Absence of LOA - Violation of Due Process

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GR#222743, April 5, 2017
Medicard vs CIR

Highlights

The absence of a LOA violated Medicars' right to due process.

An LOA is the authority given to the appropriate revenue officer assigned to perform assessment functions. It empowers or enables said revenue officer to examine the books of account and other accounting records of a taxpayer for the purpose of collecting the correct amount of tax (Commissioner of Internal Revenue v. Sony Philippines, Inc., 649 Phil. 519, 529-530 (2010)).

RMO No. 30-2003 was supplemented by RMO No. 42-2003, which laid down the "no-contact-audit approach" in the CIR's exercise of its ·power to authorize any examination of taxpayer arid the assessment of the correct amount of tax. The no-contact-audit approach includes the process of computerized matching of sales and purchases data contained in the Schedules of Sales and Domestic and Schedule of Importation submitted by VAT taxpayers under the .RELIEF System pursuant to RR No. 7-95, as amended by RR Nos. 13-97, 7-99 and 8-2002. This may also include the matching of data from other information or returns filed by the taxpayers with the BIR such as Alphalist of Payees subject to Final or Creditable Withholding 'Taxes. 

The LN that was issued earlier was also not converted into an LOA contrary to the above quoted provision.

Clearly, there must be a grant of authority before any revenue officer can conduct an examination or assessment. Equally important is that the revenue officer so authorized must not go beyond the authority ·given. In the absence of such an authority, the assessment or examination is a nullity.

Since the law specifically requires an LOA and RMO No. 32-2005 requires the conversion of the previously issued LN to an LOA, the absence thereof cannot be simply swept under the rug, as the CIR would have it. In fact Revenue Memorandum Circular No. 40-2003 considers LN as a notice of audit or investigation only for the purpose of disqualifying the taxpayer from amending his returns . 

LOA is valid only for 30 days from date of issue.  LOA gives the revenue officer only a period of 1 days from receipt of LOA to conduct his examination of the taxpayer.

The amounts earmarked and eventually paid by MEDICARD

to the medical service providers do not form part of gross receipts for VAT purpose

Congress the scope of the term gross receipts for VAT purposes only to the amount that the taxpayer received for the services it performed or to the amount it received as advance payment for the services it will render in the future for another person.