Title
Bakbak Native Chicken Restaurant vs. Secretary of Fice
Case
G.R. No. 217610
Decision Date
Sep 2, 2020
Bakbak Restaurant challenged BIR's VAT compliance RMOs, alleging due process violation; SC upheld RMOs, ruling they enforced VAT rules, not tax assessments.
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Case Digest (G.R. No. 217610)

Facts:

Background of the Case

Bakbak (1 and 2) Native Chicken Restaurant, represented by its owner Rosselle G. Barco, is a food business enterprise and retailer of fermented liquor. The Bureau of Internal Revenue (BIR) conducted surveillance on Bakbak under its "Oplan Kandado" program, which aims to enforce Value Added Tax (VAT) compliance. The surveillance revealed that Bakbak was not issuing VAT invoices despite earning above the VAT threshold, and its declared gross income for 2006 was significantly lower than the actual sales recorded during the surveillance period.

Surveillance and Findings

From April 17 to 26, 2008, the BIR's Special Investigation Division (SID) conducted overt surveillance on Bakbak. The daily sales receipts during this period amounted to P524,568.00, with an average daily sale of P52,456.80. This was in stark contrast to Bakbak's declared gross income of P120,000.00 for 2006, with only P500.00 paid as income tax.

Meetings and Allegations

During meetings between Bakbak's representative, Federico Barco (Rosselle's father), and BIR officials, the latter allegedly attempted to solicit land from Federico and proposed a settlement for Bakbak's tax liabilities. Federico was told that the tax liability had ballooned to over P1,000,000.00, and he was asked how much he was willing to pay to avoid this liability. No agreement was reached in these meetings.

BIR Notices and Bakbak's Response

The BIR sent multiple notices to Bakbak, informing it of the under-declaration of gross sales and non-payment of percentage taxes. Bakbak was given five days to respond and rectify the discrepancies. Bakbak disputed the findings, claiming that the sales receipts were misrecorded and that the increase in sales was due to a promotional campaign by San Miguel Brewery. Despite multiple notices, Bakbak failed to comply with the BIR's requirements.

Legal Action

Fearing closure, Bakbak filed a case in the Regional Trial Court (RTC) challenging the constitutionality of Revenue Memorandum Order (RMO) Nos. 20-2002 and 31-2002, which provided guidelines for the closure of establishments violating VAT requirements. Bakbak argued that the RMOs violated its right to due process by giving only five days to respond instead of the 30 days provided under Section 228 of the National Internal Revenue Code (NIRC).

Issue:

The primary issue in this case is whether Revenue Memorandum Order Nos. 20-2002 and 31-2002 are invalid for being inconsistent with Section 228 of the NIRC, particularly regarding the time given to taxpayers to respond to assessments.

Ruling:

The Supreme Court denied Bakbak's petition, affirming the decision of the Court of Appeals (CA). The Court held that the RMOs in question were not inconsistent with Section 228 of the NIRC because they pertained to different matters. Section 228 governs the procedure for protesting tax assessments, while the RMOs implemented Section 115, which authorizes the closure of businesses for VAT violations. The Court also noted that Bakbak was given multiple opportunities to comply with the BIR's requirements but failed to do so.

Ratio:

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