AGUSAN WOOD INDUSTRIES, INC., PETITIONER, V. SECRETARY OF THE DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES, RESPONDENT.

Agusan Wood Industries versus Secretary of the Department of Environment and Natural Resources

The Case

This is a petition for review on certiorari brought by Agusan Wood Industries against the Secretary of the Department of Environment and Natural Resources. The company paid forest charges on logs it cut but never hauled out of its concession, and it now insists that those charges should be refunded or credited to it, and that the proper office to approach is the Department of Environment and Natural Resources, not the Bureau of Internal Revenue. The case matters because it settles two questions every examiner loves: what forest charges really are in our tax system, and which agency, and under what prescriptive period, may grant a refund or credit of them.

Procedural History

The company first asked the Regional Executive Director of the Department of Environment and Natural Resources for a refund or tax credit. The Regional Executive Director ruled that no regulation covered a tax credit of forest charges and that the matter fell within the discretion of the Department Secretary. The company then went to the Secretary, who initially denied the request, but on reconsideration granted the refund and tax credit. Years later, upon a request for implementation, the Secretary reversed course and denied the refund, and the later motions for reconsideration were denied. The company appealed to the Office of the President, which denied the appeal and affirmed the denial. On further appeal, the Court of Appeals dismissed the petition, holding that the authority to grant the credit lies with the Commissioner of Internal Revenue, and that the claim had prescribed under the 1997 National Internal Revenue Code. The motion for reconsideration was denied, so the company came to the Supreme Court by petition for review on certiorari.

Facts

In 1995, Agusan Wood Industries cut a total of 5,891 cubic meters of logs from its concession area in Agusan del Sur. On December 29, 1995, it paid 6,459,523 pesos and 45 centavos in forest charges for those logs. It then failed to retrieve the logs, both before and after its Timber License Agreement expired, and it assigned its right to collect any refund or tax credit to its sister company, International Timber Corporation.

The company was given an authority to haul and dispose of the cut volume, but that authority expired without any volume being hauled. A second authority covering half of the reported volume was granted in September 1997, and a certification later showed that only 78.98 cubic meters had actually been hauled. On October 29, 1998, the company requested a refund or tax credit of the forest charges for the unretrieved logs.

The Department Secretary eventually granted the refund, reasoning that forest charges do not become due when the logs are never removed from the cutting area. But when the company sought implementation, the Secretary denied it, saying no law entitled the company to a refund and no appropriation existed for refunding charges already remitted to the national treasury. The Office of the President and the Court of Appeals both upheld that denial, and the case reached the Supreme Court.

Issues

• Whether or not forest charges are internal revenue taxes.
• Whether or not the claim for refund or tax credit of forest charges may be filed with the Secretary of the Department of Environment and Natural Resources rather than with the Commissioner of Internal Revenue.
• Whether or not the claim for refund or tax credit was filed within the two-year prescriptive period.

Applicable Provisions

Section 68 of the Revised Forestry Code, as it governs the invoicing and collection of forest charges, provides:

SEC. 68 - Measuring of Forest Products and Invoicing and Collection of Charges Thereon. - The duties incident to the measuring of forest products shall be discharged by the Forest Management Bureau under regulations of the Department of Environment and Natural Resources. The Invoicing and Collection of the charges thereon shall be done by the Forest Management Bureau under regulations approved by the Secretary of Environment and Natural Resources.

This provision shows that only the measuring, invoicing, and collection of forest charges were lodged with the Forest Management Bureau under the Department.

Section 22 of Executive Order No. 273, which transferred the chapter on forest charges to the Revised Forestry Code, provides:

SEC. 22. x x x The entire provisions of Chapter V, Title VIII of the National Internal Revenue Code governing the charges on forest products, including Section 297 of the same Code are hereby transferred to and shall form part of Presidential Decree No. 705, as amended, otherwise known as the Revised Forestry Code of the Philippines. All references to the Bureau of Internal Revenue, Commissioner of Internal Revenue and Ministry of Finance in the said Chapter V shall henceforth refer to the Forest Management Bureau, Director of Forest Management Bureau and Secretary of Environment and Natural Resources, respectively.

This is the transfer that the Court reads as one of tax administration only, not a change in the nature of the charge.

Section 1 of Republic Act No. 7161 echoes the same transfer:

SEC. 1. x x x All references to the Bureau of Internal Revenue, Commissioner of Internal Revenue, and Ministry of Finance in Sections 230 to 238 of the National Internal Revenue Code of 1977 shall hereafter refer to the Forest Management Bureau, Director of the Forest Management Bureau, and Secretary of Environment and Natural Resources, respectively.

This confirms that the deputation to the Department covers collection, not the entire field of tax administration.

Section 204 of the 1997 National Internal Revenue Code, on the authority of the Commissioner to refund or credit taxes, provides:

SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. - The Commissioner may: x x x x (C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return filed showing an overpayment shall be considered as a written claim for credit or refund.

This fixes both the agency and the two-year period for a claim of refund or credit.

Section 229 of the same Code, on the recovery of taxes erroneously or illegally collected, provides:

SEC. 229. Recovery of Tax Erroneously or Illegally Collected. -No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid.

This reinforces the two-year prescriptive period reckoned from the date of payment.

Ruling

On the first issue, the Court held that forest charges are internal revenue taxes. The Revised Forestry Code itself recognized them as taxes, and the 1977 National Internal Revenue Code classified them among miscellaneous taxes. The Court traced the classification back to the 1904 Internal Revenue Law and through the later codes, and relied on its earlier ruling in Cordero versus Conda that forest charges have always been categorized as internal revenue taxes for all purposes. The transfer of the chapter on forest charges to the Revised Forestry Code, and of the duties of the Bureau of Internal Revenue to the Department, did not change their nature.

On the second issue, the Court held that the claim should have been filed with the Commissioner of Internal Revenue. What was deputized to the Forest Management Bureau was only tax collection and invoicing, as the Court put it, for tax administration purposes only. Other matters of tax administration, such as refund and credit, remain governed by the 1997 National Internal Revenue Code. The Court stressed that tax refunds, like tax exemptions, are strictly construed against the taxpayer, who bears the burden of proving strict compliance with the conditions for the grant.

On the third issue, the Court held that the claim had prescribed. The company paid the forest charges on December 29, 1995, but filed its claim for refund or tax credit only on October 29, 1998. The claim was thus filed out of time and before the wrong agency, and the company failed to discharge its burden of proving strict compliance. Its claim is forever barred.

Doctrine

Forest charges are internal revenue taxes, and they have always been so classified. The transfer of their collection and invoicing to the Forest Management Bureau under the Department of Environment and Natural Resources is a measure of tax administration only, a deputation for collection, and it does not convert them into something other than internal revenue taxes.

Because they are internal revenue taxes, a claim for refund or credit of forest charges must be filed in writing with the Commissioner of Internal Revenue within two years from the date of payment, under Section 204 and Section 229 of the 1997 National Internal Revenue Code. A claim lodged with the Department Secretary is filed before the wrong agency and does not toll the period.

Tax refunds and credits are strictly construed against the taxpayer, who must prove strict compliance with every condition for the grant. Failure to comply bars the claim forever.

Disposition

The petition was denied, and the decision and resolution of the Court of Appeals were affirmed in full, so the company lost and its claim for refund or tax credit was held forever barred.

Remember This

Forest charges are internal revenue taxes, so the refund or credit must be claimed in writing from the Commissioner of Internal Revenue within two years from payment. Examiners use this case to test the nature of forest charges, the limits of the deputation to the Department of Environment and Natural Resources, and the strict two-year prescriptive period for tax refunds.