G.R. No. 185371 ; December 8, 2010
COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. METRO STAR SUPERAMA, INC., Respondent.

FACTS

The Commissioner of Internal Revenue (CIR) assessed Metro Star Superama, Inc. for deficiency value-added tax and withholding tax for the taxable year 1999. The assessment followed a post-audit investigation conducted after Metro Star allegedly failed to present its records despite requests and a subpoena duces tecum. The BIR issued a Formal Letter of Demand with a detailed assessment notice on April 3, 2002, which Metro Star received on April 11, 2002. Metro Star filed a Motion for Reconsideration, which the CIR denied on February 8, 2005.
Metro Star then filed a petition for review with the Court of Tax Appeals (CTA), contending it was denied due process. It specifically denied receiving a Preliminary Assessment Notice (PAN) prior to the Formal Letter of Demand, as required by law. The parties stipulated on the issues, which included whether the CIR complied with due process requirements under the Tax Code and relevant regulations.

ISSUE

The principal issue is whether the CIR complied with the mandatory due process requirements in issuing the deficiency tax assessment against Metro Star, particularly the sending of a valid Preliminary Assessment Notice.

RULING

The Supreme Court denied the CIR’s petition and affirmed the CTA En Banc’s decision canceling the assessment. The Court held that the CIR failed to comply with the due process requirements under Section 228 of the National Internal Revenue Code and Revenue Regulations No. 12-99. These provisions mandate a specific procedure: the taxpayer must be informed in writing of the law and facts constituting the assessment. This is implemented by first issuing a PAN, giving the taxpayer an opportunity to respond, and only upon that basis may a Formal Letter of Demand and Assessment Notice be issued.
The CIR’s sole evidence of sending the PAN was a machine-generated transmittal report. Metro Star directly denied receiving it. The Court ruled that such a report, without proof of actual mailing like a registry receipt or a certification from the postmaster, was insufficient to prove receipt. A direct denial shifts the burden back to the CIR to prove the fact of mailing, which it failed to do. Consequently, the subsequent Formal Letter of Demand was void for being issued in violation of Metro Star’s statutory right to due process. A void assessment cannot become final and executory. The Court emphasized that while taxation is indispensable, its power must be exercised reasonably and in strict adherence to prescribed procedures.