GR 219340; (November, 2018) (Digest)
G.R. No. 219340 , November 07, 2018
COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. STANDARD INSURANCE CO., INC., RESPONDENT.
FACTS
The Bureau of Internal Revenue (BIR) issued a Final Decision on Disputed Assessment (FDDA) against Standard Insurance Co., Inc. for deficiency documentary stamp taxes (DST) for taxable year 2011, and made further assessments for 2012 and 2013. The respondent contested these assessments. While its administrative protest was pending, Standard Insurance filed an original action for declaratory relief in the Regional Trial Court (RTC) of Makati. It sought a judicial declaration that Sections 108 and 184 of the National Internal Revenue Code (NIRC), as applied to non-life insurance companies, were unconstitutional for violating the equal protection clause. The respondent argued that the recent reduction of the tax rate for life insurance premiums created an unfair disparity.
The RTC granted the petition and permanently enjoined the Commissioner of Internal Revenue from implementing the said tax provisions against Standard Insurance. The court anchored its decision on the taxpayer’s right to contest the application of tax laws and ordered the injunction to remain until Congress passed a bill rationalizing the taxes on non-life insurance. The Commissioner elevated the case directly to the Supreme Court via a petition for review on certiorari.
ISSUE
Whether the Regional Trial Court had jurisdiction to entertain the action for declaratory relief and to enjoin the collection of the assessed taxes.
RULING
No, the RTC had no jurisdiction. The Supreme Court reversed the RTC’s decision and dismissed the petition for declaratory relief. The Court held that an action for declaratory relief is improper for contesting tax assessments. The remedy for a taxpayer who disputes an assessment is to pay the tax under protest and file a claim for refund in the Court of Tax Appeals (CTA), or to appeal the assessment to the CTA within the prescribed period. Declaratory relief presupposes that no breach of the statute has occurred and is intended to prevent future controversy; it cannot be used to challenge an assessment for taxes already due, which constitutes an actual breach of the law.
Furthermore, the RTC’s grant of injunctive relief was a grave error. Section 218 of the NIRC explicitly prohibits any court from issuing an injunction to restrain the collection of any national internal revenue tax. This prohibition is rooted in the principle that taxes are the lifeblood of the government, and their collection must be prompt and unhindered. The RTC’s order permanently enjoining the tax collection directly contravened this clear statutory mandate. Consequently, the RTC acted without jurisdiction, and its judgment and orders were null and void.