G.R. Nos. 167274-75 Manufacturers of cigarettes are subject to pay excise taxes on their products. Prior to January 1, 1997, the excises taxes on these products were in the form of ad valorem taxes. The cigarette brands tax classification rates were based on their net retail price. Beginning January 1, 1997, Republic Act No. (RA) 8240 took effect and a shift from ad valorem to specific taxes was made. Pursuant to these laws, respondent Fortune Tobacco Corporation (Fortune Tobacco) paid in advance excise taxes for the year 2003 in the amount of P11.15 billion, and for the period covering January 1 to May 31, 2004 in the amount of P4.90 billion.
Sec. 145 thereof now subjects the cigarette brands to
specific tax and also provides that: (1) the excise tax from any brand of cigarettes within the next three years from the effectivity of R.A. No. 8240 shall not be lower than the tax, which is due from each brand on October 1, 1996; (2) the rates of excise tax on cigarettes enumerated therein shall increase by 12% on January 1, 2000; and (3) the classification of each brand of cigarettes based on its average retail price as of October 1, 1996, as set forth in Annex D shall remain in force until revised by Congress. The Secretary of Finance issued RR No. 17-99 to implement the provision for the 12% excise tax increase with the additional qualification that the new specific tax rate xxx shall not be lower than the excise tax that is
actually being paid prior to January 1, 2000. In effect, it
provided that the 12% tax increase must be based on the excise tax actually being paid prior to January 1, 2000 and not on their actual net retail price.
In June 2004, Fortune Tobacco filed an administrative claim for tax refund with the CIR for erroneously and/or illegally collected taxes in the amount ofP491 million.
FTC filed 2 separate claims for refund or tax credit of its
purportedly overpaid excise taxes for the month of January 2000 and for the period January 1-December 31, 2002. It assailed the validity of RR No. 17-99 in that it enlarges Section 145 by providing the aforesaid qualification. In this petition, petitioner CIR alleges that the literal interpretation given by the CTA and the CA of Section 145 would lead to a lower tax imposable on 1 January 2000 than that imposable during the transition period, which is contrary to the legislative intent to raise revenue. Section 145(c) of the 1997 Tax Code read and interpreted as it is written; it imposes a 12% increase on the rates of excise taxes provided under subparagraphs (1), (2), (3), and (4) only; it does not say that the tax due during the transition period shall continue to be collected if the amount is higher than the new specific tax rates. It contends that the higher tax rule applies only to the threeyear transition period to offset the burden caused by the shift from ad valorem to specific taxes.
Issue: Should the 12% tax increase be based on the net
retail price of the cigarettes in the market as outlined in Section 145 of the 1997 Tax Code? Held: The proviso in Section 1 of RR 17-99 clearly went beyond the terms of the law it was supposed to implement, and therefore entitles Fortune Tobacco to claim a refund of the overpaid excise taxes collected pursuant to this provision.
YES. Section 145 is clear and unequivocal. It states that
during the transition period, i.e., within the next 3 years from the effectivity of the 1997 Tax Code, the excise tax from any brand of cigarettes shall not be lower than the tax due from each brand on 1 October 1996. This qualification, however, is conspicuously absent as regards the 12% increase which is to be applied on cigars and cigarettes packed by machine, among others, effective on 1 January 2000. Clearly, Section 145 mandates a new rate of excise tax for cigarettes packed by machine due to the 12% increase effective on 1 January 2000 without regard to whether the revenue collection starting from this period may turn out to be lower than that collected prior to this date.
The qualification added by RR No. 17-99 imposes a tax
which is the higher amount between the ad valorem tax being paid at the end of the 3-year transition period and the specific tax under Section 145, as increased by 12% a situation not supported by the plain wording of Section 145 of the 1997 Tax Code. Administrative issuances must not override, supplant or modify the law, but must remain consistent with the law they intend to carry out. Revenue generation is not the sole purpose of the passage of the 1997 Tax Code. The shift from the ad valorem system to the specific tax system in the Code is likewise meant to promote fair competition among the players in the industries concerned and to ensure an equitable distribution of the tax burden.