1 Panascola vs CIR
The NIRC made no reference that the personal and additional exemptions shall
Facts:
Petition for of CA’s decision denying petitioner’s availment of the increased amounts of personal
and additional exemptions under RA 8424, the NIRC of 1997.
On April 13, 1998, petitioner Carmelino F. Pansacola filed his income tax return for year 1997 that
reflected an overpayment of P5,950. He claimed the increased amounts of personal and additional
exemptions under Section 354 of the NIRC with the BIR, which was denied. Later, the Court of
Tax Appeals also denied his claim, stating “it would be absurd for the law to allow the deduction
from a taxpayer’s gross income earned on a certain year of exemptions availing on a different taxable
year.” CA likewise denied Pansacola’s petition.
Petitioner argues that the availability of personal and additional exemptions, unlike other allowable
deductions, does not depend on the taxpayer’s profession, trade or business for a particular taxable
period. Relying in Umali, petitioner alleges that the CA erred in ruling that the increased exemptions
were meant to be applied beginning taxable year 1998 and were to be reflected in the taxpayers’
returns to be filed on or before April 15, 1999. Such ruling would postpone the availability of the
increased exemptions and literally defer the effectivity of the NIRC to January 1, 1999. Petitioner
insists that the increased exemptions were already available on April 15, 1998, the deadline for filing
income tax returns for year 1997, because the NIRC was already effective.
Issue: Could the exemptions under Section 35 of the NIRC, which took effect on January 1,
1998, be availed of for the taxable year 1997?
Held:
NO. The law cannot be given retroactive effect. It is established that tax laws are prospective in
application, unless it is expressly provided to apply retroactively. In the NIRC, there is no specific
mention that the increased amounts of personal and additional exemptions under Section 35 shall
be given retroactive effect. Personal and additional exemptions under Section 35 of the NIRC are
fixed amounts to which certain individual taxpayers (citizens, resident aliens) are entitled. Personal
exemptions are the theoretical personal, living and family expenses of an individual allowed to be
deducted from the gross or net income of an individual taxpayer. These are arbitrary amounts which
have been calculated by our lawmakers to be roughly equivalent to the minimum of subsistence,
taking into account the personal status and additional qualified dependents of the taxpayer. They are
fixed amounts in the sense that the amounts have been predetermined by our lawmakers as provided
under Section 35 (A) and (B).
As provided in Section 24 (A) (1) (a) in relation to Sections 31 and 22 (P) and Sections
43, 45 and 79 (H) of the NIRC, the income subject to income tax is the taxpayer’s income as derived
and computed during the calendar year, his taxable year. What the law should consider for the
purpose of determining the tax due from an individual taxpayer is his status and qualified dependents
at the close of the taxable year and not at the time the return is filed and the tax due thereon is
paid. Section 35 (C) of the NIRC allows a taxpayer to still claim the corresponding full amount of
exemption for a taxable year, e.g. if he marries; have additional dependents; he, his spouse, or any of
his dependents die; and if any of his dependents marry, turn 21 years old; or become gainfully
employed. It is as if the changes in his or his dependents’ status took place at the close of the taxable
year. Consequently, his correct taxable income and his corresponding allowable deductions e.g.
personal and additional deductions, if any, had already been determined as of the end of the calendar
year.
In the case of petitioner, the availability of the aforementioned deductions if he is thus
entitled, would be reflected on his tax return filed on or before the 15th day of April 1999 as
mandated by Section 51 (C) (1).24 Since the NIRC took effect on January 1, 1998, the increased
amounts of personal and additional exemptions under Section 35, can only be allowed as deductions
from the individual taxpayer’s gross or net income, as the case maybe, for the taxable year 1998 to
be filed in 1999.
apply on income earned before January 1, 1998.
2 CIR vs CA
FACTS:
ALHAMBRA INDUSTRIES, INC., is a domestic corporation engaged in the
manufacture and sale of cigar and cigarette products. On 7 May 1991 Alahambra received a letter
from the CIR assessing its deficiency Ad Valorem Tax (AVT) in the total amount of P488,396.62,
inclusive of increments, on the removals of cigarette products from their place of production during
the period 2 November 1990 to 22 January 1991.
Court of Tax Appeals ordered CIR to refund to private respondent the amount of
P520,835.29 representing erroneously paid ad valorem tax for the period 2 November 1990 to 22
January 1991. The CTA explained that the subject deficiency excise tax assessment resulted from
private respondent’s use of the computation mandated by BIR Ruling 473–88 dated 4 October 1988
as basis for computing the fifteen percent (15%) ad valorem tax due on its removals of cigarettes
from 2 November 1990 to 22 January 1991. For the said period, Alahambra paid P3,905,348.85 ad
valorem tax, applying Sec. 127 (b) of the NIRC as interpreted by BIR Ruling 473–88 by excluding
the VAT in the determination of the gross selling price.
Thereafter, on 11 February 1991, CIR issued BIR Ruling 017–91 to Insular-Yebana
Tobacco Corporation revoking BIR Ruling 473–88 for being violative of Sec. 142 of the Tax Code.
It included back the VAT to the gross selling price in determining the tax base for computing the
ad valorem tax on cigarettes. Cited as basis by petitioner is Sec. 142 of the Tax Code.
CIR sought to apply the revocation retroactively to private respondent Alahambra
removals of cigarettes for the period starting 2 November 1990 to 22 January 1991 on the ground
that private respondent allegedly acted in bad faith which is an exception to the rule on non-
retroactivity of BIR Rulings.
CA affirmed the CTA’s holding that the retroactive application of BIR Ruling 017–91
cannot be allowed since private respondent did not act in bad faith; private respondent’s
computation under BIR Ruling 473–88 was not shown to be motivated by ill will or dishonesty
partaking the nature of fraud; hence, this petition.
ISSUE: Whether Alahambra’s reliance on a void BIR ruling conferred upon the latter a
vested right to apply the same in the computation of its ad valorem tax and claim for tax
refund?
HELD:
The deficiency tax assessment issued by CIR against private Alahambra is without legal
basis because of the prohibition against the retroactive application of the revocation of BIR rulings
in the absence of bad faith on the part of private respondent. The present dispute arose from the
discrepancy in the taxable base on which the excise tax is to apply on account of two incongruous
BIR Rulings: (1) BIR Ruling 473–88 dated 4 October 1988 which excluded the VAT from the tax
base in computing the fifteen percent (15%) excise tax due; and, (2) BIR Ruling 017–91 dated 11
February 1991 which included back the VAT in computing the tax base for purposes of the fifteen
percent (15%) ad valorem tax.
Sec. 142(d) of the Tax Code, which provides for the inclusion of the VAT in the tax base
for purposes of computing the 15% ad valorem tax, is the applicable law in the instant case as it
specifically applies to the manufacturer’s wholesale price of cigar and cigarette products and not Sec.
127(b) of the Tax Code which applies in general to the wholesale of goods or domestic products.
Sec. 142 being a specific provision applicable to cigar and cigarettes must perforce prevail
over Sec. 127(b), a general provision of law insofar as the imposition of the ad valorem tax on cigar
and cigarettes is concerned. Consequently, the application of Sec. 127(b) to the wholesale price of
cigar and cigarette products for purposes of computing the ad valorem tax is patently erroneous.
Accordingly, BIR Ruling 473–88 is void ab initio as it contravenes the express provisions of Sec.
142(d) of the Tax Code.
Upon knowledge of the effectivity of BIR Ruling No. 017–91, private respondent
immediately implemented the method of computation mandated therein by restoring the VAT in
computing the tax base for purposes of the 15% ad valorem tax. However, well-entrenched is the
rule that rulings and circulars, rules and regulations promulgated by the Commissioner of
Internal Revenue would have no retroactive application if to so apply them would be
prejudicial to the taxpayers. The applicable law is Sec. 246 of the Tax Code which provides “Sec.
246. Non-retroactivity of rulings.” Without doubt, private respondent would be prejudiced by the
retroactive application of the revocation as it would be assessed deficiency excise tax. We find no
convincing evidence that private respondent’s implementation of the computation mandated by BIR
Ruling 473–88 was ill-motivated or attended with a dishonest purpose. To the contrary, as a sign of
good faith, private respondent immediately reverted to the computation mandated by BIR Ruling
017–91 upon knowledge of its issuance on 11 February 1991.
3 Philippine Bank vs CIR
FACTS:
This petition for review assails CA’s resolution affirming CTA’s denial of petitioner’s
claim for tax refund and tax credits for having been filed beyond the reglementary period.
Petitioner, Philippine Bank of Communications (PBCom), a commercial banking
corporation duly organized under Philippine laws, filed its quarterly income tax returns for the first
and second quarters of 1985, reported profits, and paid the total income tax of P5,016,954.00.
PBCom suffered losses so that when it filed its Annual Income Tax Returns for the year-ended
December 31, 1985, it declared a net loss of P25,317,228.00, thereby showing no income tax liability.
For the succeeding year, ending December 31, 1986, the petitioner likewise reported a net loss of
P14,129,602.00, and thus declared no tax payable for the year. But during these two years, PBCom
earned rental income from leased properties. The lessees withheld and remitted to the BIR
withholding creditable taxes of P282,795.50 in 1985 and P234,077.69 in 1986.
PBCom requested the CIR among others, for a tax credit of P5,016,954.00 representing
the overpayment of taxes in the first and second quarters of 1985. Thereafter, PBCom filed a claim
for refund of creditable taxes withheld by their lessees from property rentals in 1985 for P282,795.50
and in 1986 for P234,077.69.
Pending appeal at the CIR, PBCom instituted a petition for review at the CTA, which
was denied on the ground that it was filed beyond the two-year reglementary period provided for by
law. CA affirmed CTA’s decision.
Petitioner argues that its claims for refund and tax credits are not yet barred by
prescription relying on the applicability of Revenue Memorandum Circular No. 7-85 issued on April
1, 1985. The circular states that overpaid income taxes are not covered by the two-year prescriptive
period under the tax Code and that taxpayers may claim refund or tax credits for the excess quarterly
income tax with the BIR within ten (10) years under Article 1144 of the Civil Code. petitioner claims
that rulings or circulars promulgated by the Commissioner of Internal Revenue have to retroactive
effect if it would be prejudicial to taxpayers pursuant to Sec. 246 of the NIRC.
ISSUES: Whether or not the Court of Appeals erred in denying the plea for tax refund or tax
credits on the ground of prescription, despite petitioner’s reliance on RMC No. 7-85,
changing the prescriptive period of two years to ten years?
HELD:
NO. Claims for refund or tax credit should be exercised within the time fixed by law because the
BIR being an administrative body enforced to collect taxes, its functions should not be unduly
delayed or hampered by incidental matters. When the Acting Commissioner of Internal Revenue
issued RMC 7-85, changing the prescriptive period of two years to ten years on claims of excess
quarterly income tax payments, such circular created a clear inconsistency with the provision of Sec.
230 of 1977 NIRC. In so doing, the BIR did not simply interpret the law; rather it legislated
guidelines contrary to the statute passed by Congress. such interpretation is not conclusive and will
be ignored if judicially found to be erroneous. Thus, courts will not countenance administrative
issuances that override, instead of remaining consistent and in harmony with, the law they seek to
apply and implement.
Section 230 of the National Internal Revenue Code (NIRC) of 1977 (now Sec. 229,
NIRC of 1997) provides for the prescriptive period for filing a court proceeding for the recovery of
tax erroneously or illegally collected. The rule states that the taxpayer may file a claim for refund or
credit with the Commissioner of Internal Revenue, within two (2) years after payment of tax, before
any suit in CTA is commenced. The two-year prescriptive period provided, should be computed
from the time of filing the Adjustment Return and final payment of the tax for the year.
Further, fundamental is the rule that the State cannot be put in estoppel by the mistakes
or errors of its officials or agents. As pointed out by the respondent courts, the nullification of RMC
No. 7-85 issued by the Acting Commissioner of Internal Revenue is an administrative interpretation
which is not in harmony with Sec. 230 of 1977 NIRC, for being contrary to the express provision
of a statute. Hence, his interpretation could not be given weight for to do so would, in effect, amend
the statute.
Moreover, the non- retroactivity of rulings by the Commissioner of Internal Revenue is
not applicable in this case because the nullity of RMC No. 7-85 was declared by respondent courts
and not by the Commissioner of Internal Revenue. Lastly, it must be noted that, as repeatedly held
by this Court, a claim for refund is in the nature of a claim for exemption and should be construed
in strictissimi juris against the taxpayer.
4 CIR VS San Roque Power Corp.
FACTS:
This is a consolidated case, assailing the decisions of the CTA.
On October 11, 1997, San Roque Power Corporation (San Roque) entered into a Power
Purchase Agreement (PPA) with the National Power Corporation (NPC) by building the San Roque
Multi-Purpose Project in San Manuel, Pangasinan.
The San Roque Multi-Purpose Project allegedly incurred, excess input VAT in the
amount of P559,709,337.54 for taxable year 2001 which it declared in its Quarterly VAT Returns
filed for the same year.
San Roque duly filed with the BIR separate claims for refund, amounting to
P559,709,337.54, representing unutilized input taxes as declared in its VAT returns for taxable year
2001. However, on March 28, 2003, San Roque filed amended Quarterly VAT Returns for the year
2001 since it increased its unutilized input VAT to the amount of P560,200,283.14. San Roque filed
with the BIR on the same date, separate amended claims for refund in the aggregate amount of
P560,200,283.14.
The CTA Second Division required San Roque to show that it complied with the
following requirements of Section 112(B) of Republic Act No. 8424 (RA 8424)17 to be entitled to
a tax refund or credit of input VAT attributable to capital goods imported or locally purchased: (1)
it is a VAT-registered entity; (2) its input taxes claimed were paid on capital goods duly supported
by VAT invoices and/or official receipts; (3) it did not offset or apply the claimed input VAT
payments on capital goods against any output VAT liability; and (4) its claim for refund was filed
within the two-year prescriptive period both in the administrative and judicial levels.
The CTA Second Division found that San Roque complied with the first, third, and
fourth requirements.
 On April 10, 2003, a mere 13 days after it filed its amended administrative claim with the
CIR on March 28, 2003, San Roque filed a Petition for Review with the CTA.CIR alleged that the
claim by San Roque was prematurely filed with the CTA.
ISSUE: Whether or San Roque is entitled to tax refund?
RULING:
NO. San Roque is not entitled to a tax refund because it failed to comply with the mandatory and
jurisdictional requirement of waiting 120 days before filing its judicial claim.
On April 10, 2003, a mere 13 days after it filed its amended administrative claim with the
CIR on March 28, 2003, San Roque filed a Petition for Review with the CTA, which showed that
San Roque did not wait for the 120-day period to lapse before filing its judicial claim.
Compliance with the 120-day waiting period is mandatory and jurisdictional, under
RA 8424 or the Tax Reform Act of 1997. Failure to comply renders the petition void. It violates the
doctrine of exhaustion of administrative remedies and renders the petition premature and without a
cause of action, with the effect that the CTA does not acquire jurisdiction over the taxpayer’s
petition.
Article 5 of the Civil Code provides, "Acts executed against provisions of mandatory or
prohibitory laws shall be void, except when the law itself authorizes their validity." Thus, San
Roque’s petition with the CTA is a mere scrap of paper.
Well-settled is the rule that tax refunds or credits, just like tax exemptions, are strictly
construed against the taxpayer.
Whether the Atlas doctrine or the Mirant doctrine is applied to San Roque is immaterial
because what is at issue in the present case is San Roque’s non-compliance with the 120-day
mandatory and jurisdictional period, which is counted from the date it filed its administrative claim
with the CIR. The 120-day period may extend beyond the two-year prescriptive period, as long as
the administrative claim is filed within the two-year prescriptive period. However, San Roque’s fatal
mistake is that it did not wait for the CIR to decide within the 120-day period, a mandatory period
whether the Atlas or the Mirant doctrine is applied.
Section 112(D) of the 1997 Tax Code is clear, unequivocal, and categorical that the CIR
has 120 days to act on an administrative claim. The taxpayer can file the judicial claim
Only within 30 days after the CIR partially or fully denies the claim within the 120- day period, or
only within 30 days from the expiration of the 120- day period if the CIR does not act within the
120-day period.
Even if, contrary to all principles of statutory construction as well as plain common
sense, we gratuitously apply now Section 4.106-2(c) of Revenue Regulations No. 7-95, still San
Roque cannot recover any refund or credit because San Roque did not wait for the 60-day
period to lapse, contrary to the express requirement in Section 4.106-2(c).
SC granted the petition of CIR to deny the tax refund or credit claim of San Roque.
5 Francia vs IAC
FACTS:
This petition seeks to reverse IAC decision, to set aside the auction sale of his property which
took place on December 5, 1977, and to allow him to recover a 203 square meter lot which was sold
at public auction to Ho Fernandez and ordered titled in the latter’s name.
Engracio Francia is the registered owner of a residential lot and a two-story house built upon
it situated at Barrio San Isidro, now District of Sta. Clara, Pasay City, Metro Manila. On October 15,
1977, a 125 square meter portion of Francia’s property was expropriated by the Republic of the
Philippines for the sum of P4,116.00 representing the estimated amount equivalent to the assessed
value of the aforesaid portion. Since 1963 up to 1977 inclusive, Francia failed to pay
his real estate taxes. Thus, on December 5, 1977, his property was sold at public auction by
the City Treasurer of Pasay City pursuant to Section 73 of Presidential Decree No. 464 known as
the Real Property Tax Code in order to satisfy a tax delinquency of P2,400.00. Francia was not
present during the auction sale since he was in Iligan City at that time helping his uncle ship bananas.
Upon verification through his lawyer, Francia discovered that a Final Bill of Sale had been
issued in favor of Ho Fernandez by the City Treasurer on December 11, 1978. Francia filed a
complaint to annul the auction sale.
Lower court ruled against Francia, which the IAC affirmed.
ISSUE: Whether the expropriation may compensate for the real estate taxes due?
HELD:
NO. There can be no off-setting of taxes against the claims that the taxpayer may have against the
government.
Francia’s argument is that the government owed him P4, 116.00 when a portion of his
land was expropriated on October 15, 1977. Hence, his tax obligation had been set-off by operation
of law as of October 15, 1977.Following Article 1278 of the Civil Code, there is legal compensation
when obligations of persons, who in their own right are reciprocally debtors and creditors of each
other, are extinguished. The circumstances in the instant case do not satisfy the requirements
provided by Article 1279, to wit:
(1) That each one of the obligors be bound principally and that he be at the same time a
principal creditor of the other;
xxx
(3) That the two debts be due.
A taxpayer cannot refuse to pay his tax when called upon by the collector because he
has a claim against the governmental body not included in the tax levy. A person cannot refuse to
pay a tax on the ground that the government owes him an amount equal to or greater than the tax
being collected. The collection of a tax cannot await the results of a lawsuit against the government.
As stated in the case of Republic v. Mambulao Lumber Co. (4 SCRA 622), internal
revenue taxes cannot be the subject of set-off or compensation. The general rule based on grounds
of public policy is well-settled that no set-off admissible against demands for taxes levied for general
or local governmental purposes. The reason on which the general rule is based, is that taxes are not
in the nature of contracts between the party and party but grow out of duty to, and are the positive
acts of the government to the making and enforcing of which, the personal consent of individual
taxpayers is not required. ..."
A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be
set-off under the statutes of set-off, which are construed uniformly, in the light of public policy, to
exclude the remedy in an action or any indebtedness of the state or municipality to one who is liable
to the state or municipality for taxes. Neither are they a proper subject of recoupment since they do
not arise out of the contract or transaction sued on.
On the issue that the selling price of P2, 400.00 was grossly inadequate, the same is not
tenable. The SC held that “alleged gross inadequacy of price is not material when the law gives the
owner the right to redeem as when a sale is made at public auction, upon the theory that the lesser
the price, the easier it is for the owner to effect redemption.” If mere inadequacy of price is held to
be a valid objection to a sale for taxes, the collection of taxes in this manner would be greatly
embarrassed, if not rendered altogether impracticable. “Where land is sold for taxes, the inadequacy
of the price given is not a valid objection to the sale.” This rule arises from necessity, for, if a fair
price for the land were essential to the sale, it would be useless to offer the property. Indeed, it is
notorious that the prices habitually paid by purchasers at tax sales are grossly out of proportion to
the value of the land.
6 Republic vs Mambulao
 The herein respondent was required by the government to pay reforestation charges
from 1947-1956. These reforestation charges was paid by the respondent in pursuant to Section 1
of Republic Act 115 which provides that
There shall be collected, in addition to the regular forest charges provided under Section
264 of Commonwealth Act 466 known as the National Internal Revenue Code, the amount of P0.50 on each cubic
meter of timber... cut out and removed from any public forest for commercial purposes. The amount collected shall be
expended by the director of forestry, with the approval of the secretary of agriculture and commerce, for reforestation
and afforestation of watersheds, denuded areas ... and other public forest lands, which upon investigation, are found
needing reforestation or afforestation ....
The total amount of the reforestation charges paid by Mambulao Lumber Company is
P9,127.50, and it is the contention of Mambulao Lumber Company that since the Republic of the
Philippines has not made use of those reforestation charges collected from it for reforesting the
denuded area of the land covered by its license, the Republic of the Philippines should refund said
amount, or, if it cannot be refunded, at least it should be compensated with what Mambulao Lumber
Company owed the Republic of the Philippines for reforestation charges. In line with this thought,
Mambulao Lumber Company wrote the director of forestry pleading that their account be credited
of all the reforestation charges which they have paid or alternatively, the said charge be applied as a
compensation in the amount of 4,802 .37 (forest charge)
Issue Whether the sum of P9,127.50 paid by defendant-appellant company to plaintiff-
appellee as reforestation charges from 1947 to 1956 may be set off or applied to the payment
of the sum of P4,802.37 as forest charges due and owing from appellant to appellee. (the
amount is considered as taxes )
Ruling
No. The general rule, based on grounds of public policy is well-settled that no set-off is admissible
against demands for taxes levied for general or local governmental purposes. The reason on which
the general rule is based, is that taxes are not in the nature of contracts between the party and party
but grow out of a duty to, and are the positive acts of the government, to the making and enforcing
of which, the personal consent of individual taxpayers is not required.
Internal revenue taxes, such as forest charges, cannot be the subject of set-off or compensation. A
claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under
the statutes of set-off, which are construed uniformly, in the light of public policy, to exclude the
remedy in an action or any indebtedness of the State or municipality to one who is liable to the State
or municipality for taxes. Neither are they subject of recoupment since they do not arise out of the
contract or transaction sued on.
7 Philex Mining vs CIR
On August 5, 1992, the BIR sent a letter to Philex asking it to settle its tax liabilities for
the 2nd, 3rd and 4th quarter of 1991 as well as the 1st and 2nd quarter of 1992 in the total amount
of P123,821,982.52.
Philex protested the demand for payment of the tax liabilities stating that it has pending
claims for VAT input credit/refund for the taxes it paid for the years 1989 to 1991 in the amount
of P119,977,037.02 plus interest. Therefore, these claims for tax credit/refund should be applied
against the tax liabilities, citing our ruling in Commissioner of Internal Revenue v. Itogon-Suyoc
Mines, Inc. BIR rejected the claim for set off and said since these pending claims have not yet been
established or determined with certainty, it follows that no legal compensation can take place. Hence,
BIR reiterated its demand that Philex settle the amount plus interest within 30 days from the receipt
of the letter.
Philex thus raised the issue to the Court of Tax Appeals. In the course of the
proceedings, the BIR issued a Tax Credit Certificate SN 001795 in the amount of P13,144,313.88
which, applied to the total tax liabilities of Philex of P123,821,982.52 effectively lowered the latters
tax obligation of P110,677,688.52. Despite the reduction of its tax liabilities, the CTA still ordered
Philex to pay the remaining balance of P110,677,688.52 plus interest because for legal compensation
to take place, both obligations must be liquidated and demandable. CTA said liquidated debts are
those where the exact amount has already been determined. Since the claims of the Petitioner for
VAT refund is still pending litigation, and still has to be determined, the liquidated debt of the
Petitioner to the government cannot, therefore, be set-off against the unliquidated claim which
Petitioner conceived to exist in its favour. Moreover, the Court of Tax Appeals ruled that taxes
cannot be subject to set-off on compensation since claim for taxes is not a debt or contract.
Also, Philex asserts that the imposition of surcharge and interest for the non-payment
of the excise taxes within the time prescribed was unjustified. Philex posits the theory that it had no
obligation to pay the excise liabilities within the prescribed period since, after all, it still has pending
claims for VAT input credit/refund with BIR. Finally, Philex asserts that the BIR violated Section
106(e)[30] of the National Internal Revenue Code of 1977, which requires the refund of input taxes
within 60 days,[31] when it took five years for the latter to grant its tax claim for VAT input
credit/refund.
Issue: Whether or not VAT input credit/refund be set off against the tax liabilities of the
petitioner?
Ruling:
No. Taxes cannot be subject to compensation for the simple reason that the government and the
taxpayer are not creditors and debtors of each other. There is a material distinction between a tax
and debt. Debts are due to the Government in its corporate capacity, while taxes are due to the
Government in its sovereign capacity. Philex’s reliance on our holding in Commissioner of Internal
Revenue v. Itogon-Suyoc Mines, Inc., wherein it has been ruled that a pending refund may be set
off against an existing tax liability even though the refund has not yet been approved by the
Commissioner, is no longer without any support in statutory law. When the National Internal
Revenue Code of 1977 was enacted, the same provision upon which the Itogon-Suyoc
pronouncement was based was omitted.
It must be noted that a distinguishing feature of a tax is that it is compulsory rather than
a matter of bargain. Hence, a tax does not depend upon the consent of the taxpayer.If any payer can
defer the payment of taxes by raising the defense that it still has a pending claim for refund or credit,
this would adversely affect the government revenue system. A taxpayer cannot refuse to pay his
taxes when they fall due simply because he has a claim against the government or that the collection
of the tax is contingent on the result of the lawsuit it filed against the government. Moreover, Philex's
theory that would automatically apply its VAT input credit/refund against its tax liabilities can easily
give rise to confusion and abuse, depriving the government of authority over the manner by which
taxpayers credit and offset their tax liabilities.Corollarily, the fact that Philex has pending claims for
VAT input claim/refund with the government is immaterial for the imposition of charges and
penalties prescribed under Section 248 and 249 of the Tax Code of 1977. The payment of the
surcharge is mandatory and the BIR is not vested with any authority to waive the collection thereof.
The same cannot be condoned for flimsy reasons,similar to the one advanced by Philex in justifying
its non-payment of its tax liabilities.
8 Domingo vs Garlitos
In the 1960 case of Domingo v Moscoso, the Supreme Court declared as final and executory the
order for the payment by the estate of the late Walter Scott Price of estate and inheritance taxes,
charges and penalties, amounting to P40,058.55 issued by the Court of First Instance – Leyte. The
petition for execution was denied by the lower court. The court held that the execution is unjustified
as the government itself is indebted to the estate for 262, 200; and ordered that the inheritance tax
be deducted from the government’s indebtedness to the state.

Issue: Whether or not a tax and a debt may be compensated?
Ruling
The court having jurisdiction of the Estate had found that the claim of the Estate against the
Government has been recognized and an amount of P262,200 has already been appropriated by a
corresponding law (RA 2700). Under the circumstances, both the claim of the Government for
inheritance taxes and the claim of the intestate for services rendered have already become overdue
and demandable as well as fully liquidated. Compensation, therefore, takes place by operation of
law, in accordance with Article 1279 and 1290 of the Civil Code, and both debts are extinguished to
the concurrent amount. In other words, the estate and inheritance taxes are set off, by virtue of the
government’s indebtedness to the estate.
8 Anti Graft League vs San Juan
On March 20, 1975, then President Ferdinand E. Marcos issued Presidential Decree No. 674,
establishing the Technological Colleges of Rizal. Among other things, it directed the Board to
provide funds for the purchase of a site and the construction of the necessary structures thereon.
Acting upon an authority granted by the Office of the President, the Province was able to negotiate
with respondent Ortigas & Co., Ltd. (Ortigas) for the acquisition of four parcels of land located in
Ugong Norte, Pasig. Three deeds of absolute sale were executed on April 22 and May 9, 1975,
whereby Ortigas transferred its ownership over a total of 192,177 square meters of land to the
Province at P110.00 per square meter. The projected construction, however, never materialized
because of the decimation of the Provinces resources brought about by the creation of the Metro
Manila Commission (MMC) in 1976.Twelve years later, with the property lying idle and the Province
needing funds to propel its 5-year Comprehensive Development Program, the then incumbent
Board passed Resolution No. 87-205 dated October 15, 1987 authorizing the Governor to sell the
same. The said property was eventually sold to Valley View Realty Development Corporation (Valley
View) for P700.00 per square meter or a total of P134,523,900.00, of which 30 million was given as
downpayment. On May 10, 1988, after learning about the sale, Ortigas filed before Branch 151 of
the Regional Trial Court of Pasig an action for rescission of contract plus damages with preliminary
injunction against the Province.
The PCGG Chairman Mateo Caparas wrote on 09 August 1990 to President Corazon Aquino
regarding the scheduled sale between the Republic of the Philippines and Christie’s of 82 Old Masers
Painting housed in Metropolitan Museum of Manila and 7 boxes of antique silverware in the custody
of Central Bank. This was approved on 14 August 1990 and the consignment was signed the
following day. On 26 October 1990 the Commission on Audit submitted audit findings to the
President – the assets subject of auction were historical relics and had cultural significance and
thereby prohibited by law. As Filipino citizens, taxpayers and artists, petitioners Dean Jose Joya et
al contended that they have legal personality to restrain respondent from acting contrary to
preserving artistic creations pursuant to Sec 14-18 Article XIV of the Constitution.
Issue: Whether or not the petitioners have legal standing?
Ruling:
Petition for prohibition and mandamus dismissed for lack of merit. Legal standing means a personal
and substantial interest ion the case such that the party has sustained or will sustain direct injury as
a result of the governmental act that is being challenged. The paintings legally belongs to the
foundation or the members of thereof and the silverware are gifts to the Marcos couple. When the
Marcos administration was toppled and the said objects were confiscated it did not mean that
ownership has passed to the government without complying with constitutional and statutory
requirements of due process and just compensation. If these were already acquired, any defect in the
acquisition must be raised by the true owners. Petitioners failed to show that they are the legal
owners of the said objects that have become publicly owned.

Issue: Whether or not the case at bar is a taxpayer’s suit?

Ruling:
To constitute a taxpayers suit, two requisites must be met, namely, that public funds are disbursed
by a political subdivision or instrumentality and in doing so a law is violated or an irregularity is
committed, nd that the petitioner is directly affected by the alleged ultra vires act.
In the case at bar, petitioner’s standing should not even be made an issue here since standing is a
concept in constitutional law and here no constitutional question is actually involved. The
disbursement of public funds was only made when the Province bought the lands from Ortigas.
Petitioner never referred to such purchase as an illegal disbursement of public funds but focused on
the alleged fraudulent reconveyance of said property to Ortigas because the price paid was lower
than the prevailing market value of neighboring lots.
As a taxpayer, petitioner would somehow be adversely affected by an illegal use of public money.
But when no such unlawful spending has been shown petitioner, even as a taxpayer, cannot question
the transaction executed by the Province and Ortigas for the reason that it is not privy to said
contract

9 Joya vs PCGG