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TAX REMEDIES(Issuance of Preliminary Assessment Notice)

COMMISSIONER OF INTERNAL REVENUE, The Commissioner denied the MOR filed by Metro Super
- versus - Rama.
METRO STAR SUPERAMA, INC.,
G.R. No. 185371 December 8, 2010 Denying that it received a Preliminary Assessment Notice
(PAN) and claiming that it was not accorded due process, Metro
FACTS: Petitioner is a domestic corporation. Star filed a petition for review with the CTA.

On January 26, 2001, the Regional Director of Revenue in The CTA-Second Division rendered a decision in favor of
Legazpi City, issued Letter of Authority to examine petitioner’s the Metro Super Rama.
books of accounts and other accounting records for taxable year
The CTA-Second Division opined that “while there is a 8.
1999.
receipt of mail shifts the burden upon the party favored by the
For petitioner’s failure to comply with several requests to presumption to prove that the mailed letter was indeed received
present the records and Subpoena Duces Tecum, BIR Legal by the addressee.”
Division issued an Indorsement to proceed with the investigation
It found that there was no clear showing that Metro Star
based on the best evidence obtainable preparatory to the
actually received the alleged PAN. It, accordingly, ruled that the
issuance of assessment notice.
Formal Letter of Demand and the Warrant of Distraint and/or
Then, RDO issued a Preliminary Assessment Notice Levy dated were void, as Metro Star was denied due process.
Letter stating a deficiency in VAT and withholding taxes in the
CTA En Banc affirmed in toto the CTA Second Division’s
amount of P292, 874.16 for the year 1999. Thereafter, a formal
decision. Hence, this petition.
letter of demand was sent. The Final Notice of Seizure came next,
giving Metro Star Superama last opportunity to settle its ISSUE: Is the failure to strictly comply with notice
deficiency tax liabilities within ten (10) days from receipt requirements prescribed under Section 228 of the National
thereof, otherwise BIR shall be constrained to serve and execute Internal Revenue Code of 1997 tantamount to a denial of due
the Warrants of Distraint and/or Levy and Garnishment to process?
enforce collection.
HELD: YES, not complying strictly with the Preliminary
Not able to comply, Metro Super Rama received a Assessment Notice or PAN is tantamount to a denial of due
Warrant of Distraint and/or Levy demanding payment of process.
deficiency value-added tax and withholding tax payment in the
amount of P292,874.16. The Court agrees with the CTA that the CIR failed to
discharge its duty and present any evidence to show that Metro

REPORTED BY: CLAVEL A. TUASON, TAXATION LAW REVIEW Page 1


TAX REMEDIES(Issuance of Preliminary Assessment Notice)

Star indeed received the PAN dated January 16, 2002. It could sending of a PAN to taxpayer to inform him of the assessment
have simply presented the registry receipt or the certification made is but part of the “due process requirement in the issuance
from the postmaster that it mailed the PAN, but failed. Neither of a deficiency tax assessment,” the absence of which renders
did it offer any explanation on why it failed to comply with the nugatory any assessment made by the tax authorities. The use of
requirement of service of the PAN. It merely accepted the letter the word “shall” in subsection 3.1.2 describes the mandatory
of Metro Star’s chairman dated April 29, 2002, that stated that he nature of the service of a PAN. The persuasiveness of the right to
had received the FAN dated April 3, 2002, but not the PAN. due process reaches both substantial and procedural rights and
the failure of the CIR to strictly comply with the requirements
Section 228 of the Tax Code clearly requires that the laid down by law and its own rules is a denial of Metro Star’s
taxpayer must first be informed that he is liable for deficiency right to due process.[15] Thus, for its failure to send the PAN
taxes through the sending of a PAN. He must be informed of the stating the facts and the law on which the assessment was made
facts and the law upon which the assessment is made. The law as required by Section 228 of R.A. No. 8424, the assessment
imposes a substantive, not merely a formal, requirement. To made by the CIR is void.
procee heedlessly with tax collection without first establishing a
valid assessment is evidently violative of the cardinal principle in It is an elementary rule enshrined in the 1987
administrative investigations - that taxpayers should be able to Constitution that no person shall be deprived of property
present their case and adduce supporting evidence. without due process of law. In balancing the scales between the
power of the State to tax and its inherent right to prosecute
3.1.2 Preliminary Assessment Notice (PAN). — If after perceived transgressors of the law on one side, and the
review and evaluation by the Assessment Division or by the constitutional rights of a citizen to due process of law and the
Commissioner or his duly authorized representative, as the case equal protection of the laws on the other, the scales must tilt in
may be, it is determined that there exists sufficient basis to favor of the individual, for a citizen’s right is amply protected by
assess the taxpayer for any deficiency tax or taxes, the said Office the Bill of Rights under the Constitution. Thus, while “taxes are
shall issue to the taxpayer, at least by registered mail, a the lifeblood of the government,” the power to tax has its limits,
Preliminary Assessment Notice (PAN) for the proposed in spite of all its plenitude.
assessment, showing in detail, the facts and the law, rules and. If
the taxpayer fails to respond within fifteen (15) days from date RULING: WHEREFORE, the petition is DENIED.
of receipt of the PAN, he shall be considered in default, in which
case, a formal letter of demand and assessment notice shall be SO ORDERED.
caused to be issued by the said Office, calling for payment of the
taxpayer's deficiency tax liability, inclusive of the applicable
penalties. From the provision quoted above, it is clear that the

REPORTED BY: CLAVEL A. TUASON, TAXATION LAW REVIEW Page 2