Denial of due process
Denial of due process by: Maria Noeli V. Francisco
It is unmistakable that
the state has the inherent power of taxation, which has been defined as the
power by which the state raises revenue necessary to defray the expenses of the
Indeed, it is
recognized that this power is borne out of necessity: the government has to
function and provide for the various needs of the nation.
However, just like the
police power and power of eminent domain, the Constitution has provided for
limitations to lessen incidences of abuse and to serve as protection for the
One of the limitations to
the exercise of the power of taxation provided by the Constitution is the observance
of due process of law, substantive or procedural.
Under this limitation,
one is given the right to be notified and be heard regarding a particular
issue. In tax practice, it becomes all the more significant in cases of assessments
against taxpayers. Thus, in a recent case decided by the Court of Tax Appeals
(CTA), it was stressed that the non-observance of the procedural due process in
the service and issuance of the assessment notices, Preliminary Assessment
Notice (PAN) and Final Assessment Notice (FAN), has the effect of rendering
them void ab initio. There being no
valid assessment, when prescription sets in, taxpayers can no longer be held
liable for the alleged discrepancies found for the tax period stated therein.
In the said case, the
Bureau of Internal Revenue (BIR) alleged that the FAN had been validly served to
petitioner by registered mail to the taxpayer’s previous address as appearing
in its Income Tax Return for the tax period covered by the assessment notice.
rebuttal, the petitioner denied having received the FAN by proving that it had
not in fact been served and received and that the BIR officials had actual
knowledge of the change of its business address.
In resolving the issue,
the CTA ruled that in case a taxpayer denies receiving an assessment from the
BIR, the latter has the burden of proving that indeed a copy of the assessment
was sent to the taxpayer. In support of this ruling, the CTA cited the case of
Barcelon, Roxas, Inc. vs. Commissioner of Internal Revenue (G.R. No. 157064, August 7, 2006), where
the Supreme Court (SC) explained that in case the taxpayer denies ever having
received an assessment from the BIR, it is incumbent upon the latter to prove
by competent evidence that such notice was indeed received by the addressee.
The onus probandi was shifted to the
respondent to prove by contrary evidence that the petitioner received the
assessment by mail.
The SC has consistently held that while a mailed letter is
deemed received by the addressee in the course of mail, this is merely a
disputable presumption subject to controversion and a direct denial thereof
shifts the burden to the party favored by the presumption to prove that the
mailed letter was indeed received by the addressee.
Based on this, the CTA found that the
respondent failed to discharge the duty of proving the receipt of the
assessment by the petitioner. It was clear that the petitioner had not been
served a copy of the FAN, despite the fact that the respondent had been
informed that the petitioner has yet to receive a copy of the FAN. Likewise,
the respondent was actually informed of the new address of the petitioner, not
only through the returns bearing the new address but also due to the fact that the
respondent’s officers had actually visited the new office of the petitioner.
Therefore, no FAN was validly served on the petitioner.
The issue on the denial
of procedural process, which renders the FAN void ab initio, was emphasized more clearly by the fact that the FAN was
issued on the same date that the PAN was served upon the petitioner. The CTA
agreed with the petitioner and explained that in order for an assessment to be
valid, the procedural requirements provided under Section 228 of the National
Internal Revenue Code (NIRC) of 1997 (Protesting an Assessment), as amended,
and Revenue Regulations Nos. 12-85 (Section 3. Time to Reply) and 12-99
(Section 3. Due Process Requirement in the Issuance of Deficiency Tax Assessment),
and Revenue Memorandum Order No. 37-94 (C. Review of Reports of Investigation
and Service of Pre-assessment Notices) must be complied with. The cited
provisions of law and regulations clearly illustrate the process to be followed
in assessment cases in order for the taxpayer to be afforded due process.
In summary, after the
Revenue Officer conducts a re-investigation, the taxpayer shall be notified in
writing of the purposes of the Informal Conference. If there is sufficient
basis for the assessment, a PAN shall be issued and sent to the taxpayer, who
is then given 15 days to make a reply and is also permitted to examine the
records and present his arguments in writing. In case of failure to respond to
the PAN, the taxpayer shall be sent a FAN, which shall state the facts and the
law on which the assessment is based. The taxpayer may file a protest based on
the FAN within 30 days and then submit the relevant supporting documents within
60 days. Otherwise, the assessment shall become final.
By serving the PAN and
issuing the FAN on the same date, the respondent patently violated the
above-cited provisions and therefore denied the petitioner’s right to due
process. Citing BPI Data Systems Corporation vs. Commissioner of Internal
Revenue (CTA Case No. 4530, January 12,
1994), the CTA stated that due to the failure of the respondent to strictly
comply with the procedure prescribed by law and the failure of the petitioner
to receive a copy of the alleged assessment, the latter was not afforded its
right to be heard for it was denied the opportunity to protest or dispute the
alleged assessment. The CTA went on to say that it cannot bestow the
presumption of correctness on the assessment in the absence of any showing that
administrative remedies granted by law have been properly exhausted or that
petitioner has failed to file a protest on the assessment within the prescribed
period despite receipt thereof.
Thus, since petitioner
was not sent a FAN, the assessment is void.
To proceed heedlessly with tax collection without first establishing a
valid assessment is evidently violative of the cardinal principle in
administrative investigations: that taxpayer should be able to present their
case and adduce supporting evidence (Commissioner
of Internal Revenue vs. Azucena T. Reyes, G.R. Nos. 159694 and 163581, January
Interestingly, the CTA
has ruled in Direct Container Lines vs. CIR (CTA Case No. 7616, September 10, 2009) that
the issuance of the PAN may be dispensed with without having violated due
process of law where the taxpayer, after protesting to the Post Reporting
Notice, subsequently received a FAN. It is to be stressed, however, that in the
case at bar the BIR had already issued the PAN and, therefore, the taxpayer
should have been given the opportunity to present its case through the
observance of the procedural due process provided under existing tax laws rules
and regulations. Thus, the taxpayer should have had the opportunity to reply to
the PAN within the reglementary period of 15 days before a FAN was issued.
Failing to do so, the respondent is deemed to have violated the taxpayer’s
right to due process of law.