Chevron Services Phils., Inc. v. Commissioner of Internal Revenue

THIRD DIVISION [C.T.A. CASE NO. 9571. July 15, 2020.] CHEVRON SERVICES PHILS., INC. , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . DECISION RINGPIS-LIBAN, J p : THE CASE This Petition for Review prays that the Court render judgment ordering the cancellation and withdrawal of respondent's assessment for deficiency income tax and value-added tax (VAT) for the calendar year (CY) ended December 31, 2011, in the aggregate amount of P52,292,668.88, inclusive of interest and surcharges. 1 THE PARTIES Petitioner Chevron Services Phils., Inc. is a domestic corporation duly organized and existing under Philippine laws, with principal office at 6/F 6750 Ayala Avenue, Makati City. 2 It is duly registered with the Bureau of Internal Revenue (BIR) under Tax Identification Number (TIN) 000-884-198-000; 3 and is also registered with the Securities and Exchange Commission (SEC) under SEC Registration No. 9696. 4 HTcADC Respondent, on the other hand, is the duly appointed Commissioner of Internal Revenue vested under the appropriate laws with the authority to carry out the functions, duties, and responsibilities of said office, including inter alia , the power to issue assessments, decide on disputed assessments, cancel, and abate tax liabilities pursuant to the provisions of the National Internal Revenue Code (NIRC) of 1997, as amended, and other tax laws, rules and regulations. 5 He may be served with summons, pleadings, and other processes at his office at the Bureau of Internal Revenue (BIR) National Office Building, BIR Road, Diliman, Quezon City. 6 THE ANTECEDENTS On January 31, 2013, petitioner received a copy of the Letter Notice (LN) No. 047-RLF-11-00-00045 dated January 28, 2013 for CY ended December 31, 2011, stating that based on a computerized matching of information/data provided by third party sources, petitioner had undeclared sales and purchases in the amounts of P50,565,677.81 and P3,633,350.12, respectively, for CY 2011. 7 Subsequently, petitioner received a copy of respondent's Preliminary Assessment Notice (PAN) dated November 18, 2016, with attached Details of Discrepancies on November 24, 2016, stating that petitioner was liable for deficiency income tax and VAT in the total amount of P52,118,113.39, 8 broken down as follows: Kind of Tax Basic Interest Surcharge Total Income Tax P15,169,703.34 P14,280,301.56 P7,584,851.67 P37,034,856.57 VAT 6,067,881.34 5,981,434.81 3,033,940.67 15,083,256.82 Total P21,237,584.68 P20,261,736.37 P10,618,792.34 P52,118,113.39 Petitioner filed its letter dated December 9, 2016 with the BIR on the same date, 9 seeking the cancellation of the said PAN as the findings provided therein do not have legal or factual bases. On January 12, 2017, petitioner received respondent's letter dated December 28, 2016, acknowledging the receipt of petitioner's reply to PAN but nevertheless claimed that the Reply will only form part of the docket because a Formal Assessment Notice (FAN) has already been issued against petitioner on December 20, 2016. 10 In the said FAN dated December 20, 2016, 11 petitioner was assessed for deficiency income tax in the amount of P37,159,539.06, and for deficiency VAT amounting to P15,133,129.82, inclusive of surcharges and interests, for CY 2011. Thus, on February 2, 2017, petitioner filed its Protest to the FAN, requesting for a reinvestigation and cancellation of the subject deficiency tax assessments, for lack of legal and factual bases. 12 CAIHTE Thereafter, petitioner received a copy of the letter dated March 1, 2017 (the Final Denial Letter ) on March 10, 2017, signed by Regional Director Glen A. Geraldino, informing petitioner that its request for reinvestigation could not be given favorable action for having been filed beyond thirty (30) days from receipt of the FAN. 13 On April 10, 2017, petitioner filed the instant Petition for Review before this Court. 14 In the Answer with Motion to Dismiss of respondent, 15 the latter interposed the following special and affirmative defences: that the Court has no jurisdiction to entertain the instant case for failure of petitioner to file an administrative protest against the BIR Formal Letter of Demand and Formal Assessment Notice (FLD/FAN) dated December 20, 2016, within the thirty (30)-day reglementary period from receipt thereof on December 22, 2016, in blatant violation of Section 228 of the 1997 Tax Code; that the petitioner's judicial appeal filed with this Honorable Court on April 10, 2017 has already prescribed; that the subject deficiency income tax and VAT assessments of petitioner for taxable year 2011 has already become final, executory and demandable, pursuant to Section 228 of the 1997 Tax Code; that petitioner is precluded from disputing the correctness of the subject FLD/FAN, and is barred from filing any judicial appeal since it was already divested of its jurisdiction to entertain and determine the correctness of the subject assessment; that since the Court has no jurisdiction over the nature of the action, its only jurisdiction is to dismiss the instant case; that petitioner was assessed a deficiency income tax and value-added tax for taxable year 2011, for the reason that during the administrative investigation of its tax case by the respondent CIR, petitioner failed to substantiate or controvert by substantial evidence the BIR factual findings, as stated under the Details of Discrepancies attached to the BIR Preliminary Assessment Notice (PAN) dated 18 November 2016 and BIR Formal Letter of Demand and Formal Assessment Notice (FLD/FAN) dated December 20, 2016, duly received by petitioner on November 24, 2016 and December 22, 2016, respectively; that respondent fully complied with the due process requirement mandated under Section 228 of the 1997 Tax Code, as implemented by Revenue Regulations No. 12-99, and further amended by Revenue Regulations No. 18-2013, when the subject Preliminary Assessment Notice (PAN) dated 18 November 2016 and BIR Formal Letter of Demand and Formal Assessment Notice (FLD/FAN) dated December 20, 2016 were issued and received by herein petitioner, on November 24, 2016 and December 22, 2016, respectively; that pursuant to Section 222 (a) of the 1997 Tax Code, it is clearly provided that in case of a false or fraudulent return with intent to evade tax or failure to file a return the tax may be assessed, or a proceeding in court for the collection of such tax maybe begun without assessment at any time within ten (10) years after the discovery of the falsity, fraud, or omission; that granting without admitting that petitioner indeed filed the required tax returns for income and VAT for taxable year 2011 with the BIR, however, petitioner evidently failed to report in their income and VAT returns for taxable year 2011 the corresponding income/sales/receipts in the amount of Php50,565,677.81 which exceeds 30% of that declared in its tax returns for the same period. Thus, the income and VAT returns of petitioner for taxable year 2011 were deficient and did not disclose the truth regarding the correct amount of income subject to income tax and VAT. Consequently, it rendered the subject income tax and VAT returns of petitioner for taxable year 2011 as 'false returns' within the contemplation of Section 222 of the 1997 Tax Code; that a 50% surcharge pursuant to Section 248 (B) of the 1997 Tax Code was imposed on petitioner's deficiency income tax and value-added tax liability for taxable year 2011 for its willful failure to report sales or receipts in the amount exceeding 30% of that declared in its tax returns which is prima facie evidence of a false or fraudulent returns; and that the deficiency income tax and value-added tax assessments issued by the respondent CIR to herein petitioner for taxable year 2011 are prima facie presumed correct and made in good faith. Subsequently, the pre-trial conference was set and held on September 26, 2017. 16 After being ordered by the Court, 17 respondent submitted the original BIR Records for the instant case on August 22, 2017. 18 Respondent's Pre-Trial Brief was filed on September 20, 2017, 19 while Petitioner's Pre-Trial Brief was submitted on September 22, 2017. 20 aScITE On September 29, 2017, the parties submitted their Joint Stipulations of Facts and Issues . 21 In the Pre-Trial Order dated October 19, 2017, 22 the Court deemed the termination of the Pre-Trial Conference. The trial of the case then proceeded. During trial, petitioner presented documentary and testimonial evidence. As for its testimonial evidence, petitioner offered the testimony of its sole witness, Ms. Maria Corazon B. Bisua, 23 petitioner's Treasurer. On March 7, 2017, petitioner filed its Formal Offer of Evidence (With Motion to Set Commissioner's Hearing for Marking of Exhibit) . 24 However, no comment was filed by respondent. 25 In the Resolution dated April 19, 2018, 26 the Court: (1) granted petitioner's Motion to Set Commissioner's Hearing for Marking of Exhibit ; (2) set the Commissioner's Hearing for the comparison and marking of petitioner's Exhibits "P-6-a", "P-9-a", "P-11-a", "P-18-a" and "P-19" on May 17, 2017; (3) held in abeyance the resolution of petitioner's Formal Offer of Evidence ; and (4) cancelled the initial presentation of respondent's evidence. Subsequently, in the Resolution dated July 10, 2018, 27 the Court admitted petitioner's Exhibits, except for Exhibit "P-2", for failure to present the original for comparison. Respondent likewise presented his documentary and testimonial evidence. With respect to testimonial evidence, respondent offered the testimony of Mr. Florentino A. Guarino III, 28 a Revenue Officer (RO) I of the BIR. On November 29, 2018, respondent filed his Formal Offer of Evidence . 29 Petitioner filed its Comment (To Respondent's Formal Offer of Evidence) on January 7, 2019. 30 Thus, in the Resolution dated April 2, 2019, 31 the Court admitted respondent's Exhibits, and gave parties a period of thirty (30) days within which to file their respective memorandum. Thereafter, respondent filed on June 7, 2019 his Manifestation and Motion 32 stating among others, that he adopts all arguments stated in his special and affirmative defenses of his Answer with Motion to Dismiss dated June 21, 2017, as well as the statement of purposes mentioned in his Formal Offer of Evidence , together with the testimony of his sole witness as part of his Memorandum . On June 24, 2019, petitioner submitted its Memorandum . 33 In the Resolution dated June 27, 2019, 34 the instant case was deemed submitted for decision. THE ISSUE The parties submitted the following issue for the Court's resolution: "Whether or not the deficiency income tax and VAT assessments against petitioner for TY 2011 in the total amount of Php52,292,668.88 is valid." 35 THE ARGUMENTS OF THE PARTIES Petitioner argues that the Court has jurisdiction over this case as it timely filed its administrative and judicial protests against the assessments; that the tax assessments against petitioner are null and void for violating its right to due process; that the PAN and FAN are void, since they were issued pursuant to a LN and without any Letter of Authority (LOA) for further investigation of the case; and that respondent's FAN was issued in violation of due process requirements by issuing the FAN in complete disregard of petitioner's reply to the PAN. Moreover, petitioner contends that respondent's right to assess petitioner's alleged deficiency income tax and VAT for CY 2011 has already prescribed in view of the lapse of the three-year period provided under Section 203 of the NIRC. Furthermore, petitioner avers that respondent's deficiency income tax and VAT assessments against petitioner for CY 2011 in the total amount of P52,292,668.88 lack factual and legal basis; that it did not have undeclared income in CY 2011; that Net Operating Loss Carry Over (NOLCO) should not be added back to petitioner's taxable income to prejudice petitioner; and that the excess tax credits carried over to the succeeding period should not be deducted from petitioner's allowable tax credits. On the other hand, respondent manifests that he adopts all factual and legal arguments he stated in his Answer with Motion to Dismiss under the special and affirmative defenses, and the statement of the purposes for which all of his documentary evidence were formally offered and admitted by the Court. DETACa Specifically, respondent counter-argues that this Court has no jurisdiction to entertain the instant case and it could not decide the case based on merits to determine the correctness of the subject tax assessment, since petitioner evidently failed to timely file an administrative protest against the subject FLD and FAN; that long-settled is the rule that tax assessments made by tax examiners are presumed correct and made in good faith; and that the taxpayer has the duty of proving otherwise with strong and convincing evidence. THE RULING OF THE COURT Petitioner received the FLD/FAN on January 3, 2017, not on December 20, 2016 as claimed by respondent. Petitioner claims that it received the subject FAN on January 3, 2017 through registered mail. Thus, its protest thereon was timely filed within thirty (30) days from notice, specifically, on February 2, 2017. Respondent, however, claims that the said FAN was personally served by RO Florentino A. Guarino III and received by petitioner's employee, Mr. Richard Intalan, on December 22, 2016, through substituted service. As such, according to respondent, petitioner has thirty (30) days from receipt thereof on December 22, 2016, or until January 21, 2017, within which to file an administrative protest with the BIR. Furthermore, respondent opines that since petitioner's protest was filed only on February 2, 2017, it rendered the subject deficiency tax assessments final, executory and demandable, and petitioner's judicial appeal filed on April 10, 2017 has already prescribed; thus, precluding this Court from taking cognizance of the instant case. Section 3.1.6 of Revenue Regulations (RR) No. 12-99, 36 as amended by RR No. 18-2013 37 reads in part: "SECTION 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: xxx xxx xxx 3.1.6 Modes of Service. The notice ( PAN/FLD/ FAN /FDDA ) to the taxpayer herein required may be served by the Commissioner or his duly authorized representative through the following modes: (i) The notice shall be served through personal service by delivering personally a copy thereof to the party at his registered or known address or wherever he may be found. A known address shall mean a place other than the registered address where business activities of the party are conducted or his place of residence. In case of personal service is not practicable, the notice shall be served by substituted service or by mail. (ii) Substituted service can be resorted to when the party is not present at the registered or known address under the following circumstances: The notice may be left at the party's registered address, with his clerk or with a person having charge thereof. If the known address is a place where business activities of the party are conducted, the notice may be left with his clerk or with a person having charge thereof. If the known address is the place of residence, substituted service can be made by leaving the copy with a person of legal age residing therein. If no person is found in the party's registered or known address, the revenue officers concerned shall bring a barangay official and two (2) disinterested witnesses to the address so that they may personally observe and attest to such absence. The notice shall then be given to said barangay official. Such facts shall be contained in the bottom portion of the notice, as well as the names, official position and signatures of the witness. Should the party be found at his registered or known address or any other place but refuse to receive the notice, the revenue officers concerned shall bring a barangay official and two (2) disinteresting witnesses in the presence of the party so that they may personally observe and attest to such act of refusal. The notice shall then be given to said barangay official. Such facts shall be contained in the bottom portion of the notice, as well as the names, official position and signatures of the witnesses. 'Disinterested witnesses' refers to persons of legal age other than employees of the Bureau of Internal Revenue. (iii) Service by mail is done by sending a copy of the notice by registered mail to the registered or known address of the party with instruction to the Postmaster to return the mail to the sender after ten (10) days, if undelivered. x x x. xxx xxx xxx." (Emphases and underscoring ours) Based on the foregoing provisions, the service of a FAN, among other notices, may be made through: (1) personal service to the party; (2) substituted service; or (3) service by mail. Since respondent's argument rests on substituted service, the Court will confine the discussion on, and application of, the rule regarding the said mode of service. It is clear from the aforequoted Section 3.1.6 that the service of the notice (in this case, the FAN) should be by personal service. It is only when the personal service thereof is not practicable that substituted service could be n of Discrepancies both dated December 20, 2016, to petitioner? A: Pursuant to the requirements under Revenue Regulations No. 12-99, as amended by Revenue Regulations No. 18-2013, prescribing the mode of service of BIR Assessment Notices to a particular taxpayer, at first , I went personally to the office address of petitioner at the 6/F 6750 Ayala Avenue, Makati City on December 22, 2016 and Formal Assessment Notice (FAN) with attached Details of Discrepancies both dated December 20, 2016 to the responsible officers to petitioner. However, despite diligent effort I have exerted to locate and personally serve the said assessment notices to the responsible officers of the said corporation, thus I was not able to personally serve the notices to the responsible officers of the corporation . 38 Thus, I was constrained to serve the said BIR Assessment Notices to petitioner, by substituted/constructive service by leaving the original copies thereof with the said corporation's employee/administrative staff named, RICHARD INTALAN, who acknowledged to have received the same on December 22, 2016. aDSIHc 15. Q: Would you know, who witness your substituted/constructive service of the said BIR Assessment Notice Nos. IT-LN045-11-16-1283 and VT-LN045-11-16-1283 both dated December 20, 2016 and Formal Assessment Notice (FAN) with attached Details of Discrepancies both dated December 20, 2016 to herein petitioner? A: Yes, Atty. My substituted/constructive service of the said BIR Assessment Notice Nos. IT-LN045-11-16-1283 and VT-LN045-11-16-1283 both dated December 20, 2016 and Formal Assessment Notice (FAN) with attached Details of Discrepancies both dated December 20, 2016 to herein petitioner, on December 22, 2016 was witnessed by my Group Supervisor Revenue Officers Ma. Teresa S. Reyes, also assigned at BIR Revenue District Office (RDO) No. 47, East Makati." 39 Based on the foregoing testimonies, substituted service of the subject FAN was resorted to since the personal service thereof was not practicable. Furthermore, according to RO Guarino III, substituted service was done by leaving the original copies thereof with the supposed employee/administrative staff of petitioner, namely, Richard Intalan. However, during cross-examination, RO Guarino III admitted that Mr. Richard Intalan is an employee of Chevron Philippines, Inc., which is a separate and distinct entity from petitioner. Pertinent portions of his testimony are quoted hereunder for ready reference: "ATTY. EXCHAURE Q In your answer to question no. 12, you mentioned that the BIR assessment notices and the FAN which are all dated December 20, 2016 were received by petitioner on December 22, 2016, is that correct? MR. GUARINO A Yes, Ma'am. ATTY. EXCHAURE Q And you mentioned that the same was received by one Richard Intalan who according to you is the employee of the petitioner, is that correct? MR. GUARINO A Yes, Ma'am. ATTY. EXCHAURE Q What is your basis in stating that Mr. Intalan is an employee of petitioner? MR. GUARINO A When I go to the office of Chevron, he was the first man I saw in the information of the office. ATTY. EXCHAURE Q Did you ask if he was connected to petitioner, and if he is an employee of the petitioner? MR. GUARINO A Yes, Ma'am. ATTY. EXCHAURE Q Did you check his ID? MR. GUARINO A He is wearing his ID. ATTY. EXCHAURE Q In your answer to question no. 12, you referred to Exhibit R-8-h as proof of receipt by Mr. Intalan, can you go over to Exhibit R-8-h? ATICcS JUSTICE LIBAN BIR letter dated December 28, 2016. ATTY. EXCHAURE Q Mr. Witness, in Exhibit R-8, however, there is nothing in the sub-marking which shows that the person who signed this is Mr. Intalan, what is your basis that the person who signed this is the person of Mr. Intalan? MR. GUARINO A My basis is here in Exhibit R-8-e. ATTY. EXCHAURE Q Mr. Witness, can you go over to Exhibit R-8-e, can you please read aloud the designation of Mr. Intalan? MR. GUARINO A The designation is Chevron Philippines, Inc. ATTY. EXCHAURE Q Are you aware that Chevron Philippines, Inc. is a separate and distinct entity from Chevron Services Philippines Incorporated? MR. GUARINO A Yes, Ma'am." 40 It is clear from the foregoing that Mr. Intalan is not an employee, nor a duly authorized representative, of petitioner (much less the latter's clerk or a person having charge of petitioner's registered or known address), and therefore, has no authority to receive the FAN on behalf of petitioner. The fact that Mr. Intalan is not an employee of petitioner was even corroborated by the Certification dated September 20, 2017 41 issued by Mr. Intalan's employer, Facilities Managers, Inc. confirming therein that he is an employee of the Facilities Managers, Inc., and that he rendered services to Chevron Philippines, Inc. from June 1, 2015 to February 14, 2017. Thus, having established that the subject FAN was not validly served to petitioner on December 22, 2016, this Court finds that the said FAN was received by petitioner only on January 3, 2017 through registered mail. Such being the case, for purposes of determining whether petitioner timely filed its administrative protest against the said FAN, and whether this Court has jurisdiction over the instant case, the reckoning date is January 3, 2017, not December 22, 2016. This Court has jurisdiction over the instant Petition for Review. Section 228 of the NIRC of 1997 governs the filing of administrative protests for tax assessments, and the appeal of decisions or inactions thereon before this Court, to wit: "SEC. 228. Protesting of Assessment. x x x xxx xxx xxx The taxpayer shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void. xxx xxx xxx 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 . " (Emphases and underscoring ours) Based on the foregoing provision, the assessment must be administratively protested within thirty (30) days from receipt of the assessment, and in case the protest is denied, the concerned taxpayer must appeal to this Court, within thirty (30) days from receipt of the said decision. In this case, counting from January 3, 2017 the date when petitioner received the subject FLD and FAN, petitioner had until February 2, 2017, to file its protest against the same. Considering that petitioner filed its Protest on February 2, 2017, 42 such Protest was timely made. ETHIDa Furthermore, since petitioner received the Final Denial Letter on March 10, 2017, 43 the filing of the instant Petition for Review should have been made on or before April 9, 2017, i.e. , the end of the 30-day within which to file petitioner's judicial appeal. The instant Petition for Review is timely filed even the same was done only on the following date, April 10, 2017, 44 pursuant to Section 1, Rule 22 of the Rules of Court, to wit: "RULE 22 Computation of Time Section 1. How to compute time . In computing any period of time prescribed or allowed by these Rules, or by order of the court, or by any applicable statute, the day of the act or event from which the designated period of time begins to run is to be excluded and the date of performance included. If the last day of the period, as thus computed, falls on a Saturday, a Sunday, or a legal holiday in the place where the court sits, the time shall not run until the next working day. " (Emphases and underscoring ours) It is noteworthy that April 9, 2017 fell on a Sunday. Thus, applying the aforequoted provision, the filing of the instant Petition for Review on the next working day, i.e. , April 10, 2017, was timely done. Such being the case, this Court has jurisdiction to entertain the instant case. The absence of an LOA renders the investigation and corresponding assessments as invalid. Petitioner further argues that the subject PAN and FAN are void, since the same were issued pursuant to an LN, without any LOA, for further investigation of the case. Section 6 of the NIRC of 1997 reads as follows: "SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax Administration and Enforcement . (A) Examination of Returns and Determination of Tax Due . After a return has been filed as required under the provisions of this Code, the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax : Provided, however , that failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer." (Emphasis ours) Pursuant to the said provision, an authorization from respondent or his duly authorized representative is necessary in order to examine any taxpayer and to assess the correct amount of tax. Such an authorization is in the form of an LOA. The audit process in the BIR normally commences with the issuance by respondent or his duly authorized representative of an LOA. The LOA gives notice to the taxpayer that it is under investigation for possible deficiency tax assessment; at the same time, it authorizes or empowers a designated RO to examine, verify, and scrutinize a taxpayer's books and records, in relation to internal revenue tax liabilities for a particular period. 45 In Medicard Philippines, Inc. vs. Commissioner of Internal Revenue , 46 the Supreme Court held as follows: " 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. An LOA is premised on the fact that the examination of a taxpayer who has already filed his tax returns is a power that statutorily belongs only to the CIR himself or his duly authorized representatives . Section 6 of the NIRC clearly provides as follows: TIADCc SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax Administration and Enforcement. (A) Examination of Return and Determination of Tax Due. After a return has been filed as required under the provisions of this Code, the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax: Provided, however, That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer. xxx xxx xxx (Emphasis and underlining Ours) Based on the afore-quoted provision, it is clear that unless authorized by the CIR himself or by his duly authorized representative, through an LOA , an examination of the taxpayer cannot ordinarily be undertaken . The circumstances contemplated under Section 6 where the taxpayer may be assessed through best-evidence obtainable, inventory-taking, or surveillance among others has nothing to do with the LOA. These are simply methods of examining the taxpayer in order to arrive at the correct amount of taxes. Hence, unless undertaken by the CIR himself or his duly authorized representatives, other tax agents may not validly conduct any of these kinds of examinations without prior authority . xxx xxx xxx In the case of Commissioner of Internal Revenue v. Sony Philippines, Inc. , 47 the Court said that: 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 and underlining ours) The Court cannot convert the LN into the LOA required under the law even if the same was issued by the CIR himself. Under RR No. 12-2002, LN is issued to a person found to have underreported sales/receipts per data generated under the RELIEF system . Upon receipt of the LN, a taxpayer may avail of the BIR's Voluntary Assessment and Abatement Program. If a taxpayer fails or refuses to avail of the said program, the BIR may avail of administrative and criminal remedies, particularly closure, criminal action, or audit and investigation. Since the law specifically requires an LOA and RMO No. 32-2005 requires the conversion of the previously issued LN to an LOA, the absence thereof cannot be simply swept under the rug, as the CIR would have it. In fact Revenue Memorandum Circular No. 40-2003 considers an LN as a notice of audit or investigation only for the purpose of disqualifying the taxpayer from amending his returns. The following differences between an LOA and LN are crucial. First, an LOA addressed to a revenue officer is specifically required under the NIRC before an examination of a taxpayer may be had while an LN is not found in the NIRC and is only for the purpose of notifying the taxpayer that a discrepancy is found based on the BIR's RELIEF System. Second, an LOA is valid only for 30 days from date of issue while an LN has no such limitation. Third, an LOA gives the revenue officer only a period of 120 days from receipt of LOA to conduct his examination of the taxpayer whereas an LN does not contain such a limitation. Simply put, LN is entirely different and serves a different purpose than an LOA. Due process demands, as recognized under RMO No. 32-2005, that after an LN has serve its purpose, the revenue officer should have properly secured an LOA before proceeding with the further examination and assessment of the petitioner. Unfortunately, this was not done in this case . Contrary to the ruling of the CTA en banc , an LOA cannot be dispensed with just because none of the financial books or records being physically kept by MEDICARD was examined. To begin with, Section 6 of the NIRC requires an authority from the CIR or from his duly authorized representatives before an examination 'of a taxpayer' may be made . The requirement of authorization is therefore not dependent on whether the taxpayer may be required to physically open his books and financial records but only on whether a taxpayer is being subject to examination . The BIR's RELIEF System has admittedly made the BIR's assessment and collection efforts much easier and faster. The ease by which the BIR's revenue generating objectives is achieved is no excuse however for its non-compliance with the statutory requirement under Section 6 and with its own administrative issuance. In fact, apart from being a statutory requirement, an LOA is equally needed even under the BIR's RELIEF System because the rationale of requirement is the same whether or not the CIR conducts a physical examination of the taxpayer's record: to prevent undue harassment of a taxpayer and level the playing field between the government's vast resources for tax assessment, collection and enforcement, on one hand, and the solitary taxpayer's dual need to prosecute its business while at the same time responding to the BIR exercise of its statutory powers. The balance between these is achieved by ensuring that any examination of the taxpayer by the BIR's revenue officers is properly authorized in the first place by those to whom the discretion to exercise the power of examination is given by the statute . That the BIR officials herein were not shown to have acted unreasonably is beside the point because the issue of their lack of authority was only brought up during the trial of the case. What is crucial is whether the proceedings that led to the issuance 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 . " (Emphases and underscoring supplied) cSEDTC Based on the foregoing jurisprudential pronouncements, it is crucial that the proceedings that led to the issuance of a deficiency tax assessment against a taxpayer had the prior approval and authorization of respondent or his duly authorized representatives, through an LOA, not merely an LN. If the RO who conducted the examination of a taxpayer is not so authorized through an LOA in the first place, the assessment is inescapably void. In addition, even when an LN is issued, an LOA is still required to be issued, otherwise, the examination or assessment is a nullity. In this case, without doubt, petitioner received, on January 31, 2013, a copy of the LN No. 047-RLF-11-00-00045 dated January 28, 2013 for CY ended December 31, 2011. 48 However, there is no indication that an LOA was ever issued by respondent or his duly authorized representative in favor of any person to examine or audit the books of accounts and other accounting records of petitioner for CY 2011. Clearly, the only basis for petitioner's tax examination and assessment is only an LN. Not having the authority to examine petitioner in the first place, the subject tax assessments are void. There was denial of due process for respondent's failure to consider the explanations of petitioner as embodied in its reply to the subject PAN. Petitioner contends that respondent's FAN was issued in violation of due process requirements by issuing the FAN in complete disregard of petitioner's reply to the PAN. Section 3 of RR No. 12-99, as amended by RR No. 18-2013, provides, in part, as follows: "SECTION 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 detail, the facts and the law, rules and regulations, or jurisprudence on which the proposed assessment is based (see illustration in ANNEX A hereof). If the taxpayer fails to respond within fifteen (15) days from date of receipt of the PAN, he shall be considered in default, in which case, a Formal Letter of Demand and 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 findings 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." (Emphases ours) Based on the foregoing provisions, part of the due process requirement in the issuance of a deficiency tax assessment is the issuance and service of a PAN. Moreover, petitioner is given fifteen (15) days from receipt of the PAN within which to respond thereto, before the issuance of the FLD and FAN by the BIR. Relative thereto, in Commissioner of Internal Revenue vs. Avon Products Manufacturing, Inc., et seq. , 49 the Supreme Court said: " 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. The 1997 National Internal Revenue Code, also known as the Tax Code, and revenue regulations allow a taxpayer to file a reply or otherwise submit comments or arguments with supporting documents at each stage in the assessment process. Due process requires the Bureau of Internal Revenue to consider the defenses and evidence submitted by the taxpayer and to render a decision based on these submissions. Failure to adhere to these requirements constitutes a denial of due process and taints the administrative proceedings with invalidity. xxx xxx xxx The Bureau of Internal Revenue is the primary agency tasked to assess and collect proper taxes, and to administer and enforce the Tax Code. To perform its functions of tax assessment and collection properly, it is given ample powers under the Tax Code, such as the power to examine tax returns and books of accounts, to issue a subpoena, and to assess based on best evidence obtainable, among others. However, these powers must be 'exercised reasonably and [under] the prescribed procedure.' The Commissioner and revenue officers must strictly comply with the requirements of the law, with the Bureau of Internal Revenue's own rules , and with due regard to taxpayer's constitutional rights . AIDSTE xxx xxx xxx Administrative due process is anchored on fairness and equity in procedure. It is satisfied if the party is properly notified of the charge against it and is given a fair and reasonable opportunity to explain or defend itself. Moreover, it demands that the party's defense be considered by the administrative body in making its conclusions , and that the party be sufficiently informed of the reasons for its conclusions . xxx xxx xxx Under the Bureau of Internal Revenue's own procedures, the taxpayer is required to respond to the Notice of Informal Conference and to the Preliminary Assessment Notice within 15 days from receipt. Despite Avon's timely submission of a Reply to the Notice of Informal Conference and protest to the Preliminary Assessment Notice, together with supporting documents, the Commissioner and her agents violated their own procedures by refusing to answer or even acknowledge the submitted Reply and protest. 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 It is true that the Commissioner is not obliged to accept the taxpayer's explanations, as explained by the Court of Tax Appeals. However, when he or she rejects these explanations, he or she must give some reason for doing so. He or she must give the particular facts upon which his or her conclusions are based, and those facts must appear in the record. Indeed, the Commissioner's inaction and omission to give due consideration to the arguments and evidence submitted before her by Avon are deplorable transgressions of Avon's right to due process . The right to be heard, which includes the right to present evidence, is meaningless if the Commissioner can simply ignore the evidence without reason. xxx xxx xxx The Commissioner's total disregard of due process rendered the identical Preliminary Assessment Notice, Final Assessment Notice, and Collection Letter null and void, and of no force and effect. xxx xxx xxx Compliance with strict procedural requirements must be followed in the collection of taxes as emphasized in Commissioner of Internal Revenue v. Algue, Inc. : 50 Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself . It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved. 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, may still be stopped in his tracks if the taxpayer can demonstrate . . . that the law has not been observed . (Emphasis supplied) x x x. [The Commissioner of Internal Revenue's] disregard of the standards and rules renders the deficiency tax assessments null and void . x x x." (Emphases and underscoring ours) The foregoing doctrinal pronouncements affirms that the issuance of a PAN is a part of due process; that the issuance thereof gives both the taxpayer and respondent opportunity to settle the case at the earliest possible time without the need for the issuance of a FAN; that this purpose is not served in case respondent or the BIR fails to consider the taxpayer's explanations or arguments; that the failure by respondent or the BIR to give due consideration to the said explanations or arguments is a deplorable transgression of the taxpayer's right to due process; and that the disregard by respondent or the BIR of the standards and rules renders the deficiency tax assessments null and void. In this case, it is undisputed that petitioner received a copy of the PAN dated November 18, 2016, with attached Details of Discrepancies on November 24, 2016; 51 and that petitioner filed its reply to the said PAN (embodied in its letter dated December 9, 2016) with the BIR on December 9, 2016, 52 or within the 15-day reglementary period, seeking the cancellation of the same PAN, and stating the explanations therefor. SDAaTC However, it is clear that respondent did not consider petitioner's explanations in the said reply, before issuing the subject FAN. In respondent's letter dated December 28, 2016, 53 the following statements, among others, were made: "This has reference to your letter dated December 9, 2016, which was received by this office on the same date in reply to the Preliminary Assessment Notice (PAN) dated November 18, 2016 covering Income Tax and Value Added Tax in the amounts of P37,034,856.57 and P15,083,256.82, respectively, inclusive of increments for taxable year 2011. In reply, we hereby acknowledge your letter and the same shall form part of the docket. However, please be informed that Formal Assessment Notice (FAN) dated December 20, 2016 representing the above deficiency taxes has been issued pursuant to Section 3.1.1 of Revenue Regulations (RR) No. 18-2013. xxx xxx xxx." (Emphasis supplied) Moreover, the parties even admitted that on January 12, 2017, petitioner received respondent's letter dated December 28, 2016, acknowledging the receipt of petitioner's reply to PAN but nevertheless claimed that the Reply will only form part of the docket because the FAN dated December 20, 2016 has already been issued against petitioner . 54 Therefore there was a clear violation of petitioner's right to due process since respondent failed to consider petitioner's explanations in its reply to the subject PAN before issuing the subject FAN. Such violation renders the subject tax assessments as void. Consequently, an invalid assessment bears no valid fruit. 55 Finding that the subject tax assessments are invalid for lack of an LOA and for violation of due process, it becomes unnecessary to address the issue and other arguments raised by the parties. WHEREFORE , in light of the foregoing considerations, the instant Petition for Review is GRANTED . Accordingly, the Final Denial Letter dated March 1, 2017 issued by Regional Director Glen A. Geraldino against petitioner is hereby REVERSED and SET ASIDE . Furthermore, the FAN, assessing petitioner of the deficiency income tax and VAT, in the aggregate amount of P52,292,668.88, inclusive of interest and surcharges, for the CY 2011, is CANCELLED and SET ASIDE . SO ORDERED. (SGD.) MA. BELEN M. RINGPIS-LIBAN Associate Justice Erlinda P. Uy and Maria Rowena Modesto-San Pedro, JJ. , concur. Footnotes 1. Summary of the Case, Pre-Trial Order dated October 19, 2017, Docket Vol. 1, p. 456. 2. Par. 1, Stipulated Facts, Joint Stipulation of Facts and Issues (JSFI), Docket Vol. 1, p. 240. 3. Par. 2, Stipulated Facts, JSFI, Docket Vol. 1, p. 240. 4. Par. 6, Stipulated Facts, JSFI, Docket Vol. 1, p. 241. 5. Par. 4, Stipulated Facts, JSFI, Docket Vol. 1, p. 241. 6. Par. 5, Stipulated Facts, JSFI, Docket Vol. 1, p. 241. 7. Par. 7, Stipulated Facts, JSFI, Docket Vol. 1, p. 241. 8. Par. 8, Stipulated Facts, JSFI, Docket Vol. 1, p. 241. 9. Exhibit "P-6", Docket Vol. 2, pp. 602 to 611; BIR Records (Exhibit "R-1"), pp. 227 to 237. 10. Par. 9, Stipulated Facts, JSFI, Docket Vol. 1, p. 241; Exhibit "R-4", BIR Records (Exhibit "R-1"), p. 240. 11. Exhibit "P-7", Docket Vol. 2, pp. 613 to 618; Exhibits "R-2-H", BIR Records (Exhibit "R-1"), pp. 129 to 134. 12. Par. 10, Stipulated Facts, JSFI, Docket Vol. 1, pp. 241 to 242. 13. Par. 11, Stipulated Facts, JSFI, Docket Vol. 1, p. 242. 14. Docket Vol. 1, pp. 10 to 36. 15. Docket Vol. 1, pp. 138 to 148; cc: Respondent's Motion for Extension of Time to File an Answer , Docket Vol. 1, pp. 128 to 130; Resolution dated June 5, 2017, Docket Vol. 1, p. 134; and Manifestation with Motion to Admit Answer , Docket Vol. 1, pp. 135 to 137; Resolution dated July 11, 2017, Docket Vol. 1, pp. 159 to 160. 16. Notice of Pre-Trial Conference dated July 13, 2017, Docket Vol. 1, pp. 161 to 162; Minutes of the hearing held on, and Order dated September 26, 2017, Docket Vol. 1, pp. 218, and 220 to 221, respectively. 17. Resolution dated June 5, 2017, Docket Vol. 1, p. 134; Resolution dated August 10, 2017, Docket Vol. 1, pp. 167 to 168. 18. Docket Vol. 1, p. 169. 19. Docket Vol. 1, pp. 171 to 173. 20. Docket Vol. 1, pp. 222 to 237. 21. Docket Vol. 1, pp. 240 to 252. 22. Docket Vol. 1, pp. 456 to 463. 23. Exhibit "P-26", Docket Vol. 2, pp. 488 to 507; Minutes of the hearing held on, and Order dated, February 5, 2018, Docket Vol. 2, pp. 543 to 545. 24. Docket Vol. 2, pp. 547 to 561. 25. Records Verification dated March 22, 2018 issued by the Judicial Records Division of this Court, Docket Vol. 2, p. 734. 26. Docket Vol. 2, pp. 736 to 737. 27. Docket Vol. 2, pp. 762 to 763. 28. Exhibit "R-6", Docket Vol. 2, pp. 740 to 746; Minutes of the hearing held on, and Order dated, October 18, 2018, Docket Vol. 2, pp. 765 to 767. 29. Docket Vol. 2, pp. 775 to 782. 30. Docket Vol. 2, pp. 792 to 797. 31. Docket Vol. 2, pp. 806 to 807. 32. Docket Vol. 2, pp. 820 to 823. 33. Docket Vol. 2, pp. 833 to 881. 34. Docket Vol. 2, p. 884. 35. Issue, JSFI, Docket Vol. 1, p. 458. 36. SUBJECT: 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. 37. SUBJECT: Amending Certain Sections of Revenue Regulations No. 12-99 Relative to the Due Process Requirement in the Issuance of a Deficiency Tax Assessment. 38. N.B.: The italicized words are handwritten insertions. 39. Exhibit "R-6", Docket Vol. 2, at pp. 741 to 742. 40. TSN dated October 18, 2018, pp. 14 to 16. 41. Exhibit "P-12", Docket Vol. 2, p. 636. 42. Par. 10, Stipulated Facts, JSFI, Docket Vol. 1, pp. 241 to 242. 43. Par. 11, Stipulated Facts, JSFI, Docket Vol. 1, p. 242. 44. Docket Vol. 1, pp. 10 to 36. 45. Commissioner of Internal Revenue vs. Lancaster Philippines, Inc. , G.R. No. 183408, July 12, 2017. 46. G.R. No. 222743, April 5, 2017. 47. 649 Phil. 519 (2010). 48. Par. 7, Stipulated Facts, JSFI, Docket Vol. 1, p. 241. 49. G.R. Nos. 201398-99 and 201418-19, October 3, 2018. 50. 241 Phil. 829 (1988) [Per J. Cruz, First Division]. 51. Par. 8, Stipulated Facts, JSFI, Docket Vol. 1, p. 241. 52. Exhibit "P-6", Docket Vol. 2, pp. 602 to 611; BIR Records (Exhibit "R-1"), pp. 227 to 237. 53. Exhibit "R-4", BIR Records (Exhibit "R-1"), p. 240. 54. Refer to Par. 9, Stipulated Facts, JSFI, Docket Vol. 1, p. 241. 55. Commissioner of Internal Revenue vs. Pilipinas Shell Petroleum Corporation , G.R. Nos. 197945 and 204119-20, July 9, 2018, G.R. No. 197945 citing Commissioner of Internal Revenue vs. Reyes , G.R. Nos. 159694 and 163581, January 27, 2006. n Note from the Publisher: Copied verbatim from the official copy. Missing portion.