CJH DEVELOPMENT CORPORATION, PETITIONER, VS. BUREAU OF INTERNAL REVENUE, BUREAU OF CUSTOMS, DISTRICT COLLECTOR OF CUSTOMS EDWARD O. BALTAZAR, RESPONDENTS.

CJH Development Corporation versus Bureau of Internal Revenue

The Case

CJH Development Corporation, the locator and developer within the former Camp John Hay in Baguio City, brought suit against the Bureau of Internal Revenue, the Bureau of Customs, and the District Collector of Customs, to stop them from collecting taxes and duties on the strength of a Supreme Court decision that had struck down the tax incentives of the John Hay Special Economic Zone. The case is a petition for review on certiorari of two orders of the Regional Trial Court of Baguio City dismissing a petition for declaratory relief. It matters for two reasons: it fixes the rule that a taxpayer may not use declaratory relief to question a tax assessment, and it reminds the Bar that a court decision is never a proper subject of that remedy.

Procedural History

CJH filed a petition for declaratory relief before the Regional Trial Court of Baguio City, Branch 5, assailing the assessments of the Bureau of Customs and the Bureau of Internal Revenue. The Office of the Solicitor General moved to dismiss on the ground that an assessment is not a proper subject of declaratory relief and that administrative remedies existed. The trial court dropped the City of Baguio as a party, and in an order dated 14 October 2005 dismissed the petition, holding that the declaration of nullity of the tax exemption operated from the beginning, that a court decision cannot be the subject of declaratory relief, and that Commonwealth Act Number 55, which bars declaratory relief in tax cases, remains in force. CJH moved for reconsideration, which was denied in an order dated 04 April 2006. CJH then went directly to the Supreme Court, which accepted the petition because it raised only pure questions of law.

Facts

President Fidel V. Ramos issued Proclamation Number 420, creating a Special Economic Zone in a portion of Camp John Hay. Section 3 of the Proclamation granted the zone the same incentives already enjoyed by the Subic Special Economic Zone, including exemption from local and national taxes and operation as a special customs territory with tax and duty free importations. Pursuant to this, the Bureau of Internal Revenue issued Revenue Regulations Number 12-97 and the Bureau of Customs issued Customs Administrative Order Number 2-98.

In 2003, in John Hay Peoples Alternative Coalition versus Lim, the Supreme Court en banc declared the second sentence of Section 3 of the Proclamation void, and enjoined the public respondents from implementing it. The rest of the Proclamation remained valid and effective. The decision became final when the Court denied reconsideration on 29 March 2005.

While the motion for reconsideration was pending, the Office of the City Treasurer of Baguio demanded payment of real property taxes. Later, the Bureau of Customs demanded 71,983,753 pesos in duties and taxes on CJH's importations from 1998 to 2004, and the Bureau of Internal Revenue treated CJH as an ordinary corporation subject to the regular corporate income tax and value added tax. CJH protested the retroactive application of the decision, and when its petition for declaratory relief was dismissed, it came to the Supreme Court.

Issues

• Whether or not the remedy of declaratory relief is proper to question the tax assessments made against CJH.
• Whether or not the decision declaring the tax exemption void may be applied retroactively.

Applicable Provisions

Section 1 of Commonwealth Act Number 55, as amended, provides:

Any person interested under a deed, contract or other written instrument, or whose rights are affected by a statute, may bring an action in a Court of First Instance to determine any question of construction or validity arising under such deed, contract, instrument or statute and for a declaration of his rights or duties thereunder: 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.

This proviso is the very bar that removed from the courts jurisdiction over petitions for declaratory relief involving tax assessments.

Section 2308 of the Tariff and Customs Code provides:

When a ruling or decision of the Collector is made whereby liability for duties, fees, or other money charge is determined, except the fixing of fines in seizure cases, the party adversely affected may protest such ruling or decision by presenting to the Collector at the time when payment of the amount claimed to be due the Government is made, or within thirty days thereafter, a written protest setting forth his objections to the ruling or decision in question, together with the reasons therefor. No protest shall be considered unless payment of the amount due after final liquidation has first been made.

This shows that the law itself supplies the remedy CJH should have pursued instead of declaratory relief.

Section 2313 of the Tariff and Customs Code provides:

The person aggrieved by the decision or action of the Collector in any matter presented upon protest or by his action in any case of seizure may, within fifteen days after notification in writing by the Collector of his action or decision, give written notice to the Collector of his desire to have the matter reviewed by the Commissioner. Thereupon the Collector shall forthwith transmit all the records of the proceedings to the Commissioner, who shall approve, modify or reverse the action or decision of the Collector and take such steps and make such orders as may be necessary to give effect to his decision.

This is the administrative review that must precede any judicial recourse.

Section 2402 of the Tariff and Customs Code provides:

The party aggrieved by a ruling of the Commissioner in any matter brought before him upon protest or by his action or ruling in any case of seizure may appeal to the Court of Tax Appeals, in the manner and within the period prescribed by law and regulations. Unless an appeal is made to the Court of Tax Appeals in the manner and within the period prescribed by laws and regulations, the action or ruling of the Commissioner shall be final and conclusive.

This completes the chain of remedies, ending in the Court of Tax Appeals and then this Court.

Ruling

On the first issue, the Court held that declaratory relief is not the proper remedy. The requisites for such a petition are a justiciable controversy, adverse interests, a legal interest in the controversy, and an issue ripe for judicial determination. Commonwealth Act Number 55 is a substantive law that has not been repealed, and it removed from the courts jurisdiction over petitions for declaratory relief involving tax assessments. The Court cannot repeal, modify, or alter an act of the Legislature. Moreover, the proper subject matter of declaratory relief is a deed, will, contract, or other written instrument, or the construction or validity of a statute or ordinance. A court decision cannot be its subject matter, for the Rules already provide ways to correct or clarify a doubtful decision. CJH was not left without recourse, because the Tariff and Customs Code provides for protest, review by the Commissioner, and appeal to the Court of Tax Appeals.

On the second issue, the Court found no need to resolve it, since the procedural defect already disposed of the petition. It noted that CJH had a pending petition raising the same question of law, and that the Court in that case was better positioned to resolve it.

Doctrine

A taxpayer may not use a petition for declaratory relief to question liability for any tax, duty, or charge collectible under a law administered by the Bureau of Customs or the Bureau of Internal Revenue, because Commonwealth Act Number 55 is a substantive law still in force that withheld that jurisdiction from the courts. A court decision is not a deed, will, contract, or other written instrument, nor a statute or ordinance, and so it can never be the subject matter of declaratory relief. The remedy of a taxpayer against an assessment is the statutory chain of protest, payment, review by the Commissioner, and appeal to the Court of Tax Appeals.

Disposition

The Supreme Court denied the petition, sustaining the dismissal of CJH's petition for declaratory relief.

Remember This

Memorize this line: a taxpayer questioning a tax assessment cannot resort to declaratory relief, and a court decision is never a proper subject of that remedy. Examiners use this case to test the requisites of declaratory relief and the exclusivity of the protest and appeal route under the Tariff and Customs Code.