In the ongoing case of Fernandez v Hon. Caesar R. Dulay,(1) the Court of Tax Appeals (CTA) Special Third Division affirmed the CTA’s jurisdiction to review the decision of the Commissioner of the Bureau of Internal Revenue rejecting an application for compromise settlement. Furthermore, the CTA confirmed that a void assessment will never become final, allowing the taxpayer to contest the validity of assessments even in an appeal against the denial of an application for a compromise settlement.
Facts
The petitioner is the proprietress of Bacacay Shell Station in Albay. The Bureau of Internal Revenue (BIR) issued a Formal Letter of Demand (FLD) to the petitioner in 2018, demanding the payment for alleged deficiency tax liabilities for the taxable year 2006. On 28 November 2012, the BIR District No. 67 issued warrants of garnishment to the petitioner. The petitioner filed a letter dated 1 December 2012, addressed to the Regional Director of Revenue Region No. 10, requesting the cancellation of the warrant of distraint and/or levy with an alternate plea for compromise. The Revenue District Officer (RDO) replied that the subject assessment was already final, however, the petitioner’s letter would be forwarded to the Regional Evaluation Board (REB) for consideration. The RDO issued a second letter dated 17 December 2012, stating that his office would not recommend to the REB the offer of compromise without payment of 10% of the basic tax due. The petitioner sent another letter, dated 8 January 2013, in which she offered compromise settlement and tendered the amount of 139,625 Philippine pesos (approximately £2,000).
On 14 September 2017, the petitioner was informed that the compromise offer had been rejected by the REB. The petitioner filed a motion for reconsideration, which was denied by the Regional Director for lack of factual and legal basis.
The petitioner then filed a Petition for Review with Motion for the Suspension of Collection with the CTA.
Decision
The CTA affirmed its jurisdiction to hear and decide appeals on the denial of an application for compromise. The CTA held that the exclusive appellate jurisdiction of the CTA is not limited to cases involving decisions of the Commissioner of Internal Revenue (CIR) on matters relating to assessments or refunds. The second part of section 7(a)(1) of Republic Act (RA) No. 1123, as amended by RA No. 9282 and RA No. 9503, covers other cases that arise out of the Tax Code or other related laws administered by the BIR. The assailed letter-decision dated 9 July 2018 that denied the petitioner’s request for reconsideration of its offer of compromise for lack of merit is a matter that arose from the provisions of the Tax Code. As a result, the CTA had jurisdiction to review it.
Regarding the CIR’s power to enter into a compromise, it is generally true that purely administrative and discretionary functions may not be interfered with by the courts. However, when the exercise of such functions by the administrative officer is tainted by failure to abide by the law, then it is necessary for the courts to set matters right.
The CTA held that to determine whether the denial of the petitioner’s offer of a compromise settlement was proper, there was a need to first delve into the validity of the deficiency tax assessment. If it was concluded that there was a violation of the petitioner’s right to substantive or procedural due process, then the subject tax assessment would be declared void. A void assessment is insubstantial, therefore it cannot attain finality, nor can any collection of tax resulting therefrom be sustained by the CTA.
In this case, petitioner claimed that the absence of the subject notices rendered the tax assessment void and any action to collect such an assessment void. The CTA found that a permanent account number was not assigned to the petitioner and that there was a lapse in the service of the FLD. Due to these due process violations, the assessment was found to be void. The argument that the assessment has become final and executory did not sway the CTA, since the finality of the assessment is premised on the validity of the assessment itself. The CTA also ordered the refund of the amount paid by the petitioner as a compromise settlement.
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Originally published by the International Law Office on Lexology.