Title
Commissioner of Internal Revenue vs. Metro Star Superama, Inc.
Case
G.R. No. 185371
Decision Date
Dec 8, 2010
CIR's tax assessment against Metro Star deemed void due to failure to prove receipt of mandatory Preliminary Assessment Notice, violating due process.

Case Summary (G.R. No. 185371)

Key Dates and Procedural Timeline

Relevant administrative actions and communications: Letter of Authority issued January 26, 2001 (revalidated August 10, 2001); Preliminary 15‑day Letter issued November 8, 2001 (received November 9, 2001); alleged Preliminary Assessment Notice (PAN) dated January 16, 2002; Formal Letter of Demand dated April 3, 2002 (received April 11, 2002) assessing P292,874.16; Final Notice of Seizure dated May 12, 2003 (received May 15, 2003); Warrant of Distraint and/or Levy dated May 12, 2003 (Metro Star received copy February 6, 2004); Motion for Reconsideration filed July 30, 2004; CIR decision denying reconsideration dated February 8, 2005 (Metro Star received February 18, 2005); petition to the Court of Tax Appeals (CTA) and CTA‑Second Division decision granting Metro Star’s petition dated March 21, 2007; CTA Second Division resolution denying CIR reconsideration July 24, 2007; CTA En Banc decision affirming the Second Division (decision dated September 16, 2008) and resolution denying CIR’s motion for reconsideration (November 18, 2008); petition for certiorari to the Supreme Court (denied by the Court in the present disposition).

Issues Presented

The parties stipulated the issues decided by the CTA: (1) whether the CIR complied with due process requirements under the National Internal Revenue Code (NIRC) and Revenue Regulations No. 12‑99 in issuing a deficiency assessment; (1.1) whether petitioner is liable for the specified VAT and withholding amounts; (1.2) whether the assessment became final and demandable for failure to protest; (2) whether the assessments are void for failure to state the law and/or facts on which they are based; (2.2) whether Metro Star was informed of the law and facts in compliance with Section 228 of the NIRC; (3) whether Metro Star’s services are subject to VAT under Section 108(A) of the NIRC; and (4) whether the assessment is based on the best evidence obtainable pursuant to Section 6(b) of the NIRC. The Supreme Court’s review was limited to whether Metro Star was denied due process.

Applicable Law and Regulations

Constitutional basis: Due process protection under Section 1, Article III, 1987 Constitution. Statutory and regulatory framework: Section 228 of the NIRC (as amended by R.A. No. 8424) requires that taxpayers “be informed in writing of the law and the facts on which the assessment is made,” with prescribed protest and appeal periods; Revenue Regulations No. 12‑99 implements the due process requirements for issuance of deficiency assessments, prescribing notice for informal conference, issuance of a Preliminary Assessment Notice (PAN) by registered mail showing in detail the facts and the law supporting the proposed assessment, and that a Formal Letter of Demand and Assessment Notice (FAN) must state the facts and law and be sent by registered mail or personal delivery.

Factual Findings Concerning Service of Notices

Metro Star denied receipt of the alleged PAN dated January 16, 2002. Metro Star’s chairman acknowledged receipt of the FAN dated April 3, 2002 but expressly denied receiving the PAN and stated willingness to pay based on clarification efforts. The CIR did not present a registry receipt, return card, or post office certification proving mailing and receipt of the PAN; BIR personnel documentation alone was the extent of proof offered. The parties executed a Joint Stipulation of Facts and Issues relied upon by the CTA.

CTA‑Second Division Reasoning and Holding

The CTA‑Second Division applied the principle that the presumption of receipt of mailed letters is disputable; a direct denial of receipt by the taxpayer shifts the burden to the sender to prove mailing and receipt (e.g., registry receipt or post office certification). Finding no clear proof that Metro Star received the PAN, the Second Division held that Metro Star was denied due process because the PAN — which must inform the taxpayer of the law and facts on which the assessment is based — was not shown to have been received. Consequently, the Formal Letter of Demand and the Warrant of Distraint and/or Levy were void, and the assessment was invalid. The petition for review was granted, and collection was ordered to cease.

CTA En Banc Action

The CIR’s petition to the CTA En Banc was denied for lack of merit and dismissed after a finding that no new matters were raised; the En Banc affirmed the March 21, 2007 decision of the CTA‑Second Division in toto and denied the CIR’s motion for reconsideration.

Supreme Court Standard of Review and Precedent Guidance

The Supreme Court recognized the high degree of deference accorded to CTA findings because of the CTA’s specialized expertise in tax matters, and reiterated that such findings will not be disturbed absent lack of substantial evidence or abuse of discretion. The Court emphasized established jurisprudence that when a taxpayer denies receipt of an assessment mailed by the BIR, the onus shifts to the BIR to prove proper mailing and receipt by competent evidence (e.g., registry receipt, registry return card, or certification from the Bureau of Posts), and that self‑serving BIR notations without independent postal evidence are insufficient.

Analysis on Due Process and PAN Requirement

The Court analyzed Section 228 of the NIRC and R.R. No. 12‑99 together. Section 228 requires that taxpayers be informed in writing of the law and facts on which an assessment is based; this is substantive, not merely formal. R.R. No. 12‑99 mandates issuance of a PAN by registered mail that details the facts and law supporting the proposed asses

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