G.R. No.
125704 August 28, 1998
PHILEX MINING CORPORATION, petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, COURT OF
APPEALS, and THE COURT OF TAX APPEALS, respondents.
TOPIC: Remedies available to taxpayer -> After payment -> Refund -> Is setting-off of taxes against a pending
claim for refund allowed? -> Doctrine of Equitable Recoupment
FACTS:
On August 5, 1992, the BIR sent a letter to Philex asking it to settle its tax liabilities for the 2nd, 3rd and 4th quarter
of 1991 as well as the 1st and 2nd quarter of 1992 in the total amount of P123,821,982.52.
In a letter dated August 20, 1992, Philex protested the demand for payment of the tax liabilities stating that it has
pending claims for VAT input credit/refund for the taxes it paid for the years 1989 to 1991 in the amount of
P119,977,037.02 plus interest. Therefore these claims for tax credit/refund should be applied against the tax
liabilities.
In reply, the BIR, in a letter dated September 7, 1992, found no merit in Philex's position. Since these pending
claims have not yet been established or determined with certainty, it follows that no legal compensation can take
place.
In view of the BIR's denial of the offsetting of Philex's claim for VAT input credit/refund against its excise tax
obligation, Philex raised the issue to the Court of Tax Appeals on November 6, 1992. In the course of the
proceedings, the BIR issued Tax Credit Certificate SN 001795 in the amount of P13,144,313.88 which, applied to
the total tax liabilities of Philex of P123,821,982.52; effectively lowered the latter's tax obligation to
P110,677,688.52.
Despite the reduction of its tax liabilities, the CTA still ordered Philex to pay the remaining balance of
P110,677,688.52 plus interest, holding that "taxes cannot be subject to set-off on compensation since claim for
taxes is not a debt or contract."
CA affirmed CTA.
However, a few days after the denial of its motion for reconsideration, Philex was able to obtain its VAT input
credit/refund not only for the taxable year 1989 to 1991 but also for 1992 and 1994, with total amount of
P205,595,289.22.
In view of the grant of its VAT input credit/refund, Philex now contends that the same should, ipso jure, off-set its
excise tax liabilities since both had already become "due and demandable, as well as fully liquidated;" hence, legal
compensation can properly take place.
ISSUE:
Whether the off-set may be made.
HELD: NO
In several instances prior to the instant case, we have already made the pronouncement that taxes cannot be
subject to set-off or compensation for the simple reason that the government and the taxpayer are not creditors and
debtors of each other. There is a material distinction between a tax and debt. Debts are due to the Government in
its corporate capacity, while taxes are due to the Government in its sovereign capacity. A person cannot refuse to
pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected.
The collection of a tax cannot await the results of a lawsuit against the government.
We cannot allow Philex to refuse the payment of its tax liabilities on the ground that it has a pending tax claim for
refund or credit against the government which has not yet been granted. Corollarily, the fact that Philex has pending
claims for VAT input claim/refund with the government is immaterial for the imposition of charges and penalties
prescribed under Section 248 and 249 of the Tax Code of 1977. The payment of the surcharge is mandatory and
the BIR is not vested with any authority to waive the collection thereof.
While we understand Philex's predicament on the late refund of VAT, which should have been made within 60
days, but actually made more or less 7 years, it must be stressed that the same is not a valid reason for the non-
payment of its tax liabilities. While we can never condone the BIR's apparent callousness in performing its duties,
still, the same cannot justify Philex's non-payment of its tax liabilities. If the BIR takes time in acting upon the
taxpayer's claim for refund, taxpayer is devoid of remedy against public servants or employees, such as seek
judicial remedy before the Court of Tax Appeals in the manner prescribed by law or if the inaction can be
characterized as willful neglect of duty, then recourse could be made under the Civil Code and the Tax Code.
Regarding DOCTRINE OF EQUITABLE RECOUPMENT:
- This was not expressly mentioned in the case, but upon checking in reviewer, it is not followed in the
Philippines.
- Maybe, this is the offsetting of claims between BIR and taxpayer.
WHEREFORE, in view of the foregoing, the instant petition is hereby DISMISSED. The assailed decision of the Court of
Appeals dated April 8, 1996 is hereby AFFIRMED.
-harl- 1
