FABTECH vs. CIR (Tax 2)

FABTECH EXPORT INDUSTRIES, INC., vs. COMMISSIONER OF INTERNAL REVENUE, 

CTA Case No. 8435 Petitioner

FACTS:

Respondent through Revenue Region No. 9, San Pablo City issued Letter of Authority11 with No. 200800007920 on September 11, 2008 to examine petitioner's books of accounts and other accounting records for all internal revenue taxes covering the period from January 1, 2007 to December 31, 2007. The said Letter of Authority was revalidated on January 20, 2009; and a Post Reporting Notice was issued on January 29, 2010 for deficiency VAT, deficiency withholding tax and compromise penalty in the aggregate amount of P3,114,4 71.15. 

On the other hand, respondent through Bureau of Internal Revenue, Letter Notice Task Force - National Office (BIR, LN Task Force) issued a Letter of Authority with No. 2009 00010290 on May 11, 2010 authorizing 

RO Lalaine F. Faraon Team Head Satina B. Marinduque, to examine petitioner's books of account and other accounting records for income tax, value added tax, withholding tax issues based per LN No. 056 TRS 07-00-

00014 and the corresponding preprocessed data under TRS for taxable year 2007. Subsequently, respondent issued a Notice for Informal Conference and Preliminary Assessment Notice.

On January 24, 2011, pursuant to LOA No. 2009 00010290 and Letter Notices 056-TRS-07-00-00014 respondent (BIR, LN Task Force) issued a Final Assessment Notices with Details of Discrepancies and Assessment Notice assessing petitioner for deficiency value-added tax and deficiency 

income tax.

In a letter dated March 2, 2011, to which petitioner protested the said Final Assessment Notice, respondent replied on March 30, 2011. Respondent (BIR, LN Task Force), likewise, sent a Letter dated May 11, 2011 to petitioner informing the latter that she was withdrawing and cancelling the Final Assessment Notice. 

On April 11, 2011, respondent, through BIR, Revenue Region No. 9, San Pablo City, issued the subject Formal Letter of Demand, Details of Discrepancies (Annex "A" of Formal Letter of Demand) and Audit Results/ Assessment Notices for deficiency value-added tax and compromise penalty.

ISSUE:

Whether or not the Formal Letter of Demand with Audit Results/Assessment Notice dated 11 April 2011 was issued in violation of petitioner's right to due process.

RULING:

Yes, 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. 

After careful evaluation of the records, it appears that there was no preassessment notice issued in connection with Letter of Authority LOA No. 2008 00007920. Despite respondent's failure to notify petitioner of its assessment, the former still issued the subject Formal Letter of Demand, Details of Discrepancies and Audit Results/ Assessment Notices. It is worthy to note that the Preliminary Assessment Notice attached in the record was issued in connection with the Letter of Authority LOA No. 2009 00010290, but not with the LOA No. 2008 00007920. Clearly, respondent violated petitioner's right to due process. Thus, the Formal Letter of Demand, Details of Discrepancies and Audit Results/ Assessment Notices are null and void.