Republic vs. Mambulao Lumber

GR L-17725

28 February 1962

FACTS: 

Mambulao Lumber Company paid the Government a total of P9,127.50 as reforestation charges. Having found liable for an aggregate amount of P4,802.37 for forest charges, it contended that since the Republic (Government) has not made use of the reforestation charges for reforesting the denuded area of the land covered by the company’s license, the Republic should refund said amount or, if it cannot be refunded, at least the company should be compensated with what it owed the Republic for reforestation charges.

ISSUE:

Whether taxes may be subject of set-off or compensation.

HELD:

Internal revenue taxes, such as forest charges, cannot be the subject of set-off or compensation. A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the statutes of set-off, which are construed uniformly, in the light of public policy, to exclude the remedy in an action or any indebtedness of the State or municipality to one who is liable to the State or municipality for taxes. Neither are they subject of recoupment since they do not arise out of the contract or transaction sued on.

Taxes are not in the nature of contracts between the parties but grow out of a duty to, and are the positive acts of the government, to the making and enforcing of which, the personal consent of individual taxpayers is not required.