The Supreme Court affirmed that excise tax on cigarettes packed by machine should be imposed on the entire packaging combination of 20 cigarette sticks, not on individual pouches within that pack. This ruling ensures that cigarette manufacturers are taxed based on the total pack, allowing for bundled combinations of smaller pouches (5’s, 10’s) without incurring additional excise taxes, as long as the total does not exceed 20 sticks. The decision clarifies the implementation of the Sin Tax Reform Law, safeguarding against revenue regulations that overreach and amend the law itself.

Bundled or Broken? Excise Tax on Cigarettes and the Sin Tax Law

This case revolves around the interpretation of Republic Act No. 10351 (RA 10351), also known as the Sin Tax Reform Law, specifically concerning the excise tax imposed on cigarettes packed by machine. The central issue is whether Section 11 of Revenue Regulations No. 17-2012 (RR 17-2012) and Revenue Memorandum Circular No. 90-2012 (RMC 90-2012) validly implemented RA 10351 or if they exceeded the law’s intent by imposing excise tax on individual cigarette pouches (5’s, 10’s, etc.) bundled into a single pack of 20.

The Philippine Tobacco Institute, Inc. (PTI) questioned the validity of RR 17-2012 and RMC 90-2012, arguing that these regulations imposed tax rates not authorized by RA 10351. PTI contended that the excise tax rate should be based on the entire pack of 20 cigarettes, regardless of whether they are packed in smaller pouches. The Secretary of Finance and the Commissioner of Internal Revenue (CIR) countered that RA 10351 imposes excise tax “per pack,” irrespective of the number of cigarette sticks in each pack, and that RR 17-2012 and RMC 90-2012 merely clarified the tax rates.

The Regional Trial Court (RTC) sided with PTI, declaring the contested portions of RR 17-2012 and RMC 90-2012 null and void. The RTC held that the tax rates imposed by RA 10351 should apply to the whole packaging combination of 20’s, whether they are packed as 2 x 10’s or 4 x 5’s. The Secretary of Finance and the CIR elevated the case to the Supreme Court.

The Supreme Court, in analyzing the issue, examined the relevant provisions of the National Internal Revenue Code (NIRC) as amended by RA 10351. Section 145(C) of the NIRC states:

SEC. 145. Cigars and Cigarettes. – x x x x

(C) Cigarettes Packed by Machine. — There shall be levied, assessed and collected on cigarettes packed by machine a tax at the rates prescribed below:

Effective on January 1, 2013

(1) If the net retail price (excluding the excise tax and the value-added tax) is Eleven pesos and fifty centavos (P11.50) and below per pack, the tax shall be Twelve pesos (P12.00) per pack; and

(2) If the net retail price (excluding the excise tax and the value-added tax) is more than Eleven pesos and fifty centavos (P11.50) per pack, the tax shall be Twenty-five pesos (P25.00) per pack.

x x x x

Duly registered cigarettes packed by machine shall only be packed in twenties and other packaging combinations of not more than twenty.

The Court emphasized that the law imposes the excise tax “per pack.” While the term “per pack” isn’t explicitly defined in the NIRC, the Court noted that the law permits cigarette manufacturers to bundle cigarettes into packs of 20 or other combinations not exceeding 20 sticks. The Court then examined RR 17-2012, which states:

SEC. 11. Revised Provisions for the Manner of Packaging of Cigarettes. – All Cigarettes whether packed by hand or packed by machine shall only be packed in twenties (20s), and through other packaging combinations which shall result to not more than twenty sticks of cigarettes: Provided, That, in case of cigarettes packed in not more than twenty sticks, whether in 5 sticks, 10 sticks and other packaging combinations below 20 slicks, the net retail price of each individual package of 5s, 10s, etc. shall be the basis of imposing the tax rate prescribed under the Act.

The Supreme Court found that RR 17-2012, specifically Section 11, and Annex “D-1” of RMC 90-2012, went beyond the provisions of RA 10351. The Court referenced discussions during the Bicameral Conference Committee, highlighting the intent to tax every pack of cigarettes with 20 sticks. Individual pouches or packaging combinations for retail were permitted, subject to the same excise tax rate, as long as they were bundled together and did not exceed 20 sticks.

The Supreme Court reaffirmed the principle that administrative rules and regulations, while having the force of law, must remain consistent with the law they implement. Administrative bodies cannot override, supplant, or modify the law, as that power resides solely with Congress. Citing Commissioner of Internal Revenue v. Seagate Technology (Philippines), the Court reiterated that administrative issuances cannot amend the law. In this case, Section 11 of RR 17-2012 and Annex “D-1” of RMC 90-2012 created an additional tax liability not provided for in RA 10351, thereby amending the law. The Court stated:

In the present case, a reading of Section 11 of RR 17-2012 and Annex “D-1” on Cigarettes Packed by Machine of RMC 90-2012 reveals that they are not simply regulations to implement RA 10351. They are amendatory provisions which require cigarette manufacturers to be liable to pay for more tax than the law, RA 10351, allows. The BIR, in issuing these revenue regulations, created an additional tax liability for packaging combinations smaller than 20 cigarette sticks. In so doing, the BIR amended the law, an act beyond the power of the BIR to do.

The Supreme Court ultimately sided with PTI and affirmed the RTC’s decision, declaring Section 11 of RR 17-2012 and Annex “D-1” of RMC 90-2012 null and void. Excise tax on cigarettes packed by machine should be imposed on the packaging combination of 20 cigarette sticks as a whole, not on individual packaging combinations or pouches of 5’s, 10’s, etc.

FAQs

What was the key issue in this case?	The central issue was whether the excise tax on cigarettes packed by machine should be imposed on individual pouches within a pack or on the entire packaging combination of 20 sticks. The court clarified how excise taxes should be applied under the Sin Tax Law.
What is the Sin Tax Reform Law?	The Sin Tax Reform Law (RA 10351) restructured the excise tax on alcohol and tobacco products, amending provisions of the National Internal Revenue Code. It aimed to increase government revenue and discourage consumption of harmful products.
What did the Revenue Regulations (RR 17-2012) and Revenue Memorandum Circular (RMC 90-2012) state?	These issuances provided implementing guidelines for the revised tax rates on alcohol and tobacco products under the Sin Tax Law. Specifically, they addressed the manner of packaging cigarettes and the corresponding excise tax rates.
What was the court’s ruling?	The Supreme Court ruled that excise tax should be imposed on the entire packaging combination of 20 cigarette sticks, not on individual pouches within that pack. The court affirmed the RTC decision declaring the revenue regulations invalid.
Why did the court invalidate portions of RR 17-2012 and RMC 90-2012?	The court found that the regulations exceeded the scope of the Sin Tax Law by imposing excise tax on individual cigarette pouches. This was deemed an amendment to the law, which is beyond the authority of administrative bodies.
What is the practical implication of this ruling for cigarette manufacturers?	Cigarette manufacturers are taxed based on the total pack of 20 cigarettes, allowing for bundled combinations of smaller pouches without incurring additional excise taxes. This provides clarity on tax obligations and promotes fair implementation of the law.
Can the BIR issue regulations that amend existing laws?	No, the Bureau of Internal Revenue (BIR) cannot issue regulations that amend existing laws. Administrative regulations must be consistent with the law they seek to implement, and any changes to the law must be enacted by Congress.
What does “per pack” mean in the context of excise tax on cigarettes?	In this context, “per pack” refers to a number of individual components packaged as a unit, up to a maximum of 20 cigarette sticks. The excise tax applies to the unit as a whole, not to its individual components.
What was the role of the Bicameral Conference Committee in the interpretation of the law?	The Bicameral Conference Committee discussions provided insight into the intent of lawmakers regarding the packaging of cigarettes. These discussions were considered by the Supreme Court in interpreting the provisions of RA 10351.

In conclusion, the Supreme Court’s decision in this case clarifies the application of excise tax on cigarettes packed by machine under the Sin Tax Reform Law. By affirming that the tax should be imposed on the entire packaging combination of 20 sticks, the Court ensures that revenue regulations remain consistent with the law and prevents the creation of additional tax liabilities not authorized by Congress.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: SECRETARY OF FINANCE CESAR V. PURISIMA VS. PHILIPPINE TOBACCO INSTITUTE, INC., G.R. No. 210251, April 17, 2017