G.R. No. L-32364. April 30, 1979.
RAMIE TEXTILES, INC., petitioner, vs. HON. ISMAEL MATHAY, SR., in his capacity as Auditor General, respondent.

FACTS

Petitioner Ramie Textiles, Inc., a domestic corporation, voluntarily paid real estate taxes totaling P78,041.17 on its plant machinery and equipment for the first five years of its operation from 1959 to 1963. In 1967, petitioner filed a claim for refund with the Provincial Treasurer of Bulacan, asserting that under Commonwealth Act No. 470 (the Assessment Law), such machinery used for manufacturing during the first five years of operation is exempt from realty tax. The Provincial Treasurer denied the claim, citing a two-year prescriptive period for refunds under the Revised Manual of Instructions to Treasurers. The matter was elevated to the Auditor General, who, in a decision reiterated in a resolution, disallowed the refund. The Auditor General ruled that the voluntary payment without prior protest barred recovery under Section 54 of Commonwealth Act No. 470 , which restricts courts from entertaining suits assailing a tax’s validity unless paid under protest.

ISSUE

Whether prior protest is a sine qua non requirement for the refund of real estate taxes paid under a mistaken belief of liability, and what is the applicable prescriptive period for such a claim.

RULING

The Supreme Court ruled in favor of the petitioner, setting aside the Auditor General’s decision. The Court held that protest is not a prerequisite for refund when taxes are paid under a mistake of fact or law, without knowledge of an existing exemption. Section 54 of Commonwealth Act No. 470 , which requires protest, applies only when a taxpayer, aware of an erroneous or illegal assessment, pays without manifesting unwillingness, thereby waiving the right to contest. Here, petitioner paid in the honest belief it was liable, lacking knowledge of its exemption; thus, it could not have been expected to protest. The payment, accepted by the government despite no right to demand it, gave rise to an obligation under the principle of solutio indebiti (quasi-contract) under Article 2154 of the Civil Code. Consequently, the applicable prescriptive period is six years from payment, as provided for quasi-contractual actions under Article 1145. Applying this, petitioner’s 1967 claim was timely only for payments made from October 31, 1961, to September 9, 1965. The Court allowed a refund of P61,007.33, disallowing P17,033.84 paid from 1959 to March 1961 as time-barred. The cited case of National Waterworks and Sewerage Authority vs. Quezon City was distinguished, as there the taxpayer had prior knowledge of its exemption but still paid subsequent taxes without protest.