When is a tax erroneously paid?

By: Atty. Rey Christian M. Guintibano on July 9, 2026

WHEN can a taxpayer claim that a tax was erroneously paid and demand its return? Section 229 of the Tax Code allows a taxpayer to seek a refund of taxes or amounts erroneously or illegally assessed or collected, any penalty claimed to have been collected without authority, any sum alleged to have been excessively or in any manner wrongfully collected without authority, or any sum alleged to have been excessively or in any manner wrongfully collected. Under this section, a claim for refund or credit must first be filed before the Commissioner of Internal Revenue prior to the filing of any suit or proceeding in any court.

It should be emphasized that what can be refunded or credited is a tax that was erroneously, illegally, excessively or in any manner wrongfully collected. In short, there must be a wrongful payment such that the amount paid, or part of it, was not legally due (Commissioner of Internal Revenue v. San Roque Power Corporation, GR 187485, Feb. 12, 2013).

In the recent case of JT International (Philippines), Inc. v. Commissioner of Internal Revenue (CTA Case 11028, June 23, 2026), the Court of Tax Appeals discussed what an erroneously or illegally collected tax is under Section 229. In this case, the taxpayer paid excise taxes attributable to internal revenue stamps affixed to cigarette products immediately after the products’ manufacture at the place of production, in accordance with the provisions of Section 130 of the Tax Code. Under said section, the excise taxes were payable “by the manufacturer or producer before removal of domestic products from place of production.”

After the excise taxes were paid, the products were subsequently stored in warehouses and were damaged by floodwaters during a typhoon, rendering the goods unfit for sale. The taxpayer then sought a refund or tax credit for the excise taxes it had paid, which were attributable to the damaged goods.

The taxpayer argued that the subsequent flooding effectively rendered the tax payments erroneous. According to the taxpayer, excise taxes may be imposed only upon the concurrence of the following: the goods are manufactured or produced in the Philippines, and the goods are for domestic sale, or consumption, or any other disposition. The taxpayer argued that the second component of domestic sale was not satisfied because the flooding prevented it from selling the finished goods.

The CTA rejected this position and emphasized that a refund under Section 229 requires the taxpayer to establish that the tax was erroneously, illegally, excessively, or otherwise wrongfully collected — one levied without statutory authority, imposed upon property not subject to taxation, collected by some officer with no authority to levy the tax, or otherwise illegal in some similar aspect.

In resolving the claim, the CTA considered the nature of excise taxes. It explained that in accordance with the Tax Code, excise taxes on domestic products are paid by the manufacturer or producer before the removal of such products from the place of production, even if subject articles are not actually sold or consumed.

In this case, the cigarette products were already removed from the place of production and transferred to a warehouse owned by the taxpayer before the flood occurred. The liability for excise taxes due on them had already accrued and become legally due, and the taxpayer correctly paid them. The subsequent destruction or deterioration of the products did not invalidate the tax liability or transform the original payments into erroneous payments.

The CTA also noted that regulations placed the risk of damage to or loss of internal revenue stamps on the importer or local manufacturer after their release (Revenue Regulation 7-2024, July 7, 2014). Since the stamps had already been affixed to the cigarette products and the goods had been considered to be in the taxpayer’s possession, the taxpayer had to bear the loss resulting from the flood.

The CTA denied the claim for refund because the taxpayer failed to establish that the excise taxes were erroneously or illegally paid or collected.

For taxpayers seeking a refund under Section 229, the key question is whether the tax, or any part of it, was not legally due when it was paid. If the payment was supported by law and the taxable event had already occurred, a subsequent loss or supervening event will not make the payment erroneous. Thus, before seeking a refund, taxpayers must distinguish between a tax that was wrongfully paid and a loss that simply occurred after a valid tax payment.

Rey Christian M. Guintibano is an Associate of Mata-Perez, Tamayo & Francisco (MTF Counsel). This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. If you have any question or comment regarding this article, you may email the author at info@mtfcounsel.com or visit MTF website at www.mtfcounsel.com

The article was published at the More to Follow Column at The Manila Times on July 9, 2026. Please see this link.

https://www.manilatimes.net/2026/07/09/business/top-business/when-is-a-tax-erroneously-paid/2380775