HON. SECRETARY OF FINANCE, G.R. No. 166498
and HON. Guillermo
L.
Parayno, JR., in his capacity as
Commissioner of the Bureau of
Internal Revenue,
Petitioners, Present:
Ynares-Santiago, J. (Chairperson),
- versus - Chico-Nazario,
Velasco, Jr.,
Nachura, and
Peralta, JJ.
LA SUERTE CIGAR AND CIGARETTE
FACTORY, TELENGTAN BROTHERS
& SONS, INC., Promulgated:
Respondents.
June 11, 2009
x ----------------------------------------------------------------------------------------
x
YNARES-SANTIAGO, J.:
This petition assails the July 12, 2004 Decision[1] of
the Regional Trial Court of Parañaque City, Branch 194, in Civil Case No.
03-0117 declaring as void Revenue Regulations Nos. 9-2003 and 22-2003 insofar
as they authorize the Bureau of Internal Revenue (BIR) to periodically conduct
a survey on the current net retail prices of cigarettes registered after
January 1, 1997 for the purpose of updating their tax classification.
Republic Act (RA) No. 8240, entitled “An Act Amending Sections 138, 139,
140 and 142 of the National Internal Revenue Code (NIRC), as Amended and For
Other Purposes” took effect on
SEC. 145. Cigars and cigarettes. –
x x x x
(C) Cigarettes Packed by Machine. – There shall be levied, assessed and collected on cigarettes packed by machine a tax at the rates prescribed below:
(1) If the net retail price (excluding the excise tax and the value-added tax) is above Ten pesos (P10.00) per pack, the tax shall be Twelve pesos (P12.00) per pack; [P13.44 effective January 1, 2000]
(2) If the net retail price (excluding the excise tax and the value-added tax) exceeds Six pesos and fifty centavos (P6.50) but does not exceed Ten pesos (10.00) per pack, the tax shall be Eight pesos (P8.00) per pack; [P8.96 effective January 1, 2000]
(3) If the net retail price (excluding the excise tax and the value-added tax) is Five pesos (P5.00) but does not exceed Six pesos and fifty centavos (P6.50) per pack, the tax shall be Five pesos (P5.00) per pack; [P5.60 effective January 1, 2000]
(4) If the net retail price (excluding the excise tax and the value-added tax) is below Five pesos (P5.00) per pack, the tax shall be One peso (P1.00) per pack. [P1. 12 effective January 1, 2000]
x x x x
The rates of specific tax on cigars
and cigarettes under paragraphs (1), (2), (3) and (4) hereof, shall be
increased by twelve percent (12%) on
Prior to the effectivity of RA 8240 on
To implement RA 8240, the BIR issued Revenue Regulations No. 1-97 which provided that new brands, or those registered after
SECTION 2. Definition of Terms.
x x x x
3. Duly
registered or existing brand of cigarettes – shall include duly registered,
existing or active brands of cigarettes, prior to
x x x x
6. New
Brands – shall mean duly registered after January 1, 1997 and shall include
duly registered, inactive brands of cigarette not sold in commercial quantity
before January 1, 1997.
x x x x
Section 4. Classification and Manner of Taxation of Existing Brands, New Brands and Variant of Existing Brands.
x x x x
B. New Brand
New brands shall be classified according to their current net retail price. In the meantime that the current net retail price has not yet been established, the suggested net retail price shall be used to determine the specific tax classification. Thereafter, a survey shall be conducted in 20 major supermarkets or retail outlets in Metro Manila (for brands of cigarette marketed nationally) or in five (5) major supermarkets or retail outlets in the region (for brands which are marketed only outside Metro Manila) at which the cigarette is sold on retail in reams/cartons, three (3) months after the initial removal of the new brand to determine the actual net retail price excluding the excise tax and value added tax which shall then be the basis in determining the specific tax classification. In case the current net retail price is higher than the suggested net retail price, the former shall prevail. Otherwise, the suggested net retail price shall prevail. Any difference in specific tax due shall be assessed and collected inclusive of increments as provided for by the National Internal Revenue Code, as amended. (Emphasis supplied)
In February 1999, respondents introduced into the market Astro and
In the BIR’s reply dated
On February 17, 2003, the BIR issued
the assailed Revenue Regulations No. 9-2003, Section 2 of which amended Revenue Regulations No. 1-97,
by providing for a periodic review every two years or earlier of the current
net retail prices of new brands and their variants to establish and update
their tax classification. Section
4(B)(e)(c), 2nd paragraph of Revenue Regulations No. 1-97, as
amended by Revenue Regulations
No. 9-2003, reads:
For the purpose of establishing or updating the tax classification of new brands and variant(s) thereof, their current net retail price shall be reviewed periodically through the conduct of survey or any other appropriate activity, as mentioned above, every two (2) years unless earlier ordered by the Commissioner. However, notwithstanding any increase in the current net retail price, the tax classification of such new brands shall remain in force until the same is altered or changed through the issuance of an appropriate Revenue Regulations. (Emphasis supplied)
Section 4 of Revenue Regulations No. 9-2003 also mandated the determination and re-determination of the current net
retail prices of cigarettes launched into the market starting January 1, 1997
and which were not surveyed within the last two years from the effectivity of
Revenue Regulations No. 9-2003. Thus –
SEC. 4. TRANSITORY CLAUSE. – For all brands duly registered and introduced in the market beginning January 1, 1997 the current net retail price of which was not determined for the last two (2) years from the effectivity hereof, a determination or re-determination of the current net retail prices thereof shall be conducted immediately upon the effectivity of these Regulations. (Emphasis supplied)
Subsequently, Revenue Regulations No. 22-2003[7]
was issued on
On March 14, 2003, respondents filed a
case for injunction with the trial court assailing the validity of Revenue
Regulations No. 9-2003 and praying for the issuance of a temporary restraining
order and/or writ of preliminary injunction to enjoin the implementation of
said regulation insofar as it authorizes the BIR to update the tax
classification of cigarettes registered after January 1, 1997.[9] The complaint was later amended[10]
to include Revenue Regulations No. 22-2003.
Respondents asserted that Section 145 of the NIRC does not give the BIR
the power to reclassify cigarettes introduced into the market after
Petitioners, on the other hand,
maintained that the assailed revenue regulations constitute a valid exercise of
subordinate legislation having been issued pursuant to the powers of the Commissioner
of Internal Revenue and the Secretary of Finance.
On
WHEREFORE, finding RR Nos. 9-2003 and 22-2003 not in conformity with Section 145 in relation to Section 244 of the Tax Code as they tend to infringe upon the legislative power of taxation, and therefore violative of the constitutional provision that tax laws should originate from Congress, the same are hereby declared unconstitutional and ineffective and as such, the defendants Secretary of Finance and Commissioner of Internal Revenue are hereby permanently enjoined from implementing thereof (sic) insofar as they require the re-determination and re-classification of Astro and Memphis brands and their variants for purposes of computing excise tax on such products.
SO ORDERED.[12]
Petitioners filed a motion for reconsideration but the same was denied on
Hence, the instant petition raising the issue of whether the BIR has the
power to periodically review or re-determine the current net retail prices of
new brands for the purpose of updating their tax classification pursuant to
Revenue Regulations Nos. 9-2003 and 22-2003.
This issue has been settled in the recent case of British American
Tobacco v. Camacho[14] where
the Court held, among others, that Revenue Regulations Nos. 9-2003, 22-2003, and
Revenue Memorandum Order No. 6-2003, as pertinent to cigarettes packed by
machine, are invalid insofar as they grant the BIR the power to reclassify or
update the classification of new brands every two years or earlier, to wit:
Petitioner asserts that Revenue Regulations No. 1-97, as amended by Revenue Regulations No. 9-2003, Revenue Regulations No. 22-2003 and Revenue Memorandum Order No. 6-2003, are invalid insofar as they empower the BIR to reclassify or update the classification of new brands of cigarettes based on their current net retail prices every two years or earlier. It claims that RA 8240, even prior to its amendment by RA 9334, did not authorize the BIR to conduct said periodic resurvey and reclassification.
x x x x
There is merit to the contention.
In order to implement RA 8240 following its effectivity on
It is clear that the afore-quoted portions of Revenue Regulations No. 1-97, as amended by Section 2 of Revenue Regulations 9-2003, and Revenue Memorandum Order No. 6-2003 unjustifiably emasculate the operation of Section 145 of the NIRC because they authorize the Commissioner of Internal Revenue to update the tax classification of new brands every two years or earlier subject only to its issuance of the appropriate Revenue Regulations, when nowhere in Section 145 is such authority granted to the Bureau. Unless expressly granted to the BIR, the power to reclassify cigarette brands remains a prerogative of the legislature which cannot be usurped by the former.
More importantly, as previously discussed, the clear legislative intent was for new brands to benefit from the same freezing mechanism accorded to Annex “D” brands. To reiterate, in enacting RA 8240, Congress categorically rejected the DOF proposal and Senate Version which would have empowered the DOF and BIR to periodically adjust the excise tax rate and tax brackets, and to periodically resurvey and reclassify cigarette brands. (This resurvey and reclassification would have naturally encompassed both old and new brands.) It would thus, be absurd for us to conclude that Congress intended to allow the periodic reclassification of new brands by the BIR after their classification is determined based on their current net retail price while limiting the freezing of the classification to Annex “D” brands. Incidentally, Senator Ralph G. Recto expressed the following views during the deliberations on RA 9334, which later amended RA 8240:
Senator Recto: Because, like I said, when Congress agreed to adopt a specific tax system [under R.A. 8240], when Congress did not index the brackets, and Congress did not index the rates but only provided for a one rate increase in the year 2000, we shifted from ad valorem which was based on value to a system of specific which is based on volume. Congress then, in effect, determined the classification based on the prices at that particular period of time and classified these products accordingly.
Of course, Congress then decided on what will happen to the new brands or variants of existing brands. To favor government, a variant would be classified as the highest rate of tax for that particular brand. In case of a new brand, Mr. President, then the BIR should classify them. But I do not think it was the intention of Congress then to give the BIR the authority to reclassify them every so often. I do not think it was the intention of Congress to allow the BIR to classify a new brand every two years, for example, because it will be arbitrary for the BIR to do so. x x x[15] (Emphasis supplied)
For these reasons, the amendments introduced by RA 9334 to RA 8240, insofar as the freezing mechanism is concerned, must be seen merely as underscoring the legislative intent already in place then, i.e. new brands as being covered by the freezing mechanism after their classification based on their current net retail prices.
x x x x
It should be noted though that on
The reclassification of Astro and
Petitioners do not dispute that the BIR
conducted a survey in 1999 to determine the actual net retail prices of Astro
and
The subject letter of the Assistant
Commissioner, reads:
LA SUERTE
CIGAR & CIGARETTE FACTORY
Km. 14,
Parañaque, Metro
ATTENTION:
Mr. Antonio B. Yao
Vice-President for Operations
This refers to the
retail price survey conducted by this Office for purposes of determining the
official and final tax classification of new brands of cigarette that your
company has initially manufactured and distributed in major supermarkets
located on designated regions, re:
|
B r a n d s |
R e g I o n |
|
Astro Menthol 100’s |
Pangasinan |
|
Astro Filter King |
Pangasinan |
|
Astro Menthol King |
Pangasinan |
|
Memphis Menthol 100’s |
Pangasinan |
|
|
Pangasinan |
Based on the results
of the survey conducted at the said regions, together with their tax
classifications, the average retail price per pack of the different brands of
cigarette are as follows:
|
Brand Names |
Average Retail Price/Ream |
VAT |
Specific Tax |
Average Net Retail Price/pack |
Specific
Tax Per Pack |
|
1. Astro Menthol 100’s |
P63.71 |
P.579 |
P1.00 |
P 6.50 |
P1.00 |
|
2. Astro Filter King |
60.06 |
.546 |
1.00 |
6.00 |
1.00 |
|
3. Astro Menthol King |
62.40 |
.567 |
1.00 |
6.40 |
1.00 |
|
4.Memphis Menthol 100’s |
64.00 |
.58 |
1.00 |
6.50 |
1.00 |
|
5. |
59.00 |
.54 |
1.00 |
6.07 |
1.00 |
Accordingly, you are
hereby required to submit the corresponding Manufacturer’s Sworn Statement for
each brand of cigarette prescribed under existing rules and regulations to the
Assistant Commissioner, Excise Tax Service within ten (10) days from receipt
hereof.
For your information
and guidance.
Very
truly yours,
LEONARDO
B. ALBAR
Assistant
Commissioner
Excise
Tax Service[18]
Contrary to petitioners’ contention, the above classification of Astro
and
Further, the Assistant Commissioner acted
within his jurisdiction in signing the letter informing respondents of the
conduct of the survey, the results thereof, as well as the applicable excise
tax rates on Astro and
In sum, the trial court correctly ruled that Revenue Regulations Nos. 9-2003 and 22-2003
are void insofar as they empower the BIR to periodically review or re-determine the current net
retail prices of cigarettes for purposes of updating their tax classification every
two years or earlier consistent with the Court’s pronouncements in British American Tobacco v. Camacho. Consequently, the upward reclassification of
Astro and
WHEREFORE, the
petition is DENIED.
SO ORDERED.
CONSUELO
YNARES-SANTIAGO
Associate Justice
WE CONCUR:
MINITA V. CHICO-NAZARIO
Associate Justice
PRESBITERO J. VELASCO, JR. ANTONIO
EDUARDO B. NACHURA
Associate Justice
Associate Justice
DIOSDADO M. PERALTA
Associate Justice
ATTESTATION
I attest that the conclusions in the above decision were
reached in consultation before the case was assigned to the writer of the
opinion of the Court’s Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution
and the Division Chairperson’s Attestation, it is hereby certified that the
conclusions in the above Decision were reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.
REYNATO S. PUNO
Chief Justice
[1] Penned by Judge Leoncia Real-Dimagiba; rollo, unpaged but attached as Annex “A” of the petition.
[2] The classification of each brand of cigarettes based on its average net retail price as of October 1, 1996, as set forth in Annex “D,” shall remain in force until revised by Congress. (NIRC, Section 145, par. 7)
[3] SEC. 145.
Cigars and cigarettes. –
x x x x
(c) Cigarettes packed by machine. – There
shall be levied, assessed and collected on cigarettes packed by machine a tax
at the rates prescribed below:
x x x x
(4) If the net retail price (excluding the excise tax and the
value-added tax) is below Five pesos (P5.00) per pack, the tax shall be One
peso (P1.00) per pack.
[4] Exhibit “D,” Folder of Exhibits, p. 5.
[5] Exhibit “D,” Folder of Exhibits, p. 6.
[6] The rates of excise tax on cigars and cigarettes under paragraphs (1), (2), (3) and (4) hereof, shall be increased by twelve percent (12%) on January 1, 2000 (NIRC, Section 145 (C) (4) par. 4).
[7]
[8] (3) If the net retail price (excluding the excise tax
and the value-added tax) is Five pesos (P5.00) but does not exceed Six pesos
and fifty centavos (P6.50) per pack, the tax shall be Five pesos and sixty
centavos (P5.60) per pack;
[9] Rollo, pp. 71-86.
[10] Amended Complaint, rollo, pp. 135-157.
[11] Rollo, pp. 145-146.
[12]
[13]
[14] G.R. No. 163583, August 20, 2008.
[15] Record, Senate 13th Congress (December 6, 2004).
[16]
The legislative intent not to delegate to the BIR the authority to reclassify
cigarette brands was made explicit in RA No. 9334, which on January 1, 2005
further amended Section 145 of the NIRC.
As amended, Section 145 now provides that the BIR’s classification of
cigarettes launched between January 1, 1997 to December 31, 2003, under which
category Astro and
New
brands, as defined in the immediately
following paragraph, shall initially be classified according to their suggested
net retail price.
New
brands shall mean a brand registered after the date of effectivity of R.A. No.
8240 [on January 1, 1997].
Suggested net retail price shall mean the net retail price at which new brands, as defined above, of locally manufactured or imported cigarettes are intended by the manufacturer or importer to be sold on retail in major supermarkets or retail outlets in Metro Manila for those marketed nationwide, and in other regions, for those with regional markets. At the end of three (3) months from the product launch, the Bureau of Internal Revenue shall validate the suggested net retail price of the new brand against the net retail price as defined herein and determine the correct tax bracket under which a particular new brand of cigarette, as defined above, shall be classified. After the end of eighteen (18) months from such validation, the Bureau of Internal Revenue shall revalidate the initially validated net retail price against the net retail price as of the time of revalidation in order to finally determine the correct tax bracket under which a particular new brand of cigarettes shall be classified; Provided however, That brands of cigarettes introduced in the domestic market between January 1, 1997 and December 31, 2003 shall remain in the classification under which the Bureau of Internal Revenue has determined them to belong as of December 31, 2003. Such classification of new brands and brands introduced between January 1, 1997 and December 31, 2003 shall not be revised except by an act of Congress. (Emphasis added)
[17] Records, vol. II, pp. 1573-1574.
[18] Exhibit “D,” Folder of Exhibits, p. 6.
[19] SEC. 7. Authority of the Commissioner to Delegate Power. – The Commissioner may delegate the powers vested in him under pertinent provisions of this Code to any or such subordinate officials with the rank equivalent to a division chief or higher, subject to such limitations and restrictions as may be imposed under the rules and regulations to be promulgated by the Secretary of Finance, upon recommendation for the Commissioner: Provided, however, That the following powers of the Commissioner shall not be delegated:
x x x x
(b) The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the Bureau;