In Commissioner of Internal Revenue v. Stradcom Corporation (G.R. No. 255520, 21 April 2025, Caguioa, J.), the Supreme Court affirmed the Court of Tax Appeals (CTA) and ordered the Commissioner of Internal Revenue to refund or issue a tax credit certificate in favor of Stradcom Corporation in the amount of ₱325,381,412.81, representing illegally collected income tax for taxable year 2011. The ruling is a pointed reminder that the Bureau of Internal Revenue’s summary collection remedies—distraint, levy, and garnishment—are not discretionary tools that may be employed at will, but measures that may be invoked only when the tax sought to be collected has already become delinquent, either by the taxpayer’s own admission in the return or by virtue of a valid formal assessment that has become final and executory.
Stradcom’s involvement arose from its Build-Own-Operate Agreement with the National Government through the DOTC for the Land Transportation Office Information Technology Project. Under the arrangement, the DOTC would pay Stradcom based on services actually rendered, while the DOTC would collect the corresponding user fees from the public. Stradcom filed its Annual Income Tax Return for taxable year 2011 on 16 April 2012. In July 2013, however, Stradcom received a demand letter for alleged deficiency income taxes for taxable year 2011. Shortly thereafter, the BIR issued a Warrant of Distraint and/or Levy and a Warrant of Garnishment over Stradcom’s bank account. Stradcom objected and sought the cancellation of the warrants, asserting denial of due process because no Letter of Authority, Notice for Informal Conference, Preliminary Assessment Notice, and Final Assessment Notice were issued prior to the issuance of the warrants. To lift and cancel the warrants, Stradcom paid ₱488,377,342.81 on 29 August 2013. Stradcom later pursued a refund or issuance of a tax credit certificate for the amount of ₱325,381,412.81, representing what it claimed to be erroneously and illegally collected basic tax and interest. The CTA Division granted the claim, the CTA En Banc affirmed, and the CIR elevated the matter to the Supreme Court, insisting that the BIR was merely collecting an unpaid amount allegedly arising from Stradcom’s own declarations and that no assessment was required under the doctrine of self-assessment.
The Supreme Court rejected the CIR’s position. The Court held that the tax sought to be collected from Stradcom could not be treated as delinquent on the theory of self-assessment because Stradcom’s annual income tax return for taxable year 2011 did not declare any tax due. On the contrary, the return reflected a net loss and, consequently, no tax payable. A self-assessed delinquency presupposes that the taxpayer acknowledged a tax obligation in its return and failed to pay it within the prescribed period. Where the return reflects no tax due, there is simply no taxpayer-admitted obligation that can be collected as a delinquent self-assessed tax. The Court further observed that the CIR’s reliance on the “Provision for Income Tax – Current” appearing in Stradcom’s audited financial statements underscores that the amount being pursued was not, in truth, a tax liability admitted by the taxpayer in its return, but rather one inferred by the BIR from its own examination beyond the ITR, which necessarily calls for compliance with the formal assessment process.
The Court also clarified the CIR’s reliance on SMI-Ed Philippines Technology, Inc. v. CIR. The Supreme Court explained that the statement in SMI-ED—that taxes are generally self-assessed and the government need not demand them—does not dispense with the requirement of assessment in all cases. It applies where the taxpayer correctly declares and pays the tax due, or where the return shows a tax due but the taxpayer fails to pay it. Where the taxpayer’s return indicates no tax due, or where the BIR disputes the accuracy of the return and seeks to collect amounts not reflected therein, a valid assessment remains a legal prerequisite to collection through summary administrative remedies.
Consistent with Sections 205 and 207 of the 1997 NIRC, the Court emphasized that summary collection remedies may be pursued only for delinquent taxes, and delinquency may arise only from a self-assessed but unpaid tax or from a deficiency assessment that has become final and executory. Here, the Court found that the BIR issued the warrant of distraint and/or levy and the warrant of garnishment without first issuing a Letter of Authority and without observing the due process requirements for deficiency tax assessment, including the issuance of the Notice for Informal Conference, Preliminary Assessment Notice, and Final Assessment Notice. An assessment made without observance of these requirements is a patent nullity; with greater reason, collection efforts are void where no assessment was issued at all. The Court reiterated that a final assessment notice is crucial not merely as formality but as a substantive requirement to inform the taxpayer of the factual and legal bases of the government’s claim so that the taxpayer may lodge a meaningful protest. Without such prior assessment, there is no enforceable tax liability to support distraint, levy, or garnishment.
The Court took the opportunity to issue a firm caution to the BIR. While tax collection is indispensable to government operations, it must always be undertaken in accordance with law. To allow enforcement through summary remedies without a valid assessment—especially where the taxpayer’s return does not admit any tax due—would render the assessment process meaningless and violate the taxpayer’s right to due process. Echoing CIR v. Algue, Inc., the Court concluded that taxes should be collected without unnecessary hindrance, but such collection must be made in accordance with prescribed procedure, for arbitrariness in collection undermines the very basis of government authority. Accordingly, the petition was denied and the CTA En Banc’s ruling ordering the refund or issuance of a tax credit certificate in favor of Stradcom was affirmed.
This guide provides a general overview of the above transactions at the time of writing only and is not intended to be a comprehensive legal advice. This should also not be taken as an opinion on the topic. For more details and information, you may coordinate with any GVES Law Partner regarding the matter.
Atty. Ludanielle N. Legarde is a Partner of GVES Law.