Myline Cordial

Commissioner of Internal Revenue vs. Fortune Tobacco Corporation
G.R. Nos. 167274-75, July 21, 2008

FACTS:
Fortune Tobacco is a manufacturer and producer of some cigarette brands. Prior to January 1, 1997, its cigarette brands were subject to ad valorem tax but 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 its cigarette brands to specific tax.

For the period covering January 1-31, 2000, Fortune Tobacco paid specific taxes on all brands manufactured so it filed a claim for refund or tax credit of its overpaid excise tax for the month of January 2000.

The Court of Tax Appeals (CTA) and the Court of Appeals, granted the tax refund or tax credit representing specific taxes erroneously collected from its tobacco products. However, the Commissioner of Internal Revenue reclaims the grant of tax refund. Hence, this petition.

ISSUE:
Whether or not Fortune Tobacco is entitled to tax refund.

RULING:
Yes. Although tax refund partakes the nature of a tax exemption, this rule does not apply to Fortune Tobacco’s claim. The parity between tax refund and tax exemption exists only when the former is based either on a tax exemption statute or a tax refund statute. In the present case, Fortune Tobacco’s claim for refund is premised on its erroneous payment of the tax, or the government’s exaction in the absence of a law.

Tax exemption is granted by the legislature thus, the one 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. In the same manner, a claim for tax refund may also be based on statutes granting tax exemption or tax refund. In this case, the rule of strict interpretation against the taxpayer is applicable as the claim for refund partakes of the nature of an exemption.

However, tax refunds (or tax credits) are not founded principally on legislative grant but on the legal principle of solutio indebiti, the government cannot unjustly enrich itself at the expense of the taxpayers. Under the Tax Code, 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.

Full text: CIR vs. Fortune Tobacco Corporation G.R. Nos. 167274-75, July 21, 2008