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The importance of due process

It is axiomatic in a democratic society that no one should be deprived of life, liberty or property without due process of law, i.e., to be given a chance to heard and present a case according to the rules set forth by the authorities before any action can be taken. Failing this, any action of the government to take one’s life, liberty or property is void and of no effect.

In a recent decision promulgated by the Court of Tax Appeals (CTA) in Mannasoft Technology Corp. vs. Commissioner of Internal Revenue, CTA Case no. 8745 dated Jan. 13, 2017, the CTA Third Division reiterated the importance of strictly adhering to the rules set by the Bureau of Internal Revenue (BIR) in conducting tax assessments.

In the said case, the taxpayer was assessed for income tax, VAT and expanded withholding tax deficiencies for the taxable year 2008. The Letter of Authority (LOA), Notice of Informal Conference (NIC), Preliminary Assessment Notice (PAN), as well as the Final Assessment Notice (FAN) was personally served at the office of the taxpayer. In fact, the taxpayer was able to file a protest over the FAN. Nonetheless, no Final Decision on Disputed Assessment (FDDA) was issued to the taxpayer but instead a warrant of distraint and levy was received by the taxpayer. This prompted the taxpayer to file a request for reinvestigation but the BIR issued a letter denying the request. Thus, the filing of the case with the CTA. In its petition, the taxpayer alleged that the BIR violated its right to due process by failing to follow BIR Revenue Regulation (RR) 12-99 on service of NIC, PAN and FAN.

The CTA ruled in favor of the taxpayer and held that the assessment is void for failure to serve the NIC and PAN to the taxpayer, a violation of the taxpayer’s right to due process. This fatal defect in the service of notices necessarily makes the FAN issued void. In this case, while the BIR was able to prove that NIC, PAN and FAN was personally served at the taxpayer’s office, it failed to establish that said notices were served to the taxpayer or authorized representative of the taxpayer. In fact, as admitted by the BIR, NIC and PAN was received by the receptionist of the company while the FAN was received by the security guard. The BIR failed to establish that the persons who received the notices were authorized persons to receive such and or even connected to the taxpayer. Hence, it is a clear violation of Section 3 of RR 12-99.

Section 3 of RR 12-99 provides for the due process requirement in the issuance of deficiency tax assessments. It prescribes the mode of procedure for service of the notices, specifically Section 3.1.4 of the said regulation provides that if FAN was served by personal delivery, the taxpayer or his duly authorized representative shall acknowledge receipt thereof in the duplicate copy of the letter of demand showing his name, signature, designation and authority to act for and in behalf of the taxpayer, if acknowledged received by a person other than the taxpayer himself, and date of receipt thereof. Considering that the BIR has miserably failed to discharge its burden of proving that the notices was duly served on the taxpayer’s duly authorized representatives, it is thus a necessary conclusion that the said assessment is not validly issued, therefore is void.

The importance of service of tax assessments is emphasized in this case since, only when taxpayers are duly informed of the alleged tax deficiency and were given the opportunity to contest the assessment can the government validly proceed to collect on the tax due. As laid out in CIR vs. Metro Star Superama, Inc., GR No. 185371 dated Dec. 8, 2010, while “taxes are the lifeblood of the government,” the power to tax has its limits, in spite of all its plenitude. In other words, while the BIR may have a legal right to assess the taxpayers, it must be done in accordance with the rules, otherwise, any government action is void and of no effect.

All in all, the taxpayers and the government must be mindful of the observance of the due process of law in order to be well equipped in protecting their respective rights. A violation of due process makes the actions of the government invalid and gives the taxpayers an added legal basis to request the cancellation of the assessment.

Jennylyn V. Reyes is a manager with the Tax Advisory and Compliance division of Punongbayan & Araullo.


As published in Business World, dated 7 February 2017