DIRECT CONTAINER LINE PHILS., INC. (Now Vanguard Logistics Services Phils., Inc.) v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY

EN BANC

REVENUE, SERVICES PHILS., INC.) DIRECT CONTAINER LINE PHILS., INC. (Now VANGUARD LOGISTICS COMMISSIONER Y -versus- OF INTERNAL Respondent. Petitioner, Promulgated: (CTA Case No.7616) Present: CTA EB No.1019 Ringpis-Liban, JJ Del Rosario, PJ. Castaneda, Jr., Bautista, Uy, Fabon-Victorino, Mindaro-Grulla, Casanova, Cotangco-Manalastas, and JAN 07 2015 SA

RESOLUTION

CASTANEDA, JR. J.:

Decision dated August 04, 2014) filed on September 2, 2014.with This resolves respondent's "Motion for Partial Reconsideration" (Re:

petitioner's"Opposition/Comment (Motion for Partial Reconsideration) (Re: Decision dated August 04, 2014) filed on September 18, 2014.

for taxable year 2003 except assessment for deficiency withholding tax on In the assailed Decision,' the CTA En Banc cancelled the assessments

compensation, the dispositive portion of which reads:

CTA No.7616 are hereby MODIFIED. considerations, the petition is PARTIALLY GRANTED. The September 10, 2009 Decision of CTA First Division and the May 8, 2013 Resolution of the CTA Special First Division in WHEREFORE, on the basis of the foregoing

1Rollo, pp. 143-44.

CTA EB No.1019(CTA CASE No.7616 Page 2 of 6 RESOLUTION

The dispositive portion of the Decision promulgated on September 10, 2009 is modified as follows:

PetitionforReviewis hereby WHEREFORE, premises considered, the instant PARTIALLY GRANTED. The assessments issued by respondent against petitioner for taxable year 2003 covering deficiency income tax, value-added tax, final withholding tax, fringe benefits tax, documentary stamp tax and compronise penalties are hereby CANCELLED and WITHDRAWN.However, the assessment for deficiency withholding tax on compensation is hereby UPHELD

the aggregate amount of P 44,023.44 detailed as follows: Accordingly, petitioner is hereby ORDERED to PAY

Basic Tax Surcharge Total Deficiency Withholding Tax on Compensation 35,218.75 8,804.69 44,023.44

In addition, petitioner should be held liable to pay:

annum pursuant to Section 249 (B) of the NIRC of a Deficiency interest at the rate of 20% per

compensation from January 15, 2004; 1997 on the deficiency withholding tax on

b. Delinquency interest at the rate of-20% per annum on the total amount due of P 44,023.44 representingdeficiency withholding tax. On compensation and on the deficiency interest which have accrued as aforestated in (a) computed from September 15, 2006 until full payment thereof. pursuant to Section 249 (C) of the NIRC of 1997.

SO ORDERED.

actually issued, hence, assessment against petitioner for deficiency VAT, In her motion, respondent claimed that a Pre-Assessment Notice was

taxable year 2003 should be upheld. income tax, withholding tax on compensation, and fringe benefit tax for

tax liabilities for taxable year 2003 when it offered a compromise settlement in June 9, 2010. Respondent further argued that petitioner acknowledged its deficiency

CTA EB No. 1019 (CTA CASE No.7616) RESOLUTION Page 3 of 6

were merely repetition of previous contentions which have been thoroughly and fully resolved in the assailed decision. With regard to the offer to compromise, petitioner cited Sec.27, Rule 130 of the Rules of Court which On the other hand, petitioner noticed that respondent's arguments

provides that offer of compromise is not an admission of any liability,and is not admissible in evidence against the offeror.

We DENY respondent's motion for lack of merit.

Decision dated August 4, 2014 considering that no new grounds have been There is no cogent reason to reverse the assailed CTA. En Banc

raised and the arguments brought by respondent have been exhaustively discussed and passed upon in the Decision sought to be reconsidered. In any event, We shall reiterate the ruling of the Court En Banc.

The issuance of the Preassessment Notice or Preliminary Assessment Notice (PAN) is an indispensable element of due process under Section 228 of the National Internal Revenue Code of 1997 as implemented by Revenue

of RR 12-99 mandates that PAN must be issued before issuance of Final Assessment Notice (FAN). Regulation (RR) No. 12-99. In fact, even RR No. 18-2013 amending Sec. 3

Jurisprudence supports the strict compliance with the requirements of PAN. In the case of Commissioner of Internal Revenue v. Metro Star Superama, Inc. (Metro Star case), the Supreme Court held that compliance with the notice requirements must be observed otherwise there will be a denial of due process. The absence of a PAN is fatal to the validity of an

PAN is a substantive, not merely a formal, requirement. The Court wrote: assessment. In the same case, the Court acknowledged that the sending of a

requires that the taxpayer must first be informed that he is liable for deficiency taxes through the sending of a PAN. He must be informed of the facts and the law proceed heedlessly with tax collection without first upon which the assessment is made. The law imposes a substantive, not merely a formal, requirement. To Indeed, Section 228 of the Tax Code clearly

establishing a valid assessment is evidently violative of

that taxpayers should be able to present their case and the cardinal principle in administrative investigations

adduce supporting evidence.

XXX X X XXX y

2 G.R. No.185371, December 8, 2010, 637 SCRA 633.

Page 4 of 6 RESOLUTION CTA EB No.1019(CTA CASE No.7616

assessment," the absence of which renders nugatory the sending of a PAN to taxpayer to inform him of the assessment made is but part of the "due process requirement in the issuance of a deficiency tax From the provision quoted above, it is clear that

any assessment made by the tax authorities. The use of the word "shall" in subsection 3.1.2 describes the mandatory nature of the service of a PAN. The persuasiveness of the right to due process reaches both

CIR to strictly comply with the requirements laid down substantial and procedural rights and the failure of the

to due.process. Thus, for its failure to send the PAN by law and its own rules is a denial of Metro Star's right

stating the facts and the law on which the assessment was made as required by Section 228 of R.A.No. 8424, the assessment made by the CIR is void. (Emphasis ours)

jurisprudence. In Fabtech Export Industries, Inc. v. Commissioner of and Audit Results/Assessment Notices were cancelled and withdrawn due to lack of PAN. Similarly in the case of Commissioner of Internal Revenue v. indispensable element of due process citing the above-mentioned Internal Revenue, the Formal Letter of Demand, Details of Discrepancies La Frutera, Inc., assessment for taxable year 2004 was cancelled for failure In most recent CTA cases, the court recognized PAN as an

of respondent to issue PAN prior to FAN.In SVI Information Services Corporation v. Commissioner of Internal Revenue, the Preliminary Collection Letter was cancelled for failure of respondent to prove that PAN

Internal Revenue, assessments were cancelled for failure to prove that PAN and FAN were validly served upon the taxpayer. was delivered to petitioner and in Manuel B. Palaganas doing business under the name and Style STEMIKO COMMERCIAL v. Commissioner of

Here, the records of the case do not provide traces of petitioner's

are convinced that respondent fell short of the requirements to adduce receipt of PAN. No independent evidence, such as registry receipt, proof of mailing, or any certification from the Post Office was presented to support respondent's claim that PAN was sent and received by petitioner. Thus, We

competent evidence to establish petitioner's actual receipt of PAN.

On the other hand, the Post Reporting Notice (Notice) cannot take the

essentially require respondent to inform the taxpayer "in writing of the law place of a PAN in this case. The law and its implementing regulation

5 CTA EB 10H1,August 4,2014 CTA Case No. 8496, Febrary 10, 2014. Aftirmed in Resolution dated March 21,2014. CTA Case No. 8394, Seplember 17, 20:4. Affirmed in Resolution dated November 14, 2014 d CTA Case No.8435.February 18,2014.Affirmed in Resolution dated April 30.2014

Page 5 of 6 RESOLUTION CTA EB No.1019(CTA CASE No.7616

upon which the assessments were anchored. The Notice appeared to be based on a tentative computation which underwent revisions as evidenced by shall be void."8 Here, an examination of the contents of the Notice revealed that it consisted only of the computation of tax liabilities without legal bases and the facts on which the assessment is made; otherwise, the assessment

a revised computation of deficiency taxes.

Meanwhile, We cannot sustain respondent's argument that petitioner acknowledged its liabilities when it offered a compromise. An offer of coinpromise is not an admission of any liability under Sec. 27, Rule 130 of the Rules of Court:

cases, an offer of compromise is not an admission of any liability, and is not admissible in evidence against the offeror SEC.27. Offer of compromise not admissible.- In civil

Reves, the Supreme Court ruled that an invalid assessment cannot in turn Moreover, in the case of Commissioner of Internal Revenue v.

be used as a basis for the perfection of a tax compromise.

Partial Reconsideration (Re: Decision dated August 04, 2014) is hereby DENIED for lack of merit. WHEREFORE, premises considered, respondent's Motion for

SO ORDERED.

JUANITO C.CASTANEDA,JR wik C CaSola C

Associate Justice

WE CONCUR:

ROMAN G.DELROSARIO Presiding Justice

ner of Internal Rever e vMetro Star Supe ama.Inc.G.R.No.185371,December 8,2010,637 SCRA

Io G.R. Nos. 159694 & 163581, January 27, 2006, 480 SCRA 382, 385. Exhibit "12" for respondent, BiR Records, Pp. 276-278. 633

CTA EB No. 1019 (CTA CASE No.7616) RESQLUTION Page 6 of 6

LOVELL ROBAUTISTA Associate Justice Associate Justice ERLINDAPUY

CAESAR A.CASANOVA ESPERANZA R.FABON-VICTORINO

Associate Justice ssodlate Justice

Cett. N.Mdm.Omle. CIELITO N.MINDARO-GRULLA Associate Justice AMELIA R.COTANGCO-MANALASTAS Associate Justice

MA.BELEN M. RINGPIS-LIBAN M.d

Associate Justice