Organization Cases

BRITISH AMERICAN TOBACCO, G.R. No.
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
the Bureau of Internal Revenue,

Respondents.
PHILIP MORRIS PHILIPPINES
MANUFACTURING, INC.,
FORTUNE TOBACCO, CORP., Promulgated:
MIGHTY CORPORATION, and
JT INTERNATIONAL, S.A.,
Respondents-in-Intervention. August 20, 2008
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
Section 145 of the NIRC on January 1, 2005; (3) Revenue

Regulations Nos. 1-97, 9-2003, and 22-2003; and (4) Revenue
Memorandum Order No. 6-2003. Petitioner argues that the said
provisions are violative of the equal protection and uniformity
clauses of the Constitution.
RA 8240, entitled An Act Amending Sections 138, 139, 140, and

142 of the NIRC, as Amended and For Other Purposes, took effect
on January 1, 1997. In the same year, Congress passed RA 8424
or The Tax Reform Act of 1997, re-codifying the NIRC. Section 142
was renumbered as Section 145 of the NIRC.
Paragraph (c) of Section 145 provides for four tiers of tax

rates based on the net retail price per pack of cigarettes. To
determine the applicable tax rates of existing cigarette brands, a
survey of the net retail prices per pack of cigarettes was
conducted as of October 1, 1996, the results of which were
embodied in Annex D of the NIRC as the duly registered, existing
or active brands of cigarettes.
Paragraph (c) of Section 145, [1] states
SEC. 145. Cigars and cigarettes.
xxxx
(c) Cigarettes packed by machine. There shall be levied, assessed and

collected on cigarettes packed by machine a tax at the rates
prescribed below:
(1) If the net retail price (excluding the excise tax and the
value-added tax) is above Ten pesos (P10.00) per pack,
the tax shall be Thirteen pesos and forty-four centavos

(P13.44) per pack;
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
(4) If the net retail price (excluding the excise tax

and the value-added tax) is below Five pesos (P5.00) per
pack, the tax shall be One peso and twelve centavos
(P1.12) per pack.
Variants of existing brands of cigarettes which are introduced in

the domestic market after the effectivity of this Act shall be taxed
under the highest classification of any variant of that brand.
xxxx
New brands shall be classified according to their current net

retail price.
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.
The classification of each brand of cigarettes based on its

average net retail price as of October 1, 1996, as set forth
in Annex D of this Act, shall remain in force until revised by
Congress. (Emphasis supplied)
As such, new brands of cigarettes shall be taxed according to

their current net retail price while existing or old brands shall
be taxed based on their net retail price as of October 1,
1996.
To implement RA 8240, the Bureau of Internal Revenue (BIR)

issued Revenue Regulations No. 1-97,[2] which classified the
existing brands of cigarettes as those duly registered or active
brands prior to January 1, 1997. New brands, or those registered
afterJanuary 1, 1997, shall be initially assessed at their suggested
retail price until such time that the appropriate survey to
determine their current net retail price is conducted. Pertinent
portion of the regulations reads
SECTION 2. Definition of Terms.
xxxx
3. Duly registered or existing brand of cigarettes shall include
duly registered, existing or active brands of cigarettes, prior toJanuary
1, 1997.
xxxx
6. New Brands shall mean brands duly registered after January 1,

1997 and shall include duly registered, inactive brands of cigarette not
sold in commercial quantity before January 1, 1997.
SECTION 4. Classification and Manner of Taxation of Existing Brands,

New Brands and Variant of Existing Brands.
xxxx
B. New Brand
New brands shall be classified according to their current net retail

price. In the meantime that the current net retail price has not yet
been established, the suggested net retail price shall be used to
determine the specific tax classification. Thereafter, a survey shall be
conducted in 20 major supermarkets or retail outlets in Metro Manila
(for brands of cigarette marketed nationally) or in five (5) major
supermarkets or retail outlets in the region (for brands which are
marketed only outside Metro Manila) at which the cigarette is sold on
retail in reams/cartons, three (3) months after the initial removal of the
new brand to determine the actual net retail price excluding the excise
tax and value added tax which shall then be the basis in determining
the specific tax classification. In case the current net retail price is
higher than the suggested net retail price, the former shall prevail. Any
difference in specific tax due shall be assessed and collected inclusive
of increments as provided for by the National Internal Revenue Code,
as amended.
In June 2001, petitioner British American Tobacco introduced into

the market Lucky Strike Filter, Lucky Strike Lights and Lucky Strike
Menthol Lights cigarettes, with a suggested retail price of P9.90
per pack.[3] Pursuant to Sec. 145 (c) quoted above, the Lucky
Strike brands were initially assessed the excise tax at P8.96 per
pack.
On February 17, 2003, Revenue Regulations No. 9-2003,

[4]
amended Revenue Regulations No. 1-97 by providing, among
others, a periodic review every two years or earlier of the current
net retail price of new brands and variants thereof for the purpose
of establishing and updating their tax classification, thus:
For the purpose of establishing or updating the tax classification of new

brands and variant(s) thereof, their current net retail price shall be
reviewed periodically through the conduct of survey or any other
appropriate activity, as mentioned above, every two (2) years unless
earlier ordered by the Commissioner. However, notwithstanding any
increase in the current net retail price, the tax classification of such
new brands shall remain in force until the same is altered or changed
through the issuance of an appropriate Revenue Regulations.
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
with prayer for the issuance of a temporary restraining order

(TRO) and/or writ of preliminary injunction, docketed as Civil Case
No. 03-1032. Said petition sought to enjoin the implementation of
Section 145 of the NIRC, Revenue Regulations Nos. 1-97, 9-2003,
22-2003 and Revenue Memorandum Order No. 6-2003 on the
ground that they discriminate against new brands of cigarettes, in
violation of the equal protection and uniformity provisions of the
Constitution.
Respondent Commissioner of Internal Revenue filed an

Opposition[8] to the application for the issuance of a
TRO. On September 4, 2003, the trial court denied the application
for TRO, holding that the courts have no authority to restrain the
collection of taxes.[9]Meanwhile, respondent Secretary of Finance
filed a Motion to Dismiss, [10] contending that the petition is
premature for lack of an actual controversy or urgent necessity to
justify judicial intervention.
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:
WHEREFORE, premises considered, the instant Petition is hereby

DISMISSED for lack of merit. The Writ of Preliminary Injunction
previously issued is hereby lifted and dissolved.
SO ORDERED.[16]
Petitioner brought the instant petition for review directly with

this Court on a pure question of law.
While the petition was pending, RA 9334 (An Act Increasing

The Excise Tax Rates Imposed on Alcohol And Tobacco Products,
Amending For The Purpose Sections 131, 141, 143, 144, 145 and
288 of the NIRC of 1997, As Amended), took effect on January 1,
2005. The statute, among others,
(1) increased the excise tax rates provided in

paragraph (c) of Section 145;
(2) mandated that new brands of cigarettes shall

initially be classified according to their suggested net
retail price, until such time that their correct tax bracket
is finally determined under a specified period and, after
which, their classification shall remain in force until
revised by Congress;
(3) retained Annex D as tax base of those

surveyed as of October 1, 1996 including the
classification of brands for the same products which,
although not set forth in said Annex D, were registered
on or before January 1, 1997 and were being
commercially produced and marketed on or after
October 1, 1996, and which continue to be

commercially produced and marketed after the
effectivity of this Act. Said classification shall remain in
force until revised by Congress; and
(4) provided a legislative freeze on brands of

cigarettes introduced between the period January 2,
1997[17] toDecember 31, 2003, such that said
cigarettes shall remain in the classification under which
the BIR has determined them to belong as of December
31, 2003, until revised by Congress.
Pertinent portions, of RA 9334, provides:
SEC. 145. Cigars and Cigarettes.
xxxx
(C) Cigarettes Packed by Machine. There shall be levied,

assessed and collected on cigarettes packed by machine a tax at the
rates prescribed below:
(1) If the net retail price (excluding the excise tax and the valueadded tax) is below Five pesos (P5.00) per pack, the tax shall be:
Effective on January 1, 2005, Two pesos (P2.00) per

pack;
Effective on January 1, 2007, Two pesos and

twenty-three centavos (P2.23) per pack;
Effective on January 1, 2009, Two pesos and fortyseven centavos (P2.47) per pack; and

seventy-two centavos (P2.72) per pack.
(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;
Effective on January 1, 2007, Six pesos

seventy-four centavos (P6.74) per pack;
and
Effective on January 1, 2009, Seven pesos and

fourteen centavos (P7.14) 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;
Effective on January 1, 2009, Eleven pesos and

forty-three centavos (P11.43) per pack; and
Effective on January 1, 2011, Twelve pesos (P12.00)

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:
Effective on January 1, 2005, Twenty-five pesos

(P25.00) per pack;
Effective on January 1, 2007, Twenty-six pesos and

six centavos (P26.06) per pack;
Effective on January 1, 2009, Twenty-seven pesos

and sixteen centavos (P27.16) per pack; and
Effective on January 1, 2011, Twenty-eight pesos

and thirty centavos (P28.30) per pack.
xxxx
New brands, as defined in the immediately following paragraph, shall

initially be classified according to their suggested net retail price.
New brands shall mean a brand registered after the date of effectivity
of R.A. No. 8240.
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
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.
Net retail price, as determined by the Bureau of Internal Revenue

through a price survey to be conducted by the Bureau of Internal
Revenue itself, or the National Statistics Office when deputized for the
purpose by the Bureau of Internal Revenue, shall mean the price at
which the cigarette is sold in retail in at least twenty (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 at least five (5) major supermarkets in the
region excluding the amount intended to cover the applicable excise
tax and value-added tax.
The classification of each brand of cigarettes based on its

average net retail price as of October 1, 1996, as set forth in
Annex D, including the classification of brands for the same
products which, although not set forth in said Annex D, were
registered and were being commercially produced and
marketed on or after October 1, 1996, and which continue to

be commercially produced and marketed after the effectivity of
this
Act,
shall
remain
in
force
until
revised
by
Congress. (Emphasis added)
Under RA 9334, the excise tax due on petitioners products

was increased to P25.00 per pack. In the implementation thereof,
respondent Commissioner assessed petitioners importation of
911,000 packs of Lucky Strike cigarettes at the increased tax rate
of P25.00 per pack, rendering it liable for taxes in the total sum of
P22,775,000.00.[18]
Hence, petitioner filed a Motion to Admit Attached

Supplement[19] and a Supplement[20] to the petition for review,
assailing the constitutionality of RA 9334 insofar as it retained
Annex D and praying for a downward classification of Lucky Strike
products at the bracket taxable at P8.96 per pack. Petitioner
contended that the continued use of Annex D as the tax base of
existing brands of cigarettes gives undue protection to said
brands which are still taxed based on their price as of October
1996 notwithstanding that they are now sold at the same or even
at a higher price than new brands like Lucky Strike. Thus, old
brands of cigarettes such as Marlboro and Philip Morris which, like
Lucky Strike, are sold at or more than P22.00 per pack, are taxed
at the rate of P10.88 per pack, while Lucky Strike products are
taxed at P26.06 per pack.
In its Comment to the supplemental petition, respondents,

through the Office of the Solicitor General (OSG), argued that the
passage of RA 9334, specifically the provision imposing a
legislative freeze on the classification of cigarettes introduced into
the market between January 2, 1997 and December 31, 2003,
rendered the instant petition academic. The OSG claims that the
provision in Section 145, as amended by RA 9334, prohibiting the
reclassification of cigarettes introduced during said period, cured
the perceived defect of Section 145 considering that, like the
cigarettes under Annex D, petitioners brands and other brands

introduced between January 2, 1997 and December 31, 2003,
shall remain in the classification under which the BIR has placed
them and only Congress has the power to reclassify them.
On March 20, 2006, Philip Morris Philippines Manufacturing

Incorporated filed a Motion for Leave to Intervene with attached
Comment-in-Intervention.[21] This was followed by the Motions for
Leave to Intervene of Fortune Tobacco Corporation, [22] Mighty
Corporation, [23] and JT International, S.A., with their respective
Comments-in-Intervention. The Intervenors claim that they are
parties-in-interest who stand to be affected by the ruling of the
Court on the constitutionality of Section 145 of the NIRC and its
Annex D because they are manufacturers of cigarette brands
which are included in the said Annex. Hence, their intervention is
proper since the protection of their interest cannot be addressed
in a separate proceeding.
According to the Intervenors, no inequality exists because

cigarettes classified by the BIR based on their net retail price as
ofDecember 31, 2003 now enjoy the same status quo provision
that prevents the BIR from reclassifying cigarettes included in
Annex D. It added that the Court has no power to pass upon the
wisdom of the legislature in retaining Annex D in RA 9334; and
that the nullification of said Annex would bring about tremendous
loss of revenue to the government, chaos in the collection of
taxes, illicit trade of cigarettes, and cause decline in cigarette
demand to the detriment of the farmers who depend on the
tobacco industry.
Intervenor Fortune Tobacco further contends that petitioner

is estopped from questioning the constitutionality of Section 145
and its implementing rules and regulations because it entered
into the cigarette industry fully aware of the existing tax system
and its consequences. Petitioner imported cigarettes into the
country knowing that its suggested retail price, which will be the
initial basis of its tax classification, will be confirmed and

validated through a survey by the BIR to determine the correct
tax that would be levied on its cigarettes.
Moreover, Fortune Tobacco claims that the challenge to the

validity of the BIR issuances should have been brought by
petitioner before the Court of Tax Appeals (CTA) and not the RTC
because it is the CTA which has exclusive appellate jurisdiction
over decisions of the BIR in tax disputes.
On August 7, 2006, the OSG manifested that it interposes no

objection to the motions for intervention. [24] Therefore, considering
the substantial interest of the intervenors, and in the higher
interest of justice, the Court admits their intervention.
Before going into the substantive issues of this case, we
must first address the matter of jurisdiction, in light of Fortune
Tobaccos contention that petitioner should have brought its
petition before the Court of Tax Appeals rather than the regional
trial court.
The jurisdiction of the Court of Tax Appeals is defined in

Republic Act No. 1125, as amended by Republic Act No.
9282.Section 7 thereof states, in pertinent part:
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;
2. Inaction by the Commissioner of Internal Revenue in cases involving

disputed assessments, refunds of internal revenue taxes, fees or
other charges, penalties in relations thereto, or other matters
arising under the National Internal Revenue Code or other laws
administered by the Bureau of Internal Revenue, where the
National Internal Revenue Code provides a specific period of
action, in which case the inaction shall be deemed a denial; xxx.
[25]
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.[26]
In Drilon v. Lim,[27] it was held:

We stress at the outset that the lower court had jurisdiction to
consider the constitutionality of Section 187, this authority being
embraced in the general definition of the judicial power to determine
what are the valid and binding laws by the criterion of their conformity
to the fundamental law. Specifically, B.P. 129 vests in the regional trial
courts jurisdiction over all civil cases in which the subject of the
litigation is incapable of pecuniary estimation, even as the accused in a
criminal action has the right to question in his defense the
constitutionality of a law he is charged with violating and of the
proceedings taken against him, particularly as they contravene the Bill
of Rights. Moreover, Article X, Section 5(2), of the Constitution vests in
the Supreme Court appellate jurisdiction over final judgments and
orders of lower courts in all cases in which the constitutionality or
validity of any treaty, international or executive agreement, law,
presidential decree, proclamation, order, instruction, ordinance, or
regulation is in question.
The petition for injunction filed by petitioner before the RTC

is a direct attack on the constitutionality of Section 145(C) of the
NIRC, as amended, and the validity of its implementing rules and
regulations. In fact, the RTC limited the resolution of the subject
case to the issue of the constitutionality of the assailed
provisions. The determination of whether the assailed law and its
implementing rules and regulations contravene the Constitution is
within the jurisdiction of regular courts. 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.[28] Petitioner, therefore, properly filed the
subject case before the RTC.
We come now to the issue of whether petitioner is estopped

from assailing the authority of the Commissioner of Internal
Revenue. Fortune Tobacco raises this objection by pointing out
that when petitioner requested the Commissioner for a ruling that

its Lucky Strike Soft Pack cigarettes was a new brand rather than
a variant of an existing brand, and thus subject to a lower specific
tax rate, petitioner executed an undertaking to comply with the
procedures under existing regulations for the assessment of
deficiency internal revenue taxes.
Fortune Tobacco argues that petitioner, after invoking the

authority of the Commissioner of Internal Revenue, cannot later
on turn around when the ruling is adverse to it.
Estoppel, an equitable principle rooted in natural justice,

prevents persons from going back on their own acts and
representations, to the prejudice of others who have relied on
them.[29] The principle is codified in Article 1431 of the Civil Code,
which provides:
Through estoppel, an admission or representation is rendered

conclusive upon the person making it and cannot be denied or
disproved as against the person relying thereon.
Estoppel can also be found in Rule 131, Section 2 (a) of the

Rules of Court, viz:
Sec. 2. Conclusive presumptions. The following are instances of

conclusive presumptions:
(a) Whenever a party has by his own declaration, act or

omission, intentionally and deliberately led another to believe a
particular thing true, and to act upon such belief, he cannot, in any
litigation arising out of such declaration, act or omission be permitted
to falsify it.
The elements of estoppel are: first, the actor who usually

must have knowledge, notice or suspicion of the true facts,
communicates something to another in a misleading way, either
by words, conduct or silence; second, the other in fact relies, and
relies reasonably or justifiably, upon that communication; third,
the other would be harmed materially if the actor is later
permitted to assert any claim inconsistent with his earlier
conduct; and fourth, the actor knows, expects or foresees that the
other would act upon the information given or that a reasonable
person in the actor's position would expect or foresee such action.
[30]
In the early case of Kalalo v. Luz,[31] the elements of estoppel,

as related to the party to be estopped, are: (1) conduct
amounting to false representation or concealment of material
facts; or at least calculated to convey the impression that the
facts are other than, and inconsistent with, those which the party
subsequently
attempts
to
assert; (2) intent, or
at
least
expectation that this conduct shall be acted upon by, or at least
influence, the other party; and (3) knowledge, actual or
constructive, of the real facts.
We find that petitioner was not guilty of estoppel. When it

made the undertaking to comply with all issuances of the BIR,
which at that time it considered as valid, petitioner did not
commit any false misrepresentation or misleading act. Indeed,
petitioner cannot be faulted for initially undertaking to comply
with, and subjecting itself to the operation of Section 145(C), and
only later on filing the subject case praying for the declaration of
its unconstitutionality when the circumstances change and the
law results in what it perceives to be unlawful discrimination. The
mere fact that a law has been relied upon in the past and all that
time has not been attacked as unconstitutional is not a ground for
considering petitioner estopped from assailing its validity. For
courts will pass upon a constitutional question only when
presented before it in bona fide cases for determination, and the

fact that the question has not been raised before is not a valid
reason for refusing to allow it to be raised later. [32]
Now to the substantive issues.
To place this case in its proper context, we deem it

necessary to first discuss how the assailed law operates in order
to identify, with precision, the specific provisions which, according
to petitioner, have created a grossly discriminatory classification
scheme between old and new brands. The pertinent portions of
RA 8240, as amended by RA 9334, are reproduced below for
ready reference:
SEC. 145. Cigars and Cigarettes.
xxxx
(C) Cigarettes Packed by Machine. There shall be levied,

(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, 2005, Two pesos (P2.00) per

pack;

twenty-three centavos (P2.23) per pack;
Effective on January 1, 2009, Two pesos and fortyseven centavos (P2.47) per pack; and

seventy-two centavos (P2.72) per pack.
(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;
Effective on January 1, 2007, Six pesos

seventy-four centavos (P6.74) per pack;
and
Effective on January 1, 2009, Seven pesos and

fourteen centavos (P7.14) 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;
Effective on January 1, 2009, Eleven pesos and

forty-three centavos (P11.43) per pack; and
Effective on January 1, 2011, Twelve pesos (P12.00)

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:
Effective on January 1, 2005, Twenty-five pesos

(P25.00) per pack;
Effective on January 1, 2007, Twenty-six pesos and

six centavos (P26.06) per pack;
Effective on January 1, 2009, Twenty-seven pesos

and sixteen centavos (P27.16) per pack; and
Effective on January 1, 2011, Twenty-eight pesos

and thirty centavos (P28.30) per pack.
xxxx
New brands, as defined in the immediately following paragraph, shall

initially be classified according to their suggested net retail price.
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
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
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
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.
Net retail price, as determined by the Bureau of Internal Revenue

through a price survey to be conducted by the Bureau of Internal
Revenue itself, or the National Statistics Office when deputized for the
purpose by the Bureau of Internal Revenue, shall mean the price at
which the cigarette is sold in retail in at least twenty (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 at least five (5) major supermarkets in the
region excluding the amount intended to cover the applicable excise
tax and value-added tax.
The classification of each brand of cigarettes based on its average net

retail price as of October 1, 1996, as set forth in Annex D, including the
classification of brands for the same products which, although not set
forth in said Annex D, were registered and were being commercially
produced and marketed on or after October 1, 1996, and which
continue to be commercially produced and marketed after the

effectivity of this Act, shall remain in force until revised by Congress.
As can be seen, the law creates a four-tiered system which

we may refer to as the low-priced, [33] medium-priced,[34] highpriced,[35] and premium-priced[36] tax brackets. When a brand is
introduced in the market, the current net retail price is
determined through the aforequoted specified procedure. The
current net retail price is then used to classify under which tax
bracket the brand belongs in order to finally determine the
corresponding excise tax rate on a per pack basis. The assailed
feature of this law pertains to the mechanism where, after a
brand is classified based on its current net retail price, the
classification is frozen and only Congress can thereafter reclassify
the same. From a practical point of view, Annex D is merely a byproduct of the whole mechanism and philosophy of the assailed
law. That is, the brands under Annex D were also classified based
on their current net retail price, the only difference being that
they were the first ones so classified since they were the only
brands surveyed as of October 1, 1996, or prior to the effectivity
of RA 8240 on January 1, 1997.[37]
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.
Petitioner claims that this is what happened in 2004 to the

Marlboro and Philip Morris brands, which were permanently
classified under Annex D. As of October 1, 1996, Marlboro had net
retail prices ranging from P6.78 to P6.84 while Philip Morris had
net retail prices ranging from P7.39 to P7.48. Thus, pursuant to RA
8240,[39] Marlboro and Philip Morris were classified under the highpriced tax bracket and subjected to an excise tax rate of P8.96
per pack. Petitioner then presented evidence showing that after
the lapse of about seven years or sometime in 2004, Marlboros
and Philip Morris net retail prices per pack both increased to
about P15.59.[40] This meant that they would fall under the
premium-priced tax bracket, with a higher excise tax rate of
P13.44 per pack,[41] had they been classified based on their 2004
net retail prices. However, due to the legislative classification
freeze, they continued to be classified under the high-priced tax
bracket with a lower excise tax rate. Petitioner thereafter deplores
the fact that its Lucky Strike Filter, Lucky Strike Lights, and Lucky
Strike Menthol Lights cigarettes, introduced in the market
sometime in 2001 and validated by a BIR survey in 2003, were
found to have net retail prices of P11.53, P11.59 and P10.34,
[42]
respectively, which are lower than those of Marlboro and Philip
Morris. However, since petitioners cigarettes were newly
introduced brands in the market, they were taxed based on their
current net retail prices and, thus, fall under the premium-priced
tax bracket with a higher excise tax rate of P13.44 per pack. This
unequal tax treatment between Marlboro and Philip Morris, on the
one hand, and Lucky Strike, on the other, is the crux of petitioners
contention that the legislative classification freeze violates the
equal protection and uniformity of taxation clauses of the
Constitution.
It is apparent that, contrary to its assertions, petitioner is not

only questioning the undue favoritism accorded to brands under
Annex D, but the entire mechanism and philosophy of the law
which freezes the tax classification of a cigarette brand based on
its current net retail price. Stated differently, the alleged
discrimination arising from the legislative classification freeze
between the brands under Annex D and petitioners newly
introduced brands arose only because the former were classified

based on their current net retail price as of October 1,
1996 and petitioners newly introduced brands were classified
based on their current net retail price as of 2003. Without this
corresponding freezing of the classification of petitioners newly
introduced brands based on their current net retail price, it would
be impossible to establish that a disparate tax treatment occurred
between the Annex D brands and petitioners newly introduced
brands.
This clarification is significant because, under these

circumstances, a declaration of unconstitutionality would
necessarily entail nullifying the whole mechanism of the law and
not just Annex D. Consequently, if the assailed law is declared
unconstitutional on equal protection grounds, the entire method
by which a brand of cigarette is classified would have to be
invalidated. As a result, no method to classify brands under Annex
D as well as new brands would be left behind and the whole
Section 145 of the NIRC, as amended, would become inoperative.
[43]
To simplify the succeeding discussions, we shall refer to the

whole mechanism and philosophy of the assailed law which
freezes the tax classification of a cigarette brand based on its
current net retail price and which, thus, produced different classes
of brands based on the time of their introduction in the market
(starting with the brands in Annex D since they were the first
brands so classified as of October 1, 1996) as the classification
freeze provision.[44]
As thus formulated, the central issue is whether or not

the classification freeze provision violates the equal protection
and uniformity of taxation clauses of the Constitution.
In Sison, Jr. v. Ancheta,[45] this Court, through Chief Justice

Fernando, explained the applicable standard in deciding equal
protection and uniformity of taxation challenges:
Now for equal protection. The applicable standard to avoid the

charge that there is a denial of this constitutional mandate whether the
assailed act is in the exercise of the police power or the power of
eminent domain is to demonstrate "that the governmental act
assailed, far from being inspired by the attainment of the common
weal was prompted by the spirit of hostility, or at the very least,
discrimination that finds no support in reason. It suffices then that the
laws operate equally and uniformly on all persons under similar
circumstances or that all persons must be treated in the same manner,
the conditions not being different, both in the privileges conferred and
the liabilities imposed. Favoritism and undue preference cannot be
allowed. For the principle is that equal protection and security shall be
given to every person under circumstances, which if not identical are
analogous. If law be looks upon in terms of burden or charges, those
that fall within a class should be treated in the same fashion, whatever
restrictions cast on some in the group equally binding on the rest."
That same formulation applies as well to taxation measures. The equal
protection clause is, of course, inspired by the noble concept of
approximating the ideal of the laws's benefits being available to all and
the affairs of men being governed by that serene and impartial
uniformity, which is of the very essence of the idea of law. There is,
however, wisdom, as well as realism, in these words of Justice
Frankfurter: "The equality at which the 'equal protection' clause aims is
not a disembodied equality. The Fourteenth Amendment enjoins 'the
equal protection of the laws,' and laws are not abstract propositions.
They do not relate to abstract units A, B and C, but are expressions of
policy arising out of specific difficulties, addressed to the attainment of
specific ends by the use of specific remedies. The Constitution does not
require things which are different in fact or opinion to be treated in law
as though they were the same." Hence the constant reiteration of
the view that classification if rational in character is
allowable. As a matter of fact, in a leading case of Lutz v. Araneta,
this Court, through Justice J.B.L. Reyes, went so far as to hold "at any
rate, it is inherent in the power to tax that a state be free to select the
subjects of taxation, and it has been repeatedly held that 'inequalities
which result from a singling out of one particular class for taxation, or
exemption infringe no constitutional limitation.'"
Petitioner likewise invoked the kindred concept of uniformity.

According to the Constitution: "The rule of taxation shall be uniform
and equitable." This requirement is met according to Justice Laurel in
Philippine Trust Company v. Yatco, decided in 1940, when the tax
"operates with the same force and effect in every place where the
subject may be found." He likewise added: "The rule of uniformity does
not call for perfect uniformity or perfect equality, because this is hardly
attainable." The problem of classification did not present itself in that
case. It did not arise until nine years later, when the Supreme Court
held: "Equality and uniformity in taxation means that all taxable
articles or kinds of property of the same class shall be taxed at the
same rate. The taxing power has the authority to make
reasonable and natural classifications for purposes of
taxation, . . . As clarified by Justice Tuason, where "the differentiation"
complained of "conforms to the practical dictates of justice and equity"
it "is not discriminatory within the meaning of this clause and is
therefore uniform." There is quite a similarity then to the standard of
equal protection for all that is required is that the tax "applies equally
to all persons, firms and corporations placed in similar
situation."[46] (Emphasis supplied)
In consonance thereto, we have held that in our jurisdiction, the

standard and analysis of equal protection challenges in the main
have followed the rational basis test, coupled with a deferential
attitude to legislative classifications and a reluctance to invalidate
a law unless there is a showing of a clear and unequivocal breach
of the Constitution.[47] Within the present context of tax legislation
on sin products which neither contains a suspect classification nor
impinges on a fundamental right, the rational-basis test thus finds
application. Under this test, a legislative classification, to survive
an equal protection challenge, must be shown to rationally further
a legitimate state interest.[48] The classifications must be
reasonable and rest upon some ground of difference having a fair
and substantial relation to the object of the legislation. [49] Since
every law has in its favor the presumption of constitutionality, the
burden of proof is on the one attacking the constitutionality of the
law to prove beyond reasonable doubt that the legislative
classification is without rational basis. [50] The presumption of
constitutionality can be overcome only by the most explicit
demonstration that a classification is a hostile and oppressive
discrimination against particular persons and classes, and that

there is no conceivable basis which might support it. [51]
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. [52]
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.
RA 8240 was the first of three parts in the Comprehensive

Tax Reform Package then being pushed by the Ramos
Administration. It was enacted with the following objectives stated
in the Sponsorship Speech of Senator Juan Ponce Enrile (Senator

Enrile), viz:
First, to evolve a tax structure which will promote fair
competition among the players in the industries concerned and
generate buoyant and stable revenue for the government.
Second, to ensure that the tax burden is equitably distributed

not only amongst the industries affected but equally amongst the
various levels of our society that are involved in various markets that
are going to be affected by the excise tax on distilled spirits, fermented
liquor, cigars and cigarettes.
In the case of firms engaged in the industries producing the

products that we are about to tax, this means relating the tax burden
to their market share, not only in terms of quantity, Mr. President, but
in terms of value.
In case of consumers, this will mean evolving a multi-tiered rate

structure so that low-priced products are subject to lower tax rates and
higher-priced products are subject to higher tax rates.
Third, 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.[54]
In the initial stages of the crafting of the assailed law, the

Department of Finance (DOF) recommended to Congress a shift
from the then existing ad valorem taxation system to a specific
taxation system with respect to sin products, including
cigarettes. The DOF noted that the ad valorem taxation system
was a source of massive tax leakages because the taxpayer was
able to evade paying the correct amount of taxes through the
undervaluation of the price of cigarettes using various marketing

arms and dummy corporations. In order to address this problem,
the DOF proposed a specific taxation system where the cigarettes
would be taxed based on volume or on a per pack basis which
was believed to be less susceptible to price manipulation. The
reason was that the BIR would only need to monitor the sales
volume of cigarettes, from which it could easily compute the
corresponding tax liability of cigarette manufacturers. Thus, the
DOF suggested the use of a three-tiered system which operates in
substantially the same manner as the four-tiered system under RA
8240 as earlier discussed. The proposal of the DOF was embodied
in House Bill (H.B.) No. 6060, the pertinent portions of which
states
(c) Cigarettes packed by machine. There shall be levied,

(1) If the manufacturers or importers wholesale price (net of

excise tax and value-added tax) per pack exceeds four pesos and
twenty centavos (P4.20), the tax shall be seven pesos and fifty
centavos (P7.50);

excise tax and value-added tax) per pack exceeds three pesos and
ninety centavos (P3.90) but does not exceed four pesos and twenty
centavos (P4.20), the tax shall be five pesos and fifty centavos
(P5.50): provided, that after two (2) years from the effectivity of this
Act, cigarettes otherwise subject to tax under this subparagraph shall
be taxed under subparagraph (1) above.

excise tax and value-added tax) per pack does not exceeds three
pesos and ninety centavos (P3.90), the tax rate shall be one peso
(P1.00).
Variants of existing brands and new brands of cigarettes packed

by machine to be introduced in the domestic market after the
effectivity of this Act, shall be taxed under paragraph (c)(1) hereof.
The rates of specific tax on cigars and cigarettes under

paragraphs (a), (b), and (c) hereof, including the price levels
for purposes of classifying cigarettes packed by machine, shall
be revised upward two (2) years after the effectivity of this Act
and every two years thereafter by the Commissioner of
Internal Revenue, subject to the approval of the Secretary of
Finance, taking into account the movement of the consumer
price index for cigars and cigarettes as established by the
National Statistics Office: provided, that the increase in taxes
and/or price levels shall be equal to the present change in such
consumer price index for the two-year period: provided,
further, that the President, upon the recommendation of the
Secretary of Finance, may suspend or defer the adjustment in
price levels and tax rates when the interest of the national
economy and general welfare so require, such as the need to
obviate
unemployment,
and
economic
and
social
dislocation: provided, finally, that the revised price levels and
tax rates authorized herein shall in all cases be rounded off to
the nearest centavo and shall be in force and effect on the
date of publication thereof in a newspaper of general
circulation. x x x (Emphasis supplied)
What is of particular interest with respect to the proposal of

the DOF is that it contained a provision for the periodic
adjustment of the excise tax rates and tax brackets, and a
corresponding periodic resurvey and reclassification of cigarette
brands based on the increase in the consumer price index as
determined by the Commissioner of Internal Revenue subject to
certain guidelines. The evident intent was to prevent inflation
from eroding the value of the excise taxes that would be collected
from cigarettes over time by adjusting the tax rate and tax
brackets based on the increase in the consumer price

index. Further, under this proposal, old brands as well as new
brands introduced thereafter would be subjected to a resurvey
and reclassification based on their respective values at the end of
every two years in order to align them with the adjustment of the
excise tax rate and tax brackets due to the movement in the
consumer price index.[55]
Of course, we now know that the DOF proposal, insofar as the

periodic adjustment of tax rates and tax brackets, and the
periodic resurvey and reclassification of cigarette brands are
concerned, did not gain approval from Congress. The House and
Senate pushed through with their own versions of the excise tax
system on beers and cigarettes both denominated as H.B. No.
7198. For convenience, we shall refer to the bill deliberated upon
by the House as the House Version and that of the Senate as the
Senate Version.
The Houses Committee on Ways and Means, then chaired by
Congressman Exequiel B. Javier (Congressman Javier), roundly
rejected the DOF proposal. Instead, in its Committee Report
submitted to the plenary, it proposed a different excise tax
system which used a specific tax as a basic tax with an ad
valorem comparator. Further, it deleted the proposal to have a
periodic adjustment of tax rates and the tax brackets as well as
periodic resurvey and reclassification of cigarette brands, to wit:
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
the predicament of the DOF, it is not for Congress to abdicate such

power. The power sought to be delegated to be exercised by the
Commissioner of Internal Revenue is a legislative power vested by the
Constitution in Congress pursuant to Section 1, Article VI of the
Constitution. Where the power is vested, there it must remain in
Congress, a body of representatives elected by the people. Congress
may not delegate such power, much less abdicate it.
xxxx
Moreover, the grant of such power, if at all constitutionally

permissible, to the Commissioner of Internal Revenue is fraught with
ethical implications. The debates on how much revenue will be raised,
how much money will be taken from the pockets of taxpayers, will
inexorably shift from the democratic Halls of Congress to the secret
and non-transparent corridors of unelected agencies of government,
the Department of Finance and the Bureau of Internal Revenue, which
are not accountable to our people. We cannot countenance the shift for
ethical reasons, lest we be accused of betraying the trust reposed on
this Chamber by the people. x x x
A final point on this proposal, Mr. Speaker, is the exercise of the

taxing power of the Commissioner of Internal Revenue which will be
triggered by inflation rates based on the consumer price index. Simply
stated, Mr. Speaker, the specific tax rates will be fixed by the
Commissioner depending on the price levels of beers and cigarettes as
determined by the consumers price index. This is a novel idea, if not
necessarily weird in the field of taxation. What if the brewer or the
cigarette manufacturer sells at a price below the consumers price
index? Will it be taxed on the basis of the consumers price index which
is over and above its wholesale or retail price as the case may be? This
is a weird form of exaction where the tax is based not on what the
brewer or manufacturer actually realized but on an imaginary
wholesale or retail price. This amounts to a taxation based on
presumptive price levels and renders the specific tax a presumptive
tax. We hope, the DOF and the BIR will also honor a presumptive tax
payment.
Moreover, specific tax rates based on price levels tied to

consumers price index as proposed by the DOF engenders anti-trust
concerns. The proposal if enacted into law will serve as a barrier to the
entry of new players in the beer and cigarette industries which are
presently dominated by shared monopolies. A new player in these
industries will be denied business flexibility to fix its price levels to
promote its product and penetrate the market as the price levels are
dictated by the consumer price index. The proposed tax regime, Mr.
Speaker, will merely enhance the stranglehold of the oligopolies in the
beer and cigarette industries, thus, reversing the governments policy
of dismantling monopolies and combinations in restraint of trade. [56]
For its part, the Senates Committee on Ways and Means,

then chaired by Senator Juan Ponce Enrile (Senator Enrile),
developed its own version of the excise tax system on
cigarettes. The Senate Version consisted of a four-tiered system
and, interestingly enough, contained a periodic excise tax rate
and tax bracket adjustment as well as a periodic resurvey and
reclassification of brands provision (periodic adjustment and
reclassification provision, for brevity) to be conducted by the DOF
in coordination with the BIR and the National Statistics Office
based on the increase in the consumer price index similar to the
one proposed by the DOF, viz:
SEC. 4 Section 142 of the National Internal Revenue Code, as
amended, is hereby further amended to read as follows:
xxxx
(c) Cigarettes packed by machine. There shall be levied, assessed and

collected on cigarettes packed by machine a tax at the rates
prescribed below:
value-added tax) is above Ten pesos (P10.00) per pack,
the tax shall be Twelve pesos (P12.00) per pack;
value-added tax) exceeds Six pesos and fifty centavos
(P6.50) per pack, the tax shall be Eight pesos (P8.00) per
pack;
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;

and the value-added tax) is below Five pesos (P5.00) per
pack, the tax shall be One peso (P1.00) per pack.
Variants of existing brands of cigarettes which are introduced in

the domestic market after the effectivity of this Act shall be taxed
under the highest classification of any variant of that brand.
xxx
The rates of specific tax on cigars and cigarettes under

subparagraph (a), (b) and (c) hereof, including the net retail
prices for purposes of classification, shall be adjusted on the
sixth of January three years after the effectivity of this Act and
every three years thereafter. The adjustment shall be in
accordance with the inflation rate measured by the average
increase in the consumer price index over the three-year
period. The adjusted tax rates and net price levels shall be in
force on the eighth of January.
Within the period hereinabove mentioned, the Secretary

of Finance shall direct the conduct of a survey of retail prices
of each brand of cigarettes in coordination with the Bureau of

Internal Revenue and the National Statistics Office.
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.
The classification of each brand of cigarettes in the initial

year of implementation of this Act shall be based on its
average net retail price as of October 1, 1996. The said
classification by brand shall remain in force until January 7,
2000.
New brands shall be classified according to their current net

retail price.[57] (Emphasis supplied)
During the period of interpellations, the late Senator Raul S.

Roco (Senator Roco) expressed doubts as to the legality and
wisdom of putting a periodic adjustment and reclassification
provision:
Senator Enrile: This will be the first time that a tax burden will
be allowed to be automatically adjusted upwards based on a system of
indexing tied up with the Consumers Price Index (CPI). Although I must
add that we have adopted a similar system in adjusting the personal
tax exemption from income tax of our individual taxpayers.
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?
Maybe we can be enlightened and maybe we shall embrace it

forthwith. But what is the reason?
Senator Enrile: Mr. President, we will recall that in the House of

Representatives, it has adopted a tax proposal on these products
based on a specific tax as a basic tax with an ad valorem comparator.
The Committee on Ways and Means of the Senate has not seen it fit to
adopt this system, but it recognized the possibility that there may be
an occasion where the price movement in the country might
unwarrantedly move upwards, in which case, if we peg the government
to a specific tax rate of P6.30, P9.30 and P12.30 for beer, since we are
talking of beer, [58] the government might lose in the process.
In order to consider the interest of the government in this, Mr.

President, and in order to obviate the possibility that some of these
products categorized under the different tiers with different specific tax
rates from moving upwards and piercing their own tiers and thereby
expose themselves to an incremental tax of higher magnitude, it was
felt that we should adopt a system where, in spite of any escalation in
the price of these products in the future, the tax rates could be
adjusted upwards so that none of these products would leave their own
tier. That was the basic principle under which we crafted this portion of
the tax proposal.
Senator Roco: Mr. President, we certainly share the judgment of the

distinguished gentleman as regards the comparator provision in the
House of Representatives and we appreciate the reasons given. But we
are under the impression that the House also, aside from the
comparator, has an adjustment clause that is fixed. It has fixed rates
for the adjustment. So that one of the basic differences between the
Senate proposed version now and the House version is that, the House
of Representatives has manifested its will and judgment as regards the
tax to which we will adjust, whereas the Senate version relegates
fundamentally that judgment to the Department of Finance.
Senator Enrile: That is correct, Mr. President, because we felt that in

imposing a fixed adjustment, we might be fixing an amount that is
either too high or too low. We cannot foresee the economic trends in
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.
Senator Roco: This is where, Mr. President, my policy difficulties start.

Under the Constitution I think it is Article VI, Section 24, and it was the
distinguished chairman of the Committee on Ways and Means who
made this Chamber very conscious of this provision revenue measures
and tariff measures shall originate exclusively from the House of
Representatives.
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.
Senator Roco: But the point I was trying to demonstrate, Mr.

President, is that we depart precisely from the mandate of the
Constitution that judgment on revenue must emanate from Congress.

Here, it is shifted to the Department of Finance for no visible or patent
reason insofar as I could understand. The only difference is, who will
make the judgment? Should it be Congress?
Senator Enrile: Mr. President, forgive me for answering sooner

than I should. My understanding of the Constitution is that all revenue
measures must emanate from the House. That is all the Constitution
says.
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]
Apart from his doubts as to the legality of the delegation of

taxing power to the DOF and BIR, Senator Roco also voiced out his
concern about the possible abuse and corruption that will arise
from
the
periodic
adjustment
and
reclassification
provision. Continuing
Senator Roco: Mr. President, if that is the argument, that the
distinguished gentleman has a different legal interpretation, we will
then now examine the choice. Because his legal interpretation is
different from mine, then the issues becomes: Is it more
advantageous that this judgment be exercised by the House?
Should we not concur or modify in terms of the exercise by the
House of its power or are we better off giving this judgment
call to the Department of Finance?
Let me now submit, Mr. President, that in so doing, it is more
advantageous to fix the rate so that even if we modify the
rates identified by Congress, it is better and less susceptible to

abuse.
For instance, Mr. President, would the gentlemen wish to demonstrate

to us how this will be done? On page 8, lines 5 to 9, there is a provision
here as to when the Secretary of Finance shall direct the conduct of
survey of retail prices of each brand of fermented liquor in coordination
with the Bureau of Internal Revenue and the National Statistics Office.
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)
Pressing this point, Senator Roco continued his query:
Senator Roco: x x x [On page 8, lines 5 to 9] it says that during

the two-year period, the Secretary of Finance shall direct the conduct
of the survey. How? When? Which retail prices and what brand shall he
consider? When he coordinates with the Bureau of Internal Revenue,
what is the Bureau of Internal Revenue supposed to be doing? What is
the National Statistics Office supposed to be doing, and under what
guides and standards?
May the gentleman wish to demonstrate how this will be done? My

point, Mr. President, is, by giving the Secretary of Finance, the
BIR and the National Statistics Office discretion over a twoyear period will invite corruption and arbitrariness, which is
more dangerous than letting the House of Representatives and
this Chamber set the adjustment rate. Why not set the
adjustment rate? Why should Congress not exercise that judgment
now? x x x
Senator Enrile: x x x
Senator Roco: x x x We respectfully submit that the Chairman

consider choosing the judgment of this Chamber and the House of
Representatives over a delegated judgment of the Department of
Finance.
Again, it is not to say that I do not trust the Department of Finance. It
has won awards, and I also trust the undersecretary. But that is beside
the point. Tomorrow, they may not be there.[61] (Emphasis supplied)
This point was further dissected by the two senators. There

was a genuine difference of opinion as to which system one with a
fixed excise tax rate and classification or the other with a periodic
adjustment of excise tax rate and reclassification was less
susceptible to abuse, as the following exchanges show:
Senator Enrile: Mr. President, considering the sensitivity of these
products from the viewpoint of exerted pressures because of the
understandable impact of this measure on the pockets of the major
players producing these products, the committee felt that perhaps to
lessen such pressures, it is best that we now establish a norm where
the tax will be adjusted without incurring too much political
controversy as has happened in the case of this proposal.
Senator Roco: But that is exactly the same reason we say we

must rely upon Congress because Congress, if it is subjected to
pressure, at least balances off because of political factors.
When the Secretary of Finance is now subjected to pressure, are

we saying that the Secretary of Finance and the Department of Finance
is better-suited to withstand the pressure? Or are we saying Let the
Finance Secretary decide whom to yield?
I am saying that the temptation and the pressure on the

Secretary of Finance is more dangerous and more corruption-friendly
than ascertaining for ourselves now a fixed rate of increase for a fixed
period.
Senator Enrile: Mr. President, perhaps the gentleman may not

agree with this representation, but in my humble opinion, this
formulation is less susceptible to pressure because there is a definite
point of reference which is the consumer price index, and that
consumer price index is not going to be used only for this purpose. The
CPI is used for a national purpose, and there is less possibility of
tinkering with it.[62]
Further, Senator Roco, like Congressman Javier, expressed

the view that the periodic adjustment and reclassification
provision would create an anti-competitive atmosphere. Again,
Senators Roco and Enrile had genuine divergence of opinions on
this matter, to wit:
Senator Roco: x x x On the marketing level, an adjustment

clause may, in fact, be disadvantageous to both companies, whether it
is the Lucio Tan companies or the San Miguel companies. If we have to
adjust our marketing position every two years based on the adjustment
clause, the established company may survive, but the new ones will
have tremendous difficulty. Therefore, this provision tends to indicate
an anticompetitive bias.
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.
Senator Enrile: Mr. President, I cannot foresee any anti-competitiveness

of this provision with respect to a new entrant, because a new entrant
will not just come in without studying the market. He is a lousy
businessman if he will just come in without studying the market. If he
comes in, he will determine at what retail price level he will market his
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.
Senator Roco: Be that as it may, Mr. President, we obviously will not

resort to debate until this evening, and we will have to look for other
ways of resolving the policy options.
Let me just close that particular area of my interpellation, by

summarizing the points we were hoping could be clarified.
1. That the automatic adjustment clause is at best questionable

in law.
2. It is corruption-friendly in the sense that it shifts the discretion

from the House of Representatives and this Chamber to the
Secretary of Finance, no matter how saintly he may be.
3. There is, although the judgment call of the gentleman

disagrees to our view, an anticompetitive situation that is
geared at[63]
After these lengthy exchanges, it appears that the views of

Senator Enrile were sustained by the Senate Body because the
Senate Version was passed on Third Reading without substantially
altering the periodic adjustment and reclassification provision.
It was actually at the Bicameral Conference Committee level

where the Senate Version underwent major changes. The Senate
Panel prevailed upon the House Panel to abandon the basic excise
tax rate and ad valorem comparator as the means to determine
the applicable excise tax rate. Thus, the Senates four-tiered
system was retained with minor adjustments as to the excise tax
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.
In lieu thereof, the classification of existing brands based on

their average net retail price as of October 1, 1996 was frozen
and a fixed across-the-board 12% increase in the excise tax rate
of each tier after three years from the effectivity of the Act was
put in place. There is a dearth of discussion in the deliberations as
to the applicability of the freezing mechanism to new brands after
their classification is determined based on their current net retail
price. But a plain reading of the text of RA 8240, even before its
amendment by RA 9334, as well as the previously discussed
deliberations would readily lead to the conclusion that the intent
of Congress was to likewise apply the freezing mechanism to new
brands. Precisely, Congress rejected the proposal to allow the DOF
and BIR to periodically adjust the excise tax rate and tax brackets
as well as to periodically resurvey and reclassify cigarettes brands
which would have encompassed old and new brands alike. Thus, it
would be absurd for us to conclude that Congress intended to
allow the periodic reclassification of new brands by the BIR after
their classification is determined based on their current net retail
price. We shall return to this point when we tackle the second
issue.
In explaining the changes made at the Bicameral Conference

Committee level, Senator Enrile, in his report to the Senate
plenary, noted that the fixing of the excise tax rates was done to
avoid confusion.[64] Congressman Javier, for his part, reported to
the House plenary the reasons for fixing the excise tax rate and
freezing the classification, thus:
Finally, this twin feature, Mr. Speaker, fixed specific tax rates and
frozen classification, rejects the Senate version which seeks to
abdicate the power of Congress to tax by pegging the rates as well as

the classification of sin products to consumer price index which
practically vests in the Secretary of Finance the power to fix
the rates and to classify the products for tax purposes.
[65]
(Emphasis supplied)
Congressman Javier later added that the frozen classification

was intended to give stability to the industry as the BIR would be
prevented from tinkering with the classification since it would
remain unchanged despite the increase in the net retail prices of
the previously classified brands.[66] This would also assure the
industry players that there would be no new impositions as long
as the law is unchanged.[67]
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 Congresss 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
Congresss 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.[68]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.[69] 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. [70] In the case at bar, these
administrative concerns in the measurement and collection of
excise taxes on sin products are readily apparent as aforediscussed.
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.[71]
All in all, the classification freeze provision addressed

Congresss 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.
Going now to the contention of petitioner that

the classification freeze provision unduly favors older brands over
newer brands, we must first contextualize the basis of this
claim. As previously discussed, the evidence presented by the
petitioner merely showed that in 2004, Marlboro and Philip Morris,
on the one hand, and Lucky Strike, on the other, would have been
taxed at the same rate had the classification freeze
provision been not in place. But due to the operation of
the classification freeze provision, Lucky Strike was taxed
higher. From here, petitioner generalizes that this differential tax
treatment
arising
from
the classification
freeze
provision adversely impacts the fairness of the playing field in the
industry, particularly, between older and newer brands. Thus, it is
virtually impossible for new brands to enter the market.
Petitioner did not, however, clearly demonstrate the exact

extent of such impact. It has not been shown that the net retail
prices of other older brands previously classified under this
classification system have already pierced their tax brackets, and,
if so, how this has affected the overall competition in the
market. Further, it does not necessarily follow that newer brands
cannot compete against older brands because price is not the
only factor in the market as there are other factors like consumer
preference, brand loyalty, etc. In other words, even if the newer
brands are priced higher due to the differential tax treatment, it
does not mean that they cannot compete in the market especially
since cigarettes contain addictive ingredients so that a consumer
may be willing to pay a higher price for a particular brand solely
due to its unique formulation. It may also be noted that in 2003,
the BIR surveyed 29 new brands[72] that were introduced in the
market after the effectivity of RA 8240 on January 1, 1997, thus
negating the sweeping generalization of petitioner that
the classification freeze provision has become an insurmountable
barrier to the entry of new brands. Verily, where there is a claim
of breach of the due process and equal protection clauses,
considering that they are not fixed rules but rather broad
standards, there is a need for proof of such persuasive character

as would lead to such a conclusion. Absent such a showing, the
presumption of validity must prevail.[73]
Be that as it may, petitioners evidence does suggest that, at

least in 2004, Philip Morris and Marlboro, older brands, would
have been taxed at the same rate as Lucky Strike, a newer brand,
due to certain conditions (i.e., the increase of the older brands net
retail prices beyond the tax bracket to which they were previously
classified after the lapse of some time) were it not for
the classification freeze provision. It may be conceded that this
has adversely affected, to a certain extent, the ability of
petitioner to competitively price its newer brands vis--vis the
subject older brands. Thus, to a limited extent, the assailed law
seems to derogate one of its avowed objectives, i.e. promoting
fair competition among the players in the industry. Yet, will this
occurrence, by itself, render the assailed law unconstitutional on
equal protection grounds?
We answer in the negative.
Whether Congress acted improvidently in derogating, to a

limited extent, the states interest in promoting fair competition
among the players in the industry, while pursuing other state
interests regarding 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 through the classification freeze
provision, and whether the questioned provision is the best
means to achieve these state interests, necessarily go into the
wisdom of the assailed law which we cannot inquire into, much
less overrule. The classification freeze provision has not been
shown to be precipitated by a veiled attempt, or hostile attitude
on the part of Congress to unduly favor older brands over newer
brands. On the contrary, we must reasonably assume, owing to
the respect due a co-equal branch of government and as revealed
by the Congressional deliberations, that the enactment of the

questioned provision was impelled by an earnest desire to
improve the efficiency and effectivity of the tax administration of
sin products. For as long as the legislative classification is
rationally related to furthering some legitimate state interest, as
here, the rational-basis test is satisfied and the constitutional
challenge is perfunctorily defeated.
We do not sit in judgment as a supra-legislature to decide,

after a law is passed by Congress, which state interest is superior
over another, or which method is better suited to achieve one,
some or all of the states interests, or what these interests should
be in the first place. This policy-determining power, by
constitutional fiat, belongs to Congress as it is its function to
determine and balance these interests or choose which ones to
pursue. Time and again we have ruled that the judiciary does not
settle policy issues. The Court can only declare what the law is
and not what the law should be. Under our system of government,
policy issues are within the domain of the political branches of
government and of the people themselves as the repository of all
state
power.[74]Thus,
the
legislative
classification
under
the classification freeze provision, after having been shown to be
rationally related to achieve certain legitimate state interests and
done in good faith, must, perforce, end our inquiry.
Concededly, the finding that the assailed law seems to

derogate, to a limited extent, one of its avowed objectives
(i.e.promoting fair competition among the players in the industry)
would suggest that, by Congresss own standards, the current
excise tax system on sin products is imperfect. But, certainly, we
cannot declare a statute unconstitutional merely because it can
be improved or that it does not tend to achieve all of its stated
objectives.[75] This is especially true for tax legislation which
simultaneously addresses and impacts multiple state interests.
[76]
Absent a clear showing of breach of constitutional limitations,
Congress, owing to its vast experience and expertise in the field
of taxation, must be given sufficient leeway to formulate and
experiment with different tax systems to address the complex

issues and problems related to tax administration. Whatever
imperfections that may occur, the same should be addressed to
the democratic process to refine and evolve a taxation system
which ideally will achieve most, if not all, of the states objectives.
In fine, petitioner may have valid reasons to disagree with

the policy decision of Congress and the method by which the
latter sought to achieve the same. But its remedy is with
Congress and not this Court. As succinctly articulated in Vance v.
Bradley:[77]
The Constitution presumes that, absent some reason to infer antipathy,

even improvident decisions will eventually be rectified by the
democratic process, and that judicial intervention is generally
unwarranted no matter how unwisely we may think a political branch
has acted. Thus, we will not overturn such a statute unless the varying
treatment of different groups or persons is so unrelated to the
achievement of any combination of legitimate purposes that we can
only conclude that the legislature's actions were irrational. [78]
We now tackle the second issue.
Petitioner asserts that Revenue Regulations No. 1-97, as

amended by Revenue Regulations No. 9-2003, Revenue
Regulations No. 22-2003 and Revenue Memorandum Order No. 62003, are invalid insofar as they empower the BIR to reclassify or
update the classification of new brands of cigarettes based on
their current net retail prices every two years or earlier. It claims
that RA 8240, even prior to its amendment by RA 9334, did not
authorize the BIR to conduct said periodic resurvey and
reclassification.
The questioned provisions are found in the following sections

of the assailed issuances:
(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:
For the purpose of establishing or updating the tax classification

of new brands and variant(s) thereof, their current net retail price shall
be reviewed periodically through the conduct of survey or any other
appropriate activity, as mentioned above, every two (2) years unless
earlier ordered by the Commissioner. However, notwithstanding any
increase in the current net retail price, the tax classification of such
new brands shall remain in force until the same is altered or changed
through the issuance of an appropriate Revenue Regulations.
(2)
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, viz:
II. POLICIES AND GUIDELINES
1. The conduct of survey covered by this Order, for purposes of

determining the current retail prices of new brands of cigarettes
and alcohol products introduced in the market on or after
January 1, 1997, shall be undertaken in the following instances:
xxxx
b. For reclassification of new brands of said excisable products

that were introduced in the market after January 1, 1997.
xxxx
4. The determination of the current retail prices of new brands of

the aforesaid excisable products shall be initiated as follows:
xxxx
b. After the lapse of the prescribed two-year period or as the

Commissioner may otherwise direct, the appropriate tax
reclassification of these brands based on the current net retail
prices thereof shall be determined by a survey to be conducted
upon a written directive by the Commissioner.
For this purpose, a memorandum order to the Assistant

Commissioner, Large Taxpayers Service, Heads, Excise Tax
Areas, and Regional Directors of all Revenue Regions, except
Revenue Region Nos. 4, 5, 6, 7, 8 and 9, shall be issued by the
Commissioner for the submission of the list of major
supermarkets/retail outlets where the above excisable products
are being sold, as well as the list of selected revenue officers
who shall be designated to conduct the said activity(ies).
xxxx
6. The results of the survey conducted in Revenue Region Nos. 4

to 9 shall be submitted directly to the Chief, LT Assistance
Division II (LTAD II), National Office for consolidation. On the
other hand, the results of the survey conducted in Revenue
Regions other than Revenue Region Nos. 4 to 9, shall be
submitted to the Office of the Regional Director for regional
consolidation. The consolidated regional survey, together with
the accomplished survey forms shall be transmitted to the Chief,

LTAD II for national consolidation within three (3) days from date
of actual receipt from the survey teams. The LTAD II shall be
responsible for the evaluation and analysis of the submitted
survey forms and the preparation of the recommendation for the
updating/revision of the tax classification of each brand of
cigarettes and alcohol products. The said recommendation, duly
validated by the ACIR, LTS, shall be submitted to the
Commissioner for final review within ten (10) days from the date
of actual receipt of complete reports from all the surveying
Offices.
7. Upon final review by the Commissioner of the revised tax

classification of the different new brands of cigarettes and
alcohol products, the appropriate revenue regulations shall be
prepared and submitted for approval by the Secretary of
Finance.
xxxx
III. PROCEDURES
xxxx
Large Taxpayers Assistance Division II
xxxx
1. Perform the following preparatory procedures on the

identification of brands to be surveyed, supermarkets/retail
outlets where the survey shall be conducted, and the personnel
selected to conduct the survey.
xxxx
b. On the tax reclassification of new brands
i. Submit a master list of registered brands covered by the

survey pursuant to the provisions of Item II.2 of this Order
containing the complete description of each brand, existing net
retail price and the corresponding tax rate thereof.
ii. Submit to the ACIR, LTS, a list of major

supermarkets/retail outlets within the territorial jurisdiction of
the concerned revenue regions where the survey will be
conducted to be used as basis in the issuance of Mission Orders.
Ensure that the minimum number of establishments to be
surveyed, as prescribed under existing revenue laws and
regulations, is complied with. In addition, the names and
designations of revenue officers selected to conduct the survey
shall be clearly indicated opposite the names of the
establishments to be surveyed.
There is merit to the contention.
In order to implement RA 8240 following its effectivity on

January 1, 1997, the BIR issued Revenue Regulations No. 1-97,
dated December 13, 1996, which mandates a one-time
classification only.[79] Upon their launch, new brands shall be
initially
taxed
based
on
their
suggested
net
retail
price. Thereafter, a survey shall be conducted within three (3)
months to determine their current net retail prices and, thus, fix
their official tax classifications. However, the BIR made a
turnaround by issuing Revenue Regulations No. 9-2003, dated
February 17, 2003, which partly amended Revenue Regulations
No. 1-97, by authorizing the BIR to periodically reclassify new
brands (i.e., every two years or earlier) based on their current net
retail prices. Thereafter, the BIR issued Revenue Memorandum

Order No. 6-2003, dated March 11, 2003, prescribing the
guidelines on the implementation of Revenue Regulations No. 92003. This was patent error on the part of the BIR for being
contrary to the plain text and legislative intent of RA 8240.
It is clear that the afore-quoted portions of Revenue
Regulations No. 1-97, as amended by Section 2 of Revenue
Regulations 9-2003, and Revenue Memorandum Order No. 6-2003
unjustifiably emasculate the operation of Section 145 of the NIRC
because they authorize the Commissioner of Internal Revenue to
update the tax classification of new brands every two years or
earlier subject only to its issuance of the appropriate Revenue
Regulations, when nowhere in Section 145 is such authority
granted to the Bureau. Unless expressly granted to the BIR, the
power to reclassify cigarette brands remains a prerogative of the
legislature which cannot be usurped by the former.
More importantly, as previously discussed, the clear

legislative intent was for new brands to benefit from the same
freezing mechanism accorded to Annex D brands. To reiterate, in
enacting RA 8240, Congress categorically rejected the DOF
proposal and Senate Version which would have empowered the
DOF and BIR to periodically adjust the excise tax rate and tax
brackets, and to periodically resurvey and reclassify cigarette
brands. (This resurvey and reclassification would have naturally
encompassed both old and new brands.) It would thus, be absurd
for us to conclude that Congress intended to allow the periodic
reclassification of new brands by the BIR after their classification
is determined based on their current net retail price while limiting
the freezing of the classification to Annex D brands. Incidentally,
Senator Ralph G. Recto expressed the following views during the
deliberations on RA 9334, which later amended RA 8240:
Senator Recto: Because, like I said, when Congress agreed to

adopt a specific tax system [under R.A. 8240], when Congress did not
index the brackets, and Congress did not index the rates but only
provided for a one rate increase in the year 2000, we shifted from ad
valorem which was based on value to a system of specific which is

based on volume. Congress then, in effect, determined the
classification based on the prices at that particular period of time and
classified these products accordingly.
Of course, Congress then decided on what will happen to the

new brands or variants of existing brands. To favor government, a
variant would be classified as the highest rate of tax for that particular
brand. In case of a new brand, Mr. President, then the BIR should
classify them. But I do not think it was the intention of Congress
then to give the BIR the authority to reclassify them every so
often. I do not think it was the intention of Congress to allow
the BIR to classify a new brand every two years, for example,
because it will be arbitrary for the BIR to do so. x x
x[80] (Emphasis supplied)
For these reasons, the amendments introduced by RA 9334 to RA

8240, insofar as the freezing mechanism is concerned, must be
seen merely as underscoring the legislative intent already in
place then, i.e. new brands as being covered by the freezing
mechanism after their classification based on their current net
retail prices.
Unfortunately for petitioner, this result will not cause a downward

reclassification of Lucky Strike. It will be recalled that petitioner
introduced Lucky Strike in June 2001. However, as admitted by
petitioner itself, the BIR did not conduct the required market
survey within three months from product launch. As a result,
Lucky Strike was never classified based on its actual current net
retail price.Petitioner failed to timely seek redress to compel the
BIR to conduct the requisite market survey in order to fix the tax
classification of Lucky Strike. In the meantime, Lucky Strike was
taxed based on its suggested net retail price of P9.90 per pack,
which is within the high-priced tax bracket. It was only after the
lapse of two years or in 2003 that the BIR conducted a market
survey which was the first time that Lucky Strikes actual current
net retail price was surveyed and found to be from P10.34
to P11.53 per pack, which is within the premium-priced tax

bracket. The case of petitioner falls under a situation where there
was no reclassification based on its current net retail price which
would have been invalid as previously explained. Thus, we cannot
grant petitioners prayer for a downward reclassification of Lucky
Strike because it was never reclassified by the BIR based on
its actual current net retail price.
It should be noted though that on August 8, 2003, the BIR

issued Revenue Regulations No. 22-2003 which implemented the
revised tax classifications of new brands based on their current
net retail prices through the market survey conducted pursuant to
Revenue Regulations No. 9-2003. Annex A of Revenue Regulations
No. 22-2003 lists the result of the market survey and the
corresponding recommended tax classification of the new brands
therein aside from Lucky Strike. However, whether these other
brands were illegally reclassified based on their actual current net
retail prices by the BIR must be determined on a case-to-case
basis because it is possible that these brands were classified
based on their actual current net retail price for the first time in
the year 2003 just like Lucky Strike. Thus, we shall not make any
pronouncement as to the validity of the tax classifications of the
other brands listed therein.
Finally, it must be noted that RA 9334 introduced changes in

the manner by which the current net retail price of a new brand is
determined and how its classification is permanently fixed, to wit:
New brands, as defined in the immediately following paragraph,
shall initially be classified according to their suggested net retail price.
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
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.
In sum, Section 4(B)(e)(c), 2nd paragraph of Revenue Regulations

No. 1-97, as amended by Section 2 of Revenue Regulations 92003, 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, 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. Further, these provisions are deemed modified upon the
effectivity of RA 9334 on January 1, 2005 insofar as the manner of
determining the permanent classification of new brands is

concerned.
We now tackle the last issue.
Petitioner contends that RA 8240, as amended by RA 9334,

and its implementing rules and regulations violate the General
Agreement on Tariffs and Trade (GATT) of 1947, as amended,
specifically, Paragraph 2, Article III, Part II:
2. The products of the territory of any contracting party imported into

the territory of any other contracting party shall not be subject, directly
or indirectly, to internal taxes or other internal charges of any kind in
excess of those applied, directly or indirectly, to like domestic
products. Moreover, no contracting party shall otherwise apply internal
taxes or other internal charges to imported or domestic products in a
manner contrary to the principles set forth in paragraph 1.
It claims that it is the duty of this Court to correct, in favor of the

GATT, whatever inconsistency exists between the assailed law
and the GATT in order to prevent triggering the international
dispute settlement mechanism under the GATT-WTO Agreement.
We disagree.
The classification freeze provision uniformly applies to all

newly introduced brands in the market, whether imported or
locally manufactured. It does not purport to single out imported
cigarettes in order to unduly favor locally produced ones. Further,
petitioners evidence was anchored on the alleged unequal tax
treatment between old and new brands which involves a different
frame of reference vis--vis local and imported products. Petitioner
has, therefore, failed to clearly prove its case, both factually and
legally, within the parameters of the GATT.
At any rate, even assuming arguendo that petitioner was

able to prove that the classification freeze provision violates the
GATT, the outcome would still be the same. The GATT is a treaty
duly ratified by the Philippine Senate and under Article VII,
Section 21[81] of the Constitution, it merely acquired the status of
a statute.[82] Applying the basic principles of statutory construction
in case of irreconcilable conflict between statutes, RA 8240, as
amended by RA 9334, would prevail over the GATT either as a
later enactment by Congress or as a special law dealing with the
taxation of sin products. Thus, in Abbas v. Commission on
Elections,[83] we had occasion to explain:
Petitioners premise their arguments on the assumption that the
Tripoli Agreement is part of the law of the land, being a binding
international agreement. The Solicitor General asserts that the Tripoli
Agreement is neither a binding treaty, not having been entered into by
the Republic of the Philippines with a sovereign state and ratified
according to the provisions of the 1973 or 1987 Constitutions, nor a
binding international agreement.
We find it neither necessary nor determinative of the case to

rule on the nature of the Tripoli Agreement and its binding effect on the
Philippine Government whether under public international or internal
Philippine law. In the first place, it is now the Constitution itself that
provides for the creation of an autonomous region in Muslim Mindanao.
The standard for any inquiry into the validity of R.A. No. 6734 would
therefore be what is so provided in the Constitution. Thus, any conflict
between the provisions of R.A. No. 6734 and the provisions of the
Tripoli Agreement will not have the effect of enjoining the
implementation of the Organic Act. Assuming for the sake of
argument that the Tripoli Agreement is a binding treaty or
international agreement, it would then constitute part of the
law of the land. But as internal law it would not be superior to
R.A. No. 6734, an enactment of the Congress of the
Philippines, rather it would be in the same class as the
latter [SALONGA, PUBLIC INTERNATIONAL LAW 320 (4th ed., 1974),

citing Head Money Cases, 112 U.S. 580 (1884) and Foster v. Nelson, 2
Pet. 253 (1829)]. Thus, if at all, R.A. No. 6734 would be
amendatory of the Tripoli Agreement, being a subsequent
law. Only a determination by this Court that R.A. No. 6734 contravenes
the Constitution would result in the granting of the reliefs sought.
(Emphasis supplied)
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 92003, 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.
BRITISH AMERICAN TOBACCO, Petitioner, v. 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 the Bureau of Internal Revenue, Respondents.
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
rbl r l l lbrr
[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
emerged as the highest bidder.3
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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:
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
Ruling of the Court of Appeals

Not contented with the adverse results, petitioner elevated the case to the CA via a petition for review under
Rule 43, assigning the following errors:10
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:
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:
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
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:
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:
chanroble svirtuallawlibrary
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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The Courts Ruling

The petition is unmeritorious.
Reviews by the Secretary of
Finance pursuant to Sec. 4 of the
NIRC are appealable to the CTA
To recapitulate, three different, if not conflicting, positions as indicated below have been advanced by the
parties and by the CA as the proper remedy open for assailing respondents rulings:
1.
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.
CA: The ruling of the Commissioner is subject to review by the CTA.
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:
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. (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
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:
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:
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:
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:
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:
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:
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.
ISSUE on DONORS TAX:

W/N the sales of shares sold for less than an adequate consideration be subject to donors
tax?
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.
CIR DENYING THE 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. The Commissioner held donors tax became imposable
on the price difference pursuant to Sec. 100 of the National Internal Revenue Code (NIRC):
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.
ISSUE on TAX REMEDIES:

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?
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 (erroneous).
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.
G.R. No. 207843
July 15, 2015
COMMISSION OF INTERNAL REVENUE, Petitioner,

vs.
COURT OF TAX APPEALS (SECOND DIVISION) and PETRON CORPORATION, Respondents.
*
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
The Issue Before the Court

The core issue to be resolved is whether or not the CTA properly assumed jurisdiction over the
petition assailing the imposition of excise tax on Petron's importation of alkylate based on Section
148 (e) of the NIRC.
The Court's Ruling
The petition is meritorious.
The CIR asserts that the interpretation of the subject tax provision, i.e., Section 148 (e) of the NIRC,
embodied in CMC No. 164-2012, is an exercise of her quasi-legislative function which is reviewable
by the Secretary of Finance, whose decision, in turn, is appealable to the Office of the President
and, ultimately, to the regular courts, and that only her quasi-judicial functions or the authority to
decide disputed assessments, refunds, penalties and the like are subject to the exclusive appellate
jurisdiction of the CTA. She likewise contends that the petition suffers from prematurity due to
Petron 's failure to exhaust all available remedies within the administrative level in accordance with
the Tariff and Customs Code (TCC).
20
21
The CIR's position is well-grounded.

Section 4 of the NIRC confers upon the CIR both: (a) the power to interpret tax laws in the exercise
of her quasi-legislative function; and (b) the power to decide tax cases in the exercise of her quasijudicial function. It also delineates the jurisdictional authority to review the validity of the CIR's
exercise of the said powers, thus:
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 CTA is a court of special jurisdiction, with power to review by appeal decisions involving tax
disputes rendered by either the CIR or the COC. Conversely, it has no jurisdiction to determine the
validity of a ruling issued by the CIR or the COC in the exercise of their quasi-legislative powers to
interpret tax laws. These observations may be deduced from a reading of Section 7 of RA 1125, as
amended by RA 9282, entitled "An Act Creating the Court of Tax Appeals," enumerating the cases
over which the CT A may exercise its jurisdiction:
1wphi1
22
23
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;
2. Inaction by the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relations thereto, or other matters arising under the National Internal Revenue Code
or other laws administered by the Bureau of Internal Revenue, where the National
Internal Revenue Code provides a specific period of action, in which case the
inaction shall be deemed a denial;
3. Decisions, orders or resolutions of the Regional Trial Comis in local tax cases
originally decided or resolved by them in the exercise of their original or appellate
jurisdiction;
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;
5. Decisions of the Central Board of Assessment Appeals in the exercise of its
appellate jurisdiction over cases involving the assessment and taxation of real
property originally decided by the provincial or city board of assessment appeals;
6. Decisions of the Secretary of Finance on customs cases elevated to him
automatically for review from decisions of the Commissioner of Customs which are
adverse to the Government under Section 2315 of the Tariff and Customs Code;
7. Decisions of the Secretary of Trade and Industry, in the case of nonagricultural
product, commodity or article, and the Secretary of Agriculture in the case of
agricultural product, commodity or article, involving dumping and countervailing
duties under Section 301 and 302, respectively, of the Tariff and Customs Code, and
safeguard measures under Republic Act No. 8800, where either party may appeal
the decision to impose or not to impose said duties.
b. Jurisdiction over cases involving criminal offenses as herein provided:
1. Exclusive original jurisdiction over all criminal offenses arising from violations of
the National Internal Revenue Code or Tariff and Customs Code and other laws
administered by the Bureau of Internal Revenue or the Bureau of Customs: Provided,
however, That offenses or felonies mentioned in this paragraph where the principal
amount of taxes and fees, exclusive of charges and penalties, claimed is less than
One million pesos (P1,000,000.00) or where there is no specified amount claimed
shall be tried by the regular Courts and the jurisdiction of the CTA shall be appellate.
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.

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BRITISH AMERICAN TOBACCO, G.R. No.

the Bureau of Internal Revenue,

Section 145 of the NIRC on January 1, 2005; (3) Revenue

RA 8240, entitled An Act Amending Sections 138, 139, 140, and

Paragraph (c) of Section 145 provides for four tiers of tax

Paragraph (c) of Section 145, [1] states

SEC. 145. Cigars and cigarettes.

(c) Cigarettes packed by machine. There shall be levied, assessed and

the tax shall be Thirteen pesos and forty-four centavos

(4) If the net retail price (excluding the excise tax

Variants of existing brands of cigarettes which are introduced in

New brands shall be classified according to their current net

The classification of each brand of cigarettes based on its

As such, new brands of cigarettes shall be taxed according to

To implement RA 8240, the Bureau of Internal Revenue (BIR)

6. New Brands shall mean brands duly registered after January 1,

SECTION 4. Classification and Manner of Taxation of Existing Brands,

New brands shall be classified according to their current net retail

In June 2001, petitioner British American Tobacco introduced into

On February 17, 2003, Revenue Regulations No. 9-2003,

For the purpose of establishing or updating the tax classification of new

with prayer for the issuance of a temporary restraining order

Respondent Commissioner of Internal Revenue filed an

WHEREFORE, premises considered, the instant Petition is hereby

Petitioner brought the instant petition for review directly with

While the petition was pending, RA 9334 (An Act Increasing

(1) increased the excise tax rates provided in

(2) mandated that new brands of cigarettes shall

(3) retained Annex D as tax base of those

October 1, 1996, and which continue to be

(4) provided a legislative freeze on brands of

Pertinent portions, of RA 9334, provides:

SEC. 145. Cigars and Cigarettes.

(C) Cigarettes Packed by Machine. There shall be levied,

Effective on January 1, 2005, Two pesos (P2.00) per

Effective on January 1, 2007, Two pesos and

Effective on January 1, 2011, Two pesos and

Effective on January 1, 2007, Six pesos

Effective on January 1, 2009, Seven pesos and

Effective on January 1, 2009, Eleven pesos and

Effective on January 1, 2011, Twelve pesos (P12.00)

Effective on January 1, 2005, Twenty-five pesos

Effective on January 1, 2007, Twenty-six pesos and

Effective on January 1, 2009, Twenty-seven pesos

Effective on January 1, 2011, Twenty-eight pesos

New brands, as defined in the immediately following paragraph, shall

Net retail price, as determined by the Bureau of Internal Revenue

The classification of each brand of cigarettes based on its

marketed on or after October 1, 1996, and which continue to

Under RA 9334, the excise tax due on petitioners products

Hence, petitioner filed a Motion to Admit Attached

In its Comment to the supplemental petition, respondents,

cigarettes under Annex D, petitioners brands and other brands

On March 20, 2006, Philip Morris Philippines Manufacturing

According to the Intervenors, no inequality exists because

Intervenor Fortune Tobacco further contends that petitioner

initial basis of its tax classification, will be confirmed and

Moreover, Fortune Tobacco claims that the challenge to the

On August 7, 2006, the OSG manifested that it interposes no

The jurisdiction of the Court of Tax Appeals is defined in

Sec. 7. Jurisdiction. The CTA shall exercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein

1. Decisions of the Commissioner of Internal Revenue in cases

other matters arising under the National Internal Revenue or