G.R. No. 125704 : August 28 1998
- On 1989 to 1991, Philex paid VAT input taxes amounting to P119,977,037.02. It then filed a claim for VAT input credit/refund to BIR.
- While waiting for the approval of the tax refund/credit, Philex received a letter from BIR asking it to settle its tax liabilities in the total amount of P123,821.982.52.
- Philex protested the demand stating that the pending claims for tax credit/refund should be applied against the tax liabilities as the Court previously allowed in the case of CIR v. Itogon-Suyoc Mines Inc. However, BIR said in its reply that legal compensation cannot take place and thus Philex must pay the amount demanded.
- Aggrieved, Philex raised the issue to the Court of Tax Appeals.
- In the course of the proceedings, the BIR issued 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 latter’s tax obligation to P110,677,688.52.
- Despite the reduction of its tax liabilities, CTA still ordered Philex to pay the remaining balance of P110,677,688.52 plus interest on, March 16, 1995. It ruled that:
- Off-set cannot take place since the obligations is not due and demandable, as well as not fully liquidated.
- “taxes cannot be subject to set-off on compensation since claim for taxes is not a debt or contract.”
- Aggrived, Philex appealed the matter to the Court of Appeals, which affirmed the CTA decision. CA also denied Philex’s motion for reconsideration.
- A few days after the denial of its motion for reconsideration, Philex was able to obtain its VAT input credit/refund not only for the taxable year 1989 to 1991 but also for 1992 and 1994.
- Philex now contends that the same should, ipso jure, off-set its excise tax liabilities since both had already become “due and demandable, as well as fully liquidated;” hence, legal compensation can properly take place.
- It also 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, when it took five years for the latter to grant its tax claim for VAT input credit/refund.
- W/N CA erred in ruling that legal compensation can properly take place between the VAT input credit/refund and the excise tax liabilities of Philex Mining Corp?
- W/N BIR has violated the NIRC which requires the refund of input taxes within 60 days?
- W/N violation by BIR is sufficient to justify non-payment by Philex of its tax liabilities?
- NO. CA did not err in ruling that legal compensation can properly take place between the VAT input credit/refund and the excise tax liabilities of Philex Mining Corp.
Philex’s claim for this is an outright disregard of the basic principle in tax law that taxes are the lifeblood of the government and so should be collected without unnecessary hindrance.
we cannot allow Philex to refuse the payment of its tax liabilities on the ground that it has a pending tax claim for refund or credit against the government which has not yet been granted. 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. 26 If any taxpayer 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. 27 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.
CIR v. Itogon-Suyoc Mines Inc. is no longer without any support in statutory law. The premise of our ruling in the aforementioned case was anchored on Section 51 (d) of the National Revenue Code of 1939. However, when the National Internal Revenue Code of 1977 was enacted, the same provision upon which the Itogon-Suyoc pronouncement was based was omitted. Accordingly, the doctrine enunciated in Itogon-Suyoc cannot be invoked by Philex.
2. YES. BIR has violated the NIRC which requires the refund of input taxes within 60 days.
VAT input taxes were paid between 1989 to 1991 but the refund of these erroneously paid taxes was only granted in 1996. Obviously, had the BIR been more diligent and judicious with their duty, it could have granted the refund earlier. We need not remind the BIR that simple justice requires the speedy refund of wrongly-held taxes.
3. NO. The violation by BIR is not sufficient to justify non-payment by Philex of its tax liabilities.
Despite our concern with the lethargic manner by which the BIR handled Philex’s tax claim, it is a settled rule that in the performance of governmental function, the State is not bound by the neglect of its agents and officers. Nowhere is this more true than in the field of taxation. 37 Again, while we understand Philex’s predicament, it must be stressed that the same is not a valid reason for the non-payment of its tax liabilities.
While we can never condone the BIR’s apparent callousness in performing its duties, still, the same cannot justify Philex’s non-payment of its tax liabilities. The adage “no one should take the law into his own hands” should have guided Philex’s action.