PERSONS NON-FEASANCE, MISFEASANCE, MALFEASANCE

Title GR No. 125704

Philex Mining Corporation vs Commissioner of Internal Revenue Date: August 28, 1998

Heirs of the deceased employees of Philex Mining Corporation Commissioner of Internal Revenue– Respondents
(hereinafter referred to as Philex) – Petitioner

Nature of the case: This is a petition to review the order of the former Court of First Instance of Manila, Branch XIII, dated
December 16, 1968 dismissing petitioners' complaint for damages on the ground of lack of jurisdiction.

FACTS

BIR sent a letter to Philex asking it to settle its tax liabilities amounting to P124 million. Philex protested the demand for payment
stating that it has pending claims for VAT input credit/refund amounting to P120 million from 1989 to 1991. Therefore, these claims
for tax credit/refund should be applied against the tax liabilities.

In reply the BIR found no merit in Philex’s position. On appeal, the CTA reduced the tax liability of Philex.

ISSUE/S

1. Whether legal compensation can properly take place between the VAT input credit/refund and the excise tax liabilities of
Philex Mining Corp;
2. Whether the BIR has violated the NIRC which requires the refund of input taxes within 60 days
3. Whether the violation by BIR is sufficient to justify non-payment by Philex

RATIO

1. No, legal compensation cannot take place. The government and the taxpayer are not creditors and debtors of each other.
2. Yes, the BIR has violated the NIRC. It took five years for the BIR to grant its claim for VAT input credit. Obviously, had the
BIR been more diligent and judicious with their duty, it could have granted the refund
3. No, despite the lethargic manner by which the BIR handled Philex’s tax claim, it is a settled rule that in the performance of
government function, the State is not bound by the neglect of its agents and officers. It must be stressed that the same is
not a valid reason for the non-payment of its tax liabilities.

RULING

WHEREFORE, THE TRIAL COURT'S ORDER OF DISMISSAL IS HEREBY REVERSED AND SET ASIDE AND THE CASE IS
REMANDED TO IT FOR FURTHER PROCEEDINGS. SHOULD A GREATER AMOUNT OF DAMAGES BE DECREED IN FAVOR
OF HEREIN PETITIONERS, THE PAYMENTS ALREADY MADE TO THEM PURSUANT TO THE WORKMEN'S COMPENSATION
ACT SHALL BE DEDUCTED. NO COSTS

Notes

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