SC orders gov't to refund P491 M to Fortune Tobacco

MANILA, Philippines - The Supreme Court (SC) has ordered the government to refund to Fortune Tobacco the P491 million in taxes it illegally collected from Lucio Tan’s firm in 2003 and 2004.

In a 14-page decision released yesterday, the second division of the high court upheld a 2007 ruling of the Court of Tax Appeals (CTA) which granted the cigarette company’s administrative claim for tax refund with the Bureau of Internal Revenue (BIR).

The SC junked BIR’s petition questioning the CTA ruling.

Except for the tax period and the amounts involved, the court noted that it had already resolved the same issue in 2008 where it declared invalid the provision in Section 1 of Republic Act No. 17-99.

“The proviso in Section 1 of RR 17-99 clearly went beyond the terms of the law it was supposed to implement, and therefore entitles Fortune Tobacco to claim a refund of the overpaid excise taxes collected pursuant to this provision,” stated the ruling penned by Associate Justice Arturo Brion.

Associate Justices Mariano del Castillo, Jose Perez, Jose Mendoza and Ma. Lourdes Sereno concurred in the ruling.

The SC said the said provision went beyond the wording of Section 145 of the Tax Code which states that within the next three years from the effectivity of the Tax Code, the excise tax from any brand of cigarettes shall not be lower than the tax due from each brand on Oct. 1, 1996.

Records showed that Fortune Tobacco’s cigarette products such as Champion, Salem, Salem King, Camel F King, Camel Lights Box, Camel Filters Box, Winston F Kings and Winston Light were subjected to ad valorem tax pursuant to then Section 142 of the Tax Code of 1977.

As such, the brands had a tax rate of P1 (for Champion, Salem and Camel) per pack and P5 per pack for Winston.

However, on Jan. 1, 1997, Republic Act 8240 (excise tax law on alcohol and tobacco products) took effect, allowing a shift from the ad valorem tax system to the specific tax system.

The new law subjected Fortune Tobacco’s brands to specific tax under Section 145 of the 1997 Tax Code.

It further stated that the rates of excise tax on cigars and cigarettes shall be increased by 12 percent on Jan. 1, 2000.

The SC noted that that the Constitution requires that taxation should be uniform and equitable which was violated by the BIR when it implemented Section 1 of RR 17-99 which provides that “the new specific tax rate for any existing brand of cigars and cigarettes packed by machine, distilled spirits, wines and fermented liquors shall not be lower than the excise tax that is actually being paid prior to Jan. 1, 2000.

“In the process, the CIR (Commission on Internal Revenue) also perpetuated the unequal tax treatment of similar goods that was supposed to be cured by the shift from ad valorem to specific taxes,” the SC added.

Records showed that Fortune Tobacco paid in advance excise taxes for the year 2003 in the amount of P11.15 billion, and for the period covering Jan. 1 to May 31, 2004 in the amount of P4.90 billion.

The firm then filed in June 2004 an administrative claim for tax refund with the CIR for erroneously collected taxes in the amount of P491 million.

Without waiting for the CIR’s action on its claim, Fortune Tobacco filed with the CTA a judicial claim for tax refund. In its decision dated May 26, 2006, the CTA First Division ruled in favor of Fortune Tobacco and granted its claim for refund.