REPUBLIC OF THE PHILIPPINES v. MR. RANSON DIODELL N. TENERIFE doing business under the name MOTORINA TRADING

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY ENBANC REPUBLIC OF THE Plaintiff, CTA EB NO. 2805 PHILIPPINES, (CTA OC No. 025) - versus - Present: Del Rosario, P.J, Ringpis-Liban, Manahan, Bacorro-Villena, Modesto-San Pedro, Reyes-Fajardo, Cui-David, Ferrer-Fla res' and Angeles,Jl MR. RANSON DIODELL N. Promulgated : TENERIFE doing business under the name "MOTORINA TRADING", Defendant. X----------------------------------------------------------------------- -----------------------X DECISION RINGPIS-LIBAN, .L;. Before the Court En Bane is a Petition for Review1 flied by the Republic of the Philippines on October 13, 2023. The Petition for Review seeks the reversal of the D ecision dated June 14, 2023,2 (Assailed Decision) as well as the 02y Resolution dated September 22, 20233 (Assailed Resolution) of the Special First Division (Court in Division)4 o f this Court in CTA OC No. 1 Court En Banes Docket, pp. 1-13. 2 lei., pp. 20-31. 3 !d., pp. 33-35. 4 Composed of Presiding Justice Roman G. Del Rosario, Associate Justice Catherine T. Manahan and Associate Justice Marian Ivy F. Reyes-Fajardo (ponente).

DECISION CTA EB No. 2805 (CTA OC No. 025) The respective dispositive portions of the Assailed Decision and Resolution are quoted hereunder: Assailed Decision: 'WHEREFORE, the Complaint dated August 31, 2018, filed by the Republic of the Philippines, is DENIED, for lack of merit. The Republic of the Philippines, through the Commissioner of Internal Revenue, his representatives, agents, or other persons acting in his behalf, are ENJOINED from collecting on Ranson Diodell N. Tenerife, the deficiency income tax, value-added tax, and compromise penalty covenng 'IY 2010, amounting to P14,329,447.71. SO ORDERED.' Assailed Resolution: 'WHEREFORE, plaintiff's Motion for Reconsideration (Re: Decision promulgated 14 June 2023), filed on July 6, 2023, is DENIED, for lack of merit. The Decision dated June 14, 2023, is AFFIRMED. SO ORDERED.' THE FACTS The facts of the present case were laid down by the Court in Division in the Assailed Decision as follows: 5 "Plaintiff Republic of the Philippines, is represented by the Commissioner of Internal Revenue, Chief of the Bureau of Internal Revenue (BIR), the government agency vested with the authority to administer and enforce national internal revenue taxes, including, among others, the assessment and collection of all internal revenue taxes, fees, and charges. He holds office at the BIR National Office Building, Agham Road, Diliman, Quezon City, where he may be served wid1 summons, notices and od1er court processes.J I 5 Court En Banes Docket, pp. 20-23 (Citations omitted).

DECISION CTA EB No. 2805 (CTA OC No. 025) Defendant Ranson Diodell N. Tenerife, doing business under the name '?viotorina Trading,' is the taxpayer. He may be served with summons, notices, and other court processes through his counsel QCV Law at Centro Maximo Building, corner Ranudo and J akosalem Streets, Cebu City, Philippines. On July 10, 2012, defendant received the BIR's undated Letter Notice (LN) No. 082-RLF-10-00-00166, informing him that he has undeclared local purchases forTY 2010, amounting to P16,423,077.44. Said figure emanated from the summary list of sales submitted by defendant's alleged suppliers to the BIR. On February 14, 2013, defendant received the BIR's Notice of Informal Conference. On J\Iay 9, 2013, the BIR issued a Preliminary Assessment Notice (PAN) with Details of Discrepancies, containing the proposed assessment for deficiency IT, and VAT, forTY 2010, in the total amount of '1'13,966,898.40. On July 29, 2013, the BIR issued a Formal Letter of Demand and Final ,\ssessment Notices, with Details of Discrepancies (FLD/FAN), assessing defendant for deficiency IT, VAT, and compromise penalty for TY 2010, in the total amount of '1'14,329,447 .71. On September 1, 2014, the BIR issued a Preliminary Collection Letter (PCL), demanding from defendant, the payment of deficiency IT, VXr, and compromise penalty for TY 2010, in the total amount of'P14,329,447.71. On September 17, 2014, the BIR issued a Final Notice Before Issuance of \V'arrant, reiterating its demand for payment against defendant, of the deficiency IT, VAT, and compromise penalty forTY 2010, in the total amount of'P14,329,447.71. On November 14, 2014, defendant received the Warrant of Distraint and/ or Levy (WDL) dated October 15, 2014, issued by the BIR. On September 5, 2018, plaintiff filed a Complaint, docketed as CTA OC No. 025. On October 29, 2018, defendant filed an Answer with Special Affirmative Defense.

DECISION CIA EB No. 2805 (CIA OC No. 025) During the pre-trial conference held on June 24, 2021, we required the parties to formulate a Joint Stipulation of Facts and Issues GSFI), set the dates for the marking of the parties' respective evidence, as well as the presentation of their respective wltnesses. On July 19, 2021, the parties submitted their JSFI. On October 13, 2021, we issued a Pre-Trial Order. During trial, plaintiff presented revenue officers (ROs): one, Judy S. Sayson; hvo, Josyl 1\nn Z. Aranas; three, Juliet Balbona; and jo11r, i\Iaria Delia Ortega, as its witnesses. On November 2, 2021, plaintiff flied its Formal Offer of Evidence, to which defendant filed a comment on November 16, 2021. Under Resolution dated March 11, 2022, Exhibits 'P-1,' 'P- 12' 2',''Pa' n-d3''P'P-1-44,' '' w'Per-' e5'ad'Pm' -i6tte' d'Pa-s7' e'v'iPde-' n8c'e' Pf' o-r9p' l'aPin-t1if0' f', 'aPn-' d11it' 'P- was deemed to have rested its case. Defendant presented himself as witness. Thereafter, he offered, and we admitted his testimonv as evidence. By Resolution dated June 15, 2022, this case was submitted for decision, taking into account the respective filing of plaintiff and defendant's memorandum on June 3 and 6, 2022." On June 14,2023, the Court in Division rendered the Assailed Decision denying plaintiff-appellant's Complaint for lack of merit. Aggrieved, plaintiff-appellant filed a Motion for Reconsideration (Re: Decision promulgated 14 June 2023) which the Court in Division denied in the Assailed Resolution. On October 13, 2023, plaintiff-appellant filed the present Petition for Review. In a Minute Resolution dated November 17, 2023, this Court ordered the defendant-appellee to file his Comment to the Petition for Revie~ 6 Id., p. 36.

DECISION CTA EB No. 2805 (CTA OC No. 025) On January 9, 2024, defendant-appellee filed his Compliance and Comment7 In a i\Iinute Resolution dated April 3, 2024, this Court submitted the present case for decision 8 THE ISSUE Plaintiff filed the present Petition for Review on the basis of the lone assignment of error stated below: 9 "WHETHER OR NOT THE SPECIAL FIRST DIVISION OF THE HONORABLE COURT ERRED WHEN IT RULED TK\T THE FOlu\L\L LETTER OF DEl'vL\ND/FINAL ASSESSJ\IENT NOTICE (FAN/FLD) ISSUED BY THE BIR "\GAINST DEFENDANT FOR TAL\BLE YEAR 2010 IS VOID BECAUSE THE AUDIT OR EL\MINATION CONDUCTED BY THE BIR PERSONNEL AGAINST HIM HAS NO PRIOR PERMISSION FROM THE COMMISSIONER OF INTERNAL REVENUE OR HIS DULY ~\UTI-IOIUZED REPRESENTATIVE; HENCE IT l\L\Y NOT BE USED ,\S VALID BASIS OF THE COLLECTION SUIT AGAINST HIM." THE COURT EN BANCS RULING In the Assailed Decision, the Court in Division ruled that the Formal Letter of Demand and Final Assessment Notices with Details of Discrepancies (FLD/FAN) issued by the Bureau of Internal Revenue (BIR) against the defendant-appellee is void because the audit or examination conducted by the BIR personnel has no prior permission from the Commissioner of Internal Revenue (CIR) or his duly authorized representatives. Accordingly, the same may not be used as a valid basis for the collection suit against the defendant- appellee. The Court in Division cited as basis in support of such ruling the Supreme Court case of 1\iedimrd Philippines, Inc v. Commissioner ofInternal Revenue10 where it was essentially held that a Letter Notice (LN) is not the same as or an equivalent of a Letter of Authority (LOA) and the absence of an LOA authorizing the issuance of an assessment is tantamount to a violation of due process rendering the assessment void( 7 Id., pp. 38-41. 8 Id., p. 49. 9 Id, p. 3. 1' G.R. No. 222743, April 5, 2017 ("Medicard').

DECISION ITA EB No. 2805 (ITA OC No. 025) In the present Petition for Review, the plaintiff-appellant posits that Section 13 of the National Internal Revenue Code of 1997, as amended, which requires the issuance of an LOA prior to the conduct of an audit or examination is not applicable because there was no actual examination of the defendant-appellee's books conducted in the present case. Citing both Revenue Memorandum Circular No. 40-2003 and Revenue Memorandum Order No. 30-2003, the plaintiff-appellant postulates that there is no strict requirement for the existence of an LOA in "no-contact audit approach" and, in such cases, it is sufficient that an LN was issued in compliance with RMO No. 30-2003. The plaintiff-appellant also advances the view that an LOA is, in essence, a contract of agency between the CIR, as the principal, and the Revenue Regional Director, as an agent, with the revenue officers named in the LOA as mere sub-agents of the Revenue Regional Director. Plaintiff-appellant likewise argues that an LOA also serves as a letter notice. Finally, the plaintiff-appellant asserts the presumption of correctness of tax assessments. It maintains that the taxpayer contesting an assessment has the burden to prove not only that the CIR is wrong but the taxpayer is right. Otherwise, the presumption of correctness of the assessment stands. After thorough evaluation of the factual antecedents of the present case, the arguments presented, as well as the relevant laws and jurisprudence on the matter, the Court E11 Banr finds that the present Petition for Review must be denied for lack of merit. Truth be told, the arguments raised by the plaintiff- appellant in support of the present Petition for Review are substantially the same as those raised in l\1edicard which had already been controverted and categorically debunked by the Supreme Court in the said case. Given the factual similarities between iVledicard and the present case, lv1edirard should accordingly be applied as a controlling precedent. The Court En Banr finds no compelling reason to disturb the Court in Division's findings in the Assailed Decision and Resolution. With respect to the plaintiff-appellant's argument that an LOA is not required in the present case because no actual examination of the defendant- appellee's books was conducted, the following discussion in Medicard is on pomt: "Contrary to the ruling of the CTA en bane, an LOA cannot be dispensed with just because none of the financial books or records being physically kept by MEDICARD was examined. To begin with, Section 6 of the NIRC requires an authority from the CIR or from his duly authorized representatives before an examination 'of a taxpayer' may be y made. The requirement of authorization is therefore not dependent on whether the taxpayer may be required

DECISION CTA EB No. 2805 (CTA OC No. 025) physically open his books and financial records but only on whether a taxpayer is being subject to examination. The BIR's RELIEF System has admittedly made the BIR's assessment and collection efforts much easier and faster. The ease by which the BIR's revenue generating objectives is achieved is no excuse howe,�er for its non-compliance with the statutory requirement under Section 6 and with its own administrati,-e issuance. In fact, apart from being a statutory requirement, an LOA is equally needed even under the BIR's RELIEF System because the rationale of requirement is the same whether or not the CIR conducts a physical examination of the taxpayer's records: to prevent undue harassment of a taxpayer and level the playing field between the government's vast resources for tax assessment, collection and enforcement, on one hand, and the solitary taxpayer's dual need to prosecute its business while at the same time responding to the BIR exercise of its statutory powers. The balance between these is achieved by ensuring that any examination of the taxpayer by the BIR's revenue officers is properly authorized in the first place by those to whom the discretion to exercise the power of examination is given by the statute. That the BIR officials herein were not shown to have acted unreasonably is beside the point because the issue of their lack of authority was only brought up during the trial of the case. What is crucial is whether the proceedings that led to the issuance of VAT deficiency assessment against i\IEDICARD had the prior approval and authorization from the CIR or her duly authorized representati,�es. Not having authority to examine MEDICARD in the first place, the assessment issued by the CIR is inescapably void." (EmpbuJiJ Htpp!ied) The rule as laid down by lviedicard is that an LN must first be converted mto an LO.t\ before a revenue officer may proceed with the further examination and assessment of a taxpayer. An examination and assessment of a taxpayer �without prior issuance of an LO[\ is tantamount to a violation of due process rendering the assessment void. Considering the foregoing, it is clear that the plaintiff-appellant's postulate that there is no strict requirement for the existence of an LOA in "no-contact audit approach" and, in such cases, it is sufficient that an LN was issued in compliance with RMO No. 30-2003 is bereft of any merit. Even in the context of a "no-contact audit approach," the prior issuance of an LOA is a statutory requisite. This much is true as, in fact, the CIR himself had acknowledged the clear-cut pronouncement by the Supreme Court in J\!Iedicard when he issued Revenue Memorandum Circular No. 75-2018 11 wherein he s t a t ( 11 The Mandatory Statutory Requirement and Function of a Letter of Authority (issued on September 5, 2018).

DECISION CTA EB No. 2805 (CTA OC No. 025) The judicial ruling, invoking a specific statutory mandate, states that no assessments can be issued or no assessment functions or proceedings can be done without the prior approval and authorization of the Commissioner of Internal Revenue (CIR) or his duly authorized representative, through an LO,\. The concept of an LOA is therefore clear and unequivocal. Any tax assessment issued without an LOA is a violation of the taxpayer's right to due process and is therefore "inescapably void." (EmpbaJiJ .wpplied) As regards the plaintiff-appellant's themy of agency and its invocation of the presumption of correctness of the tax assessment, the Court En Bane finds that the same have no relevance whatsoever to the resolution of the present controversy. Given the invalidity of the FLD/FAN, the present collection suit simply has no leg to stand on. WHEREFORE, premises considered, the Petition for Review is DENIED for lack of merit. SO ORDERED. ~. ~ _,_ "------ MA. BELEN M. RINGPIS-LIBAN Associate Jus rice fVECONCUR- Presiding Jus rice C'~;;; ~~..~"..,e..___ __ CATHERINE T. MANAHAN "-\ssociate Justice

DECISION CfA EB No. 2.805 (CfA OC No. 02.5) Justice MARIAN IVY F. REYES-FAJARDO Associate Justice LAN~f~r~.tAzAt1it(-;nDt~ID Associate Justice HENRY sfi.eGELES Associate Justice '

DECISION CTA EB No. 2805 (CTA OC No. 025) CERTIFICATION Pursuant to "�\rticle VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in above decision were reached in consultation before the case was assigned to the writer of the opinion of the Court. Presiding Justice