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Lessons Applicable: Court of Tax Appeals Jurisdiction, Regional Trial Court

Jurisdiction, Equal Protection and Uniformity of Taxation (constitutional issue), BIR
Power to Conduct Resurvey and Reclassification (delegated by express legislation)

Laws Applicable:

June 2001, petitioner British American Tobacco introduced and sold Lucky Strike,
Lucky Strike Lights and Lucky Strike Menthol Lights cigarettes w/ SRP P 9.90/pack
- Initial assessed excise tax: P 8.96/pack (Sec. 145 [c])
February 17, 2003: RR 9-2003: Periodic review every 2 years or earlier of the
current net retail price of new brands and variants thereof for the purpose of the
establishing and updating their tax classification
March 11, 2003: RMO 6-2003: Guidelines and procedures in establishing current
net retail prices of new brands of cigarettes and alcohol products
August 8, 2003: RR 22-2003: Implement the revised tax classification of certain
new brands introduced in the market after January 1, 1997 based on the survey
of their current net retail prices. This increased the excise tax to P13.44 since the
average net retail price is above P 10/pack. This cause petitioner to file before
the RTC of Makati a petition for injunction with prayer for issuance of a
Temporary Restraining Order and/or Writ of Preliminary Injunction sought to
enjoin the implementation of Sec. 145 of the NIRC, RR No. 1-97, 9-2003, 22-2003
and 6-2003 on the ground that they discriminate against new brands of
cigarettes in violation of the equal protection and uniformity provisions of the
RTC: Dismissed
While petitioner's appeal was pending, RA 9334 amending Sec. 145 of the 1997
NIRC among other took effect on January 1, 2005 which in effect increased
petitioners excise tax to P25/pack
Petitioner filed a Motion to Admit attached supplement and a supplement to the
petition for review assailing the constitutionality of RA 9334 and praying a
downward classification of Lucky Strike products at the bracket taxable at P
8.96/pack since existing brands are still taxed based on their price as of October
1996 eventhough they are equal or higher than petitioner's product price.
Philip Morris Philippines Manufacturing Incorporated, Fortune Tobacco Corp.,
Mighty Corp. and JT International Intervened.
Fortune Tobacco claimed that the CTA should have the exclusive appellate
jurisdiction over the decision of the BIR in tax disputes
1. W/N the RTC rather than the CTA has jurisdiction.
2. W/N RA 9334 of the classification freeze provision is unconstitutional for
violating the equal protection and uniformity provisions of the Constitution
3. W/N RR Nos. 1-97, 9-2003, 22-2003 and RA 8243 even prior to its amendment by
RA 9334 can authorize the BIR to conduct resurvey and reclassification.
1. Yes. The jurisdiction of the CTA id defined in RA 1125 which confers on the CTA
jurisdiction to resolve tax disputes in general. BUT does NOT include cases where
the constitutionality of a law or rule is challenged which is a judicial power
belonging to regular courts.

2. No. In Sison Jr. v. Ancheta, the court held that "xxx It suffices then that the laws
operate equally and uniformly on all persons under similar circumstances or that all
persons must be treated in the same manner, the conditions not being different,
both in the privileges conferred and the liabilities imposed. If the law be looked
upon in tems of burden on charges, those that fall within a class should be treated
in the same fashion, whatever restrictions cast on some in the group equally
binding on the rest. xxx" Thus, classification if rational in character is allowable. In
Lutz v. Araneta: "it is inherent in the power to tax that a state be free to select the
subjects of taxation, and it has been repeatedly held that 'inequalities which result
from a singling out of one particular class for taxation, or exemption infringe no
constitutional limitation" SC previously held: "Equality and uniformity in taxation
means that all taxable articles or kinds of property of the same class shall be taxed
at the same rate. The taxing power has the authority to make reasonable and
natural classifications for purposes of taxation"

Under the the rational basis test, a legislative classification, to survive an equal
protection challenge, must be shown to rationally further a legitimate state
interest. The classifications must be reasonable and rest upon some ground of
difference having a fair and substantial relation to the object of the legislation

A legislative classification that is reasonable does not offend the constitutional

guaranty of the equal protection of the laws. The classification is considered valid
and reasonable provided that: (1) it rests on substantial distinctions; (2) it is
germane to the purpose of the law; (3) it applies, all things being equal, to both
present and future conditions; and (4) it applies equally to all those belonging to the
same class.

Moreover, petitioner failed to clearly demonstrate the exact extent of such impact
as the price is not the only factor that affects competition.

3. NO. Unless expressly granted to the BIR, the power to reclassify cigarette brands
remains a prerogative of the legislature which cannot be usurped by the former.
These are however modified by RA 9334.

Petitioner contends that RA 8240, as amended by RA 9334, and its implementing

rules and regulations violate the General Agreement on Tariffs and Trade (GATT)
of 1947, as amended, specifically, Paragraph 2, Article III, Part II:
2. The products of the territory of any contracting party imported into
the territory of any other contracting party shall not be subject,
directly or indirectly, to internal taxes or other internal charges of any
kind in excess of those applied, directly or indirectly, to like domestic
products. Moreover, no contracting party shall otherwise apply
internal taxes or other internal charges to imported or domestic
products in a manner contrary to the principles set forth in paragraph
It claims that it is the duty of this Court to correct, in favor of the GATT, whatever
inconsistency exists between the assailed law and the GATT in order to prevent
triggering the international dispute settlement mechanism under the GATT-WTO

We disagree.
The classification freeze provision uniformly applies to all newly introduced brands
in the market, whether imported or locally manufactured. It does not purport to
single out imported cigarettes in order to unduly favor locally produced
ones. Further, petitioners evidence was anchored on the alleged unequal tax
treatment between old and new brands which involves a different frame of
reference vis--vis local and imported products. Petitioner has, therefore, failed to
clearly prove its case, both factually and legally, within the parameters of the GATT.
At any rate, even assuming arguendo that petitioner was able to prove that
the classification freeze provision violates the GATT, the outcome would still be the
same. The GATT is a treaty duly ratified by the Philippine Senate and under Article
VII, Section 21[81] of the Constitution, it merely acquired the status of a statute.
[82] Applying the basic principles of statutory construction in case of irreconcilable
conflict between statutes, RA 8240, as amended by RA 9334, would prevail over the
GATT either as a later enactment by Congress or as a special law dealing with the
taxation of sin products. Thus, in Abbas v. Commission on Elections ,[83] we had
occasion to explain:
Petitioners premise their arguments on the assumption that the Tripoli
Agreement is part of the law of the land, being a binding international
agreement. The Solicitor General asserts that the Tripoli Agreement is
neither a binding treaty, not having been entered into by the Republic
of the with a sovereign state and ratified according to the provisions
of the 1973 or 1987 Constitutions, nor a binding international
We find it neither necessary nor determinative of the case to rule on
the nature of the Tripoli Agreement and its binding effect on the
Philippine Government whether under public international or internal
Philippine law. In the first place, it is now the Constitution itself that
provides for the creation of an autonomous region in Muslim
Mindanao. The standard for any inquiry into the validity of R.A. No.
6734 would therefore be what is so provided in the Constitution. Thus,
any conflict between the provisions of R.A. No. 6734 and the
provisions of the Tripoli Agreement will not have the effect of
enjoining the implementation of the Organic Act. Assuming for the
sake of argument that the Agreement is a binding treaty or
international agreement, it would then constitute part of the law
of the land. But as internal law it would not be superior to R.A. No.
6734, an enactment of the Congress of the Philippines, rather it
would be in the same class as the latter [SALONGA, PUBLIC
INTERNATIONAL LAW 320 (4th ed., 1974), citing Head Money Cases,
112 U.S. 580 (1884) and Foster v. Nelson, 2 Pet. 253 (1829)]. Thus, if at
all, R.A. No. 6734 would be amendatory of the Agreement, being
a subsequent law. Only a determination by this Court that R.A. No.
6734 contravenes the Constitution would result in the granting of the
reliefs sought. (Emphasis supplied)