COMMISSIONER OF INTERNAL REVENUE v. MORNING STAR MILLING CORPORATION

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY ENBANC COMMISSIONER OF CTA EB NO. 2419 INTERNAL REVENUE, (CTA Case No. 9294) Petitioner, Present: Del Rosario, P.J., Castaneda, J r., Uy, Ringpis-Liban, Manahan, Bac o rr o -Ville na, Modes to-San Pedro, Reyes-Fajardo, and Cui-D avid, Jl. - versus- MORNING STAR MILLING P ro mulgated : CORPORATION, X------------------------------------R--e-s-p-o-n--d-e-n--t.-------------------------- --1----------------x DECISION RINGPIS-LIBAN, 1; Before the Court E n Bam� is a Petition fo r Review1 flied by the Commissioner o f Internal Revenue on February 15, 2021 within the extended period granted by this Court.2 It seeks the reversal of the D ecision dated August 26, 2020,3 (Assailed D ecision) as well as the Resolution dated J anuary 13, 20214 (Assailed Resolution) o f the Second Division (Court in Division)5 o f this Court in CTA Case No. 9294. ~ 1 Court En Bane's Docket, pp. 7-2 1. 2 Minute Resolution dated February 1, 2021, En Bane Docket, p. 6. 3 Court En Bane's Docket, pp. 27-69. 4 !d., pp. 70-75. 5 Composed of Associate Justice Juanita C. Castaneda, Jr. (ponente) and Associate Justice Jean Marie A. Bacorro-Villena.

DECISION erA EB No. 2419 (erA Case No. 9294) The respective dispositive portions of the Assailed Decision and Resolution are quoted hereunder: Assailed Decision: 'WHEREFORE, in light of the foregoing considerations, the instant Petition for Review is GRANTED. Respondent's Decision dated January 7, 2016, affirming the deficiency withholding tax assessments for the period January 1, 2003 to December 31, 2003, in the aggregate amount of P25,076,377.60, inclusive of surcharge and legal interest, and ordering the payment thereof, is hereby REVERSED and SET ASIDE. SO ORDERED.' Assailed Resolution: 'WHEREFORE, premises considered, respondent's Motion for Reconsideration (Re: Decision dated 26 August 2020), is DENIED for lack of merit. SO ORDERED.' THE FACTS The factual antecedents of the present case at the administrative level were narrated by the Court in Division in the Assailed Decision as follows: 6 "The BIR's Large Taxpayers Service (LTS) issued the Letter of Authoriry (LOA) No. 95944 dated January 4, 2005, authorizing Revenue Officers R. Plocios, R. de Veyra, and E. Oliveros, of the LT District Office No. 122-Makati, to examine petitioner's books of accounts and other accounting records for all internal revenue taxes for the period from January 1, 2003 to December 31, 2003. Thereafter, the BIR's Enforcement Service issued the LOA No. 2696 dated February 3, 2005, authorizing Revenue Officers Amelita A. Escober and Leonesto Bernal, under the supervision of Erlinda Victorino, of the National Investigation Division, to examine petitioner's books of accounts and other accounting ,/'>/' 6 Court En Bane's Docket, pp. 28-30 (Citations omitted).

DECISION CTA EB No. 2419 (CTA Case No. 9294) records for all internal revenue taxes for taxable years 2002 and 2003. Petitioner executed two (2) Waivers of the Deftnse of Prescription under the Statute ofumitations ofthe National Internal Revenue Code, the details of which are as follows: Waiver Date Executed by Agreed Period to Date Accepted by Petitioner First Waiver Assess Petitioner the BIR Second Waiver November 14, 2006 Until January 31,2007 November 22, 2006 January 12, 2007 Until June 30,2007 January 18, 2007 -----�- -- Subsequendy, on Apri111, 2007, petitioner received a copy of the BIR's undated Preliminary Assessment Notice (PAN), pursuant to LOA No. 95944, finding due from petitioner deficiency income tax, WTC, FWT, FBT, and value-added tax (VAT), in the aggregate amount ofP109,200,012.34, inclusive of interests and penalties, for taxable year 2003. Petitioner then filed the letter dated April 20, 2007, requesting for an extension of thirty (30) days from the expiry date of the 15- day period, which falls on April 27, 2007, to file its protest to the PAN. Thus, on May 25,2007, petitioner flied its Rep!J to the PAN. Petitioner then received the Formal Letter of Demand and Final Assessment Notices (FLD and FANs) dated May 31, 2007 issued by the LTS, assessing petitioner of the following deficiency tax liabilities, to wit: TypeofTax Amount Income Tax !'83,729,057.58 4,051,013.66 WTC 1,909,344.48 EWT 18,831,129.77 FWT 284,889.69 FBT 11,351,025.70 VAT P120,156,460.88 Total Deficiency Taxes - Petitioner sent the letter dated July 10, 2007 to the BIR, stating, among others, (1) that it has not received any reply regarding its letter dated May 25, 2007; (2) that it received an unreadable photocopy of FAN through LBC Express Inc. on July 3, 2007; and (3) that it reserves its right to answer the FAN, after receiving the copy thereof, as well as the schedule of expenses. Thereafter, petitioner received the Tax Verification Notice No. 84150 dated October 10, 2007 issued by the (sic) Mr. Virgilio R. ~

DECISION CTA EB No. 2419 {CTA Case No. 9294) Cembrano, Chief, LTD0-122 Makati, authorizing Revenue Officer Romualdo Plocios to verify the supporting documents and/or pertinent records supposedly relative to petitioner's request for reinvestigation. Petitioner then filed the letter dated December 6, 2007 with the BIR stating, among others, that it never requested for a reinvestigation of the assessment; and that it intends to avail of the tax amnesty under Republic Act (RA) No. 9480. In the meantime, petitioner filed its Notice ofAvailment of Tax Amnesry dated December 27, 2007 and, thereafter, paid the amnesty tax ofP600,000.00. In response to its letter dated July 10, 2007, petitioner received the Final Decision on DisputedAssessment (FDDA) dated May 10,2012 issued by Mr. Alfredo V. Misajon, the OIC-ACIR, LTS, finding petitioner liable for deficiency WTC, EWT, FWT and FBT, in the aggregate amount ofP25,076,377.60. Petitioner filed its letter dated July 3, 2012 with the Office of respondent, requesting for the immediate cancellation of the FDDA dated May 10, 2012. Petitioner received a copy of the Decision dated January 7, 2016, denying petitioner's request." On March 15,2016, the Petition for Review [With Application to Restrain the Collection of Taxes] was filed. Trial then ensued. On August 26, 2020, the Court in Division rendered the Assailed Decision granting the Petition for Review. The Court in Division cancelled and set aside the assessments issued by petitioner against respondent for the latter's alleged deficiency WTC, EWT, FWT, and FBT for the period January 1, 2003 to December 31,2003. Aggrieved, the CIR filed a Motion for Reconsideration (Re: Decision dated 26 August 2020) on September 18, 2020 which the Court in Division denied in the Assailed Resolution. On February 15, 2021, petitioner filed the present Petition for Review. ~

DECISION CTA EB No. 2419 (CTA case No. 9294) In a Resolution dated March 18, 2021, this Court required respondent to file its Comment to the Petition for Review within ten (10) days from notice.7 On June 11, 2021, respondent Hied a Motion for Extension to File Comment praying for an additional period of at least ten (1 0) days from June 11, 2021 until June 21,2021 within which to Hie its Comment.8 On June 18, 2021, respondent Hied its Comment/Opposition (fo the Petition for Review dated 11 February 2021).9 In a Resolution dated July 1, 2021, this Court noted respondent's Comment/Opposition (fo the Petition for Review dated 11 February 2021) and referred the present case to mediation before the Philippine Mediation Center- Court of Tax Appeals (PMC-CTA).10 On November 16,2021, the PMC-CTA submitted a Back to Court stating that mediation was refused by respondent. 11 In a Resolution dated February 17, 2022,12 this Court noted PMC-CTA's Back to Court dated November 16, 2021 and reinstated the Court's proceedings in the present case. In the same Resolution, the present case was submitted for decision. THE ISSUE Petitioner flied the present Petition for Review on the basis of the sole ground as stated below: 13 "THE HONORABLE COURT IN DIVISION ERRED IN RULING THAT THE ASSESSMENT ISSUED AGAINST RESPONDENT IS IN VIOLATION OF THE RIGHT TO DUE PROCESS RENDERING THE ASSESSMENT VOID." THE COURT ENBANCS RULING The Petition for Review is denied. ~ 7 Id., pp. 77-78. 8 Id., pp. 79-81. 9 Id., pp. 82-109. 10 Id., pp. 240-241. 11 Id., p. 242. 12 Id., pp. 252-253. 13 Id., p. 10.

DECISION CTA EB No. 2419 (CTA Case No. 9294) Petitioner insists that it did not violate respondent's due process rights.14 Petitioner claims that respondent was given every opportunity to refute the assessment and, in fact, respondent was able to protest intelligently and there was even a reduction in the amount of the assessment.15 Petitioner also maintains that assessments are presumed correct and made in good faith. 16 In the absence of proof of any irregularities in the performance of duties (which proof the respondent is duty-bound to present), the assessment shall not be disturbed.17 Respondent, in its Comment/Opposition (To the Petition for Review dated 11 February 2021), contends that the present Petition for Review should be denied outright considering that the same did not comply with the requirements of Rule 43 of the Rules of Court.18 Specifically, petitioner failed to attach the material portions of the records and the supporting documents submitted in the proceedings before the Court in Division.19 Respondent likewise asserts that, contrary to petitioner's claim, the Court in Division correctly ruled that the Preliminary Assessment Notice and the Final Assessment Notice are null and void considering that they were devoid of the facts on which the assessment was based, in violation of respondent's constitutional right to due process.20 Petitioner's position is unmeritorious. At the outset, it bears pointing out that petitioner merely recycled the arguments he raised in his Petition for Review before the Court En Bane as these matters had already been thoroughly discussed and resolved by the Court in Division in the Assailed Decision and Resolution. To put it bluntly, there is nothing in his Petition for Review that was not sufficiently passed upon by the Court in Division. Petitioner utterly failed to raise any compelling reason to warrant the modification much less reversal of the Court in Division's findings. In Commissioner ofInternal Revenue vs. Avon Products Mamifacturing, Inc.,21 the Supreme Court declared as void a tax assessment by reason of the CIR's total disregard of taxpayer's due process rights as mandated by Section 228 of the 1997 NIRC and RR No. 12-99, as amended. Specifically, the Supreme Court held that the CIR failed to fully apprised the taxpayer of the legal and factual bases of the assessment issued against it. Moreover, the taxpayer /V' 14 !d., pp. 11-18. 15 !d. 16 !d. 17 !d. 18 !d., pp. 91-95. 19 !d. 20 !d., pp. 95-108. 21 G.R. Nos. 201398-99 and 201418-19, October 3, 2018.

DECISION CTA EB No. 2419 (CTA Case No. 9294) was left unaware on how the CIR or his duly authorized representatives appreciated the explanations or defenses raised in connection with the assessment. For proper frame of reference, the relevant portions of the said decision are quoted below: "The facts demonstrate that Avon was deprived of due process. It was not fully apprised of the legal and factual bases of the assessments issued against it. The Details of Discrepancy attached to the Preliminary Assessment Notice, as well as the Formal Letter of Demand with the Final Assessment Notices, did not even comment or address the defenses and documents submitted by Avon. Thus, Avon was left unaware on how the Commissioner or her authorized representatives appreciated the explanations or defenses raised in connection with the assessments. There was clear inaction of the Commissioner at every stage of the proceedings. XXX XXX XXX Upon receipt of the Preliminary Assessment Notice, Avon submitted its protest letter and supporting documents, and even met with revenue examiners to explain. Nonetheless, the Bureau of Internal Revenue issued the Final Letter of Demand and Final Assessment Notices, merely reiterating the assessments in the Preliminary Assessment Notice. There was no comment whatsoever on the matters raised by Avon, or discussion of the Bureau of Internal Revenue's findings in a manner that Avon may know the various issues involved and the reasons for the assessments. XXX XXX XXX It is true that the Commissioner is not obliged to accept the taxpayer's explanations, as explained by the Court of Tax Appeals. However, when he or she rejects these explanations, he or she must give some reason for doing so. He or she must give the particular facts upon which his or her conclusions are based, and those facts must appear in the record. Indeed, the Commissioner's inaction and omission to give due consideration to the arguments and evidence submitted before her by Avon are deplorable transgressions of Avon's right to due process. The right to be heard, which includes the right to present evidence, is meaningless if the Commissioner can simply ignore the evidence without reason. In Edwards v. McCqy: ;V

DECISION CTA EB No. 2419 (CTA Case No. 9294) The object of a hearing is as much to have evidence considered as it is to present it. The right to adduce evidence, without the corresponding duty on the part of the board to consider it, is vain. Such right is conspicuously futile if the person or persons to whom the evidence is presented can thrust it aside without notice or consideration. In Ang Tibqy, this Court similarly ruled that '[n]ot only must the party be given an opportunity to present his case and to adduce evidence tending to establish the rights which he asserts but the tribunal must consider the evidence presented' XXX XXX XXX Similarly, in this case, despite Avon's submission of its explanations and pieces of evidence to the assessments, the Commissioner failed to acknowledge these submissions and instead issued identical Preliminary Assessment Notice, Final Letter of Demand with the Final Assessment Notices, and Collection Letter, the latter being premised on Avon's alleged failure to submit supporting documents to its protest. Had the Commissioner performed her functions properly and considered the explanations and pieces of evidence submitted by Avon, this case could have been settled at the earliest possible time. For instance, all the evidence needed to settle the issue on under-declared sales, which constituted the bulk of the deficiency tax assessments, have been submitted to the Bureau of Internal Revenue. Indeed, from these same submissions, the Court of Tax Appeals concluded that there was no under-declaration of sales. As aptly pointed out by Avon, 'The [Commissioner could not] feign simple mistake or misappreciation of the evidence ... because [the issue was] plain and simple."' (Emphasis supplied and citations omitted) Upon review of the records and applying the aforecited case, the Court En Bane fully agrees with the Court in Division that there was violation of respondent's due process rights as the petitioner failed to strictly observe the clear mandate of Section 228 of the National Internal Revenue Code of 1997, as amended, in relation to Revenue Regulations 12-99, as amended. The assessments contained in the FLD/FAN dated May 31, 2007 were exactly the same as those stated in the undated PAN. The only difference, as correctly pointed out by the Court in Division, are that: (1) assessment numbers were indicated; and (2) the amounts of interest were adjusted. The basic tax due remained the same. It is evident that petitioner merely reiterated the same findings as stated in the said undated PAN, without giving any reason for rejecting the refutations and explanations as well as consideration of respondent's request for clarification as indicated in the latter's Reply to PAN dated May 25, 2007. ,/'/

DECISION CfA EB No. 2419 {CfA Case No. 9294) Furthermore, the FDDA dated May 10,2012 as well as the Decision dated January 7, 2016 are both bereft of any sufficient explanation or information as to how the figures reflected in the assessments were arrived at. Neither do they contain any reason for rejecting respondent's contention or request for clarification in its Reply to PAN dated May 25, 2007. Respondent was thus left unaware on how the petitioner appreciated the explanations or defenses it raised against the undated PAN, in clear violation of its right to administrative due process, thereby rendering the subject assessments void. Petitioner's contention that respondent was given every opportunity to refute the assessment and was able to protest intelligently and that there was even a reduction in the amount of the assessment is off the mark. The violation of due process is not about respondent's lack of knowledge on the investigation or the failure to provide the documents requested by respondent but based on the reason discussed above. WHEREFORE, premises considered, the present Petition for Review is DENIED for lack of merit. SO ORDERED. ~. ~ - r (____ MA. BELEN M. RINGPIS-LIBAN Associate Justice WE CONCUR- ith Concum'!tg Opinion) ROMAN G. DEL ROSARIO Presiding Justice ~-t:; c a;t--.q~ .Ci E~P.UY JUXNifo C. CASTANEM,)R. Associate Justice Associate Justice

DECISION CTA EB No. 2419 {CTA Case No. 9294) ~ '/./l..-Jt--- CATHERINE T. MANAHAN Associate Justice \ JEANMA -viLLENA W M~AR~IArN 1-~vtJFI. �RWE~LS-F~JARDO Associate Justice ~~~ LANEE S. CUI-DAVID Associate Justice CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above decision were reached in consultation before the case was assigned to the writer of the opinion of the Court. Presiding Justice

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY EN BA NC COMMISSIONER OF CTA EB NO. 2419 INTERNAL REVENUE, (CTA Case No. 9294) Petitioner, Present: -versus- DEL ROSARIO , P.J. , CASTANEDA, Jr., UY, RINGPIS-LIBAN , MANAHAN, BACORRO-VILLENA, MODESTO-SAN PEDRO, REYES-FAJARDO, and CUI-DAVID, JJ. MORNING STAR MILLI NG Promulgated: CORPORATION , Respondent. X-------------------------------------�---------- CONCU RRING OPINION DEL ROSARIO, P.J.: I concur in the denial of the Petition for Review which prays that (i) the assailed Decision and Resolution of the Court in Division be reversed ; and , (ii) respondent be ordered to pays its deficiency expanded withholding tax (EWT), withholding tax on compensation (WTC), final withholding tax (FWT) and Fringe Benefit Tax (FBT), for taxable year 2003, in the total amount of ~25 , 076 , 377.60 , plus surcharge and deficiency and delinquency interests. In addition to the ponencia's findings anent the violation of respondent's right to due process, I wish to add that the period to assess respondent for deficiency EWT, WTC and FWT, for taxable year 2003 had already prescribed when the Formal Letter of Demand and Final Assessment Notices, dated May 31 , 2007, were issued. (!!

CONCURRING OPINION CTA EB No. 2419 (CTA Case No. 9294) As borne by the records, respondent filed its 2003 EWT, WTC and FWT returns and paid the taxes due on the following dates: Taxable Months Deadline to File Actual Date of End of the Three of Year 2003 EWT Returns Filing of EWT (3)-Year Period to Assess EWT January February 10, 2003 Returns 1 February 13, 2006 February March 10, 2003 February 13, 2003 March 14, 2006 March April 10, 2003 March 14, 2003 April 14, 2006 April May 10, 2003 April14, 2003 May 15,2006 May June 10, 2003 May 13, 2003 June 12, 2006 June July 10, 2003 June 12, 2003 July 14, 2006 July August 10, 2003 July 14, 2003 August 14, 2006 August September 10, August 14, 2003 September 10, 2003 September 10, 2006 September October 10, 2003 2003 October 14, 2006 October November 10, October 14, 2003 November 14, 2003 November 14, 2006 November December 10, 2003 December 12, 2003 December 12, 2006 December January 15, 2004 2003 January 15, 2007 January 15, 2004 Taxable Months Deadline to File Actual Date of End of the Three of Year 2003 WTC Returns Filing of WTC (3)-Year Period to Assess WTC January February 10, 2003 Returns2 February 13, 2006 February March 10, 2003 February 13, 2003 March 14, 2006 March April10, 2003 March 14, 2003 April 14, 2006 April May 10, 2003 April 14, 2003 May 15, 2006 May June 10, 2003 May 13, 2003 June 12, 2006 June July 10, 2003 June 12, 2003 July 14, 2006 July August 10, 2003 July 14, 2003 August 14, 2006 August September 10, August 14,2003 September 10, 2003 September 10, 2006 September October 10, 2003 2003 October 14, 2006 October November 10, October 14, 2003 November 14, 2003 November 14, 2006 November December 10, 2003 December 12, 2003 December 12, 2006 December January 15, 2004 2003 January 15, 2007 January 15, 2004 Taxable Months Deadline to File Actual Date of End of the Three Filing of FWT (3)-Year Period of Year 2003 FWT Return to Assess WTC Return 3 December January 15, 2004 January 15, 2007 January 15, 2004 1 Exhibits "P-5" to "P-16", Division Docket, Vol. Ill, pp. 1234 to 1296. 2 Exhibits "P-17" to "P-28", Division Docket, Vol. Ill, pp. 1297 to 1356. 3 Exhibit "P-29", Division Docket, Vol. Ill, pp. 1357 to 1362. ~

CONCURRING OPINION CTA EB No. 2419 (CTA Case No. 9294) Respondent executed two (2) Waivers of the Defense of Prescription under the Statute of Limitations of the National Internal Revenue Code, the details of which are as follows: Waiver Date Executed by Agreed Period to Assess Date Accepted by Petitioner First Petitioner the BIR Waiver4 November 14, 2006 Second Until January 31, 2007 November 22, 2006 Waiver5 January 12, 2007 Until June 30, 2007 January 18, 2007 As shown above, the original three (3)-year period to assess petitioner for deficiency EWT and WTC for the months of January 2003 to September 2003 had already prescribed when the First Waiver was executed on November 14, 2006. Only the right of petitioner to assess respondent for deficiency EWT and WTC for the months of October 2006 to December 2006 and deficiency FWT for the month of December 2003 was validly extended until January 31, 2007 under the First Waiver. Prior to the lapse of the extended period to assess under the First Waiver, petitioner and respondent executed the Second Waiver on January 12, 2007, further extending the period to assess until June 30, 2007. On May 31, 2007, the Formal Letter of Demand and Final Assessment Notices, assessing respondent for, among others, deficiency EWT, WTC, FWT and FBT, for taxable year 2003, were issued. The question is whether the Second Waiver extended the period to assess respondent for deficiency EWT and WTC for the months of October 2003 to December 2003 and deficiency FWT for the month of December 2003 until June 30, 2007. A scrutiny of the Second Waiver shows that it does not indicate the date when respondent received its file copy of the same. This defect rendered the Second Waiver void, and as such, it did not operate to further extend the period to assess until June 30, 2007. 4 Exhibit "R-4", BIR Records, p. 580; Exhibit "P-21", Docket, Vol. II, p. 804. 5 Exhibit "R-6", BIR Records, p. 723; Exhibit "P-31", Docket, Vol. II, p. 1364.~

CONCURRING OPINION CTA EB No. 2419 (CTA Case No. 9294) As held by the Supreme Court in La Flor De/a lsabela, Inc. vs. Commissioner of Internal Revenue:6 "This Court had invalidated waivers which did not strictly comply with the provisions of RMO No. 20-90 and RDAO No. 05-01, such as, but not limited to: x x x (e) failure to indicate on the original copies of the waivers the date of receipt by the taxpayer of their file copy;7 x x x" (Boldfacing supplied) In view of the void Second Waiver, the period to issue the subject assessment for deficiency EWT and WTC for the months of October 2003 to December 2003 and deficiency FWT for the month of December 2003 was not extended until June 30, 2007. The extended period to assess lapsed on January 31, 2007 under the First Waiver. With regard to the FBT assessment, as clearly elucidated in the ponencia, petitioner failed to inform respondent of the reason for rejecting its explanation in its Reply to the Preliminary Assessment Notice when petitioner reiterated the exact basic deficiency FBT assessment in the Formal Letter of Demand and Final Assessment Notices, in violation of respondent's right to due process, thereby rendering the said deficiency FBT assessment void. In fine, the Formal Letter of Demand and Final Assessment Notices, dated May 31, 2007, are void for having been issued beyond January 31, 2007; and, in violation of respondent's right to due process. All told, I CONCUR in the denial of the Petition for Review. Presiding Justice 6 G.R. No. 202105, April28, 2021. 7 Citing Commissioner of Internal Revenue vs. Kudos Metal Corporation, G.R. No. 178087, May 5, 2010.