CIR VS AVON

G.R. Nos. 201418-19 October 3, 2018

FACTS:

Avon filed its VAT Returns and Monthly Remittance Returns of Income Tax Withheld for the
taxable year 1999. They were served a Collection Letter requiring them to pay P80,
246,459.15. These deficiency assessments were the same deficiency taxes covered by the
Preliminary Assessment Notice. Hence, Avon filed a letter protesting against the PAN.
Without ruling on Avon's protest, the Commissioner prepared the Formal Letter of Demand
and Final Assessment Notices. Avon then protested by resubmitting the protest. Avon
informed the revenue officers that all the documents necessary to support its defenses had
already been submitted. The revenue officers allegedly expressed that they would cancel
the assessments resulting from the alleged discrepancy in sales if Avon would pay part of
the assessments.

Avon paid the portions of the Final Assessment Notices. However, in a Memorandum, the
Bureau of Internal Revenue's officers recommended the enforcement and collection of the
assessments on the sole justification that Avon failed to submit supporting documents
within the 60-day period as required under Section 228 of the Tax Code. Avon asserted that
the items already paid were still included in the deficiency tax assessments. Avon requested
the reconsideration and withdrawal of the Collection Letter. It argued that it was devoid of
legal and factual basis, and was premature as the Commissioner of Internal Revenue had
not yet acted on its protest against the Final Assessment Notices.

The Commissioner did not act on Avon's request for reconsideration. Thus, Avon was
constrained to treat the Collection Letter as denial of its protest. Avon filed a Petition for
Review before the Court of Tax Appeals. The CTA partially granted Avon's insofar as it
ordered the cancellation of the Final Demand and Final Assessment Notices for deficiency
excise tax, VAT, withholding tax on compensation, and expanded withholding tax. However,
it ordered Avon to pay deficiency income tax. The CTA also made a pronouncement that
there was no deprivation of due process in the issuance by the CIR of the assessment for
AVON was afforded an opportunity to explain and present its evidence.

The Court of Tax Appeals En Banc further affirmed the Court of Tax Appeals Special First
Division's factual findings with regard to the cancellation of deficiency tax assessments and
disallowance of Avon's claimed tax credits. Finally, the Court of Tax Appeals En Banc
rejected Avon's contention regarding denial of due process. It held that Avon was accorded
by the Commissioner a reasonable opportunity to explain and present evidence. Moreover,
the Commissioner's failure to appreciate Avon's supporting documents and arguments did
not ipso facto amount to denial of due process absent any proof of irregularity in the
performance of duties.

Avon argues that the assessments are void ab initio due to the failure of the Commissioner
to observe due process. It maintains that from the start up to the end of the administrative
process, the Commissioner ignored all of its protests and submissions.
ISSUE:

Whether or not the Commissioner of Internal Revenue failed to observe administrative due
process, and consequently, whether or not the assessments are void.

RULING:

Avon's arguments are well-taken.

The Bureau of Internal Revenue is the primary agency tasked to assess and collect proper
taxes, and to administer and enforce the Tax Code. However, these powers must "be exercised
reasonably and [under] the prescribed procedure." The Commissioner and revenue officers
must strictly comply with the requirements of the law, with the Bureau of Internal Revenue's
own rules, and with due regard to taxpayers' constitutional rights.

The Commissioner exercises administrative adjudicatory power or quasi-judicial function in

adjudicating the rights and liabilities of persons. Quasi-judicial power has been described
as: the power of the administrative agency to adjudicate the rights of persons before it.

In carrying out these quasi-judicial functions, the Commissioner is required to "investigate

facts or ascertain the existence of facts, hold hearings, weigh evidence, and draw
conclusions from them as basis for their official action and exercise of discretion in a judicial
nature." Tax investigation and assessment necessarily demand the observance of due
process because they affect the proprietary rights of specific persons.

In Ang Tibay v. The Court of Industrial Relations, this Court observed that although quasi-
judicial agencies "may be said to be free from the rigidity of certain procedural
requirements[, it] does not mean that it can, in justiciable cases coming before it, entirely
ignore or disregard the fundamental and essential requirements of due process in trials and
investigations of an administrative character." It then enumerated the fundamental
requirements of due process that must be respected in administrative proceedings:

1. The party interested or affected must be able to present his or her own case and
submit evidence in support of it.
2. The administrative tribunal or body must consider the evidence presented.
3. There must be evidence supporting the tribunal's decision.
4. The evidence must be substantial or "such relevant evidence as a reasonable mind
might accept as adequate to support a conclusion."
5. The administrative tribunal's decision must be rendered on the evidence presented,
or at least contained in the record and disclosed to the parties affected.
6. The administrative tribunal's decision must be based on the deciding authority's
own independent consideration of the law and facts governing the case.
7. The administrative tribunal's decision is rendered in a manner that the parties may
know the various issues involved and the reasons for the decision.

The first requirement is the party's substantive right at the hearing stage of the
proceedings, which, in essence, is the opportunity to explain one's side or to seek a
reconsideration of the adverse action or ruling.
It was emphasized, however, that the mere filing of a motion for reconsideration does not
always result in curing the due process defect, "especially if the motion was filed precisely
to raise the issue of violation of the right to due process and the lack of opportunity to be
heard on the merits remained."

The second to the sixth requirements refer to the party's "inviolable rights applicable at the
deliberative stage." The decision-maker must consider the totality of the evidence
presented as he or she decides the case.

The last requirement relating to the form and substance of the decision is the decision-
maker's '"duty to give reason' to enable the affected person to understand how the rule of
fairness has been administered in his [or her] case, to expose the reason to public scrutiny
and criticism, and to ensure that the decision will be thought through by the decision-
maker."

The Ang Tibay safeguards were subsequently "simplified into four basic rights," as follows:

(a) [T]he right to notice, be it actual or constructive, of the institution of the proceedings
that may affect a person's legal right; (b) reasonable opportunity to appear and defend his
rights and to introduce witnesses and relevant evidence in his favor; (c) a tribunal so
constituted as to give him reasonable assurance of honesty and impartiality, and one of
competent jurisdiction; and (d) a finding or decision by that tribunal supported by
substantial evidence presented at the hearing or at least ascertained in the records or
disclosed to the parties.

The due process requirement before administrative bodies are not as strict compared to
judicial tribunals in that it suffices that a party is given a reasonable opportunity to be
heard. Nevertheless, such "reasonable opportunity" should not be confined to the mere
submission of position papers and/or affidavits and the parties must be given the
opportunity to examine the witnesses against them. The right to a hearing is a right which
may be invoked by the parties to thresh out substantial factual issues. It becomes even more
imperative when the rules itself of the administrative body provides for one. While the
absence of a formal hearing does not necessarily result in the deprivation of due process, it
should be acceptable only when the party does not invoke the said right or waives the same.

"[A] fair and reasonable opportunity to explain one's side" is one aspect of due process.
Another aspect is the due consideration given by the decision-maker to the arguments and
evidence submitted by the affected party.

Administrative due process is anchored on fairness and equity in procedure. It is satisfied if

the party is properly notified of the charge against it and is given a fair and reasonable
opportunity to explain or defend itself. Moreover, it demands that the party's defenses be
considered by the administrative body in making its conclusions, and that the party be
sufficiently informed of the reasons for its conclusions.

WHEREFORE, the Petition of the CIR is DENIED. The Petition of Avon is GRANTED. The
remaining deficiency Income Tax is hereby declared NULL and VOID and is CANCELLED.