SC orders BIR to refund P491M to Fortune Tobacco

October 6, 2011 10:34 pm 

By Perfecto T. Raymundo Jr.

MANILA, Oct. 6 — The Supreme Court (SC) ordered the Bureau of Internal Revenue (BIR) on Thursday to refund the amount of P491 million in taxes it illegally collected from Fortune Tobacco Corp. in 2003 and 2004.

Fortune Tobacco is owned by business magnate Lucio Tan.

In a 14-page ruling penned by Associate Justice Arturo Brion, the SC's Second Division denied the petition filed by the BIR seeking the reversal of the decision and resolution issued by the Court of Tax Appeals (CTA) in 2007 which granted the administrative claim for tax refund of Fortune Tobacco with the BIR.

Except for the tax period and the amounts involved, the SC said that it had already resolved the same issue in 2008 where it declared invalid the provision in Section 1 of Revenue Regulation 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," the SC decision said.

According to the High Court, 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 October 1, 1996."

Concurring with the decision were Associate Justices Mariano del Castillo, Jose Portugal Perez and Jose Catral Mendoza.

Based on the records, 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 January 1, 1997, Republic Act No. 8240, otherwise known as the "Excise Tax Law on Alcohol and Tobacco Products," took effect, allowing a shift from the ad valorem tax system to the specific tax system.

R.A. 8240 subjected Fortune Tobacco's brands to specific tax under Section 145 of the 1997 Tax Code.

The law provides that the rates of excise tax on cigars and cigarettes shall be increased by 12 percent on January 1, 2000.

The SC said 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 January 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 said.

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 January 1 to May 31, 2004 in the amount of P4.90 billion.

In June 2004, Fortune Tobacco filed 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 before the Court of Tax Appeals a judicial claim for tax refund.

In a decision dated May 26, 2006, the CTA First Division ruled in favor of Fortune Tobacco and granted its claim for refund.

The decision was upheld by the CTA en banc in its ruling dated July 12, 2007.

The motion for reconsideration (MR) filed by the BIR was denied by the CTA in a resolution dated October 4, 2007. (PNA) DCT/scs/PTR/utb

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