UDK-15143 - IN RE: Supreme Court Judicial Independence vs. Judiciary Development Fund

On December 20, 2012, President Benigno S. Aquino III signed Republic Act No. 10351, known as the Sin Tax Reform Law, which restructured the excise tax on alcohol and tobacco products by amending provisions of the National Internal Revenue Code (NIRC).
Section 5 of RA 10351 amended Section 145(C) of the NIRC to impose excise tax on cigarettes packed by machine based on the net retail price per pack, with different rates effective from January 1, 2013, through January 1, 2017, and thereafter subject to a 4% annual increase by revenue regulations.
RA 10351 specified that “duly registered cigarettes packed by machine shall only be packed in twenties and other packaging combinations of not more than twenty,” implicitly indicating that the tax should be imposed on the package as a whole.

On December 21, 2012, the Secretary of Finance, upon the recommendation of the Commissioner of Internal Revenue (CIR), issued Revenue Regulations No. 17-2012 (RR 17-2012).
Section 11 of RR 17-2012 mandated that all cigarettes, whether packed by hand or machine, should only be packaged in complete packs of 20 or in other combinations that yield not more than 20 sticks, but it added that in the case of packaging combinations (e.g., 5’s or 10’s), the tax must be computed based on the net retail price of each individual package.
On December 27, 2012, the CIR issued Revenue Memorandum Circular No. 90-2012 (RMC 90-2012), which included Annex “D-1” – a tabular classification of locally-manufactured cigarette brands demonstrating how the net retail price was converted into individual packages (such as 5’s or 10’s) for purposes of determining the applicable excise tax rates.

PMFTC, a member of the Philippine Tobacco Institute (PTI), paid the excise taxes under RA 10351, RR 17-2012, and RMC 90-2012, albeit under protest and reserving its right to challenge the regulations, as communicated on January 16, 2012.
On February 26, 2013, PTI filed a petition for declaratory relief with an application for a writ of preliminary injunction before the Regional Trial Court (RTC) of Las Piñas City, Branch 253.
PTI challenged RR 17-2012 and RMC 90-2012 on the ground that these issuances violated the clear intent of RA 10351 by imposing excise tax individually on cigarette pouches (5’s and 10’s) rather than on the entire packaging combination of 20 sticks.

On October 7, 2013, the RTC declared null and void the contested provisions of RR 17-2012 and RMC 90-2012, ordering the petitioners to cease and desist from implementing Section 11 of RR 17-2012 and RMC 90-2012 in relation to cigarettes packed by machine.
The RTC held that RA 10351 intended to impose the excise tax on the whole package (pack of 20 sticks), regardless of whether cigarettes were packaged in 20’s or broken down into smaller retail packages, such as 5’s or 10’s.
A temporary restraining order was later issued by the Supreme Court on June 9, 2014, prohibiting PTI and the RTC from enforcing the RTC’s decision, pending further orders.
The petition under review by the Supreme Court arose from the Secretary of Finance and the CIR (through the Office of the Solicitor General) seeking to reverse the RTC’s decision, contending that RA 10351 imposed tax “per pack” as based on the net retail price and that RR 17-2012 merely clarified the definition of “pack.”

Whether the Regional Trial Court erred in nullifying Section 11 of RR 17-2012 and Annex “D-1” of RMC 90-2012 regarding the imposition of excise tax on individual cigarette packages (such as 5’s or 10’s) not exceeding 20 sticks, rather than treating the entire packaging combination as a single taxable unit.
Whether the administrative issuances (RR 17-2012 and RMC 90-2012) exceeded their power by effectively amending RA 10351, thus imposing a tax on each individual component (pouch) instead of on the complete pack of 20 sticks.