PHILIPPINE LAW SCHOOL

San Juan, Pasay City, Philippines

In Partial Fulfillment of the Requirements in

BASIC TAXATION LAW

CASE DIGEST COMPILATION

ATTY. CHRIS LYN CHOI, CPA

Professor

Submitted by:
EDDIE MAR E.CHUA
Student

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 TABLE OF CONTENTS
CASE CASE TITLE PAGE
NO. NO.

7 Tio v. Videogram Regulatory Board, G.R. No. 75697 3

(1987)

38 Tañada v. Angara, G.R. No. 118295 (1997) 4

69 Central Azucarera v. CTA, G.R. No. L-23236 (1967) 5
100 Lorenzo V. Posadas, G.R. No. L-43082 (1937). 6
131 Palanca vs. CIR 18 SCRA 496 7
162 Philippine Geothermal Inc. v. CIR, G.R. No. L- 8
154028, 2005
193 CIR V. Liquigaz Phils. Corp., G.R. No. 215534 9
(2016)
224 CIR v. TMX Sales, G.R. No. 83736, 1992 10
255 China Banking Corp. vs. City Treasurer of Manila, 11
G.R. No. 204117 (2015)
287 NPC VS. PROVINCIAL GOVERNMENT OF 12
BULACAN, G.R. No. 207140; January 30, 2023

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 7. VALENTIN TIO DOING BUSINESS UNDER THE NAME AND STYLE OF OMI
ENTERPRISES, PETITIONER, VS. VIDEOGRAM REGULATORY BOARD, MINISTER
OF FINANCE, METRO MANILA COMMISSION, CITY MAYOR AND CITY
TREASURER OF MANILA, RESPONDENTS.
[G.R. No. L-75697 June 18, 1987]

MELENCIO-HERRERA, J.:

Doctrine: The public purpose of a tax may legally exist even if the motive which
impelled the legislature to impose the tax was to favor one industry over another. It is
inherent in the power to tax that a state be free to select the subjects of taxation, and it
has been repeatedly held that inequities which result from a singling out of one
particular class for taxation or exemption infringe no constitutional limitation." Taxation
has been made the implement of the state's police power. At bottom, the rate of tax is a
matter better addressed to the taxing legislature.

Facts: Valentin Tio, doing business as Omi Enterprises, filed a petition alleging
unconstitutionality of Presidential Decree No. 1987 creating the Videogram Regulatory
Board. The decree aimed to regulate unregulated videogram proliferation causing
losses in the movie industry and government revenue. Videogram establishments
earning P600 million annually were untaxed, depriving government of P180 million in
revenue. Petitioner attacked the decree based on tax provision imposed is harsh,
confiscatory, oppressive and/or in unlawful restraint of trade in violation of the due
process clause of the Constitution.

Issue: W/N the said taxation valid?

Ruling:
Yes. The taxation is valid.
The public purpose of a tax may legally exist even if the motive which impelled the
legislature to impose the tax was to favor one industry over another. It is inherent in the
power to tax that a state be free to select the subjects of taxation, and it has been
repeatedly held that inequities which result from a singling out of one particular class for
taxation or exemption infringe no constitutional limitation." Taxation has been made the
implement of the state's police power. At bottom, the rate of tax is a matter better
addressed to the taxing legislature.

In this case, the levy of the 30% tax is for a public purpose. It was imposed primarily to
answer the need for regulating the video industry, particularly because of the rampant
film piracy, the flagrant violation of intellectual property rights, and the proliferation of
pornographic video tapes. And while it was also an objective of the DECREE to protect
the movie industry, the tax remains a valid imposition.

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 38. WIGBERTO E. TAAADA AND ANNA DOMINIQUE COSETENG, AS MEMBERS
OF THE PHILIPPINE SENATE AND AS TAXPAYERS VS. ANGARA
[G.R. No. 118295, May 02, 1997]

PANGANIBAN, J.:

Doctrine: A treaty is not merely a moral commitment; it creates binding legal duties.
Thus, a country is obligated to amend or align its domestic laws, if necessary, to comply
with its international commitments.

Facts: World Trade Organization established, revolutionizing global trade liberalization

and economic globalization. The petitioners sought to have the Senate's concurrence in
the President’s ratification of the Agreement Establishing the World Trade Organization
(WTO Agreement) declared unconstitutional. They also asked the court to prohibit its
implementation and enforcement, including the use of public funds, government
personnel, and state resources by the heads of various executive departments involved
in its execution.

They argued that the WTO Agreement violates the 1987 Constitution’s directive to build
a self-reliant and independent national economy under Filipino control. Specifically, they
claimed that:
(1) the WTO compels the Philippines to treat foreign nationals and products equally with
Filipino citizens and local goods, undermining the preferential treatment mandated by
the Constitution; and
(2) the WTO restricts or infringes upon the constitutional authority of Congress and the
Supreme Court.

Issue: W/N provisions of the agreement establishing WTO unlawfully limit, restrict, or
diminish Philippine sovereignty, particularly the legislative authority?
Ruling:
No. The WTO Agreement does not unlawfully limit or impair Philippine sovereignty,
particularly the legislative powers granted under the Philippine Constitution. The Senate
acted within its constitutional authority when it concurred with the President’s ratification
of the agreement.
Although sovereignty is traditionally viewed as absolute within a nation’s territory, it can
be subject to voluntary restrictions that a country agrees to either explicitly or implicitly
as a member of the international community. The 1987 Constitution does not promote
isolationism. In fact, it clearly embraces international engagement, adopting “generally
accepted principles of international law as part of the law of the land” and committing to
peace, equality, justice, freedom, and cooperation with other nations. Under the doctrine
of incorporation, international legal norms automatically form part of domestic law.
One core principle of international law is pacta sunt servanda, meaning treaties must be
honored in good faith. A treaty is not merely a moral commitment; it creates binding
legal duties. Thus, a country is obligated to amend or align its domestic laws, if
necessary, to comply with its international commitments.

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 69. CENTRAL AZUCARERA DON PEDRO, PETITIONER VS. COURT OF TAX
APPEALS, AND COMMISSIONER OF INTERNAL REVENUE, RESPONDENTS.
[G.R. Nos. L-23236 & L-23254. May 31, 1967]

REYES, J.B.L., J.:

Doctrine: As a rule, tax laws are applied prospectively unless the law expressly
provides for retroactive application. In cases involving interest on deficiency taxes, the
applicable law is the one in effect at the time the deficiency becomes due and remains
unpaid.

Facts: Petitioner Central Azucarera Don Pedro filed its income tax return for the fiscal
year ending August 31, 1954, and paid the computed tax. Years later, on December 20,
1961, the Commissioner of Internal Revenue issued a revised deficiency tax
assessment for the same fiscal year, now including interest charges amounting to
₱1,509.30. This interest was imposed under Section 51(d) of the National Internal
Revenue Code, as amended by Republic Act No. 2343, which became effective only on
June 20, 1959—five years after the taxable period in question.
The core legal issue raised by the petitioner was that applying R.A. No. 2343
retroactively to impose interest on a deficiency income tax for a taxable year (1954)
prior to the law’s effectivity (1959) is illegal. Petitioner contended that the law should
apply prospectively and that imposing interest on prior years would constitute
retroactive application, which is not allowed unless expressly provided or justified by
law.
Despite this, the Tax Court upheld the Commissioner's ruling, allowing the imposition of
the interest under the amended provision. Thus, the case squarely presented the
retroactivity of tax laws as the principal legal issue.
.
Issue: W/N the 6% annual interest (or 0.5% monthly), as provided in Section 51(d) of
the National Internal Revenue Code (NIRC) as amended by Republic Act No. 2343
(effective June 20, 1959), is contrary to prospective application of tax laws?

Ruling:
No. As a general rule, tax laws should be applied prospectively unless the law
otherwise provides. The Court clarified that under the old law (Section 51(e), interest on
tax deficiencies accrued from the time the tax became due. In contrast, under the
amended Section 51(d) (by R.A. No. 2343), interest is imposed from the date prescribed
for tax payment. The Court emphasized that a deficiency is part of the total income tax
liability and subject to interest if unpaid on time.

In this case, since the deficiency taxes were assessed and unpaid after the effectivity of
R.A. No. 2343 (June 20, 1959), the application of the new interest provision was not
retroactive. Furthermore, the application of the amended law actually benefited the
taxpayer. Instead of applying the higher 1% monthly interest under the old law from
earlier years, the Commissioner applied the new, lower 0.5% monthly interest starting
only from June 20, 1959, resulting in less interest due.

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Hence, the interest is correctly applied by the Commissioner of internal revenue.
100. PABLO LORENZO, AS TRUSTEE OF THE ESTATE OF THOMAS HANLEY,
DECEASED, PLAINTIFF AND APPELLANT, VS. JUAN POSADAS, JR.,
COLLECTOR OF INTERNAL REVENUE, DEFENDANT AND APPELLANT.
[G. R. No. 43082. June 18, 1937]

LAUREL, J.:

Doctrine: It is well-settled that inheritance taxation is governed by the statute in force at

the time of the death of the decedent.

Facts: Thomas Hanley died on May 27, 1922, in Zamboanga, leaving a will and
substantial real and personal property. On June 14, 1922, the Court of First Instance of
Zamboanga admitted the will to probate and initiated settlement proceedings. In his will,
Hanley directed that his real estate be held in trust and managed by his executors for a
period of ten years before being transferred to his nephew, Matthew Hanley. On March
8 and 10, 1924, P. J. M. Moore was appointed trustee to administer the real properties
in accordance with the will. Moore later resigned on February 29, 1932, and was
replaced by Pablo Lorenzo as trustee. The Collector of Internal Revenue assessed an
inheritance tax amounting to P1, 434.24, plus penalties totaling P2, 052.74. On March
15, 1932, the Collector moved the court to compel the trustee to pay the assessed tax.
Subsequently, on September 15, 1932, Trustee Lorenzo paid the tax under protest and
demanded a refund. When the request for refund was denied, Lorenzo filed a lawsuit
seeking recovery of the tax paid. The defendant levied and assessed the inheritance tax
due from the estate of Thomas Hanley under the provisions of section 1544 of the
Revised Administrative Code, as amended by section 3 of Act No. 3606. But Act No.
3606 went into effect on January 1, 1930. It, therefore was not the law in force when the
testator died on May 27, 1922. The law at that time was section 1544 administrative
code, as amended by Act No. 3031, which took effect On March 9, 1922.

Issue: W/N the provisions of Act No. 3606 favorable to the taxpayer be given
retroactive effect?
Ruling:
No. It is well-settled that inheritance taxation is governed by the statute in force at the
time of the death of the decedent. The taxpayer cannot foresee and ought not to be
required to guess the outcome of pending measures, Of course, a tax statute may be
made retroactive in its operation. Liability for taxes under retroactive legislation has
been "one of the incidents of social life. But legislative intent that a tax statute should
operate retroactively should be perfectly clear. A statute should be considered as
prospective in its operation, whether it enacts, amends, or repeals an inheritance tax,
unless the language of the statute clearly demands or expresses that it shall have a
retroactive effect.
In this case, Though the last paragraph of section 5 of Regulations No. 65 of the
Department of Finance makes section 3 of Act No. 3606, amending section 1544 of the
Revised Administrative Code, applicable to all estates the inheritance taxes due from
which have not been paid, Act No. 3606 itself contains no provisions indicating

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legislative intent to give it retroactive effect. No such effect can be given the statute by
this court.
131. COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. CARLOS
PALANCA, JR., RESPONDENT.
[G. R. No. L-16626. October 29, 1966]

REGALA, J.:

Doctrine: Taxes are obligations to the government in its sovereign capacity, while
debts are due to the government in its corporate capacity. Both concepts may converge
in certain legal contexts, allowing for the deductibility of interest on tax liabilities.

Facts: In July 1950, Don Carlos Palanca, Sr. donated 12,500 shares of La Tondena,
Inc. to his son, Carlos Palanca, Jr. However, due to the failure to file a return for the
donation, Carlos Palanca, Jr. was assessed a gift tax of ₱97,691.23, along with a 25%
surcharge and interest. He subsequently paid the total assessed amount of
₱170,002.74 on June 22, 1955. On March 1, 1956, Carlos Palanca, Jr. filed his income
tax return for the year 1955, declaring a taxable income of ₱65,982.12 and claiming a
deduction of ₱9,706.45 for interest. Based on this return, he was assessed ₱21,052.91
in income tax, which he paid in installments. Later, on November 10, 1956, he
submitted an amended income tax return, now claiming an additional deduction of
₱47,868.70 for interest paid on the gift tax. The amended return reflected a revised
taxable net income of ₱18,113.42 and a reduced tax liability of ₱3,167.00.
Consequently, he filed a claim for refund amounting to ₱17,885.01 the difference
between the original tax paid and the recalculated liability. However, the Bureau of
Internal Revenue (BIR) denied his claim for refund on June 20, 1957. Carlos Palanca,
Jr. reiterated his refund claim on August 27, 1957, and requested that the matter be
elevated to the BIR’s Appellate Division.

Issue: W/N the interest paid on the donor’s tax may be considered deductible as
“interest on indebtedness” under Section 30(b)(1) of the Tax Code?
Ruling:
Yes. In our jurisdiction, the rule is settled that although taxes already due have not,
strictly speaking, the same concept as debts, they are, however, obligations that may be
considered as such. In a more recent case, SC explicitly announced that while the
distinction between "taxes" and "debts" was recognized in this jurisdiction, the variance
in their legal conception does not extend to the interests paid on them, at least insofar
as Section 30(b)(1) of the National Internal Revenue Code is concerned. Under the law,
for interest to be deductible, it must be shown that there be an indebtedness, that there
should be interest upon it, and that what is claimed as an interest deduction should
have been paid or accrued within the year.
In this case, the taxpayer sought the allowance as deductible items from the gross
income of the amounts paid by them as interests on delinquent tax liabilities. Although
the present suit pertains to interest paid on the estate and inheritance tax. This
difference, however, submits no appreciable consequence to the rationale of this
Court's previous determination that interests on taxes should be considered as interests

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on indebtedness within the meaning of Section 30(b)(1) of the Tax Code. The
interpretation SC have placed upon the said section was predicated on the
congressional intent, not on the nature of the tax for which the interest was paid.
162. PHILIPPINE GEOTHERMAL, INC., PETITIONER, VS. THE COMMISSIONER OF
INTERNAL REVENUE, RESPONDENT.
[G.R. No. 154028, July 29, 2005]

QUISUMBING, J.:

Doctrine: Republic Act No. 358 exempts the NPC from all taxes, duties, fees, imposts,
charges, and restrictions of the Republic of the Philippines, and its provinces, cities and
municipalities.

Facts: Philippine Geothermal, Inc. (PGI), a resident foreign corporation licensed to

explore and exploit geothermal energy in the Philippines, entered into a service contract
with the National Power Corporation (NPC) in September 1971 to supply steam.
Between September 1995 and February 1996, PGI billed NPC a 10% Value Added Tax
(VAT) on the service fees for the steam delivered. However, NPC did not pay the VAT
amounts billed. To avoid any deficiency assessment, PGI remitted VAT to the Bureau of
Internal Revenue (BIR) totaling ₱39,328,775.41, computed as 1/11 of the fees it
received from NPC. Believing the sale of steam to NPC was VAT-exempt, PGI filed an
administrative claim for refund on July 10, 1996, citing FIRB Resolution No. 17-87 which
allegedly exempted NPC from VAT under the Tax Code. The BIR denied PGI’s claim,
arguing that NPC’s exemption did not extend to its purchases of goods and services
and therefore lacks legal basis. To preserve its claim and suspend the running of the
two-year prescriptive period, PGI filed a petition with the Court of Tax Appeals on July 2,
1997.

Issue: W/N petitioner's supply of steam to NPC is a VAT-exempt transaction?

Ruling:
Summary of the Ruling:
Yes. The Supreme Court reiterated that tax refunds, being in the nature of tax
exemptions, must be strictly construed against the claimant, and the burden of proof
rests with the taxpayer. The Court held that PGI sufficiently proved its entitlement to a
refund through a BIR ruling dated March 15, 1996, which confirmed that the supply of
steam to NPC was VAT-exempt.
Supreme Court has confirmed this exemption and ruled that Republic Act No. 358
exempts the NPC from all taxes, duties, fees, imposts, charges, and restrictions of the
Republic of the Philippines, and its provinces, cities and municipalities. This exemption
is broad enough to include both direct and indirect taxes the NPC may be required to
pay. To limit the exemption granted the NPC to direct taxes, notwithstanding the general
and broad language of the statute, will be to thwart the legislative intention in giving
exemption from all forms of taxes and impositions, without distinguishing between those
that are direct and those that are not. A chronological review of the NPC laws will show
that it has been the lawmakers' intention that the NPC is to be completely tax exempt
from all forms of taxes, both direct and indirect.

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 193. COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. LIQUIGAZ
PHILIPPINES CORPORATION, RESPONDENT.
[G.R. No. 215534, April 18, 2016]

MENDOZA, J.:
Doctrine: The FDDA is a formal decision issued by the Commissioner of Internal
Revenue (CIR) that determines a taxpayer's final liability for taxes. A protest against a
formal assessment must be made within 30 days of receipt.

Facts: Liquigaz Philippines Corporation underwent a tax investigation initiated by the

Bureau of Internal Revenue (BIR) when it received a Letter of Authority on July 11, 2006
for the taxable year 2005. Subsequently, the BIR issued a Notice of Informal
Conference on April 9, 2008, followed by a Preliminary Assessment Notice (PAN) on
May 28, 2008, highlighting alleged tax deficiencies. The BIR then issued a Formal Letter
of Demand (FLD)/Formal Assessment Notice (FAN) on June 25, 2008, assessing
Liquigaz with deficiency withholding taxes totaling ₱24.33 million, including EWT, WTC,
and FBT.
Liquigaz protested the assessment on July 25, 2008, and submitted supporting
documents on September 23, 2008. The BIR issued a Final Decision on Disputed
Assessment (FDDA) on July 1, 2010, affirming a deficiency tax liability of ₱22.38 million.
Liquigaz responded by filing a Petition for Review before the Court of Tax Appeals
(CTA) on July 29, 2010. On November 22, 2012, the CTA Division partially granted the
petition, canceling the assessments for EWT and FBT.

Issue: W/N FDDA is void for failure to state the facts and the law on where it was
based?
Ruling:
Yes. Under Section 228 of the NIRC, a taxpayer shall be informed in writing of the law
and the facts on which the assessment is made, otherwise, the assessment shall be
void. In implementing Section 228 of the NIRC, RR No. 12-99 reiterates the requirement
that a taxpayer must be informed in writing of the law and the facts on which his tax
liability was based.
In this case, the same was not complied with by the CIR pursuant to the said
requirement.
To rule otherwise would tolerate abuse and prejudice. Taxpayers will be unable to file
an intelligent appeal before the CTA as they would be unaware on how the CIR or his'
authorized representative appreciated the defense raised in connection with the
assessment. On the other hand, it raises the possibility that the amounts reflected in the
FDDA were arbitrarily made if the factual and legal bases thereof are not shown.

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 224. COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. TMX SALES,
INC, AND THE COURT OF APPEALS, RESPONDENTS.
[G.R. No. 83736. January 15, 1992]

GUTIERREZ, JR., J.:

Doctrine: The two-year prescriptive period provided in Section 292 (now Section 230 of
the Tax Code should be computed from the time of filing the Adjustment Return or
Annual Income Tax Return and final payment of income tax

Facts: On May 15, 1981, TMX Sales, Inc. filed its quarterly income tax return for the
first quarter of the taxable year 1981. In this return, the corporation declared an income
of ₱571,174.31 and accordingly paid an income tax of ₱247,010.00.
However, in the succeeding quarters of 1981, TMX Sales, Inc. experienced financial
difficulties and incurred substantial losses. These losses culminated in a net loss of
₱6,156,525.00 as reported in its Annual Income Tax Return filed on April 15, 1982.
Believing it had overpaid its income taxes, TMX Sales, Inc. filed a claim for refund on
July 9, 1982 with the Appellate Division of the Bureau of Internal Revenue (BIR),
seeking to recover the amount of ₱247,010.00.
Despite the filing, the Commissioner of Internal Revenue did not act on the refund claim.
Consequently, TMX Sales, Inc. elevated the matter by filing a Petition for Review before
the Court of Tax Appeals (CTA) on March 14, 1984.
In response, the Commissioner of Internal Revenue argued that the two-year
prescriptive period for filing a refund claim had already lapsed, asserting that the period
should be reckoned from May 15, 1981, the date of the original quarterly tax payment.
On April 29, 1988, the Court of Tax Appeals rendered a decision in favor of TMX Sales,
Inc., ordering the refund of ₱247,010.00. The CTA justified its ruling by holding that
quarterly income tax payments are considered merely as installments of the final annual
income tax. Thus, the prescriptive period should be counted from the date of the final
payment, which was April 15, 1982, not from the date of the initial quarterly payment.

Issue: W/N the two year-prescriptive period for refund claim shall commence from filing
of quarter return?
Ruling:
No. If Section 292 (now Section 230) is literally applied, the most reasonable and logical
application of the law would be to compute the two-year prescriptive period at the time
of filing the Final Adjustment Return or the Annual Income Tax Return. Furthermore,
Section 321 (now Section 232) of the National Internal Revenue Code requires that the
books of accounts of companies or persons with gross quarterly sales or earnings

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exceeding Twenty Five Thousand Pesos (P25,000.00) be audited and examined yearly
by an independent Certified Public Accountant and their income tax returns be
accompanied by certified balance sheets, profit and loss statements, schedules listing
income producing properties and the corresponding incomes therefrom and other
related statements. Consequently, the two-year prescriptive period provided in Section
292 (now Section 230 of the Tax Code should be computed from the time of filing the
Adjustment Return or Annual Income Tax Return and final payment of income tax.
255. CHINA BANKING CORPORATION PETITIONER, VS. CITY TREASURER OF
MANILA, RESPONDENT.
[G.R. No. 204117, July 01, 2015]

MENDOZA, J.:

Doctrine: A taxpayer may protest within 60 days of receiving notice of assessment;

failure to do so finalizes the assessment. If denied, the taxpayer has 30 days from
receipt of denial or the lapse of the 60-day period to appeal. The failure to perfect an
appeal as required by the rules has the effect of defeating the right to appeal of a party
and precluding the appellate court from acquiring jurisdiction over the case.

Facts: In January 2007, China Banking Corporation (CBC) was assessed P267, 128.70
in local business taxes and fees by the City Treasurer of Manila, with P154, 398.50
representing additional business tax under Ordinance Nos. 7988 and 8011. CBC paid
the full amount under protest on January 15, 2007, and formally protested the additional
tax on January 12, 2007, alleging double taxation. The City Treasurer acknowledged
the protest on February 8, 2007 but failed to act on it.
On March 27, 2007, CBC followed up and demanded a refund. Subsequently, CBC filed
a Petition for Review before the RTC Manila on April 17, 2007. The RTC ruled in CBC’s
favor on August 28, 2008, ordering a refund of P154, 398.50 and declaring the
ordinances unconstitutional. The City Treasurer’s motion for reconsideration was denied
on March 29, 2010. CTA reversed the decision of RTC on the basis that it has no
jurisdiction of the action filed due to lapse of reglamentary period prescribe under local
government code to file protest. CTA held that the assessment of city treasure attained
finality. For CBC, its one (1) day delay in filing its appeal with the RTC should have
been excused by the CTA because the delay was anot much of a heavy harm and was
due to [the] honest mistake and excusable negligencea24 of its former counsel.

Issue: W/N the protest was filed beyond the prescribed period under section 195 of
LGC?
Ruling:
Yes. Section 195 Protest of Assessment (LGC) provides that when a local treasurer
finds that local taxes, fees, or charges were not properly paid, they will issue a notice of
assessment detailing the deficiency and penalties. The taxpayer has 60 days from
receipt of the notice to file a written protest. If no protest is filed, the assessment
becomes final and executory. The local treasurer must decide the protest within 60 days
of filing. If the protest is found meritorious, the assessment is wholly or partially
cancelled; otherwise, the protest is denied with notice to the taxpayer.

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In this case, it bears pointing that when CBC first sought aid from this Court, it
recognized the belated filing of its appeal with the RTC when it sought the Court’s
leniency in the application of the rules on appeal. In its petition for review before this
Court, CBC posited that under the circumstances obtaining in this case, the rules on
appeal should not have been applied so rigorously, especially since the delay of one (1)
day was due solely to the honest mistake and excusable negligence of its former
counsel. Such is untenable.

287. NATIONAL POWER CORPORATION, PETITIONER, VS. PROVINCIAL

GOVERNMENT OF BULACAN, GLORIA P. STA. MARIA, MUNICIPAL ASSESSOR
OF NORZAGARAY, AND THE MUNICIPAL GOVERNMENT OF NORZAGARAY,
BULACAN, RESPONDENTS.
[G.R. No. 207140, January 30, 2023]

LOPEZ, M., J.:

Doctrine: Compliance with the "payment under protest" requirement in Section 252(a)
of the Local Government Code (LGC) is mandatory. The failure to comply renders
protests ineffective and denies the Local Board of Assessment Appeals (LBAA)
jurisdiction.

Facts: The National Power Corporation (NPC), a GOCC operating the Angat Hydro-
Electric Power Plant in Bulacan, received real property tax (RPT) assessments in
December 2006 for the years 1996–2006. These included:
 PHP 113.96 million for machineries used in electricity generation, and
 PHP 18.47 million for industrial land.
NPC disputed the assessments before the Local Board of Assessment Appeals (LBAA),
invoking tax exemption under Section 234(c) of the Local Government Code (LGC) and
contesting the land’s assessment level. The Municipal Assessor admitted an error in
land assessment and issued a revised notice reducing the tax. However, the assessor
required payment under protest before hearing the machineries assessment.
NPC opposed this, arguing no payment was required before appeal, based on prior
rulings. Ultimately, on August 14, 2008, the LBAA ruled against NPC, affirming that
payment under protest was a prerequisite to appeal.

Issue: W/N the NPC should file payment under protest before the LBAA?
Ruling:
No. Exhaustion of administrative remedies under the LGC is necessary in cases of
erroneous assessments where the correctness of the amount assessed is assailed. The
taxpayer must first pay the tax then file a protest with the Local Treasurer within 30 days
from date of payment of tax. On the other hand, In case of an illegal assessment where
the assessment was issued without authority, exhaustion of administrative remedies is
not necessary and the taxpayer may directly resort to judicial action. The taxpayer shall
file a complaint for injunction before the Regional Trial Court to enjoin the local
government unit from collecting real property taxes.

12
In this case, the question of NPC is on the legality and not on the error of tax
assessment hence a question of law. NPC should have filed an injunction with the RTC
and not an appeal under Section 226 of the LGC to the LBAA.

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