TFS Incorporated vs CIR

 G.R. No. 166829               April 19 2010

TFS, INCORPORATED, Petitioner,

vs.

COMMISSIONER OF INTERNAL REVENUE, Respondent.

FACTS:

TFS, Incorporated is a duly organized domestic corporation engaged in the pawnshop business. On January 15, 2002, petitioner received a PAN for deficiency (VAT),  (EWT), and compromise penalty for the taxable year 1998. Insisting that there was no basis for the issuance of PAN, petitioner requested the (BIR) to withdraw and set aside the assessments.

In a letter-reply, respondent (CIR) informed petitioner that a (FAN) was issued on January 25, 2002, and that petitioner had until February 22, 2002 within which to file a protest letter.

On February 20, 2002, petitioner protested the FAN. There being no action taken by the CIR, petitioner filed a Petition for Review with the CTA on September 11, 2002.

During trial, petitioner offered to compromise and to settle the assessment for deficiency EWT with the BIR. Hence, leaving only the issue of VAT on pawnshops to be threshed out. Since no opposition was made by the CIR to the Motion, the same was granted by the CTA on November 4, 2003.

On April 29, 2004, the CTA rendered a Decision upholding the assessment issued against petitioner representing deficiency VAT for the year 1998, pursuant to Sections 248 and 249(B) of the National Internal Revenue Code of 1997 (NIRC). The CTA ruled that pawnshops are subject to VAT under Section 108(A) of the NIRC as they are engaged in the sale of services for a fee, remuneration or consideration.

Aggrieved, petitioner moved for reconsideration but the motion was denied by the CTA.

Petitioner filed before the Court of Appeals (CA) a Motion for Extension of Time to File Petition for Review. On August 24, 2004, it filed a Petition for Review but it was dismissed by the CA for lack of jurisdiction in view of the enactment of Republic Act No. 9282 (RA 9282).

Realizing its error, petitioner filed a Petition for Review with the CTA En Banc on September 16, 2004. The petition, however, was dismissed for having been filed out of time. Petitioner filed a Motion for Reconsideration but it was denied. Hence, this petition.

ISSUE:

WHETHER THE HONORABLE COURT OF TAX APPEALS EN BANC SHOULD HAVE GIVEN DUE COURSE TO THE PETITION FOR REVIEW AND NOT STRICTLY APPLIED THE TECHNICAL RULES OF PROCEDURE TO THE DETRIMENT OF JUSTICE.

RULING:

Yes. While it is true that in the instant case, RA 9282 took effect on April 23, 2004, while petitioner filed its Petition for Review on Certiorari with the CA on August 24, 2004, or four months after the effectivity of the law. By then, petitioner’s counsel should have been aware of and familiar with the changes introduced by RA 9282. Thus, we find petitioner’s argument on the newness of RA 9282 a bit of a stretch.

And while it is true that petitioner likewise cannot validly claim that its erroneous filing of the petition with the CA was justified by the absence of the CTA rules and regulations and the incomplete membership of the CTA En Banc as these did not defer the effectivity and implementation of RA 9282. In fact, under Section 2 of RA 9282,27 the presence of four justices already constitutes a quorum for En Banc sessions and the affirmative votes of four members of the CTA En Banc are sufficient to render judgment. Thus, to us, the petitioner’s excuse of "inadvertence or honest oversight of counsel" deserves scant consideration.

However, we will overlook this procedural lapse in the interest of substantial justice. Although a client is bound by the acts of his counsel, including the latter’s mistakes and negligence, a departure from this rule is warranted where such mistake or neglect would result in serious injustice to the client. Procedural rules may thus be relaxed for persuasive reasons to relieve a litigant of an injustice not commensurate with his failure to comply with the prescribed procedure. Such is the situation in this case.

In fine, although strict compliance with the rules for perfecting an appeal is indispensable for the prevention of needless delays and for the orderly and expeditious dispatch of judicial business, strong compelling reasons such as serving the ends of justice and preventing a grave miscarriage may nevertheless warrant the suspension of the rules. In the instant case, we are constrained to disregard procedural rules because we cannot in conscience allow the government to collect deficiency VAT from petitioner considering that the government has no right at all to collect or to receive the same. Besides, dismissing this case on a mere technicality would lead to the unjust enrichment of the government at the expense of petitioner, which we cannot permit. Technicalities should never be used as a shield to perpetrate or commit an injustice.

WHEREFORE, the Petition is GRANTED.