Primary Holding

The government’s right to assess taxes prescribed because the waivers executed to extend the three-year assessment period were invalid due to procedural defects.

Background

The BIR issued deficiency tax assessments against Kudos Metal Corporation for 1998 on September 26, 2003, after conducting an audit prompted by suspected tax fraud. The corporation contested these assessments, arguing they were issued beyond the three-year prescriptive period under the Tax Code.

Facts

• 1. April 15, 1999: Kudos filed its 1998 Income Tax Return.
• 2. September 7, 1999: BIR issued a Letter of Authority to audit Kudos.
• 3. December 10, 2001: Kudos’ accountant, Nelia Pasco, executed the first waiver of prescription (defective due to lack of notarized authority, missing acceptance date, and no proof of taxpayer receipt).
• 4. February 18, 2003: Second waiver executed after the first waiver’s expiration (invalid under Section 222(b) of the Tax Code).
• 5. August 25, 2003: BIR issued Preliminary Assessment Notice.
• 6. September 26, 2003: Formal Letter of Demand with assessments totaling ₱25,615,048.75.

Arguments of the Petitioners

• 1. The waivers validly extended the assessment period.
• 2. Kudos is estopped from claiming prescription due to its cooperation in the audit.
• 3. Defects in waivers are technical and should not invalidate the assessments.

Arguments of the Respondents

• 1. Waivers were invalid due to non-compliance with RMO 20-90 and RDAO 05-01.
• 2. Pasco lacked notarized authority to sign waivers on behalf of Kudos.
• 3. Second waiver was executed after the first waiver’s expiration, violating Section 222(b).

Issues

• 1. Whether the waivers extended the prescriptive period for tax assessments.
• 2. Whether Kudos is estopped from invoking prescription.

Ruling

• 1. Waivers were invalid due to: (1) Lack of notarized written authority for Pasco to sign on behalf of Kudos. (2) Failure to indicate the BIR’s acceptance date. (3) No proof Kudos received its copy of the waivers. (4) Second waiver executed after the first waiver’s expiration (December 31, 2002), violating Section 222(b).
• 2. Estoppel did not apply: (1) Estoppel cannot override statutory prescription rules. (2) BIR’s failure to follow its own procedures cannot bind the taxpayer. (3) Unlike Collector v. Suyoc Mining, Kudos did not request delays or induce the BIR to postpone assessments.

Doctrines

• 1. Strict Construction of Prescriptive Period Exceptions: Waivers must comply strictly with BIR regulations (RMO 20-90, RDAO 05-01).
• 2. Estoppel in Tax Cases: Limited to collection (not assessment) and requires affirmative taxpayer acts inducing government delay.

Key Excerpts

• 1. Strict Construction of Prescriptive Period Exceptions: Waivers must comply strictly with BIR regulations (RMO 20-90, RDAO 05-01).
• 2. Estoppel in Tax Cases: Limited to collection (not assessment) and requires affirmative taxpayer acts inducing government delay.

Precedents Cited

• 1. Collector v. Suyoc Consolidated Mining (1958): Estoppel applied where taxpayer requested reinvestigations, inducing BIR to delay collection. Distinguished here because assessments (not collection) were time-barred.
• 2. Philippine Journalist, Inc. v. CIR (2004): Waivers must strictly comply with formalities.

Statutory and Constitutional Provisions

• 1. NIRC Section 203: Three-year prescriptive period for assessments.
• 2. NIRC Section 222(b): Waivers must be executed before the original period expires.
• 3. RMO 20-90 and RDAO 05-01: Procedures for valid waivers (notarized authority, acceptance dates, taxpayer copies).