Title
Mannasoft Technology Corp. vs. Commissioner of Internal Revenue
Case
G.R. No. 244202
Decision Date
Jul 10, 2023
Tax assessments and WDL void due to improper service, violating due process; SC ruled in favor of petitioner, canceling assessments and WDL.

Case Summary (G.R. No. 185829)

Factual Background

The BIR, pursuant to Letter of Authority No. 00042459, audited Mannasoft for calendar year 2008. The BIR issued a Notice of Informal Conference (NIC) and a Preliminary Assessment Notice (PAN), both allegedly personally served on a “Ms. Gladys Badocdoc” (Client Service Assistant). A Formal Assessment Notice (FAN) dated November 16, 2011 assessed deficiency income tax, deficiency VAT, and expanded withholding tax for a total of several tens of millions of pesos. The parties stipulated the FAN was personally served on “Angelo Pineda,” identified as petitioner’s reliever security guard. Petitioner filed a protest to the FAN on December 22, 2011 and submitted supporting documents on February 20, 2012. The BIR later stated petitioner had not submitted records; it issued a Warrant of Distraint and/or Levy (WDL) on October 23, 2012. Petitioner protested the WDL on October 29, 2012 and requested reinvestigation on November 13, 2012. The BIR denied reinvestigation by letter-reply (received November 25, 2013), stating it was the BIR’s “final decision” and advising petitioner of the 30-day period to pay or face summary collection. Petitioner filed a Petition for Review with the CTA on December 10, 2013.

Claims and Defenses Raised

Petitioner’s principal arguments were: (1) due process violated because NIC and PAN were never received; (2) FAN failed to state facts and law supporting assessment; (3) BIR failed to evaluate petitioner’s submitted documents; (4) FAN and WDL were not received by a duly authorized officer of petitioner; and (5) prescription of some assessed VAT and EWT. The BIR maintained that notices and assessments were valid, properly issued in accordance with law and rules, and within the prescriptive period.

CTA Third Division Ruling

The CTA Third Division granted petitioner’s petition, canceling the assessment notices and the WDL. It exercised jurisdiction under the CTA’s “other matters” jurisdiction (Section 7(a)(1) of RA No. 1125, as amended) and held the NIC, PAN, and FAN void for failure to comply with due process requirements of law and RR No. 12-99. The Third Division found service was made on individuals who were not authorized representatives of the taxpayer; thus service did not constitute receipt by the taxpayer. The court held that petitioner’s subsequent protest did not cure the due process defect and that the WDL was invalid as it flowed from a void assessment.

CTA En Banc Ruling

On appeal, the CTA En Banc reversed the Third Division, holding that the proper reckoning point for seeking judicial relief was petitioner’s receipt of the WDL. Because petitioner did not seek judicial relief within the 30-day period after receipt of the WDL, the WDL became final and the CTA was divested of jurisdiction over the original petition. The En Banc emphasized that, before the tax court may review the validity of the WDL and the underlying assessment, the taxpayer must first file an appeal within the period fixed by law. The En Banc denied petitioner’s motion for reconsideration.

Issues Presented to the Supreme Court

Two principal issues were framed: (1) whether the CTA En Banc gave a restrictive interpretation to the CTA’s “other matters” jurisdiction under Section 7(a)(1) of RA No. 1125 by treating that jurisdiction as hinging only on receipt of the WDL; and (2) whether the CTA En Banc erred in disregarding the claim that the assessment was void for lack of due process.

Supreme Court’s Analysis—Jurisdiction and Timeliness

The Supreme Court reframed the core question as whether the CTA properly acquired jurisdiction by determining whether petitioner timely filed its Petition for Review. The Court analyzed Section 228 of the Tax Code and the jurisprudence in RCBC and LRTA, which recognize two mutually exclusive options when the BIR fails to act on a protest within the 180-day period: (a) file a petition with the CTA within 30 days after expiration of the 180-day period, or (b) await the Commissioner’s final decision and appeal within 30 days from receipt of that decision. The Court found petitioner had filed a protest and submitted supporting documents on February 20, 2012, thereby triggering the 180-day period. When the BIR issued the WDL on October 23, 2012, the 180-day period had already lapsed, but petitioner’s immediate protest of the WDL and later request for reinvestigation evidenced petitioner’s election to await the Commissioner’s final decision (the second option under RCBC). The BIR’s letter dated November 14, 2013 expressly stated it was the BIR’s “final decision on the matter”; that letter was received November 25, 2013. The Court concluded that petitioner’s Petition for Review filed on December 10, 2013 was within 30 days from receipt of the BIR’s final decision and therefore timely. The Court distinguished cases that treated issuance of a WDL or Final Notice Before Seizure as constructive denial (e.g., PJI, Isabela) by noting those precedents arose before RA No. 9282 recognized inaction of the Commissioner as appealable, and before RCBC clarified the two options. Thus those earlier cases do not control here.

Supreme Court’s Analysis—Due Process and Validity of Assessment

The Court emphasized that summary collection remedies such as WDL presuppose the existence of delinquent taxes; such remedies are inappropriate when a valid request for reinvestigation is pending. The Court further analyzed the factual findings regarding service of the NIC, PAN, and FAN. The CTA En Banc had focused on timeliness and did not disturb the Third Division’s factual findings that the NIC and PAN were allegedly served on a “Client Service Assistant” and that the FAN was served on a reliever security guard who was not even an employee of petitioner. Under Section 228 and Section 3.1.4 of RR No. 12-99, formal delivery of the formal letter of demand and assessment notice must be acknowledged by the taxpayer or a duly authorized representative who must indicate designation and authority; this requirement ensures the recipient has authority and understanding of the consequences. The Court noted that RR Nos. 3.1.1 and 3.1.2 (governing NIC and PAN) do not contain identical formal acknowledgement requirements, but the Court deemed it consistent with the spirit of the law to require that these preliminary notices likewise be served on the taxpayer or an authorized representative, particularly for juridical entities. The Court found the service defects were material: the FAN’s stamp receipt failed to indicate authority of the recipient (Angelo Pineda), and he was not an employee of petitioner. The Court reiterated the settled rule that failure to strictly observe Section 228 and RR No. 12-99 renders an assessment void. The fact that petitioner was able to file a protest did not cure the initial failure of proper service.

Standard of Review and Treatment of Factual Findings

The Court acknowledged that determinations of factual issues—such as whether the taxpayer actuall

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