G.R. No. 168498 June 16, 2006

RIZAL COMMERCIAL BANKING CORPORATION, Petitioner,

vs.

COMMISSIONER OF INTERNAL REVENUE, Respondent.

D E C I S I O N

YNARES-SANTIAGO, J.:

This is a petition for review under Rule 45 of the Rules of Court assailing the Decision1 of the

Court of Tax Appeals (CTA) En Banc dated June 7, 2005 in C.T.A. EB No. 50 which affirmed

the Resolutions of the CTA Second Division dated May 3, 20042 and November 5, 2004

3 in

C.T.A. Case No. 6475 denying petitioner’s Petition for Relief from Judgment and the Motion for

Reconsideration thereof, respectively.

The undisputed facts are as follows:

On July 5, 2001, petitioner Rizal Commercial Banking Corporation received a Formal Letter of

Demand dated May 25, 2001 from the respondent Commissioner of Internal Revenue for its tax

liabilities particularly for Gross Onshore Tax in the amount of P53,998,428.29 and Documentary

Stamp Tax for its Special Savings Placements in the amount of P46,717,952.76, for the taxable

year 1997.4

On July 20, 2001, petitioner filed a protest letter/request for reconsideration/reinvestigation

pursuant to Section 228 of the National Internal Revenue Code of 1997 (NIRC).5

As the protest was not acted upon by the respondent, petitioner filed on April 30, 2002 a petition

for review with the CTA for the cancellation of the assessments which was docketed as C.T.A.

Case No. 6475.6

On July 15, 2003, respondent filed a motion to resolve first the issue of CTA’s

jurisdiction,7 which was granted by the CTA in a Resolution dated September 10, 2003.

8 The

petition for review was dismissed because it was filed beyond the 30-day period following the

lapse of 180 days from petitioner’s submission of documents in support of its protest, as

provided under Section 228 of the NIRC and Section 11 of R.A. No. 1125, otherwise known as

the Law Creating the Court of Tax Appeals.

Petitioner did not file a motion for reconsideration or an appeal to the CTA En Banc from the

dismissal of its petition for review. Consequently, the September 10, 2003 Resolution became

final and executory on October 1, 2003 and Entry of Judgment was made on December 1, 2003.9

Thereafter, respondent sent a Demand Letter to petitioner for the payment of the deficiency tax

assessments.

On February 20, 2004, petitioner filed a Petition for Relief from Judgment10

on the ground of

excusable negligence of its counsel’s secretary who allegedly misfiled and lost the September 10,

2003 Resolution. The CTA Second Division set the case for hearing on April 2, 200411

during

which petitioner’s counsel was present.12

Respondent filed an Opposition13

while petitioner

submitted its Manifestation and Counter-Motion.14

On May 3, 2004, the CTA Second Division rendered a Resolution15

denying petitioner’s Petition

for Relief from Judgment.

Petitioner’s motion for reconsideration was denied in a Resolution dated November 5,

2004,16

hence it filed a petition for review with the CTA En Banc, docketed as C.T.A. EB No.

50, which affirmed the assailed Resolutions of the CTA Second Division in a Decision dated

June 7, 2005.

Hence, this petition for review based on the following grounds:

I.

THE HONORABLE CTA AND CTA EN BANC GRAVELY ERRED IN DENYING

PETITIONER’S PETITION FOR RELIEF, WITHOUT FIRST AFFORDING IT THE

OPPORTUNITY TO ADDUCE EVIDENCE TO ESTABLISH THE FACTUAL

ALLEGATIONS CONSTITUTING ITS ALLEGED EXCUSABLE NEGLIGENCE, IN CLEAR

VIOLATION OF PETITIONER’S BASIC RIGHT TO DUE PROCESS.

II.

CONSIDERING THAT THE SUBJECT ASSESSMENT, INSOFAR AS IT INVOLVES

ALLEGED DEFICIENCY DOCUMENTARY STAMP TAXES ON SPECIAL SAVINGS

ACCOUNTS, IS AN ISSUE AFFECTING ALL MEMBERS OF THE BANKING INDUSTRY,

PETITIONER, LIKE ALL OTHER BANKS, SHOULD BE AFFORDED AN EQUAL

OPPORTUNITY TO FULLY LITIGATE THE ISSUE, AND HAVE THE CASE

DETERMINED BASED ON ITS MERITS, RATHER THAN ON A MERE

TECHNICALITY.17

Relief from judgment under Rule 38 of the Rules of Court is a legal remedy that is allowed only

in exceptional cases whereby a party seeks to set aside a judgment rendered against him by a

court whenever he was unjustly deprived of a hearing or was prevented from taking an appeal, in

either case, because of fraud, accident, mistake or excusable neglect.18

Petitioner argues that it was denied due process when it was not given the opportunity to be

heard to prove that its failure to file a motion for reconsideration or appeal from the dismissal of

its petition for review was due to the failure of its employee to forward the copy of the

September 10, 2003 Resolution which constitutes excusable negligence.

Petitioner’s argument lacks merit.

It is basic that as long as a party is given the opportunity to defend his interests in due course, he

would have no reason to complain, for it is this opportunity to be heard that makes up the

essence of due process.19

In Batongbakal v. Zafra,20

the Court held that:

There is no question that the “essence of due process is a hearing before conviction and before an

impartial and disinterested tribunal” but due process as a constitutional precept does not, always

and in all situations, require a trial-type proceeding. The essence of due process is to be found in

the reasonable opportunity to be heard and submit any evidence one may have in support of

one’s defense. “To be heard” does not only mean verbal arguments in court; one may be

heard also through pleadings. Where opportunity to be heard, either through oral

arguments or pleadings, is accorded, there is no denial of procedural due process.(Emphasis

supplied)

As correctly pointed by the Office of the Solicitor General (OSG), the CTA Second Division set

the case for hearing on April 2, 2004 after the filing by the petitioner of its petition for relief

from judgment. Petitioner’s counsel was present on the scheduled hearing and in fact orally

argued its petition.

Moreover, after the CTA Second Division dismissed the petition for relief from judgment in a

Resolution dated May 3, 2004, petitioner filed a motion for reconsideration and the court further

required both parties to file their respective memorandum. Indeed, petitioner was not denied its

day in court considering the opportunities given to argue its claim.

Relief cannot be granted on the flimsy excuse that the failure to appeal was due to the neglect of

petitioner’s counsel.21

Otherwise, all that a losing party would do to salvage his case would be to

invoke neglect or mistake of his counsel as a ground for reversing or setting aside the adverse

judgment, thereby putting no end to litigation.22

Negligence to be “excusable” must be one which ordinary diligence and prudence could not have

guarded against and by reason of which the rights of an aggrieved party have probably been

impaired.23

Petitioner’s former counsel’s omission could hardly be characterized as excusable,

much less unavoidable.

The Court has repeatedly admonished lawyers to adopt a system whereby they can always

receive promptly judicial notices and pleadings intended for them.24

Apparently, petitioner’s

counsel was not only remiss in complying with this admonition but he also failed to check

periodically, as an act of prudence and diligence, the status of the pending case before the CTA

Second Division. The fact that counsel allegedly had not renewed the employment of his

secretary, thereby making the latter no longer attentive or focused on her work, did not relieve

him of his responsibilities to his client. It is a problem personal to him which should not in any

manner interfere with his professional commitments.

In exceptional cases, when the mistake of counsel is so palpable that it amounts to gross

negligence, this Court affords a party a second opportunity to vindicate his right. But this

opportunity is unavailing in the case at bar, especially since petitioner had squandered the

various opportunities available to it at the different stages of this case. Public interest demands an

end to every litigation and a belated effort to reopen a case that has already attained finality will

serve no purpose other than to delay the administration of justice.25

Since petitioner’s ground for relief is not well-taken, it follows that the assailed judgment stands.

Assuming ex gratia argumenti that the negligence of petitioner’s counsel is excusable, still the

petition must fail. As aptly observed by the OSG, even if the petition for relief from judgment

would be granted, petitioner will not fare any better if the case were to be returned to the CTA

Second Division since its action for the cancellation of its assessments had already prescribed.26

Petitioner protested the assessments pursuant to Section 228 of the NIRC, which provides:

SEC. 228. Protesting of Assessment.- x x x.

x x x x

Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be

required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly

authorized representative shall issue an assessment based on his findings.

Such assessment may be protested administratively by filing a request for reconsideration or

reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as

may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of

the protest, all relevant supporting documents shall have been submitted; otherwise, the

assessment shall become final.

If the protest is denied in whole or in part, or is not acted upon within one hundred eighty

(180) days from submission of documents, the taxpayer adversely affected by the decision

or inaction may appeal to the Court of Tax Appeals within (30) days from receipt of the

said decision, or from the lapse of the one hundred eighty (180)-day period; otherwise the

decision shall become final, executory and demandable. (Emphasis supplied)

The CTA Second Division held:

Following the periods provided for in the aforementioned laws, from July 20, 2001, that is, the

date of petitioner’s filing of protest, it had until September 18, 2001 to submit relevant

documents and from September 18, 2001, the Commissioner had until March 17, 2002 to issue

his decision. As admitted by petitioner, the protest remained unacted by the Commissioner of

Internal Revenue. Therefore, it had until April 16, 2002 within which to elevate the case to this

court. Thus, when petitioner filed its Petition for Review on April 30, 2002, the same is outside

the thirty (30) period.27

As provided in Section 228, the failure of a taxpayer to appeal from an assessment on time

rendered the assessment final, executory and demandable. Consequently, petitioner is precluded

from disputing the correctness of the assessment.

In Ker & Company, Ltd. v. Court of Tax Appeals,28

the Court held that while the right to appeal a

decision of the Commissioner to the Court of Tax Appeals is merely a statutory remedy,

nevertheless the requirement that it must be brought within 30 days is jurisdictional. If a statutory

remedy provides as a condition precedent that the action to enforce it must be commenced within

a prescribed time, such requirement is jurisdictional and failure to comply therewith may be

raised in a motion to dismiss.

In fine, the failure to comply with the 30-day statutory period would bar the appeal and deprive

the Court of Tax Appeals of its jurisdiction to entertain and determine the correctness of the

assessment.29

WHEREFORE, in view of the foregoing, the Decision of the Court of Tax Appeals En

Banc dated June 7, 2005 in C.T.A. EB No. 50 affirming the Resolutions of the Court of Tax

Appeals Second Division dated May 3, 2004 and November 5, 2004 in C.T.A. Case No. 6475

denying petitioner’s Petition for Relief from Judgment and Motion for Reconsideration,

respectively, is AFFIRMED.

G.R. No. 168498 April 24, 2007

RIZAL COMMERCIAL BANKING CORPORATION, Petitioner,

vs.

COMMISSIONER OF INTERNAL REVENUE, Respondent.

R E S O L U T I O N

YNARES-SANTIAGO, J.:

For resolution is petitioner’s Motion for Reconsideration of our Decision1 dated June 16, 2006

affirming the Decision of the Court of Tax Appeals En Banc dated June 7, 2005 in C.T.A. EB

No. 50, which affirmed the Resolutions of the Court of Tax Appeals Second Division dated May

3, 2004 and November 5, 2004 in C.T.A. Case No. 6475, denying petitioner’s Petition for Relief

from Judgment and Motion for Reconsideration, respectively.

Petitioner reiterates its claim that its former counsel’s failure to file petition for review with the

Court of Tax Appeals within the period set by Section 228 of the National Internal Revenue

Code of 1997 (NIRC) was excusable and raised the following issues for resolution:

A.

THE DENIAL OF PETITIONER’S PETITION FOR RELIEF FROM JUDGMENT WILL

RESULT IN THE DENIAL OF SUBSTANTIVE JUSTICE TO PETITIONER, CONTRARY

TO ESTABLISHED DECISIONS OF THIS HONORABLE COURT BECAUSE THE

ASSESSMENT SOUGHT TO BE CANCELLED HAS ALREADY PRESCRIBED – A FACT

NOT DENIED BY THE RESPONDENT IN ITS ANSWER.

B.

CONTRARY TO THIS HONORABLE COURT’S DECISION, AND FOLLOWING THE

LASCONA DECISION, AS WELL AS THE 2005 REVISED RULES OF THE COURT OF

TAX APPEALS, PETITIONER TIMELY FILED ITS PETITION FOR REVIEW BEFORE

THE COURT OF TAX APPEALS; THUS, THE COURT OF TAX APPEALS HAD

JURISDICTION OVER THE CASE.

C.

CONSIDERING THAT THE SUBJECT ASSESSMENT INVOLVES AN INDUSTRY ISSUE,

THAT IS, A DEFICIENCY ASSESSMENT FOR DOCUMENTARY STAMP TAX ON

SPECIAL SAVINGS ACCOUNTS AND GROSS ONSHORE TAX, PETITIONER IN THE

INTEREST OF SUBSTANTIVE JUSTICE AND UNIFORMITY OF TAXATION, SHOULD

BE ALLOWED TO FULLY LITIGATE THE ISSUE BEFORE THE COURT OF TAX

APPEALS.2

Petitioner’s motion for reconsideration is denied for lack of merit.

Other than the issue of prescription, which is raised herein for the first time, the issues presented

are a mere rehash of petitioner’s previous arguments, all of which have been considered and

found without merit in our Decision dated June 16, 2006.

Petitioner maintains that its counsel’s neglect in not filing the petition for review within the

reglementary period was excusable. It alleges that the counsel’s secretary misplaced the

Resolution hence the counsel was not aware of its issuance and that it had become final and

executory.

We are not persuaded.

In our Decision, we held that:

Relief cannot be granted on the flimsy excuse that the failure to appeal was due to the neglect of

petitioner’s counsel. Otherwise, all that a losing party would do to salvage his case would be to

invoke neglect or mistake of his counsel as a ground for reversing or setting aside the adverse

judgment, thereby putting no end to litigation.

Negligence to be "excusable" must be one which ordinary diligence and prudence could not have

guarded against and by reason of which the rights of an aggrieved party have probably been

impaired. Petitioner’s former counsel’s omission could hardly be characterized as excusable,

much less unavoidable.

The Court has repeatedly admonished lawyers to adopt a system whereby they can always

receive promptly judicial notices and pleadings intended for them. Apparently, petitioner’s

counsel was not only remiss in complying with this admonition but he also failed to check

periodically, as an act of prudence and diligence, the status of the pending case before the CTA

Second Division. The fact that counsel allegedly had not renewed the employment of his

secretary, thereby making the latter no longer attentive or focused on her work, did not relieve

him of his responsibilities to his client. It is a problem personal to him which should not in any

manner interfere with his professional commitments.3

Petitioner also argues that, in the interest of substantial justice, the instant case should be re-

opened considering that it was allegedly not accorded its day in court when the Court of Tax

Appeals dismissed its petition for review for late filing. It claims that rules of procedure are

intended to help secure, not override, substantial justice.

Petitioner’s arguments fail to persuade us.

As correctly observed by the Court of Tax Appeals in its Decision dated June 7, 2005:

If indeed there was negligence, this is obviously on the part of petitioner’s own counsel whose

prudence in handling the case fell short of that required under the circumstances. He was well

aware of the motion filed by the respondent for the Court to resolve first the issue of this Court’s

jurisdiction on July 15, 2003, that a hearing was conducted thereon on August 15, 2003 where

both counsels were present and at said hearing the motion was submitted for resolution.

Petitioner’s counsel apparently did not show enthusiasm in the case he was handling as he should

have been vigilant of the outcome of said motion and be prepared for the necessary action to take

whatever the outcome may have been. Such kind of negligence cannot support petitioner’s claim

for relief from judgment.

Besides, tax assessments by tax examiners are presumed correct and made in good faith, and all

presumptions are in favor of the correctness of a tax assessment unless proven otherwise.4 Also,

petitioner’s failure to file a petition for review with the Court of Tax Appeals within the statutory

period rendered the disputed assessment final, executory and demandable, thereby precluding it

from interposing the defenses of legality or validity of the assessment and prescription of the

Government’s right to assess.5

The Court of Tax Appeals is a court of special jurisdiction and can only take cognizance of such

matters as are clearly within its jurisdiction. Section 7 of Republic Act (R.A.) No. 9282,

amending R.A. No. 1125, otherwise known as the Law Creating the Court of Tax Appeals,

provides:

Sec. 7. Jurisdiction. — The CTA shall exercise:

(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:

(1) Decisions of the Commissioner of Internal Revenue in cases involving

disputed assessments, refunds of internal revenue taxes, fees or other charges,

penalties in relation thereto, or other matters arising under the National Internal

Revenue or other laws administered by the Bureau of Internal Revenue;

(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed

assessments, refunds of internal revenue taxes, fees or other charges, penalties in

relation thereto, or other matters arising under the National Internal Revenue

Code or other laws administered by the Bureau of Internal Revenue, where the

National Internal Revenue Code provides a specific period of action, in which

case the inaction shall be deemed a denial;

Also, Section 3, Rule 4 and Section 3(a), Rule 8 of the Revised Rules of the Court of Tax

Appeals6 state:

RULE 4

Jurisdiction of the Court

x x x x

SECTION 3. Cases Within the Jurisdiction of the Court in Divisions. — The Court in Divisions

shall exercise:

(a) Exclusive original or appellate jurisdiction to review by appeal the following:

(1) Decisions of the Commissioner of Internal Revenue in cases involving

disputed assessments, refunds of internal revenue taxes, fees or other charges,

penalties in relation thereto, or other matters arising under the National Internal

Revenue Code or other laws administered by the Bureau of Internal Revenue;

(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed

assessments, refunds of internal revenue taxes, fees or other charges, penalties in

relation thereto, or other matters arising under the National Internal Revenue

Code or other laws administered by the Bureau of Internal Revenue, where the

National Internal Revenue Code or other applicable law provides a specific period

for action: Provided, that in case of disputed assessments, the inaction of the

Commissioner of Internal Revenue within the one hundred eighty day-period

under Section 228 of the National Internal Revenue Code shall be deemed a

denial for purposes of allowing the taxpayer to appeal his case to the Court and

does not necessarily constitute a formal decision of the Commissioner of Internal

Revenue on the tax case; Provided, further, that should the taxpayer opt to await

the final decision of the Commissioner of Internal Revenue on the disputed

assessments beyond the one hundred eighty day-period abovementioned, the

taxpayer may appeal such final decision to the Court under Section 3(a), Rule 8 of

these Rules; and Provided, still further, that in the case of claims for refund of

taxes erroneously or illegally collected, the taxpayer must file a petition for

review with the Court prior to the expiration of the two-year period under Section

229 of the National Internal Revenue Code;

x x x x

RULE 8

Procedure in Civil Cases

x x x x

SECTION 3. Who May Appeal; Period to File Petition. — (a) A party adversely affected by a

decision, ruling or the inaction of the Commissioner of Internal Revenue on disputed

assessments or claims for refund of internal revenue taxes, or by a decision or ruling of the

Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and Industry, the

Secretary of Agriculture, or a Regional Trial Court in the exercise of its original jurisdiction may

appeal to the Court by petition for review filed within thirty days after receipt of a copy of such

decision or ruling, or expiration of the period fixed by law for the Commissioner of Internal

Revenue to act on the disputed assessments. In case of inaction of the Commissioner of Internal

Revenue on claims for refund of internal revenue taxes erroneously or illegally collected, the

taxpayer must file a petition for review within the two-year period prescribed by law from

payment or collection of the taxes. (n)

From the foregoing, it is clear that the jurisdiction of the Court of Tax Appeals has been

expanded to include not only decisions or rulings but inaction as well of the Commissioner of

Internal Revenue. The decisions, rulings or inaction of the Commissioner are necessary in order

to vest the Court of Tax Appeals with jurisdiction to entertain the appeal, provided it is filed

within 30 days after the receipt of such decision or ruling, or within 30 days after the expiration

of the 180-day period fixed by law for the Commissioner to act on the disputed assessments.

This 30-day period within which to file an appeal is jurisdictional and failure to comply

therewith would bar the appeal and deprive the Court of Tax Appeals of its jurisdiction to

entertain and determine the correctness of the assessments. Such period is not merely directory

but mandatory and it is beyond the power of the courts to extend the same.7

In case the Commissioner failed to act on the disputed assessment within the 180-day period

from date of submission of documents, a taxpayer can either: 1) file a petition for review with the

Court of Tax Appeals within 30 days after the expiration of the 180-day period; or 2) await the

final decision of the Commissioner on the disputed assessments and appeal such final decision to

the Court of Tax Appeals within 30 days after receipt of a copy of such decision. However, these

options are mutually exclusive, and resort to one bars the application of the other.

In the instant case, the Commissioner failed to act on the disputed assessment within 180 days

from date of submission of documents. Thus, petitioner opted to file a petition for review before

the Court of Tax Appeals. Unfortunately, the petition for review was filed out of time, i.e., it was

filed more than 30 days after the lapse of the 180-day period. Consequently, it was dismissed by

the Court of Tax Appeals for late filing. Petitioner did not file a motion for reconsideration or

make an appeal; hence, the disputed assessment became final, demandable and executory.

Based on the foregoing, petitioner can not now claim that the disputed assessment is not yet final

as it remained unacted upon by the Commissioner; that it can still await the final decision of the

Commissioner and thereafter appeal the same to the Court of Tax Appeals. This legal maneuver

cannot be countenanced. After availing the first option, i.e., filing a petition for review which

was however filed out of time, petitioner can not successfully resort to the second option, i.e.,

awaiting the final decision of the Commissioner and appealing the same to the Court of Tax

Appeals, on the pretext that there is yet no final decision on the disputed assessment because of

the Commissioner’s inaction.

Lastly, we note that petitioner is raising the issue of prescription for the first time in the instant

motion for reconsideration. Although the same was raised in the petition for review, it was

dismissed for late filing. No motion for reconsideration was filed hence the disputed assessment

became final, demandable and executory. Thereafter, petitioner filed with the Court of Tax

Appeals a petition for relief from judgment. However, it failed to raise the issue of prescription

therein. After its petition for relief from judgment was denied by the Court of Tax Appeals for

lack of merit, petitioner filed a petition for review before this Court without raising the issue of

prescription. It is only in the instant motion for reconsideration that petitioner raised the issue of

prescription which is not allowed. The rule is well-settled that points of law, theories, issues and

arguments not adequately brought to the attention of the lower court need not be considered by

the reviewing court as they cannot be raised for the first time on appeal,8 much more in a motion

for reconsideration as in this case, because this would be offensive to the basic rules of fair play,

justice and due process.9 This last ditch effort to shift to a new theory and raise a new matter in

the hope of a favorable result is a pernicious practice that has consistently been rejected.

WHEREFORE, in view of the foregoing, petitioner’s motion for reconsideration is DENIED.

Taxation – Prescription – Appeal to the Court of Tax Appeals

On July 5, 2001, the Commissioner of Internal Revenue (CIR) issued a final assessment notice

(FAN) to the Rizal Commercial Banking Corporation (RCBC) demanding a total tax liability of

about P100 million. On July 20, 2001 (within the 30 day period from issuance of FAN to file a

protest), RCBC filed a protest. The CIR never acted on the protest. On April 30, 2002, RCBC

filed an appeal with the Court of Tax Appeals (CTA).

ISSUE: Whether or not RCBC filed a timely appeal.

HELD : No. Under the law, after the lapse of 180 days within which the CIR is supposed to rule

on the protest – yet the CIR did not, the taxpayer has 30 days from said lapse to file an appeal

with the CTA. In the case at bar, the protest was filed on July 20, 2001. From that date, RCBC

had until September 18, 2001 (60 days) to submit supporting documents. There was no showing

that RCBC submitted any such documents. But assuming it submitted said documents on

September 18, 2001, the 180 day period for the CIR to decide shall commence on that date hence

the 180 day period has lapsed on March 17, 2002. Thereafter, RCBC has 30 days to appeal the

inaction of the CIR (30 days from the lapse of the 180 day period) or until April 16, 2002. RCBC

filed its appeal on April 30, 2002 which was already beyond the 30 day period. In such case, the

decision of the CIR indirectly denying the protest by reason of inaction is already final and

executory and is no longer appealable.

Republic of the Philippines

Supreme Court

Manila

SECOND DIVISION

COMMISSIONER OF INTERNAL G.R. No. 178087

REVENUE,

Petitioner, Present:

CARPIO, J., Chairperson,

BRION,

- versus - DEL CASTILLO,

ABAD, and

PEREZ, JJ.

KUDOS METAL CORPORATION, Promulgated:

Respondent. May 5, 2010

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

D E C I S I O N

DEL CASTILLO, J.:

The prescriptive period on when to assess taxes benefits both the government and

the taxpayer.1[1] Exceptions extending the period to assess must, therefore, be strictly

construed.

This Petition for Review on Certiorari seeks to set aside the Decision2[2] dated

March 30, 2007 of the Court of Tax Appeals (CTA) affirming the cancellation of the

assessment notices for having been issued beyond the prescriptive period and the

Resolution3[3] dated May 18, 2007 denying the motion for reconsideration.

Factual Antecedents

On April 15, 1999, respondent Kudos Metal Corporation filed its Annual Income

Tax Return (ITR) for the taxable year 1998.

Pursuant to a Letter of Authority dated September 7, 1999, the Bureau of Internal

Revenue (BIR) served upon respondent three Notices of Presentation of Records.

Respondent failed to comply with these notices, hence, the BIR issued a Subpeona Duces

Tecum dated September 21, 2006, receipt of which was acknowledged by respondent’s

President, Mr. Chan Ching Bio, in a letter dated October 20, 2000.

A review and audit of respondent’s records then ensued.

On December 10, 2001, Nelia Pasco (Pasco), respondent’s accountant, executed a

Waiver of the Defense of Prescription,4[4] which was notarized on January 22, 2002,

received by the BIR Enforcement Service on January 31, 2002 and by the BIR Tax Fraud

Division on February 4, 2002, and accepted by the Assistant Commissioner of the

Enforcement Service, Percival T. Salazar (Salazar).

This was followed by a second Waiver of Defense of Prescription5[5] executed by

Pasco on February 18, 2003, notarized on February 19, 2003, received by the BIR Tax

Fraud Division on February 28, 2003 and accepted by Assistant Commissioner Salazar.

On August 25, 2003, the BIR issued a Preliminary Assessment Notice for the

taxable year 1998 against the respondent. This was followed by a Formal Letter of

Demand with Assessment Notices for taxable year 1998, dated September 26, 2003

which was received by respondent on November 12, 2003.

Respondent challenged the assessments by filing its “Protest on Various Tax

Assessments” on December 3, 2003 and its “Legal Arguments and Documents in

Support of Protests against Various Assessments” on February 2, 2004.

On June 22, 2004, the BIR rendered a final Decision6[6] on the matter, requesting

the immediate payment of the following tax liabilities:

Kind of Tax Amount

Income Tax P 9,693,897.85

VAT 13,962,460.90

EWT 1,712,336.76

Withholding Tax-Compensation 247,353.24

Penalties 8,000.00

Total P25,624,048.76

Ruling of the Court of Tax Appeals, Second Division

Believing that the government’s right to assess taxes had prescribed, respondent

filed on August 27, 2004 a Petition for Review7[7] with the CTA. Petitioner in turn filed

his Answer.8[8]

On April 11, 2005, respondent filed an “Urgent Motion for Preferential Resolution

of the Issue on Prescription.”9[9]

On October 4, 2005, the CTA Second Division issued a Resolution10[10]

canceling the assessment notices issued against respondent for having been issued

beyond the prescriptive period. It found the first Waiver of the Statute of Limitations

incomplete and defective for failure to comply with the provisions of Revenue

Memorandum Order (RMO) No. 20-90. Thus:

First, the Assistant Commissioner is not the revenue official authorized to sign

the waiver, as the tax case involves more than P1,000,000.00. In this regard, only the

Commissioner is authorized to enter into agreement with the petitioner in extending the

period of assessment;

Secondly, the waiver failed to indicate the date of acceptance. Such date of

acceptance is necessary to determine whether the acceptance was made within the

prescriptive period;

Third, the fact of receipt by the taxpayer of his file copy was not indicated on the

original copy. The requirement to furnish the taxpayer with a copy of the waiver is not

only to give notice of the existence of the document but also of the acceptance by the BIR

and the perfection of the agreement.

The subject waiver is therefore incomplete and defective. As such, the three-year

prescriptive period was not tolled or extended and continued to run. x x x11[11]

Petitioner moved for reconsideration but the CTA Second Division denied the

motion in a Resolution12[12] dated April 18, 2006.

Ruling of the Court of Tax Appeals, En Banc

On appeal, the CTA En Banc affirmed the cancellation of the assessment notices.

Although it ruled that the Assistant Commissioner was authorized to sign the waiver

pursuant to Revenue Delegation Authority Order (RDAO) No. 05-01, it found that the

first waiver was still invalid based on the second and third grounds stated by the CTA

Second Division. Pertinent portions of the Decision read as follows:

While the Court En Banc agrees with the second and third grounds for

invalidating the first waiver, it finds that the Assistant Commissioner of the Enforcement

Service is authorized to sign the waiver pursuant to RDAO No. 05-01, which provides in

part as follows:

A. For National Office cases

Designated Revenue Official

1. Assistant Commissioner (ACIR), For tax fraud and policy

Enforcement Service cases

2. ACIR, Large Taxpayers Service For large taxpayers cases

other than those cases falling under

Subsection B hereof

3. ACIR, Legal Service For cases pending

verification and awaiting

resolution of certain legal issues prior

to prescription and for

issuance/compliance of Subpoena

Duces Tecum

4. ACIR, Assessment Service (AS) For cases which are

pending in or subject to

review or approval by the

ACIR, AS

Based on the foregoing, the Assistant Commissioner, Enforcement Service is

authorized to sign waivers in tax fraud cases. A perusal of the records reveals that the

investigation of the subject deficiency taxes in this case was conducted by the National

Investigation Division of the BIR, which was formerly named the Tax Fraud Division.

Thus, the subject assessment is a tax fraud case.

Nevertheless, the first waiver is still invalid based on the second and third

grounds stated by the Court in Division. Hence, it did not extend the prescriptive period

to assess.

Moreover, assuming arguendo that the first waiver is valid, the second waiver is

invalid for violating Section 222(b) of the 1997 Tax Code which mandates that the period

agreed upon in a waiver of the statute can still be extended by subsequent written

agreement, provided that it is executed prior to the expiration of the first period agreed

upon. As previously discussed, the exceptions to the law on prescription must be strictly

construed.

In the case at bar, the period agreed upon in the subject first waiver expired on

December 31, 2002. The second waiver in the instant case which was supposed to

extend the period to assess to December 31, 2003 was executed on February 18, 2003

and was notarized on February 19, 2003. Clearly, the second waiver was executed after

the expiration of the first period agreed upon. Consequently, the same could not have

tolled the 3-year prescriptive period to assess.13[13]

Petitioner sought reconsideration but the same was unavailing.

Issue

Hence, the present recourse where petitioner interposes that:

THE COURT OF TAX APPEALS EN BANC ERRED IN RULING THAT THE

GOVERNMENT’S RIGHT TO ASSESS UNPAID TAXES OF RESPONDENT

PRESCRIBED.14[14]

Petitioner’s Arguments

Petitioner argues that the government’s right to assess taxes is not barred by

prescription as the two waivers executed by respondent, through its accountant,

effectively tolled or extended the period within which the assessment can be made. In

disputing the conclusion of the CTA that the waivers are invalid, petitioner claims that

respondent is estopped from adopting a position contrary to what it has previously taken.

Petitioner insists that by acquiescing to the audit during the period specified in the

waivers, respondent led the government to believe that the “delay” in the process would

not be utilized against it. Thus, respondent may no longer repudiate the validity of the

waivers and raise the issue of prescription.

Respondent’s Arguments

Respondent maintains that prescription had set in due to the invalidity of the

waivers executed by Pasco, who executed the same without any written authority from it,

in clear violation of RDAO No. 5-01. As to the doctrine of estoppel by acquiescence

relied upon by petitioner, respondent counters that the principle of equity comes into play

only when the law is doubtful, which is not present in the instant case.

Our Ruling

The petition is bereft of merit.

Section 20315[15] of the National Internal Revenue Code of 1997 (NIRC)

mandates the government to assess internal revenue taxes within three years from the last

day prescribed by law for the filing of the tax return or the actual date of filing of such

return, whichever comes later. Hence, an assessment notice issued after the three-year

prescriptive period is no longer valid and effective. Exceptions however are provided

under Section 22216[16] of the NIRC.

The waivers executed by respondent’s

accountant did not extend the period within

which the assessment can be made

Petitioner does not deny that the assessment notices were issued beyond the three-

year prescriptive period, but claims that the period was extended by the two waivers

executed by respondent’s accountant.

We do not agree.

Section 222 (b) of the NIRC provides that the period to assess and collect taxes

may only be extended upon a written agreement between the CIR and the taxpayer

executed before the expiration of the three-year period. RMO 20-9017[17] issued on

April 4, 1990 and RDAO 05-0118[18] issued on August 2, 2001 lay down the procedure

for the proper execution of the waiver, to wit:

1. The waiver must be in the proper form prescribed by RMO 20-90. The

phrase “but not after ______ 19 ___”, which indicates the expiry date of

the period agreed upon to assess/collect the tax after the regular three-

year period of prescription, should be filled up.

2. The waiver must be signed by the taxpayer himself or his duly

authorized representative. In the case of a corporation, the waiver must

be signed by any of its responsible officials. In case the authority is

delegated by the taxpayer to a representative, such delegation should be

in writing and duly notarized.

3. The waiver should be duly notarized.

4. The CIR or the revenue official authorized by him must sign the waiver

indicating that the BIR has accepted and agreed to the waiver. The date

of such acceptance by the BIR should be indicated. However, before

signing the waiver, the CIR or the revenue official authorized by him

must make sure that the waiver is in the prescribed form, duly notarized,

and executed by the taxpayer or his duly authorized representative.

5. Both the date of execution by the taxpayer and date of acceptance by the

Bureau should be before the expiration of the period of prescription or

before the lapse of the period agreed upon in case a subsequent

agreement is executed.

6. The waiver must be executed in three copies, the original copy to be

attached to the docket of the case, the second copy for the taxpayer and

the third copy for the Office accepting the waiver. The fact of receipt by

the taxpayer of his/her file copy must be indicated in the original copy to

show that the taxpayer was notified of the acceptance of the BIR and the

perfection of the agreement.19[19]

A perusal of the waivers executed by respondent’s accountant reveals the

following infirmities:

1. The waivers were executed without the notarized written authority of

Pasco to sign the waiver in behalf of respondent.

2. The waivers failed to indicate the date of acceptance.

3. The fact of receipt by the respondent of its file copy was not indicated

in the original copies of the waivers.

Due to the defects in the waivers, the period to assess or collect taxes was not

extended. Consequently, the assessments were issued by the BIR beyond the three-year

period and are void.

Estoppel does not apply in this case

We find no merit in petitioner’s claim that respondent is now estopped from

claiming prescription since by executing the waivers, it was the one which asked for

additional time to submit the required documents.

In Collector of Internal Revenue v. Suyoc Consolidated Mining Company,20[20]

the doctrine of estoppel prevented the taxpayer from raising the defense of prescription

against the efforts of the government to collect the assessed tax. However, it must be

stressed that in the said case, estoppel was applied as an exception to the statute of

limitations on collection of taxes and not on the assessment of taxes, as the BIR was able

to make an assessment within the prescribed period. More important, there was a finding

that the taxpayer made several requests or positive acts to convince the government to

postpone the collection of taxes, viz:

It appears that the first assessment made against respondent based on its second

final return filed on November 28, 1946 was made on February 11, 1947. Upon receipt

of this assessment respondent requested for at least one year within which to pay the

amount assessed although it reserved its right to question the correctness of the

assessment before actual payment. Petitioner granted an extension of only three months.

When it failed to pay the tax within the period extended, petitioner sent respondent a

letter on November 28, 1950 demanding payment of the tax as assessed, and upon receipt

of the letter respondent asked for a reinvestigation and reconsideration of the assessment.

When this request was denied, respondent again requested for a reconsideration on April

25, 1952, which was denied on May 6, 1953, which denial was appealed to the

Conference Staff. The appeal was heard by the Conference Staff from September 2, 1953

to July 16, 1955, and as a result of these various negotiations, the assessment was finally

reduced on July 26, 1955. This is the ruling which is now being questioned after a

protracted negotiation on the ground that the collection of the tax has already prescribed.

It is obvious from the foregoing that petitioner refrained from collecting the tax

by distraint or levy or by proceeding in court within the 5-year period from the filing of

the second amended final return due to the several requests of respondent for extension to

which petitioner yielded to give it every opportunity to prove its claim regarding the

correctness of the assessment. Because of such requests, several reinvestigations were

made and a hearing was even held by the Conference Staff organized in the collection

office to consider claims of such nature which, as the record shows, lasted for several

months. After inducing petitioner to delay collection as he in fact did, it is most unfair for

respondent to now take advantage of such desistance to elude his deficiency income tax

liability to the prejudice of the Government invoking the technical ground of prescription.

While we may agree with the Court of Tax Appeals that a mere request for

reexamination or reinvestigation may not have the effect of suspending the running of the

period of limitation for in such case there is need of a written agreement to extend the

period between the Collector and the taxpayer, there are cases however where a taxpayer

may be prevented from setting up the defense of prescription even if he has not

previously waived it in writing as when by his repeated requests or positive acts the

Government has been, for good reasons, persuaded to postpone collection to make him

feel that the demand was not unreasonable or that no harassment or injustice is meant by

the Government. And when such situation comes to pass there are authorities that hold,

based on weighty reasons, that such an attitude or behavior should not be countenanced if

only to protect the interest of the Government.

This case has no precedent in this jurisdiction for it is the first time that such has

risen, but there are several precedents that may be invoked in American jurisprudence. As

Mr. Justice Cardozo has said: “The applicable principle is fundamental and unquestioned.

‘He who prevents a thing from being done may not avail himself of the nonperformance

which he has himself occasioned, for the law says to him in effect “this is your own act,

and therefore you are not damnified.”’ “(R. H. Stearns Co. vs. U.S., 78 L. ed., 647). Or,

as was aptly said, “The tax could have been collected, but the government withheld

action at the specific request of the plaintiff. The plaintiff is now estopped and should not

be permitted to raise the defense of the Statute of Limitations.” [Newport Co. vs. U.S.,

(DC-WIS), 34 F. Supp. 588].21[21]

Conversely, in this case, the assessments were issued beyond the prescribed

period. Also, there is no showing that respondent made any request to persuade the BIR

to postpone the issuance of the assessments.

The doctrine of estoppel cannot be applied in this case as an exception to the

statute of limitations on the assessment of taxes considering that there is a detailed

procedure for the proper execution of the waiver, which the BIR must strictly follow. As

we have often said, the doctrine of estoppel is predicated on, and has its origin in, equity

which, broadly defined, is justice according to natural law and right.22[22] As such, the

doctrine of estoppel cannot give validity to an act that is prohibited by law or one that is

against public policy.23[23] It should be resorted to solely as a means of preventing

injustice and should not be permitted to defeat the administration of the law, or to

accomplish a wrong or secure an undue advantage, or to extend beyond them

requirements of the transactions in which they originate.24[24] Simply put, the doctrine

of estoppel must be sparingly applied.

Moreover, the BIR cannot hide behind the doctrine of estoppel to cover its failure

to comply with RMO 20-90 and RDAO 05-01, which the BIR itself issued. As stated

earlier, the BIR failed to verify whether a notarized written authority was given by the

respondent to its accountant, and to indicate the date of acceptance and the receipt by the

respondent of the waivers. Having caused the defects in the waivers, the BIR must bear

the consequence. It cannot shift the blame to the taxpayer. To stress, a waiver of the

statute of limitations, being a derogation of the taxpayer’s right to security against

prolonged and unscrupulous investigations, must be carefully and strictly

construed.25[25]

As to the alleged delay of the respondent to furnish the BIR of the required

documents, this cannot be taken against respondent. Neither can the BIR use this as an

excuse for issuing the assessments beyond the three-year period because with or without

the required documents, the CIR has the power to make assessments based on the best

evidence obtainable.26[26]

WHEREFORE, the petition is DENIED. The assailed Decision dated March

30, 2007 and Resolution dated May 18, 2007 of the Court of Tax Appeals are hereby

AFFIRMED.

SO ORDERED.