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163583
Petitioner,
Present:
Puno, C.J.,
Quisumbing,
Ynares-Santiago,
Carpio,
- versus - Austria-Martinez,
Corona,
Carpio Morales,
Azcuna,
Tinga,
Chico-Nazario,
Velasco, Jr.,
Nachura,
Reyes,
Leonardo-De Castro, and
Brion, JJ.
JOSE ISIDRO N. CAMACHO,
in his capacity as Secretary of
the Department of Finance and
GUILLERMO L. PARAYNO, JR.,
in his capacity as Commissioner of
x
--------------------------------------------------------------------------------------- x
DECISION
YNARES-SANTIAGO, J.:
This petition for review assails the validity of: (1) Section 145 of
the National Internal Revenue Code (NIRC), as recodified by
Republic Act (RA) 8424; (2) RA 9334, which further amended
xxxx
(1) If the net retail price (excluding the excise tax and the
value-added tax) is above Ten pesos (P10.00) per pack,
(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 and ninety-six centavos
(P8.96) per pack;
(3) If the net retail price (excluding the excise tax and
value-added tax) is Five pesos (P5.00) but does
exceed Six pesos and fifty centavos (P6.50) per pack,
tax shall be Five pesos and sixty centavos (P5.60)
pack;
the
not
the
per
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For the above purpose, net retail price shall mean the price at
which the cigarette is sold on retail in 20 major supermarkets in Metro
Manila (for brands of cigarettes marketed nationally), excluding the
amount intended to cover the applicable excise tax and the value-added
tax. For brands which are marketed only outside Metro Manila, the net
retail price shall mean the price at which the cigarette is sold in five
major supermarkets in the region excluding the amount intended to cover
the applicable excise tax and the value-added tax.
xxxx
3. Duly registered or existing brand of cigarettes shall include
duly registered, existing or active brands of cigarettes, prior toJanuary
1, 1997.
xxxx
xxxx
B. New Brand
Strike brands were initially assessed the excise tax at P8.96 per
pack.
Pursuant thereto, Revenue Memorandum Order No. 62003[5] was issued on March 11, 2003, prescribing the guidelines
and procedures in establishing current net retail prices of new
brands of cigarettes and alcohol products.
Subsequently, Revenue Regulations No. 22-2003[6] was
issued on August 8, 2003 to implement the revised tax
classification of certain new brands introduced in the market after
January 1, 1997, based on the survey of their current net retail
price. The survey revealed that Lucky Strike Filter, Lucky Strike
Lights, and Lucky Strike Menthol Lights, are sold at the current net
retail price of P22.54, P22.61 and P21.23, per pack, respectively.
[7]
Respondent Commissioner of the Bureau of Internal Revenue
thus recommended the applicable tax rate of P13.44 per pack
inasmuch as Lucky Strikes average net retail price is above
P10.00 per pack.
Thus, on September 1, 2003, petitioner filed before the Regional
Trial Court (RTC) of Makati, Branch 61, a petition for injunction
In an Order dated March 4, 2004, the trial court denied the motion
to dismiss and issued a writ of preliminary injunction to enjoin the
implementation of Revenue Regulations Nos. 1-97, 9-2003, 222003
and
Revenue
Memorandum
Order
No.
6-2003.
[11]
Respondents filed a Motion for Reconsideration [12] and
Supplemental Motion for Reconsideration. [13] At the hearing on the
said motions, petitioner and respondent Commissioner of Internal
Revenue stipulated that the only issue in this case is the
constitutionality of the assailed law, order, and regulations. [14]
On May 12, 2004, the trial court rendered a decision [15] upholding
the constitutionality of Section 145 of the NIRC, Revenue
Regulations Nos. 1-97, 9-2003, 22-2003 and Revenue
Memorandum Order No. 6-2003. The trial court also lifted the writ
of preliminary injunction. The dispositive portion of the decision
reads:
SO ORDERED.[16]
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(1) If the net retail price (excluding the excise tax and the valueadded tax) is below Five pesos (P5.00) per pack, the tax shall be:
Effective on January 1, 2009, Two pesos and fortyseven centavos (P2.47) per pack; and
(2) 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:
Effective on January 1, 2005, Six pesos and thirtyfive centavos (P6.35) per pack;
and
Effective on January 1, 2011, Seven pesos and fiftysix centavos (P7.56) per pack.
(3) If the net retail price (excluding the excise tax and the valueadded tax) exceeds Six pesos and fifty centavos (P6.50) but does not
exceed Ten pesos (P10.00) per pack, the tax shall be:
Effective on January 1, 2005, Ten pesos and thirtyfive centavos (10.35) per pack;
Effective on January 1, 2007, Ten pesos and eightyeight centavos (P10.88) per pack;
(4) If the net retail price (excluding the excise tax and the valueadded tax) is above Ten pesos (P10.00) per pack, the tax shall be:
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New brands shall mean a brand registered after the date of effectivity
of R.A. No. 8240.
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 [should be January 2, 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.
xxxx
(1) If the net retail price (excluding the excise tax and the valueadded tax) is below Five pesos (P5.00) per pack, the tax shall be:
Effective on January 1, 2009, Two pesos and fortyseven centavos (P2.47) per pack; and
(2) 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:
Effective on January 1, 2005, Six pesos and thirtyfive centavos (P6.35) per pack;
and
Effective on January 1, 2011, Seven pesos and fiftysix centavos (P7.56) per pack.
(3) If the net retail price (excluding the excise tax and the valueadded tax) exceeds Six pesos and fifty centavos (P6.50) but does not
exceed Ten pesos (P10.00) per pack, the tax shall be:
Effective on January 1, 2005, Ten pesos and thirtyfive centavos (10.35) per pack;
Effective on January 1, 2007, Ten pesos and eightyeight centavos (P10.88) per pack;
(4) If the net retail price (excluding the excise tax and the valueadded tax) is above Ten pesos (P10.00) per pack, the tax shall be:
xxxx
New brands shall mean a brand registered after the date of effectivity
of R.A. No. 8240.
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
[should be January 2, 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,
1997and December 31, 2003 shall not be revised except by an act of
Congress.
Due
to
this
legislative
classification
scheme,
it
is possible that over time the net retail price of a previously
classified brand, whether it be a brand under Annex D or a new
brand classified after the effectivity of RA 8240 on January 1,
1997, would increase(due to inflation, increase of production
costs, manufacturers decision to increase its prices, etc.) to a
point that its net retail price pierces the tax bracket to which it
was previously classified. [38] Consequently, even if its present day
net retail price would make it fall under a higher tax bracket, the
previously classified brand would continue to be subject to the
excise tax rate under the lower tax bracket by virtue of the
legislative classification freeze.
The
first,
third
and
fourth
requisites
are
satisfied. The classification freeze provision was inserted in the
law for reasons of practicality and expediency. That is, since a
new brand was not yet in existence at the time of the passage of
RA 8240, then Congress needed a uniform mechanism to fix the
tax bracket of a new brand. The current net retail price, similar to
what was used to classify the brands under Annex D as of October
1, 1996, was thus the logical and practical choice. Further, with
the amendments introduced by RA 9334, the freezing of the tax
classifications now expressly applies not just to Annex D brands
but to newer brands introduced after the effectivity of RA 8240 on
January 1, 1997 and any new brand that will be introduced in the
future.[53](However, as will be discussed later, the intent to apply
the freezing mechanism to newer brands was already in place
even prior to the amendments introduced by RA 9334 to RA
8240.) This does not explain, however, why the classification is
frozen after its determination based on current net retail price and
how this is germane to the purpose of the assailed law. An
examination of the legislative history of RA 8240 provides
interesting answers to this question.
pesos and ninety centavos (P3.90), the tax rate shall be one peso
(P1.00).
The rigidity of the specific tax system calls for the need for frequent
congressional intervention to adjust the tax rates to inflation and to
keep pace with the expanding needs of government for more
revenues. The DOF admits this flaw inherent in the tax system it
proposed. Hence, to obviate the need for remedial legislation, the DOF
is asking Congress to grant to the Commissioner the power to revise,
one, the specific tax rates: and two, the price levels of beer and
cigarettes. What the DOF is asking, Mr. Speaker, is for Congress to
delegate to the Commissioner of Internal Revenue the power to fix the
tax rates and classify the subjects of taxation based on their price
levels for purposes of fixing the tax rates. While we sympathize with
xxxx
xxxx
(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;
(2) If the net retail price (excluding the excise tax and the
value-added tax) exceeds Six pesos and fifty centavos
(P6.50) per pack, the tax shall be Eight pesos (P8.00) per
pack;
(3) If the net retail price (excluding the excise tax
and the value-added tax) is Five pesos (P5.00) up to Six
pesos and fifty centavos (P6.50) per pack, the tax shall be
Five pesos (P5.00) per pack;
xxx
For purposes of this Section, net retail price shall mean the price
at which the cigarette is sold on retail in 20 major supermarkets in
Metro Manila (for brands of cigarettes marketed nationally), excluding
the amount intended to cover the applicable excise tax and the valueadded tax. For brands which are marketed only outside Metro Manila,
the net retail price shall mean the price at which the cigarette is sold in
five major supermarkets in the region excluding the amount intended
to cover the applicable excise tax and the value-added tax.
Senator Roco: They are not exactly the same, Mr. President. But even
then, we do note that this the first time we are trying to put an
automatic adjustment. My concern is, why do we propose now this
automatic adjustment? What is the reason that impels the committee?
this country over a period of two years, three years, let alone ten
years. So we felt that a mechanism ought to be adopted in order to
serve the interest of the government, the interest of the producers,
and the interest of the consuming public.
The reason for this, Mr. President, is, there is a long history why the
House of Representatives must originate judgments on tax. The House
members represent specific districts. They represent specific
constituencies, and the whole history of parliamentarism, the whole
history of Congress as an institution is founded on the proposition that
the direct representatives of the people must speak about taxes.
Mr. President, while the Senate can concur and can introduce
amendments, the proposed change here is radical. This is the policy
difficulty that I wish to clarify with the gentleman because the
judgment call now on the amount of tax to be imposed is not coming
from Congress. It is shifted to the Department of Finance. True, the
Secretary of Finance may have been the best finance officer two years
ago and now the best finance officer in Asia, but that does not make
him qualified to replace the judgment call of the House of
Representatives. That is my first difficulty.
Senator Enrile: Mr. President, precisely the law, in effect, authorizes
this rate beforehand. The computation of the rate is the only thing that
was left to the Department of Finance as a tax implementor of
Congress. This is not unusual because we have already, as I said,
adopted a system similar to this. If we adjust the personal exemption
of an individual taxpayer, we are in effect adjusting the applicable tax
rate to him.
Now, it does not say that the judgment call must belong to the House.
The judgment call can belong both to the House and to the Senate. We
can change whatever proposal the House did. Precisely, we are now
crafting a measure, and we are saying that this is the rate subject to
an adjustment which we also provide. We are not giving any unusual
power to the Secretary of Finance because we tell him, This is the
formula that you must adopt in arriving at the adjustment so that you
do not have to come back to us.[59]
These offices are not exactly noted, Mr. President, for having been
sanctified by the Holy Spirit in their noble intentions. x x x[60](Emphasis
supplied)
Senator Enrile: x x x
than ascertaining for ourselves now a fixed rate of increase for a fixed
period.
It is good for San Miguel and the Lucio Tan companies, but the new
companies assuming there may be new companies and we want to
encourage them because of the old point of liberalization will be at a
disadvantage under this situation. If this observation will find
receptivity in the policy consideration of the distinguished Gentleman,
maybe we can also further, later on, seek amendments to this
automatic adjustment clause in some manner.
product, and he will be coming under any of the tiers depending upon
his net retail price. Therefore, I do not see how this particular provision
will affect a new entrant.
rate per tier. However, the House Panel prevailed upon the Senate
Panel to delete the power of the DOF and BIR to periodically
adjust the excise tax rate and tax brackets, and periodically
resurvey and reclassify the cigarette brands based on the
increase in the consumer price index.
Finally, this twin feature, Mr. Speaker, fixed specific tax rates and
frozen classification, rejects the Senate version which seeks to
authority to the DOF and BIR as this will open the tax system to
potential areas for abuse and corruption. Congress may have
reasonably conceived that a tax system which would give the
least amount of discretion to the tax implementers would address
the problems of tax avoidance and tax evasion.
(1)
Section
4(B)(e)(c),
2nd paragraph
of
Revenue
Regulations No. 1-97, as amended by Section 2 of
Revenue Regulations 9-2003, viz:
(2)
xxxx
xxxx
xxxx
xxxx
xxxx
III. PROCEDURES
xxxx
xxxx
xxxx
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 manufacture 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 supplied)
Thus,
Revenue
Regulations
No.
9-2003
and
Revenue
Memorandum Order No. 6-2003 should be deemed modified by
the above provisions from the date of effectivity of RA 9334 on
January 1, 2005.
We disagree.
has, therefore, failed to clearly prove its case, both factually and
legally, within the parameters of the GATT.
Philip Morris Philippines Manufacturing, Inc., fortune tobacco, corp., MIGHTY CORPOR.A.TION,
and JT InTERNATIONAL, S.A., Respondents-in-Intervention.
RESOLUTION
YNARES-SANTIAGO, J.:
On August 20, 2008, the Court rendered a Decision partially granting the petition in this case, viz:
WHEREFORE, the petition is PARTIALLY GRANTED and the decision of the Regional Trial Court of Makati,
Branch 61, in Civil Case No. 03-1032, is AFFIRMED with MODIFICATION. As modified, this Court declares
that:
(1) Section 145 of the NIRC, as amended by Republic Act No. 9334, is CONSTITUTIONAL; and that
(2) Section 4(B)(e)(c), 2nd paragraph of Revenue Regulations No. 1-97, as amended by Section 2 of
Revenue Regulations 9-2003, and Sections II(1)(b), II(4)(b), II(6), II(7), III (Large Tax Payers Assistance
Division II) II(b) of Revenue Memorandum Order No. 6-2003, insofar 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.
SO ORDERED.
In its Motion for Reconsideration, petitioner insists that the assailed provisions (1) violate the equal
protection and uniformity of taxation clauses of the Constitution, (2) contravene Section 19, 1 Article XII of
the Constitution on unfair competition, and (3) infringe the constitutional provisions on regressive and
inequitable taxation. Petitioner further argues that assuming the assailed provisions are constitutional,
petitioner is entitled to a downward reclassification of Lucky Strike from the premium-priced to the highpriced tax bracket.
The Court is not persuaded.
The assailed law does not violate the equal protection and uniformity of taxation clauses.
Petitioner argues that the classification freeze provision violates the equal protection and uniformity of
taxation clauses because Annex "D" brands are taxed based on their 1996 net retail prices while new brands
are taxed based on their present day net retail prices. Citing Ormoc Sugar Co. v. Treasurer of Ormoc
City,2 petitioner asserts that the assailed provisions accord a special or privileged status to Annex "D" brands
while at the same time discriminate against other brands.
These contentions are without merit and a rehash of petitioner's previous arguments before this Court. As
held in the assailed Decision, the instant case neither involves a suspect classification nor impinges on a
fundamental right. Consequently, the rational basis test was properly applied to gauge the constitutionality
of the assailed law in the face of an equal protection challenge. It has been held that "in the areas of social
and economic policy, a statutory classification that neither proceeds along suspect lines nor infringes
constitutional rights must be upheld against equal protection challenge if there is any reasonably conceivable
state of facts that could provide a rational basis for the classification." 3 Under the rational basis test, it is
sufficient that the legislative classification is rationally related to achieving some legitimate State interest. As
the Court ruled in the assailed Decision, viz:
A legislative classification that is reasonable does not offend the constitutional guaranty of the equal
protection of the laws. The classification is considered valid and reasonable provided that: (1) it rests on
substantial distinctions; (2) it is germane to the purpose of the law; (3) it applies, all things being equal, to
both present and future conditions; and (4) it applies equally to all those belonging to the same class.
The first, third and fourth requisites are satisfied. The classification freeze provision was inserted in the law
for reasons of practicality and expediency. That is, since a new brand was not yet in existence at the time of
the passage of RA 8240, then Congress needed a uniform mechanism to fix the tax bracket of a new brand.
The current net retail price, similar to what was used to classify the brands under Annex "D" as of October 1,
1996, was thus the logical and practical choice. Further, with the amendments introduced by RA 9334, the
freezing of the tax classifications now expressly applies not just to Annex "D" brands but to newer brands
introduced after the effectivity of RA 8240 on January 1, 1997 and any new brand that will be introduced in
the future. (However, as will be discussed later, the intent to apply the freezing mechanism to newer brands
was already in place even prior to the amendments introduced by RA 9334 to RA 8240.) This does not
explain, however, why the classification is "frozen" after its determination based on current net retail price
and how this is germane to the purpose of the assailed law. An examination of the legislative history of RA
8240 provides interesting answers to this question.
xxx
From the foregoing, it is quite evident that the classification freeze provision could hardly be considered
arbitrary, or motivated by a hostile or oppressive attitude to unduly favor older brands over newer brands.
Congress was unequivocal in its unwillingness to delegate the power to periodically adjust the excise tax rate
and tax brackets as well as to periodically resurvey and reclassify the cigarette brands based on the increase
in the consumer price index to the DOF and the BIR. Congress doubted the constitutionality of such
delegation of power, and likewise, considered the ethical implications thereof. Curiously, the classification
freeze provision was put in place of the periodic adjustment and reclassification provision because of the
belief that the latter would foster an anti-competitive atmosphere in the market. Yet, as it is, this same
criticism is being foisted by petitioner upon the classification freeze provision.
To our mind, the classification freeze provision was in the main the result of Congress's earnest efforts to
improve the efficiency and effectivity of the tax administration over sin products while trying to balance the
same with other State interests. In particular, the questioned provision addressed Congress's administrative
concerns regarding delegating too much authority to the DOF and BIR as this will open the tax system to
potential areas for abuse and corruption. Congress may have reasonably conceived that a tax system which
would give the least amount of discretion to the tax implementers would address the problems of tax
avoidance and tax evasion.
To elaborate a little, Congress could have reasonably foreseen that, under the DOF proposal and the Senate
Version, the periodic reclassification of brands would tempt the cigarette manufacturers to manipulate their
price levels or bribe the tax implementers in order to allow their brands to be classified at a lower tax
bracket even if their net retail prices have already migrated to a higher tax bracket after the adjustment of
the tax brackets to the increase in the consumer price index. Presumably, this could be done when a
resurvey and reclassification is forthcoming. As briefly touched upon in the Congressional deliberations, the
difference of the excise tax rate between the medium-priced and the high-priced tax brackets under RA
8240, prior to its amendment, was P3.36. For a moderately popular brand which sells around 100 million
packs per year, this easily translates to P336,000,000. The incentive for tax avoidance, if not outright tax
evasion, would clearly be present. Then again, the tax implementers may use the power to periodically
adjust the tax rate and reclassify the brands as a tool to unduly oppress the taxpayer in order for the
government to achieve its revenue targets for a given year.
Thus, Congress sought to, among others, simplify the whole tax system for sin products to remove these
potential areas of abuse and corruption from both the side of the taxpayer and the government. Without
doubt, the classification freeze provision was an integral part of this overall plan. This is in line with one of
the avowed objectives of the assailed law "to simplify the tax administration and compliance with the tax
laws that are about to unfold in order to minimize losses arising from inefficiencies and tax avoidance
scheme, if not outright tax evasion." RA 9334 did not alter this classification freeze provision of RA 8240. On
the contrary, Congress affirmed this freezing mechanism by clarifying the wording of the law. We can thus
reasonably conclude, as the deliberations on RA 9334 readily show, that the administrative concerns in tax
administration, which moved Congress to enact the classification freeze provision in RA 8240, were merely
continued by RA 9334. Indeed, administrative concerns may provide a legitimate, rational basis for
legislative classification. In the case at bar, these administrative concerns in the measurement and collection
of excise taxes on sin products are readily apparent as afore-discussed.
Aside from the major concern regarding the elimination of potential areas for abuse and corruption from the
tax administration of sin products, the legislative deliberations also show that the classification freeze
provision was intended to generate buoyant and stable revenues for government. With the frozen tax
classifications, the revenue inflow would remain stable and the government would be able to predict with a
greater degree of certainty the amount of taxes that a cigarette manufacturer would pay given the trend in
its sales volume over time. The reason for this is that the previously classified cigarette brands would be
prevented from moving either upward or downward their tax brackets despite the changes in their net retail
prices in the future and, as a result, the amount of taxes due from them would remain predictable. The
classification freeze provision would, thus, aid in the revenue planning of the government.
All in all, the classification freeze provision addressed Congress's administrative concerns in the
simplification of tax administration of sin products, elimination of potential areas for abuse and corruption in
tax collection, buoyant and stable revenue generation, and ease of projection of revenues. Consequently,
there can be no denial of the equal protection of the laws since the rational-basis test is amply satisfied.
Moreover, petitioner's contention that the assailed provisions violate the uniformity of taxation clause is
similarly unavailing. In Churchill v. Concepcion,4 we explained that a tax "is uniform when it operates with
the same force and effect in every place where the subject of it is found." 5 It does not signify an intrinsic but
simply a geographical uniformity.6 A levy of tax is not unconstitutional because it is not intrinsically equal
and uniform in its operation.7 The uniformity rule does not prohibit classification for purposes of taxation. 8 As
ruled in Tan v. Del Rosario, Jr.:9
Uniformity of taxation, like the kindred concept of equal protection, merely requires that all subjects or
objects of taxation, similarly situated, are to be treated alike both in privileges and liabilities (citations
omitted). Uniformity does not forfend classification as long as: (1) the standards that are used therefor are
substantial and not arbitrary, (2) the categorization is germane to achieve the legislative purpose, (3) the
law applies, all things being equal, to both present and future conditions, and (4) the classification applies
equally well to all those belonging to the same class (citations omitted). 10
In the instant case, there is no question that the classification freeze provision meets the geographical
uniformity requirement because the assailed law applies to all cigarette brands in the Philippines. And, for
reasons already adverted to in our August 20, 2008 Decision, the above four-fold test has been met in the
present case.
Petitioner's reliance on Ormoc Sugar Co. is misplaced. In said case, the controverted municipal ordinance
specifically named and taxed only the Ormoc Sugar Company, and excluded any subsequently established
sugar central from its coverage. Thus, the ordinance was found unconstitutional on equal protection grounds
because its terms do not apply to future conditions as well. This is not the case here. The classification
freeze provision uniformly applies to all cigarette brands whether existing or to be introduced in the market
at some future time. It does not purport to exempt any brand from its operation nor single out a brand for
the purpose of imposition of excise taxes.
At any rate, petitioner's real disagreement lies with the legitimate State interests. Although it concedes that
the Court utilized the rationality test and that the classification freeze provision was necessitated by several
legitimate State interests, however, it refuses to accept the justifications given by Congress for the
classification freeze provision. As we elucidated in our August 20, 2008 Decision, this line of argumentation
revolves around the wisdom and expediency of the assailed law which we cannot inquire into, much less
overrule. Equal protection is not a license for courts to judge the wisdom, fairness, or logic of legislative
choices.11 We reiterate, therefore, that petitioner's remedy is with Congress and not this Court.
The assailed provisions do not violate the constitutional prohibition on unfair competition.
Petitioner asserts that the Court erroneously applied the rational basis test allegedly because this test does
not apply in a constitutional challenge based on a violation of Section 19, Article XII of the Constitution on
unfair competition. Citing Tatad v. Secretary of the Department of Energy,12 it argues that the classification
freeze provision gives the brands under Annex "D" a decisive edge because it constitutes a substantial
barrier to the entry of prospective players; that the Annex "D" provision is no different from the 4% tariff
differential which we invalidated in Tatad; that some of the new brands, like Astro, Memphis, Capri, L&M,
Bowling Green, Forbes, and Canon, which were introduced into the market after the effectivity of the
assailed law on January 1, 1997, were "killed" by Annex "D" brands because the former brands were
reclassified by the BIR to higher tax brackets; that the finding that price is not the only factor in the market
as there are other factors like consumer preference, active ingredients, etc. is contrary to the evidence
presented and the deliberations in Congress; that the classification freeze provision will encourage predatory
pricing in contravention of the constitutional prohibition on unfair competition; and that the cumulative
effect of the operation of the classification freeze provision is to perpetuate the oligopoly of intervenors Philip
Morris and Fortune Tobacco in contravention of the constitutional edict for the State to regulate or prohibit
monopolies, and to disallow combinations in restraint of trade and unfair competition.
The argument lacks merit. While previously arguing that the rational basis test was not satisfied, petitioner
now asserts that this test does not apply in this case and that the proper matrix to evaluate the
constitutionality of the assailed law is the prohibition on unfair competition under Section 19, Article XII of
the Constitution. It should be noted that during the trial below, petitioner did not invoke said constitutional
provision as it relied solely on the alleged violation of the equal protection and uniformity of taxation
clauses. Well-settled is the rule that points of law, theories, issues and arguments not adequately brought to
the attention of the lower court will not be ordinarily considered by a reviewing court as they cannot be
raised for the first time on appeal.13 At any rate, even if we were to relax this rule, as previously stated, the
evidence presented before the trial court is insufficient to establish the alleged violation of the constitutional
proscription against unfair competition.
Indeed, in Tatad we ruled that a law which imposes substantial barriers to the entry and exit of new players
in our downstream oil industry may be struck down for being violative of Section 19, Article XII of the
Constitution.14 However, we went on to say in that case that "if they are insignificant impediments, they
need not be stricken down."15 As we stated in our August 20, 2008 Decision, petitioner failed to convincingly
prove that there is a substantial barrier to the entry of new brands in the cigarette market due to the
classification freeze provision. We further observed that several new brands were introduced in the market
after the assailed law went into effect thus negating petitioner's sweeping claim that the classification freeze
provision is an insurmountable barrier to the entry of new brands. We also noted that price is not the only
factor affecting competition in the market for there are other factors such as taste, brand loyalty, etc.
We see no reason to depart from these findings for the following reasons:
First, petitioner did not lay down the factual foundations, as supported by verifiable documentary proof,
which would establish, among others, the cigarette brands in competition with each other; the current net
retail prices of Annex "D" brands, as determined through a market survey, to provide a sufficient point of
comparison with those covered by the BIR's market survey of new brands; and the causal connection with
as well as the extent of the impact on the competition in the cigarette market of the classification freeze
provision. Other than petitioner's self-serving allegations and testimonial evidence, no adequate
documentary evidence was presented to substantiate its claims. Absent ample documentary proof, we
cannot accept petitioner's claim that the classification freeze provision is an insurmountable barrier to the
entry of new players.
Second, we cannot lend credence to petitioner's claim that it cannot produce cigarettes that can compete
with Marlboro and Philip Morris in the high-priced tax bracket. Except for its self-serving testimonial
evidence, no sufficient documentary evidence was presented to substantiate this claim. The current net
retail price, which is the basis for determining the tax bracket of a cigarette brand, more or less consists of
the costs of raw materials, labor, advertising and profit margin. To a large extent, these factors are
controllable by the manufacturer, as such, the decision to enter which tax bracket will depend on the pricing
strategy adopted by the individual manufacturer. The same holds true for its claims that other new brands,
like Astro, Memphis, Capri, L&M, Bowling Green, Forbes, and Canon, were "killed" by Annex "D" brands due
to the effects of the operation of the classification freeze provision over time. The evidence that petitioner
presented before the trial court failed to substantiate the basis for these claims.
Essentially, petitioner would want us to accept its conclusions of law without first laying down the factual
foundations of its arguments. This Court, which is not a trier of facts, cannot take judicial notice of the
factual premises of these arguments as petitioner now seems to suggest. The evidence should have been
presented before the trial court to allow it to examine and determine for itself whether such factual
premises, as supported by sufficient documentary evidence, provide reasonable basis for petitioner's
conclusion that there arose an unconstitutional unfair competition due to the operation of the classification
freeze provision. Petitioner should be reminded that it appealed this case from the adverse ruling of the trial
court directly to this Court on pure questions of law instead of resorting to the Court of Appeals.
Third, Tatad is not applicable to the instant case. In Tatad, we found that the 4% tariff differential between
imported crude oil and imported refined petroleum products erects a high barrier to the entry of new players
because (1) it imposes an undue burden on new players to spend billions of pesos to build refineries in order
to compete with the old players, and (2) new players, who opt not to build refineries, suffer from the huge
disadvantage of increasing their product cost by 4%. 16 The tariff was imposed on the raw materials uniformly
used by the players in the oil industry. Thus, the adverse effect on competition arising from this
discriminatory treatment was readily apparent. In contrast, the excise tax under the assailed law is imposed
based on the current net retail price of a cigarette brand. As previously explained, the current net retail price
is determined by the pricing strategy of the manufacturer. This Court cannot simply speculate that the
reason why a new brand cannot enter a specific tax bracket and compete with the brands therein was
because of the classification freeze provision, rather than the manufacturer's own pricing decision or some
other factor solely attributable to the manufacturer. Again, the burden of proof in this regard is on petitioner
which it failed to muster.
Fourth, the finding in our August 20, 2008 Decision that price is not the only factor which affects consumer
behavior in the cigarette market is based on petitioner's own evidence. On cross-examination, petitioner's
witness admitted that notwithstanding the change in price, a cigarette smoker may prefer the old brand
because of its addictive formulation.17 As a result, even if we were to assume that the classification freeze
provision distorts the pricing scheme of the market players, it is not clear whether a substantial barrier to
the entry of new players would thereby be created because of these other factors affecting consumer
behavior.
Last, the claim that the assailed provisions encourage predatory pricing was never raised nor substantiated
before the trial court. It is merely an afterthought and cannot be given weight.
In sum, the totality of the evidence presented by petitioner before the trial court failed to convincingly
establish the alleged violation of the constitutional prohibition on unfair competition. It is a basic postulate
that the one who challenges the constitutionality of a law carries the heavy burden of proof for laws enjoy a
strong presumption of constitutionality as it is an act of a co-equal branch of government. Petitioner failed to
carry this burden.
The assailed law does not transgress the constitutional provisions on regressive and inequitable taxation.
Petitioner argues that the classification freeze provision is a form of regressive and inequitable tax system
which is proscribed under Article VI, Section 28(1)18 of the Constitution. It claims that people in equal
positions should be treated alike. The use of different tax bases for brands under Annex "D" vis - -vis new
brands is discriminatory, and thus, iniquitous. Petitioner further posits that the classification freeze provision
is regressive in character. It asserts that the harmonization of revenue flow projections and ease of tax
administration cannot override this constitutional command.
We note that the points raised by petitioner with respect to alleged inequitable taxation perpetuated by the
classification freeze provision are a mere reformulation of its equal protection challenge. As stated earlier,
the assailed provisions do not infringe the equal protection clause because the four-fold test is satisfied. In
particular, the classification freeze provision has been found to rationally further legitimate State interests
consistent with rationality review. Petitioner's repackaged argument has, therefore, no merit.
Anent the issue of regressivity, it may be conceded that the assailed law imposes an excise tax on cigarettes
which is a form of indirect tax, and thus, regressive in character. While there was an attempt to make the
imposition of the excise tax more equitable by creating a four-tiered taxation system where higher priced
cigarettes are taxed at a higher rate, still, every consumer, whether rich or poor, of a cigarette brand within
a specific tax bracket pays the same tax rate. To this extent, the tax does not take into account the person's
ability to pay. Nevertheless, this does not mean that the assailed law may be declared unconstitutional for
being regressive in character because the Constitution does not prohibit the imposition of indirect taxes but
merely provides that Congress shall evolve a progressive system of taxation. As we explained in Tolentino v.
Secretary of Finance:19
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[R]egressivity is not a negative standard for courts to enforce. What Congress is required by the
Constitution to do is to "evolve a progressive system of taxation." This is a directive to Congress, just like
the directive to it to give priority to the enactment of laws for the enhancement of human dignity and the
reduction of social, economic and political inequalities [Art. XIII, Section 1] or for the promotion of the right
to "quality education" [Art. XIV, Section 1]. These provisions are put in the Constitution as moral incentives
to legislation, not as judicially enforceable rights. 20
Petitioner is not entitled to a downward reclassification of Lucky Strike.
Petitioner alleges that assuming the assailed law is constitutional, its Lucky Strike brand should be
reclassified from the premium-priced to the high-priced tax bracket. Relying on BIR Ruling No. 018-2001
dated May 10, 2001, it claims that it timely sought redress from the BIR to have the market survey
conducted within three months from product launch, as provided for under Section 4(B) 21 of Revenue
Regulations No. 1-97, in order to determine the actual current net retail price of Lucky Strike, and thus, fix
its tax classification. Further, the upward reclassification of Lucky Strike amounts to deprivation of property
right without due process of law. The conduct of the market survey after two years from product launch
constitutes gross neglect on the part of the BIR. Consequently, for failure of the BIR to conduct a timely
market survey, Lucky Strike's classification based on its suggested gross retail price should be deemed its
official tax classification. Finally, petitioner asserts that had the market survey been timely conducted
sometime in 2001, the current net retail price of Lucky Strike would have been found to be under the highpriced tax bracket.
These contentions are untenable and misleading.
First, BIR Ruling No. 018-2001 was requested by petitioner for the purpose of fixing Lucky Strike's initial tax
classification based on its suggested gross retail price relative to its planned introduction of Lucky Strike in
the market sometime in 2001 and not for the conduct of the market survey within three months from
product launch. In fact, the said Ruling contained an express reservation that the tax classification of Lucky
Strike set therein "is without prejudice, however, to the subsequent conduct of a survey x x x in order to
determine if the actual gross retail price thereof is consistent with [petitioner's] suggested gross retail
price."22 In short, petitioner acknowledged that the initial tax classification of Lucky Strike may be modified
depending on the outcome of the survey which will determine the actual current net retail price of Lucky
Strike in the market.
Second, there was no upward reclassification of Lucky Strike because it was taxed based on its suggested
gross retail price from the time of its introduction in the market in 2001 until the BIR market survey in 2003.
We reiterate that Lucky Strikes' actual current net retail price was surveyed for the first time in 2003 and
was found to be from P10.34 to P11.53 per pack, which is within the premium-priced tax bracket. There
was, thus, no prohibited upward reclassification of Lucky Strike by the BIR based on its current net retail
price.
Third, the failure of the BIR to conduct the market survey within the three-month period under the revenue
regulations then in force can in no way make the initial tax classification of Lucky Strike based on its
suggested gross retail price permanent. Otherwise, this would contravene the clear mandate of the law
which provides that the basis for the tax classification of a new brand shall be the current net retail price and
not the suggested gross retail price. It is a basic principle of law that the State cannot be estopped by the
mistakes of its agents.
Last, the issue of timeliness of the market survey was never raised before the trial court because petitioner's
theory of the case was wholly anchored on the alleged unconstitutionality of the classification freeze
provision. As a consequence, no documentary evidence as to the actual net retail price of Lucky Strike in
2001, based on a market survey at least comparable to the one mandated by law, was presented before the
trial court. Evidently, it cannot be assumed that had the BIR conducted the market survey within three
months from its product launch sometime in 2001, Lucky Strike would have been found to fall under the
high-priced tax bracket and not the premium-priced tax bracket. To so hold would run roughshod over the
State's right to due process. Verily, petitioner prosecuted its case before the trial court solely on the theory
that the assailed law is unconstitutional instead of merely challenging the timeliness of the market survey.
The rule is that a party is bound by the theory he adopts and by the cause of action he stands on. He cannot
be permitted after having lost thereon to repudiate his theory and cause of action, and thereafter, adopt
another and seek to re-litigate the matter anew either in the same forum or on appeal. 23 Having pursued
one theory and lost thereon, petitioner may no longer pursue another inconsistent theory without thereby
trifling with court processes and burdening the courts with endless litigation.
WHEREFORE, the motion for reconsideration is DENIED.
G.R. No. 210987, November 24, 2014
THE PHILIPPINE AMERICAN LIFE AND GENERAL INSURANCE COMPANY, Petitioner, v. THE
SECRETARY OF FINANCE AND THE COMMISSIONER OF INTERNAL REVENUE, Respondents.
DECISION
VELASCO JR., J.:
Nature of the Case
Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing and
seeking the reversal of the Resolutions of the Court of Appeals (CA) in CA-G.R. SP No. 127984, dated May
23, 20131 and January 21, 2014, which dismissed outright the petitioners appeal from the Secretary of
Finances review of BIR Ruling No. 015-122 for lack of jurisdiction.
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The Facts
Petitioner The Philippine American Life and General Insurance Company (Philamlife) used to own 498,590
Class A shares in Philam Care Health Systems, Inc. (PhilamCare), representing 49.89% of the latters
outstanding capital stock. In 2009, petitioner, in a bid to divest itself of its interests in the health
maintenance organization industry, offered to sell its shareholdings in Philam Care through competitive
bidding.Thus, on September 24, 2009,petitioners Class A shares were sold for USD 2,190,000, or PhP
104,259,330 based on the prevailing exchange rate at the time of the sale, to STI Investments, Inc., who
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After the sale was completed and the necessary documentary stamp and capital gains taxes were paid,
Philamlife filed an application for a certificate authorizing registration/tax clearance with the Bureau of
Internal Revenue (BIR) Large Taxpayers Service Division to facilitate the transfer of the shares. Months later,
petitioner was informed that it needed to secure a BIR ruling in connection with its application due to
potential donors tax liability. In compliance, petitioner, on January 4, 2012,requested a ruling 4 to confirm
that the sale was not subject to donors tax, pointing out, in its request, the following: that the transaction
cannot attract donors tax liability since there was no donative intent and, ergo, no taxable donation, citing
BIR Ruling [DA-(DT-065) 715-09] dated November 27, 2009;5 that the shares were sold at their actual fair
market value and at arms length; that as long as the transaction conducted is at arms lengthsuch that a
bonafide business arrangement of the dealings is done in the ordinary course of businessa sale for less
than an adequate consideration is not subject to donors tax; and that donors tax does not apply to sale of
shares sold in an open bidding process.
On January 4, 2012, however, respondent Commissioner on Internal Revenue (Commissioner) denied
Philamlifes request through BIR Ruling No. 015-12. As determined by the Commissioner, the selling price of
the shares thus sold was lower than their book value based on the financial statements of Philam Care as of
the end of 2008.6 As such,the Commisioner held, donors tax became imposable on the price difference
pursuant to Sec. 100 of the National Internal Revenue Code (NIRC), viz:
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SEC. 100. Transfer for Less Than Adequate and full Consideration. - Where property, other than real
property referred to in Section 24(D), is transferred for less than an adequate and full consideration in
money or moneys worth, then the amount by which the fair market value of the property exceeded the
value of the consideration shall, for the purpose of the tax imposed by this Chapter, be deemed a gift, and
shall be included in computing the amount of gifts made during the calendar year.
The afore-quoted provision, the Commissioner added, is implemented by Revenue Regulation 6-2008 (RR 62008), which provides:
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SEC. 7. SALE, BARTER OR EXCHANGE OF SHARES OF STOCK NOT TRADED THROUGH A LOCAL STOCK
EXCHANGE PURSUANT TO SECS. 24(C), 25(A)(3), 25(B), 27(D)(2), 28(A)(7)(c), 28(B)(5)(c) OF THE TAX
CODE, AS AMENDED.
xxxx
(c) Determination of Amount and Recognition of Gain or Loss
(c.1) In the case of cash sale, the selling price shall be the consideration per deed of sale.
xxxx
(c.1.4) In case the fair market value of the shares of stock sold, bartered, or exchanged is greater than the
amount of money and/or fair market value of the property received, the excess of the fair market value of
the shares of stock sold, bartered or exchanged over the amount of money and the fair market value of the
property, if any, received as consideration shall be deemed a gift subject to the donors tax under Section
100 of the Tax Code, as amended.
x xxx
(c.2) Definition of fair market value of Shares of Stock. For purposes of this Section, fair market value of
the share of stock sold shall be:
xxxx
(c.2.2) In the case of shares of stock not listed and traded in the local stock exchanges, the book value of
the shares of stock as shown in the financial statements duly certified by an independent certified public
accountant nearest to the date of sale shall be the fair market value.
In view of the foregoing, the Commissioner ruled that the difference between the book value and the selling
price in the sales transaction is taxable donation subject toa 30% donors tax under Section 99(B) of the
NIRC.7 Respondent Commissioner likewise held that BIR Ruling [DA-(DT-065) 715-09], on which petitioner
anchored its claim,has already been revoked by Revenue Memorandum Circular (RMC) No. 25-2011. 8
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Aggrieved, petitioner requested respondent Secretary of Finance (Secretary) to review BIR Ruling No. 01512, but to no avail.For on November 26, 2012, respondent Secretary affirmed the Commissioners assailed
ruling in its entirety.9
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A.
The Honorable Secretary of Finance gravely erred in not finding that the application of Section 7(c.2.2) of RR
06-08 in the Assailed Ruling and RMC 25-11 is void insofar as it alters the meaning and scope of Section 100
of the Tax Code.
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B.
The Honorable Secretary of Finance gravely erred in finding that Section 100 of the Tax Code is applicable to
the sale of the Sale of Shares.
1.
The Sale of Shares were sold at their fair market value and for fair and full consideration in money or
moneys worth.
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2.
The sale of the Sale Shares is a bona fide business transaction without any donative intent and is therefore
beyond the ambit of Section 100 of the Tax Code.
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3.
It is superfluous for the BIR to require an express provision for the exemption of the sale of the Sale Shares
from donors tax since Section 100 of the Tax Code does not explicitly subject the transaction to donors tax.
C.
The Honorable Secretary of Finance gravely erred in failing to find that in the absence of any of the grounds
mentioned in Section 246 of the Tax Code, rules and regulations, rulings or circulars such as RMC 25-11
cannot be given retroactive application to the prejudice of Philamlife.
On May 23, 2013, the CA issued the assailed Resolution dismissing the CA Petition, thusly:
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WHEREFORE, the Petition for Review dated January 9, 2013 is DISMISSED for lack of jurisdiction.
SO ORDERED.
In disposing of the CA petition, the appellate court ratiocinated that it is the Court of Tax Appeals (CTA),
pursuant to Sec. 7(a)(1) of Republic Act No. 1125 (RA 1125), 11 as amended,which has jurisdiction over the
issues raised. The outright dismissal, so the CA held, is predicated on the postulate that BIR Ruling No. 01512was issued in the exercise of the Commissioners power to interpret the NIRC and other tax laws.
Consequently,requesting for its review can be categorized as other matters arising under the NIRC or other
laws administered by the BIR,which is under the jurisdiction of the CTA, not the CA.
Philamlife eventually sought reconsideration but the CA, in its equally assailed January 21, 2014 Resolution,
maintained its earlier position.Hence, the instant recourse.
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Issues
Stripped to the essentials, the petition raises the following issues in both procedure and substance:
1.
Whether or not the CA erred in dismissing the CA Petition for lack of jurisdiction; and
2.
Whether or not the price difference in petitioners adverted sale of shares in PhilamCare attracts
donors tax.
Procedural Arguments
Petitioners contentions
Insisting on the propriety of the interposed CA petition, Philamlife, while conceding that respondent
Commissioner issued BIR Ruling No. 015-12in accordance with her authority to interpret tax laws, argued
nonetheless that such ruling is subject to review by the Secretary of Finance under Sec. 4 of the NIRC, to
wit:
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SECTION 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. The power to
interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction
of the Commissioner, subject to review by the Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges,
penalties imposed in relation thereto, or other matters arising under this Code or other laws or portions
thereof administered by the Bureau of Internal Revenue is vested in the Commissioner, subject to the
exclusive appellate jurisdiction of the Court of Tax Appeals.
Petitioner postulates that there is a need to differentiate the rulings promulgated by the respondent
Commissioner relating to those rendered under the first paragraph of Sec. 4 of the NIRC, which are
appealable to the Secretary of Finance, from those rendered under the second paragraph of Sec. 4 of the
NIRC, which are subject to review on appeal with the CTA. This distinction, petitioner argues, is readily made
apparent by Department Order No. 7-02,12 as circularized by RMC No. 40-A-02.
Philamlife further averred that Sec. 7 of RA 1125, as amended, does not find application in the case at bar
since it only governs appeals from the Commissioners rulings under the second paragraph and does not
encompass rulings from the Secretary of Finance in the exercise of his power of review under the first,as
what was elevated to the CA. It added that under RA 1125, as amended, the only decisions of the Secretary
appealable to the CTA are those rendered in customs cases elevated to him automatically under Section
2315 of the Tariff and Customs Code.13
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There is, thus, a gap in the law when the NIRC, as couched, and RA 1125, as amended, failed to supply
where the rulings of the Secretary in its exercise of its power of review under Sec. 4 of the NIRC are
appealable to. This gap, petitioner submits, was remedied by Bristish American Tabacco v.
Camacho14 wherein the Court ruled that where what is assailed is the validity or constitutionality of a law, or
a rule or regulation issued by the administrative agency, the regular courts have jurisdiction to pass upon
the same.
In sum, appeals questioning the decisions of the Secretary of Finance in the exercise of its power of review
under Sec. 4 of the NIRC are not within the CTAs limited special jurisdiction and, according to petitioner, are
appealable to the CA via a Rule 43 petition for review.
Respondents contentions
Before the CA, respondents countered petitioners procedural arguments by claiming that even assuming
arguendo that the CTA does not have jurisdiction over the case, Philamlife, nevertheless, committed a fatal
error when it failed to appeal the Secretary of Finances ruling to the Office of the President (OP). As made
apparent by the rules, the Department of Finance is not among the agencies and quasi-judicial bodies
enumerated under Sec. 1, Rule 43 of the Rules of Court whose decisions and rulings are appealable through
a petition for review.15 This is in stark contrast to the OPs specific mention under the same provision, so
respondents pointed out.
To further reinforce their argument, respondents cite the Presidents power of review emanating from his
power of control as enshrined under Sec. 17 of Article VII of the Constitution, which reads:
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Section 17. The President shall have control of all the executive departments, bureaus, and offices. He shall
ensure that the laws be faithfully executed.
The nature and extent of the Presidents constitutionally granted power of control have been defined in a
plethora of cases, most recently in Elma v. Jacobi,16 wherein it was held that:
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x x x This power of control, which even Congress cannot limit, let alone withdraw, means the power of the
Chief Executive to review, alter, modify, nullify, or set aside what a subordinate, e.g., members of the
Cabinet and heads of line agencies, had done in the performance of their duties and to substitute the
judgment of the former for that of the latter.
In their Comment on the instant petition, however, respondents asseverate that the CA did not err in its
holding respecting the CTAs jurisdiction over the controversy.
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Petitioners: The ruling of the Commissioner is subject to review by the Secretary under Sec. 4 of the
NIRC, and that of the Secretary to the CA via Rule 43;
2.
Respondents: The ruling of the Commissioner is subject to review by the Secretary under Sec. 4 of
the NIRC, and that of the Secretary to the Office of the President before appealing to the CA via a
Rule 43 petition; and
3.
We now resolve.
Preliminarily,it bears stressing that there is no dispute that what is involved herein is the respondent
Commissioners exercise of power under the first paragraph of Sec. 4 of the NIRCthe power to interpret
tax laws. This, in fact, was recognized by the appellate court itself, but erroneously held that her action in
the exercise of such power is appealable directly to the CTA. As correctly pointed out by petitioner, Sec. 4 of
the NIRC readily provides that the Commissioners power to interpret the provisions of this Code and other
tax laws is subject to review by the Secretary of Finance. The issue that now arises is thiswhere
does one seek immediate recourse from the adverse ruling of the Secretary of Finance in its
exercise of its power of review under Sec. 4?
Admittedly, there is no provision in law that expressly provides where exactly the ruling of the Secretary of
Finance under the adverted NIRC provision is appealable to. However,We find that Sec. 7(a)(1) of RA 1125,
as amended, addresses the seeming gap in the law as it vests the CTA, albeit impliedly, with jurisdiction
over the CA petition as other mattersarising under the NIRC or other laws administered by the BIR. As
stated:
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refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other
matters arising under the National Internal Revenue or other laws administered by the Bureau of
Internal Revenue. (emphasis supplied)
Even though the provision suggests that it only covers rulings of the Commissioner, We hold that it is,
nonetheless, sufficient enough to include appeals from the Secretarys review under Sec. 4 of the NIRC.
It is axiomatic that laws should be given a reasonable interpretation which does not defeat the very purpose
for which they were passed.17 Courts should not follow the letter of a statute when to do so would depart
from the true intent of the legislature or would otherwise yield conclusions inconsistent with the purpose of
the act.18 This Court has, in many cases involving the construction of statutes, cautioned against narrowly
interpreting a statute as to defeat the purpose of the legislator, and rejected the literal interpretation of
statutes if to do so would lead to unjust or absurd results.19
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Indeed, to leave undetermined the mode of appeal from the Secretary of Finance would be an injustice to
taxpayers prejudiced by his adverse rulings. To remedy this situation, We imply from the purpose of RA
1125 and its amendatory laws that the CTA is the proper forum with which to institute the appeal. This is
not, and should not, in any way, be taken as a derogation of the power of the Office of President but merely
as recognition that matters calling for technical knowledge should be handled by the agency or quasi-judicial
body with specialization over the controversy. As the specialized quasi-judicial agency mandated to
adjudicate tax, customs, and assessment cases, there can be no other court of appellate jurisdiction that
can decide the issues raised in the CA petition, which involves the tax treatment of the shares of stocks sold.
Petitioner, though, next invites attention to the ruling in Ursal v. Court of Tax Appeals20 to argue against
granting the CTA jurisdiction by implication, viz:
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Republic Act No. 1125 creating the Court of Tax Appeals did not grant it blanket authority to decide any and
all tax disputes. Defining such special courts jurisdiction, the Act necessarily limited its authority to those
matters enumerated therein. In line with this idea we recently approved said courts order rejecting an
appeal to it by Lopez & Sons from the decision of the Collector of Customs, because in our opinion its
jurisdiction extended only to a review of the decisions of the Commissioner of Customs, as provided by the
statute and not to decisions of the Collector of Customs. (Lopez & Sons vs. The Court of Tax Appeals, 100
Phil., 850, 53 Off. Gaz., [10] 3065).
xxxx
x x x Republic Act No. 1125 is a complete law by itself and expressly enumerates the matters which the
Court of Tax Appeals may consider; such enumeration excludes all others by implication. Expressio unius est
exclusio alterius.
Petitioners contention is untenable. Lest the ruling in Ursal be taken out of context, but worse as a
precedent, it must be noted that the primary reason for the dismissal of the said case was that the
petitioner therein lacked the personality to file the suit with the CTA because he was not adversely affected
by a decision or ruling of the Collector of Internal Revenue, as was required under Sec. 11 of RA 1125. 21 As
held:
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We share the view that the assessor had no personality to resort to the Court of Tax Appeals. The rulings of
the Board of Assessment Appeals did not adversely affect him. At most it was the City of Cebu that had
been adversely affected in the sense that it could not thereafter collect higher realty taxes from the
abovementioned property owners. His opinion, it is true had been overruled; but the overruling inflicted no
material damage upon him or his office. And the Court of Tax Appeals was not created to decide mere
conflicts of opinion between administrative officers or agencies. Imagine an income tax examiner resorting
to the Court of Tax Appeals whenever the Collector of Internal Revenue modifies, or lower his assessment on
the return of a tax payer!22
The appellate power of the
CTA includes certiorari
Petitioner is quick to point out, however, that the grounds raised in its CA petition included the nullity of
Section 7(c.2.2) of RR 06-08 and RMC 25-11. In an attempt to divest the CTA jurisdiction over the
controversy, petitioner then cites British American Tobacco, wherein this Court has expounded on the limited
jurisdiction of the CTA in the following wise:
chanroblesvirtuallawlibrary
While the above statute confers on the CTA jurisdiction to resolve tax disputes in general, this
does not include cases where the constitutionality of a law or rule is challenged. Where what is
assailed is the validity or constitutionality of a law, or a rule or regulation issued by the
administrative agency in the performance of its quasi-legislative function, the regular courts
have jurisdiction to pass upon the same. The determination of whether a specific rule or set of rules
issued by an administrative agency contravenes the law or the constitution is within the jurisdiction of the
regular courts. Indeed, the Constitution vests the power of judicial review or the power to declare a law,
treaty, international or executive agreement, presidential decree, order, instruction, ordinance, or regulation
in the courts, including the regional trial courts. This is within the scope of judicial power, which includes the
authority of the courts to determine in an appropriate action the validity of the acts of the political
departments. Judicial power includes the duty of the courts of justice to settle actual controversies involving
rights which are legally demandable and enforceable, and to determine whether or not there has been a
grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or
instrumentality of the Government.23
Vis-a-vis British American Tobacco, it bears to stress what appears to be a contrasting ruling in Asia
International Auctioneers, Inc. v. Parayno, Jr., to wit:
chanroble svirtuallawlibrary
Similarly, in CIR v. Leal, pursuant to Section 116 of Presidential Decree No. 1158 (The National Internal
Revenue Code, as amended) which states that [d]ealers in securities shall pay a tax equivalent to six (6%)
per centum of their gross income. Lending investors shall pay a tax equivalent to five (5%) per cent, of their
gross income, the CIR issued Revenue Memorandum Order (RMO) No. 15-91 imposing 5% lending
investors tax on pawnshops based on their gross income and requiring all investigating units of the BIR to
investigate and assess the lending investors tax due from them. The issuance of RMO No. 15-91 was an
offshoot of the CIRs finding that the pawnshop business is akin to that of lending investors as defined in
Section 157(u) of the Tax Code. Subsequently, the CIR issued RMC No. 43-91 subjecting pawn tickets to
documentary stamp tax. Respondent therein, Josefina Leal, owner and operator of Josefinas Pawnshop,
asked for a reconsideration of both RMO No. 15-91 and RMC No. 43-91, but the same was denied by
petitioner CIR. Leal then filed a petition for prohibition with the RTC of San Mateo, Rizal, seeking to prohibit
petitioner CIR from implementing the revenue orders. The CIR, through the OSG, filed a motion to dismiss
on the ground of lack of jurisdiction. The RTC denied the motion. Petitioner filed a petition for certiorari and
prohibition with the CA which dismissed the petition for lack of basis. In reversing the CA, dissolving the
Writ of Preliminary Injunction issued by the trial court and ordering the dismissal of the case before the trial
court, the Supreme Court held that [t]he questioned RMO No. 15-91 and RMC No. 43-91 are
actually rulings or opinions of the Commissioner implementing the Tax Code on the taxability of
pawnshops. They were issued pursuant to the CIRs power under Section 245 of the Tax Code
to make rulings or opinions in connection with the implementation of the provisions of internal
revenue laws, including ruling on the classification of articles of sales and similar purposes. The
Court held that under R.A. No. 1125 (An Act Creating the Court of Tax Appeals), as amended, such rulings
of the CIR are appealable to the CTA.
In the case at bar, the assailed revenue regulations and revenue memorandum circulars are
actually rulings or opinions of the CIR on the tax treatment of motor vehicles sold at public
auction within the SSEZ to implement Section 12 of R.A. No. 7227 which provides that exportation
or removal of goods from the territory of the [SSEZ] to the other parts of the Philippine territory shall be
subject to customs duties and taxes under the Customs and Tariff Code and other relevant tax laws of the
Philippines. They were issued pursuant to the power of the CIR under Section 4 of the National
Internal Revenue Code x x x.24 (emphasis added)
The respective teachings in British American Tobacco and Asia International Auctioneers, at first blush,
appear to bear no conflictthat when the validity or constitutionality of an administrative rule or regulation
is assailed, the regular courts have jurisdiction; and if what is assailed are rulings or opinions of the
Commissioner on tax treatments, jurisdiction over the controversy is lodged with the CTA.The problem with
the above postulates, however, is that they failed to take into consideration one crucial pointa taxpayer
can raise both issues simultaneously.
Petitioner avers that there is now a trend wherein both the CTA and the CA disclaim jurisdiction over tax
cases: on the one hand, mere prayer for the declaration of a tax measures unconstitutionality or invalidity
before the CTA can result in a petitions outright dismissal, and on the other hand, the CA will likewise
dismiss the same petition should it find that the primary issue is not the tax measures validity but the
assessment or taxability of the transaction or subject involved.To illustrate this point, petitioner cites the
assailed Resolution, thusly:
chanroblesvirtuallawlibrary
Admittedly, in British American Tobacco vs. Camacho, the Supreme Court has ruled that the determination
of whether a specific rule or set of rules issued by an administrative agency contravenes the law or the
constitution is within the jurisdiction of the regular courts, not the CTA.
xxxx
Petitioner essentially questions the CIRs ruling that Petitioners sale of shares is a taxable donation under
Sec. 100 of the NIRC. The validity of Sec. 100 of the NIRC, Sec. 7 (C.2.2) and RMC 25-11 is merely
questioned incidentally since it was used by the CIR as bases for its unfavourable opinion. Clearly, the
Petition involves an issue on the taxability of the transaction rather than a direct attack on the
constitutionality of Sec. 100, Sec.7 (c.2.2.) of RR 06-08 and RMC 25-11. Thus, the instant Petition properly
pertains to the CTA under Sec. 7 of RA 9282.
As a result of the seemingly conflicting pronouncements, petitioner submits that taxpayers are now at a
quandary on what mode of appeal should be taken, to which court or agency it should be filed, and which
case law should be followed.
Petitioners above submission is specious.
In the recent case of City of Manila v. Grecia-Cuerdo,25 the Court en banc has ruled that the CTA now has
the power of certiorari in cases within its appellate jurisdiction. To elucidate:
chanroble svirtuallawlibrary
The prevailing doctrine is that the authority to issue writs of certiorari involves the exercise of original
jurisdiction which must be expressly conferred by the Constitution or by law and cannot be implied from the
mere existence of appellate jurisdiction. Thus, xxx this Court has ruled against the jurisdiction of courts or
tribunals over petitions for certiorari on the ground that there is no law which expressly gives these tribunals
such power. It must be observed, however, that xxx these rulings pertain not to regular courts but to
tribunals exercising quasi-judicial powers. With respect to the Sandiganbayan, Republic Act No. 8249 now
provides that the special criminal court has exclusive original jurisdiction over petitions for the issuance of
the writs of mandamus, prohibition, certiorari, habeas corpus, injunctions, and other ancillary writs and
processes in aid of its appellate jurisdiction.
In the same manner, Section 5 (1), Article VIII of the 1987 Constitution grants power to the Supreme Court,
in the exercise of its original jurisdiction, to issue writs of certiorari, prohibition and mandamus. With respect
to the Court of Appeals, Section 9 (1) of Batas Pambansa Blg. 129 (BP 129) gives the appellate court, also in
the exercise of its original jurisdiction, the power to issue, among others, a writ of certiorari, whether or not
in aid of its appellate jurisdiction. As to Regional Trial Courts, the power to issue a writ of certiorari, in the
exercise of their original jurisdiction, is provided under Section 21 of BP 129.
The foregoing notwithstanding, while there is no express grant of such power, with respect to the CTA,
Section 1, Article VIII of the 1987 Constitution provides, nonetheless, that judicial power shall be vested in
one Supreme Court and in such lower courts as may be established by law and that judicial power includes
the duty of the courts of justice to settle actual controversies involving rights which are legally demandable
and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to
lack or excess of jurisdiction on the part of any branch or instrumentality of the Government.
On the strength of the above constitutional provisions, it can be fairly interpreted that the power of the
CTA includes that of determining whether or not there has been grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of the RTC in issuing an interlocutory
order in cases falling within the exclusive appellate jurisdiction of the tax court. It, thus, follows
that the CTA, by constitutional mandate, is vested with jurisdiction to issue writs of certiorari in
these cases.
Indeed, in order for any appellate court to effectively exercise its appellate jurisdiction, it must have the
authority to issue, among others, a writ of certiorari. In transferring exclusive jurisdiction over appealed tax
cases to the CTA, it can reasonably be assumed that the law intended to transfer also such power as is
deemed necessary, if not indispensable, in aid of such appellate jurisdiction. There is no perceivable reason
why the transfer should only be considered as partial, not total. (emphasis added)
Evidently, City of Manila can be considered as a departure from Ursal in that in spite of there being no
express grant in law, the CTA is deemed granted with powers of certiorari by implication. Moreover, City of
Manila diametrically opposes British American Tobacco to the effect that it is now within the power of the
CTA, through its power of certiorari, to rule on the validity of a particular administrative rule or regulation so
long as it is within its appellate jurisdiction. Hence, it can now rule not only on the propriety of an
assessment or tax treatment of a certain transaction, but also on the validity of the revenue
regulation or revenue memorandum circular on which the said assessment is based.
Guided by the doctrinal teaching in resolving the case at bar, the fact that the CA petition not only contested
the applicability of Sec. 100 of the NIRC over the sales transaction but likewise questioned the validity of
Sec. 7(c.2.2) of RR 06-08 and RMC 25-11 does not divest the CTA of its jurisdiction over the controversy,
contrary to petitioners arguments.
The price difference is
subject to donors tax
Petitioners substantive argumentsare unavailing. The absence of donative intent, if that be the case, does
not exempt the sales of stock transaction from donors tax since Sec. 100 of the NIRC categorically states
that the amount by which the fair market value of the property exceeded the value of the consideration shall
be deemed a gift. Thus, even if there is no actual donation, the difference in price is considered a donation
by fiction of law.
Moreover, Sec. 7(c.2.2) of RR 06-08 does not alter Sec. 100 of the NIRC but merely sets the parameters for
determining the fair market value of a sale of stocks. Such issuance was made pursuant to the
Commissioners power to interpret tax laws and to promulgate rules and regulations for their
implementation.
Lastly, petitioner is mistaken in stating that RMC 25-11, having been issued after the sale, was being applied
retroactively in contravention to Sec. 246 of the NIRC. 26 Instead, it merely called for the strict application of
Sec. 100, which was already in force the moment the NIRC was enacted.
chanrobleslaw
WHEREFORE, the petition is hereby DISMISSED. The Resolutions of the Court of Appeals in CA-G.R. SP No.
127984 dated May 23, 2013 and January 21, 2014 are hereby AFFIRMED.
SO ORDERED.
PhilAm LIFE vs. Secretary of Finance, G.R. No. 210987, Case Digest
Philam Life sold its shares in Philam Care Health Systems to STI Investments Inc., the
highest bidder. After the sale was completed, Philam life applied for a tax clearance and was
informed by BIR that there is a need to secure a BIR Ruling due to a potential donors tax
liability on the sold shares.
PETITIONERS CONTENTION:
The transaction cannot attract donors tax liability since there was no donative intent and,
ergo, no taxable donation, citing BIR Ruling [DA-(DT-065) 715-09] dated November 27,
2009; that the shares were sold at their actual fair market value and at arms length; that as
long as the transaction conducted is at arms lengthsuch that a bonafide business
arrangement of the dealings is done in the ordinary course of businessa sale for less than
an adequate consideration is not subject to donors tax; and that donors tax does not apply
to sale of shares sold in an open bidding process.
SEC. 100. Transfer for Less Than Adequate and full Consideration. - Where property,
other than real property referred to in Section 24(D), is transferred for less than an adequate
and full consideration in money or moneys worth, then the amount by which the fair market
value of the property exceeded the value of the consideration shall, for the purpose of the
tax imposed by this Chapter, be deemed a gift, and shall be included in computing the
amount of gifts made during the calendar year.
RULING:
The price difference is subject to donors tax.
Petitioners substantive arguments are unavailing. The absence of donative intent, if that be
the case, does not exempt the sales of stock transaction from donors tax since Sec. 100 of
the NIRC categorically states that the amount by which the fair market value of the property
exceeded the value of the consideration shall be deemed a gift. Thus, even if there is no
actual donation, the difference in price is considered a donation by fiction of law.
Moreover, Sec. 7(c.2.2) of RR 06-08 does not alter Sec. 100 of the NIRC but merely sets the
parameters for determining the fair market value of a sale of stocks. Such issuance was
made pursuant to the Commissioners power to interpret tax laws and to promulgate rules
and regulations for their implementation.
Lastly, petitioner is mistaken in stating that RMC 25-11, having been issued after the sale,
was being applied retroactively in contravention to Sec. 246 of the NIRC.26 Instead, it
merely called for the strict application of Sec. 100, which was already in force the moment
the NIRC was enacted.
Petitioner essentially questions the CIRs ruling that Petitioners sale of shares is a taxable
donation under Sec. 100 of the NIRC. The validity of Sec. 100 of the NIRC, Sec. 7 (C.2.2) and
RMC 25-11 is merely questioned incidentally since it was used by the CIR as bases for its
unfavourable opinion. Clearly, the Petition involves an issue on the taxability of the
transaction rather than a direct attack on the constitutionality of Sec. 100, Sec.7 (c.2.2.) of
RR 06-08 and RMC 25-11. Thus, the instant Petition properly pertains to the CTA under Sec.
7 of RA 9282.
CTA, through its power of certiorari, to rule on the validity of a particular administrative rule
or regulation so long as it is within its appellate jurisdiction. Hence, it can now rule not only
on the propriety of an assessment or tax treatment of a certain transaction, but also on the
validity of the revenue regulation or revenue memorandum circular on which the said
assessment is based.
Guided by the doctrinal teaching in resolving the case at bar, the fact that the CA petition
not only contested the applicability of Sec. 100 of the NIRC over the sales transaction but
likewise questioned the validity of Sec. 7(c.2.2) of RR 06-08 and RMC 25-11 does not divest
the CTA of its jurisdiction over the controversy, contrary to petitioners arguments.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for certiorari are the Resolutions dated February 13, 2013 and May 8,
2013 of the Court of Tax Appeals, Second Division (CTA) in CTA Case No. 8544 reversing and
setting aside the earlier dismissal of the petition for review filed by private respondent Petron
Corporation (Petron) in the said case on the bases of prematurity and lack of jurisdiction.
1
The Facts
Petron, which is engaged in the manufacture and marketing of petroleum products, imports alkylate
as a raw material or blending component for the manufacture of ethanol-blended motor
gasoline. For the period January 2009 to August 2011, as well as for the month of April 2012, Petron
transacted an aggregate of 22 separate importations for which petitioner the Commissioner of
Internal Revenue (CIR) issued Authorities to Release Imported Goods (ATRIGs), categorically
4
stating that Petron's importation of alkylate is exempt from the payment of the excise tax because it
was not among those articles enumerated as subject to excise tax under Title VI of Republic Act No.
(RA) 8424, as amended, or the 1997 National Internal Revenue Code (NIRC). With respect,
however, to Petron's alkylate importations covering the period September 2011 to June 2012
(excluding April 2012), the CIR inserted, without prior notice, a reservation for all ATRIGs
issued, stating that:
5
This is without prejudice to the collection of the corresponding excise taxes, penalties and interest
depending on the final resolution of the Office of the Commissioner on the issue of whether this item
is subject to the excise taxes under the National Internal Revenue Code of 1997, as amended.
7
In June 2012, Petron imported 12,802,660 liters of alkylate and paid value-added tax (VAT) in the
total amount of ?41,657,533.00 as evidenced by Import Entry and Internal Revenue Declaration
(IEIRD) No. SN 122406532. Based on the Final Computation, said importation was subjected by the
Collector of Customs of Port Limay, Bataan, upon instructions of the Commissioner of Customs
(COC), to excise taxes of P4.35 per liter, or in the aggregate amount of P55,691,571.00, and
consequently, to an additional VAT of 12% on the imposed excise tax in the amount
of P6,682,989.00. The imposition of the excise tax was supposedly premised on Customs
Memorandum Circular (CMC) No. 164-2012 dated July 18, 2012, implementing the Letter dated
June 29, 2012 issued by the CIR, which states that:
8
[A]lkylate which is a product of distillation similar to that of naphta, is subject to excise tax under
Section 148( e) of the National Internal Revenue Code (NIRC) of 1997.
9
In view of the CIR's assessment, Petron filed before the CTA a petition for review, docketed as CTA
Case No. 8544, raising the issue of whether its importation of alkylate as a blending component is
subject to excise tax as contemplated under Section 148 (e) of the NIRC.
10
On October 5, 2012, the CIR filed a motion to dismiss on the grounds of lack of jurisdiction and
prematurity.
11
Initially, in a Resolution dated November 15, 2012, the CTA granted the CIR's motion and dismissed
the case. However, on Petron's motion for reconsideration, it reversed its earlier disposition in a
Resolution dated February 13, 2013, and eventually denied the CIR's motion for
reconsideration therefrom in a Resolution dated May 8, 2013. In effect, the CTA gave due course to
Petron's petition, finding that: (a) the controversy was not essentially for the determination of the
constitutionality, legality or validity of a law, rule or regulation but a question on the propriety or
soundness of the CIR's interpretation of Section 148 (e) of the NIRC which falls within the exclusive
jurisdiction of the CTA under Section 4 thereof, particularly under the phrase "other matters arising
under [the NIRC]"; and (b) there are attending circumstances that exempt the case from the rule on
non-exhaustion of administrative remedies, such as the great irreparable damage that may be
suffered by Petron from the CIR's final assessment of excise tax on its importation.
12
13
14
15
16
17
18
Aggrieved, the CIR sought immediate recourse to the Court, through the instant petition, alleging
that the CTA committed grave abuse of discretion when it assumed authority to take cognizance of
the case despite its lack of jurisdiction to do so.
19
21
22
23
Any provision of law or the Rules of Court to the contrary notwithstanding, the
criminal action and the corresponding civil action for the recovery of civil liability for
taxes and penalties shall at all times be simultaneously instituted with, and jointly
determined in the same proceeding by the CT A, the filing of the criminal action being
deemed to necessarily carry with it the filing of the civil action, and no right to reserve
the filling of such civil action separately from the criminal action will be recognized.
2. Exclusive appellate jurisdiction in criminal offenses:
a. Over appeals from the judgments, resolutions or orders of the Regional
Trial Courts in tax cases originally decided by them, in their respective
territorial jurisdiction.
b. Over petitions for review of the judgments, resolutions or orders of the
Regional Trial Courts in the exercise of their appellate jurisdiction over tax
cases originally decided by the Metropolitan Trial Courts, Municipal Trial
Courts and Municipal Circuit Trial Courts in their respective jurisdiction.
c. Jurisdiction over tax collection cases as herein provided:
1. Exclusive original jurisdiction in tax collection cases involving final and executory
assessments for taxes, fees, charges and penalties: Provided, however, That collection
cases where the principal amount of taxes and fees, exclusive of charges and penalties,
claimed is less than One million pesos (P1,000,000.00) shall be tried by the proper Municipal
Trial Court, Metropolitan Trial Court and Regional Trial Court.
2. Exclusive appellate jurisdiction in tax collection cases:
a. Over appeals from the judgments, resolutions or orders of the Regional Trial
Courts in tax collection cases originally decided by them, in their respective territorial
jurisdiction.
b. Over petitions for review of the judgments, resolutions or orders of the Regional
Trial Courts in the exercise of their appellate jurisdiction over tax collection cases
originally decided by the Metropolitan Trial Courts, Municipal Trial Courts and
Municipal Circuit Trial Courts, in their respective jurisdiction. (Emphasis supplied)
In this case, Petron's tax liability was premised on the COC's issuance of CMC No. 164-2012, which
gave effect to the CIR's June 29, 2012 Letter interpreting Section 148 (e) of the NIRC as to include
alkyl ate among the articles subject to customs duties, hence, Petron's petition before the CTA
ultimately challenging the legality and constitutionality of the CIR's aforesaid interpretation of a tax
provision. In line with the foregoing discussion, however, the CIR correctly argues that the CT A had
no jurisdiction to take cognizance of the petition as its resolution would necessarily involve a
declaration of the validity or constitutionality of the CIR's interpretation of Section 148 (e) of the
NIRC, which is subject to the exclusive review by the Secretary of Finance and ultimately by the
regular courts. In British American Tobacco v. Camacho, the Court ruled that the CTA's jurisdiction
24
to resolve tax disputes excludes the power to rule on the constitutionality or validity of a law, rule or
regulation, to wit:
While the above statute confers on the CTA jurisdiction to resolve tax disputes in general, this does
not include cases where the constitutionality of a law or rule is challenged. Where what is assailed is
the validity or constitutionality of a law, or a rule or regulation issued by the administrative agency in
the performance of its quasi-legislative function, the regular courts have jurisdiction to pass upon the
same. x x x.
25
In asserting its jurisdiction over the present case, the CTA explained that Petron's petition filed
before it "simply puts in question" the propriety or soundness of the CIR's interpretation and
application of Section 148 (e) of the NIRC (as embodied in CMC No. 164-2012) "in relation to" the
imposition of excise tax on Petron's importation of alkylate; thus, the CTA posits that the case should
be regarded as "other matters arising under [the NIRC]" under the second paragraph of Section 4 of
the NIRC, therefore falling within the CTA's jurisdiction:
26
SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. - The power to
interpret the provisions of this Code and other tax laws shall be under the exclusive and original
jurisdiction of the Commissioner, subject to review by the Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto, or other matters arising under this Code or other laws
or portions thereof administered by the Bureau of Internal Revenue is vested in the commissioner,
subject to the exclusive appellate jurisdiction of the Court of Tax Appeals. (Emphases and
underscoring supplied)
The Court disagrees.
As the CIR aptly pointed out, the phrase "other matters arising under this Code," as stated in the
second paragraph of Section 4 of the NIRC, should be understood as pertaining to those matters
directly related to the preceding phrase "disputed assessments, refunds of internal revenue taxes,
fees or other charges, penalties imposed in relation thereto" and must therefore not be taken in
isolation to invoke the jurisdiction of the CTA. In other words, the subject phrase should be used
only in reference to cases that are, to begin with, subject to the exclusive appellate jurisdiction of the
CTA, i.e., those controversies over which the CIR had exercised her quasi-judicial functions or her
power to decide disputed assessments, refunds or internal revenue taxes, fees or other charges,
penalties imposed in relation thereto, not to those that involved the CIR's exercise of quasilegislative powers.
27
In Enrile v. Court of Appeals, the Court, applying the statutory construction principle of ejusdem
generis, explained the import of using the general clause "other matters arising under the Customs
Law or other law or part of law administered by the Bureau of Customs" in the enumeration of cases
subject to the exclusive appellate jurisdiction of the CTA, saying that: [T]he 'other matters' that may
come under the general clause should be of the same nature as those that have preceded them
applying the rule of construction known as ejusdem generis. (Emphasis and underscoring supplied)
28
29
30
Hence, as the CIR's interpretation of a tax provision involves an exercise of her quasi-legislative
functions, the proper recourse against the subject tax ruling expressed in CMC No. 164-2012 is a
review by the Secretary of Finance and ultimately the regular courts. In Commissioner of Customs v.
Hypermix Feeds Corporation, the Court has held that:
31
The determination of whether a specific rule or set of rules issued by an administrative agency
contravenes the law or the constitution is within the jurisdiction of the regular courts. Indeed, the
Constitution vests the power of judicial review or the power to declare a law, treaty, international or
executive agreement, presidential decree, order, instruction, ordinance, or regulation in the courts,
including the regional trial courts. This is within the scope of judicial power, which includes the
authority of the courts to determine in an appropriate action the validity of the acts of the political
departments. x x x.
32
Besides, Petron prematurely invoked the jurisdiction of the CT A. Under Section 7 of RA 1125, as
amended by RA 9282, what is appealable to the CT A is the decision of the COC over a customs
collector's adverse ruling on a taxpayer's protest:
SEC. 7. Jurisdiction. -The CTA shall exercise:
a. Exclusive appellate jurisdiction to review by appeal, as herein provided:
1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments,
refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other
matters arising under the National Internal Revenue or other laws administered by the Bureau of
Internal Revenue;
xxxx
4. Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or
other money charges, seizure, detention or release of property affected, fines, forfeitures or other
penalties in relation thereto, or other matters arising under the Customs Law or other laws
administered by the Bureau of Customs;
xxxx
Section 11 of the same law is no less categorical in stating that what may be the subject of an
appeal to the CT A is a decision, ruling or inaction of the CIR or the COC, among others:
SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. Any party adversely affected by a
decision, ruling or inaction of the Commissioner of Internal Revenue, the Commissioner of Customs,
the Secretary of Finance, the Secretary of Trade and Industry or the Secretary of Agriculture or the
Central Board of Assessment Appeals or the Regional Trial Courts may file an appeal with the CTA
within thirty (30) days after the receipt of such decision or ruling or after the expiration of the period
fixed by law for action as referred to in Section 7(a)(2) herein.
xxxx
In this case, there was even no tax assessment to speak of. While customs collector Federico
Bulanhagui himself admitted during the CTA's November 8, 2012 hearing that the computation he
had written at the back page of the IEIRD served as the final assessment imposing excise tax on
Petron's importation of alkylate, the Court concurs with the CIR's stance that the subject IEIRD was
not yet the customs collector's final assessment that could be the proper subject of review. And even
if it were, the same should have been brought first for review before the COC and not directly to the
CTA. It should be stressed that the CTA has no jurisdiction to review by appeal, decisions of the
customs collector. The TCC prescribes that a party adversely affected by a ruling or decision of the
customs collector may protest such ruling or decision upon payment of the amount due and, if
aggrieved by the action of the customs collector on the matter under protest, may have the same
reviewed by the COC. It is only after the COC shall have made an adverse ruling on the matter may
the aggrieved party file an appeal to the CT A.
33
34
35
36
37
Notably, Petron admitted to not having filed a protest of the assessment before the customs collector
and elevating a possible adverse ruling therein to the COC, reasoning that such a procedure would
be costly and impractical, and would unjustly delay the resolution of the issues which, being purely
legal in nature anyway, were also beyond the authority of the customs collector to resolve with
finality. This admission is at once decisive of the issue of the CTA's jurisdiction over the petition.
There being no protest ruling by the customs collector that was appealed to the COC, the filing of the
petition before the CTA was premature as there was nothing yet to review.
38
39
Verily, the fact that there is no decision by the COC to appeal from highlights Petron's failure to
exhaust administrative remedies prescribed by law. Before a party is allowed to seek the intervention
of the courts, it is a pre-condition that he avail of all administrative processes afforded him, such that
if a remedy within the administrative machinery can be resorted to by giving the administrative officer
every opportunity to decide on a matter that comes within his jurisdiction, then such remedy must be
exhausted first before the court's power of judicial review can be sought, otherwise, the premature
resort to the court is fatal to one's cause of action. While there are exceptions to the principle of
exhaustion of administrative remedies, it has not been sufficiently shown that the present case falls
under any of the exceptions.
40
WHEREFORE, the petition is GRANTED. The Resolutions dated February 13, 2013 and May 8,
2013 of the Court of Tax Appeals (CTA), Second Division in CTA Case No. 8544 are hereby
REVERSED and SET ASIDE. The petition for review filed by private respondent Petron Corporation
before the CTA is DISMISSED for lack of jurisdiction and prematurity.
SO ORDERED.