In any case, the present petitions are dismissed as petitioner violated respondents' right to due process for failing to observe the prescribed procedure for collection of unpaid taxes through summary administrative remedies.
The Court dismisses the present petitions for it cannot allow petitioner to collect any excise tax deficiency from respondents by mere issuance of the 1998 and 2002 Collection Letters. Petitioner had failed to comply with the prescribed procedure for collection of unpaid taxes through summary administrative remedies and, thus, violated respondents' right to due process.
That taxation is an essential attribute of sovereignty and the lifeblood of every nation are doctrines well-entrenched in our jurisdiction. Taxes are the government's primary means to generate funds needed to fulfill its mandate of promoting the general welfare and well-being of the people[47] and so should be collected without unnecessary hindrance.[48]
While taxation per se is generally legislative in nature, collection of tax is administrative in character.[49] Thus, Congress delegated the assessment and collection of all national internal revenue taxes, fees, and charges to the BIR.[50] And as the BIR's chief, the CIR has the power to make assessments and prescribe additional requirements for tax administration and enforcement.[51]
The Tax Code provides two types of remedies to enforce the collection of unpaid taxes, to wit: (a) summary administrative remedies, such as the distraint and/or levy of taxpayer's property;[52] and/or (b) judicial remedies, such as the filing of a criminal or civil action against the erring taxpayer.[53]
Verily, pursuant to the lifeblood doctrine, the Court has allowed tax authorities ample discretion to avail themselves of the most expeditious way to collect the taxes,[54] including summary processes, with as little interference as possible.[55] However, the Court, at the same time, has not hesitated to strike down these processes in cases wherein tax authorities disregarded due process.[56] The BIR's power to collect taxes must yield to the fundamental rule that no person shall be deprived of his/her property without due process of law.[57] The rule is that taxes must be collected reasonably and in accordance with the prescribed procedure.[58]
In the normal course of tax administration and enforcement, the BIR must first make an assessment then enforce the collection of the amounts so assessed. "An assessment is not an action or proceeding for the collection of taxes. x x x It is a step preliminary, but essential to warrant distraint, if still feasible, and, also, to establish a cause for judicial action."[59] The BIR may summarily enforce collection only when it has accorded the taxpayer administrative due process, which vitally includes the issuance of a valid assessment.[60] A valid assessment sufficiently informs the taxpayer in writing of the legal and factual bases of the said assessment, thereby allowing the taxpayer to effectively protest the assessment and adduce supporting evidence in its behalf.
In Commissioner of Internal Revenue v. Reyes[61] (Reyes Case), the petitioner issued an assessment notice and a demand letter for alleged deficiency estate tax against the taxpayer estate. The assessment notice and demand letter. simply notified the taxpayer estate of petitioner's findings, without stating the factual and legal bases for said assessment. The Court, absent a valid assessment, refused to accord validity and effect to petitioner's collection efforts - which involved, among other things, the successive issuances of a collection letter, a final notice before seizure, and a warrant of distraint and/or levy against the taxpayer estate - and declared that:
In the present case, it is clear from the wording of the 1998 and 2002 Collection Letters that petitioner intended to pursue, through said collection letters, summary administrative remedies for the collection of respondents' alleged excise tax deficiencies for the Covered Years. In fact, in the respondent Shell's case, the collection letters were already followed by the BIR's issuance of Warrants of Garnishment and Distraint and/or Levy against it.
The period for petitioner to collect the alleged deficiency excise taxes from respondents through judicial remedies had already prescribed.
After establishing that petitioner could not collect respondents' alleged deficiency excise taxes for the covered years through summary administrative remedies without a valid assessment, the Court next determines whether petitioner could still resort to judicial remedies to enforce collection.
The Court answers in the negative as the period for collection o£ the respondents' alleged deficiency excise taxes for the Covered Years through judicial remedies had already prescribed.
The alleged deficiency excise taxes petitioner seeks to collect from respondents in the cases at bar pertain to the Covered Years, i.e., 1992 to 1997, during which, the National Internal Revenue Code of the Philippines of 1977[66](1977 NIRC) was the governing law. Pertinent provisions of the 1977 NIRC read:
COMMISSIONER OF INTERNAL REVENUE, PETITIONER, vs. PILIPINAS SHELL PETROLEUM CORPORATION, RESPONDENT.
The Court dismisses the present petitions for it cannot allow petitioner to collect any excise tax deficiency from respondents by mere issuance of the 1998 and 2002 Collection Letters. Petitioner had failed to comply with the prescribed procedure for collection of unpaid taxes through summary administrative remedies and, thus, violated respondents' right to due process.
That taxation is an essential attribute of sovereignty and the lifeblood of every nation are doctrines well-entrenched in our jurisdiction. Taxes are the government's primary means to generate funds needed to fulfill its mandate of promoting the general welfare and well-being of the people[47] and so should be collected without unnecessary hindrance.[48]
While taxation per se is generally legislative in nature, collection of tax is administrative in character.[49] Thus, Congress delegated the assessment and collection of all national internal revenue taxes, fees, and charges to the BIR.[50] And as the BIR's chief, the CIR has the power to make assessments and prescribe additional requirements for tax administration and enforcement.[51]
The Tax Code provides two types of remedies to enforce the collection of unpaid taxes, to wit: (a) summary administrative remedies, such as the distraint and/or levy of taxpayer's property;[52] and/or (b) judicial remedies, such as the filing of a criminal or civil action against the erring taxpayer.[53]
Verily, pursuant to the lifeblood doctrine, the Court has allowed tax authorities ample discretion to avail themselves of the most expeditious way to collect the taxes,[54] including summary processes, with as little interference as possible.[55] However, the Court, at the same time, has not hesitated to strike down these processes in cases wherein tax authorities disregarded due process.[56] The BIR's power to collect taxes must yield to the fundamental rule that no person shall be deprived of his/her property without due process of law.[57] The rule is that taxes must be collected reasonably and in accordance with the prescribed procedure.[58]
In the normal course of tax administration and enforcement, the BIR must first make an assessment then enforce the collection of the amounts so assessed. "An assessment is not an action or proceeding for the collection of taxes. x x x It is a step preliminary, but essential to warrant distraint, if still feasible, and, also, to establish a cause for judicial action."[59] The BIR may summarily enforce collection only when it has accorded the taxpayer administrative due process, which vitally includes the issuance of a valid assessment.[60] A valid assessment sufficiently informs the taxpayer in writing of the legal and factual bases of the said assessment, thereby allowing the taxpayer to effectively protest the assessment and adduce supporting evidence in its behalf.
In Commissioner of Internal Revenue v. Reyes[61] (Reyes Case), the petitioner issued an assessment notice and a demand letter for alleged deficiency estate tax against the taxpayer estate. The assessment notice and demand letter. simply notified the taxpayer estate of petitioner's findings, without stating the factual and legal bases for said assessment. The Court, absent a valid assessment, refused to accord validity and effect to petitioner's collection efforts - which involved, among other things, the successive issuances of a collection letter, a final notice before seizure, and a warrant of distraint and/or levy against the taxpayer estate - and declared that:
x x x [P]etitioner violated the cardinal rule in administrative law that the taxpayer be accorded due process. Not only was the law here disregarded, but no valid notice was sent, either. A void assessment bears no valid fruit.The Court similarly found that there was no valid assessment in Commissioner of Internal Revenue v. BASF Coating + Inks Phils., Inc.[63] (BASF Coating Case) as the assessment notice therein was sent to the taxpayer company's former address. Without a valid assessment, the Court pronounced that petitioner's issuance of a First Notice Before Issuance of Warrant of Distraint and Levy to be in violation of the taxpayer company's right to due process and effectively blocked any further efforts by petitioner to collect by virtue thereof. The Court ratiocinated that:
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 in administrative investigations: that taxpayers should be able to present their case and adduce supporting evidence. In the instant case, respondent has not been informed of the basis of the estate tax liability. 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. The haphazard shot at slapping an assessment, supposedly based on estate taxation's general provisions that are expected to be known by the taxpayer, is utter chicanery.
Even a cursory review of the preliminary assessment notice, as well as the demand letter sent, reveals the lack of basis for - not to mention the insufficiency of - the gross figures and details of the itemized deductions indicated in the notice and the letter. This Court cannot countenance an assessment based on estimates that appear to have been arbitrarily or capriciously arrived at. Although taxes are the lifeblood of the government, their assessment and collection "should be made in accordance with law as any arbitrariness will negate the very reason for government itself."[62] (Emphasis supplied.)
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 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 in administrative 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 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 worthy to note that in the Reyes Case and BASF Coating Case, there were assessments actually issued against the taxpayers therein, except that said assessments were adjudged invalid for different reasons (i.e., for failing to state the factual and legal bases for the assessment in the Reyes Case and for sending the assessment to the wrong address in the BASF Coating Case). In the instant cases, petitioner did not issue at all an assessment against respondents prior to his issuance of the 1998 and 2002 Collection Letters. Thus, there is even more reason for the Court to bar petitioner's attempts to collect the alleged deficiency excise taxes through any summary administrative remedy.
x x x x
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 to due 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.[64]
In the present case, it is clear from the wording of the 1998 and 2002 Collection Letters that petitioner intended to pursue, through said collection letters, summary administrative remedies for the collection of respondents' alleged excise tax deficiencies for the Covered Years. In fact, in the respondent Shell's case, the collection letters were already followed by the BIR's issuance of Warrants of Garnishment and Distraint and/or Levy against it.
The period for petitioner to collect the alleged deficiency excise taxes from respondents through judicial remedies had already prescribed.
After establishing that petitioner could not collect respondents' alleged deficiency excise taxes for the covered years through summary administrative remedies without a valid assessment, the Court next determines whether petitioner could still resort to judicial remedies to enforce collection.
The Court answers in the negative as the period for collection o£ the respondents' alleged deficiency excise taxes for the Covered Years through judicial remedies had already prescribed.
The alleged deficiency excise taxes petitioner seeks to collect from respondents in the cases at bar pertain to the Covered Years, i.e., 1992 to 1997, during which, the National Internal Revenue Code of the Philippines of 1977[66](1977 NIRC) was the governing law. Pertinent provisions of the 1977 NIRC read:
Sec. 318. Period of Limitation Upon Assessment and Collection. - Except as provided in the succeeding section, internal-revenue taxes shall be assessed within five years after the return was filed, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period. For the 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: Provided, That this limitation shall not apply to cases already investigated prior to the approval of this Code. (Emphasis Supplied)Under Section 318 of the 1977 NIRC, petitioner had five years[67] from the time respondents filed their excise tax returns in question to: (a) issue an assessment; and/or (b) file a court action for collection without an assessment. In the petitions at bar, respondents filed their returns for the Covered Years from 1992 to 1997, and the five-year prescriptive period under Section 319 of the 1977 NIRC would have prescribed accordingly from 1997 to 2002.
Sec. 319. 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 a failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within ten 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) Where before the expiration of the time prescribed in the preceding section for the assessment of the tax, both the Commissioner and the taxpayer have consented in writing to its assessment after such time, the tax may be assessed at any time prior to the expiration of the period agreed upon. The period so agreed upon may be extended by subsequent agreements in writing made before the expiration of the period previously agreed upon.
(c) Where the assessment of any internal revenue tax has been made within the period of limitation above-prescribed, such tax may be collected by distraint or levy or by a proceeding in court, but only if began (1) within five years after assessment of the tax, or (2) prior to the expiration of any period for collection agreed upon in writing by the Commissioner and the taxpayer before the expiration of such five-year period. The period so agreed upon may be extended by subsequent agreements in writing made before the expiration of the period previously agreed upon.
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