RAMIE TEXTILES, INC., PETITIONER, VS. HON. ISMAEL MATHAY, SR., IN HIS CAPACITY AS AUDITOR GENERAL, RESPONDENT.

This is an appeal by way
of certiorari from the decision of the Auditor General contained in his
9th indorsement dated January 14, 1970 and his resolution dated July 28,
1970 reiterating the
aforesaid decision, disallowing the claim of petitioner for refund of real
estate taxes.

The undisputed facts of
the case are as follows:

Petitioner Ramie
Textiles, Inc., a domestic corporation, commenced its operation in 1959.  During the first five (5) years of operation,
it voluntarily paid the amount of P78,041.17 as real estate taxes on its plant
machinery and equipment used by its general mill at Bagbagin,
Valenzuela, Bulacan. 
Later, or on May 19, 1967 said petitioner realizing, that under
Article 1, Section 3(f) of Commonwealth Act No. 470, otherwise known as the
Assessment Law,^[1] said machineries are exempt from realty tax,
submitted to the Provincial Treasurer, through the Provincial Assessor of Bulacan a claim for refund of P78,041.17 which it paid as
real estate taxes for the said five (5) years on its plant machinery and
equipment.  On July 11, 1967 the
Provincial Treasurer, however, denied the claim for refund on the ground that
under Section 359 of the Revised Manual of Instructions to Treasurers, a claim
for refund of taxes erroneously paid or illegally collected or assessed should
be presented within two (2) years from date of payment.  Petitioner submitted a reply on August 1,
1967 to the said
opinion of the Provincial Treasurer alleging that Section 359 is inapplicable
because said provision refers specifically to municipal ordinances which were
subsequently declared illegal and taxes illegally assessed and collected under
such ordinances.  It is neither a tax
collected through the municipal ordinance nor a tax illegally assessed and
collected but real estate taxes voluntarily paid by petitioner.

On November 10, 1967, the Office of the Auditor General of Bulacan indorsed petitioner’s claim to the Auditor General
at Quezon City with the information that the former
concurs with the opinion of the Provincial Treasurer and the Provincial
Assessor of Bulacan that the claim for refund may not
be in order considering that the payment of real estate taxes was made
voluntarily by petitioner without protest. 
But since the amount involved is very significant, the matter was
submitted to the Central Office for decision and/or instruction.

The matter also appeared to have been referred to the Secretary
of Finance for comment, and in his indorsement dated
July 22, 1969 to the Auditor General, the Secretary stated that he had no
objection to the grant of the claim for refund of petitioner whether or not
such payments have been made under protest, subject to the application of the
statutory prescriptive period of six (6) years under Article 1145 of the New Civil Code of the Philippines.

The Auditor General in
his 9th indorsement dated January 14, 1970, ruled that the claim for refund of real
estate taxes paid by petitioner having been voluntarily made without protest
may not be allowed pursuant to Section 54 of Commonwealth Act No. 470 which
provides:

“Section 54. – Restriction upon power of court to impeach tax.
– No court shall entertain any suit assailing the validity of a tax assessed
under this Act until the taxpayer shall have paid, under protest, the taxes
assessed against him, x x x.”

The question at issue, therefore, is whether or not protest is a
condition precedent or a sine qua non requirement for the recovery of
real estate taxes paid under the erroneous belief that the claimant was liable therefor, and if so, what is the prescriptive period.

Petitioner claims that protest is not a sine qua non
requirement in order that taxes mistakenly paid may be refunded.  It alleges that Section 54 is not applicable since it contemplates a situation where the taxpayer disagrees with an assessment because it is illegal or erroneous.

We agree with petitioner. 
Protest is not a requirement in order that a taxpayer who paid under a
mistaken belief that it is required by law, may claim for a refund.  Section 54 of Commonwealth Act No. 470 does
not apply to petitioner which could conceivably not have been expected to
protest a payment it honestly believed to be due.  The same refers only to the case where the
taxpayer, despite his knowledge of the erroneous or illegal assessment, still
pays and fails to make the proper protest, for in such case, he should manifest
an unwillingness to pay, and failing so, the taxpayer is deemed to have waived
his right to claim a refund.

In the case at bar, petitioner, therefore, cannot be said to have
waived his right.  He had no knowledge of
the fact that it was exempted from payment of the realty tax under Commonwealth
Act No. 470.  Payment was made through
error or mistake, in the honest belief that petitioner was liable, and
therefore could not have been made under protest, but with complete voluntariness.  In
any case, a taxpayer should not be held to suffer loss by his good intention to
comply with what he believes is his legal obligation, where such obligation
does not really exist.

The case of National Waterworks and Sewerage Authority vs. Quezon City, et al., G.R. No.
L-25310, April 26, 1968, 23
SCRA 286-291, to the effect that prior protest of realty tax payments is
necessary for recovery, cited by respondent, is not in point.  The facts of said case are different because
there was already prior knowledge on the part of NWSA of its exemption from
payment of its taxes which dated back to 1957 when it paid under protest, and
then again in 1961.  But despite the fact
that it knew already that it was exempt, it still paid without protest the
taxes for 1958, 1959, 1960 and 1962. 
Hence, this Court ruled:

“Stated otherwise, this appeal concerns only the taxes paid
for 1958 to 1962 (total amount: 
P449,088.46).  Starting from 1957
up to 1962, NWSA already knew it was exempt, as shown by its payment in 1957
under protest, reiterated in 1961.  NWSA
therefore, should have paid the rest of the taxes from 1957 to 1962 under
protest x x x.”

It is not disputed that petitioner is exempt from the payment of
realty taxes during the first five (5) years of its operation.  The fact that petitioner paid thru error or
mistake, and the government accepted the payment, gave rise to the application
of the principle of solutio indebiti under Article 2154 of the New Civil Code,
which provides that “if something is received when there is no right to
demand it, and it was unduly delivered through mistake, the obligation to
return it arises.” There is, therefore, created a tie or juridical
relation in the nature of solutio indebiti, expressly classified as quasi-contract under
Section 2, Chapter 1 of Title XVII of
the New Civil Code.

The quasi-contract of solutio indebiti,
is one of the concrete manifestations of the ancient principle that no one
shall enrich himself unjustly at the expense of another.^[2] Hence, it would seem unedifying for the government, that knowing it has no right at all to collect or to receive money for
alleged taxes paid by mistake, it would be reluctant to return the same.^[3]

Solutio indebiti is a quasi-contract, and the instant case
being in the nature of solutio indebiti, the claim for refund must be commenced within
six (6) years from date of
payment pursuant to Article 1145(2) of the New Civil Code.^[4]

Respondent’s contention
that petitioner’s right to recover real estate taxes has prescribed in
accordance with Section 359 of the Revised Manual of Instructions to Treasurers
which reads:

“Section 359. – Refund of taxes paid under ordinance
subsequently declared illegal and taxes illegally assessed and collected. – To
encourage prompt and voluntary payment of taxes and to maintain the principle
that the government should not, at the expense of the taxpayer, retain what is
not legally due it, claims for refund of taxes erroneously paid or illegally
collected or assessed may be presented within two (2) years from date of
payment.  Claim for refund presented
thereafter will no longer be entertained. 
All claims for recovery of taxes illegally and erroneously assessed
shall be filed with the treasurer who collected the tax.  The treasurer may himself decide the protest
or he may forward the same to the corresponding authority for decision.  His comment and recommendation shall be
stated by him together with the protest. 
This procedure shall be strictly followed in order to determine as to
whether or not a formal or written claim was filed within the two (2) years
from date of payment.”

is
without merit.  The said provision
applies to taxes paid under ordinance subsequently declared illegal or taxes
illegally assessed and collected under such ordinance, but not to payments of
real estate taxes mistakenly made, as in the present case.  Furthermore, the Revised Manual of
Instructions to Treasurers is a mere compilation of existing accounting
instructions affecting the finance and administration of local government.  Section 359, particularly, has no force and
effect of a law, and the same can not prevail over the provisions of the New
Civil Code.

Equally not applicable is
Section 17 of Commonwealth Act No. 470 cited by respondent in relation to the
right of a property owner to contest the validity of assessment.  Said
provision provides:

“Section 17.  Appeal by
owner to the Board of Tax Appeals (Now Board of Assessment Appeals, R.A. No.
1125).  Any owner who is not satisfied
with the action of a provincial assessor in the assessment of his property may,
within sixty (60) days from the date of receipt by him of the written notice of
assessment as provided in Section 16 hereof, appeal to the Board of Tax
Appeals, which is created in each province, by filing with it or with the municipal
Treasurer of the municipality where the property assessed is situated who is
duty bound to transmit it to the Board of Tax Appeals, a petitioner to that
effect stating the grounds of his appeal.”

Petitioner is not
unsatisfied in the assessment of its property. 
Assessment having been made, it paid the real estate taxes without
knowing that it is exempt.

It appears from the
records that petitioner has paid the following real estate taxes from 1959 to
1963.^[5]

As already stated, the claim for refund must be made within six (6)
years from date of payment.  Since petitioner
demanded the refund of real estate taxes mistakenly paid only on May 23 1967, it can recover only
those paid during the period from October
31, 1961 to September 9,
1965 or a total amount of P61,007.33.  Petitioner has, by reason of the six (6)
years prescriptive period, lost its right to recover the amount of P17,033.84
paid during the period from July 24,
1959 to March 27, 1961.

IN VIEW OF THE FOREGOING, the appealed judgment is hereby
set aside, and petitioner Ramie Textiles, Inc. is allowed to recover the real
estate taxes paid during the period from October 31, 1961 to September 9, 1965, in the total amount of P61,007.33.  No costs.

SO ORDERED.

Teehankee, (Chairman), Makasiar, Fernandez, Guerrero,
and Melencio-Herrera, JJ., concur.

^[1]
Article 1, Section 3(f) of Commonwealth Act No. 470 provides:

Section 3.  Property exempt from tax. – The exemptions
shall be as follows:

x x x

(f) Machinery,
which term shall embrace machines, mechanical contrivances, instruments,
appliances, and apparatus attached to the real estate, used for industrial,
agricultural or manufacturing purposes, during the first five (5) years of
operation of the machinery.

^[2]
Velez vs. Balzarza, et al., 73 Phil. 630.

^[3]
Gonzalo Puyat & Sons, Inc. vs. City of Manila,
7 SCRA 970.

^[4]
Article 1145 The following actions must be commenced within 6 years:

1. x x x

2. Upon a quasi-contract.

^[5]
Rollo, pp. 12, 40.