SECOND DIVISION

[ G.R. No. 210251, April 17, 2017 ]

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 Decision[2] 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. 17-2012[3] (RR 17-2012) and Revenue
Memorandum Circular No. 90-2012[4] (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. 10351[5] (RA 10351), otherwise known as the Sin Tax Reform Law.
RA 10351 restructured the excise tax on alcohol and tobacco products by
amending pertinent provisions of Republic Act No. 8424,[6] 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:

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. - 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.

Effective on January 1, 2014

(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 Seventeen pesos (P17.00) 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-seven pesos (P27.00) 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 (P11.50) and below per pack, the tax shall
be Twenty-one pesos (P21.00) 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-eight pesos (P28.00) per pack.

Effective on January 1, 2016

(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 Twenty-five pesos (P25.00) 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-nine pesos (P29.00) per pack.

Effective on January 1, 2017, the tax on all cigarettes packed by machine

shall be Thirty pesos (P30.00) 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 10'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 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.
Pursuant to Section 11 of RR 17-2012, 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

Applicable Excise
Net Retail Price Tax Rates
Content/Unit
BRAND NAMES (Based on 2010 Effective Jan. 1,
(pack)
BIR Price Survey) 2013 under R.A.
No. 10351
A. Cigarettes Packed by Machine
A. 1. Net Retail Price (NRP) is Php 11.50 per Pack and
below
1. Astro Filter
20 sticks/pack 10.92 12.00
King
xxxx
22. Fortune Int'l
20 sticks/pack 10.84 12.00
Extra Filter King
23. Fortune Int'l
Extra Filter King 10 sticks/pack 6.58 12.00
(10's)*
xxxx
44. Marlboro
Filter (2x10's) 10 sticks/pack 8.27 12.00
Flip Top*
45. Marlboro
5 sticks/pouch 4.11 12.00
Filter KS (5's)*
xxxx
61. Miller Filter
20 sticks/pack 10.27 12.00
Silver KS SP
xxxx
63. Miller Filter
Silver-(5's) KS 5 sticks/pouch 2.88 12.00
Pouch*
xxxx
76. Philip Morris
Menthol KS FTB- 10 sticks/pack 6.25 12.00
(10's)*
77. Philip Morris
Menthol-(5's) 5 sticks/pouch 3.84 12.00
100's Pouch*
xxxx
* NRP is converted into individual package of 5s or 10s 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 petition [7] 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 10351. PTI stated that the excise tax rate of either P12 or
P25 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 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 2 x 10's or 4 x 5'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 x[9]
The Issue

Whether or not the RTC erred in nullifying Section 11 of RR 17-2012 and

Annex "D-1" of RMC 90-2012 in imposing excise tax to packaging
combinations of 5's, 10's, etc. not exceeding 20 cigarette sticks packed by
machine.

The Court's Ruling

The petition lacks merit.

Petitioners contend that RA 10351 imposes the excise tax "per pack,"
regardless of the content or number of cigarette sticks of each pack. Thus,
the RTC erred in ruling that RR 17-2012 and RMC 90-2012 have gone
beyond the plain meaning of RA 10351. Petitioners assert that the two
regulations merely clarify the tax rates set out in RA 10351 but have neither
amended nor added any new taxes. Petitioners maintain that the excise tax
rates imposed by RA 10351 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 hand, bundles of smaller packs
resulting in 20 cigarettes are meant to be sold wholesale. 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 other hand, contends that RA 10351 allows a cigarette

manufacturer to adopt packaging combinations, such as the bundling of
four pouches with five sticks per pack (4 x 5's), or two pouches often sticks
per pack (2 x 10's), provided that such packaging combination does not
exceed 20 sticks. Thus, individual cigarette pouches of 5's and 10's bundled
together into 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
P48.00 since the BIR will impose an individual excise tax of P12.00 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 P12.00. Thus, PTI maintains that
Section 11 of RR 17-2012 and Annex "D-1" pertaining to Cigarettes Packed
by Machine of RMC 90-2012 disregarded the clear provision of RA 10351
and imposed excise tax on each cigarette pouches of 5's and 10's regardless
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 P12.00 or
P25.00 per pack are subjected to a different and higher excise tax rate not
provided in RA 10351. Further, PTI asserts that petitioners did not publish
or circulate notices of the then proposed RR 17-2012 or conduct a hearing
to afford interested parties the opportunity to submit their views prior to
the issuance of RR 17-2012 which deprived it of its due process rights.

The pertinent portions of Section 145(C) of the NIRC, as amended by

Section 5 of RA 10351, 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 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.

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

Based on this maximum packaging and allowable combinations, the BIR,

with RA 10351 as basis, issued RR 17-2012. Section 11 of RR 17-2012, 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
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. (Emphasis supplied)
The BIR also released RMC 90-2012, specifically Annex "D-1" on Cigarettes
Packed by Machine, in accordance with RA 10351 and RR 17-2012, 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 effective 1 January 2013. The net
retail price of some brand names was converted into individual packages of
5's or 10's pursuant to Section 11 of RR 17-2012.

The RTC, in its Decision dated 7 October 2013, ruled in favor of PTI and
declared that RA 10351 intends to tax the packs of 20's as a whole,
regardless of whether they are further repacked by 10's or 5's, as long as
they total 20 sticks in all. Thus, the tax rate to be imposed shall only be
either for a net retail price of (1) less than P11.50, or (2) more than P11.50,
applying the two excise tax rates from 2013 until 2016 as mentioned under
RA 10351. 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 lawmakers' foresight that these combinations shall be sold
at retail individually. Yet, the lawmakers did not specify in the law that the
tax rate shall be imposed on each packaging 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.

In the laws preceding RA 10351 - RA 8240[11] and RA 9334,[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 thereof 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, RR 17-2012 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 "x x x 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 x x x."

The basis of RR 17-2012 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, nowhere 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 P12.00
per pack as opposed to packaging combinations of 5's or 10's which will be
subjected to a higher excise tax rate of P24.00 for 10's and P48.00 for 5's.

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 15th Congress, before these bills were enacted into RA 10351, our
lawmakers and Kim S. Jacinto-Henares, the CIR at the time, deliberated on
the packaging of cigarettes. The relevant excerpts state:

Rep. Villafuerte: Just a point of clarification. The Senate says, 'twenties.'

Okay, that's very reasonable. But can two packs 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 considered twenty.

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

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
to 20, they will pack three of 10s together and you will be taxing 30s 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 than 20 or not more than 20 or not more than 20
sticks.

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's and 10'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 Section 11 of RR 17-2012 and Annex "D-1" on Cigarettes Packed by
Machine of RMC 90-2012, the BIR went beyond the express provisions of
RA 10351.

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 RR 17-2012 and Annex "D-1" on Cigarettes Packed

by Machine of RMC 90-2012 clearly contravened the provisions of RA
10351. It is a well-settled principle that a revenue regulation cannot amend
the law it seeks to implement. In Commissioner of Internal Revenue v.
Seagate Technology (Philippines),[14] 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, 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.

In sum, we agree with the ruling of the RTC that Section 11 of RR 17-2012
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, Branch 253 in
SCA Case No. 13-0003.
SO ORDERED.

Peralta, Mendoza, Leonen, and Martires, JJ., concur.

[1]
Under 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 on the Revised Tax Rates on
Alcohol and Tobacco Products Pursuant to the Provisions of Republic Act
No. 10351 and to Clarity Certain Provisions of Existing Revenue
Regulations. Issued on 21 December 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 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."

Issued on 27 December 2012 bv 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 Reform Act of 1997, signed on 11
December 1997, and took effect on 1 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/dictionary/pack> (visited on 12 April 2017).
[11]
An Act Amending Sections 138, 140 & 142 of the National Internal
Revenue Code, as amended, 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
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).