COMMISSIONER OF INTERNAL REVENUE v. GLOBAL FRESH PRODUCTS INC.,

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS Quezon City ENBANC COMMISSIONER OF INTERNAL CTAEBNO.~ REVENUE, (CTA Case No. 9718) Petitioner, -versus- Present: DEL ROSARIO, �L, UY, RINGPIS-LIBAN, MANAHAN, BACORRO-VILLENA, MODESTO-SAN PEDRO, REYES-FAJARDO , CUI-DAVID, and FERRER-FLORES, fl. GLOBAL FRESH PRODUCTS INC. , Respondent. )( - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - RESOLUTION BACORRO-VILLENA, L: For the Court's resolution is petitioner Commissioner of Internal Revenue's (petitioner's/ CIR's) "Motion for Reconsideration (RE: Decision Promulgated on June 30, 2o22)111 (MR) filed on 21 July 20222 , with respondent Global Fresh Products Inc.'s (respondent's/GFPI's) "Comment (to Petitioner's Motion for Reconsideration)"3 (Comment), filed on o8 September 2022~ Rollo, pp. 124- 136. Received by the Court on 02 August 2022. Rollo, pp. 142- 148.

RESOLUTION CTA EB NO.ll.2Z, (CTA Case No. 9718) CIR v. Global Fresh Products Inc. Page 2 of8 X----------------------------- X Petitioner seeks the reversal of the Court En Bane's Decision in the above-captioned case dated 30 June 20224 (assailed Decision). The dispositive portion of which reads: WHEREFORE, premises considered, the present Petition for Review filed by petitioner Commissioner of Internal Revenue is hereby DENIED for lack of merit. Accordingly, the assailed Decision and Resolution dated 30 June 2020 and 30 October 2020, respectively, in CTA Case No. 9718, entitled Global Fresh Products Inc. v. Commissioner ofInternal Revenue, are hereby AFFIRMED. Consequently, petitioner Commissioner of Internal Revenue or any person duly acting on his behalf is hereby ENJOINED from collecting or taking further action on the subject deficiency taxes assessed against respondent Global Fresh Products Inc. as provided in the Assessment Notices and the Formal Assessment Notice, all dated 13 January 2017, in the aggregate amount of P91,625,615�9o for the taxable year 2013. SO ORDERED. In the present MR, petitioner insists that the Court En Bane erred in upholding the Third Division's ruling that the subject assessment for deficiency taxes is void because Revenue Officer (RO) Villaflor A Lagundi (Lagundi), who conducted the audit of respondent's books of accounts, was not duly authorized through a Letter of Authority (LOA). Petitioner once again argues that RO Lagundi was validly authorized through a Memorandum of Assignment (MOA) pursuant to the guidelines and procedures under Item D(1), Part IV (Guidelines) of Revenue Memorandum Order (RMO) No. 8-2oo65, which states that "[o]nly one (1) LA shall be issued to the same taxpayer, for the same tax type and period", and Item 8 of RMO No. 69-20106, which states that a manual serially-numbered MOA shall be issued for "[r]eassignment for the continuation of the audit/investigation of a case to another RO due to resignation/retirement/transfer of the original RO"/ 4 !d., pp. 81-110, with Associate Justice Ma. Belen M. Ringpis-Liban's Separate Concurring Opinion. Prescribing Guidelines and Procedures in the Implementation of the Letter of Authority Monitoring System (LAMS). 6 Guidelines on the Issuance of Electronic Letters of Authority, Tax Verification Notices, and Memoranda ofAssignment.

RESOLUTION CTA EB NO.ll.2l (CTA Case No. 9718) CIR v. Global Fresh Products Inc. Page 3 of8 X---------------------------- -X According to petitioner, the foregoing should be construed to mean that there is no need for the issuance of a subsequent LOA authorizing RO Lagundi. Since a valid LOA has already been issued for the audit of respondent's books of accounts and other accounting records for the taxable year (TY) 2013, the issuance of an MOA authorizing RO Lagundi and referring to the said LOA should suffice. Petitioner further maintains that respondent's right to due process was not violated as it was given notice and the opportunity to present its side when it was able to protest the Formal Assessment Notice7 (FAN) and submit additional documents in support thereof. Respondent should thus be considered to have waived its right to file a protest to the Preliminary Assessment Notice8 (PAN) when it opted to just file a protest to the FAN. Respondent, in its Comment9, points out that the Court En Bane has already extensively and categorically passed upon petitioner's issues in the assailed Decision. Moreover, even the Court's Third Division has resolved these similar issues in its Decision and Resolution dated 30 June 202o10 and 30 October 202d', respectively. We rule below. A reading of the subject MR reveals that petitioner raised no new issues or arguments that the Court, either in Division or sitting En Bane, did not consider or resolve. Accordingly, there is no compelling reason for the Court En Bane to modify, much more, to reverse the assailed Decision. Nonetheless, for emphasis, the Court En Bane shall briefly discuss and reiterate its reasons for the denial of petitioner's Petition for Review'2 and the consequent affirmation of the Third Division's Decision and Resolution dated 30 June 2020'3 and 30 October 202o"l, respectively./_ 7 Exhibit "P-38" to "P-38-A", Division Docket, pp. 246-250. Exhibit "P-32", id., pp. 234-240. 9 Supra at note 3. 10 Division Docket, pp. 353-377, with Associate Justice Ma. Belen M. Ringpis-Liban's Separate Concurring Opinion. II !d., pp. 401-402. 12 Filed on I 8 December 2020, Rollo, pp. 7-60, with annexes. 13 Supra at note I0.

RESOLUTION CTA EB NO. 2.l2l (CTA Case No. 9718) CIR v. Global Fresh Products Inc. Page 4 of8 x- --------------------------- -x In this case, it was found that the RO named under LOA SN: eLA2o1200o36576'5 dated o8 December 2015 was different from the one who actually examined respondent's books of account and other accounting records forTY 2013. Petitioner, however, rests the authority of RO Lagundi, who audited respondent's books of accounts, on MOA No. MOAo442015LOA-oo136'6, which was issued by then Revenue District Officer Florante R. Aninag (RDO Aninag) of RDO No. 044 - Taguig-Pateros. As explained in the assailed Decision, RMO No. 43-9o'7, which is still a valid administrative issuance despite its issuance seven (7) years prior to the enactment of the National Internal Revenue Code (NIRC) of 1997, as amended, clearly requires the issuance of a new LOA in cases of reassignment/transfer of cases to another RO. RMO No. 43-90 was not impliedly repealed by the passage of the NIRC of 1997, as amended, as there exists no irreconcilable inconsistency between their respective provisions, such that they cannot be reconciled or harmonized without nullifying one of them. In fact, the NIRC of 1997, as amended, codifies the LOA requirement in RMO No. 43-90. The fact that RMO No. 43-90'8 is still a valid rule is further evident from the recent Supreme Court decisions'9 guided by RMO No. 43-90. On another point, while We agree with petitioner that RMO No. 8-2oo620 authorizes the head of the investigating office to issue a MOA in case of reassignment, still, We are not prepared to hold that said MOA validly clothes RO Lagundi with authority to conduct the audit or investigation of respondent's books of account and other accounting records in the absence of an LOA, as required by law./ 14 Supra at note II. 15 Exhibit "R-2", BIR Records, p. 112. 16 Exhibit "R-1", id., p. 118. 17 Amendment of Revenue Memorandum Order No. 37-90 Prescribing Revised Policy Guidelines for Examination of Returns and Issuance ofLetters ofAuthority to Audit dated 20 September 1990. 18 !d. 19 Himlayang Pilipino Plans, Inc. v. Commissioner of Internal Revenue, G.R. No. 241848, 14 May 2021; Commissioner of Internal Revenue v. McDonald's Philippines Realty Corp., G.R. No. 242670, 10 May 2021; Commissioner of Internal Revenue v. Lancaster Philippines, Inc., G.R. No. 183408, 12 July 2017; Commissioner ofInternal Revenue v. De La Salle University, Inc., G.R. No. 196596, 09 November 2016; and, Commissioner of Internal Revenue v. Sony Philippines, Inc., G.R. No. 178697, 17 November 2010. 20 Supra at note 5.

RESOLUTION CTA EB NO.l.3..2l (CTA Case No. 9718) CIR v. Global Fresh Products Inc. Page 5 ofB X--------------------------- --X It bears to emphasize that RMO No. 8-200621 does not state that such MOA would be a substitute for the LOA required under Section 1322 of the NIRC of 1997, as amended. As aptly held in Commissioner of Internal Revenue v. Composite Materials, Jnc.:23 As regards the issue on Revenue Officer Mary Anne P. Cruz's (RO Cruz) authority to examine CMI's records, the provisions of the National Internal Revenue Code of 1997, as amended, are dear that a Revenue Officer may only examine the taxpayer's books pursuant to a Letter of Authority (LOA) issued by the Regional Director. This was reiterated by the Court in Medicard Philippines, Inc. v. Commissioner ofInternal Revenue, ruling that in the absence of an LOA, the assessment or examination is a nullity. Here, the CTA en bane found that the LOA issued in relation to the examination of CMI's book of accounts does not specifically mention the name of RO Cruz. Thus, the examination conducted by RO Cruz and the assessment issued against CMI was correctly declared null and void. Moreover, the Court agrees with the CTA en bane that the Referral Memorandum issued by a Revenue District Officer directing RO Cruz to continue with the examination of CMI's records is not equivalent to an LOA nor does it cure RO Cruz's lack of authority. To be sure, Revenue Memorandum Order No. 43- 90, which specified the guidelines in the issuance of LOAs states that any reassignment or transfer of cases to another RO or revalidation of an expired LOA shall require the issuance of a new LOA. Aside from the fact that no LOA was issued in favor of RO Lagundi, who actually conducted the audit, the MOA subject of this case was only signed by then ROO Aninag of ROO No. 044 - Taguig- Pateros, which is not compliant with the requirements of Sections 6(AY4, w( CY5 and 1326 of the NIRC of 1997, as amended, in relation / ' 21 Supra at note 5. 22 SEC. 13. Authority ofa Revenue Officer. - Subject to the rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner, a Revenue Officer assigned to perform assessment functions in any district may, pursuant to a Letter of Authority issued by the Revenue Regional Director, examine taxpayers within the jurisdiction of the district in order to collect the correct amount of tax, or to recommend the assessment of any deficiency tax due in the same manner that the said acts could have been performed by the Revenue Regional Director himself. 23 G.R. No. 238352, 12 September 2018 (Resolution); Citations omitted and emphasis supplied. 24 SEC. 6. Power ofthe Commissioner to Make Assessments and Prescribe Additional Requirements for Tax Administration and Enforcement. -

RESOLUTION CTA EB NO.ll.2Z. (CTA Case No. 9718) CIR v. Global Fresh Products Inc. Page 6 of8 x----- ---------------------- --x Item 0.427 of RMO No. 43-90. The latter RMO effectively provides that only the Regional Directors, the Deputy Commissioners, petitioner (as the CIR), and other officials (but only upon prior authorization by the CIR) are authorized to issue and sign LOAs. Here, RO Lagundi was not authorized by a new LOA to conduct an audit of respondent's books of accounts for TY 2013. The importance of the lack of the RO's authority to conduct an audit cannot be overemphasized because it goes into the validity of the assessment. The lack of authority of the RO is tantamount to the absence of an LOA itself which results to a void assessment. Being a void assessment, the same bears no fruit. With respect to petitioner's contention that respondent should be considered to have waived its right to file a protest to the PAN28 when it opted to just file a protest to the FAN29, the same is likewise untenable. In so arguing, petitioner would have us overlook the fact that the FAN30 was issued prematurely, i.e., prior to respondent's receipt of the PAW' and the lapse of the fifteen (15)-day period for respondent to file a protest against the PAN.l (A) Examination of Returns and Determination of Tax Due. After a return has been filed as required under the provisions of this Code, the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax, notwithstanding any law requiring the prior authorization of any government agency or instrumentality: Provided, however, That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer. " SEC. 10. Revenue Regional Director.- Under rules and regulations, policies and standards formulated by the Commissioner, with the approval of the Secretary of Finance, the Revenue Regional director shall, within the region and district offices under his jurisdiction, among others: (c) Issue Letters of Authority for the examination of taxpayers within the region[.] 26 SEC. 13. Authority ofa Revenue Officer. - Subject to the rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner, a Revenue Officer assigned to perform assessment functions in any district may, pursuant to a Letter of Authority issued by the Revenue Regional Director, examine taxpayers within the jurisdiction of the district in order to collect the correct amount of tax, or to recommend the assessment of any deficiency tax due in the same manner that the said acts could have been performed by the Revenue Regional Director himself. 27 D. Preparation and issuance of LIAs. 4. For the proper monitoring and coordination of the issuance of Letter of Authority, the only BIR officials authorized to issue and sign Letters of Authority are the Regional Directors, the Deputy Commissioners and the Commissioner. For the exigencies of the service, other officials may be authorized to issue and sign Letters of Authority but only upon prior authorization by the Commissioner himself. 28 Supra at note 8. 29 Supra at note 7. 30 Supra at note 7. 31 Supra at note 8.

RESOLUTION CTA EB NO.ZJ2l (CTA Case No. 9718) CIR v. Global Fresh Products Inc. Page 7 of8 X�---------------------------- X To reiterate, the issuance of the PAN, as well as giving the taxpayer 15 days from receipt of such PAN to respond thereto, is part of due process in the issuance of tax assessments. The CIR or his/her duly authorized representative is duty-bound to wait for the expiration of the 15-day period from receipt of the PAN before issuing the FAN. In this case, records show that petitioner issued the FAN32 on 13 January 2017 prior to respondent's receipt of the PAN (dated 28 December 2016)33 on 17 January 2017 and the lapse of the mandatory 15-day period granted to respondent to reply to the PAN. Even as respondent was able to file a protest against the FAN, the fact remains that respondent was deprived of the opportunity to be heard on the PAN, in clear violation of the due process requirement in the issuance of tax assessments laid down under Section 334 of Revenue Regulations (RR) No. 12-9935, as amended by RR No. 18-2013.36 In sum, the Court En Bane finds no cogent reason to modify or disturb the assailed Decision. WHEREFORE, with the foregoing, petitioner's "Motion for Reconsideration (RE: Decision Promulgated on June 30, 2022)", filed on 21 July 2022, is DENIED for lack of merit. SO ORDERED. ~ JEAN MARI~~VILLENA ~~�~e Justice 32 Supra at note 7. 33 Supra at note 8. 34 SEC. 3. Due Process Requirement in the Issuance ofa Deficiency Tax Assessment.- 35 Implementing the Provisions ofthe National Internal Revenue Code of /997 Governing the Rules on Assessment of National Internal Revenue Taxes, Civil Penalties and interest and the Extra- Judicial Settlement of a Taxpayer's Criminal Violation of the Code Through Payment of a Suggested Compromise Penalty. 36 Amending Certain Sections of Revenue Regulations No. 12-99 Relative to the Due Process Requirement in the Issuance ofa Deficiency Tax Assessment.

RESOLUTION CTA EB NO.ZJ!ll (CTA Case No. 9718) CIR v. Global Fresh Products Inc. Page 8 of8 x--- ------------------------- -x WE CONCUR: Presiding Justice ERL~.UY Associate Justice ~. ~ 7' <...___ MA. BELEN M. RINGPIS-LIBAN Associate Justice t:'A-1 7- /If--�o.AAt�:.......�- - CATHERINE T. MANAHAN Associate Justice stice ~ ~f.~.f~ MARIAN IV\Q;, REYE's-FAJA'kDO Associate Justice ~ LANEE S. CUI-DAVID Associate Justice C~~4rtm~RES Associate Justice