Commissioner of Internal Revenue vs. Liquigaz Philippines Corporation

A void FDDA does not ipso facto render the assessment void; failure of the FDDA to state in writing the facts and law on which it is based renders the decision void and tantamount to denial by inaction, leaving the assessment itself to be evaluated on the evidence. The FDDA as to EWT and FBT was void for lack of factual bases, while the WTC portion substantially complied because it rested on the same ITR-Alphalist comparison disclosed in the FLD/FAN.

Liquigaz Philippines Corporation is a corporation organized under Philippine laws subject to internal revenue taxes on compensation, expanded withholding, and fringe benefits. The dispute is governed by Section 228 of the National Internal Revenue Code of 1997 and Revenue Regulations No. 12-99, which require that both the assessment and the administrative decision on a disputed assessment inform the taxpayer in writing of the law and facts on which they are based.

On July 11, 2006, Liquigaz received Letter of Authority No. 00067824 dated July 4, 2006 authorizing investigation of all internal revenue taxes for taxable year 2005. On April 9, 2008, it received an undated letter purporting to be a Notice of Informal Conference with detailed computation of supposed liability. Thereafter, on May 28, 2008, it received the Preliminary Assessment Notice dated May 20, 2008 with attached details of discrepancies for the calendar year ending December 31, 2005, initially assessing deficiency withholding liabilities inclusive of interest at P23,931,708.72, comprising P5,456,141.82 expanded withholding tax, P4,435,463.97 withholding tax on compensation, and P14,040,102.93 fringe benefits tax.

On June 25, 2008, Liquigaz received the Formal Letter of Demand/Formal Assessment Notice with attached details for the same period, assessing P24,332,347.20 inclusive of interest, comprising P5,535,890.38 EWT, P4,500,169.94 WTC, and P14,296,286.88 FBT. Because of the assessment, Liquigaz filed its protest on July 25, 2008 and submitted supporting documents on September 23, 2008. On July 1, 2010, it received the FDDA covering the same audit, still finding liability of P22,380,025.19 inclusive of interest, comprising P3,479,426.75 EWT, P4,508,025.93 WTC, and P14,392,572.51 FBT, with the FDDA containing only a table of liabilities without details on specific transactions.

Consequently, on July 29, 2010, Liquigaz filed its Petition for Review before the CTA Division. According to Liquigaz, the FDDA deprived it of due process for omitting factual bases, and the WTC comparison of Income Tax Return and Alphalist was erroneous because gross salaries in the ITR included non-taxable items like accrued bonus, 13th month pay, de minimis benefits and contributions. The CTA Division and CTA En Banc found the FDDA stated legal bases but gave no factual details despite reflecting different amounts from the FLD/FAN, with basic deficiency per FLD at P16,158,454.72 against P11,762,855.81 per FDDA, while sustaining the WTC because both FLD and FDDA relied on the same P9,318,255.84 ITR-Alphalist discrepancy, differing only in rate from 32% to 25.40% proposed by Liquigaz, which the CTA-commissioned independent accountant found unsubstantiated.

• Sufficiency of FDDA: Petitioner argued that the EWT and FBT assessments should be upheld because the FDDA must be taken together with the PAN and FLD/FAN where details of discrepancies were attached, so Liquigaz was fully apprised in writing of the laws and facts and was able to file a protest.
• Effect of Void FDDA: Petitioner argued that even if the FDDA were declared void, it should not result in automatic abatement of tax liability because RR No. 12-99 merely states that a void decision shall not be considered a decision on the disputed assessment.

• Due Process and Validity of WTC FDDA: Respondent countered that like the EWT and FBT assessments, the WTC assessment should have been invalidated because the FDDA did not provide the facts on which it was based, depriving it of due process as the SC or its representative did not consider the defenses and supporting documents presented.
• WTC Liability and ITR-Alphalist Comparison: Respondent countered that even if the FDDA were upheld, it should not be liable for deficiency WTC because the CIR erred in comparing ITR and Alphalist, since salaries in the ITR referred to gross salaries including amounts not subject to WTC.

• Effect of Void FDDA: Whether a void FDDA ipso facto renders the underlying tax assessment void.
• Validity of EWT and FBT FDDA: Whether the FDDA covering deficiency EWT and FBT is void for failure to state the factual bases where it merely tabulated liabilities in amounts different from the FLD/FAN.
• Validity and Merits of WTC Assessment: Whether the FDDA covering deficiency WTC substantially informed Liquigaz of its factual basis and whether Liquigaz is liable based on the ITR-Alphalist discrepancy.

• Effect of Void FDDA: No. A decision differs from an assessment; a void FDDA is tantamount to denial by inaction appealable to the CTA, without nullifying the assessment absent law or regulation so providing.
• Validity of EWT and FBT FDDA: Yes, the FDDA portions are void. They tabulated reduced liabilities without details, and reference to prior notices cannot cure the omission where FLD and FDDA amounts materially differ.
• Validity and Merits of WTC Assessment: No error. The WTC FDDA rested on the identical ITR-Alphalist comparison disclosed in the FLD/FAN, with only the rate changed to Liquigaz's proposed 25.40%, and CTA findings on unsubstantiated discrepancy stand.

• Effect of Void FDDA: The SC reasoned that Section 228 of the NIRC voids an assessment uninformed in writing of law and facts, while RR No. 12-99 Section 3.1.6 voids a decision on disputed assessment lacking facts, law, rules, regulations or jurisprudence, expressly stating it shall not be considered a decision on disputed assessment. Relying on St. Stephen's Association vs. Collector of Internal Revenue and Section 7 of R.A. 1125, the SC held appealable to the CTA is the decision on disputed assessment or inaction deemed denial, not the assessment itself. An assessment becomes disputed upon protest, and inaction within 180 days is deemed denial appealable to the CTA, so a void FDDA leaves the assessment to be evaluated on evidence.
• Validity of EWT and FBT FDDA: The SC reasoned that Section 228 and RR No. 12-99 use mandatory shall, requiring written notice of factual and legal bases in both FLD/FAN under Section 3.1.4 and FDDA under Section 3.1.6 to afford opportunity for intelligent protest and appeal and prevent arbitrary figures, citing CIR vs. Reyes and CIR vs. United Salvage and Towage (Phils.), Inc. The FDDA showed only tax liabilities without specific transactions, and the CIR's claim of compliance through PAN and FLD/FAN failed because basic deficiency figures differed by P4,395,598.91 overall, making details imperative to know how defenses were appreciated. The SC agreed the FDDA portions were void but held the CTA erred in cancelling the assessments outright instead of deciding the merits as on denial by inaction.
• Validity and Merits of WTC Assessment: The SC reasoned that substantial compliance suffices where the taxpayer is eventually apprised in writing to file an effective protest, citing Samar-I Electric Cooperative vs. CIR. Liquigaz was effectively informed because the FLD and FDDA shared the same basis of comparing salaries per ITR of P52,239,313.00 against Alphalist of P42,921,057.16 yielding P9,318,255.84 discrepancy, with the amount change arising only from using the 25.40% effective rate Liquigaz itself proposed. The SC declined to reverse the P2,958,546.23 WTC liability with 25% surcharge under Section 248(A)(3) plus deficiency and delinquency interests under Section 249, according highest respect to CTA expertise and the independent accountant's finding that Liquigaz failed to substantiate how much pertained to de minimis, bonuses, wages, and SSS/Medicare/Pag-Ibig contributions.

• Due process requirement in tax assessment — Section 228 of the NIRC and RR No. 12-99 mandate that the taxpayer be informed in writing of the law and facts on which the assessment and the FDDA are based, otherwise the assessment and the decision, respectively, shall be void; the SC applied it to void the EWT and FBT FDDA portions that tabulated liabilities without factual details.
• Distinction between assessment and decision on disputed assessment — An assessment is the finding of liability, while a decision resolves the protest constituting a disputed assessment appealable under Section 7 of R.A. 1125, with inaction deemed denial; the SC applied it to hold a void FDDA does not nullify the assessment, which remains for CTA merits review.
• Substantial compliance with Section 228 — Compliance is sufficient where exchange of correspondence and attached details eventually apprises the taxpayer in writing of factual and legal bases enabling an effective protest; the SC applied it to sustain the WTC FDDA anchored on the same disclosed ITR-Alphalist comparison.
• Respect for CTA findings — Findings and conclusions of the CTA are accorded highest respect due to its expertise in tax problems and will not be lightly set aside; the SC applied it to uphold the computed WTC deficiency affirmed by the CTA Division, CTA En Banc, and independent accountant.

• "The taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void." — States the statutory due process rule under Section 228 applied to void assessments and decisions lacking written bases.
• "A void FDDA does not ipso facto render the assessment void" — Announces the novel holding distinguishing nullity of the decision from nullity of the assessment itself.
• "Tax laws may not be extended by implication beyond the clear import of their language, nor their operation enlarged so as to embrace matters not specifically provided." — Supports refusing to extend RR No. 12-99 void-decision language to automatic cancellation of the assessment.
• "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.'" — Reiterates from CIR vs. Reyes why assessments without disclosed factual and legal bases cannot be countenanced.

• St. Stephen's Association vs. Collector of Internal Revenue, 104 Phil. 314 (1958) — Followed as controlling on distinction between assessment and decision on disputed assessment appealable to the CTA.
• CIR vs. Reyes, 516 Phil. 176 (2006) — Followed on voidness for failure to inform taxpayer in writing of law and facts and due process violation in arbitrary assessments.
• CIR vs. United Salvage and Towage (Phils.), Inc., G.R. No. 197515, July 2, 2014 — Followed on mandatory shall language and voidness of FAN containing only tabulation without details.
• CIR vs. Enron Subic Power Corporation — Cited through United Salvage for rule that advice, preliminary letter, and audit working papers cannot substitute for stating bases in FLD/FAN.
• Samar-I Electric Cooperative vs. CIR, G.R. No. 193100, December 10, 2014 — Followed to allow substantial compliance where taxpayer eventually informed in writing and able to protest effectively.
• CIR vs. Bank of the Philippine Islands, 549 Phil. 886 (2007) — Cited for constitutional due process basis of written notice requirement.
• CIR vs. Mirant (Philippines) Operations Corporation, 667 Phil. 208 (2011) — Followed for deference to CTA expertise on tax findings.
• Philippine Health Care Providers, Inc. vs. CIR, 616 Phil. 387 (2009) — Cited for strict construction that tax laws may not be extended by implication.

• Section 228, National Internal Revenue Code of 1997 — Requires written notice of law and facts for assessment under pain of voidness and provides protest, 60-day submission, and 180-day/30-day appeal periods; applied to mandate factual disclosure in FLD/FAN and FDDA.
• Section 3.1.4, Revenue Regulations No. 12-99 — Requires FLD and assessment notice to state facts, law, rules and regulations or jurisprudence, otherwise void; applied to assess formal demand validity.
• Section 3.1.6, Revenue Regulations No. 12-99 — Requires decision on disputed assessment to state facts, applicable law, rules and regulations or jurisprudence and finality, otherwise void and not considered a decision; applied to void EWT/FBT FDDA and treat as denial by inaction.
• Section 7, Republic Act No. 1125, as amended — Confers on the CTA exclusive appellate jurisdiction over decisions and inaction deemed denial in disputed assessments; applied to distinguish appealable decision from assessment and allow remand.
• Section 248(A)(3), NIRC of 1997, as amended — Imposes 25% surcharge; applied to sustain surcharge component of WTC liability.
• Section 249(B) and 249(C)(3), NIRC of 1997, as amended — Impose 20% deficiency interest from January 20, 2006 and 20% delinquency interest from July 1, 2010; applied to WTC award with exclusion of P25,000 compromise penalty absent compromise agreement.