G.R. No. L-10694; March 20, 1958
MULLER & PHIPPS (MANILA), LTD., petitioner-appellant, vs. THE COLLECTOR OF INTERNAL REVENUE, respondent-appellee.

FACTS

Petitioner Muller & Phipps (Manila), Ltd., a manufacturer of Kolynos Toothpaste, imported raw materials (kolynos essence, powdered soap, and calcium carbonate) from the United States in 1951 and 1952. It paid advance sales taxes on these materials upon withdrawal from customs custody as required by the Tax Code. Due to a lack of packaging materials, petitioner was unable to use all the imported raw materials and, to prevent deterioration, shipped the unused portion back to its U.S. supplier on July 27, 1953. On August 4, 1953, petitioner filed a claim with the Collector of Internal Revenue for a refund of P4,453.25 in advance sales taxes paid on the re-exported goods. The Collector denied the claim by letter dated January 25, 1955, received by petitioner on February 7, 1955. Petitioner filed a request for reconsideration on February 22, 1955, which was denied on November 3, 1955, with notice received on November 10, 1955. On November 23, 1955, petitioner filed a petition for review with the Court of Tax Appeals. The Collector moved to dismiss the petition, arguing it was filed beyond the two-year prescriptive period in Section 306 of the Tax Code. The Court of Tax Appeals granted the motion and dismissed the petition for lack of jurisdiction. Petitioner appealed to the Supreme Court.

ISSUE

Whether the Court of Tax Appeals correctly dismissed petitioner’s appeal for refund on the ground that it was filed beyond the two-year prescriptive period under Section 306 of the National Internal Revenue Code.

RULING

No. The Supreme Court reversed the order of dismissal. It held that Section 306 of the Tax Code, which prescribes a two-year period from tax payment for filing a suit for recovery, does not apply to petitioner’s case. This is because petitioner was not contesting the original assessment or collection as erroneous or illegal; it admitted the taxes were legitimately due when paid. Its claim for refund was based on a supervening event (re-exportation of the unused materials) that subsequently entitled it to a partial refund. Consequently, no cause of action arose until the Collector denied the refund claim. Therefore, the applicable prescriptive period is found in Republic Act No. 1125 (creating the Court of Tax Appeals). Under Section 11 of this Act, an appeal from the Collector’s decision must be filed within thirty days after receipt of such decision. Petitioner received the denial of its reconsideration on November 10, 1955, and filed its appeal on November 23, 1955, which was within the thirty-day period (considering the time spent on the motion for reconsideration is deductible). Thus, the Court of Tax Appeals had jurisdiction, and the case was remanded for a hearing on the merits.