Similar with the Formal Assessment Notice (FAN), the personal delivery of the Notice of Informal Conference (NIC) and the Preliminary Assessment Notice (PAN) must be served only upon the taxpayer or his/her duly authorized representatives.
This was the ruling of the Supreme Court’s Third Division, in a Decision penned by Associate Justice Japar B. Dimaampao, as it granted the petition for review on certiorari filed by Mannasoft Technology Corporation (Mannasoft). The petition challenged the rulings of the Court of Tax Appeals (CTA) En Banc which had upheld the deficiency tax assessments issued against Mannasoft.
The Commissioner of Internal Revenue (CIR) conducted a tax investigation on Mannasoft for calendar year 2008, resulting in the issuance of a NIC and a PAN which were personally served upon Mannasoft through Gladys Badocdoc, referred to as “Client Service Assistant.”
A FAN was subsequently issued by the CIR, finding Mannasoft liable for deficiency income tax in the amount of PhP13,475,472.84; deficiency value-added tax of PhP57,102,109.92; and expanded withholding tax of PhP8,212,654.77. The FAN was personally served on Angelo Pineda, Mannasoft’s reliever security guard.
The CIR later issued a Warrant of Distraint and/or Levy (WDL) against Mannasoft which was protested by the latter for being premature pending the CIR’s evaluation of Mannasoft’s submitted documents.
Mannasoft requested anew for the reinvestigation of the case, but its request was rejected by the Bureau of Internal Revenue (BIR), which also gave Mannasoft 30 days to pay the deficiency taxes, otherwise the BIR would enforce collection through summary remedies.
This prompted Mannasoft to file a petition for review before the CTA.
The CTA Third Division granted Mannasoft’s petition and ordered that that NIC, PAN, FAN, and WDL be cancelled. This, however, was reversed by the CTA En Banc, prompting the present petition before the Court.
In granting Mannasoft’s petition, the Court stressed that when the CIR finds that proper taxes should be assessed, the taxpayer must be properly notified of its findings, in accordance with Section 228 of the Tax Code.
Further, Section 3.1.4 of Revenue Regulations No. (RR) 12-99 states that personal delivery of the formal letter of demand and assessment notice must be acknowledged by the taxpayer or his/her duly authorized representative.
The same provision requires the signee-recipient to indicate their “designation and authority to act for and in behalf of the taxpayer.”
The Court held that such requirements are necessary for “unless the recipient possesses a certain degree of authority or discretion, they would be unable to grasp the gravity of the service of an assessment notice and the potential impact it would have to the taxpayer they purport to serve and represent.”
“This is especially true for juridical entity taxpayers who can only act through its officers and employees, and who would otherwise be prejudiced by such recipient’s simple ignorance,” stressed the Court.
The Court also clarified that while the provisions of RR 12-99 governing the NIC and the PAN bear no similar qualifications for personal delivery as those found under Section 3.1.4, “the Court deems it more in keeping with the spirit of the law that these should likewise be served only upon the taxpayer or, especially for juridical entities, their duly authorized representatives.”
The Court held that such an interpretation is consistent with the oft-repeated principle that the sending and actual receipt of the PAN is part and parcel of the due process requirement in the issuance of a deficiency tax assessment that the BIR must strictly comply with.
In the present case, the Court found that those who received the subject NIC and PAN were not authorized representatives of Mannasoft.
As the NIC and the PAN were not properly served on Mannasoft, the succeeding FAN was void and without effect, ruled the Court.
The Court added that even if the NIC and PAN were deemed properly served on Mannasoft, the FAN is still void for being improperly served on a reliever security guard who was not even an employee of Mannasoft, and whose authority was not indicated in the stamp receipt, contrary to the requirement in Section 3.1.4 of RR 12-99.
Neither should the foregoing defects in complying with the requirements be considered cured by Mannasoft’s subsequent filing of a protest to the FAN. “The Court has repeatedly enjoined strict observance by the BIR of the prescribed procedure for issuance of the assessment notices in order to uphold the taxpayers’ constitutional rights.”
As the assessment against Mannasoft failed to strictly comply with the due process requirements in Section 228 of the Tax Code and RR 12-99, the assessment, including the resulting WFL, is void and without effect, the Court concluded. (Courtesy of the Supreme Court Public Information Office)
Full text of G.R. No. 244202 (Mannasoft Technology Corporation v. Commissioner of Internal Revenue, July 20, 2023) at: https://sc.judiciary.gov.ph/244202-mannasoft-technology-corporation-vs-commissioner-of-internal-revenue/