Commissioner of Internal Revenue v. QL Development
REITERATIONFacts
The Antecedents: QL Development, Inc. (QLDI) received a Letter of Authority (LOA) on November 12, 2012, for deficiency taxes for taxable year 2010. The Preliminary Assessment Notice (PAN) was served on November 28, 2014, to which QLDI replied on December 15, 2014. The Formal Assessment Notice (FAN) or Formal Letter of Demand (FLD) was sent on December 12, 2014. QLDI failed to file a protest within the 30-day period. The CIR issued a Final Decision on Disputed Assessment (FDDA) on February 11, 2015, which QLDI received on March 3, 2015. QLDI requested reconsideration on March 30, 2015, which was denied by the CIR on February 4, 2020, ordering QLDI to pay deficiency taxes and compromise penalty. Procedural History: QLDI filed a Petition for Review before the CTA Second Division on June 30, 2020, challenging the CIR's February 4, 2020 Decision, questioning the validity of the assessment and the prescription of the CIR's right to collect taxes. QLDI filed a Motion for Early Resolution of the Issue of Prescription, alleging that the CIR's right to collect had prescribed as of December 12, 2019, five years from the mailing of the FAN/FLD on December 12, 2014. The CTA Division, considering the CIR's waiver of presentation of evidence on prescription, submitted the issue for resolution. On June 7, 2021, the CTA Division granted QLDI's motion, cancelled the deficiency tax assessment for TY 2010, and ruled that the CIR's right to collect had lapsed. The CIR filed a Motion for Reconsideration, which was denied by the CTA Division on December 11, 2021, which also enjoined the CIR from collecting the deficiency taxes. The CTA Division held that its jurisdiction over "other matters" arising under the NIRC includes the issue of prescription. The Petition: The Commissioner of Internal Revenue (CIR) filed a Petition for Certiorari and Prohibition with the Supreme Court, assailing the June 7, 2021 and December 11, 2021 Resolutions of the CTA Second Division, alleging grave abuse of discretion and/or lack of jurisdiction. The CIR prayed for the issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction, and for the declaration of the CTA Resolutions as null and void.
Issue(s)
Whether the CIR availed itself of the correct remedy in filing a Petition for Certiorari and Prohibition directly with the Supreme Court. Whether the Court of Tax Appeals (CTA) Second Division has jurisdiction over the issue of prescription of the Commissioner of Internal Revenue's (CIR) right to collect taxes. Whether the CIR's right to collect deficiency taxes from QLDI for taxable year 2010 had already prescribed.
Ruling
The Supreme Court dismissed the Petition and affirmed the Resolutions dated June 7, 2021, and December 11, 2021, issued by the CTA Second Division. The Court held that the CIR availed itself of the wrong remedy, as the CTA Resolutions were final judgments appealable to the CTA En Banc, not subject to a petition for certiorari before the Supreme Court. Even on the merits, the Court found that the CTA had jurisdiction over the issue of prescription and that the CIR's right to collect the deficiency taxes had indeed prescribed.
Ratio Decidendi
On the propriety of the remedy: The CIR's filing of a Petition for Certiorari and Prohibition directly with the Supreme Court was erroneous. The Resolutions dated June 7, 2021, and December 11, 2021, issued by the CTA Second Division, which cancelled the assessment on the ground of prescription and enjoined the collection of deficiency taxes, were final judgments or orders. These resolutions finally disposed of the case, leaving nothing more to be done by the CTA Division in respect thereto. As such, the proper remedy for the CIR was to file an appeal by way of a petition for review with the CTA En Banc, not a petition for certiorari under Rule 65 with the Supreme Court. A petition for certiorari is not a substitute for a lost appeal and lies only where there is no appeal, nor any plain, speedy, and adequate remedy in the ordinary course of law. On the jurisdiction of the CTA: The CTA has jurisdiction over "other matters" arising under the National Internal Revenue Code (NIRC), as provided in Section 7(a)(1) of Republic Act No. 1125, as amended by RA 9282. This jurisdiction is not limited to cases involving disputed assessments or refunds but extends to other matters, including the issue of prescription of the CIR's right to collect taxes. The Court clarified that the validity of an assessment is distinct from the issue of whether the CIR's right to collect the assessed tax has prescribed. The latter is well within the CTA's appellate jurisdiction. On the prescription of the CIR's right to collect taxes: The Court found that the CTA Division erred in applying the five-year period for collection. Section 203 of the NIRC provides a three-year period for assessment and collection. When an assessment is validly issued within the three-year period, the CIR has another three years within which to collect the tax due. In this case, the FAN/FLD was mailed on December 12, 2014. Therefore, the CIR had until December 12, 2017, to enforce collection. The collection efforts initiated by the CIR in 2020 were beyond this period, thus barring collection by prescription. The Court also noted that even if the five-year period were applied, the collection efforts were still barred. The Court rejected the CIR's assertion that the FDDA effectively operated as a collection letter, emphasizing that collection is initiated by distraint, levy, or court proceeding, none of which were validly commenced within the prescriptive period.
Main Doctrine
The Court of Tax Appeals (CTA) has jurisdiction over "other matters" arising under the National Internal Revenue Code (NIRC), including the issue of prescription of the Commissioner of Internal Revenue's (CIR) right to collect taxes. Furthermore, resolutions of the CTA Division that finally dispose of a case, such as those cancelling an assessment on the ground of prescription, are considered final judgments, not interlocutory orders, and are appealable to the CTA En Banc, not directly to the Supreme Court via a petition for certiorari.