G.R. No.

180006 September 28, 2011

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
FORTUNE TOBACCO CORPORATION, Respondent.

TOPIC: Uniformity and Equality of Taxation and Progressive System of

Taxation – Article VI, Section 28 (1)

DOCTRINE: The Constitution requires that taxation should be uniform and

equitable. Uniformity in taxation requires that all subjects or objects of
taxation, similarly situated, are to be treated alike both in privileges and
liabilities.

FACTS:

Pursuant to Sec 142 of 1997 Tax code, manufacturers of cigarettes are

subject to pay excise taxes in the form of ad valorem taxes. Beginning
January 1, 1997, RA 8240 took effect and a shift from ad valorem to specific
taxes was made.

The new Code provided that “the specific tax from any brand of cigarettes
within the next three (3) years of effectivity(meaning transition period from
1997-2000) of this Act shall not be lower than the tax [which] is due from
each brand on October 1, 1996.

It also provided a provision that specific tax on cigars and cigarettes would
be increased by 12% after January 1, 2000.

CIR issued Revenue Regulation (RR) 17-99, to implement 12% increase in

Sec 145 of 1997 Tax code.
Pursuant to these law, respondent Fortune Tobacco paid in advance excise
taxes for the year 2003 amounting to P11.15 billion, and for period covering
January 1 to May 31, 2004 the amount of P4.90 bilion.

Respondent filed administrative claim for refund with CIR for it was
erroneously collected to them.

CTA first division ruled in favor of respondent and granted its refund. This
was upheld by CTA En Bank.

ISSUE:
Whether or not fortune tobacco is entitled to refund

HELD:

Yes, SC has held that Fortune Tobacco is entitled for refund.

SC has held that the case has already been ruled in the 2008 case of CIR vs.
Fortune Tobacco Corporation, where they upheld the claims of refund of
Fortune Tobacco after finding that the proviso in Sec 1 of RR 17-99 was
invalid.

Section 145 states that during the transition period, i.e., within the next
three (3) years from the effectivity of the Tax Code, the excise tax from any
brand of cigarettes shall not be lower than the tax due from each brand on 1
October 1996. Clearly, Sec 145 mandates a new rate of excise tax for
cigarettes by machine due to the 12% increase, effective January 1, 2000.
However, RR No. 17-99 adding qualification that the tax due after the
12% increase becomes effective shall not be lower than the tax
actually paid prior to 1 January 2000 imposes a tax which is the higher
amount between the ad valorem tax and the specific tax. A 12% increase
which was not supported by the plain wording of Section 145 of the tax
code.

RR 17-99 clearly went beyond the terms of the law it was supposed to
implement, hence, entitles Fortune Tobacco to claim a refund of the overpaid
excise taxes.

Also, SC has held that raising government revenue is not the sole
objective of RA 8240. RA 8240 was not only enacted to raise government
revenue but also intended to curb the corruption that became endemic to
the imposition of ad valorem taxes. Since ad valorem taxes were based on
the value of the goods, the prices of the goods were often manipulated to
yield lesser taxes. The imposition of specific taxes which are based on the
volume of goods produced would prevent price manipulation and also cure
the unequal tax treatment created by the skewed valuation of similar goods.

As regards to the rule of uniformity of taxation, this was violated by

Sec 1, RR 17-99. The Constitution requires that taxation should be uniform
and equitable. Uniformity in taxation requires that all subjects or objects of
taxation, similarly situated, are to be treated alike both in privileges and
liabilities. RR 17-99, SEC 1, authorized the imposition of different tax rates.
It effectively extended the qualification stated in Sec 145 of the 1997 Tax
code that was supposed to apply only during the transition period. In the
process, the CIR also perpetuated the unequal tax treatment of similar
goods that was supposed to be cured by the shift from ad valorem to specific
taxes.