Imagine being in an examination. The instructions are clear: “You have two hours to complete the exam.” At the end of the first hour, you were surprised. The bell rang, and everyone was asked to submit their paper.
This is analogous to the case of Commissioner of Internal Revenue v. Maxicare Healthcare Corporation (G.R. 261065, 10 July 2023). In the beginning, there was nothing outside the ordinary. A Letter of Authority was issued. A tax audit ensued, leading to the issuance of a Preliminary Assessment Notice or PAN. Maxicare filed a response to the PAN. The Bureau of Internal Revenue issued a Formal Letter of Demand and Final Assessment Notice.
Maxicare filed a protest against the FLD/FAN requesting a reinvestigation. Maxicare made it explicit that it will submit the pertinent supporting documents and additional explanations within 60 days from the date of filing the protest. However, the BIR issued the Final Decision on Disputed Assessment after the lapse of only 30 days.
The Supreme Court declared the assessment against the taxpayer null and void for the manifest violation of the taxpayer’s right to due process. The Court took the opportunity to definitely settle that the reckoning point of the 60-day period for the submission of relevant supporting documents is from the filing of the administrative protest to the FLD/FAN, when such protest constitutes a request for reinvestigation and not from the response or reply to the PAN. The Court clarified that the pronouncement in the Minute Resolution in Commissioner of Internal Revenue v. Roca Security and Investigation Agency (G.R. 241338, 10 April 2019) wherein the 60-day period was reckoned from the filing of the response to the PAN was a glaring error. By failing to observe the statutory period, the taxpayer was denied the opportunity to present evidence, tantamount to denial of a genuine opportunity to be heard.
The Court then dissected Section 228 of the Tax Code and Revenue Regulations No. 12-99, as amended. It emphasized the following points:
- The “pre-assessment notice” mentioned in Section 228 of the Tax Code corresponds to the PAN. The taxpayer shall be required to respond within a period of 15 days from receipt of the PAN; and
- Section 228 of the Tax Code explicitly sets the period for an “administrative protest of the assessment” at 30 days, which refers specifically to an FLD/FAN protest. This protest may take the form of either a request for consideration or reinvestigation.
The Court strongly noted that it is the request for reinvestigation that carries the 60-day period to submit relevant supporting documents. Such an option was not provided with regard to the response to the PAN. Hence, there could be no other conclusion that the 60-day period to submit relevant supporting documents applies to and should be reckoned from filing the protest against the FLD/FAN.
The Supreme Court brushed aside the BIR’s plea to apply leniency to the rules of procedure in the name of substantial justice. The Supreme Court reminded the tax authorities, in no uncertain terms, of the clear necessity for the strict observance of procedural rules to safeguard the due process rights of the concerned parties. This is a necessary check against the exercise of the government’s expansive power of taxation.
