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Substituted Service of Assessment Notices

By Ellaine Anne Bernardino on November 4, 202

Proper serving of notices of assessment from the Bureau of Internal Revenue (BIR) is crucial. If done improperly, the assessment can be invalidated because of the lack of due process.

Section 228 of the National Internal Revenue Code provides that the taxpayer should be informed in writing of the law and facts on which the assessment is made. Otherwise, the assessment will be void. This rule has basis in the 1987 Constitution, which provides that no person should be deprived of life, liberty, or property without the due process of law.

Revenue Regulations (RR) 12-99, as amended by RR 18-2013, provides the modes the Commissioner of Internal Revenue (CIR) or his duly authorized representative can avail of when serving tax assessment notices: personal service, substituted service, or by mail.

Substituted service can only be resorted to when the party is not present at the registered or known address. Under RR 40-2019, substituted service can be done by leaving the assessment notice with the taxpayer’s “clerk or with a person having charge thereof”.

In the recent case of Gateway Rural Bank, Inc. vs. CIR (CTA Case 9547, October 13, 2021), the BIR served the Final Letter of Demand (FLD) and Final Notice of Assessment (FAN) to the loan clerk/receptionist of the petitioner. The petitioner alleged that — assuming substituted service can be made on a corporation — this was not valid since the person who allegedly received the assessment notices was not a clerk or a person who could receive tax assessments.

In this case, the Court of Tax Appeals (CTA) clarified the definition of the “clerk or person having charge thereof” and held that “under the maxim noscitur a sociis, where a particular word or phrase is ambiguous in itself or is equally susceptible of various meanings, its correct construction may be made clear and specific by considering the company of words in which it is founded or with which it is associated. This is because a word or phrase in a statute is always used in association with other words or phrases, and its meaning may, thus, be modified or restricted by the latter.

Applying this, the word “clerk” under substituted service must be taken together with the phrase “a person having charge thereof.”

In the case of Ma. Imelda M. Manotoc v. Court of Appeals, et al. (GR No. 130974, August 16, 2006), the Supreme Court ruled that if the substituted service is done in the defendant’s office or regular place of business, it must be served to the person in charge of the place. He or she must be the one managing the office or business of the taxpayer and must have sufficient knowledge to understand the taxpayer’s obligation, the summon’s importance, and the prejudicial effects arising from not acting on the summons.

In view of the foregoing, the CTA held that the person who receives the notice must be a competent person managing the office or place of business and must have sufficient knowledge to understand the obligation of the defendant in the notice, its importance and the prejudicial effects arising from inaction.

Therefore, the “clerk or the person having charge thereof” under Section 3.1.6 of RR 12-99 must refer to a competent person managing the office or place of business with sufficient knowledge to understand the importance and effects of the notice. Consequently, the loan clerk who receives mail matters cannot be considered as the “clerk” as she is not the person managing the office or place of business of the petitioner.

Likewise, in the case of Ecotechnovations, Inc. vs. CIR (CTA Case 9701, March 3, 2021), the BIR served the FLD/FAN to a security guard. The CTA held that there was no showing that the FLD/FAN were served to the corporation’s clerk or a “person having charge” of the corporation’s office as required. The BIR’s Affidavit of Service merely stated that the FAN was served via substituted service to the security guard without indicating whether he was the “clerk” or a “person having charge” of the office. There was also no showing that the security guard was authorized to receive the FLD/FAN on behalf of the corporation. the assessment was thus void due to the failure to comply with the due process requirement.

Due process requires that the taxpayer must actually receive the assessment. In the case of Barcelon Roxas Securities, Inc. vs. CIR (GR No. 157064, August 7, 2006), the Supreme Court ruled that if the taxpayer denies having received an assessment from the BIR, it is mandatory for the latter to prove that the notice was indeed received by the taxpayer.

Assessment notices cannot just be served to any person found in the taxpayer’s registered or known address. For the substituted service to be valid, the CIR or his duly authorized representative must serve the assessment notice to the “clerk or the person having charge thereof”.

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