In an En Banc decision last March 2015, the Court of Tax Appeals (CTA) ruled that even if a taxpayer or his duly authorized representative refuses to acknowledge receipt of assessment notices for deficiency taxes issued by the Bureau of Internal Revenue (BIR), personal delivery shall be considered “constructive service” provided that such notices are left at the premises of the taxpayer and such fact is attested to by at least two revenue officers other than the revenue officer who constructively served them.
To contextualize, the parties to the case were a domestic corporation along with its president and treasurer. In both criminal and civil cases, they were charged with failure to file tax returns and pay deficiency income tax and value-added taxes for the taxable years 2003 to 2005 despite the issuance of Final Assessment Notices (FAN).
With respect to the criminal case, warrants of arrest were issued against the president and treasurer but were not actually served as the company was no longer operating in its business premises. Nonetheless, the treasurer later on submitted himself to the jurisdiction of the CTA in Division; however, he was subsequently acquitted due to gross insufficiency of evidence to sustain his indictment or to support a verdict of guilt beyond reasonable doubt. According to the CTA in Division, the testimony of the prosecution’s witnesses show that the treasurer is actually a different person and not the treasurer involved in this case. Further, the prosecution was unable to establish the role of the person who came forward in the management of the affairs of the company.
In its Motion for Partial Reconsideration of the civil aspect of the CTA en banc case, the BIR requested that the company be found civilly liable for the deficiency taxes despite the dismissal of the criminal case against the treasurer. The Bureau argued that the Preliminary Assessment Notice (PAN) and Final Letter of Demand (FLD) were validly served through constructive service based on the following reasons:
• The constructive service was witnessed by two barangay officials with jurisdiction over the company’s place of business. Such fact was established through the handwritten notes in the PAN and FLD stating that such documents were constructively served in September 2008 and December 2008, respectively, as witnessed by the barangay officials; and
• The employee of the company who affixed her signature in the PAN and FLD but refused to receive the PAN and FLD was the same employee who received the Letter of Authority, requests for presentation of records, and Subpoena Duces Tecum issued by the BIR in 2006.
According to the BIR, despite the receipt of the PAN and FLD, the company failed to file a protest; hence, the assessments became final, demandable and executory. The BIR argued that upholding the ruling of the CTA in Division would set a dangerous precedent where taxable entities could escape tax liability by simply having unauthorized persons receive assessment notices against them; this restricted view would put a premium on dishonesty and lack of accountability and is anathema to the concept of fair play, equity and justice.
Despite the BIR’s arguments, the CTA en band ruled in favor of the company due to the improper service of the PAN and FLD which violated the taxpayer’s right to due process of law. In its ruling, the CTA emphasized the mandatory nature of the due process requirement in the issuance of an assessment, particularly in informing the taxpayer of the assessment based on Section 228 of the Tax Code as implemented by Revenue Regulations (RR) No. 12-99. Under this RR, “if the notice is personally served to the taxpayer or his duly authorized representative who refused to acknowledge receipt thereof, the same shall be constructively served on the taxpayer. Constructive service thereof shall be considered effected by leaving the same in the premises of the taxpayer and this fact of constructive service is attested to, witnessed and signed by at least two (2) revenue officers other than the revenue officer who constructively served the same. The revenue officer who constructively served the same shall make a written report of this matter which shall form part of the docket of the case.”
According to the Court, while the refusal of the company’s employee to receive the PAN and FLD should constitute constructive service, the BIR failed to comply with the requirement that such must be attested to by at least two other revenue officers. As such, the alleged constructive service of the assessment notices were rendered invalid and the assessment considered void.
It is worthwhile to note that the above rules on constructive receipt were amended in 2013 through the issuance of RR 18-2013. The new rules provide that “should the party be found at his registered or known address or any other place but refuse to receive the notice, the revenue officers concerned shall bring a barangay official and two (2) disinterested witnesses in the presence of the party so that they may personally observe and attest to such act of refusal. The notice shall then be given to said barangay official. Such facts shall be contained in the bottom portion of the notice, as well as the names, official position and signatures of the witnesses. ‘Disinterested witnesses’ refer to persons of legal age other than employees of the Bureau of Internal Revenue.”
The requirement to have a barangay official and two disinterested witnesses in lieu of revenue officers shall only apply upon the effectivity of RR 18-2013. The CTA, in this case, correctly applied the policy amendment prospectively. Although the RR was issued on 28 November 2013 while the case was still being decided by the CTA, it could not apply retroactively to cover the alleged constructive service of the PAN and FLD that took place in 2008 even if the revenue officer satisfied the requirements of such RR.
Proper delivery of legal documents to parties required to respond or take action is critical for courts to acquire jurisdiction over them. Under our legal system, legal proceedings and imposition of liabilities cannot take effect without according the person an opportunity to be heard. In procedural due process, there are no shortcuts to take, but only the main road.
Eileen Flor C. Abalos is a manager at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.
source: Businessworld
No comments:
Post a Comment