Case Summary (G.R. No. 163583)
Petitioner and Respondents
– Petitioner: British American Tobacco.
– Respondents: Secretary Camacho and Commissioner Parayno.
– Intervenors: Philip Morris Philippines Manufacturing, Fortune Tobacco, Mighty Corporation, JT International, S.A.
Key Dates
– January 1, 1997: RA 8240’s amendments to NIRC take effect.
– October 1, 1996: Survey date for existing cigarette brands (Annex “D”).
– February 17, 2003: RR 9-2003 authorises BIR to review new-brand classifications every two years.
– March 11, 2003: RMO 6-2003 issues guidelines for surveys.
– August 8, 2003: RR 22-2003 implements updated tax classifications.
– September 1, 2003: BAT files petition in RTC Makati for TRO and preliminary injunction.
– May 12, 2004: RTC decision upholds Section 145 and lifts injunction.
– January 1, 2005: RA 9334 amends Section 145 (legislative freeze for brands introduced 1997–2003).
– August 20, 2008: Supreme Court En Banc decision.
Applicable Law
– 1987 Constitution: Equal Protection Clause; Uniformity of Taxation Clause; judicial review power.
– NIRC Section 145 (cigarettes packed by machine), as recodified by RA 8424 (1997) and first amended by RA 8240 (1996) then further by RA 9334 (2005).
– Revenue Regulations Nos. 1-97, 9-2003, 22-2003; Revenue Memorandum Order No. 6-2003.
– GATT 1947, Article III(2) (national treatment obligation).
Facts
RA 8240 introduced a four-tiered excise tax on machine-packed cigarettes, classifying existing brands by their average net retail price as of October 1, 1996 (Annex “D”), and new brands by survey of their current net retail price within three months of market entry. Classification and rates were “frozen” until congressional revision. BAT’s Lucky Strike brands, suggested retail price P9.90, were tentatively taxed at P8.96 per pack. No survey occurred within three months; in 2003 a survey found Lucky Strike’s net price above P10.00, triggering the highest rate P13.44. BAT sought injunction, arguing that the “freeze” created discriminatory treatment between old and new brands and violated equal protection, uniformity and GATT.
Procedural History
– RTC Makati denied BAT’s TRO (September 4, 2003) then granted preliminary injunction (March 4, 2004).
– Upon full hearing, RTC (May 12, 2004) dismissed the petition for lack of merit and lifted the injunction.
– BAT filed a petition for review with the Supreme Court, later supplemented to challenge RA 9334 and BIR issuances.
– Respondents and intervenors argued jurisdiction lies with CTA or that RA 9334’s legislative freeze moots the challenge.
Issues
- Whether Section 145 (and RA 9334) violates equal protection and uniformity of taxation under the 1987 Constitution.
- Whether Revenue Regulations 1-97 as amended, RR 9-2003, RR 22-2003 and RMO 6-2003 impermissibly empower BIR to periodically reclassify new brands.
- Whether the assailed provisions conflict with GATT Article III(2).
Jurisdictional and Preliminary Matters
– Constitutional challenges to laws and regulations fall within the judicial review power of regular courts (RTC and Supreme Court), not CTA.
– BAT is not estopped from challenging constitutionality despite earlier compliance efforts, because reliance on a law does not bar subsequent bona fide constitutional attacks.
Equal Protection and Uniformity Analysis
– Under rational-basis review, classifications withstand equal protection if they are rationally related to legitimate state interests.
– The “classification freeze” provision advances multiple interests: simplifying sin-tax administration; preventing abuse, evasion and corruption; ensuring stable, buoyant revenues; facilitating revenue forecasting; and preserving legislative authority to adjust tax brackets.
– Congress consciously rejected proposals to delegate periodic adjustments and reclassification to executive agencies because of separation-of-powers and anti-corruption concerns.
– Differential treatment between older brands (Annex “D”) and newer brands arises from the timing of their classification, not from hostility or invidious discrimination.
– Interests in efficient administration and legislative control amply satisfy the rational-basis test. Section 145 is therefore constitutional.
Invalidity of BIR Issuances
– RA 8240 did not auth
Case Syllabus (G.R. No. 163583)
Facts
- Republic Act (RA) 8240 (Tax Reform Act of 1997) recodified the National Internal Revenue Code (NIRC) and renumbered Section 142 as Section 145, creating a four-tier specific excise tax on machine-packed cigarettes based on net retail price per pack as of October 1, 1996 (Annex “D”).
- New brands (registered after January 1, 1997) were to be taxed initially at their suggested retail price, then reclassified after a three-month survey of current net retail price in designated supermarkets.
- Revenue Regulations No. 1-97 implemented RA 8240; Revenue Regulations Nos. 9-2003 and 22-2003, plus Revenue Memorandum Order No. 6-2003, introduced a two-year periodic review and reclassification of new brands’ tax brackets.
- In June 2001 British American Tobacco (BAT) launched Lucky Strike variants at P9.90; initially assessed at P8.96 per pack (high-priced bracket).
- A 2003 BIR survey found Lucky Strike’s net retail prices at P21.23–P22.61, triggering a P13.44 per-pack rate (premium bracket).
- Pursuant to RA 9334 (effective Jan. 1, 2005), excise rates increased and a legislative freeze was placed on classification of brands introduced between January 2, 1997 and December 31, 2003, retainable only by act of Congress.
Procedural History
- September 1, 2003: BAT filed in RTC Makati (Civil Case No. 03-1032) for injunction against Section 145, R.R. 1-97, 9-2003, 22-2003, RMO 6-2003 as violative of equal protection and uniformity.
- RTC denied TRO (Sept. 4, 2003), granted preliminary injunction (Mar. 4, 2004), later lifted and dismissed petition (May 12, 2004).
- BAT elevated to the Supreme Court on pure question of law. While pending, RA 9334 amended Section 145 and its rules (effective Jan. 1, 2005).
- BAT filed supplement to challenge RA 9334’s retention of Annex D and sought downward reclassification of Lucky Strike products.
- Interventions by Philip Morris, Fortune Tobacco, Mighty Corp., and JT International were allowed.
Issues
- Whether the classification-freeze provision of Section 145 (as amended by RA 9334) violates equal protection and uniformity of taxation.
- Whether BIR issuances (R.R. 1-97 as amended, R.R. 9-2003, R.R. 22-2003, RMO 6-2003) exceed authority by authorizing periodic reclassification of new brands.
- Whether BAT is estopped from questioning BIR’s authority after undertaking to comply with its rules.
- Whether the Supreme Court or CTA has jurisdiction over this suit.
- Whether the measure conflicts with the GATT obligation on like domestic and imported products.