MINDANAO SHOPPING DESTINATION CORP.

, ACE
HARDWARE PHILIPPINES, INC., INTERNATIONAL TOY
WORLD, INC., STAR APPLIANCE CENTER, INC., SUPERVALUE,
INC., SURPLUS MARKETING CORP., and WATSONS
PERSONAL CARE STORES (PHILIPPINES), INC., petitioners, vs.
DAVAO CITY and RODRIGO S. RIOLA, in his capacity as the
City Treasurer of Davao City, respondents
FACTS:
Submitted for the consideration of this Court is the Motion for
Reconsideration 1 filed by petitioners on February 9, 2011, praying
that: (a)
t h e Decision 2 of this Court promulgated on January 21, 2011 be
reconsidered, reversed and set aside; and (b) judgment be rendered
ordering
respondents to refund or issue a tax credit in favor of petitioners in the
total
amount of P39,040,737.74. As an alternative to the foregoing prayer,
petitioners likewise prayed that this Court order the suspension of the
rendition of judgment pending final resolution of the constitutionality
and/or
legality of the Tax Ordinance.

The Motion for Reconsideration filed by petitioners bears the following

allegations:
A. The Decision erred when it ruled that the RTC Case 3 was
premature and that petitioners should have first awaited the
outcome of the CA Case 4 before filing the RTC Case.
B. T h e Decision erred when it ruled that the elements of litis
pendentia and res judicata are present.
C. Even assuming that the elements of litis pendentia and/or res
judicata are present, the RTC Case should have been merely
suspended to await the outcome of the CA Case.

Respondents put forth their observation that petitioners have

misconstrued the ruling of the CTA En Banc in the Alabang
Supermarket
Case brought about by a selective quotation of certain portions of the
said
decision. Petitioners' selective quotation gives an impression that the
claim
for refund or credit cannot be counted from finality of the decision of a
court
declaring the tax measure void, rendering inutile the reckoning period
"from
the date the taxpayer is entitled to a refund or credit" . Taking the
gist of the
decision in the Alabang Supermarket Case as a whole and
harmonizing the
same to the cited Section 196 of the LGC, it becomes clear that the
second
reckoning period "from the date the taxpayer is entitled to a refund
or
credit" is counted from the finality of the decision of a court declaring
the tax
measure void provided there was prior filing of a written administrative
claim
for tax refund or credit with the City Treasurer.

Further, respondents stress that: the rights asserted in the two cases
are intimately related and/or intertwined with one another such that
the
judgment that may be rendered in one, regardless of which party
would be
successful, would amount to res judicata in the other; and the claim
for
refund in the RTC Case is merely an incidental relief which is wholly
dependent on the outcome or resolution of the CA Case.
As their final point, respondents broached their opposition to
petitioners' alternative prayer to suspend the RTC Case until final
resolution
of the CA Case, arguing that the presence of litis pendentia and/or res
judicata does not justify the suspension of the other proceeding, as it
is an
inconsistent remedy, and that to request for the suspension only
supports
the conclusion that one case is dependent on the outcome of the other
case.
The conclusion of this Court in the assailed Decision was reached after
a thorough review of the records at hand, taking into consideration the
application of Section 196 of the Local Government Code, the ruling of
the
Supreme Court in the Alabang Supermarket Case , and the rules of
statutory
construction.
As oft repeated Section 196 of the LGC clearly declares, that
prescription is not reckoned only from the date of payment, but also
from the
"date the taxpayer is entitled to a refund or credit", viz.:

xxx xxx xxx

SECTION 196. Claim for Refund of Tax Credit. — No case or
proceeding shall be maintained in any court for the recovery of any
tax, fee, or charge erroneously or illegally collected until a written
claim for refund or credit has been filed with the local treasurer. No
case or proceeding shall be entertained in any court after the
expiration of two (2) years from the date of the payment of such
tax, fee, or charge, or from the date the taxpayer is entitled to
a refund or credit.
xxx xxx xxx

Petitioners are ensnared by a particular phrase in the Alabang

Supermarket Case which states that '". . . .The phrase "from the date
the
taxpayer becomes entitled to a refund or credit" in Section 196
should not
be interpreted to mean the finality of the decision of a court
declaring the
tax measure void, . . . .'", said phrase was singled out from the whole
context of the decision and given a literal interpretation. Certainly,
anyone
who looks on that phrase alone will have the impression that the two
(2) year
prescriptive period under Section 196 of the LGC is only reckoned from
the
date of payment, and will arrive at a conclusion that the assailed
Decision
reversed the Alabang Supermarket Case . However, a thorough
review of the
whole context of the Alabang Supermarket decision refutes such
impression
and conclusion. Relevant portion of the Alabang Supermarket Case
reads
thus:
"'Relative thereto, We find that the Court in Division
appropriately denied petitioner's claim for refund pertaining to
the period from December 16, 2000 to December 2002, due to
petitioner's failure to file an administrative claim for refund
before the City Government of Muntinlupa as required under Section
196 of the LGC prior to judicial recourse. Said provision reads thus:
"Section 196. Claim for Refund of Tax Credit. — No
case or proceeding shall be maintained in any court for
the recovery of any tax, fee, or charge erroneously or
illegally collected until a written claim for refund or credit
has been filed with the local treasurer. No case or
proceeding shall be entertained in any court after the
expiration of two (2) years from the date of the payment
of such tax, fee, or charge, or from the date the taxpayer
is entitled to a refund or credit." (Emphasis Ours)

Clearly from the above quoted provision, no case or

proceeding may be entertained by any courts absent showing
that petitioner has a written claim for refund of erroneous or
excessive payment of any tax, fee or charge filed with the local
treasurer prior to its filing before any court.

Moreover, it should be noted that two reckoning periods are

provided by law for the filing of a case or proceeding, that is from the
date of payment of the tax, and from the date the taxpayer becomes
entitled to the refund. However, petitioner's interpretation of the
phrase "from the date the taxpayer becomes entitled to the refund" is
not in consonance with the intent of the law since Section 196 should
not be read in isolation, but in relation with other provisions of the LGC.
As exhaustively discussed by the Court in Division in its Resolution
dated April 4, 2008, it held that:

"Section 187 of the Local Government Code

dictates the procedure for questioning the
constitutionality or legality of tax ordinances. It provides
in part that: 'any question on the constitutionality or
legality of tax ordinances or revenue measures may be
raised on appeal within thirty (30) days from the
effectivity thereof to the Secretary of Justice who shall
render a decision within sixty (60) days from the date of
the receipt of the appeal'. It further provides that 'such
appeal shall not have the effect of suspending the
effectivity of the ordinance and the accrual and payment
of the tax, fee or charge levied therein.
A reading of Section 187 of the Local Government
Code would show that the law intends that questions on
the legality or constitutionality of an ordinance or tax
measure be threshed out the soonest possible time. It
should be raised within thirty (30) days from approval and
such appeal should be resolved within sixty (60) days
from receipt thereof. Section 187 states that any appeal
on the legality or constitutionality of the ordinance does
not suspend its effectivity. Thus, before any final
declaration of its nullity, taxes accrue and should be paid
accordingly.

In the same vein, the reckoning periods for the filing

of a claim for refund in Section 196 of the Local
Government Code should be interpreted so as to
accomplish the evident purpose, viz., the settlement of
the rights of the taxpayer vis-à-vis the government, at the
earliest opportunity. The phrase "from the date the
taxpayer becomes entitled to a refund or credit" in
Section 196 should not be interpreted to mean the
finality of the decision of a court declaring the tax
measure void, even without a timely claim for
refund. Otherwise, claims for refund will be filed even
after several years from payment of the tax due, merely
because the tax ordinance was declared void. And the
filing of administrative and judicial claims for refund shall
be endless. This interpretation would give the taxpayer,
who was not able to question the legality or
constitutionality of the tax measure within the period
provided in Section 187, the right to instead file a claim
for refund with the court under Section 196, absent the
filing of a timely administrative claim. In effect, the
prescriptive periods provided by law would be rendered
naught and meaningless.
This could not have been the intention of
lawmakers. A taxpayer who believes that he has
paid a tax imposed under a void ordinance should
timely exhaust administrative remedies before
resorting to the filing of a judicial claim or timely
question its constitutionality and legality.
Petitioner's failure to file the appropriate administrative
claim for refund for the period December 16, 2000 to
September 2002 cannot be countenanced. More so, since
it has been able to file a timely administrative claim for
the 3% business tax it paid covering January 2, 1999 to
December 15, 2000. It is clearly aware of the
requirements for the filing of an administrative claim set
forth by law. Its manifest error cannot be cured at this
point.'"

Verily, the crux of the controversy and the reason for the denial of the
refund claim in the Alabang Supermarket Case is the petitioner's
failure to
file an administrative claim for refund. Petitioner in the Alabang
Supermarket
Case subscribes to the interpretation that Section 196 of the LGC
requires it
to wait for the finality of the decision declaring the tax ordinance void
before
filing an administrative claim with the treasurer. The Court En Banc did
not agree and affirmed the view of the Court in Division that " [A]
taxpayer
who believes that he has paid a tax imposed under a void ordinance
should
timely exhaust administrative remedies before resorting to the filing
of a
judicial claim or timely question its constitutionality and legality. "

The phrase picked out by the petitioners is actually qualified by the

phrase that followed, i.e. , "even without a timely claim for refund",
which
supports a view contrary to that of petitioners, viz.:
"'The phrase "from the date the taxpayer becomes entitled to a
refund or credit" in Section 196 should not be interpreted to mean the
finality of the decision of a court declaring the tax measure void, even
without a timely claim for refund.'"
Hence, in considering and appreciating the whole context of the
Alabang Supermarket Case decision, only one conclusion can be
drawn, that
the second reckoning period "from the date the taxpayer is entitled to
a refund or credit" is interpreted to mean the finality of the decision of a
court declaring a tax measure void provided there was a prior filing of a
written administrative claim for refund or tax credit with the City
Treasurer. A taxpayer, like the petitioner in Alabang Supermarket Case
,
cannot invoke or avail of the second reckoning period [2 years from
finality
of the decision of a court declaring a tax measure void] to file its
judicial
claim for refund or tax credit if there was no administrative claim filed
prior
to the judicial claim.

In this case, records show that petitioners filed their written

administrative claim for refund with the respondent City Treasurer,
thus, the
dread of losing their right to claim for refund is clearly unfounded. Also,
since
there was a written administrative claim for refund that was filed with
the
City Treasurer, petitioners can invoke or avail of the second reckoning
period
[2 years from finality of the decision of a court declaring a tax
measure void]
in filing its judicial claim for refund or tax credit.

In view of the foregoing, We consistently hold the view that petitioners'

judicial claim for refund or tax credit [RTC Case] is premature, such
may still
be pursued within two (2) years from the time the assailed ordinance is
nullified or from the time a decision [CA Case] nullifying the ordinance
becomes final and executory, because it is only at such time when the
petitioners become entitled to a refund or credit or their claim for
refund is
ripened for administrative and judicial determination.