By Vann Marlo M. Villegas
THE COURT of Tax Appeals (CTA), citing violation of due process, cancelled the P127.56 million in tax deficiencies in 2009 as claimed by the Bureau of Internal Revenue (BIR) in its assessment of Manila Medical Services, Inc. (Manila Doctors Hospital).
In a 22-page ruling dated Jan. 30, the CTA’s special third division granted the hospital’s petition to nullify the July 10, 2014, Warrant of Distraint and/or Levy (WDL) issued by the BIR. The court said it found no sufficient evidence to prove that the petitioner received the BIR’s Preliminary Assessment Notice (PAN) and Final Assessment Notice (FAN) prior to the issuance of the WDL.
“As already emphasized, strict compliance with due process requirement is necessary for a valid tax assessment. For respondent’s failure to establish that petitioner actually received the PAN, the subject assessment must be cancelled as petitioner was denied its right to due process,” CTA said.
The tax appellate court cited Section 228 of the National Internal Revenue Code of 1997 which requires notice to an alleged erring taxpayer, “lest assessment shall have no legal consequence.”
It also noted a Supreme Court (SC) ruling that failure to comply with the notice requirement stated in the Tax Code is tantamount to denial of due process.
“(I)t is clear that the sending of a PAN 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 its failure to send the PAN stating the facts and the law on which the assessment was made as required by Section 228 of R.A. (Republic Act) No. 8424, the assessment made by the CIR is void,” the cited SC ruling read.
Manila Medical filed the petition on Aug. 13, 2014 assailing the issued WDL on the grounds that it was in violation of its right to due process and beyond the prescriptive period to assess in accordance with law.
The BIR, on the other hand, said it had issued both the notices as received by the hospital’s authorized representative. But this was contradicted by two witnesses of the bureau who said they had nothing in their records to prove the notices were received by Manila Medical, and that did not take any step to verify if the notices were indeed received by the hospital.
The CTA also cited a revenue officer as saying that the copy of the PAN attached to the BIR’s record on this matter was not the receiving copy of the subject issuance.
“In other words, there is nothing in the BIR record indicating that the original of the PAN was actually served and received by petitioner or its duly authorized representative….Clearly, without any supporting documents, the testimonies of respondent’s witnesses cannot be given full weight and credence,” the CTA said. “With this finding, it becomes unnecessary to resolve the other issues raised.”
The decision was penned by Associate Justice Esperanza R. Fabon-Victorino, with Associate Justice Ma. Belen M. Ringpis-Liban concurring.