G.R. No. L-24108 January 3, 1968
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. VICTORIAS MILLING CO., INC. and THE COURT OF TAX APPEALS, respondents.

FACTS

1. Under Section 142 of the National Internal Revenue Code, as amended by Republic Act 775 (effective June 18, 1952), 50% of the specific tax on manufactured oils and fuels used in agriculture within five years from June 18, 1952, shall be refunded.
2. On December 23, 1957, respondent Victorias Milling Co., Inc. filed a claim for refund of P12,464.53, representing 50% of specific taxes paid on fuels used in its agricultural operations from June 18, 1952, to June 18, 1957.
3. The Commissioner of Internal Revenue granted a partial refund of P3,415.18 for taxes paid from January 1, 1956, to June 18, 1957, but denied the portion of P2,817.08 for taxes paid from June 18, 1952, to December 31, 1955, on the ground that the claim was filed beyond the two-year prescriptive period under Section 306 of the Tax Code.
4. Victorias Milling appealed to the Court of Tax Appeals, arguing that Section 306 did not apply, citing the case of Muller & Phipps (Manila), Ltd. v. Collector of Internal Revenue. The Court of Tax Appeals ruled in favor of Victorias Milling and ordered the refund.
5. The Commissioner appealed to the Supreme Court, contending that Section 306 governs the claim.

ISSUE

Whether the claim for refund of the specific tax, which was legally collected but subject to a 50% refund under a supervening event (use in agriculture), is governed by the two-year prescriptive period under Section 306 of the National Internal Revenue Code, and if so, whether Victorias Milling’s claim was filed on time.

RULING

The Supreme Court REVERSED the decision of the Court of Tax Appeals and DISMISSED the petition for refund on the ground of prescription.
1. Applicability of Section 306: The Court held that Sections 306 and 309 of the National Internal Revenue Code govern all refunds of internal revenue taxes, including those legally collected but subject to refund due to a subsequent supervening cause. The ruling in Muller & Phipps was modified.
2. Commencement of the Prescriptive Period: The Court established a distinction:
– For taxes illegally or erroneously collected, the two-year prescriptive period under Section 306 runs from the date of payment.
– For taxes legally collected (as in this case), the two-year period runs from the date of the supervening cause that gives rise to the right of refund (i.e., the use of fuels in agriculture).
3. Application to the Case: The supervening cause (use of fuels in agriculture) occurred during the period from June 18, 1952, to December 31, 1955. The two-year period to claim a refund thus commenced from the last date of that period, December 31, 1955.
– The claim filed with the Bureau of Internal Revenue on December 23, 1957, was within two years from December 31, 1955.
– However, the appeal to the Court of Tax Appeals was instituted only on February 14, 1962, which was beyond the two-year period from December 31, 1955.
4. Requirement for Timely Appeal: The Court reiterated that both the claim for refund with the Bureau of Internal Revenue and the subsequent appeal to the Court of Tax Appeals must be filed within the two-year prescriptive period. If the Commissioner delays deciding the claim, the taxpayer must initiate the court proceeding before the two-year period expires without waiting for the decision.
5. Conclusion: Since Victorias Milling’s appeal to the Court of Tax Appeals was filed more than two years after the supervening cause (six years and two months from December 31, 1955), its right to claim the refund of P2,817.08 had already prescribed.