G.R. No. 180740 & 180910, November 11, 2019
Commissioner of Internal Revenue, Petitioner, vs. San Miguel Corporation, Respondent. [G.R. No. 180910] San Miguel Corporation, Petitioner, vs. Commissioner of Internal Revenue, Respondent.

FACTS

San Miguel Corporation (SMC), a domestic corporation, manufactures and sells beer, including the brand “Red Horse.” Prior to January 1, 1997, SMC paid an ad valorem excise tax on Red Horse at P7.07 per liter. Republic Act (RA) No. 8240, effective January 1, 1997, shifted the tax on fermented liquors from an ad valorem to a specific tax system. Section 140 of RA 8240 (later renumbered as Section 143 of the Tax Reform Act of 1997, RA 8424) established a schedule of specific tax rates based on net retail price per liter, with a provision stating: “The excise tax from any brand of fermented liquor within the next three (3) years from the effectivity of Republic Act No. 8240 shall not be lower than the tax which was due from each brand on October 1, 1996.” It also mandated: “The rates of excise tax on fermented liquor under paragraphs (a), (b) and (c) hereof shall be increased by twelve percent (12%) on January 1, 2000.”
On December 16, 1999, the Secretary of Finance issued Revenue Regulations (RR) No. 17-99 to implement the 12% increase effective January 1, 2000. Section 1 of RR No. 17-99 included a proviso: “Provided, however, that the new specific tax rate for any existing brand of… fermented liquors shall not be lower than the excise tax that is actually being paid prior to January 1, 2000.”
SMC contended that this proviso unlawfully extended the three-year transitory period under RA 8240. It argued that beginning January 1, 2000, the specific tax rates in Section 143(a) to (c) of the 1997 NIRC, increased by 12%, should apply directly. SMC filed an administrative claim for refund or credit of alleged overpaid excise taxes on Red Horse from January 11, 2001, to December 31, 2002, amounting to P94,494,801.96, representing the difference between the P7.07 per liter rate it paid (based on RR No. 17-99’s proviso) and the P6.89 per liter rate it believed was correct (based on the 12% increase applied to the specific tax schedule). Without waiting for action on its administrative claim, SMC filed a Petition for Review before the Court of Tax Appeals (CTA) First Division.
The CTA First Division granted SMC’s claim in a reduced amount. It declared the contested proviso in RR No. 17-99 invalid, citing its prior ruling in Fortune Tobacco Corporation v. Commissioner of Internal Revenue. It held that the three-year transitory period ended on December 31, 1999, and the 12% increase on January 1, 2000, should be applied to the rates in paragraphs (a), (b), and (c) of Section 143, not to the transition rate. However, it disallowed part of SMC’s claim as time-barred. It ruled that the two-year prescriptive period for filing a judicial claim under Section 229 of the NIRC should be counted from the date of tax payment. Since SMC filed its judicial petition on February 24, 2003, payments made before February 24, 2001, were prescribed. Thus, it refunded only the overpayments from March 1, 2001, to December 31, 2002, amounting to P88,090,531.56. Both parties appealed to the CTA En Banc, which affirmed the First Division’s decision. Both the CIR and SMC then filed Petitions for Review before the Supreme Court.

ISSUE

The core issue is the correct interpretation of the tax provision and the validity of RR No. 17-99’s proviso. Specifically, whether the 12% increase in excise tax rates on fermented liquor effective January 1, 2000, under Section 143 of the NIRC of 1997, should be applied to the specific tax rates listed in its paragraphs (a), (b), and (c), or if the proviso in RR No. 17-99—mandating that the new rate “shall not be lower than the excise tax that is actually being paid prior to January 1, 2000″—is valid, thereby effectively extending the three-year transitory period.

RULING

The Supreme Court denied both petitions and affirmed the assailed CTA En Banc Decision and Resolution.
1. On the Validity of RR No. 17-99’s Proviso: The Court ruled that the proviso in Section 1 of RR No. 17-99 is invalid. It constitutes an unauthorized amendment of the law, RA 8240/RA 8424. The law clearly provides a three-year transitory period (January 1, 1997, to December 31, 1999) during which the excise tax “shall not be lower than the tax which was due from each brand on October 1, 1996.” This transitory provision is distinct from the sentence mandating a “12% increase on January 1, 2000,” which explicitly refers to the rates “under paragraphs (a), (b) and (c).” The RR’s proviso, by pegging the new rate to the tax “actually being paid prior to January 1, 2000” (i.e., the transition rate), contravenes the law’s plain language and intent. The transition period ended on December 31, 1999. Beginning January 1, 2000, the 12% increase must be applied directly to the specific tax rates in Section 143(a), (b), and (c) of the NIRC. The CTA correctly followed its prior ruling in Fortune Tobacco, which declared the same proviso void.
2. On the Prescriptive Period for Refund: The Court upheld the CTA’s computation of the prescriptive period. Citing Section 229 of the NIRC in relation to Section 130(A)(2), the two-year period to file a judicial claim for refund of erroneously paid excise tax is counted from the date of payment of the tax. Since SMC filed its judicial petition on February 24, 2003, only payments made on or after February 24, 2001, could be refunded. Consequently, SMC’s claims for overpayments made from January 11 to February 23, 2001, totaling P6,404,270.40, were correctly disallowed as time-barred. The refundable amount was correctly computed as P88,090,531.56.
Therefore, the CIR’s petition (arguing for the validity of RR 17-99) was denied, and SMC’s petition (arguing for a full refund including the time-barred amounts) was also denied. The Supreme Court affirmed the CTA En Banc’s decision ordering the CIR to refund or issue a tax credit certificate to SMC in the amount of P88,090,531.56.