Haystack: Commissioner of Internal Revenue vs. Victorias Milling Co. (GR L-24108, 3 January 1968)

Commissioner of Internal Revenue vs. Victorias Milling Co. (GR L-24108, 3 January 1968)
En Banc, Bengzon JP (J): 10 concur

Facts: On 23 December 1957 Victorias Milling Co., Inc. filed a claim for the refund of the sum of P12,464.53 representing 50% of the specific tax paid on the manufactured oils and fuels used in its agricultural operation for the period from 18 June 1952 to 18 June 1957. The Commissioner of Internal Revenue granted refund in the sum of P3,415.18 representing the tax paid for the period from 1 January 1956 to 18 June 1957 but denied the claim in the amount of P2,817.08 which corresponds to the tax paid during the period from 18 June 1952 to 31 December 1955 for the reason that the same was filed after the 2-year period provided for in Section 306 of the Tax Code had elapsed.

Victorias Milling Co., Inc. appealed to the Court of Tax Appeals contending that Section 306 does not apply to its claim. The Court of Tax Appeals took the taxpayer’s view and ordered the CIR to refund Victorias Milling the amount of P2,817.08 representing the 50% of the specific tax paid on the oils used by it in agriculture during the period from 18 June 1952 to 31 December 1955. From said judgment, the Commissioner of Internal Revenue has appealed.

The Supreme Court reversed the decision appealed from, and dismissed the petition for refund on the ground of prescription; without costs.

1. Section 306 of the Tax Code
Section 306 (Recovery of tax erroneously or illegally collected) provides that “No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Collector of Internal Revenue; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. In any case, no such suit or proceeding shall be begun after the expiration of two years from the date of payment of the tax or penalty.”

2. Applicability of Section 306 for refund; CIR vs. Insular Lumber Co.
Sections 306 and 309 of the National Internal Revenue Code were intended to govern all kinds of refunds of internal revenue taxes — those taxes imposed and collected pursuant to the National Internal Revenue Code. Thus, the Supreme Court stated that “this provision” referring to Section 306, “which is mandatory, is not subject to qualification, and, hence, it applies regardless of the conditions under which payment has been made.” A claim for refund of a specific tax, an internal revenue tax imposed in Section 142 of the National Internal Revenue Code, is beyond the scope of Sections 306 and 309 is to thwart the aforesaid intention and spirit underlying said provisions.

3. Prescription of claim of refund, Reckoning period; CIR vs. Insular Lumber Co.
The intention is clear that refunds of internal revenue taxes are generally governed by Sections 306 and 309 of the Tax Code. Since in those cases the tax sought to be refunded was collected legally, the running of the two-year prescriptive period provided for in Section 306 should commence, not from the date the tax was paid, but from the happening of the supervening cause which entitled the taxpayer to a tax refund. And the claim for refund should be filed with the Commissioner of Internal Revenue, and the subsequent appeal to the Court of Tax Appeals must be instituted, within the said two- year period.

4. Ruling in Muller & Phipps modified; CIR vs. Insular Lumber Co.
In fine, when the tax sought to be refunded is illegally or erroneously collected, the period of prescription starts from the date the tax was paid; but when the tax is legally collected, the prescriptive period commences to run from the date of occurrence of the supervening cause which gave rise to the right of refund. The ruling in Muller & Phipps is accordingly modified.

5. Right of Victorias Milling to claim refund has prescribed
The claim for refund with the Bureau of Internal Revenue and the subsequent appeal to the Court of Tax Appeals must be filed within the two-year period. If, however, the Collector takes time in deciding the claim, and the period of two years is about to end, the suit or proceeding must be started in the Court of Tax Appeals before the end of the two-year period without awaiting the decision of the Collector. In the light of the ruling in CIR vs. Insular Lumber Co., the right of Victorias Milling Co,, Inc. to claim refund of P2,817.08 has prescribed.