THE Supreme Court (SC) has upheld the Court of Tax Appeals’ (CTA) ruling that set aside Manila Doctors Hospital’s tax liabilities worth P80 million representing its alleged deficiency income tax and value-added tax for the year 2008.
In a 13-page decision dated Feb. 13 and made public on April 24, the High Court agreed with the tax tribunal saying the audit was conducted without a valid letter of authority (LoA) mandated under the country’s revenue code.
“To emphasize, the court has consistently held that in cases where the Bureau of Internal Revenue conducts an audit without a valid LoA, or in excess of the authority duly provided therefor, the resulting assessment shall be void and ineffectual.”
It added that Manila Doctors Hospital, which was under the name Manila Medical Services, Inc. in 2008, did not receive the final decision on the disputed assessment (FDDA) from the commissioner of internal revenue (CIR) as required under due process of the law.
Under the Tax Code, only the CIR or his duly authorized representative may authorize an examination of a taxpayer’s tax liabilities. Revenue officers can only conduct audits and assessments through an LoA issued by the CIR.
The High Court agreed with the CTA’s conclusion that the FDDA, which the CIR claimed to have issued to Manila Doctors Hospital, did not sufficiently explain why it denied its appeal to review the disputed assessment.
“While it is true that taxation is the lifeblood of the government, the power of the State to collect tax must be balanced with the taxpayer’s right to substantial and procedural due process,” the high tribunal said.
“To emphasize, the court has consistently held that in cases where the BIR conducts an audit without a valid LoA, or in excess of the authority duly provided therefor, the resulting assessment shall be void and ineffectual.” — John Victor D. Ordoñez
