Commissioner of Internal Revenue v. Barrio Fiesta Manufacturing Corp.

EN BANC [C.T.A. EB CASE NO. 2186. June 21, 2021.] (C.T.A. Case No. 9880) COMMISSIONER OF INTERNAL REVENUE , petitioner , vs. BARRIO FIESTA MANUFACTURING CORPORATION , respondent . DECISION BACORRO-VILLENA , J p : At bar is a Petition for Review 1 filed by petitioner Commissioner of Internal Revenue (petitioner/CIR) pursuant to Section 3 (b), 2 Rule 8 of the Revised Rules of the Court of Tax Appeals (RRCTA) . The petition seeks the reversal of the Decision dated 18 September 2019 3 (assailed Decision) and Resolution dated 05 November 2019 4 (assailed Resolution) promulgated by the Court's First Division in CTA Case No. 9880 entitled Barrio Fiesta Manufacturing Corporation v. Commissioner of Internal Revenue . The antecedent facts follow. On 27 May 2016, petitioner issued Letter of Authority (LOA) No. LOA-024-2016-00000160 5 authorizing examination of respondent Barrio Fiesta Manufacturing Corporation's (respondent's/BFMC's) records for all internal revenue taxes covering the period of 01 January 2014 to 31 December 2014. Subsequently, on 02 July 2018, respondent received Warrant of Distraint and/or Levy (WDL) No. RR5-2AMS-DA-06-21-18-1258(024) 6 citing respondent's refusal to pay delinquency taxes amounting to P53,288,223.35. On 23 July 2018, respondent filed its Petition for Review (with Urgent Motion to Suspend the Collection of Tax) 7 [Motion to Suspend] before this Court. The case was raffled to the First Division. Later or on 08 August 2018, summons 8 was issued against petitioner through the Office of the Solicitor General (OSG) , giving petitioner fifteen (15) days from receipt thereof within which to file his Answer. In a separate Resolution dated 08 August 2018, 9 the First Division ordered petitioner to file his Comment/Opposition to respondent's Motion to Suspend within five (5) days from his receipt thereof. Thereafter, on 15 August 2018, respondent filed an Urgent Motion to Lift Garnishment and Dispense with the Payment of the Bond 10 (Motion to Lift) . Accordingly, petitioner was ordered to file his Comment/Opposition thereon within five (5) days from receipt of the Court's Resolution dated 17 August 2018. 11 As per Records Verification dated 03 September 2018, 12 petitioner failed to file his Comment/Opposition to respondent's Motion to Suspend. During the hearing of respondent's Motion to Suspend on 06 September 2018, 13 respondent proceeded to present its lone witness, Crosaldo M. Suni (Suni) , who essentially testified to BFMC's non-receipt of the Preliminary Assessment Notice (PAN) and Final Assessment Notice (FAN) . 14 HSAcaE On 17 September 2018, respondent filed its Formal Offer of Evidence 15 (FOE) . On even date, petitioner filed an Urgent Motion to File/Admit Verified Answer with Leave of Court and to Suspend Proceedings 16 (Motion to Admit) praying for additional thirty (30) days within which to file his Answer. As per Records Verification dated 19 October 2018, 17 petitioner failed to file his Comment/Opposition to respondent's FOE and Motion to Lift within the time allotted by the Court. In a Resolution dated 12 November 2018, 18 the Court ordered respondent to file its Comment/Opposition to petitioner's Motion to Admit within ten (10) days from its receipt thereof. On 28 November 2018, respondent filed its Comment/Opposition with Motion to Declare Respondent in Default (to CIR's Motion to Admit). 19 In a Resolution dated 13 December 2018, 20 the First Division denied petitioner's Motion to Admit and declared the latter in default. Consequently, the case was set for respondent's presentation of evidence ex parte . 21 In a Resolution dated 18 December 2018, 22 the First Division resolved to: (1) admit respondent's exhibits except Exhibits "P-1", "P-10" and "P-19"; 23 (2) grant respondent's Motion to Suspend and Motion to Lift; (3) lift the warrants of garnishment on certain bank accounts of respondent; (4) dispense with the payment of a bond; and, (5) suspend the collection of taxes. Thereafter, trial ensued where respondent again presented Suni, who reiterated his previous testimony regarding respondent's failure to receive the PAN and the FAN. 24 On 18 February 2019, respondent filed its FOE 25 which the First Division resolved to admit (except Exhibits "P-10" and "P-19"). 26 Thereafter, respondent filed its Memorandum 27 on 28 March 2019. In a Resolution dated 10 April 2019, 28 the First Division submitted the case for decision. On 18 September 2019, the First Division rendered the assailed Decision 29 granting respondent's petition for petitioner's failure to prove actual receipt of the PAN and the FAN. The dispositive portion of which reads: xxx xxx xxx WHEREFORE , premises considered, the Petition for Review is hereby GRANTED . Accordingly, the Warrant of Distraint and/or Levy No. RR5-2AMS-DA-06-21-18-1258(024) dated June 21, 2018 and the assessment upon which it is based are DECLARED VOID, CANCELLED and SET ASIDE . SO ORDERED. xxx xxx xxx Aggrieved, petitioner filed his Motion for Reconsideration (MR) on 09 October 2019 30 which was denied. 31 In the similarly assailed Resolution dated 05 November 2019, the First Division declared the lack of a notice of hearing in the MR as a fatal defect. 32 On 12 December 2019, petitioner filed the present petition before the Court En Banc . Accordingly, the Court ordered respondent to file its comment thereto in a Resolution dated 19 February 2020. 33 On 11 March 2020, respondent filed its Comment/Opposition. 34 On 29 September 2020, the case was submitted for decision. 35 HESIcT Petitioner raises this principal issue in his petition before Us WHETHER THE FIRST DIVISION ERRED IN GRANTING RESPONDENT BARRIO FIESTA MANUFACTURING CORPORATION'S PETITION FOR REVIEW (WITH URGENT MOTION TO SUSPEND THE COLLECTION OF TAX) ON THE GROUND THAT PETITIONER COMMISSIONER OF INTERNAL REVENUE FAILED TO PROVE THE ISSUANCE AND RECEIPT OF THE PRELIMINARY ASSESSMENT NOTICE (PAN) AND THE FINAL ASSESSMENT NOTICE (FAN). In his bid to overturn the assailed 18 September 2019 Decision and the subsequent 05 November 2019 Resolution, petitioner insists on the following lapses on the part of the First Division: (1) the WDL is indicative of the PAN and the FAN's issuance as the same is only issued after the taxpayer's failure to protest the FAN; (2) his delay in filing an Answer was the result of an impeded work flow within his own office and that the filing of the Motion to Admit is proof of his intention to participate in the proceedings before the Court in Division; and, (3) the delay resulting from the negligence of government agents does not estop the government from collecting the taxes due it. In his assertions, petitioner relies on the Supreme Court's decision in Visayas Geothermal Power Company v. Commissioner of Internal Revenue 36 (Visayas) from which he cites: xxx xxx xxx It is a well-settled rule that the government cannot be estopped by the mistakes, errors or omissions of its agents. It has been specifically held that estoppel does not apply to the government, especially on matters of taxation. Taxes are the nation's lifeblood through which government agencies continue to operate and with which the State discharges its functions for the welfare of its constituents. Thus, the government cannot be estopped from collecting taxes by the mistake, negligence, or omission of its agents. Upon taxation depends the ability of the government to serve the people for whose benefit taxes are collected. To safeguard such interest, neglect or omission of government officials entrusted with the collection of taxes should not be allowed to bring harm or detriment to the people. xxx xxx xxx Expectedly, respondent fully agrees with the First Division's finding that the assessment against it was invalid for petitioner's failure to prove respondent's receipt of the PAN and the FAN. The Court En Banc 's ruling follows below. After a careful scrutiny of the records of the case and the arguments put forward by both parties, the Court En Banc finds no cogent reason to set aside the First Division's assailed Decision and Resolution. Section 228 of the National Internal Revenue Code (NIRC) of 1997, as amended, provides: xxx xxx xxx 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: . . . 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. 37 xxx xxx xxx We echo the First Division's sentiment that although respondent's blanket denial of the PAN and the FAN's receipt may not be well-taken; the denial, nevertheless, behooves petitioner to prove respondent's actual receipt of the same. In Republic of the Philippines v. The Court of Appeals, et al. 38 (Republic) , the Supreme Court explains thusly: xxx xxx xxx . . . [W]hile the contention of petitioner is correct that a mailed letter is deemed received by the addressee in the ordinary course of mail, still, this is merely a disputable presumption, subject to controversion, and a direct denial of the receipt thereof shifts the burden upon the party favored by the presumption to prove that the mailed letter was indeed received by the addressee . . . caITAC xxx xxx xxx To give rise to the foregoing presumption of receipt, the Supreme Court in Gonzalo P. Nava v. Commissioner of Internal Revenue 39 (Nava) held that there must first be satisfaction of the following requirements: xxx xxx xxx The facts to be proved to raise this presumption are (a) that the letter was properly addressed with postage prepaid, and (b) that it was mailed . Once these facts are proved, the presumption is that the letter was received by the addressee as soon as it could have been transmitted to him in the ordinary course of the mail. But if one of the said facts fails to appear, the presumption does not lie." (VI, Moran, Comments on the Rules of Court, 1963 ed., 56-57; citing Enriquez vs. Sun Life Assurance of Canada , 41 Phil. 269) xxx xxx xxx Recent jurisprudence remains faithful to the foregoing principles such as in the much later case of Barcelon, Roxas Securities, Inc. (now known as UBP Securities, Inc.) v. Commissioner of Internal Revenue 40 (Barcelon) where the FAN's receipt was also denied by the taxpayer. As culled from the case records, petitioner was held in default for failing to file his Answer within the time prescribed by the Court. As a result, he was unable to submit proof to negate respondent's denial of the subject notices' receipt. Following the doctrines laid down in Republic and Nava , it becomes clear that petitioner failed to discharge his burden of proof. In petitioner's defense, he contends that the WDL's issuance is evidence in itself of the previous issuance of the subject notices. Similar to the presumption that a letter is received in the ordinary course of mail, regularity in the exercise of petitioner's functions is likewise a mere disputable presumption. Respondent, in denying receipt of the subject notices, also puts this presumption up for debate. At this point, it must be emphasized that the issuance of the subject notices and respondent's receipt thereof are two (2) different matters. The PAN and FAN's issuance is not in question in the present case but only the actual receipt thereof by the taxpayer. Even assuming arguendo that the notices were indeed issued, it does not prove the fact of their receipt by the intended addressee. In the landmark case of Commissioner of Internal Revenue v. Fitness by Design, Inc. 41 (Fitness by Design) , the Supreme Court held that the CIR must ensure not only the FAN's sending but also its receipt by the taxpayer, to wit: xxx xxx xxx A final assessment is a notice "to the effect that the amount therein stated is due as tax and a demand for payment thereof." This demand for payment signals the time "when penalties and interests begin to accrue against the taxpayer and enabling the latter to determine his remedies[.]" Thus, it must be "sent to and received by the taxpayer, and must demand payment of the taxes described therein within a specific period ." xxx xxx xxx Furthermore, in Commissioner of Internal Revenue v. GJM Philippines Manufacturing, Inc. 42 (GJM) , the Supreme Court accentuated the necessity for the CIR to prove the assessment's receipt by the taxpayer through the following modes: xxx xxx xxx To prove the fact of mailing, it is essential to present the registry receipt issued by the Bureau of Posts or the Registry return card which would have been signed by the taxpayer or its authorized representative. And if said documents could not be located, the CIR should have, at the very least, submitted to the Court a certification issued by the Bureau of Posts and any other pertinent document executed with its intervention. The Court does not put much credence to the self-serving documentations made by the BIR personnel, especially if they are unsupported by substantial evidence establishing the [fact] of mailing. While it is true that an assessment is made when the notice is sent within the prescribed period, the release, mailing, or sending of the same must still be clearly and satisfactorily proved. Mere notations made without the taxpayer's intervention, notice or control, and without adequate supporting evidence cannot suffice. Otherwise, the defenseless taxpayer would be unreasonably placed at the mercy of the revenue offices. ICHDca xxx xxx xxx Going back to the facts of this case, petitioner failed to provide any scintilla of proof that respondent received the subject notices. As pointed out by the First Division, petitioner did not even bother to seek a reconsideration of the First Division's resolution that declared him in default. In his defense, petitioner blames the delay on the sluggish turn-over of records within his own office. However, the efficiency of the Bureau of Internal Revenue's (BIR's) workflow is not a valid reason for the delay nor a matter fit for the judicial discourse. At any rate, even after the promulgation of the assailed Decision, petitioner did not seek a reopening of the case to submit the evidence required of him. He did not even claim to be in possession of any proof of respondent's receipt of the subject notices. Petitioner's MR of the assailed Decision, much like the present petition, banks heavily on the mere insistence that the doctrine of estoppel does not run against the government. In arguing his case, petitioner appears to have taken an overbroad interpretation of the doctrine laid down in Visayas one completely devoid of any context. In Visayas , this Court's jurisdiction was put in issue by the CIR. There, the Supreme Court held that the CIR's active participation in a case before the CTA does not estop the same from questioning the Court's jurisdiction over the case. Clearly, the concept of estoppel in Visayas was applied in relation to the Court's jurisdiction over therein taxpayer's claim for refund. The implication of stretching the doctrine in Visayas beyond its intended application would render the need for due process null. Adherence to due process requirements in tax assessments remains a necessity, the observance of which is determinative of the assessment's validity. This is evident in the principles established in Republic, Nava, Fitness by Design and GJM which at present remain good law. Unlike in Visayas , no question regarding the Court's authority to try the present case has been raised in these proceedings. In fact, the timeliness of respondent's appeal to the Court in Division is undisputed. WHEREFORE , with the foregoing premises, the Petition for Review filed by petitioner Commissioner of Internal Revenue on 12 December 2019 is hereby DENIED for lack of merit. Accordingly, the assailed Decision and Resolution dated 18 September 2019 and 05 November 2019, respectively, of the First Division in CTA Case No. 9880, entitled Barrio Fiesta Manufacturing Corporation v. Commissioner of Internal Revenue , are hereby AFFIRMED . TCAScE SO ORDERED. (SGD.) JEAN MARIE A. BACORRO-VILLENA Associate Justice Roman G. del Rosario, P.J., Juanito C. Castaeda, Jr., Erlinda P. Uy, Ma. Belen M. Ringpis-Liban, Catherine T. Manahan and Maria Rowena Modesto-San Pedro, JJ. , concur. Footnotes 1. Filed on 12 December 2019, Rollo , pp. 4-11. 2. SEC. 3. Who may appeal; period to file petition . . . . (b) A party adversely affected by a decision or resolution of a Division of the Court on a motion for reconsideration or new trial may appeal to the Court by filing before it a petition for review within fifteen days from receipt of a copy of the questioned decision or resolution. Upon proper motion and the payment of the full amount of the docket and other lawful fees and deposit for costs before the expiration of the reglementary period herein fixed, the Court may grant an additional period not exceeding fifteen days from the expiration of the original period within which to file the petition for review. xxx xxx xxx 3. Penned by Presiding Justice Roman G. Del Rosario with Associate Justice Esperanza R. Fabon-Victorino (Ret.) and Catherine T. Manahan, concurring. Division Docket, pp. 682-697. 4. Id. , pp. 712-713. 5. Exhibit "P-4", id. , p. 293. 6. Exhibit "P-3", id. , p. 292. 7. Id. , pp. 12-34. 8. Id. , pp. 47-48. 9. Id. , p. 50. 10. Id. , pp. 51-60. 11. Id. , p. 111. 12. Id. , p. 242. 13. See Order dated 06 September 2018, id. , pp. 262-263. 14. See Judicial Affidavit, Exhibit "P-70", id. , pp. 477-191. TSN dated 22 January 2019. 15. Id. , pp. 272-282. 16. Id. , pp. 433-436. 17. Id. , p. 439. 18. Id. , pp. 444-445. 19. Id. , pp. 446-453. 20. Id. , pp. 454-458. 21. Id. , p. 458. 22. Id. , pp. 463-471. 23. Title Description "P-1" Petitioner's Certificate of Filing Amended Articles of Incorporation issued by the Securities and Exchange Commission (SEC) dated October 4, 2016 bearing SEC Registration No. 146893. "P-10" Warrant of Garnishment dated July 11, 2018 issued to and received by ChinaBank Savings on August 2, 2018. "P-19" Warrant of Garnishment dated July 11, 2018 issued to and received by Security Bank on August 8, 2018. 24. See Order dated 22 January 2019, id. , pp. 571-572. 25. Id. , pp. 585-596. 26. See Resolution dated on 04 March 2019, Id. , pp. 658-659. 27. Id. , pp. 660-677. 28. Id. , p. 679. 29. Supra at note 3. 30. Division Docket, pp. 705-709. 31. See Resolution dated 05 November 2019, supra at note 4. 32. Division Docket, p. 712. 33. Rollo , pp. 61-62. 34. Id. , pp. 63-74. 35. See Resolution, id. , pp. 80-81. 36. G.R. No. 197525, 04 June 2014; Citations omitted. 37. Emphasis supplied. 38. G.R. No. L-38540, 30 April 1987. 39. G.R. No. L-19470, 30 January 1965; Italics in the original text. 40. G.R. No. 157064, 07 August 2006. 41. G.R. No. 215957, 09 November 2016; Citations omitted and emphasis supplied. 42. G.R. No. 202695, 29 February 2016; Citation omitted.