City of Manila vs. Cosmos Bottling Corporation

The filing of a motion for reconsideration or new trial before the CTA Division is a mandatory prerequisite for filing a petition for review with the CTA En Banc under Section 18 of Republic Act No. 1125 and Section 1, Rule 8 of the Revised Rules of the Court of Tax Appeals. Furthermore, a taxpayer who receives a local tax assessment may protest it under Section 195 of the Local Government Code and, if constrained to pay, may subsequently file a claim for refund under Section 196, provided that the judicial action is instituted within thirty days from the denial of or inaction on the protest, regardless of the two-year period mentioned in Section 196.

The dispute arose from the City of Manila's assessment of local business taxes against Cosmos Bottling Corporation for the first quarter of 2007. The assessment was based on Tax Ordinance Nos. 7988 and 8011, which amended the Revenue Code of Manila by increasing tax rates, and involved the simultaneous imposition of taxes under both Section 14 (manufacturer's tax) and Section 21 (tax on other businesses) of the same code. Prior jurisprudence had already declared these ordinances void for failure to comply with the publication requirements under the Local Government Code.

• For the first quarter of 2007, the City of Manila assessed Cosmos Bottling Corporation local business taxes and regulatory fees amounting to ₱1,226,781.05 through a Statement of Account dated January 15, 2007, based on Tax Ordinance Nos. 7988 and 8011 amending the Revenue Code of Manila.
• Cosmos protested the assessment via letter dated January 18, 2007, contending that Tax Ordinance Nos. 7988 and 8011 had been declared null and void and that the simultaneous imposition of taxes under Section 14 (manufacturer's tax) and Section 21 (tax on other businesses) of the Revenue Code of Manila constituted double taxation.
• Cosmos tendered payment of only ₱131,994.23, representing what it computed as the correct local business tax, but the City Treasurer refused to accept this partial payment.
• The City Treasurer denied Cosmos' protest via letter dated February 6, 2007, stating that any action would be sub-judice pending a final ruling on the matter.
• Constrained to secure its business permit and avoid penalties, Cosmos paid the full assessed amount of ₱1,226,781.05 on February 13, 2007, as evidenced by Official Receipt No. BAJ-005340.
• On March 1, 2007, Cosmos filed a written claim for refund of ₱1,094,786.82 with the City Treasurer, reiterating the grounds raised in its protest letter.
• On March 8, 2007, exactly thirty days after receiving the denial of its protest, Cosmos filed a complaint with the Regional Trial Court of Manila, Branch 49, captioned "For: The Revision of Statement of Account (Preliminary Assessment) and For Refund or Credit of Local Business Tax Erroneously/Illegally Collected," praying for refund or issuance of a tax credit certificate.
• The Regional Trial Court rendered a decision enjoining the City Treasurer from imposing tax under Section 21 if it had already imposed tax on manufacturers under Section 14, but denied the prayer for refund.
• The CTA Third Division found that Ordinance Nos. 7988 and 8011 were null and void for failure to comply with publication requirements, that the collection of taxes under both Sections 14 and 21 constituted double taxation, and that the tax assessment for 2007 should have been computed based on gross sales or receipts for 2006 (the preceding calendar year) rather than 2005.
• The City of Manila filed a petition for review directly with the CTA En Banc without first filing a motion for reconsideration or new trial with the CTA Third Division, which had decided the case on November 9, 2010.

• The petitioners contend that the CTA En Banc erred in not reconsidering its order dismissing the case on procedural grounds, invoking excusable mistake on the part of their handling lawyer and arguing that the Court should resolve the case on the merits to afford substantial justice.
• The petitioners assert that the CTA Third Division committed reversible error in ruling in favor of Cosmos despite its failure to appeal the assessment within thirty days from receipt of the denial by the City Treasurer, as required by Section 195 of the Local Government Code.
• The petitioners argue that the assessment subject of the case had already become final and executory and no longer appealable because Cosmos effectively abandoned its protest remedy when it subsequently filed a claim for refund under Section 196 of the Local Government Code.
• The petitioners claim that Cosmos erroneously filed its case under Section 196 (claim for refund) instead of Section 195 (protest of assessment), and by doing so, lost its right to appeal the assessment within the prescribed period.

• Cosmos counters that the rules of procedure should not be lightly disregarded by merely harping on substantial justice and the policy of liberal construction, maintaining that the dismissal by the CTA En Banc was proper.
• Cosmos insists that Section 196 of the Local Government Code (claim for refund) is the applicable provision, not Section 195 (protest of assessment), as it had paid the taxes under protest and was entitled to a refund of erroneously or illegally collected taxes.

• Procedural Issues: Whether the Court of Tax Appeals En Banc correctly dismissed the petition for review for failure of the petitioners to file a motion for reconsideration or new trial with the CTA Third Division.
• Substantive Issues: Whether a taxpayer who had initially protested an assessment and subsequently paid the same may shift its remedy to one of refund under Section 196 of the Local Government Code; whether the assessment had become final and executory; and whether the imposition of taxes under both Section 14 and Section 21 of the Revenue Code of Manila constituted double taxation.

• Procedural: The Supreme Court ruled that the filing of a motion for reconsideration or new trial before the CTA Division is a mandatory requirement under Section 18 of Republic Act No. 1125 (as amended by Republic Act Nos. 9282 and 9503) and Section 1, Rule 8 of the Revised Rules of the Court of Tax Appeals, which states that a petition for review "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 the requirement is mandatory, not merely directory. The Court held that procedural rules may be relaxed only for very exigent and persuasive reasons to relieve a litigant of an injustice not commensurate to careless non-observance of the prescribed rules, and that the petitioners' invocation of excusable mistake by counsel did not warrant relaxation in this case. The Court affirmed the dismissal by the CTA En Banc for lack of jurisdiction.
• Substantive: The Supreme Court held that a taxpayer who protests an assessment under Section 195 of the Local Government Code and is constrained to pay the assessed tax may subsequently institute an action for refund under Section 196 of the same Code, provided that the judicial action is filed within thirty days from the decision or inaction of the local treasurer on the protest. The Court clarified that where payment is made simultaneous with or following a protest against an assessment, the taxpayer may maintain an action in court, whether as an appeal from assessment or a claim for refund, so long as it is initiated within thirty days from either decision or inaction of the local treasurer. The Court found that Cosmos satisfied the twin conditions for prosecuting a refund action: first, it paid the tax and administratively assailed the assessment within sixty days from receipt; and second, it brought the action in court within thirty days from the denial. The Court held that the assessment did not become final because the judicial action was timely filed. Furthermore, the Court ruled that Tax Ordinance Nos. 7988 and 8011 were null and void for failure to comply with publication requirements; that the collection of local business tax under both Section 14 and Section 21 of the Revenue Code of Manila constituted double taxation as they were imposed on the same subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction, for the same taxing periods, and are of the same kind; and that the tax for 2007 should have been computed based on gross sales or receipts for 2006, not 2005. The Court affirmed the order for refund.

• Mandatory Motion for Reconsideration before CTA En Banc — Under Section 18 of Republic Act No. 1125 and Section 1, Rule 8 of the Revised Rules of the Court of Tax Appeals, the filing of a motion for reconsideration or new trial with the CTA Division is a mandatory prerequisite for filing a petition for review with the CTA En Banc, as indicated by the mandatory word "must" in the rules.
• Alternative Remedies in Local Taxation — Sections 195 and 196 of the Local Government Code provide alternative remedies for taxpayers: Section 195 allows protest of an assessment, while Section 196 allows claim for refund of erroneously or illegally collected taxes. A taxpayer who protests an assessment and pays the tax may shift to a refund remedy, provided the judicial action is filed within thirty days from the local treasurer's decision or inaction.
• Double Taxation — Double taxation exists when the same subject matter is taxed twice, for the same purpose, by the same taxing authority, within the same jurisdiction, during the same taxing period, and the taxes are of the same kind or character. In this case, the simultaneous imposition of taxes under Section 14 (manufacturer's tax) and Section 21 (tax on other businesses) of the Revenue Code of Manila on a manufacturer constituted double taxation.
• Strict Construction of Tax Ordinances — Local tax ordinances must strictly conform to the fundamental procedural requirements of the Local Government Code, including the requirement of publication for three consecutive days in a newspaper of general circulation, to be valid and enforceable.

• "The filing of a motion for reconsideration or new trial to question the decision of a division of the Court of Tax Appeals (CTA) is mandatory. An appeal brought directly to the CTA En Banc is dismissible for lack of jurisdiction."
• "In local taxation, an assessment for deficiency taxes made by the local government unit may be protested before the local treasurer without necessity of payment under protest. But if payment is made simultaneous with or following a protest against an assessment, the taxpayer may subsequently maintain an action in court, whether as an appeal from assessment or a claim for refund, so long as it is initiated within thirty (30) days from either decision or inaction of the local treasurer on the protest."
• "Procedural rules are not to be trifled with or be excused simply because their noncompliance may have resulted in prejudicing a party's substantive rights. Rules are meant to be followed. They may be relaxed only for very exigent and persuasive reasons to relieve a litigant of an injustice not commensurate to his careless non-observance of the prescribed rules."
• "There is nothing to prevent the taxpayer from paying the tax under protest or simultaneous to a protest. There are compelling reasons why a taxpayer would prefer to pay while maintaining a protest against the assessment."
• "Where payment was made, the taxpayer may thereafter maintain an action in court questioning the validity and correctness of the assessment (Section 195, LGC) and at the same time seeking a refund of the taxes."
• "Simply put, there are two conditions that must be satisfied in order to successfully prosecute an action for refund in case the taxpayer had received an assessment. One, pay the tax and administratively assail within 60 days the assessment before the local treasurer, whether in a letter-protest or in a claim for refund. Two, bring an action in court within thirty (30) days from decision or inaction by the local treasurer, whether such action is denominated as an appeal from assessment and/or claim for refund of erroneously or illegally collected tax."

• Asiatrust Development Bank, Inc. v. Commissioner of Internal Revenue — Cited to establish that a timely motion for reconsideration or new trial must first be filed with the CTA Division before the CTA En Banc can take cognizance of a petition for review, as the word "must" indicates a mandatory requirement.
• Commissioner of Customs v. Marina Sales, Inc. — Cited to emphasize that procedural rules are not to be trifled with and may be relaxed only for very exigent and persuasive reasons to relieve a litigant of an injustice not commensurate to careless non-observance of prescribed rules.
• Coca-Cola Bottlers Philippines, Inc. v. City of Manila — Cited as precedent establishing that Tax Ordinance Nos. 7988 and 8011 were null and void for failure to comply with the required publication for three consecutive days.
• The City of Manila v. Coca-Cola Bottlers, Inc. (2009) — Cited to establish that the imposition of taxes under both Section 14 and Section 21 of the Revenue Code of Manila constitutes double taxation, as these taxes are imposed on the same subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction, during the same taxing periods, and are of the same kind or character.
• San Juan v. Castro — Cited to recognize the alternative remedies available to a taxpayer protesting an assessment: either appeal the assessment before the court of competent jurisdiction or pay the tax and then seek a refund.

• Section 18, Republic Act No. 1125 (as amended by R.A. Nos. 9282 and 9503) — Provides that 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, making the prior motion a mandatory prerequisite.
• Section 1, Rule 8, Revised Rules of the Court of Tax Appeals — Provides that a petition for review of a decision or resolution of the Court in Division must be preceded by the filing of a timely motion for reconsideration or new trial with the Division.
• Section 195, Local Government Code — Governs the protest of assessment by taxpayers before the local treasurer, requiring the taxpayer to file a written protest within sixty days from receipt of the notice of assessment, and providing a thirty-day period to appeal to court from denial or inaction.
• Section 196, Local Government Code — Governs claims for refund or tax credit of erroneously or illegally collected taxes, requiring a written claim for refund with the local treasurer before bringing suit in court, which must be initiated within two years from payment.
• Section 143, Local Government Code — Provides the authority of municipalities and cities to impose taxes on businesses, including manufacturers under paragraph (a) and businesses subject to excise tax, VAT, or percentage tax under paragraph (h), with the limitation that businesses specified in preceding paragraphs may not be taxed under paragraph (h).
• Section 252, Local Government Code — Cited in comparison to show that unlike real property tax, local business tax does not require payment under protest as a prerequisite to filing a protest.