1. CIR vs Liquigaz Philippines Corp (G.R. No.

215534) and Liquigaz

Philippines Corporation vs CIR (G.R. No. 215557) both dated April 18, 2016

Facts: Liquigaz Philippines Corporation (Liquigaz) is a corporation duly organized and

existing under Philippine laws. On July 11, 2006, it received a copy of Letter of Authority
(LOA) dated July 4, 2006, issued by the Commissioner of Internal Revenue (CIR),
authorizing the investigation of all internal revenue taxes for taxable year 2005.
After receiving the copy of the Preliminary Assessment Notice together with the attached
details of discrepancies for the calendar year ending December 31, 2005, Liquigaz was
initially assessed with deficiency withholding tax liabilities, inclusive of interest, in the
aggregate amount of P23,931,708.72.
June 25, 2008, it received a Formal Letter of Demand (FLD)/Formal Assessment Notice
(FAN), together with its attached details of discrepancies. Thereafter, Liquigaz filed its
protest against the FLD/FAN and subsequently submitted its supporting documents.
July 1, 2010, it received a copy of the FDDA covering the tax audit and reflected that
LIquigaz is still liable for the deficiency withholding tax.
Liquigaz filed its Petition for Review before the CTA Division assailing the validity of the
FDDA issued by the CIR. CTA, in its decision partially granted Liquigaz’s cancelling the
EWT and FBT assessments but affirmed with modification the WTC assessment. Both the
CIR and Liquigaz moved for reconsideration, but their respective motions were denied by the
CTA Division in its February 20, 2013 Resolution.
Liquigaz asserts that like its assessment for EWT and FBT deficiency, the WTC assessment
should have been invalidated because the FDDA did not provide for the facts on which the
assessment was based. It argues that it was deprived of due process because in not stating the
factual basis of the assessment, the CIR did not consider the defenses and supporting
documents it presented.
On the other hand, the CIR avers that the assessments for EWT and FBT liability should be
upheld because the FDDA must be taken together with the PAN and FAN, where details of
the assessments were attached. Hence, the CIR counters that Liquigaz was fully apprised of
not only the laws, but also the facts on which the assessment was based, which were likewise
evidenced by the fact that it was able to file a protest on the assessment. Further, the CIR
avers that even if the FDDA would be declared void, it should not result in the automatic
abatement of tax liability especially because RR No. 12-99 merely states that a void decision
of the CIR or his representative shall not be considered as a decision on the assessment.
Issue: Whether the court of tax appeals En Banc erred in partially upholding the
validity of the assessment as to the withholding tax on compensation but declaring
invalid the assessment on expanded withholding tax and fringe benefits tax.
Held: Yes,
The Court held that the CTA erred in concluding that the assessment on EWT and FBT
deficiency was void because the FDDA covering the same was void. However, the
assessment remains valid notwithstanding the nullity of the FDDA because as discussed
above, the assessment itself differs from a decision on the disputed assessment.
The Court held with the tax court that it becomes even more imperative that the FDDA
contain details of the discrepancy. Failure to do so would deprive Liquigaz adequate
opportunity to prepare an intelligent appeal. It would have no way of determining what were
considered by the CIR in the: defenses it had raised in the protest to the FLD. Further,
without the details of the assessment, it would open the possibility that the reduction of the
assessment could have been arbitrarily or capriciously arrived at.
It is undisputed that the FDDA merely showed Liquigaz' tax liabilities without any details on
the specific transactions which gave rise to its supposed tax deficiencies. While it provided
for the legal bases of the assessment, it fell short of informing Liquigaz of the factual bases
thereof. Thus, the FDDA as regards the EWT and FBT tax deficiency did not comply with
the requirement in Section 3.1.6 of RR No. 12-99, as amended, for failure to inform Liquigaz
of the factual basis thereof.
Central to the resolution of the issue is Section 228 of the NIRC and RR No. 12-99, as
amended. They lay out the procedure to be followed in tax assessments. Under Section 228 of
the NIRC, a taxpayer shall be informed in writing of the law and the facts on which the
assessment is made, otherwise, the assessment shall be void.

 3.1.6 Administrative Decision on a Disputed Assessment. — The decision of the

Commissioner or his duly authorized representative shall (a) state the facts, the
applicable law, rules and regulations, or jurisprudence on which such decision is
based, otherwise, the decision shall be void (see illustration in ANNEX C hereof), in
which case, the same shall not be considered a decision on a disputed assessment; and
(b) that the same is his final decision.
From the foregoing, it is clear that what is appealable to the CTA is the "decision" of the CIR
on disputed assessment and not the assessment itself.
Section 228 of the NIRC provides that an assessment shall be void if the taxpayer is not
informed in writing of the law and the facts on which it is based. It is, however, silent with
regards to a decision on a disputed assessment by the CIR which fails to state the law and
facts on which it is based. This void is filled by RR No. 12-99 where it is stated that failure of
the FDDA to reflect the facts and law on which it is based will make the decision void. It,
however, does not extend to the nullification of the entire assessment.
It is clear that the assailed deficiency tax assessment for the EWT in 1994 disregarded the
provisions of Section 228 of the Tax Code, as amended, as well as Section 3.1.4 of Revenue
Regulations No. 12-99 by not providing the legal and factual bases of« the assessment.
Hence, the formal letter of demand and the notice of assessment issued relative thereto are
void.
On the other hand, the Court agrees that the FDDA substantially informed Liquigaz of its tax
liabilities with regard to its WTC assessment. As highlighted by the CTA, the basis for the
assessment was the same for the FLD and the FDDA, where the salaries reflected in the ITR
and the alphalist.
Although taxes are the lifeblood of the government, their assessment .and collection "should
be made in accordance with law as any arbitrariness will negate the very reason for
government itself."

2. CIR vs Metro Star Superama, Inc. (G.R. No. 185371 dated Dec. 8, 2010)
FACTS: Metro Star Superama Inc. is a domestic corporation duly organized and existing by
virtue of the laws of the Republic of the Philippines.
On January 26, 2001, the Regional Director of Legazpi City, issued Letter of Authority to
examine petitioner’s books of accounts and other accounting records for income tax and other
internal revenue taxes for the taxable year 1999. Thereafter, BIR issued a preliminary letter
stating that there was deficiency value-added and withholding taxes due from petitioner in the
amount of ₱ 292,874.16 based on the audit conducted.

On April 11, 2002, petitioner received a Formal Letter of Demand dated April 3, 2002 from
Revenue District No. 67, Legazpi City, assessing petitioner the amount of Two Hundred
Ninety Two Thousand Eight Hundred Seventy Four Pesos and Sixteen Centavos
(₱292,874.16.) for deficiency value-added and withholding taxes for the taxable year 1999.

Denying that it received a Preliminary Assessment Notice (PAN) and claiming that it was not
accorded due process, Metro Star filed a petition for review with the CTA.

CTA REVERSED and SET ASIDE the decision of the CIR and ORDERED TO DESIST
from collecting the subject taxes against petition.

It also found that there was no clear showing that Metro Star actually received the alleged
PAN, dated January 16, 2002. It, accordingly, ruled that the Formal Letter of Demand dated
April 3, 2002, as well as the Warrant of Distraint and/or Levy dated May 12, 2003 were void,
as Metro Star was denied due process.

Aggrieved, the CIR filed a petition for review with the CTA-En Banc, but the petition was
dismissed after a determination that no new matters were raised, hence case at bar.

Issue: Whether or not Metro Star was denied due process.

Held:Yes. The court ruled that the CIR failed to discharge its duty and present any evidence
to show that Metro Star indeed received the PAN dated January 16, 2002.

It could have simply presented the registry receipt or the certification from the postmaster
that it mailed the PAN, but failed. Neither did it offer any explanation on why it failed to
comply with the requirement of service of the PAN. It merely accepted the letter of Metro
Star’s chairman dated April 29, 2002, that stated that he had received the FAN dated April 3,
2002, but not the PAN; that he was willing to pay the tax as computed by the CIR; and that
he just wanted to clarify some matters with the hope of lessening its tax liability.

SEC. 228. Protesting of Assessment. - When the Commissioner or his duly

authorized representative finds that proper taxes should be assessed, he shall first
notify the taxpayer of his findings: provided, however, that a preassessment notice
shall not be required in the following cases:
 a) When the finding for any deficiency tax is the result of mathematical error in the
computation of the tax as appearing on the face of the return; or
b) When a discrepancy has been determined between the tax withheld and the
amount actually remitted by the withholding agent; or
c) When a taxpayer who opted to claim a refund or tax credit of excess creditable
withholding tax for a taxable period was determined to have carried over and
automatically applied the same amount claimed against the estimated tax
liabilities for the taxable quarter or quarters of the succeeding taxable year; or
d) When the excise tax due on excise able articles has not been paid; or
e) When the article locally purchased or imported by an exempt person, such as,
but not limited to, vehicles, capital equipment, machineries and spare parts, has
been sold, traded or transferred to non-exempt persons.

The taxpayers shall be informed in writing of the law and the facts on which the assessment
is made; otherwise, the assessment shall be void.

It is an elementary rule enshrined in the 1987 Constitution that no person shall be deprived of
property without due process of law. In balancing the scales between the power of the State
to tax and its inherent right to prosecute perceived transgressors of the law on one side, and
the constitutional rights of a citizen to due process of law and the equal protection of the laws
on the other, the scales must tilt in favor of the individual, for a citizen’s right is amply
protected by the Bill of Rights under the Constitution. Thus, while "taxes are the lifeblood of
the government," the power to tax has its limits, in spite of all its plenitude.

3. Medicard Philippines, Inc. (G.R. No. 222743 dated April 5, 2017 )

and 3.1 RMC 075-18

FACTS: MEDICARD is a Health Maintenance Organization (HMO) that provides prepaid

health and medical insurance coverage to its clients.

MEDICARD filed its First, Second, and Third Quarterly VAT Returns through Electronic
Filing and Payment System (EFPS) on April 20, 2006, July 25, 2006 and October 20, 2006,
respectively, and its Fourth Quarterly VAT Return on January 25, 2007.

Upon finding some discrepancies between MEDICARD's Income Tax Returns (ITR) and
VAT Returns, the CIR informed MEDICARD and issued a Letter Notice (LN).

September 20, 2007. Subsequently, the CIR also issued a Preliminary Assessment Notice
(PAN) against MEDICARD for deficiency VAT. MEDICARD received CIR's FAN dated
December' 10, 2007 for alleged deficiency VAT for taxable year 2006 in the total amount of
Pl 96,614,476.69,10 inclusive of penalties.

On February 14, 2008, the CIR issued a Tax Verification Notice authorizing Revenue Officer
to verify the supporting documents of MEDICARD's Protest. MEDICARD also submitted
additional supporting documentary evidence in aid of its Protest thru a letter dated March 18,
2008.

MEDICARD argued that in the computation of VAT, the following must be taken into
consideration:
(1) the services it render is not limited merely to arranging for the provision of medical and/or
hospital services by hospitals and/or clinics but include actual and direct rendition of medical
and laboratory services;

(2) out of the ₱l .9 Billion membership fees, ₱319 Million was received from clients that are
registered with the Philippine Export Zone Authority (PEZA) and/or Bureau of Investments;

(3) the processing fees amounting to ₱l 1.5 Million should be excluded from gross receipts
because P5.6 Million of which represent advances for professional fees due from clients
which were paid by MEDICARD while the remainder was already previously subjected to
VAT;

(4) the professional fees in the amount of Pl 1 Million should also be excluded because it
represents the amount of medical services actually and directly rendered by MEDICARD
and/or its subsidiary company; and (5) even assuming that it is liable to pay for the VAT, the
12% VAT rate should not be applied on the entire amount but only for the period when the
12% VAT rate was already in effect, i.e., on February 1, 2006. It should not also be held
liable for surcharge and deficiency interest because it did not pass on the VAT to its
members.

After denial of its letter of protest, MEDICARD proceeded to file a petition for review before
the CTA.

CTA decided that the deficiency VAT assessment issued by CIR against MEDICARD
covering taxable year 2006 is hereby AFFIRMED WITH MODIFICATIONS and ordered
MEDICARD to pay the VAT deficiency.

Disagreeing with the CTA en bane's decision, MEDICARD filed a motion for reconsideration
but it was denied. Hence, MEDICARD now seeks recourse to this Court via a petition for
review on certiorari.

Issue:

l. Whether the absence of the LOA is fatal; and

2. Whether the amounts that MEDICARD earmarked and eventually paid to the
medical service providers should still form part of its gross receipts for vat purposes.

Held:

1. The court held that CTA’s disregard of MEDICARD's right to due process warrant the
reversal of the assailed decision and resolution. In this case, there is no dispute that no
LOA was issued prior to the issuance of a PAN and FAN against MED ICARD.
Therefore no LOA was also served on MEDICARD. The LN that was issued earlier was also
not converted into an LOA contrary to the below quoted provision.

Among the objectives in the issuance of RMO No. 32-2005 is to prescribe procedure
in the resolution of LN discrepancies, conversion of LNs to LOAs and assessment and
collection of deficiency taxes.
 IV. POLICIES AND GUIDELINES
xxxx

8. In the event a taxpayer who has been issued an LN refutes the discrepancy
shown in the LN, the concerned taxpayer will be given an opportunity to reconcile
its records with those of the BIR within

One Hundred and Twenty (120) days from the date of the issuance of the LN.
However, the subject taxpayer shall no longer be entitled to the abatement of interest
and penalties after the lapse of the sixty (60)-day period from the LN issuance.

9. In case the above discrepancies remained unresolved at the end of the One
Hundred and Twenty (120)-day period, the revenue officer (RO) assigned to handle
the LN shall recommend the issuance of [LOA) to replace the LN. The head of the
concerned investigating office shall submit a summary list of LNs for conversion to
LAs (using the herein prescribed format in Annex "E" hereof) to the OACIR-LTS I
ORD for the preparation of the corresponding LAs with the notation "This LA cancels
LN_________ No. "

Clearly, there must be a grant of authority before any revenue officer can conduct an
examination or assessment. Equally important is that the revenue officer so authorized must
not go beyond the authority given. In the absence of such an authority, the assessment or
examination is a nullity.

LN is entirely different and serves a different purpose than an LOA. Due process demands, as
recognized under RMO No. 32-2005, that after an LN has serve its purpose, the revenue
officer should have properly secured an LOA before proceeding with the further examination
and assessment of the petitioner. Unfortunately, this was not done in this case.

The BIR's RELIEF System has admittedly made the BIR's assessment and collection efforts
much easier and faster. The ease by which the BIR's revenue generating objectives is
achieved is no excuse however for its non-compliance with the statutory requirement
under Section 6 and with its own administrative issuance.

In fact, apart from being a statutory requirement, an LOA is equally needed even under the
BIR's RELIEF System because the rationale of requirement is the same whether or not the
CIR conducts a physical examination of the taxpayer's records: to prevent undue harassment
of a taxpayer and level the playing field between the government' s vast resources for tax
assessment, collection and enforcement, on one hand, and the solitary taxpayer's dual need to
prosecute its business while at the same time responding to the BIR exercise of its statutory
powers. The balance between these is achieved by ensuring that any examination of the
taxpayer by the BIR' s revenue officers is properly authorized in the first place by those to
whom the discretion to exercise the power of examination is given by the statute.

2. The Court likewise rules that for purposes of determining the VAT liability of an HMO,
the amounts earmarked and actually spent for medical utilization of its members should not
be included in the computation of its gross receipts. This Court has construed the term gross
receipts in its plain and ordinary meaning, that is, gross receipts is understood as comprising
the entire receipts without any deduction. Congress, under Section 108, could have simply
left the term gross receipts similarly undefined and its interpretation subjected to ordinary
acceptation. Instead of doing so, Congress limited the scope of the term gross receipts for
VAT purposes only to the amount that the taxpayer received for the services it performed or
to the amount it received as advance payment for the services it will render in the future for
another person.

In the present case, the VAT is a tax on the value added by the performance of the service by
the taxpayer. It is, thus, this service and the value charged thereof by the taxpayer that is
taxable under the NIRC. MEDICARD established that upon receipt of payment of
membership fee it actually issued two official receipts, one pertaining to the VAT able
portion, representing compensation for its services, and the other represents the non-vatable
portion pertaining to the amount earmarked for medical utilization. Therefore, the absence of
an actual and physical segregation of the amounts pertaining to two different kinds of fees
cannot arbitrarily disqualify MEDICARD from rebutting the presumption under the law and
from proving that indeed services were rendered by its healthcare providers for which it paid
the amount it sought to be excluded from its gross receipts.

4. CIR vs Isabela Cultural Corporation (G.R. No. 135210 dated July 11, 2001)

Facts: An Investigation was conducted on the 1986 books of accounts of respondents and
made an assessment. Respondents received from CIR an assessment letter, dated February 9,
1990, demanding payment of the amounts of P333,196.86 and P4,897.79 as deficiency
income tax and expanded withholding tax inclusive of surcharge and interest, respectively.

On March 23, 1990, respondent ICC wrote the CIR requesting for a reconsideration of the
assessment on the ground that there was an error committed in the computation of interest
and that there were expenses which were disallowed.

On April 2, 1990, respondent ICC sent the CIR additional documents in support of its
protest/reconsideration. The letter was received by the BIR on April 18, 1990. Respondent
ICC further executed a Waiver of Statute of Limitation (dated April 17, 1990) whereby it
consented to the BIR to assess and collect any taxes that may be discovered in the process of
reinvestigation, until April 3, 1991.

Thereafter ICC received from CIR a Final Notice before Seizure, dated December 22, 1994.
In said letter, CIR demanded payment of the subject assessment within ten (10) days from
receipt thereof. Otherwise, failure on its part would constrain CIR to collect the subject
assessment through summary remedies.

ICC considered said final notice of seizure as CIR final decision. Hence, the instant petition
for review filed CTA on March 9, 1995.

CTA having rendered judgment dismissing the petition, respondent filed the instant petition
anchored on the argument that CIR issuance of the Final Notice before Seizure constitutes its
decision on respondent’s request for reinvestigation, which the respondent may appeal to the
CTA."

CA reversed the decision made by the CTA on the ground that a demand letter reiterating
payment of delinquent taxes amounted to a decision on a disputed assessment.
Issue: Whether or not the Final Notice before Seizure against ICC constitutes the final
decision of the CIR appealable to the CTA.

Held: Yes. The Supreme Court held that the Final Notice before Seizure can be considered as
the commissioner’s decision disposing of the request for reconsideration filed by respondent.

In the normal course, the revenue district officer sends the taxpayer a notice of delinquent
taxes, indicating the period covered the amount due including interest, and the reason for the
delinquency. If the taxpayer disagrees with or wishes to protest the assessment, it sends a
letter to the BIR indicating its protest, stating the reasons therefor, and submitting such proof
as may be necessary. That letter is considered as the taxpayer’s request for reconsideration of
the delinquent assessment. After the request is filed and received by the BIR, the
assessment becomes a disputed assessment on which it must render a decision. That
decision is appealable to the Court of Tax Appeals for review.

Section 228 of the National Internal Revenue Code states that a delinquent taxpayer may
nevertheless directly appeal a disputed assessment, if its request for reconsideration remains
unacted upon 180 days after submission thereof. We quote:chanrob1es virtua1 1aw 1ibrary

"SECTION 228. Protesting an Assessment. — . . .

Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be
required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his
duly authorized representative shall issue an assessment based on his findings.

Such assessment may be protested administratively by filing a request for reconsideration or

reinvestigation within thirty (30) days from receipt of the assessment in such form and
manner as may be prescribed by implementing rules and regulations. Within sixty (60) days
from filing of the protest, all relevant supporting documents shall have become final.

In this case, the said period of 180 days had already lapsed when respondent filed its
request for reconsideration on March 23, 1990, without any action on the part of the
CIR.

In the instant case, the second notice received by private respondent verily indicated its
nature — that it was final. Unequivocally, therefore, it was tantamount to a rejection of the
request for reconsideration.

5. Chinabanking Corp vs CIR GR No. 172509, Feb. 4, 2015

Facts: Petitioner CBC is a universal bank duly organized and existing under the laws of the
Philippines. For the taxable years 1982 to 1986, CBC was engaged in transactions involving
sales of foreign exchange to the Central Bank of the Philippines (now Bangko Sentral ng
Pilipinas), commonly known as SWAP transactions.  Petitioner did not file tax returns or pay
tax on the SWAP transactions for those taxable years.

In 19 April 1989, petitioner CBC received an assessment from the Bureau of Internal
Revenue (BIR) finding CBC liable for deficiency DST on the sales of foreign bills of
exchange to the Central Bank.
CBC sent a letter of protest to the BIR which raised the some defenses such as due process
violation, as the bank’s records were never formally examined by the BIR examiners and
validity of the assessment, as it did not include the factual basis. In the protest, the taxpayer
requested a reinvestigation so as to substantiate its assertions.

More than 12 years after the filing of the protest, the Commissioner of Internal Revenue
(CIR) rendered a decision reiterating the deficiency DST assessment and ordered the payment
thereof plus increments within 30 days from receipt of the Decision.

CBC filed before CTA however was denied and order to pay the assessed DST. The taxpayer
now comes to this Court with a Rule 45 Petition, reiterating the arguments it raised at the
CTA level and invoking for the first time the argument of prescription and neither a warrant
of distrain or levy was issued, nor a collection case filed in court. BIR on the other hand in its
Answer, averred that the regular courts, and not the CTA, had jurisdiction over judicial
actions for collection of internal revenue taxes. It was only on 23 April 2004, when Republic
Act Number 9282 took effect, that the jurisdiction of the CTA was expanded to include,
among others, original jurisdiction over collection cases in which the principal amount
involved is one million pesos or more.

Issue: Whether or not the right of the BIR to collect the assessed DST from CBC is
barred by prescription.

Held: YES, the Court ruled that the CIR could no longer collect the assessed tax due to
prescription. Basing its ruling on Section 1, Rule 9 of the Rules of Court and on
jurisprudence, the court found that the assailed tax assessment may be invalidated because the
statute of limitations on the collection of the alleged deficiency DST had already expired.

The running of the statute of limitations was not suspended by the request for reinvestigation.

The fact that the taxpayer in this case may have requested a reinvestigation did not toll the
running of the three-year prescriptive period. Section 320 of the 1977 Tax Code states:

Sec. 320. Suspension of running of statute.—The running of the statute of limitations

provided in Sections 318 or 319 on the making of assessment and the beginning of
distrain or levy or a proceeding in court for collection, in respect of any deficiency,
shall be suspended for the period during which the Commissioner is prohibited from
making the assessment or beginning distrain or levy or a proceeding in court and for
sixty days thereafter; when the taxpayer requests for a re-investigation which is
granted by the Commissioner; when the taxpayer cannot be located in the address
given by him in the return filed upon which a tax is being assessed or collected:
Provided, That if the taxpayer informs the Commissioner of any change in address,
the running of the statute of limitations will not be suspended; when the warrant of
distrain and levy is duly served upon the taxpayer, his authorized representative, or a
member of his household with sufficient discretion, and no property could be located;
and when the taxpayer is out of the Philippines. (Emphasis supplied)

In the present case, there is no showing from the records that the CIR ever granted the request
for reinvestigation filed by CBC. That being the case, it cannot be said that the running of the
three-year prescriptive period was effectively suspended.
We are mindful of the rule in taxation that estoppel does not prevent the government from
collecting taxes; it is not bound by the mistake or negligence of its agents. The rule is based
on the political law concept "the king can do no wrong," which likens a state to a king: it does
not commit mistakes, and it does not sleep on its rights. The analogy fosters inequality
between the taxpayer and the government, with the balance tilting in favor of the latter. This
concept finds justification in the theory and reality that government is necessary, and it must
therefore collect taxes if it is to survive. Thus, the mistake or negligence of government
officials should not bind the state, lest it bring harm to the government and ultimately the
people, in whom sovereignty resides.

However, the no-estoppel rule is not absolute.

The procedural matter consists in the failure to raise the issue of prescription at the trial
court/administrative level, and injustice in the fact that the BIR has unduly delayed the
assessment and collection of the DST in this case. The fact is that it took more than 12 years
for it to take steps to collect the assessed tax. The BIR definitely caused untold prejudice to
petitioner, keeping the latter in the dark for so long, as to whether it is liable for DST and, if
so, for how much.

6. Tridhama Marketing Corp vs CA (GR No. 215950 dated June 20, 2016)

Facts: On August 16, 2013, the petitioner received a Preliminary Assessment Notice (PAN)
from the BIR assessing it with various deficiency taxes - income tax (IT), value-added tax
(VAT), withholding tax on compensation (WTC), expanded withholding tax (EWT) and
documentary stamp tax (DST) - totaling P4,640,394,039.97, inclusive of surcharge and
interest. A substantial portion of the deficiency income tax and VAT arose from the complete
disallowance4 by the BIR of the petitioner's purchases from Etheria Trading in 2010
amounting to P4,942,937,053.82.

The petitioner received from the BIR a Formal Letter of Demand assessing it with deficiency
taxes for the taxable year ending December 31, 2010

On June 13, 2014, the petitioner appealed the CIR's decision to the CTA by filing Petition for
Review with Motion to Suspend Collection of Tax.

CTA decided the suspension of Collection of Tax in the amount of P4,467,391,881.76

allegedly representing its deficiency Income Tax and Value Added Tax for taxable year 2010
provided, however, that petitioner deposits with this Court an acceptable surety bond
equivalent to 150% of the assessment or in the amount of (P6,701,087,822.64) within fifteen
(15) days from notice hereof.

The petitioner filed its Motion for Partial Reconsideration praying, among others, for the
reduction of the bond to an amount it could obtain.

CTA in Division issued its second assailed resolution reducing the amount of the petitioner's
surety bond.

Issue: Whether or not CTA in Division commit grave abuse of discretion in requiring
the petitioner to file a surety bond despite the supposedly patent illegality of the
assessment that was beyond the petitioner's net worth.
Held: Yes. The Supreme Court held that CTA may order the suspension of the collection of
taxes provided that the taxpayer either: (1) deposits the amount claimed; or (2) files a
surety bond for not more than double the amount.

However, the CTA in Division gravely abused its discretion under Section 11 because it fixed
the amount of the bond at nearly five times the net worth of the petitioner without conducting
a preliminary hearing to ascertain whether there were grounds to suspend the collection of the
deficiency assessment on the ground that such collection would jeopardize the interests of the
taxpayer.

At this juncture, it becomes imperative to reiterate the principle that the power to tax is not
the power to destroy.

Legitimate enterprises enjoy the constitutional protection not to be taxed out of existence.
Incurring losses because of a tax imposition may be an acceptable consequence but killing the
business of an entity is another matter and should not be allowed. It is counter-productive and
ultimately subversive of the nation's thrust towards a better economy which will ultimately
benefit the majority of our people.

Moreover, Section 11 of R.A. 1125, as amended, indicates that the requirement of the bond as
a condition precedent to suspension of the collection applies only in cases where the
processes by which the collection sought to be made by means thereof are carried out in
consonance with the law, not when the processes are in plain violation of the law that
they have to be suspended for jeopardizing the interests of the taxpayer. However, the Court
is not in the position to rule on the correctness of the deficiency assessment, which is a
matter still pending in the CTA. 

In the conduct of its preliminary hearing, the CTA must balance the scale between the
inherent power of the State to tax and its right to prosecute perceived transgressors of the law,
on one side; and the constitutional rights of petitioners to due process of law and the equal
protection of the laws, on the other. In case of doubt, the tax court must remember that as
in all tax cases, such scale should favor the taxpayer, for a citizen's right to due process
and equal protection of the law is amply protected by the Bill of Rights under the
Constitution.chanroblesvirtuallawlibrary
Consequently, to prevent undue and irreparable damage to the normal business
operations of the petitioner, the remand to the CTA of the questions involving the
suspension of collection and the correct amount of the bond is the proper course of action.

7. Samar-I Electric Cooperative vs CIR (G.R. No. 193100 dated Dec. 10, 2014)

Facts: Samar-I Electric Cooperative, Inc. (Petitioner) is an electric cooperative, with principal
office at Barangay Carayman, Calbayog City. 

On July 13, 1999 and April 17, 2000, petitioner filed its 1998 and 1999 income tax returns,
respectively. Petitioner filed its 1997, 1998, and 1999 Annual Information Return of Income
Tax Withheld on Compensation, Expanded and Final Withholding Taxes on February 17,
1998, February 1, 1999, and February 4, 2000, in that order.

On November 13, 2000, respondent issued a duly signed Letter of Authority (LOA) covering
the examination of petitioner’s books of account and other accounting records for income and
withholding taxes for the period 1997 to 1999. The LOA was received by petitioner on
November 14, 2000.

In response to the letter sent by the CIR, SAMAR Cooperative sent a letter to respondent
maintaining its indifference to the latter’s findings and requesting details of the assessment.
On October 19, 2001, respondent sent a Notice for Informal Conference; indicating the
allegedly income and withholding tax liabilities of petitioner for 1997 to 1999. Attached to
the letter is a summary of the report, with an explanation of the findings of the
investigators.

CIR issued a Preliminary Assessment Notice (PAN) which was protested on April 18, 2002.
Respondent’s Reply contained the explanation of the legal basis of the issuance of the
questioned tax assessments.

However, on July 8, 2002, respondent dismissed petitioner’s protest and recommended the
issuance of a Final Assessment Notice to which petitioner filed its protest and Supplemental
Protest to the Final Assessment Notices.

CTA ruled that SAMELCO-I is exempted in the payment of the Minimum Corporate Income
Tax (MCIT); that due process was observed in the issuance of the assessments in accordance
with Section 228 of the Tax Code; and that the 1997 and 1998 assessments on deficiency
withholding tax on compensation have not prescribed.

Petitioner moved for reconsideration. In a Resolution, the CTA EB denied the motion hence
petition at bar.

Issue:
1. Whether or not the 1997 and 1998 assessments on withholding tax on compensation
were issued within the prescriptive period provided by law; and
2. Whether or not the assessments were issued in accordance with Section 228 of the
NIRC of 1997.

Held: The Supreme Court held that while it is true that the prescribed period within which to
collect is three years as conferred under Section 203 of the NIRC of 1997, there are
exceptions.

Under this section, the government is allowed a period of only three years to assess the
correct tax liability of a taxpayer, viz.:

SEC. 203. Period of Limitation Upon Assessment and Collection. – Except as provided

in Section 222, internal revenue taxes shall be assessed within three (3) years after the
last day prescribed by law for the filing of the return, and no proceeding in court
without assessment for the collection of such taxes shall be begun after the expiration of
such period: Provided, That in a case where a return is filed beyond the period
prescribed by law, the three (3)-year period shall be counted from the day the return
was filed. For purposes of this Section, a return filed before the last day prescribed by
law for the filing thereof shall be considered as filed on such last day.
Section 203 sets the three-year prescriptive period to assess, the following exceptions are
provided under Section 222 of the NIRC of 1997, viz.:

SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of

Taxes. –
(a) In the case of a false or fraudulent return with intent to evade tax or of failure to
file a return, the tax may be assessed, or a proceeding in court for the collection of
such tax may be filed without assessment, at any time within ten (10) years after the
discovery of the falsity, fraud or omission: Provided, That in a fraud assessment
which has become final and executory, the fact of fraud shall be judicially taken
cognizance of in the civil or criminal action for the collection thereof.

In the case at bar, it was petitioner’s substantial under declaration of withholding taxes in the
amount of P2,690,850.91 which constituted the “falsity” in the subject returns – giving
respondent the benefit of the period under Section 222 of the NIRC of 1997 to assess the
correct amount of tax “at any time within ten (10) years after the discovery of the falsity,
fraud or omission.”

Anent the issue of violation of due process in the issuance of the final notice of assessment
and letter of demand, Section 228 of the NIRC of 1997 provides:

SEC. 228. Protesting of Assessment. XXXXXXXX

XXXXXXXXXXXXXXXXXXXX The taxpayers shall be informed in writing of the law

and the facts on which the assessment is made: otherwise, the assessment shall be
void.

It likewise invokes Revenue Regulations (RR) No. 12-99 which states, viz.:

3.1.4 Formal Letter of Demand and Assessment Notice. – The formal letter of
demand and assessment notice shall be issued by the Commissioner or his duly
authorized representative. The letter of demand calling for payment of the taxpayer’s
deficiency tax or taxes shall state the facts, the law, rules and regulations, or
jurisprudence on which the assessment is based, otherwise, the formal letter of
demand and assessment notice shall be void . The same shall be sent to the taxpayer
only by registered mail or by personal delivery. x x

The Supreme Court upheld the assessments issued to petitioner. In this case, we agree with
the respondent that petitioner was sufficiently apprised of the nature, factual and legal bases,
as well as how the deficiency taxes being assessed against it were computed.

Records reveal that on October 19, 2001, prior to the conduct of an informal conference,
petitioner was already informed of the results and a finding of the investigations made by the
respondent, and was duly furnished with a copy of the summary of the report submitted by
the Special Investigation Division. Said summary report contained an explanation of Findings
of Investigation stating the legal and factual bases for the deficiency assessment. In a letter
dated February 27, 2002 petitioner requested for copies of working papers indicating how the
deficiency withholding taxes were computed.
In the case at bar, although the FAN and demand letter issued to petitioner were not
accompanied by a written explanation of the legal and factual bases of the deficiency taxes
assessed against the petitioner, the records showed that respondent in its letter dated April 10,
2003 responded to petitioner’s October 14, 2002 letter-protest, explaining at length the
factual and legal bases of the deficiency tax assessments and denying the protest.

Petitioner’s right to due process was thus not violated. Considering the foregoing exchange of
correspondence and documents between the parties, the Supreme Court found that the
requirement of Section 228 was substantially complied with. Respondent had fully informed
petitioner in writing of the factual and legal bases of the deficiency taxes assessment, which
enabled the latter to file an “effective” protest.

8. Philippine Health Care Providers vs CIR (G.R. No. 167330 dated Sep. 18,
2009)

Facts: CIR sent petitioner a formal demand letter and the corresponding assessment notices
demanding the payment of deficiency taxes, including surcharges and interest, for the taxable
years 1996 and 1997.

The deficiency DST assessment was imposed on petitioner’s health care agreement with the
members of its health care program pursuant to Section 185 of the 1997 Tax Code.

Petitioner protested the assessment in a letter dated February 23, 2000. As respondent did not
act on the protest, petitioner filed a petition for review in the Court of Tax Appeals (CTA)
seeking the cancellation of the deficiency VAT and DST assessments.

Petitioner is hereby ordered to pay the deficiency VAT. Accordingly, VAT Ruling declared
void and without force and effect. The 1996 and 1997 deficiency DST assessment against
petitioner is hereby cancelled and set aside. Respondent is ordered to desist from collecting
the said DST deficiency tax.

BIR appealed the CTA decision to the Court of Appeals insofar as it cancelled the DST
assessment. It claimed that petitioner’s health care agreement was a contract of insurance
subject to DST under Section 185 of the 1997 Tax Code.

Petitioner moved for reconsideration but the CA denied it. Hence, petition at bar.

Petitioner’s contention that it is a health maintenance organization (HMO) and not an

insurance company is irrelevant because contracts between companies like petitioner and the
beneficiaries under their plans are treated as insurance contracts. Moreover, DST is not a tax
on the business transacted but an excise on the privilege, opportunity or facility offered at
exchanges for the transaction of the business.

Issue: Whether or not Philippine Health Provider is liable for DST.

Held: No. Supreme Court found that an examination of petitioner’s agreements with its
members leads them to conclude that it is not an insurance contract within the context of our
Insurance Code.
From the language of Section 185, it is evident that two requisites must concur before the
DST can apply, namely: (1) the document must be a policy of insurance or an obligation in
the nature of indemnity and (2) the maker should be transacting the business of accident,
fidelity, employer’s liability, plate, glass, steam boiler, burglar, elevator, automatic sprinkler,
or other branch of insurance (except life, marine, inland, and fire insurance).

The functions of such an organization are not identical with those of insurance or indemnity
companies. The latter are concerned primarily, if not exclusively, with risk and the
consequences of its descent, not with service, or its extension in kind, quantity or distribution;
with the unusual occurrence, not the daily routine of living.

Jurisprudence pointed out that the main difference between an HMO and an insurance
company is that HMOs undertake to provide or arrange for the provision of medical services
through participating physicians while insurance companies simply undertake to indemnify
the insured for medical expenses incurred up to a pre-agreed limit.

Section 185. Stamp tax on fidelity bonds and other insurance policies. – On all
policies of insurance or bonds or obligations of the nature of indemnity for loss,
damage, or liability made or renewed by any person, association or company or
corporation transacting the business of accident, fidelity, employer’s liability, plate,
glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch of
insurance (except life, marine, inland, and fire insurance), xxxx

However, assuming that petitioner’s commitment to provide medical services to its members
can be construed as an acceptance of the risk that it will shell out more than the prepaid fees,
it still will not qualify as an insurance contract because petitioner’s objective is to provide
medical services at reduced cost, not to distribute risk like an insurer.

In sum, an examination of petitioner’s agreements with its members leads us to conclude that
it is not an insurance contract within the context of our Insurance Code.

If it had been the intent of the legislature to impose DST on health care agreements, it could
have done so in clear and categorical terms. It had many opportunities to do so. But it did not.
The fact that the NIRC contained no specific provision on the DST liability of health care
agreements of HMOs at a time they were already known as such belies any legislative intent
to impose it on them. As a matter of fact, petitioner was assessed its DST liability only on
January 27, 2000, after more than a decade in the business as an HMO.50

Considering that Section 185 did not change since 1904 (except for the rate of tax), it would
be safe to say that health care agreements were never, at any time, recognized as insurance
contracts or deemed engaged in the business of insurance within the context of the provision.

The power of taxation is sometimes called also the power to destroy. Therefore it should be
exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be
exercised fairly, equally and uniformly, lest the tax collector kill the "hen that lays the golden
egg."

Legitimate enterprises enjoy the constitutional protection not to be taxed out of existence.
Incurring losses because of a tax imposition may be an acceptable consequence but killing the
business of an entity is another matter and should not be allowed. It is counter-productive and
ultimately subversive of the nation’s thrust towards a better economy which will ultimately
benefit the majority of our people.

Taking into account that health care agreements are clearly not within the ambit of Section
185 of the NIRC and there was never any legislative intent to impose the same on HMOs like
petitioner, the same should not be arbitrarily and unjustly included in its coverage.

It is a matter of common knowledge that there is a great social need for adequate medical
services at a cost which the average wage earner can afford. HMOs arrange, organize and
manage health care treatment in the furtherance of the goal of providing a more efficient and
inexpensive health care system made possible by quantity purchasing of services and
economies of scale. They offer advantages over the pay-for-service system (wherein
individuals are charged a fee each time they receive medical services), including the ability to
control costs. They protect their members from exposure to the high cost of hospitalization
and other medical expenses brought about by a fluctuating economy. Accordingly, they play
an important role in society as partners of the State in achieving its constitutional mandate of
providing its citizens with affordable health services.

The rate of DST under Section 185 is equivalent to 12.5% of the premium charged. Its
imposition will elevate the cost of health care services. This will in turn necessitate an
increase in the membership fees, resulting in either placing health services beyond the reach
of the ordinary wage earner or driving the industry to the ground.

9. Monza SPV-AMC (Asset Management Co Inc.) Vs CIR CTA Case No. 9153
July 26, 2019

Facts: Petitioner is a domestic corporation duly organized and existing under the laws of the
Philippines and is primarily engaged in the business of investing and acquiring non-
performing assets of financial institutions.

On August 9, 2012, a Letter of Authority (LOA) was issued, authorizing the examination of
petitioner's books of accounts and other accounting records for the period January 1, 2011 to
December 31, 2011.

Petitioner received a Preliminary Assessment Notice (PAN), for deficiency internal revenue
taxes for taxable year 2011. Thus, petitioner had fifteen (15) days from January 8, 2015, or
until January 23, 2015, to file its reply to the PAN.
Respondent's issuance of the Formal Assessment Notice (FAN) was made on January 14,
2015, containing the following assessments.

Petitioner filed its protest or request for reinvestigation against the FAN, together with all the
documents in support of the request for reinvestigation.

Petitioner states that the PAN was received on January 8, 2015. The FAN was issued on
January 14, 2015, or prior to the lapse of the fifteen (15) day period granted by law to
petitioner to respond to the PAN. Thus, petitioner argues that the FAN was issued in violation
of the due process requirement, thereby rendering the FAN void. Petitioner further states that
notwithstanding that the FAN was received on February 4, 2015, the fact that the Bureau of
Internal Revenue (BIR) already prepared, finalized and issued the FAN on January 14, 2015
proves that the BIR could not have considered petitioner's reply to the PAN when it issued
the FAN. Petitioner's reply to the PAN was rendered moot by the premature issuance of the
FAN, depriving petitioner of the due process mandated by law.

Issue: Whether or not that the FAN was issued in violation of the due process
requirement.

Held: Yes.

The assessments should be cancelled for violation of petitioner's right to due process. The due
process requirements in the issuance of a deficiency tax assessment are provided in Section
228 of the Tax Code, as follows:

Sec. 228. Protesting of Assessment. - When the Commissioner or his duly authorized
representative finds that proper taxes should be assessed, he shall first notify the
taxpayer of his findings: ... XXX XXX XXX The taxpayer shall be informed in writing
of the law and facts on which the assessment is made; otherwise, the assessment
shall be void. Within a period to be prescribed by the implementing rules and
regulations, the taxpayer shall be required to respond to said notice. If the taxpayer
fails to respond, the Commissioner or his duly authorized representative shall issue
an assessment based on his findings.

Corollary thereto, Section 3 of RR 12-99, as amended by RR 18-2013,37 provides:

Sec. 3. Due Process Requirement in the Issuance of a Deficiency Tax Assessment. –

3.1 Mode of procedure in the issuance of a deficiency tax assessment:
3.1.1 Preliminary Assessment Notice (PAN). - If after review and evaluation
by the Commissioner or his duly authorized representative, as the case may
be, it is determined that there exists sufficient basis to assess the taxpayer for
any deficiency tax or taxes, the said Office shall issue to the taxpayer a
Preliminary Assessment Notice (PAN) for the proposed assessment. It shall
show in detail the facts and the law, rules and regulations, or jurisprudence
on which the proposed assessment is based xxx. If the taxpayer fails to
respond within fifteen (15) days from date of receipt of the PAN, he shall be
considered in default, in which case, a Formal Letter of Demand and Final
Assessment Notice (FLD/FAN) shall be issued calling for payment of the
taxpayer's deficiency tax liability, inclusive of the applicable penalties.

Under the law and the rules, the CIR or his duly authorized representative is required to issue
a PAN against the taxpayer whenever there is a finding of any deficiency tax due. The
taxpayer shall be required to respond to the PAN within fifteen (15) days from receipt
thereof. The taxpayer's failure to respond within the period prescribed results to the taxpayer
being considered in default, and shall lead to the issuance of the FLD/FAN.

In the case at bar, petitioner received the PAN dated December 29, 2014 on January 8, 2015.
Thus, it had fifteen (15) days from January 8, 2015, or until January 23, 2015 to file its
response to the PAN. However, as stipulated by the parties, the FAN was issued on January
14, 2015 or only six (6) days after petitioner received the PAN. Thus, there is already a
failure of the CIR to strictly comply with the requirements laid down by law and its own rules
and regulations, which is a denial of petitioner's right to due process, and thereby rendering
the assessment void.

Thus, the fifteen-day period granted to the taxpayer to reply to the PAN before a FAN can be
issued is mandatory. Time is essential in this entire procedure of administrative protest
because any escalation in the levels of the protest, i.e., FLD/FAN, leaves the taxpayer with
fewer options, such as going to the Court of Tax Appeals on appeal or entering into a
compromise settlement, among others, which all entail financial costs to the taxpayer. Hence,
the period granted to assail the PAN is integral to the right of due process granted by law to
the taxpayer.

10. JG Summit Holdings Inc. Vs CIR CTA Case No. 9147 March 12, 2020

Facts: Petitioner JGSHI is a corporation duly organized and existing under the laws of the
Republic of the Philippines, with office address at 43rd floor, Robinsons Tower, ADB
Avenue corner Poveda Road, Ortigas Center, Brgy. San Antonio, Pasig City.

On 14 May 2010, respondent issued Letter of Authority (LOA), authorizing Revenue Officers
(ROs) to examine petitioner's books and record. On 16 January 2013, petitioner received a
copy of the Notice of Informal Conference (NIC) with the BIR finding petitioner liable for
deficiency IT, VAT, DST, withholding tax on compensation (WTC), expanded withholding
tax (EWT), final withholding tax (FWT) on dividends, and improperly accumulated earnings
tax (IAET).

Thereafter, petitioner executed yet another WDP (third WDP) extending the respondent's
right to assess, which respondent accepted on 12 December 2013.

On 27 February 2014, petitioner received a copy of respondent's Final Assessment Notice

(FAN) and Formal Letter of Demand10 (FLD) signed by CIR Kim Jacinto-Henares (CIR
Henares), finding petitioner liable for deficiency taxes, inclusive of increments.

Despite filing by the Petitioner protest to the FLD with a request for investigation, petitioner
received respondent's Final Decision on Disputed Assessment (FDDA), reiterating the latter's
previous findings on December 5, 2014.

On 22 December 2014, petitioner filed a request for reconsideration with respondent CIR.
On 20 August 2015, respondent denied petitioner's request through the assailed RFDDA.

Aggrieved by respondent's actions, petitioner appealed its case before this Court via the
present Petition for Review, filed on 18 September 2015.
Petitioner challenges the validity of respondent's assessment on the following grounds, to wit:
(1) the assessment should be declared void due to absence of electronic Letter of Authority
(eLOA); and, (2) the right to assess petitioner has already prescribed since the third WDP was
executed after the expiration of the period agreed upon in a previous WOP.

Issue: Whether or not the 30-day reglementary period for filing an appeal with the
Court should begin to run from its receipt of the RFDDA dated 20 August 2015.
Held: No. As the records clearly show, petitioner's present Petition for Review was filed out
of time. Section 228 of the NIRC of 1997, as amended, provides the manner for protesting
assessments, to wit:
Sec. 228. Protesting of Assessment. - When the Commissioner or his duly authorized
representative finds that proper taxes should be assessed, he shall first notify the
taxpayer of his findings ...
If the protest is denied in whole or in part, or is not acted upon within one hundred
eighty (180) days from submission of documents, the taxpayer adversely affected by the
decision or inaction may appeal to the Court of Tax Appeals within thirty (3o) days
from receipt of the said decision, or from the lapse of one hundred eighty (180)-day
period; otherwise, the decision shall become final, executory and demandable.

While Revenue Regulation (RR) 12-99, implementing the aforecited provision, outlines in
process for disputed assessments:

If the protest is denied, in whole or in part, by the Commissioner, the taxpayer may
appeal to the Court of Tax Appeals within thirty (3o) days from the date of receipt of the
said decision, otherwise, the assessment shall become final, executory and demandable.

In general, if the protest is denied, in whole or in part, by the Commissioner or his duly
authorized representative, the taxpayer may appeal to the Court of Tax Appeals within
thirty (3o) days from date of receipt of the said decision, otherwise, the assessment shall
become final, executory and demandable: Provided, however, that if the taxpayer
elevates his protest to the Commissioner within thirty (30) days from date of receipt of
the final decision of the Commissioner's duly authorized representative, the latter's
decision shall not be considered final, executory and demandable, in which case, the
protest shall be decided by the Commissioner.

In this case, as culled from the facts, petitioner's protest to the FAN and FLO was filed with
then CIR Henares not before her authorized representative. The latter herself denied
petitioner's protest through an FDDA which petitioner received on of December 2014. In line
with the rules set forth in RR 12-99 and the decision in PAGCOR, the proper remedy for
petitioner would have been to file a Petition for ' Review before this Court within thirty
(30) days from receipt of thy FDDA or until 04 January 2015 (as the FDDA already
served as respondent's denial of its protest).

Unfortunately, petitioner opted to instead file a request for reconsideration with CIR
Henares on 22 December 2014. Respondent maintained the denial of its protest through
a RFDDA dated 20 August 2015.

With the procedure of appeal already clearly laid down, a resort to a request for
reconsideration (with the CIR) did not then toll the running of the reglementary period within
which petitioner's appeal must be elevated to this Court.

The Court finds petitioner in a similar position. In relying on the possibility that respondent
CIR might reconsider her previous decision, petitioner waived its remedy of appeal before
this Court. Whether the same be due to inadvertence or purposely resorted to, the Court
cannot ignore that, since its receipt of the FDDA, more than nine (9) months have already
lapsed from petitioner's receipt of the respondent's final decision before it raised its case
on appeal before this Court. Given the amount of time that had passed, this Court's lack of
jurisdiction to entertain the present Petition for Review becomes indisputable.

Therefore, petitioner could only be deemed to have already been notified (by respondent) as
early as of December 2014 regarding the remedies available to it. Petitioner made its choice
and could not now avoid the consequences of such choice.