Strawberry Foods Corp. v. Commissioner of Internal Revenue

THIRD DIVISION [C.T.A. CASE NO. 8569. March 31, 2016.] STRAWBERRY FOODS CORPORATION , petitioner , vs. COMMISSIONER OF INTERNAL REVENUE , respondent . RESOLUTION BAUTISTA , J p : This resolves respondent's "Motion for Reconsideration (Notice of Decision promulgated on January 7, 2016)" ("Motion for Reconsideration") filed on January 28, 2016; with petitioner's "Opposition to the Respondent's Motion for Reconsideration" ("Opposition"),filed on February 16, 2016. On January 7, 2016 the Court promulgated a Decision, the dispositive portion of which states: WHEREFORE ,premises considered, the Petition for Review is hereby GRANTED .Accordingly, Final Decision dated September 17, 2012 is CANCELLED and WITHDRAWN . SO ORDERED. On January 28, 2016, respondent filed her Motion for Reconsideration. On February 1, 2016, the Court issued a Resolution ordering petitioner to file its comment on respondent's Motion for Reconsideration, within ten (10) days from notice. On February 16, 2016, petitioner filed its Opposition. In her Motion for Reconsideration, respondent avers that the Court erred in ruling that she failed to comply with Section 228 of the 1997 National Internal Revenue Code ("NIRC") ,as amended and Revenue Regulations ("RR") No. 12-99 ,as amended by RR 18-2013 in the issuance of the Preliminary Assessment Notice ("PAN")/Formal Letter of Demand ("FLD").Citing the cases of Oakwood Management Services (Philippines), Inc. vs. Commissioner of Internal Revenue , 1 and Keppels Fels Energy, Inc. vs. Commissioner of Internal Revenue , 2 respondent maintains that a PAN may or may not be protested by the taxpayer; that what the law requires is the filing of the protest against the FAN; and that the fact that petitioner was able to file its protest to the FAN is enough to prove that due process was observed. She further argues that the assessment conducted was valid since the revenue officers ("RO") who conducted the same had legal authority to do so since Revenue Memorandum Circular ("RMC") No. 43-90 was repealed by Revenue Memorandum Order ("RMO") No. 69-2010 issued on August 11, 2010. Lastly, she maintains that tax assessments by tax examiners are presumed correct and made in good faith and in the absence of proof of any irregularities in the performance of official duties, an assessment will not be disturbed. On the other hand, petitioner counter-argues that the arguments raised in respondent's Motion for Reconsideration are mere reiterations of those already adequately considered in the assailed decision; that respondent disregarded its right to due process when the FAN was ready even before it could protest against the PAN; and that the assessment is void for having been done without the necessary authority. The Court finds no cogent reason to reverse or set aside the impugned Decision. We find no merit in respondent's contention that a PAN may or may not be protested by the taxpayer; that what the law requires is the filing of the protest against the FAN; and that the fact that petitioner was able to file its protest to the FAN is enough to prove that due process was observed. Section 228 of the 1997 NIRC is clear on the matter, thus: Section 228. Protesting an 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 pre-assessment notice shall not be required in the following cases: (a) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as appearing on the face of the return; or (b) When the discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent; or (c) When the 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 CAIHTE (e) When an article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons. 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 ....[underscoring ours] A reading of the above-quoted provision show that the taxpayer must be notified of the findings of respondent, and this is done through the issuance of a PAN. The law also stated that it is only upon the taxpayer's failure to respond to such will the FAN be issued. It is also worthwhile to note that the same section provides for the instances when there is no need to issue a PAN to the taxpayer, and none of the instances enumerated therein is present in the case at bar. A cardinal rule in statutory construction is that, where the law speaks in clear and categorical language, or the terms of the statute are clear and unambiguous and free from doubt, there is no room for interpretation or construction and no interpretation or construction is called for; there is only room for application. 3 To follow the line of reasoning of respondent that a PAN is not necessary will render nugatory the provisions of the 1997 NIRC ,as well as RR No. 12-99 ,which was issued by respondent to implement this provision, to wit: SECTION 3. Due Process Requirement in the Issuance of a Deficiency Tax Assessment . 3.1 Mode of procedures in the issuance of a deficiency tax assessment: 3.1.1 Notice for informal conference . ... 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 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. Thus, no less than respondent's own rules provide that a PAN should be issued first to the taxpayer in order to appraise the taxpayer of the details, facts, the law, rules and regulations and jurisprudence on which the assessment is made, and only when the taxpayer fails to respond within the fifteen (15)-day period provided will a FAN/FLD be issued. The use of the word "shall" emphasizes the mandatory character of such a provision. To reiterate, the sending of a PAN to the 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 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 the taxpayer's right to due process. 4 There is likewise no merit in respondent's claim that the assessment was conducted with a valid authority. It may be recalled that petitioner received Letter of Authority ("LOA") No. 2008-00039454 dated July 1, 20009 n on July 8, 2009. On November 9, 2009, it received a letter from Revenue Region ("RR") 7, Revenue District Office ("RDO") No. 45 informing it that its case was referred to another revenue officer. All of these transpired prior to the issuance of RMO No. 69-2010, or prior to the repeal of RMC No. 43-90. It follows, therefore, that the applicable rule at the time is for the issuance of a new LOA in cases of reassignment/transfer of cases to another RO(s), with the corresponding notation thereto. Again, respondent is disregarding its own rules. Lastly, respondent argues that tax assessments done by examiners are presumed correct and made in good faith and in the absence of proof of any irregularities in the performance of official duties, an assessment will not be disturbed. This is indeed correct, but know that this a disputable presumption. In order to determine that there was indeed good faith, it must be made in accordance with existing laws, rules and regulations. The Supreme Court, in the case of Commissioner of Internal Revenue vs. United Salvage and Towage (Phils.), Inc. , 5 citing Commissioner of Internal Revenue vs. Metro Star Superama , held 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. Thus, while taxes are the lifeblood of the government, the power to tax has its limits, in spite of all its plenitude. 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." WHEREFORE ,premises considered, petitioner's "Motion for Reconsideration (Notice of the Decision promulgated on January 7, 2016)" is hereby DENIED for lack of merit. SO ORDERED . DETACa (SGD.) LOVELL R. BAUTISTA Associate Justice Esperanza R. Fabon-Victorino and Ma. Belen M. Ringpis-Liban, JJ., concur. Footnotes 1. CTA Case No. 7989, August 8, 2013. 2. CTA Case No. 6826, July 21, 2011. 3. Fort Bonifacio Development Corporation vs. Commissioner of Internal Revenue ,G.R. Nos. 175707, 180035, 181092, November 19, 2014. 4. CIR vs. Metro Star Superama, Inc .,G.R. No. 185371, December 28, 2010, 637 SCRA 633. 5. G.R. No. 197515, July 2, 2014. n Note from the Publisher: Copied verbatim from the official copy.