CTA Case No. EB CRIM-16 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY ENBANC PEOPLE OF THE PHILIPPINES CTA EB CRIM. CASE NO. 016 Petitioner, (CTA Crim. No. 0-028) Present: -versus- Casta:iieda, Jr. Bautista, RUPERTO P. RODRIGUEZ, Uy, Casanova, Respondent. F ab o n -V i c t o r i n o , Mindaro-Grulla, and Cotangco-Manalastas, JJ. Promulgated: X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X DECISION COTANGCO-MANALASTAS,~ : On appeal before the Court En Bane by way of a Petition for Review1 filed on October 12, 2011 pursuant to Section 18 of Republic Act No. 1125, as amended by Republic Act No. 9282 and Republic Act No. 95032, are the September 7, 2011 Resolution3 and July 12, 2011 Decision4 of the First Division of i-- this Court in CTA Crim. No. 0-028, entitled ((People of the Philippines us. Ruperta P. Rodriguez". 1 Rollo, pp. 5- 15 . 2 Otherwise known as "1\n 1\ct Expanding the Jurisdiction of the Court of Tax Appeals (CTA), Elevating its I~ank to the Level of a Collegiate Court with Special Jurisdiction and Enlarging its Membership, /\mending for the Purpose Certain Sections of Republic Act No. 1125, as amended, Otherwise Known as the Law Creating the Court of Tax Appeals, and for Other Purposes." 3 Rollo, pp. 56-63. 4 Nollo, pp. 16-47.

DECISION Page 2 of 13 CTA EB Crim No. 016 People us. Ruperta P. Hodrigu ez The dispositive portions of the appealed Resolution and Decision read: Resolution dated September 7 , 2011: "WHEREFORE , pre mises considered, plaintiffs Motion for Partia l Reconsid e ration is h e re by DENIED for lack of merit. SO ORDERED." Decision dated July 12, 2011: "WHEREFORE , pre mises considered, accused RUPERTO P. RODRIGUEZ is h ere by ACQUITTED on reason ab le doubt. Th e cash bond pos ted by accused is h e re by CANCELLED a nd ordered RELEASED to its lawful owner upon prese nta tion of prope r documents, m accordance with usual accounting rules and regulations. Moreover, th e subject assessment against Luzon for taxable year 2000 is hereby CANCELLED a nd SET ASIDE, on procedura l grounds. No Costs. SO ORDERED ." Petitioner challenges the civil aspect of the Decision promulgated by Court in Division on July 12, 2011 and begs of this Court to: [i] uphold the validity of the tax deficiency assessments of P6 ,92.5 ,442.48 issued by the Bureau of Internal Revenue (BIR) against Luzon Surety and Insurance I Co., Inc., ("Luzon Surety") for taxable year 2000; and; [ii] order respondent Ruperto P. Rodriguez, Vice-President for Finance/ Corporate Secretary of Luzon Surety, to pay the amount of P6,925,442.48 as its deficiency tax liability for taxable year 2000 plus 20�/o d elinquency interest per annum on said deficiency tax liability pursuant to Section 249 of the National Internal Revenue Code (NIRC) of 1997 , as amended. FACTS OF THE CASE The antecedents of the case as culled from the Decision of the First Division are as follows: "Acc used Ruperto P. Rodri guez is charged before this Court with "Violation of Section 255 in re la tion to Section/-

DECISION Page 3 of 13 CTA EB Crim No. 016 People us. Ruperto P Rodriguez 253 (d) and 256 of lhc Tax Code of 1997, as amended by RA 8424, und er a n lnformalio n which reads as follows: "INFORMATION" "Th e undersigned accuses RUPERTO P . RODRIGUEZ of a Violation of Sec. 255 in relation to Section 253 (d) and 256, Tax Code of 1997 as amended by Republic Act No. 8424, committed as follows: That on or about February 23, 2004, in the City of Manila, Philippines, the said accused, being then the Vice-President Finance/ corporate secretary of Luzon Insurance Surety Company, In c. located at 2F William Burke Street, Binondo, this City, having filed his internal revenue tax for the year 2000, and after an examination and audit of the same, it has been found that there is due and collectible from said Luzon Insurance Surety Company, Inc., the following amount: Assessment Kind of Tax No . Year Date Amount ,January 2,453,893 .17 De f. 1nco me Tax 30-2000 2000 23,2004 January 25,000.00 Comp. Penalty on Income Tax 30-2000 2000 23,2004 2,664,971.17 January Def. Value Added Tax 30-2000 2000 23,2004 25,000.00 ,January 415,215.19 Comp. Penalty on VAT 30-2000 2000 23,2004 30-2000 2000 January 16,000.00 Def. on Expanded Withholding 30-2000 2000 23,2004 1,301,238.51 January Tax II, 23,2004 20,000.00 January 924.44 I 23,2004 200 January Comp. Penalty on EWT 23,2004 3,000.00 January 6,925,442.48 Def. On Documentary Tax 30-2000 2000 23,2004 Comp. Penalty on Documentary 30-2000 2000 ,January Stamp Tax 23,2004 January Def. on Registration Fee 30-2000 2000 23,2004 Comp. Penalty on Registration 30-2000 2000 Fee Def. on Compromise Penalty 30-2000 2000 for the sajd year, did then and there wilfully and unlawfully fail , refuse or neglect to pay said taxes and without formally protesting against or appealing the same, despite due assessment notice and demand to do so, to the damage and prejudice of the Republic of the Philippines, in the total amount of P6,925,442.48, Philippine Currency. Contrary to l aw."~

D E CISION Page 4 of 13 CTA EB Crim No. 016 People us. Ruperto P. Rodriguez XXX We scrutinize (sic) the evidence adduced by both parties. IL is established from the records that a Letter of Authority No. 2000 - 00020936 dated July 4, 2002 was issued to Revenue Officer Rodolfo Mendoza and Group Supervisor Myrna V. Querubin, to audit and for examine the books of accounts and other accounting records of Luzon for taxable year 2000, and said revenue officers accordingly submitted their Memorandum Report dated May 26, 2003 to the Revenue District Officer of ROO No. 30 explaining in detail the results of their audit investigation. Upon review by Revenue Officer Edna Ortalla, she issued a Revised Revenue Officer's Audit Report, and Pre-Assessment Notice for deficiency income tax, EWT, VAT, DST, and Registration Fee against Luzon, sent by the Assessment Division to said company. As the pre-assessment was not allegedly refuted by Luzon, F'inal Assessment Notices on Registration Fee, EWT, DST, VAT and income tax, together with corresponding Demand Letters were sent to Luzon. Thereafter, the docket was forwarded to the Collection Division for enforcement of collection of deficiency taxes due to the failure of Luzon to file administrative protest prescribed under Section 228 of the NLRC of 1997, as amended. Consequently, the Letter dated June 21, 2005 was prepared by prosecution witness, Joscfina T. Agapinan, addressed to accu cd :Ruperto P. Rodriquez as VP-F'inance and Corpora tc Secretary of Luzon, upon instruction of her immediate supervisor, Atty. Arthur Carandang of the Legal Division of Manila, requesting for the payment of supposed tax liabilities for the year 2000 within ten (10) days from receipt thereof. She also testified that she saw the name of accused: "Ruperto P. Rodriguez, ,Jr., VP- F'inancej Corporate Secretary" as the signatory in the Income Tax Return (ITR) of Luzon for taxable year 2000. As no payment was made by accused or Luzon, a Warrant of Distraint and/or Levy for the total amount of P6,925,532.48 was subsequently issued to enforce the collection of the subject taxes. Subsequently, the instant criminal case was filed against herein accused. It was also established that Luzon was placed under conservatorship on December 22, 2004; then, under receivership on April 17, 2006, and now under liquidation since July 28, 2006 because Luzon had been declared as insolvent by the Insurance Commission; and that the true address of Luzon is 2nd F'loor, LUZCO Building, 360 William Burke St., Escolta, Manila. Although it is apparent from the records that Luzon was informed about the examination conducted and the~

DECISION Page 5 of 13 CTA EB Crim No. 016 People us. Ruperta V Rodriguez iniLial findings of Lhe BIR as regards Lh e subj ec l d e ficie ncy Laxcs, however, there appears Lo be a gap in th e series of the required due notice Lo Lhe Lax paye r. Th e prosecution failed to prove Lh a L Lh e accused, or any of Lhe re prese ntative s of Luzo n , was duly noLifi ed of Lhe Pre limina ry Assessm e nt Notice (PAN) dated cJanuary 7, 2004. The re is no evidence a ddu ced by Lh e proseculion Lo prove that the PAN was duly served to Lh e accused , or Lo a ny of Lhe a ulhorized represenlatives of Luzon. The prosecution Lried to show service of Lhe Fina l Assessm e nt Notice (FAN) a nd the co rres ponding d e m a nd lette rs when it prese nted the SIR's Documenl Loealor, wilh Registry Rece ipt Numbe r 803582 (ExhibiL "QQ ") which was m a il ed on J a nu a ry 23, 2 004 a nd a Regislry Return Card (Exhibit "PP"). Howeve r, bo th d oc um en ls fa iled to c learly eslab lish LhaL one of Lhe doc um e nls served und e r said registered m a il is the PAN . xxx" On July 12, 2011, the Court in Division acquitted accused on reasonable doubt, and the subject assessments against Luzon Surety for taxable year 2000 was cancelled and set aside on procedural grounds. Finding no legal basis to reconsider the challenged Decision, the Court in. Division denied for lack of merit plaintiff's [petitioner herein] motion for partial reconsideration on September 7 , 20 111; He nce, the filing of the instant Petition for Review. Respondent herein Ruperta P. Rodriguez filed his Comment (On the Petitionfor Reviewj5 on November 2, 2011. In a Resolution dated December 12, 2011, petitioner was ordered to submit an original or certified true copy of Revenue Delegation Authority No. 2-2007 dated March 1, 2007 pursuant to Section 3 of Rule 9 of the Revised Rules of the Court of Tax Appeals (RRCTA). Petitioner filed its Compliance6 on December 22, 20 11. On February 9 , 2012, this Court resolved to giVe due course to the present Petition for Review and ordered the parties to submit their respective memoranda.7 Petitioner timely filed its Memorandums on March 15, 2012. Respondent filed his Memorandum9 on April 10, 2012.(_ s Rollo , pp. 68 - 72. 6 Rollo, pp. 77-81 . 7 Rollo, pp. 84 -86.

DECISION Page 6 of 13 CTA EB Crim No . 016 People us. Rupe rto V Rodriguez Considering the parties' respective Memoranda, the present Petition for Review was submitted for decision on April 26, 2012. ISSUE WHETHER THE FIRST DIVISION OF THIS COURT COMMITTED REVERSIBLE ERROR WHEN IT CANCELLED THE DEFICIENCY TAX ASSESSMENT OF P6,925,442.48 ISSUED BY THE PETITIONER AGAINST RESPONDENT COVERING FISCAL YEAR 2000 ON THE GROUND THAT NO PRE-ASSESSMENT NOTICE WAS SENT/SERVED TO THE RESPONDENT. Arguments of Petitionerlo Petitioner maintains that: the deficiency assessments with aggregate amount of P6,925,442.48 for taxable year 2000 were based on factual findings of revenue officers of BIR- Manila which was never disputed/ protested by the corporate taxpayer Luzon Surety, hence, they have become final, demandable, and executory; despite repeated demands, Luzon Surety failed to pay the said deficiency tax. .I Further, petitio,~�.r argues that even assuming the Preliminary Assessme:nt Notice (PAN) was not sent or received I by Luzon Surety, the prosecution had proven that the Final Assessment Notices (FAN) and the corresponding demand letters thereto were actually mailed to Luzon Surety; it is of no moment whether the PAN was received by Luzon Surety as the presumption of regularity in the performance of official duties is in favor of the revenue employees who made the assessments; all presumptions are in favor of the correctness of the assessment made by the Commissioner of Internal Revenue, the taxpayer must prove the contrary; and the absence of preliminary assessment notice would not affect the validity of formal final assessment notice issued by the respondent. ~ s Rollo, pp. 87 -9 9 . 9 Rollo, pp . 104- 12 0. JO Rollo, pp. 94 -9 7 .

DECISION Page 7 of 13 CTA EB Crim No . 016 People us. Rupe rlo P. Rodriguez Arguments of Respondentll Respondent counters that petitioner's pos1t1on is not in accordance with jurisprudence, arguing that while there is a presumption that mail matters by the BIR were received by the taxpayers concerned, this presumption is disputable; the denial by respondent of having received the notices of assessment and demand letters effectively overcame the presumption petitioner is asserting; petitioner failed to overcome the burden of proving that the alleged assessment notices and demand letters were received by respondent. Further respondent reasons that the BIR's failure to prove that assessment notices and demand letters were served on and received by Luzon Surety renders the assessment void; and since the taxable year subject hereof is 2000, the right of the BIR to assess and collect taxes against Luzon Surety has already prescribed. Lastly, respondent submits that the BIR could not validly collect alleged unpaid taxes of Luzon Surety through this criminal case; to enforce the collection of tax against Luzon Surety in this criminal case against respondent Ruperta P. Rodriguez would violate Luzon Surety's substantive right to due process; Luzon Surety should have been served summons, required to answer and given a chance to be heard separate from the hearing Ol(- the criminal case against its officer, Ruperta P. Rodrigue~ ; :~ and the warrant of arrest issued on respondent could n qt � 9e considered a substitute for the summons that Luzon Surety should have been served with considering that Luzon Surety and respondent herein have separate and distinct personalities. RULING OF THE COURT EN BANC The Petition for Review fails on the merits. This Court has observed that the Court in Division has ; painstakingly gone o~er and ruled on every argument/issue of petitioner in the Decision dated July 12, 2011 and the same ruling was reiterated in the Resolution dated September 7, 2011. On this point, We find no compelling reason to deviate from the conclusions arrived at by the Court in Division. 1r- I I Rollo, pp . 11 5 - 11 9 .

DECISION Page 8 of 13 CTA EB Crim No. 016 People us. Ruperto P. Rodriguez Prosecution failed to prove that the PAN was duly served to the accused After a second hard look at the records, We are convinced that there is indeed a dearth of evidence to prove the actual s ending of the PAN to the accused, or to any of the authorized representatives of Luzon Surety. A rule echoed and re-echoed through the cases, concerning proof of service of assessments and proof of mailed letters, is that 'when a mail matter is sent by registered mail, there exists a presumption, set forth under Section 3(v), Rule 131 of the Rules of Court, that it was received in the regular course of mail. The facts to be proved in order to raise this presumption are: (a) that the letter was properly addressed with postage prepaid; and (b) that it was mailed .'12 However , 'while a mailed letter is deemed received by the addressee in the ordinary course of mail, this is still merely a disputable presumption subject to controversion, and a direct denial of the receipt thereof shifts the burden upon the party favored bt,j the presumption to prove that the mailed letter was ind t;\e~ received by the addressee. '1 3 Simply put, 'if the taxpayer d~nies ever having received an assessment from the BIR, it is i~cumbent upon the latter to prove by competent evidence that such notice was indeed received by the addressee. The onus probandi shifts to BIR to prove by contrary evidence that the taxpayer received the assessment in the due course of mail. '14 The Rules of Court provides for the procedural requirements that must be followed or resorted to in order to establish receipt of a particular mailed document by the addressee. Section 13, Rule 13 of the Rules of Court reads:/- 12 Barcelon, Roxas Securities, Inc. us. Commissioner of Inte rnal Revenue, G.R. No. 157064, i\ugust 7, 2006 ci ting J>rotector's Services, Inc. us. Court of Appeals, G.R. No. 13 Republic v. Court of Appeals, G.R. No. L-38540, 30 i\pril 1987, 149 SCRA 351, 355. 14 Barcelon, Roxas Securities, Inc. us. Commissioner of Internal Revenue, CTA Case No. 5662 May 17,2000.

DECISION Page 9 of 13 CTA EB Crim No. 016 People vs. Ruperto V Nodriguez RULE 13 FILING AND SERVICE OF PLEADINGS, JUDGMENTS AND OTHER PAPERS XXX SEC. 13. Proof of service.-Proof of personal service shall consist of a written admission of the party served, or the official return of the server, or the affidavit of the party serving, containing a full statement of the date, place and manner of service. If the service is by ordinary mail, proof thereof shall consist of an affidavit of the person mailing of facts showing compliance with section 7 of this Rule. If service is made by registered mail, proof shall be made by such affidavit and the registry receipt issued by the mailing office. The registry return card shall be filed immediately upon its receipt by the sender, or in lieu thereof of the unclaimed letter together with the certified or sworn copy of the notice given by the postmaster to the addressee. The records of this case belie compliance therewith. As aptly found by the Court in Division in its Decision15 dated July 12, 2011: "There is no evidence adduced by the prosecution to prove that the PAN was duly served to the accused, or to any of the authorized repr-esentatives of Luzon. The prosecution tried to show service of the Final Assessment Notice (FAN) and the correspondirig demand letters when it presented the SIR's Document Locator, with Registry Receipt Number 803582 (Exhibit " 'Q") which was mailed on January 23, 2004 and a Regis t,y _Return Card (Exhibit "PP"). However, both documents fc:pled to clearly establish that one of the documents served under said registered mail is the PAN. xxx" XXX "In this regard, the records of this case negate compliance with the rudiments on procedural due process. The mere presentation of transmittal records by the prosecution is insufficient to establish that indeed, the preliminary assessment notice (PAN) and assessment notice, and letter of demand were sent to, and were duly received by Luzon's authorized representative, because transmittal records, by its very n,ature, do not clearly indicate or specify the nature of the document being mailed or sent out. Uncorroborated by �'"1:her evidence to definitely identify, not only the nature of the mail matter sought to be proven as having been de livered, _but als~, th�e� -~uthority of the per_son / who supposedly recctved sc:ud mali matter, have little f/ Is Supra, Note 4.

DECISION Page 10 of 13 CTA E B Crim No . 016 People us. Rupe rto P. Rodriguez proba tive va lue to establish notice to Luzon to pay its subject corpora te tax liabilities." The Rules of Court requires the presentation of the registry receipt and affidavit of the person mailing as proof of service. However, no such affidavit and testimony of the person who allegedly mailed them were submitted for the consideration of this Court. 'The rule is that receipts for registered letters and return receipts do not prove themselves; they must be properly authenticated in order to serve as proof of receipt of the letters.'16 Clearly, the prosecution utterly failed to satisfactorily discharge its burden of proving that it was able to serve the required PAN to accused or any of the authorized representatives of Luzon Surety. Petitioner's failure to send the PAN negates the due process requirement in the issuance of deficiency tax assessments. fl ~' The failure of the prosecution to strictly comply with the requirement of service of the PAN prescribed under Section 228 of the National Internal Revenue Code of 1997 and Reve nue Regula~ions (RR) No. 12 -99 is tantamount to a denial of due proces ~. Section 228 of the NIRC of 1997 mandates the sending of a PAN in order to apprise the taxpayer of his deficiency tax liabilities. A taxpayer must be informed of the facts and the law upon which the assessment is made. "The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly with tax collection without first establishing a valid assessment is evidently violative of the cardinal principle in administrative investigations - that taxpayers should be able to present their case and adduce supporting evidence."17 From the provisions RR No . 12 -99 of the BIR, it is clear I that "the sending of a PAN to taxpayer to inform him of the assessment made is put part of the "due process requirement~ 16 Del f<.o s a rio v s . Cedillo , A.M. No. MTJ -0 4 - 1557 , Octo ber 2 1,2 004,441 SCRA 70 . l 17 Co mmissione r of Int e rna l Reve nue vs. Metro Sta r Supera rna, Inc. , G.R. No. 18537 1, Decem ber 8 , 2010. :;

.[� Page 11 of 13 DECISION CTA E:B Crim No . 016 People vs. Rupe rto V Rodriguez in the issuance of a deficiency tax assessment," the absence of which renders nugatory any assessment made by the tax authorities. The use of the word "shalf' 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 substantial and procedural rights and the failure of the CIR to strictly comply with the requirements laid down by law and its own rules is a denial of xxx due process. "l8 Petitioner's reliance in the case of Commissioner of Internal Revenue us. Men_quito, G.R. No. 167560, September 17,2008,461 SCRA565, is misplaced. The same cannot be applied in this case. The issue therein was the non- compliance with the provisions of R.R. No. 12-85 which sought to interpret Section 229 of the old tax law. The Supreme Court held in the said case that "(a/ post-reportin_q and pre- assessment notice do not bear the gravity of a formal assessment notice. xxx. Hence, the lack of such notices inflicts no prejudice on the taxpayer for as long as the latter is properly served aformal assessment notice". However, Republic Act No. 8424, which took effect on 1998, amended the provision of Section 229 fnow Section 2281 of the Tax Code on protesting an assessment. Section 228, the new provision of the Tax Code on protesting an assessment, now requires that the taxpayer must first be informed of the facts and the law upon which the c:ssessment ;~~� made t~rough the sending of a PAN. The law 1mposes a ~t ubstantlVe, not merely a formal, tl;J 1 � requirement. 19 ~~r Considering that the assessments involved herein are for the taxable year 2000, the mandates of the new provision of the Tax Code applies in this case. The assessments made by the Commissioner of Internal Revenue are void. Having established that the prosecution failed to strictly comply with the requirement of service of the PAN prescribed under Section 228 of the NIRC of 1997 and RR No. 12-99, and that such failure is tantamount to a denial of~ 18 Commissione r of Inte rnal R e ve nue vs. Metro S tar Sup e rama, Inc., G .R . No . 18537 1, Decembe r 8, 2 010 citing Tupas v. Cou.rt of Appeals, G .R. No . 8957 1, Pe bruary 6, 199 1, 193 SCRA 597, 6 00 . 19 S u.pra.

DECISION Page 12 of 13 CTA EB Crim No. 016 People us. Ruperta V Rodriguez due process; it is clear that the assessments made by the Commissioner of Internal Revenue are void. It is now a settled rule in this jurisdiction that a void assessment bears no fruit. 20 Thus, no civil liability arises in this case. WHEREFORE, premises considered, the Petition for Review is hereby DISMISSED for lack of merit. SO ORDERED. AMeC~z;~~AS Associate Justice WE CONCUR: G.i~~ c~~~~~ L UTISTA JuANITo C. CASTANED~ JR. ��___ Acting Presiding Justice CAESAR A. CASANOVA � Associate Justice ER~ P. UY Associate Justice ~ N. l-1~~-G'~ CIELITO N. MINDARO-GRULLA Associate Justice �2 Commissioner of Int ernal Revenue us. Metro Star Supe rama, Inc., G.R. No. 185371, December 8, 2010.

DECISION Page 13 of 13 CTA EB Cr im No. 0 16 Peop le us. Ruperta P. Rod riguez CERTIFICATION Pursuant to Section 13 , Article VIII of the Constitution , it is hereby certified that the conclusions in the above Decision were reached in consultation with the members of the Court En Bane before the case was assigned to the writer of the opinion of the Court. J tT~ ANI~ 'fOh,c.c.CA~ STA~ NED~~~.JR. Acting Presiding Justice