TFS, INCORPORATED VS. CIR G.R. No.

166829, April 19 2010 FACTS: Petitioner TFS, Incorporated is a duly organized domestic corporation engaged in the pawnshop business. Petitioner received a PAN for deficiency VAT, expanded withholding tax (EWT), and compromise penalty for the taxable year 1998. Insisting that there was no basis for the issuance of PAN, petitioner through a letter requested the BIR to withdraw and set aside the assessments. Respondent CIR informed petitioner that a FAN was issued and provided the petitioner time within which to file a protest letter. Petitioner protested the FAN. There being no action taken by the CIR, petitioner filed a Petition for Review8 with the CTA. During trial, petitioner offered to compromise and to settle the assessment for deficiency EWT with the BIR. Hence, it filed a Manifestation and Motion withdrawing its appeal on the deficiency EWT, leaving only the issue of VAT on pawnshops to be threshed out. Since no opposition was made by the CIR to the Motion, the same was granted by the CTA. The CTA rendered a decision9 upholding the assessment issued against petitioner representing deficiency VAT for the year 1998, inclusive of 25% surcharge and 20% deficiency interest, plus 20% delinquency interest until full payment, pursuant to Sections 248 and 249(B) of the NIRC. The CTA ruled that pawnshops are subject to VAT under Section 108(A) of the NIRC as they are engaged in the sale of services for a fee, remuneration or consideration. Aggrieved, petitioner moved for reconsideration but the motion was denied by the CTA in its Resolution which was received by petitioner. Petitioner filed before the CA a Motion for Extension of Time to File Petition for Review. It filed a Petition for Review but it was dismissed by the CA in its Resolution, for lack of jurisdiction in view of the enactment of Republic Act No. 9282. Realizing its error, petitioner filed a Petition for Review with the CTA En Banc. The petition, however, was dismissed for having been filed out of time per Resolution. Petitioner filed a Motion for Reconsideration but it was denied in a Resolution. Hence, this petition. ISSUE: WHETHER THE HONORABLE COURT OF TAX APPEALS EN BANC SHOULD HAVE GIVEN DUE COURSE TO THE PETITION FOR REVIEW AND NOT STRICTLY APPLIED THE TECHNICAL RULES OF PROCEDURE TO THE DETRIMENT OF JUSTICE. WHETHER OR NOT PETITIONER IS SUBJECT TO THE 10% VAT HELD: The petition is meritorious. RATIONALE: Jurisdiction to review decisions or resolutions issued by the Divisions of the CTA is no longer with the CA but with the CTA En Banc. In the instant case, RA 9282 took effect on April 23, 2004, while petitioner filed its Petition for Review on Certiorari with the CA on August 24, 2004, or four months after the effectivity of the law. By then, petitioners counsel should have been aware of and familiar with the changes introduced by RA 9282. Thus, we find petitioners argument on the newness of RA 9282 a bit of a stretch. Petitioner likewise cannot validly claim that its erroneous filing of the petition with the CA was justified by the absence of the CTA rules and regulations and the incomplete membership of the CTA En Banc as these did not defer the effectivity26 and implementation of RA 9282. In fact, under Section 2 of RA 9282,27 the presence of four justices already constitutes a quorum for En Banc sessions and the affirmative votes of four members of the CTA En Banc are sufficient to render judgment.28 Thus, to us, the petitioners excuse of "inadvertence or honest oversight of counsel" deserves scant consideration. However, we will overlook this procedural lapse in the interest of substantial justice. Although a client is bound by the acts of his counsel, including the latters mistakes and negligence, a departure from this rule is warranted where such mistake or neglect would result in serious injustice to the client.29 Procedural rules may thus be relaxed for persuasive reasons to relieve a litigant of an injustice not commensurate with his failure to comply with the prescribed procedure.30 Such is the situation in this case. Imposition of VAT on pawnshops for the tax years 1996 to 2002 was deferred. Petitioner disputes the assessment made by the BIR for VAT deficiency in the amount of P11,905,696.32 for taxable year 1998 on the ground that pawnshops are not included in the coverage of VAT. In fine, although strict compliance with the rules for perfecting an appeal is indispensable for the prevention of needless delays and for the orderly and expeditious dispatch of judicial business, strong compelling reasons such as serving the ends of justice and preventing a grave miscarriage may nevertheless warrant the suspension of the rules.33 In the instant case, we are constrained to disregard procedural rules because we cannot in conscience allow the government to collect deficiency VAT from petitioner considering that the government has no right at all to collect or to receive the same. Besides, dismissing this case on a mere technicality would lead to the unjust enrichment of the government at the expense of petitioner, which we cannot permit. Technicalities should never be used as a shield to perpetrate or commit an injustice.

CIR VS. FIRST EXPRESS PAWNSHOP COMPANY, INC.. G.R. Nos. 172045-46, June 16, 2009 FACTS: On 28 December 2001, petitioner, through Acting Regional Director Ruperto P. Somera of issued the following assessment notices against First Express Pawnshop Company, Inc. as follows: a. Assessment No. 31-1-984 for deficiency income tax of P20,712.58 with compromise penalty of P3,000; b. Assessment No. 31-14-000053-985 for deficiency value-added tax (VAT) of P601,220.18 with compromise penalty of P16,000; c. Assessment No. 31-14-000053-986 for deficiency documentary stamp tax (DST) of P12,328.45 on deposit on subscription with compromise penalty of P2,000; and d. Assessment No. 31-1-000053-987 for deficiency DST of P62,128.87 on pawn tickets with compromise penalty of P8,500. Respondent received the assessment. Respondent filed its written protest on the above assessments. Since petitioner did not act on the protest during the 180-day period, respondent filed a petition before the CTA. Respondent contended that petitioner did not consider the supporting documents on the interest expenses and donations which resulted in the deficiency income tax. Respondent maintained that pawnshops are not lending investors whose services are subject to VAT, hence it was not liable for deficiency VAT. Respondent also alleged that no deficiency DST was due because Section 180 of the NIRC does not cover any document or transaction which relates to respondent. Respondent also argued that the issuance of a pawn ticket did not constitute a pledge under Section 195 of the Tax Code. In its Answer filed before the CTA, petitioner alleged that the assessment was valid and correct and the taxpayer had the burden of proof to impugn its validity or correctness. Petitioner maintained that respondent is subject to 10% VAT based on its gross receipts pursuant to the Expanded Value-Added Tax Law (EVAT). Petitioner also cited BIR Ruling No. 221-91 which provides that pawnshop tickets are subject to DST. Respondent paid P27,744.88 as deficiency income tax inclusive of interest. After trial on the merits, the CTA First Division partially granting the petition. Assessment No. 31-1-000053-98 for deficiency documentary stamp tax and Assessment No. 31-14-000053-98 for deficiency documentary stamp tax on deposits on subscription are cancelled and set aside. However, Assessment No. 31-14-000053-98 is affirmed except the imposition of compromise penalty in the absence of showing that petitioner consented thereto. Both parties filed their Motions for Reconsideration which were denied by the CTA First Division for lack of merit. Thereafter, both parties filed their respective Petitions for Review under Section 11 of Republic Act No. 9282 (RA 9282) with the CTA En Banc. The CTA En Banc promulgated a Decision affirming respondents liability to pay the VAT and ordering it to pay DST on its pawnshop tickets. However, the CTA En Banc found that respondents deposit on subscription was not subject to DST. Aggrieved by the CTA En Bancs Decision which ruled that respondents deposit on subscription was not subject to DST, petitioner elevated the case before this Court. ISSUE: Petitioner submits this sole issue for our consideration: whether the CTA erred on a question of law in disregarding the rule on finality of assessments prescribed under Section 228 of the Tax Code. Corollarily, petitioner raises the issue on whether respondent is liable to pay P12,328.45 as DST on deposit on subscription of capital stock. HELD: Wherefore, we DENY the petition. We AFFIRM the CTAs Decision. RATIONALE: DST is a tax on documents, instruments, loan agreements, and papers evidencing the acceptance, assignment, sale or transfer of an obligation, right or property incident thereto. DST is actually an excise tax because it is imposed on the transaction rather than on the document. DST is also levied on the exercise by persons of certain privileges conferred by law for the creation, revision, or termination of specific legal relationships through the execution of specific instruments. The certificate as issued by the corporation, irrespective of whether or not it is in the actual or constructive possession of the stockholder, is considered issued because it is with value and hence the documentary stamp tax must be paid as imposed by Section 212 of the National Internal Revenue Code, as amended. RMO 08-98, reiterating Clearly, the deposit on stock subscription as reflected in respondents Balance Sheet as of 1998 is not a subscription agreement subject to the payment of DST. There is no P800,000 worth of subscribed capital stock that is reflected in respondents GIS. The deposit on stock subscription is merely an amount of money received by a corporation with a view of applying the same as payment for additional issuance of shares in the future, an event which may or may not happen. The person making a deposit on stock subscription does not have the standing of a stockholder and he is not entitled to dividends, voting rights or other prerogatives and attributes of a stockholder. Hence, respondent is not liable for the payment of DST on its deposit on subscription for the reason that there is yet no subscription that creates rights and obligations between the subscriber and the corporation. We reject petitioners view that the assessment has become final and unappealable. The term "relevant supporting documents" should be understood as those documents necessary to support the legal basis in disputing a tax assessment as determined by the taxpayer. The BIR can only inform the taxpayer to submit additional documents. The BIR cannot demand what type of supporting documents should be submitted. Otherwise, a taxpayer will be at the mercy of the BIR, which may require the production of documents that a taxpayer cannot submit. After respondent submitted its letter-reply stating that it could not comply with the presentation of the proof of DST payment, no reply was received from petitioner. Section 228 states that if the protest is not acted upon within 180 days from submission of documents, the taxpayer adversely affected by the inaction may appeal to the CTA within 30 days from the lapse of the 180-day period. Respondent, having submitted its supporting documents on the same day the protest was filed, had until 31 July 2002 to wait for petitioners reply to its protest. On 28 August 2002 or within 30 days after the lapse of the 180-day period counted from the filing of the protest as the supporting documents were simultaneously filed, respondent filed a petition before the CTA. Respondent has complied with the requisites in disputing an assessment pursuant to Section 228 of the Tax Code. Hence, the tax assessment cannot be considered as final, executory and demandable. Further, respondents deposit on subscription is not subject to the payment of DST. Consequently, respondent is not liable to pay the deficiency DST of P12,328.45.