G.R. Nos.

172045-46               June 16, 2009

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
FIRST EXPRESS PAWNSHOP COMPANY, INC., Respondent.

CARPIO, J.:

The Case

The Commissioner of Internal Revenue (petitioner) filed this Petition for Review1 to reverse the Court of
Tax Appeals’ Decision2 dated 24 March 2006 in the consolidated cases of C.T.A. EB Nos. 60 and 62. In
the assailed decision, the Court of Tax Appeals (CTA) En Banc partially reconsidered the CTA First
Division’s Decision3 dated 24 September 2004.

The Facts

On 28 December 2001, petitioner, through Acting Regional Director Ruperto P. Somera of Revenue
Region 6 Manila, issued the following assessment notices against First Express Pawnshop Company,
Inc. (respondent):

a. Assessment No. 31-1-984 for deficiency income tax of ₱20,712.58 with compromise penalty of
₱3,000;

b. Assessment No. 31-14-000053-985 for deficiency value-added tax (VAT) of ₱601,220.18 with

compromise penalty of ₱16,000;

c. Assessment No. 31-14-000053-986 for deficiency documentary stamp tax (DST) of ₱12,328.45

on deposit on subscription with compromise penalty of ₱2,000; and

d. Assessment No. 31-1-000053-987 for deficiency DST of ₱62,128.87 on pawn tickets with

compromise penalty of ₱8,500.

Respondent received the assessment notices on 3 January 2002. On 1 February 2002, respondent filed
its written protest on the above assessments. Since petitioner did not act on the protest during the 180-
day period,8 respondent filed a petition before the CTA on 28 August 2002.9

Respondent contended that petitioner did not consider the supporting documents on the interest
expenses and donations which resulted in the deficiency income tax.10 Respondent maintained that
pawnshops are not lending investors whose services are subject to VAT, hence it was not liable for
deficiency VAT.11 Respondent also alleged that no deficiency DST was due because Section 18012 of the
National Internal Revenue Code (Tax Code) does not cover any document or transaction which relates to
respondent. Respondent also argued that the issuance of a pawn ticket did not constitute a pledge under
Section 19513 of the Tax Code.14

In its Answer filed before the CTA, petitioner alleged that the assessment was valid and correct and the
taxpayer had the burden of proof to impugn its validity or correctness. Petitioner maintained that
respondent is subject to 10% VAT based on its gross receipts pursuant to Republic Act No. 7716, or the
Expanded Value-Added Tax Law (EVAT). Petitioner also cited BIR Ruling No. 221-91 which provides that
pawnshop tickets are subject to DST. 15

On 1 July 2003, respondent paid ₱27,744.88 as deficiency income tax inclusive of interest.16
After trial on the merits, the CTA First Division ruled, thus:

IN VIEW OF ALL THE FOREGOING, the instant petition is hereby PARTIALLY GRANTED. Assessment
No. 31-1-000053-98 for deficiency documentary stamp tax in the amount of Sixty-Two Thousand One
Hundred Twenty-Eight Pesos and 87/100 (₱62,128.87) and Assessment No. 31-14-000053-98 for
deficiency documentary stamp tax on deposits on subscription in the amount of Twelve Thousand Three
Hundred Twenty-Eight Pesos and 45/100 (₱12,328.45) are CANCELLED and SET ASIDE. However,
Assessment No. 31-14-000053-98 is hereby AFFIRMED except the imposition of compromise penalty in
the absence of showing that petitioner consented thereto (UST vs. Collector, 104 SCRA 1062; Exquisite
Pawnshop Jewelry, Inc. vs. Jaime B. Santiago, et al., supra).

Accordingly petitioner is ORDERED to PAY the deficiency value added tax in the amount of Six Hundred
One Thousand Two Hundred Twenty Pesos and 18/100 (₱601,220.18) inclusive of deficiency interest for
the year 1998. In addition, petitioner is ORDERED to PAY 25% surcharge and 20% delinquency
interest per annum from February 12, 2002 until fully paid pursuant to Sections 248 and 249 of the 1997
Tax Code.

SO ORDERED.17 (Boldfacing in the original)

Both parties filed their Motions for Reconsideration which were denied by the CTA First Division for lack
of merit. Thereafter, both parties filed their respective Petitions for Review under Section 11 of Republic
Act No. 9282 (RA 9282) with the CTA En Banc.18

On 24 March 2006, the CTA En Banc promulgated a Decision affirming respondent’s liability to pay the
VAT and ordering it to pay DST on its pawnshop tickets. However, the CTA En Banc found that
respondent’s deposit on subscription was not subject to DST.19

Aggrieved by the CTA En Banc’s Decision which ruled that respondent’s deposit on subscription was not
subject to DST, petitioner elevated the case before this Court.

The Ruling of the Court of Tax Appeals

On the taxability of deposit on subscription, the CTA, citing First Southern Philippines Enterprises, Inc. v.
Commissioner of Internal Revenue,20 pointed out that deposit on subscription is not subject to DST in the
absence of proof that an equivalent amount of shares was subscribed or issued in consideration for the
deposit. Expressed otherwise, deposit on stock subscription is not subject to DST if: (1) there is no
agreement to subscribe; (2) there are no shares issued or any additional subscription in the restructuring
plan; and (3) there is no proof that the issued shares can be considered as issued certificates of stock.21

The CTA ruled that Section 17522 of the Tax Code contemplates a subscription agreement. The CTA
explained that there can be subscription only with reference to shares of stock which have been unissued,
in the following cases: (a) the original issuance from authorized capital stock at the time of incorporation;
(b) the opening, during the life of the corporation, of the portion of the original authorized capital stock
previously unissued; or (c) the increase of authorized capital stock achieved through a formal amendment
of the articles of incorporation and registration of the articles of incorporation with the Securities and
Exchange Commission.23

The CTA held that in this case, there was no subscription or any contract for the acquisition of unissued
stock for ₱800,000 in the taxable year assessed. The General Information Sheet (GIS) of respondent
showed only a capital structure of ₱500,000 as Subscribed Capital Stock and ₱250,000 as Paid-up
Capital Stock and did not include the assessed amount. Mere reliance on the presumption that the
assessment was correct and done in good faith was unavailing vis-à-vis the evidence presented by
respondent. Thus, the CTA ruled that the assessment for deficiency DST on deposit on subscription has
not become final.24
 The Issue

Petitioner submits this sole issue for our consideration: whether the CTA erred on a question of law in
disregarding the rule on finality of assessments prescribed under Section 228 of the Tax Code.
Corollarily, petitioner raises the issue on whether respondent is liable to pay ₱12,328.45 as DST on
deposit on subscription of capital stock.

The Ruling of the Court

Petitioner contends that the CTA erred in disregarding the rule on the finality of assessments prescribed
under Section 228 of the Tax Code.25 Petitioner asserts that even if respondent filed a protest, it did not
offer evidence to prove its claim that the deposit on subscription was an "advance" made by respondent’s
stockholders.26 Petitioner alleges that respondent’s failure to submit supporting documents within 60 days
from the filing of its protest as required under Section 228 of the Tax Code caused the assessment of
₱12,328.45 for deposit on subscription to become final and unassailable.27

Petitioner alleges that revenue officers are afforded the presumption of regularity in the performance of
their official functions, since they have the distinct opportunity, aside from competence, to peruse records
of the assessments. Petitioner invokes the principle that by reason of the expertise of administrative
agencies over matters falling under their jurisdiction, they are in a better position to pass judgment
thereon; thus, their findings of fact are generally accorded great respect, if not finality, by the courts.
Hence, without the supporting documents to establish the non-inclusion from DST of the deposit on
subscription, petitioner’s assessment pursuant to Section 228 of the Tax Code had become final and
unassailable.28

Respondent, citing Standard Chartered Bank-Philippine Branches v. Commissioner of Internal

Revenue,29 asserts that the submission of all the relevant supporting documents within the 60-day period
from filing of the protest is directory.

Respondent claims that petitioner requested for additional documents in petitioner’s letter dated 12 March
2002, to wit: (1) loan agreement from lender banks; (2) official receipts of interest payments issued to
respondent; (3) documentary evidence to substantiate donations claimed; and (4) proof of payment of
DST on subscription.30 It must be noted that the only document requested in connection with respondent’s
DST assessment on deposit on subscription is proof of DST payment. However, respondent could not
produce any proof of DST payment because it was not required to pay the same under the law
considering that the deposit on subscription was an advance made by its stockholders for future
subscription, and no stock certificates were issued.31 Respondent insists that petitioner could have issued
a subpoena requiring respondent to submit other documents to determine if the latter is liable for DST on
deposit on subscription pursuant to Section 5(c) of the Tax Code.32

Respondent argues that deposit on future subscription is not subject to DST under Section 175 of the Tax
Code. Respondent explains:

It must be noted that deposits on subscription represent advances made by the stockholders and are in
the nature of liabilities for which stocks may be issued in the future. Absent any express agreement
between the stockholders and petitioner to convert said advances/deposits to capital stock, either through
a subscription agreement or any other document, these deposits remain as liabilities owed by respondent
to its stockholders. For these deposits to be subject to DST, it is necessary that a conversion/subscription
agreement be made by First Express and its stockholders. Absent such conversion, no DST can be
imposed on said deposits under Section 175 of the Tax Code.33 (Underscoring in the original)

Respondent contends that by presenting its GIS and financial statements, it had already sufficiently
proved that the amount sought to be taxed is deposit on future subscription, which is not subject to
DST.34 Respondent claims that it cannot be required to submit proof of DST payment on subscription
because such payment is non-existent. Thus, the burden of proving that there was an agreement to
subscribe and that certificates of stock were issued for the deposit on subscription rests on petitioner and
his examiners. Respondent states that absent any proof, the deficiency assessment has no basis and
should be cancelled.35

On the Taxability of Deposit on Stock Subscription

DST is a tax on documents, instruments, loan agreements, and papers evidencing the acceptance,
assignment, sale or transfer of an obligation, right or property incident thereto. DST is actually an excise
tax because it is imposed on the transaction rather than on the document.36 DST is also levied on the
exercise by persons of certain privileges conferred by law for the creation, revision, or termination of
specific legal relationships through the execution of specific instruments.37 The Tax Code provisions on
DST relating to shares or certificates of stock state:

Section 175. Stamp Tax on Original Issue of Shares of Stock. - On every original issue, whether on
organization, reorganization or for any lawful purpose, of shares of stock by any association, company or
corporation, there shall be collected a documentary stamp tax of Two pesos (₱2.00) on each Two
hundred pesos (₱200), or fractional part thereof, of the par value, of such shares of stock: Provided, That
in the case of the original issue of shares of stock without par value the amount of the documentary stamp
tax herein prescribed shall be based upon the actual consideration for the issuance of such shares of
stock: Provided, further, That in the case of stock dividends, on the actual value represented by each
share.38

Section 176. Stamp Tax on Sales, Agreements to Sell, Memoranda of Sales, Deliveries or Transfer of
Due-bills, Certificates of Obligation, or Shares or Certificates of Stock. - On all sales, or agreements to
sell, or memoranda of sales, or deliveries, or transfer of due-bills, certificates of obligation, or shares or
certificates of stock in any association, company or corporation, or transfer of such securities by
assignment in blank, or by delivery, or by any paper or agreement, or memorandum or other evidences of
transfer or sale whether entitling the holder in any manner to the benefit of such due-bills, certificates of
obligation or stock, or to secure the future payment of money, or for the future transfer of any due-bill,
certificate of obligation or stock, there shall be collected a documentary stamp tax of One peso and fifty
centavos (₱1.50) on each Two hundred pesos (₱200), or fractional part thereof, of the par value of such
due-bill, certificate of obligation or stock: Provided, That only one tax shall be collected on each sale or
transfer of stock or securities from one person to another, regardless of whether or not a certificate of
stock or obligation is issued, indorsed, or delivered in pursuance of such sale or transfer: And provided,
further, That in the case of stock without par value the amount of the documentary stamp tax herein
prescribed shall be equivalent to twenty-five percent (25%) of the documentary stamp tax paid upon the
original issue of said stock.39

In Section 175 of the Tax Code, DST is imposed on the original issue of shares of stock. The DST, as an
excise tax, is levied upon the privilege, the opportunity and the facility of issuing shares of stock.
In Commissioner of Internal Revenue v. Construction Resources of Asia, Inc.,40 this Court explained that
the DST attaches upon acceptance of the stockholder’s subscription in the corporation’s capital stock
regardless of actual or constructive delivery of the certificates of stock. Citing Philippine Consolidated
Coconut Ind., Inc. v. Collector of Internal Revenue,41 the Court held:

The documentary stamp tax under this provision of the law may be levied only once, that is upon the
original issue of the certificate. The crucial point therefore, in the case before Us is the proper
interpretation of the word ‘issue.’ In other words, when is the certificate of stock deemed ‘issued’ for the
purpose of imposing the documentary stamp tax? Is it at the time the certificates of stock are printed, at
the time they are filled up (in whose name the stocks represented in the certificate appear as certified by
the proper officials of the corporation), at the time they are released by the corporation, or at the time they
are in the possession (actual or constructive) of the stockholders owning them?
xxx

Ordinarily, when a corporation issues a certificate of stock (representing the ownership of stocks in the
corporation to fully paid subscription) the certificate of stock can be utilized for the exercise of the
attributes of ownership over the stocks mentioned on its face. The stocks can be alienated; the dividends
or fruits derived therefrom can be enjoyed, and they can be conveyed, pledged or encumbered. The
certificate as issued by the corporation, irrespective of whether or not it is in the actual or constructive
possession of the stockholder, is considered issued because it is with value and hence the documentary
stamp tax must be paid as imposed by Section 212 of the National Internal Revenue Code, as amended.

In Section 176 of the Tax Code, DST is imposed on the sales, agreements to sell, memoranda of sales,
deliveries or transfer of shares or certificates of stock in any association, company, or corporation, or
transfer of such securities by assignment in blank, or by delivery, or by any paper or agreement, or
memorandum or other evidences of transfer or sale whether entitling the holder in any manner to the
benefit of such certificates of stock, or to secure the future payment of money, or for the future transfer of
certificates of stock. In Compagnie Financiere Sucres et Denrees v. Commissioner of Internal Revenue,
this Court held that under Section 176 of the Tax Code, sales to secure the future transfer of due-bills,
certificates of obligation or certificates of stock are subject to documentary stamp tax.42

Revenue Memorandum Order No. 08-98 (RMO 08-98) provides the guidelines on the corporate stock
documentary stamp tax program. RMO 08-98 states that:

1. All existing corporations shall file the Corporation Stock DST Declaration, and the DST Return,
if applicable when DST is still due on the subscribed share issued by the corporation, on or
before the tenth day of the month following publication of this Order.

xxx

3. All existing corporations with authorization for increased capital stock shall file their Corporate
Stock DST Declaration, together with the DST Return, if applicable when DST is due on
subscriptions made after the authorization, on or before the tenth day of the month following
the date of authorization. (Boldfacing supplied)

RMO 08-98, reiterating Revenue Memorandum Circular No. 47-97 (RMC 47-97), also states that what is
being taxed is the privilege of issuing shares of stock, and, therefore, the taxes accrue at the time the
shares are issued. RMC 47-97 also defines issuance as the point in which the stockholder acquires and
may exercise attributes of ownership over the stocks.

As pointed out by the CTA, Sections 175 and 176 of the Tax Code contemplate a subscription agreement
in order for a taxpayer to be liable to pay the DST. A subscription contract is defined as any contract for
the acquisition of unissued stocks in an existing corporation or a corporation still to be formed.43 A stock
subscription is a contract by which the subscriber agrees to take a certain number of shares of the capital
stock of a corporation, paying for the same or expressly or impliedly promising to pay for the same.44

In this case, respondent’s Stockholders’ Equity section of its Balance Sheet as of 31 December
199845 shows:

Stockholders’ Equity 1998 1997

Authorized Capital Stock ₱ 2,000,000.00 ₱ 2,000,000.00
Paid-up Capital Stock 250,000.00 250,000.00
Deposit on Subscription 800,000.00
 Retained Earnings 62,820.34 209,607.20
Net Income (858,498.38) (146,786.86)
Total ₱ 254,321.96 ₱ 312,820.34

The GIS submitted to the Securities and Exchange Commission on 31 March 1999 shows the following
Capital Structure:46

B. Financial Profile

1. Capital Structure :

AUTHORIZED - ₱2,000,000.00
SUBSCRIBED - 500,000.00
PAID-UP - 250,000.00

These entries were explained by Miguel Rosario, Jr. (Rosario), respondent’s external auditor, during the
hearing before the CTA on 11 June 2003. Rosario testified in this wise:

Atty. Napiza

Q. Mr. Rosario, I refer you to the balance sheet of First Express for the year 1998 particularly the
entry of deposit on subscription in the amount of ₱800 thousand, will you please tell us what is
(sic) this entry represents?

Mr. Rosario Jr.

A. This amount of ₱800 thousand represents the case given by the stockholders to the
company but does not necessarily made (sic) payment to subscribed portion.

Atty. Napiza

Q. What is (sic) that payment stands for?

Mr. Rosario Jr.

A. This payment stands as (sic) for the deposit for future subscription.

Atty. Napiza

Q. Would you know if First Express issued corresponding shares pertinent to the amount being
deposited?

Mr. Rosario Jr.

A. No.

Atty. Napiza
 Q. What do you mean by no? Did they or they did not?

Mr. Rosario Jr.

A. They did not issue any shares because that is not the payment of subscription. That is
just a mere deposit.

Atty. Napiza

Q. Would you know, Mr. Rosario, how much is the Subscribed Capital of First Express
Pawnshop?

Mr. Rosario Jr.

A. The Subscribed Capital of First Express Pawnshop Company, Inc. for the year 1998 is ₱500
thousand.

Atty. Napiza

Q. How about the Paid Up Capital?

Mr. Rosario Jr.

A. The Paid Up Capital is ₱250 thousand.

Atty. Napiza

Q. Are (sic) all those figures appear in the balance sheet?

Mr. Rosario Jr.

A. The Paid Up Capital appeared here but the Subscribed Portion was not stated. (Boldfacing
supplied)

Based on Rosario’s testimony and respondent’s financial statements as of 1998, there was no agreement
to subscribe to the unissued shares. Here, the deposit on stock subscription refers to an amount of
money received by the corporation as a deposit with the possibility of applying the same as payment for
the future issuance of capital stock.47 In Commissioner of Internal Revenue v. Construction Resources of
Asia, Inc.,48 we held:

We are firmly convinced that the Government stands to lose nothing in imposing the documentary stamp
tax only on those stock certificates duly issued, or wherein the stockholders can freely exercise the
attributes of ownership and with value at the time they are originally issued. As regards those
certificates of stocks temporarily subject to suspensive conditions they shall be liable for said tax
only when released from said conditions, for then and only then shall they truly acquire any
practical value for their owners.lavvphil (Boldfacing supplied)

Clearly, the deposit on stock subscription as reflected in respondent’s Balance Sheet as of 1998 is not a
subscription agreement subject to the payment of DST. There is no ₱800,000 worth of subscribed capital
stock that is reflected in respondent’s GIS. The deposit on stock subscription is merely an amount of
money received by a corporation with a view of applying the same as payment for additional issuance of
shares in the future, an event which may or may not happen. The person making a deposit on stock
subscription does not have the standing of a stockholder and he is not entitled to dividends, voting rights
or other prerogatives and attributes of a stockholder. Hence, respondent is not liable for the payment of
DST on its deposit on subscription for the reason that there is yet no subscription that creates rights and
obligations between the subscriber and the corporation.

On the Finality of Assessment as Prescribed

under Section 228 of the Tax Code

Section 228 of the Tax Code provides:

SEC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized representative
finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings: Provided,
however, That a preassessment notice shall not be required in the following cases:

(a) When the finding for any deficiency tax is the result of mathematical error in the computation
of the tax as appearing on the face of the return; or

(b) When a discrepancy has been determined between the tax withheld and the amount actually
remitted by the withholding agent; or

(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax
for a taxable period was determined to have carried over and automatically applied the same
amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the
succeeding taxable year; or

(d) When the excise tax due on excisable articles has not been paid; or

(e) When an article locally purchased or imported by an exempt person, such as, but not limited
to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred
to non-exempt persons.

The taxpayer shall be informed in writing of the law and the facts on which the assessment is made;
otherwise, the assessment shall be void.

Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to
respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized
representative shall issue an assessment based on his findings.

Such assessment may be protested administratively by filing a request for reconsideration or

reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be
prescribed by implementing rules and regulations. Within sixty (60) days from filing of the protest, all
relevant supporting documents shall have been submitted; otherwise, the assessment shall
become final.

If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from
submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the
Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of the one
hundred eighty (180)-day period; otherwise, the decision shall become final, executory and demandable.
(Boldfacing supplied)

Section 228 of the Tax Code49 provides the remedy to dispute a tax assessment within a certain period of
time. It states that an assessment may be protested by filing a request for reconsideration or
reinvestigation within 30 days from receipt of the assessment by the taxpayer. Within 60 days from filing
of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment
shall become final.

In this case, respondent received the tax assessment on 3 January 2002 and it had until 2 February 2002
to submit its protest. On 1 February 2002, respondent submitted its protest and attached the GIS and
Balance Sheet as of 31 December 1998. Respondent explained that it received ₱800,000 as a deposit
with the possibility of applying the same as payment for the future issuance of capital stock.

Within 60 days from the filing of protest or until 2 April 2002, respondent should submit relevant
supporting documents. Respondent, having submitted the supporting documents together with its
protest, did not present additional documents anymore.

In a letter dated 12 March 2002, petitioner requested respondent to present proof of payment of DST on
subscription. In a letter-reply, respondent stated that it could not produce any proof of DST payment
because it was not required to pay DST under the law considering that the deposit on subscription was an
advance made by its stockholders for future subscription, and no stock certificates were issued.

Since respondent has not allegedly submitted any relevant supporting documents, petitioner now claims
that the assessment has become final, executory and demandable, hence, unappealable.

We reject petitioner’s view that the assessment has become final and unappealable. It cannot be said that
respondent failed to submit relevant supporting documents that would render the assessment final
because when respondent submitted its protest, respondent attached the GIS and Balance Sheet.
Further, petitioner cannot insist on the submission of proof of DST payment because such document does
not exist as respondent claims that it is not liable to pay, and has not paid, the DST on the deposit on
subscription.

The term "relevant supporting documents" should be understood as those documents necessary to
support the legal basis in disputing a tax assessment as determined by the taxpayer. The BIR can only
inform the taxpayer to submit additional documents. The BIR cannot demand what type of supporting
documents should be submitted. Otherwise, a taxpayer will be at the mercy of the BIR, which may require
the production of documents that a taxpayer cannot submit.1awphi1

After respondent submitted its letter-reply stating that it could not comply with the presentation of the
proof of DST payment, no reply was received from petitioner.

Section 228 states that if the protest is not acted upon within 180 days from submission of documents, the
taxpayer adversely affected by the inaction may appeal to the CTA within 30 days from the lapse of the
180-day period. Respondent, having submitted its supporting documents on the same day the protest
was filed, had until 31 July 2002 to wait for petitioner’s reply to its protest. On 28 August 2002 or within 30
days after the lapse of the 180-day period counted from the filing of the protest as the supporting
documents were simultaneously filed, respondent filed a petition before the CTA.

Respondent has complied with the requisites in disputing an assessment pursuant to Section 228 of the
Tax Code. Hence, the tax assessment cannot be considered as final, executory and demandable.
Further, respondent’s deposit on subscription is not subject to the payment of DST. Consequently,
respondent is not liable to pay the deficiency DST of ₱12,328.45.

Wherefore, we DENY the petition. We AFFIRM the Court of Tax Appeals’ Decision dated 24 March 2006
in the consolidated cases of C.T.A. EB Nos. 60 and 62.
 G.R. No. 215534, April 18, 2016

COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. LIQUIGAZ PHILIPPINES

CORPORATION, Respondent.

G.R. NO. 215557

LIQUIGAZ PHILIPPINES CORPORATION, Petitioner, v. COMMISSIONER OF INTERNAL

REVENUE, Respondent.

DECISION

MENDOZA, J.:

Presented before us is a novel issue. When may a Final Decision on Disputed Assessment (FDDA) be
declared void, and in the event that the FDD A is found void, what would be its effect on the tax
assessment?

Assailed in these consolidated petitions for review on certiorari filed under Rule 45 of the Rules of Court
are the May 22, 2014 Decision1 and the November 26, 2014 Resolution2 of the Court of Tax Appeals
(CTA) En Banc which affirmed the November 22, 2012 Decision3 of the CTA Division, Second Division
(CTA Division).

Liquigaz Philippines Corporation (Liquigaz) is a corporation duly organized and existing under Philippine
laws. On July 11, 2006, it received a copy of Letter of Authority (LOA) No. 00067824, dated July 4, 2006,
issued by the Commissioner of Internal Revenue (CIR), authorizing the investigation of all internal
revenue taxes for taxable year 2005.4

On April 9, 2008, Liquigaz received an undated letter purporting to be a Notice of Informal Conference
(NIC), as well as the detailed computation of its supposed tax liability. On May 28, 2008, it received a
copy of the Preliminary Assessment Notice5 (PAN), dated May 20, 2008, together with the attached
details of discrepancies for the calendar year ending December 31, 2005.6 Upon investigation, Liquigaz
was initially assessed with deficiency withholding tax liabilities, inclusive of interest, in the aggregate
amount of P23,931,708.72, broken down as follows:

Expanded Withholding Tax (EWT) P5,456,141.82

Withholding Tax on
P4,435,463.97
Compensation (WTC)
Fringe Benefits Tax (FBT) P14,040,102.93
TOTAL P23,931,708.72

Thereafter, on June 25, 2008, it received a Formal Letter of Demand7 (FLD)/Formal Assessment Notice
(FAN), together with its attached details of discrepancies, for the calendar year ending December 31,
2005. The total deficiency withholding tax liabilities, inclusive of interest, under the FLD was
P24,332,347.20, which may be broken down as follows:

EWT P 5,535,890.38
WTC P 4,500,169.94
FBT P 14,296,286.88
 TOTA P 24,332,347.20
L

On July 25, 2008, Liquigaz filed its protest against the FLD/FAN and subsequently submitted its
supporting documents on September 23, 2008.

Then, on July 1, 2010, it received a copy of the FDDA8 covering the tax audit under LOA No. 00067824
for the calendar year ending December 31, 2005. As reflected in the FDDA, the CIR still found Liquigaz
liable for deficiency withholding tax liabilities, inclusive of interest, in the aggregate amount of
P22,380,025.19, which may be broken down as follows:

EWT P 3,479,426.75
WTC P 4,508,025.93
FBT P14,392,572.51
TOTA P 22,380,025.19
L

Consequently, on July 29, 2010, Liquigaz filed its Petition for Review before the CTA Division assailing
the validity of the FDDA issued by the CIR.9

The CTA Division Ruling

In its November 22, 2012 Decision, the CTA Division partially granted Liquigaz's petition cancelling the
EWT and FBT assessments but affirmed with modification the WTC assessment. It ruled that the portion
of the FDDA relating to the EWT and the FBT assessment was void pursuant to Section 228 of the
National Internal Revenue Code (NIRC) of 1997, as implemented by Revenue Regulations (RR) No. 12-
99.

The CTA Division noted that unlike the PAN and the FLD/FAN, the FDDA issued did not provide the
details thereof, hence, Liquigaz had no way of knowing what items were considered by the CIR in arriving
at the deficiency assessments. This was especially true because the FDDA reflected a different amount
from what was stated in the FLD/FAN. The CTA Division explained that though the legal bases for the
EWT and FBT assessment were stated in the FDDA, the taxpayer was not notified of the factual bases
thereof, as required in Section 228 of the NIRC.

On the other hand, it upheld the WTC assessment against Liquigaz. It noted that the factual bases used
in the FLD and the FDDA with regard thereto were the same as the difference in the amount merely
resulted from the use of a different tax rate.

The CTA Division agreed with Liquigaz that the tax rate of 25.40% was more appropriate because it
represents the effective tax compensation paid, computed based on the total withholding tax on
compensation paid and the total taxable compensation income for the taxable year 2005. It did not give
credence to Liquigaz's explanation that the salaries account included accrued bonus, 13th month pay, de
minimis benefits and other benefits and contributions which were not subject to withholding tax on
compensation. The CTA Division relied on the report prepared by Antonio O. Maceda, Jr., the court-
commissioned independent accountant, which found that Liquigaz was unable to substantiate the
discrepancy found by the CIR on its withholding tax liability on compensation. The dispositive portion of
the CTA Division decision reads:

WHEREFORE, the Petition for Review is hereby PARTIALLY GRANTED. Accordingly, the assessments

for deficiency expanded withholding tax in the amount of P3,479,426.75 and fringe benefits tax in the
amount of P14,392,572.51 issued by respondent against petitioner for taxable year 2005, both inclusive
of interest and compromise penalty is hereby CANCELLED and WITHDRAWN for being void.
However, the assessment for deficiency withholding tax on compensation for taxable year 2005 is
hereby AFFIRMED with MODIFICATIONS. Accordingly, petitioner is
hereby ORDERED to PAY respondent the amount of P2,958,546.23, inclusive of the 25% surcharge
imposed under Section 248(A)(3) of the NIRC of 1997, as amended, computed as follows:

Salaries per ITR P52,239,313.00

Less: Salaries per Alphalist P42,921,057-16
Discrepancy P9,318,255-84
Tax rate 25.40%
Basic Withholding Tax on Compensation P2,366,836.98
Add: 25% Surcharge P591,709.5
Total Amount Due P2,958,546.23

In addition, petitioner is liable to pay: (a) deficiency interest at the rate of twenty percent (20%) per annum
of the basic deficiency withholding tax on compensation of P2,958,546.23 computed from January 20,
2006 until full payment thereof pursuant to Section 249(B) of the NIRC of 1997, as amended; and (b)
delinquency interest at the rate of twenty percent (20%) per annum on the total amount due of
£2,958,546.23 and on the deficiency interest which have accrued as aforestated in (a) computed from
July 1, 2010 until full payment thereof, pursuant to Section 249(0(3) of the NIRC of 1997, as amended.

The compromise penalty of P25,000.00, originally imposed by respondent is hereby excluded there being
no compromise agreement between the parties.

SO ORDERED10

Both the CIR and Liquigaz moved for reconsideration, but their respective motions were denied by the
CTA Division in its February 20, 2013 Resolution.

Aggrieved, they filed their respective petitions for review before the CTA En Banc.

The CTA En Bane- Ruling

In its May 22, 2014 Decision, the CTA En Banc affirmed the assailed decision of the CTA Division. It
reiterated its pronouncement that the requirement that the taxpayer should be informed in writing of the
law and the facts on which the assessment was made applies to the FDDA — otherwise the assessment
would be void. The CTA En Bane explained that the FDDA determined the final tax liability of the
taxpayer, which may be the subject of an appeal before the CTA.

The CTA En Banc echoed the findings of the CTA Division that while the FDDA indicated the legal
provisions relied upon for the assessment, the source of the amounts from which the assessments arose
were not shown. It emphasized the need for stating the factual bases as the FDDA
reflected different amounts than that contained in the FLD/FAN.

On the other hand, the CTA En Banc sustained Liquigaz' WTC assessment. It observed that the basis for
the assessment was the same for the FLD and the FDDA, which was a comparison of the salaries
declared in the Income Tax Return (ITR) and the Alphalist that resulted in a discrepancy of
P9,318,255.84. The CTA En Banc highlighted that the change in the amount of assessed WTC deficiency
simply arose from the revision of the tax rate used — from 32% to the effective tax rate of 25.40%
suggested by Liquigaz.
Further, it disregarded the explanation of Liquigaz on the ground of its failure to specify how much of the
salaries account pertained to de minimis benefits, accrued bonuses, salaries and wages, and
contributions to the Social Security System, Medicare and Pag-Ibig Fund. The CTA En Banc reiterated
that even the court-commissioned independent accountant reported that Liquigaz was unable to
substantiate the discrepancy found by the CIR.

Both parties moved for a partial reconsideration of the CTA En Banc Decision, but the latter denied the
motions in its November 26, 2014 Resolution.

Not satisfied, both parties filed their respective petitions for review, anchored on

SOLE ISSUE

WHETHER THE COURT OF TAX APPEALS EN BANC ERRED IN PARTIALLY UPHOLDING THE

VALIDITY OF THE ASSESSMENT AS TO THE WITHHOLDING TAX ON COMPENSATION BUT
DECLARING INVALID THE ASSESSMENT ON EXPANDED WITHHOLDING TAX AND FRINGE
BENEFITS TAX.

The present consolidated petitions revolve around the same FDDA where Liquigaz seeks the cancellation
of its remaining tax liability and the CIR aims to revive the assessments struck down by the tax court.
Basically, Liquigaz asserts that like its assessment for EWT and FBT deficiency, the WTC assessment
should have been invalidated because the FDDA did not provide for the facts on which the assessment
was based. It argues that it was deprived of due process because in not stating the factual basis of the
assessment, the CIR did not consider the defenses and supporting documents it presented.

Moreover, Liquigaz is adamant that even if the FDDA would be upheld, it should not be liable for the
deficiency WTC liability because the CIR erred in comparing its ITR and Alphalist to determine possible
discrepancies. It explains that the salaries of its employees reflected in its ITR does not reflect the total
taxable income paid and received by the employees because the same refers to the gross salaries of the
employees, which included amounts that were not subject to WTC.

On the other hand, the CIR avers that the assessments for EWT and FBT liability should be upheld
because the FDDA must be taken together with the PAN and FAN, where details of the assessments
were attached. Hence, the CIR counters that Liquigaz was fully apprised of not only the laws, but also the
facts on which the assessment was based, which were likewise evidenced by the fact that it was able to
file a protest on the assessment. Further, the CIR avers that even if the FDDA would be declared void, it
should not result in the automatic abatement of tax liability especially because RR No. 12-99 merely
states that a void decision of the CIR or his representative shall not be considered as a decision on the
assessment.

The Court's Ruling

Central to the resolution of the issue is Section 22811 of the NIRC and RR No. 12-99,12 as amended. They
lay out the procedure to be followed in tax assessments. Under Section 228 of the NIRC, a taxpayer shall
be informed in writing of the law and the facts on which the assessment is made, otherwise, the
assessment shall be void. In implementing Section 228 of the NIRC, RR No. 12-99 reiterates the
requirement that a taxpayer must be informed in writing of the law and the facts on which his tax liability
was based, to wit:

SECTION 3. Due Process Requirement in the Issuance of a Deficiency Tax Assessment. —

3.1 Mode of procedures in the issuance of a deficiency tax assessment:

3.1.1 Notice for informal conference.  — The Revenue Officer who audited the taxpayer's records shall,
among others, state in his report whether or not the taxpayer agrees with his findings that the taxpayer is
liable for deficiency tax or taxes. If the taxpayer is not amenable, based on the said Officer's submitted
report of investigation, the taxpayer shall be informed, in writing, by the Revenue District Office or by the
Special Investigation Division, as the case may be (in the case Revenue Regional Offices) or by the Chief
of Division concerned (in the case of the BIR National Office) of the discrepancy or discrepancies in the
taxpayer's payment of his internal revenue taxes, for the purpose of "Informal Conference," in order to
afford the taxpayer with an opportunity to present his side of the case. If the taxpayer fails to respond
within.fifteen (15) days from date of receipt of the notice for informal conference, he shall be considered in
default, in which case, the Revenue District Officer or the Chief of the Special Investigation Division of the
Revenue Regional Office, or the Chief of Division in the National Office, as the case may be, shall
endorse the case with the least possible delay to the: Assessment Division of the Revenue Regional
Office or to the Commissioner or his duly authorized representative, as the case may be, for appropriate
review and issuance of a deficiency tax assessment, if warranted.

3.1.2 Preliminary Assessment Notice (PAN). — If after review and evaluation by the Assessment Division
or by the Commissioner or his duly authorized representative, as the case may be, it is determined that
there exists sufficient basis to assess the taxpayer for any deficiency tax or taxes, the said Office shall
issue to the taxpayer, at least by registered, mail, a Preliminary Assessment Notice (PAN) for the
proposed assessment, showing in detail, the facts and the law, rules and regulations, or jurisprudence on
which the proposed assessment is based (see illustration in ANNEX A hereof). If the taxpayer fails to
respond within fifteen (15) days from date of receipt of the PAN, he shall be considered in default, in
which case, a formal letter of demand and assessment notice shall be caused to be issued by the said
Office, calling for payment of the taxpayer's deficiency tax liability, inclusive of the applicable penalties.
xxx

3.1.4 Formal Letter of Demand and Assessment Notice. — The formal letter of demand and assessment
notice shall be issued by the Commissioner or his duly authorized representative. The letter of demand
calling for payment of the taxpayer's deficiency tax or taxes shall state the facts, the law, rules
and regulations, or jurisprudence on which the assessment is based, otherwise, the formal letter
of demand and assessment notice shall be void (see illustration in ANNEX B hereof), xxx

3.1.5 Disputed Assessment. — The taxpayer or his duly authorized representative may protest
administratively against the aforesaid formal letter of demand and assessment notice within thirty (30)
days from date of receipt thereof. If there are several issues involved in the formal letter of demand and
assessment notice but the taxpayer only disputes or protests against the validity of some of-the issues
raised, the taxpayer shall be required to pay the deficiency tax or taxes attributable to the undisputed
issues, in which case, a collection letter shall be issued to the taxpayer calling for payment of the said
deficiency tax, inclusive of the applicable surcharge and/or interest. No action shall be taken on the
taxpayer's disputed issues until the taxpayer has paid the deficiency tax or taxes attributable to the said
undisputed issues. The prescriptive period for assessment or collection of the tax or taxes attributable to
the disputed issues shall be suspended, xxx

3.1.6 Administrative Decision on a Disputed Assessment. — The decision of the Commissioner or his

duly authorized representative shall (a) state the facts, the applicable law, rules and regulations,
or jurisprudence on which such decision is based, otherwise, the decision shall be void (see
illustration in ANNEX C hereof), in which case, the same shall not be considered a decision on a disputed
assessment; and (b) that the same is his final decision.

[Emphases and Underscoring Supplied]

The importance of providing the taxpayer of adequate written notice of his tax liability is undeniable.
Section 228 of the NIRC declares that an assessment is void if the taxpayer is not notified in writing of the
facts and law on which it is made. Again, Section 3.1.4 of RR No. 12-99 requires that the FLD must state
the facts and law on which it is based, otherwise, the FLD/FAN itself shall be void. Meanwhile, Section
3.1.6 of RR No. 12-99 specifically requires that the decision of the CIR or his duly authorized
representative on a disputed assessment shall state the facts, law and rules and regulations, or
jurisprudence on which the decision is based. Failure to do so would invalidate the FDDA.

The use of the word "shall" in Section 228 of the NIRC and in RR No. 12-99 indicates that the
requirement of informing the taxpayer of the legal and factual bases of the assessment and the decision
made against him is mandatory.13 The requirement of providing the taxpayer with written notice of the
factual and legal bases applies both to the FLD/FAN and the FDDA.

Section 228 of the NIRC should not be read restrictively as to limit the written notice'only to the
assessment itself. As implemented by RR No. 12-99, the written notice requirement for both the FLD and
the FAN is in observance of due process — to afford the taxpayer adequate opportunity to file a protest
on the assessment and thereafter file an appeal in case of an adverse decision.

To rule otherwise would tolerate abuse and prejudice. Taxpayers will be unable to file an intelligent
appeal before the CTA as they would be unaware on how the CIR or his' authorized representative
appreciated the defense raised in connection with the assessment. On the other hand, it raises the
possibility that the amounts reflected in the FDDA were arbitrarily made if the factual and legal bases
thereof are not shown.

A void FDDA does not

ipso facto render the
assessment void

The CIR arid Liquigaz are at odds with regards to the effect of a void FDDA. Liquigaz harps that a void
FDDA will lead to a void assessment because the FDDA ultimately determines the final tax'liability of
a'taxpayer, which may then be appealed before the CTA. On the other hand, the CIR believes that a void
FDDA does not ipso facto result in the nullification of the assessment.

In resolving the issue on the effects of a void FDDA, it is necessary to differentiate an "assessment" from
a "decision." In St. Stephen's Association v. Collector of Internal Revenue,14 the Court has long
recognized that a "decision"- differs from an "assessment," to wit:

In the first place, we believe the respondent court erred in holding that the assessment in question is the
respondent Collector's decision or ruling appealable to it, and that consequently, the period of thirty days
prescribed by section li of Republic Act No. 1125 within which petitioner should have appealed to the
respondent court must be counted from its receipt of said assessment. Where a taxpayer questions an
assessment and asks the Collector to reconsider or cancel the same because he (the taxpayer) believes
he is not liable therefor, the assessment becomes a "disputed assessment" that the Collector must
decide, and the taxpayer can appeal to the Court of Tax Appeals only upon receipt of the decision of the
Collector on the disputed assessment, in accordance with paragraph (1) of section 7, Republic Act No.
1125, conferring appellate jurisdiction upon the Court of Tax Appeals to review "decisions of the Collector
of Internal Revenue in cases involving disputed assessment..."

The difference is likewise readily apparent in Section 715 of R.A. 1125,16 as amended, where the CTA is
conferred with appellate jurisdiction over the decision of the CIR in cases involving disputed assessments,
as well as inaction of the CIR in disputed assessments. From the foregoing, it is clear that what is
appealable to the CTA is the "decision" of the CIR on disputed assessment and not the assessment itself.

An assessment becomes a disputed assessment after a taxpayer has filed its protest to the assessment
in the administrative level. Thereafter, the CIR either issues a decision on the disputed assessment or
fails to act on it and is, therefore, considered denied. The taxpayer may then appeal the decision on the
disputed assessment or the inaction of the CIR. As such, the FDDA is not the only means that the final
tax liability of a taxpayer is fixed, which may then be appealed by the taxpayer. Under the law, inaction on
the part of the CIR may likewise result in the finality of a taxpayer's tax liability as it is deemed a denial of
the protest filed by the latter, which may also be appealed before the CTA.
Clearly, a decision of the CIR on a disputed assessment differs from the assessment itself. Hence, the
invalidity of one does not necessarily result to the invalidity of the other — unless the law or regulations
otherwise provide.

Section 228 of the NIRC provides that an assessment shall be void if the taxpayer is not informed in
writing of the law and the facts on which it is based. It is, however, silent with regards to a decision on a
disputed assessment by the CIR which fails to state the law and facts on which it is based. This void is
filled by RR No. 12-99 where it is stated that failure of the FDDA to reflect the facts and law on which it is
based will make the decision void. It, however, does not extend to the nullification of the entire
assessment.

With the effects of a void FDDA expounded, the next issue to be addressed is whether the assailed FDDA
is void for failure to state the facts and law on which it was based.

The FDDA must state the

facts and law on which it
is based to provide the
taxpayer the opportunity
to file an intelligent
appeal

The CIR and Liquigaz are also in disagreement whether the FDDA issued was compliant with the
mandatory requirement of written notice laid out in the law and implementing rules and regulations.
Liquigaz argues that the FDDA is void as it did not contain the factual bases of the assessment and
merely showed the amounts of its alleged tax liabilities.

A perusal of the FDDA issued in the case at bench reveals that it merely contained a table of Liquigaz's
supposed tax liabilities, without providing any details. The CIR explains that the FDDA still complied with
the requirements of the law as it was issued in connection with the PAN and FLD/FAN, which had an
attachment of the details of discrepancies. Hence, the CIR concludes that Liquigaz was sufficiently
informed in writing of the factual bases of the assessment.

The reason for requiring that taxpayers be informed in writing of the facts and law on which the
assessment is made is the constitutional guarantee that no person shall be deprived of his property
without due process of law.17 Merely notifying the taxpayer of its tax liabilities without elaborating on its
details is insufficient. In CIR v. Reyes,18 the Court further explained:.

In the present case, Reyes was not informed in writing of the law and the facts on which the assessment
of estate taxes had been made:. She was merely notified of the findings by the CIR, who had simply
relied upon the provisions of former Section 229 prior to its amendment by Republic Act (RA) No. 8424,
otherwise known as the Tax Reform Act of 1997.

First, RA 8424 has already amended the provision of Section 229 on protesting an assessment. The old
-requirement- of merely notifying the taxpayer of the CIR's findings was changed in 1998 to informing the
taxpayer of not only the law, but also of the facts on which an assessment would be made; otherwise, the
assessment itself would be invalid, xxx

At the time the pre-assessment notice was issued to Reyes, RA 8424 already stated that the taxpayer
must be informed of both the law and facts on which the assessment was based. Thus, the CIR should
have required the assessment officers of the Bureau of Internal Revenue (BIR) to follow the clear
mandate of the new law. The old regulation governing the issuance of estate tax assessment notices ran
afoul of the rule that tax regulations — old as they were — should be in harmony with, and not supplant or
modify, the law. xxx

Fourth, petitioner violated the cardinal rule in administrative law that the taxpayer be accorded due
process. Not only was the law here disregarded, but no valid notice was sent, either. A void 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 in
administrative investigations: that taxpayers should be able to present their case and adduce supporting
evidence. In the instant case, respondent has not been informed of the basis of the estate tax
liability. Without complying with the unequivocal mandate of first informing the taxpayer of the
government's claim, there can be no deprivation of property, because no effective protest can be
made. The haphazard shot at slapping an assessment, supposedly based on estate taxation's general
provisions that are expected to be known by the taxpayer, is utter chicanery.

Even a cursory review of the preliminary assessment notice, as well as the demand letter sent, reveals
the lack of basis for — not to mention the insufficiency of — the gross figures and details of the itemized
deductions indicated in the notice and the letter. This Court cannot countenance an assessment
based on estimates that appear to have been arbitrarily or capriciously arrived at. Although taxes
are the lifeblood of the government, their assessment .and collection "should be made in accordance with
law as any arbitrariness will negate the very reason for government itself."

[Emphases Supplied]

In CIR v. United Salvage and Towage (Phils.), Inc.,19 the Court struck down an assessment where the
FAN only contained a table of the taxes due without providing further detail thereto, to wit:

In the present case, a mere perusal of the FAN for the deficiency EWT for taxable year 1994 will show
that other than a tabulation of the alleged deficiency taxes due, no further detail regarding the assessment
was provided by petitioner. Only the resulting interest, surcharge and penalty were anchored with legal
basis. Petitioner should have at least attached a detailed notice of discrepancy or stated an
explanation why the amount of P48,461.76 is collectible against respondent and how the same
was arrived at. Any short-cuts to the prescribed content of the assessment or the process thereof should
not be countenanced, in consonance with the ruling in Commissioner of Internal Revenue v. Enron Subic
Power Corporation to wit:

The CIR insists that an examination of the facts shows that Enron was properly apprised of its tax
deficiency. During the pre-assessment stage, the CIR advised Enron's representative of the tax
deficiency, informed it of the proposed tax deficiency assessment through a preliminary five-day letter and
furnished Enron a copy of the audit working paper allegedly showing in detail the legal and factual bases
of the assessment. The CIR argues that these steps sufficed to inform Enron of the laws and facts on
which the deficiency tax assessment was based.

We disagree. The advice of tax deficiency, given by the CIR to an employee of Enron, as well as the
preliminary five-day letter, were not valid substitutes for the mandatory notice in writing of the legal and
factual bases of the assessment. These steps were mere perfunctory discharges of the CIR's duties in
correctly assessing a taxpayer. The requirement for issuing a preliminary or final notice, as the case may
be, informing a taxpayer of the existence of a deficiency tax assessment is markedly different from the
requirement of what such notice must contain. Just because the CIR issued an advice, a preliminary letter
during the pre-assessment stage and a final notice, in the order required by law, does not necessarily
mean that Enron was informed of the law and facts on which the deficiency tax assessment was made.

The law requires that the legal and factual bases of the assessment be stated in the formal letter of
demand and assessment notice. Thus, such cannot be presumed. Otherwise, the express provisions of
Article 228 of the NIRC and RR No. 12-99 would be rendered nugatory. The alleged "factual bases" in the
advice, preliminary letter and "audit working papers" did not suffice. There was no going around the
mandate of the law that the legal and factual bases of the assessment be stated in writing in the formal
letter of demand accompanying the assessment notice.
We note that the old law merely required that the taxpayer be notified of the assessment made by the
CIR. This was changed in 1998 and the taxpayer must now be informed not only of the law but also of the
facts on which the assessment is made. Such amendment is in keeping with the constitutional principle
that no ' person shall be deprived of property without due process. In view of the absence of a fair
opportunity for Enron to be informed of the legal and factual bases of the assessment against it, the
assessment in question was void.....

xxx

Applying the aforequoted rulings to the case at bar, it is clear that the assailed deficiency tax assessment
for the EWT in 1994 disregarded the provisions of Section 228 of the Tax Code, as amended, as well as
Section 3.1.4 of Revenue Regulations No. 12-99 by not providing the legal and factual bases of« the
assessment. Hence, the formal letter of demand and the notice of assessment issued relative thereto are
void.

[Emphasis Supplied]

Nevertheless, the requirement of providing the taxpayer with written notice of the facts and law used as
basis for the assessment is not to be mechanically. applied. Emphasis on the purpose of the written
notice is important. The requirement should be in place so that the taxpayer could be adequately informed
of the basis of the assessment enabling him to prepare an intelligent protest or appeal of the assessment
or decision. In Samar-I Electric Cooperative v. CIR,20 the Court elaborated:

The above information provided to petitioner enabled it to protest the PAN by questioning respondent's
interpretation of the laws cited as legal basis for the computation of the deficiency withholding taxes and
assessment of minimum corporate income tax despite petitioner's position that it remains exempt
therefrom. In its letter-reply dated May 27, 2002, respondent answered the arguments raised by petitioner
in its protest, and requested it to pay the assessed deficiency on the date of payment stated in the PAN. A
second protest letter dated June 23, 2002 was sent by petitioner, to which respondent replied (letter dated
July 8, 2002) answering each of the. two issues reiterated by petitioner: (1) validity of EO 93 withdrawing
the tax exemption privileges under PD 269; and (2) retroactive application of RR No. 8-2000. The FAN
was finally received by petitioner on September 24, 2002, and protested by it in a letter dated October 14,
2002 which reiterated in lengthy arguments its earlier interpretation of the laws and regulations upon
which the assessments were based.

Although the FAN and demand letter issued to petitioner were not accompanied by a written explanation
of the legal and factual bases of the deficiency taxes assessed against the petitioner, the records showed
that respondent in its letter dated April 10, 2003 responded to petitioner's October 14, 2002 letter-protest,
explaining at length the factual and legal bases of the deficiency tax assessments and denying the
protest.

Considering the foregoing exchange of correspondence and documents between the parties, we find that
the requirement of Section 228 was substantially complied with. Respondent had fully informed
petitioner in writing of the factual and legal bases of the deficiency taxes assessment, which enabled the
latter to file an "effective" protest, much unlike the taxpayer's situation in Enron. Petitioner's right to due
process was thus not violated.

Thus, substantial compliance with the requirement under Section 228 of the NIRC is permissible,
provided that the taxpayer would be eventually apprised in writing of the factual and legal bases of the
assessment to allow him to file an effective protest against.

The above-cited cases refer to the compliance of the FAN/FLD of the due process requirement embodied
in Section 228 of the NIRC and RR No. 12-99. These may likewise applied to the FDDA, which is similarly
required to include a written notice of the factual and legal bases thereof. Without sounding repetitious, it
is important to note that Section 228 of the NIRC did not limit the requirement of stating the facts and law
only to the FAN/FLD. On the other hand, RR No. 12-99 detailed the process of assessment and required
that both the FAN/FLD and the FDDA state the law and facts on which it is based.

Guided by the foregoing, the Court now turns to the FDDA in issue.

It is undisputed that the FDDA merely showed Liquigaz' tax liabilities without any details on the specific
transactions which gave rise to its supposed tax deficiencies. While it provided for the legal bases of the
assessment, it fell short of informing Liquigaz of the factual bases thereof. Thus, the FDDA as regards the
EWT and FBT tax deficiency did not comply with the requirement in Section 3.1.6 of RR No. 12-99, as
amended, for failure to inform Liquigaz of the factual basis thereof.

The CIR erred in claiming that Liquigaz was informed of the factual bases of the assessment because the
FDDA made reference to the PAN and FAN/FLD, which were accompanied by details of the alleged
discrepancies. The CTA En Banc highlighted that the amounts in the FAN and the FDDA were different.
As pointed out by the CTA, the FLD/FAN and the FDDA reflected the following amounts:21

Basic Expanded Withholding Fringe Total

Deficienc Withholding Tax on Benefits Tax
y Tax Compensation
Tax
Per FLD P3,675,048.78 P2,981,841.84 P9,501,564-07 P16,158,454.72
Per FDDA P1,823,782.67 P2,366,836.98 P7,572,236.16 P11,762,855.81
Difference P1,851,266.11 P615,004.80 P1,929,327.91 P4,395,598.91

As such, the Court agrees with the tax court that it becomes even more imperative that the FDDA contain
details of the discrepancy. Failure to do so would deprive Liquigaz adequate opportunity to prepare an
intelligent appeal. It would have no way of determining what were considered by the CIR in the: defenses
it had raised in the protest to the FLD. Further, without the details of the assessment, it would open the
possibility that the reduction of the assessment could have been arbitrarily or capriciously arrived at.

The Court, however, finds that the CTA erred in concluding that the assessment on EWT and FBT
deficiency was void because the FDDA covering the same was void. The assessment remains valid
notwithstanding the nullity of the FDDA because as discussed above, the assessment itself differs from a
decision on the disputed assessment.

As established, an FDDA that does not inform the taxpayer in writing of the facts and law on which it is
based renders the decision void. Therefore, it is as if there was no decision rendered by the CIR. It is
tantamount to a denial by inaction by the CIR, which may still be appealed before the CTA and the
assessment evaluated on the basis of the available evidence and documents. The merits of the EWT and
FBT assessment should have been discussed and not merely brushed aside on account of the void
FDDA.

On the other hand, the Court agrees that the FDDA substantially informed Liquigaz of its tax liabilities with
regard to its WTC assessment. As highlighted by the CTA, the basis for the assessment was the same for
the FLD and the FDDA, where the salaries reflected in the ITR and the alphalist were compared resulting
in a discrepancy of P9,318,255.84. The change in the amount of assessed deficiency withholding taxes
on compensation merely arose from the modification of the tax rates used — 32% in the FLD and the
effective tax rate of 25.40% in the FDDA. The Court notes it was Liquigaz itself which proposed the rate of
25.40% as a more appropriate tax rate as it represented the effective tax on compensation paid for
taxable year 2005.22 As such, Liquigaz was effectively informed in writing of the factual bases of its
assessment for WTC because the basis for the FDDA, with regards to the WTC, was identical with the
FAN — which had a detail of discrepancy attached to it.

Further, the Court sees no reason to reverse the decision of the CTA as to the amount of WTC liability of
Liquigaz. It is a time-honored doctrine that the findings and conclusions of the CTA are accorded the
highest respect and will not be lightly set aside because by the very nature of the CTA, it is dedicated
exclusively to the resolution of tax problems and has accordingly developed an expertise on the
subject.23 The issue of Liquigaz' WTC liability had been thoroughly discussed in the courts a quo and
even the court-appointed independent accountant had found that Liquigaz was unable to substantiate its
claim concerning the discrepancies in its WTC.

To recapitulate, a "decision" differs from an "assessment" and failure of the FDDA to state the facts and
law on which it is based renders the decision void — but not necessarily the assessment. Tax laws may
not be extended by implication beyond the clear import of their language, nor their operation enlarged so
as to embrace matters not specifically provided.24

WHEREFORE, the May 22, 2014 Decision and the November 26, 2014 Resolution of the Court of Tax
Appeals En Banc are PARTIALLY AFFIRMED in that the assessment on deficiency Withholding Tax in
Compensation is upheld.

The case is REMANDED to the Court of Tax Appeals for the assessment on deficiency Expanded
Withholding Tax and Fringe Benefits Tax.

G.R. No. 171251               March 5, 2012

LASCONA LAND CO., INC., Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

PERALTA, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking the
reversal of the Decision1 dated October 25, 2005 and Resolution2 dated January 20, 2006 of the Court of
Appeals (CA) in CA-G.R. SP No. 58061 which set aside the Decision3 dated January 4, 2000 and
Resolution4 dated March 3, 2000 of the Court of Tax Appeals (CTA) in C.T.A. Case No. 5777 and
declared Assessment Notice No. 0000047-93-407 dated March 27, 1998 to be final, executory and
demandable.

The facts, as culled from the records, are as follows:

On March 27, 1998, the Commissioner of Internal Revenue (CIR) issued Assessment Notice No.
0000047-93-4075 against Lascona Land Co., Inc. (Lascona) informing the latter of its alleged deficiency
income tax for the year 1993 in the amount of ₱753,266.56.

Consequently, on April 20, 1998, Lascona filed a letter protest, but was denied by Norberto R. Odulio,
Officer-in-Charge (OIC), Regional Director, Bureau of Internal Revenue, Revenue Region No. 8, Makati
City, in his Letter6 dated March 3, 1999, which reads, thus:

xxxx
Subject: LASCONA LAND CO., INC.

1993 Deficiency Income Tax

Madam,

Anent the 1993 tax case of subject taxpayer, please be informed that while we agree with the arguments
advanced in your letter protest, we regret, however, that we cannot give due course to your request to
cancel or set aside the assessment notice issued to your client for the reason that the case was not
elevated to the Court of Tax Appeals as mandated by the provisions of the last paragraph of Section 228
of the Tax Code. By virtue thereof, the said assessment notice has become final, executory and
demandable.

In view of the foregoing, please advise your client to pay its 1993 deficiency income tax liability in the
amount of ₱753,266.56.

x x x x (Emphasis ours)

On April 12, 1999, Lascona appealed the decision before the CTA and was docketed as C.T.A. Case No.
5777. Lascona alleged that the Regional Director erred in ruling that the failure to appeal to the CTA
within thirty (30) days from the lapse of the 180-day period rendered the assessment final and executory.

The CIR, however, maintained that Lascona's failure to timely file an appeal with the CTA after the lapse
of the 180-day reglementary period provided under Section 228 of the National Internal Revenue Code
(NIRC) resulted to the finality of the assessment.

On January 4, 2000, the CTA, in its Decision,7 nullified the subject assessment. It held that in cases of
inaction by the CIR on the protested assessment, Section 228 of the NIRC provided two options for the
taxpayer: (1) appeal to the CTA within thirty (30) days from the lapse of the one hundred eighty (180)-day
period, or (2) wait until the Commissioner decides on his protest before he elevates the case.

The CIR moved for reconsideration. It argued that in declaring the subject assessment as final, executory
and demandable, it did so pursuant to Section 3 (3.1.5) of Revenue Regulations No. 12-99 dated
September 6, 1999 which reads, thus:

If the Commissioner or his duly authorized representative fails to act on the taxpayer's protest within one
hundred eighty (180) days from date of submission, by the taxpayer, of the required documents in support
of his protest, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from the lapse
of the said 180-day period; otherwise, the assessment shall become final, executory and demandable.

On March 3, 2000, the CTA denied the CIR's motion for reconsideration for lack of merit.8 The CTA held
that Revenue Regulations No. 12-99 must conform to Section 228 of the NIRC. It pointed out that the
former spoke of an assessment becoming final, executory and demandable by reason of the inaction by
the Commissioner, while the latter referred to decisions becoming final, executory and demandable
should the taxpayer adversely affected by the decision fail to appeal before the CTA within the prescribed
period. Finally, it emphasized that in cases of discrepancy, Section 228 of the NIRC must prevail over the
revenue regulations.

Dissatisfied, the CIR filed an appeal before the CA.9

In the disputed Decision dated October 25, 2005, the Court of Appeals granted the CIR's petition and set
aside the Decision dated January 4, 2000 of the CTA and its Resolution dated March 3, 2000. It further
declared that the subject Assessment Notice No. 0000047-93-407 dated March 27, 1998 as final,
executory and demandable.

Lascona moved for reconsideration, but was denied for lack of merit.

Thus, the instant petition, raising the following issues:

THE HONORABLE COURT HAS, IN THE REVISED RULES OF COURT OF TAX APPEALS
WHICH IT RECENTLY PROMULGATED, RULED THAT AN APPEAL FROM THE INACTION OF
RESPONDENT COMMISSIONER IS NOT MANDATORY.

II

THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT HELD THAT THE ASSESSMENT
HAS BECOME FINAL AND DEMANDABLE BECAUSE, ALLEGEDLY, THE WORD "DECISION"
IN THE LAST PARAGRAPH OF SECTION 228 CANNOT BE STRICTLY CONSTRUED AS
REFERRING ONLY TO THE DECISION PER SE  OF THE COMMISSIONER, BUT SHOULD
ALSO BE CONSIDERED SYNONYMOUS WITH AN ASSESSMENT WHICH HAS BEEN
PROTESTED, BUT THE PROTEST ON WHICH HAS NOT BEEN ACTED UPON BY THE
COMMISSIONER.10

In a nutshell, the core issue to be resolved is: Whether the subject assessment has become final,
executory and demandable due to the failure of petitioner to file an appeal before the CTA within thirty
(30) days from the lapse of the One Hundred Eighty (180)-day period pursuant to Section 228 of the
NIRC.

Petitioner Lascona, invoking Section 3,11 Rule 4 of the Revised Rules of the Court of Tax Appeals,
maintains that in case of inaction by the CIR on the protested assessment, it has the option to either: (1)
appeal to the CTA within 30 days from the lapse of the 180-day period; or (2) await the final decision of
the Commissioner on the disputed assessment even beyond the 180-day period − in which case, the
taxpayer may appeal such final decision within 30 days from the receipt of the said decision. Corollarily,
petitioner posits that when the Commissioner failed to act on its protest within the 180-day period, it had
the option to await for the final decision of the Commissioner on the protest, which it did.

The petition is meritorious.

Section 228 of the NIRC is instructional as to the remedies of a taxpayer in case of the inaction of the
Commissioner on the protested assessment, to wit:

SEC. 228. Protesting of Assessment. − x x x

xxxx

Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to
respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized
representative shall issue an assessment based on his findings.

Such assessment may be protested administratively by filing a request for reconsideration or

reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be
prescribed by implementing rules and regulations.
Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been
submitted; otherwise, the assessment shall become final.

If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from
submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the
Court of Tax Appeals within (30) days from receipt of the said decision, or from the lapse of the one
hundred eighty (180)-day period; otherwise the decision shall become final, executory and demandable.
(Emphasis supplied).

Respondent, however, insists that in case of the inaction by the Commissioner on the protested
assessment within the 180-day reglementary period, petitioner should have appealed the inaction to the
CTA. Respondent maintains that due to Lascona's failure to file an appeal with the CTA after the lapse of
the 180-day period, the assessment became final and executory.

We do not agree.

In RCBC v. CIR,12 the Court has held that in case the Commissioner failed to act on the disputed
assessment within the 180-day period from date of submission of documents, a taxpayer can either: (1)
file a petition for review with the Court of Tax Appeals within 30 days after the expiration of the 180-day
period; or (2) await the final decision of the Commissioner on the disputed assessments and appeal such
final decision to the Court of Tax Appeals within 30 days after receipt of a copy of such decision.13

This is consistent with Section 3 A (2), Rule 4 of the Revised Rules of the Court of Tax Appeals,14 to wit:

SEC. 3. Cases within the jurisdiction of the Court in Divisions. – The Court in Divisions shall exercise:

(a) Exclusive original or appellate jurisdiction to review by appeal the following:

(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments,
refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other
matters arising under the National Internal Revenue Code or other laws administered by the
Bureau of Internal Revenue;

(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments,
refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other
matters arising under the National Internal Revenue Code or other laws administered by the
Bureau of Internal Revenue, where the National Internal Revenue Code or other applicable law
provides a specific period for action: Provided, that in case of disputed assessments, the inaction
of the Commissioner of Internal Revenue within the one hundred eighty day-period under Section
228 of the National Internal revenue Code shall be deemed a denial for purposes of allowing the
taxpayer to appeal his case to the Court and does not necessarily constitute a formal decision of
the Commissioner of Internal Revenue on the tax case; Provided, further, that should the
taxpayer opt to await the final decision of the Commissioner of Internal Revenue on the disputed
assessments beyond the one hundred eighty day-period abovementioned, the taxpayer may
appeal such final decision to the Court under Section 3(a), Rule 8 of these Rules; and Provided,
still further, that in the case of claims for refund of taxes erroneously or illegally collected, the
taxpayer must file a petition for review with the Court prior to the expiration of the two-year period
under Section 229 of the National Internal Revenue Code;

(Emphasis ours)

In arguing that the assessment became final and executory by the sole reason that petitioner failed to
appeal the inaction of the Commissioner within 30 days after the 180-day reglementary period,
respondent, in effect, limited the remedy of Lascona, as a taxpayer, under Section 228 of the NIRC to just
one, that is - to appeal the inaction of the Commissioner on its protested assessment after the lapse of
the 180-day period. This is incorrect.

As early as the case of CIR v. Villa,15 it was already established that the word "decisions" in paragraph 1,
Section 7 of Republic Act No. 1125, quoted above, has been interpreted to mean the decisions of the
Commissioner of Internal Revenue on the protest of the taxpayer against the assessments. Definitely,
said word does not signify the assessment itself. We quote what this Court said aptly in a previous case:

In the first place, we believe the respondent court erred in holding that the assessment in question is the
respondent Collector's decision or ruling appealable to it, and that consequently, the period of thirty days
prescribed by section 11 of Republic Act No. 1125 within which petitioner should have appealed to the
respondent court must be counted from its receipt of said assessment. Where a taxpayer questions an
assessment and asks the Collector to reconsider or cancel the same because he (the taxpayer) believes
he is not liable therefor, the assessment becomes a "disputed assessment" that the Collector must
decide, and the taxpayer can appeal to the Court of Tax Appeals only upon receipt of the decision of the
Collector on the disputed assessment, . . . 16

Therefore, as in Section 228, when the law provided for the remedy to appeal the inaction of the CIR, it
did not intend to limit it to a single remedy of filing of an appeal after the lapse of the 180-day prescribed
period. Precisely, when a taxpayer protested an assessment, he naturally expects the CIR to decide
either positively or negatively. A taxpayer cannot be prejudiced if he chooses to wait for the final decision
of the CIR on the protested assessment. More so, because the law and jurisprudence have always
contemplated a scenario where the CIR will decide on the protested assessment.

It must be emphasized, however, that in case of the inaction of the CIR on the protested assessment,
while we reiterate − the taxpayer has two options, either: (1) file a petition for review with the CTA within
30 days after the expiration of the 180-day period; or (2) await the final decision of the Commissioner on
the disputed assessment and appeal such final decision to the CTA within 30 days after the receipt of a
copy of such decision, these options are mutually exclusive and resort to one bars the application
of the other.

Accordingly, considering that Lascona opted to await the final decision of the Commissioner on the
protested assessment, it then has the right to appeal such final decision to the Court by filing a petition for
review within thirty days after receipt of a copy of such decision or ruling, even after the expiration of the
180-day period fixed by law for the Commissioner of Internal Revenue to act on the disputed
assessments.17 Thus, Lascona, when it filed an appeal on April 12, 1999 before the CTA, after its receipt
of the Letter18 dated March 3, 1999 on March 12, 1999, the appeal was timely made as it was filed within
30 days after receipt of the copy of the decision.1âwphi1

Finally, the CIR should be reminded that taxpayers cannot be left in quandary by its inaction on the
protested assessment. It is imperative that the taxpayers are informed of its action in order that the
taxpayer should then at least be able to take recourse to the tax court at the opportune time. As correctly
pointed out by the tax court:

x x x to adopt the interpretation of the respondent will not only sanction inefficiency, but will likewise
condone the Bureau's inaction. This is especially true in the instant case when despite the fact that
respondent found petitioner's arguments to be in order, the assessment will become final, executory and
demandable for petitioner's failure to appeal before us within the thirty (30) day period.19

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.20 Thus, 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.21

WHEREFORE, the petition is GRANTED. The Decision dated October 25, 2005 and the Resolution dated
January 20, 2006 of the Court of Appeals in CA-G.R. SP No. 58061 are REVERSED and SET
ASIDE. Accordingly, the Decision dated January 4, 2000 of the Court of Tax Appeals in C.T.A. Case No.
5777 and its Resolution dated March 3, 2000 are REINSTATED.

G.R. No. 168498             April 24, 2007

RIZAL COMMERCIAL BANKING CORPORATION, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

RESOLUTION

YNARES-SANTIAGO, J.:

For resolution is petitioner’s Motion for Reconsideration of our Decision1 dated June 16, 2006 affirming
the Decision of the Court of Tax Appeals En Banc dated June 7, 2005 in C.T.A. EB No. 50, which
affirmed the Resolutions of the Court of Tax Appeals Second Division dated May 3, 2004 and November
5, 2004 in C.T.A. Case No. 6475, denying petitioner’s Petition for Relief from Judgment and Motion for
Reconsideration, respectively.

Petitioner reiterates its claim that its former counsel’s failure to file petition for review with the Court of Tax
Appeals within the period set by Section 228 of the National Internal Revenue Code of 1997 (NIRC) was
excusable and raised the following issues for resolution:

A.

THE DENIAL OF PETITIONER’S PETITION FOR RELIEF FROM JUDGMENT WILL RESULT IN THE
DENIAL OF SUBSTANTIVE JUSTICE TO PETITIONER, CONTRARY TO ESTABLISHED DECISIONS
OF THIS HONORABLE COURT BECAUSE THE ASSESSMENT SOUGHT TO BE CANCELLED HAS
ALREADY PRESCRIBED – A FACT NOT DENIED BY THE RESPONDENT IN ITS ANSWER.

B.

CONTRARY TO THIS HONORABLE COURT’S DECISION, AND FOLLOWING THE LASCONA

DECISION, AS WELL AS THE 2005 REVISED RULES OF THE COURT OF TAX APPEALS,
PETITIONER TIMELY FILED ITS PETITION FOR REVIEW BEFORE THE COURT OF TAX APPEALS;
THUS, THE COURT OF TAX APPEALS HAD JURISDICTION OVER THE CASE.

C.

CONSIDERING THAT THE SUBJECT ASSESSMENT INVOLVES AN INDUSTRY ISSUE, THAT IS, A
DEFICIENCY ASSESSMENT FOR DOCUMENTARY STAMP TAX ON SPECIAL SAVINGS ACCOUNTS
AND GROSS ONSHORE TAX, PETITIONER IN THE INTEREST OF SUBSTANTIVE JUSTICE AND
UNIFORMITY OF TAXATION, SHOULD BE ALLOWED TO FULLY LITIGATE THE ISSUE BEFORE THE
COURT OF TAX APPEALS.2
Petitioner’s motion for reconsideration is denied for lack of merit.

Other than the issue of prescription, which is raised herein for the first time, the issues presented are a
mere rehash of petitioner’s previous arguments, all of which have been considered and found without
merit in our Decision dated June 16, 2006.

Petitioner maintains that its counsel’s neglect in not filing the petition for review within the reglementary
period was excusable. It alleges that the counsel’s secretary misplaced the Resolution hence the counsel
was not aware of its issuance and that it had become final and executory.

We are not persuaded.

In our Decision, we held that:

Relief cannot be granted on the flimsy excuse that the failure to appeal was due to the neglect of
petitioner’s counsel. Otherwise, all that a losing party would do to salvage his case would be to invoke
neglect or mistake of his counsel as a ground for reversing or setting aside the adverse judgment, thereby
putting no end to litigation.

Negligence to be "excusable" must be one which ordinary diligence and prudence could not have
guarded against and by reason of which the rights of an aggrieved party have probably been impaired.
Petitioner’s former counsel’s omission could hardly be characterized as excusable, much less
unavoidable.

The Court has repeatedly admonished lawyers to adopt a system whereby they can always receive
promptly judicial notices and pleadings intended for them. Apparently, petitioner’s counsel was not only
remiss in complying with this admonition but he also failed to check periodically, as an act of prudence
and diligence, the status of the pending case before the CTA Second Division. The fact that counsel
allegedly had not renewed the employment of his secretary, thereby making the latter no longer attentive
or focused on her work, did not relieve him of his responsibilities to his client. It is a problem personal to
him which should not in any manner interfere with his professional commitments.3

Petitioner also argues that, in the interest of substantial justice, the instant case should be re-opened
considering that it was allegedly not accorded its day in court when the Court of Tax Appeals dismissed
its petition for review for late filing. It claims that rules of procedure are intended to help secure, not
override, substantial justice.

Petitioner’s arguments fail to persuade us.

As correctly observed by the Court of Tax Appeals in its Decision dated June 7, 2005:

If indeed there was negligence, this is obviously on the part of petitioner’s own counsel whose prudence
in handling the case fell short of that required under the circumstances. He was well aware of the motion
filed by the respondent for the Court to resolve first the issue of this Court’s jurisdiction on July 15, 2003,
that a hearing was conducted thereon on August 15, 2003 where both counsels were present and at said
hearing the motion was submitted for resolution. Petitioner’s counsel apparently did not show enthusiasm
in the case he was handling as he should have been vigilant of the outcome of said motion and be
prepared for the necessary action to take whatever the outcome may have been. Such kind of negligence
cannot support petitioner’s claim for relief from judgment.

Besides, tax assessments by tax examiners are presumed correct and made in good faith, and all
presumptions are in favor of the correctness of a tax assessment unless proven otherwise.4 Also,
petitioner’s failure to file a petition for review with the Court of Tax Appeals within the statutory period
rendered the disputed assessment final, executory and demandable, thereby precluding it from
interposing the defenses of legality or validity of the assessment and prescription of the Government’s
right to assess.5

The Court of Tax Appeals is a court of special jurisdiction and can only take cognizance of such matters
as are clearly within its jurisdiction. Section 7 of Republic Act (R.A.) No. 9282, amending R.A. No. 1125,
otherwise known as the Law Creating the Court of Tax Appeals, provides:

Sec. 7. Jurisdiction. — The CTA shall exercise:

(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:

(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed

assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the National Internal Revenue or other
laws administered by the Bureau of Internal Revenue;

(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed

assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the National Internal Revenue Code or
other laws administered by the Bureau of Internal Revenue, where the National Internal
Revenue Code provides a specific period of action, in which case the inaction shall be
deemed a denial;

Also, Section 3, Rule 4 and Section 3(a), Rule 8 of the Revised Rules of the Court of Tax Appeals6 state:

RULE 4
Jurisdiction of the Court

xxxx

SECTION 3. Cases Within the Jurisdiction of the Court in Divisions. — The Court in Divisions shall
exercise:

(a) Exclusive original or appellate jurisdiction to review by appeal the following:

(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed

assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the National Internal Revenue Code or
other laws administered by the Bureau of Internal Revenue;

(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed

assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the National Internal Revenue Code or
other laws administered by the Bureau of Internal Revenue, where the National Internal
Revenue Code or other applicable law provides a specific period for action: Provided,
that in case of disputed assessments, the inaction of the Commissioner of Internal
Revenue within the one hundred eighty day-period under Section 228 of the National
Internal Revenue Code shall be deemed a denial for purposes of allowing the taxpayer to
appeal his case to the Court and does not necessarily constitute a formal decision of the
Commissioner of Internal Revenue on the tax case; Provided, further, that should the
taxpayer opt to await the final decision of the Commissioner of Internal Revenue on the
disputed assessments beyond the one hundred eighty day-period abovementioned, the
 taxpayer may appeal such final decision to the Court under Section 3(a), Rule 8 of these
Rules; and Provided, still further, that in the case of claims for refund of taxes erroneously
or illegally collected, the taxpayer must file a petition for review with the Court prior to the
expiration of the two-year period under Section 229 of the National Internal Revenue
Code;

xxxx

RULE 8
Procedure in Civil Cases

xxxx

SECTION 3. Who May Appeal; Period to File Petition. — (a) A party adversely affected by a decision,
ruling or the inaction of the Commissioner of Internal Revenue on disputed assessments or claims for
refund of internal revenue taxes, or by a decision or ruling of the Commissioner of Customs, the Secretary
of Finance, the Secretary of Trade and Industry, the Secretary of Agriculture, or a Regional Trial Court in
the exercise of its original jurisdiction may appeal to the Court by petition for review filed within thirty days
after receipt of a copy of such decision or ruling, or expiration of the period fixed by law for the
Commissioner of Internal Revenue to act on the disputed assessments. In case of inaction of the
Commissioner of Internal Revenue on claims for refund of internal revenue taxes erroneously or illegally
collected, the taxpayer must file a petition for review within the two-year period prescribed by law from
payment or collection of the taxes. (n)

From the foregoing, it is clear that the jurisdiction of the Court of Tax Appeals has been expanded to
include not only decisions or rulings but inaction as well of the Commissioner of Internal Revenue. The
decisions, rulings or inaction of the Commissioner are necessary in order to vest the Court of Tax Appeals
with jurisdiction to entertain the appeal, provided it is filed within 30 days after the receipt of such decision
or ruling, or within 30 days after the expiration of the 180-day period fixed by law for the Commissioner to
act on the disputed assessments. This 30-day period within which to file an appeal is jurisdictional and
failure to comply therewith would bar the appeal and deprive the Court of Tax Appeals of its jurisdiction to
entertain and determine the correctness of the assessments. Such period is not merely directory but
mandatory and it is beyond the power of the courts to extend the same.7

In case the Commissioner failed to act on the disputed assessment within the 180-day period from date of
submission of documents, a taxpayer can either: 1) file a petition for review with the Court of Tax Appeals
within 30 days after the expiration of the 180-day period; or 2) await the final decision of the
Commissioner on the disputed assessments and appeal such final decision to the Court of Tax Appeals
within 30 days after receipt of a copy of such decision. However, these options are mutually exclusive,
and resort to one bars the application of the other.

In the instant case, the Commissioner failed to act on the disputed assessment within 180 days from date
of submission of documents. Thus, petitioner opted to file a petition for review before the Court of Tax
Appeals. Unfortunately, the petition for review was filed out of time, i.e., it was filed more than 30 days
after the lapse of the 180-day period. Consequently, it was dismissed by the Court of Tax Appeals for late
filing. Petitioner did not file a motion for reconsideration or make an appeal; hence, the disputed
assessment became final, demandable and executory.

Based on the foregoing, petitioner can not now claim that the disputed assessment is not yet final as it
remained unacted upon by the Commissioner; that it can still await the final decision of the Commissioner
and thereafter appeal the same to the Court of Tax Appeals. This legal maneuver cannot be
countenanced. After availing the first option, i.e.,  filing a petition for review which was however filed out of
time, petitioner can not successfully resort to the second option, i.e., awaiting the final decision of the
Commissioner and appealing the same to the Court of Tax Appeals, on the pretext that there is yet no
final decision on the disputed assessment because of the Commissioner’s inaction.

Lastly, we note that petitioner is raising the issue of prescription for the first time in the instant motion for
reconsideration. Although the same was raised in the petition for review, it was dismissed for late filing.
No motion for reconsideration was filed hence the disputed assessment became final, demandable and
executory. Thereafter, petitioner filed with the Court of Tax Appeals a petition for relief from judgment.
However, it failed to raise the issue of prescription therein. After its petition for relief from judgment was
denied by the Court of Tax Appeals for lack of merit, petitioner filed a petition for review before this Court
without raising the issue of prescription. It is only in the instant motion for reconsideration that petitioner
raised the issue of prescription which is not allowed. The rule is well-settled that points of law, theories,
issues and arguments not adequately brought to the attention of the lower court need not be considered
by the reviewing court as they cannot be raised for the first time on appeal,8 much more in a motion for
reconsideration as in this case, because this would be offensive to the basic rules of fair play, justice and
due process.9 This last ditch effort to shift to a new theory and raise a new matter in the hope of a
favorable result is a pernicious practice that has consistently been rejected.

WHEREFORE, in view of the foregoing, petitioner’s motion for reconsideration is DENIED.

G.R. No. 208731, January 27, 2016

PHILIPPINE AMUSEMENT AND GAMING CORPORATION, Petitioner, v. BUREAU OF INTERNAL

REVENUE, COMMISSIONER OF INTERNAL REVENUE, AND REGIONAL DIRECTOR, REVENUE
REGION NO. 6, Respondents.

DECISION

CARPIO, J.:

The Case

G.R. No. 208731 is a petition for review1 assailing the Decision2 promulgated on 18 February 2013 as well
as the Resolution3 promulgated on 23 July 2013 by the Court of Tax Appeals En Banc (CTA En Banc) in
CTA EB No. 844. The CTA EB affirmed the Decision dated 6 July 20114 and Resolution5 dated 13
October 2011 of the Court of Tax Appeals' First Division (CTA 1st Division) in CTA Case No. 7880.

In its 6 July 2011 Decision, the CTA 1st Division ruled in favor of the Bureau of Internal Revenue (BIR),
Commissioner of Internal Revenue (CIR), and the Regional Director of Revenue Region No. 6
(collectively, respondents) and against petitioner Philippine Amusement and Gaming Corporation
(PAGCOR). The CTA 1st Division dismissed PAGCOR's petition for review seeking the cancellation of the
Final Assessment Notice (FAN) dated 14 January 2008 which respondents issued for alleged deficiency
fringe benefits tax in 2004. The CTA 1st Division ruled that PAGCOR's petition was filed out of time.

The Facts

The CTA 1st Division recited the facts as follows:chanRoblesvirtualLawlibrary

[PAGCOR] claims that it is a duly organized government-owned and controlled corporation existing under
and by virtue of Presidential Decree No. 1869, as amended, with business address at the 6th Floor, Hyatt
Hotel and Casino, Pedro Gil corner M.H. Del Pilar Streets, Malate, Manila. It was created to regulate,
establish and operate clubs and casinos for amusement and recreation, including sports gaming pools,
and such other forms of amusement and recreation.

Respondent [CIR], on the other hand, is the Head of the [BIR] with authority, among others, to resolve
protests on assessments issued by her office or her authorized representatives. She holds office at the
BIR National Office Building, Agham Road, Diliman, Quezon City.

[PAGCOR] provides a car plan program to its qualified officers under which sixty percent (60%) of the car
plan availment is shouldered by PAGCOR and the remaining forty percent (40%) for the account of the
officer, payable in five (5) years.

On October 10, 2007, [PAGCOR] received a Post Reporting Notice dated September 28, 2007 from BIR
Regional Director Alfredo Misajon [RD Misajon] of Revenue Region 6, Revenue District No. 33, for an
informal conference to discuss the result of its investigation on [PAGCOR's] internal revenue taxes in
2004. The Post Reporting Notice shows that [PAGCOR] has deficiencies on Value Added Tax (VAT),
Withholding Tax on VAT (WTV), Expanded Withholding Tax (EWT), and Fringe Benefits Tax (FBT).

Subsequently, the BIR abandoned the claim for deficiency assessments on VAT, WTV and EWT in the
Letter to [PAGCOR] dated November 23, 2007 in view of the principles laid down in Commissioner of
Internal Revenue vs. Acesite Hotel Corporation [G.R. No. 147295] exempting [PAGCOR] and its
contractors from VAT. However, the assessment on deficiency FBT subsists and remains due to date.

On January 17, 2008, [PAGCOR] received a Final Assessment Notice [FAN] dated January 14, 2008,
with demand for payment of deficiency FBT for taxable year 2004 in the amount of P48,589,507.65.

On January 24, 2008, [PAGCOR] filed a protest to the FAN addressed to [RD Misajon] of Revenue
Region No. 6 of the BIR.

On August 14, 2008, [PAGCOR] elevated its protest to respondent CIR in a Letter dated August 13, 2008,
there being no action taken thereon as of that date.

In a Letter dated September 23, 2008 received on September 25, 2008, [PAGCOR] was informed that the
Legal Division of Revenue Region No. 6 sustained Revenue Officer Ma. Elena Llantada on the imposition
of FBT against it based on the provisions of Revenue Regulations (RR) No. 3-98 and that its protest was
forwarded to the Assessment Division for further action.

On November 19, 2008, [PAGCOR] received a letter from the OIC-Regional Director, Revenue Region
No. 6 (Manila), stating that its letter protest was referred to Revenue District Office No. 33 for appropriate
action.

On March 11, 2009, [PAGCOR] filed the instant Petition for Review alleging respondents' inaction in its
protest on the disputed deficiency FBT.6ChanRoblesVirtualawlibrary
cralawlawlibrary

The CTA 1st Division's Ruling

The CTA 1st Division issued the assailed decision dated 6 July 2011 and ruled in favor of respondents.
The CTA 1st Division ruled that RD Misajon's issuance of the FAN was a valid delegation of authority, and
PAGCOR's administrative protest was validly and seasonably filed on 24 January 2008. The petition for
review filed with the CTA 1st Division, however, was filed out of time. The CTA 1st Division
stated:chanRoblesvirtualLawlibrary

As earlier stated, [PAGCOR] timely filed its administrative protest on January 24, 2008. In accordance
with Section 228 of the Tax Code, respondent CIR or her duly authorized representative had 180 days or
until July 22, 2008 to act on the protest. After the expiration of the 180-day period without action on the
protest, as in the instant case, the taxpayer, specifically [PAGCOR], had 30 days or until August 21, 2008
to assail the non-determination of its protest.

Clearly, the conclusion that the instant Petition for Review was filed beyond the reglementary period for
appeal on March 11, 2009, effectively depriving the Court of jurisdiction over the petition, is inescapable.

And as provided in Section 228 of the NIRC, the failure of [PAGCOR] to appeal from an assessment on
time rendered the same final, executory and demandable. Consequently, [PAGCOR] is already precluded
from disputing the correctness of the assessment. The failure to comply with the 30-day statutory period
would bar the appeal and deprive the Court of Tax Appeals of its jurisdiction to entertain and determine
the correctness of the assessment.

Even assuming in gratia argumenti that the [CTA] has jurisdiction over the case as claimed by
[PAGCOR], the petition must still fail on the ground that [PAGCOR] is not exempt from payment of the
assessed FBT under its charter.

xxxx

Since the car plan provided by [PAGCOR] partakes of the nature of a personal expense attributable to its
employees, it shall be treated as taxable fringe benefit of its employees, whether or not the same is duly
receipted in the name of the employer. Therefore, [PAGCOR's] obligation as an agent of the government
to withhold and remit the final tax on the fringe benefit received by its employees is personal and direct.
The government's cause of action against [PAGCOR] is not for the collection of income tax, for which
[PAGCOR] is exempted, but for the enforcement of the withholding provision of the 1997 NIRC,
compliance of which is imposed on [PAGCOR] as the withholding agent, and not upon its employees.
Consequently, [PAGCOR's] non-compliance with said obligation to withhold makes it personally liable for
the tax arising from the breach of its legal duty.7cralawlawlibrary

PAGCOR filed a motion for reconsideration, dated 26 July 2011, of the 6 July 2011 Decision of the CTA
1st Division. The CIR filed a comment,8 and asked that PAGCOR be ordered to pay P48,589,507.65
representing deficiency fringe benefits tax for taxable year 2004 plus 25% surcharge and 20%
delinquency interest from late payment beyond 15 February 2008 until fully paid, pursuant to Sections
248 and 249 of the National Internal Revenue Code (NIRC) of 1997.

In the meantime, the CIR sent PAGCOR a letter dated 18 July 2011.9 The letter stated that PAGCOR
should be subjected to the issuance of a Warrant of Distraint and/or Levy and a Warrant of Garnishment
because of its failure to pay its outstanding delinquent account in the amount of P46,589,507.65, which
included surcharge and interest. Settlement of the tax liability is necessary to obviate the issuance of a
Warrant of Distraint and/or Levy and a Warrant of Garnishment.

Subsequently, PAGCOR filed a reply dated 28 September 2011 to ask that an order be issued directing
respondents to hold in abeyance the execution of the Warrant of Distraint and/or Levy and the Warrant of
Garnishment, as well as to suspend the collection of tax insofar as the 2004 assessment is concerned.
PAGCOR also asked for exemption from filing a bond or depositing the amount claimed by respondents.10

PAGCOR filed a petition for review with urgent motion to suspend tax collection11 with the CTA En Banc
on 23 November 2011.

The CTA En Banc's Ruling

The CTA En Bane dismissed PAGCOR's petition for review and affirmed the CTA 1st Division's Decision
and Resolution. The CTA En Bane ruled that the protest filed before the RD is a valid protest; hence, it
was superfluous for PAGCOR to raise the protest before the CIR. When PAGCOR filed its administrative
protest on 24 January 2008, the CIR or her duly authorized representative had 180 days or until 22 July
2008 to act on the protest. After the expiration of the 180 days, PAGCOR had 30 days or until 21 August
2008 to assail before the CTA the non-determination of its protest.

Moreover, Section 223 of the NIRC merely suspends the period within which the BIR can make
assessments on a certain taxpayer. A taxpayer's request for reinvestigation only happens upon the BIR's
issuance of an assessment within the three-year prescriptive period. The reinvestigation of the
assessment suspends the prescriptive period for either a revised assessment or a retained assessment.

PAGCOR filed its Motion for Reconsideration on 22 March 2013, while respondents filed their
Comment/Opposition on 3 June 2013.

The CTA En Banc denied PAGCOR's motion in a Resolution12 dated 23 July 2013.

PAGCOR filed the present petition for review on 14 October 2013. Respondents filed their comment
through the Office of the Solicitor General on 20 March 2014. On 23 April 2014, this Court required
PAGCOR to file a reply to the comment within 10 days from notice. This period expired on 26 June 2014.
On 15 September 2014, this Court issued another resolution denying PAGCOR's petition for failure to
comply with its lawful order without any valid cause. On 31 October 2014, PAGCOR filed a motion for
reconsideration of the Court's 15 September 2014 Resolution. We granted PAGCOR's motion in a
Resolution dated 10 December 2014.

The Issues

PAGCOR presented the following issues in its petition:chanRoblesvirtualLawlibrary

1. Whether or not the CTA En Bane gravely erred in affirming the CTA 1st Division's
Decision dismissing the Petition for Review for having been filed out of time.

2. Whether or not the CTA En Bane seriously erred when it affirmed the CTA 1st Division's
failure to decide the case on substantive matters, i.e., the full import of PAGCOR's tax
exemption under its charter which necessarily includes its exemption from the fringe
benefits tax (FBT).

2.1 Assuming that PAGCOR is not exempt from the FBT, whether or not the car plan
extended to its officers inured to its benefit and it is required or necessary in the conduct
of its business.

2.2 Assuming that PAGCOR is subject to the alleged deficiency FBT, whether or not it is
only liable for the basic tax, i.e., excluding surcharge and interest.13

cralawlawlibrary

In their Comment,14 respondents argue that the CTA properly dismissed PAGCOR's petition because it
was filed beyond the periods provided by law.

The Court's Ruling

The petition has no merit. The CTA En Bane and 1st Division were correct in dismissing PAGCOR's
petition. However, as we shall explain below, the dismissal should be on the ground of premature, rather
than late, filing.

Timeliness of PAGCOR's Petition before the CTA

The CTA 1st Division and CTA En Bane both established that PAGCOR received a FAN on 17 January
2008, filed its protest to the FAN addressed to RD Misajon on 24 January 2008, filed yet another protest
addressed to the CIR on 14 August 2008, and then filed a petition before the CTA on 11 March 2009.
There was no action on PAGCOR's protests filed on 24 January 2008 and 14 August 2008. PAGCOR
would like this Court to rule that its protest before the CIR starts a new period from which to determine the
last day to file its petition before the CTA.

The CIR, on the other hand, denied PAGCOR's claims of exemption with the issuance of its 18 July 2011
letter. The letter asked PAGCOR to settle its obligation of P46,589,507.65, which consisted of tax,
surcharge and interest. PAGCOR's failure to settle its obligation would result in the issuance of a Warrant
of Distraint and/or Levy and a Warrant of Garnishment.

The relevant portions of Section 228 of the NIRC of 1997 provide:chanRoblesvirtualLawlibrary

SEC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized representative
finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings: x x x.

xxxx

Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to
respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized
representative shall issue an assessment based on his findings.

Such assessment may be protested administratively by filing a request for reconsideration or

reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be
prescribed by implementing rules and regulations.

Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been
submitted; otherwise, the assessment shall become final.

If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from
submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the
Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of one
hundred eighty (180)-day period; otherwise, the decision shall become final, executory and demandable.
cralawlawlibrary

Section 3.1.5 of Revenue Regulations No. 12-99, implementing Section 228 above,
provides:chanRoblesvirtualLawlibrary

3.1.5. Disputed Assessment. - The taxpayer or his duly authorized representative may protest
administratively against the aforesaid formal letter of demand and assessment notice within thirty (30)
days from date of receipt thereof, x x x.

xxxx

If the taxpayer fails to file a valid protest against the formal letter of demand and assessment notice within
thirty (30) days from date of receipt thereof, the assessment shall become final, executory and
demandable.

If the protest is denied, in whole or in part, by the Commissioner, the taxpayer may appeal to the Court of
Tax Appeals within thirty (30) days from the date of receipt of the said decision, otherwise, the
assessment shall become final, executory and demandable.

In general, if the protest is denied, in whole or in part, by the Commissioner or his duly authorized
representative, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from date of
receipt of the said decision, otherwise, the assessment shall become final executory and demandable:
Provided, however, that if the taxpayer elevates his protest to the Commissioner within thirty (30) days
from date of receipt of the final decision of the Commissioner's duly authorized representative, the latter's
decision shall not be considered final, executory and demandable, in which case, the protest shall be
decided by the Commissioner.

If the Commissioner or his duly authorized representative fails to act on the taxpayer's protest within one
hundred eighty (180) days from date of submission, by the taxpayer, of the required documents in support
of his protest, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from the lapse
of the said 180-day period, otherwise the assessment shall become final, executory and
demandable.cralawlawlibrary

Following the verba legis doctrine, the law must be applied exactly as worded since it is clear, plain, and
unequivocal.15 A textual reading of Section 3.1.5 gives a protesting taxpayer like PAGCOR only three
options:chanRoblesvirtualLawlibrary

1. If the protest is wholly or partially denied by the CIR or his authorized representative, then the taxpayer
may appeal to the CTA within 30 days from receipt of the whole or partial denial of the protest.

2. If the protest is wholly or partially denied by the CIR's authorized representative, then the taxpayer may
appeal to the CIR within 30 days from receipt of the whole or partial denial of the protest.

3. If the CIR or his authorized representative failed to act upon the protest within 180 days from
submission of the required supporting documents, then the taxpayer may appeal to the CTA within 30
days from the lapse of the 180-day period.

To further clarify the three options: A whole or partial denial by the CIR's authorized representative may
be appealed to the CIR or the CTA. A whole or partial denial by the CIR may be appealed to the CTA.
The CIR or the CIR's authorized representative's failure to act may be appealed to the CTA. There is no
mention of an appeal to the CIR from the failure to act by the CIR's authorized representative.

PAGCOR did not wait for the RD or the CIR's decision on its protest. PAGCOR made
separate and successive filings before the RD and the CIR before it filed its petition with the CTA. We
shall illustrate below how PAGCOR failed to follow the clear directive of Section 228 and Section 3.1.5.

PAGCOR's protest to the RD on 24 January 2008 was filed within the 30-day period prescribed in Section
228 and Section 3.1.5. The RD did not release any decision on PAGCOR's protest; thus, PAGCOR was
unable to make use of the first option as described above to justify an appeal to the CTA. The effect of the
lack of decision from the RD is the same, whether we consider PAGCOR's April 2008 submission of
documents16 or not.

Under the third option described above, even if we grant leeway to PAGCOR and consider its unspecified
April 2008 submission, PAGCOR still should have waited for the RD's decision until 27 October 2008, or
180 days from 30 April 2008. PAGCOR then had 30 days from 27 October 2008, or until 26 November
2008, to file its petition before the CTA. PAGCOR, however, did not make use of the third option.
PAGCOR did not file a petition before the CTA on or before 26 November 2008.

Under the second option, PAGCOR ought to have waited for the RD's whole or partial denial of its protest
before it filed an appeal before the CIR. PAGCOR rendered the second option moot when it formulated its
own rule and chose to ignore the clear text of Section 3.1.5. PAGCOR "elevated an appeal" to the CIR on
13 August 2008 without any decision from the RD, then filed a petition before the CTA on 11 March
2009. A textual reading of Section 228 and Section 3.1.5 will readily show that neither Section 228 nor
Section 3.1.5 provides for the remedy of an appeal to the CIR in case of the RD's failure to act. The third
option states that the remedy for failure to act by the CIR or his authorized representative is to file an
appeal to the CTA within 30 days after the lapse of 180 days from the submission of the required
supporting documents. PAGCOR clearly failed to do this.
If we consider, for the sake of argument, PAGCOR's submission before the CIR as a separate protest
and not as an appeal, then such protest should be denied for having been filed out of time. PAGCOR only
had 30 days from 17 January 2008 within which to file its protest. This period ended on 16 February 2008.
PAGCOR filed its submission before the CIR on 13 August 2008.

When PAGCOR filed its petition before the CTA, it is clear that PAGCOR failed to make use of any of the
three options described above. A petition before the CTA may only be made after a whole or partial
denial of the protest by the CIR or the CIR's authorized representative.  When PAGCOR filed its
petition before the CTA on 11 March 2009, there was still no denial of PAGCOR's protest by either the
RD or the CIR. Therefore, under the first option, PAGCOR's petition before the CTA had no cause of
action because it was prematurely filed. The CIR made an unequivocal denial of PAGCOR's protest only
on 18 July 2011, when the CIR sought to collect from PAGCOR the amount of P46,589,507.65. The CIR's
denial further puts PAGCOR in a bind, because it can no longer amend its petition before the
CTA.17chanroblesvirtuallawlibrary

It thus follows that a complaint whose cause of action has not yet accrued cannot be cured or remedied
by an amended or supplemental pleading alleging the existence or accrual of a cause of action while the
case is pending. Such an action is prematurely brought and is, therefore, a groundless suit, which should
be dismissed by the court upon proper motion seasonably filed by the defendant. The underlying reason
for this rule is that a person should not be summoned before the public tribunals to answer for complaints
which are [premature]. As this Court eloquently said in Surigao Mine Exploration Co., Inc. v. Harris:
It is a rule of law to which there is, perhaps, no exception, either at law or in equity, that to recover at
all there must be some cause of action at the commencement of the suit.  As observed by counsel for
appellees, there are reasons of public policy why there should be no needless haste in bringing up
litigation, and why people who are in no default and against whom there is yet no cause of action should
not be summoned before the public tribunals to answer complaints which are groundless. We say
groundless because if the action is [premature], it should not be entertained, and an action prematurely
brought is a groundless suit.

It is true that an amended complaint and the answer thereto take the place of the originals which are
thereby regarded as abandoned (Reynes vs. Compania General de Tabacos [1912], 21 Phil.
416; Ruyman and Farris vs. Director of Lands [1916], 34 Phil. 428) and that "the complaint and answer
having been superseded by the amended complaint and answer thereto, and the answer to the original
complaint not having been presented in evidence as an exhibit, the trial court was not authorized to take it
into account." (Bastida vs. Menzi & Co. [1933], 58 Phil. 188.) But in none of these cases or in any other
case have we held that if a right of action did not exist when the original complaint was filed, one could be
created by filing an amended complaint. In some jurisdictions in the United States what was termed an
"imperfect cause of action" could be perfected by suitable amendment (Brown vs. Galena Mining &
Smelting Co., 32 Kan., 528; Hooper vs. City of Atlanta, 26 Ga. App., 221) and this is virtually permitted
in Banzon and Rosauro vs. Sellner ([1933], 58 Phil. 453); Asiatic Potroleum [sic] Co. vs. Veloso ([1935],
62 Phil. 683); and recently in  Ramos vs. Gibbon  (38 Off. Gaz. 241). That, however, which is no cause of
action whatsoever cannot by amendment or supplemental pleading be converted into a cause of action:
Nihil de re accrescit ei qui nihil in re quandojus accresceret habet.

We are therefore of the opinion, and so hold, that unless the plaintiff has a valid and subsisting cause of
action at the time his action is commenced, the defect cannot be cured or remedied by the acquisition or
accrual of one while the action is pending, and a supplemental complaint or an amendment setting up
such after-accrued cause of action is not permissible. (Italics ours)18ChanRoblesVirtualawlibrary
cralawlawlibrary

PAGCOR has clearly failed to comply with the requisites in disputing an assessment as provided by
Section 228 and Section 3.1.5. Indeed, PAGCOR's lapses in procedure have made the BIR's assessment
final, executory and demandable, thus obviating the need to further discuss the issue of the propriety of
imposition of fringe benefits tax.
WHEREFORE, we DENY the petition. The Decision promulgated on 18 February 2013 and the
Resolution promulgated on 23 July 2013 by the Court of Tax Appeals - En Bane in CTA EB No. 844
are AFFIRMED with the MODIFICATION that the denial of Philippine Amusement and Gaming
Corporation's petition is due to lack of jurisdiction because of premature filing. We REMAND the case to
the Court of Tax Appeals for the determination of the final amount to be paid by PAGCOR after the
imposition of surcharge and delinquency interest.