THE Court of Tax Appeals (CTA) has granted the appeal of Sofgen Holdings Ltd. to set aside its P19.6-million value-added tax (VAT) liability for the taxable year 2015.
In a decision on April 21 and made public on April 25, the CTA first division ruled that the assessment and the letter of authority issued by the Bureau of Internal Revenue (BIR) exceeded the one-year period provided by the tax code.
The tax court ordered the commissioner of internal revenue (CIR) to refund the amount in favor of the company and to cancel the closure order earlier issued.
“If the audit of a taxpayer shall include more than one taxable period, the other periods or years shall be specifically indicated in the letter of authority,” according to the decision written by CTA Associate Justice Catherine T. Manahan.
“On this point alone, the deficiency VAT assessment should have been disallowed,” the ruling said, citing previous jurisprudence.
The petitioner is a domestic branch of a foreign firm primarily engaged in the management of companies and enterprises based in the Republic of Cyprus.
CIR, the respondent, has duties to comprehend the assessment and enforcement of the collection of taxes and the penalties provided by the revenue code.
The company argued that the revenue officers who carried out the VAT assessment went beyond the authority given to them and that the BIR did not issue the required final notices.
CIR said that the issued letter of authority duly authorized the officers in charge of the investigation of the company’s books of account and accounting records.
The head of the internal revenue bureau earlier issued a closure order dated Aug. 30, 2017 to the company following the tax assessment.
“Respondent CIR improperly exercised his power under Section 115 of the National Internal Revenue Code (NIRC) of 1997,” the court said. “Thus, there was a violation of the petitioner’s right to due process pertaining to the issuance of the subject VAT assessment, rendering the same void.”
Section 115 of the NIRC provides that the CIR may suspend the business operations of a taxpayer for a violation made by a VAT-registered person; failure to issue receipts or invoices; failure to file a VAT return; and understatement of taxable sales or receipts by 30% or more of his correct taxable sales for the taxable quarter.
The tribunal pointed out that the CIR improperly used its authority in issuing the closure order as the petitioner submitted valid official receipts even before the said order.
“While the government has an interest in the swift collection of taxes, the BIR, and its officers and agents cannot be overreaching in their efforts, but must perform their duties in accordance with the law, with their own rules of procedure, and always with regard to the basic tenets of due process,” it said. — John Victor D. Ordoñez