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ENGRACIA FRANCIA VS. INTERMEDIATE APPELLATE COURT

162 SCRA 753, Set-off of Taxes

FACTS:

Engracio Francia was the owner of a 328 s!are "eter #an$ in %asa& Cit&' (n

)cto*er 1+77, a ortion of his #an$ 125 s!are "eter. was exroriate$ *&the go/ern"ent for %0,116'' The exroriation was "a$e to gi/e wa& to

the exansion of a near*& roa$'

(t a#so aears that Francia fai#e$ to a& his rea# estate taxes since 1+63

a"o!nting to %2,0'' So in ece"*er 1+77, the re"aining 23 s!are

"eters of his #an$ was so#$ at a !*#ic a!ction after $!e notice was gi/en

hi".' The highest *i$$er was a certain o Fernan$e4 who ai$ the !rchase

rice of %2,0' which was #esser than the rice of the ortion of his #an$

that was exroriate$.'

ater, Francia fi#e$ a co"#aint to ann!# the a!ction sa#e on the gro!n$ that

the se##ing rice was gross#& ina$e!ate' e f!rther arg!e$ that his #an$

sho!#$ ha/e ne/er *een a!ctione$ *eca!se the %2,0' he owe$ thego/ern"ent in taxes sho!#$ ha/e *een set-off *& the $e*t the go/ern"ent

owe$ hi" #ega# co"ensation.' e a##ege$ that he was not ai$ *& the

go/ern"ent for the exroriate$ ortion of his #an$ *eca!se tho!gh he new

that the a&"ent therefor was $eosite$ in the %hi#iine ationa# an, he

ne/er with$rew it'

ISSUE:

9hether or not the tax owe$ *& Francia sho!#$ *e set-off *& the :$e*t; owe$

hi" *& the go/ern"ent'

HELD:

No.As a r!#e, set-off of taxes is not a##owe$' There is no #ega# *asis for the

contention' & #ega# co"ensation, o*#igations of ersons, who in their own

right are reciroca##& $e*tors an$ cre$itors of each other, are exting!ishe$

Art' 1278, Ci/i# Co$e.' This is not a#ica*#e in taxes' There can *e no off-

setting of taxes against the c#ai"s that the taxa&er "a& ha/e against the

go/ern"ent' A erson cannot ref!se to a& a tax on the gro!n$ that the

go/ern"ent owes hi" an a"o!nt e!a# to or greater than the tax *eing

co##ecte$' The co##ection of a tax cannot await the res!#ts of a #aws!it against

the go/ern"ent'

The S!re"e Co!rt e"hasi4e$< A c#ai" for taxes is not s!ch a $e*t,$e"an$, contract or =!$g"ent as is a##owe$ to *e set-off !n$er the stat!tes

of set-off, which are constr!e$ !nifor"#&, in the #ight of !*#ic o#ic&, to

exc#!$e the re"e$& in an action or an& in$e*te$ness of the state or

"!nicia#it& to one who is #ia*#e to the state or "!nicia#it& for taxes' either

are the& a roer s!*=ect of reco!"ent since the& $o not arise o!t of the

contract or transaction s!e$ on'

F!rther, the go/ern"ent a#rea$& Francia' A## he has to $o was to with$rawthe "one&' a$ he $one that, he co!#$ ha/e ai$ his tax o*#igations e/en

*efore the a!ction sa#e or co!#$ ha/e exercise$ his right to re$ee" > which

he $i$ not $o'

Anent the iss!e that the se##ing rice of %2,0' was gross#& ina$e!ate,

the sa"e is not tena*#e' The S!re"e Co!rt sai$< :a##ege$ gross ina$e!ac&

of rice is not "ateria# when the #aw gi/es the owner the right to re$ee" as

when a sa#e is "a$e at !*#ic a!ction, !on the theor& that the #esser the

rice, the easier it is for the owner to effect re$e"tion'; (f "ere ina$e!ac&

of rice is he#$ to *e a /a#i$ o*=ection to a sa#e for taxes, the co##ection of

taxes in this "anner wo!#$ *e great#& e"*arrasse$, if not ren$ere$

a#together i"ractica*#e' :9here #an$ is so#$ for taxes, the ina$e!ac& of therice gi/en is not a /a#i$ o*=ection to the sa#e'; This r!#e arises fro"

necessit&, for, if a fair rice for the #an$ were essentia# to the sa#e, it wo!#$ *e

!se#ess to offer the roert&' (n$ee$, it is notorio!s that the rices ha*it!a##&

ai$ *& !rchasers at tax sa#es are gross#& o!t of roortion to the /a#!e of

the #an$'

DOMINGO VS. GARLITOS (JUNE 29, 1963)

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CASE )CTR(E/5

4o 0//0 o4 0*$ate$ A+7+$/ %, 2&&2 >00 $0*/ /o LMCEC

thro!gh 80$o* $0#0on )cto*er 1, 22'

Since the co"an& an$ its reresentati/es 04+$0 /o 00#0 /50 $

*o/0$ * 0* 0//0, the re/en!e officers resorte$ to

o*$/+/#0 $0#0 in accor$ance with Section 3, Re/en!e

Reg!#ations RR. o' 12-++11'

)n ?a& 21, 23, 80//o*0, 0400 /o /50 S00/- o4 J+$/0 4o

80*- *#0$/7/o*its co"#aint against ?CEC, !is ?' Ca"!s

an$ ino ' ?en$o4a, the #atter />o >00 $+0 * /50 8/0$ $

P0$0*/ * Co8/o0, resecti/e#&'

The case was $ocete$ as ('S' o' 23-770' (n the Joint Affi$a/it

exec!te$ *& the re/en!e officers who con$!cte$ the tax fra!$

in/estigation,

it was a##ege$ that $esite the receit of the fina# assess"ent notice

an$ for"a# $e"an$ #etter on )cto*er 1, 22, ?CEC fai#e$ an$

ref!se$ to a& the $eficienc& tax assess"ent in the tota# a"o!nt of

%63,160,631'61, inc#!si/e of incre"ents, >55 5 ;0o0 4*

* 00+/o- $ 0$+/ o4 /50 $ /8-0?$ 4+0 /o 40 8o/0$/ /500o* >/5* /50 /5/- (3&)@- 0700*/- 80o'

Ca"!s an$ ?en$o4a fi#e$ a Joint Co!nter-Affi$a/it conten$ing that

LMCEC **o/ ;0 50 ;0 >5/$o0#0 4o /50 070 /

040*- which ha$ *eco"e $!e an$ $e"an$a*#e' Consi$ering that

the co"#aint an$ its annexes a## showe$ that the $+/ $ $80 #

/o* 4o o0/o*an$ not a tax e/asion case,

?CEC f!rther a/erre$ that it ha$ a/ai#e$ of the !rea!s Tax

A"nest& %rogra"s Econo"ic Reco/er& Assistance %a&"ent

ERAPB Po7 * /50 Vo+*/- A$$0$$0*/ Po7 VAPB)

4o 199< * 1999 4o 199%, /$ / ;/- >$ /0*/0 *

o$0 +*0 L0//0 o4 T0*/o*

?CEC arg!e$ that etitioner $ *o> 0$/o880fro" f!rther taing

an& action against it an$ its cororate officers concerning the taxa*#e

&ears 1++7 to 1+++' "/5 /50 7*/ o4 +*/- 4o +/ 4o

/50 o8*-?$ #0*/ o4 ERAP * VAP, >55 5#0

40/+0 o4 / *0$/-, /50 000*/ o4 4+ $ *07/0

?CEC f!rther asserte$ that it 40 o* A8 2&, 2&&1 8o/0$/ o*

/50 PANiss!e$ *& etitioner for ha/ing no *asis in fact an$ #aw'

owe/er, !nti# now the sai$ 8o/0$/ 0*$ +*0$o#0'

(n the Joint Re#&-Affi$a/it exec!te$ *& the !rea!s re/en!e officers,

80//o*0 $700 >/5 /50 o*/0*/o* o4 LMCEC /5/ /50

o8*/ 40 $ *o/ * * */+0, ointing o!t that ?CEC an$

its officers Ca"!s an$ ?en$o4a were *eing charge$ for the cri"ina#

offenses $efine$ an$ ena#i4e$ !n$er Sections 250 Atte"t to E/a$e or

efeat Tax. an$ 255 9i##f!# Fai#!re to %a& Tax. of the (RC'

(n this case, the (R $eci$e$ to si"!#taneo!s#& !rs!e *oth

re"e$ies an$ th!s asi$e fro" this cri"ina# action, the !rea! a#so

initiate$ a$"inistrati/e rocee$ings against ?CEC'

%etitioner stresse$ that LMCEC 0- o$/ /$ 75/ /o 40

8o/0$/ 0//0 4/0 /50 8$0 o4 /50 /5/- (3&)@- 0700*/-

80o' ?CECs rotest-#etter $ate$ D00;0 12, 2&&2 to R)C#a/e#ina S' acar, R o' 0, C!*ao, N!e4on Cit& was /+-

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40 o*- o* D00;0 16, 2&&2 , which was $isregar$e$ *& the

etitioner for *eing fi#e$ o!t of ti"e'

P0//o*0 4+/50 $$0/0 /5/ LMCEC?$ /5/ / >$

7*/0 +*/- 4o +/ >50* / #0 o4 /50 VAP *

ERAP 8o7$ $ $0*7' LMCEC 40 /o $//0 /5/ /$

#0*/ o4 ERAP +*0 RR No. 2@99 $ *o/ 7*/ o4 ;$o+/0+*/-fro" a!$it an$ in/estigation,

%etitioner a#so ointe$ o!t that LMCEC?$ $$0/o* o0/*7

/5$ $0 >/5 I.S. No. &&@9'6 $ $0*7 ;0+$0 $ $0

*#o#0$ *o/50 #o/o* * o440*$0 $+0 /o /50 4+0 o4

LMCEC /o $+;/ o 80$0*/ /$ ;oo$ o4 o+*/$ n$ other

acco!nting recor$s for exa"ination $esite the iss!ance of

s!*oena $!ces tec!" 7*$/ C+$ * 5$ 8/- $

P0$0*/ o4 LMCEC' The $eter"ination of ro*a*#e ca!se in sai$

case is confine$ to the iss!e of >50/50 /500 >$ 0-

#o/o* o4 /50 NIRC ;- C+$ * *o/ o8-*7 >/5 /50

$+;8o0* +0$ /0+ $$+0 ;- /50 IR'

ISSUE: >50/50 LMCEC * /$ o8o/0 o440$ - ;0 8o$0+/0

4o #o/o* o4 S0/o*$ 2' (A//08/ /o E#0 o D040/ T) * 2''

("4+ F+0 /o S+88- Co0/ * A+/0 I*4o/o* * P-

T).

HELD:

9e grant the etition'

There is no $is!te that 8o /o /50 4*7 o4 /50 o8*/ >/5 /50DOJ, /50 08o/ o* /50 / 4+ *#0$/7/o* o*+/0 o* LMCEC

$o$0 /5/ / 0 $+;$/*/ +*00/o*$ in its inco"e

tax ret!rns for 1++7, 1++8 an$ 1+++'

%!rs!ant to RR o' 12-++,38 PAN >$ $0*/ /o * 00#0 ;-

LMCEC o* F0;+- 22, 2&&1wherein it was notifie$ of the roose$

assess"ent of $eficienc& taxes' (n resonse to sai$ %A, ?CEC sent a

#etter-rotest to the TF, which $enie$ the sa"e o* A8 12, 2&&1 for

#ac of #ega# an$ fact!a# *asis an$ a#so for ha/ing *een 40 ;0-o* /50

1'@- 0700*/- 80o'

A$ 0*/o*0 * /50 PAN, /50 0#0*+0 o440$ >00 *o/ 7#0* /50

o88o/+*/- /o 0*0 LMCEC?$ ;oo$ o4 o+*/$ * o/50

o+*/*7 0o$ ;0+$0 /$ o440$ 40 /o o8- >/5 /50

$+;8o0* +0$ /0+ ear#ier iss!e$, to /erif& its a##ege$

!n$er$ec#arations of inco"e reorte$ *& the !rea!s infor"ant !n$er

Section 282 of the (RC' H0*0, * o8*/ >$ 40 ;- /50

+0+ 7*$/ 8#/0 0$8o*0*/$ 4o #o/o* o4 S0/o* 266

Fo /50 0 o4 / 0#$o* * 8/+, o8*0 ;- /50/8-0 >/5 $+5 $+;8o0*, 4 *- 5 ;00* $$+0, $ 00#*/ '

A$ >0 50 * U*7; #. C+$, J.,1 =/B50 0 $ o80/0 >50*

/50 /8-0B 5$ *o>*7- * >4+- 40 B 4++0*/

0/+*B >/5 */0*/ /o 0#0 * 040/ /50 /'H

(n the etai#s of iscreancies attache$ as Annex of the %A,02

ri/ate reson$ents were a#rea$& notifie$ that inas"!ch as /50 0#0*+0

o440$ >00 *o/ 7#0* /50 o88o/+*/- /o 0*0 LMCEC?$ ;oo$

o4 o+*/$, o+*/*7 0o$ * o/50 o+0*/$, $

0#0*+0 o440$ 7/500 *4o/o* 4o /5 8/0$. S+5

8o0+0 $ +/5o0 +*0 S0/o* ' o4 /50 NIRC,

Reson$ent Secretar&, howe/er, f!##& conc!rre$ with ri/ate reson$ents

contention that the $$0$$0*/ *o/0$ >00 *# 4o ;0*7

+**+;00 * /50 / ;/0$ /500* $//0 5#0 0- ;00*

$0//0 *o /0*/0'

9e $o not agree'

A *o/0 o4 $$0$$0*/is0 /o 0#0>

4**7$ o4 8o$0+/o$ * 80*- *#0$/7/o*$'

A#tho!gh o#ic& consi$erations ca## for the wi$est #atit!$e of

$eference to the rosec!tors fin$ings, co!rts sho!#$ ne/er shir

fro" exercising their ower, when the circ!"stances warrant, to

$eter"ine whether the rosec!tors fin$ings are s!orte$ *& the

facts, or *& the #aw'

(n so $oing, o+/$ o *o/ / $ 8o$0+/o$ ;+/ $ o7*$ o4

/50 +-, 00$*7 /50 */0 +*0 /50 Co*$//+/o*,

00#*/ $//+/0$, * 00 +0$ /o $0//0 $0$ *

o*/o#0$0s'

C#ear#&, /50 8o>0 o4 /50 S00/- o4 J+$/0 /o 0#0> o0$ *o/

80+0 /5$ Co+/ * /50 CA 4o */0#0**7 * 00$*7

o+ o>* 8o>0$ o4 0#0> >/5 0$80/ /o /50 DOJ?$ 4**7$ ,

s!ch as in the excetiona# case in which gra/e a*!se of $iscretion isco""itte$, as when a c#ear s!fficienc& or ins!fficienc& of e/i$ence to

s!ort a fin$ing of ro*a*#e ca!se is ignore$'

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G.R. No. L@2%61 A+7+$/ 31, 19%1

ALLIED RO!ERAGE CORPORATION,/s'

THE COMMISSIONER OF CUSTOMS * /50 COURT OF TA APPEALS

FERNANDO, J.:

FACTS: A##ie$ roerage Cororation is $!#& #icense$ to engage in the

c!sto"s *roerage *!siness an$ sees to ref!n$ %35,227' ai$ to the

C!sto"s Arrastre Ser/ice a##ege$#& in excess of what was $!e !n$er the

Tariff an$ C!sto"s Co$e' Co""issioner of C!sto"s conten$e$ that A##ie$

#ace$ a ca!se of action as it $i$ not a& !n$er rotest the charges co##ecte$

*!t instea$ fi#e$ its c#ai" for ref!n$ $irect#& with the Co""issioner of

C!sto"s' Th!s, A##ie$ $i$ not exha!st the a$"inistrati/e re"e$ies'

CTA r!#e$ in fa/or of the Co""issioner an$ conc#!$e$ that the fi#ing

of a written rotest with the roer Co##ector of C!sto"s within the stat!tor&

erio$ is "an$ator& an$ a con$ition rece$ent for the reco/er& of c!sto"s

$!ties, fees an$ other charges a##ege$#& erroneo!s#& or i##ega##& co##ecte$ an$

non-co"#iance therewith *ars an$ is fata# to the action'

ISSUE: "ON ALLIED RO!ERAGE IS ENTITLED FOR REFUND

HELD: NO. The Tariff an$ C!sto"s Co$e has in$icate$ in a "anner $efinite

an$ certain how a cha##enge$ act!ation of a co##ector of c!sto"s "a& *e

e#e/ate$ to CTA' The art& a$/erse#& affecte$ H"a& rotest s!ch r!#ing or

$ecision *& resenting to the Co##ector at the ti"e when a&"ent of the

a"o!nt c#ai"e$ to *e $!e the go/ern"ent is "a$e, or within thirt& $a&s

thereafter, a written rotest setting forth his o*=ections to the r!#ing or

$ecision in !estion, together with the reasons therefor'H (t is stresse$ in the

next section that the intereste$ art& who $esires s!ch a re/iew of the action

taen *& the Co##ector Hsha## "ae a rotest, otherwise, the action of the

Co##ector sha## *e fina# an$ conc#!si/e against hi", ''' 'H Then, there is the

ex#icit ro/ision that s!ch an aggrie/e$ art& in an& "atter resente$ *&

rotest H"a&, within fifteen $a&s after notification in writing *& the Co##ector of

his action or $ecision, gi/e written notice to the Co##ector of his $esire to ha/e

the "atter re/iewe$ *& the Co""issioner'H

9here a ro/ision of #aw seas categorica##& the nee$ for

interretation is o*/iate$, no #a!si*#e retense *eing entertaine$ to =!stif&

non-co"#iance' A## that has to *e $one is to a#& it in e/er& case that fa##s

within its ter"s' CTA then ha$ no other choice *!t to $is"iss the case in /iew

of the fata# o"ission of etitioner'

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GULF AIR COMPANK, PHILIPPINE RANCH (GF), P0//o*0, #.

COMMISSIONER OF INTERNAL REVENUE, R0$8o*0*/.

'R' o' 18205 < Sete"*er 1+, 212

F/$< %etitioner !#f Air Co"an& %hi#iine ranch F. is a *ranch of

!#f Air Co"an&, a foreign cororation $!#& organi4e$ in accor$ance with

the #aws of the Oing$o" of ahrain'

(n 21, F a/ai#e$ of the Lo#!ntar& Assess"ent %rogra" of the !rea! of

(nterna# Re/en!e (R. !n$er Re/en!e Reg!#ations 8-21 for its 1+++ an$

2 (nco"e Tax an$ oc!"entar& Sta" Tax an$ its %ercentage Tax forthe thir$ !arter of 2, a&ing a tota# of % 11,+60,608''

F a#so "a$e a c#ai" for ref!n$ of ercentage taxes for the first, secon$ an$

fo!rth !arters of 2' (n connection with this, a #etter of a!thorit& was

iss!e$ *& the (R a!thori4ing its re/en!e officers to exa"ine Fs *oos of

acco!nts an$ other recor$s to /erif& its c#ai"'

After its s!*"ission of se/era# $oc!"ents an$ an infor"a# conference with

(R reresentati/es, F recei/e$ its %re#i"inar& Assess"ent otice on

o/e"*er 0, 23 for $eficienc& ercentage tax a"o!nting to %

32,705,101'+3' )n the sa"e $a&, F a#so recei/e$ a #etter $en&ing its c#ai"for tax cre$it or ref!n$ of excess ercentage tax re"ittance for the first,

secon$ an$ fo!rth !arters of 2, an$ re!esting the i""e$iate sett#e"ent

of the $eficienc& tax assess"ent'

F then recei/e$ the For"a# etter of e"an$, for the a&"ent of the tota#

a"o!nt of % 33,860,186'62' (n resonse, it fi#e$ a #etter to rotest the

assess"ent an$ to reiterate its re!est for reconsi$eration on the $enia# of its

c#ai" for ref!n$'

)n J!ne 3, 20, the e!t& Co""issioner, )fficer-in-Charge of the arge

Taxa&ers Ser/ice of the (R, $enie$ Fs written rotest for #ac of fact!a#

an$ #ega# *asis an$ re!este$ the i""e$iate a&"ent of the %

33,860,186'62 $eficienc& ercentage tax assess"ent'

Aggrie/e$, F fi#e$ a etition for re/iew with the CTA' The CTA affir"e$ the

$ecision of the (R an$ or$ere$ the a&"ent of % 01,117,730'1 #!s 2P

$e#in!enc& interest'

F e#e/ate$ the case to the CTA En anc which ro"!#gate$ its ecision onJan!ar& 3, 28 $is"issing the etition an$ affir"ing the $ecision of the

CTA in i/ision' (t fo!n$ that Re/en!e Reg!#ations o' 6-66 was the

a#ica*#e r!#e *eca!se the erio$ in/o#/e$ in the assess"ent co/ere$ the

first, secon$ an$ fo!rth !arters of 2 an$ the a"en$e$ ercentage tax

ret!rns were fi#e$ on )cto*er 25, 21' Re/en!e Reg!#ations o' 15-22,

which too effect on )cto*er 26, 22, co!#$ not *e gi/en retroacti/e effect

*eca!se it was $ec#arati/e of a new right as it ro/i$e$ a $ifferent r!#e in

$eter"ining gross receits'

F s!*se!ent#& fi#e$ a "otion for reconsi$eration *!t the sa"e was $enie$

*& the CTA En anc in its ?arch 12, 28 Reso#!tion' ence, this etition'

I$$+0: 9I the $efinition of Hgross receits,H for !roses of co"!ting the

3P %ercentage Tax !n$er Section 118A. of the 1++7 ationa# (nterna#

Re/en!e Co$e (RC., sho!#$ inc#!$e secia# co""issions on assengers

an$ secia# co""issions on cargo *ase$ on the rates aro/e$ *& the Ci/i#

Aerona!tics oar$'

R+*7< Affir"ati/e'

Section 118A. of the (RC states that< Sec' 118' %ercentage Tax on

(nternationa# Carriers'

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A. (nternationa# air carriers $oing *!siness in the %hi#iines sha## a& a tax

of three ercent 3P. of their !arter#& gross receits'

%!rs!ant to this, the Secretar& of Finance ro"!#gate$ Re/en!e Reg!#ations

o' 15-22, which rescri*es that Hgross receitsH for the !rose of

$eter"ining Co""on Carriers Tax sha## *e the sa"e as the tax *ase for

ca#c!#ating ross %hi#iine i##ings Tax' Section 5 of the sa"e ro/i$es for

the co"!tation of Hross %hi#iine i##ingsH