UP COLLEGE OF LAW ADMINITRATIVE LAW

ORJALO, CLARK S. PROF. CARLOTA

[National Dental Supply Co. v. Bibiano Meer]

TOPIC – Modes of Judicial Review; Declaratory Relief

SUMMARY

Plaintiff National Dental Supply filed an action for declaratory relief before the lower court to obtain a
ruling on whether sales of dental gold or gold alloys and other metals used for dental purposes come
within the purview of Art. 184 of the NIRC, as claimed by the Collector of Internal Revenue (CIR). The
CIR filed a motion to dismiss on the ground that plaintiff has no cause of action for declaratory
judgment. The court ruled in favor of the CIR, holding that actions for declaratory relief do not apply to
cases where a taxpayer questions his liability for the payment of any tax collectible under any law
administered by the Bureau of Internal Revenue.

ISSUE: W/N a taxpayer can bring an action for declaratory relief to question his liability for
the payment of tax being collected already by the CIR – NO

Act No, 3736 was the original law on declaratory relief which, under its Section 1, states in part that
any person stating that any person whose rights are affected by a statute, may bring an action in
Court of First Instance to determine any question of construction or validity arising under statute and
for a declaration of his rights or duties thereunder. Meanwhile, Commonwealth Act No. 55 added the
following proviso in Section 1 of Act No. 3736: "the provisions of this Act, shall not apply to cases
where a taxpayer questions his liability for the payment of any tax, duty, or charge collectible under
any law administered by the Bureau of Customs or the Bureau of Internal Revenue". The purpose of
the law is to prevent delay in the collection of taxes upon which the Government depends for its very
existence. However, the Supreme Court, when it promulgated the present Rules of Court, did not
incorporate the proviso introduced by Commonwealth Act No. 55.

The Court however held that even if not incorporated under Rule 66 of the Rules of Court, the proviso
prohibiting a taxpayer from questioning the validity of the tax already collectible by the BIR through an
action of declaratory will stand and remain in force because it is provided by substantive law made by
Congress. The Supreme Court did not intend to repeal CA No. 55 when it did not incorporate the same
in the Rules of Court. The omission of the added proviso was to make it discretionary upon courts to
apply or not to apply the remedy in cases where a taxpayer questions his liability for payment of any
tax, duty, or charge collectible by the Bureau of Customs or the BIR. Where the tax is already due and
collectible, the taxpayer cannot prevent collection by a declaratory action. However, where the tax is
not yet due, there is no reason for a taxpayer not to be allowed to test the validity of the statute
through an action for declaratory relief (as in that case, no government activity will be hampered).
Plaintiff is therefore barred from filing the present action.

DOCTRINE
An action for declaratory relief shall not apply to cases where a taxpayer questions his liability for the
payment of any tax, duty, or charge collectible under any law administered by the Bureau of Customs
or the Bureau of Internal Revenue.

BAUTISTA ANGELO, J.:

● Plaintiff National Dental Supply filed an action for declaratory relief before the lower court to
obtain a ruling on whether sales of dental gold or gold alloys and other metals used for dental
 UP COLLEGE OF LAW ADMINITRATIVE LAW
ORJALO, CLARK S. PROF. CARLOTA

purposes come within the purview of Art. 184 of the NIRC, as claimed by the Collector of
Internal Revenue (CIR).
● The CIR filed a motion to dismiss on the ground that plaintiff has no cause of action for
declaratory judgment.
● The court ruled in favor of the CIR, holding that actions for declaratory relief do not apply to
cases where a taxpayer questions his liability for the payment of any tax collectible under any
law administered by the Bureau of Internal Revenue.
● Plaintiff then filed the present appeal before the SC, contending that there is no prohibition
under Sec. 1, Rule 66 of the Rules of Court to a taxpayer to file an action for declaratory relief
to test the legality of any tax.

ISSUE/S & RATIO/S

(1) W/N a taxpayer can bring an action for declaratory relief to question his liability for
the payment of tax being collected already by the CIR - NO
● Act No. 3736 (original law on declaratory relief) provides that:
o "SECTION 1. Construction. — Any person interested under a deed, contract or other written
instrument, or whose rights are affected by a statute, may bring an action in Court of First
Instance to determine any question of construction or validity arising under the instrument
or statute and for a declaration of his rights or duties thereunder."
● However, the Congress passed Commonwealth Act No. 55 which added a proviso stating that
"the provisions of this Act, shall not apply to cases where a taxpayer questions his
liability for the payment of any tax, duty, or charge collectible under any law administered
by the Bureau of Customs or the Bureau of Internal Revenue". The purpose of the law is to
prevent delay in the collection of taxes upon which the Government depends for its very
existence.
o Still, the Supreme Court, when it promulgated the present Rules of Court, eliminated the
proviso introduced by Commonwealth Act No. 55.
● Justice Moran nevertheless explained that the omission of the added proviso was in order to
make it discretionary upon courts to apply or not to apply the remedy in cases where a
taxpayer questions his liability for payment of any tax, duty, or charge collectible by the Bureau
of Customs or the BIR.
o J. Moran also clarified that where the tax is already due and collectible, the taxpayer cannot
prevent collection by a declaratory action. However, where the tax is not yet due, there is
no reason for a taxpayer not to be allowed to test the validity of the statute through an
action for declaratory relief (as in that case, no government activity will be hampered).
● Even if not incorporated under Rule 66 of the Rules of Court, the prohibition on a taxpayer to
question the validity of the tax already collectible by the BIR through an action of declaratory
will stand because it is provided by substantive law made by Congress (who exercises power of
taxation). The Supreme Court did not intent to repeal CA No. 55.
● In other words, it is our considered opinion that the proviso contained in Commonwealth Act
No. 55 is still in full force and effect and bars the plaintiff from filing the present action.
● The foregoing view finds support in section 306 of the National Internal Revenue Code, which
specifically lays down the procedure to be followed in those cases wherein a taxpayer entertains
some doubt about the correctness of a tax sought to be collected. Said section provides that the
tax should first be paid and the taxpayer should sue for its recovery afterwards.

RULING
Wherefore, the order appealed from is affirmed, with costs against the Appellant.