By: Atty. Gregorio B. Austral, CPA
Continuation of tax assessment during corporate rehabilitation
proceedings, a contempt of court
Taxation has always been described as an awesome power of the government
with the taxman wielding so much power in his hands that he can kill the hen that lays
the golden egg. While there is a reason to fear the tax collecting agencies of the
government such as the Bureau of Internal Revenue (BIR) and Bureau of Customs
(BOC), it is wrong to say that their powers are unlimited. Any abuse of authority
committed by BIR and BOC examiners is subject to punishment since the power to tax
is not the power to destroy. The best example is the case of Lepanto Ceramics which
was issued a contemptuous assessment by the BIR.
On December 23, 2011, Lepanto Ceramics, Inc. (LCI) filed a petition for
corporate rehabilitation pursuant to Republic Act No. (RA) 10142, otherwise known as
the “Financial Rehabilitation and Insolvency Act (FRIA) of 2010,” before the RTC of
Calamba City, Branch 34, the designated Special Commercial Court in Laguna
(Rehabilitation Court). Essentially, LCI alleged that due to the financial difficulties it has
been experiencing dating back to the Asian financial crisis, it had entered into a state of
insolvency considering its inability to pay its obligations as they become due and that its
total liabilities amounting to ₱4,213,682,715.00 far exceed its total assets worth
₱1,112,723,941.00. Notably, LCI admitted in the annexes attached to the aforesaid
Petition its tax liabilities to the national government in the amount of at least
₱6,355,368.00.60.
On January 13, 2012, the Rehabilitation Court issued a Commencement Order,
which, inter alia: (a) declared LCI to be under corporate rehabilitation; (b) suspended all
actions or proceedings, in court or otherwise, for the enforcement of claims against LCI;
(c) prohibited LCI from making any payment of its liabilities outstanding as of even date,
except as may be provided under RA 10142; and (d) directed the BIR to file and serve
on LCI its comment or opposition to the petition, or its claims against LCI. Accordingly,
the Commencement Order was published in a newspaper of general circulation and the
same, together with the petition for corporate rehabilitation, were personally served
upon LCI’s creditors, including the BIR.
Despite the foregoing, Misajon, et al., acting as Assistant Commissioner, Group
Supervisor, and Examiner, respectively, of the BIR’s Large Taxpayers Service, sent LCI
a notice of informal conference dated May 27, 2013, informing the latter of its deficiency
internal tax liabilities for the Fiscal Year ending June 30, 2010. In response, LCI’s court-
appointed receiver, Roberto L. Mendoza, sent BIR a letter-reply, reminding the latter of
the pendency of LCI’s corporate rehabilitation proceedings, as well as the issuance of a
Commencement Order in connection therewith. Undaunted, the BIR sent LCI a Formal
Letter of Demand dated May 9, 2014, requiring LCI to pay deficiency taxes in the
amount of P567,519,348.39. This prompted LCI to file a petition for indirect contempt
dated August 13, 2014 against petitioners before RTC Br. 35. In said petition, LCI
asserted that petitioners’ act of pursuing the BIR’s claims for deficiency taxes against
LCI outside of the pending rehabilitation proceedings in spite of the Commencement
Order issued by the Rehabilitation Court is a clear defiance of the aforesaid Order. As
such, petitioners must be cited for indirect contempt in accordance with Rule 71 of the
Rules of Court in relation to Section 16 of RA 10142.
In a Decision dated June 1, 2015, the RTC Br. 35 found Misajon, et al. guilty of
indirect contempt and, accordingly, ordered them to pay a fine of ₱5,000.00 each. The
RTC found that: (a) the supervening termination of the rehabilitation proceedings and
the consequent lifting of the Commencement Order did not render moot the petition for
indirect contempt as the acts complained of were already consummated; (b) petitioners’
acts of sending LCI a notice of informal conference and Formal Letter of Demand are
covered by the Commencement Order as they were for the purpose of pursuing and
enforcing a claim for deficiency taxes, and thus, are in clear defiance of the
Commencement Order; and (c) petitioners could have tolled the prescriptive period to
collect deficiency taxes without violating the Commencement Order by simply ventilating
their claim before the rehabilitation proceedings, which they were adequately notified of.
In this relation, the RTC Br. 35 held that while the BIR is a juridical entity which can only
act through its authorized intermediaries, it cannot be concluded that it authorized the
latter to commit the contumacious acts complained of, i.e., defiance of the
Commencement Order. Thus, absent any contrary evidence, only those individuals who
performed such acts, namely, Misajon, et al., should be cited for indirect contempt of
court.
On the appeal, the Supreme Court said that the acts of sending a notice of
informal conference and a Formal Letter of Demand are part and parcel of the entire
process for the assessment and collection of deficiency taxes from a delinquent
taxpayer,- an action or proceeding for the enforcement of a claim which should have
been suspended pursuant to the Commencement Order. Unmistakably, Misajon, et al.
‘s foregoing acts are in clear defiance of the Commencement Order. (BIR Assistant
Commissioner Misajon, et.al. v. Lepanto Ceramics, Inc., G.R. No. 224764, April 24,
2017)