Commissioner of Internal Revenue v. Fort 1 Global City Center, Inc.
REITERATIONFacts
The Antecedents: For taxable year 2009, the Bureau of Internal Revenue (BIR) issued a Preliminary Assessment Notice (PAN) to Fort 1 Global City Center, Inc. (FGCCI) for deficiency income tax, VAT, withholding tax, and DST. After FGCCI contested, the BIR issued a Final Assessment Notice (FAN) and subsequently a Final Decision on Disputed Assessment (FDDA) dated October 13, 2016, finding FGCCI liable for PHP 1,598,860,663.45. For taxable year 2012, the BIR issued a PAN and FAN for deficiency income tax and VAT totaling PHP 134,099,378.74. FGCCI protested the FAN for 2012, but the BIR did not act on it. Procedural History: FGCCI filed two Petitions for Review before the Court of Tax Appeals (CTA) questioning the BIR's inaction on the 2012 protest and the FDDA for 2009. FGCCI argued that the assessments were invalid due to service at the wrong address and to unauthorized persons. The CTA 2nd Division ruled in favor of FGCCI, cancelling the assessments for failure to comply with Revenue Regulation (RR) No. 12-99 regarding service of notices and due process. The BIR's Motion for Reconsideration was denied. The CTA En Banc initially sustained the Division's ruling due to insufficient votes to grant the CIR's petition. Upon reconsideration, the CTA En Banc affirmed the cancellation of the assessments, finding that the BIR violated FGCCI's right to due process through improper service of notices. The Commissioner of Internal Revenue (CIR) elevated the case to the Supreme Court. The Petition: The CIR sought to reverse the CTA En Banc Decision and Resolution, arguing that the notices were personally served at FGCCI's registered address as found in the BIR-Integrated Tax System (BIR-ITS). The CIR contended that FGCCI updated its address and that the taxpayer is responsible for updating its registered address with the BIR. The CIR also argued that FGCCI admitted receiving the notices and actively participated in the BIR proceedings, thus is estopped from claiming denial of due process. FGCCI maintained that the BIR failed to prove proper service and that the Revenue Officers did not comply with RR No. 12-99 and RR No. 18-13.
Issue(s)
Whether FGCCI's right to due process was violated due to the service of the Letter of Authority (LOA), PAN, and FAN at the wrong address and to unauthorized persons; and whether the Revenue Officers complied with the procedural requirements under RR No. 12-99 and RR No. 18-13 in ascertaining the authority of the persons who received the notices on behalf of FGCCI. Whether the procedural lapse of late filing by the CIR should be excused.
Ruling
The petition is DISMISSED. The Court of Tax Appeals En Banc Decision dated November 10, 2021, and Resolution dated October 7, 2022, are AFFIRMED. The deficiency tax assessments issued against Fort 1 Global City Center, Inc., for taxable years 2009 and 2012 are declared VOID and CANCELLED.
Ratio Decidendi
On the violation of FGCCI's right to due process due to improper service of notices and compliance with procedural requirements: The Supreme Court affirmed the CTA En Banc's ruling that FGCCI's right to due process was violated. The Court reiterated that the Bureau of Internal Revenue (BIR) must strictly comply with the due process requirements in issuing deficiency tax assessments, as mandated by Section 228 of the National Internal Revenue Code (Tax Code) and its implementing regulations, specifically Revenue Regulations (RR) No. 12-99 and RR No. 18-13. The Court found that the BIR failed to prove that the notices were properly served to FGCCI or its duly authorized representatives. The Revenue Officers did not ascertain the authority of the persons who received the notices, such as receptionists or security guards, and in some instances, their positions were not even indicated. The Court emphasized that the taxpayer's participation in subsequent proceedings, such as filing a protest, does not cure the defect in the initial service of the assessment notices, as this would violate the taxpayer's fundamental right to due process. The Court also noted that the BIR's failure to follow its own prescribed procedures, such as bringing a barangay official and disinterested witnesses when personal service is not practicable or when the party refuses to receive the notice, further supports the conclusion of improper service. Therefore, the tax assessments issued were declared void and without effect. On the procedural lapse of late filing by the CIR: The Court acknowledged that the CIR filed its petition one day after the deadline, attributing it to heavy workload and close proximity of due dates. While generally, strict adherence to reglementary periods is required, the Court, in this instance, deemed it proper to take cognizance of the case due to the substantial amount of deficiency taxes involved and the importance of affording parties the opportunity to fully ventilate their cases on the merits. The Court cited jurisprudence that procedural rules can be relaxed if their rigid application tends to obstruct the dispensation of justice. However, despite taking cognizance of the case, the petition was ultimately denied on substantive grounds related to the validity of the tax assessments.
Main Doctrine
Tax assessments are void if the Bureau of Internal Revenue fails to strictly comply with the due process requirements, particularly the proper service of notices to the taxpayer or their duly authorized representatives, as mandated by Section 228 of the National Internal Revenue Code and its implementing regulations.