the decedent's estate (or 'estate' ). Subsequently, it issued a Return Verification Order. But without the required preliminary findings being submitted, it issued Letter of Authority No. 132963 for the regular investigation of the estate tax case. Azucena T. Reyes one of the decedent's heirs, received the Letter of Authority on March 14, 1997. On February 12, 1998, the Chief, Assessment Division, Bureau of Internal Revenue (or 'BIR' ), issued a preliminary assessment notice against the estate in the amount of P14,580,618.67. On May 10, 1998, the heirs of the decedent (or 'heirs') received a final estate tax assessment notice and a demand letter, both dated April 22, 1998, for the amount of P14,912,205.47, inclusive of surcharge and interest. On June 1, 1998, a certain Felix M. Sumbillo (or 'Sumbillo' ) protested the assessment [o]n behalf of the heirs on the ground that the subject property had already been sold by the decedent sometime in 1990. On November 12, 1998, the Commissioner of Internal Revenue (or '[CIR]' ) issued a preliminary collection letter to [Reyes], followed by a Final Notice Before Seizure dated December 4, 1998. On January 5, 1999, a Warrant of Distraint and/or Levy was served upon the estate, followed on February 11, 1999 by Notices of Levy on Real Property and Tax Lien against it. On March 2, 1999, [Reyes] protested the notice of levy. However, on March 11, 1999, the heirs proposed a compromise settlement of P1,000,000.00. On April 11, 2000, [Reyes] again wrote to [the CIR], this time proposing to pay 100% of the basic tax due in the amount of P5,313,891.00. She reiterated the proposal in a letter dated May 18, 2000. As the estate failed to pay its tax liability within the April 15, 2000 deadline, the Chief, Collection Enforcement Division, BIR, notified [Reyes] on June 6, 2000 that the subject property would be sold at public auction on August 8, 2000. On June 13, 2000, [Reyes] filed a protest with the BIR Appellate Division. Assailing the scheduled auction sale, she asserted that x x x the assessment, letter of demand[,] and the whole tax proceedings against the estate are void ab initio. She offered to file the corresponding estate tax return and pay the correct amount of tax without surcharge /interest.Without acting on [Reyes's] protest and offer, [the CIR] instructed the Collection Enforcement Division to proceed with the August 8, 2000 auction sale. Consequently, on June 28, 2000, [Reyes] filed a [P]etition for [R]eview with the Court of Tax Appeals "On July 17, 2000, [Reyes] filed a Motion for the Issuance of a Writ of Preliminary Injunction or Status Quo Order, which was granted by the CTA on July 26, 2000. Upon [Reyes's] filing of a surety bond in the amount of P27,000,000.00, the CTA issued a [R]esolution dated August 16, 2000 ordering [the CIR] to desist and refrain from proceeding with the auction sale of the subject property or from issuing a [W]arrant of [D]istraint or [G]arnishment of [B]ank [A]ccount[,] pending determination of the case and/or unless a contrary order is issued.The CIR] filed a [M]otion to [D]ismiss the petition on the grounds (i) that the CTA no longer has jurisd iction over the case[,] because the assessment against the estate is already final and executory; and (ii) that the petition was filed out of time. In a [R]esolution dated November 23, 2000, the CTA denied [the CIR's] motion. On May 2, 2001, [Reyes] filed a Supplemental Petition for Review with the CTA, followed on June 4, 2001 by its Amplificatory Arguments
ISSUES
1. Whether petitioner's assessment against the estate is valid.
2. Whether respondent can validly argue that she, as well as the other heirs, was not aware of the facts and the law on which the assessment in question is based, after she had opted to propose several compromises on the estate tax due, and even prematurely acting on such proposal by paying 20% of the basic estate tax due.
RULING
The court found the petition nunmeritorious
"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." In the present case, Reyes was not informed in writing of the law and the facts on which the assessment of estate taxes had been made. She was merely notified of the findings by the CIR, who had simply relied upon the provisions of former Section 229 prior to its amendment by Republic Act (RA) No. 8424, otherwise known as the Tax Reform Act of 1997.
The procedure for protesting an assessment under the Tax Code is found in Chapter III of Title VIII, which deals with remedies. Being procedural in nature, can its provision then be applied retroactively? The answer is yes. The general rule is that statutes are prospective. However, statutes that are remedial, or that do not create new or take away vested rights, do not fall under the general rule against the retroactive operation of statutes.14 Clearly, Section 228 provides for the procedure in case an assessment is protested. The provision does not create new or take away vested rights. In both instances, it can surely be applied retroactively. Moreover, RA 8424 does not state, either expressly or by necessary implication, that pending actions are excepted from the operation of Section 228, or that applying it to pending proceedings would impair vested rights.
A tax regulation is promulgated by the finance secretary to implement the provisions of the Tax Code. While it is desirable for the government authority or administrative agency to have one immediately issued after a law is passed, the absence of the regulation does not automatically mean that the law itself would become inoperative. It may be argued that the Tax Code provisions are not self-executory. It would be too wide a stretch of the imagination, though, to still issue a regulation that would simply require tax officials to inform the taxpayer, in any manner, of the law and the facts on which an assessment was based. That requirement is neither difficult to make nor its desired results hard to achieve.
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. In the instant case, respondent has not been informed of the basis of the estate tax liability. Without complying with the unequivocal mandate of first informing the taxpayer of the government's claim, there can be no deprivation of property, because no effective protest can be made. The haphazard shot at slapping an assessment, supposedly based on estate taxation's general provisions that are expected to be known by the taxpayer, is utter chicanery.Tax laws are civil in nature. Under our Civil Code, acts executed against the mandatory provisions of law are void, except when the law itself authorizes the validity of those acts. Failure to comply with Section 228 does not only render the assessment void, but also finds no validation in any provision in the Tax Code. We cannot condone errant or enterprising tax officials, as they are expected to be vigilant and law-abiding.
It would be premature for this Court to declare that the compromise on the estate tax liability has been perfected and consummated, considering the earlier determination that the assessment against the estate was void. Nothing has been settled or finalized. Under Section 204(A) of the Tax Code, where the basic tax involved exceeds one million pesos or the settlement offered is less than the prescribed minimum rates, the compromise shall be subject to the approval of the NEB composed of the petitioner and four deputy commissioners.
ESTATE OF THE LATE JULIANA DIEZ VDA. DE GABRIEL vs. COMMISSIONER OF INTERNALREVENUE
G.R. No. 155541 January 27, 2004
FACTS
During the lifetime of the decedent, Juliana Vda. De Gabriel, her business affairs were managed by the Philippine Trust Company (Philtrust). The decedent died on April 3, 1979. Two days after her death, Philtrust, through its Trust Officer, Atty. Antonio M. Nuyles, filed her Income Tax Return for 1978. The return did not indicate that the decedent had died. On May 22, 1979, Philtrust also filed a verified petition for appointment as Special Administrator with the Regional Trial Court of Manila, Branch XXXVIII, docketed as Sp. Proc. No. R-82-6994. The court a quo appointed one of the heirs as Special Administrator. Philtrust's motion for reconsideration was denied by the probate court. On January 26, 1981, the court a quo issued an Order relieving Mr. Diez of his appointment, and appointed Antonio Lantin to take over as Special Administrator. Subsequently, on July 30, 1981, Mr. Lantin was also relieved of his appointment, and Atty. Vicente Onosa was appointed in his stead.
In the meantime, the Bureau of Internal Revenue conducted an administrative investigation on the decedent's tax liability and found a deficiency income tax for the year 1977 in the amount of P318,233.93. Thus, on November 18, 1982, the BIR sent by registered mail a demand letter and Assessment Notice No. NARD-78-82-00501 addressed to the decedent "c/o Philippine Trust Company, Sta. Cruz, Manila" which was the address stated in her 1978 Income Tax Return. No response was made by Philtrust. The BIR was not informed that the decedent had actually passed away. In an Order dated September 5, 1983, the court a quo appointed Antonio Ambrosio as the Commissioner and Auditor Tax Consultant of the Estate of the decedent. On June 18, 1984, respondent Commissioner of Internal Revenue issued warrants of distraint and levy to enforce collection of the decedent's deficiency income tax liability, which were served upon her heir, Francisco Gabriel. On November 22, 1984, respondent filed a "Motion for Allowance of Claim and for an Order of Payment of Taxes" with the court a quo. On January 7, 1985, Mr. Ambrosio filed a letter of protest with the Litigation Division of the BIR, which was not acted upon because the assessment notice had allegedly become final, executory and incontestable. On May 16, 1985, petitioner, the Estate of the decedent, through Mr. Ambrosio, filed a formal opposition to the BIR's Motion for Allowance of Claim based on the ground that there was no proper service of the assessment and that the filing of the aforesaid claim had already prescribed. The BIR filed its Reply, contending that service to Philippine Trust Company was sufficient service, and that the filing of the claim against the Estate on November 22, 1984 was within the five-year prescriptive period for assessment and collection of taxes under Section 318 of the 1977 National Internal Revenue Code (NIRC). On November 19, 1985, the court a quo issued an Order denying respondent's claim against the Estate,2 after finding that there was no notice of its tax assessment on the proper party. On September 30, 2002, the Court of Appeals rendered a decision in favor of the respondent.
ISSUES
1. Whether or not the Court of Appeals erred in holding that the service of deficiency tax assessment against Juliana Diez Vda. de Gabriel through the Philippine Trust Company was a valid service in order to bind the Estate;
2. Whether or not the Court of Appeals erred in holding that the deficiency tax assessment and final demand was already final, executory and incontestable.
RULING
The resolution of this case hinges on the legal relationship between Philtrust and the decedent, and, by extension, between Philtrust and petitioner Estate. Subsumed under this primary issue is the sub-issue of whether or not service on Philtrust of the demand letter and Assessment Notice No. NARD-78-82-00501 was valid service on petitioner, and the issue of whether Philtrust's inaction thereon could bind petitioner. If both sub-issues are answered in the affirmative, respondent's contention as to the finality of Assessment Notice No. NARD-78-82-00501 must be answered in the affirmative. This is because Section 319-A of the NIRC of 1977 provides a clear 30-day period within which to protest an assessment. Failure to file such a protest within said period means that the assessment ipso jure becomes final and unappealable, as a consequence of which legal proceedings may then be initiated for collection thereof.
The first point to be considered is that the relationship between the decedent and Philtrust was one of agency, which is a personal relationship between agent and principal. Under Article 1919 (3) of the Civil Code, death of the agent or principal automatically terminates the agency. In this instance, the death of the decedent on April 3, 1979 automatically severed the legal relationship between her and Philtrust, and such could not be revived by the mere fact that Philtrust continued to act as her agent when, on April 5, 1979, it filed her Income Tax Return for the year 1978.
Since the relationship between Philtrust and the decedent was automatically severed at the moment of the Taxpayer's death, none of Philtrust's acts or omissions could bind the estate of the Taxpayer. Service on Philtrust of the demand letter and Assessment Notice No. NARD-78-82-00501 was improperly done.
Since there was never any valid notice of this assessment, it could not have become final, executory and incontestable, and, for failure to make the assessment within the five-year period provided in Section 318 of the National Internal Revenue Code of 1977, respondent's claim against the petitioner Estate is barred.
In this case, the assessment was served not even on an heir of the Estate, but on a completely disinterested third party. This improper service was clearly not binding on the petitioner.
By arguing that (1) the demand letter and assessment notice were served on Philtrust, (2) Philtrust was remiss in its obligation to respond to the demand letter and assessment notice, (3) Philtrust was remiss in its obligation to inform respondent of the decedent's death, and (4) the assessment notice is therefore binding on the Estate, respondent is arguing in circles. The most crucial point to be remembered is that Philtrust had absolutely no legal relationship to the deceased, or to her Estate. There was therefore no assessment served on the Estate as to the alleged underpayment of tax. Absent this assessment, no proceedings could be initiated in court for the collection of said tax,21 and respondent's claim for collection, filed with the probate court only on November 22, 1984, was barred for having been made beyond the five-year prescriptive period set by law.
REV. FR. CASIMIRO LIADO vs. COMMISSIONER OF INTERNALREVENUE AND THE CIA
G.R. No. 155541 January 27, 2004
FACTS
M.B Estate Inc. donated P 10,000 to Rev. Fr. Crispin Ruiz, then parish priest of Victorias, Negros Occidental. The money was used for the purpose intended.
The donor filed a return for the Donor's gift tax and the commission of IR issued an assessment on the donor's tax including surcharges, interests and compromise for late filing.
A protest was lodged by Fr. Lladoc, present parish priest which was denied. His MR was likewise denied. He filed on appeal to the CTA which ruled in favor of the CIR, hence this petition at the SC.
ISSUES
Whether or not these was a violation of Sec. 22 (3) Art. 6 of the Constitution.
RULING
The court held that the assessment and collection, of a donor's tax is proper because what Art. 6-Sec. 22 (3) covers are property/ies used for religious purposes. The donor's gift tax is an excise tax and is not covered by the exemption provided for under the constitution.
The issue on whether or not Fr. Lladoc should be held liable for payment of the said taxes. The court held that is should be the head of the Diocess who should pay as substitute petitioner, as Lladoc is not personally liable.
LUNG CENTER OF THE PHILIPPINES vs. CA
G.R. No. 155541 January 27, 2004
FACTS
The Lung Center of the Philippines, by virtue of PD 1823 is a non-stock non-profit entity seeking exemption from RNT when the City Assessor issued a tax dec. for its Land and Buildings. It claimed it was a charitable institution and filed a petition with the LBAA, which denied the same. The decision was affirmed on appeal by the CBAA and upheld by the CA.
ISSUES
1. Whether or not it is a charitable institution based on the context of PD 1823, the 1973 and 1987 Constitution & Sec. 234 (B) of RA 7160.
2. Whether or not it is exempt from RPT.
RULING
The court held it is a charitable institution, non-profit, non-stock, established to render health services the poor. It became a subject of charity and was entitled to receive donations, even subsidies from government. Under Sec. 28, Rule 6 of the 1987 constitution, its property/ies used directly for charitable purposes are exempt from RPT but not properties leased to private individuals/entities.
TOLENTINO vs. SECRETARY OF FINANCE
G.R. No. 155541 January 27, 2004
FACTS
Arturo Tolentino et al are questioning the constitutionality of RA 7716 otherwise known as the Expanded Value Added Tax (EVAT) Law. Tolentino averred that this revenue bill did not exclusively originate from the House of Representatives as required by Section 24, Article 6 of the Constitution. Even though RA 7716 originated as HB 11197 and that it passed the 3 readings in the HoR, the same did not complete the 3 readings in Senate for after the 1st reading it was referred to the Senate Ways & Means Committee thereafter Senate passed its own version known as Senate Bill 1630. Tolentino averred that what Senate could have done is amend HB 11197 by striking out its text and substituting it with the text of SB 130 in that way "the bill remains a House Bill and the Senate version just becomes the text (only the text) of the HB". (It's ironic however to note that Tolentino and co-petitioner Raul Roco even signed the said Senate Bill.)
ISSUES
Whether or not the EVAT law is procedurally infirm.
RULING
No. by a 9-6 vote, the Supreme Court rejected the challenge, holding that such consolidation was consistent with the power of the Senate to propose or concur with amendments the version originated in the HoR. What the Constitution simply means, according to the 9 justices, is that the initiative must come from the HoR. Note also that there were several instances before where Senate passed its own version rather than having the HoR version as far as revenue and other such bills are concerned. This practice of amendment by substitution has always been accepted. The proposition of Tolentino concerns a mere matter of form. There is no showing that it would make a significant difference if Senate were to adopt his over what has been done.
APOSTOLIC PREFECT vs. CITY TREASURER OF BAGUIO
G.R. No. 155541 January 27, 2004
FACTS
In 1937, an ordinance (Ord. 137) was passed in the City of Baguio. The said ordinance sought to assess properties of property owners within the defined city limits. Apostolic Prefect of Mt. Province (APMP), on the other hand is a religious corporation duly established under Philippine laws. Pursuant to the ordinance, it contributed a total amount of P 1,019.37. It filed the said contribution in protest. APMP later averred that it should be exempt from the said special contribution since as a religious institution, it has a constitutionally guaranteed right not to be taxed including its properties.
ISSUES
Whether or not APMP is exempt from taxes.
RULING
The test of exemption from taxation is the use of the property for purposes mention in the Constitution. Based on Justice Cooley's words: "While the word 'tax' in its broad meaning, includes both general taxes and special assessments, and in a general sense a tax is an assessment, and an assessment is a tax, yet there is a recognized distinction between them in that assessment is confined to local impositions upon property for the payment of the cost of public improvements in its immediate vicinity and levied with reference to special benefits to the property assessed. The differences between a special assessment and a tax are that (1) a special assessment can be levied only on land; (2) a special assessment cannot (at least in most states) be made a personal liability of the person assessed; (3) a special assessment is based wholly on benefits; and (4) a special assessment is exceptional both as to time and locality. The imposition of a charge on all property, real and personal, in a prescribed area, is a tax and not and assessment, although the purpose is to make a local improvement on a street or highway. A charge impose only on property owners benefited is a special assessment rather than a tax notwithstanding the statute call it a tax." In the case at bar, the Prefect cannot claim exemption because the assessment is not taxation per se but rather a system for the benefits of the inhabitants of the city.
PHILIPPINE AIRLINES vs. EDU
G.R. No. L- 41383 August 15, 1988
FACTS
The Philippine Airlines (PAL) is a corporation engaged in the air transportation business under a legislative franchise, Act No. 42739. Under its franchise, PAL is exempt from the payment of taxes.
Sometime in 1971, however, Land Transportation Commissioner Romeo F. Elevate (Elevate) issued a regulation pursuant to Section 8, Republic Act 4136, otherwise known as the Land and Transportation Traffic Code, requiring all tax exempt entities, among them PAL to pay motor vehicle registration fees.
Despite PAL's protestations, Elevate refused to register PAL's motor vehicles unless the amounts imposed under Republic Act 416 were paid. PAL thus paid, under protest, registration fees of its motor vehicles. After paying under protest, PAL through counsel, wrote a letter date May 19, 1971, to Land Transportation Commissioner Romeo Edu (Edu) demanding a refund of the amounts paid. Edu denied the request for refund. Hence, PAL filed a complaint against Edu and National Treasurer Ubaldo Carbonell (Carbonell).
The trial court dismissed PAL's complaint. PAL appealed to the Court of Appeals which in turn certified the case to the Supreme Court.
ISSUES
Whether or not motor vehicle registration fees are considered as taxes.
RULING
Yes. If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is properly call a tax. Such is the case of motor vehicle registration fees. The motor vehicle registration fees are actually taxes intended for additional revenues of the government even if one fifth or less of the amount collected is set aside for the operating expenses of the agency administering the program.
CALTEX (PHILIPPINES) vs. CA
G.R. No. 97753 August 10, 1992
FACTS
On various dates, Security Bank and Trust Co. (SEBTC), through its Sucat branch, issued 280 certificated of time deposit (CTD) in favor of one Angel dela Cruz who deposited with the bank the aggregate amount of P 1.12 million. Angel dela Cruz delivered the CTDs to Caltex in connection with his purchase of fuel products from the latter. Subsequently, dela Cruz informed the bank that he lost all the CTDs, and thus executed an affidavit of loss to facilitate the issuance of the replacement CTDs. Dela Cruz was able to obtain a loan of P 875,000 from the bank, and in turn, he executed a notarized Deed of Assignment of Time Deposit in favor of the bank. Thereafter, Caltex presented for verification the CTDs (which were declared lost by dela Cruz) with the bank. Caltex formally informed the bank of its possession of the CTDs and its decision to preterminate the same. The bank rejected Caltex' claim and demand, after Caltex failed to furnish copy of the requested documents evidencing the guarantee agreement, etc. In 1983, dela Cruz' loan matured and the bank set-off and applied the time deposits as payment for the loan. Caltex filed the complaint, but which was dismissed.
ISSUES
1. Whether the Certificated of Time Deposit (CTDs) are negotiable instruments.
2. Whether the CTDs' negotiation require delivery only.
RULING
1. The CTDs in question meet the requirements of the law for negotiability. Contrary to the lower court's findings, the CTDs are negotiable instruments (Section 1). Negotiability or non-negotiability of an instrument determined from the writing, i.e. from the face of the instrument itself. The documents are provided that the amounts deposited shall be repayable to the depositor. The amounts are to be repayable to the bearer of the documents, i.e. whosoever may be the bearer at the time of presentment.
2. Although the CTDs are bearer instruments, a valid negotiation thereof for the true purpose and agreement between it (Caltex) and dela Cruz requires both delivery and indorsement; as the CTDs were delivered to it as security for dela Cruz' purchases of its fuel products, and not for payment. Herein, there was no negotiation in the sense of a transfer of title, or legal title, to the CTDs in which situation mere delivery of the bearer CTDs would have sufficed. The delivery thereof as security for the fuel purchases at most constitutes Caltex as a holder for value by reason of his lien. Accordingly, a negotiation for such purpose cannot be effected by mere delivery of the instrument since the terms thereof and the subsequent disposition of such security, in the event of non-payment of the principal obligation, must be contractually provided for.
DOMINGO vs. GARLITOS
G.R. No. L- 18993 June 29, 1963
FACTS
In Domingo vs. Moscoso (106 PHIL 1138), the Supreme Court declared as final and executory the order of the Court of First Instance of Leyte for the payment of estate and inheritance taxes, charges and penalties amounting to P 40,058.55 by the Estate of the late Walter Scott Price. The petition for execution filed by the fiscal, however, was denied by lower court. The Court held that the execution is unjustified as the Government itself is indebted to the Estate for 262,200; and ordered the amount of inheritance taxes be deducted from the Government's indebtedness to the Estate.
ISSUES
Whether a tax and a debt may be compensated.
RULING
The court having jurisdiction of the Estate had found that the claim of the Estate against the Government has been recognized and an amount of P 262,200 has already been appropriated by a corresponding law (RA 2700). Under the circumstances, both the claim of the Government for inheritance taxes and the claim of the intestate for services rendered have already become overdue and demandable as well as fully liquidated. Compensation, therefore, takes place by operation of law, in accordance with Article 1279 and 1290 of the Civil Code, and both debts are extinguished to the concurrent amount.
COMMISSIONER vs. ALGUE, INC.
158 SCRA 9
FACTS
The Commissioner of Internal Revenue contends that the claimed deduction was properly disallowed because it was not an ordinary, reasonable or necessary business expense. The Court of Tax Appeals, however, agreed with Algue, Inc. in holding that the said amount has been legitimately paid by Algue, Inc. as promotional fees for their work in the formation of Vegetable Oil investment Corporation of the Philippines and its subsequent purchase of the properties of the Philippines Sugar Estate Development Corporation.
RULING
Ruling in favor of Algue, Inc, the Supreme Court held that Algue, Inc, has proved that the payment of fees was necessary and reasonable in the light of efforts exerted by the payees in inducing investors and prominent businessmen to venture in an experimental enterprise and involve themselves in a new business requiring millions of pesos. This was no mean feat and should be, as it was sufficiently recompensed.
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.
WALTER LUTZ vs. J. ANTONIO ARANETA
98 PHIL. 148
FACTS
Plaintiff Lutz assailed the constitutionality of Sections 2 and 3, C.A. 567, which provided for an increase of the existing tax on the manufacture of sugar, alleging such tax as unconstitutional and void for not being levied for a public purpose but for the aid and support of the sugar industry exclusively.
As the protection and promotion of the sugar industry is a matter of public concern, the Legislature may determine within reasonable bounds what is necessary for its protection and expedient for its promotion. Here, the legislative discretion must be allowed full play, subject only to the test of reasonableness; and it is not contended that the means provided in Section 6 of C.A. 567 bear no relation to the objective pursued or are oppressive in character. If objective and methods are alike constitutionally valid, no reason is seen why the state may not levy taxes to raise funds for their prosecution and attainment. Taxation may be made the implement of the State's police power.
The legislature has unlimited scope as to the persons, property or occupation to be taxed, where there are no constitutional restrictions, provided the property is within the territorial jurisdiction of the taxing state.
In the case of Walter Luts v. J. Antonio Araneta, supra, plaintiff Lutz assailed the constitutionality of Sections 2 and 3, C.A. No. 567 which provided for an increase of the existing tax on the manufacture of sugar. The Supreme Court ruled that: "It is inherent in the power to ax that a state be free to select the subjects of taxation, and it has been repeatedly held that 'inequalities which result from a singling out of one particular class for taxation or exemption infringe no constitutional limitation."
BENJAMIN GOMEZ vs. ENRICO PALOMAR, et al.
25 SCRA 827
FACTS
Petitioner questions the constitutionality of the statute, claiming that R.A. No. 1635, otherwise known as the Anti-TB Stamp Law, is violative of the equal protection clause of the Constitution because it constitutes mail users into class for the purpose of the tax while leaving untaxed the rest of the population and that even among postal patrons the statute discriminatorily grants exemptions.
RULING
It is settled that the legislature has the inherent power to select the subject of taxation and to grant exemptions. The classification of mail users is based on the ability to pay, the enjoyment of a privilege and on administrative convenience. Tax exemptions have never been thought of as raising issues under the equal protection clause.
PASCUAL vs. SECRETARY OF PUBLIC WORKS
110 PHIL. 331
FACTS
Nevertheless, in the case of Pascual v. Secretary of Public Works which challenges the law appropriating a certain amount for the construction of a feeder road on a land owned by a private individual, the Court held the law to be an invalid imposition since it results in the promotion of a private enterprise, it benefits the property of a particular individual. The provision that the land shall thereafter be donated to the government does not cure this defect. The rule is that, if the public advantage or benefit is merely incidental in the promotion of a particular enterprise, such defect shall render the law invalid. On the other hand, if what is incidental is the promotion of a private enterprise, the tax law shall be deemed "for a public purpose."
JOSE REYES vs. PEDRO ALMANZOR
196 SCRA 322
FACTS
Petitioner questions the method of tax assessment, citing violation of the due process clause. The Court ruled thus:
The due process clause may be invoked where a taxing statute is so arbitrary that it finds no support in the Constitution, as where it can be shown to amount to a confiscation of property.
The taxing power has the authority to make reasonable and natural classification for purposes of taxation but the government's act must not be prompted by a spirit of hostility, or at the very least discrimination that finds no support in reason. It suffices then that the laws operate equally and uniformly on all persons under similar circumstances or that all persons must be treated in the same manner, the conditions not being different both in the privileges conferred and the liabilities imposed. (Sison v. Ancheta, supra)
BENJAMIN GOMEZ vs. ENRICO PALOMAR, et al.
25 SCRA 827
FACTS
Petitioner questions the constitutionality of the statute as well as the implementing administrative orders issued implementing the special Anti-TB stamp required by R.A. 1635, contending that it violates the equal protection clause of the Constitution as well as the rule of uniformity and equality in taxation.
RULING
R.A. 16345 is valid.
It is claimed that R.A. 1635, otherwise known as the Anti-TB Stamp Law, is violative of the equal protection clause of the Constitution because int constitutes mail users into a class for the purpose of the tax while leaving untaxed the rest of the population and the even among postal patrons the statute discriminatorily grants exemptions.
It is settled that the legislature has the inherent power to select the subject of taxation and to grant exemptions. The classification of mail users is based on the ability to pay, the enjoyment of a privilege and on administrative convenience. Tax exemptions have never been thought of as raising issues under the equal protection clause.
Moreover, the imposition of a flat rate rather than a graduated tax does not infringe the rule of uniformity and equality of taxation. A tax need not be measured by the weight of the mail or the extent of the service rendered. Considerations of administrative convenience and cost afford an adequate ground for classification. The same consideration may induce the legislature to impose a flat tax which in effect is a charge for the transaction, operating equally on all persons within the class regardless of the amount involved.
JUAN LUNA SUBDIVISION, INC. vs. SARMIENTO, et al.
91 PHIL. 371
FACTS
Juan Luna Subdivision, Inc. brought a suit against the City Treasurer and the Philippine Trust Company as defendants in the alternative to determine which of the two defendants is liable for plaintiff's check. It appears that plaintiff issued to the City Treasurer of Manila a check to be applied to plaintiff's land tax for the second semester of 1941, the exact amount of which was yet undetermined. On February 20, 1942, after the amount had been verified, which was P 341.60, the balance of P 1,868.92, covered by voucher no, 1487 of the City Treasurer's Office, was noted in the ledger as a credit to the Juan Luna Subdivision, Inc. Thereafter, the books of the Philippine Trust Company revealed that plaintiff's check was deposited by the City Treasurer with the Philippine National Bank, and the latter was paid the cash equivalent thereof by the Philippine Trust Company, which debited the amount against Juan Luna Subd., Inc. However, the City Treasurer refused after liberation to refund the plaintiff's deposit or apply it to such future taxes as might be found due.
The plaintiff claims the whole amount of the check contending that taxes for the last semester of 1941 had been remitted by C.A. No. 03.
RULING
The remission of taxes due and payable to the exclusion of taxes already collected does not constitute unfair discrimination. Each set of taxes is a class by itself, and the law would be open to attack as class legislation only if all taxpayers belonging to one class were not treated alike. They are not.
As to the justification of the measure, the confinement of the condonation to delinquent taxes was not without good reason. The property owners who had paid their taxes before liberation and those who had not were not on the same footing on the need of material relief. It is true that the ravages and devastations brought by war operations had rendered the bulk of t people destitute or impoverished and that it was this situation which prompted the passage of C.A. 703. But it is also true that the taxpayers who had been in arrears in their obligation would have to satisfy their liability with genuine currency, while the taxes paid during the occupation had been satisfied in Japanese military notes, many of them at a time when those notes were well-nigh worthless. To refund those taxes with the restored currency, even if the government could afford to do so, would be to unduly enrich many of the payers at a greater expense of the people at large. What is more, the process of refunding would entail a tremendous amount of work and difficulties, what with the destruction of the tax records and the great number of claimants who would take advantage of such grace.
It is said that the plaintiff's check was in the nature of a deposit, held in trust by the City Treasurer, and that, for this reason, plaintiff's taxes are to be regarded as still due and payable. The argument is well-taken, but only to the extent of P 1,868.92. The amount of P 341.60 as early as February 20, 1942, had been applied to the second half of plaintiff's 1941 tax and become part of the general fund of the city treasury. From that date that tax was legally and actually paid and settled.
JOSE REYES vs. PEDRO ALMANZOR
196 SCRA 322
FACTS
Petitioners question the method used in the assessment of the properties.
RULING
Under Art. VIII, Sec. 17(1) of the 1973 Constitution, then enforced, the Rule of Taxation must not only be uniform but must also be equitable and progressive.
Uniformity has been defined as that principle by which all taxable articles or kinds of property of the same class shall be taxed at the same rate. (Churchill v. Concepcion, 34 Phil. 969 [1916])
Taxation is said to be equitable when its burden falls on those better able to pay; taxation is progressive when its rate goes up depending on the resources of the person affected. (Fernando, "The Constitution of the Phils.," 2nd Ed., p. 221)
TOLENTINO, et al. vs. SECRETARY OF FINANCE
235 SCRA 630
FACTS
CREBA contends that the imposition of the VAT on the sales and leases of real estate by virtue of contracts entered into prior to the effectivity of the law would violate the constitutional provision that "No law impairing the obligation of contracts shall be passed.'
RULING
It is enough to say that the parties to a contract cannot, through the exercise of prophetic discernment, fetter the exercise of the taxing power of the State. For not only are existing laws read into contracts in order to fix obligations as between parties, but the reservation of essential attributes of sovereign power is also read into contracts as a basic postulate of the legal order. The policy of protecting contracts against impairment presupposes the maintenance of a government which retains adequate authority to secure the peace and good order of society.
The Contract Clause has never been thought as a limitation on the exercise of the State's power of taxation save only where a tax exemption has been granted for a valid consideration.
