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SOME JURISPRUDENCE ON INVALID ASSESSMENT BY CIR

it might not also be amiss to point out that petitioner's issuance of the First Notice Before Issuance
of Warrant of Distraint and Levy38 violated respondent's right to due process because no valid
notice of assessment was sent to it. An invalid assessment bears no valid fruit. The law imposes a
substantive, not merely a formal, requirement. To proceed heedlessly with tax collection without
first establishing a valid assessment is evidently violative of the cardinal principle inadministrative
investigations: that taxpayers should be able to present their case and adduce supporting
evidence.39 In the instant case, respondent has not properly been informed of the basis of its tax
liabilities. Without complying with the unequivocal mandate of first informing the taxpayer of the
government’s claim, there can be no deprivation of property, because no effective protest can be
made.

It is true that taxes are the lifeblood of the government. However, in spite of all its plenitude, the
power to tax has its limits.40 Thus, in Commissioner of Internal Revenue v. Algue, Inc.,41 this Court
held:

Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance.1aâ wphi1 On the other hand, such collection should be made in accordance with law as
any arbitrariness will negate the very reason for government itself. It is therefore necessary to
reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real
purpose of taxation, which is the promotion of the common good, may be achieved.

xxxx

But even as we concede the inevitability and indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably and in accordance with the prescribed
procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to his
succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the
taxpayer can demonstrate x x x that the law has not been observed.42

It is an elementary rule enshrined in the 1987 Constitution that no person shall be deprived of
property without due process of law. In balancing the scales between the power of the State to tax
and its inherent right to prosecute perceived transgressors of the law on one side, and the
constitutional rights of a citizen todue process of law and the equal protection of the laws on the
other, the scales must tilt in favor of the individual, for a citizen’s right is amply protected by the Bill
of Rights under the Constitution.43

In the instant case, the FAN was sent tothe wrong address. Thus, the CTA is correct in holding that
the FAN never attained finality because respondent never received it, either actually or
constructively.

G. R. No. 157064 August 7, 2006

BARCELON, ROXAS SECURITIES, INC. (now known as UBP Securities, Inc.) Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

In its Decision, the CTA resolved the issues raised by the parties thus:

Jurisprudence is replete with cases holding that if the taxpayer denies ever having received an
assessment from the BIR, it is incumbent upon the latter to prove by competent evidence that such
notice was indeed received by the addressee. The onus probandi was shifted to respondent to prove by
contrary evidence that the Petitioner received the assessment in the due course of mail. The Supreme
Court has consistently held that while a mailed letter is deemed received by the addressee in the course
of mail, this is merely a disputable presumption subject to controversion and a direct denial thereof
shifts the burden to the party favored by the presumption to prove that the mailed letter was indeed
received by the addressee (Republic vs. Court of Appeals, 149 SCRA 351). Thus as held by the Supreme
Court in Gonzalo P. Nava vs. Commissioner of Internal Revenue, 13 SCRA 104, January 30, 1965:

"The facts to be proved to raise this presumption are (a) that the letter was properly addressed with
postage prepaid, and (b) that it was mailed. Once these facts are proved, the presumption is that the
letter was received by the addressee as soon as it could have been transmitted to him in the ordinary
course of the mail. But if one of the said facts fails to appear, the presumption does not lie. (VI, Moran,
Comments on the Rules of Court, 1963 ed, 56-57 citing Enriquez vs. Sunlife Assurance of Canada, 41 Phil
269)."

In the instant case, Respondent utterly failed to discharge this duty. No substantial evidence was ever
presented to prove that the assessment notice No. FAN-1-87-91-000649 or other supposed notices
subsequent thereto were in fact issued or sent to the taxpayer. As a matter of fact, it only submitted the
BIR record book which allegedly contains the list of taxpayer’s names, the reference number, the year,
the nature of tax, the city/municipality and the amount (see Exh. 5-a for the Respondent). Purportedly,
Respondent intended to show to this Court that all assessments made are entered into a record book in
chronological order outlining the details of the assessment and the taxpayer liable thereon. However, as
can be gleaned from the face of the exhibit, all entries thereon appears to be immaterial and impertinent
in proving that the assessment notice was mailed and duly received by Petitioner. Nothing indicates
therein all essential facts that could sustain the burden of proof being shifted to the Respondent. What is
essential to prove the fact of mailing is the registry receipt issued by the Bureau of Posts or the Registry
return card which would have been signed by the Petitioner or its authorized representative. And if said
documents cannot be located, Respondent at the very least, should have submitted to the Court a
certification issued by the Bureau of Posts and any other pertinent document which is executed with the
intervention of the Bureau of Posts. This Court does not put much credence to the self serving
documentations made by the BIR personnel especially if they are unsupported by substantial evidence
establishing the fact of mailing. Thus:

"While we have held that an assessment is made when sent within the prescribed period, even if
received by the taxpayer after its expiration (Coll. of Int. Rev. vs. Bautista, L-12250 and L-12259, May 27,
1959), this ruling makes it the more imperative that the release, mailing or sending of the notice be
clearly and satisfactorily proved. Mere notations made without the taxpayer’s intervention, notice or
control, without adequate supporting evidence cannot suffice; otherwise, the taxpayer would be at the
mercy of the revenue offices, without adequate protection or defense." (Nava vs. CIR, 13 SCRA 104,
January 30, 1965).

xxxx

The failure of the respondent to prove receipt of the assessment by the Petitioner leads to the conclusion
that no assessment was issued. Consequently, the government’s right to issue an assessment for the said
period has already prescribed. (Industrial Textile Manufacturing Co. of the Phils., Inc. vs. CIR CTA Case
4885, August 22, 1996). 13

Under Section 203 16 of the National Internal Revenue Code (NIRC), respondent had three (3) years from
the last day for the filing of the return to send an assessment notice to petitioner. In the case of Collector
of Internal Revenue v. Bautista, 17 this Court held that an assessment is made within the prescriptive
period if notice to this effect is released, mailed or sent by the CIR to the taxpayer within said period.
Receipt thereof by the taxpayer within the prescriptive period is not necessary. At this point, it should be
clarified that the rule does not dispense with the requirement that the taxpayer should actually receive,
even beyond the prescriptive period, the assessment notice which was timely released, mailed and sent.

In the present case, records show that petitioner filed its Annual Income Tax Return for taxable year
1987 on 14 April 1988. 18 The last day for filing by petitioner of its return was on 15 April 1988, 19 thus,
giving respondent until 15 April 1991 within which to send an assessment notice. While respondent
avers that it sent the assessment notice dated 1 February 1991 on 6 February 1991, within the three (3)-
year period prescribed by law, petitioner denies having received an assessment notice from respondent.
Petitioner alleges that it came to know of the deficiency tax assessment only on 17 March 1992 when it
was served with the Warrant of Distraint and Levy. 20

In the present case, petitioner denies receiving the assessment notice, and the respondent was unable to
present substantial evidence that such notice was, indeed, mailed or sent by the respondent before the
BIR’s right to assess had prescribed and that said notice was received by the petitioner. The respondent
presented the BIR record book where the name of the taxpayer, the kind of tax assessed, the registry
receipt number and the date of mailing were noted. The BIR records custodian, Ingrid Versola, also
testified that she made the entries therein. Respondent offered the entry in the BIR record book and the
testimony of its record custodian as entries in official records in accordance with Section 44, Rule 130 of
the Rules of Court, 24 which states that:
.R. No. 185371 December 8, 2010

COMMISSIONER OF INTERNAL REVENUE, Petitioner,


vs.
METRO STAR SUPERAMA, INC., Respondent.

"The facts to be proved to raise this presumption are (a) that the letter was properly addressed with
postage prepaid, and (b) that it was mailed. Once these facts are proved, the presumption is that the
letter was received by the addressee as soon as it could have been transmitted to him in the ordinary
course of the mail. But if one of the said facts fails to appear, the presumption does not lie. (VI, Moran,
Comments on the Rules of Court, 1963 ed, 56-57 citing Enriquez vs. Sunlife Assurance of Canada, 41 Phil
269)."

x x x. What is essential to prove the fact of mailing is the registry receipt issued by the Bureau of Posts or
the Registry return card which would have been signed by the Petitioner or its authorized
representative. And if said documents cannot be located, Respondent at the very least, should have
submitted to the Court a certification issued by the Bureau of Posts and any other pertinent document
which is executed with the intervention of the Bureau of Posts. This Court does not put much credence to
the self serving documentations made by the BIR personnel especially if they are unsupported by
substantial evidence establishing the fact of mailing. Thus:

"While we have held that an assessment is made when sent within the prescribed period, even if
received by the taxpayer after its expiration (Coll. of Int. Rev. vs. Bautista, L-12250 and L-12259, May 27,
1959), this ruling makes it the more imperative that the release, mailing or sending of the notice be
clearly and satisfactorily proved. Mere notations made without the taxpayer’s intervention, notice or
control, without adequate supporting evidence cannot suffice; otherwise, the taxpayer would be at the
mercy of the revenue offices, without adequate protection or defense." (Nava vs. CIR, 13 SCRA 104,
January 30, 1965).

x x x.

The failure of the respondent to prove receipt of the assessment by the Petitioner leads to the conclusion
that no assessment was issued. Consequently, the government’s right to issue an assessment for the said
period has already prescribed. (Industrial Textile Manufacturing Co. of the Phils., Inc. vs. CIR CTA Case
4885, August 22, 1996). (Emphases supplied.)

This now leads to the question: Is the failure to strictly comply with notice requirements prescribed
under Section 228 of the National Internal Revenue Code of 1997 and Revenue Regulations (R.R.) No. 12-
99 tantamount to a denial of due process? Specifically, are the requirements of due process satisfied if
only the FAN stating the computation of tax liabilities and a demand to pay within the prescribed period
was sent to the taxpayer?

The answer to these questions require an examination of Section 228 of the Tax Code which reads:

SEC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized representative
finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings: provided,
however, that a preassessment notice shall not be required in the following cases:
(a) When the finding for any deficiency tax is the result of mathematical error in the
computation of the tax as appearing on the face of the return; or

(b) When a discrepancy has been determined between the tax withheld and the amount actually
remitted by the withholding agent; or

(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding
tax for a taxable period was determined to have carried over and automatically applied the same
amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the
succeeding taxable year; or

(d) When the excise tax due on exciseable articles has not been paid; or

(e) When the article locally purchased or imported by an exempt person, such as, but not limited
to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred
to non-exempt persons.

The taxpayers shall be informed in writing of the law and the facts on which the assessment is made;
otherwise, the assessment shall be void.

Indeed, Section 228 of the Tax Code clearly requires that the taxpayer must first be informed that he is
liable for deficiency taxes through the sending of a PAN. He must be informed of the facts and the law
upon which the assessment is made. The law imposes a substantive, not merely a formal, requirement.
To proceed heedlessly with tax collection without first establishing a valid assessment is evidently
violative of the cardinal principle in administrative investigations - that taxpayers should be able to
present their case and adduce supporting evidence.14

This is confirmed under the provisions R.R. No. 12-99 of the BIR which pertinently provide:

SECTION 3. Due Process Requirement in the Issuance of a Deficiency Tax Assessment. —

3.1 Mode of procedures in the issuance of a deficiency tax assessment:

3.1.1 Notice for informal conference. — The Revenue Officer who audited the taxpayer's records
shall, among others, state in his report whether or not the taxpayer agrees with his findings that
the taxpayer is liable for deficiency tax or taxes. If the taxpayer is not amenable, based on the
said Officer's submitted report of investigation, the taxpayer shall be informed, in writing, by the
Revenue District Office or by the Special Investigation Division, as the case may be (in the case
Revenue Regional Offices) or by the Chief of Division concerned (in the case of the BIR National
Office) of the discrepancy or discrepancies in the taxpayer's payment of his internal revenue
taxes, for the purpose of "Informal Conference," in order to afford the taxpayer with an
opportunity to present his side of the case. If the taxpayer fails to respond within fifteen (15)
days from date of receipt of the notice for informal conference, he shall be considered in default,
in which case, the Revenue District Officer or the Chief of the Special Investigation Division of the
Revenue Regional Office, or the Chief of Division in the National Office, as the case may be, shall
endorse the case with the least possible delay to the Assessment Division of the Revenue
Regional Office or to the Commissioner or his duly authorized representative, as the case may be,
for appropriate review and issuance of a deficiency tax assessment, if warranted.

3.1.2 Preliminary Assessment Notice (PAN). — If after review and evaluation by the Assessment
Division or by the Commissioner or his duly authorized representative, as the case may be, it is
determined that there exists sufficient basis to assess the taxpayer for any deficiency tax or
taxes, the said Office shall issue to the taxpayer, at least by registered mail, a Preliminary
Assessment Notice (PAN) for the proposed assessment, showing in detail, the facts and the law,
rules and regulations, or jurisprudence on which the proposed assessment is based (see
illustration in ANNEX A hereof). If the taxpayer fails to respond within fifteen (15) days from
date of receipt of the PAN, he shall be considered in default, in which case, a formal letter of
demand and assessment notice shall be caused to be issued by the said Office, calling for
payment of the taxpayer's deficiency tax liability, inclusive of the applicable penalties.

3.1.3 Exceptions to Prior Notice of the Assessment. — The notice for informal conference and the
preliminary assessment notice shall not be required in any of the following cases, in which case,
issuance of the formal assessment notice for the payment of the taxpayer's deficiency tax
liability shall be sufficient:

(i) When the finding for any deficiency tax is the result of mathematical error in the
computation of the tax appearing on the face of the tax return filed by the taxpayer; or

(ii) When a discrepancy has been determined between the tax withheld and the amount
actually remitted by the withholding agent; or

(iii) When a taxpayer who opted to claim a refund or tax credit of excess creditable
withholding tax for a taxable period was determined to have carried over and
automatically applied the same amount claimed against the estimated tax liabilities for
the taxable quarter or quarters of the succeeding taxable year; or

(iv) When the excise tax due on excisable articles has not been paid; or

(v) When an article locally purchased or imported by an exempt person, such as, but not
limited to, vehicles, capital equipment, machineries and spare parts, has been sold,
traded or transferred to non-exempt persons.

3.1.4 Formal Letter of Demand and Assessment Notice. — The formal letter of demand and
assessment notice shall be issued by the Commissioner or his duly authorized representative.
The letter of demand calling for payment of the taxpayer's deficiency tax or taxes shall state the
facts, the law, rules and regulations, or jurisprudence on which the assessment is based,
otherwise, the formal letter of demand and assessment notice shall be void (see illustration in
ANNEX B hereof).

The same shall be sent to the taxpayer only by registered mail or by personal delivery.

If sent by personal delivery, the taxpayer or his duly authorized representative shall acknowledge receipt
thereof in the duplicate copy of the letter of demand, showing the following: (a) His name; (b) signature;
(c) designation and authority to act for and in behalf of the taxpayer, if acknowledged received by a
person other than the taxpayer himself; and (d) date of receipt thereof.

x x x.

From the provision quoted above, it 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. The
use of the word "shall" in subsection 3.1.2 describes the mandatory nature of the service of a PAN. The
persuasiveness of the right to due process reaches both substantial and procedural rights and the failure
of the CIR to strictly comply with the requirements laid down by law and its own rules is a denial of
Metro Star’s right to due process. 15 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. No. 8424, the assessment made by
the CIR is void.

Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. On
the other hand, such collection should be made in accordance with law as any arbitrariness will negate
the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting
interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion
of the common good, may be achieved.

xxx xxx xxx

It is said that taxes are what we pay for civilized society. Without taxes, the government would be
paralyzed for the lack of the motive power to activate and operate it. Hence, despite the natural
reluctance to surrender part of one’s hard-earned income to taxing authorities, every person who is able
to must contribute his share in the running of the government. The government for its part is expected to
respond in the form of tangible and intangible benefits intended to improve the lives of the people and
enhance their moral and material values. This symbiotic relationship is the rationale of taxation and
should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of
power.

But even as we concede the inevitability and indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure. If
it is not, then the taxpayer has a right to complain and the courts will then come to his suc cor. For all the
awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate
x x x that the law has not been observed.21 (Emphasis supplied).

G.R. No. 198677 November 26, 2014

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.

BASF COATING + INKS PHILS., INC., Respondent.

Sec. 11. Change of Address. – In case of change of address, the taxpayer must give a
written notice thereof to the Revenue District Officer or the district having
jurisdiction over his formerlegal residence and/or place of business, copy furnished
the Revenue District Officer having jurisdiction over his new legal residence or place
of business, the Revenue Computer Center and the Receivable Accounts Division,
BIR, National Office, Quezon City, and in case of failure to do so, any communication
referred to in these regulations previously sent to his former legal residence or
business address as appear in is tax return for the period involved shall be
considered valid and binding for purposes of the period within which to reply.
It is true that, under Section 223 of the Tax Reform Act of 1997, the running of the
Statute of Limitations provided under the provisions of Sections 203 and 222 of the
same Act shall be suspended when the taxpayer cannot be located in the address
given by him in the return filed upon which a tax is being assessed or collected. In
addition, Section 11 of Revenue Regulation No. 12-85 states that, in case of change of
address, the taxpayer is required to give a written notice thereof to the Revenue
District Officer or the district having jurisdiction over his former legal residence
and/or place of business. However, this Court agrees with both the CTA Special First
Division and the CTA En Banc in their ruling that the above mentioned provisions on
the suspension of the three-year period to assess apply only if the BIR Commissioner
is not aware of the whereabouts of the taxpayer.

In the present case, petitioner, by all indications, is well aware that respondent had
moved to its new address in Calamba, Laguna, as shown by the following documents
which form partof respondent's records with the BIR:

Furthermore, petitioner should have been alerted by the fact that prior to mailing
the FAN, petitioner sent to respondent's old address a Preliminary Assessment
Notice but it was "returned to sender." This was testified to by petitioner's Revenue
Officer II at its Revenue District Office 39 in Quezon City.31 Yet, despite this
occurrence, petitioner still insisted in mailing the FAN to respondent's old address.

Hence, despite the absence of a formal written notice of respondent's change of


address, the fact remains that petitioner became aware of respondent's new address
as shown by documents replete in its records. As a consequence, the running of the
three-year period to assess respondent was not suspended and has already
prescribed.

It bears stressing that, in a number of cases, this Court has explained that the statute
of limitations on the collection of taxes primarily benefits the taxpayer. In these
cases, the Court exemplified the detrimental effects that the delay in the assessment
and collection of taxes inflicts upon the taxpayers. Thus, in Commissioner of Internal
Revenue v. Philippine Global Communication, Inc.,32 this Court echoed Justice
Montemayor's disquisition in his dissenting opinion in Collector of Internal Revenue
v. Suyoc Consolidated Mining Company,33 regarding the potential loss to the
taxpayer if the assessment and collection of taxes are not promptly made, thus:
Thus, in Commissioner of Internal Revenue v. B.F. Goodrich Phils., Inc.,37 this Court
ruled that the legal provisions on prescription should be liberally construed to
protect taxpayers and that, as a corollary, the exceptions to the rule on prescription
should be strictly construed.

It might not also be amiss to point out that petitioner's issuance of the First Notice
Before Issuance of Warrant of Distraint and Levy38 violated respondent's right to
due process because no valid notice of assessment was sent to it. An invalid
assessment bears no valid fruit. The law imposes a substantive, not merely a formal,
requirement. To proceed heedlessly with tax collection without first establishing a
valid assessment is evidently violative of the cardinal principle inadministrative
investigations: that taxpayers should be able to present their case and adduce
supporting evidence.39 In the instant case, respondent has not properly been
informed of the basis of its tax liabilities. Without complying with the unequivocal
mandate of first informing the taxpayer of the government’s claim, there can be no
deprivation of property, because no effective protest can be made.

It is true that taxes are the lifeblood of the government. However, in spite of all its
plenitude, the power to tax has its limits.40 Thus, in Commissioner of Internal
Revenue v. Algue, Inc.,41 this Court held:

Taxes are the lifeblood of the government and so should be collected without
unnecessary hindrance.1aâ wphi1 On the other hand, such collection should be made
in accordance with law as any arbitrariness will negate the very reason for
government itself. It is therefore necessary to reconcile the apparently conflicting
interests of the authorities and the taxpayers so that the real purpose of taxation,
which is the promotion of the common good, may be achieved.

xxxx

It is said that taxes are what we pay for civilized society. Without taxes, the
government would be paralyzed for the lack of the motive power to activate and
operate it. Hence, despite the natural reluctance to surrender part of one’s hard-
earned income to taxing authorities, every person who is able to must contribute his
share in the running of the government. The government for its partis expected
torespond in the form of tangible and intangible benefits intended to improve the
lives of the people and enhance their moral and material values. This symbiotic
relationship is the rationale of taxation and should dispel the erroneous notion that
it is an arbitrary method of exaction by those in the seat of power.

But even as we concede the inevitability and indispensability of taxation, it is a


requirement in all democratic regimes that it be exercised reasonably and in
accordance with the prescribed procedure. If it is not, then the taxpayer has a right
to complain and the courts will then come to his succor. For all the awesome power
of the tax collector, he may still be stopped in his tracks if the taxpayer can
demonstrate x x x that the law has not been observed.42

It is an elementary rule enshrined in the 1987 Constitution that no person shall be


deprived of property without due process of law. In balancing the scales between the
power of the State to tax and its inherent right to prosecute perceived transgressors
of the law on one side, and the constitutional rights of a citizen todue process of law
and the equal protection of the laws on the other, the scales must tilt in favor of the
individual, for a citizen’s right is amply protected by the Bill of Rights under the
Constitution.43

As to the second assigned error, petitioner's reliance on the provisions of Section


3.1.7 of BIR Revenue Regulation No. 12-9944 as well as on the case of Nava v.
Commissioner of Internal Revenue45 is misplaced, because in the said case, one of
the requirements ofa valid assessment notice is that the letter or notice must be
properly addressed. It is not enough that the notice is sent by registered mail as
provided under the said Revenue Regulation. In the instant case, the FAN was sent
tothe wrong address. Thus, the CTA is correct in holding that the FAN never attained
finality because respondent never received it, either actually or constructively.

G.R. No. 193100 December 10, 2014

SAMAR-I ELECTRIC COOPERATIVE, Petitioner,


vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

Anent the issue of violation of due process in the issuance of the final notice of assessment and letter of
demand, Section 228 of the NIRC of 1997 provides:
SEC. 228. Protesting of Assessment. – x x x

xxxx

The taxpayers shall be informed in writing of the law and the factson which the assessment is made:
otherwise, the assessment shall be void.

Petitioner contends that as the Final Demand Letter and Assessment Notices (FAN) were silent as to the
nature and basis of the assessments, it was denied due process, and the assessments must be declared
18

void. It likewise invokes Revenue Regulations(RR) No. 12-99 which states, viz.:

3.1.4 Formal Letter of Demand and Assessment Notice.– The formal letter of demand and assessment
notice shall be issued by the Commissioner or his duly authorized representative. The letter of demand
calling for payment of the taxpayer’s deficiency tax or taxes shall state the facts, the law, rules and
regulations, or jurisprudence on which the assessment is based, otherwise, the formal letter of demand
and assessment notice shall be void. The same shall be sent to the taxpayer only by registered mail or by
personal delivery. x x x

We uphold the assessments issued to petitioner.

Both Section 228 of the NIRC of 1997 and Section 3.1.4 of RR No. 12-99 clearly require the written
details on the nature, factual and legal bases of the subject deficiency tax assessments. The reason for the
mandatory nature of this requirement isexplained in the case of Commissioner of Internal Revenue v.
Reyes: 19

A void assessment bears no valid fruit.

The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly with tax
collection without first establishing a valid assessment is evidently violative of the cardinal principle in
administrative investigations: that taxpayers should be able to present their case and adduce supporting
evidence. In the instant case, respondent has not been informed of the basis of the estate tax liability.
Without complying with the unequivocal mandate of first informing the taxpayer of the government’s
claim, there can be no deprivation of property, because no effective protest can be made. The haphazard
shot at slapping an assessment, supposedly based on estate taxation’s general provisions that are
expected to be known by the taxpayer, is utter chicanery.

Although the FAN and demand letter issued to petitioner were not accompanied by a written explanation
of the legal and factual bases of the deficiency taxes assessed against the petitioner, the records showed
that respondent in its letter dated April 10, 2003 responded to petitioner's October 14, 2002 letter-
protest, explaining at length the factual and legal bases of the deficiency tax assessments and denying
the protest.28

Considering the foregoing exchange of correspondence and documents between the parties, we find that
the requirement of Section 228 was substantially complied with. Respondent had fully informed
petitioner in writing of the factual and legal bases of the deficiency taxes assessment, which enabled the
latter to file an "effective" protest, much unlike the taxpayer's situation in Enron. Petitioner's right to due
process was thus not violated.
G.R. No. 215957

COMMISSIONER OF INTERNAL REVENUE, Petitioner


vs.
FITNESS BY DESIGN, INC., Respondent

The indispensability of affording taxpayers sufficient written notice of his or her tax liability is a clear
definite requirement. Section 228 of the National Internal Revenue Code and Revenue Regulations No.
64

12-99, as amended, transparently outline the procedure in tax assessment. 65

Section 3 of Revenue Regulations No. 12-99, the then prevailing regulation regarding the due process
66

requirement in the issuance of a deficiency tax assessment, requires a notice for informal
conference. The revenue officer who audited the taxpayer's records shall state in his or her report
67

whether the taxpayer concurs with his or her findings of liability for deficiency taxes. If the taxpayer
68

does not agree, based on the revenue officer's report, the taxpayer shall be informed in writing of the 69

discrepancies in his or her payment of internal revenue taxes for "Informal Conference." The informal
70

conference gives the taxpayer an opportunity to present his or her side of the case. 71

The formal letter of demand and assessment notice shall state the facts, jurisprudence, and law on which
the assessment was based; otherwise, these shall be void. The taxpayer or the authorized
80

representative may administratively protest the formal letter of demand and assessment notice within
30 days from receipt of the notice. 81

II

The word "shall" in Section 228 of the National Internal Revenue Code and Revenue Regulations No. 12-
99 means the act of informing the taxpayer of both the legal and factual bases of the assessment is
mandatory. The law requires that the bases be reflected in the formal letter of demand and assessment
82

notice. This cannot be presumed. Otherwise, the express mandate of Section 228 and Revenue
83 84

Regulations No. 12-99 would be nugatory. The requirement enables the taxpayer to make an effective
85

protest or appeal of the assessment or decision. 86

The rationale behind the requirement that taxpayers should be informed of the facts and the law on
which the assessments are based conforms with the constitutional mandate that no person shall be
deprived of his or her property without due process of law. Between the power of the State to tax and
87

an individual's right to due process, the scale favors the right of the taxpayer to due process. 88

The purpose of the written notice requirement is to aid the taxpayer in making a reasonable protest, if
necessary. Merely notifying the taxpayer of his or her tax liabilities without details or particulars is not
89

enough. 90

Commissioner of Internal Revenue v. United Salvage and Towage (Phils.), Inc. held that a final assessment
91

notice that only contained a table of taxes with no other details was insufficient:

Thus:

The law requires that the legal and factual bases of the assessment be stated in the formal letter of demand
and assessment notice. Thus, such cannot be presumed. Otherwise, the express provisions of Article 228 of
1âwphi1

the [National Internal Revenue Code] and [Revenue Regulations] No. 12-99 would be rendered
nugatory. The alleged "factual bases" in the advice, preliminary letter and "audit working papers" did not
suffice. There was no going around the mandate of the law that the legal and factual bases of the
assessment be stated in writing in the formal letter of demand accompanying the assessment
notice. (Emphasis supplied)
97

However, the mandate of giving the taxpayer a notice of the facts and laws on which the assessments are
based should not be mechanically applied. To emphasize, the purpose of this requirement is to
98

sufficiently inform the taxpayer of the bases for the assessment to enable him or her to make an
intelligent protest. 99

In Samar-I Electric Cooperative v. Commissioner of Internal Revenue, substantial compliance with


100

Section 228 of the National Internal Revenue Code is allowed, provided that the taxpayer would be later
apprised in writing of the factual and legal bases of the assessment to enable him or her to prepare for
an effective protest. Thus: 101

A final assessment notice provides for the amount of tax due with a demand for payment. This is to 103

determine the amount of tax due to a taxpayer. However, due process requires that taxpayers be
104

informed in writing of the facts and law on which the assessment is based in order to aid the taxpayer in
making a reasonable protest. To immediately ensue with tax collection without initially substantiating
105

a valid assessment contravenes the principle in administrative investigations "that taxpayers should be
able to present their case and adduce supporting evidence." 106

The issuance of a valid formal assessment is a substantive prerequisite for collection of taxes. Neither 127

the National Internal Revenue Code nor the revenue regulations provide for a "specific definition or form
of an assessment." However, the National Internal Revenue Code defines its explicit functions and
effects." An assessment does not only include a computation of tax liabilities; it also includes a demand
128

for payment within a period prescribed. Its main purpose is to determine the amount that a taxpayer is
129

liable to pay. 130

A pre-assessment notice "do[es] not bear the gravity of a formal assessment notice." A pre-assessment
131

notice merely gives a tip regarding the Bureau of Internal Revenue's findings against a taxpayer for an
informal conference or a clarificatory meeting. 132

A final assessment is a notice "to the effect that the amount therein stated is due as tax and a demand for
payment thereof." This demand for payment signals the time "when penalties and interests begin to
133

accrue against the taxpayer and enabling the latter to determine his remedies[.]" Thus, it must be "sent
134

to and received by the taxpayer, and must demand payment of the taxes described therein within a
specific period." 135

The disputed Final Assessment Notice is not a valid assessment.

First, it lacks the definite amount of tax liability for which respondent is accountable. It does not purport
to be a demand for payment of tax due, which a final assessment notice should supposedly be.

Second, there are no due dates in the Final Assessment Notice.

Compliance with Section 228 of the National Internal Revenue Code is a substantative requirement. It 141

is not a mere formality. Providing the taxpayer with the factual and legal bases for the assessment is
142

crucial before proceeding with tax collection. Tax collection should be premised on a valid assessment,
which would allow the taxpayer to present his or her case and produce evidence for substantiation. 143

Taxes are the lifeblood of government and should be collected without hindrance. However, the 146

collection of taxes should be exercised "reasonably and in accordance with the prescribed procedure." 147
The essential nature of taxes for the existence of the State grants government with vast remedies to
ensure its collection. However, taxpayers are guaranteed their fundamental right to due process of law,
as articulated in various ways in the process of tax assessment. After all, the State's purpose is to ensure
the well-being of its citizens, not simply to deprive them of their fundamental rights.