The Bureau of Internal Revenue does not have
the power to review the selling prices of cigarettes for the
purpose of tax classification, the Supreme Court ruled
yesterday.
In a 13-page decision penned by Associate
Justice Consuelo Yñares-Santiago, the Court struck down two BIR
memorandums as unconstitutional for usurping the powers of
Congress.
The ruling affirmed a Parañaque regional
court decision on July 12, 2004, which declared invalid Revenue
Regulations Nos. 9-2003 and 22-2003.
The RTC junked the petition filed by former
BIR Commissioner Guillermo Parayno Jr. which said the assailed
regulations constitute a valid exercise of subordinate
legislation, having been issued pursuant to the powers of the
Commissioner of Internal Revenue and the Secretary of Finance.
"The trial court correctly ruled that RR
9-2003 and 22-2003 are void insofar as they empower the BIR to
periodically review or re-determine the current net retail
prices of cigarettes for purposes of updating their tax
classification every two years or earlier," the Court ruled.
Concurring with Ynares-Santiago were
Associate Justices Minita Chico-Nazario, Presbitero Velasco Jr.,
Antonio Eduardo Nachura and Diosdado Peralta.
The case stemmed from a case for injunction
filed by La Suerte Cigar and Cigarette Factory and Telengtan
Brothers & Sons Inc. which introduced into the market Astro and
Memphis cigarettes and their variants with a suggested net
retail prices below P5 per pack and a temporary excise tax
pegged at P1 per pack.
On May 15, 1999, respondents requested the
BIR to conduct a survey to determine the final tax
classification of said brands of cigarettes.
The BIR later informed respondents that based
on its survey, the specific tax per pack of Astro and Memphis
cigarettes was indeed P1. This was increased to P1.12 per pack
pursuant to an automatic 12 percent tax adjustment.
On Feb. 17, 2003, the BIR issued RR 9-2003
which provided for a periodic review every two years or earlier
of the current net retail prices of new brands and their
variants to establish and update their tax classification.
RR 9-2003 also mandated the determination and
re-determination of the net retail prices of cigarettes launched
into the market starting Jan. 1, 1997 and which were not
surveyed within the last two years.
RR 22-2003 was issued on Aug. 8, 2003 to
implement the revised tax classification of certain new brands
introduced after January 1997.
The survey showed that the average net retail
prices of Astro and Memphis cigarettes ranged from P5.72 to
P6.13, thus increasing the applicable excise tax from P1.12 per
pack to P5.60 per pack.
This prompted the cigarette firms to question
the constitutionality of the revenue regulations, saying the
National Internal Revenue Code does not give the BIR the power
to reclassify newly introduced cigarettes.
They maintained that the reclassification
constitutes usurpation of legislative powers, which the SC
upheld.
The High Court said the issue has been
settled in the recent case of British American Tobacco v.
Camacho where it held that RR 9-2003, 22-2003, and Revenue
Memorandum Order No. 6-2003, as pertinent to cigarettes packed
by machine, are invalid insofar as they grant the BIR the power
to reclassify or update the classification of new brands every
two years.
"It will be recalled that these brands were
already classified by the BIR based on their current net retail
prices in 1999 through a market survey. Consequently, their
upward reclassification in 2003 by the BIR through another
market survey is a prohibited reclassification," the SC said.
