G.R. No. L-18874 January 30, 1970
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. NATIONAL POWER CORPORATION, respondent.

FACTS

On various dates in March and April 1955, five shipments of diamond drill bits and related parts, consigned to the Philippine Engineers’ Syndicate, Inc., arrived at the Manila International Airport. The Bureau of Customs assessed and, on May 5, 1955, collected under protest from the Philippine Engineers’ Syndicate, Inc., the total sum of P6,749.57 as advance sales tax, customs duties, and surcharge. Of this amount, P2,582.96 represented advance sales tax. The payments were made for the National Power Corporation (NPC), which claimed to be the real importer. Seizure proceedings were initiated due to the lack of a bank release certificate. During these proceedings, on September 17, 1955, NPC filed a claim with the Bureau of Customs for a refund of the entire amount, citing its tax exemption under Republic Act No. 358 . On October 15, 1957, the Collector of Customs rendered a decision declaring the Philippine Engineers’ Syndicate, Inc. as an agent of NPC, that the importations belonged to NPC, and that they were exempt from all taxes, duties, and imposts under Republic Act No. 358 . The Bureau of Customs refunded only the customs duties (P4,156.66) and suggested NPC claim the sales tax refund from the Bureau of Internal Revenue. On January 13, 1958, NPC requested the Commissioner of Internal Revenue (CIR) to authorize the refund of the P2,582.96 advance sales tax. The CIR denied the request on May 27, 1958, received by NPC on June 11, 1958, on the ground that the claim was not filed within the two-year period prescribed by Section 306 of the National Internal Revenue Code. NPC filed a petition for review with the Court of Tax Appeals (CTA) on July 11, 1968. The CTA reversed the CIR and ordered the refund. The CIR appealed to the Supreme Court.

ISSUE

Whether the action for the recovery of the erroneously collected advance sales tax had prescribed under Section 306 of the National Internal Revenue Code.

RULING

No, the action had not prescribed. The Supreme Court affirmed the decision of the Court of Tax Appeals. The Court ruled that while Section 306 of the National Internal Revenue Code requires a suit for recovery of an erroneously or illegally collected tax to be filed within two years from the date of payment, the prescriptive period commences from the date the collection becomes erroneous or illegal. In this case, the tax was legally collected on May 5, 1955, from the Philippine Engineers’ Syndicate, Inc., which was not tax-exempt. The supervening event that made the collection erroneous was the October 15, 1957 decision of the Collector of Customs declaring NPC as the real and tax-exempt importer. Thus, the two-year prescriptive period started from October 15, 1957. NPC’s claim for refund with the CIR on January 13, 1958, and its filing of the petition with the CTA on July 11, 1958, were both well within the two-year period from October 15, 1957. Therefore, NPC complied with the requirements of both Section 306 of the National Internal Revenue Code and Section 11 of Republic Act No. 1125 and was entitled to the refund.