G.R. No. 233556, September 11, 2019
Second Division
REYES, J. JR., J.:
Lessons Applicable: Local Tax Protest, Judicial Claim for Refund
Laws Applicable: Section 125 and 126 of LGC
FACTS:
- January 17, 2007: City Treasurer of Manila (CTM) issued a Statement of Account (SOA) under Bill No. 012007-33025 representing business taxes and regulatory fees for the first quarter of 2007 in the total amount of P2,930,239.82 to Philippine Beverage Partners, Inc. (PBP).
- February 6, 2007: PBP received the decision of CTM dated February 2, 2007 denying its protest for the assessment dated January 19, 2007, arguing that Tax Ordinance Nos. 7988 and 8011, amending the Revenue Code of Manila (RCM), should be declared null and void since the collection of local business tax under Section 21 (tax on other business) of the RCM and Section 14 (tax on manufacturers) of the same code constitutes double taxation.
- February 13, 2007: PBP paid in full the amount stated in the SOA.
- March 2, 2007: It filed a written claim for refund of erroneously/illegally collected tax with petitioner in the amount of P2,424,158.93.
- March 8, 2007: It filed a Complaint for the Revision of SOA (Preliminary Assessment) and for Refund or Credit of LBT Erroneously/Illegally Collected with the Regional Trial Court, Manila, Branch 47 (RTC).
- CTA Second Division affirmed RTC decision: Ordered CTM to refund the amount of P2,424,158.93 and the cost of suit.
- CTA En Banc: CTM was able to comply with the requisites for entitlement to a refund/credit of local taxes considering that it filed written claim for refund on March 2, 2007 and filed the judicial claim on March 8, 2007 which is within two years from payment of the tax on February 13, 2007. With regards the deficiency tax for year 2006 and 2007 sought to be offset, CTM has waived any additional defenses by its failure to raise the same in its Answer before the trial court
- PBP filed a Petition for Review on Certiorari
ISSUES:
1. W/N a taxpayer who protested an assessment may later on institute a judicial action for refund
2. W/N deficiency taxes may be used to offset its claim for refund
HELD: Denied for lack of merit.
1. YES.
- City of Manila v. Cosmos Bottling Corporation (G.R. No. 196681, June 27, 2018) held that a taxpayer facing an assessment issued by the local treasurer may protest it and alternatively: (1) appeal the assessment in court, or (2) pay the tax, and thereafter, seek a refund.
- The taxpayers' remedies of protesting an assessment and refund of taxes are stated in Sections 195 and 196 of the LGC
- The first provides the procedure for contesting an assessment issued by the local treasurer; whereas, the second provides the procedure for the recovery of an erroneously paid or illegally collected tax, fee or charge. Both Sections 195 and 196 mention an administrative remedy that the taxpayer should first exhaust before bringing the appropriate action in court. In Section 195, it is the written protest with the local treasurer that constitutes the administrative remedy; while in Section 196, it is the written claim for refund or credit with the same office.
- Unlike Section 195, Section 196 does not expressly provide a specific period within which the local treasurer must decide the written claim for refund or credit. It is, therefore, possible for a taxpayer to submit an administrative claim for refund very early in the two-year period and initiate the judicial claim already near the end of such two-year period due to an extended inaction by the local treasurer. In this instance, the taxpayer cannot be required to await the decision of the local treasurer any longer, otherwise, his judicial action shall be barred by prescription.
- Section 196 does not expressly mention an assessment made by the local treasurer. This simply means that its applicability does not depend upon the existence of an assessment notice. By consequence, a taxpayer may proceed to the remedy of refund of taxes even without a prior protest against an assessment that was not issued in the first place.
- Where an assessment is to be protested or disputed, the taxpayer may proceed (a) without payment, or (b) with payment of the assessed tax, fee or charge
- (a) Where no payment is made, the taxpayer's procedural remedy is governed strictly by Section 195. That is, in case of whole or partial denial of the protest, or inaction by the local treasurer, the taxpayer's only recourse is to appeal the assessment with the court of competent jurisdiction. The appeal before the court does not seek a refund but only questions the validity or correctness of the assessment.
- (b) Where payment was made, the taxpayer may thereafter maintain an action in court questioning the validity and correctness of the assessment (Section 195, LGC) and at the same time seeking a refund of the taxes. In truth, it would be illogical for the taxpayer to only seek a reversal of the assessment without praying for the refund of taxes. Once the assessment is set aside by the court, it follows as a matter of course that all taxes paid under the erroneous or invalid assessment are refunded to the taxpayer.
- 2 conditions for an action for refund in case the taxpayer had received an assessment:
- (a) Pay the tax and administratively assail within 60 days the assessment before the local treasurer, whether in a letter-protest or in a claim for refund
- (b) Bring an action in court within thirty (30) days from decision or inaction by the local treasurer, whether such action is denominated as an appeal from assessment and/or claim for refund of erroneously or illegally collected tax
- Based on Section 195 of the LGC, the issuance of a notice of assessment is mandatory before the local treasurer may collect deficiency taxes from the taxpayer. The notice of assessment is not only a requirement of due process but it also stands as the first instance the taxpayer is officially made aware of the pending tax liability. The local treasurer cannot simply collect deficiency taxes for a different taxing period by raising it as a defense in an action for refund of erroneously or illegally collected taxes.