G.R. No. 222476 , May 05, 2021
COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. YUMEX PHILIPPINES CORPORATION, RESPONDENT.

FACTS

On March 4, 2010, the BIR issued a Notice of Informal Conference to Yumex Philippines Corporation (respondent), a PEZA-registered entity, for a preliminary assessment of various taxes including Improperly Accumulated Earnings Tax (IAET) for taxable year 2007. Respondent protested, claiming exemption from IAET due to its PEZA registration. Subsequently, the BIR issued a Preliminary Assessment Notice (PAN) dated December 16, 2010, and a Formal Letter of Demand/Final Assessment Notice (FLD/FAN) dated January 10, 2011, holding respondent liable for deficiency IAET, among others. Respondent filed a protest on January 20, 2011, and later paid some assessed deficiencies but contested the IAET. After reinvestigation, the BIR, through a letter dated July 25, 2011, reiterated the IAET assessment. Respondent treated this as a final decision and filed a Petition for Review before the CTA Division. The CTA Division cancelled the IAET assessment, ruling it was issued in violation of procedural due process as the FLD/FAN was issued without giving respondent the 15-day period to reply to the PAN, and that the assessment lacked factual basis. The CTA En Banc affirmed this decision. The Commissioner of Internal Revenue (petitioner) elevated the case to the Supreme Court.

ISSUE

1. Whether the CTA Division could take cognizance of the issue of the invalidity of the assessment for alleged violation of due process.
2. Whether the PAN and FLD/FAN are invalid for being issued in violation of respondent’s right to due process.
3. Whether respondent can be assessed for deficiency IAET.

RULING

1. Yes. The CTA is not precluded from considering issues not specifically raised by the parties if necessary for a just disposition of the case, pursuant to Section 1, Rule 14 of the 2005 Revised Rules of the CTA. Respondent had sufficiently alleged facts in its petition and offered evidence regarding the dates of issuance and receipt of the PAN and FLD/FAN.
2. Yes. The PAN and FLD/FAN were invalidly issued. Section 3.1.2 of Revenue Regulations No. 12-99, in relation to Section 228 of the National Internal Revenue Code, grants the taxpayer a 15-day period from receipt of the PAN to respond before the BIR can issue an FLD/FAN. The records showed the FLD/FAN was issued on January 10, 2011, while the PAN was received by respondent only on December 27, 2010, depriving respondent of the full 15-day period to reply. This constituted a violation of procedural due process.
3. No. Respondent, as a PEZA-registered enterprise, is expressly exempt from the imposition of IAET under Section 4(g) of Revenue Regulations No. 2-2001. The regulation makes no distinction between registered activities enjoying an Income Tax Holiday (ITH) or those under the special 5% tax regime. Therefore, respondent’s income from all its registered activities is exempt from IAET. Furthermore, the assessment lacked factual basis as the BIR, in computing the alleged deficiency, applied the IAET rate on respondent’s income from its registered activities enjoying ITH, without specifically identifying any unregistered activities generating taxable income.