Title
Tridharma Marketing Corp. vs. Court of Tax Appeals
Case
G.R. No. 215950
Decision Date
Jun 20, 2016
A corporation contested a P4.6B tax assessment, arguing the bond requirement was excessive and jeopardized its operations. The Supreme Court ruled the CTA abused discretion, remanding for a preliminary hearing on bond necessity.
tridharma marketing corp
court of tax appeals
surety bond

Case Summary (G.R. No. 215950)

Factual Background

TRIDHARMA MARKETING CORPORATION received a Preliminary Assessment Notice from the Bureau of Internal Revenue on August 16, 2013 assessing various deficiency taxes for taxable year 2010 aggregating P4,640,394,039.97 inclusive of surcharge and interest, a large component of which flowed from the BIR’s complete disallowance of petitioner’s purchases from Etheria Trading amounting to P4,942,937,053.82; the petitioner replied to the PAN on August 30, 2013, received a Formal Letter of Demand on September 23, 2013 assessing P4,697,696,275.25, filed a protest, complied with the CIR’s request for additional documents, and received a Final Decision on Disputed Assessment dated February 28, 2014 assessing total deficiency taxes of P4,473,228,667.87; the petitioner filed a Request for Reconsideration which the CIR denied on May 26, 2014, paid assessed WHT, DST and EWT amounting to P5,836,786.10, and offered to compromise the IT and VAT assessments.

Proceedings before the Court of Tax Appeals

The petitioner appealed the CIR decision to the CTA on June 13, 2014 and moved to suspend collection; the CTA, Second Division, issued a resolution dated July 8, 2014 granting the motion for suspension of collection but ordered the filing of a surety bond equivalent to 150% of the assessment, or P6,701,087,822.64, together with documents required under Supreme Court Circular A.M. No. 04-7-02-SC; upon partial reconsideration the CTA issued a resolution dated December 22, 2014 reducing the required bond to P4,467,391,881.76, the amount equivalent to the IT and VAT deficiency assessment.

Petitioner’s Contentions

The petitioner contended that the CTA, Second Division, committed grave abuse of discretion in three respects: first, by refusing to consider and ignoring the patent illegality of the assessment so as to justify dispensing with the bond requirement; second, by imposing a bond of P4,467,391,881.76 that exceeded petitioner’s net worth and was factually and legally impossible to procure from bonding companies; and third, by granting an illusory relief that effectively denied petitioner access to judicial remedy and would cause irreparable injury to its business even before the merits were heard.

Issue

Whether the Court of Tax Appeals, Second Division committed grave abuse of discretion in requiring TRIDHARMA MARKETING CORPORATION to post a surety bond despite petitioner’s assertion of patent illegality of the assessment and despite the bond amount being several times petitioner’s net worth.

Ruling of the Court

The Supreme Court granted the petition for certiorari, found merit in petitioner’s claim of grave abuse of discretion, annulled and set aside the CTA resolutions dated July 8, 2014 and December 22, 2014 insofar as they required petitioner to post a surety bond of P4,467,391,881.76 as a condition to restrain collection, permanently enjoined enforcement of those resolutions, and remanded the case to the CTA, Second Division, to forthwith conduct a preliminary hearing to determine whether the bond under Section 11 of Republic Act No. 1125 may be dispensed with or reduced; the Court made no pronouncement on costs.

Legal Basis and Reasoning

The Court interpreted Section 11 of Republic Act No. 1125, as amended by Republic Act No. 9282, to permit suspension of tax collection only upon deposit of the amount claimed or upon filing of a surety bond for not more than double the amount, but held that the CTA gravely abused its discretion by fixing a bond nearly five times petitioner’s net worth without first conducting a preliminary hearing to ascertain whether collection would jeopardize the taxpayer’s interests or whether the CIR’s methods of assessment were legally valid; the Court emphasized that the bond requirement applies where collection processes are consonant with law but may be dispensed with when the processes are patently unlawful and jeopardize the taxpayer, and declined to decide the correctness of the underlying assessment because that question required evidentiary determination and was within the CTA’s original competence; the Court relied on its precedent in Pacquiao v. Court of Tax Appeals, First Division, and the Commissioner of Internal Revenue for t

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