THE Court of Tax Appeals (CTA) ruled in favor of Levi Strauss (Phil.) Inc. II, canceling taxes worth over P138 million issued by the Bureau of Internal Revenue (BIR) for 2012, citing a violation of the company’s right to due process during the tax assessment process.
The court’s Second Division said that upon review, the Formal Letter of Demand (FLD) and attached Details of Discrepancies merely copied the discussion of what was already written in the Preliminary Assessment Notice (PAN) and the attached Details of Discrepancies, without adding more by addressing any of Levi Strauss’ defenses in its reply to the PAN.
“In other words, when the respondent perfunctorily and hastily issued the subject FLD on December 27, 2017, even after receiving [a] reply to the PAN merely five (5) days before, on December 22, 2017, [the] respondent (BIR) did so without considering the points raised by the petitioner,” the 18-page ruling penned by Associate Justice Ma. Belen M. Ringpis-Liban read.
“The FLD did not even acknowledge or mention [the] petitioner’s submission of the reply to the PAN, which is another clear sign that the same was totally ignored by the BIR,” it added in the decision publicized on Jan. 15, 2025.
The tribunal said that Section 228 of the National Internal Revenue Code (NIRC) and Revenue Regulations (RR) No. 12-99 mandate that taxpayers must be informed in writing of the facts and laws on which an assessment is based.
The FLD-FAN did not acknowledge or address the arguments made by Levi Strauss in its reply, it noted.
The court added that the FLD-FAN did not make any rebuttals or references to the arguments and evidence provided by the petitioner in its reply to the PAN.
It cited a Supreme Court decision ruling that the Tax Code and revenue regulations allow a taxpayer to file a reply or otherwise to submit comments or arguments with supporting documents at each stage in the assessment process.
“Due process requires the BIR to consider the defenses and evidence submitted by the taxpayer and to render a decision based on these submissions,” the tax court cited.
“Thus, failure to adhere to these requirements constitutes a denial of due process and taints the administrative proceedings with invalidity,” it added.
The CTA had reversed and set aside the Final Decision on Disputed Assessment (FDDA) dated May 20, 2020, and Assessment Notices, assessing Levi Strauss for deficiency income tax, final withholding value-added tax (FWVAT), expanded withholding tax (EWT), value-added tax (VAT) and improperly accumulated earnings tax (IAET), worth more than P138.77 million.
The case stemmed from the assessment of Levi Strauss, a clothing manufacturer and seller, for deficiency income tax, FWVAT, EWT, VAT and IAET, totaling the disputed amount, inclusive of penalties and interests.
The BIR issued a Letter of Authority (LoA) in May 2014 to examine the company’s books from Dec. 1, 2011, to Nov. 30, 2012.
It then issued a PAN on Dec. 7, 2017, with attached Details of Discrepancies, finding Levi Strauss liable for more than P198.7 million in deficiency taxes.
The clothing brand filed a reply to the PAN, but the BIR issued an FLD with an Audit Result/Assessment Notice on Dec. 27, 2017, assessing the same amount of over P198.7 million.
The company filed a protest, but the BIR issued an FDDA on May 20, 2020, assessing a total of P138.77 million.
Levi Strauss then filed a Petition for Review with the CTA on Aug. 20, 2020. — Chloe Mari A. Hufana
