Victoria Manufacturing Corporation Employees Union vs. Victoria Manufacturing Corporation

A Voluntary Arbitrator lacks jurisdiction to rule on the propriety or legality of withholding income tax from employees' salaries, as such matters are governed by the Tax Code and fall under the exclusive jurisdiction of the Commissioner of Internal Revenue, and a party is not estopped from questioning such lack of jurisdiction if the issue is raised promptly and no affirmative relief is sought.

Victoria Manufacturing Corporation (VMC) is a domestic textile corporation, and Victoria Manufacturing Corporation Employees Union (VMCEU) is the exclusive bargaining agent for its rank-and-file employees. The parties' Collective Bargaining Agreement (CBA) stipulated a wage structure that integrated the Cost of Living Allowance (COLA) into the basic wage, differing from the structure mandated by Wage Order No. NCR-18. VMC sought a BIR opinion on the tax implications of this structure, resulting in the BIR opining that the employees were not exempt from income tax.

VMC is a domestic corporation engaged in the textile business, while VMCEU is the sole and exclusive bargaining agent of its permanent and regular rank-and-file employees. Through a letter dated March 14, 2014, VMC sought the opinion of the Bureau of Internal Revenue (BIR) regarding the tax implications of the wage structure stipulated in the CBA between the company and VMCEU. At the time, the applicable minimum wage was ₱466.00, broken down into a basic wage of ₱451.00 and a cost of living allowance (COLA) of ₱15.00, as mandated by Wage Order No. NCR-18. VMC's wage structure, however, integrated the COLA into the total wage, resulting in a basic wage of ₱466.00 and no separate COLA.

In response, the BIR opined that VMCEU's members were not exempt from income tax because what they were earning was above the statutory minimum wage mandated by Wage Order No. NCR-18. Consequently, VMC withheld the income tax due on the wages of VMCEU's members. On May 8, 2015, VMC and VMCEU held a grievance meeting to settle various issues, including the company's decision to withhold income tax, but they failed to resolve the issue. After failing to reach an amicable settlement before the National Conciliation and Mediation Board, the parties executed a Submission Agreement designating Voluntary Arbitrator (VA) Renato Q. Bello to resolve whether the company properly withheld the income tax due from the union's members, among other issues.

After the parties submitted their respective position papers and replies, the case was submitted for decision. On May 26, 2016, the VA rendered a decision in favor of VMCEU, ruling that VMC erroneously withheld income tax. The VA reasoned that the employees were statutory minimum wage earners and thus exempt from income tax under R.A. No. 9504, ordering VMC to reimburse the withheld amounts. Aggrieved, VMC sought relief before the Court of Appeals through a petition for certiorari. On May 26, 2017, the CA reversed the VA's ruling, holding that the jurisdiction of VAs is limited to labor disputes and that the VA could not validly rule on the propriety of withholding income taxes, a matter within the competence of the BIR. VMCEU's motion for reconsideration was denied, prompting the union to file the instant petition, arguing that VMC was estopped from challenging the VA's jurisdiction due to its active participation and execution of the Submission Agreement.

• Estoppel by Laches: Petitioner argued that the CA should not have allowed VMC to question the VA's jurisdiction because the company actively participated in the arbitration proceedings and never raised lack of jurisdiction at the time.
• Submission Agreement: Petitioner contended that VMC voluntarily bound itself, through the Submission Agreement, to abide by the VA's decision, thereby estopping the company from challenging jurisdiction.

• Jurisdiction of Voluntary Arbitrator: Whether the Voluntary Arbitrator had jurisdiction to rule on the legality of VMC's withholding of income tax from the salaries of VMCEU's members.
• Estoppel by Laches: Whether VMC was estopped from challenging the VA's jurisdiction due to its active participation and execution of the Submission Agreement.

• Jurisdiction of Voluntary Arbitrator: No. The VA's jurisdiction is limited to labor disputes, and the legality of withholding income tax is a tax matter falling under the exclusive jurisdiction of the Commissioner of Internal Revenue.
• Estoppel by Laches: No. VMC was not estopped because it raised the jurisdictional issue promptly and merely sought the dismissal of the complaint, not affirmative relief.

• Jurisdiction of Voluntary Arbitrator: Jurisdiction over the subject matter is conferred by law and determined by the allegations in the complaint. The Labor Code vests VAs with jurisdiction over labor disputes, specifically unresolved grievances arising from the interpretation or implementation of the CBA and company personnel policies. The propriety or legality of withholding tax is governed by the Tax Code, not the Labor Code. Citing Honda Cars Philippines, Inc. vs. Honda Cars Technical Specialist and Supervisors Union, the Court held that VAs have no competence to rule on tax matters, as these involve the application of the Tax Code and fall under the exclusive and original jurisdiction of the Commissioner of Internal Revenue (CIR) to interpret. Taxation is an inherent power of the State, and its imposition cannot be subject to the will of the parties.
• Estoppel by Laches: While lack of jurisdiction may generally be raised at any time, the doctrine of estoppel by laches may bar jurisdictional challenges in exceptional cases, as established in Tijam vs. Sibonghanoy. However, estoppel by laches requires that the jurisdictional issue be raised so belatedly as to give rise to a presumption of waiver, and that the party seeking affirmative relief is attempting to escape an adverse judgment. Here, VMC raised the jurisdictional issue promptly, filing a petition for certiorari with the CA immediately after the VA rendered his decision, less than a year after the arbitration commenced. Furthermore, VMC did not seek affirmative relief before the VA; it merely prayed for the dismissal of the union's complaint. Thus, the public policy considerations underlying estoppel by laches do not apply.

• Jurisdiction over the Subject Matter — Jurisdiction is the power to hear and determine a case, conferred by law and determined by the allegations in the complaint based on the character of the relief sought. A judgment rendered without jurisdiction over the subject matter produces no legal effect. Applied here, the VA's jurisdiction is limited to labor disputes by the Labor Code and does not extend to tax matters governed by the Tax Code.
• Estoppel by Laches on Jurisdictional Challenges — As a general rule, lack of jurisdiction is a non-waivable defense that may be raised at any stage. By exception, estoppel by laches may bar a jurisdictional challenge if the issue is raised so belatedly (as in Tijam vs. Sibonghanoy, where it took 15 years) that it is presumed waived, and the party sought affirmative relief before the tribunal. In this case, estoppel did not apply because VMC raised the issue promptly and sought no affirmative relief.

• "The [VA] has no competence to rule on the taxability of the gas allowance and on the propriety of the withholding of tax. These issues are clearly tax matters, and do not involve labor disputes." — This quotation from Honda Cars Philippines, Inc. vs. Honda Cars Technical Specialist and Supervisors Union was adopted by the Court to delineate the boundary between labor disputes and tax matters, establishing that the legality of tax withholding falls outside a VA's jurisdiction.
• "Estoppel by laches, to bar a litigant from asserting the court's absence or lack of jurisdiction, only supervenes in exceptional cases similar to the factual milieu of [Sibonghanoy]." — This passage from Figueroa vs. People clarifies the narrow application of estoppel by laches in jurisdictional challenges, emphasizing that it is an exception reserved for extraordinary circumstances comparable to the 15-year delay in Tijam vs. Sibonghanoy.

• El Banco Español-Filipino vs. Palanca, 37 Phil. 921 (1918) — Cited for the principle that a court must possess jurisdiction over the subject matter and the parties to validly try a case.
• Honda Cars Philippines, Inc. vs. Honda Cars Technical Specialist and Supervisors Union, 747 Phil. 542 (2014) — Controlling precedent applied to hold that VAs lack jurisdiction over tax matters, specifically the propriety of withholding tax, which falls under the CIR's exclusive jurisdiction.
• Tijam vs. Sibonghanoy, 131 Phil. 556 (1968) — Established the exceptional doctrine of estoppel by laches barring jurisdictional challenges when raised belatedly after active participation and seeking affirmative relief. Distinguished in this case because VMC raised the issue promptly and sought no affirmative relief.
• Figueroa vs. People, 580 Phil. 58 (2008) — Cited to elucidate that estoppel by laches applies only in exceptional cases similar to Sibonghanoy, reaffirming the general rule that lack of jurisdiction is a non-waivable defense.

• Articles 261 and 262, Labor Code — Define the jurisdiction of Voluntary Arbitrators, limiting it to unresolved grievances arising from the interpretation or implementation of CBAs, company personnel policies, and other labor disputes upon agreement of the parties. The Court used these provisions to show that the VA's jurisdiction does not encompass tax matters.
• Section 4, National Internal Revenue Code (Tax Code) — Vests the Commissioner of Internal Revenue with exclusive and original jurisdiction to interpret tax laws and decide refunds of internal revenue taxes. The Court applied this to show that the legality of withholding tax and any refund claims belong to the CIR, not the VA.

Peralta (Chairperson), Leonen, Hernando, and Inting, JJ., concur.