G.R. No. 252944 , November 27, 2024
COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. PACIFIC HUB CORPORATION, RESPONDENT.

FACTS

For taxable years 2005 to 2006, respondent Pacific Hub Corporation filed its tax returns but did not fully remit the declared amounts, resulting in a total deficiency of PHP 15,480,231.11 for withholding tax on compensation, expanded withholding tax, and value-added tax. In 2008, Pacific Hub expressed willingness to pay the basic deficiency taxes but requested abatement of penalties, surcharges, and interests. It later filed an Application for Abatement and paid the basic deficiency tax amount. On January 10, 2014, petitioner Commissioner of Internal Revenue (CIR) issued a Notice of Denial rejecting the application for abatement. Subsequently, on September 12, 2014, the CIR issued a Warrant of Distraint and/or Levy to collect the increments (penalties and interests) on the deficiency taxes. Pacific Hub filed a Petition for Review before the Court of Tax Appeals (CTA) seeking to annul both the Notice of Denial and the Warrant, alleging violation of due process. The CIR contested the CTA’s jurisdiction, arguing there was no final decision on a disputed assessment and that the power to grant abatement is purely discretionary. The CTA Third Division annulled both instruments, a decision affirmed by the CTA En Banc. The CIR elevated the case to the Supreme Court.

ISSUE

1. Whether the CTA has jurisdiction to review the CIR’s Notice of Denial of an application for tax abatement.
2. Whether the Notice of Denial was issued in accordance with BIR regulations.
3. Whether the Warrant of Distraint and/or Levy was validly issued.

RULING

1. Yes, the CTA has jurisdiction. The CTA’s “other matters” jurisdiction under Section 7(a)(1) of Republic Act No. 1125 , as amended, extends to reviewing decisions of the CIR arising under the National Internal Revenue Code or other laws administered by the BIR. This includes reviewing the CIR’s exercise of discretionary powers, such as the grant or denial of an application for abatement under Section 204(B) of the Tax Code. While the power is discretionary, the CTA may review its exercise if tainted with grave abuse of discretion.
2. No, the Notice of Denial was not issued in accordance with BIR regulations. Revenue Regulations No. 13-2001 requires that a denial of an application for abatement must state the reasons for such denial. The Notice of Denial issued to Pacific Hub bore no indication of the reasons for the denial, contravening the regulation and constituting grave abuse of discretion.
3. No, the Warrant of Distraint and/or Levy was not validly issued. The Warrant was issued without a prior assessment notice. The deficiency arose from Pacific Hub’s own declared but unremitted taxes, not from a BIR assessment. The CIR’s attempt to collect the increments via distraint and levy without first issuing an assessment violated due process and the prescribed procedure for tax collection.