NATIONAL DENTAL SUPPLY CO., PLAINTIFF AND APPELLANT, VS. BIBIANO MEER, IN HIS CAPACITY AS COLLECTOR OF INTERNAL REVENUE, DEFENDANT AND APPELLEE.

This is an action for declaratory relief
to obtain a ruling on whether sales of dental gold or gold alloys and
other metals used for dental purposes come within the purview of
Article 184 of the National Internal Revenue Code as claimed by the
Collector of Internal Revenue.

Defendant filed a motion to dismiss on the ground (1) that
plaintiff has no cause of action for declaratory Judgment and (2) that
even assuming the existence of a cause of action, relief by declaratory
Judgment is not proper because It will not terminate the controversy.
The court sustained the motion under the first ground holding that
actions for declaratory relief do not apply to cases where a taxpayer
questions his liability for the payment of any tax collectible under
any law administered by the Bureau of Internal Revenue. Prom this
ruling the plaintiff has appealed.

The only question to be determined is whether plaintiff can bring the present action for declaratory relief.

Plaintiff contends that it can do so under section 1, Rule 66, of
the Rules of Court, which contains no prohibition to a taxpayer to file
an action for declaratory relief to test the legality of any tax,
whereas defendant contends that the failure to incorporate in Rule 66
the proviso added by Commonwealth Act No. 55 to section 1, of Act No.
3736, does not Imply its repeal and, therefore, it still stands and
applies to the plaintiff.

The original law on declaratory relief is Act No. 3736, which went
into effect on November 22, 1930. Section 1 of said Act provides:

“SECTION. 1. Construction.—Any person
Interested under a deed, contract or other written instrument, or whose
rights are affected by a statute, may bring an action in Court of First
Instance to determine any question of construction or validity arising
under the instrument or statute and for a declaration of his rights or
duties thereunder.”

On October 17, 1936, Congress approved Commonwealth Act No. 55 adding to section 1 of said Act No. 3736, the following proviso:

” * * * Provided, however, That the
provisions of this Act shall not apply to cases where a taxpayer
questions his liability for the payment of any tax, duty, or charge
collectible under any law administered« by the Bureau of Customs or the
Bureau of Internal Revenue.”

Subsequently, by virtue of the powers granted to it by our
Constitution, the Supreme Court codified and promulgated the present
Rules of Court among which is Rule 66, section 1, which reproduces the
declaratory relief provisions contained in Act No.3736, but eliminates
the proviso Introduced by Commonwealth Act No. 55. Speaking of the
reasons why said proviso has not been incorporated in rule 66, former
Chief Justice Moran who intervened in the preparation of said Rules of
Court, has the following to say:

“(a) Propriety of remedy.—The proviso
added by Commonwealth Act No. 55 to section 1 of Act No. 3736, which
prohibits an action for declaratory relief In ‘cases where a tax-payer
questions his liability for the payment of any tax, duty, or charge
collectible under any law administered by the Bureau of Customs or the
Bureau of Internal Revenue’, is not Incorporated in the above provision
in order to make it discretionary upon the courts to apply or not to
apply the remedy in such cases. Of course, where the tax is already due
and collectible, the taxpayer cannot prevent collection by a
declaratory action, but he should pay the tax and sue for its recovery
within the period limited by law. But, where the tax is not yet due,
there can be no valid reason why a tax-payer cannot by declaratory
relief test its validity. Such a procedure cannot possibly hamper the
activities of the government and is, on the other hand, simple, speedy
and inexpensive. The United States Supreme Court has approved the
practice, long prevailing In other Jurisdictions, of testing the
legality of a tax by an action of this nature.” ( 2 Moran, Comments on
the Rules of Court, 3rd ed. p. 129).

From the opinion of former Chief Justice Moran may be deduced that
the failure to incorporate the above proviso in section 1, rule 66, is
not due to an intention to repeal it but rather to the desire to leave
its application to the sound discretion of the court, which is the sole
arbiter to determine whether a case Is meritorious or not. And even if
it be desired to incorporate it in rule 66, it is doubted if it could
be done under the rule-making power of the Supreme Court considering
that the nature of said proviso is substantive and not adjective, its
purpose being to lay down a policy as to the right of a taxpayer to
contest the collection of taxes on the part of a revenue officer or
of the Government. With the adoption of said proviso, our law-making
body has asserted its policy on the matter, which is to prohibit a
taxpayer to question his liability for the payment of any tax that may
be collected by the Bureau of Internal Revenue. As this Court well
said, quoting from several American cases, “The Government may fix the
conditions upon which it will consent to litigate the validity of its
original taxes. * * * .” “The power of taxation being legislative, all
the incidents are within the control of the Legislature”. (Sarasola vs.
Trinidad, 40 Phil. 252, 263.) In other words, it is our considered
opinion that the proviso contained in Commonwealth Act No. 55 is still
in full force and effect and bars the plaintiff from filing the present
action.

The foregoing view finds support in section 306 of the National
Internal Revenue Code, which specifically lays down the procedure to be
followed in those cases wherein a taxpayer entertains some doubt about
the correctness of a tax sought to be collected. Said section provides
that the tax should first be paid and the taxpayer should sue for its
recovery afterwards. The purpose of the law obviously is to prevent
delay in the collection of taxes upon which the government depends for
its very existence. To allow a taxpayer to first secure a ruling as
regards the validity of the tax before paying it would be to defeat
this purpose, and to prevent this result the rule regarding declaratory
relief was declared inapplicable to cases involving collection of taxes.

Wherefore, the order appealed from is affirmed, with costs against the appellant.

Paras, C. J., Feria, Pablo, Bengzon, Padilla, Tuason, Reyes, and Jugo., concur.