FACTS
The 1997 Tax Code repealed the 1977 Code and shifted taxes on cigarettes from ad valorem to specific taxes.
The new Code provided that “the specific tax from any brand of cigarettes within the next three (3) years of effectivity(meaning transition period from 1997-2000) of this Act shall not be lower than the tax [which] is due from each brand on October 1, 1996.”
It also provided a provision that specific tax on cigars and cigarettes would be increased by 12% after January 1, 2000. Through RR 17-99, the CIR applied the said provision on the transition period to the products taxed after January 1, 2000.
Fortune Tobacco argued that only the 12% provision should apply to the cigarettes taxed after January 1, 2000 so it asked for a tax refund for the excess excise tax charged. The CTA and CTA en banc ruled in favor of Fortune.
RULING
The Court ruled in favor of Fortune Tobacco.
The CIR, in implementing RR 17-99, went beyond the letter of the law. The provision on specific taxes should only apply to the transition period of 1997-2000 to offset the burden caused by the shift from ad valorem to specific taxes for cigarette products.
Thus it was wrong for the CIR to apply the provision on specific taxes on the products after the transition period as this would result to the transition period specific tax rates plus a 12 percent increase, when only the 12 percent increase was mandated by law.
