THIRD DIVISION

[C.T.A. AC NO. 62. May 31, 2011.]

MINDANAO
SHOPPING
DESTINATION
CORP.,
ACE
HARDWARE PHILIPPINES, INC., INTERNATIONAL TOY
WORLD,
INC.,
STAR
APPLIANCE
CENTER,
INC.,
SUPERVALUE, INC., SURPLUS MARKETING CORP., and
WATSONS PERSONAL CARE STORES (PHILIPPINES), INC.,
petitioners, vs. DAVAO CITY and RODRIGO S. RIOLA, in his
capacity as the City Treasurer of Davao City, respondents.

RESOLUTION

COTANGCO-MANALASTAS, J :
p

Submitted for the consideration of this Court is the Motion for Reconsideration
filed by petitioners on February 9, 2011, praying that: (a) the Decision 2(2) of this
Court promulgated on January 21, 2011 be reconsidered, reversed and set aside; and
(b) judgment be rendered ordering respondents to refund or issue a tax credit in favor
of petitioners in the total amount of P39,040,737.74. As an alternative to the foregoing
prayer, petitioners likewise prayed that this Court order the suspension of the rendition
of judgment pending final resolution of the constitutionality and/or legality of the Tax
Ordinance.
1(1)

The Motion for Reconsideration filed by petitioners bears the following

allegations:
A.

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The Decision erred when it ruled that the RTC Case 3(3) was
premature and that petitioners should have first awaited the
outcome of the CA Case 4(4) before filing the RTC Case.

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B.

The Decision erred when it ruled that the elements of litis

pendentia and res judicata are present.

C.

Even assuming that the elements of litis pendentia and/or res

judicata are present, the RTC Case should have been merely
suspended to await the outcome of the CA Case.

Apropos the first allegation, petitioners contend that the ruling in the
challenged Decision was essentially based on speculation and an invalid reversal of
the Court En Banc's decision in Alabang Supermarket Corporation vs. City
Government of Muntinlupa, et al. 5(5) ("Alabang Supermarket Case"). According to
the petitioners, the speculative nature of the Decision may be seen from the phrase ". .
. . What claim for refund would there be to speak about if in case CA sustains the
constitutionality and/or validity of the tax ordinance? Evidently, the claim for refund
is afflicted with the vice of prematurity.", and that said phrase begs the question
what if the Court of Appeals (or the Supreme Court, for that matter) does not sustain
the constitutionality and/or validity of Ordinance No. 158-05, series of 2005, The
2005 Revenue Code of the City of Davao (the "New Tax Ordinance").
Anent the second allegation, petitioners disagree with the ruling that the
elements of litis pendentia and res judicata are present and maintain their stance that
there is no identity of parties; the rights asserted and the reliefs prayed for in the two
cases are entirely different; a different set of evidence has to be presented in both
cases; an appeal to the Secretary of Justice under Section 187 of the Local
Government Code (LGC) does not suspend the effectivity of the ordinance, thus, in
the interim that the legality of the tax ordinance is being questioned, the prescriptive
period to claim for refund under Section 196 of the LGC continued to run; and the
Secretary of Justice and the Court of Appeals, in the CA Case, have no jurisdiction to
grant claims for refund.
aHTDAc

Finally, petitioners submit that, even assuming the elements of litis pendentia
and/or res judicata are present, the RTC Case should have been merely suspended to
await the outcome of the CA Case. Petitioners aver that the RTC Case was filed ahead
of the final resolution of the CA Case because of this Court's rulings in the cases of
Swedish Match Philippines, Inc. vs. The Treasurer of the City of Manila 6(6) ("Swedish
Match Case") and Alabang Supermarket Corporation vs. City Government of
Muntinlupa, et al., 7(7) and disclosed their fear that had they waited for the outcome of
the CA Case, they were at the risk of losing their right to claim for refund precisely in
light of the explicit rulings in the said cases.
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In a Resolution 8(8) dated February 21, 2011, respondents were ordered to

comment on petitioners' Motion for Reconsideration.
In compliance with the aforementioned order, respondents filed their Comment
to the Motion for Reconsideration on April 4, 2011. Respondents asseverate that the
RTC Case was premature and petitioners should have first awaited the outcome of the
CA Case, emphasizing that the outcome of the pending case in the CA is crucial in
determining the validity or invalidity of petitioners' claim for refund or tax credit, and
until and unless the court declares the tax ordinance as unconstitutional, it enjoys the
presumption of regularity and legality and there would be no basis to claim for refund
or credit.
Respondents put forth their observation that petitioners have misconstrued the
ruling of the CTA En Banc in the Alabang Supermarket Case brought about by a
selective quotation of certain portions of the said decision. Petitioners' selective
quotation gives an impression that the claim for refund or credit cannot be counted
from finality of the decision of a court declaring the tax measure void, rendering
inutile the reckoning period "from the date the taxpayer is entitled to a refund or
credit". Taking the gist of the decision in the Alabang Supermarket Case as a whole
and harmonizing the same to the cited Section 196 of the LGC, it becomes clear that
the second reckoning period "from the date the taxpayer is entitled to a refund or
credit" is counted from the finality of the decision of a court declaring the tax measure
void provided there was prior filing of a written administrative claim for tax refund or
credit with the City Treasurer.
Further, respondents stress that: the rights asserted in the two cases are
intimately related and/or intertwined with one another such that the judgment that may
be rendered in one, regardless of which party would be successful, would amount to
res judicata in the other; and the claim for refund in the RTC Case is merely an
incidental relief which is wholly dependent on the outcome or resolution of the CA
Case.
As their final point, respondents broached their opposition to petitioners'
alternative prayer to suspend the RTC Case until final resolution of the CA Case,
arguing that the presence of litis pendentia and/or res judicata does not justify the
suspension of the other proceeding, as it is an inconsistent remedy, and that to request
for the suspension only supports the conclusion that one case is dependent on the
outcome of the other case.
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In light of all the arguments interposed by the parties and careful re-evaluation
of the records at hand, this Court finds no compelling reason to deviate or reverse its
ruling enunciated in the assailed Decision promulgated on January 21, 2011.
Premature filing of the RTC Case
In their Motion for Reconsideration, petitioners are endeavouring to persuade
this Court to reconsider its finding of prematurity of the RTC Case by hurling
allegations and crafting suppositions from the assailed Decision not espoused by this
Court, i.e., that the Decision was essentially based on speculation and an invalid
reversal of the Court En Banc's decision in the Alabang Supermarket Case.
Petitioners hold on to the view that the two (2) year prescriptive period to file a
claim for refund or tax credit under Section 196 of the LGC is about to lapse from the
date of payment, and that they need not wait for the finality of the decision in the CA
Case declaring the tax measure void, invoking their reliance in the Swedish Match
Case and Alabang Supermarket Case. Petitioners advance their apprehension of
losing their right to claim for refund in light of the rulings in the said cases, and made
a speculation by declaring that "it takes no stretch of imagination to see that, had
petitioners not filed the RTC Case, respondents (and even this Court) could invoke the
very same rulings in Swedish Match and Alabang Supermarket to bar the eventual
complaint for refund petitioners would have filed after the final resolution of the
constitutionality issue of the Tax Ordinance".
TacADE

Court is not convinced.

Petitioners' arguments are palpably based on worry, fear, and sheer speculation
of the probable future acts of this Court on their claim for refund. The phrase in
petitioners Motion for Reconsideration that: "it takes no stretch of imagination to see
that, had petitioners not filed the RTC Case, respondents (and even this Court) could
invoke the very same rulings in Swedish Match and Alabang Supermarket to bar the
eventual complaint for refund . . . ." poses a cynical expression of knowing the mind
of this Court and brandishes a degree of certainty of knowing how this forum would
resolve a future case for refund. This, We cannot countenance.
The conclusion of this Court in the assailed Decision was reached after a
thorough review of the records at hand, taking into consideration the application of
Section 196 of the Local Government Code, the ruling of the Supreme Court in the
Alabang Supermarket Case, and the rules of statutory construction.
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As oft repeated Section 196 of the LGC clearly declares, that prescription is not
reckoned only from the date of payment, but also from the "date the taxpayer is
entitled to a refund or credit", viz.:
xxx

xxx

xxx

SECTION 196.
Claim for Refund of Tax Credit. No case or
proceeding shall be maintained in any court for the recovery of any tax, fee, or
charge erroneously or illegally collected until a written claim for refund or credit
has been filed with the local treasurer. No case or proceeding shall be
entertained in any court after the expiration of two (2) years from the date of
the payment of such tax, fee, or charge, or from the date the taxpayer is
entitled to a refund or credit.
xxx

xxx

xxx

Petitioners are ensnared by a particular phrase in the Alabang Supermarket

Case which states that '". . . . The phrase "from the date the taxpayer becomes entitled
to a refund or credit" in Section 196 should not be interpreted to mean the finality of
the decision of a court declaring the tax measure void, . . . .'", said phrase was singled
out from the whole context of the decision and given a literal interpretation. Certainly,
anyone who looks on that phrase alone will have the impression that the two (2) year
prescriptive period under Section 196 of the LGC is only reckoned from the date of
payment, and will arrive at a conclusion that the assailed Decision reversed the
Alabang Supermarket Case. However, a thorough review of the whole context of the
Alabang Supermarket decision refutes such impression and conclusion. Relevant
portion of the Alabang Supermarket Case reads thus:
"'Relative thereto, We find that the Court in Division appropriately
denied petitioner's claim for refund pertaining to the period from December
16, 2000 to December 2002, due to petitioner's failure to file an
administrative claim for refund before the City Government of Muntinlupa as
required under Section 196 of the LGC prior to judicial recourse. Said provision
reads thus:
"Section 196.
Claim for Refund of Tax Credit.
No case or proceeding shall be maintained in any court for the
recovery of any tax, fee, or charge erroneously or illegally
collected until a written claim for refund or credit has been
filed with the local treasurer. No case or proceeding shall be
entertained in any court after the expiration of two (2) years
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from the date of the payment of such tax, fee, or charge, or

from the date the taxpayer is entitled to a refund or credit."
(Emphasis Ours)
Clearly from the above quoted provision, no case or proceeding may
be entertained by any courts absent showing that petitioner has a written
claim for refund of erroneous or excessive payment of any tax, fee or
charge filed with the local treasurer prior to its filing before any court.
Moreover, it should be noted that two reckoning periods are provided by
law for the filing of a case or proceeding, that is from the date of payment of the
tax, and from the date the taxpayer becomes entitled to the refund. However,
petitioner's interpretation of the phrase "from the date the taxpayer becomes
entitled to the refund" is not in consonance with the intent of the law since
Section 196 should not be read in isolation, but in relation with other provisions
of the LGC. As exhaustively discussed by the Court in Division in its
Resolution dated April 4, 2008, it held that:
"Section 187 of the Local Government Code dictates
the procedure for questioning the constitutionality or legality of
tax ordinances. It provides in part that: 'any question on the
constitutionality or legality of tax ordinances or revenue
measures may be raised on appeal within thirty (30) days from
the effectivity thereof to the Secretary of Justice who shall
render a decision within sixty (60) days from the date of the
receipt of the appeal'. It further provides that 'such appeal shall
not have the effect of suspending the effectivity of the
ordinance and the accrual and payment of the tax, fee or charge
levied therein.
ECTIHa

A reading of Section 187 of the Local Government

Code would show that the law intends that questions on the
legality or constitutionality of an ordinance or tax measure be
threshed out the soonest possible time. It should be raised
within thirty (30) days from approval and such appeal should
be resolved within sixty (60) days from receipt thereof. Section
187 states that any appeal on the legality or constitutionality of
the ordinance does not suspend its effectivity. Thus, before any
final declaration of its nullity, taxes accrue and should be paid
accordingly.
In the same vein, the reckoning periods for the filing of
a claim for refund in Section 196 of the Local Government
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Code should be interpreted so as to accomplish the evident

purpose, viz., the settlement of the rights of the taxpayer
vis--vis the government, at the earliest opportunity. The
phrase "from the date the taxpayer becomes entitled to a
refund or credit" in Section 196 should not be interpreted
to mean the finality of the decision of a court declaring the
tax measure void, even without a timely claim for refund.
Otherwise, claims for refund will be filed even after several
years from payment of the tax due, merely because the tax
ordinance was declared void. And the filing of administrative
and judicial claims for refund shall be endless. This
interpretation would give the taxpayer, who was not able to
question the legality or constitutionality of the tax measure
within the period provided in Section 187, the right to instead
file a claim for refund with the court under Section 196, absent
the filing of a timely administrative claim. In effect, the
prescriptive periods provided by law would be rendered naught
and meaningless.
This could not have been the intention of lawmakers. A
taxpayer who believes that he has paid a tax imposed under
a void ordinance should timely exhaust administrative
remedies before resorting to the filing of a judicial claim or
timely question its constitutionality and legality. Petitioner's
failure to file the appropriate administrative claim for refund
for the period December 16, 2000 to September 2002 cannot be
countenanced. More so, since it has been able to file a timely
administrative claim for the 3% business tax it paid covering
January 2, 1999 to December 15, 2000. It is clearly aware of
the requirements for the filing of an administrative claim set
forth by law. Its manifest error cannot be cured at this point.'"

Verily, the crux of the controversy and the reason for the denial of the refund
claim in the Alabang Supermarket Case is the petitioner's failure to file an
administrative claim for refund. Petitioner in the Alabang Supermarket Case
subscribes to the interpretation that Section 196 of the LGC requires it to wait for the
finality of the decision declaring the tax ordinance void before filing an
administrative claim with the treasurer. The Court En Banc did not agree and
affirmed the view of the Court in Division that "[A] taxpayer who believes that he has
paid a tax imposed under a void ordinance should timely exhaust administrative
remedies before resorting to the filing of a judicial claim or timely question its
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constitutionality and legality." 9(9)

The phrase picked out by the petitioners is actually qualified by the phrase that
followed, i.e., "even without a timely claim for refund", which supports a view
contrary to that of petitioners, viz.:
"'The phrase "from the date the taxpayer becomes entitled to a refund or
credit" in Section 196 should not be interpreted to mean the finality of the
decision of a court declaring the tax measure void, even without a timely claim
for refund.'"

Hence, in considering and appreciating the whole context of the Alabang

Supermarket Case decision, only one conclusion can be drawn, that the second
reckoning period "from the date the taxpayer is entitled to a refund or credit" is
interpreted to mean the finality of the decision of a court declaring a tax measure void
provided there was a prior filing of a written administrative claim for refund or
tax credit with the City Treasurer. A taxpayer, like the petitioner in Alabang
Supermarket Case, cannot invoke or avail of the second reckoning period [2 years
from finality of the decision of a court declaring a tax measure void] to file its judicial
claim for refund or tax credit if there was no administrative claim filed prior to the
judicial claim.
In this case, records show that petitioners filed their written administrative
claim for refund with the respondent City Treasurer, thus, the dread of losing their
right to claim for refund is clearly unfounded. Also, since there was a written
administrative claim for refund that was filed with the City Treasurer, petitioners can
invoke or avail of the second reckoning period [2 years from finality of the decision of
a court declaring a tax measure void] in filing its judicial claim for refund or tax
credit.
As in the assailed Decision, We say it once more that this forum deems it
prudent to veer off this stern interpretation of the phrase "from the date the taxpayer
is entitled to a refund or credit" under Section 196, because such stern
interpretation that was imputed to it is certainly not the interpretation which should be
attached to it and actually not consistent with the principle enunciated in the Alabang
Supermarket Case.
HTCDcS

In view of the foregoing, We consistently hold the view that petitioners' judicial
claim for refund or tax credit [RTC Case] is premature, such may still be pursued
within two (2) years from the time the assailed ordinance is nullified or from the time
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a decision [CA Case] nullifying the ordinance becomes final and executory, because it
is only at such time when the petitioners become entitled to a refund or credit or their
claim for refund is ripened for administrative and judicial determination.
Elements of litis pendentia and res judicata
On the matter involving the presence of the elements of litis pendentia and res
judicata, this Court maintains its ruling that the elements of litis pendentia and res
judicata are extant in this case. The said finding was reached after a conscientious
analysis of the well-established principles in this jurisdiction and its application to the
present circumstance as revealed by the records at hand.
We have carefully examined each one of the arguments set out in the instant
Motion for Reconsideration on this matter and learned that they were merely lifted
from petitioners' Memorandum. 10(10) There is nothing in the instant Petition for
Review and the said Memorandum that was not considered and exhaustively passed
upon by this Court in the challenged Decision, thus, We find that another discourse is
not necessary.
Suspension of the RTC Case
In the instant case, there is nothing in the LGC, Tax Code, and the Rules of
Court from which this Court can draw, at the very least, an indication, a rule or
remedy which supports the proposition of suspending the proceeding in one case on
the ground of or after finding the presence of litis pendentia.
Thus, We find no plausible reason to disturb the ruling of this Court in the
assailed Decision.
WHEREFORE, premises considered, petitioners' Motion for Reconsideration
is hereby DENIED for lack of merit.
SO ORDERED.

(SGD.) AMELIA R.
COTANGCO-MANALASTAS
Associate Justice
Lovell R. Bautista and Olga Palanca-Enriquez, JJ., concur.
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Footnotes
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

Docket, pp. 423-444.

Docket, pp. 389-422.
Civil Case No. 32, 202-2008.
CA-G.R. No. 101482, Mindanao Shopping Destination Corp., et al. vs. Hon. Rodrigo
R. Duterte, et al.
CTA EB Case No. 386, February 12, 2009.
CTA AC No. 15, July 21, 2006.
CTA EB Case No. 386, February 12, 2009.
Docket, p. 446.
CTA EB Case No. 386, February 12, 2009.
Docket, pp. 302-357.

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Endnotes
1 (Popup - Popup)
1.

Docket, pp. 423-444.

2 (Popup - Popup)
2.

Docket, pp. 389-422.

3 (Popup - Popup)
3.

Civil Case No. 32, 202-2008.

4 (Popup - Popup)
4.

CA-G.R. No. 101482, Mindanao Shopping Destination Corp., et al. vs. Hon. Rodrigo
R. Duterte, et al.

5 (Popup - Popup)
5.

CTA EB Case No. 386, February 12, 2009.

6 (Popup - Popup)
6.

CTA AC No. 15, July 21, 2006.

7 (Popup - Popup)
7.

CTA EB Case No. 386, February 12, 2009.

8 (Popup - Popup)
8.

Docket, p. 446.

9 (Popup - Popup)
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9.

CTA EB Case No. 386, February 12, 2009.

10 (Popup - Popup)
10.

Docket, pp. 302-357.

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