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TRIDHARMA MARKETING CORPORATION v. CTA, SECOND DIVISION

FACTS:

The petitioner in this case received a Preliminary Assessment Notice (PAN) from the Bureau of Internal Revenue (BIR) assessing it with various deficiency taxes amounting to P4,640,394,039.97. The petitioner replied to the PAN and filed a protest against the Formal Letter of Demand it received from the BIR. A Final Decision on Disputed Assessment was later received by the petitioner, which amounted to P4,473,228,667.87. The petitioner appealed the decision to the Court of Tax Appeals (CTA) and filed a motion to suspend the collection of tax. The CTA, Second Division, granted the motion but required the petitioner to post a surety bond in the amount of P4,467,391,881.76. The petitioner filed a motion for partial reconsideration, praying for a reduction of the bond amount. The CTA, in a second resolution, reduced the bond to P4,467,391,881.76. Dissatisfied with the resolutions, the petitioner filed a special civil action for certiorari questioning the requirement to post a bond. A temporary restraining order was issued by the Court enjoining the implementation of the resolutions and the collection of the deficiency assessments.

ISSUES:

  1. Did the CTA in Division commit grave abuse of discretion in requiring the petitioner to file a surety bond despite the supposedly patent illegality of the assessment that was beyond the petitioner's net worth?

  2. Did the CTA in Division violate the petitioner's right to due process by fixing the amount of the bond at nearly five times the net worth of the petitioner without conducting a preliminary hearing?

  3. Whether the Court of Tax Appeals (CTA) should require the petitioner to post a surety bond as a condition to restrain the collection of deficiency taxes, pending the resolution of the correctness of the deficiency assessment.

RULING:

  1. The petition for certiorari is meritorious. The CTA in Division gravely abused its discretion in requiring the petitioner to file a surety bond beyond its net worth without considering whether there were grounds to suspend the collection of the deficiency assessment.

  2. The CTA in Division violated the petitioner's right to due process by fixing the amount of the bond without conducting a preliminary hearing to ascertain whether there were grounds to suspend the collection.

  3. The Court grants the petition and nullifies the resolutions requiring the petitioner to post a surety bond. The Court orders the CTA to conduct a preliminary hearing to determine and rule on whether the bond required under Section 11 of Republic Act No. 1125 may be dispensed with or reduced to restrain the collection of the deficiency taxes.

PRINCIPLES:

  • The power to tax is not the power to destroy. The power to tax must be exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally, and uniformly. (Philippine Health Care Providers, Inc. v. Commissioner of Internal Revenue)

  • Legitimate enterprises enjoy constitutional protection not to be taxed out of existence. The government should encourage private enterprise and not throttle it. (Roxas, et al. v. CTA, et al.)

  • The requirement of a surety bond as a condition precedent to the suspension of collection only applies when the collection processes are carried out in consonance with the law, not when they are in plain violation of the law. (Section 11 of R.A. 1125, as amended)

  • The determination of whether the methods employed by the Commissioner of Internal Revenue (CIR) in its assessment jeopardized the interests of a taxpayer is a question of fact that calls for the reception of evidence, which can be properly initiated by the CTA.

  • The CTA is in a better position to settle the main issues presented before it, namely whether the taxpayer was afforded due process, whether the CIR has a valid basis for its assessment, and whether the taxpayer should be held liable for the deficiency taxes.

  • In case of doubt, the tax court should favor the taxpayer in balancing the power of the State to tax with the citizen's right to due process and equal protection of the law.