CASE DIGEST: China Banking vs. CIR

 

China Banking v. CIR, G.R. No. 172509, February 4, 2015

FACTS:

Petitioner CBC is a universal bank duly organized and existing under the laws of the Philippines. For the taxable years 1982 to 1986, CBC was engaged in transactions involving sales of foreign exchange to the Central Bank of the Philippines (now Bangko Sentral ng Pilipinas), commonly known as SWAP transactions. Petitioner did not file tax returns or pay tax on the SWAP transactions for those taxable years.

On 19 April 1989, petitioner CBC received an assessment from the BIR finding CBC liable for deficiency DST on the sales of foreign bills of exchange to the Central Bank.

On 8 May 1989, petitioner CBC, through its vice-president, sent a letter of protest to the BIR. CBC raised the following defenses: (1) double taxation, as the bank had previously paid the DST on all its transactions involving sales of foreign bills of exchange to the Central Bank; (2) absence of liability, as the liability for the DST in a sale of foreign exchange through telegraphic transfers to the Central Bank falls on the buyer, in this case, the Central Bank; (3) due process violation, as the bank's records were never formally examined by the BIR examiners; (4) validity of the assessment, as it did not include the factual basis therefore; (5) exemption, as neither the tax-exempt entity nor the other party was liable for the payment of DST before the effectivity of PD 1177 and 1931 for the years 1982 to 1986.

On 6 December 2001, more than 12 years after the filing of the protest, the Commissioner of Internal Revenue (CIR) rendered a decision reiterating the deficiency DST assessment and ordered the payment thereof plus increments within 30 days from receipt of the Decision.

On 18 January 2002, CBC filed a Petition for Review with the CTA. On 23 February 2005, the CTA Second Division denied the Petition of CBC. The CTA ruled that a SWAP arrangement should be treated as a telegraphic transfer subject to documentary stamp tax.

On 5 August 2005, petitioner appealed to the CTA En Banc. The appellate tax court, however, dismissed the Petition for Review. The MR filed by petitioner was likewise denied.

The Petitioner now comes to the SC, reiterating the arguments it raised at the CTA level and invoking for the first time the argument of prescription. Petitioner CBC states that the government has three years from 19 April 1989, the date the former received the assessment of the CIR, to collect the tax. Within that time frame, however, neither a warrant of distraint or levy was issued, nor a collection case filed in court.

ISSUE:

whether the right of the BIR to collect the assessed DST from CBC is barred by prescription.

RULING:

The Court granted the Petition on the ground that the right of the BIR to collect the assessed DST is barred by the statute of limitations.

The BIR issued the assessment for deficiency DST on 19 April 1989, when the applicable rule was Section 319(c) of the National Internal Revenue Code of 1977, as amended. In that provision, the time limit for the government to collect the assessed tax is set at three years, to be reckoned from the date when the BIR mails/releases/sends the assessment notice to the taxpayer. Further, Section 319(c) states that the assessed tax must be collected by distraint or levy and/or court proceeding within the three-year period.

In this case, the records do not show when the assessment notice was mailed, released or sent to CBC. Nevertheless, the latest possible date that the BIR could have released, mailed or sent the assessment notice was on the same date that CBC received it, 19 April 1989. Assuming therefore that 19 April 1989 is the reckoning date, the BIR had three years to collect the assessed DST. However, the records of this case show that there was neither a warrant of distraint or levy served on CBC's properties nor a collection case filed in court by the BIR within the three-year period.

The attempt of the BIR to collect the tax through its Answer with a demand for CBC to pay the assessed DST in the CTA on 11 March 2002 did not comply with Section 319(c) of the 1977 Tax Code, as amended. The demand was made almost thirteen years from the date from which the prescriptive period is to be reckoned. Thus, the attempt to collect the tax was made way beyond the three-year prescriptive period.

The attempt of the BIR to collect the tax through its Answer with a demand for CBC to pay the assessed DST in the CTA on 11 March 2002 did not comply with Section 319(c) of the 1977 Tax Code, as amended. The demand was made almost thirteen years from the date from which the prescriptive period is to be reckoned. Thus, the attempt to collect the tax was made way beyond the three-year prescriptive period.

The fact that the taxpayer in this case may have requested a reinvestigation did not toll the running of the three-year prescriptive period. A request for reinvestigation alone will not suspend the statute of limitations. Two things must concur: there must be a request for reinvestigation and the CIR must have granted it.

In the present case, there is no showing from the records that the CIR ever granted the request for reinvestigation filed by CBC. That being the case, it cannot be said that the running of the three-year prescriptive period was effectively suspended.