MANILA, October 7, 2004 (STAR) By Aurea Calica - The Court of Appeals (CA) has granted Fortune Tobacco Corp. a refund of P1.036 billion in what was described as an overpayment of excise taxes collected from eight cigarette brands manufactured between 2000 and 2002.

In a 35-page decision, the CAs Special Second Division affirmed the ruling made by the Court of Tax Appeals (CTA) in the claim for a refund by Fortune Tobacco against the Bureau of Internal Revenue (BIR), which collected P680,387,025 and P355,385,920 of excise taxes on its cigarette brands.

The CA ruling, penned by Justice Jose Sabio Jr., said the CTA was correct in declaring the nullity of Revenue Regulation 17-99 (RR 17-99) that increased the tax rates imposed on cigars and cigarettes.

A provision of the revenue regulation issued on Dec. 16, 1999 became the focus of the complaint made by Fortune Tobacco owned by taipan Lucio Tan in claiming overpayment of taxes.

The revenue law has provided "that the new specific tax rate for any existing brand of cigars, cigarettes, packed by machine... shall be lower than the excise tax that is actually being paid prior to January 1, 2000."

This was to implement the provisions of a 12 percent increase on excise tax on cigarettes packed by machines by Jan. 1, 2000.

The Department of Finance, following the recommendation of the BIR, issued the revenue regulation providing the increase on the applicable tax rates on cigars and cigarettes.

The CA, however, agreed with the CTA in pointing out that the revenue measure should be nullified. The appellate court noted that Republic Act 8240, or the law shifting from ad valorem to a specific tax system on Jan. 1, 1997, did not necessarily mean such.

According to the CTA, the intent of the new law was to impose the new rates of excise tax after a transition period of three years or up to 2000.

During the three-year period, the tax should not be lower than the tax imposed for each brand of cigarette as of Oct. 1, 1996.

The CA explained that thereafter, beginning Jan. 1, 2000, a 12 percent increase would take effect using as tax base the figures provided in Section 145 of the Tax Code of 1997.

"It is therefore beyond cavil that Revenue Regulation 17-99 exceeded the provisions of Republic Act 8240 so that the CTA was correct in declaring its nullity," the CA said.

Fortune Tobacco paid its taxes for the eight cigarette brands it manufactured based on the rates set by the BIR under RR 17-99.

The 1997 tax law imposes a four-tier specific tax system based on the retail price of cigarettes. Under the scheme, cigarettes with a net retail price of less than P5 per pack at 1997 price levels are levied P1.12 per pack, while a mid-priced pack worth between P5 and P6.50 is levied P5.60 per pack.

Those priced between P6.50 and P10 per pack are levied P8.96 per pack while premium brands priced above P10 are taxed P13.44 per pack.

On Feb. 7, 2000, the company filed with the BIRs appellate division a claim for refund or tax credit alleging overpayment of excise tax for the month of January 2000.

The claim was denied by the BIR forcing Fortune to elevate its claim before the CTA, arguing that RR-17-99 was invalid.

The CTA ruled RR 17-99 did not merely implement but actually resulted in an unauthorized "administrative legislation" on the part of the BIR.

"While we may agree with respondent BIR that administrative agencies in the exercise of their rule power can formulate rules and regulations in order to achieve the declared policies as laid down by Congress, the same does not hold true in the present case," the CTA said.

According to the CTA, the BIR exceeded its authority in issuing the controversial revenue regulation, which in effect resulted in collecting excessive taxes against Fortune.

Reported by: Sol Jose Vanzi

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