Commissioner of Internal Revenue v. Metro Star Superama, Inc. (2010)

COMMISSIONER OF INTERNAL REVENUE, Petitioner, -versus- METRO STAR SUPERAMA, INC., Respondent
G.R. No. 185371, SECOND DIVISION, DECEMBER 8, 2010

FACTS:

On November 8, 2001, Revenue District Officer Socorro O. Ramos-Lafuente issued a Preliminary 15- day Letter, which Metro Star 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 respondent in the amount of ₱292,874.16. 

On April 11, 2002, Metro Star received a Formal Letter of Demand dated April 3, 2002 from Revenue District No. 67, Legazpi City, assessing Metro Star the amount of Two Hundred Ninety Two Thousand Eight Hundred Seventy Four Pesos and Sixteen Centavos (₱292,874.16.) for deficiency value-added and withholding taxes for the taxable year 1999. 

Subsequently, Revenue District Office No. 67 sent a copy of the Final Notice of Seizure dated May 12, 2003, which Metro Star 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, Metro Star 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 ₱292,874.16. 

Denying that it received a Preliminary Assessment Notice (PAN) and claiming that it was not accorded due process, Metro Star filed a petition for review with the CTA which ruled in its favor. 

Aggrieved, the CIR filed a petition for review with the CTA-En Banc, but the petition was dismissed after a determination that no new matters were raised 

ISSUE: 

Whether 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 

RULING: 

YES. 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 

The Court agrees with the CTA that the CIR failed to discharge its duty and present any evidence to show that Metro Star indeed received the PAN dated January 16, 2002. It could have simply presented the registry receipt or the certification from the postmaster that it mailed the PAN, but failed. Neither did it offer any explanation on why it failed to comply with the requirement of service of the PAN. It merely accepted the letter of Metro Star’s chairman dated April 29, 2002, that stated that he had received the FAN dated April 3, 2002, but not the PAN; that he was willing to pay the tax as computed by the CIR; and that he just wanted to clarify some matters with the hope of lessening its tax liability. 

The taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void. 

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

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

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

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. 

The Court need not belabor to discuss the matter of Metro Star’s failure to file its protest, for it is well-settled that a void assessment bears no fruit. 

It is an elementary rule enshrined in the 1987 Constitution that no person shall be deprived of property without due process of law. In balancing the scales between the power of the State to tax and its inherent right to prosecute perceived transgressors of the law on one side, and the constitutional rights of a citizen to due process of law and the equal protection of the laws on the other, the scales must tilt in favor of the individual, for a citizen’s right is amply protected by the Bill of Rights under the Constitution. Thus, while "taxes are the lifeblood of the government," the power to tax has its limits, in spite of all its plenitude. Hence in Commissioner of Internal Revenue v. Algue, Inc. 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. 

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.