G.R. No. L-9292; April 23, 1957
JOHNSTON LUMBER CO., INC., petitioner, vs. COURT OF TAX APPEALS and THE COLLECTOR OF INTERNAL REVENUE, respondents.

FACTS

The petitioner, Johnston Lumber Co., Inc., a corporation engaged in the lumber business in Zamboanga City, transmitted lumber valued at P316,354.77 to E. J. Stanton & Son, Inc. in Los Angeles, California, from July 1939 to April 1940. The Collector of Internal Revenue assessed a 3½% tax, plus a 2% additional tax and a 25% surcharge (totaling P7,908.86), on the ground that the transactions were domestic sales (f.o.b. Zamboanga) subject to tax under Section 186 of the National Internal Revenue Code, not consignments. After an exchange of correspondence and an affirmation of the assessment by the Secretary of Finance, a warrant of distraint and levy was issued. The petitioner paid the tax under protest on November 20, 1950, and subsequently filed a complaint for recovery/refund of the tax in the Court of First Instance of Zamboanga on March 30, 1951. The case was transferred to the Court of Tax Appeals. Before trial, the Solicitor General filed an amended answer asserting, as an affirmative defense, that the petitioner failed to file a prior written claim for refund with the Collector of Internal Revenue as required by Section 306 of the Tax Code. The petitioner, in turn, sought to amend its complaint to allege that the assessment and collection were barred by the statute of limitations. The Court of Tax Appeals granted both motions but ultimately issued a resolution dismissing the complaint for lack of jurisdiction, holding that the filing of a claim for refund with the Collector is a mandatory condition precedent to filing a suit for recovery.

ISSUE

1. Whether Section 306 of the National Internal Revenue Code, which requires the prior filing of a claim for refund with the Collector of Internal Revenue before maintaining a suit for recovery, was repealed by Republic Act No. 1125 (the law creating the Court of Tax Appeals).
2. Whether the requirement under Section 306 of the Tax Code is mandatory and a condition precedent to filing an action for the refund of taxes.

RULING

1. No, Republic Act No. 1125 did not repeal Section 306 of the National Internal Revenue Code. The Supreme Court held that there is no conflict between the two laws. Section 11 of Republic Act No. 1125 governs appeals to the Court of Tax Appeals from a decision or ruling of the Collector of Internal Revenue without prior payment of the tax, and requires such an appeal to be filed within 30 days. In contrast, Section 306 of the Tax Code governs situations where the tax has already been paid and the taxpayer seeks its recovery/refund; it mandates the prior filing of a claim for refund with the Collector as a prerequisite to any court action. The two provisions address distinct procedural scenarios and can stand together.
2. Yes, the requirement under Section 306 is mandatory and a condition precedent. The Court ruled that the language of Section 306 is explicit and mandatory, as indicated by the use of the word “shall.” This interpretation is consistent with prior jurisprudence (e.g., Wee Poco & Co. vs. Posadas, Santiago Bermejo vs. Collector of Internal Revenue, P. J. Keiner Co., Ltd. vs. David) which holds that strict compliance with the statutory conditions for tax refund is required. The filing of a claim affords the Collector an opportunity to correct errors and serves as a notice to the government. Failure to comply with this condition is fatal and bars the action. Consequently, the petitioner’s failure to allege in its complaint that it had filed such a claim rendered the complaint defective and without a cause of action.
The Supreme Court affirmed the resolution of the Court of Tax Appeals dismissing the complaint, with costs against the petitioner.