Commissioner of Internal Revenue vs. Systems Technology Institute, Inc.
G.R. No. 220835; July 26, 2017
Caguioa, J.
FACTS:
Before the Court is a petition for review on certiorari under Rule 45 of the ROC filed by petitioner CIR,
assailing the Decision of the CTA En Banc which affirmed the Decision CTA 2nd Division, granting the
petition for review filed by respondent Systems Technology Institute, Inc. (STI).
STI's Amiel Sangalang signed a Waiver of the Defense of Prescription under the Statute of Limitations of
the NIRC, with the proviso that the assessment and collection of taxes of fiscal year 2003 shall come "no
later than December 31, 2006." Another waiver was executed extending the period to assess and collect
the assessed taxes to March 31, 2007. Both waivers were signed by Sangalang and accepted by
Cembrano, Large Taxpayers District Officer. A third waiver was executed by the same signatories
extending further the period to June 30, 2007.
STI received a Formal Assessment Notice from the CIR, assessing STI for deficiency income tax, VAT
and EWT for fiscal year 2003. STI filed a request for reconsideration/reinvestigation. STI received from
the CIR the Final Decision on Disputed Assessment (FDDA) dated finding STI liable for deficiency income
tax, VAT and EWT but in a lesser amount.
STI appealed the FDDA by filing a petition for review with the CTA. The CTA 2 nd Division promulgated its
decision denying the assessment on the ground of prescription. The CTA Division found the waivers
executed by STI defective for failing to strictly comply with the requirements provided by Revenue
Memorandum Order (RMO) No. 20-90 and Revenue Delegation Authority Order (RDAO) No. 05-01.
Consequently, the periods for the CIR to assess or collect internal revenue taxes were never extended;
and the subject assessment for deficiency income tax, VAT and EWT against STI, which the CIR issued
beyond the three-year prescriptive period provided by law, was already barred by prescription.
The CIR appealed to the CTA En Banc. The CTA En Banc denied the CIR's petition for lack of merit
and affirmed the Decision CTA Division. Hence, this petition for review on certiorari.
ISSUE:
Whether or not the right of the government to assess or collect the alleged deficiency taxes is already
barred by prescription.
RULING:
Yes. The right of the government to assess or collect the alleged deficiency taxes is already barred by
prescription. The Waivers of Statute of Limitations, being defective and invalid, did not extend the CIR's
period to issue the subject assessments.
Section 203 of the NIRC of 1997, as amended, limits the CIR's period to assess and collect internal
revenue taxes to three (3) years counted from the last day prescribed by law for the filing of the return or
from the day the return was filed, whichever comes later. Thus, assessments issued after the expiration of
such period are no longer valid and effective. Clearly, the final assessment notice dated June 16,
2007, assessing STI for deficiency income tax, VAT and EWT for fiscal year 2003, which STI received on
June 28, 2007, was issued beyond the three-year prescriptive period. However, the CIR maintains that
prescription had not set in because the parties validly executed a waiver of statute of limitations under
Section 222(b) of the NIRC.
To implement the said provision, the BIR issued RMO 20-90 and RDAO 05-01, outlining the procedures
for the proper execution of a valid waiver, viz.:
1. The waiver must be in the proper form prescribed by RMO 20- 90. The phrase "but not after
__________ 19 _",which indicates the expiry date of the period agreed upon to assess/collect the tax
after the regular three-year period of prescription, should be filled up.
2. The waiver must be signed by the taxpayer himself or his duly authorized representative. In the
case of a corporation, the waiver must be signed by any of its responsible officials. In case the
authority is delegated by the taxpayer to a representative, such delegation should be in writing and
duly notarized.
3. The waiver should be duly notarized.
4. The CIR or the revenue official authorized by him must sign the waiver indicating that the BIR has
accepted and agreed to the waiver.The date of such acceptance by the BIR should be indicated.
However, before signing the waiver, the CIR or the revenue official authorized by him must make sure
that the waiver is in the prescribed form, duly notarized, and executed by the taxpayer or his duly
authorized representative.
5. Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before
the expiration of the period of prescription or before the lapse of the period agreed upon in case a
subsequent agreement is executed.
6. The waiver must be executed in three copies, the original copy to be attached to the docket of the
case, the second copy for the taxpayer and the third copy for the Office accepting the waiver. The fact
of receipt by the taxpayer of his/her file copy must be indicated in the original copy to show that the
taxpayer was notified of the acceptance of the BIR and the perfection of the agreement.
These requirements are mandatory and must strictly be followed. Tested against the requirements of
RMO 20-90 and relevant jurisprudence, the Court cannot but agree with the CTA's finding that the
waivers subject of this case suffer from the following defects: (1) That at the time when the first waiver
took effect, the period for the CIR to assess STI for deficiency EWT and deficiency VAT for fiscal year
ending March 31, 2003, had already prescribed; (2) STI's signatory to the three waivers had no notarized
written authority from the corporation's board of directors; and (3) the waivers did not specify the kind of
tax and the amount of tax due.
Verily, considering the foregoing defects in the waivers executed by STI, the periods for the CIR to assess
or collect the alleged deficiency income tax, deficiency EWT and deficiency VAT were not extended. The
assessments subject of this case, which were issued by the BIR beyond the three-year prescriptive, are
therefore considered void and of no legal effect.
