International Container Terminal Services, Inc. vs. City of Manila

A taxpayer’s remedy to recover local business taxes paid under a municipal ordinance without the issuance of a formal notice of assessment of deficiency taxes is governed by Section 196 of the Local Government Code, not Section 195. The exhaustion of administrative remedies through individual written claims for every payment may be dispensed with when further resort to the local treasurer would be an idle ceremony and the controversy presents a pure question of law. A jurisdictional objection premised on the non-payment of additional docket fees for an amended pleading that increases the amount of the claim is barred by estoppel if not raised seasonably and, in the absence of deliberate intent to defraud, the deficiency constitutes a lien on the judgment.

ICTSI, a corporation maintaining its principal place of business in Manila, renewed its business license for the year 1999. The City of Manila assessed it for two local business taxes: the contractor’s tax under Section 18 of Manila Ordinance No. 7794, which ICTSI had been paying, and an additional business tax under Section 21(A) of the same ordinance, as amended by Section 1(G) of Ordinance No. 7807. ICTSI paid the additional assessment but contested its validity as direct double taxation, initiating a protracted administrative and judicial challenge that later expanded to include all similar payments made in succeeding taxable periods to secure the annual renewal of its business permit.

• The Initial Assessment and Protest: Upon renewal of its business license for 1999, ICTSI was assessed the existing contractor’s tax under Section 18 of Manila Ordinance No. 7794, and an additional business tax under Section 21(A) of the same ordinance, as amended. ICTSI paid the additional tax for the first three quarters of 1999 and, on July 15, 1999, filed a protest letter with the City Treasurer of Manila contesting the assessment and requesting refund of any amount already paid.

• Continuing Payments Under Protest and Administrative Claims for Refund: To obtain renewal of its annual business permits, ICTSI was compelled to continue paying the Section 21(A) tax in every succeeding quarter, marking its payments as “paid under protest.” It subsequently sent letters to the City Treasurer asserting claims for refund under Section 196 of the Local Government Code: the June 17, 2003 letter covering the fourth quarter of 1999 to the second quarter of 2003 (P27,800,674.36); the August 18, 2005 letter covering the third quarter of 2003 to the second quarter of 2005; and the January 10, 2007 letter covering the third quarter of 2005 to the fourth quarter of 2006. In a letter dated September 1, 2005, City Treasurer Liberty M. Toledo declined to act favorably on the claim, stating that the issue of the ordinance’s validity was still sub judice and that the office would await a final Supreme Court decision declaring Section 21 illegal.

• Judicial Action and Amendment: After the initial protest was not acted upon by the City Treasurer, ICTSI filed a Petition for Certiorari and Prohibition before the RTC. While the petition was pending, ICTSI amended its pleading to include a prayer for refund of all taxes paid and to be paid after the first three quarters of 1999. The RTC admitted the Amended and Supplemental Petition without ordering payment of additional docket fees. The amended pleading quantified the refund sought for the original three quarters and prayed for “any and all subsequent payments of taxes under Section 21(A) . . . from the time of the filing of this Petition until this case is finally decided.”

• CTA Rulings: The CTA Second Division found that imposing both Section 18 and Section 21(A) constituted direct double taxation; it ordered refund of P6,224,250.00 for the first three quarters of 1999. However, it denied the balance of the claim, ruling that ICTSI failed to adduce evidence of its protest for later periods and did not file a written protest for each separate assessment as required by Section 195 of the Local Government Code. The CTA En Banc affirmed, adding that ICTSI’s invocation of Section 196 on appeal was a belated shift in remedy and that the RTC never acquired jurisdiction over the refund claims for later periods because no additional docket fees were paid.

• Refund Raised at Earliest Opportunity: ICTSI argued that it raised the issue of refund at the earliest possible instance at both administrative and judicial levels. Its July 15, 1999 protest letter requested refund of any amounts already paid. Its June 17, 2003 letter expressly cited Section 196 of the Local Government Code and demanded refund. The original and amended petitions before the RTC consistently included prayers for refund of all taxes paid under protest.

• Applicability of Section 196 for Subsequent Payments: ICTSI contended that the assessment for the first three quarters of 1999 was a deficiency tax assessment governed by Section 195. The subsequent payments, however, were not deficiency taxes but taxes exacted as a condition for business permit renewal, making them recoverable under Section 196 as erroneously or illegally collected taxes. It maintained that it complied with Section 196 by filing written claims for refund and instituting judicial action within two years from payment or from the date of entitlement to refund.

• Futility of Exhausting Further Administrative Claims: Citing Central Azucarera Don Pedro v. Central Bank, ICTSI asserted that filing separate written claims for every successive payment would be an idle exercise because the City Treasurer had already indicated through the September 1, 2005 letter that no refund would be granted pending a final court ruling on the ordinance’s validity. Moreover, because the core issue was a pure question of law—the illegality of direct double taxation—exhaustion of administrative remedies was not required.

• Prescriptive Period for Judicial Claim: ICTSI argued that it became entitled to a refund only upon the finality of the judicial declaration that Section 21(A) was void double taxation, which occurred on July 2, 2007 when the CTA En Banc dismissed respondents’ appeal. Its amended judicial claim, filed earlier, was therefore well within the two-year prescriptive period under Section 196.

• Joinder of Causes of Action and Docket Fees: ICTSI maintained that joinder of its protest against the assessment and its claim for refund of subsequent payments was proper, as they arose from the same cause of action—the illegal imposition of the Section 21(A) tax. On the matter of docket fees, ICTSI pointed to the RTC’s failure to order payment of additional fees upon admission of the amended petition and argued that, absent bad faith, the deficiency should not result in dismissal. It invoked Lu v. Lu Ym and undertook to pay any additional fees.

• Exclusive Resort to Section 195: The City of Manila and its officials argued that ICTSI anchored its entire action on a protest under Section 195 and only belatedly invoked Section 196 on appeal. Since ICTSI failed to file a written protest for each yearly assessment within 60 days and did not appeal the City Treasurer’s deemed denial within the 30-day period under Section 195, the subsequent assessments became final, conclusive, and unappealable.

• Non-Compliance with Section 196 Requirements: Respondents contended that even if Section 196 could be invoked, ICTSI failed to satisfy the condition precedent of filing a written administrative claim for refund for every tax payment before instituting the judicial case. The suit for refund was filed even before the taxes for the fourth quarter of 1999 onwards had been paid.

• Lack of Jurisdiction Over Additional Claims: Respondents asserted that the RTC never acquired jurisdiction over the refund claims for periods after the third quarter of 1999 because ICTSI did not pay the corresponding additional docket fees for the Amended and Supplemental Petition within the applicable prescriptive or reglementary period. Invoking Manchester Development Corp. v. Court of Appeals, they maintained that the non-payment rendered the proceedings on those claims void.

• Docket Fees and Jurisdiction: Whether the RTC acquired jurisdiction over ICTSI’s claims for refund from the fourth quarter of 1999 onwards despite the non-payment of additional docket fees for the Amended and Supplemental Petition.

• Governing Remedy Under the Local Government Code: Whether ICTSI’s claims for refund of taxes paid after the third quarter of 1999 were governed by Section 195 or Section 196 of the Local Government Code.

• Compliance with Procedural Requirements for Refund: Whether ICTSI complied with the prerequisites of Section 196—specifically, the filing of written claims with the local treasurer and the institution of judicial action within two years—to warrant the refund claimed.

• Docket Fees and Jurisdiction: The deficiency in docket fees did not divest the RTC of jurisdiction. ICTSI paid the correct fees for its original petition, and the RTC admitted the Amended and Supplemental Petition without ordering payment of additional fees; the amount of the amended claim was not determinable with certainty since taxes continued to be paid during the proceedings. Respondents raised the issue of insufficient docket fees for the first time only in 2008, years after the amended pleading was filed, and were consequently estopped from challenging the RTC’s jurisdiction. There was no showing of deliberate intent to defraud the court, and ICTSI consistently expressed willingness to pay any deficiency. Under Sun Insurance Office, Ltd. v. Asuncion, the unpaid docket fee constitutes a lien on the judgment, not a ground for dismissal.

• Governing Remedy Under the Local Government Code: Section 196 of the Local Government Code—not Section 195—governs the refund claims for taxes paid after the first three quarters of 1999. Section 195 applies only when the local treasurer issues a formal notice of assessment stating the nature of the tax, the amount of deficiency, and the surcharges, interest, and penalties. No such deficiency assessment notices were issued for the periods subsequent to the third quarter of 1999; the documents issued were merely municipal license receipts, mayor’s permit, and official receipts reflecting the tax paid as a condition for business permit renewal. These did not contain any amount of deficiency or penalties and could not be considered the “notice of assessment” required by Section 195. Where no legally sufficient assessment notice exists, the taxpayer’s recourse is a claim for refund under Section 196. ICTSI’s amended petition, which prayed for refund of all taxes paid under an allegedly void provision and relied on the common theory of direct double taxation, properly joined causes of action without improperly shifting remedies.

• Compliance with Section 196: ICTSI substantially complied with Section 196. It filed written claims for refund: the June 17, 2003 letter for payments from the fourth quarter of 1999 to the second quarter of 2003, the August 18, 2005 letter for the third quarter of 2003 to the second quarter of 2005, and the January 10, 2007 letter for subsequent periods. While separate written claims were not filed for every single payment, that omission was excused under the exception to the exhaustion of administrative remedies doctrine. The City Treasurer, through the September 1, 2005 letter, had already made clear that no refund would be entertained absent a final court ruling on the ordinance’s validity; requiring more claims would have been an idle ceremony. Moreover, the core controversy—the illegality of the double taxation imposed by Section 21(A)—was a pure question of law. The judicial action for refund was timely filed: the Amended and Supplemental Petition, which sought refund of all subsequent payments until finality of the case, was lodged before the RTC well within two years from the date ICTSI became entitled to refund, i.e., upon the finality on July 2, 2007 of the CTA ruling that declared the tax void.

• Distinction Between Sections 195 and 196 of the Local Government Code — Section 195 provides the remedy for contesting a deficiency tax assessment issued by the local treasurer. Its application is triggered by the issuance of a notice of assessment stating the nature of the tax, the amount of deficiency, and the surcharges, interest, and penalties. Section 196, on the other hand, provides the remedy for recovery of taxes erroneously or illegally collected; its applicability does not depend on the existence of an assessment notice. Where no formal deficiency assessment notice is issued, a taxpayer who pays a tax believed to be illegal may claim a refund under Section 196 upon compliance with its requirements. A taxpayer who pays an assessed tax may nevertheless seek refund under Section 196 as a consequence of a successful challenge to the assessment.

• Exception to Exhaustion of Administrative Remedies: Idle Ceremony and Pure Question of Law — The doctrine of exhaustion of administrative remedies may be dispensed with when the resort to the administrative remedy would be an idle ceremony, as when the administrative body has already made known its position that it will not grant the relief sought, or when the issue presented is a pure question of law that does not require the agency’s specialized expertise. Under such circumstances, requiring further administrative claims would be an unnecessary and unjust exercise.

• Docket Fees and Jurisdiction under the Sun Insurance Doctrine — When a party amends its pleading to increase the amount of the claim, the non-payment of the corresponding additional docket fees does not, without more, divest the court of jurisdiction. Absent a showing of deliberate intent to defraud, the deficiency is treated as a lien on the judgment. A belated jurisdictional challenge based on insufficient docket fees is barred by estoppel if the objecting party failed to raise the issue seasonably before the lower court.

• “If a party can prove that the resort to an administrative remedy would be an idle ceremony such that it will be absurd and unjust for it to continue seeking relief that evidently will not be granted to it, then the doctrine of exhaustion of administrative remedies will not apply.”

• “Section 196 does not expressly mention an assessment made by the local treasurer. This simply means that its applicability does not depend upon the existence of an assessment notice. By consequence, a taxpayer may proceed to the remedy of refund of taxes even without a prior protest against an assessment that was not issued in the first place.”

• “[T]he receipts . . . do not contain any amount of deficiency, surcharges, interests, and penalties due from petitioner. They cannot be considered the ‘notice of assessment’ required under Section 195 of the Local Government Code.”

• Sun Insurance Office, Ltd. v. Asuncion, 252 Phil. 280 (1989) — Established that the non-payment or insufficiency of docket fees does not automatically result in loss of jurisdiction; the court may allow payment within a reasonable time, not beyond the prescriptive or reglementary period, and any unpaid fees constitute a lien on the judgment. Followed.

• Manchester Development Corp. v. Court of Appeals, 233 Phil. 579 (1987) — Held that failure to pay the correct docket fees results in the court not acquiring jurisdiction over the case. Distinguished; applied only upon a showing of deliberate intent to defraud, absent here.

• City of Manila v. Cosmos Bottling Corp., G.R. No. 196681, June 27, 2018 — Distinguishes between Sections 195 and 196 of the Local Government Code and clarifies the remedies available to taxpayers depending on whether a deficiency assessment has been issued. Applied as controlling.

• Central Azucarera Don Pedro v. Central Bank, 104 Phil. 598 (1958) — Held that exhaustion of administrative remedies may be dispensed with when it would be an idle ceremony because the administrative authority has already denied a similar claim. Relied upon.

• Lu v. Lu Ym, Sr., 658 Phil. 156 (2011) — Applied the principle that a party who fails to seasonably raise the other party’s insufficient payment of docket fees before the trial court is estopped from questioning jurisdiction on that ground. Followed.

• Section 195, Republic Act No. 7160 (Local Government Code) — Governs the protest of a deficiency tax assessment. The local treasurer must issue a notice of assessment stating the nature of the tax, the amount of deficiency, surcharges, interest, and penalties. The taxpayer has 60 days to file a written protest; the local treasurer has 60 days to decide; denial or inaction is appealable to a competent court within 30 days. Inapplicable to ICTSI’s later payments because no such notice of deficiency assessment was issued.

• Section 196, Republic Act No. 7160 (Local Government Code) — Provides that no suit for recovery of erroneously or illegally collected taxes shall be maintained without a prior written claim for refund filed with the local treasurer, and no judicial proceeding shall be entertained after two years from the date of payment or from the date the taxpayer is entitled to a refund or credit. Held applicable to ICTSI’s refund claims; ICTSI substantially complied by filing written claims and instituting judicial action within the two-year period, measured from the date of entitlement following the final judgment that the tax ordinance constituted illegal double taxation.

Peralta (Chairperson), J. Reyes, Jr., and Hernando, JJ., concur. Gesmundo, J., on leave.