Fact

On _____ the city of manila appealed from the decision of the Court of First Instance of Manila giving
them the order to refund the municipal taxes and license fee of the UST Cooperatives starting from
December 1957 up to December 1958 amounting to 12, 345.10 pesos.

The UST Cooperatives is a legitimate organized cooperative association with the Securities and Exchange
Commission in accordance to the Commonwealth Act No. 5165. The latter is already a Cooperative
Administrative Office since the time they were registered and the petitioner’s net assets never exceeded
to 500,000 pesos starting from 1957 up to 1959.

Last June 22, 1957, Republic Act No. 2023 which focuses on amending the co existing laws on non
agricultural cooperatives has 2 provisions which are concerned in the argument of this case. These acts
are Sec 4 (1) and 66 (1)

The UST cooperatives were unaware of this provision and also about this act, and they were paying their
municipal taxes and license fee to the respondents since 1957 up to 1959 with the said amount earlier
and having discovered these acts the petitioner requested to refund the amount they have been paying
since 1957 from the petitioner.

The appellants argued that the petitioner shouldn’t be exempted from taxes and other fees, because
according to the appellants they were doing business with the public and not only with their members,
and as stated doing business with the public won’t be exempted from tax under Sec. 58. Thus, there is
no real evidence that the petitioner is really doing business with the public and also there is no law
stated that the violation of the said act will be non exemption of the cooperative concerned. The
requirement for the Republic Act no 2023 is that the cooperatives’ net assets shouldn’t exceed to
500,000 pesos and also a member of Cooperative Administration Office.

The appellants also contend that the municipal taxes and license fee were paid voluntarily, so they can
no longer be refunded, assuming that the petitioner already know the Republic Act no 2023. Hence the
payment was clearly erroneously made due to the fact that the law was passed last July 1957 but was
published in December 1957.

Issue:

Whether or not UST cooperatives can still refund their municipal tax and license fee paid to the City of
Manila since 1957?

Ruling:

Yes, The Supreme Court held that the UST Cooperatives can still refund their municipal tax and license
fee paid to the City of Manila since 1957, The appelants’s argument that the municipal tax and license
fee paid to them by the petitioner is voluntary which makes it non refundable is absurd because a
payment of taxes under a mistake of fact has been held not to be voluntary, and is therefore recoverable
(51 Am. Jur. 1023). On principle, a recovery should be allowed where money is paid under a mistake of
fact, though such mistake of fact may be induced by mistake of laws, or where is both a mistake of fact
and a mistake of law.(40Am. Jur. 846). Hence, when money is paid to another under the influence of a
mistake of fact, that on the mistaken supposition of the existence of a specific fact which would entitle
the other to the money and it would not have been known that the fact making the payment was
otherwise, it may be recovered. The ground upon which the right of recovery rests is that money paid
through misapprehension of facts belongs, in equity, and in good conscience, to the person who paid it.
The Supreme Court find no reason to attribute negligence to appellee in making the payments in
question, especially considering that the new law involved a change in its status from a taxable to a tax-
exempt institution; and if it continued to pay for a time after the exemption became effective it did so in
a desire to abide by what it believed to be the law. No undue disadvantage should be visited upon it as a
consequence thereof.

In its ruling, the Supreme Court held that the decision appealed from is affirmed, without
pronouncement as to costs.
Facts

A 19 year old man named Noble Casionan took his life on June 27 1995. He is originally from Cervantes,
Ilocos Sur but worked as a pocket miner in Dalcino, Ampucao, Itogon, Benguet. A stream was regularlu
used by the members of community that connects Dalcino to Sangilo and that stream has a high tension
electrical transmission line of 69 kilovolts traversing the trail that was installed by the petitioner NPC
(National Power Corporation). Throughout the times the transmission lines started to droop and to swing
loosely making a great threat to people passing by who were exposed to the danger of electrocution
especially during the rainy season.

In the year 1991, the leaders of Ampucao, Itogon made verbal and written requests for NPC to safety
institute safety measures to protect users from the dangled high tension wires. On June 18, 1991 and
February 11, 1993, Pablo and Pedro Ngaosie, elders of the community made a letter addressing it to
Engineer Paterno Banayot, Area Manager of NPC to make immediately and appropriately fix the high
tension wires. The elders of the community also stated the possible harm that that it posted to small
scale miners during the rainy season. They also mentioned one incident, wherein a young boy was nearly
electrocuted.

A letter dated March 1 1995 was sent to the Mayor of Itogon that NPC has already installed nine
additional poles on their Beckel- Philex 60 KV line. They also mentioned a possible rerouting scheme
with an estimated cost of 1.7 million pesos to improve the distance from its lines to the ground.

Last June 27, 1995, Noble and his co pocket miner, Melchor Jimenez were at Dalcino. They cut two
bamboo poles for their pocket mining. One was 18 -19 feet long and the other was 14 feet long. They
both carry the poles horizontally in their shoulders. Noble carried the 14 feet long bamboo pole, while
Melchor carried the 18-19 feet long. Noble walked ahead as they passed the transmission lines going to
their work.

As Noble going uphill and turning left on a curve, the tip of the bamboo pole that he carried touched one
of the swinging tension wires and Melchor, his co pocket miner walking behind him heard a buzzing
sound when the tip of Noble’s bamboo touched the wire for only about two seconds and after that he
saw Noble fall to the ground and as he rushed to Noble knowing the Noble is already history. Melchor
asked for the help of his co workers and together they brought the body of Noble to their camp.

After the incident happened, Mayor Pacalso informed the general Manager of NPC in Itogon what
happened and after being informed on what happened, NPC fixed the dangling and sagging transmission
lines and put up warning signs around the area.

In consequence, the heirs of the deceased Noble filed a claim of damages against the NPC in the
Regional Trial Court (RTC) in benguet. NPC denied that they were negligent, the NPC argue that there
were warning signs but it was stolen by the children. Also according to NPC that they also did excavation
to make it 17 to 18 feet from the ground, but some of the poles sank due to the pocket mining activities
in that area. NPC also argued that Noble didn’t die from electrocution because he didn’t suffer from
extensive burns. NPC also said that if Noble really died because of electrocution, it is because of his own
negligence.

The RTC decided in favor of the respondents and declared defendant NPC guilty of Negligence in relation
to the death of Noble Casionan. RTC also ordered NPC to the following damages: Indemnity for the
death of their son, moral damages, exemplary damages, damages incurred for the expenses of burial
and wake, loss of unearned income and attorneys fee and cost of suit.

Issue

Whether or not the award for damages should be deleted in view of the contributory negligence of the
victim?

Whether or not the award for unearned income, exemplary, and moral damages should be deleted for
lack of factual and legal basis?

Ruling:

No, the Supreme Court held that the award for damages shouldn’t be deleted. The petitioner’s argument
that the high tension wires did not cause the victims death, but rather due to his own negligent way of
carrying the bamboo pole that causes his death is invalid, the dangling wires were an accident waiting to
happen and it was also a violation of having 8-10 feet in the ground rather than having the required
distance of 18 to 20 feet. If the wires are properly arranged and fixed, Noble’s bamboo would not have to
touch the wires and he wouldn’t be killed because of electrocuted.

Petitioners can’t also use the negligence of the victim to amend their failure or negligence to fix the
wires, but they should have taken more steps in order to prevent such cases from happening instead of
waiting until someone suffered because of their negligence. Moreover, the Supreme Court didn’t find
contributory negligence on Nobles part, since the trail where Noble was electrocuted was regularly used
by members of the community and there were also no warning signs to inform impending dangers to
their lives. Noble should not be faulted for simply doing what was ordinary routine to other workers in
the area.

Hence, the Supreme Court sustains the computation of the unearned income of the victim. In quasi
delict, exemplary damages are awarded where the offender was guilty of gross negligence. Gross
negligence has been defined as a thoughtless disregard of consequences without exerting any effort. In
that case the petitioner demonstrated its disregard for the safety of the members of the community of
Dalicno who used regularly when it failed to address the sagging high tension wires despite numerous
previous requests and warnings. The Supreme Court also sustains the CA reduction of the award. Moral
damages are designed to compensate the claimant for actual injury suffered and not to impose a penalty
on the wrong doer. The Supreme Court also finds the Court of Appeals correctly reduced the award from
100,000 pesos to 50,000 pesos

In its ruling, the Supreme Court held that the petition is denied and the appealed decision of the Court
of Appeals affirmed.
Fact

Petitioner[2] is a domestic corporation duly organized and existing under

and by virtue of the laws of the Republic of the Philippines, with principal
address at Fortune Avenue, Parang, Marikina City. The latter is also the
manufacturer/producer of, among others, the following cigarette brands, with tax
rate classification based on net retail price prescribed by Annex D to R.A. No.
4280. To wit:
Brand Tax Rate
Champion M 100 P1.00
Salem M 100 P1.00
Salem M King P1.00
Camel F King P1.00
Camel Lights Box 20s P1.00
Camel Filters Box 20s P1.00
Winston F Kings P5.00
Winston Lights P5.00

On January 1 1997, the above-mentioned cigarette brands were subject to

ad valorem tax pursuant to then Section 142 of the Tax Code of 1977, as
amended. However, on January 1, 1997, R.A. No. 8240 took effect whereby a
shift from the ad valorem tax (AVT) system to the specific tax system was made
and subjecting the aforesaid cigarette brands to specific tax under [S]ection 142
thereof, now renumbered as Sec. 145 of the Tax Code of 1997

Variants of existing brands of cigarettes which are introduced in

the domestic market after the effectivity of R.A. No. 8240 shall be taxed
under the highest classification of any variant of that brand.

The excise tax from any brand of cigarettes within the next three
(3) years from the effectivity of R.A. No. 8240 shall not be lower than the
tax, which is due from each brand on October 1, 1996. Provided, however,
that in cases were (sic) the excise tax rate imposed in paragraphs (1), (2),
(3) and (4) hereinabove will result in an increase in excise tax of more
than seventy percent (70%), for a brand of cigarette, the increase shall
take effect in two tranches: fifty percent (50%) of the increase shall be
effective in 1997 and one hundred percent (100%) of the increase shall be
effective in 1998.

Metro Manila (for brands of cigarettes marketed nationally),

excluding the amount intended to cover the applicable excise tax and
value-added tax. For brands which are marketed only outside Metro
[M]anila, the net retail price shall mean the price at which the cigarette is
sold in five (5) major supermarkets in the region excluding the amount
intended to cover the applicable excise tax and the value-added tax.
 The classification of each brand of cigarettes based on its average
retail price as of October 1, 1996, as set forth in Annex D, shall remain in
force until revised by Congress.

Variant of a brand shall refer to a brand on which a modifier is

prefixed and/or suffixed to the root name of the brand and/or a different
brand which carries the same logo or design of the existing brand.
To implement the provisions for a twelve percent (12%) increase of excise
tax on, among others, cigars and cigarettes packed by machines by January 1,
2000, the Secretary of Finance, upon recommendation of the respondent
Commissioner of Internal Revenue, issued Revenue Regulations No. 17-99, dated
December 16, 1999

For the period covering January 1-31, 2000, petitioner allegedly paid
specific taxes on all brands manufactured and removed in the total amounts
of P585,705,250.00.

On February 7, 2000, petitioner filed with respondents Appellate

Division a claim for refund or tax credit of its purportedly overpaid excise tax
for the month of January 2000 in the amount of P35,651,410.00

On June 21, 2001, petitioner filed with respondents Legal Service a letter
dated June 20, 2001 reiterating all the claims for refund/tax credit of its
overpaid excise taxes filed on various dates, including the present claim for the
month of January 2000 in the amount of P35,651,410.00.

As there was no action on the part of the respondent, petitioner filed the
instant petition for review with this Court on December 11, 2001, in order to
comply with the two-year period for filing a claim for refund.

In his answer filed on January 16, 2002, respondent raised the following
Special and Affirmative Defenses;

4. Petitioners alleged claim for refund is subject to administrative

routinary investigation/examination by the Bureau;

5. The amount of P35,651,410 being claimed by petitioner as

alleged overpaid excise tax for the month of January 2000 was
not properly documented.
 6. In an action for tax refund, the burden of proof is on the taxpayer
to establish its right to refund, and failure to sustain the burden is
fatal to its claim for refund/credit.

7. Petitioner must show that it has complied with the provisions of

Section 204(C) in relation [to] Section 229 of the Tax Code on
the prescriptive period for claiming tax refund/credit;

8. Claims for refund are construed strictly against the claimant for
the same partake of tax exemption from taxation; and

9. The last paragraph of Section 1 of Revenue Regulation[s]

[No.]17-99 is a valid implementing regulation which has the
force and effect of law.

Issue: Whether or not petitioner is entitled to a refund of P35,651,410.00 as alleged

overpaid excise tax for the month of January 2000.

Ruling:

No, The Supreme Court held that the Commission of

Internal revenue is not entitled to a refund of P35,651,410.00 as an
overpaid excise tax for the month of January 2000. Accordingly,
respondent is hereby ORDERED to REFUND to petitioner the
amount of P35,651.410.00 representing erroneously paid excise
taxes for the period January 1 to January 31, 2000. Herein petitioner
sought reconsideration of the above-quoted decision. In [twin]
resolution[s] [both] dated July 15, 2003, the Tax Court, in an
apparent change of heart, granted the petitioners consolidated
motions for reconsideration, thereby denying the respondents claim
for refund. However, on consolidated motions for reconsideration
filed by the respondent in CTA Case Nos. 6363 and 6383, the July
15, 2002 resolution was set aside, and the Tax Court ruled, this time
with a semblance of finality, that the respondent is entitled to the
refund claimed. Hence, in a resolution dated November 4, 2003, the
tax court reinstated its December 21, 2002 Decision. The
Commissioner appealed the aforesaid decisions of the
CTA. The petition questioning the grant of refund in the
amount of P680,387,025.00 was docketed as CA-G.R. SP
No. 80675, whereas that assailing the grant of refund in
the amount of P355,385,920.00 was docketed as CA-G.R.
SP No. 83165. The petitions were consolidated and
eventually denied by the Court of Appeals. The appellate
court also denied reconsideration in its Resolution.
 Finally, the OSG asserts that a tax refund is in the nature of a tax
exemption and must, therefore, be construed strictly
against the taxpayer, such as Fortune Tobacco

Fortune Tobacco argues that the CTA and the Court of Appeals
merely followed the letter of the law when they ruled that
the basis for the 12% increase in the tax rate should be the
net retail price of the cigarettes in the market as outlined
in paragraph C, sub paragraphs (1)-(4), Section 145 of the
Tax Code. The Commissioner allegedly has gone beyond
his delegated rule-making power when he promulgated,
enforced and implemented Revenue Regulation No. 17-
99, which effectively created a separate classification for
cigarettes based on the excise tax actually being paid prior
to January 1, 2000

In the case at bar, the OSGs argument that by 1 January 2000,

the excise tax on cigarettes should be the higher tax
imposed under the specific tax system and the tax
imposed under the ad valorem tax system plus the 12%
increase imposed by paragraph 5, Section 145 of the Tax
Code, is an unsuccessful attempt to justify what is clearly
an impermissible incursion into the limits of
administrative legislation. Such an interpretation is not
supported by the clear language of the law and is
obviously only meant to validate the OSGs thesis that
Section 145 of the Tax Code is ambiguous and admits of
several interpretations.
Finally, the Commissioners contention that a tax refund partakes the nature
of a tax exemption does not apply to the tax refund to which Fortune Tobacco is
entitled. There is parity between tax refund and tax exemption only when the
former is based either on a tax exemption statute or a tax refund statute. Obviously,
that is not the situation here. Quite the contrary, Fortune Tobaccos claim for refund
is premised on its erroneous payment of the tax, or better still the governments
exaction in the absence of a law.
Tax exemption is a result of legislative grace. And he who claims an
exemption from the burden of taxation must justify his claim by showing that the
legislature intended to exempt him by words too plain to be mistaken. [27] The rule
is that tax exemptions must be strictly construed such that the exemption will not
be held to be conferred unless the terms under which it is granted clearly and
distinctly show that such was the intention.[28]

A claim for tax refund may be based on statutes granting tax exemption or
tax refund. In such case, the rule of strict interpretation against the taxpayer is
applicable as the claim for refund partakes of the nature of an exemption, a
legislative grace, which cannot be allowed unless granted in the most explicit and
categorical language. The taxpayer must show that the legislature intended to
exempt him from the tax by words too plain to be mistaken.[29]
Tax refunds (or tax credits), on the other hand, are not founded principally on
legislative grace but on the legal principle which underlies all quasi-contracts
abhorring a persons unjust enrichment at the expense of another. [30] The dynamic of
erroneous payment of tax fits to a tee the prototypic quasi-contract, solutio
indebiti, which covers not only mistake in fact but also mistake in law.[31]

The Government is not exempt from the application of solutio indebiti.

[32]
Indeed, the taxpayer expects fair dealing from the Government, and the latter
has the duty to refund without any unreasonable delay what it has erroneously
collected.[33] If the State expects its taxpayers to observe fairness and honesty in
paying their taxes, it must hold itself against the same standard in refunding excess
(or erroneous) payments of such taxes. It should not unjustly enrich itself at the
expense of taxpayers.[34] And so, given its essence, a claim for tax refund
necessitates only preponderance of evidence for its approbation like in any other
ordinary civil case.

Under the Tax Code itself, apparently in recognition of the pervasive quasi-
contract principle, a claim for tax refund may be based on the following: (a)
erroneously or illegally assessed or collected internal revenue taxes; (b) penalties
imposed without authority; and (c) any sum alleged to have been excessive or in
any manner wrongfully collected.[35]

What is controlling in this case is the well-settled doctrine of

strict interpretation in the imposition of taxes, not the
similar doctrine as applied to tax exemptions. The rule in
the interpretation of tax laws is that a statute will not be
construed as imposing a tax unless it does so clearly,
expressly, and unambiguously. A tax cannot be imposed
 without clear and express words for that
purpose. Accordingly, the general rule of requiring
adherence to the letter in construing statutes applies with
peculiar strictness to tax laws and the provisions of a
taxing act are not to be extended by implication. In
answering the question of who is subject to tax statutes, it
is basic that in case of doubt, such statutes are to be
construed most strongly against the government and in
favor of the subjects or citizens because burdens are not to
be imposed nor presumed to be imposed beyond what
statutes expressly and clearly import

WHEREFORE, the petition is DENIED. The Decision of the

Court of Appeals in CA G.R. SP No. 80675, dated 28
September 2004, and its Resolution, dated 1 March 2005,
are AFFIRMED. No pronouncement as to costs.