THIRD DIVISION

[G.R. No. 198677. November 26, 2014.]

COMMISSIONER OF INTERNAL REVENUE , petitioner, vs . BASF

COATING + INKS PHILS., INC. , respondent.

DECISION

PERALTA , J : p

Before the Court is a petition for review on certiorari assailing the Decision 1 of the
Court of Tax Appeals (CTA) En Banc, dated June 16, 2011, and Resolution 2 dated
September 16, 2011, in C.T.A. 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 fty
(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, majority of 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. 3
Subsequently, respondent moved out of its address in Las Piñas 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 O cer of Revenue District O ce (RDO) No. 53, Region 8, in
Alabang, Muntinlupa City. The rst 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. 4 On the other hand, 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 (FAN) dated January 17, 2003, petitioner
assessed respondent the aggregate amount of P18,671,343.14 representing de ciencies
in income tax, value added tax, withholding tax on compensation, expanded withholding tax
and documentary stamp tax, including increments, for the taxable year 1999. 6 The FAN
was sent by registered mail on January 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 CHIEDS

On March 19, 2004, respondent led a protest letter citing lack of due process and
prescription as grounds. 8 On April 16, 2004, respondent led a supplemental letter of
protest. 9 Subsequently, on June 14, 2004, respondent submitted a letter wherein it
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attached documents to prove the defenses raised in its protest letters. 10
On January 10, 2005, after 180 days had lapsed without action on the part of
petitioner on respondent's protest, the latter filed a Petition for Review 11 with the CTA.
Trial on the merits ensued.
On February 17, 2010, the CTA Special First Division promulgated its Decision, 12 the
dispositive portion of which reads, thus:
WHEREFORE, the Petition for Review is hereby GRANTED . The
assessments for de ciency income tax in the amount of P14,227,425.39,
de ciency value-added tax of P3,981,245.66, de ciency withholding tax on
compensation of P49,977.21, de ciency expanded withholding tax of
P156,261.97 and de ciency documentary stamp tax of P256,432.91, including
increments, in the aggregate amount of P18,671,343.14 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 led a Motion for Reconsideration, but the CTA
Special First Division denied it in its Resolution 14 dated July 13, 2010.
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 de ciency taxes for the taxable year 1999 has already
prescribed and that the FAN issued to respondent never attained nality because
respondent did not receive it.
Petitioner led 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:
I

THE HONORABLE CTA EN BANC ERRED IN RULING THAT THE RIGHT

OF PETITIONER TO ASSESS HEREIN RESPONDENT FOR DEFICIENCY
INCOME TAX, VALUE-ADDED 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
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NOT YET BECOME FINAL, EXECUTORY AND DEMANDABLE. 16

The petition lacks merit.

Petitioner contends that, insofar as respondent's alleged de ciency taxes for the
taxable year 1999 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 ling
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 led beyond the period
prescribed by law, the three (3)-year period shall be counted from the day the
return was led. For purposes of this Section, a return led before the last day
prescribed by law for the ling thereof shall be considered as led 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 le a return, the tax may be assessed, or a proceeding in
court for the collection of such tax may be led 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 nal
and executory, the fact of fraud shall be judicially taken cognizance of in
the civil or criminal action for the collection thereof.
DHaEAS

(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 ve (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 by distraint 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
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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 led 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 de ciency, 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 led 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 su cient 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 O cer or the district
having jurisdiction over his former legal residence and/or place of business, copy
furnished the Revenue District O cer having jurisdiction over his new legal
residence or place of business, the Revenue Computer Center and the Receivable
Accounts Division, BIR, National O ce, 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 led 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 O cer 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 abovementioned 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 part of 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
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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 o cers of the
BIR, clearly show that respondent's address is at Carmelray Industrial Park, Canlubang,
Calamba, Laguna.
The CTA also found that BIR o cers, 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
abovementioned records:
1) Letter, dated September 27, 2001, signed by Revenue O cer 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. 29 Subsequently, the RDO also sent respondent another letter
dated May 30, 2002, acknowledging receipt of the latter's reply to his April 24, 2002 letter.
30 These two letters were sent to 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. aSEHDA

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 testi ed to by petitioner's Revenue O cer II at its
Revenue District O ce 39 in Quezon City. 31 Yet, despite this occurrence, petitioner still
insisted in mailing the FAN to respondent's old 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 bene ts the taxpayer. In these
cases, the Court exempli ed the detrimental effects that the delay in the assessment and
collection of taxes in icts upon the taxpayers. Thus, in Commissioner of Internal Revenue
v. Philippine Global Communication, Inc. , 32 this Court echoed Justice Montemayor's
disquisition in his dissenting opinion in Collector of Internal Revenue v. Suyoc Consolidated
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Mining Company, 33 regarding the potential loss to the 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 bene t 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
inde nitely to the prejudice of the interests of the Government, which needs taxes
to run it; and for the taxpayer so that within a reasonable time after ling his
return, he may 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 in court . . . . 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 nally 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 , 35 this Court elucidated that the
prescriptive period for the ling of actions for collection of taxes is justi ed by the need to
protect law-abiding citizens from possible harassment. Also, in Bank of the Philippine
Islands v. Commissioner of Internal Revenue , 36 it was held that the statute of limitations
on the assessment and collection of taxes is principally intended to afford protection to
the taxpayer against unreasonable investigations as the inde nite 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. , 37 this Court ruled that 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 38 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 rst 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. 39 In the instant
case, respondent has not properly been informed of the basis of its tax liabilities. Without
complying with the unequivocal mandate of rst 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. 40 Thus, in Commissioner of Internal Revenue v.
Algue, Inc., 41 this Court 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 arbitrariness will negate the very reason for
government itself. It is therefore necessary to reconcile the apparently con icting
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.
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xxx xxx xxx

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 part is
expected to respond in the form of tangible and intangible bene ts 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 . . . 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 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. 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 44 as well as on the case of Nava v.
Commissioner of Internal Revenue 45 is misplaced, because in the said case, one of the
requirements of a valid assessment 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 to the wrong address. Thus,
the CTA is correct in holding that the FAN never attained nality 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 . Cdpr

Velasco, Jr., Bersamin, * Villarama, Jr. and Reyes, JJ., concur.

Footnotes

* Designated Acting Member, in lieu of Associate Justice Francis H. Jardeleza, per Raffle dated
November 3, 2014.
1. Penned by Associate Justice Olga Palanca-Enriquez, with Presiding Justice Ernesto D.
Acosta and Associate Justices Juanito C. Castañeda, 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.
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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.

19. Exhibit "Q", id. at 862.

20. Exhibit "R", id. at 861.
21. Exhibit "S"/Exhibit "4" and "4-A", id. at 859-860.
22. Exhibit "T", id. at 858.
23. Exhibit "J", id. at 856.

24. Exhibit "V", id. at 854.

25. Exhibit "W", id. at 853.
26. BIR records, p. 852.
27. Id. at 2.

28. Id. at 1.
29. Exhibit "X", id. at 847.
30. Exhibit "Y", id. at 645.
31. See TSN, July 18, 2006, pp. 4-11.
32. G.R. No. 167146, October 31, 2006, 506 SCRA 427.

33. 104 Phil. 819, 833-834 (1958).

34. Commissioner of Internal Revenue v. Philippine Global Communication, Inc., supra at 439.
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35. 108 Phil. 1105, 1108 (1960).
36. G.R. No. 139736, October 17, 2005, 473 SCRA 205, 225.
37. G.R. No. 104171, February 24, 1999, 303 SCRA 546, 554.

38. Records, vol. I, p. 171.

39. Commissioner of Internal Revenue v. Reyes/Reyes v. Commissioner of Internal Revenue,
G.R. Nos. 159694/163581, January 27, 2006, 480 SCRA 382, 396.
40. Commissioner of Internal Revenue v. United Salvage and Towage (Phils.), Inc., G.R. No.
197515, July 2, 2014.

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

42. Id. at 11 and 16-17.
43. Commissioner of Internal Revenue v. Metro Star Superama, Inc., G.R. No. 185371, December
8, 2010, 637 SCRA 633, 647.
44. Section 3.1.7. Constructive Service. — If the notice to the taxpayer herein required is served
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
report of this matter which shall form part of the docket of this case.
45. G.R. No. L-19470, January 30, 1965, 13 SCRA 104.

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