THIRD DIVISION
G.R. No. 217610, September 02, 2020
BAKBAK (1 AND 2) NATIVE CHICKEN RESTAURANT, REPRESENTED BY THE OWNER ROSSELLE G. BARCO, Petitioner, v. SECRETARY OF FINANCE, COMMISSIONER OF INTERNAL REVENUE, AND/OR RESPONSIBLE OFFICERS, NAMELY: NESTOR S. VALEROSO, REGIONAL DIRECTOR;* Respondents.
D E C I S I O N
CARANDANG, J.:
Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court, assailing the Decision2 dated March 26, 2014 and Resolution3 dated February 12, 2015 of the Court of Appeals (CA) in CAG.R. CV No. 02567-MIN filed by Bakbak (1 and 2) (Bakbak) Native Chicken Restaurant represented by Rosselle G. Barco (Rosselle) against the Secretary of Finance and Commissioner of the Internal Revenue (CIR) and/or its responsible officers.
In assessing the letters, the CA concluded that the letters and notices sent by the CIR to Rosselle are not assessments. The communications merely required her to submit her books of accounts and supporting documents or to comply with the requirements of the NIRC. Also, the subject of the letters pertains to matters under Section 114 of the NIRC on the return and payment of VAT and Section 115 which gives the CIR the power to suspend the business operations of a taxpayer for failure to comply with Section 114. The subject of the letters was issued also in connection with Section 237 on the requirement to issue of receipts or sales or commercial invoices and Section 238 on the need to print receipts or sales or commercial invoices. The letters and notices to Rosselle pertain to the proper administration of taxes and not assessment.37
Letter dated July 17, 2008 Rosselle was informed of the results of the surveillance. Based on the results and the amount she paid for taxable year 2006, there is an underdeclaration of her gross sales. She was also informed that based on the records, she made no payment of percentage taxes.
She was given 5 days from receipt to present her side and make necessary corrections. Second Notice dated September 24, 2008 Rosselle was given 5 days from receipt to submit her books of accounts and supporting documents for the year 2007. Third Notice dated October 2, 2008 Rosselle was given 5 days from receipt to submit her books of accounts and supporting documents for the year 2007. Memorandum dated December 3, 2008 Re: Violation of Section 115 of the NIRC The Memo was addressed to the Regional Director. It stated the results of the surveillance vis-a-vis the annual gross sales declared for 2007 and finding that: (1) there is an under-declaration of taxable income; and (2) non-registration as a VAT taxpayer. Letter dated December 8, 2008 Rosselle was informed of the results of the surveillance vis-a-vis her 2007 annual tax income return which shows an under-declaration of her taxable sales.
She was given 48 hours to explain under oath why she should not be dealt with administratively, for suspension of business or temporary closure, and/or for criminal liability under the Tax Code. Letter of Authority dated February 3, 2009 Authorizing the SID to examine Rosselle's books of accounts and other accounting records for VAT liabilities for 2008. First Notice dated February 3, 2009 Re: VAT Rosselle was given 5 days from receipt to submit her books of accounts and supporting documents for the year 2008. Resolution Approving the Issuance of the 5-Day VAT Compliance Notice The Board granted the issuance of the 5-day VAT compliance notice considering that there was an under-declaration of Rosselle's taxable income and that she is a non-VAT taxpayer. 5-Day VAT Compliance Notice dated February 18, 2009 Rosselle was asked to comply with the Tax Code: (1) register as a VAT taxpayer; (2) comply with the requirements of a VAT-registered person.
She was given 5 days from receipt to rectify. Letter dated February 27, 2009 The letter refuted the arguments of Rosselle's letter-reply to the 5-day VAT compliance notice.
She was informed that she violated Section 115 (b), (a1), (a2), and (a3).
Her request for immediate reevaluation was denied.
The letter ended that "the recommendation may be made to the Commissioner of Internal Revenue for the temporary closure of your establishment until you shall have complied with the requirements of the Five-Day VAT Compliance Notice sent to you."36
The filing of the case to the RTC questioning the validity of the RMOs was proper. |
x x xHowever, at the time that Bakbak filed the complaint dated March 9, 2009 to the RTC, the prevailing doctrine was that espoused in British American Tobacco v. Camacho52 which provided that:chanroblesvirtualawlibrary
The Court of Tax Appeals has undoubted jurisdiction to pass upon the constitutionality or validity of a tax law or regulation when raised by the taxpayer as a defense in disputing or contesting an assessment or claiming a refund. It is only in the lawful exercise of its power to pass upon all matters brought before it, as sanctioned by Section 7 of Republic Act No. 1125, as amended.
This Court, however, declares that the Court of Tax Appeals may likewise take cognizance of cases directly challenging the constitutionality or validity of a tax law or regulation or administrative issuance (revenue orders, revenue memorandum circulars, rulings).
x x x x51
x x xSince at the time of the filing of the complaint the prevailing dictum was that only regular courts had jurisdiction to pass upon the constitutionality or validity of tax laws and regulations, the complaint was properly lodged before the RTC and appealed to the CA.
While the above statute confers on the CTA jurisdiction to resolve tax disputes in general, this does not include cases where the constitutionality of a law or rule is challenged. Where what is assailed is the validity or constitutionality of a law, or a rule or regulation issued by the administrative agency in the performance of its quasi-legislative function, the regular courts have jurisdiction to pass upon the same. The determination of whether a specific rule or set of rules issued by an administrative agency contravenes the law or the constitution is within the jurisdiction of the regular courts. Indeed, the Constitution vests the power of judicial review or the power to declare a law, treaty, international or executive agreement, presidential decree, order, instruction, ordinance, or regulation in the courts, including the regional trial courts. This is within the scope of judicial power, which includes the authority of the courts to determine in an appropriate action the validity of the acts of the political departments. Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government.53
x x x x
Section 228 and 115 of the NIRC pertain to two different matters. |
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 ills findings: Provided, however, That a preassessment notice shall not be required in the following cases:Clearly, for the provisions of Section 228 to take effect, there must first be an assessment. Jurisprudence has described an assessment as a notice that contains not only a computation of tax liabilities, but also a demand for payment within a prescribed period. It also signals the time when penalties and protests begin to accrue against the taxpayer. To enable the taxpayer to determine his remedies thereon, due process requires that it must be served on and received by the taxpayer.54
x x x
The taxpayers 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 ills 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.
x x x x (Emphasis supplied)
x x xThe pertinent provisions of RMO No. 20-2002 which implements Sections 113, 114, 115, 236, 237 and 238 of the NIRC are as follows:chanroblesvirtualawlibrary
(a) In the case of a VAT-registered Person. - (1) Failure to issue receipts or invoices; (2) Failure to file a value-added tax return as required under Section 114; or (3) Understatement of taxable sales or receipts by thirty percent (30%) or more of his correct taxable sales or receipts for the taxable quarter. (b) Failure of any Person to Register as Required under Section 236.
The temporary closure of the establishment shall be for the duration of not less than five (5) days and shall be lifted only upon compliance with whatever requirements prescribed by the Commissioner in the closure order. (Emphasis supplied)
(2) Section II(4)(B). -RMO No. 31-2002 in part provides that:chanroblesvirtualawlibrary
(B) Confrontational Requirements. -
1. Consistent with the requirements of due process, the report of the handling Revenue Officer shall be concurred in by the Head of the investigating office. The findings of the investigating office shall be reviewed by a Review Board composed of the following:
x x x
The Review Board must act on the report within seven (7) days from receipt thereof. The chairperson of the Board may always seek the assistance of any Revenue Official and Employee, in the interest of public service. The reviewing board shall convene, upon the initiative of the chairperson, whenever necessary. If the report is approved by the Review Board, the concerned Regional Director or the ACIR, Enforcement Service/LTS, as the case may be, as chair, shall immediately require, through the Chief, Legal Division or ACIR, Legal Service, the taxpayer to refute the apprehension and to explain under oath within forty eight (48) hours why he should not be dealt with administratively, by suspension of business or temporary closure of his establishment, and/or criminally, for violation of pertinent provisions of the Tax Code. Thus, the 48-Hour Notice shall be signed by the Chief, Legal Division or ACIR, Legal Service, as the case may be, appending thereto the report of the investigating office as approved by the Review Board.
2. Upon submission of the explanation or if none is submitted on or before the deadline, the Review Board headed by the Regional Director or the ACIR, Enforcement Service/LTS, shall decide whether or not to terminate or indorse the docket of the case to the ACIR, Legal Service, with specific recommendation on whether or not to pursue administrative or criminal action against the taxpayer.
3. Upon evaluation of the evidence presented and arguments of the parties involved, the ACIR-Legal Service shall make the necessary recommendation for the approval of the DCIR-Legal and Inspection Group unless the CIR delegates the approval thereof to another subordinate official. If the recommendation is for the issuance of the 10-Day VAT Compliance Notice, the same shall be prepared by the ACIR-Legal Service for the signature of the DCIR-Legal and Inspection Group (unless the CIR delegates the signing thereof to another subordinate official). The 10-day VAT Compliance Notice with details of the findings of the investigating office as approved by the Review Board shall be served immediately to the taxpayer by the Regional Director/ACIR-LTS/ACIR-Enforcement Service, whoever is the appropriate official who has jurisdiction over the case. The taxpayer may again refute the allegations and findings of the BIR within five (5) days from receipt of the notice. The BIR originating office shall respond to the letter or protest of the taxpayer within five (5) days from receipt thereof. The response letter shall be signed by the Head of the Review Board. Upon receipt by the BIR of the protest, the running of the 10-Day compliance period is deemed suspended and shall begin to run only upon receipt by the taxpayer of the resolution on the protest.
Section II(4)(C)
(C) Execution and Enforcement. -
1. Where a taxpayer refuses, neglects, or fails to comply with the terms of the 10-day VAT Compliance Notice or to satisfactorily refute the findings of the BIR, the Review Board chaired by the Regional Director/ACIREnforcement Service/ACIR-LTS, shall prepare a report recommending the closure of the establishment for the approval of the DCIR-Legal and Inspection Group. On the basis of the approval made by the DCIR-Legal and Inspection Group, the Regional Director/ACIR Enforcement Service/ACIR-LTS shall prepare, sign, and execute the Closure Order. The service of the Closure Order shall be accompanied with the report of the Review Board as approved by the DCIR-Legal and Inspection Group indicating therein the computed tentative amount of under declaration of gross sales/receipts/other taxable base as a result of the violations committed.
However, if in the meantime the taxpayer corrects the violation pursuant to Section IV hereof, the Regional Director or the ACIR, Enforcement Service/Large Taxpayer Service who signed the closure order shall desist from implementing the closure order and shall communicate such information to the Deputy Commissioner - Legal and Inspection Group who approved the recommendation of the Review Board for the issuance of the closure order.
2. The execution of the closure order shall consist in the physical closing of the doors or other means of ingress unto the establishment and the sealing thereof with the BIR official seal. (Emphasis supplied)
Section 3. Guidelines and Procedures. - While the general provisions on the administrative sanction of suspension/temporary closure of business have been clearly laid down in RMO 57-2000 as amended by RMO 20-2002, the following modifications shall be observed in respect to the institution of closure order pursuant to this Order:As can be seen from the wordings of RMO Nos. 20-2002 and 31-2002, the subject matter pertains to the implementation of the power of the CIR to order the closure of the business of a taxpayer for violations provided under Section 115. RMO Nos. 20-2002 and 31-2002 did not in any way amend the provisions of Section 228 of the NIRC on the procedure for protesting an assessment. Section 115 and Section 228 pertain to entirely different matters.
(1)The Letter Notice and follow-up letters sent and duly received by the taxpayer concerned shall be considered as sufficient compliance with the 48-Hour Notice provided for under RMO 57-2000 and RMO 20-2002;
(2) In view of the long period of time attended to such taxpayers to comply with their obligations as indicated in the Letter Notice that was served, up to the time that follow-up letters have been sent, a 5-Day VAT Compliance Notice shall be issued in lieu of the 10-Day VAT Compliance Notice. The approval and the signing of the 5-Day VAT Compliance Notice is hereby delegated to the Regional Director having jurisdiction over the taxpayer concerned;
(3) The signing of Closure Order and lifting thereof shall be delegated to the Regional Director having jurisdiction over the taxpayer concerned;
(4) The procedures for the institution of closure proceedings shall be as follows:
(a) The Technical Working Group (TWG) in the National Office shall transmit the case file to the RDO and the RDO, upon receipt thereof, shall complete documentation of the case file in preparation for the closure proceedings;
(b) Once the case file has been fully documented, the RDO shall submit a report to the Regional Director recommending the action of closure of the concerned establishment based on guidelines provided for under this Order. In instances where it is found that the case does not qualify for closure proceedings, a memorandum for the recommended next course of action to be undertaken shall be submitted by the RDO to the TWG in the National Office, for further evaluation;
(c) Upon approval thereof by the Regional Director, a Mission Order shall be signed by the Regional Director ordering the service of a 5-Day VAT Compliance Notice to the concerned taxpayer by the RDO;
(d) The 5-Day Compliance Notice shall state the particular provision of Section 115 that was violated by the taxpayer with specific reference to the amount of sales discrepancy discovered by the RELIEF System and shall further require the taxpayer to pay an amount equivalent to 3% (in case of seller of goods)/6% (in case of seller of service) of the underdeclared sales/receipts or 110% of the adjusted basic tax due (after considering underdeclaration), whichever is higher, using BIR Payment Form No. 0605. In addition, the RDO shall recommend an audit of the case by the Tax Fraud Division of the National Office unless taxpayer likewise pays the minimum income tax payment as prescribed in the VAAP regulations (Revenue Regulations Nos. 12-2002, 17-2002 and 18-2002);
(e) In case of failure to respond to the 5-Day VAT Compliance Notice, Closure Order shall be prepared by the RDO and shall be recommended by the Chief, Legal Division for the final approval of the Regional Director;
x x x x (Emphasis supplied)
Endnotes:
* Felix B. Pepito, Chief of the Legal Division; Lita I. Chin, Chief of the Assessment Division; Leo O. Gonzales, Chief of the Special Investigation, and its subordinates, as follows: SP I Rex Vincent Perido, SP II Gervacio B. Angco, SP III Dennis C. Dimalanta, and RO III Nelia Monica J. Ramintas.
1Rollo, pp. 3-53.
2 Penned by Associate Justice Henri Jean-Paul B. Inting (now a Member of this Court), with the concurrence of Associate Justices Edgardo A. Camello and Jhosep Y. Lopez; id. at 54-70.
3 Penned by Associate Justice Henri Jean-Paul B. Inting (now a Member of this Court), with the concurrence of Associate Justices Edgardo A. Camello and Pablito A. Perez; id. at 49-53.
4 Id. at 55.
5 Id. at 99.
6 Id. at 118.
7 Id. at 119.
8 Id.
9 Id. at 56.
10 Id. at 11.
11 Id. at 57.
12 Id. at 56.
13 Id.
14 Id. at 57.
15 Id.
16 Id. at 58.
17 Id.
18 Id.
19 Id. at 58.
20 Id. at 59.
21 Id. at 59.
22 Id.
23 Id. at 60.
24 Id. at 102.
25 Penned by Judge George E. Omelio; id. at 98-106.
26 Id. at 105.
27 Id. at 121.
28 Id. at 102-103.
29 Id. at 104.
30 Id. at 103.
31 Id. at 105.
32 Id. at 107.
33 Supra note 2.
34Rollo, p. 64.
35 Id. at 65.
36 Id. at 65-67.
37 Id. at 67.
38 Id. at 69.
39 Id. at 3-46.
40 Id. at 22.
41 Id. at 27.
42 Id. at 45.
43 Id. at 118-147.
44 Id. at 125-126.
45 Id. at 130.
46 Id. at 132.
47 Id. at 136.
48 Id. at 137-138.
49 Id. at 163-175.
50 793 Phil. 97, 123-124 (2016).
51 Id.
52 584 Phil. 489, 511 (2008).
53 Id.
54CIR v. Pascor Realty and Development Corp., 368 Phil. 716 (1999).cralawredlibrary