Commissioner of Internal Revenue vs Dominador Menguito

written by Howard

G.R. No. 167560 – 587 Phil. 234 – 461 SCRA 565 – Taxation Law – NIRC Rules of Procedure – Pre-Assessment Notice -Estoppel – Piercing the Veil of Corporate Fiction 

Dominador Menguito and his wife are the owners of Copper Kettle Catering Services, Inc. (CKCSI). They also operate several restaurant branches in the Philippines. One such branch was the Copper Kettle Cafeteria Specialist (CKCS) in Club John Hay, Baguio City. The branch was registered as a sole proprietorship. In September 1997, a formal assessment notice (FAN) was issued against the spouses and they were adjudged to pay P34 million in deficiency taxes for the years 1991 to 1993. The Bureau of Internal Revenue found that in order for CKCS to operate in Club John Hay, a contract was entered into by CKCSI and Club John Hay; hence, CKCS and CKCSI are one and the same.

Mrs. Menguito then sent a letter to the BIR acknowledging receipt of the assessment notice. She asked for more time to sort the issue. Later, when Menguito eventually filed a protest, he denied, through his witness (Ma. Therese Nalda, CKCS employee), receiving the FAN; that the FAN was addressed to the wrong person because it was addressed to CKCSI not CKCS. He presented as evidence a photocopy of the articles of incorporation (AOI) of CKCSI.

On the other hand, the Commissioner of Internal Revenue (CIR) presented proof of the due mailing of the FAN. It however was not able to prove that it issued a pre-assessment notice (PAN) or a post-assessment notice.

ISSUE: Whether or not due process was observed by the Commissioner of Internal Revenue.

HELD: Yes. The veil of corporate fiction is pierced because it was proven that CKCSI is actively managing CKCS. Further, CKCS is more known as CKCSI. Also, the photocopy of the AOI presented by Menguito is not a conclusive proof of the separate personality of CKCSI and CKCS.

More importantly, Menguito and his wife are in estoppel because they already acknowledged the receipt of the FAN through the letter sent by Mrs. Menguito to the BIR. They cannot later on deny the receipt of the FAN. Worse, it should be Menguito who should be directly denying the receipt and not through an employee (Nalda) who was not even an employee of the spouses when the FAN was issued and received in 1997. It was only in 1998 that Nalda was employed by CKCS. Since Menguito did not legally deny the receipt of the FAN, the presumption that he actually received it still subsists. Further, based on the records, Menguito, in the stipulation of facts, acknowledged the receipt of the FAN.

Anent the issue of the non-issuance of the PAN, the same is not vital to due process. The Supreme Court ruled that the strict requirement of proving that an assessment is sent and received by the taxpayer is only applicable to FANs and not to PANs. The issuance of a valid formal assessment is a substantive prerequisite to tax collection, for it contains not only a computation of tax liabilities but also a demand for payment within a prescribed period, thereby signaling the time when penalties and interests begin to accrue against the taxpayer and enabling the latter to determine his remedies therefor. A PAN or a post-assessment notice does not bear the gravity of a FAN. A PAN does not contain a declaration of the tax liability of the taxpayer or a demand for payment thereof. Hence, the lack of such notices inflicts no prejudice on the taxpayer for as long as the latter is properly served a formal assessment notice.

NOTE: This is a 2008 case. This was already superceded by CIR vs Metro Star Superama (December 2010), where the Supreme Court held that the due issuance of a PAN is part of due process.

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