[Philex Mining v. CIR] (1998)
ISSUE
[Romero, J]
TOPIC Taxes distinguished from Debts
SUMMARY (optional for relatively long cases)
DOCTRINE Taxes cannot be subject to
compensation for the simple reason that
the government and the taxpayer are
not creditors and debtors of each other.
There is a material distinction between
a tax and debt. Debts are due to the
Government in its corporate capacity,
while taxes are due to the Government
in its sovereign capacity.
I. FACTS
BIR sent a letter to Philex asking it to settle its tax liabilities
for 2nd to 4th qtr of 1991 and 1st and 2nd qtr of 1992
(P123.8M). Philex protested, saying that it has pending
claims for VAT input credit/refund for the taxes it overpaid
in 1989 to 1st qtr of 1991.
Philex cited CIR v. Itogon-Suyoc Mines, where it was
ruled that a pending refund may be off-set against an
existing tax liability even though the refund has not yet
been approved.
BIR denied the protest and reiterated its demand. Philex
filed a case with the CTA on this issue. In the course of
the proceedings, BIR issued tax credits to Philex in the
amount of P13.1M, therefore reducing its assessed
liability to P110.7M.
The CTA ordered Philex to pay the remaining balance of
P110.7M. The CTA ruled that legal compensation cannot
take place, because there is no creditor-debtor
relationship between the State and the taxpayer.
Moreover, the VAT input/credit refund is still unliquidated
as it is still pending litigation. Compensation can only take
place between liquidated debts. The CA affirmed the
CTA’s decision.
A few days after the CA decision, Philex obtained its VAT
input/credit refund for 1991-1994. Philex now contends
that it should off-set its excise tax liabilities, because it has
now been, according to Philex, “due and demandable, as
well as fully liquidated."
II.
Whether the VAT input/credit refund obtained by Philex
can off-set its excise tax liabilities? – NO, cannot off-
set.
III. RATIONALE
No creditor-debtor relationship. Taxes cannot be
subject to compensation because the government and
taxpayer are not creditors and debtors of each other.
Debts are due to the government in its corporate capacity;
taxes are due to it in its sovereign capacity.
Philex cites overruled CIR v. Itogon-Suyoc. Philex’s
reliance on CIR v. Itogon-Suyoc Mines is misplaced, as
that case no longer finds support in statutory law. Itogon
relied on Sec. 51(d) of the 1939 Tax Code, which has
been omitted in the 1977 NIRC.
Philex must still pay even if it had pending VAT
input/credit refund case in BIR. Taxes are the lifeblood
of the government and should be collected without
unnecessary hindrance. Payment of tax is compulsory
rather than a matter of bargain. Hence, a tax does not
depend upon the consent of the taxpayer. If the taxpayer
can defer the payment, this would adversely affect the
government revenue system.
BIR violated NIRC because it took too long to resolve
the refund claim. However, this is not ground for non-
payment. The NIRC requires that refund of input taxes
must be within 60 days, but it took the BIR 5 years to grant
the claim for refund. Once the claimant has submitted all
the required documents, it is the function of BIR to assess
these documents with purposeful dispatch. If the BIR
takes time in acting upon a taxpayer’s claim for refund,
the latter can seek judicial remedy in the CTA. Taxpayer
can also file a case for willful neglect of duty under the
Civil Code and the Tax Code. However, while BIR’s
apparent callousness in performing its duties cannot be
condoned, the same cannot justify Philex’s non-payment
of its taxes.
IV. DISPOSITIVE
WHEREFORE, in view of the foregoing, the instant
petition is hereby DISMISSED. The assailed decision of
the Court of Appeals dated April 8, 1996 is hereby
AFFIRMED. SO ORDERED.