CIR vs Metro Star

Facts:

Petitioner is a domestic corporation duly organized and existing by virtue of the laws of the
Republic of the Philippines. On January 26, 2001, Regional Director of Revenue Region issued a
Letter of Authority No. to examine petitioner’s books of accounts and other accounting records for
income tax and other internal revenue taxes for the taxable year 1999. On November 8, 2001,
Revenue District Officer issued a Preliminary 15-day Letter, stating that a post audit review was held
and it was ascertained that there was deficiency value-added and withholding taxes due from
petitioner in the amount of P 292,874.16. Final Notice of Seizure and Warrant of Distraint were sent
to the petitioner demanding the payment of the deficiency tax. Denying that it received a Preliminary
Assessment Notice (PAN) and claiming that it was not accorded due process, Metro Star filed a
petition for review with the CTA which was granted. The CIR sought for reconsideration but was
denied. Hence, this petition.

Issue:

Whether or not the failure to strictly comply with notice requirements prescribed under
Section 228 of the National Internal Revenue Code of 1997 and Revenue Regulations (R.R.) No. 12-
99 tantamount to a denial of due process?

Ruling:
Yes. Section 228 of the Tax Code states that in protesting of assessment or when the
Commissioner or his duly authorized representative finds that proper taxes should be assessed, he
shall first notify the taxpayer of his findings except for the exceptions expressly stated in the law. The
taxpayers shall be informed in writing of the law and the facts on which the assessment is made;
otherwise, the assessment shall be void. Within a period to be prescribed by implementing rules and
regulations, the taxpayer shall be required to respond to said notice. Indeed, Section 228 of the Tax
Code clearly requires that the taxpayer must first be informed that he is liable for deficiency taxes
through the sending of a PAN. He must be informed of the facts and the law upon which the
assessment is made. The law imposes a substantive, not merely a formal, requirement. To proceed
heedlessly with tax collection without first establishing a valid assessment is evidently violative of the
cardinal principle in administrative investigations—that taxpayers should be able to present their
case and adduce supporting evidence. This is also confirmed under the provisions R.R. No. 12-99 of
the BIR providing for the due process requirement in the issuance of a deficiency tax assessment. It
is clear that the sending of a PAN to taxpayer to inform him of the assessment made is but part of
the “due process requirement in the issuance of a deficiency tax assessment,” the absence of which
renders nugatory any assessment made by the tax authorities. The use of the word “shall” in
describes the mandatory nature of the service of a PAN. The persuasiveness of the right to due
process reaches both substantial and procedural rights and the failure of the CIR to strictly comply
with the requirements laid down by law and its own rules is a denial of Metro Star’s right to due
process. The Supreme Court has consistently held that while a mailed letter is deemed received by
the addressee in the course of mail, this is merely a disputable presumption subject to controversion
and a direct denial thereof shifts the burden to the party favored by the presumption to prove that the
mailed letter was indeed received by the addressee. The failure of the respondent to prove receipt of
the assessment by the Petitioner leads to the conclusion that no assessment was issued. Thus, for
its failure to send the PAN stating the facts and the law on which the assessment was made as
required by Section 228 of R.A. No. 8424, the assessment made by the CIR is void.

CIR vs. United Salvage

Facts:
Respondent is engaged in the business of sub-contracting work for service contractors
engaged in petroleum operations in the Philippines.2 During the taxable years in question, it had
entered into various contracts and/or sub-contracts with several petroleum service contractors, such
as Shell Philippines Exploration, B.V. and Alorn Production Philippines for the supply of service
vessels.3

On January 29, 1998 and October 24, 2001, USTP filed administrative protests against the
1994 and 1998 EWT assessments. USTP also appealed by way of Petition for Review alleging, that
the Notices of Assessment are bereft of any facts, law, rules and regulations or jurisprudence; thus,
the assessments are void and the right of the government to assess and collect deficiency taxes
from it has prescribed on account of the failure to issue a valid notice of assessment within the
applicable period. While the case is pending, USTP moved to withdraw the aforesaid Petition
because it availed of the benefits of the Tax Amnesty Program under RA 9480. It was held by CTA-
Special First Division that the Preliminary Assessment Notices (PANs) for deficiency EWT for
taxable years 1994 and 1998 were not formally offered and as regards the Final Assessment
Notices (FANs) for deficiency EWT for taxable years 1994 and 1998, it was held that the same do
not show the law and the facts on which the assessments were based. Said assessments were,
therefore, declared void for failure to comply with Section 228 of the 1997 National Internal Revenue
Code (Tax Code). From the foregoing, the only remaining valid assessment is for taxable year 1992.
Petitioner moved to reconsider the aforesaid ruling but was denied and the CTA En Banc affirmed
the decision with modification.

Issue:

1. Whether or not the Court of Tax Appeals is governed strictly by the technical rules of
evidence;

2. Whether or not the Expanded Withholding Tax Assessments issued by petitioner against
the respondent for taxable year 1994 was without any factual and legal basis

Ruling:

1. Yes. Under Section 8 of Republic Act (R.A.) No. 1125, the CTA is categorically described as a
court of record. As such, it shall have the power to promulgate rules and regulations for the conduct
of its business, and as may be needed, for the uniformity of decisions within its jurisdiction.
Moreover, as cases filed before it are litigated de novo, party-litigants shall prove every minute
aspect of their cases. Thus, no evidentiary value can be given the pieces of evidence submitted by
the BIR, as the rules on documentary evidence require that these documents must be formally
offered before the CTA. Section 34, Rule 132 of the Revised Rules on Evidence states that the court
shall consider no evidence which has not been formally offered and the purpose of which must be
specified. The presentation of PANs as evidence of the taxpayer’s liability is not mere procedural
technicality. It is a means by which a taxpayer is informed of his liability for deficiency taxes. It
serves as basis for the taxpayer to answer the notices, present his case and adduce supporting
evidence. The petitioner merely alleged that the existence and due execution of the PANs were duly
tackled by petitioner’s witnesses but such is not sufficient to seek exception from the general rule
requiring a formal offer of evidence. The Supreme Court held that the 1994 and 1998 PANs for EWT
deficiencies were not duly identified by testimony and were not incorporated in the records of the
case, as required by jurisprudence.

2. In the present case, Reyes was not informed in writing of the law and the facts on which the
assessment of estate taxes had been made. She was merely notified of the findings by the CIR, who
had simply relied upon the provisions of former Section 229 prior to its amendment by [RA] 8424,
otherwise known as the Tax Reform Act of 1997 which required that the taxpayer should be
informed not only of the law, but also of the facts on which an assessment would be made;
otherwise, the assessment itself would be invalid. It is clear that the assailed deficiency tax
assessment for the EWT in 1994disregarded the provisions of Section 228 of the Tax Code, as
amended, as well as Section 3.1.4 of Revenue Regulations No. 12-99 by not providing the legal and
factual bases of the assessment. Hence, the formal letter of demand and the notice of assessment
issued relative thereto are void.

Marcos II vs CA

Facts:

In 1989, former President Ferdinand Marcos died in Honolulu, Hawaii, USA. On June 27,
1990, a Special Tax Audit Team was created to conduct investigations and examinations of the tax
liabilities and obligations of the late president, as well as that of his family, associates and “cronies.”
Memorandum dated July 26, 1991. The investigation disclosed that the Marcoses failed to file a
written notice of the death of the decedent, an estate tax returns [sic], as well as several income tax
returns covering the years 1982 to 1986, -all in violation of the National Internal Revenue Code
(NIRC) and thereby caused the preparation and filing of the Estate Tax Return for the estate of the
late president, the Income Tax Returns of the Spouses Marcos for the years 1985 to 1986, and the
Income Tax Returns of petitioner Ferdinand ‘Bongbong’ Marcos II for the years 1982 to 1985. BIR
then issued deficiency tax assessments to the Marcoses. The Commissioner of Internal Revenue
avers that copies of the deficiency estate and income tax assessments were all personally and
constructively served upon Mrs. Imelda Marcos and Bongbong Marcos. The deficiency tax
assessments were not protested within 30 days from service of said assessments. Thereafter, the
BIR Commissioner issued twenty-two notices of levy on real property against certain parcels of land
owned by the Marcoses—to satisfy the alleged estate tax and deficiency income taxes of Spouses
Marcos. Now, Bongbong Marcos questions the actuations of the respondent Commissioner of
Internal Revenue in assessing, and collecting through the summary remedy of Levy on Real
Properties, estate and income tax delinquencies upon the estate and properties of his father, despite
the pendency of the proceedings on probate of the will of the late president.

Issue:

Whether or not the BIR has authority to collect by the summary remedy of levying upon, and
sale of real properties of the decedent, estate tax deficiencies, without the cognition and authority of
the court sitting in probate over the supposed will of the deceased?

Ruling:

Yes. The approval of the court, sitting in probate, or as a settlement tribunal over the
deceased is not a mandatory requirement in the collection of estate taxes. There is nothing in the
Tax Code, and in the pertinent remedial laws that implies the necessity of the probate or estate
settlement court’s approval of the state’s claim for estate taxes, before the same can be enforced
and collected. If there is any issue as to the validity of the BIR’s decision to assess the estate taxes,
this should have been pursued through the proper administrative and judicial avenues provided for
by law and that by protesting of assessment provided in Section 229 of the NIRC.
Apart from failing to file the required estate tax return within the time required for the filing of
the same, petitioner, and the other heirs never questioned the assessments served upon them,
allowing the same to lapse into finality, and prompting the BIR to collect the said taxes by levying
upon the properties left by President Marcos. The mere fact that the decedent has pending cases
involving ill-gotten wealth does not affect the enforcement of tax assessments over the properties
indubitably included in his estate. It is not the Department of Justice which is the government agency
tasked to determine the amount of taxes due upon the subject estate, but the Bureau of
Internal Revenue, whose determinations and assessments are presumed correct and made in good
faith. The taxpayer has the duty of proving otherwise. In the absence of proof of any irregularities in
the performance of official duties, an assessment will not be disturbed.
Lastly, it was held that the assessment of an inheritance tax does not directly involve the
administration of a decedent’s estate, although it may be viewed as an incident to the complete
settlement of an estate, and, under some statutes, it is made the duty of the probate court to make
the amount of the inheritance tax a part of the final decree of distribution of the estate. It is not
against the property of decedent, nor is it a claim against the estate as such, but it is against the
interest or property right which the heir, legatee, devisee, etc., has in the property formerly held by
decedent.