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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 government.

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 citizenry. 

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.

In 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 27, 2006).


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.