REPUBLIC OF THE PHILIPPINES

COURT OF TAX APPEALS

QUEZON CITY

ENBANC

COMMISSIONER OF CTA EB NO. 2589

INTERNAL REVENUE, (CTA CASE NO. 9960)
Petitioner,

Present:

DEL ROSARIO, P.J.,

RINGPIS-LIBAN,
MANAHAN,
-versus- BACORRO-VILLENA,
MODESTO-SAN PEDRO,
REYES-FAJARDO,
CUI-DAVID, and
FERRER-FLORES,]].

Promulgated:

0
~~~~~-~ ~~~~~~~-~~~;~ ~~,~~-----~-~~-~ -~~3 ;?zr-,--·
DECISION

RINGPIS-LIBAN, J.:

The Case

Before the Court En Bane is the Petition for Review filed by the
Commissioner of Internal Revenue (CIR) under Section 18 of Republic Act No.
1125 (RA 1125), as amended, 1 assailing the August 23, 2021 Decision 2 and the
February 24, 2022 Resolution 3 of the First Division.

T he dispositive portion of the assailed decision reads:

" In view o f the palpable violation of petitioner's right to procedural

due process, the FLDs, Assessment Notices, and Amended Assessment
Notices-- being fatally infirm-- should be considered void; and must perforce
be cancelled and set aside~

1 Petition for Review, Rollo, p. 5

2 Rollo, pp. 21-40.
3 !d., pp. 42-48.
DECISION
erA EB NO. 2589 (erA CASE NO. 9960)
Page 2 of 28

WHEREFORE, premises considered, the Petition for Review filed

by petitioner Casas + Architects is hereby GRANTED. Accordingly, the
Formal Letter of Demand with Details of Discrepancies and Assessment
Notices, all dated January 13, 2017, are CANCELLED and WITHDRAWN.
The Final Decision on Disputed Assessment with attached Details of
Discrepancies and Amended Assessment Notices, all dated September 18,
2018, which demanded from petitioner the payment of the alleged value-added
tax, expanded withholding tax, withholding tax on compensation,
documentary stamp tax, and compromise penalty for taxable year 2013 in the
total amount of Twenty-Eight Million Four Hundred Three Thousand Four
Hundred Thirty-Three Pesos and 97/100 (P28,403,433.97), inclusive of
interest and surcharge, are SET ASIDE.

Respondent Commissioner of Internal Revenue, his authorized

representatives or any other person acting on his behalf are hereby
ENJOINED from enforcing the collection of aforesaid taxes covered by the
Formal Letter of Demand with Details of Discrepancies and Assessment
Notices, all dated January 13, 2017 and Final Decision on Disputed
Assessment with attached Details of Discrepancies and Amended Assessment
Notices, all dated September 18, 2018.

SO ORDERED."

The dispositive portion of the assailed resolution reads:

"WHEREFORE, premises considered, respondent's 'Motion for

Reconsideration' posted on October 5, 2021 is hereby DENIED for lack of
merit.

SO ORDERED."

The Parties

Petitioner CIR is the duly appointed Chief of the Bureau of Internal

Revenue (BIR), vested by law with the authority to carry out the functions, duties
and responsibilities of his Office, including inter alia, the power to decide disputed
assessments, cancel and abate tax liabilities pursuant to the provisions of the
National Internal Revenue Code of 1997 (NIRC), as amended, and other tax
laws, rules and regulations. Respondent is represented by the Legal Division of
Revenue Region No. 8, Makati City, 2/F BIR Building, 313 Sen. Gil Puyat
Avenue, Makati City.4

Respondent taxpayer, Casas + Architects, is a duly registered professional

partnership existing under the laws of the Philippines, with Securities and
Exchange Commission (SEC) Registration No. A 1996-6511 and principal office
at Paseo ~enter. R757 Pas('o d(' Roxas. Rel-Air. Makari ~itv. 5
. . ·~

--------------------
4
Decision, Rollo, p. 22.
5
/d., Rollo. p. 21.
DECISION
CTA EB NO. 2589 (CTA CASE NO. 9960)
Page 3 of 28

Respondent's primary purpose, as stated in Article V of its Amended

Articles of Partnership is as follows:

'To provide architectural services requiring application of

the science, art, or profession of planning sites, planning or
designing buildings or architectural structures and their related
facilities, interior design and decoration, landscaping, land
development by and under the direct supervision of certified
architects and other licensed personnel, and do any and all things
which a partnership of this kind may lawfully do, including, without
limitations, consultation, investigation, evaluation, planning,
design, preparation of instruments of services such as drawings and
specifications, and the supervision of construction insofar as
customarily performed by architects.' 6

The Facts

Proceedings Before the BIR

On August 26,2014, the BIR issued a Letter of Authority (LOA) No. 050-
2014-00000309 dated August 26, 2014 and signed by Mr. Jonas DP. Amara,
Revenue Regional Director of Revenue Region No. 8-Makati City, authorizing
Revenue Officer (RO) Joey Fragrante, under the supervision of Group
Supervisor (GS) Roderick Cantillana of Revenue District Office (RDO) No. 50
- South Makati, to examine the taxpayer's books of accounts and other
accounting records for all internal revenue taxes for the period January 1, 2013
to December 31, 2013 (taxable year 2013). 7

Subsequently, the Revenue District Officer of RDO No. 50, Rosita U.

Meniano, issued a Memorandum of Assignment (MOA) dated June 17, 2016,
authorizing RO Angeline S. Ifurung and GS Ma. Carmen V. Sy to continue the
audit/investigation of the taxpayer. 8

On December 28, 2016, as a result of the audit and examination of the

taxpayer's records, the CIR issued a Preliminary Assessment Notice (PAN) with
attached Details of Discrepancies, which proposed to assess the taxpayer value-
added tax (VAT), expanded withholding tax (EWT), withholding tax on
compensation (WTC), documentary stamp tax (DST), and compromise penalty
for taxable year 2013. The taxpayer received the PAN on January 9, 2017. 9

On January 20, 2017, the taxpayer received a Formal Letter of Demand

(FLD) with attached Details of Discrepancies and Assessment Notices, all dated
/'¥'

6 !d., p. 22.
7 Id; Amended Pre-Trial Order dated January 3, 2020, Division Docket, Vol. III, p. 1614-1615;
Exhibit R-1, BIR Records, p. 3.
8 ld., p. 23.
9 !d.
DECISION
CTA EB NO. 2589 (CTA CASE NO. 9960)
Page 4 of 28

January 13, 2017, which demanded the payment of the alleged VAT, EWT,
WTC, DST, and compromise penalty for taxable year 2013, in the total amount
of Twenty-Four Million Three Hundred Fifty-Seven Thousand Five Hundred
Forty-Four and 81/100 Pesos (PhP24,357,544.81), inclusive of interest and
surcharge. 10

On February 17, 2017, the taxpayer ftled a Letter Protest to the Formal
Assessment Notice (FAN) contesting the alleged deficiency taxes and
compromise penalty. 11

On September 25, 2018, the taxpayer received a Final Decision on

Disputed Assessment (FDDA) with attached Details of Discrepancies and
Amended Assessment Notices for VAT, EWT, and compromise penalty, all
dated September 18, 2018, partia!!J granting its Letter Protest. However, the
FDDA still demanded the payment of the deficiency taxes and compromise
penalty for taxable year 2013 in the total amount of Twenty-Eight Million Four
Hundred Three Thousand Four Hundred Thirty-Three and 97/100 Pesos
(PhP28,403,433.97), inclusive of interest and surcharge, broken down as
follows: 12

Tax Typ_e Amount

VAT PhP 5,368,542.26
EWT 21,955,917.46
WTC 751,610.88
DST 322,363.37
Compromise Penalty 5,000.00
Total: PhP 28,403,433.97

Proceedings Before the Court of Tax Appeals (CTA) First Division

Aggrieved, the taxpayer ftled a Petition for Review on October 24, 2018
with the court a quoY

On December 20,2018, the CIR filed his Answer through registered mail
setting forth special and affirmative defenses. 14

On January 25, 2019, the taxpayer ftled its Reply (Re: Respondent's
Answer dated December 20, 2018). 15

On February 1, 2019, the court a quo issued a Resolution referring the case
to the Philippine Mediation Center- Court of Tax Appeals (PMC-CTA). 16
/""'
10 lei.
11 lei.
12 lei., p. 24.
13 lei.
14 lei.
15 lei.
16 lei.
DECISION
CTA EB NO. 2589 (CTA CASE NO. 9960)
Page 5 of 28

On February 21, 2021, the court a quo received PMC-CTA Form No.6-
No Agreement to Mediate. 17

On May 24, 2019, the parties filed their respective Pre-Trial BriefsY

On May 30, 2019, the Pre-Trial Conference was held. The parties
subsequently filed their Joint Stipulation of Facts and Issues on June 19, 2019.
Thereafter, the court a quo issued a Pre-Trial Order on July 31, 2019, which
terminated the Pre-Trial Conference. 19

During trial, the taxpayer presented the following witnesses: Bernadith B.

Naiiaga, and Independent Certified Public Accountant Madonna Mia S. Dayego.
Then it filed its Formal Offer of Documentary Exhibits on October 30, 2019 via
registered mail. Its exhibits were admitted in evidence in the Resolution dated
December 6, 2019. 20

On the other hand, the CIR presented the testimony of Angeline S.

Ifurung. Respondent's exhibits, which were contained in his Formal Offer of
Exhibits filed on February 27, 2020, were admitted in the Resolution dated July
1, 2020. 21

Although the taxpayer flled its Memorandum on September 3, 2020, the

CIR failed to file his Memorandum despite due notice. 22

On September 21,2020, the case was finally submitted for decision. 23

On August 23, 2021, the court a quo promulgated the assailed decision
which voided, cancelled and set aside the CIR's FLDs, Assessment Notices and
Amended Assessment Notices. 24

In its February 24, 2022 Resolution, the court a quo denied the CIR's
Motion for Reconsideration for lack of merit 25

Hence, the appeal before the Court En Bane.

n/

17 /d.
18 /d.
19 Id., pp. 24-25.
20 Id., p. 25.
21 /d.
22 /d.
23 /d.
24 /d., p. 39.
2s Jd., p. 47.
DECISION
CTA EB NO. 2589 (CTA CASE NO. 9960)
Page 6 of 28

Proceedings Before the CTA En Bane

On March 23,2022, the CIR filed a Motion for Extension of Time to File
Petition for Review by registered maii.26

On April 7, 2022, the CIR filed a Petition for Review before the Court En
Bane also by registered mail. 27

On May 4, 2022, the Court issued a Resolution, which granted the CIR's
motion and directed the taxpayer to file its comment within ten (1 0) days from
notice. 28

Accordingly, on May 23, 2022, the taxpayer flied its Comment (Re:
Petitioner's Petition for Review dated April 7, 2012). 29

On June 13, 2022, the Court issued a Resolution, which referred the
parties to PMC-CTA for mediation. 30 However, the PMC-CTA issued a No
Agreement to Mediate dated July 21,2022. 31

In a Resolution dated August 23, 2022, the Court noted the No

Agreement to Mediate and finally submitted the case for decision. 32

The Issues

As grounds for its appeal, the CIR stated that the Court a quo erred:

1. In resolving that the revenue officer and group supervisor who

continued the audit were not authorized by a valid LOA;

2. In resolving issues which were not raised by the taxpayer in its Letter
Protest to the FAN and in its Petition for Review; and,

3. In resolving that the taxpayer was not afforded due process. 33

~

26 Rollo, pp. 1-3.

27 !d., pp. 5-19.
28 !d., pp. 58-59.
29 !d., pp. 60-75.
30 !d., pp. 76-77.
31 !d., p. 78.
32 !d., pp. 80-81.
33 Petition for Review, Rollo, pp. 9-10.
DECISION
erA EB NO. 2589 (erA CASE NO. 9960)
Page 7 of 28

The Arguments of the Parties

The CIR's Arguments

Petitioner CIR assails the decision and resolution of the court a quo on the
grounds that the (a) LOA issued by the RD created a principal-agent relationship
between the RD and the ROs named therein, thus, the authority of the RO can
be ratified or cured tacitly by the RD;34 (b) Court a quo cannot grant relief that
was never prayed for by the taxpayer; 35 and finally, (c) Taxpayer was afforded
reasonable time and opportunity to assail the assessment. 36

The Taxpayer's Arguments

Respondent taxpayer asserts that the CIR merely rehashed his arguments
in the Motion for Reconsideration dated October 5, 2021 37 In general, no cogent
reason exists to warrant the reversal of the assailed decision and resolution of the
court a quo. 38 In particular, the (a) CIR violated the taxpayer's right to due process
when it issued the FAN only four (4) days after the latter received the PAN ;39 (b)
Assessments are void for lack of authority of the ROs who conducted/ continued
the audit;40 (c) Reassignment or transfer of the audit or investigation of taxpayer's
books of account and other accounting records requires the issuance of a new
LOA;41 and, (d) MOA signed by RDO Rosita U. Meniano did not clothe RO
Angeline S. Ifurung and GS Ma. Carmen V. Uy with authority to conduct and/ or
continue the audit. 42

The Ruling of the Court En Bane

In Republic of the Philippines, represented by the Commissioner ofInternal Revenue v.

Team (Phils.) Energy Corporation (former!J Mirant (Phils.) Energy Corporation),43 the
Supreme Court ruled that "it is fundamental that the findings of fact by the CTA
in Division are not to be disturbed without any showing of grave abuse of
discretion considering that the members of the Division are in the best position
to analyze the documents presented by the parties/'

34
Petition for Review, Rollo, pp. 11-13.
35 Id., pp. 13-16.
36 Id., pp. 16-17.
37
Comment (Re: Petitioner's Petition for Review dated April 7, 2012), Rollo, p. 60.
38 Id.
39 Id.,
pp. 61-68.
40
Id.,
pp. 68-70.
41 Id.,
pp. 70-71.
42 Id.,
pp. 72-74.
43
G.R. No. 188016, January 14,2015, citing Sea-Land Service, Inc. v. Court of Appeals, G.R. No.
122605, April 30, 2001.
DECISION
CTA EB NO. 2589 (CTA CASE NO. 9960)
Page 8 of 28

In this case, petitioner CIR does not dispute the findings of fact of the
court a quo and quoted, without raising any issue, the narration in the assailed
decision. 44
However, petitioner finds issue with the assailed decision, which granted
the taxpayer's petition and cancelled and set aside the FLDs, Assessment Notices
and Amended Assessment Notices issued against the taxpayer. 45 Yet the petition
raised no new contentions which, as the respondent taxpayer already noted, were
merely echoed from previous ones. 46

The petition, thus, fails to persuade.

The petition was timely filed.

As stated, this is an appeal under Section 18 of RA 1125, as amended,

from the August 23, 2021 Decision of the court a quo, which voided, cancelled and
set aside the CIR's FLDs, Assessment Notices and Amended Assessment Notices
and the February 24, 2022 Resolution, which denied the CIR's Motion for
Reconsideration for lack of merit.

From the records, petitioner received the assailed resolution on March 8,

2022.

Rule 8, Section 3(b) of the RRCTA provides:

"(b) A party adversely affected by a decision or resolution of a Division

of the Court on a motion for reconsideration or new trial may appeal to the
Court by filing before it a petition for review within fifteen days from receipt
of a copy of the questioned decision or resolution. Upon proper motion and
the payment of the full amount of the docket and other lawful fees and deposit
for costs before the expiration of the reglementazy period herein fixed the
Court may grant an additional period not exceeding fifteen days from the
expiration of the original period within which to ftle the petition for review.
(Rules of Court, Rule 42, sec. Ia)" (Underscoring supplied)

Under the RRCTA, the CIR had fifteen (15) days from receipt of the
questioned resolution or until March 23, 2022 to flle the petition. Accordingly,
the Motion for Extension of Time to File Petition for Review flied on March 23,
2022 was filed within the reglementary period.

The motion, furthermore, asked for another fifteen (15) days from March
23, 2022 or until April 7, 2022 to flle the petition.

The CIR finally filed the petition on April 7, 202?"

44 Please see the Petition for Review, Rollo, pp. 7-9.

45 Rollo, p. 39.
46 Resolution dated February 24, 2022, Rollo, p. 43.
DECISION
CTA EB NO. 2589 (CTA CASE NO. 9960)
Page 9 of 28

In the May 4, 2022 Resolution, the Court considered petitioner's motion

as deemed granted in the interest of substantial justice. 47

Accordingly, based on the foregoing, insofar as petitioner ftled the motion

before the expiration of the original 1S-day reglementary period and paid the full
amount of the docket and fees, the petition filed on April 7, 2022, which was
within the second 1S-day period covered by the extension, was seasonab!J filed.

The RO and GS, who continued the

audit, were not authorized by a valid
LOA which, thus, rendered the
assessment void

The facts remain undisturbed.

LOA No. OS0-2014-00000309 dated August 26, 2014 and signed by Mr.
Jonas DP. Amora, Revenue Regional Director of Revenue Region No. 8-Makati
City, authorized RO Joey Fragrante, under the supervision of GS Roderick
Cantillana of RDO No. SO - South Makati, to examine the taxpayer's books of
accounts and other accounting records for all internal revenue taxes for taxable
year 2013. 48

Thereafter, the Revenue District Officer of RDO No. SO, Rosita U.

Meniano, issued a MOA dated June 17, 2016, authorizing a new RO Angeline S.
Ifurung and a new GS Ma. Carmen V. Sy to continue the examination of the
taxpayer. 49

Thus, it appeared that the original RO was not the examiner who actually
conducted the audit but the new RO and GS, by virtue of this MOA.

In this case, no new LOA was issued specifying the new RO Angeline S.
Ifurung and the new GS Ma. Carmen V. Sy as the new examiners and clothing
them with authority. Their authority was anchored only on the MOA, which was
signed only by the Revenue District Officer and which, in effect, amended the
LOA that was signed by no less than the Revenue Regional Director, a higher
ranking official of the BIR.

Section 13 of the NIRC requires that an RO must be validly authorized

by a LOA before conducting an audit of a taxpayer:

"Sec. 13. Authority of a Revenue Offi,·er. - Subject to the rules and

regulations to be prescribed by the Secretary of Finance, upon
recommendation of the Commissioner, a Revenue Officer assigned to
/""'

47
Rollo, p. 59.
48 Decision, Rollo, p. 22; Amended Pre-Trial Order dated January 3, 2020, Division Docket, Vol. III,
p. 1614-1615; Exhibit R-1, BIR Records, p. 3.
49
ld., p. 23.
 DECISION
CTA EB NO. 2589 (CTA CASE NO. 9960)
Page 10 of 28

perform assessment functions in any district may. pursuant to a Letter of

Authorit;y issued by the Revenue Regional Director examine taxpayers within
the jurisdiction of the district in order to collect the correct amount of tax, or
to recommend the assessment of any deficiency tax due in the same manner
that the said acts could have been performed by the Revenue Regional
Director himself." (Underscoring supplied)

Considering that a LOA clothes the RO with the authority to assess and
examine the books of account and records of a taxpayer, such power is
necessarily subject to reasonable limitations. In particular, Section C(S) of RMO
NO. 43-90, 50 mandates that any re-assignment/t ransfer of cases to another RO
requires the issuance of a new LOA and Section D(S) limits the officials who may
validly issue a LOA to only the CIR, Deputy Commissioners and Revenue
Regional Directors:

"C. Other policies for issuance of L/ As.

1. All audits/investigatio ns, whether field audit or office audit, should be

conducted under a Letter of Authority.

2. The duplicate of each internal revenue tax which is specifically

indicated in the L/ A shall be attached thereto, unless a return is not required
under the Tax Code to be filed therefor or when the taxpayer has not filed a
return or the Assessment Branch has certified that no return is on file therein
or the same cannot be located.

3. A Letter of Authority should cover a taxable period not exceeding one

taxable year. The practice of issuing L/ As covering audit of 'unverified prior
years' is hereby prohibited. If the audit of a taxpayer shall include more than
one taxable period, the other periods or years shall be specifically indicated in
theL/A.

4. The maximum workload for a revenue officer shall, at any one time,
not exceed 10 cases in the case of field audit and 30 in the case of office audit.
If his pending cases are less than ten for field audit cases or thirty for office
audit cases, whichever is applicable, (excluding reported cases which were
returned to him by audit reviewers for further compliance with certain
requirements), he may be assigned additional tax returns or cases to replenish
those cases the audit of which were terminated and report thereon submitted
to the Revenue District Officer for field cases and Chief, Assessment Branch
for office audit cases. For purposes of determining the workload of each RO,
each L/ A shall be counted as one case. Thus, a L/ A for income tax
examination and a L/ A for VAT which may be assigned to a RO shall be
counted as two (2) cases. The workload limitation shall not apply to cases
pending in the hands of a RO who was transferred to another district and such
cases are re-assigned to other ROs in the same district. If, however, a return is
assigned to more than one RO for purposes of team audit under only one L/ A,
each RO who is a member of the team or group shall be considered as having
been assigned one case in determining the maximum number of cases to be
assigned to each RO,/v"'

50Subject: Amendment of Revenue Memorandum Order No. 37-90 Prescribing Revised Policy
Guidelines for Examination of Returns and Issuance of Letters of Authority to Audit.
DECISION
CfA EB NO. 2589 (CfA CASE NO. 9960)
Page 11 of 28

5. Any re-assignment/tran sfer of cases to another RO(s). and

revalidation of L/As which have already expired. shall require the issuance of
a new L/A. with the corresponding notation thereto. including the previous
L/A number and date of issue of said L/As.

6. The audit of VAT returns by qualified ROs must strictly comply with
examination policy prescribed in RMO No. 18-90 announcing the results of
the VAT Audit Proficiency Examination.

D. Preparation and issuance of L/ As.

1. All L/ As for cases selected and listed pursuant to RMO No. 36-90 to
be audited in the revenue regions shall be prepared and signed by the Regional
Director (RD).

2. The Regional Director shall prepare and sign the L/ As for returns
recommended by the RDO for assignment to the ROs, indicating therein the
name and address of the taxpayer, the name of the RO(s) to whom the L/ A is
assigned, the taxable period and kind of tax; after which he shall forward the
same to the RDO or Chief, Assessment Branch, who in tum shall indicate the
date of issue of the L/ A prior to its issuance.

3. The L/As for investigation of taxpayers by National Office audit

offices (including the audit division in the Sector Operations Service and
Excise Tax Service) shall be prepared in accordance with the procedures in the
preceding paragraph, by their respective Assistant Commissioners and signed
by the Deputy Commissioner concerned or the Commissioner. The L/ As for
investigation of taxpayer by the intelligence and Investigation Office and any
other special audit teams formed by the Commissioner shall be signed by the
Commissioner of Internal Revenue.

4. For the proper monitoring and coordination of the issuance of Letter

of Authority. the only BIR officials authorized to issue and sign Letters of
Authority are the Regional Directors. the Deputy Commissioners and the
Commissioner. For the exigencies of the service, other officials may be
authorized to issue and sign Letters of Authority but only upon prior
authorization by the Commissioner himself.

5. All issued L/ As shall be monitored in accordance with RMO No. 4-

89 and 12-89." (Underscoring supplied)

Clearly, since no new LOA was issued covering them, the new RO and GS
were not authorized to conduct an audit of the taxpayer's books of accounts.

Recently, in Himlayang Filipino Plans, Inc. v. Commissioner of Internal Revenue

(Himlayang Pilipino), 51 the Supreme Court invalidated a CY 2009 BIR assessment
for lack of an LOA authorizing the RO, thus:

"The Jack ofa valid LOA authorizing

Revenue Oflicer Bagauisan to conduct
an audit on petitiotJer n1akes tbe
assessment void~

'' G.R. No. 241848, May 14, 2021.

DECISION
CTA EB NO. 2589 (CTA CASE NO. 9960)
Page 12 of 28

An LOA is the authority given to the appropriate revenue officer

assigned to perform assessment functions. It empowers or enables said
revenue officer to examine the books of account and other accounting records
of a taxpayer for the purpose of collecting the correct amount of tax.

In Commissioner of Internal Revenue v. Sony Pht!ippines, Inc. the Court

nullified the deficiency VAT assessment made against Sony Philippines
because the revenue officers went beyond their authority when they based the
assessment on records from January to March 1998 or using the fiscal year
which ended in March 31, 1998 when the LOA covered only 'the period 1997
and unverified prior years.' According to the Court:

Clearly, there must be a grant of authority before any

revenue officer can conduct an examination or
assessment. Equally important is that the revenue officer so
authorized must not go beyond the authority given. In the
absence of such an authority, the assessment or
examination is a nullity. (Emphasis supplied)

In Medicard Philtppines, Inc. v. CIR, the Court nullified the deficiency

VAT assessment against Medicard Philippines because there was no LOA
issued by the CIR prior to the issuance of PAN and FAN. The Letter of Notice
earlier sent to Medicard Philippines was not validly converted into a LOA.
According to the Court in Medicard Philippines:

What is crucial is whether the proceedings that led to

the 1ssuance of VAT deficiency assessment against
MEDICARD had the prior approval and authorization from
the CIR or her duly authorized representatives. Not having
authority to examine MEDICARD in the first place, the
assessment issued by the CIR is inescapably void.
(Emphasis supplied)

Here. as comprehensively discussed. there was no new LOA issued by

the CIR or his duly authorized representative giving revenue officer Bagauisan
the power to conduct an audit on petitioner's books of accounts for taxable
year 2009. The importance of the lack of the revenue officer's authority to
conduct an audit cannot be overemphasized because it goes into the validity
of the assessment. The lack of authority of the revenue officers is tantamount
to the absence of a LOA itself which results to a void assessment. Being a void
assessment the same bears no fruit.

Lastly, as stated in Presiding Justice Del Rosario's dissenting opinion

on the CTA En Bane's decision, the failure of petitioner to raise at the earliest
opportunity, the lack of the revenue officer's authority, does not preclude the
Court from considering the same because the said issue goes into the intrinsic
validity of the assessment itself.

WHEREFORE, the Petition for Review on Certiorari is hereby

GRANTED. The Decision dated February 12,2018 and the Resolution dated
July 24, 2018 rendered by the Court of Tax Appeals En Bane in EB Case No.
1513 are SET ASIDE. The Formal Letter of Demand with Details of
Discrepancies and Assessment Notices issued against petitioner Himlayang
Pilipino Plans, Inc. are hereby DECLARED UNAUTHORIZED for
having been issued without a Letter of Authority by the Commissioner of
~
DECISION
CTA EB NO. 2589 (CTA CASE NO. 9960)
Page 13 of 28

Internal Revenue or his duly authorized representative." (Underscoring supplied

and 1itations omitted)

In Commissioner of Internal Revenue v. McDonald's Realty Philippines Corp.

(McDonald's)," the Supreme Court decided in favor of the taxpayer in
connection with the reassignment of a RO and affirmed the CTA in invalidating
the CY 2006 assessment. It held that:

"The practice of reassigning or transferring revenue officers originally

named in the Letter of Authority J-,OA) and substituting or replacing them
with new revenue officers to continue the audit or investigation without a
separate or amended LOA (i) violates the taxpayer's right to due process in tax
audit or investigation; (ii) usurps the statutory power of the Commissioner of
Internal Revenue (CIR) or his duly authorized representative to grant the
power to examine the books of account of a taxpayer; and (iii) does not comply
with existing Bureau of Internal Revenue (BIR) rules and regulations on the
requirement of an LOA in the grant of authority by the CIR or his duiy
authorized representative to examine the taxpayer's books of accounts."
(Underscoring supplied)

Finally, in Republic of the Philippines v. Robiegie Corporation (Robiegie), 53 the

Supreme Court reiterated the doctrines in Himlayang Filipino and McDonald's on
the necessity of a LOA for the valid conduct of a taxpayer investigation by an
RO. In Robiegie, the Supreme Court affirmed the decision of the CTA En Bane,
which held that the RO who continued the audit of the taxpayer was not
authorized by a LOA, but merely by a Memorandum Referral signed only by the
Revenue District Officer, thus, the 2008 assessments were declared void:

"The petition has no merit. The assessments issued against Robiegie

are invalid as they are based on an unauthorized investigation into its accounts.

LOA as the source of BIR revenue officers'

investigatory powers

The Republic's witnesses admitted during the trial that the

investigation into Robiegie's accounts was conducted by RO Dy and reviewed
by RO Leonardo. both of whom were not named in the original July 2009
LOA. The Republic's witnesses further admitted that the reassignment of the
investigation to RO Dy and RO Leonardo was not made through an LOA but
through a memorandum referral only.

The necessity of a validly issued LOA for the valid conduct of a

taxpayer investigation by an RO is a well-settled doctrine embodied in our
statutocy and case law. In Medicard Philippines, Inc. v. CommiSJioner of Internal
Revenue, which involved a deficiency value-added tax assessment in the context
of the BIR's electronic 'no-contact-audit approach,' we discussed the dual
/V

52 G.R. No. 242670, May 10, 2021.

53 G.R. No. 260261, October 3, 2022.
DECISION
erA EB NO. 2589 (erA CASE NO. 9960)
Page 14 of 28

function of an LOA as the modality for the delegation of the CIR's

investigatory power and as a manifestation of due process:

XXX XXX XXX

Just last year, in Himlayang Pilipino Plans, Inc. v. Commissioner of Internal

Revenue, which also involved the reassignment of a deficiency tax investigation
to another RO without the issuance of a new LOA, we nullified the Formal
Letter of Demand and Assessment Notice issued against the taxpayer on the
basis of such investigation, thus:

XXX XXX XXX

This Court was more emphatic in Commissioner of Internal Revenue v.

McDonald's Philippines Realty Corp. (McDonald's), which opens with this
categorical declaration:

XXX XXX XXX

In that case, the RO authorized to investigate the accounts of

McDonald's Philippines Realty Corporation through a validly issued LOA was
transferred to another assignment; and the investigation was reassigned to
another RO through a referral memorandum, without the issuance of a new
LOA. We likewise invalidated the resultant assessment and demand:

XXX XXX XXX

The above-quoted rulings find mooring in Sections 5, 6(A) and 13 of

the NIRC, which vest tax compliance investigation powers in the CIR, subject
to delegation to 'duly authorized representatives' under Section 6(A). xxx.

XXX XXX XXX

xxx. The Republic's construction of Section 13 of the NIRC to mean that an

LOA is not an authorization but a mere notice of investigation to the taxpayer
is blatantly contrary to the text of the law. First, the concept of authorization
is inherent in the very language of Sections 6(A) and 13 of the NIRC, which
speak of a 'duly authorized representative' and a 'Letter of Authority.' Second,
the phrase 'pursuant to' in Section 13 means 'in the course of carrying out, in
conformance to or agreement with, [or] according to.' Thus, an RO may only
examine taxpayers, in the course of carcying out in conformance to or
agreement with, or according to, a validly issued LOA. Stated differently, under
the NIRC. the investigatocy powers of the ROs flow from the LOA. which is
the statutorily designated means by which the CIR deleg.ates its investigative
powers to the BIR revenue officers." (Citations omitted and underscoring supplied)

All told, the reassignment of the audit of the taxpayer to the new RO and
GS, without the issuance of a new LOA, renders the assessment void. A void
assessment bears no fruit. 54 It does not give rise to a legal obligation on the part of
the taxpayer to pay any deficiency tax due. Neither does it give rise to any legal
right on the part of the CIR to collect from the taxpayer by virtue of the void
assessmen;,v-

54 Commissioner ofInternal Revenue v. Metro Star Superama, Inc., G.R. No. 185371, December 8,
2010.
DECISION
CTA EB NO. 2589 (CTA CASE NO. 9960)
Page 1S of 28

Therefore, the court a quo did not err in finding that the RO and GS who
continued the audit of the taxpayer were not authorized by a LOA.

No reversible error was committed

when the court a quo resolved issues
that were not raised by the taxpayer
in the petition.

In its second assignment of error, petitioner raised two related points.

First, petitioner CIR contends that respondent taxpayer "never alleged, raised or
prove[d] that there was no Letter of Authority issued or served by the BIR in
[its] Petition for Review . . . and even through the evidence that [it] has
presented." 55 Second, the court a quo therefore should not have granted relief that
was not prayed in the pleadings in excess of what was being sought by the
taxpayer, citing the case of Chinatrust (Phils.) Commercial Bank v. Philip Turner
(Chinatrust) 56 as legal basis.

Petitioner's contentions are both inaccurate.

Contrary to petitioner's first contention, a review of the records show that

the taxpayer clearly alleged that it was "subjected to an audit investigation for the
period January 1, 2013 to December 31, 2013 pursuant to Letter of Authority
(LOA) No. 050-2014-00000309 dated August 26, 2014" in its Petition for
ReviewY This factual allegation was also covered by the Joint Stipulation of
Facts and Issues signed and then flied by the parties. 58 Thus, in concluding its
Petition for Review, the taxpayer prayed for the cancellation of the assessments
for taxable year 2013, 59 the relief that was eventually granted by the court a quo
in its decision.

The matter in question that was taken up by the court a quo was not
whether a LOA was issued. The existence of the LOA was never in dispute and
was joindy stipulated upon. The real issue, however, as correcdy appreciated by
the court a quo, was whether the new RO and the GS were authorized by the
existing LOA. As discussed, they were not named in the LOA but were only
assigned through a MOA.

Secondly, the case law in Chinatrust is inapplicable to this case. Chinatrust

held that the "[i]ssues that were not alleged or proved before the lower court
cannot be decided for the first time on appeal." Since the parties joindy stipulated
on the issuance of the LOA, the same is tantamount to a judicial admission under
Rule 129, Section 4 and there is no need to prove the same:
,.,.v-

55 Petition for Review, Rollo, pp. 13-16

56 G.R. No. 1914S8, July 3, 2017.
57 Division Docket, Vol. I, p. 12.
58 Division Docket, Vol. II, p. 1129.
59 Division Docket, Vol. I, p. 26.
 DECISION
CTA EB NO. 2589 (CTA CASE NO. 9960)
Page 16 of 28

"RULE 129

What Need Not Be Proved

XXX XXX XXX

Section 4. Judicial admissions. - An admission. oral or written. made by the

part;y in the course of the proceedings in the same case. does not require proof.
The admission may be contradicted only by showing that it was made through
palpable mistake or that the imputed admission was not, in fact, made. (4a)"

In Republic v. Sandiganbayan, 60 the Supreme Court En Bane explained that

stipulations made during trial are judicial admissions:

"It is settled that judicial admissions may be made: (a) in the pleadings
ftled by the parties; (b) in the course of the trial either by verbal or written
manifestations or stipulations; or (c) in other stages of judicial proceedings, as
in the pre-trial of the case. Thus, facts pleaded in the petition and answer, as
in the case at bar, are deemed admissions of petitioner and respondents,
respectively, who are not permitted to contradict them or subsequently take a
position contrary to or inconsistent with such admissions. We have always
adhered to the familiar doctrine that an admission made in the pleadings
cannot be controverted by the party making such admission and becomes
conclusive on him, and that all proofs submitted by him contrary thereto or
inconsistent therewith should be ignored, whether an objection is interposed
by the adverse party or not." (Underscoring supplied)

Third, the court a quo was not bound to adjudicate cases based only on
issues agreed upon by the parties. Rule 14, Section 1 of the RRCTA, expressly
grants it the discretion to decide related issues necessary to achieve an orderly
disposition of the case:

"RULE 14
JUDGEMENT, ITS ENTRY AND EXECUTION

SECTION 1. Rendition ofjudgment.- xxx.

In deciding the case, the Court may not limit itself to the issues
stipulated by the parties but may also rule upon related issues necessary to
achieve an orderly disposition of the case."

This Rule 14, Section 1 discretion was recognized and cited by the
Supreme Court in the recent case of Republic v. First Gas Power Corporation, 61 when
it affirmed the cancellation of the FAN and the FLD against the taxpayer, despite
the CIR's contention that the taxpayer could not raise the issue of prescription
for the first time on appeal:/

60 Republic v. Sandiganbayan, G.R. No. 152154, July 15, 2003.

6! G.R. No. 214933, February 15, 2022.
DECISION
CfA EB NO. 2589 (CfA CASE NO. 9960)
Page 17 of 28

"Meanwhile, petitioner's contention that respondent could not raise

the issue of prescription for the flrst time on appeal has long been settled in
the case of Bank ofthe Philippine Islands v. Commissioner ofInternal Revenue. Therein,
it was only when the case ultimately reached this Court that the issue of
prescription was brought up. Nevertheless, this Court ruled that the CIR could
no longer collect the assessed tax due to prescription, thus:

XXX XXX XXX

In the case of Commissioner oflnternal Revenue v. Lancaster Phi!i/2jJines. Inc..

this Court categorically ruled that the Revised Rules of the CTA clearly allowed
it to rule on issues not stipulated by the parties to achieve an orderly disposition
of the case, thus:

On whether the CTA can resolve an issue which was

not raised by the parties. we rule in the affirmative.

Under Section 1, Rule 14 of A.M. No. 05-11-07-CTA,

or the Revised Rules of the Court of Tax Appeals, the CTA is
not bound by the issues specifically raised by the parties but
may also rule upon related issues necessary to achieve an
orderly disposition of the case. The text of the provision reads:

SECTION 1. Rendition of judgment.

-XXX

In deciding the case, the Court may not

limit itself to the issues stipulated by the parties
but may also rule upon related issues necessary
to achieve an orderly disposition of the case.

The above section is clearly worded. On the basis

thereof. the CTA Division was. therefore. well within its
authorit;y to consider in its decision the 'luestion on the scope
of authorit;y of the revenue officers who were named in the
LOA even though the parties had not raised the same in their
pleadings or memoranda. The CTA En Bane was likewise
correct in sustaining the CTA Division's view concerning such
matter. (Citations omitted)

In view of the foregoing, the CTA correctly ruled on the issue of

prescription even if it was only raised for the flrst time on appeal." (Cztations
omitted; underscoring supplied)

The above section is clearly worded. On the basis thereof, the court a quo
was, therefore, well within its authority to consider in its decision the question
on the scope of authority of the revenue examiners who were not named in the
LOA.

No reversible error was committed

when the court a quo concluded that
~
DECISION
erA EB NO. 2589 (erA CASE NO. 9960)
Page 18 of 28

the taxpayer was denied due process

when the CIR tailed to wait for the
lapse of the fifteen- (15)-day period
from the taxpayer's receipt of the
PAN before issuing the FLD.

In its third and final assignment of error, petitioner CIR states that the
taxpayer was afforded due process because it was given reasonable time and
opporrunity to assail the assessment. Specifically, petitioner maintains that from
the issuance of the Notice of Informal Conference until the issuance of FAN
and even through oral arguments and through pleadings, the taxpayer was given
numerous opportunities to be heard and to assail the findings of the audit.

The taxpayer's remedy of protesting an assessment is found in Section 228

of the NIRC, as amended. It lays out the rules to be followed, thus:

"CHAPTER III

PROTESTING AN ASSESSMENT, REFUND, ETC.

SEC. 228. Protesting ofAJSmment. -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 pre-assessment
notice shall not be required in the following cases:

(a) When the fmding 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 excisable 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 prutcstcu auministrativdy 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
~
DECISION
CTA EB NO. 2589 (CTA CASE NO. 9960)
Page 19 of 28

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 tlllrty (30) days from receipt of the said decision, or from the
lapse of one hundred eighty (180)-day period; otherwise, the decision shall
become fmal, executory and demandable." (Underscoring supplied)

Revenue Regulations No. 12-99 (RR 12-99), as amended, implements

Section 228 of the NIRC, as amended, and Section 3.1.2 thereof spells out that
the taxpayer has fifteen (15) days to respond to the PAN:

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

Deficiency Tax Assessment. -

3.1. Mode of procedure in the issuance of a deficiency rax

assessment:

XXX XXX XXX

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. If the taxpayer fails to respondent 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 issued
by the said Office. calling for payment of the taxpayer's deficiency tax liability.
inclusive of the applicable penalties." (Emphasis supplied)

When the taxpayer received the PAN on January 9, 2017, it had fifteen
(15) days from such receipt, or until January 24, 2017, within which to respond
to the PAN, under Section 3.1.2 of RR No. 12-99, as amended. However, on
January 20,2017, before the lapse of the full 15-difY period, the taxpayer received the
FLD. In other words, the CIR failed to wait for the prescribed period to end
before issuing and serving the FLD. The FLD was, for that reason, issued
premature!J thereby depriving the taxpayer of the opportunity to be heard on the
PAN, in violation of the due process requirement of RR 12-99, as amended.

In 201 0, in Commissioner of!nternaf Revenue v. Metro StarS uperama, Inc., (Metro

62
Star) the Supreme Court affirmed the CT A, which ordered the CTR to desist
from collecting taxes by applying the procedure found in Section 228 of the
...-1/
62
G.R. No. 185371, December 8, 2010.
DECISION
CTA EB NO. 2589 (CTA CASE NO. 9960)
Page 20 of 28

NIRC, as amended, and as implemented by RR 12-99. It emphasized the

importance of strict compliance with the procedural rules for the issuance of PAN:

"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 strictjy 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.

The case of CIR v. Menguzto 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 CIR's 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. 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 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." (Citations omitted; italics and underscoring
supplied)

Recently, in Commissioner of Internal Revenue v. Avon Products Manufacturing,

Inc., (Avon) 63 the Supreme Court once again ruled in favor of the taxpayer after
finding that the CIR failed to observe administrative due process in the issuance of
the assessment. The Supreme Court, thus, concluded that the CIR's total
disregard of due process rendered the identical PAN, FANs, and the Collection
Letter null and void/

63
G.R. Nos. 201398-99, October 3, 2018.
DECISION
CTA EB NO. 2589 (CTA CASE NO. 9960)
Page 21 of 28

"Tax assessments issued in violation of the due process rights of a

taxpayer are null and void. While the government has an interest in the swift
collection of taxes, the Bureau of Internal Revenue and its officers and agents
cannot be overreaching in their efforts, but must perform their duties in
accordance with law, with their own rules of procedure, and always with regard
to the basic tenets of due process.

XXX XXX XXX

Xxx. Under Section 228, it is explicitly required that the taxpayer be

informed in writing of the law and of the facts on which the assessment is
made; otherwise, the assessment shall be void. Section 3.1.2 of Revenue
Regulations No. 12-99 requires the Preliminary Assessment Notice to show in
detail the facts and law, rules and regulations, or jurisprudence on which the
proposed assessment is based. Further, Section 3.1.4 requires that the Final
Letter of Demand must state the facts and law on which it is based; otherwise,
the Final Letter of Demand and Final Assessment Notices themselves shall be
void. Finally, Section 3.1.6 specifically requires that the decision of the
Commissioner or of his or her duly authorized representative on a disputed
assessment shall state the facts and law, rules and regulations, or jurisprudence
on which the decision is based. Failure to do so would invalidate the Final
Decision on Disputed Assessment.

The use of the word 'shall' in Section 228 of the [National Internal
Revenue Code] and in [Revenue Regulations] No. 12-99 indicates that the
requirement of informing the taxpayer of the legal and factual bases of the
assessment and the decision made against him [or her] is mandatory. This is
an essential requirement of due process and applies to the Preliminary
Assessment Notice, Final Letter of Demand with the Final Assessment
Notices, and the Final Decision on Disputed Assessment.

On the other hand, the taxpayer is explicitly given the opportunity to

explain or present his or her side throughout the process, from tax
investigation through tax assessment. Under Section 3.1.1 of Revenue
Regulations No. 12-99, the taxpayer is given 15 days from receipt of the Notice
for Informal Conference to respond; otherwise, he or she will be considered
in default and the case will be referred to the Assessment Division for
appropriate review and issuance of deficiency tax assessment, if warranted.
Again. under Section 228 of the Tax Code and Section 3.1.2 of Revenue
Regulations No. 12-99 the taxpayer is re\juired to respond within 15 days from
receipt of the Preliminary Assessment Notice; otherwise. he or she will be
considered in default and the Final Letter of Demand and Final Assessment
Notices will be issued. After receipt of the Final Letter of Demand and Final
Assessment Notices, the taxpayer is given 30 days to file a protest, and
subsequently, to appeal his or her protest to the Court of Tax Appeals.

XXX XXX XXX

The Notice of Informal Conference and the Preliminary Assessment

Notice are a part of due process. They give both the taxpayer and the
Commissioner the opportunity to settle the case at the earliest possible time
without the need for the issuance of a Final Assessment Notice. However, this
purpose is not served in this case because of the Bureau of Internal Revenue's
inaction or failure to consider Avon's explanations.

XXX XXX XXX

,...v
DECISION
erA EB NO. 2589 (erA CASE NO. 9960)
Page 22 of 28

I.C

The Commissioner's total disregard of due process rendered the

identical Preliminary Assessment Notice. Final Assessment Notices. and
Collection Letter null and void. and of no force and effect.

This Court has in several cases. declared void any assessment that
failed to stricdy comply with the due process requirements set forth in Section
228 of the Tax Code and Revenue Regulation No. 12-99.

In Commissioner of Internal Revenue v. Metro StarSuperama, Im·., this Court

held that failure to send a Preliminary Assessment Notice stating the facts and
the law on which the assessment was made as required by Section 228 of the
Tax Code rendered the assessment made by the Commissioner as void. This
Court explained:

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 evidendy violative of the
cardinal principle in administrative investigations that
taxpayers should be able to present their case and adduce
supporting evidence. (Citation omitted)

In Commissioner of Internal Revenue v. Reyes, this Court ruled as void an

assessment for deficiency estate tax issued by the Commissioner for failure to
inform the taxpayer of the law and the facts on which the assessment was
made, in violation of Section 228 of the Tax Code.

In Pilipinas Shell Petroleum Corporation v. Commissioner of Internal Revenue,

this Court ruled, among others, that the taxpayer was deprived of due process
when the Commissioner failed to issue a notice of informal conference and a
Preliminary Assessment Notice as required by Revenue Regulation No. 12-99,
in relation to Section 228 of the Tax Code. Hence, the assessment was void.

Compliance with strict procedural requirements must be followed in

the collection of taxes as emphasized in Commissioner of Internal Revenue v. A\gue,
Inc.:

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 apparendy 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.

lt is said that taxes are what we pay for civilized society.

Without taxes, the government would be paralyzed for lack of
the motive power to activate and operate it. Hence, despite the
~
 DECISION
CfA EB NO. 2589 (CTA CASE NO. 9960)
Page 23 of 28

natural reluctance to surrender part of one's hard-earned

income to the 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
ofthe tax collector, he may still be stopped in his tracks if
the taxpayer can demonstrate ... that the law has not been
observed. (Emphasis supplied) ·

In this case, Avon was able to amply demonstrate the Commissioner's

disregard of the due process standards raised in Ang Tibay and subsequent
cases, and of the Commissioner's own rules of procedure. Her disregard of the
standards and rules renders the deficiency tax assessments null and void. This
Court, nonetheless, proceeds to discuss the points raised by the Commissioner
pertaining to estoppel and prescription." (Citations omitted; italics and underscoring
supplied)

In Commissioner ofInternal Revenue v. Yumex Philippines Corporation (Yumex),64

the Supreme Court ruled that the simultaneous receipt of the PAN and the
FLD/FAN, without giving the taxpayer the opportunity to answer the PAN
within the period provided in RR 12-99, violated the taxpayer's right to due
process under the Constitution and under Section 228 of the NIRC, as amended.
Consequently, it affirmed the decision of the CTA En Bane, which cancelled the
deficiency improperly accumulated earnings tax assessment:

"Clearly from the aforequoted provisions the taxpayer has fifteen (15)
days from date of receipt of the PAN to respond to the said notice. Only after
receiving the taxpayer's response or in case of the taxpayer's default can
respondent issue the FLO/FAN.

Per the evidence on record, the BIR issued a PAN dated December
16, 2010, which it posted by registered mail the next day, December 17, 2010.
It then issued and mailed the FLO/FAN on January 10, 2011. Although
posted on different dates. the PAN and FLO IF AN were both received by the
Post Office of Dasmariiias. Cavite. on I anuacy 17. 2011 and served upon and
received by respondent on lanuacy 18. 2011. Under the circumstances.
respondent was not given any notice of the prelirninacy assessment at all and
was deprived of the opportunity to respond to the same before being given
the final assessment.
~

64 G.R. No. 222476, May 5, 2021.

DECISION
CTA EB NO. 2S89 (CTA CASE NO. 9960)
Page 24 of 28

XXX XXX XXX

That respondent was able to file a protest to the FLD IFAN is of no

moment. In Pilipinas Shell Petroleum Corporation v. Commissioner of Internal Revenue,
the BIR ignored RR No. 12-99 and did not issue to the taxpayer, Pilipinas Shell
Petroleum Corporation (PSPC), a notice for informal conference and a PAN
as required; and as a result, deprived PSPC of due process in contesting the
formal assessment levied against it. The Court pronounced therein that '[w]hile
PSPC 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.' The Court once more reminded the BIR to
be more circumspect in the exercise of its functions as the power of taxation
is also sometimes called the power to destroy and, therefore, should be
exercised with caution to minimize injury to the proprietary rights of the
taxpayer.

Neither does the payment by respondent of the other items in the

FLD/FAN, particularly, the basic deficiency income and fringe benefits taxes
and compromise penalty, preclude it from questioning the validity of the
issuance of the assessment notices. The manner by which the assessment is
issued is a distinct matter in itself from the contents of the assessment.
Respondent's voluntary payment, while it may be viewed as acknowledgem ent
of its tax deficiencies for some of the assessed items, is not necessarily an
outright waiver of its right to question the impropriety of the issuance of the
assessment notices, especially in this case wherein respondent consistently
protested the IAET assessment against it. The fact that respondent's right to
due process was violated because it was denied the opportunity to respond to
the PAN remains glaringly evident and cannot be deemed erased or cured by
respondent's volitional payment of other assessed items.

Sec. 3.1.2 of RR No. 12-99 explicitly grants the taxpayer fifteen (15)
days from receipt of the PAN to file a response. If the taxpayer fails to do so
within the prescribed period, it will be considered in default and only then shall
petitioner or his duly authorized representative issue to the taxpayer an
FLD /FAN demanding payment of the assessed deficiency tax, surcharges, and
penalties. In the instant case though. the BIR did not ascertain respondent's
date of receipt of the PAN before issuing the FLD/FAN. but merely invoked
Sec. 3.1.7 ofRR No. 12-99 on constructive service, which states that '[i]fthe
notice to the taxpayer herein required is served by registered mail, and no
response is received from the taxpayer within the prescribed period from date
of posting thereof in the mail, the same shall be considered actually or
constructively received by the taxpayer.'

However, considering that Sec. 3.1.2 of RR No. 12-99 specifically

governs the PAN while Sec. 3.1.7 of the same regulations pertains generally to
the constructive service of notices, the former takes precedence in application
to the instant case in determining the period allotted for the taxpayer to
respond to a PAN. It is a rule of statutory construction that a special and
specific provision prevails over a general provision irrespective of their relative
position in the statute. Generalia specia/ibus non derogant. Where there is in the
same statute a particular enactment and also a general one which in its most
comprehensiv e sense would include what is embraced in the former, the
particular enactment must be operative, and the general enactment must be
taken to affect only such cases within its general language as are not within the
provisions of the particular enactment." (Undmcoring supplied)
~
 DECISION
CfA EB NO. 2589 (CfA CASE NO. 9960)
Page 25 of 28

Finally, Yumex was cited as basis in the 2022 case of Prime Steel Mill,
Incoporation v. Commissioner of Internal Revenue (Prime Steel),65 where the Supreme
Court invalidated the tax assessment because of violation of due process when,
again, the 15-day period to reply to the PAN was not observed:

"First. The issue on the violation of petitioner's right to due process

is inextricably linked to the validity of the assessment. It is primal that the BIR's
right to collect deficiency taxes must flow from a valid assessment. This, in
turn, proceeds from the basic truism that a void assessment bears no valid
fruit. Moreover, a resolution on the apparent violation of petitioner's right to
due process is indispensable for an orderly and comprehensive disposition of
this case.

Second. Unlike the issue on the invalidity or non-existence of the

LOA, the non-observance of the 15 -day period to reply to PAN may be
resolved by an examination of the evidence on record without requiring the
presentation of additional proof Thus, the CTA En Bane correctly took
cognizance of this new issue.

Nevertheless, the Court disagrees with the tax court's

conclusion.

There is no true disagreement that the FAN was issued well within the
15-day period for petitioner to reply to the PAN. As recounted above. the
PAN was received by petitioner on 7 January 2009 and its reply thereto was
flied on 22 January 2009. Without waiting to receive petitioner's reply. the BIR
apparently issued the FAN on 14 January 2009. albeit it was received by
petitioner only on 12 February 2009.

The CTA En Bane noted such discrepancy but brushed this aside by
saying that the requirements of due process were already substantially
complied with considering that petitioner was, in any event, given an
opportunity to be heard on its grounds for disputing the assessment.

The respondent through the Office of the Solicitor General does not
deny that the 15 -day period was not observed; it simply reverberates the
declaration of the CTA En Bane that there was substantial compliance with the
requirements of the due process.

This line ofreasoning does not stand judicial muster.

In several cases, this Court has enjoined strict observance by the BIR
of the prescribed procedure for the issuance of assessment notices in order to
uphold the taxpayers' constitutional rights.

In the oft-cited case of Commissioner of Internal Revenue v. Metro Star

S uperama. Inc., the Court held that the sending of a PAN is part and parcel of
the due process requirement in the issuance of a deficiency tax assessment and
the BIR must strictly comply with the requirements laid down by the law and
by its own rules.

The importance of the PAN stage of the assessment process cannot

be discounted as it presents an opportunity for both the taxpayer and the BIR
~

65 G.R. No. 249153, September 12, 2022.

DECISION
CTA EB NO. 2589 (CTA CASE NO. 9960)
Page 26 of 28

to setde the case at the earliest possible time without need for the issuance of
a FAN.

In the very recent case of Commissioner if Internal Revenue 11. Yumex

Philippines Corp., the Court had occasion to state that the 15 -day period
provided under Revenue Regulations No. 12 -99 for a taxpayer to reply to a
PAN should also be stricdy observed by the BIR. The Court highlighted that
'[o]nly after receiving the taxpayer's response or in case of the taxpayer's
default can respondent issue the FLO/FAN.'

While Yumex rests on slighdy different factual circumstances, it may

nevertheless apply analogously to the case at bench. There can be no
substantial compliance with the due process requirement when the BIR
completely ignored the 15 -day period by issuing the FAN and FLO even
before petitioner was able to submit its Reply to the PAN.

As the Court also held in Yumex, '[t]hat [the taxpayer] was able to ftle
a protest to the FLO/FAN is of no moment.' 'Sec. 3.1.2 of RR No. 12-99
explicidy grants the taxpayer fifteen (15) days from receipt of the PAN to ftle
a response.'

In the same vein, it is beside the point that petitioner was able to
submit a 'well-prepared protest letter.' The fact remains that respondent
violated petitioner's right to due process by issuing a FAN without even
awaiting its reply to the PAN.

Well-setded is the rule that an assessment that fails to stricdy comply

with the due process requirements set forth in Section 228 of the Tax Code
and Revenue Regulations No. 12 -99 is void and produces no effect.''
(Underscoring mpplied and citations omitted)

Finally, in line with the foregoing jurisprudence, petitioner's lapse in its

observance of the due process requirement in Section 228 of the NIRC, as
amended, and RR 12-99, as amended, cannot be cured by the opportunity to be
heard given to the taxpayer subsequent to the issuance of the PAN. Otherwise,
the holdings in Metro Star, Avon, Yumex and Pn'me Steel, which consistently called
for the strict compliance with the same due process requirements, would be
rendered nugatory.

All told, petitioner CIR failed to raise any issue that has convinced the
Court En Bane to modify or reverse the assailed Decision and Resolution of the
Court a quo.

WHEREFORE, premises considered, the Petition for Review filed by

petitioner is DENIED for lack of merit. The assailed Decision and Resolution
of the court a quo are hereby AFFIRMED.

SO ORDERED.

k ~ _...z_ I '-----
MA. BELEN M. RINGPIS-LIBAN
Associate Justice
DECISION
CTA EB NO. 2589 (CTA CASE NO. 9960)
Page 27 of 28

WE CONCUR:

Presiding Justice

~· /. /J~,,....
.L~­
CATHERINE T. MANAHAN
Associate Justice

JEAN !Vl.tuyn

(On Oflidal Leave)

MARIAN IVY F. REYES-FAJARDO
Associate Justice

/JJuuitm)1
LANEE S. CUI-DAVID
Associate Justice

~-tl.
CORAZ£)N G. s
Associate Justice
DECISION
CTA EB NO. 2589 (CTA CASE NO. 9960)
Page 28 of 28

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constituti on, it is hereby

certified that the conclusions in the above Decision were reached in consultati on
before the case was assigned to the writer of the opinion of the Court.

Presiding Justice