PHILEX MINING vs CIR & CA G.R. No. 125704. August 28, 1998 Facts: On August 5, 1992, the BIR sent a lette to !h"le# as$"ng "t to settle "ts ta# l"a%"l"t"es &o the 2n', (' an' 4th )uate o& 1991 as 1991 as *ell as the 1st an' 2n' )uate o& 1992 "n 1992 "n the total a+ount o& !12(,821,982.5 ! 12(,821,982.52. 2. !h"le# oteste' oteste' the 'e+an' &o a-+ent o& the ta# l"a%"l"t"es stat"ng that "t has pending cla"+s pending cla"+s &o A/ "nut ce'"te&un' &o the ta#es "t a"' &o the -eas 1989 to 1991 "n the a+ount o& !119,977,0(7.02 lus "nteest. /hee&oe, these cla"+s &o ta# ce'"te&un' shoul' %e al"e' aga"nst the ta# l"a%"l"t"es, c"t"ng ou ul"ng "n o++"ss"one o& Intenal Reenue . Itogon3u-oc "nes, Inc. BIR e6ecte' the cla"+ &o set o an' sa"' s"nce these en'"ng cla"+s hae not -et %een esta%l"she' o 'ete+"ne' *"th ceta"nt-, "t &ollo*s that no legal co+ensat"on can ta$e lace. ence, BIR e"teate' "ts 'e+an' that !h"le# settle the a+ount lus "nteest *"th"n (0 'a-s &o+ the ece"t o& the lette. !h"le# thus a"se' the "ssue to the out o& /a# Aeals. In the couse o& the ocee'"ngs, the BIR "ssue' a /a# /a# e'"t et"cate N 001795 "n the a+ount o& !1(,144,(1(.88 *h"ch, al"e' to the total ta# l"a%"l"t"es o& !h"le# o& !12(,821,982.52 eect"el- lo*ee' the lattes ta# o%l"gat"on o& !110,77,88.52. ;es"te the e'uct"on o& "ts ta# l"a%"l"t"es, the /A st"ll o'ee' !h"le# to athe e+a"n"ng %alance o& !110,77,88.52 lus "nteest %ecause &o legal co+ensat"on to ta$e lace, %oth o%l"gat"ons +ust %e l")u"'ate' an' 'e+an'a%le. /A /A sa"' l")u"'ate' 'e%ts ae those *hee the e#act a+ount has alea'- %een 'ete+"ne'. "nce the cla"+s o& the !et"t"one &o A/ A/ e&un' e&un' "s st"ll st"ll en'" en'"ng ng l"t"ga l"t"gat"o t"on, n, an' st"ll has to %e 'ete 'ete+"n +"ne', e', the liquidat liquidated ed debt o& debt o& the the !et"t"one to the goen+ent cannot, thee&oe, %e set3o aga"nst the unliquidated claim *h"ch claim *h"ch !et"t"one conce"e' to e#"st "n "ts &aou. oeoe, the out o& /a# Aeals ule' that ta#es cannot %e su%6ect to set3o on co+ensat"on s"nce cla"+ &o ta#es "s not a 'e%t o contact. !h"le# %ought the case to the O *ho a?+e' the /A ul"ng. An R le' %!h"le# *as also 'en"e'. But "o to that, !h"le# *as a%le to o%ta"n "ts A/ A/ "nut ce'"te&un' not onl- &o the ta#a%le -ea 1989 to 1991 %ut also &o 1992 an' 1994.
In view of the grant of its VAT VAT input re!it"refun!# re!it"refun!# Phi$e% now onten!s that the sae shou$!# ipso jure# jure# o'(set its e%ise ta% $ia)i$ities sine )oth ha! a$rea!* )eoe !ue an! !ean!a)$e# as we$$ as fu$$* $i+ui!ate!, hene# $ega$ opensation an proper$* ta-e p$ae . Also Also,, Phi$e% asserts that the iposition of surharge an! interest for the non(pa*ent of the e%ise ta%es within the tie presri)e! was un.usti/e!0 Phi$e% posits the theor* that it ha! no o)$igation to pa* the e%ise $ia)i$ities within the pres pres ri)e ri)e! ! peri perio! o! sin sine# e# afte after r a$$# a$$# it sti$ sti$$$ has has pen! pen!in ing g $ai $ais s for VAT inpu inputt re!it"refun! re!it"refun! with 1IR. F"nall-, Phi$e% asserts that the 1IR vio$ate! 2etion 3456e7 894: of the Nationa$ Interna$ Revenue Co!e of 3;<<# whih re+uires the refun! of input ta%es within 54 !a*s# 893: when it too- /ve *ears for the $atter to grant its ta% $ai for VAT input re!it"refun!0 Issues: an the A/ "nut ce'"te&un' %e set3o aga"nst the ta# l"a%"l"t"es o& et"t"one@ an the et"t"one %e chage' &o suchage an' "nteest &o the non3a-+ent o& the e#c"se ta#es *h"le "ts cla"+ &o e&un' "s en'"ng@ Is the BIR l"a%le &o not gant"ng the ta# cla"+ &o A/ "nut ce'"te&un' *"th"n 0 'a-s an' "& so, shoul' the et"t"ones l"a%"l"t- %e e#t"ngu"she' %- eason theeo&@ el': 1. No. Ta%es annot )e su).et to opensation for the sip$e reason that the governent an! the ta%pa*er are not re!itors an! !e)tors of eah other . /hee "s a
+ate"al '"st"nct"on %et*een a ta# an' 'e%t. =e)ts are !ue to the Governent in its orporate apait*# whi$e ta%es are !ue to the Governent in its sovereign apait*0 In Francia v. Intermediate Appellate Court, *e catego"call- hel' that ta#es cannot %e su%6ect to set3o o co+ensat"on: e hae cons"stentl- ule' that thee can %e no o3sett"ng o& ta#es aga"nst the cla"+s that the ta#a-e +a- hae aga"nst the goen+ent. A person cannot refuse to pay a tax on te ground tat te government o!es im an amount equal to or greater tan te tax being collected . /he collect"on o& ta# cannot a*a"t the esults o& a la*su"t aga"nst the goen+ent. !h"le#s el"ance on ou hol'"ng "n Commissioner of Internal "evenue v. Itogon#$uyoc %ines, Inc. , *hee"n *e ule' that a en'"ng e&un' +a- %e set o aga"nst an e#"st"ng ta# l"a%"l"t- een though the e&un' has not -et %een aoe' %- the o++"ss"one, "s no longe *"thout ansuot "n statuto- la*. hen the Nat"onal Intenal Reenue o'e o& 1977 *as enacte', the sa+e o"s"on uon *h"ch the Itogon#$uyoc onounce+ent *as %ase' *as o+"tte'. 2. No. It is a basic principle in tax law that taxes are the lifeblood of the government and so should be collected without unnecessary hindrance . ="'entl-, to countenance !h"le#s *h"+s"cal eason *oul' en'e "neect"e ou ta# collect"on s-ste+. /oo s"+l"st"c, "t n's no suot "n la* o "n 6u"su'ence. /o %e sue, *e cannot allo* !h"le# to e&use the a-+ent o& "ts ta# l"a%"l"t"es on the goun' that "t has a en'"ng ta# cla"+ &o e&un' o ce'"t aga"nst the goen+ent *h"ch has not -et %een gante'.
A !istinguishing feature of a ta% is that it is opu$sor* rather than a atter of )argain. Hene# a ta% !oes not !epen! upon the onsent of the ta%pa*er0 If an* pa*er an !efer the pa*ent of ta%es )* raising the !efense that it sti$$ has a pen!ing $ai for refun! or re!it# this wou$! a!verse$* a'et the governent revenue s*ste . A ta%pa*er annot refuse to pa* his ta%es when the* fa$$ !ue sip$* )eause he has a $ai against the governent or that the o$$etion of the ta% is ontingent on the resu$t of the $awsuit it /$e! against the governent0 !h"le#Cs theo- that *oul' auto+at"call- al- "ts A/ "nut ce'"te&un' aga"nst "ts ta# l"a%"l"t"es can eas"l- g"e "se to con&us"on an' a%use, 'e""ng the goen+ent o& autho"t- oe the +anne %- *h"ch ta#a-es ce'"t an' oset the" ta# l"a%"l"t"es. oolla"l-, the &act that !h"le# has en'"ng cla"+s &o A/ "nut cla"+e&un' *"th the goen+ent "s "++ate"al &o the "+os"t"on o& chages an' enalt"es esc"%e' un'e ect"on 248 an' 249 o& the /a# o'e o& 1977. /he a-+ent o& the suchage "s +an'ato- an' the BIR "s not este' *"th an- autho"t- to *a"e the collect"on theeo&. D28E /he sa+e cannot %e con'one' &o "+s- easons, D29E s"+"la to the one a'ance' %- !h"le# "n 6ust"&-"ng "ts non3a-+ent o& "ts ta# l"a%"l"t"es. (. No. Once a cla"+ant has su%+"tte' all the e)u"e' 'ocu+ents, "t "s the &unct"on o& the BIR to assess these 'ocu+ents *"th uose&ul '"satch. A&te all, s"nce ta#a-es o*e honest- to goen+ent "t "s %ut 6ust that goen+ent en'e &a" se"ce to the ta#a-es. In the "nstant case, the A/ "nut ta#es *ee a"' %et*een 1989 to 1991 %ut the e&un' o& these eoneousl- a"' ta#es *as onl- gante' "n 199. O%"ousl-, ha' the BIR %een +oe '"l"gent an' 6u'"c"ous *"th the" 'ut-, "t coul' hae gante' the e&un' eal"e.
2ip$e .ustie re+uires the spee!* refun! of wrong$*(he$! ta%es0 >air !ea$ing an! nothing $ess# is e%pete! )* the ta%pa*er fro the 1IR in the $atter?s !isharge of its funtion . The power of taxation is sometimes called also the power to destroy 0 Therefore it shou$! )e e%erise! with aution to inii@e in.ur* to the proprietar*
rights of a ta%pa*er. It must be exercised fairly, equally and uniformly, lest the tax collector kill the 'hen that lays the golden egg.' An', in the order to maintain the general public's trust and condence in the !overnment this power must be used justly and not treacherously . "ut it is a settled rule that in the performance of governmental function , the #tate is not bound by the neglect of its agents and o$cers . Nowhere is this ore true than in the /e$! of ta%ation . Again# whi$e we un!erstan! Phi$e%?s pre!iaent# it ust )e stresse! that the sae is not va$i! reason for the non( pa*ent of its ta% $ia)i$ities . /h"s, ho*ee, 'oes not +ean that the ta#a-e "s 'eo"' o& e+e'- aga"nst u%l"c seants o e+lo-ees esec"all- BIR e#a+"nes *ho, "n "nest"gat"ng ta# cla"+s ae seen to 'ag the" &eet nee'lessl-. F"st, "& the BIR ta$es t"+e "n act"ng uon the ta#a-eCs cla"+s &o e&un', the latte can see$ 6u'"c"al e+e'- %e&oe the out o& /a# Aeals "n the +anne esc"%e' %- la*. econ', "& the "nact"on can %e chaacte"e' as *"l&ul neglect o& 'ut-, then ecouse un'e the ""l o'e an' the /a# o'e can also %e aa"le' o&. At"cle 27 o& the ""l o'e o"'es:HAt. 27. An- eson sue"ng +ate"al o +oal loss %ecause a u%l"c seant o e+lo-ee e&uses o neglects, *"thout 6ust cause, to e&o+ h"s o?c"al 'ut- +a- le an act"on &o 'a+ages an' othe el"e& aga"nst the latte, *"thout e6u'"ce to an- '"sc"l"na- act"on that +a- %e ta$en.H oe "+otantl-, ect"on 29 cJ o& the Nat"onal Intenal Reenue Act o& 1997 states:H### ### cJ *"l&ull- neglect"ng to g"e ece"ts, as %- la* e)u"e' &o an- su+ collecte' "n the e&o+ance o& 'ut- o *"l&ull- neglect"ng to e&o+, an- othe 'ut"es en6o"ne' %- la* .H
