G.R. No. 166498; June 11, 2009
HON. SECRETARY OF FINANCE, and HON. Guillermo L. Parayno, JR., in his capacity as Commissioner of the Bureau of Internal Revenue, Petitioners, vs. LA SUERTE CIGAR AND CIGARETTE FACTORY, TELENGTAN BROTHERS & SONS, INC., Respondents.

FACTS

Republic Act (RA) No. 8240, which took effect on January 1, 1997, amended the National Internal Revenue Code (NIRC) and provided for a four-tier excise tax system on cigarettes based on their net retail price. A survey as of October 1, 1996, classified existing brands registered prior to January 1, 1997, a classification that could only be revised by an act of Congress. To implement RA 8240, the Bureau of Internal Revenue (BIR) issued Revenue Regulations No. 1-97. It defined “new brands” as those registered after January 1, 1997, and provided that they would be initially taxed based on their suggested retail price. A survey would then be conducted three months after a new brand’s launch to determine its actual net retail price, which would be the basis for its final tax classification. Respondents introduced Astro and Memphis cigarettes in February 1999 with suggested prices below P5.00 per pack, subject to a P1.00 excise tax. A BIR survey in 1999 confirmed this classification. However, on February 17, 2003, the BIR issued Revenue Regulations No. 9-2003, amending the earlier regulations to authorize a periodic review every two years (or earlier) of the current net retail prices of new brands to update their tax classification. A transitory clause also mandated a determination or re-determination for brands introduced since January 1, 1997, not surveyed in the last two years. Subsequently, Revenue Regulations No. 22-2003, issued on August 8, 2003, implemented a revised tax classification based on a new survey, which showed the average net retail prices of Astro and Memphis had increased, thereby raising their applicable excise tax from P1.12 to P5.60 per pack. Respondents filed a case for injunction, arguing that Section 145 of the NIRC did not grant the BIR the power to reclassify cigarettes, making the regulations a usurpation of legislative power. The Regional Trial Court declared the regulations unconstitutional insofar as they empowered the BIR to reclassify cigarette brands and enjoined their implementation against Astro and Memphis.

ISSUE

Whether the BIR has the power to periodically review or re-determine the current net retail prices of new brands of cigarettes for the purpose of updating their tax classification pursuant to Revenue Regulations Nos. 9-2003 and 22-2003.

RULING

No. The Supreme Court, citing its recent ruling in British American Tobacco v. Camacho, held that Revenue Regulations Nos. 9-2003 and 22-2003 are invalid insofar as they grant the BIR the power to reclassify or update the classification of new brands every two years or earlier. RA 8240, as originally enacted, did not authorize the BIR to conduct such periodic resurveys and reclassifications. The implementing regulation, Revenue Regulations No. 1-97, provided only for a one-time classification of new brands based on a survey three months after launch. The authority to reclassify cigarette brands is a legislative power. The subsequent enactment of RA 9334, which further amended the NIRC, made the legislative intent explicit by stating that the classification of brands introduced between January 1, 1997, and December 31, 2003, “shall not be revised except by an act of Congress.” Therefore, the assailed revenue regulations, which provided for periodic reclassification, constituted an invalid exercise of subordinate legislation.