Facts
Petitioner Level Up, Inc. (“Level Up”) received a Letter of Authority (“LOA”) from the Bureau of Internal Revenue (“BIR”) on May 14, 2014, authorizing its officers to examine Level Up’s VAT compliance for January 1 to June 30, 2013. Thereafter, the BIR issued a Preliminary Assessment Notice (“PAN”) on November 5, 2015, assessing Level Up for deficiency Value Added Tax (“VAT”) based on undeclared receipts and unsupported input taxes. Level Up received such PAN on November 10, 2015, giving it fifteen (15) days therefrom to file a Reply.
However, Level Up only filed its Reply to the PAN on December 17, 2015, beyond the 15-day reglementary period. It contended that the undeclared receipts pertained to a different company, and not Level Up, and that errors in the use of TIN by its customers caused the discrepancies that gave rise to the assessment. The BIR issued a Formal Assessment Notice (“FAN”) on December 16, 2015. Level Up filed a Protest with Request for Reinvestigation with the BIR Makati against the FAN, and thereafter, a Final Decision on Disputed Assessment (“FDDA”) was issued by the CIR, reiterating Level Up’s tax liability as earlier assessed.
The administrative protests, as well as the judicial protests of Level Up to the CTA Division and CTA En Banc were both denied.
Now, before the Supreme Court, Level Up claims, on one hand, it was denied due process because the FAN did not consider the arguments it presented, as well as the evidence it allegedly attached, rendering the assessment void under Sec. 228 of the NIRC, using the Avon case as its anchor.
On the other hand, the CIR asserts that Level Up was not denied due process, as it failed to file its Reply to the PAN within the 15-day period under RR No. 12-99, justifying the issuance of the FAN. According to the CIR, Level Up’s evidence was duly considered at the reinvestigation stage and in the FDDA, and the assessment was properly explained in writing, which makes the Avon case inapplicable.
ISSUE: Was Level Up denied due process in the issuance of the deficiency VAT assessment?
Ruling
NO, Level Up was not denied due process. Unlike the case of Avon, the records of the present case show that the BIR/CIR issued the subject assessment in compliance with Section 228 of the NIRC and Revenue Regulations No. 12-99. It was Level Up that failed to observe the applicable reglementary period set forth in Revenue Regulations No. 12-99.
Level Up filed its Reply to the PAN only on December 17, 2015, or after 37 days had already lapsed after receiving the PAN on November 10, 2015. By then, the mandatory 15-day period for the taxpayer to respond to the PAN had already expired; Level Up was already in default within the context of Section 3.1.2 of Revenue Regulations No. 12-99. The BIR may accordingly issue a FAN in the absence of a reply from the taxpayer.
The Supreme Court found it absurd to hold that the tax authorities deliberately failed to consider the evidence submitted by Level Up, when such evidence had not been submitted to them when they prepared the FAN. Simply, in issuing the FAN, the BIR Makati could not have reviewed the evidence attached to the Reply because it was belatedly filed. To the mind of the Court, the identity between the PAN and the FAN is not a product of due process violation but simply a consequence of Level Up’s failure to observe the reglementary period to file the Reply to the PAN.
Level Up does not dispute that it was afforded the opportunity to protest the FAN through a request for reinvestigation; that this request was granted by the BIR Makati; that the BIR Makati then directed it to submit its supporting documents and evidence; and that Level Up submitted its evidence through its letter dated March 15, 2016. Further, as aptly pointed out by the CTA En Banc, the CIR gave due consideration to Level Up’s evidence and supporting documents, which were discussed in the Details of Discrepancies.
Clearly, the jurisprudential standard in Avon Products requiring the tax authorities to observe the taxpayer’s due process rights under Section 228 of the NIRC and Revenue Regulations No. 12-99 at all stages of the administrative tax assessment, was fully observed in this case. Thus, the subject assessment cannot be invalidated on the ground of a due process violation.