Commissioner of Internal Revenue vs. BASF Coating + Inks Phil., Inc

The running of the statute of limitations on tax assessments under Section 223 of the NIRC is suspended only when the BIR Commissioner is actually unaware of the taxpayer’s whereabouts; mere failure to file a formal written notice of change of address does not suspend the period if the BIR has actual knowledge of the new address through its records and prior dealings with the taxpayer. Furthermore, an assessment notice sent to an address known by the BIR to be incorrect is invalid and does not become final and executory.

The case involves the dissolution of a corporation and the subsequent attempt by the BIR to assess deficiency taxes after the corporation had moved its operations and registered office. The dispute centers on whether the BIR’s knowledge of the taxpayer’s new address, absent a formal written notice of change of address, is sufficient to prevent the suspension of the prescriptive period for assessment.

• BIR Assessment: On January 17, 2003, the CIR issued a Formal Assessment Notice (FAN) for deficiency taxes for taxable year 1999; the FAN was sent by registered mail on January 24, 2003 to the taxpayer’s old address in Las Piñas City.
• Protest: On March 19, 2004, BASF filed a protest with the BIR citing prescription and lack of due process; supplemental protests were filed on April 16, 2004 and June 14, 2004.
• CTA Division: On January 10, 2005, BASF filed a Petition for Review with the CTA after the 180-day period lapsed without BIR action. On February 17, 2010, the CTA Special First Division granted the petition and cancelled the assessments.
• CTA En Banc: The CIR filed a Petition for Review. On June 16, 2011, the CTA En Banc denied the petition, holding that the right to assess had prescribed and the FAN was invalid. A Motion for Reconsideration was denied on September 16, 2011.
• SC: The CIR filed a Petition for Review on Certiorari with the SC.

• BASF was a domestic corporation organized on August 1, 1990 with a BIR-registered address at 101 Marcos Alvarez Avenue, Las Piñas City.
• On March 19, 2001, the corporation resolved to dissolve by shortening its corporate term to March 31, 2001, and subsequently moved its operations to Carmelray Industrial Park, Canlubang, Calamba, Laguna.
• On June 26, 2001, BASF submitted to the BIR Revenue District Officer (RDO) No. 53 in Alabang: (1) a letter dated April 26, 2001, giving notice of dissolution under Section 52(c) of the NIRC; and (2) a manifestation dated June 22, 2001, with BIR Form No. 1905 (update of registration information).
• Despite these submissions, the BIR issued a FAN on January 17, 2003, assessing P18,671,343.14 in deficiencies (income tax, VAT, withholding taxes, and documentary stamp tax) for 1999, and sent it to the Las Piñas address.
• BIR records showed that prior to the FAN, revenue officers had conducted investigations at BASF’s Calamba address and had corresponded with BASF at that address (e.g., letters dated September 27, 2001, April 24, 2002, and May 30, 2002).
• The Preliminary Assessment Notice (PAN) sent to the Las Piñas address was returned to sender, yet the BIR still sent the FAN to the same old address.

• The three-year prescriptive period to assess under Sections 203 and 222 of the NIRC was suspended under Section 223 because BASF failed to notify the BIR in writing of its change of address as required by Section 11 of Revenue Regulation (RR) No. 12-85.
• The FAN became final and executory because it was sent by registered mail to the address stated in the tax return, and under Section 3.1.7 of RR No. 12-99, such service is considered constructive receipt by the taxpayer, citing Nava v. Commissioner of Internal Revenue.

• The BIR was actually aware of BASF’s new address in Calamba, Laguna, as evidenced by audit reports, investigation records, and prior correspondence sent to that address; thus, the suspension of the prescriptive period under Section 223 did not apply.
• The FAN was invalid because it was sent to the wrong address and was never received; an invalid assessment cannot be the basis for collection, violating BASF’s right to due process.

• Procedural Issues: N/A
• Substantive Issues:
  • Whether the CIR’s right to assess deficiency taxes for taxable year 1999 is barred by prescription.
  • Whether the FAN became final, executory, and demandable despite being sent to BASF’s old address.

• Procedural: N/A
• Substantive:
  • On Prescription: Yes, the right to assess has prescribed. The suspension of the statute of limitations under Section 223 of the NIRC (when the taxpayer "cannot be located" at the given address) applies only if the BIR Commissioner is actually unaware of the taxpayer’s whereabouts. Here, the BIR’s own records—including audit reports, investigation checklists, and letters sent to BASF’s Calamba address—demonstrated actual knowledge of the new location. Thus, the three-year period was not suspended and had already expired.
  • On Validity of FAN: The FAN never became final. Constructive service under RR No. 12-99 requires that the notice be properly addressed. Sending the FAN to an address known to be incorrect (as evidenced by the returned PAN) does not constitute valid service. An invalid assessment bears no valid fruit and violates due process.

• Suspension of Statute of Limitations (Section 223, NIRC) — The running of the prescriptive period is suspended only when the taxpayer cannot be located at the address given in the return and the BIR is actually unaware of the taxpayer’s new whereabouts. If the BIR has actual knowledge of the new address through its records, investigations, and prior correspondence, the suspension does not apply despite the taxpayer’s failure to file a formal written notice of change of address.
• Strict Construction of Exceptions to Prescription — Statutes of limitation in tax law are enacted for the benefit of the taxpayer; therefore, exceptions to the rule on prescription must be strictly construed against the government and liberally in favor of the taxpayer.
• Due Process in Tax Assessment — A valid assessment is a prerequisite to valid collection. The law imposes a substantive requirement that the taxpayer be properly informed of the assessment. Sending a notice to an address known to be incorrect denies the taxpayer the opportunity to protest, rendering the assessment void.
• Constructive Service of Tax Notices (Section 3.1.7, RR No. 12-99) — Constructive service via registered mail is effective only if the notice is sent to the correct address. A notice sent to an old or incorrect address, which is returned to sender, does not constitute constructive receipt by the taxpayer.

• "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."
• "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 finally 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..."
• "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."
• "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."

• CIR v. Philippine Global Communication, Inc. (G.R. No. 167146, 2006) — Cited for the principle that prescription in tax assessment benefits the taxpayer by providing certainty and protecting against indefinite government delay.
• Collector of Internal Revenue v. Suyoc Consolidated Mining Company (104 Phil. 819, 1958) — Source of the doctrine on the purpose of prescription benefiting both government and taxpayer.
• CIR v. B.F. Goodrich Phils., Inc. (G.R. No. 104171, 1999) — Held that legal provisions on prescription should be liberally construed to protect taxpayers, and exceptions strictly construed.
• Bank of the Philippine Islands v. CIR (G.R. No. 139736, 2005) — Affirmed that the statute of limitations protects taxpayers from unreasonable investigations.
• Nava v. CIR (G.R. No. L-19470, 1965) — Distinguished; held that a valid assessment requires proper addressing of the notice, which was lacking in the present case.
• CIR v. Algue, Inc. (G.R. No. L-28896, 1988) — Cited for the principle that while taxes are the lifeblood of the government, they must be collected in accordance with law.

• Section 203, National Internal Revenue Code (NIRC) — Prescriptive period of three (3) years for assessment of internal revenue taxes.
• Section 222, NIRC — Exceptions to the period of limitation (fraud, agreement in writing, etc.).
• Section 223, NIRC — Suspension of the running of the statute of limitations, specifically the provision that the running is suspended when the taxpayer "cannot be located in the address given by him in the return."
• Section 11, Revenue Regulation No. 12-85 — Requirement for written notice of change of address.
• Section 3.1.7, Revenue Regulation No. 12-99 — Rules on constructive service of assessment notices.
• 1987 Constitution, Article III (Bill of Rights) — Due process and equal protection clauses.