Case Summary (G.R. No. 128158)
Petitioner and Respondent
Petitioner: Commissioner of Internal Revenue (CIR)
Respondent: San Miguel Corporation (SMC)
Key Dates
– October 19, 1999: SMC’s request to register “San Mig Light” as a new brand
– May 28, 2002: BIR Notice of Discrepancy reclassifying “San Mig Light” as a variant
– January 6, 2004: BIR preliminary findings confirming variant classification
– 2004–2007: Formal tax assessments, BIR protests, and CTA petitions
– January 25, 2017: Supreme Court decision
Applicable Law
– 1987 Philippine Constitution
– National Internal Revenue Code of 1997 (as amended by R.A. 8424 and R.A. 8240)
– Republic Act No. 9334 (2005) “classification freeze” for new and variant brands
– Revenue Regulations implementing Section 143 on fermented liquors
Factual Background
SMC introduced “San Mig Light” in November 1999 with BIR’s initial approval to classify and tax it as a new brand (P12.15 per liter). In February 2002, LTAD II confirmed the new-brand status and tax rate. In May 2002, BIR contradicted its earlier rulings by issuing a Notice of Discrepancy, claiming “San Mig Light” was a variant of “San Miguel Pale Pilsen” and subject to higher rates (P19.91 per liter).
Administrative Classification and Notices of Discrepancy
SMC protested the Notice of Discrepancy, arguing that “San Mig Light” differed in packaging, design, alcohol content, calories, and corporate logo usage. BIR’s October 2002 rejoinder reasserted the variant finding, citing internal publications. Three BIR-management conferences ensued, culminating in Commissioner Parayno’s January 2004 validation of “San Mig Light” as variant and issuance of deficiency assessments.
Conferences and Preliminary Assessments
– January 28, 2004: Preliminary Assessment Notice (PAN) for P852 million deficiency tax (1999–2004)
– February 4, 2004: Notice of Discrepancy for January 8–29, 2004 (P28.9 million)
– March 24, 2004: Second PAN (P29.97 million)
SMC filed protests and, after denials, resumed payment at the higher P13.61 per liter rate beginning February 1, 2004.
Formal Assessment Notices and Protests
April 12 and May 26, 2004: Final Assessment Notices (FANs) demanded P876 million and P30.76 million respectively. SMC protested; denials followed on August 17 and 20, 2004 for lack of legal and factual basis.
Trial Court Proceedings in CTA (Cases 7052, 7053, 7405)
SMC filed CTA petitions challenging the FANs (Cases 7052, 7053) and filed a petition for inaction on its refund claim from February 2, 2004 to November 30, 2005 (Case 7405). The CTA First Division granted relief, canceling assessments and ordering a refund or tax credit of P781.5 million, after adjustments.
CTA First Division Ruling and Motions for Production of Documents
The First Division denied CIR’s motion for production of SMC’s “Kaunlaran” publications, annual report, and commercial footage, finding the evidence already considered and the motion filed after judgment. CIR’s motions for reconsideration and production of documents were likewise denied.
CTA En Banc Decisions (G.R. No. 205723 and G.R. No. 205045)
– G.R. No. 205723 (October 24, 2012): Dismissed CIR’s appeal and affirmed First Division’s grant of P781.5 million refund for February 2, 2004–November 30, 2005.
– G.R. No. 205045 (September 20, 2012): Denied CIR’s petition and affirmed Third Division’s partial grant ordering P926.17 million refund for December 1, 2005–July 31, 2007.
Issues for Resolution
- Timeliness and propriety of CIR’s motion for production of documents under Rule 27.
- Definition and classification of “San Mig Light” as new brand versus variant under Section 143.
- Scope of the classification freeze under R.A. 9334.
- Validity of BIR’s deficiency assessments.
- Respondent’s entitlement to refunds of overpaid excise taxes.
Denial of Motion for Production of Documents
The Supreme Court held that Rule 27 motions must be made before judgment to facilitate fair and expeditious trials. CIR’s late motions, filed after CTA Division judgments, lacked good cause and would defeat discovery’s purpose, warranting no reversible error in CTA En Banc’s denial.
Definition and Tax Treatment of New Brands and Variants
Section 143 distinguishes “new brands” (initially taxed by suggested net retail price, later validated by BIR) from “variants” (brands with modifiers to a registered root name, taxed at the highest variant rate). R.A. 9334 added a freeze on reclassification of brands introduced between January 1, 1997 and December 31, 2003, prohibiting administrative reclassification absent congressional action.
Classification Freeze under Republic Act No. 9334
The “classification freeze” mandates that brands introduced during the 1997–2003 window retain BIR-determined classification as of December 31, 2003, and may only be revised by an act of Congress. BIR’s administrative reclassification of “San Mig Light” as variant contravened this statutory freeze.
Analysis of “San Mig Light” as New Brand vs. Variant
The Court found “San Mig Light” was never listed among existing brands in Annexes C-1 or C-2; it bears no root name derived from “Pale Pilsen.” Packaging, design, size, labeling, and corporate logo usage distinguish “San Mi
...continue readingCase Syllabus (G.R. No. 128158)
Procedural History
- Two petitions for review on certiorari were filed by the Commissioner of Internal Revenue (CIR): G.R. No. 205045 and G.R. No. 205723, consolidated before the Supreme Court.
- CIR challenged Court of Tax Appeals (CTA) En Banc decisions in CTA Cases Nos. 7052, 7053, 7405 (G.R. No. 205723) and No. 7708 (G.R. No. 205045), which granted San Miguel Corporation’s (SMC) refund claims and dismissed CIR’s appeals.
- Key CTA rulings:
• Oct. 18, 2011 – CTA First Division grants SMC’s petitions in 7052/7053, partially grants 7405.
• Feb. 6, 2012 – CTA First Division denies CIR’s motion for production of documents.
• Oct. 24, 2012 – CTA En Banc dismisses CIR’s appeal in 7405.
• Sep. 20, 2012 – CTA En Banc affirms Third Division in 7708, orders refund. - CIR’s motions for reconsideration before CTA En Banc were denied; petitions for review on certiorari followed.
Factual Background
- Oct. 19, 1999 – SMC’s finance officer requests registration to manufacture “San Mig Light” at P12.15/L.
- Oct. 27, 1999 – BIR grants registration “for internal revenue purposes only.”
- Nov. 3, 1999 – SMC advises BIR of suggested net retail price and medium-priced classification at P9.15/L.
- Jan. 28 & Feb. 7, 2002 – SMC inquires about classification; LTAD II confirms “San Mig Light” as a new brand with appropriate tax.
- May 28, 2002 – BIR issues Notice of Discrepancy reclassifying “San Mig Light” as a variant, demands P824,750,204.97 deficiency.
- Jul. 9 & Oct. 14, 2002 – SMC and BIR exchange letters on classification; SMC insists on distinct brand, BIR insists variant of Pale Pilsen.
- Dec. 16, 2003 – BIR management committee votes 5–2 that it is a variant; P13.61/L tax rate applied.
- Jan.–Mar. 2004 – Preliminary Assessment Notices and Notices of Discrepancy issued totaling over P876 million; SMC files protests; protests denied in Aug. 2004.
- Sep. 2004 – SMC files CTA petitions (7052, 7053); SMC pays excise tax under protest at P13.61/L from Feb. 1, 2004.
- Dec. 28, 2005 – First administrative refund claim filed (Feb 2, 2004–Nov 30, 2005).
- Jan. 31, 2006 – CTA petition for inaction on refund filed (7405); later consolidated with 7052/7053.
- Aug. 30, 2007 – Second refund claim filed (Dec 1, 2005–Jul 31, 2007); CTA petition 7708 follows.
Issues Presented
- May a motion for production of documents under Rule 27 be filed after judgment?
- Did CIR comply with Rule 27’s good‐cause and specificity requirements?
- Is “San Mig Light” a new brand or a variant of an existing SMC beer brand for excise tax purposes?
- Does the “classification freeze” in R.A. No. 9334 prohibit BIR reclassification of brands introduced between Jan 1, 1997 and Dec 31, 2003, absent an act of Congress?
- Are the BIR’s deficiency assessments of April and May 2004 valid?
- Is SMC entitled to refunds/tax credits of P781,514,772.56 and P926,169,056.74 for the respective periods?