Takasago Import-Export Corporation v. Commissioner of Internal Revenue

SPECIAL FOURTH DIVISION [CA-G.R. SP No. 78777. January 31, 2007.] TAKASAGO IMPORT-EXPORT CORPORATION , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE and the BIR ACTING REGIONAL DIRECTOR, REVENUE REGION NO. 07, QUEZON CITY , respondents . D E C I S I O N MAAMBONG , R.E ., J p : THE CASE This is a petition for review under Rule 43 of the 1997 Revised Rules on Civil Procedure that seek to set aside the following resolutions of the Court of Tax Appeals ("CTA" for brevity). 1) CTA Resolution dated October 21, 2002 which upheld the BIR Commissioner's assessments made beyond the three-year statute of limitations against herein petitioner Takasago Import-Export Corporation ("Takasago", for brevity). 2) CTA Resolution dated March 26, 2003 which denied the motion for reconsideration filed by Takasago. THE FACTS The instant appeal stems from a petition for review and annulment of warrant of distraint and/or levy filed by Takasago against the Commissioner before the Court of Tax Appeals on March 13, 2002. In said petition for review, Takasago prayed that the warrant of distraint and/or levy dated February 14, 2002 for the collection of unpaid taxes issued by the Commissioner against Takasago be set aside. Essentially, Takasago argues that prescription had already set in when the government sent Takasago the Formal Tax Assessment Notice allegedly beyond the three-year prescriptive period provided under the law. Thus, the government is barred from collecting said taxes from Takasago. The other relevant facts which appear undisputed, as summarized by the CTA, 1 are as follows: "On June 8, 1998, petitioner received Letter of Authority No. 172148 dated May 19, 1998, for the examination of its books and other accounting records for all internal revenue taxes except VAT covering the period January 1, 1996 to December 31, 1996. (Annex 'A'). An undated first notice was thereafter issued for the examination of the records/documents stated therein. (Annex 'B'). The aforementioned letter of authority was revalidated bearing the number 00017259 dated May 31, 1999 for the same purpose as the previous one. (Annex 'C'). SHTEaA A Second Request for Presentation of Records dated July 30, 1999 was received by petitioner. Thus, it submitted its books and other accounting records to the BIR on the following dates: August 11, 1999 and September 29, 1999. On October 14, 1999, BIR Revenue Examiner Ms. Carmela G. Hitosis, allegedly presented two (2) copies of prepared Waiver of the Defense of Prescription under the Statute of Limitations of the National Internal Revenue Code dated October 12, 1999 to Ms. Marvilet M. Gatan, petitioner's Administrative Assistant. (Annex 'H'). This waiver was to expire on July 31, 2000. The waiver was supposed to be signed by Ms. Eva Sobrevilla, petitioner's Administrative Officer. However, since she was not around at that time, Ms. Hitosis allegedly requested Ms. Gatan to type the latter's name, company and affix her signature on the waiver. The former allegedly stated that the 'document will not do Ms. Gatan or the company any harm.' ( Item no. 10, Petition for Review ). Petitioner further represented that Ms. Gatan was without authority from the company and that she was not informed of the full content of the waiver, except on the representation of Ms. Hitosis, BIR's revenue examiner. In a letter dated May 24, 2000, petitioner explained the discrepancies in the 1996 Audited Financial Statements for the year vis-a-vis the documents examined by the respondent's revenue examiner. (Annex 'J') A Post Reporting Notice dated May 30, 2000 was received by petitioner containing the deficiency income tax in the amount of P478,511.42 as recommended by the revenue examiner who conducted the investigation. (Annex 'K') Thereafter, an informal conference was scheduled on June 12, 2000. On December 15, 2000 or six months after the informal conference and five months after the lapse of the first waiver, the BIR through its Revenue Officer Mr. Amor Vidal B. Ratuita, presented to Ms. Gatan, another waiver of the Statute of Limitations dated December 15, 2000. (Annex 'N') Ms. Gatan affixed her signature to the waiver which, according to the BIR revenue examiner would not do any harm to her or the company. On March 19, 2001, petitioner received another Post Reporting Notice/Assessment from the respondent. Petitioner likewise received the following documents on the following dates, to wit: 1. Preliminary Assessment Notice dated June 7, 2001 received on June 14, 2001. 2. Formal Letter of Demand with Assessment Notices all dated June 29, 2001, and received by petitioner on July 2, 2001. 3. Collection Letter dated October 11, 2001 and received on October 12, 2001. 4. Final Notice Before Seizure dated November 8, 2001 and received on November 9, 2001. On February 4, 2002, petitioner through its External Auditor, filed a letter to the respondent Commissioner setting the defense of prescription, for respondent's failure to issue the assessment within the three-year prescriptive period. (Annex 'T') Thereafter, on February 14, 2002, respondent issued a Warrant of Distraint and/or Levy. (Annex 'U') On March 13, 2002, petitioner filed its "Petition for Review and Annulment of Warrant of Distraint and/or Levy" with this court. In its assailed Resolution dated October 21, 2002, the CTA ruled against Takasago. The court a quo refused to accept the defense of prescription interposed by Takasago. The court a quo ruled that for failure of Takasago to properly contest the assessment issued by the Commissioner, said assessment had become final and executory. In its resolution dated March 26, 2003, the Court of Tax Appeals denied the motion for reconsideration filed by Takasago. Initially, the petitioner wrongfully filed its "Petition for Review on Certiorari " with the Supreme Court on April 8, 2003. In its resolution dated April 30, 2003, 2 the Supreme Court denied the aforementioned petition for having been filed in the wrong forum. Eventually, the Supreme Court granted the petitioner's motion for reconsideration of the aforementioned resolution and referred the same to this Court for appropriate action. 3 Hence, now before this Court is the instant petition with the following assignment of errors: ASSIGNMENT OF ERRORS I THE COURT OF TAX APPEALS GRAVELY ERRED IN DISREGARDING AND IGNORING THE NON-COMPLIANCE OF RESPONDENTS WITH THE PROPER FORM OF AN ASSESSMENT WHICH SHOULD STATE THE LAW AND THE FACTS ON WHICH THE ASSESSMENT IS MADE, OTHERWISE THE ASSESSMENT SHALL BE VOID II THE COURT OF TAX APPEALS GRAVELY ERRED IN RULING THAT THE FORMAL LETTER OF DEMAND WITH ASSESSMENT NOTICES ALL DATED JUNE 29, 2001, WHICH WAS ISSUED AFTER THE PRESCRIPTION HAD SET IN, HAD BECOME FINAL, AND EXECUTORY DEMANDABLE III COROLLARILY, THE COURT OF TAX APPEALS GRAVELY ERRED IN MAINTAINING THAT THE SUBSEQUENT EVENTS RELATIVE TO THE EXAMINATION OF THE BOOKS OF ACCOUNTS INCLUDING THE ISSUANCE OF FORMAL LETTER OF DEMAND WITH ASSESSMENT NOTICES AND THE ISSUANCE OF WARRANT OF DISTRAINT AND/OR LEVY AFTER THE PRESCRIPTION HAD SET IN, ARE STILL PROPER, VALID AND LEGAL IV THE COURT OF TAX APPEALS GRAVELY ERRED IN HOLDING AND RULING THAT FAILURE TO FILE AN ADMINISTRATIVE PROTEST TO A PATENTLY VOID AND ILLEGAL ASSESSMENT (ASSESSMENT ISSUED AFTER PRESCRIPTION HAD SET IN) IS DEEMED A WAIVER TO CONTEST THE ASSESSMENT, HENCE, THE COURT A QUO HAS NO JURISDICTION OVER THE PETITION. ISSUE Stated otherwise, the core issue is whether prescription had already set in as a bar to the tax assessment issued by the BIR Commissioner against the taxpayer, herein petitioner Takasago. cSDIHT RULING The instant petition is impressed with merit. 4 The factual findings of the CTA are generally not disturbed on appeal when backed up by substantial evidence and lacking any showing of grave abuse of discretion. 5 However, the CTA's manner of applying the law to the facts of this particular controversy is an altogether different matter, for it involves a legal question. There is a question of law when the issue is the application of the law to a given set of facts. On the other hand, a question of fact involves the truth or falsehood of alleged facts. 6 In the instant case, the CTA ruled not on the truth or falsity of the facts as found by the Commissioner of Internal Revenue, but on the said Commissioner's application of the law on prescription. The National Internal Revenue Code, particularly Sections 203 and 222 7 specifies a statute of limitations on the assessment and collection of internal revenue taxes in order to safeguard the interest of the taxpayer against unreasonable investigation. Unreasonable investigation contemplates cases where the period for assessment extends indefinitely because this deprives the taxpayer of the assurance that it will no longer be subjected to further reinvestigation for taxes after the expiration of a reasonable period of time. 8 In Republic of the Philippines vs. Ablaza , the Supreme Court thus held: 9 "The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the Government and to its citizens; to the Government because tax officers would be obliged to act promptly in the making of assessment, and to citizens because after the lapse of the period of prescription citizens would have a feeling of security against unscrupulous tax agents who will always find an excuse to inspect the books of taxpayers, not to determine the letter's real liability, but to take advantage of every opportunity to molest peaceful, law-abiding citizens. Without such a legal defense taxpayers would furthermore be under obligation to always keep their books and keep them open for inspection subject to harassment by unscrupulous tax agents. The law on prescription being a remedial measure should be interpreted in a way conducive to bringing about the beneficent purpose of affording protection to the taxpayer within the contemplation of the Commission which recommend the approval of the law ." ( Emphasis Supplied ) Applying the aforecited provisions of law to the facts at hand, it is apparent that the July 2, 2001 assessment notice were issued by the Bureau of Internal Revenue beyond the three-year statute of limitations. This Court has thoroughly reviewed the records of the present case and found no basis to disregard the three-year period of prescription. The CTA ruled that since Takasago did not file a request for re-investigation or reconsideration within thirty (30) days, the assessment notices became final and unappealable, that Takasago's right to protest was waived by its failure to contest the assessment within thirty days from receipt thereof. Takasago on the other hand now argues that the case was brought to the CTA because the warrant of distraint or levy was illegally issued and that no assessment was issued because it was filed beyond the prescriptive period. We disagree with the aforementioned findings of the CTA. 10 A case with a similar factual backdrop, the Supreme Court declared null and void a BIR assessment issued beyond the prescriptive period, notwithstanding the taxpayer's failure in said case to file a protest within the aforementioned thirty-day period. Neither can it be successfully argued that the two (2) waivers signed by an employee of Takasago are valid and binding as to toll the running of the prescriptive period for assessment and not bar the Government from issuing the subject deficiency tax assessments. It appears that six (6) months before the April 15, 2000 deadline of the prescriptive period or more specifically, on October 12, 1999, Ms. Marvilet M. Gatan, an Administrative Assistant of Takasago, signed a document entitled "Waiver of the Defense of Prescription under the Statute of Limitations of the National Internal Revenue Code." 11 It is readily discernable from said document that it is the Administrative assistant who signed. It is not clear whether Ms. Marvilet M. Gatan was actually authorized to sign in behalf of the Takasago Company. More importantly, it appears that the BIR Revenue District Officer likewise failed to sign the said document. An examination of the document could show that although the name of the BIR Revenue District Officer Rosemarie Ramus-Ragasa is typed on the said document, no signature of said BIR Revenue District Officer appears thereon. As already earlier cited, Section 222 of the National Internal Revenue Code specifies that a waiver of the prescriptive period must be reduced in and agreed upon in writing by both the Commissioner of Internal Revenue and the Taxpayer concerned. As just discussed, the document itself readily shows that no such agreement has been reached, as not the taxpayer Takasago nor the BIR Revenue District Officer validly signed said waiver. Such waiver is thus null and void and did not stop the prescriptive period. DIECTc The second waiver allegedly executed on December 15, 2000 is just as flawed. A reading of the aforementioned first waiver executed on October 12, 1999 extended the period of assessment only until July 31, 2000. 12 The second waiver was obviously executed beyond the July 31, 2000 expiration period. We again refer back to the aforecited Section 222 of the 1997 National Internal Revenue Code which explicitly provides that the period so agreed upon may be extended by subsequent written agreement made before the expiration of the period previously agreed upon. As just pointed out, the second waiver was executed on December 15, 2000, a couple of months beyond the July 31, 2000 expiration period provided for in the first waiver. Furthermore, the second waiver was also not signed by the BIR Revenue District Officer. The first waiver read ". . . requesting approval by the Commissioner of Internal Revenue of the request for more time to submit the documents required in connection with the investigation of my/its all internal tax liabilities for the year 1996 . . ." The second waiver reads ". . . in consideration of the approval by the Commissioner of Internal Revenue of my request for re-investigation and/or consideration . . ." On the basis of the abovequoted wording of the subject waivers, neither implied consent can be presumed nor can it be argued that the waiver required under Sec. 319 of the National Internal Revenue Code is one which is unilateral nor can it be said that concurrence to such an agreement is a mere formality since it is precisely the signatures of both the Commissioner of Internal Revenue and the taxpayer which give birth to such a valid agreement. Hence, for lacking the required signatures, the subject waivers are both null and void. A waiver of the statute of limitations under the National Internal Revenue Code, to a certain extent, is a derogation of the taxpayers' right to security against prolonged and unscrupulous investigations and must therefore be strictly construed. 13 Our tax law mandates a statute of limitations in the collection of taxes for the purpose of safeguarding taxpayers from any unreasonable examination, investigation or assessment. Thus, the law on prescription, being a remedial measure, should be liberally construed in order to afford such protection. As a corollary, the exceptions to the law on prescription should perforce be strictly construed. 14 The subject waiver documents are incomplete and defective and thus the three-year prescriptive period was not tolled or extended and continued to run until April 15, 2000. Consequently, the Formal Letter of Demand with Assessment dated June 29, 2001 was invalid because it was issued beyond the three (3) year period. In the same manner, the Warrant of Distraint and/or Levy issued on February 14, 2002 15 is also null and void for having been issued pursuant to an invalid assessment. It must be emphasized that such instances of negligence or oversight on the part of the BIR cannot prejudice taxpayers, considering that the prescriptive period was precisely meant to allow taxpayers their peace of mind. 16 WHEREFORE, the instant petition for review is GRANTED. The Resolution of the Court of Tax Appeals dated October 21, 2001 and March 26, 2003 respectively are REVERSED and SET ASIDE. Accordingly, the deficiency income and expanded withholding tax assessments issued by respondent against the petitioner on June 29, 2001 and in its collection letter dated October 11, 2001 in the total amount of P1,026,354.66 for the year 1996 are hereby declared CANCELLED, WITHDRAWN and WITH NO FORCE AND EFFECT. Accordingly, Warrant of Distraint and/or Levy dated February 14, 2002 is hereby declared NULL and VOID. SO ORDERED. Asuncion-Vicente and Librea-Leagogo, JJ., concur. Footnotes * Vice J. Roberto A. Barrios, Per office Order No. 26-07-RTR, dated January 30, 2007. 1. Rollo , pp. 28-34. 2. Rollo , p. 109. 3. Rollo , p. 124. 4. At present, under RA 9282 "An Act Expanding the Jurisdiction of the Court of Tax Appeals", decisions of a division of the CTA are appealable via a petition for review filed with the CTA en banc . The decisions of the CTA en banc are in turn, appealable via review on certiorari under Rule 45 directly to the Supreme Court. However, at the time of the filing of the instant petition, the CA still had jurisdiction over appeals from CTA decisions. In view of the factual antecedents of case, in the interest of the speedy disposition of cases and more importantly, justice and equity for the parties concerned, this Court is constrained to resolve the instant case on the merits. In Floresca vs. Philex Mining , (No. L-30642, April 10, 1985, 136 SCRA 141) the heirs of miners killed in a work-related accident were allowed to file suit in the regular courts even if, as specifically provided for under the Workmen's Compensation Act, the Workmen's Compensation Commissioner clearly had exclusive jurisdiction over such cases. The Supreme Court ruled therein that the said Commissioner's "exclusive" jurisdiction did not foreclose resort to the regular courts for damages. It was ruled in said case that the Supreme Court was merely applying and giving effect to the constitutional guarantees of social justice in the 1935 and 1973 Constitutions and implemented by the Civil Code. Furthermore, the said Court applied the well-established rule that what is controlling is the spirit and intent, not the letter, of the law: "Idolatrous reverence" for the law sacrifices the human being. The spirit of the law insures man's survival and enobles him. In the words of Shakespeare, 'the letter of the law killeth; its spirit giveth life.' xxx xxx xxx It is therefore patent that giving effect to the social justice guarantees of the Constitution, as implemented by the provisions of the New Civil Code, is not an exercise of the power of law-making, but is rendering obedience to the mandates of the fundamental law and the implementing legislation aforementioned. Likewise, the Supreme Court in the Matter of Application for the Issuance of a Writ of Habeas Corpus of Richard Brian Thornton for and in behalf of the minor child " Seguerra Jennifer Delle Francisco Thornton vs. Adelfa Francisco Thornton "; (G.R. No. 154598, August 16, 2004, 436 SCRA 550), the Court of Appeals was ordered by the Supreme Court to take cognizance of said case, even if, under RA 8369, the law creating Family Courts, said Family Courts were mandated as having exclusive jurisdiction to issue writs of habeas corpus . The Supreme Court ruled therein that if such a strict, literal interpretation of the said law were applied, and the Court of Appeals were deprived of its jurisdiction to issue said writs, an inequitous situation would result where the evil sought to be avoided by the legislative and the child's welfare and well being will be prejudiced. The Supreme Court ruled that the only practical interpretation of the law would be that the Court of Appeals and Supreme Court have concurrent jurisdiction with family courts in habeas corpus cases where the custody of minors is involved. The Supreme Court ratiocinated in this wise: Language is rarely so free from ambiguity as to be incapable of being used in more than one sense. Sometimes, what the legislative actually had in mind is not accurately reflected in the language of a statute, and its literal interpretation may render it meaningless lead to absurdity, injustice or contradiction. In the case at bar, a literal interpretation of the word "exclusive" will result in grave injustice and negate the policy "to protect the rights and promote the welfare of children" under the Constitution and the United Nations Convention or the Rights of the Child. This mandate must prevail over legal technicalities and serve as the guiding principle in constructing the provisions of RA 8369. Similarly, in the instant case, this Court must take cognizance of the said case already pending before. Such would be more in consonance with the spirit and intention of the subject law, the National Internal Revenue Code, in providing for a statute of limitations in the collection of taxes for the purpose of allowing peace of mind and safeguarding taxpayers from any unreasonable and negligently conducted tax examination, investigation or assessment. 5. Commissioner of Internal Revenue vs. B.F. Goodrich Phils., Inc. , G.R. No. 104171, February 24, 1999, 303 SCRA 546. 6. Commissioner of Internal Revenue vs. Court of Appeals, et al. , G.R. No. 124043, October 14, 1998, 298 SCRA 83. 7. SEC. 203. Period of Limitation Upon Assessment and Collection . Except as provided in Section 222, internal revenue taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the return, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period: Provided , That in a case where a return is filed beyond the period prescribed by law, the three (3)-year period shall be counted from the day the return was filed. For purposes of this Section, a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day. SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes . xxx xxx xxx (b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both the Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be assessed within the period agreed upon. The period so agreed upon may be extended by subsequent written agreement made before the expiration of the period previously agreed upon. 8. Philippine Journalists, Inc. vs. Commissioner of Internal Revenue , G.R. No. 162852, December 16, 2004, 447 SCRA 214. 9. Philippine Journalists, Inc. vs. Commissioner of Internal Revenue , Supra , citing Republic of the Philippines vs. Ablaza , 108 Philippine 1105, 1108 (1960). 10. Philippine Journalists, Inc. vs. Commissioner of Internal Revenue , Supra . 11. Rollo , p. 77. 12. Rollo , p. 77. 13. Ouano vs. Court of Appeals , G.R. No. 129279, March 4, 2003, 398 SCRA 525. 14. Commissioner of Internal Revenue vs. B.F. Goodrich Phils., Inc., Supra . 15. Rollo , p. 107. 16. Commissioner of Internal Revenue vs. B.F. Goodrich Phils., Inc., Supra .