Case Summary (G.R. No. 163583)
Relevant Dates
April 15, 2009 – Decision date (1987 Constitution applies)
January 1, 1997 – Effectivity of RA 8240
August 20, 2008 – Original en banc decision
Applicable Law
- 1987 Philippine Constitution: Equal protection clause; uniformity of taxation; Section 19, Article XII (unfair competition); Article VI, Section 28(1) (progressive taxation)
- National Internal Revenue Code (NIRC) Section 145, as amended by RA 9334
- Revenue Regulations No. 1-97 (Sections 4(B)(e)(c), 2nd paragraph), as amended by Revenue Regulations No. 9-2003
- Revenue Memorandum Order No. 6-2003 (Sections II(1)(b), II(4)(b), II(6), II(7), III(“Large Tax Payers Assistance Division II”)
Procedural History
BAT challenged provisions granting the BIR periodic reclassification power over cigarette excise tax brackets. The Regional Trial Court of Makati partially ruled against BAT. On August 20, 2008, the Supreme Court affirmed with modification: it upheld the constitutionality of NIRC §145 (as amended by RA 9334) but struck down regulations and memorandum orders insofar as they empowered bi-annual reclassification. BAT’s subsequent motion for reconsideration was filed, reiterating constitutional challenges and seeking downward reclassification of its Lucky Strike brand.
Issues Presented
- Whether the “classification freeze” provision violates the equal protection and uniformity of taxation clauses.
- Whether it contravenes Section 19, Article XII (unfair competition).
- Whether it infringes the constitutional mandate for progressive taxation (regressive and inequitable tax).
- Whether BAT is entitled to downward reclassification of Lucky Strike due to BIR’s alleged delay in conducting the market survey.
Analysis on Equal Protection and Uniformity of Taxation
- No suspect classification or fundamental right involved ⇒ rational-basis test applies.
- Legislative freeze on tax brackets rests on substantial distinctions germane to tax administration:
• Practicality of fixing tax brackets for new brands not existing at enactment of RA 8240
• Administrative concerns over delegation of reclassification power to BIR/DOF (abuse, corruption, market manipulation)
• Desire for stable, predictable revenue and streamlined tax administration - The freeze applies equally to all cigarette brands—existing and future—thus satisfying geographic uniformity and the four-part test (distinctiveness; germane purpose; future application; equal application).
- BAT’s reliance on Ormoc Sugar Co. is misplaced because that ordinance singled out one entity and failed to cover future conditions.
Analysis on Unfair Competition under Art. XII, Sec. 19
- BAT did not raise this provision below; issues not duly raised cannot be entertained for the first time on appeal.
- Even if considered, evidence is insufficient to establish a “substantial barrier” to market entry.
- Several new cigarette brands entered post-1997; consumer choice also governed by taste, loyalty, formulation—not price alone.
- Predatory pricing and oligopoly claims lack documentary proof; Tatad v. DOE is inapposite (tariff differential vs. price-based excise tax).
Analysis on Regressive and Inequitable Taxation
- Classification freeze challenge duplicates equal protection arguments, which are already found valid under rational-basis review.
- While excise tax is indirect (regressive), the Constitution mandates that Congress “evolve a progressive system” but does not render regressive taxes per se unenforceable.
- The four-tiered structure taxes higher-priced cigarettes at higher rates, satisfying the legislative directive.
Issu
Case Syllabus (G.R. No. 163583)
Procedural History
- Petition for certiorari and prohibition filed by British American Tobacco (BAT) challenging the classification and excise tax provisions of RA 8240 as amended by RA 9334, Revenue Regulations No. 1-97 (as amended), and Revenue Memorandum Order No. 6-2003.
- Regional Trial Court of Makati, Branch 61, in Civil Case No. 03-1032 ruled against BAT.
- Supreme Court, en banc, on August 20, 2008 rendered a Decision partially granting BAT’s petition:
– Declared Section 145 of the NIRC, as amended by RA 9334, constitutional.
– Invalidated specific provisions of Revenue Regulations and Revenue Memorandum Order empowering the BIR to reclassify cigarette brands periodically. - BAT filed a Motion for Reconsideration reasserting constitutional challenges and seeking downward reclassification of its Lucky Strike brand.
Issues Raised in Motion for Reconsideration
- Alleged violation of equal protection and uniformity of taxation clauses by freezing classification of “Annex D” and future brands based on net retail prices at fixed points in time.
- Alleged contravention of Section 19, Article XII of the Constitution on unfair competition through anti-competitive barriers to new market entrants.
- Alleged infringement of constitutional command against regressive and inequitable taxation under Article VI, Section 28(1).
- Claim for downward tax-bracket reclassification of Lucky Strike due to BIR’s delay in conducting mandated market survey.
Supreme Court’s Ruling on Equal Protection and Tax Uniformity
- No suspect classification or fundamental right involved; rational-basis test properly applied.
- Legislative classification upheld if:
- Based on substantial distinctions.
- Germane to the law’s purpose.
- Applies equally to present and future conditions.
- Applies equally to all members of the class.
- Classification-freeze provision satisfies all four requisites as a practical mechanism for new brands.
- Uniformity of taxation clause requires geographical uniformity, not intrinsic equality; classification freeze applies nationwide and meets the four-fold test.
- Reliance on Ormoc Sug