Case Summary (G.R. No. 214933)
Chronology of Relevant Events
- October 24, 2002: BIR issued a Letter of Authority to examine First Gas’s books for taxable years 2000 and 2001.
- September 30, 2003: First Gas received a Notice for informal conference scheduled for October 15, 2003.
- March 11, 2004: First Gas received Preliminary Assessment Notices (PAN) for deficiency income taxes and penalties.
- April 6, 2004: First Gas filed Preliminary Reply to PAN.
- September 6, 2004: First Gas received Final Assessment Notices (FAN) and Formal Letters of Demand dated July 19, 2004, assessing deficiency income taxes and penalties for 2000 and 2001.
- October 5, 2004: First Gas filed a Letter of Protest which was not acted upon.
- June 30, 2005: First Gas filed a Petition for Review with the CTA.
Applicable Law
The case is governed by the 1987 Philippine Constitution and provisions of the National Internal Revenue Code (NIRC), specifically:
- Section 203: Sets a three-year prescriptive period for assessment and collection of internal revenue taxes after the last day prescribed for filing the return.
- Section 222(b): Allows extension of the prescriptive period upon a valid written waiver agreed upon before expiration of the original three-year period.
Revenue Memorandum Order (RMO) No. 20-90 and Revenue District Office Announcement (RDAO) No. 05-01 govern the proper execution of waivers of the defense of prescription.
Issues on Waivers of Prescription and Deficiency Assessments
The BIR issued three waivers purportedly extending the prescriptive period to assess taxes for the taxable year 2000. However, the waivers lacked the dates of acceptance by the BIR, which is an essential requirement for validity under the prescribed rules. The absence of the acceptance dates rendered the waivers defective and invalid according to jurisprudence.
Court’s Analysis on Waivers and Prescriptive Period
The Court emphasized established precedents including Commissioner of Internal Revenue v. Kudos Metal Corporation and Commissioner of Internal Revenue v. Standard Chartered Bank, which hold that:
- Waivers must comply strictly with procedural requirements, including indicating the date of acceptance by the BIR.
- Failure to indicate dates of acceptance results in a defective waiver that does not validly extend the prescriptive period.
- The prescriptive period for assessment, therefore, remained unextended and expired before the issuance of the FAN and Formal Letters of Demand for taxable year 2000.
- Petitioner’s argument that notarization date equals date of acceptance was rejected since notarization and acceptance by the Commissioner are distinct acts.
Estoppel Argument Rejected
The petitioner argued that respondent is estopped from questioning the validity of the waivers since it requested their execution. The Court rejected this contention, citing that the doctrine of estoppel does not apply to invalidate procedural statutory safeguards protecting the taxpayer’s right against prolonged audits. The BIR must strictly comply with its own regulations, and its failure to do so cannot be excused by estoppel.
Issue of Raising Prescription for the First Time on Appeal
The petitioner contended that the issue of prescription is waived because it was not raised at the administrative level. The Court disagreed, pointing to rulings such as Bank of the Philippine Islands v. Commissioner of Internal Revenue, which permit the Court to raise or consider prescription as a matter of jurisdiction and public policy to protect the taxpayer, even if raised for the first time on appeal.
Invalidity of Final Assessment Notices for Taxable Year 2001
As to the assessments for taxable year 2001, the Court agreed with the CTA that the FAN and Formal Letters of Demand were invalid due to the absence of a definite due date for payment. Jurisprudence (e.g., Commissioner of Internal Revenue v. Fitness By Design, Inc.) mandates that a valid notice of assessment must contain a clear
Case Syllabus (G.R. No. 214933)
Procedural History and Nature of the Case
- The case involves a Petition for Review on Certiorari filed by the Bureau of Internal Revenue (BIR) challenging the May 12, 2014 Decision of the Court of Tax Appeals (CTA) En Banc in CTA EB No. 972.
- The CTA En Banc affirmed the decision of the CTA Third Division dated September 24, 2012, which granted the appeal of First Gas Power Corporation (First Gas) against the Final Assessment Notices (FAN) and Formal Letters of Demand issued by BIR for deficiency income taxes and penalties for the years 2000 and 2001.
- The initial assessments were challenged by First Gas, prompting administrative protests which were unacted upon, leading to the filing of a Petition for Review with the CTA.
- The BIR’s motion for reconsideration of the Third Division decision was denied, as was its petition for review with the CTA En Banc and subsequent motion for reconsideration before the CTA En Banc, leading to the present petition.
Facts of the Case
- First Gas received a Letter of Authority on October 24, 2002, to examine its records for revenue taxes for taxable years 2000 and 2001.
- Notice to appear for an informal conference was issued on September 30, 2003.
- Preliminary Assessment Notices dated December 15, 2003 and January 28, 2004 assessed First Gas for deficiency income tax and penalties for the years 2000 and 2001, formally replied to by First Gas in April 2004.
- Final Assessment Notices and Formal Letters of Demand dated July 19, 2004 assessed:
- Deficiency income tax for 2000 amounting to P37,099,915.29,
- Deficiency income tax for 2001 amounting to P82,365,799.90,
- Late payment penalties for 2001 amounting to P4,670,630.18.
- Deficiency income tax for 2000 related mostly to unreported income from pre-income tax holiday electricity sales and interest income; 2001 assessments related to disallowed interest and compensation expenses, and penalties for late payment of withholding and excise taxes.
- Three Waivers of the Defense of Prescription under the Statute of Limitations were executed by the parties on April 12, June 14, and August 13, 2004, respectively, extending assessment periods up to October 15, 2004.
- First Gas filed a Letter of Protest on October 5, 2004, which was not acted upon, leading to the petition before the CTA.
Issues Presented
- Whether the deficiency tax assessments for taxable years 2000 and 2001 issued by the BIR against First Gas are valid.
Ruling of the Court of Tax Appeals
- The CTA Third Division granted First Gas's petition, canceling and withdrawing the FANs and Formal Letters of Demand for 2000 and 2001 deficiency income taxes and penalties.
- The CTA En Banc affirmed the Third Division’s ruling and denied BIR’s petition for review and motion for reconsideration.
- The principal findings were that:
- The period to assess for 2000 had prescribed due to invalid waivers,
- The assessments for 2001 were invalid for failing to state a specific due date for payment.
Arguments and Contentions of the Parties
Bureau of Internal Revenue (Petitioner)
- Defended the validity of the waivers, arguing the absence of the date of acceptance was an inadvertence and should not invalidate the waivers.
- Argued the date of acceptance should be presumed as the date of notarization of the waivers.
- Contended waivers were signed and accepted before the prescription period lapsed.
- Alleged First Gas was estopped from questioning waiver validity since it requested their execution.
- Maintained First Gas waived the prescription issue by failing to raise it earlier in administrative proceedings.
- Argued Final Assessment Notices need not state a definite due date; the law, rules, regulations, and jurisprudence cited suffice for validity.