CTA Case No. 775 (Decision)

I ct � ~ Trm PH!Lf!'P!N ~Li" . l' {JF '1.\X APlJE.A.J...s 'IAA.'\1.11..4 FEATI INDUSTtUE.S _. INC . , Petitioner� - versus - C. T. A. CASE NO. 775 CCMMISSIQ~ER OF INTERNAL REVENUE , Respondent . X- - - - ... -" ~ - ... - X DECISION This is an appeal from the de c ision of the res - pondent Commissioner of Internal Revenue denying a c laim for the refund of the sum of ~8~731 . 10 which was allegedly erroneously paid as sales ta x on the purc hases of certain mac hineries made by the peti- tioner from the National Shipyards and Steel Corpora- tion . It appears that the petitioner is engaged in the manufacture of water meters, transformers , fans and blowers t motor s 1 generators , br ass fau c ets J pumps _. pipes and fitting sf valves and welders . Upon proper applic ation , the Secretary of Financ e determined that the petitioner is engaged in a new and nec essary in - dustry . Pursuant to the provisions of Republic Act No4 901~ certific ates of tax exemption were issued in petitioner ' s favor which entitled it to exemption from the payment of taxes directly payable by it in respect to the said new and neces s ary industry. In the acc om- panying letters of the Secretary of Financ e , addressed

DECISIOi\l ... C. T. A. CASE NO. 775 -2 to the petitioner herein , it is expressly stated, among other things , th�t the latter is exempt from the p�yment of the "compens�ting tax on machinery and equipment to be used exclusively in the new and necessary indu stryt1 � (Par . 1, Partial Stipulation of Facts , pp. 17- 40i CTA rec . ; hereinafter cited as Stifacts . ) In the years 1956 �nd 1957 , the petitioner bought certain mac hineries fr om the National Ship- yards and Steel Corporation for use in its tax-exempt manufacturing business. Included in the gross sell- ing price of the ma c hineries was the 7% sales tax in the total amount of �8 , 731 . 10 whic h was fully p~id by the petitioner as of February 7, 1958 . {Par . 21 Sti- factso) On September 8, 1958, the petitioner filed with the respondent its written cl~im for the refund of ~8 1 731 . 10. (Par . 3)< Stif�cts.) However1 after a long delayt this refund c laim was finally denied by the res- pondent in a letter dated January 8, 1960. (Annex A, Petition for Review. ) After filing a motion for recon- sideration which was also denied by the respondent, the petitioner filed with this Court the instant petition for review on April l8g 1960. After the issues were joined, the parties sub- mitted a "Partial Stipulation of Facts" wherein they agreed, among other things , that the present action for refund is limited to the amount of ~ 6 , 364o 25 , and

DECISI ON. - C. T. A. CASE NO. 775 - 3- not ~8 ,73lol0 as or iginally c laimed , in view of the fa c t that the payment of the sum of 2, 366. 85 was umade beyond two years from the date of the filing of the c laim for refund on September 8 1 l958u , and there� ore already 11 affec ted by the prescript ive period" o {Par o 3 � Stifacts . ) The issues to be resolved in this c ase are a s follows: l o Whether or not the c ourt action for the re - c overy of the amount of 6, 364. 25 is already barred by pr escription; and 2o ~hether or not the petitioner is exempt from the payment of the sales tax on its purc hase of mac h- ineries for u se in it s ta x-e xempt indu stry . Section 306 of the National Internal Revenue Code whic h is ~ pplic able to the present c ase, provides: usee. 306. Reooverv of tax erroneously or illegally collected .- No suit or proc eeding shall be maintained in any c ourt for the re - c over y of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected , or of any penalty c laimed to have been collected with- out authority , or of any sum alleged to have 1 been exc essive or in any manner wr ongfully collected, until a claim for refund or credit has been duly filed with the Collector of In- ternal Revenue; but suc h suit or proceeding may be maintained , whether or not suc h ta x, penalty, or sum has been paid under protest or duress . In any c ase , no su c h suit or pro- ceeding shall be begun after the expiration of two ears from the date of a ment of the 1ax or penalty. Underscoring supplied. The Supreme Court , speaking thru Mr. J ustice Tuason , in interpreting and applying the above - quoted provisions of the Tax Code, stated:

DECISIQ\l - C.I . A. vASE NOo 775 -4- flN6where and in no wise does the law imply that the Collector of Internal e- venue must ac t upon the c laim ~ or that the taxpayer shall not go to c ourt before he is notified of the Collector ' s action . Having filed his claim and the Collector of Internal Revenue having had ample time to study it p the c laimant may , indeed should 9 within the statutory period of two years proceed with his suit without wait- ing for the Collector 's dec ision. (P. J . Kiener Co .� Ltd . vs . David , G. R. No . L- 5163, April 221 1953; 49 OG 1852. ) In a subsequent c ase p the Supreme Court , rei- terating the above ruling said: u Indeed , it must be observed that under said provisions , the taxpayer ' s failure to c omply with the requirement regarding the institution of the action or proc eeding in court within 2 years after the payment of the taxes bars him from the re c overy of the same � irrespe c tive of whether a c laim for the refund of su c h taxes filed with the Col- lector of Internal Revenue is still pending action of the latter. (College of Oral & Dental Surgery vs .Court .:of T�x Appeals, G. R. No. L-10446 , Jan . 28 11 1958� 54 OG 7055; see also Collector of Internal Revenue vs . Swee- ney, G. R. No . L- 12178g Aug . 21 , 1959 . ) In the case under c onsideration , it is an admitted fact that the sales taxes in question were fully paid as of February 711 1958 . (See par . 2, Stifacts . ) The instant �Petition for Reviewn was filed with this Court only on April 18 � 1960, or more than two years from the date of the payment of the sales taxes which the peti- tioner seeks to recover . Applying the above- quoted pro- visions of Section 306 of the Tax Code as interpreted and applied by the Supreme Court in several c ases, we are of the opinion and so hold that the c ourt action for the recovery of the sales taxes in the total amount ?t

DECI I C. T�� CASE NO. 775 - 5- of 6, 364. 25 alleged to have been erroneou s ly paid is already barred by prescription , and therefore , should be dismissed o The petitioner , however , c ontends that the last portion of Section 306 of the National Internal Revenue Code whic h provides that no suit or proceeding shall be begun after the expiration of two years from the payment of the tax was repealed by ection 11 of Re - public Act No. 1125 . This c ontention is devoid of merit . The Supreme Court has already held that there is no conflict bet - ween Section 306 of the Tax Code and Section 11 of Re - public ct No . 1125 9 (Johnston Lumber Co., Inc . vs . Court of Tax Appeals , G. R. No. L- 9292, April 23, 1957; 53 OG 5226) and that the said provisions of law should be c on strued together . (Gibbs vs . Collector of Internal Re venue , G�� No . L- 13453, February 29 .1 1960. ) On this point , Mr . J ustice Barrera , speaking for the Supreme Court said& "In fine , a taxpayer who has paid the tax , whether under protest or not , and who is c laiming a refund of the same , must com- ply with the requirements of both sections, that is , he must file a claim for refund with the Collector of Internal Revenue within 2 years from the date of his pay- ment of the tax, as required by said Sec - tion 306 of the National Internal Revenue Code , and appeal to the Court of Ta x Ap- peals within 30 days from receipt of the Collector ' s de c ision or ruling denying his claim for _refund , as required by said Sec- tion 11 of Republic Act No. 1125 . If , how- ever, the Collector take s time in dec iding the c laim, and the period of two years is I

, DECISION - C.T.A. CASE NO. 775 .. 6 - about to end� the suit or proceeding must be started in the Court of Tax Appeals be- fore the end of the two-year period without awaiting the decision of the Collector. This is so because of the positive require- ment of Section 306 and the doctrine that delay of the Collector in renaering deci- sion does not extend the peremptory period fixed by the statute. (Gibbs vs . Collector of Internal Revenue, G. R. No . L- 134531 Feb- ruary 29 , 1960. ) the view that we take of the present caset not necessary to decide the second issue. WHEREFORE , in view of the foregoing considera- tions, the Petition for Reviewu filed by the peti- tioner on pril 18, 1960, is hereby dismissed , with costs against the petitioner. SO ORDERED . Manila , April 6J 1961. ROvlAN M. UMALI Associate Judge Presiding Judge MARIANO NABLE did not take part .