Games and Amusement Board and Bureau of Internal Revenue vs. Klub Don Juan de Manila, Inc., et al.

The Court of Tax Appeals has exclusive jurisdiction over cases directly challenging the constitutionality or validity of a tax law, regulation, or administrative issuance, including the documentary stamp tax rate imposed under the TRAIN Law. The RTC is devoid of jurisdiction to take cognizance of a complaint that ultimately questions the validity of a tax provision, whether the action is denominated as one for injunction or declaratory relief.

Klub Don Juan de Manila, Inc. is an organization whose members are racehorse owners regularly participating in horse racing conducted by different racing clubs. The Manila Jockey Club, Inc. (MJCI), Philippine Racing Club, Inc. (PRCI), and Metro Manila Turf Club, Inc. (MMTCI) are grantees of legislative franchises allowing them to construct, maintain, and operate horse racing tracks, with their franchises imposing the duty to withhold and remit documentary stamp taxes to the BIR. The franchises of the racing clubs—R.A. 8407 (MJCI), R.A. 7953 (PRCI), and R.A. 7978 (MMTCI)—each provided for a DST rate of ten centavos (₱0.10) per ticket, with additional taxes on amounts exceeding one peso. On January 1, 2018, R.A. 10963, the Tax Reform for Acceleration and Inclusion (TRAIN) Law, took effect, amending Section 190 of the NIRC to increase the DST rate to twenty centavos (₱0.20) per ticket, creating a conflict between the general law and the special franchise laws.

Klub Don Juan de Manila, Inc. is an organization whose members are racehorse owners regularly participating in horse racing conducted by different racing clubs. The Manila Jockey Club, Inc. (MJCI), Philippine Racing Club, Inc. (PRCI), and Metro Manila Turf Club, Inc. (MMTCI) are grantees of legislative franchises allowing them to construct, maintain, and operate horse racing tracks. Their legislative franchises imposed upon the racing clubs the duty to withhold and remit documentary stamp taxes (DST) to the BIR. Section 11 of R.A. 8407 (MJCI's franchise) provided for a DST of ten centavos (₱0.10) on each horse racing ticket, with an additional ten centavos for every peso or fractional part thereof exceeding one peso. Section 8 of R.A. 7953 (PRCI's franchise) imposed the same rate, with a reduced rate of five centavos (₱0.05) for double, forecast/quinella, and trifecta bets. Section 6 of R.A. 7978 (MMTCI's franchise) similarly imposed ten centavos per ticket with the same additional tax, and five centavos for double forecast/quinella and trifecta bets.

On January 1, 2018, R.A. 10963, the Tax Reform for Acceleration and Inclusion (TRAIN) Law, took effect, amending Section 190 of the NIRC to increase the DST on jai-alai, horse race tickets, lotto, or other authorized numbers games to twenty centavos (₱0.20) per ticket, with an additional twenty centavos for every peso or fractional part thereof exceeding one peso. Upon the effectivity of the TRAIN Law, there was a substantial increase in the DST withheld compared to the DST under the franchises of the racing clubs. Klub Don Juan alleged a conflict between the franchise provisions (special laws) and the TRAIN Law (general law), asserting that the GAB and BIR should be restrained from enforcing the increased DST rate. Klub Don Juan claimed that the application of the increased DST reduced the dividends granted to winning bettors, which drove away bettors and resulted in lesser gross sales.

The GAB and BIR, through the Office of the Solicitor General, filed an Urgent Ad Cautelam Motion for Re-Raffle arguing that they had not received the Notice of Raffle, and an Ad Cautelam Opposition to the Grant of a TRO with a Motion to Dismiss. They argued that the withholding of the increased DST rates under the TRAIN Law is outside the territorial jurisdiction of the RTC of Mandaluyong City because horse race tickets may be purchased all over the country; that Section 218 of the NIRC prohibits the grant of injunction to restrain the collection of national internal revenue taxes including DST; and that Klub Don Juan failed to prove a clear legal right for injunctive relief. MMTCI concurred with Klub Don Juan that the TRAIN Law is a general law that should yield to the franchise laws. PRCI and MJCI manifested compliance with the TRAIN Law rate but averred that the higher DST threatened the continued operation of the racing clubs.

The RTC denied the motion for re-raffle, explaining that electronic raffle of all cases immediately after filing has been mandated pursuant to the directive of the Court. However, the RTC granted the motion to dismiss on the ground that it has no jurisdiction to restrain the collection of DST under Section 218 of the NIRC. Klub Don Juan's motion for reconsideration was denied, prompting an appeal to the CA. The CA granted the appeal, reinstated the case, and directed the RTC to continue proceedings. While the CA agreed that the RTC does not have jurisdiction to grant the provisional relief of injunction, it held that it was erroneous for the RTC to also dismiss the main action, explaining that although the complaint was denominated as one for "Injunction," the claims asserted made out a case for declaratory relief. The CA found that all the requisites of an action for declaratory relief were present because there was no showing of any breach yet of the TRAIN Law provisions, and that there was a ripening judicial controversy considering the adverse positions of the parties.

• Propriety of Dismissal: The GAB and BIR argued that the RTC is prohibited from issuing the injunctive relief prayed for by Klub Don Juan as well as the ancillary relief against the collection of DST under Section 63 of the TRAIN Law, insisting that the order of dismissal by the RTC was proper.
• Nature of the Complaint: The GAB and BIR claimed that the CA erred in treating the complaint filed by Klub Don Juan as an action for declaratory relief and not a complaint for Injunction, since Klub Don Juan specifically asked the RTC to permanently enjoin the collection of the DST rate under the TRAIN Law.

• Declaratory Relief: Klub Don Juan agreed with the CA in treating the complaint for Injunction as one for declaratory relief, insisting that the TRAIN Law is a general law which could not prevail over the laws granting franchise to the racing clubs.

• Jurisdiction of the RTC: Whether the RTC has jurisdiction to take cognizance of the complaint filed by Klub Don Juan.

• Jurisdiction of the RTC: No. The RTC is devoid of jurisdiction because the Court of Tax Appeals has exclusive jurisdiction over cases directly challenging the constitutionality or validity of a tax law, regulation, or administrative issuance, including the DST rate under the TRAIN Law. The RTC was correct in dismissing the case for lack of jurisdiction.

• Jurisdiction of the RTC: The Court explained the nature of an action for injunction as a judicial writ, process, or proceeding whereby a party is ordered to do or refrain from doing a certain act, which may be the main action or merely a provisional remedy. Since the racing clubs were already withholding the increased rate of DST under the TRAIN Law from Klub Don Juan members, the latter sought to enjoin the GAB and BIR from enforcing the TRAIN Law provision and instead apply the lower rate under their respective franchises. This assertion violates Section 218 of the NIRC, which provides that no court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax, fee, or charge imposed by the Code. Under Section 21(f) of the NIRC, documentary stamp taxes form part of the national internal revenue taxes. As early as 1915 in Churchill vs. Rafferty, the Court already prohibited the issuance of injunction against the collection of internal revenue taxes based on the lifeblood theory. The Court held that whether the complaint should be treated as an action for declaratory relief and not injunction is of no moment. Since the issue is the validity of the provision of the TRAIN Law on the higher DST rate, the RTC is still devoid of jurisdiction because in Banco de Oro vs. Republic of the Philippines, the Court settled that the CTA not only has jurisdiction to pass upon the constitutionality or validity of a tax law or regulation when raised by the taxpayer as a defense in disputing or contesting an assessment or claiming a refund, but also has jurisdiction on cases directly challenging the constitutionality or validity of a tax law, or regulation or administrative issuance. The CTA has exclusive jurisdiction to resolve all tax problems except in cases questioning the legality or validity of assessment of local taxes where the RTC has jurisdiction.

• Lifeblood Theory — The theory that taxes are the lifeblood of the government, and that the issuance of injunction against the collection of internal revenue taxes should be prohibited. The Court relied on this doctrine, established in Churchill vs. Rafferty (1915), to affirm the RTC's dismissal of the complaint seeking to enjoin the collection of the increased DST rate.
• Exclusive Jurisdiction of the CTA over Tax Law Validity — The Court of Tax Appeals has exclusive jurisdiction not only to pass upon the constitutionality or validity of a tax law or regulation when raised by the taxpayer as a defense in disputing or contesting an assessment or claiming a refund, but also over cases directly challenging the constitutionality or validity of a tax law, regulation, or administrative issuance. This doctrine, established in Banco de Oro vs. Republic of the Philippines, was applied to hold that the RTC lacks jurisdiction over Klub Don Juan's complaint regardless of whether it is treated as one for injunction or declaratory relief.
• Injunction Not Available to Restrain Tax Collection — Under Section 218 of the NIRC, no court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax, fee, or charge imposed by the Code. Documentary stamp taxes, being among the national internal revenue taxes enumerated in Section 21(f) of the NIRC, are covered by this proscription.

• "No court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by this Code." — This is the verbatim text of Section 218 of the NIRC, which the Court applied to affirm the RTC's dismissal of the complaint for injunction against the collection of the increased DST rate.
• "The case Banco De Oro made it clear that the Court of Tax Appeals (CTA) not only has jurisdiction to pass upon the constitutionality or validity of a tax law or regulation when raised by the taxpayer as a defense in disputing or contesting an assessment or claiming a refund, but also, the CTA has jurisdiction on cases directly challenging the constitutionality or validity of a tax law, or regulation or administrative issuance such as revenue orders, revenue memorandum circulars, revenue regulations and rulings." — This passage articulates the controlling doctrine on CTA jurisdiction, which the Court applied to hold that the RTC lacks jurisdiction over the complaint regardless of its denomination.
• "As early as 1915 in the old case of Churchill v. Rafferty, the Court has already prohibited the issuance of injunction against the collection of internal revenue taxes based on the lifeblood theory." — This passage establishes the historical foundation of the prohibition against enjoining tax collection, rooted in the lifeblood theory of taxation.

• Bacolod City Water District vs. Labayen, 487 Phil. 335 (2004) — Cited to explain the nature of an action for injunction as a judicial writ, process, or proceeding whereby a party is ordered to do or refrain from doing a certain act, which may be the main action or merely a provisional remedy.
• Churchill vs. Rafferty, 35 Phil. 580 (1915) — Controlling precedent establishing the prohibition against the issuance of injunction against the collection of internal revenue taxes based on the lifeblood theory.
• Banco de Oro vs. Republic of the Philippines, 793 Phil. 97 (2016) — Controlling precedent establishing that the CTA has exclusive jurisdiction over cases directly challenging the constitutionality or validity of a tax law, regulation, or administrative issuance.
• National Power Corp. vs. Municipal Government of Navotas, 747 Phil. 744 (2014) — Cited to support the proposition that the CTA has exclusive jurisdiction to resolve all tax problems except in cases questioning the legality or validity of assessment of local taxes where the RTC has jurisdiction.

• Section 218, National Internal Revenue Code — Prohibits any court from granting an injunction to restrain the collection of any national internal revenue tax, fee, or charge. Applied to affirm the RTC's dismissal of the complaint for injunction against the collection of the increased DST rate.
• Section 21(f), National Internal Revenue Code — Enumerates documentary stamp taxes as part of the national internal revenue taxes. Applied to establish that the DST is covered by the proscription under Section 218.
• Section 63, R.A. 10963 (TRAIN Law) — Amended Section 190 of the NIRC to increase the documentary stamp tax on jai-alai, horse race tickets, lotto, or other authorized numbers games to twenty centavos (₱0.20) per ticket. The provision whose validity and applicability was the subject of the controversy.
• Section 11, R.A. 8407 — The franchise provision for MJCI imposing a DST of ten centavos (₱0.10) per horse racing ticket, with additional taxes on amounts exceeding one peso. The provision that Klub Don Juan argued should prevail over the TRAIN Law.
• Section 8, R.A. 7953 — The franchise provision for PRCI imposing a DST of ten centavos (₱0.10) per horse racing ticket, with a reduced rate of five centavos (₱0.05) for double, forecast/quinella, and trifecta bets. The provision that Klub Don Juan argued should prevail over the TRAIN Law.
• Section 6, R.A. 7978 — The franchise provision for MMTCI imposing a DST of ten centavos (₱0.10) per horse racing ticket, with a reduced rate of five centavos (₱0.05) for double forecast/quinella and trifecta bets. The provision that Klub Don Juan argued should prevail over the TRAIN Law.

Peralta, C.J. (Chairperson), Caguioa, Zalameda, and Gaerlan, JJ., concurred.