The Supreme Court held that an assessment letter for local franchise tax issued by the Province of Pampanga to the National Power Corporation (NPC) was void due to a lack of essential details, violating NPC’s right to due process. This means NPC is not liable for the assessed franchise tax. This ruling emphasizes that local government units must provide clear and comprehensive information in tax assessments, ensuring taxpayers can understand and effectively challenge their tax liabilities.

Powerless Notice: When Tax Assessments Lack Due Process

This case revolves around a dispute between the National Power Corporation (NPC) and the Province of Pampanga regarding the imposition of local franchise tax. The central issue is whether an assessment letter issued by the Provincial Treasurer of Pampanga to NPC complied with the due process requirements mandated by the Local Government Code (LGC). In 2009, NPC received an assessment letter from the Provincial Treasurer demanding payment of local franchise tax. NPC protested, arguing that the Electric Power Industry Reform Act (EPIRA) had changed its status, and the assessment letter lacked the necessary details required by the LGC. The lack of specifics, according to NPC, prevented them from mounting an informed defense.

The Regional Trial Court (RTC) initially ruled in favor of the Province of Pampanga, but the Court of Tax Appeals (CTA) Second Division reversed this decision. While the CTA acknowledged NPC’s potential liability for franchise tax related to its missionary electrification function, it found the assessment letter deficient because it did not specify the amount of tax due or the period covered. The CTA En Banc affirmed this decision, leading NPC to appeal to the Supreme Court, arguing that the assessment letter’s deficiencies violated its right to due process.

The Supreme Court addressed the procedural issue of whether a decision of the CTA En Banc should be appealed to the Court of Appeals or the Supreme Court. Citing Republic Act No. 9282, the Court clarified that decisions of the CTA En Banc are appealable to the Supreme Court via a petition for review on certiorari under Rule 45 of the Rules of Court. This clarification established the Supreme Court’s jurisdiction to hear the case.

The Court then addressed the issue of whether NPC had waived its right to question the validity of the assessment letter by raising it only in its motion for reconsideration before the CTA En Banc. The Supreme Court disagreed with the CTA’s conclusion that the issue was waived. It emphasized the CTA’s authority to determine compliance with due process requirements, even if not expressly raised in the initial petition. The Court cited Section 1, Rule 14 of the Revised Rules of the Court of Tax Appeals, which allows the CTA to rule upon related issues necessary for an orderly disposition of the case.

The Court emphasized that the validity of the assessment letter was integral to determining NPC’s liability for local franchise tax. It stated, “Indeed, the validity or invalidity of the Assessment Letter is integral to the issue of NPC’s liability for local franchise tax under the Provincial Tax Code of 1992 of Pampanga. If the assessment is void, NPC is not liable for the franchise tax.”

The Supreme Court delved into the requirements for a valid tax assessment, referencing Section 195 of the Local Government Code, which states:

SECTION 195. Protest of Assessment. – When the local treasurer or his duly authorized representative finds that correct taxes, fees, or charges have not been paid, he shall issue a notice of assessment stating the nature of the tax, fee, or charge, the amount of deficiency, the surcharges, interests and penalties. Within sixty (60) days from the receipt of the notice of assessment, the taxpayer may file a written protest with the local treasurer contesting the assessment; otherwise, the assessment shall become final and executory.

The Court emphasized that taxpayers must be informed of the nature of the deficiency tax, fee, or charge, as well as the amount of deficiency, surcharge, interest, and penalty. Citing Yamane v. BA Lepanto Condominium Corp., the Court reiterated that the notice of assessment should be sufficiently informative to apprise the taxpayer of the legal basis of the tax. The failure to sufficiently inform the taxpayer of the facts and law used as bases for the assessment will render the assessment void.

The Court also cited Commissioner of Internal Revenue v. Fitness by Design, Inc., highlighting the constitutional dimension of due process in tax assessments:

The rationale behind the requirement that taxpayers should be informed of the facts and the law on which the assessments are based conforms with the constitutional mandate that no person shall be deprived of his or her property without due process of law.

Applying these principles to the case at hand, the Supreme Court found that the assessment letter issued by the Provincial Treasurer of Pampanga fell short of the requirements of Section 195 of the LGC and its implementing rules. The Court noted the absence of critical information, such as the amount of the alleged deficiency tax, surcharges, interest, and penalties, as well as the period covered by the assessment. The Court emphasized that the absence of this information prevented NPC from filing an effective protest.

The Court acknowledged that substantial compliance with the law is allowed if the taxpayer is later fully apprised of the basis of the deficiency taxes assessment, which enabled him to file an effective protest. However, in this case, the Provincial Treasurer did not clarify the assessment or provide NPC with the computation of the alleged deficiency franchise tax, even after NPC raised the issue of non-compliance with the formal requirements. The Court ruled that the Provincial Treasurer had lost its chance to cure the defective assessment.

The Supreme Court concluded that the lack of essential details in the assessment letter deprived NPC of its right to due process of law. The Court reiterated that tax assessments issued in violation of the due process rights of a taxpayer are null and void and of no force and effect. The Court then reminded local taxing authorities to exercise their power to levy taxes with caution to minimize injury to the proprietary rights of the taxpayer.

FAQs

What was the key issue in this case?	The key issue was whether the assessment letter issued by the Province of Pampanga to NPC met the due process requirements of the Local Government Code, specifically Section 195, regarding sufficient notice of the basis for the tax assessment. The Supreme Court found the assessment letter lacking in essential details, violating NPC’s right to due process.
What information was missing from the assessment letter?	The assessment letter lacked the amount of the alleged deficiency tax, surcharges, interest, and penalties. Also, the period covered by the assessment was not indicated.
Why is it important for an assessment letter to be detailed?	A detailed assessment letter is important because it informs the taxpayer of the basis of the assessment, allowing them to prepare an intelligent and effective protest or appeal. Without these particulars, taxpayers cannot adequately determine what was considered by the taxing authority in making the assessment.
What happens when a tax assessment violates due process?	Tax assessments issued in violation of the due process rights of a taxpayer are null and void, and of no force and effect. This means the taxpayer is not obligated to pay the assessed tax.
Did NPC waive its right to question the assessment by raising it late?	No, the Supreme Court held that NPC did not waive its right. The Court of Tax Appeals has the authority to determine compliance with due process requirements, even if the issue is raised later in the proceedings.
What is the significance of Section 195 of the Local Government Code?	Section 195 of the Local Government Code outlines the requirements for a valid tax assessment, including the need to state the nature of the tax, fee, or charge, the amount of deficiency, the surcharges, interests, and penalties. This ensures taxpayers are adequately informed of their tax liabilities.
What was the court’s final ruling?	The Supreme Court granted NPC’s petition, reversing the Court of Tax Appeals’ decision. The assessment letter issued by the Province of Pampanga was declared null and void and cancelled, relieving NPC of the assessed tax liability.
What is the practical implication of this case?	The ruling serves as a reminder to local government units to exercise their power to tax reasonably and in accordance with prescribed procedures. It emphasizes the importance of providing taxpayers with sufficient notice of the basis for tax assessments to ensure due process is followed.

This case underscores the importance of due process in tax assessments. Local government units must ensure that their assessment letters contain sufficient details to inform taxpayers of the basis for the assessment and enable them to file an informed protest. Failure to comply with these requirements may render the assessment void.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: National Power Corporation vs. The Province of Pampanga and Pia Magdalena D. Quibal, G.R. No. 230648, October 06, 2021