Title
City Treasurer of Manila vs. Philippine Beverage Partners, Inc.
Case
G.R. No. 233556
Decision Date
Sep 11, 2019
A taxpayer protested a local tax assessment, paid under protest, and sought a refund, claiming double taxation. Courts ruled in favor, granting the refund, as procedural requirements were met, and offsetting tax deficiencies was disallowed due to procedural lapses.
assessment
local business taxes
regulatory fees

Case Summary (G.R. No. 233556)

Factual Background

On January 17, 2007, the petitioner issued a Statement of Account under Bill No. 012007-33025 to the respondent. The Statement of Account indicated that the respondent was liable to pay local business taxes and regulatory fees for the first quarter of 2007 in the total amount of P2,930,239.82. The respondent protested the assessment through a letter dated January 19, 2007, maintaining that Tax Ordinance Nos. 7988 and 8011, which amended the Revenue Code of Manila (RCM), had been declared null and void. The respondent also argued that imposing local business tax under Section 21 of the RCM in addition to Section 14 constituted double taxation.

After the protest, the respondent made a formal tender of payment on January 22, 2007, paying P506,080.89 for the local business tax and regulatory fees for the first quarter of 2007. On February 2, 2007, the petitioner issued a letter denying the protest, which the respondent received on February 6, 2007. On February 13, 2007, the respondent paid the full amount of P2,930,239.82 shown in the Statement of Account. On March 2, 2007, the respondent filed a written claim for refund with the petitioner for P2,424,158.93, representing the portion allegedly erroneously or illegally collected. On March 8, 2007, the respondent 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 of Manila, Branch 47.

RTC Proceedings and Ruling

In a Decision dated November 18, 2013, the Regional Trial Court ordered the refund of the overpayment. The trial court held that the respondent was already taxed under Section 14 of the RCM and therefore should no longer be subjected to the tax under Section 21 of the same Code. The RTC also found that the respondent had complied with the requirements for refund. It emphasized that the relevant taxes and fees were paid on February 13, 2007, and that the respondent filed a written claim for refund on March 2, 2007 and brought the judicial action on March 8, 2007, which the RTC deemed timely because it was within two years from the date of payment.

The dispositive portion directed the City of Manila and Liberty M. Toledo to refund P2,424,158.93 and to pay the costs of suit. The petitioner’s motion for reconsideration was denied in an order dated July 4, 2014.

CTA Second Division Ruling

On petition for review, the CTA Second Division, in a Decision dated May 8, 2015 and a subsequent Resolution dated July 20, 2015, affirmed the RTC. The CTA Second Division ruled that the respondent complied with the requirements for a refund of local taxes, fees, or charges erroneously or illegally collected. It rejected the petitioner’s contentions that the refund should not have been granted based solely on the respondent’s computation and that the claim should be negated by the respondent’s alleged tax deficiency for 2006 and 2007 amounting to P9,071,298.78. The CTA reasoned that these arguments were not raised in the petitioner’s answer before the trial court. It also noted that the petitioner had agreed to dispense with pre-trial and to submit the matter for decision upon filing of memoranda, thereby passing on the opportunity to raise additional factual and legal issues.

CTA En Banc Ruling

The CTA En Banc, in a Decision dated December 22, 2016 and a Resolution dated June 13, 2017, denied the petitioner’s further motion and affirmed the Second Division. The CTA En Banc held that the respondent satisfied the requisites for entitlement to a refund or credit because it filed a written claim for refund on March 2, 2007 and instituted the judicial claim on March 8, 2007, which it found to be within two years from payment made on February 13, 2007. On the petitioner’s attempt to offset the refund with alleged deficiency taxes for 2006 and 2007, the CTA En Banc ruled that the petitioner waived additional defenses by failing to raise them in its answer before the trial court.

Issues Raised in the Supreme Court

The Supreme Court framed the principal issues as follows: first, whether a taxpayer who had protested an assessment may later institute a judicial action for refund; and second, whether the alleged deficiency taxes of the respondent for 2006 and 2007 could be used to offset the respondent’s claim for refund.

The Parties’ Contentions

The petitioner argued that the assessment against the respondent became final and executory after the respondent effectively abandoned its protest and chose instead to sue in court for refund of the assessed taxes and charges. It further contended, relying on the respondent’s 2006 audited financial statement, that the respondent had underpayments in business tax for 2006 and 2007, and thus those amounts should be offset against the respondent’s refund claim.

The respondent, consistent with the rulings below, maintained that it timely protested the assessment, paid the assessed amount, filed the required claim for refund with the local treasurer, and instituted the judicial action within the allowable period.

Supreme Court’s Ruling on the First Issue: Protest and Judicial Refund

The Court denied the petition. It held that the petitioner’s argument that the assessment became final due to the respondent’s filing of a judicial action was not novel, and it relied on City of Manila v. Cosmos Bottling Corporation (G.R. No. 196681, June 27, 2018), which involved the same taxing authority and the same RCM provisions for the first quarter of 2007. In Cosmos, the Court had already settled that a taxpayer facing a local tax assessment issued by the local treasurer may protest and, alternatively, either appeal the assessment in court or pay the tax and thereafter seek a refund.

The Court expounded on the statutory scheme under the LGC, particularly Sections 195 and 196. It explained that Section 195 governs the procedure for contesting a deficiency assessment: it requires a written protest filed with the local treasurer within sixty (60) days from receipt of the notice of assessment, and provides for appeal to the court of competent jurisdiction within thirty (30) days from denial of the protest or from inaction by the local treasurer; otherwise, the assessment becomes conclusive and unappealable. Section 196, on the other hand, governs the recovery of erroneously paid or illegally collected taxes: it requires a written claim for refund or credit filed with the local treasurer before filing any suit, and it imposes an outer limit of two (2) years from payment or from the date the taxpayer becomes entitled to a refund or credit.

The Court clarified what the petitioner’s scenario missed: where an assessment is issued and the taxpayer chooses the refund route after protesting, the procedural requirements remain tied to both the protest framework and the refund framework. The Court ruled that when the taxpayer has received an assessment, the taxpayer cannot later opt to pay and then seek refund at any time within the full two-year period without observing the protest deadlines. Instead, the law requires two conditions for a successful refund action in a case where an assessment is issued: first, the taxpayer must pay (if the taxpayer chooses the route involving payment) and must administratively assail the assessment within sixty (60) days from receipt of the notice of assessment; second, the taxpayer must bring the judicial action within thirty (30) days from the denial or inaction of the local treasurer. In this sense, even if a suit is styled as one under Section 196, the taxpayer cannot avoid assailing the assessment that formed the foundation of the alleged erroneous collection.

Applying those rules, the Court found that respondent acted within the required periods. It noted that after respondent received the assessment on January 17, 2007, respondent protested on January 19, 2007. After payment, respondent wrote a letter reiterating the protest grounds and received the denial letter on February 6, 2007. The respondent then filed the judicial action on March 8, 2007, which the Court counted as exactly thirty (30) days from receipt of the denial. The Court therefore held that respondent was justified in filing a refund claim after timely protesting and paying the assessment. Accordingly, the

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