CIR v. Telstar Manufacturing: A Defective Waiver Doesn't Extend the BIR's Time to Assess

On February 10, 2025, the Supreme Court’s Third Division cancelled a multimillion-peso deficiency tax assessment against Telstar Manufacturing Corporation, ruling that defective Waivers of the Statute of Limitations did not extend the BIR’s three-year deadline to assess — and that the burden of a waiver’s defects falls on the BIR, not the taxpayer. The Court voided the assessment on a second, independent ground too: the Formal Letter of Demand never actually demanded payment. This guide covers what the Court held, why, and what it means for any business asked to sign a waiver during a BIR audit.

Case details #

What happened #

Telstar Manufacturing Corporation, a Philippine manufacturer, was audited by the BIR’s Large Taxpayers Service for taxable year 2009 under a Letter of Authority issued in May 2010 pursuant to a nationwide “Conglomerate Audit Program.” Telstar submitted its books and records over several rounds between June 2010 and March 2011.

In September 2012, Telstar’s President and General Manager, Divina A. Puyo, signed a first Waiver of the Statute of Limitations — but the request behind it was for more time to submit additional documents, not for a reinvestigation or reconsideration of the case, as BIR rules require. A second waiver, signed in June 2013, extended the claimed deadline to December 31, 2013. Both waivers were accepted not by the Commissioner of Internal Revenue personally, but by an OIC-Assistant Commissioner of the Large Taxpayers Service — even though the tax involved exceeded the ₱1,000,000 threshold that requires the Commissioner’s own signature. Puyo also signed both waivers without a notarized authorization from Telstar’s board.

The BIR issued a Preliminary Assessment Notice in June 2013 and, in October 2013, a Formal Letter of Demand and Final Assessment Notice covering deficiency income tax (₱255.4 million), improperly accumulated earnings tax, value-added tax (₱114.9 million), expanded withholding tax (₱2.9 million), and documentary stamp tax. Telstar protested; the BIR later cancelled the improperly accumulated earnings tax and documentary stamp tax assessments but held firm on the rest.

Telstar took the case to the Court of Tax Appeals, arguing the waivers were invalid and the BIR’s right to assess had already prescribed. The CTA Second Division initially found Telstar and the BIR equally at fault (in pari delicto) for the defective waivers and ordered Telstar to pay a reduced deficiency of roughly ₱18 million, later cut further to about ₱5.96 million on reconsideration. The CTA En Banc affirmed that finding in April 2019, only adjusting the interest computation. Both Telstar and the CIR then separately petitioned the Supreme Court.

The issue before the Court #

The Supreme Court had to resolve two questions, each independently capable of deciding the case. First, had the BIR’s right to assess Telstar for taxable year 2009 already prescribed under Section 203 of the NIRC — meaning the September 2012 and June 2013 waivers were too defective to extend the ordinary three-year deadline under Section 222(b)? Second, separate from the prescription question, did the Formal Letter of Demand and Final Assessment Notice contain the “categorical demand for payment” that Section 228 of the NIRC and Revenue Regulations No. 12-99 require for a valid assessment?

The ruling #

On prescription, the Court ruled the waivers were void, and the assessment was time-barred. The BIR had until April 15, 2013 (income tax), January 25, 2013 (VAT), and January 28, 2013 (expanded withholding tax) to assess Telstar under the ordinary three-year period. The waivers, if valid, would have pushed that to December 31, 2013 — which would have covered the October 2013 Formal Letter of Demand. But the Court found the waivers suffered from defects that, under Revenue Memorandum Order No. 20-90 and Revenue Delegation Authority Order No. 05-01, are fatal: they were executed for the wrong purpose (an extension of time to submit documents, not a reinvestigation), they failed to specify the kind and amount of tax due, and they were signed by an Assistant Commissioner rather than the Commissioner despite the assessment exceeding ₱1,000,000.

The Court then had to decide whether an exception applied — the doctrine from CIR v. Next Mobile, Inc. (2015), under which a taxpayer who benefits from a defective waiver and only challenges it after the fact can be estopped, with both sides treated as in pari delicto. The Court held that exception did not fit Telstar: unlike the taxpayer in Next Mobile, Telstar had already submitted substantially all of its records before the first waiver was even signed, and still didn’t receive a Preliminary Assessment Notice until three years later. As the decision put it, “the only party that benefitted from the extended period was the BIR, which used it to finalize its assessment.” Because Telstar gained nothing from the defective waivers and raised the defects through the ordinary course of its protest — not as a bad-faith afterthought — the general rule applied instead: defective waivers do not extend the prescriptive period, full stop. Since the original three-year deadlines had already lapsed by October 2013, the Formal Letter of Demand and Final Assessment Notice were “void and of no legal effect.”

On the demand-for-payment issue, the Court found a second, independent defect. The Formal Letter of Demand only told Telstar it “may pay” the assessment if “amenable,” and warned that a real formal demand would follow only if Telstar failed to respond. Citing its 2016 ruling in CIR v. Fitness by Design, Inc., the Court held that Section 228 of the NIRC requires an assessment notice to contain an actual, unconditional demand for payment with a definite amount and due date — not a conditional invitation. Because the Formal Letter of Demand never issued that categorical demand, and a later demand in the Final Decision on Disputed Assessment could not retroactively cure the defect, the assessment was void on this ground too, independent of the prescription ruling.

The Court granted Telstar’s petition, denied the CIR’s, reversed the CTA En Banc, and declared the deficiency tax assessments for taxable year 2009 null and cancelled.

Justice Caguioa’s Concurring Opinion. Justice Caguioa, joined in result by the rest of the participating Third Division (Justice Inting concurred; Justice Gaerlan left a concurring vote while on official business; Justice Singh was on leave), wrote separately — not in dissent — to underscore why Telstar and the BIR were not in pari delicto. He traced a consistent line of cases (Philippine Journalists, Kudos Metal Corporation, Standard Chartered Bank, Systems Technology Institute) holding that because “a waiver primarily serves the government’s interests,” it is the BIR’s responsibility — not the taxpayer’s — to verify compliance before accepting one. He distinguished this from Next Mobile and its progeny (Transitions Optical, Asian Transmission), where estoppel applied only because the taxpayer knowingly relied on defective waivers to buy time and stayed silent about their defects until the assessment turned against it.

Our insights #

The Telstar ruling sits within a fifteen-year line of consistent Supreme Court doctrine, not a departure from it. From Kudos Metal Corporation (2010) through Stanley Works Sales (2014), Standard Chartered Bank (2015), Systems Technology Institute (2017), and La Flor Dela Isabela (2021), the Court has repeatedly held that RMO No. 20-90 and RDAO No. 05-01 impose “mandatory” requirements on waivers, and that the BIR — not the taxpayer — bears the burden of enforcing them, precisely because a waiver “is a derogation of the taxpayers’ right to security against prolonged and unscrupulous investigations.” Telstar applies that doctrine to a fact pattern (waiver requested to extend a document-submission deadline, signed by an Assistant Commissioner instead of the CIR) that closely tracks the list of fatal defects the Court catalogued the year before in La Flor Dela Isabela, Inc. v. CIR (G.R. No. 202105, 2021).

A genuine tension worth flagging: Revenue Memorandum Order No. 14-2016 tells a different story for waivers signed today. Issued by then-Commissioner Kim S. Jacinto-Henares in April 2016 — after Telstar’s own waivers were already signed in 2012 and 2013 — RMO No. 14-2016 explicitly states that “the taxpayer is charged with the burden of ensuring that the waivers of statute of limitation are validly executed,” and that a representative’s authority “shall not be thereafter contested to invalidate the waiver.” Telstar was decided entirely under the older RMO No. 20-90/RDAO No. 05-01 framework because that’s what governed at the time its waivers were signed, so the ruling does not directly test RMO No. 14-2016’s taxpayer-responsibility language against the Court’s contrary “the BIR bears the burden” reasoning. Grant Thornton Philippines’ Marie Fe Dangiwan has flagged this exact tension in commentary on the broader waiver doctrine, arguing that despite RMO No. 14-2016’s wording, a waiver “is not really a unilateral act by the taxpayer but a bilateral agreement” that the BIR requests as much as the taxpayer does — a reading closer to the Court’s own reasoning in Telstar than to the regulation’s literal text. Whether a post-2016 waiver with similar defects would be treated the same way by the Court remains an open question that Telstar itself does not resolve.

This case pairs naturally with a procedural theme already covered on this blog. CIR v. Sony Philippines held that a Letter of Authority strictly limits what years and taxes a BIR audit can cover. Telstar extends that same instinct — that the BIR’s assessment power is bounded by the formalities it must itself observe — to the waiver and demand-letter stage of the same audit process. Read together, both cases stand for the same underlying principle from different angles: the BIR’s failure to follow its own procedural rules, not just outright substantive error, is enough to void an assessment.

What this means for taxpayers #

A defective waiver is not automatically a “get out of the assessment free” card, and Telstar does not say otherwise — the Court still checks whether the taxpayer benefited from the defect and delayed raising it, per the Next Mobile exception. But for a business currently under BIR audit and asked to sign a waiver, the practical checklist Telstar reinforces is specific: confirm the waiver states a reinvestigation or reconsideration purpose (not just a document-submission extension), specifies the kind and amount of tax involved, is signed by the Commissioner personally if the exposure exceeds ₱1,000,000, and — if signed by a corporate representative — is backed by notarized board authority. Equally, if a Formal Letter of Demand only says a taxpayer “may” pay rather than issuing a fixed, unconditional demand, that alone can be independent grounds to challenge the assessment’s validity, separate from any prescription argument.

For waivers executed after April 2016, RMO No. 14-2016’s simpler, taxpayer-responsibility-oriented framework applies instead of the older RMO No. 20-90 form — a materially different starting point that changes how strong a waiver-defect argument is likely to be.

A waiver defect is not the only procedural ground that can void an assessment outright — see Mannasoft Technology v. CIR for a case where the Supreme Court cancelled a ₱78.8 million assessment because the BIR’s notices never reached anyone actually authorized to receive them.

Summary #

In CIR v. Telstar Manufacturing Corporation, the Supreme Court cancelled a deficiency assessment covering income tax, VAT, and expanded withholding tax for taxable year 2009 on two independent grounds: the waivers Telstar signed didn’t extend the BIR’s three-year assessment deadline because they were defective under RMO No. 20-90, and separately, the Formal Letter of Demand never issued a categorical demand for payment as Section 228 of the NIRC requires. The Court reaffirmed that the BIR — not the taxpayer — bears the burden of ensuring a waiver’s validity, distinguishing this case from the narrower Next Mobile exception where a taxpayer that benefited from a defective waiver was estopped from later challenging it. The ruling is unanimous, with Justice Caguioa’s Concurring Opinion reinforcing rather than dissenting from the result.

Sources #

Primary sources

• Supreme Court of the Philippines — G.R. Nos. 249239, 250286 & 249241-42, Decision, February 10, 2025
• Supreme Court of the Philippines — G.R. Nos. 249239, 250286 & 249241-42, Concurring Opinion of Justice Caguioa, February 10, 2025
• Bureau of Internal Revenue — Revenue Memorandum Order No. 14-2016, April 4, 2016

Secondary sources

• Grant Thornton Philippines — “Are waivers sole responsibility of taxpayers?” by Marie Fe Dangiwan