SECOND DIVISIONCOMMISSIONER OF INTERNAL REVENUE, Petitioner, - versus -

  JULIETA ARIETE,Respondent.  G.R. No. 164152/  Promulgated: January 21, 2010

The Case

The Commissioner of Internal Revenue (petitioner) filed this Petition

for Review1[1] to reverse the Court of Appeals (CA) Decision2[2] dated 14 June

2004 in CA-G.R. SP No. 70693. In the assailed decision, the CA affirmed the

Court of Tax Appeals (CTA) Decision3[3] and Resolution dated 15 January 2002

and 3 May 2002, respectively. The CTA cancelled the assessments issued against

Julieta Ariete (respondent) for deficiency income taxes of P191,463.04 for the

years 1993, 1994, 1995, and 1996.

 The Facts

On 21 May 1997, George P. Mercado filed an Affidavit with the Special

Investigation Division, Revenue Region No. 19, Davao City. The affidavit attested

that respondent earned substantial income in 1994, 1995, and 1996 without

paying income tax.4[4]

The Chief of the Special Investigation Division (SID Chief) issued

Mission Order No. 118-97 dated 23 May 1997, directing a Revenue Officer to

conduct preliminary verification of the denunciation made and submit a

progress report. The SID Chief also sent a request to access the BIR records of

Revenue District No. 112, Tagum, Davao del Norte (RDO), inquiring if the

1[1] Under Rule 45 of the Rules of Court.

2 [2]Penned by Associate Justice Celia C. Librea-Leagogo with Associate Justices Arturo G. Tayag, and Edgardo A. Camello, concurring.

3 [3]Penned by Presiding Justice Ernesto D. Acosta with Associate Justices Amancio Q. Saga and Juanito C. Castaeda, Jr., concurring.

4 [4]Rollo, pp. 42-43.

income tax returns of respondent for the years 1993 to 1996 are available for

examination. The RDO replied that respondent had no records of income tax

returns for the years 1993 to 1996.5[5]

  On 15 October 1997, the Revenue Officer submitted a report stating

that respondent admitted her non-filing of income tax returns.6[6]

  On 2 December 1997, respondent filed her income tax returns for the

years 1993, 1994, 1995, and 1996 under Revenue Memorandum Order (RMO)

No. 59-97 as amended by RMO No. 60-97 and RMO No. 63-97, otherwise known

as the Voluntary Assessment Program (VAP).7[7]

  On 28 July 1998, the Regional Director issued a Letter of Authority to

investigate respondent for tax purposes covering the years 1993 to 1996.  

On 14 October 1998, the Revenue Officer submitted a Memorandum to

the SID Chief recommending that respondent be assessed with deficiency

income taxes for the years 1993 to 1996. On 22 January 1999, four assessment

notices were issued against respondent. The total deficiency income taxes,

inclusive of interests and surcharges amounted to P191,463.04:

  1993 P 6,462.188[8]

1994 47,187.399[9]

1995 24,729.6410[10]

5 [5]Id. at 12.

6 [6]Id.

7 [7]Id. at 12-13.

8 [8]Id. at 56.

9 [9]Id. at 57.

10 [10]Id. at 58.

1996 113,083.83 11 [11]

P 191,463.04

 

On 22 February 1999, respondent filed an Assessment Protest with

Prayer for Reinvestigation. On 30 March 1999, the assessment protest was

denied.

  On 16 April 1999, respondent offered a compromise settlement but the

same was denied.

  Respondent filed a petition for review with the CTA assailing the

Bureau of Internal Revenues (BIR) decision denying with finality the request for

reinvestigation and disapproving her availment of the VAP. Respondent also

contested the issuance of the four assessment notices.

On 15 January 2002, the CTA rendered a decision cancelling the

deficiency assessments. Petitioner filed a motion for reconsideration but the

CTA denied the same in a Resolution dated 3 May 2002.

  Petitioner appealed the CTAs decision to the CA. In a decision dated 14

June 2004, the CA affirmed the CTAs decision.

Aggrieved by the CAs decision affirming the cancellation of the

tax deficiency assessments, petitioner elevated the case before this Court.

Ruling of the Court of Tax Appeals

  The CTA stated that when respondent filed her income tax returns on 2

December 1997, she was not yet under investigation by the Special

11 [11]Id. at 59.

Investigation Division. The Letter of Authority to investigate respondent for tax

purposes was issued only on 28 July 1998. Further, respondents case was not

duly recorded in the Official Registry Book of the BIR before she availed of the

VAP.   The CTA, quoting RMO Nos. 59-97, 60-97, and 63-97, ruled that the

requirements before a person may be excluded from the coverage of the VAP

are:

a. The person(s) must be under investigation by the Tax Fraud Division and/or the regional Special Investigation Division;

 b. The investigation must be as a result of a verified

information filed by an informer under Section 281 of the NIRC, as amended; and

 c. The investigation must be duly registered in the Official

Registry Book of the Bureau before the date of availment under the VAP.12[12]   

The CTA ruled that the conjunctive word and is used; therefore, all of

the above requisites must be present before a person may be excluded from the

coverage of the VAP. The CTA explained that the word and is a conjunction

connecting words or phrases expressing the idea that the latter is to be added

or taken along with the first.13[13]

  The CTA also stated that the rationale behind the VAP is to give

taxpayers a final opportunity to come up with a clean slate before they will be

dealt with strictly for not paying their correct taxes. The CTA noted that under

the RMOs, among the benefits that can be availed by the taxpayer-applicant are:

1)      A bona fide rectification of filing errors and assessment of tax liabilities under the VAP shall relieve the taxpayer-applicant from any criminal or civil liability incident to the misdeclaration of incomes, purchases, deductions, etc., and non-filing of a return.

12 [12]Id. at 93.

13[13] Id.

 2)      The taxpayer who shall avail of the VAP shall be liable

only for the payment of the basic tax due.14[14]

  The CTA ruled that even if respondent violated the National Internal Revenue Code (Tax Code), she was given the chance to rectify her fault and be absolved of criminal and civil liabilities incident to her non-filing of income tax by virtue of the VAP. The CTA held that respondent is not disqualified to avail of the VAP. Hence, respondent has no more liabilities after paying the corresponding taxes due.15[15]

The CTA found the four assessments issued against respondent

to be erroneous and ordered that the same be cancelled.16[16]

Ruling of the Court of Appeals

The CA explained that the persons who may avail of the VAP are those

who are liable to pay any of the above-cited internal revenue taxes for the above

specified period who due to inadvertence or otherwise, has underdeclared his

internal revenue tax liabilities or has not filed the required tax returns. The CA

rationalized that the BIR used a broad language to define the persons qualified

to avail of the VAP because the BIR intended to reach as many taxpayers as

possible subject only to the exclusion of those cases specially enumerated.

  The CA ruled that in applying the rules of statutory construction, the

exceptions enumerated in paragraph 317[17] of RMO No. 59-97, as well as those

14[14] Id. at 93-94.

15[15] Id. at 95.

16[16] Id.

17[17] 3. Persons/Cases not covered

The following shall be excluded from the coverage of the VAP under this Order:

3.1. Dealers of petroleum products and purchasers of goods and services from petroleum companies who have availed of the VAP under RMO No. 39-96, as amended by RMO No. 10-97;

3.2. Withholding Agents with respect to their withholding tax liabilities;

added in RMO No. 63-97, should be strictly construed and all doubts should be

resolved in favor of the general provision stated under paragraph 218[18] rather

than the said exceptions.

  The CA affirmed the CTAs findings of facts and ruled that neither the

verified information nor the investigation was recorded in the Official Registry

Book of the BIR. The CA disagreed with petitioners contention that the

recording in the Official Registry Book of the BIR is merely a procedural

requirement which can be dispensed with for the purpose of determining who

are excluded from the coverage of RMO No. 59-97.

  The CA explained that it is clear from the wordings of RMO No. 59-97

that the recording in the Official Registry Book of the BIR is a mandatory

requirement before a taxpayer-applicant under the VAP may be excluded from

its coverage as this requirement was preceded by the word and. The use of the

conjunction and in subparagraph 3.4 of RMO No. 59-97 must be understood in

its usual and common meaning for the purpose of determining who are

disqualified from availing of the benefits under the VAP. This interpretation is

more in faithful compliance with the mandate of the RMOs.

  Aggrieved by the CA decision, petitioner elevated the case to this Court.

3.3. Persons to whom a validly issued Letter of Authority has been served;

3.4. Persons under investigation as a result of verified information filed by an informer under Section 281 of the NIRC, as amended, and duly recorded in the Official Registry Book of the Bureau before the date of availment under VAP; and

3.5. Tax cases filed in Court.

18[18] 2. Who May Avail

Any person liable to pay any of the above-cited internal revenue taxes for the above specified period; who due to inadvertence or otherwise, has under-declared his internal revenue tax liabilities or has not filed the required tax return may avail of the benefits under VAP.

Issue

  Petitioner submits this sole issue for our consideration: whether the CA

erred in holding that the recording in the Official Registry Book of the BIR of the

information filed by the informer under Section 28119[19] of the Tax Code is a

mandatory requirement before a taxpayer-applicant may be excluded from the

coverage of the VAP.

Ruling of the Court

  Petitioner contends that the VAP, being in the nature of a tax amnesty,

must be strictly construed against the taxpayer-applicant such that petitioners

failure to record the information in the Official Registry Book of the BIR does

not affect respondents disqualification from availment of the benefits under the

VAP. Petitioner argues that taxpayers who are under investigation for non-filing

of income tax returns before their availment of the VAP are not covered by the

program and are not entitiled to its benefits. Petitioner alleges that the

underlying reason for the disqualification is that availment of the VAP by such

taxpayer is no longer voluntary. Petitioner asserts that voluntariness is the very

essence of the Voluntary Assessment Program.20[20]

  Respondent claims that where the terms of a statute are clear and

unambiguous, no interpretation is called for, and the law is applied as written,

for application is the first duty of the court, and interpretation, only where

literal application is impossible or inadequate.

 

19[19] Now Section 282 of the NIRC, as amended.

20[20] Id. at 156-163.

Verba Legis

It is well-settled that where the language of the law is clear and

unequivocal, it must be given its literal application and applied without

interpretation.21[21] The general rule of requiring adherence to the letter in

construing statutes applies with particular strictness to tax laws and provisions

of a taxing act are not to be extended by implication.22[22] A careful reading of

the RMOs pertaining to the VAP shows that the recording of the information in

the Official Registry Book of the BIR is a mandatory requirement before a

taxpayer may be excluded from the coverage of the VAP.

  On 27 October 1997, the CIR, in implementing the VAP, issued RMO No.

59-97 to give erring taxpayers a final opportunity to come up with a clean slate.

Any person liable to pay income tax on business and compensation income,

value-added tax and other percentage taxes under Titles II, IV and V,

respectively, of the Tax Code for the taxable years 1993 to 1996, who due to

inadvertence or otherwise, has not filed the required tax return may avail of the

benefits under the VAP.23[23] RMO No. 59-97 also enumerates the persons or

cases that are excluded from the coverage of the VAP.

 3. Persons/Cases not covered

 The following shall be excluded

from the coverage of the VAP under this Order:  

x x x  

3.4. Persons under investigation as a result of verified information filed by an informer under Section 281 of the NIRC, as amended, and duly recorded in the Official

21 [21]Commissioner of Internal Revenue v. Central Luzon Drug Corporation, G.R. No. 159610, 12 June 2008, 554 SCRA 398, 409.

22[22] CIR v. Court of Appeals, 338 Phil. 322, 330 (1997).

23[23] Items 1 & 2, RMO No. 59-97.

Registry Book of the Bureau before the date of availment under the VAP; x x x (Boldfacing supplied) 

On 30 October 1997, the CIR issued RMO No. 60-97 which supplements

RMO No. 59-97 and amended Item No. 3.4 to read as:

  3. Persons/Cases not covered

 The following shall be excluded from the

coverage of the VAP under this Order:  

x x x  

3.4 Persons under investigation by the Tax Fraud Division and/or the Regional Special Investigation Divisions as a result of verified information filed by an informer under Section 281 of the NIRC, as amended, and duly recorded in the Official Registry Book of the Bureau before the date of availment under VAP; (Boldfacing supplied)  

  On 27 November 1997, the CIR issued RMO No. 63-97 and clarified issues related to the implementation of the VAP. RMO No. 63-97 provides:

 3. Persons/cases not covered:  

x x x 

3.4 Persons under investigation by the Tax Fraud Division and/or the Regional Special Investigation Divisions as a result of verified information filed by an informer under Section 281 of the NIRC, as amended, and duly recorded in the Official Registry Book of the Bureau before the date of availment under the VAP; (Underscoring in the original, boldfacing supplied) 

It is evident from these RMOs that the CIR was consistent in using the

word and and has even underscored the word in RMO No. 63-97. This denotes

that in addition to the filing of the verified information, the same should also be

duly recorded in the Official Registry Book of the BIR. The conjunctive word and

is not without legal significance. It means in addition to. The word and, whether

it is used to connect words, phrases or full sentences, must be accepted as

binding together and as relating to one another.24[24] And in statutory

construction implies conjunction or union.25[25] 

It is sufficiently clear that for a person to be excluded from the coverage

of the VAP, the verified information must not only be filed under Section

28126[26] of the Tax Code, it must also be duly recorded in the Official Registry

Book of the BIR before the date of availment under the VAP. This interpretation

of Item 3.4 of RMO Nos. 59-97, 60-97, and 63-97 is further bolstered by the fact

that on 12 October 2005, the BIR issued Revenue Regulations (RR) No. 18-2005

and reiterated the same provision in the implementation of the Enhanced

Voluntary Assessment Program (EVAP). RR No. 18-2005 reads:  

SECTION 1. COVERAGE. x x x 

Any person, natural or juridical, including estates and trusts, liable to pay any of the above-cited internal revenue taxes for the above specified period/s who, due to inadvertence or otherwise, erroneously paid his/its internal revenue tax liabilities or failed to file tax returns/pay taxes, may avail of the EVAP, except those falling under any of the following instances:  

24[24] LAUREL, JOSE JESUS, STATUTORY CONSTRUCTION CASES & MATERIALS, 1999 Revised Edition, p. 139. 25 [25]LICOMCEN, Incorporated v. Foundation Specialists, Inc., G.R. No. 167022, 31 August

2007, 531 SCRA 705, 722.26[26] Now Section 282 of the NIRC, as amended.

x x x 

b. Persons under investigation as a result of verified information filed by a Tax Informer under Section 282 of the NIRC, duly processed and recorded in the BIR Official Registry Book on or before the effectivity of these regulations. (Boldfacing supplied)

 

When a tax provision speaks unequivocally, it is not the province of a

Court to scan its wisdom or its policy.27[27] The more correct course of dealing

with a question of construction is to take the words to mean exactly what they

say. Where a provision of law expressly limits its application to certain

transactions, it cannot be extended to other transactions by interpretation.28

[28]

Findings of Fact

  Generally, the findings of fact of the CTA, a court exercising expertise on

the subject of tax, are regarded as final, binding, and conclusive upon this Court,

especially if these are similar to the findings of the Court of Appeals which is

normally the final arbiter of questions of fact.29[29]

  In this case, the CA affirmed the CTAs findings of fact which states:

  We will start with the question as to whether or not the respondent

was already under investigation for violation of the Tax Code provisions at the

time she applied under VAP on December 2, 1997. The records show that she

was indeed under investigation. Albeit, the Letter of Authority was issued only

27 [27]Commissioner of Customs v. Manila Star Ferry, Inc., G.R. Nos. 31776-78, 21 October 1993, 227 SCRA 317, 322.

28[28] Canet v. Decena, 465 Phil. 325, 333 (2004).

29 [29]Philippine Long Distance Telephone Company v. Commissioner of Internal Revenue G.R. No. 157264, 31 January 2008, 543 SCRA 329, 338 citing Far East Bank and Trust Company v. Court of Appeals, G.R. No. 129130, 9 December 2005, 477 SCRA 49, 54.

on 28 July 1998, there is no question that on 23 May 1997, a Mission Order No.

118-97 had already been issued by the Chief of Special Investigation Division of

the BIR, Revenue Region No. 19 to Intelligence Officer Eustaquio M. Valdez

authorizing the conduct of monitoring and surveillance activities on the

respondent. This investigation was preceded by the filing of a verified

information by a certain George Mercado alleging respondents failure to pay her

income taxes for the years 1994 to 1996.

  x x x  

We now proceed to the question as to whether or not the requirement of recording in the Official Registry Book of the BIR is present in the respondents case. At this juncture, we affirm CTAs finding that neither the verified information nor the investigation was recorded in the Official Registry Book of the BIR. Petitioner claims that this was merely a procedural omission which does not affect respondents exclusion from the coverage of the VAP.30[30] (Boldfacing supplied)

Petitioners failure to effect compliance with the requirement of

recording the verified information or investigation in the Official Registry Book

of the BIR means that respondent, even if under investigation, can avail of the

benefits of the VAP. Consequently, respondent is relieved from any criminal or

civil liability incident to the non-filing of a return.

WHEREFORE, we DENY the petition. We AFFIRM the Court of Appeals

Decision dated 14 June 2004 in CA-G.R. SP No. 70693.

SO ORDERED.

30[30] Rollo, p. 38.

 

SECOND DIVISION

 COMMISSIONER OF INTERNAL REVENUE,Petitioner,

 - versus -

METRO STAR SUPERAMA, INC., Respondent.  

G.R. No. 185371/ Promulgated: December 8, 2010

 This petition for review on certiorari under Rule 45 of the Rules of Court filed by the petitioner Commissioner of Internal Revenue (CIR) seeks to reverse and set aside the 1] September 16, 2008 Decision31[1] of the Court of Tax Appeals En Banc (CTA-En Banc), in C.T.A. EB No. 306 and 2] its November 18, 2008 Resolution32[2] denying petitioners motion for reconsideration. 

The CTA-En Banc affirmed in toto the decision of its Second Division

(CTA-Second Division) in CTA Case No. 7169 reversing the February 8, 2005

Decision of the CIR which assessed respondent Metro Star Superama, Inc.

(Metro Star) of deficiency value-added tax and withholding tax for the taxable

year 1999. 

Based on a Joint Stipulation of Facts and Issues33[3] of the parties, the

CTA Second Division summarized the factual and procedural antecedents of the

case, the pertinent portions of which read: 

Petitioner is a domestic corporation duly organized and existing by virtue of the laws of the Republic of the Philippines, x x x.

31[1] Rollo, pp. 32-75. Penned by Associate Justice Caesar A. Casanova, with Associate Justices Erlinda P. Uy, Olga Palanca-Enriquez, concurring and Associate Justices Ernesto D. Acosta and Lovell R. Bautista,

dissenting.32[2] Id. at 88-96.

33[3] Id. at 308-311.

 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 petitioners 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.

 For petitioners failure to comply with several requests

for the presentation of records and Subpoena Duces Tecum, [the] OIC of BIR Legal Division issued an Indorsement dated September 26, 2001 informing Revenue District Officer of Revenue Region No. 67, Legazpi City to proceed with the investigation based on the best evidence obtainable preparatory to the issuance of assessment notice.

 On November 8, 2001, Revenue District Officer

Socorro O. Ramos-Lafuente issued a Preliminary 15-day Letter, which petitioner received on November 9, 2001. The said letter stated that a post audit review was held and it was ascertained that there was deficiency value-added and withholding taxes due from petitioner in the amount of P 292,874.16.

 On April 11, 2002, petitioner received a Formal Letter

of Demand dated April 3, 2002 from Revenue District No. 67, Legazpi City, assessing petitioner the amount of Two Hundred Ninety Two Thousand Eight Hundred Seventy Four Pesos and Sixteen Centavos (P292,874.16.) for deficiency value-added and withholding taxes for the taxable year 1999, computed as follows:

   

ASSESSMENT NOTICE NO. 067-99-003-579-072 

VALUE ADDED TAX

Gross Sales P 1,697,718.90

Output Tax P 154,338.08

Less: Input Tax

VAT Payable P 154,338.08

Add: 25% Surcharge P 38,584.54

20% Interest 79,746.49

Compromise Penalty

Late Payment P16,000.00

Failure to File VAT returns 2,400.00 18,400.00 136,731.01

TOTAL P 291,069.09

 

WITHHOLDING TAX

Compensation 2,772.91

Expanded 110,103.92

Total Tax Due P 112,876.83

Less: Tax Withheld 111,848.27

Deficiency Withholding Tax P 1,028.56

Add: 20% Interest p.a. 576.51

Compromise Penalty 200.00

TOTAL P 1,805.07

 

*Expanded Withholding Tax P1,949,334.25 x 5% 97,466.71

Film Rental 10,000.25 x 10% 1,000.00

Audit Fee 193,261.20 x 5% 9,663.00

Rental Expense 41,272.73 x 1% 412.73

Security Service 156,142.01 x 1% 1,561.42

Service Contractor P 110,103.92

Total

 

SUMMARIES OF DEFICIENCIES

VALUE ADDED TAX P 291,069.09

WITHHOLDING TAX 1,805.07

TOTAL P 292,874.16  

Subsequently, Revenue District Office No. 67 sent a copy of the Final Notice of Seizure dated May 12, 2003, which petitioner received on May 15, 2003, giving the latter last opportunity to settle its deficiency tax liabilities within ten (10) [days] from receipt thereof, otherwise respondent BIR shall be constrained to serve and execute the Warrants of Distraint and/or Levy and Garnishment to enforce collection.

 On February 6, 2004, petitioner received from

Revenue District Office No. 67 a Warrant of Distraint and/or Levy No. 67-0029-23 dated May 12, 2003 demanding payment of deficiency value-added tax and withholding tax payment in the amount of P292,874.16.

  On July 30, 2004, petitioner filed with the Office of

respondent Commissioner a Motion for Reconsideration pursuant to Section 3.1.5 of Revenue Regulations No. 12-99.

 On February 8, 2005, respondent Commissioner,

through its authorized representative, Revenue Regional Director of Revenue Region 10, Legaspi City, issued a Decision denying petitioners Motion for Reconsideration. Petitioner, through counsel received said Decision on February 18, 2005.

 x x x. 

 Denying that it received a Preliminary Assessment Notice (PAN) and claiming that it was not accorded due process, Metro Star filed a petition for review34[4] with the CTA. The parties then stipulated on the following issues to be decided by the tax court: 

1. Whether the respondent complied with the due process requirement as provided under the National Internal Revenue Code and Revenue Regulations No. 12-99 with regard to the issuance of a deficiency tax assessment; 

1.1 Whether petitioner is liable for the respective amounts of P291,069.09 and P1,805.07 as deficiency VAT and withholding tax for the year 1999;

 1.2. Whether the assessment has become final

and executory and demandable for failure of petitioner to protest the same within 30 days from its receipt thereof on April 11, 2002, pursuant to Section 228 of the National Internal Revenue Code;

 2. Whether the deficiency assessments issued by the

respondent are void for failure to state the law and/or facts upon which they are based.

 2.2 Whether petitioner was informed of the law

and facts on which the assessment is made in compliance with Section 228 of the National Internal Revenue Code;

 3. Whether or not petitioner, as owner/operator of a

movie/cinema house, is subject to VAT on sales of services under Section 108(A) of the National Internal Revenue Code;

4. Whether or not the assessment is based on the best evidence obtainable pursuant to Section 6(b) of the National Internal Revenue Code.

  

The CTA-Second Division found merit in the petition of Metro Star and,

on March 21, 2007, rendered a decision, the decretal portion of which reads:  

34[4] Id. at 97-110.

WHEREFORE, premises considered, the Petition for Review is hereby GRANTED. Accordingly, the assailed Decision dated February 8, 2005 is hereby REVERSED and SET ASIDE and respondent is ORDERED TO DESIST from collecting the subject taxes against petitioner.

 The CTA-Second Division opined that [w]hile there [is] a disputable

presumption that a mailed letter [is] deemed received by the addressee in the

ordinary course of mail, a direct denial of the receipt of mail shifts the burden

upon the party favored by the presumption to prove that the mailed letter was

indeed received by the addressee.35[5] It also found that there was no clear

showing that Metro Star actually received the alleged PAN, dated January 16,

2002. It, accordingly, ruled that the Formal Letter of Demand dated April 3,

2002, as well as the Warrant of Distraint and/or Levy dated May 12, 2003 were

void, as Metro Star was denied due process.36[6] 

The CIR sought reconsideration37[7] of the decision of the CTA-Second

Division, but the motion was denied in the latters July 24, 2007 Resolution.38[8] 

Aggrieved, the CIR filed a petition for review39[9] with the CTA-En Banc,

but the petition was dismissed after a determination that no new matters were

raised. The CTA-En Banc disposed:

 WHEREFORE, the instant Petition for Review is hereby

DENIED DUE COURSE and DISMISSED for lack of merit. Accordingly, the March 21, 2007 Decision and July 27, 2007

35[5] Id. at 85, citing Republic v. Court of Appeals, 233 Phil. 359, 364 (1987).

36[6] Id. at 86.

37[7] Id. at 111-119.

38[8] Id. at 120-122.

39[9] Id. at 123-138.

Resolution of the CTA Second Division in CTA Case No. 7169 entitled, Metro Star Superama, Inc., petitioner vs. Commissioner of Internal Revenue, respondent are hereby AFFIRMED in toto.

 SO ORDERED.

  The motion for reconsideration40[10] filed by the CIR was likewise

denied by the CTA-En Banc in its November 18, 2008 Resolution.41[11]

The CIR, insisting that Metro Star received the PAN, dated January 16,

2002, and that due process was served nonetheless because the latter received

the Final Assessment Notice (FAN), comes now before this Court with the sole

issue of whether or not Metro Star was denied due process. 

The general rule is that the Court will not lightly set aside the

conclusions reached by the CTA which, by the very nature of its functions, has

accordingly developed an exclusive expertise on the resolution unless there has

been an abuse or improvident exercise of authority.42[12] In Barcelon, Roxas

Securities, Inc. (now known as UBP Securities, Inc.) v. Commissioner of Internal

Revenue,43[13] the Court wrote:  

Jurisprudence has consistently shown that this Court accords the findings of fact by the CTA with the highest respect.  In Sea-Land Service Inc. v. Court of Appeals [G.R. No. 122605, 30 April 2001, 357 SCRA 441, 445-446], this Court recognizes that the Court of Tax Appeals, which by the very nature of its function is dedicated exclusively to the consideration of tax problems, has necessarily developed an expertise on the subject, and its conclusions will not be overturned unless there has been an abuse or improvident exercise of authority.  Such findings can only be disturbed on

40[10] Id. at 139-152.

41[11] Id. at 88-96.

42[12] Toshiba Information Equipment (Phils), Inc. v. Commissioner of Internal Revenue, G.R. No. 157594March 9, 2010.43[13] G.R. No. 150764, August 7, 2006, 498 SCRA 126, 135-136.

appeal if they are not supported by substantial evidence or there is a showing of gross error or abuse on the part of the Tax Court.  In the absence of any clear and convincing proof to the contrary, this Court must presume that the CTA rendered a decision which is valid in every respect. 

On the matter of service of a tax assessment, a further perusal of our

ruling in Barcelon is instructive, viz: 

Jurisprudence is replete with cases holding that if the taxpayer denies ever having received an assessment from the BIR, it is incumbent upon the latter to prove by competent evidence that such notice was indeed received by the addressee. The onus probandi was shifted to respondent to prove by contrary evidence that the Petitioner received the assessment in the due course of mail. The Supreme Court has consistently held that while a mailed letter is deemed received by the addressee in the course of mail, this is merely a disputable presumption subject to controversion and a direct denial thereof shifts the burden to the party favored by the presumption to prove that the mailed letter was indeed received by the addressee (Republic vs. Court of Appeals, 149 SCRA 351). Thus as held by the Supreme Court in Gonzalo P. Nava vs. Commissioner of Internal Revenue, 13 SCRA 104, January 30, 1965: 

"The facts to be proved to raise this presumption are (a) that the letter was properly addressed with postage prepaid, and (b) that it was mailed. Once these facts are proved, the presumption is that the letter was received by the addressee as soon as it could have been transmitted to him in the ordinary course of the mail. But if one of the said facts fails to appear, the presumption does not lie. (VI, Moran, Comments on the Rules of Court, 1963 ed, 56-57 citing Enriquez vs. Sunlife Assurance of Canada, 41 Phil 269)." x x x. What is essential to prove the fact of mailing

is the registry receipt issued by the Bureau of Posts or the Registry return card which would have been signed by the Petitioner or its authorized representative. And if said documents cannot be located, Respondent at the very least, should have submitted to the Court a certification

issued by the Bureau of Posts and any other pertinent document which is executed with the intervention of the Bureau of Posts. This Court does not put much credence to the self serving documentations made by the BIR personnel especially if they are unsupported by substantial evidence establishing the fact of mailing. Thus:

 "While we have held that an

assessment is made when sent within the prescribed period, even if received by the taxpayer after its expiration (Coll. of Int. Rev. vs. Bautista, L-12250 and L-12259, May 27, 1959), this ruling makes it the more imperative that the release, mailing or sending of the notice be clearly and satisfactorily proved. Mere notations made without the taxpayers intervention, notice or control, without adequate supporting evidence cannot suffice; otherwise, the taxpayer would be at the mercy of the revenue offices, without adequate protection or defense." (Nava vs. CIR, 13 SCRA 104, January 30, 1965).

 x x x. The failure of the respondent to prove receipt of the

assessment by the Petitioner leads to the conclusion that no assessment was issued. Consequently, the governments right to issue an assessment for the said period has already prescribed. (Industrial Textile Manufacturing Co. of the Phils., Inc. vs. CIR CTA Case 4885, August 22, 1996). (Emphases supplied.)

  

The Court agrees with the CTA that the CIR failed to discharge its duty

and present any evidence to show that Metro Star indeed received the PAN

dated January 16, 2002. It could have simply presented the registry receipt or

the certification from the postmaster that it mailed the PAN, but failed. Neither

did it offer any explanation on why it failed to comply with the requirement of

service of the PAN. It merely accepted the letter of Metro Stars chairman dated

April 29, 2002, that stated that he had received the FAN dated April 3, 2002, but

not the PAN; that he was willing to pay the tax as computed by the CIR; and that

he just wanted to clarify some matters with the hope of lessening its tax liability.

This now leads to the question: Is the failure to strictly comply with

notice requirements prescribed under Section 228 of the National Internal

Revenue Code of 1997 and Revenue Regulations (R.R.) No. 12-99 tantamount to

a denial of due process? Specifically, are the requirements of due process

satisfied if only the FAN stating the computation of tax liabilities and a demand

to pay within the prescribed period was sent to the taxpayer?

 The answer to these questions require an examination of Section 228

of the Tax Code which reads:

 SEC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings: provided, however, that a preassessment notice shall not be required in the following cases:  

(a) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as appearing on the face of the return; or

 

(b) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent; or

(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year; or

(d) When the excise tax due on exciseable articles has not been paid; or

(e) When the article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital

equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons.

 The taxpayers shall be informed in writing of the

law and the facts on which the assessment is made; otherwise, the assessment shall be void.

 

Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an assessment based on his findings.

Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become final.

 If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of one hundred eighty (180)-day period; otherwise, the decision shall become final, executory and demandable. (Emphasis supplied). 

Indeed, Section 228 of the Tax Code clearly requires that the taxpayer

must first be informed that he is liable for deficiency taxes through the sending

of a PAN. He must be informed of the facts and the law upon which the

assessment is made. The law imposes a substantive, not merely a formal,

requirement. To proceed heedlessly with tax collection without first

establishing a valid assessment is evidently violative of the cardinal principle in

administrative investigations - that taxpayers should be able to present their

case and adduce supporting evidence.44[14]

 This is confirmed under the provisions R.R. No. 12-99 of the BIR which pertinently provide:

 SECTION 3. Due Process Requirement in the Issuance of a Deficiency

Tax Assessment.  

3.1 Mode of procedures in the issuance of a deficiency tax assessment:

 3.1.1 Notice for informal conference. The Revenue

Officer who audited the taxpayer's records shall, among others, state in his report whether or not the taxpayer agrees with his findings that the taxpayer is liable for deficiency tax or taxes. If the taxpayer is not amenable, based on the said Officer's submitted report of investigation, the taxpayer shall be informed, in writing, by the Revenue District Office or by the Special Investigation Division, as the case may be (in the case Revenue Regional Offices) or by the Chief of Division concerned (in the case of the BIR National Office) of the discrepancy or discrepancies in the taxpayer's payment of his internal revenue taxes, for the purpose of "Informal Conference," in order to afford the taxpayer with an opportunity to present his side of the case. If the taxpayer fails to respond within fifteen (15) days from date of receipt of the notice for informal conference, he shall be considered in default, in which case, the Revenue District Officer or the Chief of the Special Investigation Division of the Revenue Regional Office, or the Chief of Division in the National Office, as the case may be, shall endorse the case with the least possible delay to the Assessment Division of the Revenue Regional Office or to the Commissioner or his duly authorized representative, as the case may be, for appropriate review and issuance of a deficiency tax assessment, if warranted.

 3.1.2 Preliminary Assessment Notice (PAN). If after

review and evaluation by the Assessment Division or by the Commissioner or his duly authorized representative, as the case may be, it is determined that there exists sufficient basis

44[14] Ang Tibay v. Court of Industrial Relations, 69 Phil. 635 (1940).

to assess the taxpayer for any deficiency tax or taxes, the said Office shall issue to the taxpayer, at least by registered mail, a Preliminary Assessment Notice (PAN) for the proposed assessment, showing in detail, the facts and the law, rules and regulations, or jurisprudence on which the proposed assessment is based (see illustration in ANNEX A hereof). If the taxpayer fails to respond within fifteen (15) days from date of receipt of the PAN, he shall be considered in default, in which case, a formal letter of demand and assessment notice shall be caused to be issued by the said Office, calling for payment of the taxpayer's deficiency tax liability, inclusive of the applicable penalties.

 3.1.3 Exceptions to Prior Notice of the Assessment.

The notice for informal conference and the preliminary assessment notice shall not be required in any of the following cases, in which case, issuance of the formal assessment notice for the payment of the taxpayer's deficiency tax liability shall be sufficient:

 (i) When the finding for any deficiency tax is

the result of mathematical error in the computation of the tax appearing on the face of the tax return filed by the taxpayer; or

 (ii) When a discrepancy has been determined

between the tax withheld and the amount actually remitted by the withholding agent; or

 (iii) When a taxpayer who opted to claim a

refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year; or

 (iv) When the excise tax due on excisable

articles has not been paid; or   

 (v) When an article locally purchased or

imported by an exempt person, such as, but not limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons.

 3.1.4 Formal Letter of Demand and Assessment Notice.

The formal letter of demand and assessment notice shall be issued by the Commissioner or his duly authorized representative. The letter of demand calling for payment of the taxpayer's deficiency tax or taxes shall state the facts, the law, rules and regulations, or jurisprudence on which the assessment is based, otherwise, the formal letter of demand and assessment notice shall be void (see illustration in ANNEX B hereof).

 The same shall be sent to the taxpayer only by

registered mail or by personal delivery. If sent by personal delivery, the taxpayer or his duly

authorized representative shall acknowledge receipt thereof in the duplicate copy of the letter of demand, showing the following: (a) His name; (b) signature; (c) designation and authority to act for and in behalf of the taxpayer, if acknowledged received by a person other than the taxpayer himself; and (d) date of receipt thereof.

 x x x.

 From the provision quoted above, it is clear that the sending of a PAN

to taxpayer to inform him of the assessment made is but part of the due process

requirement in the issuance of a deficiency tax assessment, the absence of

which renders nugatory any assessment made by the tax authorities. The use of

the word shall in subsection 3.1.2 describes the mandatory nature of the service

of a PAN. The persuasiveness of the right to due process reaches both

substantial and procedural rights and the failure of the CIR to strictly comply

with the requirements laid down by law and its own rules is a denial of Metro

Stars right to due process.45[15] Thus, for its failure to send the PAN stating the

45[15] Tupas v. Court of Appeals, G.R. No. 89571, February 6, 1991, 193 SCRA 597, 600.

facts and the law on which the assessment was made as required by Section 228

of R.A. No. 8424, the assessment made by the CIR is void. 

The case of CIR v. Menguito46[16] cited by the CIR in support of its

argument that only the non-service of the FAN is fatal to the validity of an

assessment, cannot apply to this case because the issue therein was the non-

compliance with the provisions of R. R. No. 12-85 which sought to interpret

Section 229 of the old tax law. RA No. 8424 has already amended the provision

of Section 229 on protesting an assessment. The old requirement of merely

notifying the taxpayer of the CIRs findings was changed in 1998 to informing the

taxpayer of not only the law, but also of the facts on which an assessment would

be made. Otherwise, the assessment itself would be invalid.47[17] The regulation

then, on the other hand, simply provided that a notice be sent to the respondent

in the form prescribed, and that no consequence would ensue for failure to

comply with that form.

 The Court need not belabor to discuss the matter of Metro Stars failure

to file its protest, for it is well-settled that a void assessment bears no fruit.48

[18]

 It is an elementary rule enshrined in the 1987 Constitution that no person shall be deprived of property without due process of law.49[19] In balancing the scales between the power of the State to tax and its inherent right to prosecute perceived transgressors of the law on one side, and the constitutional rights of a citizen to due process of law and the equal protection of the laws on the other, the scales must tilt in favor of the individual, for a citizens right is amply protected by the Bill of Rights under the Constitution. Thus, while taxes are the lifeblood of the government, the power to tax has its

46[16] G.R. No. 167560, September 17, 2008, 461 SCRA 565.

47[17] Commissioner of Internal Revenue v. Azucena T. Reyes, G.R. No. 159694 & G.R. No. 163581 January 27, 2006, 382 SCRA 480. 48[18] Id.

49[19] Section 1, Article III, 1987 Constitution.

limits, in spite of all its plenitude. Hence in Commissioner of Internal Revenue v. Algue, Inc.,50[20] it was said

 

Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved. 

xxx xxx xxx 

It is said that taxes are what we pay for civilized society. Without taxes, the government would be paralyzed for the lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of ones hard-earned income to taxing authorities, every person who is able to must contribute his share in the running of the government. The government for its part is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power.

 

But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to his succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate x x x that the law has not been observed.51

[21] (Emphasis supplied).

 WHEREFORE, the petition is DENIED. SO ORDERED.

50[20] 241 Phil. 829 (1988).

51[21] Id. at 830, 836.

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. 174942             March 7, 2008

BANK OF THE PHILIPPINE ISLANDS (Formerly: Far East Bank and Trust Company), petitioner, vs.COMMISSIONER OF INTERNAL REVENUE, respondent.

D E C I S I O N

TINGA, J.:

The Bank of the Philippine Islands (BPI) seeks a review of the Decision1dated 15 August 2006 and the Resolution2dated 5 October 2006, both of the Court of Tax Appeals (CTA or tax court), which ruled that BPI is liable for the deficiency documentary stamp tax (DST) on its cabled instructions to its foreign correspondent bank and that prescription had not yet set in against the government.

The following undisputed facts are culled from the CTA decision:

Petitioner, the surviving bank after its merger with Far East Bank and Trust Company, is a corporation duly created and existing under the laws of the Republic of the Philippines with principal office at Ayala Avenue corner Paseo de Roxas Ave., Makati City.

Respondent thru then Revenue Service Chief Cesar M. Valdez, issued to the petitioner a pre-assessment notice (PAN) dated November 26, 1986.

Petitioner, in a letter dated November 29, 1986, requested for the details of the amounts alleged as 1982-1986 deficiency taxes mentioned in the November 26, 1986 PAN.

On April 7, 1989, respondent issued to the petitioner, assessment/demand notices FAS-1-82 to 86/89-000 and FAS 5-82 to 86/89-000 for deficiency withholding tax at source (Swap

Transactions) and DST involving the amounts of P190,752,860.82 and P24,587,174.63, respectively, for the years 1982 to 1986.

On April 20, 1989, petitioner filed a protest on the demand/assessment notices. On May 8, 1989, petitioner filed a supplemental protest.

On March 12, 1993, petitioner requested for an opportunity to present or submit additional documentation on the Swap Transactions with the then Central Bank (page 240, BIR Records). Attached to the letter dated June 17, 1994, in connection with the reinvestigation of the abovementioned assessment, petitioner submitted to the BIR, Swap Contracts with the Central Bank.

Petitioner executed several Waivers of the Statutes of Limitations, the last of which was effective until December 31, 1994.

On August 9, 2002, respondent issued a final decision on petitioner’s protest ordering the withdrawal and cancellation of the deficiency withholding tax assessment in the amount of P190,752,860.82 and considered the same as closed and terminated. On the other hand, the deficiency DST assessment in the amount of P24,587,174.63 was reiterated and the petitioner was ordered to pay the said amount within thirty (30) days from receipt of such order. Petitioner received a copy of the said decision on January 15, 2003. Thereafter, on January 24, 2003, petitioner filed a Petition for Review before the Court.

On August 31, 2004, the Court rendered a Decision denying the petitioner’s Petition for Review, the dispositive portion of which is quoted hereunder:

IN VIEW OF ALL THE FOREGOING, the petition is hereby DENIED for lack of merit. Accordingly, petitioner is ORDERED to PAY the respondent the amount of P24,587,174.63 representing deficiency documentary stamp tax for the period 1982-1986, plus 20% interest starting February 14, 2003 until the amount is fully paid pursuant to Section 249 of the Tax Code.

SO ORDERED.

On September 21, 2004, petitioner filed a Motion for Reconsideration of the abovementioned Decision which was denied for lack of merit in a Resolution dated February 14, 2005.

On March 9, 2005, petitioner filed with the Court En Banc a Motion for Extension of Time to File Petition for Review praying for an extension of fifteen (15) days from March 10, 2005 or until March 25, 2005. Petitioner’s motion was granted in a Resolution dated March 16, 2005.

On March 28, 2005, (March 25 was Good Friday), petitioner filed the instant Petition for Review, advancing the following assignment of errors.

I. THIS HONORABLE COURT OVERLOOKED THE SIGNIFICANCE OF THE WAIVER DULY AND VALIDLY AGREED UPON BY THE PARTIES AND EFFECTIVE UNTIL DECEMBER 31, 1994;

II. THIS TAX COURT ERRED IN HOLDING THAT THE COLLECTION OF ALLEGED DEFICIENCY TAX HAS NOT PRESCRIBED.

III. THIS HONORABLE COURT ERRED IN HOLDING THAT RESPONDENT DID NOT VIOLATE PROCEDURAL DUE PROCESS IN THE ISSUANCE OF ASSESSMENT NOTICE RELATIVE TO DOCUMENTARY STAMP DEFICIENCY.

IV. THIS HONORABLE COURT ERRED IN HOLDING THAT THE 4 MARCH 1987 MEMORANDUM OF THE LEGAL SERVICE CHIEF DULY APPROVED BY THE BIR COMMISISONER VESTS NO RIGHTS TO PETITIONER.

V. THIS HONORABLE COURT ERRED IN HOLDING THAT PETITIONER IS LIABLE FOR DOCUMENTARY STAMP TAX ON SWAP LOANS TRANSACTIONS FROM 1982 TO 1986.3

The CTA synthesized the foregoing issues into whether the collection of the deficiency DST is barred by prescription and whether BPI is liable for DST on its SWAP loan transactions.

On the first issue, the tax court, applying the case of Commissioner of Internal Revenue v. Wyeth Suaco Laboratories, Inc.,4(Wyeth Suaco case), ruled that BPI’s protest and supplemental protest should be considered requests for reinvestigation which tolled the prescriptive period provided by law to collect a tax deficiency by distraint, levy, or court proceeding. It further held, as regards the second issue, that BPI’s cabled instructions to its foreign correspondent bank to remit a specific sum in dollars to the Federal Reserve Bank, the same to be credited to the account of the Central Bank, are in the nature of a telegraphic transfer subject to DST under Section 195 of the Tax Code.

In its Petition for Review5 dated 24 November 2006, BPI argues that the government’s right to collect the DST had already prescribed because the Commissioner of Internal Revenue (CIR) failed to issue any reply granting BPI’s request for reinvestigation manifested in the protest letters dated 20 April and 8 May 1989. It was only through the 9 August 2002 Decision ordering BPI to pay deficiency DST, or after the lapse of more than thirteen (13) years, that the CIR acted on the request for reinvestigation, warranting the conclusion that prescription had already set in. It further claims that the CIR was not precluded from collecting the deficiency within three (3) years from the time the notice of assessment was issued on 7 April 1989, or even until the expiration on 31 December 1994 of the last waiver of the statute of limitations signed by BPI.

Moreover, BPI avers that the cabled instructions to its correspondent bank are not subject to DST because the National Internal Revenue Code of 1977 (Tax Code of 1977) does not contain a specific provision that cabled instructions on SWAP transactions are subject to DST.

The Office of the Solicitor General (OSG) filed a Comment6 dated 1 June 2007, on behalf of the CIR, asserting that the prescriptive period was tolled by the protest letters filed by BPI which were granted and acted upon by the CIR. Such action was allegedly communicated to BPI as, in fact, the latter submitted additional documents pertaining to its SWAP transactions in support of its request for reinvestigation. Thus, it was only upon BPI’s receipt on 13 January 2003 of the 9 August 2002 Decision that the period to collect commenced to run again.

The OSG cites the case of Collector of Internal Revenue v. Suyoc Consolidated Mining Company, et al.7(Suyoc case) in support of its argument that BPI is already estopped from raising the defense of prescription in view of its repeated requests for reinvestigation which allegedly induced the CIR to delay the collection of the assessed tax.

In its Reply8dated 30 August 2007, BPI argues against the application of the Suyoc case on two points: first, it never induced the CIR to postpone tax collection; second, its request for reinvestigation was not categorically acted upon by the CIR within the three-year collection period after assessment. BPI maintains that it did not receive any communication from the CIR in reply to its protest letters.

We grant the petition.

Section 3189 of the Tax Code of 1977 provides:

Sec. 318. Period of limitation upon assessment and collection.—Except as provided in the succeeding section, internal revenue taxes shall be

assessed within five years after the return was filed, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period. For the purposes of this section, a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day: Provided, That this limitation shall not apply to cases already investigated prior to the approval of this Code.

The statute of limitations on assessment and collection of national internal revenue taxes was shortened from five (5) years to three (3) years by Batas Pambansa Blg. 700.10 Thus, the CIR has three (3) years from the date of actual filing of the tax return to assess a national internal revenue tax or to commence court proceedings for the collection thereof without an assessment.

When it validly issues an assessment within the three (3)-year period, it has another three (3) years within which to collect the tax due by distraint, levy, or court proceeding. The assessment of the tax is deemed made and the three (3)-year period for collection of the assessed tax begins to run on the date the assessment notice had been released, mailed or sent to the taxpayer.11

As applied to the present case, the CIR had three (3) years from the time he issued assessment notices to BPI on 7 April 1989 or until 6 April 1992 within which to collect the deficiency DST. However, it was only on 9 August 2002 that the CIR ordered BPI to pay the deficiency.

In order to determine whether the prescriptive period for collecting the tax deficiency was effectively tolled by BPI’s filing of the protest letters dated 20 April and 8 May 1989 as claimed by the CIR, we need to examine Section 32012 of the Tax Code of 1977, which states:

Sec. 320. Suspension of running of statute.—The running of the statute of limitations provided in Sections 318 or 319 on the making of assessment and the beginning of distraint or levy or a proceeding in court for collection, in respect of any deficiency, shall be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for sixty days thereafter; when the taxpayer requests for a re-investigation which is granted by the Commissioner; when the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed or collected: Provided, That if the taxpayer informs the Commissioner of any change in address, the running of the statute of limitations will not be suspended; when the warrant of distraint and levy is duly served upon the taxpayer, his authorized representative, or a member of his household with

sufficient discretion, and no property could be located; and when the taxpayer is out of the Philippines. (Emphasis supplied)

The above section is plainly worded. In order to suspend the running of the prescriptive periods for assessment and collection, the request for reinvestigation must be granted by the CIR.

In BPI v. Commissioner of Internal Revenue,13the Court emphasized the rule that the CIR must first grant the request for reinvestigation as a requirement for the suspension of the statute of limitations. The Court said:

In the case of Republic of the Philippines v. Gancayco, taxpayer Gancayco requested for a thorough reinvestigation of the assessment against him and placed at the disposal of the Collector of Internal Revenue all the evidences he had for such purpose; yet, the Collector ignored the request, and the records and documents were not at all examined. Considering the given facts, this Court pronounced that—

x x x The act of requesting a reinvestigation alone does not suspend the period. The request should first be granted, in order to effect suspension. (Collector v. Suyoc Consolidated, supra; also Republic v. Ablaza, supra). Moreover, the Collector gave appellee until April 1, 1949, within which to submit his evidence, which the latter did one day before. There were no impediments on the part of the Collector to file the collection case from April 1, 1949…

In Republic of the Philippines v. Acebedo, this Court similarly found that—

x x x T]he defendant, after receiving the assessment notice of September 24, 1949, asked for a reinvestigation thereof on October 11, 1949 (Exh. "A"). There is no evidence that this request was considered or acted upon. In fact, on October 23, 1950 the then Collector of Internal Revenue issued a warrant of distraint and levy for the full amount of the assessment (Exh. "D"), but there was follow-up of this warrant. Consequently, the request for reinvestigation did not suspend the running of the period for filing an action for collection. [Emphasis in the original]14

The Court went on to declare that the burden of proof that the request for reinvestigation had been actually granted shall be on the CIR. Such grant may be expressed in its communications with the taxpayer or implied from the action of the CIR or his authorized representative in response to the request for reinvestigation.

There is nothing in the records of this case which indicates, expressly or impliedly, that the CIR had granted the request for reinvestigation filed by BPI. What is reflected in the records is the piercing silence and inaction of the CIR on the request for reinvestigation, as he considered BPI’s letters of protest to be.

In fact, it was only in his comment to the present petition that the CIR, through the OSG, argued for the first time that he had granted the request for reinvestigation. His consistent stance invoking the Wyeth Suaco case, as reflected in the records, is that the prescriptive period was tolled by BPI’s request for reinvestigation, without any assertion that the same had been granted or at least acted upon.15

In the Wyeth Suaco case, private respondent Wyeth Suaco Laboratories, Inc. sent letters seeking the reinvestigation or reconsideration of the deficiency tax assessments issued by the BIR. The records of the case showed that as a result of these protest letters, the BIR Manufacturing Audit Division conducted a review and reinvestigation of the assessments. The records further showed that the company, thru its finance manager, communicated its inability to settle the tax deficiency assessment and admitted that it knew of the ongoing review and consideration of its protest.

As differentiated from the Wyeth Suaco case, however, there is no evidence in this case that the CIR actually conducted a reinvestigation upon the request of BPI or that the latter was made aware of the action taken on its request. Hence, there is no basis for the tax court’s ruling that the filing of the request for reinvestigation tolled the running of the prescriptive period for collecting the tax deficiency.

Neither did the waiver of the statute of limitations signed by BPI supposedly effective until 31 December 1994 suspend the prescriptive period. The CIR himself contends that the waiver is void as it shows no date of acceptance in violation of RMO No. 20-90.16 At any rate, the records of this case do not disclose any effort on the part of the Bureau of Internal Revenue to collect the deficiency tax after the expiration of the waiver until eight (8) years thereafter when it finally issued a decision on the protest.

We also find the Suyoc case inapplicable. In that case, several requests for reinvestigation and reconsideration were filed by Suyoc Consolidated Mining Company purporting to question the correctness of tax assessments against it. As a result, the Collector of Internal Revenue refrained from collecting the tax by distraint, levy or court proceeding in order to give the company every opportunity to prove its claim. The Collector also conducted several reinvestigations which eventually led to a reduced assessment. The company, however, filed a petition with the CTA claiming that the right of the government to collect the tax had already prescribed.

When the case reached this Court, we ruled that Suyoc could not set up the defense of prescription since, by its own action, the government was induced to delay the collection of taxes to make the company feel that the demand was not unreasonable or that no harassment or injustice was meant by the government.

In this case, BPI’s letters of protest and submission of additional documents pertaining to its SWAP transactions, which were never even acted upon, much less granted, cannot be said to have persuaded the CIR to postpone the collection of the deficiency DST.

The inordinate delay of the CIR in acting upon and resolving the request for reinvestigation filed by BPI and in collecting the DST allegedly due from the latter had resulted in the prescription of the government’s right to collect the deficiency. As this Court declared in Republic of the Philippines v. Ablaza:17

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.18

Given the prescription of the government’s claim, we no longer deem it necessary to pass upon the validity of the assessment.

WHEREFORE, the petition is GRANTED. The Decisionof the Court of Tax Appeals dated 15 August 2006 and its Resolution dated 5 October 2006, are hereby REVERSED and SET ASIDE. No pronouncement as to costs.

SO ORDERED.

Carpio, Acting Chairperson, Carpio-Morales, Azcuna*, Velasco, Jr., JJ., concur.

Footnotes

* As replacement of Justice Leonardo A. Quisumbing who is on official leave per Administrative Circular No. 84-2007.

1 Rollo, pp. 36-47.

2 Id. at 34-35.

3 Id. at 37-39.

4 G.R. No. 76281, 30 September 1991, 202 SCRA 125.

5 Rollo, pp. 8-29.

6 Id. at 106-121.

7 104 Phil. 819 (1958).

8 Rollo, pp. 124-127.

9 Now Sec. 203 of the Tax Reform Act of 1997.

10 Approved on 5 April 1984. The shorter three-year prescriptive period shall apply to assessments made on or after 5 April 1984 covering taxable years beginning 1 January 1984.

11 BPI v. Commissioner of Internal Revenue, G.R. No. 139736, 17 October 2005, 473 SCRA 205, 222-223.

12 Now Sec. 223 of the Tax Reform Act of 1997.

13 Bank of the Philippine Islands v. Commissioner of Internal Revenue, G.R. No. 139736, 17 October 2005, 473 SCRA 205.

14 Id. at 232.

15 CTA Second Division Records, pp. 96-105; Memorandum of the CIR.

16 CTA En Banc Records, pp. 103-111; Comment of the CIR.

17 108 Phil. 1105 (1960).

18 Id. at 1108.

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. 168498             April 24, 2007

RIZAL COMMERCIAL BANKING CORPORATION, Petitioner, vs.COMMISSIONER OF INTERNAL REVENUE, Respondent.

R E S O L U T I O N

YNARES-SANTIAGO, J.:

For resolution is petitioner’s Motion for Reconsideration of our Decision1 dated June 16, 2006 affirming the Decision of the Court of Tax Appeals En Banc dated June 7, 2005 in C.T.A. EB No. 50, which affirmed the Resolutions of the Court of Tax Appeals Second Division dated May 3, 2004 and November 5, 2004 in C.T.A. Case No. 6475, denying petitioner’s Petition for Relief from Judgment and Motion for Reconsideration, respectively.

Petitioner reiterates its claim that its former counsel’s failure to file petition for review with the Court of Tax Appeals within the period set by Section 228 of the National Internal Revenue Code of 1997 (NIRC) was excusable and raised the following issues for resolution:

A.

THE DENIAL OF PETITIONER’S PETITION FOR RELIEF FROM JUDGMENT WILL RESULT IN THE DENIAL OF SUBSTANTIVE JUSTICE TO PETITIONER, CONTRARY TO ESTABLISHED DECISIONS OF THIS HONORABLE COURT BECAUSE THE ASSESSMENT SOUGHT TO BE CANCELLED HAS ALREADY PRESCRIBED – A FACT NOT DENIED BY THE RESPONDENT IN ITS ANSWER.

B.

CONTRARY TO THIS HONORABLE COURT’S DECISION, AND FOLLOWING THE LASCONA DECISION, AS WELL AS THE 2005 REVISED RULES OF THE COURT OF TAX APPEALS, PETITIONER TIMELY FILED ITS PETITION FOR REVIEW BEFORE THE COURT OF TAX APPEALS; THUS, THE COURT OF TAX APPEALS HAD JURISDICTION OVER THE CASE.

C.

CONSIDERING THAT THE SUBJECT ASSESSMENT INVOLVES AN INDUSTRY ISSUE, THAT IS, A DEFICIENCY ASSESSMENT FOR DOCUMENTARY STAMP TAX ON SPECIAL SAVINGS ACCOUNTS AND GROSS ONSHORE TAX, PETITIONER IN THE INTEREST OF SUBSTANTIVE JUSTICE AND UNIFORMITY OF TAXATION, SHOULD BE ALLOWED TO FULLY LITIGATE THE ISSUE BEFORE THE COURT OF TAX APPEALS.2

Petitioner’s motion for reconsideration is denied for lack of merit.

Other than the issue of prescription, which is raised herein for the first time, the issues presented are a mere rehash of petitioner’s previous arguments, all of which have been considered and found without merit in our Decision dated June 16, 2006.

Petitioner maintains that its counsel’s neglect in not filing the petition for review within the reglementary period was excusable. It alleges that the counsel’s secretary misplaced the Resolution hence the counsel was not aware of its issuance and that it had become final and executory.

We are not persuaded.

In our Decision, we held that:

Relief cannot be granted on the flimsy excuse that the failure to appeal was due to the neglect of petitioner’s counsel. Otherwise, all that a losing party would do to salvage his case would be to invoke neglect or mistake of his counsel as a ground for reversing or setting aside the adverse judgment, thereby putting no end to litigation.

Negligence to be "excusable" must be one which ordinary diligence and prudence could not have guarded against and by reason of which the rights of an aggrieved party have probably been impaired. Petitioner’s former counsel’s omission could hardly be characterized as excusable, much less unavoidable.

The Court has repeatedly admonished lawyers to adopt a system whereby they can always receive promptly judicial notices and pleadings intended for them. Apparently, petitioner’s counsel was not only remiss in complying with this admonition but he also failed to check periodically, as an act of prudence and diligence, the status of the pending case before the CTA Second Division. The fact that counsel allegedly had not renewed the employment of his secretary, thereby making the latter no longer attentive or focused on her work, did not relieve him of his responsibilities to his client. It is a problem personal to him which should not in any manner interfere with his professional commitments.3

Petitioner also argues that, in the interest of substantial justice, the instant case should be re-opened considering that it was allegedly not accorded its day in court when the Court of Tax Appeals dismissed its petition for review for late filing. It claims that rules of procedure are intended to help secure, not override, substantial justice.

Petitioner’s arguments fail to persuade us.

As correctly observed by the Court of Tax Appeals in its Decision dated June 7, 2005:

If indeed there was negligence, this is obviously on the part of petitioner’s own counsel whose prudence in handling the case fell short of that required under the circumstances. He was well aware of the motion filed by the respondent for the Court to resolve first the issue of this Court’s jurisdiction on July 15, 2003, that a hearing was conducted thereon on August 15, 2003 where both counsels were present and at said hearing the motion was submitted for resolution. Petitioner’s counsel apparently did not show enthusiasm in the case he was handling as he should have been vigilant of the outcome of said motion and be prepared for the necessary action to take whatever the outcome may have been. Such kind of negligence cannot support petitioner’s claim for relief from judgment.

Besides, tax assessments by tax examiners are presumed correct and made in good faith, and all presumptions are in favor of the correctness of a tax assessment unless proven otherwise.4 Also, petitioner’s failure to file a petition for review with the Court of Tax Appeals within the statutory period rendered the disputed assessment final, executory and demandable, thereby precluding it from interposing the defenses of legality or validity of the assessment and prescription of the Government’s right to assess.5

The Court of Tax Appeals is a court of special jurisdiction and can only take cognizance of such matters as are clearly within its jurisdiction. Section 7 of

Republic Act (R.A.) No. 9282, amending R.A. No. 1125, otherwise known as the Law Creating the Court of Tax Appeals, provides:

Sec. 7. Jurisdiction. — The CTA shall exercise:

(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:

(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue;

(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code provides a specific period of action, in which case the inaction shall be deemed a denial;

Also, Section 3, Rule 4 and Section 3(a), Rule 8 of the Revised Rules of the Court of Tax Appeals6 state:

RULE 4Jurisdiction of the Court

x x x x

SECTION 3. Cases Within the Jurisdiction of the Court in Divisions. — The Court in Divisions shall exercise:

(a) Exclusive original or appellate jurisdiction to review by appeal the following:

(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue;

(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal

Revenue, where the National Internal Revenue Code or other applicable law provides a specific period for action: Provided, that in case of disputed assessments, the inaction of the Commissioner of Internal Revenue within the one hundred eighty day-period under Section 228 of the National Internal Revenue Code shall be deemed a denial for purposes of allowing the taxpayer to appeal his case to the Court and does not necessarily constitute a formal decision of the Commissioner of Internal Revenue on the tax case; Provided, further, that should the taxpayer opt to await the final decision of the Commissioner of Internal Revenue on the disputed assessments beyond the one hundred eighty day-period abovementioned, the taxpayer may appeal such final decision to the Court under Section 3(a), Rule 8 of these Rules; and Provided, still further, that in the case of claims for refund of taxes erroneously or illegally collected, the taxpayer must file a petition for review with the Court prior to the expiration of the two-year period under Section 229 of the National Internal Revenue Code;

x x x x

RULE 8Procedure in Civil Cases

x x x x

SECTION 3. Who May Appeal; Period to File Petition. — (a) A party adversely affected by a decision, ruling or the inaction of the Commissioner of Internal Revenue on disputed assessments or claims for refund of internal revenue taxes, or by a decision or ruling of the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and Industry, the Secretary of Agriculture, or a Regional Trial Court in the exercise of its original jurisdiction may appeal to the Court by petition for review filed within thirty days after receipt of a copy of such decision or ruling, or expiration of the period fixed by law for the Commissioner of Internal Revenue to act on the disputed assessments. In case of inaction of the Commissioner of Internal Revenue on claims for refund of internal revenue taxes erroneously or illegally collected, the taxpayer must file a petition for review within the two-year period prescribed by law from payment or collection of the taxes. (n)

From the foregoing, it is clear that the jurisdiction of the Court of Tax Appeals has been expanded to include not only decisions or rulings but inaction as well of the Commissioner of Internal Revenue. The decisions, rulings or inaction of the Commissioner are necessary in order to vest the Court of Tax Appeals with jurisdiction to entertain the appeal, provided it is filed within 30 days after the receipt of such decision or ruling, or within 30 days after the expiration of the 180-day period fixed by law for the Commissioner to act on the disputed assessments. This 30-day period within which to file an appeal is jurisdictional

and failure to comply therewith would bar the appeal and deprive the Court of Tax Appeals of its jurisdiction to entertain and determine the correctness of the assessments. Such period is not merely directory but mandatory and it is beyond the power of the courts to extend the same.7

In case the Commissioner failed to act on the disputed assessment within the 180-day period from date of submission of documents, a taxpayer can either: 1) file a petition for review with the Court of Tax Appeals within 30 days after the expiration of the 180-day period; or 2) await the final decision of the Commissioner on the disputed assessments and appeal such final decision to the Court of Tax Appeals within 30 days after receipt of a copy of such decision. However, these options are mutually exclusive, and resort to one bars the application of the other.

In the instant case, the Commissioner failed to act on the disputed assessment within 180 days from date of submission of documents. Thus, petitioner opted to file a petition for review before the Court of Tax Appeals. Unfortunately, the petition for review was filed out of time, i.e., it was filed more than 30 days after the lapse of the 180-day period. Consequently, it was dismissed by the Court of Tax Appeals for late filing. Petitioner did not file a motion for reconsideration or make an appeal; hence, the disputed assessment became final, demandable and executory.

Based on the foregoing, petitioner can not now claim that the disputed assessment is not yet final as it remained unacted upon by the Commissioner; that it can still await the final decision of the Commissioner and thereafter appeal the same to the Court of Tax Appeals. This legal maneuver cannot be countenanced. After availing the first option, i.e., filing a petition for review which was however filed out of time, petitioner can not successfully resort to the second option, i.e., awaiting the final decision of the Commissioner and appealing the same to the Court of Tax Appeals, on the pretext that there is yet no final decision on the disputed assessment because of the Commissioner’s inaction.

Lastly, we note that petitioner is raising the issue of prescription for the first time in the instant motion for reconsideration. Although the same was raised in the petition for review, it was dismissed for late filing. No motion for reconsideration was filed hence the disputed assessment became final, demandable and executory. Thereafter, petitioner filed with the Court of Tax Appeals a petition for relief from judgment. However, it failed to raise the issue of prescription therein. After its petition for relief from judgment was denied by the Court of Tax Appeals for lack of merit, petitioner filed a petition for review before this Court without raising the issue of prescription. It is only in the instant motion for reconsideration that petitioner raised the issue of prescription which is not allowed. The rule is well-settled that points of law,

theories, issues and arguments not adequately brought to the attention of the lower court need not be considered by the reviewing court as they cannot be raised for the first time on appeal,8 much more in a motion for reconsideration as in this case, because this would be offensive to the basic rules of fair play, justice and due process.9 This last ditch effort to shift to a new theory and raise a new matter in the hope of a favorable result is a pernicious practice that has consistently been rejected.

WHEREFORE, in view of the foregoing, petitioner’s motion for reconsideration is DENIED.

SECOND DIVISION

COMMISSIONER OF INTERNAL REVENUE,

Petitioner,

G.R. No. 167765

 

 

 

 

- versus -

 

 

Present:

 

QUISUMBING, J., Chairperson,

CARPIO MORALES,

TINGA,

VELASCO, JR., and

BRION, JJ.

 

FMF DEVELOPMENT CORPORATION,

 

Promulgated: Respondent.  

June 30, 2008

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

 

DECISION

 

QUISUMBING, J.:

For review on certiorari is the Decision52[1] and Resolution53[2] dated

January 31, 2005 and April 14, 2005, respectively, of the Court of Appeals in CA-

G.R. SP No. 79675, which affirmed the Decision54[3] dated March 20, 2003 of the

Court of Tax Appeals (CTA) in C.T.A. Case No. 6153. In effect, the Court of

Appeals cancelled the assessment notice issued by the Bureau of Internal

Revenue (BIR) for the deficiency income and withholding taxes for the taxable

year 1995 of respondent FMF Development Corporation (FMF), a domestic

corporation organized and existing under Philippine laws.

The facts are as follows:

52

53

54

On April 15, 1996, FMF filed its Corporate Annual Income Tax Return

for taxable year 1995 and declared a loss of P3,348,932. On May 8, 1996,

however, it filed an amended return and declared a loss of P2,826,541. The BIR

then sent FMF pre-assessment notices, all dated October 6, 1998, informing it of

its alleged tax liabilities.55[4] FMF filed a protest against these notices with the

BIR and requested for a reconsideration/reinvestigation.

On January 22, 1999, Revenue District Officer (RDO) Rogelio

Zambarrano informed FMF that the reinvestigation had been referred to

Revenue Officer Alberto Fortaleza. He also advised FMF of the informal

conference set on February 2, 1999 to allow it to present evidence to dispute

the BIR assessments.

On February 9, 1999, FMF President Enrique Fernandez executed a

waiver of the three-year prescriptive period for the BIR to assess internal

revenue taxes, hence extending the assessment period until October 31, 1999.

The waiver was accepted and signed by RDO Zambarrano.

On October 18, 1999, FMF received amended pre-assessment

notices56[5] dated October 6, 1999 from the BIR. FMF immediately filed a

protest on November 3, 1999 but on the same day, it received BIRs Demand

Letter and Assessment Notice No. 33-1-00487-95 dated October 25, 1999

reflecting FMFs alleged deficiency taxes and accrued interests, as follows:

Income Tax AssessmentP1,608,015.50

Compromise Penalty on Income Tax Assessment 20,000.00

55

56

Increments on Withholding Tax on Compensation 184,132.26

Compromise Penalty on Increments on WithholdingTax on Compensation 16,000.00

Increments on Withholding Tax on Management Fees 209,550.49

Compromise Penalty on Increments on Withholding Tax

on Management Fees 16,000.00

TOTALP2,053,698.2557[6]

On November 24, 1999, FMF filed a letter of protest on the assessment

invoking, inter alia,58[7] the defense of prescription by reason of the invalidity

of the waiver. In its reply, the BIR insisted that the waiver is valid because it was

signed by the RDO, a duly authorized representative of petitioner. It also

ordered FMF to immediately settle its tax liabilities; otherwise, judicial action

will be taken. Treating this as BIRs final decision, FMF filed a petition for review

with the CTA challenging the validity of the assessment.

On March 20, 2003, the CTA granted the petition and cancelled

Assessment Notice No. 33-1-00487-95 because it was already time-barred. The

CTA ruled that the waiver did not extend the three-year prescriptive period

within which the BIR can make a valid assessment because it did not comply

with the procedures laid down in Revenue Memorandum Order (RMO) No. 20-

57

58

90.59[8] First, the waiver did not state the dates of execution and acceptance of

the waiver, by the taxpayer and the BIR, respectively; thus, it cannot be

determined with certainty if the waiver was executed and accepted within the

prescribed period. Second, the CTA also found that FMF was not furnished a

copy of the waiver signed by RDO Zambarrano. Third, the CTA pointed out that

since the case involves an amount of more than P1 million, and the period to

assess is not yet about to prescribe, the waiver should have been signed by the

Commissioner of Internal Revenue, and not a mere RDO.60[9] The

Commissioner of Internal Revenue filed a motion for reconsideration, but it was

denied.

On appeal to the Court of Appeals, the decision of the CTA was affirmed.

Sustaining the findings of the CTA, the Court of Appeals held that the waiver did

not strictly comply with RMO No. 20-90. Thus, it nullified Assessment Notice No.

33-1-00487-95. The fallo of the Court of Appeals decision reads:

WHEREFORE, finding the instant petition not impressed with merit, the same is DENIED DUE COURSE and is hereby DISMISSED. No costs.

SO ORDERED.61[10]

The Commissioner of Internal Revenue sought reconsideration, but it

was denied.

Hence the instant petition, raising the following issues:

I.

59

60

61

WHETHER OR NOT RESPONDENTS WAIVER OF THE STATUTE OF LIMITATIONS WAS VALIDLY EXECUTED.

II.

WHETHER O[R] NOT THE PERIOD TO ASSESS HAD PRESCRIBED.

III.

WHETHER OR NOT THE COURT OF APPEALS CORRECTLY DISREGARDED PETITIONERS SUBSTANTIVE ARGUMENT.62

[11]

Essentially, the present controversy deals with the validity of the

waiver and whether it validly extended the original three-year prescriptive

period so as to make Assessment Notice No. 33-1-00487-95 valid. The basic

questions to be resolved therefore are: (1) Is the waiver valid? and (2) Did the

three-year period to assess internal revenue taxes already prescribe?

Petitioner contends that the waiver was validly executed mainly

because it complied with Section 222 (b)63[12] of the National Internal Revenue

Code (NIRC). Petitioner points out that the waiver was in writing, signed by the

taxpayer and the Commissioner, and executed within the three-year

prescriptive period. Petitioner also argues that the requirements in RMO No.

20-90 are merely directory; thus, the indication of the dates of execution and

acceptance of the waiver, by the taxpayer and the BIR, respectively, are not

required by law. Petitioner adds that there is no provision in RMO No. 20-90

stating that a waiver may be invalidated upon failure of the BIR to furnish the

taxpayer a copy of the waiver. Further, it contends that respondents execution

of the waiver was a renunciation of its right to invoke prescription. Petitioner

62

63

also argues that the government cannot be estopped by the mistakes committed

by its revenue officer in the enforcement of RMO No. 20-90.

On the other hand, respondent counters that the waiver is void because

it did not comply with RMO No. 20-90. Respondent assails the waiver because

(1) it was not signed by the Commissioner despite the fact that the assessment

involves an amount of more than P1 million; (2) there is no stated date of

acceptance by the Commissioner or his duly authorized representative; and (3)

it was not furnished a copy of the BIR-accepted waiver. Respondent also cites

Philippine Journalists, Inc. v. Commissioner of Internal Revenue64[13] and

contends that the procedures in RMO No. 20-90 are mandatory in character,

precisely to give full effect to Section 222 (b) of the NIRC. Moreover, a waiver of

the statute of limitations is not a waiver of the right to invoke the defense of

prescription.65[14]

After considering the issues and the submissions of the parties in the

light of the facts of this case, we are in agreement that the petition lacks merit.

Under Section 20366[15] of the NIRC, internal revenue taxes must be

assessed within three years counted from the period fixed by law for the filing

of the tax return or the actual date of filing, whichever is later. This mandate

governs the question of prescription of the governments right to assess internal

revenue taxes primarily to safeguard the interests of taxpayers from

unreasonable investigation. Accordingly, the government must assess internal

revenue taxes on time so as not to extend indefinitely the period of assessment

and deprive the taxpayer of the assurance that it will no longer be subjected to

64

65

66

further investigation for taxes after the expiration of reasonable period of

time.67[16]

An exception to the three-year prescriptive period on the assessment of

taxes is Section 222 (b) of the NIRC, which provides:

x x x x

(b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both the Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be assessed within the period agreed upon. The period so agreed upon may be extended by subsequent written agreement made before the expiration of the period previously agreed upon.

x x x x

The above provision authorizes the extension of the original three-year

period by the execution of a valid waiver, where the taxpayer and the BIR

agreed in writing that the period to issue an assessment and collect the taxes

due is extended to an agreed upon date. Under RMO No. 20-90, which

implements Sections 203 and 222 (b), the following procedures should be

followed:

1. The waiver must be in the form identified as Annex A hereof.

2. The waiver shall be signed by the taxpayer himself or his duly authorized representative. In the case of a corporation, the waiver must be signed by any of its responsible officials.

Soon after the waiver is signed by the taxpayer, the Commissioner of Internal Revenue or the revenue official authorized by him, as hereinafter provided, shall sign the waiver indicating that the Bureau has accepted and agreed to

67

the waiver. The date of such acceptance by the Bureau should be indicated. Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the expiration of the period of prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed.

3.      The following revenue officials are authorized to sign the waiver.

A. In the National Office

x x x x

3. Commissioner For tax cases involving more than P1M

B. In the Regional Offices

1. The Revenue District Officer with respect to tax cases still pending investigation and the period to assess is about to prescribe regardless of amount.

x x x x

4.      The waiver must be executed in three (3) copies, the original copy to be attached to the docket of the case, the second copy for the taxpayer and the third copy for the Office accepting the waiver. The fact of receipt by the taxpayer of his/her file copy shall be indicated in the original copy.

5.      The foregoing procedures shall be strictly followed. Any revenue official found not to have complied with this Order resulting in prescription of the right to assess/collect shall be administratively dealt with. (Emphasis supplied.)

Applying RMO No. 20-90, the waiver in question here was defective and

did not validly extend the original three-year prescriptive period. Firstly, it was

not proven that respondent was furnished a copy of the BIR-accepted waiver.

Secondly, the waiver was signed only by a revenue district officer, when it

should have been signed by the Commissioner as mandated by the NIRC and

RMO No. 20-90, considering that the case involves an amount of more than P1

million, and the period to assess is not yet about to prescribe. Lastly, it did not

contain the date of acceptance by the Commissioner of Internal Revenue, a

requisite necessary to determine whether the waiver was validly accepted

before the expiration of the original three-year period. Bear in mind that the

waiver in question is a bilateral agreement, thus necessitating the very

signatures of both the Commissioner and the taxpayer to give birth to a valid

agreement.68[17]

Petitioner contends that the procedures in RMO No. 20-90 are merely

directory and that the execution of a waiver was a renunciation of respondents

right to invoke prescription. We do not agree. RMO No. 20-90 must be strictly

followed. In Philippine Journalists, Inc. v. Commissioner of Internal Revenue,69[18]

we ruled that a waiver of the statute of limitations under the NIRC, to a certain

extent being a derogation of the taxpayers right to security against prolonged and

unscrupulous investigations, must be carefully and strictly construed. The waiver

of the statute of limitations does not mean that the taxpayer relinquishes the right

to invoke prescription unequivocally, particularly where the language of the

document is equivocal.70[19] Notably, in this case, the waiver became unlimited

in time because it did not specify a definite date, agreed upon between the BIR

and respondent, within which the former may assess and collect taxes. It also had

no binding effect on respondent because there was no consent by the

68

69

70

Commissioner. On this basis, no implied consent can be presumed, nor can it be

contended that the concurrence to such waiver is a mere formality.71[20]

Consequently, petitioner cannot rely on its invocation of the rule that the

government cannot be estopped by the mistakes of its revenue officers in the

enforcement of RMO No. 20-90 because the law on prescription 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 recommended the approval of the law. To the Government, its tax officers are

obliged to act promptly in the making of assessment so that taxpayers, after the

lapse of the period of prescription, would have a feeling of security against

unscrupulous tax agents who will always try to find an excuse to inspect the books

of taxpayers, not to determine the latters real liability, but to take advantage of a

possible opportunity to harass even law-abiding businessmen. Without such legal

defense, taxpayers would be open season to harassment by unscrupulous tax

agents.72[21]

In fine, Assessment Notice No. 33-1-00487-95 dated October 25, 1999, was

issued beyond the three-year prescriptive period. The waiver was incomplete and

defective and thus, the three-year prescriptive period was not tolled nor extended

and continued to run until April 15, 1999. Even if the three-year period be counted

from May 8, 1996, the date of filing of the amended return, assuming the amended

return was substantially different from the original return, a case which affects the

reckoning point of the prescriptive period,73[22] still, the subject assessment is

definitely considered time-barred.

71

72

73

WHEREFORE, the petition is DENIED for lack of merit. The assailed

Decision and Resolution dated January 31, 2005 and April 14, 2005, respectively,

of the Court of Appeals in CA-G.R. SP No. 79675 are hereby AFFIRMED. No

pronouncement as to costs.

SO ORDERED.

Republic of the Philippines

Supreme Court

Manila

 

 

SECOND DIVISION

 

 

COMMISSIONER OF INTERNAL   G.R. No. 178087REVENUE,    

Petitioner,   Present:         CARPIO, J., Chairperson,    BRION,

- versus -   DEL CASTILLO,     ABAD, and    PEREZ, JJ.     KUDOS METAL CORPORATION,   Promulgated:

Respondent.   May 5, 2010

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

 

 

D E C I S I O N

 

 

DEL CASTILLO, J.:

 

The prescriptive period on when to assess taxes benefits both the government

and the taxpayer.74[1] Exceptions extending the period to assess must, therefore, be

strictly construed.

 

This Petition for Review on Certiorari seeks to set aside the Decision75[2] dated

March 30, 2007 of the Court of Tax Appeals (CTA) affirming the cancellation of the

assessment notices for having been issued beyond the prescriptive period and the

Resolution76[3] dated May 18, 2007 denying the motion for reconsideration.

Factual Antecedents

 

74

75

76

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 respondents President, Mr. Chan Ching Bio, in a letter dated October 20, 2000.

 

A review and audit of respondents records then ensued.

 

On December 10, 2001, Nelia Pasco (Pasco), respondents accountant, executed

a Waiver of the Defense of Prescription,77[4] which was notarized on January 22, 2002,

received by the BIR Enforcement Service on January 31, 2002 and by the BIR Tax Fraud

Division on February 4, 2002, and accepted by the Assistant Commissioner of the

Enforcement Service, Percival T. Salazar (Salazar).

This was followed by a second Waiver of Defense of Prescription78[5] executed

by Pasco on February 18, 2003, notarized on February 19, 2003, received by the BIR

Tax Fraud Division on February 28, 2003 and accepted by Assistant Commissioner

Salazar.

 

77

78

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 June 22, 2004, the BIR rendered a final Decision79[6] on the matter,

requesting the immediate payment of the following tax liabilities:

 

Kind of Tax

Amount

Income Tax P 9,693,897.85VAT 13,962,460.90EWT 1,712,336.76Withholding Tax-Compensation 247,353.24Penalties

8,000.00 Total

P 25,624,048.76

 

 

79

Ruling of the Court of Tax Appeals, Second Division

 

Believing that the governments right to assess taxes had prescribed,

respondent filed on August 27, 2004 a Petition for Review80[7] with the CTA. Petitioner

in turn filed his Answer.81[8]

On April 11, 2005, respondent filed an Urgent Motion for Preferential

Resolution of the Issue on Prescription.82[9]

 

On October 4, 2005, the CTA Second Division issued a Resolution83[10]

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. Thus:

First, the Assistant Commissioner is not the revenue official authorized to sign the waiver, as the tax case involves more than P1,000,000.00. In this regard, only the Commissioner is authorized to enter into agreement with the petitioner in extending the period of assessment;

 Secondly, the waiver failed to indicate the date of

acceptance. Such date of acceptance is necessary to determine whether the acceptance was made within the prescriptive period;

80

81

82

83

 Third, the fact of receipt by the taxpayer of his file copy was

not indicated on the original copy. The requirement to furnish the taxpayer with a copy of the waiver is not only to give notice of the existence of the document but also of the acceptance by the BIR and the perfection of the agreement.

 The subject waiver is therefore incomplete and defective. As

such, the three-year prescriptive period was not tolled or extended and continued to run. x x x84[11]

 

 

Petitioner moved for reconsideration but the CTA Second Division denied the

motion in a Resolution85[12] dated April 18, 2006.

 

Ruling of the Court of Tax Appeals, En Banc

 

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:

 

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85

While the Court En Banc agrees with the second and third grounds for invalidating the first waiver, it finds that the Assistant Commissioner of the Enforcement Service is authorized to sign the waiver pursuant to RDAO No. 05-01, which provides in part as follows:

 A.           For National Office cases

 Designated Revenue Official 

1. Assistant Commissioner (ACIR), For tax fraud and policy Enforcement Service cases 

2. ACIR, Large Taxpayers Service For large taxpayers cases

other than those cases falling under Subsection B hereof 

3. ACIR, Legal Service For cases pending verification

and awaiting resolution of certain legal issues prior to prescription and for issuance/compliance of Subpoena Duces Tecum

 

4. ACIR, Assessment Service (AS) For cases which are

pending in or subject to

review or approval by the ACIR, AS

 Based on the foregoing, the Assistant Commissioner,

Enforcement Service is authorized to sign waivers in tax fraud cases. A perusal of the records reveals that the investigation of the subject deficiency taxes in this case was conducted by the National Investigation Division of the BIR, which was formerly named the Tax Fraud Division. Thus, the subject assessment is a tax fraud case.

 Nevertheless, the first waiver is still invalid based on the

second and third grounds stated by the Court in Division. Hence, it did not extend the prescriptive period to assess.

 Moreover, assuming arguendo that the first waiver is valid,

the second waiver is invalid for violating Section 222(b) of the 1997 Tax Code which mandates that the period agreed upon in a waiver of the statute can still be extended by subsequent written agreement, provided that it is executed prior to the expiration of the first period agreed upon. As previously discussed, the exceptions to the law on prescription must be strictly construed.

 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.86[13]

 

 

Petitioner sought reconsideration but the same was unavailing.

 

Issue

 

Hence, the present recourse where petitioner interposes that:

 

THE COURT OF TAX APPEALS EN BANC ERRED IN RULING THAT THE GOVERNMENTS RIGHT TO ASSESS UNPAID TAXES OF RESPONDENT PRESCRIBED.87[14]

 

 

Petitioners Arguments

 

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87

Petitioner argues that the governments right to assess taxes is not barred by

prescription as the two waivers executed by respondent, through its accountant,

effectively tolled or extended the period within which the assessment can be made. In

disputing the conclusion of the CTA that the waivers are invalid, petitioner claims that

respondent is estopped from adopting a position contrary to what it has previously

taken. Petitioner insists that by acquiescing to the audit during the period specified in

the waivers, respondent led the government to believe that the delay in the process

would not be utilized against it. Thus, respondent may no longer repudiate the validity

of the waivers and raise the issue of prescription.

 

Respondents Arguments

 

Respondent maintains that prescription had set in due to the invalidity of the

waivers executed by Pasco, who executed the same without any written authority from

it, in clear violation of RDAO No. 5-01. As to the doctrine of estoppel by acquiescence

relied upon by petitioner, respondent counters that the principle of equity comes into

play only when the law is doubtful, which is not present in the instant case.

 

Our Ruling

 

The petition is bereft of merit.

 

Section 20388[15] 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 22289[16] of the NIRC.

 

The waivers executed by respondents accountant did not extend the period within which the assessment can be made

 

 

Petitioner does not deny that the assessment notices were issued beyond the

three-year prescriptive period, but claims that the period was extended by the two

waivers executed by respondents accountant.

 

We do not agree.

 

Section 222 (b) of the NIRC provides that the period to assess and collect taxes

may only be extended upon a written agreement between the CIR and the taxpayer

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89

executed before the expiration of the three-year period. RMO 20-9090[17] issued on

April 4, 1990 and RDAO 05-0191[18] issued on August 2, 2001 lay down the procedure

for the proper execution of the waiver, to wit:

 

1. The waiver must be in the proper form prescribed by RMO 20-

90. The phrase but not after ______ 19 ___, which indicates the

expiry date of the period agreed upon to assess/collect the tax

after the regular three-year period of prescription, should be

filled up.

 2. The waiver must be signed by the taxpayer himself or his duly

authorized representative. In the case of a corporation, the

waiver must be signed by any of its responsible officials. In case

the authority is delegated by the taxpayer to a representative,

such delegation should be in writing and duly notarized.

 3. The waiver should be duly notarized.

 4. The CIR or the revenue official authorized by him must sign the

waiver indicating that the BIR has accepted and agreed to the

waiver. The date of such acceptance by the BIR should be

indicated. However, before signing the waiver, the CIR or the

revenue official authorized by him must make sure that the

waiver is in the prescribed form, duly notarized, and executed by

the taxpayer or his duly authorized representative.

 

90

91

5. Both the date of execution by the taxpayer and date of

acceptance by the Bureau should be before the expiration of the

period of prescription or before the lapse of the period agreed

upon in case a subsequent agreement is executed.

 6. The waiver must be executed in three copies, the original copy to

be attached to the docket of the case, the second copy for the

taxpayer and the third copy for the Office accepting the waiver.

The fact of receipt by the taxpayer of his/her file copy must be

indicated in the original copy to show that the taxpayer was

notified of the acceptance of the BIR and the perfection of the

agreement.92[19]

 

A perusal of the waivers executed by respondents accountant reveals the

following infirmities:

 

1.            The waivers were executed without the notarized written

authority of Pasco to sign the waiver in behalf of respondent.

 2.            The waivers failed to indicate the date of acceptance.

 3.            The fact of receipt by the respondent of its file copy was not

indicated in the original copies of the waivers.

 

92

Due to the defects in the waivers, the period to assess or collect taxes was not

extended. Consequently, the assessments were issued by the BIR beyond the three-year

period and are void.

 

Estoppel does not apply in this

case

 

We find no merit in petitioners claim that respondent is now estopped from

claiming prescription since by executing the waivers, it was the one which asked for

additional time to submit the required documents.

In Collector of Internal Revenue v. Suyoc Consolidated Mining Company,93[20]

the doctrine of estoppel prevented the taxpayer from raising the defense of prescription

against the efforts of the government to collect the assessed tax. However, it must be

stressed that in the said case, estoppel was applied as an exception to the statute of

limitations on collection of taxes and not on the assessment of taxes, as the BIR was able

to make an assessment within the prescribed period. More important, there was a

finding that the taxpayer made several requests or positive acts to convince the

government to postpone the collection of taxes, viz:

 

It appears that the first assessment made against respondent based on its second final return filed on November 28, 1946 was made on February 11, 1947. Upon receipt of this assessment respondent requested for at least one year within which to pay the amount assessed although it reserved its right to question the correctness of the assessment before actual payment. Petitioner

93

granted an extension of only three months. When it failed to pay the tax within the period extended, petitioner sent respondent a letter on November 28, 1950 demanding payment of the tax as assessed, and upon receipt of the letter respondent asked for a reinvestigation and reconsideration of the assessment. When this request was denied, respondent again requested for a reconsideration on April 25, 1952, which was denied on May 6, 1953, which denial was appealed to the Conference Staff. The appeal was heard by the Conference Staff from September 2, 1953 to July 16, 1955, and as a result of these various negotiations, the assessment was finally reduced on July 26, 1955. This is the ruling which is now being questioned after a protracted negotiation on the ground that the collection of the tax has already prescribed.

 It is obvious from the foregoing that petitioner refrained

from collecting the tax by distraint or levy or by proceeding in court within the 5-year period from the filing of the second amended final return due to the several requests of respondent for extension to which petitioner yielded to give it every opportunity to prove its claim regarding the correctness of the assessment. Because of such requests, several reinvestigations were made and a hearing was even held by the Conference Staff organized in the collection office to consider claims of such nature which, as the record shows, lasted for several months. After inducing petitioner to delay collection as he in fact did, it is most unfair for respondent to now take advantage of such desistance to elude his deficiency income tax liability to the prejudice of the Government invoking the technical ground of prescription.

 While we may agree with the Court of Tax Appeals that a

mere request for reexamination or reinvestigation may not have the effect of suspending the running of the period of limitation for in such case there is need of a written agreement to extend the period between the Collector and the taxpayer, there are cases however where a taxpayer may be prevented from setting up the defense of prescription even if he has not previously waived it in writing as when by his repeated requests or positive acts the Government has been, for good reasons, persuaded to postpone collection to make him feel that the demand was not unreasonable or that no harassment or injustice is meant by the Government. And when such

situation comes to pass there are authorities that hold, based on weighty reasons, that such an attitude or behavior should not be countenanced if only to protect the interest of the Government.

 This case has no precedent in this jurisdiction for it is the

first time that such has risen, but there are several precedents that may be invoked in American jurisprudence. As Mr. Justice Cardozo has said: The applicable principle is fundamental and unquestioned. He who prevents a thing from being done may not avail himself of the nonperformance which he has himself occasioned, for the law says to him in effect this is your own act, and therefore you are not damnified. (R. H. Stearns Co. vs. U.S., 78 L. ed., 647). Or, as was aptly said, The tax could have been collected, but the government withheld action at the specific request of the plaintiff. The plaintiff is now estopped and should not be permitted to raise the defense of the Statute of Limitations. [Newport Co. vs. U.S., (DC-WIS), 34 F. Supp. 588].94[21]

 

 

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.95[22] As such, the

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95

doctrine of estoppel cannot give validity to an act that is prohibited by law or one that is

against public policy.96[23] 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.97[24] Simply put, the doctrine

of estoppel must be sparingly applied.

 

Moreover, the BIR cannot hide behind the doctrine of estoppel to cover its

failure to comply with RMO 20-90 and RDAO 05-01, which the BIR itself issued. As

stated earlier, the BIR failed to verify whether a notarized written authority was given

by the respondent to its accountant, and to indicate the date of acceptance and the

receipt by the respondent of the waivers. Having caused the defects in the waivers, the

BIR must bear the consequence. It cannot shift the blame to the taxpayer. To stress, a

waiver of the statute of limitations, being a derogation of the taxpayers right to security

against prolonged and unscrupulous investigations, must be carefully and strictly

construed.98[25]

 

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.99[26]

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97

98

 

WHEREFORE, the petition is DENIED. The assailed Decision dated March 30,

2007 and Resolution dated May 18, 2007 of the Court of Tax Appeals are hereby

AFFIRMED.

 

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 184823               October 6, 2010

COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs.AICHI FORGING COMPANY OF ASIA, INC., Respondent.

D E C I S I O N

DEL CASTILLO, J.:

A taxpayer is entitled to a refund either by authority of a statute expressly granting such right, privilege, or incentive in his favor, or under the principle of solutio indebiti requiring the return of taxes erroneously or illegally collected. In both cases, 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.

This Petition for Review on Certiorari under Rule 45 of the Rules of Court seeks to set aside the July 30, 2008 Decision1 and the October 6, 2008 Resolution2 of the Court of Tax Appeals (CTA) En Banc.

Factual Antecedents

99

Respondent Aichi Forging Company of Asia, Inc., a corporation duly organized and existing under the laws of the Republic of the Philippines, is engaged in the manufacturing, producing, and processing of steel and its by-products.3 It is registered with the Bureau of Internal Revenue (BIR) as a Value-Added Tax (VAT) entity4 and its products, "close impression die steel forgings" and "tool and dies," are registered with the Board of Investments (BOI) as a pioneer status.5

On September 30, 2004, respondent filed a claim for refund/credit of input VAT for the period July 1, 2002 to September 30, 2002 in the total amount of P3,891,123.82 with the petitioner Commissioner of Internal Revenue (CIR), through the Department of Finance (DOF) One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center.6

Proceedings before the Second Division of the CTA

On even date, respondent filed a Petition for Review7 with the CTA for the refund/credit of the same input VAT. The case was docketed as CTA Case No. 7065 and was raffled to the Second Division of the CTA.

In the Petition for Review, respondent alleged that for the period July 1, 2002 to September 30, 2002, it generated and recorded zero-rated sales in the amount of P131,791,399.00,8 which was paid pursuant to Section 106(A) (2) (a) (1), (2) and (3) of the National Internal Revenue Code of 1997 (NIRC);9 that for the said period, it incurred and paid input VAT amounting to P3,912,088.14 from purchases and importation attributable to its zero-rated sales;10 and that in its application for refund/credit filed with the DOF One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center, it only claimed the amount of P3,891,123.82.11

In response, petitioner filed his Answer12 raising the following special and affirmative defenses, to wit:

4. Petitioner’s alleged claim for refund is subject to administrative investigation by the Bureau;

5. Petitioner must prove that it paid VAT input taxes for the period in question;

6. Petitioner must prove that its sales are export sales contemplated under Sections 106(A) (2) (a), and 108(B) (1) of the Tax Code of 1997;

7. Petitioner must prove that the claim was filed within the two (2) year period prescribed in Section 229 of the Tax Code;

8. In an action for refund, the burden of proof is on the taxpayer to establish its right to refund, and failure to sustain the burden is fatal to the claim for refund; and

9. Claims for refund are construed strictly against the claimant for the same partake of the nature of exemption from taxation.13

Trial ensued, after which, on January 4, 2008, the Second Division of the CTA rendered a Decision partially granting respondent’s claim for refund/credit. Pertinent portions of the Decision read:

For a VAT registered entity whose sales are zero-rated, to validly claim a refund, Section 112 (A) of the NIRC of 1997, as amended, provides:

SEC. 112. Refunds or Tax Credits of Input Tax. –

(A) Zero-rated or Effectively Zero-rated Sales. – Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax: x x x

Pursuant to the above provision, petitioner must comply with the following requisites: (1) the taxpayer is engaged in sales which are zero-rated or effectively zero-rated; (2) the taxpayer is VAT-registered; (3) the claim must be filed within two years after the close of the taxable quarter when such sales were made; and (4) the creditable input tax due or paid must be attributable to such sales, except the transitional input tax, to the extent that such input tax has not been applied against the output tax.

The Court finds that the first three requirements have been complied [with] by petitioner.

With regard to the first requisite, the evidence presented by petitioner, such as the Sales Invoices (Exhibits "II" to "II-262," "JJ" to "JJ-431," "KK" to "KK-394" and "LL") shows that it is engaged in sales which are zero-rated.

The second requisite has likewise been complied with. The Certificate of Registration with OCN 1RC0000148499 (Exhibit "C") with the BIR proves that petitioner is a registered VAT taxpayer.

In compliance with the third requisite, petitioner filed its administrative claim for refund on September 30, 2004 (Exhibit "N") and the present Petition for

Review on September 30, 2004, both within the two (2) year prescriptive period from the close of the taxable quarter when the sales were made, which is from September 30, 2002.

As regards, the fourth requirement, the Court finds that there are some documents and claims of petitioner that are baseless and have not been satisfactorily substantiated.

x x x x

In sum, petitioner has sufficiently proved that it is entitled to a refund or issuance of a tax credit certificate representing unutilized excess input VAT payments for the period July 1, 2002 to September 30, 2002, which are attributable to its zero-rated sales for the same period, but in the reduced amount of P3,239,119.25, computed as follows:

Amount of Claimed Input VAT P 3,891,123.82

Less:  

Exceptions as found by the ICPA41,020.37

Net Creditable Input VAT P 3,850,103.45

Less:  

Output VAT Due 610,984.20

Excess Creditable Input VATP 3,239,119.25

WHEREFORE, premises considered, the present Petition for Review is PARTIALLY GRANTED. Accordingly, respondent is hereby ORDERED TO REFUND OR ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner [in] the reduced amount of THREE MILLION TWO HUNDRED THIRTY NINE THOUSAND ONE HUNDRED NINETEEN AND 25/100 PESOS (P3,239,119.25), representing the unutilized input VAT incurred for the months of July to September 2002.

SO ORDERED.14

Dissatisfied with the above-quoted Decision, petitioner filed a Motion for Partial Reconsideration,15 insisting that the administrative and the judicial claims were filed beyond the two-year period to claim a tax refund/credit provided for under Sections 112(A) and 229 of the NIRC. He reasoned that since the year 2004 was a leap year, the filing of the claim for tax refund/credit on September 30, 2004 was beyond the two-year period, which expired on September 29, 2004.16 He cited as basis Article 13 of the Civil Code,17 which provides that when the law speaks of a year, it is equivalent to 365 days. In addition, petitioner argued that the simultaneous filing of the administrative and the judicial claims contravenes Sections 112 and 229 of the NIRC.18 According to the petitioner, a prior filing of an administrative claim is a "condition precedent"19 before a judicial claim can be filed. He explained that the rationale of such requirement rests not only on the doctrine of exhaustion of administrative remedies but also on the fact that the CTA is an appellate body which exercises the power of judicial review over administrative actions of the BIR. 20

The Second Division of the CTA, however, denied petitioner’s Motion for Partial Reconsideration for lack of merit. Petitioner thus elevated the matter to the CTA En Banc via a Petition for Review.21

Ruling of the CTA En Banc

On July 30, 2008, the CTA En Banc affirmed the Second Division’s Decision allowing the partial tax refund/credit in favor of respondent. However, as to the reckoning point for counting the two-year period, the CTA En Banc ruled:

Petitioner argues that the administrative and judicial claims were filed beyond the period allowed by law and hence, the honorable Court has no jurisdiction over the same. In addition, petitioner further contends that respondent's filing of the administrative and judicial [claims] effectively eliminates the authority of the honorable Court to exercise jurisdiction over the judicial claim.

We are not persuaded.

Section 114 of the 1997 NIRC, and We quote, to wit:

SEC. 114. Return and Payment of Value-added Tax. –

(A) In General. – Every person liable to pay the value-added tax imposed under this Title shall file a quarterly return of the amount of his gross sales or receipts within twenty-five (25) days following the close of each taxable quarter prescribed for each taxpayer: Provided, however, That VAT-registered persons shall pay the value-added tax on a monthly basis.

[x x x x ]

Based on the above-stated provision, a taxpayer has twenty five (25) days from the close of each taxable quarter within which to file a quarterly return of the amount of his gross sales or receipts. In the case at bar, the taxable quarter involved was for the period of July 1, 2002 to September 30, 2002. Applying Section 114 of the 1997 NIRC, respondent has until October 25, 2002 within which to file its quarterly return for its gross sales or receipts [with] which it complied when it filed its VAT Quarterly Return on October 20, 2002.

In relation to this, the reckoning of the two-year period provided under Section 229 of the 1997 NIRC should start from the payment of tax subject claim for refund. As stated above, respondent filed its VAT Return for the taxable third quarter of 2002 on October 20, 2002. Thus, respondent's administrative and judicial claims for refund filed on September 30, 2004 were filed on time because AICHI has until October 20, 2004 within which to file its claim for refund.

In addition, We do not agree with the petitioner's contention that the 1997 NIRC requires the previous filing of an administrative claim for refund prior to the judicial claim. This should not be the case as the law does not prohibit the simultaneous filing of the administrative and judicial claims for refund. What is controlling is that both claims for refund must be filed within the two-year prescriptive period.

In sum, the Court En Banc finds no cogent justification to disturb the findings and conclusion spelled out in the assailed January 4, 2008 Decision and March 13, 2008 Resolution of the CTA Second Division. What the instant petition seeks is for the Court En Banc to view and appreciate the evidence in their own perspective of things, which unfortunately had already been considered and passed upon.

WHEREFORE, the instant Petition for Review is hereby DENIED DUE COURSE and DISMISSED for lack of merit. Accordingly, the January 4, 2008 Decision and March 13, 2008 Resolution of the CTA Second Division in CTA Case No. 7065 entitled, "AICHI Forging Company of Asia, Inc. petitioner vs. Commissioner of Internal Revenue, respondent" are hereby AFFIRMED in toto.

SO ORDERED.22

Petitioner sought reconsideration but the CTA En Banc denied23 his Motion for Reconsideration.

Issue

Hence, the present recourse where petitioner interposes the issue of whether respondent’s judicial and administrative claims for tax refund/credit were filed within the two-year prescriptive period provided in Sections 112(A) and 229 of

the NIRC.24

Petitioner’s Arguments

Petitioner maintains that respondent’s administrative and judicial claims for tax refund/credit were filed in violation of Sections 112(A) and 229 of the NIRC.25

He posits that pursuant to Article 13 of the Civil Code,26 since the year 2004 was a leap year, the filing of the claim for tax refund/credit on September 30, 2004 was beyond the two-year period, which expired on September 29, 2004.27

Petitioner further argues that the CTA En Banc erred in applying Section 114(A) of the NIRC in determining the start of the two-year period as the said provision pertains to the compliance requirements in the payment of VAT.28 He asserts that it is Section 112, paragraph (A), of the same Code that should apply because it specifically provides for the period within which a claim for tax refund/ credit should be made.29

Petitioner likewise puts in issue the fact that the administrative claim with the BIR and the judicial claim with the CTA were filed on the same day.30 He opines that the simultaneous filing of the administrative and the judicial claims contravenes Section 229 of the NIRC, which requires the prior filing of an administrative claim.31 He insists that such procedural requirement is based on the doctrine of exhaustion of administrative remedies and the fact that the CTA is an appellate body exercising judicial review over administrative actions of the CIR.32

Respondent’s Arguments

For its part, respondent claims that it is entitled to a refund/credit of its unutilized input VAT for the period July 1, 2002 to September 30, 2002 as a matter of right because it has substantially complied with all the requirements provided by law.33 Respondent likewise defends the CTA En Banc in applying Section 114(A) of the NIRC in computing the prescriptive period for the claim for tax refund/credit. Respondent believes that Section 112(A) of the NIRC must be read together with Section 114(A) of the same Code.34

As to the alleged simultaneous filing of its administrative and judicial claims, respondent contends that it first filed an administrative claim with the One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of the DOF before it filed a judicial claim with the CTA.35 To prove this, respondent points out that its

Claimant Information Sheet No. 4970236 and BIR Form No. 1914 for the third quarter of 2002,37 which were filed with the DOF, were attached as Annexes "M" and "N," respectively, to the Petition for Review filed with the CTA.38

Respondent further contends that the non-observance of the 120-day period given to the CIR to act on the claim for tax refund/credit in Section 112(D) is not fatal because what is important is that both claims are filed within the two-year prescriptive period.39 In support thereof, respondent cites Commissioner of Internal Revenue v. Victorias Milling Co., Inc.40 where it was ruled that "[i]f, however, the [CIR] takes time in deciding the claim, and the period of two years is about to end, the suit or proceeding must be started in the [CTA] before the end of the two-year period without awaiting the decision of the [CIR]."41 Lastly, respondent argues that even if the period had already lapsed, it may be suspended for reasons of equity considering that it is not a jurisdictional requirement.42

Our Ruling

The petition has merit.

Unutilized input VAT must be claimed within two years after the close of the taxable quarter when the sales were made

In computing the two-year prescriptive period for claiming a refund/credit of unutilized input VAT, the Second Division of the CTA applied Section 112(A) of the NIRC, which states:

SEC. 112. Refunds or Tax Credits of Input Tax. –

(A) Zero-rated or Effectively Zero-rated Sales – Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax: Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales. (Emphasis supplied.)

The CTA En Banc, on the other hand, took into consideration Sections 114 and 229 of the NIRC, which read:

SEC. 114. Return and Payment of Value-Added Tax. –

(A) In General. – Every person liable to pay the value-added tax imposed under this Title shall file a quarterly return of the amount of his gross sales or receipts within twenty-five (25) days following the close of each taxable quarter prescribed for each taxpayer: Provided, however, That VAT-registered persons shall pay the value-added tax on a monthly basis.

Any person, whose registration has been cancelled in accordance with Section 236, shall file a return and pay the tax due thereon within twenty-five (25) days from the date of cancellation of registration: Provided, That only one consolidated return shall be filed by the taxpayer for his principal place of business or head office and all branches.

x x x x

SEC. 229. Recovery of tax erroneously or illegally collected. –

No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty or sum has been paid under protest or duress.

In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid. (Emphasis supplied.)

Hence, the CTA En Banc ruled that the reckoning of the two-year period for filing a claim for refund/credit of unutilized input VAT should start from the date of payment of tax and not from the close of the taxable quarter when the sales were made.43

The pivotal question of when to reckon the running of the two-year prescriptive period, however, has already been resolved in Commissioner of Internal Revenue v. Mirant Pagbilao Corporation,44 where we ruled that Section 112(A)

of the NIRC is the applicable provision in determining the start of the two-year period for claiming a refund/credit of unutilized input VAT, and that Sections 204(C) and 229 of the NIRC are inapplicable as "both provisions apply only to instances of erroneous payment or illegal collection of internal revenue taxes."45

We explained that:

The above proviso [Section 112 (A) of the NIRC] clearly provides in no uncertain terms that unutilized input VAT payments not otherwise used for any internal revenue tax due the taxpayer must be claimed within two years reckoned from the close of the taxable quarter when the relevant sales were made pertaining to the input VAT regardless of whether said tax was paid or not. As the CA aptly puts it, albeit it erroneously applied the aforequoted Sec. 112 (A), "[P]rescriptive period commences from the close of the taxable quarter when the sales were made and not from the time the input VAT was paid nor from the time the official receipt was issued." Thus, when a zero-rated VAT taxpayer pays its input VAT a year after the pertinent transaction, said taxpayer only has a year to file a claim for refund or tax credit of the unutilized creditable input VAT. The reckoning frame would always be the end of the quarter when the pertinent sales or transaction was made, regardless when the input VAT was paid. Be that as it may, and given that the last creditable input VAT due for the period covering the progress billing of September 6, 1996 is the third quarter of 1996 ending on September 30, 1996, any claim for unutilized creditable input VAT refund or tax credit for said quarter prescribed two years after September 30, 1996 or, to be precise, on September 30, 1998. Consequently, MPC’s claim for refund or tax credit filed on December 10, 1999 had already prescribed.

Reckoning for prescriptive period underSecs. 204(C) and 229 of the NIRC inapplicable

To be sure, MPC cannot avail itself of the provisions of either Sec. 204(C) or 229 of the NIRC which, for the purpose of refund, prescribes a different starting point for the two-year prescriptive limit for the filing of a claim therefor. Secs. 204(C) and 229 respectively provide:

Sec. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. – The Commissioner may –

x x x x

(c) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their

value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return filed showing an overpayment shall be considered as a written claim for credit or refund.

x x x x

Sec. 229. Recovery of Tax Erroneously or Illegally Collected. – No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, of any sum alleged to have been excessively or in any manner wrongfully collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.

In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid.

Notably, the above provisions also set a two-year prescriptive period, reckoned from date of payment of the tax or penalty, for the filing of a claim of refund or tax credit. Notably too, both provisions apply only to instances of erroneous payment or illegal collection of internal revenue taxes.

MPC’s creditable input VAT not erroneously paid

For perspective, under Sec. 105 of the NIRC, creditable input VAT is an indirect tax which can be shifted or passed on to the buyer, transferee, or lessee of the goods, properties, or services of the taxpayer. The fact that the subsequent sale or transaction involves a wholly-tax exempt client, resulting in a zero-rated or effectively zero-rated transaction, does not, standing alone, deprive the taxpayer of its right to a refund for any unutilized creditable input VAT, albeit the erroneous, illegal, or wrongful payment angle does not enter the equation.

x x x x

Considering the foregoing discussion, it is clear that Sec. 112 (A) of the NIRC, providing a two-year prescriptive period reckoned from the close of the taxable quarter when the relevant sales or transactions were made pertaining to the creditable input VAT, applies to the instant case, and not to the other actions which refer to erroneous payment of taxes.46

(Emphasis supplied.)

In view of the foregoing, we find that the CTA En Banc erroneously applied Sections 114(A) and 229 of the NIRC in computing the two-year prescriptive period for claiming refund/credit of unutilized input VAT. To be clear, Section 112 of the NIRC is the pertinent provision for the refund/credit of input VAT. Thus, the two-year period should be reckoned from the close of the taxable quarter when the sales were made.

The administrative claim was timely filed

Bearing this in mind, we shall now proceed to determine whether the administrative claim was timely filed.

Relying on Article 13 of the Civil Code,47 which provides that a year is equivalent to 365 days, and taking into account the fact that the year 2004 was a leap year, petitioner submits that the two-year period to file a claim for tax refund/ credit for the period July 1, 2002 to September 30, 2002 expired on September 29, 2004.48

We do not agree.

In Commissioner of Internal Revenue v. Primetown Property Group, Inc.,49 we said that as between the Civil Code, which provides that a year is equivalent to 365 days, and the Administrative Code of 1987, which states that a year is composed of 12 calendar months, it is the latter that must prevail following the legal maxim, Lex posteriori derogat priori.50 Thus:

Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the Administrative Code of 1987 deal with the same subject matter – the computation of legal periods. Under the Civil Code, a year is equivalent to 365 days whether it be a regular year or a leap year. Under the Administrative Code of 1987, however, a year is composed of 12 calendar months. Needless to state, under the Administrative Code of 1987, the number of days is irrelevant.

There obviously exists a manifest incompatibility in the manner of

computing legal periods under the Civil Code and the Administrative Code of 1987. For this reason, we hold that Section 31, Chapter VIII, Book I of the

Administrative Code of 1987, being the more recent law, governs the computation of legal periods. Lex posteriori derogat priori.

Applying Section 31, Chapter VIII, Book I of the Administrative Code of 1987 to this case, the two-year prescriptive period (reckoned from the time respondent filed its final adjusted return on April 14, 1998) consisted of 24 calendar months, computed as follows:

Year 1 1st calendar month April 15, 1998 to May 14, 1998

2nd calendar month May 15, 1998 to June 14, 1998

3rd calendar month June 15, 1998 to July 14, 1998

4th calendar month July 15, 1998 to August 14, 1998

5th calendar month August 15, 1998 to September 14, 1998

6th calendar month September 15, 1998 to October 14, 1998

7th calendar month October 15, 1998 to November 14, 1998

8th calendar month November 15, 1998 to December 14, 1998

9th calendar month December 15, 1998 to January 14, 1999

10th calendar month January 15, 1999 to February 14, 1999

11th calendar month February 15, 1999 to March 14, 1999

12th calendar month March 15, 1999 to April 14, 1999

Year 2 13th calendar month April 15, 1999 to May 14, 1999

14th calendar month May 15, 1999 to June 14, 1999

15th calendar month June 15, 1999 to July 14, 1999

16th calendar month July 15, 1999 to August 14, 1999

17th calendar month August 15, 1999 to September 14, 1999

18th calendar month September 15, 1999 to October 14, 1999

19th calendar month October 15, 1999 to November 14, 1999

20th calendar month November 15, 1999 to December 14, 1999

21st calendar month December 15, 1999 to January 14, 2000

22nd calendar month January 15, 2000 to February 14, 2000

23rd calendar month February 15, 2000 to March 14, 2000

24th calendar month March 15, 2000 to April 14, 2000

We therefore hold that respondent's petition (filed on April 14, 2000) was filed on the last day of the 24th calendar month from the day respondent filed its final adjusted return. Hence, it was filed within the reglementary period.51

Applying this to the present case, the two-year period to file a claim for tax refund/credit for the period July 1, 2002 to September 30, 2002 expired on September 30, 2004. Hence, respondent’s administrative claim was timely filed.

The filing of the judicial claim was premature

However, notwithstanding the timely filing of the administrative claim, we

are constrained to deny respondent’s claim for tax refund/credit for having been filed in violation of Section 112(D) of the NIRC, which provides that:

SEC. 112. Refunds or Tax Credits of Input Tax. –

x x x x

(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. – In proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsections (A) and (B) hereof.

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. (Emphasis supplied.)

Section 112(D) of the NIRC clearly provides that the CIR has "120 days, from the date of the submission of the complete documents in support of the application [for tax refund/credit]," within which to grant or deny the claim. In case of full or partial denial by the CIR, the taxpayer’s recourse is to file an appeal before the CTA within 30 days from receipt of the decision of the CIR. However, if after the 120-day period the CIR fails to act on the application for tax refund/credit, the remedy of the taxpayer is to appeal the inaction of the CIR to CTA within 30 days.

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.

Respondent’s assertion that the non-observance of the 120-day period is not fatal to the filing of a judicial claim as long as both the administrative and the judicial claims are filed within the two-year prescriptive period52 has no legal basis.

There is nothing in Section 112 of the NIRC to support respondent’s view. Subsection (A) of the said provision states that "any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales." The phrase "within two (2) years x x x apply for the issuance of a tax credit certificate or refund" refers to applications for refund/credit filed with the CIR and not to appeals made to the CTA. This is apparent in the first paragraph of subsection (D) of the same provision, which states that the CIR has "120 days from the submission of complete documents in

support of the application filed in accordance with Subsections (A) and (B)" within which to decide on the claim.

In fact, applying the two-year period to judicial claims would render nugatory Section 112(D) of the NIRC, which already provides for a specific period within which a taxpayer should appeal the decision or inaction of the CIR. The second paragraph of Section 112(D) of the NIRC envisions two scenarios: (1) when a decision is issued by the CIR before the lapse of the 120-day period; and (2) when no decision is made after the 120-day period. In both instances, the taxpayer has 30 days within which to file an appeal with the CTA. As we see it then, the 120-day period is crucial in filing an appeal with the CTA.

With regard to Commissioner of Internal Revenue v. Victorias Milling, Co., Inc.53

relied upon by respondent, we find the same inapplicable as the tax provision involved in that case is Section 306, now Section 229 of the NIRC. And as already discussed, Section 229 does not apply to refunds/credits of input VAT, such as the instant case.

In fine, the premature filing of respondent’s claim for refund/credit of input VAT before the CTA warrants a dismissal inasmuch as no jurisdiction was acquired by the CTA.

WHEREFORE, the Petition is hereby GRANTED. The assailed July 30, 2008 Decision and the October 6, 2008 Resolution of the Court of Tax Appeals are hereby REVERSED and SET ASIDE. The Court of Tax Appeals Second Division is DIRECTED to dismiss CTA Case No. 7065 for having been prematurely filed.

SO ORDERED.