China Banking Corporation v. Commissioner of Internal Revenue
REITERATIONFacts
The Antecedents: Petitioner China Banking Corporation (CBC) engaged in transactions involving sales of foreign exchange to the Central Bank of the Philippines (now Bangko Sentral ng Pilipinas), known as SWAP transactions, for the taxable years 1982 to 1986. CBC did not file tax returns or pay taxes on these transactions for the specified period. Consequently, on April 19, 1989, the Bureau of Internal Revenue (BIR) issued Assessment No. FAS-5-82/85-89-000586 and FAS-5-86-89-00587, demanding payment of P11,383,165.50 in deficiency documentary stamp tax (DST) plus increments. Procedural History: CBC protested the assessment on May 8, 1989, raising defenses including double taxation, absence of liability, due process violation, and validity of the assessment. After over 12 years, the Commissioner of Internal Revenue (CIR) rendered a decision on December 6, 2001, reiterating the assessment. CBC then filed a Petition for Review with the Court of Tax Appeals (CTA) on January 18, 2002. The CTA Second Division denied CBC's petition on February 23, 2005, ruling that SWAP arrangements are subject to DST. This decision was affirmed by the CTA En Banc on December 1, 2005, and a subsequent motion for reconsideration was denied on March 20, 2006. The Petition: CBC filed a Rule 45 Petition with the Supreme Court, assailing the CTA En Banc decision. For the first time, CBC invoked the argument of prescription, asserting that the government's right to collect the assessed tax had expired. CBC contended that the three-year period for collection, commencing from the assessment date of April 19, 1989, had passed without the BIR initiating distraint, levy, or court proceedings. The government's attempt to collect through its Answer in the CTA on March 11, 2002, was deemed by CBC to be nearly thirteen years beyond the prescriptive period and not a valid collection case under the prevailing law at the time.
Issue(s)
Whether the right of the BIR to collect the assessed DST from CBC is barred by prescription. Whether the request for reinvestigation by the taxpayer suspends the running of the statute of limitations for collection. Whether the defense of prescription can be raised for the first time before the Supreme Court.
Ruling
The Petition is GRANTED. The Court of Tax Appeals En Banc Decision and Resolution are REVERSED and SET ASIDE. The respondent's claim for deficiency DST is DENIED.
Ratio Decidendi
On whether the right of the BIR to collect the assessed DST from CBC is barred by prescription: The Court held that the right of the BIR to collect the assessed DST is barred by the statute of limitations. The applicable rule was Section 319(c) of the National Internal Revenue Code of 1977, as amended, which provides a three-year period for the government to collect assessed taxes, reckoned from the date the assessment notice is mailed, released, or sent to the taxpayer. In this case, the assessment notice was received by CBC on April 19, 1989. Assuming this is the reckoning date, the BIR had three years to collect the tax. However, the records do not show any warrant of distraint or levy served on CBC's properties nor any collection case filed in court within this three-year period. The BIR's attempt to collect through its Answer in the CTA on March 11, 2002, was made almost thirteen years after the prescriptive period began, thus it was made way beyond the three-year prescriptive period. The Court emphasized that the BIR's Answer in the CTA did not qualify as a collection case as required by law at the time, as jurisdiction over such cases then lay with regular courts, not the CTA, unless the principal amount involved was one million pesos or more, which only became possible with Republic Act No. 9282 in 2004. On whether the request for reinvestigation by the taxpayer suspends the running of the statute of limitations for collection: The Court ruled that a request for reinvestigation alone does not suspend the statute of limitations. Section 320 of the 1977 Tax Code requires two concurring conditions: a request for reinvestigation and its grant by the Commissioner. The Court clarified that the burden of proof that the request was granted lies with the CIR, either through express communication or implied action. In this case, there was no showing from the records that the CIR granted CBC's request for reinvestigation. The CIR's silence and inaction on the request meant that the prescriptive period was not suspended. The Court cited BPI v. Commissioner of Internal Revenue and Republic of the Philippines v. Gancayco to support this principle, emphasizing that the mere act of requesting a reinvestigation does not toll the period. On whether the defense of prescription can be raised for the first time before the Supreme Court: The Court held that while the general rule is that the defense of prescription must be raised at the trial court, this rule is not absolute. Citing Section 1, Rule 9 of the Rules of Court, the Court stated that if the pleadings or evidence on record show that the claim is barred by prescription, the court must dismiss the claim even if prescription is not raised as a defense. The Court found the facts of this case substantially identical to Bank of the Philippine Islands (BPI) v. Commissioner of Internal Revenue (G.R. No. 181836, July 9, 2014), where prescription was raised for the first time on appeal but was considered by the Court. The Court noted that the government's failure to object to the issue of prescription being raised for the first time on appeal, particularly its silence in its Comment and Manifestation, constituted a waiver or estoppel. The Court reasoned that while the government is generally not bound by the mistake or negligence of its agents, this rule is not absolute, and in cases involving procedural matters and potential injustice, the government's inaction can be treated as a waiver, as exemplified in Republic v. Ker & Co. Ltd. The BIR's undue delay of over 12 years in collecting the assessed tax caused prejudice to the petitioner.
Main Doctrine
The government's right to collect assessed taxes prescribes if no collection case is filed or no warrant of distraint or levy is issued within three years from the date the assessment notice was mailed, released, or sent to the taxpayer. A request for reinvestigation does not suspend the prescriptive period unless granted by the Commissioner. Furthermore, the defense of prescription may be considered by the court motu proprio if the pleadings or evidence on record clearly show that the claim is barred, even if not raised by the taxpayer at the earliest opportunity, especially when the government's inaction or silence suggests a waiver.