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Fortune Tobacco Corporation vs.

Commissioner of Internal Revenue (CIR)

FACTS: Fortune Tobacco Corporation is the manufacturer and producer of various
cigarette brands which its tax duties on this products was put in to question.
Since 1977, cigarettes were subject to ad valorem tax pursuant to our old Tax
Code.When R.A. No. 8240 took effect on 1997, the ad valorem tax (AVT) system
shifted to the specific tax system. To implement the provisions for a twelve percent
(12%) increase of excise tax on cigarettes packed by machines by January 1, 2000,
the Finance Secretary, upon recommendation of the CIR issued Revenue Regulations
No. 17-99, dated December 16, 1999.
On March 2005, Fortune Tobaccofiled a claim for tax credit and refund
for erroneously or illegally collected specific taxes covering the period June to
December 31, 2004 in the total amount of Php219,566,450.00. The CIRin his Answer
raised an Affirmative Defense, that the said amount being claimed as alleged
overpaid excise tax for the period covering 1 June to 31 December 2004, is not
properly documented.
On April 2009, the Former First Division of the CTA ruled that RR 17-99 is contrary to
law, but there is insufficiency of evidence on the claim for refund. Fortune Tobacco
elevated its claim to the CTA En Banc, found no cause even the Court should review
Fortune Tobacco's evidence, the result would be the same.
ISSUE: Whether the claim for refund by Fortune Tobacco, relying on the
admissibility and the probative value of photocopied documents that allegedly
contain a recording of petitioner's excise payments for the period covering June 1,
2004 up to December 31, 2004.
HELD: Although both the CTA Division and the CTA En Banc provisionally admitted
Fortune Tobaccos other documentary evidence, the same was refused due to its
admission for being merely photocopies. The Rules of Court shall apply suppletorily
in the proceeding before the tax tribunal. Hence, Section 3 of Rule 130 or the
Best Evidence Rule will apply.
In addition, Fortune Tobacco failed not only to comply with the basic procedural
requirement of presenting only the original copies of its documentary evidence, but
also to adhere to the requirement to properly make its offer of proof or tender of
excluded evidence for the proper consideration of the appellate tribunal.
Section 40, Rule 132 of the Rules of Court provides:
Sec. 40. Tender of excluded evidence. - If documents or things offered in
evidence are excluded by the court, the offeror may have the same attached
to or made part of the record. If the evidence excluded is oral, the offeror
may state for the record the name and other personal circumstances of the
witness and the substance of the proposed testimony.
The rule is that evidence formally offered by a party may be admitted or
excluded by the court. If a party's offered documentary or object evidence is
excluded, he may move or request that it be attached to form part of the records of
the case. If the excluded evidence is oral, he may state for the record the name and
other personal circumstances of the witness and the substance of the proposed
testimony. These procedures are known as offer of proof or tender of excluded
evidence and are made for purposes of appeal. If an adverse judgment is eventually
rendered against the offeror, he may in his appeal assign as error the rejection of
the excluded evidence.
For the appellate court to consider as evidence, which was not offered by one party
at all during the proceedings below, would infringe the constitutional right of the
adverse party - in this case, the CIR, to due process of law.
It also bears pointing out that at no point during the proceedings before the CTA En
Banc and before this Court has Fortune Tobacco offered any plausible explanation as
to why it failed to properly make an offer of proof or tender of excluded evidence.
Instead, Fortune Tobacco harps on the fact that respondent CIR simply refused its
claim for refund on the ground that RR 17-99 was a valid issuance. Thus, for its
failure to seasonably avail of the proper remedy provided under Section 40, Rule
132 of the Rules of Court, Fortune Tobacco is precluded from doing so at this late
stage of the case. Clearly, estoppel has already stepped in.
Clearly, it is Fortune Tobacco's burden to prove the allegations made in its claim for
refund. For a claim for refund to be granted, the manner in proving it must be in
accordance with the prescribed rules of evidence. In addition, one who claims that
he is entitled to a tax refund must not only claim that the transaction subject of tax
is clearly and unequivocally not subject to tax - the amount of the claim must still
be proven in the normal course,in accordance with the prescribed rules on
After all, taxes are the lifeblood of the nation.
The petition is denied.