SECOND DIVISION
[ G.R. No. 263811, November 26, 2024 ]
COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. FORT 1 GLOBAL CITY CENTER, INC., RESPONDENT.
DISSENTING OPINION
LEONEN, SAJ.:
I dissent.
The majority declared as void the deficiency tax assessments for taxable years 2009 and 2012, ruling that the notices were improperly served on the taxpayer, i.e., the notices did not indicate the authority or designation of the persons who received the assessments on behalf of respondent Fort 1 Global City Center, Inc.
I agree that the 2012 deficiency tax assessment is void for lack of due process; however, the 2009 deficiency tax assessment is valid.
Section 228 of the Tax Code requires that taxpayers be informed in writing of the law and the facts on which the assessment is made. It likewise requires, subject to a few exceptions, that a preassessment notice be issued first, to which the taxpayer shall be required to respond. Section 228 provides:
SECTION 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:
. . . .
(e) ...
The taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void.
Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an assessment based on his findings.
Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become final.
If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of the one hundred eighty (180)-day period; otherwise, the decision shall become final, executory and demandable.
The written notice requirement with the prescribed content for both the preassessment and final assessment conforms to the demands of due process.
The Constitution mandates that no person shall be deprived of property without due process of law.1 Due process has both substantive and procedural aspects. "Substantive due process requires the intrinsic validity of the law in interfering with the rights of the person to [their] property."2 On the other hand, the essence of procedural due process is opportunity to be heard3 before a person is deprived of his property.
In tax assessments, procedural due process requires that taxpayers be fully informed of the factual and legal bases for the assessment so that they may be able to file an effective protest, if necessary.4
To ensure that taxpayers indeed receive the assessment notices, Revenue Regulation No. 12-99 prescribes the rules for the proper service of these notices:
3.1.2 Preliminary Assessment Notice (PAN). — If after review and evaluation by the Assessment Division or by the Commissioner or his duly authorized representative, as the case may be, it is determined that there exists sufficient basis to assess the taxpayer for any deficiency tax or taxes, the said Office shall issue to the taxpayer, at least by registered mail, a Preliminary Assessment Notice (PAN) for the proposed assessment, showing in detail, the facts and the law, rules and regulations, or jurisprudence on which the proposed assessment is based (see illustration in ANNEX A hereof). If the taxpayer fails to respond within fifteen (15) days from date of receipt of the PAN, he shall be considered in default, in which case, a formal letter of demand and assessment notice shall be caused to be issued by the said Office, calling for payment of the taxpayer's deficiency tax liability, inclusive of the applicable penalties.
. . . .
3.1.4 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 he 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. (Emphasis supplied)
For personal service, Revenue Regulations No. 12-99 requires the taxpayer or their duly authorized representative to acknowledge receipt of the assessment notice in the duplicate copy, and indicate, among others, their "designation and authority to act for and in behalf of the taxpayer[.]"
Mannasoft Technology Corporation v.(awÞhi( Commissioner of Internal Revenue5 explains the rationale for this requirement:
The very same provision even requires that the signee-recipient must indicate their "designation and authority to act for and in behalf of the taxpayer," which fm1her emphasizes that personal delivery must be discriminate.
The wisdom for such a requirement is readily apparent — unless the recipient possesses a certain degree of authority or discretion, they would be unable to grasp the gravity of the service of an assessment notice and the potential financial impact it would have to the taxpayer they purport to serve and represent. This is especially true for juridical entity taxpayers who can only act through its officers and employees, and who would otherwise be prejudiced by such recipient's simple ignorance.6
Again, the underlying purpose for this is to ensure that taxpayers receive the assessment notices and be informed of the basis of the assessment, so they can file an intelligent protest.
In this case, respondent assails the validity of the deficiency tax assessments for 2009 and 2012 on the ground of improper service, specifically for not indicating the designation and authority of the persons who received them.
Notwithstanding, it is undisputed that respondent was able to file its protests to the Preliminary Assessment Notice (PAN) and Formal Assessment Notice (FAN) for 2009. It had the opportunity to be heard,. and has indeed been heard, through the filing of its protests. Therefore, the purpose behind the rule was deemed duly served. The requirements of due process are substantially complied with.
In Commissioner of Internal Revenue v. Liquigaz Philippines Corporation,7 this Court held that the written notice requirement under Section 228 should not be mechanically applied. There is substantial compliance so long as the taxpayer was apprised of the factual and legal bases for the assessment as to enable it to make an intelligent protest:
Nevertheless, the requirement of providing the taxpayer with written notice of the facts and law used as basis for the assessment is not to be mechanically applied. Emphasis on the purpose of the written notice is important. The requirement should be in place so that the taxpayer could be adequately informed of the basis of the assessment enabling him to prepare an intelligent protest or appeal of the assessment or decision. In Samar-I Electric Cooperative v. CIR,8 the Court elaborated:
The above information provided to petitioner enabled it to protest the PAN by questioning respondent's interpretation of the laws cited as legal basis for the computation of the deficiency withholding taxes and assessment of minimum corporate income tax despite petitioner's position that it remains exempt therefrom. In its letter-reply dated May 27, 2002, respondent answered the arguments raised by petitioner in its protest, and requested it to pay the assessed deficiency on the date of payment stated in the PAN. A second protest letter dated June 23, 2002 was sent by petitioner. to which respondent replied (letter dated July 8, 2002) answering each of the two issues reiterated by petitioner: (1) validity of EO 93 withdrawing the tax exemption privileges under PD 269; and (2) retroactive application of RR No. 8-2000. The FAN was finally received by petitioner on September 24, 2002, and protested by it in a letter dated October 14, 2002 which reiterated in lengthy arguments its earlier interpretation of the laws and regulations upon which the assessments were based.
Although the FAN and demand letter issued to petitioner were not accompanied by a written explanation of the legal and factual bases of the deficiency taxes assessed against the petitioner, the records showed that respondent in its letter dated April 10, 2003 responded to petitioner's October 14, 2002 letter-protest, explaining at length the factual and legal bases of the deficiency tax assessments and denying the protest.
Considering the foregoing exchange of correspondence and documents between the parties, we find that the requirement of Section 228 was substantially complied with. Respondent had fully informed petitioner in writing of the factual and legal bases of the deficiency taxes assessment, which enabled the latter to file an "effective" protest, much unlike the taxpayer's situation in Enron. Petitioner's right to due process was thus not violated.
Thus, substantial compliance with the requirement under Section 228 of the NIRC is permissible, provided that the taxpayer would be eventually apprised in writing of the factual and legal bases of the assessment to allow him to file an effective protest against.9 (Citation omitted)
However, for the deficiency tax assessment for 2012, respondent was able to file a protest only on the FAN. The facts are not clear whether respondent received a copy of the PAN within a reasonable time as to enable it to file a protest/reply before the FAN was issued. As such, the 2012 FAN should be voided for violating respondent's due process rights.
In Commissioner of Internal Revenue v. Transitions Optical Philippines, Inc.,10 we held that "[t]he PAN is a part of due process. It gives both the taxpayer and the Commissioner of Internal Revenue the opportunity to settle the case at the earliest possible time without the need for the issuance of a FAN."11
In Mannasoft, the Notice of Informal Conference (NIC), PAN, and FAN were personally served on individuals who were not authorized representatives of the taxpayer. While the taxpayer argued that it did not receive the NIC and PAN, it was still able to file its protest to the FAN. This Court held that the "sending and actual receipt of the PAN is part and parcel of the due process requirement in the issuance of a deficiency tax assessment that the BIR must strictly comply with."12 This is because the PAN "presents an opportunity for both the taxpayer and the BIR to settle the case at the earliest possible time without need for the issuance of a FAN."13 Hence, with the improper service of the NIC and PAN, the succeeding FAN was necessarily void and without effect.
Indeed, in Mannasoft, the taxpayer was denied due process because it did not receive the NIC and PAN, and thus, was deprived of the opportunity to contest the findings of the revenue officers, adduce its evidence, and possibly settle the case at the preliminary stage of the assessment process.
Previous cases are consistent with this ruling.
In Commissioner of Internal Revenue v. Yumex Philippines Corporation,14 the taxpayer received the PAN and FAN on the same day although posted by the Bureau of Internal Revenue on different dates. This Court held that there was a violation of due process15 as the taxpayer was not given any notice of the PAN and was deprived of the opportunity to respond to it before being given the final assessment.16
In Pilipinas Shell Petroleum Corporation v. Commissioner of Internal Revenue,17 this Court stressed that while the petitioner "indeed protested the formal assessment, such does not denigrate the fact that it was deprived of statutory and procedural due process to contest the assessment before it was issued."18
In Commissioner of Internal Revenue v. Metro Star Superama, Inc.,19 this Court stated that the PAN is a substantive requirement of due process, and failure to serve the PAN on the taxpayer renders the assessment void:
From the provision quoted above, it is clear that the sending of a PAN to taxpayer to inform him of the assessment made is but part of the "due process requirement in the issuance of a deficiency tax assessment," the absence of which renders nugatory any assessment made by the tax authorities. The use of the word "shall" in subsection 3.1.2 describes the mandatory nature of the service of a PAN. The persuasiveness of the right to due process reaches both substantial and procedural rights and the failure of the CIR to strictly comply with the requirements laid down by law and its own rules is a denial of Metro Star's right to due process. Thus, for its failure to send the PAN stating the facts and the law on which the assessment was made as required by Section 228 of R.A. No. 8424, the assessment made by the CIR is void.20 (Citation omitted)
ACCORDINGLY, I vote to PARTLY GRANT the Petition. The November 10, 2021 Decision and October 7, 2022 Resolution of the Court of Tax Appeals En Banc in CTA EB No. 2233 should be REVERSED and SET ASIDE insofar as it upheld the cancellation of the deficiency tax assessments for taxable year 2009.
Footnotes
1 CONST., art. III. sec. 1.
2 J. Sandoval-Gutierrez, Concurring and Dissenting Opinion in Abakada Guro Party List v. Ermita, 506 Phil. 1, 224 (2005) [Per J. Austria-Martinez, En Banc].
3 Rizal Commercial Banking Corporation v. Commissioner of Internal Revenue, 524 Phil. 524, 529 (2006) [Per J. Ynares-Santiago, First Division]; Commissioner of Internal Revenue v. Reyes, 516 Phil. 176, 190 (2006) [Per C.J. Panganiban, First Division].
4 Commissioner of Internal Revenue v. Fitness by Design, Inc., 799 Phil. 391, 409 (2016) [Per J. Leonen, Second Division]. See also Commissioner of Internal Revenue v. Reyes, 516 Phil. 176, 190 (2006) [Per C.J. Panganiban, First Division].
5 G.R. No. 244202, July 10, 2023 [Per J. Dimaampao, Third Division].
6 Id. at 9-10. This pinpoint citation refers to the Decision uploaded to the Supreme Court website.
7 784 Phil. 874 (2016) [Per J. Mendoza, Second Division].
8 749 Phil. 772 (2014) [Per J. Villarama, Third Division].
9 Commissioner of Internal Revenue v. Liquigaz Philippines Corp., 784 Phil. 874, 894-896 (2016) [Per J. Mendoza, Second Division].
10 821 Phil. 664 (2017) [Per J. Leonen, Third Division].
11 Id. at 679.
12 Mannasoft Technology Corporation v. Commissioner of Internal Revenue, G.R. No. 244202, July 10, 2023 [Per J. Dimaampao, Third Division], at 10.
13 Id. (Citation omitted)
14 902 Phil. 87 (2021) [Per C.J. Gesmundo, First Division].
15 Id. at 102.
16 Id. at 98.
17 565 Phil. 613 (2007) [Per J. Velasco, Jr., Second Division].
18 Id. at 656.
19 652 Phil. 172 (2010) [Per J. Mendoza, Second Division].
20 Id. at 186-187.
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