G.R. No.

198677               November 26, 2014

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
BASF COATING + INKS PHILS., INC., Respondent.

DECISION

PERALTA, J.:

Before the Court is a petition for review on certiorari assailing the Decision  of the Court of Tax
1

Appeals (CTA) En Banc, dated June 16, 2011, and Resolution  dated September 16, 2011, in C.T.A.
2

EB No. 664 (C.T.A. Case No. 7125).

The pertinent factual and procedural antecedents of the case are as follows:

Respondent was a corporation which was duly organized under and by virtue of the laws of the
Republic of the Philippines on August 1, 1990 with a term of existence of fifty (50) years. Its BIR-
registered address was at 101 Marcos Alvarez Avenue, Barrio Talon, Las Piñas City. In a joint
special meeting held on March 19, 2001, majorityof the members of the Board of Directors and the
stockholders representing more than two-thirds (2/3) of the entire subscribed and outstanding capital
stock of herein respondent corporation, resolved to dissolve the corporation by shortening its
corporate term to March 31, 2001.  Subsequently, respondent moved out of its address in Las Piñas
3

City and transferred to Carmelray Industrial Park, Canlubang, Calamba, Laguna.

On June 26, 2001, respondent submitted two (2) letters to the Bureau of Internal Revenue (BIR)
Revenue District Officer of Revenue District Office (RDO) No. 53, Region 8, in Alabang, Muntinlupa
City. The first letter, dated April 26, 2001, was a notice of respondent's dissolution, in compliance
with the requirements of Section 52(c) of the National Internal Revenue Code.  On the other hand,
4

the second letter, dated June 22, 2001, was a manifestation indicating the submission of various
documents supporting respondent's dissolution, among which was BIR Form No. 1905, which refers
to an update of information contained in its tax registration.5

Thereafter, in a Formal Assessment Notice (FA N) dated January 17, 2003, petitioner assessed
respondent the aggregate amount of ₱18,671,343.14 representing deficiencies in income tax, value
added tax, withholding tax on compensation, expanded withholding tax and documentary stamp tax,
including increments, for the taxable year 1999.  The FAN was sent by registered mail on January
6

24, 2003 to respondent's former address in Las Piñas City.

On March 5, 2004, the Chief of the Collection Section of BIR Revenue Region No. 7, RDO No. 39,
South Quezon City, issued a First Notice Before Issuance of Warrant of Distraint and Levy, which
was sent to the residence of one of respondent's directors. 7

On March 19, 2004, respondent filed a protest letter citing lack of due process and prescription as
grounds.  On April 16, 2004, respondent filed a supplemental letter of protest.  Subsequently, on
8 9

June 14, 2004, respondent submitted a letter wherein it attached documents to prove the defenses
raised in its protest letters.
10

On January 10, 2005, after 180 dayshad lapsed without action on the part of petitioner on
respondent's protest, the latter filed a Petition for Review  with the CTA.
11
Trial on the merits ensued.

On February 17, 2010, the CTA Special First Division promulgated its Decision,  the dispositive
12

portion of which reads, thus:

WHEREFORE, the Petition for Review is hereby GRANTED. The assessments for deficiency
income tax in the amount of ₱14,227,425.39, deficiency value-added tax of ₱3,981,245.66,
deficiency withholding tax on compensation of ₱49,977.21, deficiency expanded withholding tax of
₱156,261.97 and deficiency documentary stamp tax of ₱256,432.91, including increments, in the
aggregate amount of ₱18,671,343.14 for the taxable year 1999 are hereby CANCELLED and SET
ASIDE.

SO ORDERED. 13

The CTA Special First Division ruled that since petitioner was actually aware of respondent's new
address, the former's failure to send the Preliminary Assessment Notice and FAN to the said
address should not be taken against the latter. Consequently, since there are no valid notices sent to
respondent, the subsequent assessments against it are considered void. Aggrieved by the Decision,
petitioner filed a Motion for Reconsideration, but the CTA Special First Division denied it in its
Resolution  dated July 13, 2010.
14

Petitioner then filed a Petition for Review with the CTA En Banc. 15

On June 16, 2011, the CTA En Banc promulgated its assailed Decision denying petitioner's Petition
for Review for lack of merit. The CTA En Banc held that petitioner's right to assess respondent for
deficiency taxes for the taxable year 1999 has already prescribed and that the FAN issued to
respondent never attained finality because respondent did not receive it.

Petitioner filed a Motion for Reconsideration, but the CTA En Banc denied it in its Resolution dated
September 16, 2011.

Hence, the present petition with the following Assignment of Errors:

THE HONORABLE CTA EN BANC ERRED IN RULING THAT THE RIGHT OF PETITIONER TO
ASSESS HEREIN RESPONDENT FOR DEFICIENCY INCOME TAX, VALUEADDED TAX,
WITHHOLDING TAX ON COMPENSATION, EXPANDED WITHHOLDING TAX AND
DOCUMENTARY STAMP TAX, FOR TAXABLE YEAR 1999 IS BARRED BY PRESCRIPTION.

II

THE HONORABLE COURT OF TAX APPEALS, EN BANC, ERRED IN RULING THAT THE
FORMAL ASSESSMENT NOTICE (FAN) FOR RESPONDENT'S DEFICIENCY INCOME TAX,
VALUE-ADDED TAX, WITHHOLDING TAX ON COMPENSATION, EXPANDED WITHHOLDING
TAX AND DOCUMENTARY STAMP TAX FOR TAXABLE YEAR 1999 HAS NOT YET BECOME
FINAL, EXECUTORY AND DEMANDABLE. 16

The petition lacks merit.

Petitioner contends that, insofar as respondent's alleged deficiency taxes for the taxable year1999
are concerned, the running of the three-year prescriptive period to assess, under Sections 203 and
222 of the National Internal Revenue Act of 1997 (Tax Reform Act of 1997) was suspended when
respondent failed to notify petitioner, in writing, of its change of address, pursuant to the provisions
of Section 223 of the same Act and Section 11 of BIR Revenue Regulation No. 12-85.

Sections 203, 222 and 223 of the Tax Reform Act of 1997 provide, respectively:

Sec. 203. Period of Limitation Upon Assessment and Collection.– Except as provided in Section
222,internal revenue taxes shall be assessed within three (3) years after the last day prescribed by
law for the filing of the return, and no proceeding in court without assessment for the collection of
such taxes shall be begun after the expiration of such period: Provided, That in a case where a
return is filed beyond the period prescribed by law, the three (3)-year period shall be counted from
the day the return was filed. For purposes of this Section, a return filed before the last day
prescribed by law for the filing thereof shall be considered as filed on such last day. (emphasis
supplied)

Sec. 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes. -

(a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a
return, the tax may be assessed, or a proceeding in court for the collection of such tax may
be filed without assessment, at any time within ten (10) years after the discovery of the
falsity, fraud or omission: Provided, That in a fraud assessment which has become final and
executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal
action for the collection thereof.

(b) If before the expiration of the time prescribed in Section 203 for the assessment of the
tax, both the Commissioner and the taxpayer have agreed in writing to its assessment after
such time, the tax may be assessed within the period agreed upon.

The period so agreed upon may be extended by subsequent written agreement made before
the expiration of the period previously agreed upon.

(c) Any internal revenue tax which has been assessed within the period of limitation as
prescribed in paragraph (a) hereof may be collected by distraint or levy or by a proceeding in
court within five (5) years following the assessment of the tax.

(d) Any internal revenue tax, which has been assessed within the period agreed upon as
provided in paragraph (b) hereinabove, may be collected bydistraint or levy or by a
proceeding in court within the period agreed upon in writing before the expiration of the five
(5) -year period. The period so agreed upon may be extended by subsequent written
agreements made before the expiration of the period previously agreed upon.

(e) Provided, however, That nothing in the immediately preceding and paragraph (a) hereof
shall be construed to authorize the examination and investigation or inquiry into any tax
return filed in accordance with the provisions of any tax amnesty law or decree.

Sec. 223. Suspension of Running of Statute of Limitations. - The running of the Statute of Limitations
provided in Sections 203 and 222 on the making of assessment and the beginning of distraint or levy
a proceeding in court for collection, in respect of any deficiency, shall be suspended for the period
during which the Commissioner is prohibited from making the assessment or beginning distraint or
levy or a proceeding in court and for sixty (60) days thereafter; when the taxpayer requests for a
reinvestigation which is granted by the Commissioner; when the taxpayer cannot be located in the
address given by him in the return filed upon which a tax is being assessed or collected: Provided,
that, if the taxpayer informs the Commissioner of any change in address, the running of the Statute
of Limitations will not be suspended; when the warrant of distraint or levy is duly served upon the
taxpayer, his authorized representative, or a member of his household with sufficient discretion, and
no property could be located; and when the taxpayer is out of the Philippines. (emphasis supplied)

In addition, Section 11 of BIR Revenue Regulation No. 12-85 states:

Sec. 11. Change of Address. – In case of change of address, the taxpayer must give a written notice
thereof to the Revenue District Officer or the district having jurisdiction over his formerlegal
residence and/or place of business, copy furnished the Revenue District Officer having jurisdiction
over his new legal residence or place of business, the Revenue Computer Center and the
Receivable Accounts Division, BIR, National Office, Quezon City, and in case of failure to do so, any
communication referred to in these regulations previously sent to his former legal residence or
business address as appear in is tax return for the period involved shall be considered valid and
binding for purposes of the period within which to reply.

It is true that, under Section 223 of the Tax Reform Act of 1997, the running of the Statute of
Limitations provided under the provisions of Sections 203 and 222 of the same Act shall be
suspended when the taxpayer cannot be located in the address given by him in the return filed upon
which a tax is being assessed or collected. In addition, Section 11 of Revenue Regulation No. 12-85
states that, in case of change of address, the taxpayer is required to give a written notice thereof to
the Revenue District Officer or the district having jurisdiction over his former legal residence and/or
place of business. However, this Court agrees with both the CTA Special First Division and the CTA
En Banc in their ruling that the above mentioned provisions on the suspension of the three-year
period to assess apply only if the BIR Commissioner is not aware of the whereabouts of the
taxpayer.

In the present case, petitioner, by all indications, is well aware that respondent had moved to its new
address in Calamba, Laguna, as shown by the following documents which form partof respondent's
records with the BIR:

1) Checklist on Income Tax/Withholding Tax/Documentary Stamp Tax/Value-Added Tax and

Other Percentage Taxes; 17

2) General Information (BIR Form No. 23-02); 18

3) Report on Taxpayer's Delinquent Account, dated June 27, 2002; 19

4) Activity Report, dated October 17, 2002; 20

5) Memorandum Report of Examiner, dated June 27, 2002; 21

6) Revenue Officer's Audit Report on Income Tax; 22

7) Revenue Officer's Audit Report on Value-Added Tax; 23

8) Revenue Officer's Audit Report on Compensation Withholding Taxes; 24

 9) Revenue Officer's Audit Report on Expanded Withholding Taxes; 25

10) Revenue Officer's Audit Report on Documentary Stamp Taxes. 26

The above documents, all of which were accomplished and signed by officers of the BIR, clearly
show that respondent's address is at Carmelray Industrial Park, Canlubang, Calamba, Laguna. The
CTA also found that BIR officers, at various times prior to the issuance of the subject FAN,
conducted examination and investigation of respondent's tax liabilities for 1999 at the latter's new
address in Laguna as evidenced by the following, in addition to the above mentioned records:

1) Letter, dated September 27, 2001, signed by Revenue Officer I Eugene R. Garcia; 27

2) Final Request for Presentation of Records Before Subpoena Duces Tecum, dated March
20, 2002, signed by Revenue Officer I Eugene R. Garcia. 28

Moreover, the CTA found that, based on records, the RDO sent respondent a letter dated April 24,
2002 informing the latter of the results of their investigation and inviting it to an informal
conference.  Subsequently, the RDO also sent respondent another letter dated May 30, 2002,
29

acknowledging receipt of the latter's reply to his April 24, 2002 letter.  These two letters were sent to
30

respondent's new address in Laguna. Had the RDO not been informed or was not aware of
respondent's new address, he could not have sent the said letters to the said address.

Furthermore, petitioner should have been alerted by the fact that prior to mailing the FAN, petitioner
sent to respondent's old address a Preliminary Assessment Notice but it was "returned to sender."
This was testified to by petitioner's Revenue Officer II at its Revenue District Office 39 in Quezon
City.  Yet, despite this occurrence, petitioner still insisted in mailing the FAN to respondent's old
31

address.

Hence, despite the absence of a formal written notice of respondent's change of address, the fact
remains that petitioner became aware of respondent's new address as shown by documents replete
in its records. As a consequence, the running of the three-year period to assess respondent was not
suspended and has already prescribed.

It bears stressing that, in a number of cases, this Court has explained that the statute of limitations
on the collection of taxes primarily benefits the taxpayer. In these cases, the Court exemplified the
detrimental effects that the delay in the assessment and collection of taxes inflicts upon the
taxpayers. Thus, in Commissioner of Internal Revenue v. Philippine Global Communication,
Inc.,  this Court echoed Justice Montemayor's disquisition in his dissenting opinion in Collector of
32

Internal Revenue v. Suyoc Consolidated Mining Company,  regarding the potential loss to the
33

taxpayer if the assessment and collection of taxes are not promptly made, thus:

Prescription in the assessment and in the collection of taxes is provided by the Legislature for the
benefit of both the Government and the taxpayer; for the Government for the purpose of expediting
the collection of taxes, so that the agency charged with the assessment and collection may not tarry
too long or indefinitely tothe prejudice of the interests of the Government, which needs taxes to run
it; and for the taxpayer so that within a reasonable time after filing his return, hemay know the
amount of the assessment he is required to pay, whether or not such assessment is well founded
and reasonable so that he may either pay the amount of the assessment or contest its validity
incourt x x x. It would surely be prejudicial to the interest of the taxpayer for the Government
collecting agency to unduly delay the assessment and the collection because by the time the
collecting agency finally gets around to making the assessment or making the collection, the
taxpayer may then have lost his papers and books to support his claim and contest that of the
Government, and what is more, the tax is in the meantime accumulating interest which the taxpayer
eventually has to pay. 34

Likewise, in Republic of the Philippines v. Ablaza,  this Court elucidated that the prescriptive period
35

for the filing of actions for collection of taxes is justified by the need to protect law-abiding citizens
from possible harassment. Also, in Bank of the Philippine Islands v. Commissioner of Internal
Revenue,  it was held that the statute of limitations on the assessment and collection of taxes is
36

principally intended to afford protection to the taxpayer against unreasonable investigations as the
indefinite extension of the period for assessment deprives the taxpayer of the assurance that he will
no longer be subjected to further investigation for taxes after the expiration of a reasonable period of
time. Thus, in Commissioner of Internal Revenue v. B.F. Goodrich Phils., Inc.,  this Court ruled that
37

the legal provisions on prescription should be liberally construed to protect taxpayers and that, as a
corollary, the exceptions to the rule on prescription should be strictly construed.

It might not also be amiss to point out that petitioner's issuance of the First Notice Before Issuance of
Warrant of Distraint and Levy  violated respondent's right to due process because no valid notice of
38

assessment was sent to it. An invalid assessment bears no valid fruit. 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 inadministrative
investigations: that taxpayers should be able to present their case and adduce supporting
evidence.  In the instant case, respondent has not properly been informed of the basis of its tax
39

liabilities. Without complying with the unequivocal mandate of first informing the taxpayer of the
government’s claim, there can be no deprivation of property, because no effective protest can be
made.

It is true that taxes are the lifeblood of the government. However, in spite of all its plenitude, the
power to tax has its limits.  Thus, in Commissioner of Internal Revenue v. Algue, Inc.,  this Court
40 41

held:

Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance.  On the other hand, such collection should be made in accordance with law as any
1âwphi1

arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile
the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of
taxation, which is the promotion of the common good, may be achieved.

xxxx

It is said that taxes are what we pay for civilized society. Without taxes, the government would be
paralyzed for the lack of the motive power to activate and operate it. Hence, despite the natural
reluctance to surrender part of one’s hard-earned income to taxing authorities, every person who is
able to must contribute his share in the running of the government. The government for its partis
expected torespond in the form of tangible and intangible benefits intended to improve the lives of
the people and enhance their moral and material values. This symbiotic relationship is the rationale
of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those
in the seat of power.

But even as we concede the inevitability and indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably and in accordance with the prescribed
procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to his
succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the
taxpayer can demonstrate x x x that the law has not been observed. 42
It is an elementary rule enshrined in the 1987 Constitution that no person shall be deprived of
property without due process of law. In balancing the scales between the power of the State to tax
and its inherent right to prosecute perceived transgressors of the law on one side, and the
constitutional rights of a citizen todue process of law and the equal protection of the laws on the
other, the scales must tilt in favor of the individual, for a citizen’s right is amply protected by the Bill
of Rights under the Constitution. 43

As to the second assigned error, petitioner's reliance on the provisions of Section 3.1.7 of BIR
Revenue Regulation No. 12-99  as well as on the case of Nava v. Commissioner of Internal
44

Revenue  is misplaced, because in the said case, one of the requirements ofa valid assessment
45

notice is that the letter or notice must be properly addressed. It is not enough that the notice is sent
by registered mail as provided under the said Revenue Regulation. In the instant case, the FAN was
sent tothe wrong address. Thus, the CTA is correct in holding that the FAN never attained finality
because respondent never received it, either actually or constructively.

WHEREFORE, the instant petition is DENIED. The Decision of the Court of Tax Appeals En Banc,
dated June 16, 2011, and its Resolution dated September 16, 2011, in C.T.A. EB No. 664 (C.T.A.
Case No. 7125), are AFFIRMED.

SO ORDERED.

DIOSDADO M. PERALTA
Associate Justice

WE CONCUR:

PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson

LUCAS P. BERSAMIN* MARTIN S. VILLARAMA, JR.

Associate Justice Associate Justice

BIENVENIDO L. REYES
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court's Division.

PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I
certify that the co·nclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court's Division.
MARIA LOURDES P.A. SERENO
Chief Justice

Footnotes

* Designated Acting Member, in lieu of Associate Justice Francis H. Jardeleza, per Raffle
dated November 3, 2014.

 Penned by Associate Justice Olga Palanca-Enriquez, with Presiding Justice Ernesto D.

1

Acosta and Associate Justices Juanito C. Castaneda, Jr., Lovell R. Bautista, Erlinda P. Uy,
Caesar A. Casanova, Esperanza R. Fabon-Victorino, Cielito N. Mindaro-Grulla and Amelita
R. Fabon-Victorino concurring; Annex "A" to Petition, rollo pp. 33-48.

2
 Annex "B" to Petition, id. at 50-53.

3
 See Exhibit "H", records, vol. I, pp. 216-218.

4
 See Exhibit, "J-2", id.at 247.

5
 See Exhibit "J", id.at 245.

6
 See Exhibit "A", id.at 154-155.

7
 See Exhibit "C", id.at 171.

8
 Exhibit "D", id.at 173-179.

9
 Exhibit "E", id.at 164-166.

10
 See Exhibit "G", id.at 167-170.

11
 Records, vol. I, pp. 1-14.

12
 Id. at 1051-1068.

13
 Id. at 1067.

14
 Id. at 1097-1100.

15
 CTA En Banc rollo, pp. 6-18.

16
 Rollo, pp. 20-21.

17
 Exhibit "O", BIR records, pp. 865-866.

18
 Exhibit "P", id. at 864
  Exhibit "Q", id. at 862.
19

 Exhibit "R", id. at 861.

20

 Exhibit "S"/Exhibit "4" and "4-A", id. at 859-860.

21

 Exhibit "T", id.at 858.

22

 Exhibit "U", id.at 856.

23

 Exhibit "V", id.at 854.

24

 Exhibit "W", id.at 853.

25

 BIR records, p. 852.

26

 Id. at 2.
27

 Id. at 1.
28

 Exhibit "X", id. at 847.

29

 Exhibit "Y", id. at 645.

30

 See TSN, July 18, 2006, pp. 4-11.

31

 G.R. No. 167146, October 31, 2006, 506 SCRA 427.

32

 104 Phil. 819, 833-834 (1958).

33

 Commissioner of Internal Revenue v. Philippine Global Communication, Inc., supraat 439.

34

 108 Phil. 1105, 1108 (1960).

35

 G.R. No. 139736, October 17, 2005, 473 SCRA 205, 225.
36

 G.R. No. 104171, February 24, 1999, 303 SCRA 546, 554.
37

 Records, vol. I, p. 171.

38

 Commissioner of Internal Revenue v. Reyes/Reyes v. Commissioner of Internal

39

Revenue,G.R. No s . 159694/163581, January 27, 2006, 480 SCRA 382, 396.

 Commissioner of Internal Revenue v. United Salvage and Towage (Phils.), Inc.,G.R. No.
40

197515, July 2, 2014.

 G.R. No. L-28896, February 17, 1988, 158 SCRA 9.

41

 Id.at 11 and 16-17.

42
  Commissioner of Internal Revenue v. Metro Star Superama, Inc.,G.R. No. 185371,
43

December 8, 2010, 637 SCRA 633, 647.

 Section 3.1.7 – Constructive Service. If the notice to the taxpayer herein required is served
44

by registered mail, and no response is received from the taxpayer within the prescribed
period from date of the posting thereof in the mail, the same shall be considered actually or
constructively received by the taxpayer. If the same is personally served on the taxpayer or
his duly authorized representative who, however, refused to acknowledge receipt thereof,
the same shall be constructively served on the taxpayer. Constructive service thereof shall
be considered effected by leaving the same in the premises of the taxpayer and this fact of
constructive service is attested to, witnessed and signed by at least two (2) revenue officers
other than the revenue officer who constructively served the same. The revenue officer who
constructively served the same shall make a written reportof this matter which shall form part
of the docket of this case.