### Title:
**Commissioner of Internal Revenue vs. First Express Pawnshop Company, Inc., 607 Phil. 227 (2006)**
### Facts:
1. **Initial Assessment and Protest:**
– On December 28, 2001, the Commissioner of Internal Revenue (CIR) issued several tax assessment notices against First Express Pawnshop (respondent) for deficiencies in income tax, VAT, and Documentary Stamp Tax (DST) totaling P697,390.08.
– Respondent received the notices on January 3, 2002, and filed a written protest on February 1, 2002, challenging the assessments.
2. **Filings and Trial on Merits:**
– The respondent contested that it was not a lending investor subject to VAT and that there were no specific supportive documents required for DST on subscribed capital.
– The CIR insisted that the assessments were correct and that as per tax laws (including RA 7716 and applicable BIR rulings), pawnshops were subject to VAT and DST.
– On July 1, 2003, the respondent paid P27,744.88 for deficiency income tax.
3. **CTA First Division Decision:**
– On September 24, 2004, the CTA First Division partially granted the respondent’s appeal, cancelling parts of the assessments except for the VAT deficiency, which they affirmed.
4. **CTA En Banc Decision:**
– Both parties filed motions for reconsideration, leading the case to the CTA En Banc, which on March 24, 2006, affirmed the deficiency VAT and ordered the respondent to pay for the DST on pawnshop tickets but ruled that the deposit on subscription was not subject to DST.
5. **Offering Documents and Additional Requests:**
– Respondent had submitted its protest and supporting documents with its GIS and 1998 financial statements, maintained that deposits on future subscription were advances, and no corresponding shares were issued.
6. **Elevating the Case:**
– Dissatisfied with the CTA En Banc’s decision on DST on deposits on subscription, the CIR petitioned the Supreme Court.
### Issues:
1. **Finality of Assessments:**
– Whether the CTA erred in disregarding the rule on the finality of tax assessments under Section 228 of the National Internal Revenue Code (Tax Code).
2. **Liability for DST on Deposit on Subscription:**
– Whether the respondent is liable for P12,328.45 as DST on deposits on subscription of capital stock, considering that no supporting documents were provided indicating an issuance agreement for shares and that the submissions within the time frame were deemed insufficient by the petitioner.
### Court’s Decision:
1. **Finality of Assessments:**
– The Supreme Court held that the respondent had complied with the requisites of disputing an assessment under Section 228 of the Tax Code by submitting its relevant supporting documents (GIS and Balance Sheet) together with the protest within the prescribed period. The Court observed that the BIR’s insistent demand for documents that do not exist (evidence of DST payment) was unjustified.
– The petitioner’s contention that the assessment had become final due to the lack of specific documents was rejected, noting that the BIR cannot dictate the form and specific documents to be submitted by the taxpayer.
2. **DST on Deposit on Subscription:**
– The Court ruled that deposits on stock subscription did not constitute a “subscription agreement” and, therefore, were not subject to DST. The ruling was consistent with previous decisions and legal definitions, emphasizing that a valid subscription agreement or actual issuance of shares is required to incur DST liability.
### Doctrine:
– **Subscription Agreement Requirement for DST:** For DST to apply under Sections 175 and 176 of the Tax Code, there must be a formal subscription agreement leading to the issuance of shares. Mere deposits for potential future subscription do not qualify.
– **Relevant Supporting Documents:** A taxpayer must submit relevant supporting documents within 60 days from the filing of the protest, which should substantiate the basis for contesting a tax assessment. The BIR cannot compel a taxpayer to submit non-existent documents or documents beyond the taxpayer’s capacity to produce.
### Class Notes:
– **Key Elements/Concepts:**
– **Finality of Tax Assessments:** Tax assessments become final if not objected to within the regulatory time frames and with adequate documentation support.
– **Documentary Stamp Tax:** Governed by Sections 175 and 176 of the Tax Code for original issuance and transfer of shares, respectively, requiring a valid subscription agreement.
– **Section 228, Tax Code:** Governs protest procedures against tax assessments, requiring responses and supporting documents within specific periods to avoid finality and enforceability of assessments.
### Historical Background:
This case highlights the tension between tax authorities and taxpayers in the Philippines regarding procedural and substantive compliance with tax obligations. Post-economic reforms in the 1990s introduced stricter tax enforcement and compliance measures, spelling out regulatory duties and taxpayers’ rights more clearly under Revised Tax Code amendments (like RA 7716 – Expanded VAT Law and RA 8424). The involvement of the Court of Tax Appeals and its En Banc decisions signifies the increasing role of judiciary in tax dispute resolutions during this period.
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