Commissioner of Internal Revenue vs Fortune Tobacco (705 SCRA 430) Digest

9.   Commissioner of Internal Revenue vs Fortune Tobacco

705 scra 430

Facts:

            Prior to January 1, 1997, the above-mentioned cigarette brands were subject to ad valorem tax pursuant to then Section 142 of the Tax Code of 1977, as amended. However, on January 1, 1997, R.A. No. 8240 took effect whereby a shift from the ad valorem tax (AVT) system to the specific tax system was made and subjecting the aforesaid cigarette brands to specific tax under [S]ection 142 thereof, now renumbered as Sec. 145 of the Tax Code of 1997. 

            With this regards, Fortune Tobacco Corporation paid to the BIR the excessive amount of taxes; due to the BIR mistake in the law. 

Issue:

            Whether or not the Government is exempted from the application of solutio indebiti

Held:

            No

Ratio:

Tax refunds (or tax credits), on the other hand, are not founded principally on legislative grace but on the legal principle which underlies all quasi-contracts abhorring a person’s unjust enrichment at the expense of another. The dynamic of erroneous payment of tax fits to a tee the prototypic quasi-contract, solutio indebiti, which covers not only mistake in fact but also mistake in law.

The Government is not exempt from the application of solutio indebiti.