This case clarifies the mandatory procedure for appealing Court of Tax Appeals (CTA) decisions and outlines the remedies available to taxpayers contesting local tax assessments. The Supreme Court emphasized that a motion for reconsideration must first be filed with the CTA Division before elevating the case to the CTA En Banc. Furthermore, the Court reiterated that taxpayers who pay a protested assessment are not precluded from seeking a refund, provided they comply with specific timelines for filing protests and subsequent court actions. This decision underscores the importance of adhering to procedural rules while safeguarding taxpayers’ rights to challenge erroneous tax impositions, providing clarity on the interplay between tax protests and refund claims.

Manila’s Tax Maze: Can a Bottler Shift Gears from Protest to Refund?

The City of Manila assessed Cosmos Bottling Corporation for local business taxes, which Cosmos contested, arguing double taxation and the invalidity of the tax ordinances used. After paying the assessed amount, Cosmos sought a refund, leading to a legal battle over procedural technicalities and the substantive issue of whether the city improperly collected taxes. This case highlights the complexities businesses face when disputing local tax assessments and the importance of understanding the proper legal avenues for seeking redress. The central legal question is whether Cosmos, having initially protested the assessment and subsequently paid it, could validly pursue a claim for refund.

The Supreme Court, in this case, addressed several critical points concerning local taxation and administrative procedure. First, the Court emphasized the mandatory nature of filing a motion for reconsideration or new trial before the CTA Division before an appeal can be made to the CTA En Banc. Citing Section 18 of Republic Act (R.A.) No. 1125, as amended by R.A. No. 9282 and R.A. No. 9503, the Court underscored that this procedural step is a prerequisite for the CTA En Banc to assume jurisdiction over the appeal. Failure to comply with this requirement can result in the dismissal of the appeal.

Section 18. Appeal to the Court of Tax Appeals En Banc. – No civil proceeding involving matter arising under the National Internal Revenue Code, the Tariff and Customs Code or the Local Government Code shall be maintained, except as herein provided, until and unless an appeal has been previously filed with the CTA and disposed of this Act.

A party adversely affected by a resolution of a Division of the CTA on motion for reconsideration or new trial, may file a petition for review with the CTA en banc.

Building on this principle, the Court referenced Section 1, Rule 8 of the Revised Rules of the CTA, which explicitly states that a petition for review before the CTA En Banc “must be preceded by the filing of a timely motion for reconsideration or new trial with the Division.” The use of the word “must” indicates that this procedural step is not discretionary but mandatory, as failure to comply will lead to dismissal.

However, the Court also recognized that rules of procedure may be relaxed in the interest of justice, particularly when strict adherence would result in an injustice. In this case, the Court found that the City of Manila had erroneously assessed and collected local business taxes from Cosmos, warranting a refund. The CTA Division’s ruling was based on several factors, including the use of invalid tax ordinances, the imposition of double taxation, and the incorrect computation of local business tax liability.

Specifically, the Court noted that Ordinance Nos. 7988 and 8011, which were used as the basis for the assessment, had already been declared null and void in previous cases, such as Coca-Cola Bottlers Philippines, Inc. v. City of Manila (2006). These cases established that the ordinances were invalid due to non-compliance with publication requirements. Furthermore, the Court agreed with the CTA Division that the collection of local business taxes under both Section 21 and Section 14 of the Revenue Code of Manila constituted double taxation. The city cannot impose both a manufacturer’s tax and a tax on other businesses on the same entity without engaging in impermissible double taxation.

[T]here is indeed double taxation if respondent is subjected to the taxes under both Sections 14 and 21 of Tax Ordinance No. 7794, since these are being imposed: (1) on the same subject matter — the privilege of doing business in the City of Manila; (2) for the same purpose — to make persons conducting business within the City of Manila contribute to city revenues; ‘(3) by the same taxing authority — petitioner City of Manila; (4) within the same taxing jurisdiction — within the territorial jurisdiction of the City of Manila; (5) for the same taxing periods per calendar year; and (6) of the same kind or character — a local business tax imposed on gross sales or receipts of the business.

Moreover, the Court clarified the proper basis for computing local business tax liability, emphasizing that it should be based on the gross sales or receipts of the preceding calendar year, as provided in Section 143(a) of the Local Government Code (LGC). In this case, the City of Manila had erroneously based the computation on Cosmos’ gross sales from two years prior, leading to an inflated assessment.

Another crucial aspect of the case was the Court’s discussion of the remedies available to taxpayers who contest local tax assessments. The Court explained that taxpayers could either protest the assessment without payment or pay the tax and subsequently seek a refund. These remedies are outlined in Sections 195 and 196 of the LGC. Section 195 provides the procedure for protesting an assessment, while Section 196 provides the procedure for claiming a refund of erroneously or illegally collected taxes.

Specifically, the Court explained that even when a taxpayer initially protests an assessment, they are not precluded from later instituting an action for refund or credit. The taxpayer has sixty (60) days from receipt of the notice of assessment to file a written protest. Following a denial or inaction by the local treasurer, the taxpayer has thirty (30) days to appeal to a court of competent jurisdiction. The key is that the action in court must be initiated within thirty (30) days from the denial of or inaction on the letter-protest or claim, even if it falls within the two-year prescriptive period stated in Section 196.

In Cosmos’ case, the Court found that the company had followed the proper procedure by protesting the assessment, paying the tax, and subsequently seeking a refund. Cosmos’ initial letter protesting the assessment was deemed sufficient as an administrative claim for refund. The company then filed its action before the RTC within thirty (30) days of receiving the denial of its protest. Thus, the assessment had not yet attained finality when Cosmos brought its case to court.

In summary, this case clarifies the importance of adhering to procedural rules in tax appeals while also upholding the right of taxpayers to seek refunds when taxes have been erroneously or illegally collected. The Court’s decision provides valuable guidance to businesses navigating the complex landscape of local taxation, highlighting the available remedies and the timelines for pursuing them.

FAQs

What was the key issue in this case?	The key issue was whether Cosmos Bottling Corporation could pursue a refund claim after initially protesting a local tax assessment and subsequently paying the assessed amount. The case also addressed the procedural requirement of filing a motion for reconsideration before appealing to the CTA En Banc.
What is the mandatory procedure for appealing a CTA Division decision?	Before appealing to the CTA En Banc, a party must first file a motion for reconsideration or new trial with the CTA Division that rendered the decision. This procedural step is mandatory under Section 18 of R.A. No. 1125 and Section 1, Rule 8 of the Revised Rules of the CTA.
Can a taxpayer seek a refund after protesting and paying a tax assessment?	Yes, a taxpayer who has protested and paid an assessment is not precluded from seeking a refund, provided they comply with the timelines for filing protests and subsequent court actions. This remedy is available under Sections 195 and 196 of the Local Government Code.
What is the timeline for protesting a local tax assessment?	A taxpayer has sixty (60) days from receipt of the notice of assessment to file a written protest with the local treasurer. Failure to file a protest within this period will render the assessment final and executory.
What is the timeline for appealing a denial of a tax protest?	If the local treasurer denies the protest, or fails to act on it within sixty (60) days, the taxpayer has thirty (30) days from receipt of the denial or the lapse of the sixty-day period to appeal to a court of competent jurisdiction.
What is the effect of using invalid tax ordinances for assessment?	If local tax assessments are based on ordinances that have been declared null and void, the assessments are invalid and cannot be enforced. The taxpayer is entitled to a refund of any taxes collected under such invalid ordinances.
What constitutes double taxation in local business tax?	Double taxation occurs when a local government unit imposes taxes on the same subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction, for the same period, and of the same kind or character. Specifically, imposing taxes under both Sections 14 and 21 of the Revenue Code of Manila on the same business activity is deemed double taxation.
How should local business tax be computed?	Local business tax should be computed based on the gross sales or receipts of the preceding calendar year. Basing the computation on sales from an earlier year is incorrect.
What is the significance of Sections 195 and 196 of the Local Government Code?	Section 195 outlines the procedure for protesting a tax assessment, while Section 196 provides the procedure for claiming a refund of erroneously or illegally collected taxes. Both sections provide administrative remedies that taxpayers must exhaust before bringing an action in court.

This ruling offers critical insights for businesses navigating the complexities of local tax regulations and dispute resolution. Understanding the interplay between tax protests, refund claims, and procedural requirements is essential for safeguarding financial interests and ensuring compliance with local tax laws. The Court’s emphasis on both procedural adherence and substantive justice serves as a reminder of the importance of seeking expert legal counsel in navigating these intricate matters.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: CITY OF MANILA V. COSMOS BOTTLING CORPORATION, G.R. No. 196681, June 27, 2018