Commissioner of Internal Revenue v. South Entertainment Gallery
REITERATIONFacts
The Antecedents: Respondent South Entertainment Gallery, Inc. (SEGI), a corporation engaged in operating bingo and games of chance, was assessed by the Commissioner of Internal Revenue (CIR) for deficiency income tax and value-added tax (VAT) for the taxable year 2007. The initial assessment amounted to P33,780,289.17. SEGI contested this assessment, asserting its tax-exempt status as a grantee of the Philippine Amusement and Gaming Corporation (PAGCOR), arguing it was only liable for a 5% franchise tax. The CIR maintained that SEGI was liable for deficiency taxes due to the repeal of PAGCOR's tax exemption by Republic Act No. 9337. Procedural History: The CIR issued a Formal Letter of Demand with attached Details of Discrepancies and Assessment Notices (FLD-DDAN) on December 9, 2009. SEGI claimed to have received this on January 13, 2010. Subsequently, the CIR issued a Final Notice Before Seizure (FNBS) on May 28, 2010, and a Warrant of Distraint and/or Levy (WDL) on September 1, 2010. SEGI requested the withdrawal of the WDL, which was reiterated by the CIR through a letter dated March 28, 2011. SEGI filed a Petition for Review with the Court of Tax Appeals (CTA) on May 11, 2011. The CTA Third Division initially granted the petition in part, then amended its decision to cancel and set aside the FLD-DDAN, FNBS, and WDL. The CTA En Banc affirmed the amended decision, leading the CIR to file the present petition for review on certiorari. The Petition: This case is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, filed by the Commissioner of Internal Revenue (CIR). The CIR seeks to reverse the decision of the Court of Tax Appeals (CTA) En Banc, which affirmed the CTA Third Division's ruling that cancelled the deficiency tax assessments against South Entertainment Gallery, Inc. (SEGI). The CIR argues that the CTA erred in finding that the FLD-DDAN was not properly served, that the petition for review was filed out of time, and that the assessment was void. The core of the CIR's argument is that the service of the FLD-DDAN was valid, and therefore, SEGI's appeal was belatedly filed, making the assessment final and executory.
Issue(s)
Whether the Court of Tax Appeals had jurisdiction to entertain SEGI's Petition for Review, considering the timeliness of its filing. Whether the Court of Tax Appeals En Banc erred in sustaining the CTA Third Division's ruling that there was insufficient delivery of the Formal Letter of Demand (FLD) by the petitioner CIR. Whether the Court of Tax Appeals En Banc erred in sustaining the CTA Third Division's Amended Decision in favor of respondent SEGI, which contradicted and disregarded the express terms of Section 228 of the 1997 NIRC, in relation to Section 3(a) of Rule 8 of the Revised Rules of the Court of Tax Appeals.
Ruling
The petition is devoid of merit. The Supreme Court affirmed the Decision of the Court of Tax Appeals En Banc, upholding the cancellation and setting aside of the deficiency tax assessments against SEGI due to improper service of the Formal Letter of Demand and Assessment Notice (FLD-DDAN).
Ratio Decidendi
On the timeliness of the petition for review: The Court ruled that SEGI's petition for review was filed on time. Since the FLD-DDAN was improperly served, the assessment was void, and thus, neither the FNBS nor the WDL, which were fruits of a void assessment, could serve as the reckoning point for the reglementary period to file an appeal. The Court found that the March 28, 2011 Letter from OIC-RDO Ducut, reiterating the collection of deficiency taxes and attaching a memorandum that addressed SEGI's objections, could be deemed as the denial of SEGI's request for withdrawal of the WDL. SEGI received this letter on April 13, 2011, and filed its petition for review on May 11, 2011, which was within the 30-day reglementary period. The Court reiterated that it is the decision or ruling of the CIR on the protest or disputed assessment that is the subject of an appeal, not the assessment itself. On the issue of the validity of the service of the FLD-DDAN: The Court held that the FLD-DDAN was not properly served by registered mail on SEGI, rendering the deficiency tax assessment void for denial of the taxpayer's right to due process. The evidence presented by the CIR, consisting of a registry receipt, a certification from the Postmaster, and the testimonies of a postman and a BIR administrative aide, only proved that the FLD-DDAN was delivered to an administrative officer of SM City Pampanga, who was allegedly in charge of receiving mail for mall tenants. However, this fell short of proving actual or constructive service on SEGI or its duly authorized representative as required by Revenue Regulations (RR) No. 12-99. The Court emphasized that the presumption of receipt in the regular course of mail is disputable and was effectively controverted by SEGI's assertion of non-receipt, shifting the burden to the CIR to prove actual receipt. The CIR failed to present the administrative officer who allegedly received the FLD-DDAN, nor did it prove compliance with the requisites for constructive service under RR No. 12-99, such as attestation by at least two revenue officers other than the one serving the notice. Therefore, the assessment was deemed void. On the validity of the assessment: The Court stated that it would no longer discuss the validity of the assessment because a void assessment bears no valid fruit. The failure to prove proper service of the FLD-DDAN rendered the assessment void from the beginning, violating the taxpayer's right to due process. The Court reiterated that without complying with the mandate of first informing the taxpayer of the government's claim, there can be no deprivation of property, as no effective protest can be made. The CIR's failure to strictly comply with the requirements laid down by law and its own rules constituted a denial of SEGI's right to due process.
Main Doctrine
The failure to prove proper service of the Formal Letter of Demand and Assessment Notice (FLD-DDAN) on the taxpayer, either by personal delivery or by registered mail, renders the deficiency tax assessment void for denial of the taxpayer's right to due process. Consequently, the reglementary period for filing an appeal is reckoned from the receipt of a subsequent communication that can be considered a denial of protest or a final decision on the matter.