Title
Supreme Court
Commissioner of Internal Revenue vs. San Miguel Corp.
Case
G.R. No. 180740
Decision Date
Nov 11, 2019
SMC contested RR No. 17-99's validity, seeking a P94M excise tax refund. Court upheld RR's invalidity, granted partial refund, and affirmed the two-year prescriptive period.

Case Summary (G.R. No. 180740)

Context and Background Facts

Effective January 1, 1997, RA No. 8240 shifted the excise tax on fermented liquors from an ad valorem system to a specific tax system, with tax rates dependent on the net retail price per liter. The law included a three-year transition period from January 1, 1997 to December 31, 1999, during which the excise tax on any brand shall not be less than that due on October 1, 1996. Thereafter, starting January 1, 2000, excise tax rates were to be increased by 12%. Prior to the effectivity of RA 8240, SMC paid an ad valorem tax of P7.07 per liter on its Red Horse beer. In 1999, RR No. 17-99 was issued to implement the 12% increase, but included a proviso that the new tax rate for existing brands shall not be lower than the excise tax actually paid prior to January 1, 2000.

SMC’s Claim and Initial Petition

SMC asserted that RR No. 17-99’s proviso contravened RA No. 8240 because it extended the three-year transition period and prevented the implementation of the statutory tax rates as of January 1, 2000. Consequently, SMC filed a claim for refund or tax credit amounting to approximately P94.49 million for excess excise taxes paid between January 11, 2001 and December 31, 2002. The amount represented the difference between the tax rates it had been paying (P7.07 per liter) and the correct tax rates under RA 8240 without the RR No. 17-99 proviso (P6.89 per liter).

Ruling of the Court of Tax Appeals (CTA) First Division

The CTA First Division ruled in favor of SMC, declaring RR No. 17-99 invalid insofar as it imposed a tax rate higher than that allowed under RA No. 8240. It held that the three-year transitional period ended on December 31, 1999, after which the increased tax rates under Section 143 should immediately apply without the proviso in RR No. 17-99. The CTA granted SMC’s refund claim for the excess excise taxes from March 1, 2001 to December 31, 2002, amounting to P88.09 million, but disallowed the claim covering the period earlier than this due to prescription under the two-year rule for tax refund claims stipulated in the Tax Reform Act of 1997. The court ruled that the prescriptive period began to run from the date of tax payment or removal of the products, and because SMC filed its judicial claim on February 24, 2003, claims for payments made prior to February 24, 2001 had prescribed.

Motions for Reconsideration and CTA En Banc Ruling

Both parties filed motions for reconsideration; however, the CTA First Division denied these for lack of proof on the exact dates of payment and filing that could affect the determination of prescription. The CTA En Banc later affirmed the First Division’s decision and resolution, holding that the invalid proviso in RR No. 17-99 constituted unauthorized administrative legislation, and confirmed that only claims filed within the two-year prescriptive period under Section 229 of the Tax Reform Act could be entertained. The En Banc also rejected SMC's contention that the six-year prescriptive period under the Civil Code’s principle of solutio indebiti should apply, emphasizing that the Tax Reform Act as a special law prevails over general provisions of the Civil Code.

Issues on Prescription and Solutio Indebiti

SMC argued that the six-year prescriptive period under Article 1145 of the Civil Code (solutio indebiti or payment without cause) should apply, and that the two-year limit was suspended due to its use of the advance payment scheme under Revenue Regulation No. 2-97, which allows excise tax returns and payments to be filed after actual removal of the products. The Court, however, rejected these arguments. It reiterated that the two-year prescriptive period under Section 229 of the Tax Reform Act is mandatory and jurisdictional, regardless of subsequent events. The principle of solutio indebiti does apply to the Government but does not override the explicit prescriptive period for tax refund claims prescribed by the special law.

Previous Related Jurisprudence

The Court referred to Commissioner of Internal Revenue v. Fortune Tobacco Corporation, which similarly declared the proviso in RR No. 17-99 invalid for imposing tax burdens beyond the law’s clear mandate. It also cited Commissioner of Internal Revenue v. San Miguel Corporation (2011), involving similar issues on excise taxes on fermented liquors, and reaffirmed the invalidity of RR No. 17-99’s proviso. Additionally, in Commissioner of Internal Revenue v. Manila Electric Co. (Meralco) and Metropolitan Bank and Trust Co. v. Commissioner of Internal Revenue, the Court held that the two-year prescriptive period under the Tax Reform Act applies to claims for refund of erroneously paid taxes, even on interest income, and that the Civil Code’s general prescriptive periods do not apply.

Evidentiary Issues and Denial of Full Refund Claim

The Court upheld the CTA’s denial of SMC’s claim for the excess excise tax payments made from January 11 to February 28, 2001 on grounds of prescription and insufficient evidence to apportion payments within the prescriptive period. SMC failed to present compelling proof of actual payment dates corresponding to the specific periods, including evidence to allocate portions of the claimed refund that should fall within or outside the prescriptive period. The Court emphasized that the burden of proof lies with the taxpayer, and with findings of f

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