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writing of the law and the facts on which his tax liability was
based.
Same; Same; Same; Section 3.1.6 of Revenue Regulations (RR)
No. 12-99 specifically requires that the decision of the
Commissioner of Internal Revenue (CIR) or his duly authorized
representative on a disputed assessment shall state the facts, law
and rules and regulations, or jurisprudence on which the decision
is based.—The importance of providing the taxpayer of adequate
written notice of his tax liability is undeniable. Section 228 of the
NIRC declares that an assessment is void if the taxpayer is not
G.R. No. 215534. April 18, 2016.* notified in writing of the facts and law on which it is made. Again,
Section 3.1.4 of RR No. 12-99 requires that the FLD must state
COMMISSIONER OF INTERNAL REVENUE, petitioner, the facts and law on which it is based, otherwise, the FLD/FAN
vs. LIQUIGAZ PHILIPPINES CORPORATION, itself shall be void. Meanwhile, Section 3.1.6 of RR No. 12-99
respondent. specifically requires that the decision of the CIR or his duly
authorized representative on a disputed assessment shall state
the facts, law and rules and regulations, or jurisprudence on
G.R. No. 215557. April 18, 2016.* which the decision is based. Failure to do so would invalidate the
FDDA.
LIQUIGAZ PHILIPPINES CORPORATION, petitioner, vs.
Same; Same; Same; As implemented by Revenue Regulations
COMMISSIONER OF INTERNAL REVENUE, respondent.
(RR) No. 12-99, the written notice requirement for both the Formal
Letter of Demand (FLD) and the Formal Assessment Notice (FAN),
Taxation; National Internal Revenue Code; Assessments;
is in observance of due process — to afford the taxpayer adequate
Under Section 228 of the National Internal Revenue Code
opportunity to file a protest on the assessment and thereafter file
(NIRC), a tax-
an appeal in case of an adverse decision.—Section 228 of the
NIRC should not be read restrictively as to limit the written
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notice only to the assessment itself. As implemented by RR No.
* SECOND DIVISION. 12-99, the written notice requirement for both the FLD and the
FAN is in observance of due process — to afford the taxpayer
adequate opportunity to file a protest on the assessment and
thereafter file an appeal in case of an adverse decision. To rule
otherwise would tolerate abuse and prejudice. Taxpayers will be
80
unable to file an intelligent appeal before the
payer shall be informed in writing of the law and the facts on VOL. 789, APRIL 18, 2016 81
which the assessment is made, otherwise, the assessment shall be Commissioner of Internal Revenue vs.Liquigaz Philippines
void.—Central to the resolution of the issue is Section 228 of the Corporation
NIRC and RR No. 12-99, as amended. They lay out the procedure
to be followed in tax assessments. Under Section 228 of the NIRC,
a taxpayer shall be informed in writing of the law and the facts on CTA as they would be unaware on how the CIR or his
which the assessment is made, otherwise, the assessment shall be authorized representative appreciated the defense raised in
void. In implementing Section 228 of the NIRC, RR No. 12-99 connection with the assessment. On the other hand, it raises the
possibility that the amounts reflected in the FDDA were Same; Same; Due Process; The reason for requiring that
arbitrarily made if the factual and legal bases thereof are not taxpayers be informed in writing of the facts and law on which the
shown. assessment is made is the constitutional guarantee that no person
Same; Assessments; Courts; Court of Tax Appeals; shall be deprived of his property without due process of law.—The
Jurisdiction; The Court of Tax Appeals (CTA) is conferred with reason for requiring that taxpayers be informed in writing of the
appellate jurisdiction over the decision of the Commissioner of facts and law on which the assessment is made is the
Internal Revenue (CIR) in cases involving disputed assessments, constitutional guarantee that no person shall be deprived of his
as well as inaction of the CIR in disputed assessments.—The CTA property without due process of law. Merely notifying the
is conferred with appellate jurisdiction over the decision of the taxpayer of its tax liabilities without elaborating on its details is
CIR in cases involving disputed assessments, as well as inaction insufficient.
of the CIR in disputed assessments. From the foregoing, it is clear
that what is appealable to the CTA is the “decision” of the CIR on PETITIONS for review on certiorari of the decision and
disputed assessment and not the assessment itself. An resolution of the Court of Tax Appeals En Banc.
assessment becomes a disputed assessment after a taxpayer has The facts are stated in the opinion of the Court.
filed its protest to the assessment in the administrative level. Zambrano & Gruba Law Offices for Liquigaz
Thereafter, the CIR either issues a decision on the disputed Philippines Corporation.
assessment or fails to act on it and is, therefore, considered
denied. The taxpayer may then appeal the decision on the MENDOZA, J.:
disputed assessment or the inaction of the CIR. As such, the
FDDA is not the only means that the final tax liability of a Presented before us is a novel issue. When may a Final
taxpayer is fixed, which may then be appealed by the taxpayer. Decision on Disputed Assessment (FDDA) be declared void,
Under the law, inaction on the part of the CIR may likewise result and in the event that the FDDA is found void, what would
in the finality of a taxpayer’s tax liability as it is deemed a denial be its effect on the tax assessment?
of the protest filed by the latter, which may also be appealed Assailed in these consolidated petitions for review on
before the CTA. certiorari filed under Rule 45 of the Rules of Court are the
May 22, 2014 Decision1 and the November 26, 2014
Same; Same; Final Decision on Disputed Assessment; Failure Resolution2 of
of the Final Decision on Disputed Assessment (FDDA) to reflect the
facts and law on which it is based will make the decision void. It,
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however, does not extend to the nullification of the entire
assessment.—Section 228 of the NIRC provides that an 1 Penned by Associate Justice Amelia R. Cotangco-Manalastas, with
assessment shall be void if the taxpayer is not informed in writing Associate Justices Juanito C. Castañeda, Jr., Lovell R. Bautista, Caesar A.
of the law and the facts on which it is based. It is, however, silent Casanova, Esperanza R. Fabon-Victorino and Cielito N. Mindaro-Grulla,
with regards to a decision on a disputed assessment by the CIR concurring; Presiding Justice Roman G. del Rosario, concurring and
which fails to state the law and facts on which it is based. This dissenting, and Associate Justice Ma. Belen M. Ringpis-Liban, dissenting;
void is filled by RR No. 12-99 where it is stated that failure of the Associate Justice Erlinda P. Uy, on leave; Rollo (G.R. No. 215557), pp. 44-
FDDA to reflect the facts and law on which it is based will make 53.
the decision void. It, however, does not extend to the nullification 2 Penned by Associate Justice Amelia R. Cotangco-Manalastas, with
of the entire assessment. Associate Justices Juanito C. Castañeda, Jr., Lovell R. Bautista, Erlinda
P. Uy, Caesar A. Casanova, Esperanza R. Fabon-Victorino and Cielito N.
Mindaro-Grulla, concurring; Presiding Jus-
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82 SUPREME COURT REPORTS ANNOTATED
Commissioner of Internal Revenue vs.Liquigaz Philippines
Corporation VOL. 789, APRIL 18, 2016 83
Commissioner of Internal Revenue vs.Liquigaz Philippines for the calendar year ending December 31, 2005. The total
Corporation deficiency withholding tax liabilities, inclusive of interest,
under the FLD was P24,332,347.20, which may be broken
the Court of Tax Appeals (CTA) En Banc which affirmed down as follows:
the November 22, 2012 Decision3 of the CTA Division,
EWT P5,535,890.38
Second Division (CTA Division).
WTC P4,500,169.94
Liquigaz Philippines Corporation (Liquigaz) is a FBT P14,296,286.88
corporation duly organized and existing under Philippine TOTAL P24,332,347.20
laws. On July 11, 2006, it received a copy of Letter of
Authority (LOA) No. 00067824, dated July 4, 2006, issued On July 25, 2008, Liquigaz filed its protest against the
by the Commissioner of Internal Revenue (CIR), FLD/FAN and subsequently submitted its supporting
authorizing the investigation of all internal revenue taxes documents on September 23, 2008.
for taxable year 2005.4 Then, on July 1, 2010, it received a copy of the FDDA8
On April 9, 2008, Liquigaz received an undated letter covering the tax audit under LOA No. 00067824 for the
purporting to be a Notice of Informal Conference (NIC), as calendar year ending December 31, 2005. As reflected in
well as the detailed computation of its supposed tax the FDDA, the CIR still found Liquigaz liable for deficiency
liability. On May 28, 2008, it received a copy of the withholding tax liabilities, inclusive of interest, in the
Preliminary Assessment Notice5 (PAN), dated May 20, aggregate amount of P22,380,025.19, which may be broken
2008, together with the attached details of discrepancies down as follows:
for the calendar year ending December 31, 2005.6 Upon
investigation, Liquigaz was initially assessed with EWT P3,479,426.75
deficiency withholding tax liabilities, inclusive of interest, WTC P4,508,025.93
FBT P14,392,572.51
in the aggregate amount of P23,931,708.72, broken down as
TOTAL P22,380,025.19
follows:
Consequently, on July 29, 2010, Liquigaz filed its
_______________ Petition for Review before the CTA Division assailing the
validity of the FDDA issued by the CIR.9
tice Roman G. del Rosario, concurring and dissenting, and Associate
Justice Ma. Belen M. Ringpis-Liban, dissenting; id., at pp. 70-76.
_______________
3 Penned by Associate Justice Caesar A. Casanova, with Associate
Justices Juanito C. Castañeda and Cielito N. Mindaro-Grulla, concurring; 7 Id., at pp. 87-90.
id., at pp. 105-129. 8 Rollo (G.R. No. 215557), pp. 103-104.
4 Id., at p. 45. 9 Id., at p. 46.
5 Rollo (G.R. No. 215534), pp. 80-83.
6 Id., at p. 46.
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VOL. 789, APRIL 18, 2016 85
Commissioner of Internal Revenue vs.Liquigaz Philippines
84 SUPREME COURT REPORTS ANNOTATED
Corporation
Commissioner of Internal Revenue vs.Liquigaz Philippines
Corporation The CTA Division’s Ruling
Thereafter, on June 25, 2008, it received a Formal In its November 22, 2012 Decision, the CTA Division
Letter of Demand7 (FLD)/Formal Assessment Notice partially granted Liquigaz’s petition cancelling the EWT
(FAN), together with its attached details of discrepancies, and FBT assessments but affirmed with modification the
WTC assessment. It ruled that the portion of the FDDA P3,479,426.75 and fringe benefits tax in the amount of
relating to the EWT and the FBT assessment was void P14,392,572.51 issued by respondent against petitioner for
pursuant to Section 228 of the National Internal Revenue taxable year 2005, both inclusive of interest and
Code (NIRC) of 1997, as implemented by Revenue compromise penalty is hereby CANCELLED and
Regulations (RR) No. 12-99. WITHDRAWN for being void.
The CTA Division noted that unlike the PAN and the However, the assessment for deficiency withholding tax
FLD/FAN, the FDDA issued did not provide the details on compensation for taxable year 2005 is hereby
thereof, hence, Liquigaz had no way of knowing what items AFFIRMED with MODIFICATIONS. Accordingly,
were considered by the CIR in arriving at the deficiency petitioner is hereby ORDERED to PAY respondent the
assessments. This was especially true because the FDDA amount of P2,958,546.23, inclusive of the 25% surcharge
reflected a different amount from what was stated in the imposed under Section 248(A)(3) of the NIRC of 1997, as
FLD/FAN. The CTA Division explained that though the amended, computed as follows:
legal bases for the EWT and FBT assessment were stated
in the FDDA, the taxpayer was not notified of the factual Salaries per ITR P52,239,313.00
Less: Salaries per Alphalist P42,921,057.16
bases thereof, as required in Section 228 of the NIRC.
Discrepancy P9,318,255.84
On the other hand, it upheld the WTC assessment
Tax rate 25.40%
against Liquigaz. It noted that the factual bases used in Basic Withholding Tax on
the FLD and the FDDA with regard thereto were the same P2,366,836.98
Compensation
as the difference in the amount merely resulted from the
use of a different tax rate. Add: 25% Surcharge P591,709.25
The CTA Division agreed with Liquigaz that the tax rate Total Amount Due P2,958,546.23
of 25.40% was more appropriate because it represents the
In addition, petitioner is liable to pay: (a) deficiency
effective tax compensation paid, computed based on the
interest at the rate of twenty percent (20%) per annum of
total withholding tax on compensation paid and the total
the basic deficiency withholding tax on compensation of
taxable compensation income for the taxable year 2005. It
P2,958,546.23 computed from January 20, 2006 until full
did not give credence to Liquigaz’s explanation that the
payment thereof pursuant to Section 249(B) of the NIRC of
salaries account included accrued bonus, 13th month pay,
1997, as amended; and (b) delinquency interest at the rate
de minimis benefits and other benefits and contributions
of twenty percent (20%) per annum on the total amount
which were not subject to withholding tax on
due of P2,958,546.23 and on the deficiency interest which
compensation. The CTA Division relied on the report
have accrued as aforestated in (a) computed from July 1,
prepared by Antonio O. Maceda, Jr., the court-
2010 until full payment thereof, pursuant to Section 249(C)
commissioned independent accountant, which found that
(3) of the NIRC of 1997, as amended.
Liquigaz was unable to substantiate the discrepancy found
by
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VOL. 789, APRIL 18, 2016 87
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VOL. 789, APRIL 18, 2016 93
Commissioner of Internal Revenue vs.Liquigaz Philippines
Corporation 94
ficiency tax, inclusive of the applicable surcharge 94 SUPREME COURT REPORTS ANNOTATED
and/or interest. No action shall be taken on the
Commissioner of Internal Revenue vs.Liquigaz Philippines
taxpayer’s disputed issues until the taxpayer has paid
Corporation
the deficiency tax or taxes attributable to the said
undisputed issues. The prescriptive period for
assessment or collection of the tax or taxes quirement of providing the taxpayer with written notice
attributable to the disputed issues shall be of the factual and legal bases applies both to the FLD/FAN
suspended. x x x and the FDDA.
3.1.6 Administrative Decision on a Disputed Section 228 of the NIRC should not be read restrictively
Assessment.—The decision of the Commissioner as to limit the written notice only to the assessment itself.
or his duly authorized representative shall (a) As implemented by RR No. 12-99, the written notice
state the facts, the applicable law, rules and requirement for both the FLD and the FAN is in
regulations, or jurisprudence on which such observance of due process — to afford the taxpayer
decision is based, otherwise, the decision shall adequate opportunity to file a protest on the assessment
be void (see illustration in ANNEX C hereof), in and thereafter file an appeal in case of an adverse decision.
which case, the same shall not be considered a To rule otherwise would tolerate abuse and prejudice.
decision on a disputed assessment; and (b) that the Taxpayers will be unable to file an intelligent appeal before
same is his final decision. the CTA as they would be unaware on how the CIR or his
[Emphases and underscoring supplied] authorized representative appreciated the defense raised in
connection with the assessment. On the other hand, it
The importance of providing the taxpayer of adequate raises the possibility that the amounts reflected in the
written notice of his tax liability is undeniable. Section 228 FDDA were arbitrarily made if the factual and legal bases
of the NIRC declares that an assessment is void if the thereof are not shown.
taxpayer is not notified in writing of the facts and law on
which it is made. Again, Section 3.1.4 of RR No. 12-99 A void FDDA does not
requires that the FLD must state the facts and law on ipso facto render the
which it is based, otherwise, the FLD/FAN itself shall be assessment void
void. Meanwhile, Section 3.1.6 of RR No. 12-99 specifically
requires that the decision of the CIR or his duly authorized The CIR and Liquigaz are at odds with regards to the
representative on a disputed assessment shall state the effect of a void FDDA. Liquigaz harps that a void FDDA
facts, law and rules and regulations, or jurisprudence on will lead to a void assessment because the FDDA
which the decision is based. Failure to do so would ultimately determines the final tax liability of a taxpayer,
invalidate the FDDA. which may then be appealed before the CTA. On the other
The use of the word “shall” in Section 228 of the NIRC hand, the CIR believes that a void FDDA does not ipso
and in RR No. 12-99 indicates that the requirement of facto result in the nullification of the assessment.
informing the taxpayer of the legal and factual bases of the
In resolving the issue on the effects of a void FDDA, it is a. Exclusive appellate jurisdiction to review by appeal, as herein
necessary to differentiate an “assessment” from a provided:
“decision.” In St. Stephen’s Association v. Collector of 1. Decisions of the Commissioner of Internal Revenue in cases
Internal Revenue,14 involving disputed assessments, refunds of internal revenue taxes,
fees or other charges, penalties thereto, or other matters arising
VOL. 789, APRIL 18, 2016 95
Commissioner of Internal Revenue vs.Liquigaz Philippines 96
Corporation
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17 Commissioner of Internal Revenue v. Bank of the Philippine
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Commissioner of Internal Revenue vs.Liquigaz Philippines 98
Corporation
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107