The rule on estoppel in relation to tax administration: General 03) dated August 15, 2003, Nippon correctly availed
vailed of the claims. Thus, the findings contained therein were the results
Rule: Commissioner of Internal Revenue vs. Nippon
Express (Phils.) Corporation, G.R. No. 212920, September
16, 2015
The Facts: Nippon is a domestic corporation duly organized
and existing under Philippine laws which is primarily engaged
in the business of freight forwarding, namely, in the
international and domestic air and sea freight and cargo
forwarding, hauling, carrying, handling, distributing, loading,
and unloading general cargoes and all classes of goods,
wares, and merchandise, and the operation of container
depots, warehousing, storage, hauling, and packing
facilities.6 It is a Value-Added Tax (VAT) registered entity with
Tax Identification No. VAT Registration No. 004-669-434-
000.7 As such, it filed its quarterly VAT returns for the year
2002 on April 25, 2002, July 25, 2002, October 25, 2002, and
January 27, 2003, respectively.8 It maintained that during the
said period it incurred input VAT attributable to its zero-rated
sales in the amount of P28,405,167.60, from which only
P3,760,660.74 was applied as tax credit, thus, reflecting
refundable excess input VAT in the amount of
P24,644,506.86.9
On April 22, 2004, Nippon filed an administrative claim for
refund10 of its unutilized input VAT in the amount of
P24,644,506.86 for the year 2002 before the Bureau of
Internal Revenue (BIR).11 A day later, or on April 23, 2004, it
filed a judicial claim for tax refund, by way of petition for
review,12 before the CTA, docketed as CTA Case No. 6967.13
For its part, petitioner the Commissioner of Internal Revenue
(CIR) asserted, inter alia, that the amounts being claimed by
Nippon as unutilized input VAT were not properly
documented, hence, should be denied.
Proceedings Before the CTA Division: In a decision dated
August 10, 2011, the CTA Division partially granted Nippon's
claim for tax refund, and thereby ordered the CIR to issue a
tax credit certificate in the reduced amount of P2,614,296.84,
representing its unutilized input VAT which was attributable to
its zero-rated sales.16 It found that while Nippon timely filed its
administrative and judicial claims within the two (2)-year
prescriptive period,17 it, however, failed to show that the
recipients of its services - which, in this case, were mostly
Philippine Economic Zone Authority registered enterprises -
were non-residents "doing business outside the Philippines."
Accordingly, it concluded that Nippon's purported sales
therefrom could not qualify as zero-rated sales, hence, the
reduction in the amount of tax credit certificate claimed.18
Before its receipt of the August 10, 2011 Decision, or on
August 12, 2011, Nippon filed a motion to withdraw,
considering that the BIR, acting on its administrative claim,
already issued a tax credit certificate in the amount of
P21,675,128.91 on July 27, 2011.
Separately, the CIR moved for reconsideration20 of the August
10, 2011 Decision and filed its comment/opposition21 to
Nippon's motion to withdraw, claiming that: (a) the CTA
Division had already resolved the factual issue pertaining to
Nippon's entitlement to a tax credit certificate, which, after
trial, was proven to be only in the amount of P2,614,296.84;
(b) the issuance of the July 27, 2011 Tax Credit Certificate
was bereft of factual and legal bases, and prejudicial to the
interest of the government; and (c) Nippon's motion to
withdraw was "tantamount to [a] withdrawal and abandonment
of its [mjotion for [reconsideration also filed in this case." 22
Thereafter, Nippon, which maintained that it only had notice of
the August 10, 2011 Decision on August 16, 2011,23 likewise
sought for reconsideration,24 praying that the CTA Division set
aside its August 10, 2011 Decision and render judgment
ordering the CIR to issue a tax credit certificate in the full
amount of P24,644,506.86, or in the alternative, grant its
motion to withdraw.
In a Resolution dated July 31, 2012,26 the CTA Division
granted Nippon's motion to withdraw and, thus, considered
the case closed and terminated.27 It found that pursuant
to Revenue Memorandum Circular No. 49-03 (RMC No. 49-
proper remedy notwithstanding the promulgation of the
August 10, 2011 Decision. It added that in approving the
withdrawal of Nippon's petition for review, it exercised its
discretionary authority under Section 3, Rule 50 of the Rules
of Court after due consideration of the reasons proffered by
Nippon, namely: (a) that the parties had already arrived at a
reasonable settlement of the issues; (b) further legal and
related costs would be avoided; and (c) the court's time and
resources would be saved. Aggrieved, the CIR elevated its
case to the CTA En Banc.
The CTA En Banc Ruling: In a Decision30 dated December
18, 2013, the CTA En Banc affirmed the July 31, 2012
Resolution of the CTA Division granting Nippon's motion to
withdraw.31 It debunked the CIR's assertions that Nippon
failed to comply with the requirements set forth in RMC No.
49-03 - i.e., that Nippon failed to notify the BIR that it agreed
with its findings and to file the necessary motion before the
CTA Division prior to the promulgation of its Decision -noting
that RMC No. 49-03 did not expressly require a taxpayer to
inform the BIR of its assent nor prescribe a definite period for
filing a motion to withdraw. It also observed that the CIR did
not deny the existence and issuance of the July 27, 2011 Tax
Credit Certificate. In this regard, the same may be taken
judicial notice of, and the need for its formal offer dispensed
with.
The CIR moved for partial reconsideration33 which was,
however, denied by the CTA En Banc in a Resolution34 dated
June 10, 2014; hence, this petition.
The Issue Before the Court: The core issue in this case is
whether the CTA properly granted Nippon's motion to
withdraw.
The Court's Ruling: The petition is meritorious. A perusal of
the Revised Rules of the Court of Tax Appeals (RRCTA)
reveals the lack of provisions governing the procedure for the
withdrawal of pending appeals before the CTA. Hence,
pursuant to Section 3, Rule 1 of the RRCTA, the Rules of
Court shall suppletorily apply:
Sec. 3. Applicability of the Rules of Court. - The Rules of
Court in the Philippines shall apply suppletorily to these Rules.
Rule 50 of the Rules of Court - an adjunct rule to the appellate
procedure in the CA under Rules 42, 43, 44, and 46 of the
Rules of Court which are equally adopted in the RRCTA 36 -
states that when the case is deemed submitted for resolution,
withdrawal of appeals made after the filing of the appellee's
brief may still be allowed in the discretion of the court:
RULE 50: DISMISSAL OF APPEAL
Section 3. Withdrawal of appeal. — An appeal may be
withdrawn as of right at any time before the filing of the
appellee's brief. Thereafter, the withdrawal may be allowed
in the discretion of the court. (Emphasis supplied)
Impelled by the BIR's supervening issuance of the July 27,
2011 Tax Credit Certificate, Nippon filed a motion to withdraw
the case, proffering that:
Having arrived at a reasonable settlement of the issues with
the [CIR]/BIR, and to avoid incurring further legal and related
costs, not to mention the time and resources of [the CTA],
[Nippon] most respectfully moves for the withdrawal of its
Petition for Review.
Finding the aforementioned grounds to be justified, the CTA
Division allowed the withdrawal of Nippon's appeal thereby
ordering the case closed and terminated, notwithstanding the
fact that the said motion was filed after the promulgation of its
August 10, 2011 Decision.
While it is true that the CTA Division has the prerogative to
grant a motion to withdraw under the authority of the foregoing
legal provisions, the attendant circumstances in this case
should have incited it to act otherwise.
First, it should be pointed out that the August 10, 2011
Decision was rendered by the CTA Division after a full-blown
hearing in which the parties had already ventilated their
of an exhaustive study of the pleadings and a judicious
evaluation of the evidence submitted by the parties, as well as
the report of the commissioned certified public accountant.
In Reyes v. Commission on Elections,38 the Court only noted,
and did not grant, a motion to withdraw the petition filed after it
had already acted on said petition, ratiocinating in the
following wise:
It may well be in order to remind petitioner that jurisdiction,
once acquired, is not lost upon the instance of the parties, but
continues until the case is terminated. When petitioner filed
her Petition for Certiorari jurisdiction vested in the Court and,
in fact, the Court exercised such jurisdiction when it acted on
the petition. Such jurisdiction cannot be lost by the unilateral
withdrawal of the petition by petitioner.
The primary reason, however, that militates against the
granting of the motion to withdraw is the fact that the CTA
Division, in its August 10, 2011 Decision, had already
determined that Nippon was only entitled to refund the
reduced amount of P2,614,296.84 since it failed to prove that
the recipients of its services were non-residents "doing
business outside the Philippines"; hence, Nippon's purported
sales therefrom could not qualify as zero-rated sales,
necessitating the reduction in the amount of refund claimed.
Markedly different from this is the BIR's determination that
Nippon should receive P21,675,128.91 as per the July 27,
2011 Tax Credit Certificate, which is, in all,
P19,060,832.07 larger than the amount found due by the CTA
Division. Therefore, as aptly pointed out by Associate Justice
Teresita J. Leonardo-De Castro during the deliberations on
this case, the massive discrepancy alone between the
administrative and judicial determinations of the amount to be
refunded to Nippon should have already raised a red flag to
the CTA Division. Clearly, the interest of the government, and,
more significantly, the public, will be greatly prejudiced by the
erroneous grant of refund - at a substantial amount at that - in
favor of Nippon. Hence, under these circumstances, the CTA
Division should not have granted the motion to withdraw.
In this relation, it deserves mentioning that the CIR is not
estopped from assailing the validity of the July 27, 2011 Tax
Credit Certificate which was issued by her subordinates in the
BIR. In matters of taxation, the government cannot be
estopped by the mistakes, errors or omissions of its agents for
upon it depends the ability of the government to serve the
people for whose benefit taxes are collected.40
Finally, the Court has observed that based on the records,
Nippon's administrative claim for the first taxable quarter of
2002 which closed on March 31, 2002 was already time-
barred41 for being filed on April 22, 2004, or beyond the two
(2)-year prescriptive period pursuant to Section 112(A)42 of
the National Internal Revenue Code of 1997. Although
prescription was not raised as an issue, it is well-settled that if
the pleadings or the evidence on record show that the claim is
barred by prescription, the Court may motu proprio order its
dismissal on said ground.
All told, the CTA committed a reversible error in granting
Nippon's motion to withdraw. The August 10, 2011 Decision of
the CTA Division should therefore be reinstated, without
prejudice, however, to the right of either party to appeal the
same in accordance with the RRCTA.
WHEREFORE, the petition is GRANTED. The Decision dated
December 18, 2013 and the Resolution dated June 10, 2014
of the Court of Tax Appeals En Banc in CTA EB Case No. 924
are hereby SET ASIDE. The Decision dated August 10, 2011
of the Court of Tax Appeals Third Division in CTA Case No.
6967 is REINSTATED, without prejudice, however, to the right
of either party to appeal the same in accordance with the
Revised Rules of the Court of Tax Appeals.
Statute of Limitation on Assessment of Internal Revenue
Taxes (Sections 203, 222, NIRC)
RCBC v. CIR, G.R. No. 170257, 07 September 2011 (Waiver
v. Estoppel)
THE FACTS: Petitioner Rizal Commercial Banking
Corporation (RCBC) is a corporation engaged in general
banking operations. It seasonably filed its Corporation Annual
Income Tax Returns for Foreign Currency Deposit Unit for the
calendar years 1994 and 1995.
On August 15, 1996, RCBC received Letter of Authority No.
133959 issued by then Commissioner of Internal
Revenue (CIR) Liwayway Vinzons-Chato, authorizing a
special audit team to examine the books of accounts and
other accounting records for all internal revenue taxes from
January 1, 1994 to December 31, 1995.
On January 23, 1997, RCBC executed two Waivers of the
Defense of Prescription Under the Statute of Limitations of the
National Internal Revenue Code covering the internal revenue
taxes due for the years 1994 and 1995, effectively extending
the period of the Bureau of Internal Revenue (BIR) to assess
up to December 31, 2000.
Subsequently, on January 27, 2000, RCBC received a Formal
Letter of Demand together with Assessment Notices from the
BIR for the following deficiency tax assessments:
Disagreeing with the said deficiency tax assessment, RCBC
filed a protest on February 24, 2000 and later submitted the
relevant documentary evidence to support it. Much later on
November 20, 2000, it filed a petition for review before the
CTA, pursuant to Section 228 of the 1997 Tax Code.
On December 6, 2000, RCBC received another Formal Letter
of Demand with Assessment Notices dated October 20, 2000,
following the reinvestigation it requested, which drastically
reduced the original amount of deficiency taxes to the
following:
On the same day, RCBC paid the following deficiency taxes
as assessed by the BIR: Unsatisfied, RCBC filed its Motion for
Reconsideration on January 21, 2005, arguing that: (1) the
CTA erred in its addition of the total amount of deficiency
taxes and the correct amount should only be ₱
132,654,261.69 and not ₱ 171,822,527.47; (2) the CTA erred
in holding that RCBC was estopped from questioning the
validity of the waivers; (3) it was the payor-borrower as
withholding tax agent, and not RCBC, who was liable to pay
the final tax on FCDU, and (4) RCBC’s special savings
account was not subject to documentary stamp tax.
In its Resolution17 dated April 11, 2005, the CTA-First Division
substantially upheld its earlier ruling, except for its
inadvertence in the addition of the total amount of deficiency
taxes. As such, it modified its earlier decision and ordered
RCBC to pay the amount of ₱ 132,654,261.69 plus 20%
delinquency tax.
The CTA-En Banc, in its assailed Decision, denied the petition
for lack of merit. It ruled that by receiving, accepting and
paying portions of the reduced assessment, RCBC bound
itself to the new assessment, implying that it recognized the
validity of the waivers.20 RCBC could not assail the validity of
the waivers after it had received and accepted certain benefits
as a result of the execution of the said waivers.21 As to the
deficiency onshore tax, it held that because the payor-
borrower was merely designated by law to withhold and remit
the said tax, it would then follow that the tax should be
imposed on RCBC as the payee-bank.22 Finally, in relation to
the assessment of the deficiency documentary stamp tax on
petitioner’s special savings account, it held that petitioner’s
special savings account was a certificate of deposit and, as
such, was subject to documentary stamp tax. Hence, this
petition.
While awaiting the decision of this Court, RCBC filed its
Manifestation dated July 22, 2009, informing the Court that
this petition, relative to the DST deficiency assessment, had
been rendered moot and academic by its payment of the tax
deficiencies on Documentary Stamp Tax (DST) on Special
Savings Account (SSA) for taxable years 1994 and 1995 after
the BIR approved its applications for tax abatement.24
In its November 17, 2009 Comment to the Manifestation, the
CIR pointed out that the only remaining issues raised in the
present petition were those pertaining to RCBC’s deficiency
tax on FCDU Onshore Income for taxable years 1994 and
1995 in the aggregate amount of ₱ 80,161,827.56 plus 20%
delinquency interest per annum. The CIR prayed that RCBC
be considered to have withdrawn its appeal with respect to the
CTA-En Banc ruling on its DST on SSA deficiency for taxable
years 1994 and 1995 and that the questioned CTA decision
regarding RCBC’s deficiency tax on FCDU Onshore Income
for the same period be affirmed.
THE ISSUES: Thus, only the following issues remain to be
resolved by this Court:
Whether petitioner, by paying the other tax assessment
covered by the waivers of the statute of limitations, is
rendered estopped from questioning the validity of the
said waivers with respect to the assessment of deficiency
onshore tax.
and
Whether petitioner, as payee-bank, can be held liable for
deficiency onshore tax, which is mandated by law to be
collected at source in the form of a final withholding tax.27
THE COURT’S RULING
Petitioner is estopped from questioning the validity of the
waivers: RCBC assails the validity of the waivers of the
statute of limitations on the ground that the said waivers were
merely attested to by Sixto Esquivias, then Coordinator for the
CIR, and that he failed to indicate acceptance or agreement of
the CIR, as required under Section 223 (b) of the 1977 Tax
Code.28 RCBC further argues that the principle of estoppel
cannot be applied against it because its payment of the other
tax assessments does not signify a clear intention on its part
to give up its right to question the validity of the waivers. The
Court disagrees.
Under Article 1431 of the Civil Code, the doctrine of estoppel
is anchored on the rule that "an admission or representation is
rendered conclusive upon the person making it, and cannot
be denied or disproved as against the person relying thereon."
A party is precluded from denying his own acts, admissions or
representations to the prejudice of the other party in order to
prevent fraud and falsehood.
Estoppel is clearly applicable to the case at bench. RCBC,
through its partial payment of the revised assessments issued
within the extended period as provided for in the questioned
waivers, impliedly admitted the validity of those waivers. Had
petitioner truly believed that the waivers were invalid and that
the assessments were issued beyond the prescriptive period,
then it should not have paid the reduced amount of taxes in
the revised assessment. RCBC’s subsequent action
effectively belies its insistence that the waivers are invalid.
The records show that on December 6, 2000, upon receipt of
the revised assessment, RCBC immediately made payment
on the uncontested taxes. Thus, RCBC is estopped from
questioning the validity of the waivers. To hold otherwise and
allow a party to gainsay its own act or deny rights which it had
previously recognized would run counter to the principle of
equity which this institution holds dear.
Liability for Deficiency Onshore Withholding Tax: RCBC is
convinced that it is the payor-borrower, as withholding agent,
who is directly liable for the payment of onshore tax, citing
Section 2.57(A) of Revenue Regulations No. 2-98 which
states:
(A) Final Withholding Tax. — Under the final withholding tax
system the amount of income tax withheld by the withholding
agent is constituted as a full and final payment of the income
tax due from the payee on the said income. The liability for
payment of the tax rests primarily on the payor as a
withholding agent. Thus, in case of his failure to withhold
the tax or in case of under withholding, the deficiency tax
shall be collected from the payor/withholding agent. The
payee is not required to file an income tax return for the
particular income. The petitioner is mistaken.
Before any further discussion, it should be pointed out that
RCBC erred in citing the abovementioned Revenue
Regulations No. 2-98 because the same governs collection at
source on income paid only on or after January 1, 1998. The
deficiency withholding tax subject of this petition was
supposed to have been withheld on income paid during the
taxable years of 1994 and 1995. Hence, Revenue Regulations
No. 2-98 obviously does not apply in this case.
In Chamber of Real Estate and Builders’ Associations, Inc. v.
The Executive Secretary,32 the Court has explained that the
purpose of the withholding tax system is three-fold: (1) to
provide the taxpayer with a convenient way of paying his tax
liability; (2) to ensure the collection of tax, and (3) to improve
the government’s cashflow. Under the withholding tax system,
the payor is the taxpayer upon whom the tax is imposed, while
the withholding agent simply acts as an agent or a collector of
the government to ensure the collection of taxes.33 1avvphi1
It is, therefore, indisputable that the withholding agent is
merely a tax collector and not a taxpayer, as elucidated by
this Court in the case of Commissioner of Internal Revenue v.
Court of Appeals,34 to wit:
In the operation of the withholding tax system, the withholding
agent is the payor, a separate entity acting no more than an
agent of the government for the collection of the tax in order to
ensure its payments; the payer is the taxpayer – he is the
person subject to tax imposed by law; and the payee is the
taxing authority. In other words, the withholding agent is
merely a tax collector, not a taxpayer. Under the withholding
system, however, the agent-payor becomes a payee by fiction
of law. His (agent) liability is direct and independent from
the taxpayer, because the income tax is still imposed on
and due from the latter. The agent is not liable for the tax
as no wealth flowed into him – he earned no income. The
Tax Code only makes the agent personally liable for the tax
arising from the breach of its legal duty to withhold as
distinguished from its duty to pay tax since:
"the government’s cause of action against the
withholding agent is not for the collection of income tax,
but for the enforcement of the withholding provision of
Section 53 of the Tax Code, compliance with which is
imposed on the withholding agent and not upon the
taxpayer."35 Based on the foregoing, the liability of the
withholding agent is independent from that of the taxpayer.
The former cannot be made liable for the tax due because it is
the latter who earned the income subject to withholding tax.
The withholding agent is liable only insofar as he failed to
perform his duty to withhold the tax and remit the same to the
government. The liability for the tax, however, remains with
the taxpayer because the gain was realized and received by
him.
While the payor-borrower can be held accountable for its
negligence in performing its duty to withhold the amount of tax
due on the transaction, RCBC, as the taxpayer and the one
which earned income on the transaction, remains liable for the
payment of tax as the taxpayer shares the responsibility of
making certain that the tax is properly withheld by the
withholding agent, so as to avoid any penalty that may arise
from the non-payment of the withholding tax due.
RCBC cannot evade its liability for FCDU Onshore Tax by
shifting the blame on the payor-borrower as the withholding
agent. As such, it is liable for payment of deficiency onshore
tax on interest income derived from foreign currency loans,
pursuant to Section 24(e)(3) of the National Internal Revenue
Code of 1993:
Sec. 24. Rates of tax on domestic corporations.
(e) Tax on certain incomes derived by domestic corporations
(3) Tax on income derived under the Expanded Foreign
Currency Deposit System. – Income derived by a depository
bank under the expanded foreign currency deposit system
from foreign currency transactions with nonresidents, offshore
banking units in the Philippines, local commercial banks
including branches of foreign banks that may be authorized by
the Central Bank to transact business with foreign currency
depository system units and other depository banks under the
expanded foreign currency deposit system shall be exempt
from all taxes, except taxable income from such transactions
as may be specified by the Secretary of Finance, upon
recommendation of the Monetary Board to be subject to the
usual income tax payable by banks: Provided, That interest
income from foreign currency loans granted by such
depository banks under said expanded system to
residents (other than offshore banking units in the
Philippines or other depository banks under the
expanded system) shall be subject to a 10% tax.
As a final note, this Court has consistently held that findings
and conclusions of the CTA shall be accorded the highest
respect and shall be presumed valid, in the absence of any
clear and convincing proof to the contrary.36 The CTA, as a
specialized court dedicated exclusively to the study and
resolution of tax problems, has developed an expertise on the
subject of taxation.37 As such, its decisions shall not be lightly
set aside on appeal, unless this Court finds that the
questioned decision is not supported by substantial evidence
or there is a showing of abuse or improvident exercise of
authority on the part of the Tax Court. WHEREFORE, the
petition is DENIED.
CIR vs. United Slavage and Towage, July 2, 2014
Respondent is engaged in the business of sub-contracting
work for service contractors engaged in petroleum operations
in the Philippines.2 During the taxable years in question, it had
entered into various contracts and/or sub-contracts with
several petroleum service contractors, such as Shell
Philippines Exploration, B.V. and Alorn Production Philippines
for the supply of service vessels.
In the course of respondent’s operations, petitioner found
respondent liable for deficiency income tax, withholding tax,
value-added tax (VAT) and documentary stamp tax (DST) for
taxable years 1992,1994, 1997 and 1998.4Particularly,
petitioner, through BIR officials, issued demand letters with
attached assessment notices for withholding tax on
compensation (WTC) and expanded withholding tax (EWT) for
taxable years 1992, 1994 and 1998,5 detailed as follows:
On January 29, 1998 and October 24, 2001, USTP filed
administrative protests against the 1994 and 1998 EWT
assessments, respectively.
Hence, the instant petition raising the following issues:
1. Whether or not the Expanded Withholding Tax
Assessments issued by petitioner against the respondent for
taxable year 1994 was without any factual and legal basis;
and
2. Whether or not petitioner’s right to collect the creditable
withholding tax and expanded withholding tax for taxable year
1992 has already prescribed.
After careful review of the records and evidence presented
before us, we find no basis to overturn the decision of the
CTA En Banc.
It was on February 12, 1998, that a preliminary assessment
notice was issued against the estate. On April 22, 1998, the
final estate tax assessment notice, as well as demand letter,
was also issued. During those dates, RA 8424 was already in
effect. The notice required under the old law was no longer
sufficient under the new law.
In the instant case, the 1997 NIRC covers the 1994 and 1998
EWT FANs because there were issued on January 19, 1998
and September 21, 2001, respectively, at the time of the
effectivity of the 1997 NIRC. Clearly, the assessments are
governed by the law.
Indeed, Section 228 of the Tax Code provides that the
taxpayer shall be informed in writing of the law and the facts
on which the assessment is made. Otherwise, the
assessment is void. To implement the aforesaid provision,
Revenue Regulation No. 12-99was enacted by the BIR, of
which Section 3.1.4 thereof reads:
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. The same shall be sent
to the taxpayer only by registered mail or by personal delivery.
It is clear from the foregoing that a taxpayer must be informed
in writing of the legal and factual bases of the tax assessment
made against him. The use of the word "shall" in these legal
provisions indicates the mandatory nature of the requirements
laid down therein.
In the present case, a mere perusal of the FAN for the
deficiency EWT for taxable year 1994will show that other than
a tabulation of the alleged deficiency taxes due, no further
detail regarding the assessment was provided by petitioner.
Only the resulting interest, surcharge and penalty were
anchored with legal basis.45 Petitioner should have at least
attached a detailed notice of discrepancy or stated an
explanation why the amount of ₱48,461.76 is collectible
against respondent46 and how the same was arrived at. Any
short-cuts to the prescribed content of the assessment or the
process thereof should not be countenanced, in consonance
with the ruling in Commissioner of Internal Revenue v. Enron
Subic Power Corporation47 to wit:
The CIR insists that an examination of the facts shows that
Enron was properly apprised of its tax deficiency. During the
pre-assessment stage, the CIR advised Enron’s
representative of the tax deficiency, informed it of the
proposed tax deficiency assessment through a preliminary
five-day letter and furnished Enron a copy of the audit working
paper allegedly showing in detail the legal and factual bases
of the assessment. The CIR argues that these steps sufficed
to inform Enron of the laws and facts on which the deficiency
tax assessment was based.
We disagree. The advice of tax deficiency, given by the CIR to
an employee of Enron, as well as the preliminary five-day
letter, were not valid substitutes for the mandatory notice in
writing of the legal and factual bases of the assessment.
These steps were mere perfunctory discharges of the CIR’s
duties incorrectly assessing a taxpayer. The requirement for
issuing a preliminary or final notice, as the case may be,
informing a taxpayer of the existence of a deficiency tax
assessment is markedly different from the requirement of
what such notice must contain. Just because the CIR issued
an advice, a preliminary letter during the pre-assessment
stage and a final notice, in the order required by law, does not
necessarily mean that Enron was informed of the law and
facts on which the deficiency tax assessment was made.
The law requires that the legal and factual bases of the
assessment be stated in the formal letter of demand and
assessment notice. Thus, such cannot be presumed.
Otherwise, the express provisions of Article 228 of the NIRC
and RR No. 12-99 would be rendered nugatory. The alleged
"factual bases" in the advice, preliminary letter and "audit
working papers" did not suffice. There was no going around
the mandate of the law that the legal and factual bases of the
assessment be stated in writing in the formal letter of demand
accompanying the assessment notice.
We note that the old law merely required that the taxpayer be
notified of the assessment made by the CIR. This was
changed in 1998 and the taxpayer must now be informed not
only of the law but also of the facts on which the assessment
is made. Such amendment is in keeping with the constitutional
principle that no person shall be deprived of property without
due process. In view of the absence of a fair opportunity for
Enron to be informed of the legal and factual bases of the
assessment against it, the assessment in question was void.
In the same vein, we have held in Commissioner of Internal
Revenue v. Reyes,49 that: Even a cursory review of the
preliminary assessment notice, as well as the demand letter
sent, reveals the lack of basis for -- not to mention the
insufficiency of -- the gross figures and details of the itemized
deductions indicated in the notice and the letter. This Court
cannot countenance an assessment based on estimates that
appear to have been arbitrarily or capriciously arrived at.
Although taxes are the lifeblood of the government, their
assessment and collection "should be made in accordance
with law as any arbitrariness will negate the very reason for
government itself."
Applying the aforequoted rulings to the case at bar, it is clear
that the assailed deficiency tax assessment for the EWT in
1994disregarded the provisions of Section 228 of the Tax
Code, as amended, as well as Section 3.1.4 of Revenue
Regulations No. 12-99 by not providing the legal and factual
bases of the assessment. Hence, the formal letter of demand
and the notice of assessment issued relative thereto are void.
In any case, we find no basis in petitioner’s claim that
Revenue Regulation No. 12-99 is not applicable at the time
the PAN and FAN for the deficiency EWT for taxable year
1994 were issued. Considering that such regulation merely
implements the law, and does not create or take away vested
rights, the same may be applied retroactively, as held in
Reyes: Second, the non-retroactive application of Revenue
Regulation (RR) No. 12-99 is of no moment, considering that
it merely implements the law.
A tax regulation is promulgated by the finance secretary to
implement the provisions of the Tax Code. While it is
desirable for the government authority or administrative
agency to have one immediately issued after a law is passed,
the absence of the regulation does not automatically mean
that the law itself would become inoperative.
At the time the pre-assessment notice was issued to Reyes,
RA 8424 already stated that the taxpayer must be informed of
both the law and facts on which the assessment was based.
Thus, the CIR should have required the assessment officers
of the Bureau of Internal Revenue (BIR) to follow the clear
mandate of the new law. The old regulation governing the
issuance of estate tax assessment notices ran afoul of the
rule that tax regulations-- old as they were -- should be in
harmony with, and not supplant or modify, the law.
It may be argued that the Tax Code provisions are not self-
executory. It would be too wide a stretch of the imagination,
though, to still issue a regulation that would simply require tax
officials to inform the taxpayer, in any manner, of the law and
the facts on which an assessment was based. That
requirement is neither difficult to make nor its desired results
hard to achieve. Moreover, an administrative rule interpretive
of a statute, and not declarative of certain rights and
corresponding obligations, is given retroactive effect as of the
date of the effectivity of the statute. RR 12-99 is one such
rule. Being interpretive of the provisions of the Tax Code,
even if it was issued only on September 6, 1999, this
regulation was to retroact to January 1, 1998 -- a date prior to
the issuance of the preliminary assessment notice and
demand letter.
Indubitably, the disputed assessments for taxable year 1994
should have already complied with the requirements laid down
under Revenue Regulation No. 12-99. Having failed so, the
same produces no legal effect.
Notwithstanding the foregoing findings, we sustain the CTA
En Banc’s findings on the deficiency EWT for taxable year
1998 considering that it complies with Section 228 of the Tax
Code as well as Revenue Regulation No. 12-99, thus:
On the other hand, the 1998 EWT FAN reflected the following:
a detailed factual account why the basic EWT is ₱14,496.79
and the legal basis, Section 57 B of the 1997 NIRC supporting
findings of EWT liability of ₱22,437.01. Thus, the EWT FAN
for 1998 is duly issued in accordance with the law.
As to the last issue, petitioner avers that its right to collect the
EWT for taxable year 1992 has not yet prescribed. It argues
that while the final assessment notice and demand letter on
EWT for taxable year 1992 were all issued on January 9,
1996, the five (5)-year prescriptive period to collect was
interrupted when respondent filed its request for
reinvestigation on March 14, 1997 which was granted by
petitioner on January 22, 2001 through the issuance of Tax
Verification Notice No. 00165498 on even date.53 Thus, the
period for tax collection should have begun to run from the
date of the reconsidered or modified assessment.54
This argument fails to persuade us.
The statute of limitations on assessment and collection of
national internal revenue taxes was shortened from five (5)
years to three (3) years by virtue of Batas Pambansa Blg.
700.55 Thus, petitioner 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.56 However, 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.57The 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.
On this matter, we note the findings of the CTA-Special First
Division that no evidence was formally offered to prove when
respondent filed its returns and paid the corresponding EWT
and WTC for taxable year 1992.
Nevertheless, as correctly held by the CTA En Banc, the
Preliminary Collection Letter for deficiency taxes for taxable
year 1992 was only issued on February 21, 2002, despite the
fact that the FANs for the deficiency EWT and WTC for
taxable year 1992 was issued as early as January 9, 1996.
Clearly, five (5) long years had already lapsed, beyond the
three (3)-year prescriptive period, before collection was
pursued by petitioner.
Further, while the request for reinvestigation was made on
March 14, 1997, the same was only acted upon by petitioner
on January22, 2001, also beyond the three (3) year statute of
limitations reckoned from January 9, 1996, notwithstanding
the lack of impediment to rule upon such issue. We cannot
countenance such inaction by petitioner to the prejudice of
respondent pursuant to our ruling in Commissioner of Internal
Revenue v. Philippine Global Communication, Inc.,60 to wit:
The assessment, in this case, was presumably issued on 14
April 1994 since the respondent did not dispute the CIR’s
claim. Therefore, the BIR had until 13 April 1997. However, as
there was no Warrant of Distraint and/or Levy served on the
respondents nor any judicial proceedings initiated by the BIR,
the earliest attempt of the BIR to collect the tax due based on
this assessment was when it filed its Answer in CTA Case No.
6568 on 9 January 2003, which was several years beyond the
three-year prescriptive period. Thus, the CIR is now
prescribed from collecting the assessed tax.
Here, petitioner had ample time to make a factually and
legally well-founded assessment and implement collection
pursuant thereto. Whatever examination that petitioner may
have conducted cannot possibly outlast the entire three (3)-
year prescriptive period provided by law to collect the
assessed tax. Thus, there is no reason to suspend the
running of the statute of limitations in this case.
Moreover, in Bank of the Philippine Islands, citing earlier
jurisprudence, we held that the request for reinvestigation
should be granted or at least acted upon in due course before
the suspension of the statute of limitations may set in, thus:
In BPI v. Commissioner of Internal Revenue, the 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]62With respect to
petitioner’s argument that respondent’s act of elevating its
protest to the CTA has fortified the continuing interruption of
petitioner’s prescriptive period to collect under Section 223 of
the Tax Code,63 the same is flawed at best because
respondent was merely exercising its right to resort to the
proper Court, and does not in any way deter petitioner’s right
to collect taxes from respondent under existing laws.
On the strength of the foregoing observations, we ought to
reiterate our earlier teachings that "in balancing the scales
between the power of the State to tax and its inherent right to
prosecute perceived transgressors of the law on one side, and
the constitutional rights of a citizen to due process of law and
the equal protection of the laws on the other, the scales must
tilt in favor of the individual, for a citizen’s right is amply
protected by the Bill of Rights under the Constitution."64 Thus,
while "taxes are the lifeblood of the government," the power to
tax has its limits, in spite of all its plenitude.65 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.
After all, the statute of limitations on the collection of taxes
was also enacted to benefit and protect the taxpayers, as
elucidated in the case of Philippine Global Communication,
Inc.,67 thus:
x x x The report submitted by the tax commission clearly
states that these provisions on prescription should be enacted
to benefit and protect taxpayers:
Under the former law, the right of the Government to collect
the tax does not prescribe.1âwphi1 However, in fairness to
the taxpayer, the Government should be estopped from
collecting the tax where it failed to make the necessary
investigation and assessment within 5 years after the filing of
the return and where it failed to collect the tax within 5 years
from the date of assessment thereof. Just as the government
is interested in the stability of its collections, so also are the
taxpayers entitled to an assurance that they will not be
subjected to further investigation for tax purposes after the
expiration of a reasonable period of time. WHEREFORE, the
petition is DENIED.