G.R. No. 168498 - Rizal Commercial Banking Corp. vs. Commissioner of Internal Revenue

Case Summary (G.R. No. 168498)

Factual Background

Rizal Commercial Banking Corporation received a Formal Letter of Demand for taxable year 1997 alleging Gross Onshore Tax of P53,998,428.29 and Documentary Stamp Tax on Special Savings Placements of P46,717,952.76. The bank protested the assessment on July 20, 2001 pursuant to Section 228, NIRC, and submitted documents in support of its protest as required by that provision. The Commissioner did not act on the protest within the statutory periods provided in Section 228. Thereafter, the bank filed a Petition for Review with the Court of Tax Appeals on April 30, 2002 seeking cancellation of the assessments.

Proceedings Before the Court of Tax Appeals

On July 15, 2003, the Commissioner of Internal Revenue moved to resolve first the issue of the C.T.A.'s jurisdiction. The C.T.A. Second Division granted the motion and dismissed the petition for review in a Resolution dated September 10, 2003 on the ground that the petition was filed beyond the thirty-day period following the lapse of the one hundred eighty-day period contemplated in Section 228 and Section 11, R.A. No. 1125. Petitioner did not file a motion for reconsideration or appeal to the C.T.A. En Banc from the September 10, 2003 Resolution, which became final and executory on October 1, 2003, with Entry of Judgment on December 1, 2003.

Petition for Relief from Judgment and Further C.T.A. Action

After demand for payment, Rizal Commercial Banking Corporation filed a Petition for Relief from Judgment under Rule 38, Rules of Court on February 20, 2004, alleging excusable neglect because its counsel’s secretary had misfiled and lost the September 10, 2003 Resolution. The C.T.A. Second Division set the petition for hearing on April 2, 2004, at which petitioner’s counsel appeared and orally argued. The Commissioner opposed relief and the parties filed pleadings and memoranda as directed. The C.T.A. Second Division denied the Petition for Relief in a Resolution dated May 3, 2004 and later denied petitioner’s motion for reconsideration on November 5, 2004.

C.T.A. En Banc Review and Grounds of the Supreme Court Petition

Rizal Commercial Banking Corporation elevated the matter to the C.T.A. En Banc which, in a Decision dated June 7, 2005, affirmed the Second Division’s Resolutions. The bank then filed the present petition for review under Rule 45 to the Supreme Court, attacking the denial of relief on two principal grounds: denial of due process by not being afforded the opportunity to adduce evidence to establish excusable negligence, and the contention that the documentary stamp tax issue implicated the banking industry and thus merit should prevail over procedural technicality.

Legal Standard for Relief from Judgment

The Court reiterated that relief from judgment under Rule 38, Rules of Court is available only in exceptional circumstances when a party was unjustly deprived of a hearing or prevented from appealing by reason of fraud, accident, mistake, or excusable neglect. The Court emphasized that the constitutionally guaranteed essence of due process is a reasonable opportunity to be heard, which may be afforded through pleadings as well as oral argument. The Court further explained that negligence qualifies as excusable only when ordinary diligence and prudence could not have averted it.

The Court’s Assessment of Petitioner's Due Process Claim

The Court found that Rizal Commercial Banking Corporation had been accorded ample opportunity to be heard. The C.T.A. Second Division had scheduled a hearing on petitioner’s Petition for Relief, petitioner’s counsel personally appeared and argued, and the court later entertained a motion for reconsideration and required memoranda from both parties. The Court therefore held that procedural due process was not violated, citing precedents that an opportunity to be heard through pleadings and oral argument satisfies due process.

The Court’s Determination of Excusable Negligence

The Court concluded that petitioner’s counsel’s omission did not amount to excusable neglect. The Court recalled the duty of counsel to adopt systems ensuring prompt receipt of judicial notices and to monitor the status of pending cases. The alleged failure to renew employment of a secretary was characterized as a problem personal to counsel and not a sufficient excuse for neglect of professional obligations. The Court warned that permitting relief on such grounds would invite interminable litigation.

The Alternative Rationale on Prescription and Jurisdiction

The Court also addressed, ex gratia, the consequence if relief from judgment were granted. It agreed with the Office of the Solicitor General that even if the case were reopened, petitioner’s action for cancellation of the assessments would have prescribed under Section 228. The Court traced the statutory timeline: protest filed July 20, 2001; submission of documents due by September 18, 2001; one hundred eighty-day period for the Commissioner to act until March

Case Syllabus (G.R. No. 168498)

Parties and Procedural Posture

Rizal Commercial Banking Corporation was the petitioner in a Rule 45 petition before the Supreme Court attacking the Decision of the Court of Tax Appeals En Banc dated June 7, 2005 in C.T.A. EB No. 50.
Commissioner of Internal Revenue was the respondent assessed for alleged deficiency taxes for taxable year 1997.
The petition assailed the affirmance of the Court of Tax Appeals Second Division Resolutions dated May 3, 2004 and November 5, 2004 in C.T.A. Case No. 6475 denying petitioner’s Petition for Relief from Judgment and its Motion for Reconsideration.
The opinion was penned by Justice Ynares-Santiago and the judgment of the Court was to affirm the CTA En Banc Decision.

Key Facts

Petitioner received a Formal Letter of Demand dated May 25, 2001 which it received on July 5, 2001 for Gross Onshore Tax in the amount of P53,998,428.29 and Documentary Stamp Tax for Special Savings Placements in the amount of P46,717,952.76.
Petitioner filed a protest/request for reconsideration/reinvestigation under Section 228 of the NIRC on July 20, 2001.
Petitioner filed a Petition for Review with the CTA on April 30, 2002, docketed as C.T.A. Case No. 6475, after the Commissioner failed to act on the protest.
The CTA dismissed the petition because it was filed beyond the 30-day period following the lapse of 180 days from petitioner’s submission of supporting documents, as required by Section 228 of the NIRC and Section 11 of R.A. No. 1125.
The September 10, 2003 Resolution of the CTA became final and executory on October 1, 2003 and Entry of Judgment was made on December 1, 2003.
Petitioner filed a Petition for Relief from Judgment on February 20, 2004 alleging excusable negligence by its counsel’s secretary who allegedly misfiled and lost the September 10, 2003 Resolution.
The CTA Second Division set the petition for hearing on April 2, 2004 where petitioner’s counsel was present and orally argued the petition, and subsequently denied relief on May 3, 2004.
The CTA Second Division denied the motion for reconsideration on November 5, 2004, and the CTA En Banc affirmed on June 7, 2005.

Procedural History

Respondent filed a motion on July 15, 2003 to resolve first the issue of the CTA’s jurisdiction, which resulted in the CTA Resolution dated September 10, 2003 dismissing the Petition for Review.
Petitioner did not file a motion for reconsideration or an appeal to the CTA En Banc from the September 10, 2003 dismissal, which rendered that Resolution final.
Petitioner later sought relief under Rule 38 of the Rules of Court by filing a Petition for Relief from Judgment on February 20, 2004.
The CTA Second Division conducted hearings and denied the Petition for Relief from Judgment and the subsequent motion for reconsideration, which rulings the CTA En Banc affirmed.
Petitioner then sought review before the Supreme Court under Rule 45 of the Rules of Court.

Issues Presented

Whether petitioner was denied procedural due process by not being afforded the opportunity to adduce evidence to establish excusable negligence as ground for relief from judgment.
Whether petitioner should be allowed to litigate the substantive correctness of the assessment of Documentary Stamp Tax on special savings placements rather than be barred on procedural grounds given the alleged industry-wide impact.

Parties' Contentions

Petitioner contended that it was deprived of due process because it was not permitted to present evidence proving that its failure to appeal was caused by the misfiling and loss of the CTA Resolution by its counsel’s secretary.
Petitioner further contended that the issue of Documentary Stamp Tax on special savings accounts affected the banking industry generally and merited disposition on the merits.
The Office of the Solicitor General (OSG) contended