Commissioner of Internal Revenue v. BASF Coating + Inks Phils., Inc.
REITERATIONFacts
The Antecedents: Respondent, BASF Coating + Inks Phils., Inc., a corporation duly organized under Philippine laws, resolved to dissolve by shortening its corporate term to March 31, 2001. Subsequently, it moved its business address. The Commissioner of Internal Revenue (CIR) issued a Formal Assessment Notice (FAN) on January 17, 2003, assessing respondent P18,671,343.14 for deficiencies in various taxes for the taxable year 1999. This FAN was sent to respondent's former address in Las Piñas City. Procedural History: Respondent filed a protest letter on March 5, 2004, citing lack of due process and prescription. After 180 days elapsed without action from the CIR, respondent filed a Petition for Review with the Court of Tax Appeals (CTA) Special First Division. The CTA granted the petition, canceling the assessments due to lack of valid notice. The CIR's motion for reconsideration was denied. The CIR then appealed to the CTA En Banc, which also denied the petition, ruling that the right to assess had prescribed and the FAN never attained finality as it was not received by the respondent. The CIR now seeks review by the Supreme Court. The Petition: The petitioner, Commissioner of Internal Revenue, filed a petition for review on certiorari under Rule 45 of the Rules of Court. The petitioner argues that the CTA En Banc erred in ruling that the right to assess the respondent for deficiency taxes had prescribed and that the Formal Assessment Notice (FAN) had not become final. The petitioner contends that the running of the prescriptive period was suspended because the respondent failed to provide written notice of its change of address, as required by law, thereby making the assessment validly issued to the last known address. The petitioner also argues that the FAN was constructively served.
Issue(s)
Whether the right of the petitioner to assess the respondent for deficiency taxes for the taxable year 1999 is barred by prescription. Whether the Formal Assessment Notice (FAN) for the respondent's deficiency taxes for taxable year 1999 has become final, executory, and demandable.
Ruling
The petition is denied. The Decision of the Court of Tax Appeals En Banc, dated June 16, 2011, and its Resolution dated September 16, 2011, in C.T.A. EB No. 664 (C.T.A. Case No. 7125), are affirmed.
Ratio Decidendi
On the issue of prescription of the right to assess: The Court affirmed the CTA En Banc's ruling that the right of the CIR to assess BASF for deficiency taxes for 1999 had prescribed. While Section 223 of the National Internal Revenue Code (NIRC) and Section 11 of BIR Revenue Regulation No. 12-85 provide for the suspension of the statute of limitations when a taxpayer cannot be located and requires written notice of change of address, these provisions apply only if the BIR Commissioner is unaware of the taxpayer's whereabouts. In this case, the BIR was aware of BASF's new address in Calamba, Laguna, as evidenced by numerous documents in BASF's BIR records and by the fact that BIR officers conducted examinations and sent letters to this new address prior to the issuance of the FAN. The fact that a Preliminary Assessment Notice sent to the old address was returned to sender should have alerted the BIR, yet they still sent the FAN to the old address. Therefore, the running of the three-year prescriptive period was not suspended and had already expired. On the issue of the finality of the Formal Assessment Notice (FAN): The Court affirmed the CTA En Banc's ruling that the FAN had not become final and executory because BASF did not receive it. The Court reiterated that the statute of limitations on tax collection primarily benefits the taxpayer, ensuring they are not subjected to indefinite investigations and can contest assessments promptly. The Court found the CIR's reliance on Section 3.1.7 of BIR Revenue Regulation No. 12-99 (constructive service) and the case of Nava v. Commissioner of Internal Revenue misplaced. In Nava, a requirement for a valid assessment notice is that it must be properly addressed. Here, the FAN was sent to the wrong address, thus it was not properly served and could not attain finality as BASF never received it, either actually or constructively. The issuance of a First Notice Before Issuance of Warrant of Distraint and Levy without a valid notice of assessment violated BASF's right to due process, as an invalid assessment bears no valid fruit and prevents the taxpayer from presenting their case.
Main Doctrine
The running of the statute of limitations for tax assessment is suspended when the taxpayer cannot be located, but this suspension does not apply if the Bureau of Internal Revenue (BIR) is aware of the taxpayer's new address, even without a formal written notice of change of address. A valid assessment notice is a substantive requirement, and failure to send it to the correct address violates due process.