Commissioner of Internal Revenue vs. T Shuttle Services, Inc.

A Final Assessment Notice (FAN) is void if it fails to demand payment of taxes within a specific period, and an assessment is void ab initio where the Bureau of Internal Revenue fails to prove proper service of the Preliminary Assessment Notice and FAN despite the taxpayer's categorical denial of receipt.

T Shuttle Services, Inc. (respondent) operated as a common carrier. Following a Tax Reconciliation System review for Calendar Year 2007, the Bureau of Internal Revenue (BIR) sent a Letter of Notice on July 15, 2009, regarding discrepancies in respondent's tax returns. After follow-up letters and a Notice of Informal Conference failed to elicit a response, the Commissioner of Internal Revenue (CIR) issued a Preliminary Assessment Notice (PAN) on March 29, 2010, assessing deficiency income tax and value-added tax totaling over P6 million. On July 20, 2010, the CIR issued a Final Assessment Notice (FAN) increasing the assessment to over P9 million. The BIR subsequently issued collection letters and a Final Notice Before Seizure in 2012 and 2013. Respondent protested, claiming it never received the PAN or FAN, and that the notices were received by an unauthorized, disgruntled employee who failed to forward them.

• Tax Reconciliation and Initial Notices: On July 15, 2009, the BIR issued a Letter of Notice (LN) No. 057-RLF-07-00-00047 to respondent regarding discrepancies found in its 2007 tax returns under the Tax Reconciliation System. The LN was received by Malou Bohol on July 24, 2009. A follow-up letter dated August 24, 2009, was received by Amado Ramos.
• Audit Authority and Informal Conference: Due to respondent's inaction, the CIR issued Letter of Authority (LOA) No. 200800044533 and a Notice of Informal Conference (NIC) on January 12, 2010.
• Assessment Notices: On March 29, 2010, the CIR issued a Preliminary Assessment Notice (PAN) assessing deficiency income tax and value-added tax totaling P6,485,579.49. On July 20, 2010, the CIR issued a Final Assessment Notice (FAN) assessing deficiency VAT of P3,720,488.73 and deficiency income tax of P5,305,486.50.
• Collection Efforts: On November 28, 2012, the Revenue District Officer (RDO) issued a Preliminary Collection Letter. On January 23, 2013, the RDO issued a Final Notice Before Seizure (FNBS). On April 23, 2013, a Warrant of Distraint and/or Levy was constructively served.
• Protest and Disputed Receipt: On March 20, 2013, respondent wrote the RDO claiming it was unaware of any liability and that Mr. B. Benitez, who allegedly received preliminary notices, was an unauthorized, disgruntled rank-and-file employee who did not forward the documents. On April 19, 2013, respondent formally protested the FNBS, asserting it never received the PAN or FAN prior to the FNBS and invoking common carrier VAT exemption.

• Jurisdiction and Finality: The CIR maintained that the CTA lacked jurisdiction over the original petition because the deficiency tax assessment had already become final, executory, and demandable due to respondent's failure to timely protest.
• Due Process and Proof of Service: The CIR contended that he had presented competent proof of actual mailing and receipt of the PAN and FAN through Registry Receipts Nos. 5187 and 2581. He argued that the CTA erred in declaring the assessments void for alleged failure to prove service.
• Definite Period Requirement: The CIR argued that the CTA En Banc erred in ruling that the FAN was void for allegedly not containing a definite due date for payment.
• Competency of Witness: The CIR asserted that Revenue Officer Joseph V. Galicia was incompetent to authenticate the signatures on the registry receipts under Section 36, Rule 130 of the Rules of Court, as he had no personal knowledge of the taxpayer's signatures.

• Invalid Service: Respondent argued that it was not accorded due process because the PAN and FAN were not properly and duly served upon it. It denied receiving these notices and claimed that any signatures on registry receipts were by an unauthorized, disgruntled employee who failed to forward the documents.
• Defective Assessment Form: Respondent maintained that the FAN and assessment notices were void for failure to demand payment of the taxes due within a specific period as required by Section 228 of the NIRC.
• Substantive Liability: Respondent claimed it was not liable for deficiency income tax and, as a common carrier, was exempt from value-added tax.

• Jurisdiction and Finality: Whether the CTA has jurisdiction over the original petition when the deficiency tax assessment has allegedly become final, executory, and demandable.
• Due Process in Assessment: Whether the assessments are void for the CIR's failure to prove that the PAN and FAN were properly served upon and received by the taxpayer.
• Specificity of Payment Demand: Whether the FAN is void for failing to contain a definite due date for payment of the tax liabilities.

• Jurisdiction and Finality: The argument necessarily fails. The contention that the assessment became final assumes the validity of the assessment itself. As the assessment was void for failure to accord due process, it could not become final, executory, or demandable.
• Due Process in Assessment: The assessments were void. Under Section 228 of the NIRC and Section 3 of RR 12-99, the taxpayer must be informed in writing of the law and facts on which the assessment is made. While registered mail creates a disputable presumption of receipt under Rule 131, Section 3(v) of the Rules of Court, this presumption was controverted by respondent's categorical denial. The burden shifted to the CIR to prove actual receipt, which he failed to discharge. The CIR's evidence consisted merely of registry receipts without authentication of the signatures appearing thereon, and his witness admitted uncertainty regarding actual receipt. The subsequent issuance of RMO 40-2019, requiring detailed records of service including the recipient's authority, confirms the insufficiency of the CIR's proof in this case.
• Specificity of Payment Demand: The FAN was void on this ground as well. Citing Commissioner of Internal Revenue v. Fitness by Design, Inc., a final assessment must demand payment within a specific period to enable the taxpayer to determine remedies and to signal when penalties and interests accrue. The FAN indicated that a further formal letter of demand would issue, but no such demand containing a specific payment period was issued or attached. The CTA En Banc correctly found this defect fatal to the assessment's validity.

• Due Process in Tax Assessment — Section 228 of the NIRC mandates that taxpayers be informed in writing of the law and facts on which an assessment is made; otherwise, the assessment is void. Revenue Regulations No. 12-99 operationalizes this by requiring service of Preliminary Assessment Notices and Final Assessment Notices, with proper documentation of the mode of service and recipient authority.
• Disputable Presumption of Receipt — Under Section 3(v), Rule 131 of the Rules of Court, a letter duly directed and mailed is presumed received in the regular course of mail. This presumption yields to controversion and direct denial, shifting the burden to the party favored by the presumption to establish actual receipt by the addressee or authorized representative.
• Essential Elements of Final Assessment — A valid final assessment notice must: (1) be sent to and received by the taxpayer; and (2) demand payment of the taxes described therein within a specific period. The absence of a specific payment period renders the assessment void because it fails to notify the taxpayer when penalties accrue and what remedies are available.

• "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." — Section 228, National Internal Revenue Code of 1997.
• "A final assessment is a notice 'to the effect that the amount therein stated is due as tax and a demand for payment thereof.' This demand for payment signals the time 'when penalties and interests begin to accrue against the taxpayer and enabling the latter to determine his remedies[.]' Thus, it must be 'sent to and received by the taxpayer, and must demand payment of the taxes described therein within a specific period.'"
• "It is doctrinal that the Court will not lightly set aside the conclusions reached by the CTA which, by the very nature of its functions, has accordingly developed an exclusive expertise on the resolution [of tax cases] unless there has been an abuse or improvident exercise of authority."

• Commissioner of Internal Revenue v. Fitness by Design, Inc., 799 Phil. 391 (2016) — Controlling precedent establishing that a final assessment must demand payment within a specific period to be valid; cited to support the ruling that the FAN was void for indefiniteness.
• Commissioner of Internal Revenue v. GJM Phils. Manufacturing, Inc., 781 Phil. 816 (2016) — Cited for the standard of review limiting Supreme Court interference with CTA findings of fact absent substantial evidence deficiency or gross error.
• Barcelon, Roxas Securities, Inc. v. Commissioner of Internal Revenue, 529 Phil. 785 (2006) — Cited regarding the disputable presumption of receipt of registered mail and the shifting of the burden of proof upon controversion.

• Section 228, National Internal Revenue Code of 1997 — Mandates written notification of the law and facts on which an assessment is based; assessment is void if this requirement is not met.
• Section 3, Revenue Regulations No. 12-99 — Implements the due process requirement in assessment issuance, detailing procedures for Informal Conference, Preliminary Assessment Notice, and Formal Letter of Demand.
• Section 3(v), Rule 131, Rules of Court — Establishes the disputable presumption that a duly directed and mailed letter was received in the regular course of mail.
• Section 36, Rule 130, Rules of Court — Limits witness testimony to facts known by personal knowledge; invoked by CIR regarding authentication of signatures.

Perlas-Bernabe, S.A.J. (Chairperson), Hernando, and Delos Santos, JJ., concurred.
Baltazar-Padilla, J., on official leave.