Philex Mining Corp. v. Commissioner of Internal Revenue

THIRTEENTH DIVISION [CA-G.R. SP No. 36975. April 8, 1996.] (C.T.A. Case No. 4872) PHILEX MINING CORPORATION , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N LUNA , J p : In this appeal by way of a petition for review. Philex Mining Corporation seeks the reversal of the Decision dated March 16, 1995 of the Court of Tax Appeals, in C.T.A. Case No. 4872, denying its petition for review of the letter/decision dated September 7, 1990 of the Commissioner of Internal Revenue. The dispositive portion of the CTA's decision, reads: "In all the foregoing, this Petition for Review is hereby DENIED for lack of Merit and petitioner is hereby ORDERED to PAY the respondent the amount of P110,677,668.52 representing excise tax liability for the period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from August 6, 1994 until fully paid pursuant to Section 248 and 249 of the Tax Code, as amended. "SO ORDERED." Philex Mining Corporation is a domestic corporation. It is engaged in the business of mining exporting and/or selling gold, copper concentrates and other mining products on a zero-rated basis. In a letter dated August 5, 1992 (Annex FF of Petition), the Commissioner of Internal Revenue demanded payment of the corporate's ". . . current tax liabilities in the total amount of P123,821,982.52 computed as follows: PERIOD BASIC TAX 25% SURCHARGE INTEREST TOTAL EXCISE COVERED DUE 2nd Qtr., 1991 12,911,124.60 3,227,781.15 3,378,116.16 19,517,021.91 3rd Qtr., 1991 14,994,749.21 3,748,687.30 2,978,109.09 21,721,845.60 4th Qtr., 1991 19,406,480.13 4,851,620.03 2,631,837.72 26,389,037.88 47,312,353.94 11,828,088.48 8,988,362.97 68,128,803.99 =========== =========== ========== =========== 1st Qtr., 1992 23,341,849.94 5,835,462.49 1,710,669.82 30,887,982.25 2nd Qtr., 1992 19,671,691.76 4,917,922.94 215,580.18 24,805,194.88 43,013,541.70 10,753,385.43 1,926,250.00 55,693,177.13 Total 90,325,895.64 22,581,473.91 10,914,612.97 123,821,982.52 =========== ========== =========== ============ "You may settle the aforestated amount within ten (10) days from the receipt hereof through any authorized bank presenting the Authority to Issue Payment Order which can be obtained from the Mining and Non-essential Tax Unit, 2nd Flr., Rm. 221, BIR Bldg., Diliman, Quezon City. "Please be informed further, that your failure to settle the same will constrain this office to avail of the remedies in the collection of delinquent accounts as provided in the Tax Code." In a reply dated August 20, 1992 (Annex GG of Petition), the corporation interposed its protest to the demand, and claims that "off-set was proper" concerning its: ". . . pending claims for credits or refunds of VAT inputs against the excise tax on mineral products imposed under Section 151 of the Tax Code and demanding payment of the amount of P123,821,982.52 representing excise tax, including surcharges and interest, for the period from 2nd quarter 1991 to 2nd Quarter 1992." In a letter dated September 7, 1992, the Commissioner of Internal Revenue deemed the claim for off-set, because the corporate claim ". . . is still under investigation and/or verification to ascertain its validity. This is to mention the question on whether your company is entitled to VAT exemption on the sales of gold to the Central Bank which is presently under review before the Court of Tax Appeals, the same being the subject matter of C.T.A. Cases Nos. 4446, 4468 and 4707. These cases involve your company's claim for VAT refund/credit for the years 1988 to 1991 and needless to state, their disposition is now within the jurisdiction of said Tax Court. "Further, we cannot subscribe to your averment that the offset made by your company was in accordance with the Itogon-Suyoc case for the reason that in said case, the overpayment of tax made was duly admitted and there was no question as to the right of the taxpayer to refund the same. Whereas in your case, the claims for the refund or credit are yet to be established and determined not only by this Office but also by the Court of Tax Appeals where your claims are now being ventilated." Philex then filed a petition for review with the Court of Tax Appeals, praying that the Commissioner of Internal Revenue be enjoined from enforcing his letter decision dated September 7, 1992, and from collecting its excise tax liability, that the aforesaid decision be set aside, and that a new one be rendered granting the off-setting of its excise tax liabilities against its claim for refund. On March 16, 1995, the Court of Tax Appeals denied the petition for review, for lack of merit. Hence, this appeal by way of a petition for review. Petitioner contends that the Court of Tax Appeal's erred: IN NOT ALLOWING THE OFFSETTING OF IT'S EXCISE TAX LIABILITIES AGAINST ITS CLAIM FOR VAT REFUND DESPITE THE FACT THAT IT HAS COMPLIED WITH ALL THE REQUISITES FOR CLAIMING VAT REFUND. The Office of the Solicitor General, in its comment to the petition, prayed for dismissal of the appeal. Obligations are extinguished, among others, by compensation (Art. 1231, New Civil Code). Under Article 1279 of the same Code, in order that compensation may be proper, it is necessary, among other requisites: "(4) That they be liquidated and demandable." As explained in Compania General de Tabacos vs. French and Unson , 39 Phil. 34, 51, compensation and set-off are ". . . forms of payment by the mutual extinction, by operation of law, of concurring debts", and "(3) that both be liquidated . The Code in this respect is merely declaratory of the earlier law, or in its decision of April 6, 1989, cited by Manresa (vol. 8, p. 378) the Supreme Court of Spain had ruled that compensation can only take place between certain and liquidated debts, and in no event can it include the unliquidated claims of one of the parties for alleged damages or for untaxed court costs." (see also Commissioner of Internal Revenue vs. Pineda, 21 SCRA 105; and Salinap vs. del Rosario, 123 SCRA 640. It is likewise stressed in Commissioner of Internal Revenue vs. Itogon-Suyoc Mines , Inc., 28 SCRA 867, that a claim of a tax payer by way of compensation should be "certain and liquidated". In that case, the Commissioner of Internal Revenue exacted an interest of 1% monthly on the sum of P13,155.20, ". . . which after all was paid and received by the government even before the incidents of the tax in question and the Supreme Court held that the tax payer: ". . . was entitled to a refund. Instead of waiting for the sum involved to be delivered to it, it deducted the said amount from the tax that it had to pay. That it had a right to do according to the law. It is true a doubt could have arisen due to the fact that as of the time such a deduction was made, the Commissioner of Internal Revenue had not as yet approved such a refund. It is an admitted fact though that respondent was clearly entitled to it, and petitioner did not allege otherwise. Nor could he do so. Under all the circumstances disclosed therefore, the applicability of the legal provision allowing such a deduction from the amount of the tax to be paid cannot be disputed. "This conclusion is in accordance with the principle announced in Castro vs. Collector of Internal Revenue. While the case is no directly in point, it yields an implication that makes even more formidable the case for respondent taxpayer. As there held, the imposition of the monthly interest was considered as no constituting a penalty "but a just compensation to the state for the delay in paying the tax, and for the concomitant use by the taxpayer of funds that rightfully should be in the government's hands . . . ." The proof in the case at bar that the corporate's claim of "off-set" is not proper, is the letter of the Commissioner of Internal Revenue, dated September 7, 1992, that the corporate claim for credits or refunds of VAT inputs against the excise tax on its mineral products, and for payment of the sum of P123,821,982.52, representing excise tax, including surcharges and interests for the period from second quarter 1991 to second quarter 1992, are still under investigation and/or verification by the Bureau of Internal Revenue, to ascertain its validity. There is also the question of whether or not the corporation is entitled to VAT exemption on its sales of gold to the Central Bank, which is presently pending review before the Court of Tax Appeals, in C.T.A. Cases Nos. 4446, 4468 and 4707. As pointed in Miaijere vs. Halili , 6 SCRA 453, 456, ". . . compensation can not take place (where the claim) is being the subject of court litigation." The decision of the Court of Tax Appeals, therefore, that the corporate's claim of set-off from the factual, legal and jurisprudential stand points, is unassailable. The cases of Commissioner of Internal Revenue vs. Itogon-Suyoc Mines, Ind., 28 Phil. 867, and, Commissioner of Internal Revenue vs. Esso Standard Eastern, Inc ., 172 SCRA 367, are not in point, as explained by the Court of Tax Appeals: "The case of Commissioner of Internal Revenue vs. Itogon-Suyoc Mines, Inc., 28 Phil. 867 and Commissioner of Internal Revenue vs. Esso Standard Eastern, Inc., 172 SCRA 367 cited by the Petitioner wherein the Supreme Court upheld the validity of a set-off between the taxpayer and the government, do not apply to the case at bar. In both cases, the claims of the taxpayers therein were certain and liquidated. The claims were certain since there were no doubts or disputes as to their refundability. In fact the government admitted the fact of overpayment. Those claims were also liquidated since the amounts are already determined. But it is not so in this particular case as the amounts allegedly to be refunded are contested by the Respondent and still under litigation; hence, uncertain and unliquidated. Thus, legal compensation or set-off as prayed for by the Petitioner cannot be sustained by this Court. "Another reason is that, taxes cannot be the subject of set-off or compensation since claim for taxes is not a debt or contract as enunciated in the case of Cordero vs. Gonda, 18 SCRA 333. In that case, the Supreme Court ruled, thus: In another case (Republic vs. Mambulao Lumber Co., L-17725, February 28, 1962, upon the premise that forest are in the coffers of the government as taxes collected, the pronouncement was that internal revenue taxes cannot be the subject of compensation. The reason is that the government and taxpayer are not mutually creditors and debtors of each other under Article 1278 of the Civil Code and a claim for taxes is not such a debt, demand, contract of judgment as is allowed to be set-off. This decision inferentially takes forest charges out of the Barreto rule, because they are taxes not in a sense contractual in origin." Finally, this Court may not give vent to appellant's submission, under paragraph 11 of the petition that the Tax Court "is aware of the exigencies . . . that the mining industry is beset with tremendous financial problems", that Philex itself "is suffering serious illiquidity problems"; and thus pleads that this Court ". . . will realize the situation that Philex is in, and grant Philex the relief that will serve the ends of justice". For, the taxes is the chief source of revenue for the Government, and to keep it running taxes must be paid immediately and without delay (Collector of Internal Revenue vs. Yuseco, L-12518, October 28, 1961, 3 SCRA 313); and that since taxes are the lifeblood of the government, their prompt and certain availability is an imperious need (Commissioner of Internal Revenue vs. Pineda, L-22734, September 15, 1967, 21 SCRA 105). WHEREFORE, the appeal by way of petition for review is hereby DISMISSED, and the decision dated March 16, 1995 is AFFIRMED. SO ORDERED. Barcelona and Alino-Hormachuelos, JJ . , concur.