By Andrea Louise E. San Juan

THE COURT of Tax Appeals (CTA) has granted a petition by an oil-trading company seeking to reverse and set aside its alleged deficiency in income tax (IT) and value-added tax (VAT) plus compromise penalty amounting to P151.3 million for calendar year 2007.

In a decision dated Nov. 16, the Third Division of the Court of Tax Appeals granted Royal Class Trading and Transport Corp.’s Petition for Review on the assessment by the Bureau of Internal Revenue (BIR) of the company’s alleged tax deficiency of P151,339,624.78.

Royal Class had claimed that respondent BIR and its commissioner (CIR) violated procedural due process in the issuance of Letter of Authority (LoA) No. 00053080 dated Oct. 16, 2008, which the company said was improperly delivered two days before it expired to a person who was not even required to produce his identification.

Respondent CIR had issued the LoA authorizing Revenue Officer (RO) Ma. Elisa F. Batalla to examine petitioner’s books and other accounting records for the calendar year of 2007.

On Nov. 22, 2010, respondent CIR separately issued a Preliminary Assessment Notice (PAN), assessing the amounts P104,433,417.36 and P44,999,772.16, as petitioner’s deficiency IT and VAT, respectively, inclusive of interests, and recommending a compromise penalty of P50,000.

The PAN was served to petitioner via registered mail which the latter received on Dec. 3 that year.

Subsequently, respondent CIR issued against petitioner a Final Assessment Notice (FAN) and Formal Letter of Demand (FLD), both dated Dec. 22, assessing it for the following liabilities inclusive of legal increments: income tax amounting to P105,810,621.81; value-added tax amounting to P45,479,002.97; and Compromise Penalties amounting to P50,000, all with a total of P151,339,624.78.

Both the FAN and FLD were sent to petitioner who received them through registered mail on Jan. 10, 2011.

On July 4, 2014, petitioner filed the instant Petition for Review with this Court, saying the said LoA was merely revalidated and no new LoA was issued by the respondent in violation of Revenue Memorandum Order (RMO) No. 38-88.

The respondent, for its part, questioned the court’s jurisdiction to entertain the Petition for Review, saying that “there is no disputed assessment for appeal since petitioner failed to file a valid protest to the Final Assessment Notice (FAN).”

“Further, the assailed Letter of Authority, Preliminary Assessment Notice, Formal Letter of Demand and Final Assessment Notice were all issued in accordance with law,rules and jurisprudence,” the respondent added.

The tax court, however, reminded respondent that “the LoA is the proof that the person/s named therein is/are authorized to conduct the necessary investigation/audit, it is an express grant of authority for that purpose.”

“Thus, absent the necessary new LoA specifically naming the person to whom the case will be reassigned with the corresponding annotation per RMO No. 43-90, there is no authority to conduct the investigation/audit,” the Court noted.

“Consequently, the subject assessment is null and void, and as such it bears no valid fruit,” it added.

“Wherefore, the instant Petition for Review filed by petitioner Royal Class Trading and Transport Corp. on July 4, 2014, is hereby granted,” the Tax court ruled.

“Accordingly, the Final Decision of respondent CIR dated May 27, 2014 affirming the FLD and FAN issued against petitioner for alleged deficiency income tax and value-added tax plus compromise penalty in the total amount of P151,339,624.78 for the calendar year ending Dec. 31, 2007, as well as all the Warrants of Distraints and/or Levy issued against petitioner on various dates resulting from the subject assessment, are hereby canceled and set aside.”

The 25-page decision dated Nov. 16, 2017 was written by Associate Justice Esperanza R. Fabon-Victorino and concurred by Associate Justice Ma. Belen M. Ringpis-Liban.

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