Getz Pharma (Phils.), Inc. v. Commissioner of Internal Revenue

SPECIAL THIRD DIVISION [C.T.A. CASE NO. 8728. March 12, 2019.] GETZ PHARMA (PHILS.), INC. , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . DECISION RINGPIS-LIBAN , J p : THE CASE This resolves the Petition for Review 1 filed on November 11, 2013 by Getz Pharma (Phils.), Inc. which seeks the cancellation and withdrawal of the assessment issued against it for alleged deficiency income tax, value-added tax (VAT), expanded withholding tax (EWT), withholding tax on compensation (WTC), final withholding tax (FWT), documentary stamp tax (DST), and fringe benefit tax (FBT) for calendar year (CY) 2009 in the aggregate amount of P53,649,647.66, inclusive of surcharges and interests. STATEMENT OF FACTS Petitioner Getz Pharma (Phils.), Inc. is a domestic corporation, duly organized and existing under Philippine laws, with principal office at 2/F Tower 1, Rockwell Business Center, Ortigas Avenue, Pasig City. It is duly registered with the Bureau of Internal Revenue (BIR), with Taxpayer Identification No. 007-184-839. 2 On the other hand, respondent is the duly appointed Commissioner of the Bureau of Internal Revenue (BIR) who has the power to decide on disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto or other matters arising under the National Internal Revenue Code (NIRC) or other laws or portions thereof administered by the BIR. He holds office at the BIR National Office Building, Agham Road, Diliman, Quezon City. On June 4, 2010, petitioner received Letter of Authority (LOA) No. 2009-00015249 dated May 24, 2010 from BIR Revenue District Office (RDO) No. 43A, authorizing Revenue Officer (RO) Jamilah Dianalan and Group Supervisor (GS) Evelyna Abilgos to examine petitioner's books of accounts and other accounting records for all internal revenue taxes for CY 2009. 3 Petitioner received a Preliminary Assessment Notice (PAN) dated December 28, 2012 from the Assessment Division of the BIR Revenue Region No. 7 on January 10, 2013. 4 On January 15, 2013, petitioner received the Formal Letter of Demand and Assessment Notices (FLD/FAN). 5 Petitioner filed its protest letter against the PAN on January 25, 2013. 6 Subsequently, petitioner filed its protest letter against the FLD/FAN on February 14, 2013. 7 On April 15, 2013, petitioner submitted documents to support its protest to the FLD/FAN. 8 The 180-day period within which respondent has to decide on the administrative protest ended on October 12, 2013. Thereafter, petitioner, within thirty (30) days from the expiration of the said period, filed the instant Petition for Review before this Court on November 11, 2013. 9 Respondent filed his Answer 10 on December 16, 2013, and interposed the following special and affirmative defenses: "11. The assessment for calendar year 2009 deficiency Income Tax in the amount of PhP18,939,652.37, Value Added Tax in the amount of PhP1,593,460.43, Expanded Withholding Tax in the amount of Php1,252,294.57, Withholding Tax on Compensation in the amount of PhP5,892,236.07, Final Withholding Tax in the amount of PhP2,654,675.58, Documentary Stamp Tax in the amount of PhP27,966.02 and Fringe Benefit Tax in the amount of P22,180,873.28 were issued in accordance with applicable laws and regulations. The factual and legal bases of the assessments are contained in the Formal Letter of Demand (FLD) and Final Assessments Notice (FAN). 12. As alleged by Petitioner in its Petition, it received the Formal Letter of Demand on January 15, 2013. However, the Petitioner failed to submit the pertinent documents to support its protest within sixty (60) days from the date of filing its letter of protest, hence, the assessment have already become final, executory and demandable. Consequently, this Honorable Court cannot anymore exercise jurisdiction over Petitioner's Petition for Review. Section 3.1.5 of Revenue Regulations No. 12-99 provides as follows: xxx xxx xxx 13. Assuming por arguendo that the instant Petition was filed within the period provided by law, the details of discrepancies disclosed the following: Deficiency Income Tax a. Verification disclosed that portion of Petitioner's importation were not reported in the financial statements, as per analysis wherein the discrepancy was considered as unaccounted source of cash which led to the inference that part of Petitioner's income has not been declared as enunciated by the Court in the case of Perez vs. CTA and CIR L-10507 dated May 30, 1958. Therefore, the amount is added in Petitioner's reported taxable income pursuant to Section 31 of the NIRC of 1997, as amended; CAIHTE b. Verification disclosed that portion of Petitioner's income payments as listed below, were not subjected to expanded withholding tax, as required under Revenue Regulations 2-98 thus, disallowed from your gross income pursuant to Section 34 (K) of the NIRC of 1997, as amended; c. Verification disclosed that Petitioner failed to subject portion of Petitioner's salaries and wages to withholding tax, as required under Revenue Regulations No. 2-98 thus, disallowed as deductions from Petitioner's gross income pursuant to Section 34(K) of the NIRC of 1997, as amended; d. Verification disclosed that item of deductions from gross income was not subjected to final withholding tax under Revenue Regulations No. 2-98, as amended, hence, disallowed pursuant to Section 34 (K) of the NIRC of 1997, as amended; e. Verification disclosed that the creditable withholding tax has not been supported with appropriate documentary evidence, hence, disallowed and assessed pursuant to Revenue Regulations No. 4-2002. Deficiency Value-Added Tax a. Verification disclosed that unaccounted importation was not subjected to value-added tax pursuant to Sections 106 & 108 of the NIRC of 1997, as amended. b. Verification disclosed that the revenue reported per VAT return is understated by PhP841,785.15 as compared with the revenue reported per income tax return, as presented below, hence, added to Petitioner's vatable revenue pursuant to Section 106 of the NIRC of 1997, as amended. Deficiency Expanded Withholding Tax a. Verification disclosed that Petitioner failed to subject portion of Petitioner's income payments to expanded withholding tax as required under Revenue Regulations No. 2-98, as amended. Deficiency Withholding Tax on Compensation a. Verification disclosed that Petitioner failed to remit the corresponding tax due on salaries, hence, Petitioner was hereby assessed of withholding tax on compensation pursuant to Section 251 of the NIRC of 1997, as amended. Deficiency Final Withholding Tax a. Verification disclosed that interest expense was not subjected to final withholding tax, hence, assessed pursuant to Section 28 (B) (5) (a) of the NIRC of 1997, as amended. Deficiency Documentary Stamp Tax a. Verification disclosed that Petitioner failed to present proof of payment of documentary stamp tax due on advances to affiliate amounting to PhP2,800,214.00, hence, assessed pursuant to Section 179 of the NIRC of 1997, as amended. Deficiency Fringe Benefit Tax a. Verification disclosed that Petitioner failed to present proof of payment of fringe benefit tax due on travel expense amounting to PhP25,625,526.00, hence, assessed pursuant to Revenue Regulations No. 3-98, as amended. Deficiency on Compromise Penalty a. For failure of Petitioner to file/submit of various documents pursuant to Sections 250 and 255 of the NIRC of 1997, as amended, with reference to Revenue Memorandum Order (RMO) No. 1-90, as amended by RMO No. 19-2007. 14. Section 203 of the 1997 National Internal Revenue Code, as amended, provides, to wit: xxx xxx xxx 15. Based on the above-quoted provision, Respondent's right to assess Petitioner's deficiency taxes on income, value-added, expanded withholding, withholding tax on compensation, final withholding, documentary stamp, fringe benefit and compromise penalty on have not yet prescribed because the Preliminary Assessment Notice was duly issued on December 28, 2012; 16. The date of issuance of the Preliminary Assessment Notice should be the basis of prescription and not the Final Assessment Notice; 17. The tax imposed on the fringe benefit received by managerial or supervisory employees shall be treated as a final income tax on the employee, but shall be withheld and paid by the employer on a calendar quarterly basis as provided under Sections 57 (A) (Withholding of Final Tax on certain incomes) and 58 (Quarterly Returns and Payments of Taxes Withheld) of the Tax Code x x x; 18. It is the employer who is legally required to pay the fringe benefits tax. The fringe benefit tax is imposed as a final withholding tax placing the legal obligation to the employer to remit the tax, such that, if the tax is not paid, the legal recourse of the BIR is to go after the employer. Any amount or value received by the employee as a fringe benefit is considered tax paid hence, net of the income tax due thereon. The person who is legally required to pay (same as statutory incidence as distinguished from economic incidence) is that person who, in case of non-payment, can be legally demanded to pay the tax. x x x 19. Finally, well settled is the rule that tax assessments by examiners are presumed correct and made in good faith. It is the taxpayer and not the Bureau of Internal Revenue who has the duty of proving otherwise. Equally settled is the rule that in the absence of proof of any irregularities in the performance of official duties, an assessment will not be disturbed. 20. In COMMISSIONER OF INTERNAL REVENUE VS. BANK OF THE PHILIPPINE ISLANDS , G.R. No. 134062 dated April 17, 2007, the Honorable Supreme court said, to wit: 'Tax assessment by tax examiners are presumed correct and made in good faith. The taxpayer has the duty to prove otherwise. In the absence of proof of any irregularities in the performance of duties, an assessment duly made by a Bureau of Internal Revenue examiner and approved by his superior officer will not be disturbed. All presumptions are in favor of the correctness of tax assessments'" Petitioner filed a Motion to Set Case for Preliminary Hearing to Resolve Issue of Prescription (with Motion to Set Case for Commissioner's Hearing) 11 on January 21, 2014. DETACa During the hearing on the issue of prescription held on February 13, 2014, 12 petitioner presented its Senior Finance Manager, Mr. Isagani Bobis. Thereafter, respondent and petitioner filed their respective Memoranda on February 18, 2014. 13 Petitioner filed an Urgent Motion to Resolve the Issue on the Violation of Procedural Due Process on February 27, 2014. 14 On March 12, 2014, the Court issued a Resolution cancelling the deficiency VAT assessment for the first, second and third quarters of CY 2009 as well as the deficiency EWT and WTC for the period covering January to November 2009. 15 Respondent's Pre-Trial Brief 16 was filed on February 3, 2014. On other hand, petitioner's Pre-Trial Brief 17 was filed on March 20, 2014. On April 15, 2014, the Court issued a Resolution 18 denying petitioner's Urgent Motion to Resolve the Issue on Violation of Procedural Due Process. The pre-trial conference was held on July 3, 2014. 19 Thereafter, petitioner and respondent filed their Joint Stipulation of Facts and Issues 20 on July 24, 2014. On August 12, 2014, a Pre-Trial Order 21 was issued by the Court. Petitioner presented the following witnesses: Mr. Isagani Bobis, 22 petitioner's Senior Finance Manager; Mr. Averell Gaspar, 23 petitioner's General Manager; and Mr. Francis J. Ricamora, 24 the Court-commissioned Independent Certified Public Accountant (ICPA). Petitioner then filed its Formal Offer of Evidence 25 on August 17, 2015, consisting of Exhibits "P-1" to "P-113", inclusive of sub-markings. In the Resolution 26 dated September 24, 2015, the Court admitted petitioner's evidence except for Exhibits "P-77.1" to "P-77.28" and "P-78.1" to "P-78.28". On October 16, 2015, petitioner moved for the reconsideration of the Court's Resolution and requested for the setting of a commissioner's hearing for purposes of re-marking and comparison of the denied exhibits with their originals and/or certified true copies. 27 The Court granted the setting of a commissioner's hearing in a Resolution 28 dated December 14, 2015. On March 28, 2016, petitioner filed a Motion for Leave to Establish Secondary Evidence. 29 Petitioner then submitted to the Court the duly re-marked documents on March 29, 2016. 30 In a Resolution dated March 23, 2016, the Court denied petitioner's Motion for Reconsideration (Re: Resolution dated September 24, 2015) on the ground that petitioner failed to submit the exhibits duly marked in the commissioner's hearing. 31 On April 12, 2016, petitioner filed a Motion to Recall (Re: Resolution dated March 23, 2016), 32 which the Court granted in a Resolution 33 dated June 3, 2016. The Court thereafter set the case for presentation of petitioner's secondary evidence. During the hearing held on September 19, 2016, petitioner presented its customs broker, Ms. Arlyn W. Narca, to testify on the due execution and loss of the Import Entry and Internal Revenue Declarations (IEIRDs) marked as Exhibits "P-77.1", "P-77.9", "P-77.10", "P-77.15", "P-77.17", and "P-77.23". 34 On November 8, 2016, the Court admitted Exhibits "P-77.2" to "P-77.8", "P-77.11" to "P-77.14", "P-77.16", "P-77.18" to "P-77.22", "P-77.24" to "P-77.28", and "P-78.1" to "P-78.28". However, Exhibits "P-77.1", "P-77.9", "P-77.10", "P-77.15", "P-77.17", and "P-77.23" were denied admission by the Court for failure to establish the loss or unavailability of the originals. 35 On December 9, 2016, petitioner filed another Motion for Reconsideration (Re: Resolution dated November 8, 2016). 36 On February 20, 2017, the Court issued a Resolution denying petitioner's Motion for Reconsideration, for failure to satisfy requirements for the introduction of secondary evidence. 37 Respondent presented Revenue Officers Jamilah L. Dianalan, 38 Elmen O. Jimenez 39 and Anne Michelle Timenia 40 as witnesses. On August 3, 2017, respondent filed his Formal Offer of Evidence. 41 On the same date, petitioner filed a Tender of Excluded Evidence, 42 requesting that the exhibits denied admission be attached to records of the case. On January 5, 2018, the Court resolved to admit all of respondent's exhibits and noted petitioner's tender of excluded evidence. In the same Resolution, the Court granted the parties a period of thirty (30) days within which to file their respective memoranda. 43 The Court declared the case submitted for decision on March 22, 2018, 44 after respondent filed his Memorandum 45 on February 5, 2018 and petitioner filed its Memorandum 46 on March 19, 2018. STATEMENT OF THE ISSUES The parties submitted the following issues for this Court's resolution: 47 Income Tax Assessment 1. Whether or not the Petitioner has "unaccounted importations" in the amount of Php7,922,617.83. If in the affirmative, whether such importations constitute taxable income. 2. Whether or not the discrepancies between the amounts of Rental Expense, Professional fees, Management Fees, Advertising and Promotions, Repairs and Maintenance, and Photocopy expenses as stated per FS and Returns, amounting to Php8,092,094.17 should be disallowed as deductible business expenses. 3. Whether or not the discrepancy in the Petitioner's Salaries and Wages per ITR and Petitioner's Salaries and Wages per Alphalist amounting to Php11,635,789.07 should be disallowed as deductible business expense. 4. Whether or not Petitioner's interest expense on foreign loans in the amount of Php7,125,283.00 should be disallowed as deductible business expenses. 5. Whether or not Petitioner's creditable withholding taxes in the amount of Php1,905,697.00 are supported by Certificates of Creditable Tax Withheld at source (BIR Form 2307). aDSIHc Deficiency VAT Assessment 6. Whether or not the assessment for deficiency VAT is valid in view of the impossibility of computing the unprescribed portion of VAT assessment. 7. Whether or not the discrepancy between the total importations per VAT return and the purchases per FS of Php7,922,617.83 constitutes sales subject to VAT. 8. Whether or not the discrepancy between the revenues per ITR and the revenues per VAT Returns of Php841,785.15 constitutes sales subject to VAT. Deficiency EWT Assessment 9. Whether or not the assessment for deficiency EWT is valid in view of the impossibility of computing the unprescribed portion of the EWT assessment. 10. Whether or not the income payments pertaining to Rental Expense, Professional fees, Management Fees, Advertising and Promotions, Repairs and Maintenance, and Photocopy expenses in the amount of Php8,092,094.17 are subject to EWT. Deficiency WTC Assessment 11. Whether or not the assessments for deficiency WTC is valid in view of the impossibility of computing the unprescribed portion of the WTC assessment. 12. Whether or not the discrepancy between Petitioner's Salaries and Wages per ITR and Petitioner's Salaries and Wages per Alphalist in the amount of Php11,635,789.07 is subject to WTC. Deficiency FWT Assessment 13. Whether or not the interest expense on foreign loans in the amount of Php7,175,238.00 is subject to FWT. Deficiency DST Assessment 14. Whether or not the assessment for deficiency DST in the amount of Php2,800,214.00 is valid. Deficiency FBT Assessment 15. Whether or not travel expenses in the amount of Php25,625,526.00 constitute fringe benefits to employees subject to FBT. Compromise Penalty 16. Whether or not the assessment for compromise penalty amounting to Php103,000.00 is valid. RULING OF THE COURT The Court has jurisdiction over the case Pertinent to the resolution of this matter are Section 7 (a) (2) of Republic Act (RA) No. 1125, as amended, Section 3 (a) (2) of Rule 4 of the Revised Rules of the Court of Tax Appeals, and Section 228 of the NIRC of 1997, as amended, which are all quoted hereunder for ready reference: "SEC. 7. Jurisdiction . The CTA shall exercise: (a) Exclusive appellate jurisdiction to review by appeal, as herein provided: ETHIDa xxx xxx xxx (2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code provides a specific period for action, in which case the inaction shall be deemed a denial;" "SEC. 3. Cases within the jurisdiction of the Court in Division . The Court in Division shall exercise: (a) Exclusive original over or appellate jurisdiction to review by appeal the following: xxx xxx xxx (2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code or other applicable law provides a specific period for action: Provided , that in case of disputed assessments, the inaction of the Commissioner of Internal Revenue within the one hundred eighty day-period under Section 228 of the National Internal Revenue Code shall be deemed a denial for purposes of allowing the taxpayer to appeal his case to the Court and does not necessarily constitute a formal decision of the Commissioner of Internal Revenue on the tax case ; Provided, further , that should the taxpayer opt to await the final decision of the Commissioner of Internal Revenue on the disputed assessments beyond the one hundred eighty day-period abovementioned, the taxpayer may appeal such final decision to the Court under Section 3(a), Rule 8 of these Rules; and Provided, still further , that in the case of claims for refund of taxes erroneously or illegally collected, the taxpayer must file a petition for review with the Court prior to the expiration of the two-year period under Section 229 of the National Internal Revenue Code;" (Emphasis supplied) "SEC. 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: xxx xxx xxx 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." (Emphasis supplied) Petitioner filed its administrative protest against the FLD/FAN on February 14, 2013 and submitted supporting documents on April 15, 2013, which is within the above-mentioned sixty (60)-day period. Accordingly, respondent had until October 12, 2013 to act on the protest of petitioner, and petitioner had until November 11, 2013 to file an appeal before the CTA. Considering that the instant Petition for Review was filed on November 11, 2013, the Court has jurisdiction over the case. The assessments issued against petitioner are void because of the Commissioner of Internal Revenue (CIR)'s failure to comply with the due process requirement Petitioner insists that the subject assessment for deficiency taxes is null and void for respondent's failure to observe the mandatory due process requirements laid down under the law, Revenue Regulations No. 12-99 and the prevailing jurisprudence. 48 The Court will accordingly revisit this matter before resolving the parties' stipulated issues. The relevant provisions of law regarding the due process requirement in the issuance of deficiency tax assessment are Section 228 of the NIRC of 1997, as amended, and Section 3 of Revenue Regulations No. 12-99, 49 as amended by RR No. 18-2013, to wit: "SEC. 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: xxx xxx xxx 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." (Emphasis supplied) "Sec.3. Due Process Requirement in the Issuance of a Deficiency Tax Assessment. 3.1 Mode of Procedure in the Issuance of a Deficiency Tax Assessment. 3.1.1 Preliminary Assessment Notice (PAN). If after review and evaluation 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 a Preliminary Assessment Notice (PAN) for the proposed assessment. It shall show in the details the facts and the law, rules and regulations, or jurisprudence on which the proposed assessment is based x x x. 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 Final Assessment Notice (FLD/FAN) shall be issued calling for payment of the taxpayer's deficiency tax liability, inclusive of the applicable penalties. If the taxpayer, within fifteen (15) days from date of receipt of the PAN, responds that he/it disagrees with the finding of deficiency tax or taxes, an FLD/FAN shall be issued within fifteen (15) days from filing/submission of the taxpayer's response, calling for payment of the taxpayer's deficiency tax liability, inclusive of the applicable penalties. cSEDTC xxx xxx xxx 3.1.3. Formal Letter of Demand and Final Assessment Notice (FLD/FAN). The Formal Letter of Demand and Final Assessment, Notice (FLD/FAN) shall be issued by the Commissioner or his duly authorized representative. The FLD/FAN calling for payments 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 assessment shall be void." (Emphasis supplied) Based on the foregoing, after the issuance of the PAN, the CIR or his duly authorized representative is duty bound to wait for the expiration of fifteen (15) days from the date of receipt thereof. If during the said period, the taxpayer failed to respond to the PAN, it is only then that the CIR or his duly authorized representative can consider the taxpayer in default, and correspondingly cause the issuance of a formal letter of demand and assessment notice, which shall be subsequently served to the said taxpayer. Such a process or procedure is part and parcel of the due process requirement in the issuance of a deficiency tax assessment. 50 A careful perusal of the records would show that the PAN dated December 28, 2012 was received by petitioner on January 10, 2013, 51 whereas the FLD/FAN dated January 15, 2013 was received by petitioner on the same date. 52 From receipt of the PAN on January 10, 2013, petitioner had fifteen (15) days to respond or to protest the PAN provided under Section 228 of the NIRC of 1997, as amended, and RR No. 12-99, or until January 25, 2013, which petitioner did. Thus, it appears that the FLD and the Assessment Notices dated and received on January 15, 2013 were issued without giving petitioner ample time to reply to the PAN which was received only five days prior to the receipt of the FLD/FAN. In the case of Commissioner of Internal Revenue vs. Metro Star Superama, Inc. 53 ( "Metro Star Superama case" for brevity), the Supreme Court explained the importance of the sending of the PAN to the taxpayer in this wise: "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. x x x" Moreover, in the case of Commissioner of Internal Revenue vs. Yumex Philippines Corporation , 54 the CTA En Banc ruled that, "Clearly, the act of simply mailing the PAN and FLD/FAN to the taxpayer on separate dates is not enough to satisfy the requirements of due process. Receipt by the taxpayer of the PAN and the opportunity to respond thereto within 15 days from receipt thereof are essential parts of the requirements of due process which the CIR cannot simply ignore." Clearly, therefore, pursuant to the foregoing rulings, petitioner's right to due process was violated by respondent when he issued the FLD/FAN on January 15, 2013 or prior to the lapse of the 15-day period given to petitioner to respond to the PAN. Consequently, the FLD/FAN, being formally defective, is void. 55 It is a basic and fundamental precept of law enshrined in the Constitution that no person shall be deprived of his property without due process of law. The pervasiveness of the right to due process reaches out to both substantive and procedural rights, regardless of their source, be it the Constitution, or only a statute or a rule of court. 56 Indeed, what is offensive to due process is the denial of the opportunity to be heard. 57 The essence of due process is simply an opportunity to be heard or, as applied to administrative proceedings, an opportunity to explain one's side or an opportunity to seek reconsideration of the action or ruling complained of. 58 As long as the parties are given the opportunity to be heard before judgment is rendered, the demands of due process are sufficiently met. 59 Respondent clearly violated Section 228 of the NIRC of 1997, as amended, and the provisions of RR No. 12-99, which give the taxpayer a period of fifteen (15) days within which to reply to the PAN. In view of respondent's violation of petitioner's right to due process, the assessment would thus be considered void. In the Metro Star Superama case, the Supreme Court, citing the case of Commissioner of Internal Revenue vs. Algue, Inc., et al. , 60 made the following disquisitions: "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 arbitrariness will negate the very reason for the government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved. xxx xxx xxx 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 of the tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate . . . that the law has not been observed ." (Emphasis supplied) WHEREFORE , premises considered, the Petition for Review is GRANTED . Accordingly, the assessment issued by respondent against petitioner for deficiency taxes for CY 2009 is CANCELLED and SET ASIDE . SDAaTC SO ORDERED. (SGD.) MA. BELEN M. RINGPIS-LIBAN Associate Justice Esperanza R. Fabon-Victorino, J. , concurs. Footnotes 1. Docket, vol. 1, pp. 6-33. 2. Par. 1, Stipulated Facts, Joint Stipulation of Facts and Issues (JSFI), docket, vol. 3, p. 1077. 3. Par. 4, Stipulated Facts, JSFI, docket, vol. 3, p. 1078. 4. Par. 5, Stipulated Facts, JSFI, docket, vol. 3, p. 1078. 5. Par. 6, Stipulated Facts, JSFI, docket, vol. 3, p. 1078. 6. Par. 13, Stipulated Facts, JSFI, docket, vol. 3, p. 1079. 7. Par. 14, Stipulated Facts, JSFI, docket, vol. 3, p. 1079. 8. Exhibit "P-37", docket, vol. 3, pp. 1412-1415. 9. Par. 9, Petitioner's Memorandum, docket, vol. 4, p. 2146. 10. Docket, vol. 1, pp. 112-119. 11. Docket, vol. 1, pp. 122-131. 12. Minutes of the February 13, 2014 Hearing, docket, vol. 1, p. 326. 13. Docket, vol. 1, pp. 391-396 and 397-407, respectively. 14. Docket, vol. 1, pp. 411-423. 15. Docket, vol. 1, pp. 425-428. 16. Docket, vol.1, pp. 178-185. 17. Docket, vol. 1, pp. 430-453. 18. Docket, vol. 1, pp. 480-483. 19. Minutes of the July 3, 2014 Hearing, docket, vol. 2, p. 1004. 20. Docket, vol. 3, pp. 1077-1089. 21. Docket, vol. 3, pp. 1171-1183. 22. Minutes of the February 23, 2015 and April 13, 2015 Hearing, docket, vol. 3, pp. 1203 and 1223. 23. Minutes of the May 4, 2015 Hearing, docket, vol. 3, p. 1224. 24. Minutes of the July 7, 2015 Hearing, docket, vol. 3, p. 1285. 25. Docket, vol. 3, pp. 1294-1313. 26. Docket, vol. 4, pp. 1835-1836. 27. Docket, vol. 4, pp. 1837-1842. 28. Docket, vol. 4, pp. 1851-1852. 29. Docket, vol. 4, pp. 1860-1864. 30. Docket, vol. 4, pp. 1865-1871. 31. Docket, vol. 4, pp. 1988-1989. 32. Docket, vol. 4, pp. 1997-2005. 33. Docket, vol. 4, pp. 2015-2018. 34. Docket, vol. 4, p. 2041. 35. Docket, vol. 4, pp. 2044-2049. 36. Docket, vol. 4, pp. 2052-2062. 37. Docket, vol. 4, pp. 2069-2073. 38. Minutes of the February 20, 2017 Hearing, docket, vol. 4, p. 2066. 39. Minutes of the May 15, 2017 Hearing, docket, vol. 4, p. 2074. 40. Minutes of the July 31, 2017 Hearing, docket, vol. 4, p. 2086. 41. Docket, vol. 4, pp. 2088-2097. 42. Docket, vol. 4, pp. 2098-2103. 43. Docket, vol. 4, pp. 2125-2128. 44. Resolution, docket, vol. 4, p. 2196. 45. Docket, vol. 4, pp. 2129-2137. 46. Docket, vol. 4, pp. 2143-2193. 47. Issues, JSFI, docket, vol. 3, pp. 1080-1081. 48. Pars. 3339, Petitioner's Memorandum, docket, vol. 4, pp. 2152-2155. 49. Implementing the Provisions of the National Internal Revenue Code of 1997 Governing the Rules on Assessment of National Internal Revenue Taxes, Civil Penalties and Interest and the Extra-Judicial Settlement of a Taxpayer's Criminal Violation of the Code Through Payment of a Suggested Compromise Penalty, September 6, 1999. 50. Commissioner of Internal Revenue vs. Next Mobile, Inc. , CTA EB No. 1419, (CTA Case No. 8516), November 21, 2016. 51. Exhibit "P-33", docket, vol. 3, pp. 1386-1390. 52. Exhibit "P-34", docket, vol. 3, pp. 1391-1403. 53. G.R. No. 185371, December 8, 2010. 54. Resolution, CTA EB No. 1139, January 19, 2016. 55. Nippo Metal Tech Phils., Inc. (formerly Global Metal Tech Corporation) vs. Commissioner of Internal Revenue , CTA EB No. 1273, May 17, 2016. 56. BPI Data Systems Corporation (formerly Filipinas Management and Leasing Services, Inc.) vs. Commissioner of Internal Revenue , CTA Case No. 4530, January 12, 1994. 57. Flores et al. vs. Montemayor , G.R. No. 170146, June 8, 2011. 58. Demaala vs. Sandiganbayan (Third Division), et al. , G.R. No. 173523, February 19, 2014. 59. Arroyo, et al. vs. Rosal Homeowners Association, Inc. , G.R. No. 175155, October 22, 2012. 60. G.R. No. L-28896, February 17, 1988.