Title
Source: Supreme Court
People vs. Corazon C. Gernale
Case
G.R. No. 256868
Decision Date
Oct 4, 2023
Tax assessment void due to lack of LOA; corporate officer not solidarily liable for GECC's tax deficiencies. Supreme Court upheld CTA ruling.

Case Digest (G.R. No. 256868)
Expanded Legal Reasoning Model

Facts:

  • Background and Initiation of the Case
    • The case arises from an Information filed before the Court of Tax Appeals (CTA) charging respondent Corazon C. Gernale, treasurer and responsible officer of Gernale Electrical Contractor Corporation (GECC), with violation of Section 255 in relation to Section 253(d) of the National Internal Revenue Code (NIRC) of 1997, as amended.
    • The alleged offense centers on GECC’s failure to pay deficiency taxes amounting to PHP 9,663,855.53 for the taxable year 2003, comprising:
      • Income Tax Deficiency: PHP 7,317,380.55
      • Value-Added Tax (VAT) Deficiency: PHP 2,346,474.98
  • Audit and Assessment Process
    • Revenue Officer Anita T. Marinas conducted an audit on GECC triggered by discrepancies noted in GECC’s sales per tax returns versus the customers’ submitted summary list of purchases.
    • The audit was initiated by a Letter Notice (LN) L.N. No. 034-R-03-00S000098 dated October 27, 2004, which:
      • Was served to GECC’s premises at 1384 Gomez St., Paco, Manila (served to Arvy G. Gutlay).
      • Led to the service of a Notice of Informal Conference to Julio Basilio.
    • Subsequent to the audit:
      • The Assessment Division prepared a Preliminary Assessment Notice (PAN) on May 3, 2006, and a Final Assessment Notice (FAN) on June 28, 2006, addressing the deficiencies.
      • These documents, along with the formal letter of demand, were transmitted for mailing to GECC by the Administrative Division.
  • Respondent’s Defense and Procedural Allegations
    • Respondent contended that:
      • The PAN and FAN were erroneously sent to her residential address instead of GECC’s principal place of business, thus rendering service invalid.
      • There was no clear evidence that the PAN was properly served upon GECC.
      • GECC did not receive a copy of the LN, questioning the chain of proper notification.
    • The defense underlined the importance of converting the LN into a valid Letter of Authority (LOA) as a prerequisite for any valid audit and assessment.
  • Lower Court Rulings and Developments
    • CTA Special Third Division Ruling (Decision dated September 26, 2018):
      • The Division dismissed the criminal charge due to failure to prove respondent’s guilt beyond reasonable doubt.
      • It ruled the assessment void as the prosecution did not demonstrate that the PAN was either personally received by GECC’s representative or properly mailed.
      • Concluded that respondent could not be held civilly liable for the deficiency taxes.
    • Subsequent Developments:
      • Petitioner’s partial motion for reconsideration on the civil aspect was denied by a Resolution dated December 17, 2018.
      • The CTA En Banc, in Decision dated July 30, 2020, reaffirmed the CTA Division’s findings that:
        • The absence of the conversion of the LN into a valid LOA rendered the PAN and FAN void.
        • Consequently, there was no valid source of tax obligation against GECC or respondent.
      • A subsequent Resolution dated May 27, 2021 denied petitioner’s motion for reconsideration, prompting the filing of the Petition for Review.

Issues:

  • Core Legal Issue
    • Whether the CTA En Banc committed any reversible error in affirming the CTA Division’s findings that respondent Corazon C. Gernale is not held civilly liable for the deficiency tax assessment of GECC.
  • Subsidiary Issues
    • Whether the issuance of a Letter Notice (LN) suffices in lieu of a mandatory Letter of Authority (LOA) under the due process requisites for conducting an audit and assessment.
    • Whether the respondent’s criminal acquittal from the charge affects her civil liability for the tax deficiency.
    • Whether a corporate officer can be held solidarily liable for the tax deficiency of the corporate entity they serve.

Ruling:

  • (Subscriber-Only)

Ratio:

  • (Subscriber-Only)

Doctrine:

  • (Subscriber-Only)

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