CIR v. CEBU PORTLAND CEMENT CO.

G.R. No. L-29059. December 15, 1987

Digest by: AME Altiso
OLD LAW: SALES TAX
TOPIC: ANTI-INJUNCTION RULE

Facts:
By virtue of a decision of the Court of Tax Appeals rendered, as modified on appeal by the Supreme Court,
the Commissioner of Internal Revenue was ordered to refund to the Cebu Portland Cement Company the amount
of P359,408.98, representing overpayments of ad valorem taxes on cement produced and sold by it after October
1957.  CEBU PORTLAND moved for a writ of execution to enforce the said judgment. 

The motion was opposed by the CIR on the ground that the CEBU PORTLAND had an outstanding sales tax
liability to which the judgment debt had already been credited. In fact, it was stressed, there was still a balance
owing on the sales taxes in the amount of P4,789,279.85 plus 28% surcharge.  The Court of Tax Appeals ** granted
the motion, holding that the alleged sales tax liability of the CEBU PORTLAND was still being questioned and
therefore could not be set-off against the refund. 

Contentions:

CEBU PORTLAND:
 disclaims liability for the sales taxes, on the ground that cement is not a manufactured product but a
mineral product.  As such, it was exempted from sales taxes under Section 188 of the Tax Code after the
effectivity of Rep. Act No. 1299 on June 16, 1955, in accordance with Cebu Portland Cement Co. v.
Collector of Internal Revenue, 9 decided in 1968. Here Justice Eugenio Angeles declared that "before the
effectivity of Rep. Act No. 1299, amending Section 246 of the National Internal Revenue Code, cement
was taxable as a manufactured product under Section 186, in connection with Section 194(4) of the said
Code," thereby implying that it was not considered a manufactured product afterwards.
 Also, the alleged sales tax deficiency could not as yet be enforced against it because the tax assessment
was not yet final, the same being still under protest and still to be definitely resolved on the merits.
 Besides, the assessment had already prescribed, not having been made within the reglementary five-
year period from the filing of the tax returns. 

Commissioner of Internal Revenue claims:

 that the refund should be charged against the tax deficiency of the private respondent on the sales of
cement since cement is a manufactured and not a mineral product and therefore not exempt from sales
taxes.
 He adds that enforcement of the said tax deficiency was properly effected through his power of distraint
of personal property under Sections 316 and 318 5 of the said Code and,
 moreover, the collection of any national internal revenue tax may not be enjoined under Section
305,  subject only to the exception prescribed in Rep. Act No. 1125.  This is not applicable to the instant
case.
 The petitioner also denies that the sales tax assessments have already prescribed because the
prescriptive period should be counted from the filing of the sales tax returns, which had not yet been
done by the private respondent.

Issues:
1. Whether cement is a manufactured product and therefore not exempt from sales tax? Yes.

Ruling: It is clear that cement qua cement was never considered as a mineral product within the meaning of
Section 246 of the Tax Code, notwithstanding that at least 80% of its components are minerals, for the simple
reason that cement is the product of a manufacturing process and is no longer the 'mineral product' contemplated
in the Tax Code (i.e.; minerals subjected to simple treatments) for the purpose of imposing the ad valorem  tax.
"The decision sought to be reconsidered here referred to the legislative history of Republic Act No.
1299 which introduced a definition of the terms 'mineral' and 'mineral products' in Sec. 246 of the Tax Code. Given
the legislative intent, the holding in the CEPOC case (G.R. No. L-20563) that cement was subject to sales tax prior
to the effectivity of Republic Act No. 1299 cannot be construed to mean that, after the law took effect, cement
ceased to be so subject to the tax. To erase any and all misconceptions that may have been spawned by reliance
on the case of Cebu Portland Cement Co. v. Collector of Internal Revenue, L-20563, October 29, 1968 (28 SCRA 789)
penned by Justice Eugenio Angeles, the Court has expressly overruled it insofar as it may conflict with the decision
of August 10, 1983, now subject of these motions for reconsideration."

2. Whether or not the assessment has prescribed as it is beyond 5 years? No.

On the question of prescription, the private respondent claims that the five-year reglementary period for
the assessment of its tax liability started from the time it filed its gross sales returns on June 30, 1962. Hence, the
assessment for sales taxes made on January 16, 1968 and March 4, 1968, were already out of time. We disagree.
This contention must fail for what CEPOC filed was not the sales returns required in Section 183(n) but the ad
valorem tax returns required under Section 245 of the Tax Code.

CEPOC argues that said returns contain the information necessary for the assessment of the sales tax. The
Commissioner does not consider such returns as compliance with the requirement for the filing of tax returns so as
to start the running of the five-year prescriptive period. Absent a return, or when the return is false or fraudulent,
the applicable period is ten (10) days from the discovery of the fraud, falsity or omission

3. Whether there is merit on the contention that assessment cannot as yet be enforced because it is still being
contested? No.

The argument that the assessment cannot as yet be enforced because it is still being contested loses sight
of the urgency of the need to collect taxes as "the lifeblood of the government." If the payment of taxes could be
postponed by simply questioning their validity, the machinery of the state would grind to a halt and all government
functions would be paralyzed. That is the reason why, save for the exception already noted, the Tax Code
provides: 

"Sec. 291. Injunction not available to restrain collection of tax. — No court shall have authority to grant
an injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by this Code."

It goes without saying that this injunction is available not only when the assessment is already being
questioned in a court of justice but more so if, as in the instant case, the challenge to the assessment is still — and
only — on the administrative level. There is all the more reason to apply the rule here because it appears that even
after crediting of the refund against the tax deficiency, a balance of more than P4 million is still due from the
private respondent.

To require the petitioner to actually refund to the private respondent the amount of the judgment debt,
which he will later have the right to distrain for payment of its sales tax liability is in our view an idle ritual. We hold
that the respondent Court of Tax Appeals erred in ordering such a charade.
 BANK OF THE PHILIPPINE ISLANDS vs. WENCESLAO TRINIDAD, Collector of Internal Revenue, 
G.R. No. 16014; October 4, 1921
Digest by: AME Altiso

TOPIC: NATURE AND EXTENT OF TAX LIEN

FACTS:

Collector of Internal Revenue, through his duly authorized agent, seized and distrained certain personal
property, consisting of machinery for sawing lumber and advertised the same for sale, to realize the sum of
P2,159.79, alleged to be due to the Government from Pujalte & Co., as forestry charges. CIR claimed that said
personality belonged to the said company, was used in the business on which the taxes were due, and was liable to
seizure to cover said taxes.
On the other hand, BPI claimed to be the owner of said property by virtue of chattel mortgage conveyed
as security for payment to BPI of two promissory notes for the sum of P180,000 owed to him by Pujalte & Co., It
was duly registered and, on that date, the property is free from all tax lien. BPI demanded its release. The demand
being denied, BPI paid to CIR the said sum of P2,159.79 under protest to prevent the sale of said property, and
immediately brought the present action in the Court of First Instance of Zamboanga to recover the same. The
lower court, after due trial, dismissed the BPI’s complaint and absolved CIR from all liability thereunder for the
following reason:
1. That the party who was liable to pay the taxes for which the property in question was distrained was
not BPI but Pujalte & Co.; and that BPI, having "voluntarily and spontaneously" paid the debt of the latter, had no
cause of action against the defendant collector, and could only recover the sum so paid by it from Pujalte & Co.,
under article 1158 of the Civil Code (p. 15, B. of E. ); that the plaintiff should have proceeded under section 141
of Act No. 2339 (now sec. 1580 of Act No. 2711), and not under section 140 of the said Act (sec. 1579 of Act No.
2711).
2. That "even supposing for a moment" that BPI had a right of action against the CIR to recover the sum
paid by it to the latter, yet this action must fail because the property in question, having been used by Pujalte & Co.
in its business of cutting and sawing lumber, was liable to seizure and distraint under section 149 of Act No. 2339.

ISSUE: Whether recovery by BPI is proper? Yes.

RULING:
We are of the opinion that neither of the foregoing reasons is sound, and that the judgment of the lower
court should be revoked.

First. There is absolutely no basis for the finding of the trial court that "the plaintiff bank had voluntarily
and spontaneously paid the debt of a third party, that is, that of the firm of Pujalte & Co." (p. 15, B. of E.).
Paragraph 7 of the plaintiff's complaint alleges: "That thereupon, involuntarily and under due protest in writing, the
plaintiff bank made payment of the required sum of P2,159.79 in order to secure the release of its seized
property." These allegations were specifically admitted by the defendant (par. 5, stipulation, Plaintiff's Exhibit G).

Section 140 of the Internal Revenue Law (Act No. 2389) provides as follows:

"SEC. 140. Recovery of tax paid under protest. — When the validity of any tax is questioned, or amount
disputed, or other question raised as to, liability therefor, the person against whom or against whose property the
same is sought to be enforced shall pay the tax under instant protest, or upon protest within ten days, and shall
there upon request the decision of the Collector of Internal Revenue. If the decision of the Collector of Internal
Revenue is adverse, or if no decision is made by him within six months from the date when his decision was
requested, the taxpayer may proceed, at any time within two years after the payment of the tax, to bring an action
against the Collector of Internal Revenue for the recovery of the sum alleged to have been illegally collected, the
process to be served upon him, upon the provincial treasurer, or upon the officer collecting the tax."
Section 141 of the same Act provides:
"SEC. 141. Action to contest forfeiture of chattel. — In case of the seizure of personal property under claim
of forfeiture the owner, desiring to contest the validity of the forfeiture, may at any time before sale or destruction
of the property bring an action against the person seizing the property or having possession thereof to recover the
same, and upon giving proper bond may enjoin the sale; or after the sale and within six months he may bring an
action to recover the net proceeds realized at the sale."

The lower court was of the opinion that the plaintiff should have proceeded under the latter section
above quoted and not under the former. It cannot be maintained that the personal property here in question was
seized by the defendant "under claim of forfeiture;" nor could it have been legally seized under claim of forfeiture.
It was seized to enforce an alleged tax lien, under section 149 of Act No. 2339 (sec. 1588, Act No. 2711), which was
quoted by the lower court in its decision (p. 19, B. of E.) and which in no way provides for the  forfeiture of the
property on which such a lien attaches. Forfeiture is "the divestiture of property without compensation, in
consequence of an offense. The effect of such forfeiture is to transfer the title to the specific thing from the owner
to the sovereign power." (12 R. C. L., 124.) There is a great difference between a seizure under forfeiture and a
seizure to enforce a tax lien. In the former all the proceeds derived from the sale of the thing forfeited are turned
over to the Collector of Internal Revenue (sec. 148, Act No. 2339); in the latter. the residue of such proceeds over
and above what is required to pay the tax sought to be realized, including expenses, is returned to the owner of
the property (second paragraph, sec. 152, Act No. 2339). Clearly, the remedy applicable to the present case is that
provided for in section 140, above quoted, and which the plaintiff invoked. (See Hongkong & Shanghai Banking
Corporation vs. Rafferty, 39 Phil., 145, 147.)

Second. At the time of the seizure of the property here in question, the plaintiff held a valid and subsisting
chattel mortgage on the same, duly registered in the registry of deeds. "A chattel mortgage is a conditional sale of
personal property as security for the payment of a debt, or the performance of some other obligation specified
therein, the condition being that the sale shall be void upon the seller paying the purchaser a sum of money or
doing some other act named." (Sec. 3, Act No. 1508.) "Therefore, so long as the mortgage exists,
the dominion with respect to the mortgaged personal property rests with the creditor-pledgee from the time of
the inscription of the mortgage in the registry, and the furniture ceases to be the property of the debtor for the
reason that it has become the property of the creditor, in like manner as the dominion of a thing sold is
transferred to the purchaser and ceases to belong to the vendor from the moment of the delivery thereof, as a
result of the sale." (Meyers vs. Thein, 15 Phil., 303, 308-309; see also Bachrach vs. Mantel, 25 Phil., 410; In re Du
Tec Chuan, 34 Phil., 488, 490.)
 
The chattel mortgage in question was registered in the registry of deeds on the 26th day of December,
1912. The forest charges sought to be collected by the defendant were found to be due from Pujalte & Co. on the
13th day of July, 1916, and on that date the property covered by said chattel mortgage was seized by the
defendant to enforce the payment of said forest charges. It is clear from these facts and from the legal provisions
and jurisprudence above quoted that the plaintiff-mortgagee, and not Pujalte & Co., the mortgagor, was, and had
been for more than three years, the legal owner of the property in question at the time the same was seized by the
defendant. And even granting, without deciding, that the  forest charges are a tax on business or occupation within
the meaning of section 149 of Act No. 2339 (sec. 1588, Act No. 2711), yet we are of the opinion and so decide that
the mere fact that said property was used in the business of Pujalte & Co. could not and did not make such
property liable for the payment of taxes due from said company, said property belonging as it did to an innocent
third party. "The property used in the business or occupation," referred to in said section 149, can only mean
property belonging to the owner of the business or occupation. Any other construction would be unwarranted and
unjust.