CIR v.

Metro Star Superama

GR No. 185371; December 6, 2010
J. Mendoza

Petitioner: COMMISSIONER OF INTERNAL REVENUE

Respondent: METRO STAR SUPERAMA, INC.

Case Summary: RDO of Legazpi City issued an LOA directing one of its officer to conduct an assessment on
Metro Star Superama regarding the latter’s income tax and other internal revenue taxes for the taxable year 1999. A
preliminary 15-day letter was sent stating that post audit review was held on its accounts but no PAN was ever
served to Metro Star. Later, a formal letter was sent demanding the amount of 292,874.16 representing petitioner’s
total tax liabilities. Metro Star contested this on the ground that they were not accorded due process since no PAN
was ever issued to them. Upon elevation of the case to the SC, the Court ruled that the disputable presumption of
delivery does not apply in cases where there is a direct denial on part of the addressee of receipt of a notice or letter.
In this case, the onus probandi shifts to the sender, ie. BIR, to prove that the letter was duly sent to the taxpayer. The
BIR failed to discharge this burden. Thus, since no PAN was served, petitioner’s constitutional right to due process
was violated which renders the assessment made on the latter null and void.

Doctrine: Taxpayers shall be first informed in writing of the law and the facts on which the assessment is made
prior conducting the same, otherwise the assessment shall be void.

FACTS:
1. On Jan. 26, 2001, the Regional Director of Revenue Region No. 10, Legazpi City, issued a Letter of
Authority for RO Daisy Justiniana to examine Metro Star’s books of accounts from income tax and other
internal revenue taxes for the taxable year 1999.
a. Metro Star also failed to comply with the requests of the RO to turnover accounting records.

2. Thus, the BIR issued a subpoena duces tecum informing RO Justiniana to proceed with the investigation
based on the best evidence obtainable preparatory to the issuance of an assessment notice.

a. Nov 8 2001: Revenue District Officer (RDO) Lafuente issued a Preliminary 15-day Letter, which
Metro Star received on Nov. 9 2001.
i. The letter stated that a post audit review was held and they ascertained that there was
deficiency value-added and withholding taxes due from the petitioner for 292,874.16 pesos.
b. Apr. 11, 2002: Metro Star received a Formal Letter from the RDO reiterating the assessment
contained in the Preliminary Letter

3. As a final warning, RDO sent a copy of the Final Notice of Seizure on May 2003, which gave the latter the
last opportunity to settle its deficiency tax liabilities within 10 days from receipt of the letter.
a. Otherwise, BIR shall be constrained to serve and execute warrants of distraint/levy/garnishment to
enforce collection.
b. Despite this, Metro Star failed to settle its tax liabilities.

4. Feb. 6, 2004: The RDO served a Warrant of Distraint and/or Levy against petitioner demanding payment
292,874.16 constituting its deficiency tax liabilities
a. Petitioner appealed this and filed a motion for reconsideration with the CIR.

5. CIR: denied MFR.

6. METRO STAR: appealed, alleging:

a. that it did not receive a Preliminary Assessement Notice (PAN);
 b. that they weren’t accorded due process

7. CTA-2nd Div.: granted the petition and ordered CIR to desist from collecting the subject taxes.
a. BIR failed to show that the petitioner did indeed receive the letter, albeit on Jan. 16 2002.
i. Metro Star therefore was not accorded due process.

8. Hence, this petition by CIR.

RATIO DECIDENDI:

1. W/N THERE WAS A VALID SERVICE OF TAX ASSESSMENT LETTER — NO.

a. GEN: Mailing of letter raises a disputable presumption of delivery to the addressee

b. EXC: When the taxpayer denies ever having received it, in which the burden of proof or onus
probandi shifts to the BIR to show that the letter (PAN/FAN) was duly served.
i. CIR has the obligation to show the ff:
1. that the letter was properly addressed with postage pre-paid;
2. that it was actually mailed.
c. IN THIS CASE, CIR failed to discharge its duty to present any evidence of delivery of the PAN
dated January 16, 2002.
i. It could have simply presented the registry receipt or the certification from the postmaster but
it failed to do so.
ii. It also was not able to offer any explanation why it failed to comply with the service of PAN

2. W/N FAILURE TO COMPLY WITH NOTICE REQUIREMENTS NULLIFIES THE ASSESSMENT

MADE — YES.

a. GEN: Taxpayers shall be first informed in writing of the law and the facts on which the
assessment is made, otherwise the assessment shall be void.
i. Sec. 228 NIRC expressly mandates the CIR to first notify the taxpayer of their intention to
conduct an assessment on the latter’s tax liabilities through a PAN before they conduct the
same, except for the ff. cases:
1. finding for any deficiency tax is a result of a mathematical error in the tax
computation
2. discrepancy has been determined between tax withheld and amount actually remitted
by the withholding agent
3. taxpayer determined to have a tax credit of excess creditable withholding tax and
decided to apply the same to offset the estimated tax liabilities for the succeeding
quarters of future taxable years
4. excise tax due on excisable articles has not been paid
5. the article locally purchased or imported by an exempt person (ie. vehicle, capital
equipment, machines) has been sold, traded, or transferred to non-exempt persons.
ii. 1987 Const. Art. III Sec. 1 No person shall be deprived of life, liberty, or property without due
process of law, nor shall any person be denied the equal protection of the laws

b. HOW PROTEST IS MADE

i. From issuance of a PAN, the taxpayer have:
1. 30 days to file a request for reconsideration or reinvestigation from receipt of
assessment
2. 60 days to submit supporting documents
 ii. If the protest is denied in whole or part or there is inaction within 180 days from
submission of documents —> taxpayer adversely affected may appeal to the CTA within 30
days from receipt of decision or lapse of 180 days of inaction.

iii. The assessment becomes final when:

1. there is failure to request reconsideration/reinvestigation and/or to submit supporting
documents after being served the PAN within the time period prescribed above
2. there is failure to appeal a protest denied in whole or in part

c. IN ALL, it is clear that the sending of a PAN to taxpayer to inform him of the assessment made is an
integral 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.

i. IN THIS CASE, 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.
1. Discussion on failure of Metro Star to protest the assessment therefore is moot since a
void assessment bears no fruit nor legal effect.

- RE: INVOCATION OF CIR v. MENGUITO:

- CIR: only the non-service of the FAN, not PAN, is fatal to the validity of an assessment.
- COURT: CIR v. Menguito cannot apply to this case since that case dealt with an old version of RA
8424.
- RA 8424 has already been amended which expressly requires the service of PAN to the
taxpayer

- RULING: Petition DENIED.

SEC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized representative finds that
proper taxes should be assessed, he shall first notify the taxpayer of his findings: provided, however, that a
preassessment notice shall not be required in the following cases:

(a) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as
appearing on the face of the return; or

(b) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the
withholding agent; or

(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period
was determined to have carried over and automatically applied the same amount claimed against the estimated tax
liabilities for the taxable quarter or quarters of the succeeding taxable year; or

(d) When the excise tax due on exciseable articles has not been paid; or

(e) When the article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital
equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons.