CIR v. United Salvage and Towage (Phils.), Inc.

Doctrines:

• CTA shall have the power to promulgate rules and regulations for the conduct of its business, and as may be needed, for the uniformity of decisions within its jurisdiction 
• Section 228 of the Tax Code provides that the taxpayer shall be informed in writing of the law and the facts on which the assessment is made. 
• The statute of limitations on assessment and collection of national internal revenue taxes was shortened from five (5) years to three (3) years by virtue of Batas Pambansa (B.P.) Blg. 700. 

Facts: Respondent is engaged in the business of sub-contracting work for service contractors engaged in petroleum operations in the Philippines. During the taxable years in question, it had entered into various contracts and/or sub-contracts with several petroleum service contractors, such as Shell Philippines Exploration, B.V. and Alorn Production Philippines for the supply of service vessels. Petitioner found respondent  liable for deficiency income tax, withholding tax, VAT, and DST for taxable years 1992, 1994,1997, and1998. The BIR officials issued demand letters with attached assessment notices for withholding tax on compensation (WTC) and expanded withholding tax (EWT) for taxable years 1992, 1994, and 1998. 

USTP filed administrative protests against 1994 and 1998 EW assessments. USTP appealed by way of PetRev before CTA. During pendency, USTP moved to withdraw the aforesaid Petition because it availed of the benefits of the Tax Amnesty Program under RA No. 9480. CTA- Special First Division partially granted the Motion to Withdraw and declared the issues on income tax, VAT and DST deficiencies closed and terminated. CTA-Special First Division held that the Preliminary Assessment Notices (PANs) for deficiency EWT for taxable years 1994 and 1998 were not formally offered; hence, pursuant to Section 34, Rule 132 of the Revised Rules of Court, the Court shall neither consider the same as evidence nor rule on their validity. Final Assessment Notices (FANs) for deficiency EWT for taxable years 1994 and 1998, the CTA-Special First Division held that the same do not show the law and the facts on which the assessments were based. Said assessments were, therefore, declared void for failure to comply with Section 228 of the 1997 NIRC. The only remaining valid assessment is for taxable year 1992. CTA-Special First Division declared that the right of petitioner to collect the deficiency EWT and WTC, respectively, for taxable year 1992 had already lapsed pursuant to Section 203. Petitioner moved to reconsider but it was denied. 

Petitioner filed a PetRev with CTA En Banc, which affrimed with modification upholding the 1998 EWT assessment. 

Issues:

Whether or not the Court of Tax Appeals is governed strictly by the technical rules of evidence; 

Whether or not the Expanded Withholding Tax Assessments issued by petitioner against the respondent for taxable year 1994 was without any factual and legal basis; and 

Whether or not petitioner’s right to collect the creditable withholding tax and expanded withholding tax for taxable year 1992 has already prescribed.

Held: Under Section 8 of Republic Act (R.A.) No. 1125, the CTA is categorically described as a court of record. As such, it shall have the power to promulgate rules and regulations for the conduct of its business, and as may be needed, for the uniformity of decisions within its jurisdiction. Moreover, as cases filed before it are litigated de novo, party-litigants shall prove every minute aspect of their cases. Thus, no evidentiary value can be given the pieces of evidence submitted by the BIR, as the rules on documentary evidence require that these documents must be formally offered before the CTA. Pertinent is Section 34, Rule 132 of the Revised Rules on Evidence which reads: SEC. 34. Offer of evidence.— The court shall consider no evidence which has not been formally offered. The purpose for which the evidence is offered must be specified. 

Section 228 of the Tax Code provides that the taxpayer shall be informed in writing of the law and the facts on which the assessment is made. Otherwise, the assessment is void. To implement the aforesaid provision, Revenue Regulation No. 12-99 was enacted by the BIR, of which Section 3.1.4 thereof reads: 3.1.4. Formal Letter of Demand and Assessment Notice.—The formal letter of demand and assessment notice shall be issued by the Commissioner or his duly authorized representative. 

The letter of demand calling for payment of the taxpayer’s deficiency tax or taxes shall state the facts, the law, rules and regulations, or jurisprudence on which the assessment is based, otherwise, the formal letter of demand and assessment notice shall be void. The same shall be sent to the taxpayer only by registered mail or by personal delivery. 

The statute of limitations on assessment and collection of national internal revenue taxes was shortened from 5 years to 3 years by virtue of Batas Pambansa Blg. 700. Thus, petitioner has 3 years from the date of actual filing of the tax return to assess a national internal revenue tax or to commence court proceedings for the collection thereof without an assessment. However, when it validly issues an assessment within the 3-year period, it has another 3 years within which to collect the tax due by distraint, levy, or court proceeding. The assessment of the tax is deemed made and the 3-year period for collection of the assessed tax begins to run on the date the assessment notice had been released, mailed or sent to the taxpayer.