CASE DIGEST: CIR vs. METRO STAR SUPERAMA, INC. G.R. No. 185371. December 08, 2010

FACTS:

In 2001, Regional Director of Revenue Region in Legaspi City issued Letter of Authority for Revenue Officer to examine Metro's books of accounts and other accounting records for income tax and other internal revenue taxes for the taxable year 1999. However, Metro failed to comply with several requests for the presentation of Records and Subpoena Duces Tecum. Consequently, Revenue District officer proceeded with the investigation based on the best evidence obtainable preparatory to the issuance of assessment notice. Metro received a Preliminary 15-day letter stating that a post audit review was held and it was ascertained that there was deficiency VAT and withholding taxes due from Metro. Later on, a formal demand letter was received by Metro covering the assessed deficiency taxes for the taxable year 1999. Subsequently, a copy of Final Notice of Seizure was received by Metro giving the latter last opportunity to settle its deficiency tax liabilities within 10 days from receipt thereof, otherwise, BIR shall be constrained to serve and execute the Warrants of Distraint or Levy and Garnishment to enforce collection. Eventually the warrants are served. Metro moved for Reconsideration, but it was denied by the Commissioner.

TAXPAYER'S ARGUMENTS:

Metro contended that it did not received a Preliminary Assessment Notice and claimed that it was denied due process. They further contended that the assessments was void for failure to state the law and the facts on which they are based.

GOVERNMENT'S ARGUMENTS: 

CIR insisted that Metro received the Preliminary Assessment Notice, and that the due process was served nonetheless because the latter received the Final Assessment Notice.

ISSUE:

Whether the failure to strictly comply with the notice requirements on the issuance of Preliminary Assessment Notice will tantamount to a denial of due process and makes assessment void.

RULING:

Yes. Metro in this case was denied due process required under NIRC and RR 12-99. Section 228 of the Tax Code requires that taxpayer must first be informed that he is liable for deficiency taxes through the sending of Preliminary Assessment Notice. He must be informed of the facts and the law upon which the assessment was made. The law imposes a substantive, not merely a formal requirement. To proceed with tax collection without first establishing a valid assessment is evidently violative of the cardinal principle in administrative investigations: that taxpayer's should be able to present their case and adduce supporting evidence. This rule is confirmed under the provisions of RR 12-99 which provides that the sending of Preliminary Assessment Notice to taxpayer to inform him of the assessment made is but part of the due process requirement in the issuance of a deficiency tax assessment, the absence of which renders nugatory any assessment made by the tax authorities. Thus, for failure to send the Preliminary Assessment Notice, the assessment made by the CIR is void.

PERSONAL END NOTE:

The sending of Preliminary Assessment Notice to taxpayers is mandatory in nature for it is provided by the NIRC and RR 12-99. This notice shall be sent first to the taxpayer so that the latter may know the facts and the law on which his tax liabilities are based. This rule is fatal to the validity of assessments made because this will determine whether the taxpayer has afforded due process for the collection. Without a valid assessment, therefore, the taxing authorities have no basis on collecting taxes.