Fishwealth Canning Corporation vs. Commissioner of Internal Revenue

A motion for reconsideration of the denial of an administrative protest does not toll the 30-day period to appeal to the CTA under Section 228 of the 1997 Tax Code. A taxpayer who receives an adverse final decision on a disputed assessment must file the CTA petition within 30 days; otherwise the assessment becomes final, executory, and demandable.

Fishwealth Canning Corporation is the taxpayer; the Commissioner of Internal Revenue is the respondent tax authority. The case concerns the administrative protest and appeal mechanism under Section 228 of the 1997 Internal Revenue Code, which governs the period for protesting an assessment and for appealing an adverse decision to the CTA.

On May 16, 2000, the Commissioner of Internal Revenue issued a Letter of Authority ordering the examination of Fishwealth Canning Corporation’s internal revenue taxes for taxable year 1999. On August 25, 2000, the Commissioner reinvestigated petitioner’s books of accounts and other records of internal revenue taxes covering the same period and issued a subpoena duces tecum requiring petitioner to submit its records and books of accounts. Petitioner requested cancellation of the subpoena on the ground that the same set of documents had previously been examined. The investigation disclosed that petitioner was liable in the amount of ₱2,395,826.88 representing income tax, value added tax, withholding tax deficiencies and other miscellaneous deficiencies, and petitioner eventually settled these obligations on August 30, 2000. As petitioner did not heed the subpoena, the Commissioner filed a criminal complaint against petitioner for violation of Sections 5(c) and 266 of the 1997 Internal Revenue Code, which complaint was dismissed for insufficiency of evidence.

The Commissioner sent, on August 6, 2003, petitioner a Final Assessment Notice of income tax and VAT deficiencies totaling ₱67,597,336.75 for taxable year 1999, which assessment petitioner contested by letter of September 23, 2003. The Commissioner thereafter issued a Final Decision on Disputed Assessment dated August 2, 2005, which petitioner received on August 4, 2005, denying its letter of protest, apprising it of its income tax and VAT liabilities in the amounts of “₱15,396,905.24 and ₱63,688,434.40 [sic], respectively, for the taxable year 1999,” and requesting the immediate payment thereof, “inclusive of penalties incident to delinquency.” The Commissioner added that if petitioner disagreed, it may appeal to the CTA “within thirty (30) days from date of receipt hereof, otherwise our said deficiency income and value-added taxes assessments shall become final, executory, and demandable.”

Instead of appealing to the CTA, petitioner filed, on September 1, 2005, a Letter of Reconsideration dated August 31, 2005. By a Preliminary Collection Letter dated September 6, 2005, the Commissioner demanded payment of petitioner’s tax liabilities, drawing petitioner to file on October 20, 2005 a Petition for Review before the CTA.

• Timeliness of CTA Petitions: Petitioner argued that the CTA En Banc erred in holding that the petition it filed before the CTA First Division as well as that filed before it (CTA En Banc) was filed out of time.
• Meritorious Case: Petitioner argued that it has a meritorious case in view of the dismissal of the criminal case filed against it for violation of the 1997 Internal Revenue Code.

• Timeliness: Respondent argued, among other things, that the petition was filed out of time.

• Timeliness of CTA Petitions: Whether the CTA En Banc erred in holding that the petition filed before the CTA First Division and the petition filed before the CTA En Banc were both filed out of time.
• Effect of Dismissed Criminal Complaint: Whether the dismissal of the criminal complaint for violation of Sections 5(c) and 266 of the 1997 Internal Revenue Code renders petitioner’s case meritorious.

• Timeliness of CTA Petitions: No. Under Section 228 of the 1997 Tax Code, petitioner had 30 days from receipt of the denial on August 4, 2005, or until September 3, 2005, to appeal; its October 20, 2005 petition was late, and a motion for reconsideration did not toll the period.
• Effect of Dismissed Criminal Complaint: No. The criminal complaint was instituted not to demand payment but to penalize the taxpayer for violation of the Tax Code, so its dismissal did not make the tax case meritorious.

• Timeliness of CTA Petitions: Section 228 of the 1997 Tax Code provides that if the protest is denied in whole or in part, or is not acted upon within 180 days from submission of documents, the taxpayer may appeal to the CTA within 30 days from receipt of the decision or from the lapse of the 180-day period; otherwise, the decision becomes final, executory, and demandable. Petitioner received the Final Decision on Disputed Assessment dated August 2, 2005 on August 4, 2005, so it had until September 3, 2005 to file a petition for review before the CTA Division. Instead of appealing, petitioner filed a Letter of Reconsideration dated August 31, 2005 on September 1, 2005. A motion for reconsideration of the denial of the administrative protest does not toll the 30-day period to appeal to the CTA. Petitioner filed its Petition for Review before the CTA only on October 20, 2005, hence it was filed out of time. The SC thus found no merit in the challenge to the CTA En Banc’s holding that the CTA Division petition and the CTA En Banc petition were filed out of time.
• Effect of Dismissed Criminal Complaint: The SC rejected petitioner’s final contention that it has a meritorious case because the criminal case for violation of the 1997 Internal Revenue Code was dismissed. The criminal complaint was instituted not to demand payment but to penalize the taxpayer for violation of the Tax Code. Its dismissal for insufficiency of evidence therefore did not affect the tax assessment or make petitioner’s case meritorious. The SC cited Commissioner of Internal Revenue vs. Pascor Realty and Development Corporation for this point.

• Non-tolling effect of a motion for reconsideration of the denial of an administrative protest — Under Section 228 of the 1997 Tax Code, a taxpayer has 30 days from receipt of the denial of its administrative protest to appeal to the CTA. A motion for reconsideration of that denial does not toll the 30-day period. In this case, petitioner received the denial on August 4, 2005 but filed its CTA petition only on October 20, 2005, after filing a Letter of Reconsideration, so the petition was out of time.
• Criminal complaint under the Tax Code is penal, not a collection demand — A criminal complaint for violation of the Tax Code is instituted to penalize the taxpayer, not to demand payment. Its dismissal does not invalidate or affect the tax assessment. The SC applied this in rejecting petitioner’s claim that the dismissal of the criminal complaint made its tax case meritorious.
• Finality of assessment upon lapse of the appeal period — If the taxpayer fails to appeal the denial of its administrative protest to the CTA within 30 days from receipt, the decision becomes final, executory, and demandable. The SC applied this to the August 4, 2005 receipt and the October 20, 2005 filing.

• “If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of the one hundred eighty (180)-day period; otherwise, the decision shall become final, executory and demandable.” — The SC quotes Section 228 of the 1997 Tax Code as the controlling rule on the period to appeal an adverse administrative protest decision to the CTA.
• “Since petitioner received the denial of its administrative protest on August 4, 2005, it had until September 3, 2005 to file a petition for review before the CTA Division. It filed one, however, on October 20, 2005, hence, it was filed out of time.” — The SC applies the 30-day period to the facts and concludes that the CTA Division petition was late.
• “For a motion for reconsideration of the denial of the administrative protest does not toll the 30-day period to appeal to the CTA.” — The SC states the specific rule that defeats petitioner’s argument that its Letter of Reconsideration kept the appeal period open.
• “For the criminal complaint was instituted not to demand payment, but to penalize the taxpayer for violation of the Tax Code.” — The SC explains why the dismissal of the criminal complaint did not make the tax assessment case meritorious.

• Commissioner of Internal Revenue vs. Pascor Realty and Development Corporation, 368 Phil. 714, 727 (1994) — Cited in the decision for the proposition that a criminal complaint under the Tax Code is instituted to penalize the taxpayer, not to demand payment.

• Section 228, 1997 Internal Revenue Code — Governs administrative protests against tax assessments and appeals to the CTA. It provides that if the protest is denied in whole or in part, or is not acted upon within 180 days from submission of documents, the taxpayer may appeal to the CTA within 30 days from receipt of the decision or from the lapse of the 180-day period; otherwise, the decision becomes final, executory, and demandable. The SC applied this to bar the October 20, 2005 petition, which was filed beyond the September 3, 2005 deadline counted from the August 4, 2005 receipt.
• Sections 5(c) and 266, 1997 Internal Revenue Code — The Commissioner filed a criminal complaint against petitioner for violation of these provisions; the complaint was dismissed for insufficiency of evidence. The SC used that dismissal to reject petitioner’s claim of a meritorious case, holding that the criminal complaint was not a demand for payment but a penal action.