Second DIVISION

April 17, 2017

G.R. No. 210251

SECRETARY OF FINANCE CESAR V. PURISIMA and COMMISSIONER OF

INTERNAL REVENUE KIM S. JACINTO-HENARES, Petitioners
vs.
PHILIPPINE TOBACCO INSTITUTE, INC., Respondent

DECISION

CARPIO,, J.:

This is a petition for review on certiorari 1 assailing the Decision2 dated 7 October
2013 of the Regional Trial Court (RTC) of Las Piñas City, Branch 253 in SCA Case No.
13-0003. The RTC declared null and void certain portions of Revenue Regulations
No. 17-20123 (RR 17-2012) and Revenue Memorandum Circular No. 90-20124 (RMC
90-2012) and ordered petitioners to cease and desist from implementing Section 11
of RR 17-2012 and RMC 90-2012 which refer to cigarettes packed by-machine.

The Facts

On 20 December 2012, President Benigno S. Aquino III signed Republic Act No.
103515 (RA 10351), otherwise known as the Sin Tax Reform Law. RA 10351
restructured the excise tax on alcohol and tobacco products by amending pertinent
6
provisions of Republic Act No. 8424, known as the Tax Reform Act of 1997 or the
National Internal Revenue Code of 1997 (NIRC).

Section 5 of RA 10351, which amended Section 145(C) of the NIRC, increased the
excise tax rate of cigars and cigarettes and allowed cigarettes packed by machine to
be packed in other packaging combinations of not more than 20. The relevant
portions state:

1
SEC. 5. Section 145 of the National Internal Revenue Code of 1997, as amended by
Republic Act No. 9334, is hereby further amended to read as follows:

SEC. 145. Cigars and Cigarettes. –

xxxx

(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 (₱11.50) and below per pack, the tax shall be
Twelve pesos (₱12.00) 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 (₱11.50) per pack, the tax shall be
Twenty-five pesos (₱25.00) per pack.

Effective on January l, 2014

(1) If the net retail price (excluding the excise tax and the value-added tax) is
Eleven pesos and fifty centavos (₱11.50) and below per pack, the tax shall be
Seventeen pesos (₱17.00) 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 (₱11.50) per pack, the tax shall be
Twenty-seven pesos (₱27.00) per pack.

Effective on January 1, 2015

(1) If the net retail price (excluding the excise tax and the value-added tax) is
Eleven pesos and fifty centavos (₱11.50) and below per pack, the tax shall be
Twenty-one pesos (₱2 l .00) per pack; and

2
 (2) If the net retail price (excluding the excise tax and the value-added tax) is
more than Eleven pesos and fifty centavos (₱211.50) per pack, the tax shall
be Twenty-eight pesos (₱228.00) per pack.

Effective on January 1, 2016

(1) If the net retail price (excluding the excise tax and the value-added tax) is
Ele1·rn pesos and fifty centavos (₱211.50) and below pet pack, the tax shall
be Twenty-five pesos (₱225.00) 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 (₱211.50) per pack, the tax shall
be Twenty-nine pesos (₱229.00) per pack.

Effective on January 1, 2017, the tax on all cigarettes packed by machine shall be
Thirty pesos (₱230.00) per pack.

The rates of tax imposed under this subsection shall be increased by four percent
(4%) every year thereafter effective on January 1, 2018, through revenue
regulations issued by the Secretary of Finance.

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

xxxx

On 21 December 2012, the Secretary of Finance, upon the recommendation of the

Commissioner of Internal Revenue (CIR), issued RR 17-2012. Section 11 of RR 17-
2012 imposes an excise tax on individual cigarette pouches of 5's and l0's even if
they are bundled or packed in packaging combinations not exceeding 20 cigarettes.
The provision 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

3
more than twenty sticks of cigarettes: Provided, That, in case of cigarettes packed in
not more than twenty sticks, whether in S sticks, 10 sticks and other packaging
combinations below 20 sticks, 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.

Pursuant to Section 11ofRR17-2012, the CIR issued RMC 90-2012 dated 27

December 2012. Annex "D-1" of RMC 90-2012 provides for the initial classifications
in tabular form, effective 1 January 2013, of locally manufactured cigarette brands
packed by machine according to the tax rates prescribed under RA 10351 based on
the (1) 2010 Bureau of Internal Revenue (BIR) price survey of these products, and
(2) suggested net retail price declared in the latest sworn statement filed by the
local manufacturer or importer. Some relevant portions provide:

Annex "D-1"

LIST OF LOCALLY MANUFACTURED CIGARETTE BRANDS

AS OF DECEMBER 2012

1. List of brands Based on 2010 BIR Price Survey

BRAND NAMES Content/Unit Net Retail Applicable

(pack) Price Excise Tax
(Based on Rates
2010 BIR Effective
Price Jan 1,
Survey) 2013 under
R.A. No.
1035l

A. Cigarettes Packed by Machine

A. I. Net Retail Price (NRP) is Php 11.50 per Pack and below

4
 20
1. Astro Filter King 10.92 12.00
sticks/pack

xxxx

22. Fortune Int'l Extra 20

10.84 12.00
Filter King sticks/pack

23. Fortune Int'l Extra

10
Filter King 6.58 12.00
sticks/pack
(10*s)

xxxx

44. Marlboro Filter 10

8.27 12.00
(2x10's) Flip Top* sticks/pack

45. Marlboro Filter KS 5

4.11 12.00
(5's)* sticks/pouch

xxxx

61. Miller Filter Silver KS 20

10.27 12.00
SP sticks/pack

xxxx

63. Miller Filter Silver – 5

2.88 12.00
(5’s) KS Pouch* sticks/pouch

xxxx

76. Philip Morris Menthol 10 6.25 12.00

5
 KS FTB-(10's)* sticks/pack

77. Philip Morris Menthol- 5

3.84 12.00
(5's) 100's 10's Pouch* sticks/pouch

xxxx

* NRP is converted into individual package of 5s or 1 Os pursuant to Section

11 of RR No. 17-2012

PMFTC, Inc., a member of respondent Philippine Tobacco Institute, Inc. (PTI), paid
the excise taxes required under RA 10351, RR 17-2012, and RMC 90-2012 in order
to withdraw cigarettes from its manufacturing facilities. However, on 16 January
2012, PMFTC wrote the CIR prior to the payment of the excise taxes stating that
payment was being made under protest and without prejudice to its right to
question said issuances through remedies available under the law.

As a consequence, on 26 February 2013, PTI filed a petition7 for declaratory relief

with an application for writ of preliminary injunction with the RTC. PTI sought to
have RR 17-2012 and RMC 90-2012 declared null and void for allegedly violating the
Constitution and imposing tax rates not authorized by RA 103 51. PTI stated that the
excise tax rate of either ₱12 or ₱25 under RA 10351 should be imposed only on
cigarettes packed by machine in packs of 20's or packaging combinations of 20's and
should not be imposed on cigarette pouches of 5's and 10's.

In a Decision dated 7 October 2013, the RTC granted the petition for declaratory
relief. The dispositive portion of the Decision states:

WHEREFORE, premised on the foregoing, the Petition for Declaratory Relief is

GRANTED. The assailed portions of Revenue Regulation 17-2012 and Revenue
Memorandum Circular 90-2012 are declared NULL AND VOID and OF NO FORCE
AND EFFECT. Respondents are to immediately cease and desist from implementing

6
Sec. 11 of Revenue Regulation 17-2012 and Revenue Memorandum Circular 90-2012
insofar as the cigarettes packed by machine are concerned.

The tax rates imposed by RA No. 10351 should be imposed on the whole packaging
combination of 20's, regardless of whether they are packed by pouches of 2xl0's or
4x5's, etc.

SO ORDERED.8

Hence, the instant petition filed by the Secretary of Finance and the CIR through the
Office of the Solicitor General.

Meanwhile, in a Resolution dated 9 June 2014, this Court issued a temporary

restraining order against PTI and the RTC. The dispositive portion states:

NOW, THEREFORE, effective immediately and continuing until further orders from
this Court, You, the respondent, the RTC, Br. 253, Las Piñas City, their
representatives, agents or other persons acting on their behalf are hereby
RESTRAINED from enforcing the assailed Decision dated 7 October 2013 of the RTC,
Br. 253, Las Piñas City in SCA Case No. 13-0003.

x x x x9

The Issue

Whether or not the RTC erred in nullifying Section 11of RR17-2012 andAnnex"D-1"of
RMC 90-2012 in imposing excise tax to packaging combinations of 5's, l0's, etc. not
exceeding 20 cigarette sticks packed by machine.

The Court's Ruling

The petition lacks merit.

Petitioners contend that RA10351 imposes the excise tax per pack," regardless of
the content or number of cigarette stick so each pack. Thus, the RTC erred in ruling
that RR17-2012 and RMC 90-2012 have gone beyond the plain meaning of RAl0351.

7
Petitioners assert that the two regulations merely clarify the tax rates set out in
RA10351 but have neither amended nor added any new taxes. Petitioners maintain
that the excise tax rates imposed by RA10351 on cigarettes packed by machine are
based on the net retail price per pack. The pack, therefore, is the unit on which the
tax rates are imposed and is understood to be the packaging unit that reaches the
ultimate consumer. Each pack of 5, 10, or 20 cigarettes is meant to be sold at retail
individually. On the other bind, bundles of smaller packs resulting in 20 cigarettes
are meant to be sold whole sale. Thus, petitioners insist that the excise tax
imposable on a bundle of 20 is computed on the net retail price of each individual
pack or pouch of the bundle and not on the bundle as one unit.

PTI, on the otherhand, contends that RA10351 allows a cigarette manufacturer to

adopt packaging combinations, such as the bundling of four pouches with five sticks
per pack (4x5's),or two pouches of ten sticks per pack (2x10’s),provided that such
packaging combination does not exceed 20 sticks. Thus, individual cigarette pouches
of 5's and 10's bundled together in to a single packaging of not more than 20 sticks
are considered as one pack and should be subjected to excise tax only once.
Otherwise, a cigarette pouch of 5's,for example, will be subjected to an excise tax of
₱48.00 since the BIR Will Impose An Individual excise tax of ₱12.00 upon each and
every pouch of 5's. While the same brand in a pack of 20's will only be subjected to
an excise tax rate of ₱12.00.Thus, PTI maintainsthatSection11ofRR17-
2012andAnnex"D-1"pertaining to Cigarettes Packed by Machine of RMC90-2012
disregarded the clear provision of RA10351 and imposed excise tax on each cigarette
pouches of 5's and 10's regard less of whether they are packed together into 20
sticks per pack. As a result, the affected cigarette brands that

Should have been taxed only either ₱12.00 or ₱25.00 per pack are subjected to a
different and higher excise tax rate not provided in RA10351. Further, PTI asserts
that petitioners did not publish or circulate notices of the then proposed RR17 2012
or conduct a hearing to afford interested parties the opportunity to submit their
views prior to the issuance of RR17-2012 which deprived it of its due process rights.

8
The pertinent portions of Section145(C) of the NIRC, as amended by Section 5 of
RA10351, state:

SEC. 5 Section 145 of the National Internal Revenue Code of 1997,as amended by
Republic Act No.9334, is hereby further amended to read as follows:

SEC. 145. Cigars and Cigarettes.–

xxxx

(C)Cigarettes Packed by Machine.-There shall believed, 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 (₱11.50) and below per pack, the tax shall be
Twelve pesos (₱112.00) 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 (₱11.50) per pack, the tax shall be
Twenty-five pesos (₱125.00) per pack.

xxxx

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

x x x x (Emphasis supplied)

Section 145(C) of the NIRC is clear that the excise tax on cigarettes packed by
machine is imposed per pack."Per pack"was not given a clear definition by the NIRC.
However, a "pack" would normally refer to a number of individual components
packaged as a unit.10 Under the same provision, cigarette manufacturers are
permitted to bundle cigarettes packed by machine in the maximum number of 20
sticks and aside from 20's, the law also allows packaging combinations of not more

9
than 20's-it can be 4 pouches of 5cigarette sticks in a pack (4x5's), 2 pouches of 10
cigarette sticks in a pack (2x10's),etc.

Based on this maximum packaging and allowable combinations, the BIR, with
RA10351 as basis, issued RR17-2012. Section11of RR17-2012, which provides for
the manner of packaging cigarettes, 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 sticks, 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.(Emphasis supplied)

The BIR also released RMC90-2012, specifically Annex "D-1" on Cigarettes Packed by
Machine, in accordance with RA10351 and RR17-2012, showing in tabular form the
different brands of locally-manufactured cigarettes packed by machine with the
brand names, content/unit (pack), net retail price,and the applicable excise tax rates
effective1January 2013.The net retail price of some brand names was converted in
to individual packages of 5's or10's pursuant to Section 11 of RR17-2012.

The RTC, in its Decision dated 7October 2013, ruled in favor of PTI and declared
that RA10351intends to tax the packs of 20's as awhole, regardless of

Whether They Are further repacked by10'sor5's, as long as they total 20sticks in
all.Thus, the tax rate tobe imposed shall only be either for a net retail price of(1)less
than ₱11.50,or(2) morethan P11.50,applying the two excise tax rates from 2013
until 2016 as mentioned under RA10351.

The RTC added" that the fact the law allows' packaging combinations,' as long as
they will not exceed a total of 20 sticks, is indicative of the law makers' foresight
that these combinations shall be sold at retail individually.Yet,the law makers did not
specify in the law that the tax rate shall be imposed on each packaging

10
combination."Thus, the RTC concluded that the interpretation made by the Secretary
of Finance and the CIR has no basis in the law.

We agree.

11
In the laws preceding RA10351-RA8240 and RA9334,12 both amendments to the
excise tax rates provisions of the NIRC dealing with cigarettes packed by machine,
which took effect in 1997 and 2005, respectively, provided that all" duly registered
or existing brands of cigarettes or new brands there of packed by machine shall only
be packed in twenties."

The confusion set in when RA 10351 amended the NIRC once again in 2012 and
introduced packaging combinations to cigarettes packed by machine, providing that"
duly registered cigarettes packed by machine shall only be packed in twenties and
other packaging combinations of not more than twenty."

Thereafter, RR17 2012 followed, where the BIR, in Section 11, reiterated the
provision in the NIRC that cigarettes shall only be packed in 20's and in other
packaging combinations which shall not exceed 20 sticks. However, the BIR added"
xxx That, in case of cigarettes packed in not more than twenty sticks, whether in 5
sticks, 10 sticks and other packaging combinations below 20 sticks, the net retail
price of each individual package of 5s,10s,etc. shall be the basis of imposing the tax
rate xxx."

The basis of RR17 2012 is RA 10351. RA 10351, in amending Section 145 (C) of the
NIRC provided that "duly registered cigarettes packed by machine shall only be
packed in twenties and other packaging combinations of not more than twenty.'
However, now here is it mentioned that the other packaging combinations of not
more than 20 will be imposed individual tax rates based on its different packages of
5's, 10's,etc. In such a case, a cigarette pack of 20's will only be subjected to an
excise tax rate of P 12.00 per pack as opposed to packaging combinations of 5's or
10's which will be subjected to a higher excise tax rate of ₱24.00 for10's and ₱48.00
for 5's.

11
During the Bicameral Conference Committee on the Disagreeing Provisions of Senate
Bill No.3299 and House Bill No.5727 dealing with the Sin Tax bills of the l5th
Congress, before these bills were enacted into RA10351, our law makers and Kim
S.Jacinto-Henares, the CIR at the time, deliberated on the packaging of cigarettes.
Therelevantexcerptsstate:

Rep. Villafuerte: Just appoint of clarification. The Senate says,' twenties.' Okay,
that's very reasonable. But can twopacks put together in tens, is that prohibited?
Because in rural areas, they don't necessarily have to sell.

The Chairman (Sen.Drilon): Can we ask our resource person, Congressman?

Ms. Jacinto-Henares: No, sir, as long as they take the two ten packs together or
four, five packs together, that is consideredtwenty.

Rep. Villafuerte: Okay. As long as the twenty packs is paid even if they are separable
in packaging for retail purposes, that's allowed. Because I got the impression from
some people that that is being prohibited that's why I sought to clarify.

The Chairman (Sen. Drilon): On record, yes.

xxxx

Sen. Recto: But you could have five, five, five, five and put a tape.

Ms. Jacinto-Henares: Yeah. But it should be taped together.

Sen. Recto: Okay.

Sen. P. Cayetano:Can I ask a question about that? When you say that you can have
numbers divisible, I guess, by five, so you have five, 10, 15, 20, right? So you can
have two or four packaged together for tax purposes.And then for retail purposes,
you can divide that up. Is that what we're saying?

xxxx

12
Ms.Jacinto-Henares:Yes.

xxxx

Sen.A. Cayetano: Mr. Chair. Mr. Chair. The point is, we're taxing by pack. If they sell
less than 20, that's advantageous to the government. So, if they want to pack it by
10 but not combine it, we will tax them twice. So, it's good for the government. But
if you allow combinations without limiting it to20, they will pack three of 10’s
together and you will be taxing 30’s and the government will be getting less. So it's
an irony that our problem now with the sin tax is our sin tax.

So, can I propose this wording, In twenties and other packaging combinations not
more than20ornotmorethan20ornotmorethan20sticks.

Ms.Jacinto-Henares:Yes,Sir.13

From the above discussion, it can be gleaned that the lawmakers intended to impose
the excise tax on every pack of cigarettes that come in 20 sticks. Individual pouches
or packaging combinations of 5'sand l0's for retail purposes are allowed and will be
subjected to the same excise tax rate as long as they are bundled together by not
more than 20 sticks. Thus, by issuing Section11of RR17-2012 andAnnex"D-1"on
Cigarettes Packed by Machine of RMC90-2012, the BIR went beyond the express
provisions of RA10351.

It is an elementary rule in administrative law that administrative rules and

regulations enacted by administrative bodies to implement the law which they are
entrusted to enforce have the force of law and are entitled to great weight and
respect. However, these implementations of the law must not override, supplant,or
modify the law but must remain consistent with the law they intend to implement. It
is only Congress which has the power to repeal or amend the law.

In this case, Section 11 of RR17-2012 and Annex"D-1" on Cigarettes Packed by

Machine of RMC90-2012 clearly contravened the provisions of RA10351.1âwphi1 It is
a well-settled principle that are venue regulation cannot amend the law it seeks to

13
implement. In Commissioner of Internal Revenue v. Seagate Technology
14
(Philippines), we held that a mere administrative issuance, like a BIR regulation,
cannot amend the law; the former cannot purport to do any more than implement
the latter. The courts will not countenance an administrative regulation that
overrides the statute it seeks to implement.

In the present case, area ding of Section 11 of RR17-2012 and Annex"D-1" on

Cigarettes Packed by Machine of RMC 90-2012 reveals that they are not simply
regulations to implement RA10351. They are amendatory provisions which require
cigarette manufacturers to be liable to pay for more tax than the law, RA10351,
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.

In sum, we agree with the ruling of the RTC that Section 11 of RR17-2012 and
Annex"D-1" on Cigarettes Packed by Machine of RMC 90-2012 are null and void.
Excise tax on cigarettes packed by machine shall be imposed on the packaging
combination of 20 cigarette sticks as a whole and not to individual packaging
combinations or pouches of 5's, 10's,etc.

WHEREFORE, we DENY the petition. We AFFIRM the Decision dated 7 October 2013
of the Regional Trial Court of Las Piñas City, Branch253 in SCA Case No.13-0003.

SO ORDERED.

ANTONIO T. CARPIO,
Associate Justice

WE CONCUR:

DIOSDADO M. PERALTA
AssociateJustice

JOSE CATRAL MENDOZA MARVIC M.V.F. LEONEN

14
 Associate Justice Associate Justice

SAMUEL R. MARTIRES
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court’s Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson

CERTIFICATION

Pursuant to the Section 13, Article VIII of the Constitution and the Division
Chairperson’s Attestation, I certify that the conclusions in the above Decision had
been reached in consultation before the case was assigned to the writer of the
opinion of the Court’s Division.

MARIA LOURDES P.A. SERENO

Chief Justice

Footnotes

1
Linder Rule 45 of the 1997 Revised Rules of Civil Procedure.

2
Rollo, pp.35-45. Penned by Presiding Judge Salvador V. Timbang, Jr.

3
Prescribing the Implementing Guidelines op the Revised Tax Rates on
Aacohol and Tobacco Products Pursuant to the Provisions i.·f Republic Act No.

15
 10351 and to Clarify Certain Provisions . of Existing Revenue Regulations.
Issueu ~.:i 2 I Dt:cember 2012 by the Secretary of Finance.

4
Revised Tax Rates of Alcohol and Tobacco Products under Republic Act No.
10351, "An Act Restructuring the Excise Tax on Alcohol and Tobacco Products
by Amendin!.! Sections 141, 142, 143, 144, 145, 8, 131 and 288 ot Republic
Act No. 8424, otherwise known as The National Internal Revenue Code of
1997, as amended by Republic Act No. 9334, and for Other Purposes." Issued
on 27 December 2012 by the Commissioner of Internal Revenue.

5
An Act Restructuring the Excise Tax on Alcohol and Tobacco Products by
Amending Sections 141, 142, 143, 144, 145, 8, 131 and 288 of Republic Act
No. 8424, otherwise known as the National Internal Revenue Code of 1997,
as amended by Republic Act No. 9334, and for Other Purposes. Approved on
19 December 2012 and took effect on 21 December 2012.

6
An Act Amending the National Internal Revenue Code, as Amended, and for
Other Purposes. Cited as The Tax Refonn Act of 1997, signed on 11
December 1997, and took effect on I January 1998.

7
Docketed as SCA Case No.13-0003.

8
Rollo,pp.44-45.

9
Id. at 200.

10
Merriam Webster Dictionary <https://www.merriam-
webster.com/diction_ary/pack> (visited on 12 April 2017).

11
Act Amending Sections 138, 140. & 142 of the National Internal Revenue
Code, asamended, and for Other Purposes. Took effect on 1 January 1997.

12
An Act Increasing the Excise Tax Rates Imposed on Alcohol and Tobacco
Products, Amending for the Purpose Sections 131, 141, 142, 143, 144, 145

16
 and 288 of the National Internal Revenue Code of 1997, as amended. Took
effect on 1 January 2005.

13
Rollo, pp.260-261.

14
491 Phil. 317, 347 (2005).

17