Cigar Weekly

The Supreme Court has ordered the government to refund Fortune Tobacco P1.03 billion in overpaid taxes, ruling that the Bureau of Internal Revenue (BIR) had exceeded its authority in dunning the Lucio Tan-owned cigarette manufacturer.

The high court's Second Division, in a resolution promulgated yesterday, denied a BIR petition seeking to overturn decisions made some five years ago by the Court of Tax Appeals (CTA) that were later upheld by the Court of Appeals.

BIR Deputy Commissioner Nelson Aspe declined to comment extensively, saying he had yet to read the decision. "If the decision is not yet final, then we will file a motion for reconsideration," he said.

Fortune Tobacco officials, meanwhile, said the firm would be issuing a statement once a copy of the high court ruling was secured.

Yesterday's ruling, written by Associate Justice Dante O. Tinga, declared that Revenue Regulation 17-99, used by the BIR in justifying the taxes charged Fortune, was "indefensibly flawed" and not supported by the Tax Code.

RR 17-99, issued in December 1999, set applicable tax rates on cigars and cigarettes based on 1997 Tax Code provisions calling for a 12% increase. It added a qualification that the new specific tax rates should not be lower than the excise tax "actually being paid prior to January 1, 2000."

Fortune filed for refunds with the BIR, claiming that from 2000 to 2002 it had been made to pay tax more than what it actually owed after the 1997 change in the cigarette tax system. Inaction on the part of the BIR prompted the firm to file a petition with the tax appeals court.

The CTA, in decisions made in 20o2 and 2003, ordered refunds in the amounts of P680,387,025 and P355,385,920. These were appealed by the BIR and the cases were consolidated and subsequently denied by the appellate court, which in 2005 also denied a motion for reconsideration.

The case was raised to the Supreme Court, where the Office of the Solicitor General (OSG) claimed, among others, that the lower court's interpretation of the Tax Code provisions would lead to reduced revenues for the government. It also claimed that a refund would be equivalent to a tax exemption that should not be granted Fortune.

Fortune countered that the lower courts had merely followed the letter of the law, and that the BIR commissioner had gone beyond the rule-making power delegated by Congress.

The high court, concurred, and said that the case on hand was "not the first time that national revenue officials had ventured in the area of unauthorized administrative legislation."

"It should be mentioned at the outset that there is no dispute between the fact of payment of the taxes sought to be refunded and the receipt thereof by the [BIR].... There is also no question about the mathematical accuracy of Fortune Tobacco's claim..."

"This entire controversy revolves around the interplay between Section 145 of the Tax Code and Revenue Regulation 17-99. The main issue is an inquiry into whether the revenue regulation has exceeded the allowable limits of legislative delegation."

In denying the BIR appeal, the Supreme Court said the OSG's arguments were "not supported by the clear language of the law..."