G.R. No. L-17830; March 30, 1963
LA PAZ Y BUEN VIAJE (LA DICHA CIGAR AND CIGARETTES FACTORY), petitioner, vs. COLLECTOR OF INTERNAL REVENUE, respondent.

FACTS

Petitioner La Paz y Buen Viaje, a domestic cigarette manufacturer, produced and sold 6,033,000 “largos” (king-size) cigarettes from September 1949 to September 1950 at a uniform wholesale price of P7.60 per thousand. With the approval of a revenue agent, it paid a specific tax of P4.00 per thousand by affixing revenue stamps. Subsequently, the Collector of Internal Revenue determined through investigation that the correct specific tax for these cigarettes was P6.00 per thousand, not P4.00. Consequently, a deficiency tax assessment of P12,066.00 (P2.00 per thousand) was issued against the petitioner on December 4, 1952.
Petitioner’s request for reconsideration was denied. After procedural setbacks, it paid the deficiency under protest on September 26, 1958, and later filed a claim for refund on July 20, 1959. The Collector denied the refund, prompting an appeal to the Court of Tax Appeals, which dismissed the claim. Petitioner now appeals to the Supreme Court, contending the tax was erroneously collected.

ISSUE

Whether the Court of Tax Appeals erred in holding that petitioner’s cigarettes were subject to a specific tax of P6.00 per thousand under Section 137(b)(2) of the Tax Code, as amended by Republic Act No. 419 , instead of the P4.00 minimum tax under the proviso of the same section for cigarettes over 80 millimeters in length.

RULING

The Supreme Court affirmed the decision of the Court of Tax Appeals, ruling that the correct specific tax was P6.00 per thousand. The legal logic centers on the proper application of Section 137 of the Tax Code. Petitioner argued that the proviso for cigarettes over 80mm in length, which imposes a minimum tax of P4.00 per thousand, should apply. It contended that deducting the assessed P6.00 tax from its wholesale price of P7.60 leaves P1.60, which is within the proviso’s scope for cigarettes with a net price of P3.50 or less per thousand.
The Court rejected this interpretation. It upheld the validity and application of Section 19(a) of Bureau of Internal Revenue Regulations No. 27, which mandates that the tax is assessed on the manufacturer’s wholesale price without adding the internal revenue tax. The correct computation is to deduct the specific tax from the wholesale price to determine the applicable tax bracket. Here, petitioner’s wholesale price was P7.60. Deducting the P4.00 tax it initially paid yields a net price of P3.60 per thousand. This net price falls under Section 137(b)(2), which applies when the net price is more than P3.50 but not more than P4.50 per thousand, mandating a tax of P6.00. The proviso for a P4.00 minimum tax applies only when the net price, after deducting that P4.00 tax, is P3.50 or less. Since petitioner’s net price was P3.60, the proviso was inapplicable. Thus, the deficiency assessment was correct, and no refund was due.