David v. Ramos
REITERATIONFacts
The Antecedents: Maria B. Castro filed a complaint against Saturnino David, Collector of Internal Revenue, alleging that despite her acquittal in a criminal case for non-payment of war profit tax due to insufficiency of evidence, the Collector announced the public auction of her properties to satisfy the assessed tax. Castro contended that the sale was an abuse of authority, would cause irreparable injury, and that Republic Act No. 55 (War Profits Tax Law) was unconstitutional. Procedural History: The Court of First Instance of Manila issued an order dated November 8, 1950, asserting its authority to proceed with the case but denying Castro's petition for a preliminary injunction. Consequently, the Collector proceeded with the distraint, levy, and sale of Castro's properties. The Petition: Saturnino David, the Collector of Internal Revenue, filed a petition for certiorari, prohibition, and injunction with the Supreme Court, arguing that the Court of First Instance lacked jurisdiction to restrain the collection of taxes and that the proper remedy was to pay and sue for recovery. He prayed for a preliminary injunction to stop the proceedings in the lower court.
Issue(s)
Whether the Court of First Instance has jurisdiction to restrain the collection of internal revenue taxes. Whether the dismissal of a criminal case for non-payment of tax constitutes res judicata or a bar to the collection of the tax by distraint and levy. Whether Republic Act No. 55, the War Profits Tax Law, is unconstitutional.
Ruling
The Supreme Court declared the respondent Court of First Instance of Manila without jurisdiction to proceed with the trial of Civil Case No. 12356. The order dated November 8, 1950, in so far as it ordered the continuation of the proceedings, was set aside.
Ratio Decidendi
On the jurisdiction of the Court of First Instance to restrain the collection of internal revenue taxes: The Court held that no court has the authority to grant an injunction to restrain the collection of any internal revenue tax, fee, or charge imposed by the National Internal Revenue Code, as explicitly provided in Section 305 thereof. This prohibition applies even if the tax is disputed by the taxpayer or alleged to be unconstitutional, as such a claim would render the statutory provisions nugatory. The uniform holding of the Court has been that the exclusive remedy is to pay the tax first, and then file a claim for refund or credit with the Collector. If the claim is denied, an action for recovery may be maintained. The Court cited Section 9 of Republic Act No. 55, which extends all administrative and general provisions of law relating to national internal revenue taxes, including the prohibition against injunctions, to the War Profits Tax Law. The Court reiterated the principle that the mere fact that a tax is illegal or the law imposing it is unconstitutional does not, by itself, authorize a court of equity to restrain its collection; there must be special circumstances bringing the case under well-recognized heads of equity jurisprudence, such as irreparable injury or multiplicity of suits, and even then, there must be no adequate remedy at law. In this case, no such extraordinary and exceptional circumstances were shown. On the effect of the dismissal of the criminal case as res judicata: The Court stated that allegations to the effect that the dismissal of the criminal case constitutes res judicata or a bar to the collection by distraint and levy should be set forth as part of the cause of action in a complaint for recovery of the tax after its payment, not in an action for prohibition or injunction. The procedural remedy for disputing the tax collection is distinct from the grounds for challenging the tax itself. On the constitutionality of Republic Act No. 55: Similar to the issue of res judicata, the Court held that the allegation that Republic Act No. 55 is unconstitutional should be raised in a complaint for the recovery of the tax after payment, not in an action seeking to enjoin its collection. The Court emphasized the policy deeply entrenched in the Philippine tax system that taxes must be collected promptly, and that any delay in proceedings could derange government operations and cause serious detriment to the public. The Court noted that while some US cases have recognized exceptions to the rule against enjoining tax collection under extraordinary and exceptional circumstances, such circumstances were not demonstrated in the present case to warrant a departure from the established legal procedure.
Main Doctrine
The collection of internal revenue taxes, even if disputed by the taxpayer or alleged to be unconstitutional, cannot be restrained by injunction. The exclusive remedy for the taxpayer is to pay the tax and then file a claim for refund or credit with the Collector of Internal Revenue, and if denied, to file an action for recovery.