607 Phil. 45
YNARES-SANTIAGO, J.:
SEC. 145. Cigars and cigarettes. -Prior to the effectivity of RA 8240 on January 1, 1997, a survey of the net retail prices per pack of cigarettes as of October 1, 1996 was conducted. The results thereof were embodied as Annex "D" of the NIRC and classified existing brands as those registered and existing prior to January 1, 1997 which classification cannot be revised except by an act of Congress.[2]
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(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]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 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]
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SECTION 2. Definition of Terms.In February 1999, respondents introduced into the market Astro and Memphis cigarettes and their variants with suggested net retail prices below P5.00 per pack and a temporary excise tax pegged at P1.00 per pack.[3] On May 15, 1999, respondents requested the BIR to conduct a survey to determine the final tax classification of said brands of cigarettes.[4]
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3. Duly registered or existing brand of cigarettes - shall include duly registered, existing or active brands of cigarettes, prior to January 1, 1997.
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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.
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Section 4. Classification and Manner of Taxation of Existing Brands, New Brands and Variant of Existing Brands.
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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)
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 August 8, 2003 to implement the revised tax classification of certain new brands introduced in the market after January 1, 1997. This was based on the survey of the current net retail prices of new brands as mandated by Revenue Regulations No. 9-2003. The results of the survey (embodied as Annex "A" of Revenue Regulations No. 22-2003), revealed that the average net retail prices of Astro and Memphis cigarettes ranged from P5.72 to P6.13, thus increasing the applicable excise tax from P1.12 per pack to P5.60 per pack.[8]
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.Petitioners filed a motion for reconsideration but the same was denied on December 22, 2004.[13]
SO ORDERED.[12]
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.The reclassification of Astro and Memphis pursuant to Revenue Regulations Nos. 9-2003 and 22-2003 constitutes the prohibited reclassification contemplated in British American Tobacco v. Camacho. It will be recalled that these brands were already classified by the BIR based on their current net retail prices in 1999 through a market survey. Consequently, their upward reclassification in 2003 by the BIR through another market survey is a prohibited reclassification.[16]
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There is merit to the contention.
In order to implement RA 8240 following its effectivity on January 1, 1997, the BIR issued Revenue Regulations No. 1-97, dated December 13, 1996, which mandates a one-time classification only. Upon their launch, new brands shall be initially taxed based on their suggested net retail price. Thereafter, a survey shall be conducted within three (3) months to determine their current net retail prices and, thus, fix their official tax classifications. However, the BIR made a turnaround by issuing Revenue Regulations No. 9-2003, dated February 17, 2003, which partly amended Revenue Regulations No. 1-97, by authorizing the BIR to periodically reclassify new brands (i.e., every two years or earlier) based on their current net retail prices. Thereafter, the BIR issued Revenue Memorandum Order No. 6-2003, dated March 11, 2003, prescribing the guidelines on the implementation of Revenue Regulations No. 9-2003. This was patent error on the part of the BIR for being contrary to the plain text and legislative intent of RA 8240.
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.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.
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)
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It should be noted though that on August 8, 2003, the BIR issued Revenue Regulations No. 22-2003 which implemented the revised tax classifications of new brands based on their current net retail prices through the market survey conducted pursuant to Revenue Regulations No. 9-2003. Annex "A" of Revenue Regulations No. 22-2003 lists the result of the market survey and the corresponding recommended tax classification of the new brands therein aside from Lucky Strike. However, whether these other brands were illegally reclassified based on their actual current net retail prices by the BIR must be determined on a case-to-case basis because it is possible that these brands were classified based on their actual current net retail price for the first time in the year 2003 just like Lucky Strike. Thus, we shall not make any pronouncement as to the validity of the tax classifications of the other brands listed therein.
June 24, 1999Contrary to petitioners' contention, the above classification of Astro and Memphis cigarettes is valid. The revenue regulations then in force merely required that the concerned taxpayer be notified of the result of the market survey which is then used as basis for fixing the official and final tax classification of a new brand. This has been sufficiently satisfied by the letter of the Assistant Commissioner, hence, the fact that the same was not in the form of a numbered ruling will not invalidate the classification contained therein.
LA SUERTE CIGAR & CIGARETTE FACTORY
Km. 14, West Service Road, South Superhighway
ParaƱaque, Metro Manila
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 PangasinanMemphis Filter King 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 Pack1. Astro Menthol 100's P63.71 P.579 P1.00 P 6.50 P1.002. Astro Filter King 60.06 .546 1.00 6.00 1.003. Astro Menthol King 62.40 .567 1.00 6.40 1.004.Memphis Menthol 100's 64.00 .58 1.00 6.50 1.005.Memphis Filter King 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]
x x x x[4] Exhibit "D," Folder of Exhibits, p. 5.
(c) Cigarettes packed by machine. - There shall be levied, assessed and collected on cigarettes packed by machine a tax at the rates prescribed below:
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(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.
New brands, as defined in the immediately following paragraph, shall initially be classified according to their suggested net retail price.[17] Records, vol. II, pp. 1573-1574.
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)