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Today is Thursday, December 03, 2015

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 198677

November 26, 2014

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
BASF COATING + INKS PHILS., INC., Respondent.
DECISION
PERALTA, J.:
Before the Court is a petition for review on certiorari assailing the Decision 1 of the Court of Tax Appeals (CTA) En
Banc, dated June 16, 2011, and Resolution2 dated September 16, 2011, in C.T.A. EB No. 664 (C.T.A. Case No.
7125).
The pertinent factual and procedural antecedents of the case are as follows:
Respondent was a corporation which was duly organized under and by virtue of the laws of the Republic of the
Philippines on August 1, 1990 with a term of existence of fifty (50) years. Its BIR-registered address was at 101
Marcos Alvarez Avenue, Barrio Talon, Las Pias City. In a joint special meeting held on March 19, 2001, majorityof
the members of the Board of Directors and the stockholders representing more than two-thirds (2/3) of the entire
subscribed and outstanding capital stock of herein respondent corporation, resolved to dissolve the corporation by
shortening its corporate term to March 31, 2001. 3 Subsequently, respondent moved out of its address in Las Pias
City and transferred to Carmelray Industrial Park, Canlubang, Calamba, Laguna.
On June 26, 2001, respondent submitted two (2) letters to the Bureau of Internal Revenue (BIR) Revenue District
Officer of Revenue District Office (RDO) No. 53, Region 8, in Alabang, Muntinlupa City. The first letter, dated April
26, 2001, was a notice of respondent's dissolution, in compliance with the requirements of Section 52(c) of the
National Internal Revenue Code.4 On the other hand, the second letter, dated June 22, 2001, was a manifestation
indicating the submission of various documents supporting respondent's dissolution, among which was BIR Form
No. 1905, which refers to an update of information contained in its tax registration.5
Thereafter, in a Formal Assessment Notice (FA N) dated January 17, 2003, petitioner assessed respondent the
aggregate amount of P18,671,343.14 representing deficiencies in income tax, value added tax, withholding tax on
compensation, expanded withholding tax and documentary stamp tax, including increments, for the taxable year
1999.6 The FAN was sent by registered mail on January 24, 2003 to respondent's former address in Las Pias City.
On March 5, 2004, the Chief of the Collection Section of BIR Revenue Region No. 7, RDO No. 39, South Quezon
City, issued a First Notice Before Issuance of Warrant of Distraint and Levy, which was sent to the residence of one
of respondent's directors.7
On March 19, 2004, respondent filed a protest letter citing lack of due process and prescription as grounds. 8 On
April 16, 2004, respondent filed a supplemental letter of protest. 9 Subsequently, on June 14, 2004, respondent
submitted a letter wherein it attached documents to prove the defenses raised in its protest letters. 10
On January 10, 2005, after 180 dayshad lapsed without action on the part of petitioner on respondent's protest, the
latter filed a Petition for Review11 with the CTA.
Trial on the merits ensued.
On February 17, 2010, the CTA Special First Division promulgated its Decision, 12 the dispositive portion of which
reads, thus:

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WHEREFORE, the Petition for Review is hereby GRANTED. The assessments for deficiency income tax in the
amount of P14,227,425.39, deficiency value-added tax of P3,981,245.66, deficiency withholding tax on
compensation of P49,977.21, deficiency expanded withholding tax of P156,261.97 and deficiency documentary
stamp tax of P256,432.91, including increments, in the aggregate amount of P18,671,343.14 for the taxable year
1999 are hereby CANCELLED and SET ASIDE.
SO ORDERED.13
The CTA Special First Division ruled that since petitioner was actually aware of respondent's new address, the
former's failure to send the Preliminary Assessment Notice and FAN to the said address should not be taken against
the latter. Consequently, since there are no valid notices sent to respondent, the subsequent assessments against it
are considered void. Aggrieved by the Decision, petitioner filed a Motion for Reconsideration, but the CTA Special
First Division denied it in its Resolution14 dated July 13, 2010.
Petitioner then filed a Petition for Review with the CTA En Banc. 15
On June 16, 2011, the CTA En Banc promulgated its assailed Decision denying petitioner's Petition for Review for
lack of merit. The CTA En Banc held that petitioner's right to assess respondent for deficiency taxes for the taxable
year 1999 has already prescribed and that the FAN issued to respondent never attained finality because respondent
did not receive it.
Petitioner filed a Motion for Reconsideration, but the CTA En Banc denied it in its Resolution dated September 16,
2011.
Hence, the present petition with the following Assignment of Errors:
I
THE HONORABLE CTA EN BANC ERRED IN RULING THAT THE RIGHT OF PETITIONER TO ASSESS HEREIN
RESPONDENT FOR DEFICIENCY INCOME TAX, VALUEADDED TAX, WITHHOLDING TAX ON
COMPENSATION, EXPANDED WITHHOLDING TAX AND DOCUMENTARY STAMP TAX, FOR TAXABLE YEAR
1999 IS BARRED BY PRESCRIPTION.
II
THE HONORABLE COURT OF TAX APPEALS, EN BANC, ERRED IN RULING THAT THE FORMAL
ASSESSMENT NOTICE (FAN) FOR RESPONDENT'S DEFICIENCY INCOME TAX, VALUE-ADDED TAX,
WITHHOLDING TAX ON COMPENSATION, EXPANDED WITHHOLDING TAX AND DOCUMENTARY STAMP TAX
FOR TAXABLE YEAR 1999 HAS NOT YET BECOME FINAL, EXECUTORY AND DEMANDABLE. 16
The petition lacks merit.
Petitioner contends that, insofar as respondent's alleged deficiency taxes for the taxable year1999 are concerned,
the running of the three-year prescriptive period to assess, under Sections 203 and 222 of the National Internal
Revenue Act of 1997 (Tax Reform Act of 1997) was suspended when respondent failed to notify petitioner, in
writing, of its change of address, pursuant to the provisions of Section 223 of the same Act and Section 11 of BIR
Revenue Regulation No. 12-85.
Sections 203, 222 and 223 of the Tax Reform Act of 1997 provide, respectively:
Sec. 203. Period of Limitation Upon Assessment and Collection. Except as provided in Section 222,internal
revenue taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the return,
and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of
such period: Provided, That in a case where a return is filed beyond the period prescribed by law, the three (3)-year
period shall be counted from the day the return was filed. For purposes of this Section, a return filed before the last
day prescribed by law for the filing thereof shall be considered as filed on such last day. (emphasis supplied)
Sec. 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes. (a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may
be assessed, or a proceeding in court for the collection of such tax may be filed without assessment, at any
time within ten (10) years after the discovery of the falsity, fraud or omission: Provided, That in a fraud
assessment which has become final and executory, the fact of fraud shall be judicially taken cognizance of in
the civil or criminal action for the collection thereof.

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(b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both the
Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be
assessed within the period agreed upon.
The period so agreed upon may be extended by subsequent written agreement made before the expiration of
the period previously agreed upon.
(c) Any internal revenue tax which has been assessed within the period of limitation as prescribed in
paragraph (a) hereof may be collected by distraint or levy or by a proceeding in court within five (5) years
following the assessment of the tax.
(d) Any internal revenue tax, which has been assessed within the period agreed upon as provided in
paragraph (b) hereinabove, may be collected bydistraint or levy or by a proceeding in court within the period
agreed upon in writing before the expiration of the five (5) -year period. The period so agreed upon may be
extended by subsequent written agreements made before the expiration of the period previously agreed
upon.
(e) Provided, however, That nothing in the immediately preceding and paragraph (a) hereof shall be
construed to authorize the examination and investigation or inquiry into any tax return filed in accordance with
the provisions of any tax amnesty law or decree.
Sec. 223. Suspension of Running of Statute of Limitations. - The running of the Statute of Limitations provided in
Sections 203 and 222 on the making of assessment and the beginning of distraint or levy a proceeding in court for
collection, in respect of any deficiency, shall be suspended for the period during which the Commissioner is
prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for sixty (60) days
thereafter; when the taxpayer requests for a reinvestigation which is granted by the Commissioner; 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: Provided, that, if the taxpayer informs the Commissioner of any change in address, the running of the
Statute of Limitations will not be suspended; when the warrant of distraint or levy is duly served upon the taxpayer,
his authorized representative, or a member of his household with sufficient discretion, and no property could be
located; and when the taxpayer is out of the Philippines. (emphasis supplied)
In addition, Section 11 of BIR Revenue Regulation No. 12-85 states:
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:
1) Checklist on Income Tax/Withholding Tax/Documentary Stamp Tax/Value-Added Tax and Other Percentage
Taxes;17
2) General Information (BIR Form No. 23-02);18
3) Report on Taxpayer's Delinquent Account, dated June 27, 2002;19
4) Activity Report, dated October 17, 2002;20
5) Memorandum Report of Examiner, dated June 27, 2002;21

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6) Revenue Officer's Audit Report on Income Tax;22

7) Revenue Officer's Audit Report on Value-Added Tax;23
8) Revenue Officer's Audit Report on Compensation Withholding Taxes; 24
9) Revenue Officer's Audit Report on Expanded Withholding Taxes; 25
10) Revenue Officer's Audit Report on Documentary Stamp Taxes.26
The above documents, all of which were accomplished and signed by officers of the BIR, clearly show that
respondent's address is at Carmelray Industrial Park, Canlubang, Calamba, Laguna. The CTA also found that BIR
officers, at various times prior to the issuance of the subject FAN, conducted examination and investigation of
respondent's tax liabilities for 1999 at the latter's new address in Laguna as evidenced by the following, in addition
to the above mentioned records:
1) Letter, dated September 27, 2001, signed by Revenue Officer I Eugene R. Garcia;27
2) Final Request for Presentation of Records Before Subpoena Duces Tecum, dated March 20, 2002, signed
by Revenue Officer I Eugene R. Garcia.28
Moreover, the CTA found that, based on records, the RDO sent respondent a letter dated April 24, 2002 informing
the latter of the results of their investigation and inviting it to an informal conference. 29 Subsequently, the RDO also
sent respondent another letter dated May 30, 2002, acknowledging receipt of the latter's reply to his April 24, 2002
letter.30 These two letters were sent to respondent's new address in Laguna. Had the RDO not been informed or
was not aware of respondent's new address, he could not have sent the said letters to the said address.
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:
Prescription in the assessment and in the collection of taxes is provided by the Legislature for the benefit of both the
Government and the taxpayer; for the Government for the purpose of expediting the collection of taxes, so that the
agency charged with the assessment and collection may not tarry too long or indefinitely tothe prejudice of the
interests of the Government, which needs taxes to run it; and for the taxpayer so that within a reasonable time after
filing his return, hemay know the amount of the assessment he is required to pay, whether or not such assessment
is well founded and reasonable so that he may either pay the amount of the assessment or contest its validity
incourt x x x. It would surely be prejudicial to the interest of the taxpayer for the Government collecting agency to
unduly delay the assessment and the collection because by the time the collecting agency finally gets around to
making the assessment or making the collection, the taxpayer may then have lost his papers and books to support
his claim and contest that of the Government, and what is more, the tax is in the meantime accumulating interest
which the taxpayer eventually has to pay.34
Likewise, in Republic of the Philippines v. Ablaza, 35 this Court elucidated that the prescriptive period for the filing of
actions for collection of taxes is justified by the need to protect law-abiding citizens from possible harassment. Also,
in Bank of the Philippine Islands v. Commissioner of Internal Revenue, 36 it was held that the statute of limitations on
the assessment and collection of taxes is principally intended to afford protection to the taxpayer against
unreasonable investigations as the indefinite extension of the period for assessment deprives the taxpayer of the
assurance that he will no longer be subjected to further investigation for taxes after the expiration of a reasonable
period of time. 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

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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 governments 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. 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.
1 wph i1

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 ones
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 citizens 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.
WHEREFORE, the instant petition is DENIED. The Decision of the Court of Tax Appeals En Banc, dated June 16,
2011, and its Resolution dated September 16, 2011, in C.T.A. EB No. 664 (C.T.A. Case No. 7125), are AFFIRMED.
SO ORDERED.
DIOSDADO M. PERALTA
Associate Justice
WE CONCUR:
PRESBITERO J. VELASCO, JR.
Associate Justice
Chairperson
LUCAS P. BERSAMIN*
Associate Justice

MARTIN S. VILLARAMA, JR.

Associate Justice

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BIENVENIDO L. REYES
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned
to the writer of the opinion of the Court's Division.
PRESBITERO J. VELASCO, JR.
Associate Justice
Chairperson, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I certify that the
conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of
the opinion of the Court's Division.
MARIA LOURDES P.A. SERENO
Chief Justice

Footnotes
*

Designated Acting Member, in lieu of Associate Justice Francis H. Jardeleza, per Raffle dated November 3,
2014.
1

Penned by Associate Justice Olga Palanca-Enriquez, with Presiding Justice Ernesto D. Acosta and
Associate Justices Juanito C. Castaneda, Jr., Lovell R. Bautista, Erlinda P. Uy, Caesar A. Casanova,
Esperanza R. Fabon-Victorino, Cielito N. Mindaro-Grulla and Amelita R. Fabon-Victorino concurring; Annex
"A" to Petition, rollo pp. 33-48.
2

Annex "B" to Petition, id. at 50-53.

See Exhibit "H", records, vol. I, pp. 216-218.

See Exhibit, "J-2", id.at 247.

See Exhibit "J", id.at 245.

See Exhibit "A", id.at 154-155.

See Exhibit "C", id.at 171.

Exhibit "D", id.at 173-179.

Exhibit "E", id.at 164-166.

10

See Exhibit "G", id.at 167-170.

11

Records, vol. I, pp. 1-14.

12

Id. at 1051-1068.

13

Id. at 1067.

14

Id. at 1097-1100.

15

CTA En Banc rollo, pp. 6-18.

16

Rollo, pp. 20-21.

17

Exhibit "O", BIR records, pp. 865-866.

18

Exhibit "P", id. at 864

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19

Exhibit "Q", id. at 862.

20

Exhibit "R", id. at 861.

21

Exhibit "S"/Exhibit "4" and "4-A", id. at 859-860.

22

Exhibit "T", id.at 858.

23

Exhibit "U", id.at 856.

24

Exhibit "V", id.at 854.

25

Exhibit "W", id.at 853.

26

BIR records, p. 852.

27

Id. at 2.

28

Id. at 1.

29

Exhibit "X", id. at 847.

30

Exhibit "Y", id. at 645.

31

See TSN, July 18, 2006, pp. 4-11.

32

G.R. No. 167146, October 31, 2006, 506 SCRA 427.

33

104 Phil. 819, 833-834 (1958).

34

Commissioner of Internal Revenue v. Philippine Global Communication, Inc., supraat 439.

35

108 Phil. 1105, 1108 (1960).

36

G.R. No. 139736, October 17, 2005, 473 SCRA 205, 225.

37

G.R. No. 104171, February 24, 1999, 303 SCRA 546, 554.

38

Records, vol. I, p. 171.

39

Commissioner of Internal Revenue v. Reyes/Reyes v. Commissioner of Internal Revenue,G.R. No s .

159694/163581, January 27, 2006, 480 SCRA 382, 396.
40

Commissioner of Internal Revenue v. United Salvage and Towage (Phils.), Inc.,G.R. No. 197515, July 2,
2014.
41

G.R. No. L-28896, February 17, 1988, 158 SCRA 9.

42

Id.at 11 and 16-17.

43

Commissioner of Internal Revenue v. Metro Star Superama, Inc.,G.R. No. 185371, December 8, 2010, 637
SCRA 633, 647.
44

Section 3.1.7 Constructive Service. If the notice to the taxpayer herein required is served by registered
mail, and no response is received from the taxpayer within the prescribed period from date of the posting
thereof in the mail, the same shall be considered actually or constructively received by the taxpayer. If the
same is personally served on the taxpayer or his duly authorized representative who, however, 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 reportof this matter which shall form part of the docket of this case.
45

G.R. No. L-19470, January 30, 1965, 13 SCRA 104.

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