Case Summary (G.R. No. 220835)
Procedural History and Relevant Dates
STI filed its income tax, VAT, and EWT returns on various dates in 2002 and 2003. The CIR issued deficiency tax assessments on June 28, 2007, beyond the usual three-year prescriptive period. STI executed three waivers of the statute of limitations extending assessment deadlines, the last to June 30, 2007. After receiving the formal assessment, STI filed a request for reinvestigation and later appealed the CIR’s Final Decision on Disputed Assessment (FDDA) to the CTA. The CTA Second Division and later the CTA En Banc canceled the assessments for being barred by prescription. The CIR filed a petition for review before the Supreme Court.
Applicable Law and Governing Rules
Under Section 203 of the National Internal Revenue Code (NIRC) as amended, the CIR has three years from the filing of the tax return or the prescribed deadline to assess and collect internal revenue taxes. Section 222(b) provides that this period may be extended if both the CIR and taxpayer agree in writing. Revenue Memorandum Order (RMO) No. 20-90 and Revenue Delegation Authority Order (RDAO) No. 05-01 establish mandatory procedural and formal requirements for such waivers to be valid, including notarization, proper signatures, indication of the extended period, and the issuance of copies to the taxpayer.
Findings on Waivers of the Statute of Limitations
The Court found that the waivers executed by STI were defective and invalid for multiple reasons:
- The first waiver was accepted after the prescriptive period for EWT and VAT assessments had already expired.
- The official who signed on behalf of STI lacked notarized written authority from STI’s board of directors.
- The waivers did not specify the kind of tax and amount due, critical details for a valid agreement.
- There was failure to comply strictly with the procedural requirements under RMO 20-90 and RDAO 05-01, such as notarization and ensuring delivery of copies to the taxpayer.
Because these waivers did not strictly comply with the mandatory formalities, they did not extend the CIR’s period to assess or collect the disputed taxes.
Effect of Prescription and Invalidity of Assessments
The three-year prescriptive period expired on different dates for each type of tax: August 15, 2006 (income tax), April 17, 2006 (EWT), and May 25, 2006 (VAT). The formal assessment issued on June 28, 2007, was thus beyond the prescriptive period. Since the waivers were defective and did not validly extend the period, the assessments were barred by prescription and are void and without legal effect. The Court upheld the CTA’s cancellation of the assessments on this ground.
Rejection of Estoppel Argument and Distinction from Precedents
The CIR argued that STI’s active participation in the reinvestigation and reduced assessment created estoppel preventing it from invoking prescription. The Court rejected this, distinguishing it from the case of Rizal Commercial Banking Corporation v. CIR, where estoppel arose from partial payment of the assessed tax. Here, no payment was made by STI; thus, mere participation or reduced assessment does not bar the defense of prescription. The Court reaffirmed the principle that estoppel cannot override the specific procedural requirements for valid waivers under the NIRC and pertinent revenue issuances.
Policy Considerations on Statutory Prescription
The Court e
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Case Background and Procedural History
- The petitioner, Commissioner of Internal Revenue (CIR), filed a petition for review on certiorari under Rule 45, assailing the March 24, 2015 Decision and September 2, 2015 Resolution of the Court of Tax Appeals (CTA) En Banc in CTA EB No. 1050.
- The CTA En Banc affirmed the CTA Second Division’s April 17, 2013 Decision and July 17, 2013 Resolution, which granted the petition for review filed by the respondent, Systems Technology Institute, Inc. (STI).
- The CTA Second Division and subsequently, the CTA En Banc, cancelled the assessments against STI for deficiency income tax, deficiency expanded withholding tax (EWT), and deficiency value-added tax (VAT) for the fiscal year ending March 31, 2003.
- The CIR maintained that the tax assessments were valid because waivers by STI extended the period to assess and collect taxes and that STI’s participation in reinvestigation estopped it from invoking prescription.
Facts of the Case
- STI filed its Amended Annual Income Tax Return for fiscal year 2003 on August 15, 2003; quarterly VAT returns in 2002 and 2003; and BIR Form 1601E for EWT from May 10, 2002, to April 15, 2003.
- STI's representative executed a series of three waivers of the defense of prescription under the National Internal Revenue Code (NIRC) statute of limitations:
- First waiver on May 30, 2006, accepted June 2, 2006, extending assessment period until December 31, 2006.
- Second waiver on December 12, 2006, extending period to March 31, 2007.
- Third waiver executed extending further to June 30, 2007.
- On June 28, 2007, STI was formally assessed by the CIR for deficiency income tax, VAT, and EWT totaling approximately ₱161.8 million.
- STI filed a request for reconsideration on July 25, 2007.
- The CIR issued a Final Decision on Disputed Assessment (FDDA) on August 17, 2009, reducing the assessed amount to about ₱124.3 million.
- STI appealed the FDDA to the CTA, which led to the ruling that the assessments were barred by prescription due to defective waivers.
Issues Raised
- Whether prescription had set in against the CIR’s assessments for deficiency income tax, VAT, and EWT.
- Validity of the waivers executed by STI and accepted by the CIR purportedly extending the period of assessment.
- Whether STI was estopped from invoking the defense of prescription due to its active participation in the administrative reinvestigation and the reduction of the assessment amount.
Legal Framework
- Section 203 of the 1997 NIRC (as amended) limits the CIR’s period to assess and collect internal revenue taxes to three years from the last day prescribed or from the day the return was filed, whichever is later.
- Section 222(b) of the NIRC allows extension of the assessment period if both the CIR and the taxpayer execute a written waiver before the expiration of the three-ye