Cervecería India, Inc. v. Secretary of the Treasury

80 P.R. 262

• Court: Supreme Court of Puerto Rico
• Decided: April 21, 1958
• Docket: No. 11701
• Status: Published

Opinions

Mr. Justice Saldaña

delivered the opinion of the Court.

Cervecería India, Inc. imported and installed in its factory certain instruments (called productimeters) which are used for counting the number of bottles as they are filled and the beer bottles finally packed in boxes. It claimed exemption from the payment of excise taxes on such equipment, but the Secretary of the Treasury denied its request and demanded payment of the tax. Without paying the tax or filing proper claim for refund, the taxpayer sued the Secretary of the Treasury alleging that the productimeters are exempt under the provisions of § 16-B of the Internal Revenue Act (13 L.P.R.A. § 1070), and urging a court ruling to that effect. The Superior Court held that it had jurisdiction to take cognizance of the case and that the tax exemption provided in § 16-B, supra, was applicable to productimeters. It decreed that “. . . the Secretary of the Treasury shall refrain from collecting from the plaintiff the excise taxes on the equipment in litigation . . . We believe that that judgment should be reversed because, since the issue was the assessment and collection of excise taxes, the taxpayer was bound to pay them first and then litigate through a claim for refund.

Section 13(a) 2 of the Judiciary Act of 1952, establishes in general terms the jurisdiction of the Superior Court in tax cases. It provides that that court shall take cognizance “Of all cases, actions, proceedings or extraordinary legal remedies in connection with or affecting the levy, collection and payment of all kinds of taxes, including property taxes, inheritance and gift taxes, income taxes, unfair profiteering taxes, social insurance taxes, excises, license taxes, and any other taxes or imposts, as well as of claims for taxes collected by unlawful procedure or which voluntarily or without notice from the Secretary of the Treasury were paid unduly or in excess, the reimbursement of which is authorized by law and is refused by the Secretary of the Treasury.” 4 L.P.R.A. § 121 (a) 2. However, that Act did not repeal the’ procedure applicable in tax cases nor the jurisdiction requirements entitling the Superior Court to take cognizance of such suits. This appears clearly from the report of the Drafting-Committee on the Judiciary Act of 1952. Referring expressly to § 13 (a) 2 above copied, it points out that the scope of the same is the following: “The Superior Court hereafter replaces the separately constituted Tax Court, which this Act also abolishes, as the appropriate forum for all appeals to the courts from rulings, decisions or orders relating to taxation. Sections 1, 2 and 7-21 of Act No. 328 of May 13, 1949 are thus repealed, as concerned with matters of administration and constitution of that Court. The procedure applicable to such cases and the requirements for review by the court that a bond must be posted, and that payment must be made in full when appeal to the Supreme Court is sought, obtain as heretofore, however. All tax cases are to be brought in the Superior Court irrespective of the amount in controversy since the provisions of Sections 13 (a) 5 and 18 (a) 2 do not apply to these matters.” 4 L.P.R.A. pp. 754-55.

Briefly, the jurisdiction or competency in tax matters which the Legislature vested in the Superior Court in 1952 is identical with that of the former Tax Court created by Act No. 328 of 1949 (Sess. Laws, p. 996). All the conditions provided by the Commonwealth in giving consent to be sued in tax matters remained in force after the approval of the ■Judiciary Act of 1952. However, which conditions govern suits in which the issue is the assessment and collection of excise taxes?

Until the creation of the first Tax Court by Act No. 169 of May 15, 1943 (Sess. Laws, p. 600), the only way of filing a tax suit was by paying wider protest and then suing the Treasurer for a refund of the tax. In fact, under Act No. 8 of April 19, 1927 (Sess. Laws, p. 122) and Act No. 17 of November 21,1941 (Sp. Sess. Laws, p. 54), if the taxpayer believed that he did not owe certain excise taxes and wished to litigate, he was bound to pay the same under protest and to set forth on the reverse of the receipt the grounds of his protest and challenge. Within the term of 30 days from the date of payment he could file a complaint against the Treasurer of Puerto Rico in the corresponding district court for the refund of the amount protested. The complaint could not be for any other amount or on any other grounds than those alleged in his protest when making payment. See Monge v. Tax Court, 68 P.R.R. 594 (1948).

After the approval of Act No. 169 of 1943, the taxpayer had two remedies to litigate excise taxes: (1) to pay under protest and to sue for refund in the Tax Court; and (2) to appeal to the Tax Court from a denial for refund of the Treasurer. If demand was made to pay the excise taxes, the taxpayer could elect between the two remedies, but if the Treasurer made no such demand the only remedy available was to appeal to the Tax Court from the administrative decision of the Treasurer disallowing the refund. In both cases it was absolutely necessary to pay the excise taxes before being able to litigate. See Gerardino v. Tax Court, 68 P.R.R. 206, .215-16,219-22 (1948).

In 1949, the Legislature did away with the first of the two procedures above mentioned — payment under protest and claim for refund — by repealing Act No. 8 of 1927 by virtue of Act No. 229 of May 10, 1949 (Sess. Laws, p. 704). On the mother hand, it left in force, with exclusive character, the second procedure for litigating excise taxes by incorporating it in a general law which grants the right to obtain a refund or credit, with interest thereon, of any kind of taxes (including excise taxes) paid or collected, unlawfully or unduly, or in excess of the amount due. We refer to Act No. 232 of May 10, 1949 (Sess. Laws, p. 720), which is still in force. As is well known, it grants to the taxpayer a term of four years from the date of payment of the excise tax to file an application for refund with the Secretary of the Treasury, and if such application is denied in whole or in part “ . . . the taxpayer may appeal from such denial to the Tax Court of Puerto Rico [now Superior Court] in the manner, within the term, and upon compliance with the requirements provided by the law.” 13 L.P.R.A. § 261.

A uniform procedure to appeal to the Tax Court (now Superior Court) was simultaneously established by Act No. 235 of May 10, 1949 (Sess. Laws, p. 732). The purpose of this Act was to regulate exhaustively and coherently the different remedies by which the taxpayer could appeal to that court. Section 2 (13 L.P.R.A. § 282) provides the exact procedure for taking appeals from any determination of the Secretary of the Treasury in connection with (1) income tax; (2) tax on unfair profiteering; (3) property tax; (4) inheritance and gift tax; (5) social security tax; and, lastly, (6) reimbursement of taxes. Why is no mention made of excise-tax cases? In our opinion, there is only one answer: because the only procedure available for litigating excise taxes is by review of a determination of the Secretary of the Treasury refusing to grant a petition for reimbursement of such taxes on the authority of Act No. 232 of 1949. Thus, the sixth remedy mentioned in § 2, supra, under the title “reimbursement of taxes,” is sufficient to include all excise-tax cases.¹

The provisions of § 2 which we have analyzed agree with the provisions of § 3 of Act No. 328 of May 13, 1949, which created the second Tax Court of Puerto Rico. 13 L.P.R.A. § 286. The aforesaid § 3 fixes a uniform period of thirty •days to file any complaint in the Tax Court (now Superior Court 1 as of the date of the notice served by the Secretary of the Treasury on the claimant person or entity “. . . in any of the following cases: (1) taxes on real or personal property; (2) inheritance or gift taxes; (3) income taxes; (4) unfair profiteering taxes; (5) social insurance taxes; (6) denials of reimbursements authorized by law of any kind of taxes paid unduly or in excess, or unlawfully collected for any other reason.” It is obvious that no mention of excise-tax cases is made in this Act either. And the reason is the one pointed out hereinbefore: the sixth class of cases (“denials of reimbursements authorized by law”) necessarily includes all excise-tax cases. The taxpayer must always pay first and litigate later.

It is well to point out also that since 1945, appeals may be taken from a denial for refund of excise taxes only by the person or entity which has actually suffered the burden of paying the same, and that “an allegation in this sense and the evidence thereof at the proper time shall be considered as jurisdiction requirements.” Act No. 137 of May 9, 1945 (Sess. Laws, p. 462) established those conditions specifically for the refund of excise or license taxes. See Standard Com. Tobacco Co., Inc. v. Tax Court, 71 P.R.R. 701 (1950). Later they were made applicable to refund of all kinds of taxes by the approval of § 2 of Act No. 328 of May 13, 1949, and they are still in force, inasmuch as § 13 (a) 2 of the Judiciary Act of 1952 does not repeal any of the requirements provided by prior laws enabling the Superior Court to take cognizance of tax cases. The origin of these “jurisdiction requirements” and their operation at the present show that it is necessary to pay the excise tax before being able to litigate the question of whether or not they are due.

In all cases in which the taxpayer is permitted to litigate a tax without paying first, the Legislature of Puerto Rico has imposed certain conditions to guarantee the payment of the tax and to insure the efficient collection of taxes. The Government has always tried to prevent tax suits from becoming-an obstacle to the collection of revenues which are necessary for its proper functioning. Regarding income taxes, the giving of a bond is required normally as a condition precedent for appealing to the Superior Court from a final determination of a deficiency. And if an appeal is taken from a judgment of the Superior Court determining an income-tax deficiency, the payment of the full amount of the deficiency is. normally required as a condition precedent for the Supreme. Court to hear the appeal on the merits. 13 L.P.R.A. Cum. Supp. § 3272 (1957). In the case of property tax, it is necessary to pay that portion thereof with which the taxpayer is agreed, and there also exists a preferred lien on the property in favor of the State. Regarding inheritance and gift tax,, a preferred lien is also imposed and, in addition, the alienation of the inherited property is prohibited, except for the-purpose of raising sufficient funds for the payment of the. taxes, until the payment thereof is duly proved. It should be noted that in excise-tax cases the Act does not require a bond to litigate before the Superior Court. Nor does it impose other conditions to litigate in order to guarantee the efficient and orderly collection of those taxes. It is logical, therefore, that in excise-tax cases the taxpayer should be permitted to resort only to the procedure of refund.

Referring to all kinds of taxes, § 3 of Act No. 328 of 1949, provides that: . . the filing of the complaint in the Tax Court shall not affect or impair the right of the Treasurer of Puerto Rico to collect the taxes by the procedure authorized by law, unless the Tax Court, upon motion of the taxpayer and after summoning the Treasurer of Puerto Rico, stays the collection of the tax at issue, upon the bonding, to its entire satisfaction, of the tax in controversy, including interest and penalties .. . That section provides that: . . the authorization to file this bond, as well as the fixing of the amount thereof, shall be a discretional and exclusive faculty of the court, having in mind in each case the facts and circumstances in its judgment concurring and affecting the interest both of the taxpayer and the Commonwealth of Puerto Rico.” 13 L.P.R.A. § 286. But, in our opinion, the Legislature considered that these provisions are not sufficient to protect the public treasury against the risk that a multiplicity of tax suits may arise which would prevent the efficient and orderly collection of taxes. This is evidenced by the fact that, notwithstanding the provisions of § 3, supra, the giving of a bond in income-tax cases, as a jurisdiction requirement, is still in force at present, except in certain unusual cases. 13 L.P.R.A. Cum. Supp. § 3272 (1957). Undoubtedly, by attachment or threat of attachment the Secretary of the Treasury could theoretically compel every litigant in each case to give a bond. But in practice this would entail an administrative job which could hardly be carried out. And we cannot overlook the fact that in Puerto Rico about one-third of the total amount of the revenues of the Government is derived from excise tax.²

There is no legal provision whatever permitting an exception to be made when it is alleged that the article on which the excise tax is levied is exempt from all kinds of taxes. In Cafeteros de P. R. v. Treasurer, 74 P.R.R. 704 (1958), we held that the adequate remedy to obtain a court ruling as to the propriety of the assessment and collection of certain excise taxes was to pay the tax and then make a claim for refund, despite the fact that the plaintiff alleged that it was not a taxpayer subject to the ambit of the law. We repeat here what we said there at p. 716: “. . . every claim that a tax is illegal involves the allegation that, as to a certain amount or as to certain items, at least, the petitioner is not a taxpayer. Every allegation of exemption, for example, involves the contention that a certain Act is not applicable to a plaintiff.” This is nothing unusual. Actually, the procedure of refund has always been used in Puerto Rico in such cases where the taxpayer maintains that he does not owe excise taxes by reason of an exemption. See Central Coloso v. Tax Court, 70 P.R.R. 62 (1949) ; Descartes, Treas. v. Tax Court, 71 P.R.R. 440 (1950) ; Cervecería India, Inc. v. Tax Court, 71 P.R.R. 463 (1950); Descartes, Treas. v. Tax Court, 71 P.R.R. 479 (1950) ; Pedro A. Pizá, Inc. v. Tax Court, 72 P.R.R. 302 (1951) ; Sum. Serrallés v. Tax Court, 73 P.R.R. 33 (1952) ; Francis v. Tax Court, 74 P.R.R. 18 (1952) ; Fajardo Sugar Co. v. Secretary of the Treasury, 76 P.R.R. 802 (1954) ; Descartes, Treas. v. Tax Court; P. R. Aggregates, Int., 78 P.R.R. 83 (1955) ; and Capó v. Tax Court; Sec. of the Treasury, Int., 78 P.R.R. 890 (1956).

The judgment appealed from will be reversed and another rendered instead dismissing the complaint for lack of jurisdiction.

Mr. Justice Pérez Pimentel dissented on the point of jurisdiction and concurs in the result on different grounds which he sets forth in the following opinion. Mr. Justice Santana Becerra did not take part herein.

1 Section 2 of Act No. 235 of 1949 provides in its pertinent part as follows:

“Taxpayers’ Remedies:

“A. — Appeal from Decisions of the Treasurer of Puerto Rico.. — Whenever a taxpayer disagrees with a decision notified to him by the Treasurer of Puerto Rico and is by law entitled to appeal therefrom to the Tax Court of Puerto Rico, he shall do so in the manner, within the term, and upon compliance with the requirements herein provided, as follows:

“1. Income Tax. . . .

“2. Tax Unfair Profiteering. . . .

“3. Property Tax. . . .

“4. Inheritance and Gift Tax. . . .

“5. Social Security Tax. . . .

“6. Reimbursement of Taxes. — Prom a decision of the Treasurer of Puerto Rico denying the reimbursement of any tax, by filing complaint in the Tax Court of Puerto Rico, in the manner provided for by the Act creating said court, within the term of thirty (30) days from the date of mailing- .the notice of the Treasurer of Puerto Rico denying the petition for reimbursement of the taxes, which term shall be considered of jurisdictional character.

“B. — Other Taxpayers’ Remedies. — Such special or extraordinary remedies to which taxpayers may be entitled in connection with any tax, shall be prosecuted in the Tax Court according to the laws applicable thereto.”

2 See Summary of the Budget, Fiscal Year 1957, p. 2, and Summary of the Budget, Fiscal Year 1958, p. 2 (both published by the Bureau of the Budget of the Commonwealth of Puerto Rico). See, also, the Fiscal Report to the Governor (1957), pp. 31-32, published by the Bureau of Economy .and Statistics of the Planning Board.