The Supreme Court ruled that Cosmos Bottling Corporation was entitled to a refund of excess business taxes collected by the City of Manila. The Court emphasized that a taxpayer who protests an assessment and subsequently pays the tax is not barred from seeking a refund. This decision clarifies the remedies available to taxpayers facing potentially erroneous local tax assessments.

Manila’s Taxing Ordinance: Can Businesses Recover Overpayments?

This case revolves around Cosmos Bottling Corporation’s challenge to the City of Manila’s assessment of local business taxes. Cosmos contested the assessment, arguing that Tax Ordinance Nos. 7988 and 8011, which amended the Revenue Code of Manila (RCM), had been declared null and void. They also claimed that the imposition of local business tax under Section 21 of the RCM, in addition to Section 14, constituted double taxation. The central legal question is whether Cosmos, having paid the assessed taxes after protesting the assessment, could later seek a refund.

The legal framework for resolving this issue is found in Sections 195 and 196 of the Local Government Code (LGC). Section 195 outlines the procedure for protesting an assessment, while Section 196 provides the process for claiming a refund of erroneously or illegally collected taxes. The Court’s analysis delves into how these two sections interact and the remedies available to taxpayers who believe they have been overcharged.

Building on this principle, the Supreme Court highlighted the importance of adhering to procedural rules while also recognizing the need for substantial justice. The Court acknowledged that the City of Manila had erroneously assessed and collected local business taxes from Cosmos for the first quarter of 2007. This determination was based on several key findings. Firstly, the assessment was based on Ordinance Nos. 7988 and 8011, which had been declared null and void. Secondly, the assessment included taxes imposed under Section 21, in addition to Section 14, of the Revenue Code of Manila, leading to double taxation. Lastly, the local taxes collected from Cosmos for the first quarter of 2007 were based on its gross receipts in 2005, rather than the preceding calendar year.

The Supreme Court underscored that ordinances declared null and void cannot serve as valid bases for imposing business taxes. The Court referenced its prior rulings in Coca-Cola Bottlers Philippines, Inc. v. City of Manila (2006), The City of Manila v. Coca-Cola Bottlers, Inc. (2009) and City of Manila v. Coca­-Cola Bottlers, Inc. (2010), which had already settled the issue concerning the validity of Ordinance Nos. 7988 and 8011. These cases established that the ordinances were invalid due to non-compliance with publication requirements and, therefore, could not be the basis for collecting business taxes. The Court noted that Cosmos was assessed under both Section 14 (tax on manufacturers) and Section 21 (tax on other businesses) of the invalid ordinances. Consistent with established jurisprudence, the Court concluded that the taxes assessed based on these void ordinances must be nullified.

Moreover, the Court reiterated the principle that collecting taxes under both Sections 14 and 21 of the Revenue Code of Manila constitutes double taxation. As stated in The City of Manila v. Coca-Cola Bottlers, Inc. (2009):

[T]here is indeed double taxation if respondent is subjected to the taxes under both Sections 14 and 21 of Tax Ordinance No. 7794, since these are being imposed: (1) on the same subject matter — the privilege of doing business in the City of Manila; (2) for the same purpose — to make persons conducting business within the City of Manila contribute to city revenues; ‘(3) by the same taxing authority — petitioner City of Manila; (4) within the same taxing jurisdiction — within the territorial jurisdiction of the City of Manila; (5) for the same taxing periods per calendar year; and (6) of the same kind or character — a local business tax imposed on gross sales or receipts of the business.

The Court emphasized that when a municipality or city has already imposed a business tax on manufacturers, it cannot subject the same manufacturers to a business tax under Section 143(h) of the LGC. In Cosmos’s case, the Court found that the additional imposition of a tax under Section 21 constituted double taxation, warranting a refund.

Furthermore, the Court addressed the proper basis for computing the business tax under Section 14. The Court clarified that the computation of local business tax should be based on the gross sales or receipts of the preceding calendar year, as mandated by Section 143(a) of the LGC:

Section 143. Tax on Business. – The municipality may impose taxes on the following businesses: 

(a) On manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers, and compounders x x x in accordance with the following schedule: With gross sales or receipts for the preceding calendar year in the amount of:

In this case, the City of Manila based its computation on Cosmos’s gross sales for 2005, rather than 2006. The Court affirmed the CTA Division’s adjustment of the computation based on Cosmos’s 2006 gross sales, which were lower than its 2005 sales, leading to a refundable difference in business tax paid. The Court then explained the taxpayer remedies under the Local Government Code. A taxpayer who has protested and paid an assessment is not precluded from later instituting an action for refund or credit. The Court also stressed that the assessment against Cosmos had not become final and executory.

Even if Cosmos had initially protested the assessment, they are not barred from seeking a refund. The Court clarified the interplay between Sections 195 and 196 of the LGC, which govern the protest of assessment and claim for refund, respectively. Section 195 provides the procedure for contesting an assessment, while Section 196 provides the procedure for recovering erroneously paid or illegally collected taxes. Both sections require the exhaustion of administrative remedies before resorting to court action. In Section 195, the administrative remedy is the written protest with the local treasurer, while in Section 196, it is the written claim for refund or credit with the same office.

The Court emphasized that the application of Section 195 is triggered by an assessment made by the local treasurer for nonpayment of correct taxes, fees, or charges. If the taxpayer believes the assessment is erroneous or excessive, they may contest it by filing a written protest within 60 days of receipt of the notice. If the protest is denied or the local treasurer fails to act, the taxpayer may appeal to the court of competent jurisdiction. On the other hand, Section 196 may be invoked by a taxpayer who claims to have erroneously paid a tax or that the tax was illegally collected. This provision requires the taxpayer to first file a written claim for refund before bringing a suit in court, which must be initiated within two years from the date of payment.

The Court clarified the conditions for successfully prosecuting an action for refund when an assessment has been issued. First, the taxpayer must pay the tax and administratively challenge the assessment before the local treasurer within 60 days, whether in a letter-protest or a claim for refund. Second, the taxpayer must bring an action in court within thirty (30) days from the local treasurer’s decision or inaction, regardless of whether the action is denominated as an appeal from assessment or a claim for refund of erroneously or illegally collected tax. In Cosmos’s case, the Court found that the company had complied with these conditions. After receiving the assessment, Cosmos promptly protested it and subsequently sought a refund, initiating the judicial claim within 30 days of receiving the denial.

FAQs

What was the key issue in this case?	The central issue was whether Cosmos Bottling Corporation, having protested a tax assessment and subsequently paid the tax, could later seek a refund of the allegedly overpaid taxes.
What is double taxation, according to the Court?	Double taxation occurs when the same subject matter is taxed twice, for the same purpose, by the same authority, within the same jurisdiction, for the same period, and of the same kind or character.
What is the difference between Section 195 and 196 of the LGC?	Section 195 outlines the procedure for protesting a tax assessment, while Section 196 provides the process for claiming a refund of erroneously or illegally collected taxes.
What is the deadline to protest a tax assessment under Section 195 of the LGC?	A taxpayer must file a written protest with the local treasurer within sixty (60) days from the receipt of the notice of assessment; otherwise, the assessment becomes final and executory.
What is the deadline to file a claim for refund under Section 196 of the LGC?	A taxpayer must file a written claim for refund or credit with the local treasurer and initiate a case in court within two (2) years from the date of the payment of such tax, fee, or charge, or from the date the taxpayer is entitled to a refund or credit.
What did the Court say about the validity of Ordinance Nos. 7988 and 8011?	The Court reiterated that Ordinance Nos. 7988 and 8011, which amended Ordinance No. 7794, were null and void for failure to comply with the required publication for three (3) consecutive days and thus cannot be the basis for the collection of business taxes.
What are the two conditions that must be satisfied to successfully prosecute an action for refund in case the taxpayer had received an assessment?	First, 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. Second, bring an action in court within thirty (30) days from decision or inaction by the local treasurer.
What was the basis for computation of local business tax?	Consistent with Section 143(a) of the LGC, the court ruled that assessment for business tax should be based on the taxpayer’s gross sales or receipts of the preceding calendar year.

The Supreme Court’s decision in this case provides valuable guidance to taxpayers facing local tax assessments. It clarifies the remedies available to those who believe they have been overcharged and underscores the importance of adhering to procedural rules while ensuring substantial justice. This ruling also serves as a reminder to local government units to ensure the validity of their tax ordinances and to avoid imposing double taxation.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: CITY OF MANILA VS. COSMOS BOTTLING CORPORATION, G.R. No. 196681, June 27, 2018