January 25, 2017

G.R. No. 205045

COMMISSIONER OF INTERNAL REVENUE, Petitioner

vs.
SAN MIGUEL CORPORATION, Respondent,

x-----------------------x

G.R. No. 205723

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
SAN MIGUEL CORPORATION, Respondent.

DECISION

LEONEN, J.:

These consolidated cases consider whether "San Mig Light" is a new brand or a variant of one of San Miguel
Corporation's existing beer brands, and whether the Bureau of Internal Revenue may issue notices of
discrepancy that effectively changes "San Mig Light"'s classification from new brand to variant. The issues
involve an application of Section 143 of the 1997 National Internal Revenue Code (Tax Code), as amended,
on the definition of a variant, which is subject to a higher excise tax rate than a new brand. This case also
applies the requirement in Rep. Act No. 9334 that reclassification of certain fermented liquor products
introduced between January 1, 1997 and December 31, 2003 can only be done by an act of Congress.

The Petition docketed as G.R. No. 205045 assails the Court of Tax Appeals En Bane's September 20, 2012
1

Decision affirming the Third Division's grant of San Miguel Corporation's refund claim in CTA Case No. 7708,
2

and the December 11, 2012 Resolution denying reconsideration. The Commissioner of Internal Revenue
3

prays for the reversal and setting aside of the assailed Decision and Resolution, as well as the issuance of a
new one denying San Miguel Corporation's claim for tax refund or credit. 4

On the other hand, the Petition docketed as G.R. No. 205723 and consolidated with G.R. No. 205045 assails
5

the Court of Tax Appeals En Bane's October 24, 2012 Decision dismissing the Commissioner of Internal
6

Revenue's appeal, and the February 4, 2013 Resolution denying reconsideration. The Commissioner of
7

Internal Revenue prays for the reversal and setting aside of the assailed Decision and Resolution, the
issuance of a new one remanding the case to the Court of Tax Appeals for the production of evidence in San
Miguel Corporation's possession, or, in the alternative, the dismissal of the Petitions in CTA Case Nos. 7052,
7053, and 7405. 8

On October 19, 1999, Virgilio S. De Guzman (De Guzman), San Miguel Corporation's Former Assistant Vice
President for Finance, wrote the Bureau of Internal Revenue Excise Tax Services Assistant Commissioner
Leonardo B. Albar (Assistant Commissioner Albar) to request the registration of and authority to manufacture
"San Mig Light," to be taxed at ₱12.15 per liter. The letter dated October 27, 1999 granted this request.
9 10

On November 3, 1999, De Guzman advised Assistant Commissioner Albar that "San Mig Light" would be sold
at a suggested net retail price of ₱21.15 per liter or ₱6.98 per bottle, less value-added tax and specific tax.
"San Mig Light" would also be classified under "Medium Priced Brand" to be taxed at ₱9.15 per liter. 11

On January 28, 2002, Alfredo R. Villacorte (Villacorte), San Miguel Corporation's Vice President and Manager
of the Group Tax Services, wrote the Bureau of Internal Revenue Chief of the Large Taxpayers Assistance
Division II (LTAD II) to request information on the tax rate and classification of "San Mig Light" and another
beer product named "Gold Eagle King." 12

On February 7, 2002, LTAD II Acting Chief Conrado P. Item replied to Villacorte's letter. He confirmed that
13

based on the submitted documents, San Miguel Corporation was allowed to register, manufacture, and sell
"San Mig Light" as a new brand, had been paying its excise tax for a considerable length of time, and that the
tax classification and rate of "San Mig Light" as a new brand were in order. 14
However, on May 28, 2002, Edwin R. Abella (Assistant Commissioner Abella), Bureau of Internal Revenue
Large Taxpayers Service Assistant Commissioner, issued a Notice of Discrepancy against San Miguel
Corporation. The Notice stated that "San Mig Light" was a variant of its existing beer products and must,
therefore, be subjected to the higher excise tax rate for variants. Specifically, for the year 1999, "San Mig
15

Light" should be taxed at the rate of ₱19.91 per liter instead of ₱9.15 per liter; and for the year 2000, the 12%
increase should be based on the rate of Pl9.91 per liter under Section l 43(C)(2) of the Tax Code. Hence, the
16

Notice demanded payments of deficiency excise tax in the amount of

₱824,750,204.97, exclusive of increments for years 1999 to April 2002. 17

The Finance Manager of San Miguel Corporation's Beer Division wrote a letter-reply dated July 9, 2002
requesting the withdrawal of the Notice of Discrepancy. San Miguel Corporation stated, among other things,
18

that "San Mig Light" was not a variant of any of its existing beer brands because of "the distinctive shape,
color scheme[,] and general appearance"; and the "different alcohol content and innovative low calorie
formulation." It also emphasized that the Escudo logo was not a beer brand logo but a corporate logo.
19 20

On October 14, 2002, Assistant Commissioner Abella wrote a letterrejoinder reiterating its finding that "San
Mig Light Pale Pilsen" was truly a variant of "San Miguel Pale Pilsen." The letter-rejoinder cited certain
21

statements in San Miguel Corporation's publication, "Kaunlaran," and the corporation's Annual Report as
support for its finding.
22

On November 20, 2002, Villacorte replied by requesting that "San Mig Light be reconfirmed as a new brand . .
. the deficiency assessment be set aside and the demand for payment be withdrawn." 23

Subsequently, three (3) conferences were held on the "San Mig Light" tax classification issue. At the
conference held on December 16, 2003, Commissioner Guillermo Parayno, Jr. (Commissioner Parayno)
informed San Miguel Corporation that five (5) members of the Bureau of Internal Revenue Management
Committee voted that "San Mig Light" was a variant of "Pale Pilsen in can," while two (2) members voted that
it was a variant of "Premium," a high-priced beer product of San Miguel Corporation. 24

On January 6, 2004, Commissioner Parayno wrote San Miguel Corporation and validated the findings that
"San Mig Light" was a variant of "San Miguel Pale Pilsen in can," subject to the same excise tax rate of the
latter-that is, P13.61 per liter-and that an assessment for deficiency excise tax against San Miguel
Corporation was forthcoming. 25

On January 28, 2004, a Preliminary Assessment Notice (PAN) was issued against San Miguel Corporation for
deficiency excise tax in the amount of P852,039,418.15, inclusive of increments, purportedly for the removals
of "San Mig Pale Pilsen Light," from 1999 to January 7, 2004. 26

On February 4, 2004, a Notice of Discrepancy was issued against San Miguel Corporation on an alleged
deficiency excise tax in the amount of ₱28,876,108.84, from January 8, 2004 to January 29, 2004. 27

Accordingly, on March 24, 2004, Bureau of Internal Revenue Deputy Commissioner Estelita C. Aguirre
(Deputy Commissioner Aguirre) issued a PAN against San Miguel Corporation for ₱29,967,465.37
representing deficiency excise tax, inclusive of increments, from January 8, 2004 to January 29, 2004. 28

On April 12, 2004 and May 26, 2004, Deputy Commissioner Aguirre issued two (2) Formal Letters of
Demand to San Miguel Corporation with the accompanying Final Assessment Notice (FAN) Nos. LTS TF
29

004-06-02 and LTS TF 129-05-04, respectively, directing San Miguel Corporation to pay deficiency excise
taxes in the amounts of:

(a) ₱876,098,898.83, inclusive of interest until April 30, 2004, for the period of November to December 1999
at ₱12.52 per liter, and January 2000 to January 7, 2004 at ₱13.61 per liter; and 30

(b) P30,763,133.68, inclusive of interest until June 30, 2004, for the period January 8, 2004 to January 29,
2004.31

San Miguel filed a Protest/Request for Reconsideration against each FAN. 32

On August 17, 2004 and August 20, 2004, Former Large Taxpayers Service Officer-in-Charge Deputy
Commissioner Kim S. Jacinto-Henares informed San Miguel Corporation of the denial of the Protest/Request
for Reconsiderations against the two (2) FANs "for lack of legal and factual basis." 33

G.R. No. 205723

On September 1 7, 2004 and September 22, 2004, San Miguel Corporation filed before the Court of Tax
Appeals Petitions for Review, docketed as CTA Case Nos. 7052 and 7053, assailing the denials of its
Protest/Request for Reconsiderations of the deficiency excise tax assessments. 34

To prevent the issuance of additional excise tax assessments on San Mig Light products and the disruption of
its operations, San Miguel Corporation paid excise taxes at the rate of ₱13.61 beginning February 1, 2004.35

On December 28, 2005, San Miguel Corporation filed with the Bureau of Internal Revenue its first refund
claim. The claim sought the refund of ₱782,238,161.47 for erroneous excise taxes collected on San Mig Light
products from February 2, 2004 to November 30, 2005. 36

Due to inaction on its claim, on January 31, 2006, San Miguel Corporation filed before the Court Tax Appeals
a Petition for Review docketed as CTA Case No. 7405. The Court of Tax Appeals, upon motion, later
37

consolidated CTA Case No. 7405 with CTA Case Nos. 7052 and 7053. 38

The Court of Tax Appeals First Division, in its Decision dated October 18, 2011, granted the Petitions in CTA
39

Case Nos. 7052 and 7053 and partially granted the Petition in CTA Case No. 7405. The Decision's
40

dispositive portion reads:

WHEREFORE, in view of the foregoing considerations, the consolidated Petitions for Review in CTA Case
Nos. 7052 and 7053 are hereby GRANTED. The (1) [sic] letters dated August 17, 2004 and August 20, 2004
of respondents, denying petitioner's Protest/Request for Reconsideration dated May 12, 2004 and July 7,
2004, respectively, and (2) Assessment Notice Nos. LTS TF 004-06-02 and LTS TF 129-05-04 issued by
respondent against petitioner for the periods of November 1999 to January 7, 2004 and January 8, 2004 to
January 29, 2004, are hereby CANCELLED and SET ASIDE.

Moreover, the Petition for Review in CTA Case No. 7405 is hereby PARTIALLY GRANTED. Respondent CIR
is hereby ORDERED to REFUND petitioner, or to ISSUE A TAX CREDIT CERTIFICATE in its favor in, the
amount of SEVEN HUNDRED EIGHTY ONE MILLION FIVE HUNDRED FOURTEEN THOUSAND SEVEN
HUNDRED SEVENTY TWO PESOS AND FIFTY SIX CENTAVOUS [sic] (₱781,514,772.56), as determined
below:

Claims for Over-Payment of P782,238,161.47

Excise Taxes per Petition

Less: Deductions from claims

1 Excise taxes due on SML P420,252.62

. removals per ODI which
were not paid per Returns
Polo Plant

2 Excise taxes due per 121,975.00

. Excise Tax Returns were
Lesser than [the] amounts
per ODI Polo Plant

3 SML Removals per

. shipping Memorandum
were Greater than OD Is

San Fernando Plant 181,080.11

Bacolod Plant
 81.18

723,388.91

Recomputed Excise Taxes P781,5l4,772.56

for Refund/Issuance of Tax
Credit Certificate

SO ORDERED. (Emphasis in the original)

41

The Commissioner filed a Motion for Reconsideration with Motion for Production of Documents praying that
San Miguel Corporation be compelled to produce the following: (a) "Kaunlaran" publication for the months of
October 1999 and January 2000; (b) 1999 Annual Report to stockholders; and (c) copies of the video footage
of two (2) San Mig Light commercials as seen in its website. The Commissioner claimed "that the admission
42

of said documents would lead to a better illumination of the oucome of the case." 43

The Court of Appeals First Division denied the Motions in its Resolution dated February 6, 2012:
44

WHEREFORE, premises considered, respondent's [CIR's] MOTION FOR RECONSIDERATION WITH

MOTION FOR PRODUCTION OF DOCUMENTS (Re: Decision promulgated 18 October 2011) and
SUPPLEMENTAL MOTION FOR PRODUCTION OF DOCUMENTS are hereby DENIED for lack of merit.

SO ORDERED. (Emphasis in the original)

45

The Court of Tax Appeals En Banc, in its Decision dated October 24, 2012, dismissed the Petition and
46

affirmed the Division. It also denied reconsideration through the Resolution dated February 4, 2013.
47 48

Hence, the Commissioner on Internal Revenue filed the Petition for Review on Certiorari docketed as G.R.
49

No. 205723.

G.R. No. 205045

On August 30, 2007, San Miguel Corporation filed its second refund claim with the Bureau of Internal
Revenue in the amount of ₱926,389,172.02. Due to inaction on its claim, San Miguel Corporation filed before
50

the Court Tax Appeals a Petition for Review, docketed as CTA Case No. 7708, on November 27, 2007. 51

The Court of Tax Appeals Third Division, in its Decision dated January 7, 2011, partially granted the
Petition. It also denied reconsideration. The Decision's dispositive portion reads:
52 53

WHEREFORE, the Petition for Review is hereby PARTIALLY GRANTED. Accordingly, respondent is
hereby ORDERED TO REFUND or ISSUE A TAX CREDIT CERTIFICATE in favor [of] petitioner in the
amount of ₱926,169,056.74, representing erroneously, or excessively and/or illegally collected, and overpaid
excise taxes on "San Mig Light" during the period from December 1, 2005 up to July 31, 2007.

SO ORDERED. (Emphasis in the original)

54

On September 20, 2012, the Court of Tax Appeals En Banc affirmed the Division and thereafter also denied
55

reconsideration. The Decision's dispositive portion reads:

WHEREFORE, the present Petition for Review is hereby DENIED for lack of merit. The assailed decision and
resolution of the Third Division of this Court promulgated on January 7, 2011 and March 23, 2011,
respectively, in CTA Case No. 7708 entitled "SAN MIGUEL CORPORATION vs. COMMISSIONER OF
INTERNAL REVENUE["], are hereby AFFIRMED.
Accordingly, petitioner is ORDERED TO REFUND or ISSUE A TAX CREDIT CERTIFICATE in favor of
respondent in the amount of ₱926,169,056.74, representing erroneously, excessively and/or illegally collected
and overpaid excise taxes on "San Mig Light" during the period December 1, 2005 to July 31, 2007.

SO ORDERED. (Emphasis in the original)

56

Hence, the Commissioner on Internal Revenue filed the Petition for Review on Certiorari docketed as G.R.
57

No. 205045. The two (2) cases were consolidated.

Respondent San Miguel Corporation filed its Comment on the Petitions, to which petitioner filed its
58

Reply. The parties then filed their respective memoranda.

59 60

The issues for resolution are:

First, whether a motion for production of documents and objects may be availed of after the court has
rendered judgment;

Second, whether petitioner complied with all requisites of a motion for production of documents and objects
under Rule 27, such as a showing of good cause;

Third, whether "San Mig Light" is a new brand and not a variant of "San Miguel Pale Pilsen";

Fourth, whether the "classification freeze" in Rep. Act No. 9334 refers to the freezing of classification of
brands, and not to the freezing of net retail prices of brands;

Fifth, whether the deficiency excise tax assessments issued by the Bureau of Internal Revenue against
respondent dated April 12, 2004 and May 26, 2004 are valid; and

Lastly, whether respondent is entitled to a refund of excess payment of excise taxes on "San Mig Light" in the
amount of ₱781,514, 772.56 for the period from February 1, 2004 up to November 30, 2005, and in the
amount of ₱926,169,056.74 for the period from December 1, 2005 up to July 31, 2007.

Petitioner questions the denial of its Motion for Production of Documents and Objects. It argues that this
motion may be filed after pretrial or during the pendency of the action since Rule 27, Section 1 of the Revised
Rules of Civil Procedure does not explicitly provide that it must be availed of before trial or pre-
trial. Petitioner contends that all requisites for filing the motion were satisfied. Assuming the Motion was
61 62

belatedly filed, it should have been granted in the higher interest of justice. 63

Respondent counters that the Motions, which were filed only after the Court of Tax Appeals Division rendered
judgment, were belatedly filed since this mode of discovery must be availed of before trial. Rule 27, Section
64

1 used the phrase, "in which an action is pending"; thus, this defines which court has authority to resolve the
motion and does not define when the motion must be made. Respondent contends that this remedy must be
65

availed of before trial in order to facilitate and expedite case preparations. Respondent adds that petitioner
66

also failed to comply with the requisites for the motion. Specifically, the Motion did not adequately describe
the contents of the documents to be produced to show their materiality and relevance to the case. 67

Respondent further submits that the documents and objects are immaterial and irrelevant to the issues. The
documents petitioner sought to have respondent produce are referred to as having to do with the taste,
alcohol content, and calories of "San Mig Light," when the Tax Code definition of variant has nothing to do
with these matters. Respondent submits that in filing the Motions after judgment, petitioner was effectively
68

seeking new trial, which it may only avail itself of with "newly discovered" evidence. 69

Rule 27, Section 1 of the Revised Rules of Civil Procedure provides:

SECTION 1. Motion for production or inspection; order. - Upon motion of any party showing good
cause therefore, the court in which an action is pending may (a) order any party to produce and permit the
inspection and copying or photographing, by or on behalf of the moving party, of any designated documents,
papers, books, accounts, letters, photographs, objects or tangible things, not privileged, which constitute or
contain evidence material to any matter involved in the action and which are in his possession, custody or
control; or (b) order any party to permit entry upon designated land or other property in his possession or
control for the purpose of inspecting, measuring, surveying, or photographing the property or any designated
relevant object or operation thereon. The order shall specify the time, place and manner of making the
inspection and taking copies and photographs, and may prescribe such terms and conditions as are just.
(Emphasis supplied)

Rule 18, Section 6 of the Rules of Court on Pre-Trial requires that the pre-trial briefs shall include "[a]
manifestation of their having availed or intention to avail themselves of discovery procedures."

On July 13, 2004, this Court approved A.M. No. 03-1-09-SC, otherwise known as the Rule on Guidelines to
be Observed by Trial Court Judges and Clerks of Court in the Conduct of Pre-Trial and Use of Deposition -
Discovery Measures. Among other things, these rules direct trial courts to require parties to submit, at least
three (3) days before pretrial, pre-trial briefs containing "[a] manifestation of the parties of their having availed
or their intention to avail themselves of discovery procedures or referral to commissioners." 70

Republic v. Sandiganbayan explained the purpose and policy behind modes of discovery:
71

The truth is that "evidentiary matters" may be inquired into and learned by the parties before the trial.
Indeed, it is the purpose and policy of the law that the parties - before the trial if not indeed even
before the pre-trial - should discover or inform themselves of all the facts relevant to the action, not
only those known to them individually, but also those known to their adversaries; in other words,
the desideratum is that civil trials should not be carried on in the dark; and the Rules of Court make this ideal
possible through the deposition-discovery mechanism set forth in Rules 24 to 29. The experience in other
jurisdictions has been that ample discovery before trial, under proper regulation, accomplished one of the
most necessary ends of modern procedure: it not only eliminates unessential issues from trials thereby
shortening them considerably, but also requires parties to play the game with the cards on the table
so that the possibility of/air settlement before trial is measurably increased ....

As just intimated, the deposition-discovery procedure was designed to remedy the conceded inadequacy and
cumbersomeness of the pre-trial functions of notice-giving, issue-formulation and fact revelation theretofore
performed primarily by the pleadings.

The various modes or instruments of discovery are meant to serve (1) as a device, along with the pre-trial
hearing under Rule 20, to narrow and clarify the basic issues between the parties, and (2) as a device for
ascertaining the facts relative to those issues. The evident purpose is, to repeat, to enable the parties,
consistent with recognized privileges, to obtain the fullest possible knowledge of the issues and facts
before civil trials and thus prevent that said trials are carried on in the dark. (Emphasis supplied,
72

citations omitted)

Specifically, this Court discussed the importance of a motion for production of documents under Rule 27 of
the Rules of Court in expediting time-consuming trials:

This remedial measure is intended to assist in the administration of justice by facilitating and expediting the
preparation of cases for trial and guarding against undesirable surprise and delay; and it is designed to
simplify procedure and obtain admissions of facts and evidence, thereby shortening costly and time-
consuming trials. It is based on ancient principles of equity. More specifically, the purpose of the statute is to
enable a party-litigant to discover material information which, by reason of an opponent's control, would
otherwise be unavailable for judicial scrutiny, and to provide a convenient and summary method of obtaining
material and competent documentary evidence in the custody or under the control of an adversary. It is a
further extension of the concept of pretrial. (Emphasis supplied)
73

Consistent with litigation's quest for truth, parties should welcome every opportunity in attaining this objective,
such as acting in good faith to reveal material documents. 74

The scope of discovery must be liberally construed, as a general rule, to serve its purpose of providing the
parties with essential information to reach an amicable settlement or to expedite trial. "Courts, as arbiters
75

and guardians of truth and justice, must not countenance any technical ploy to the detriment of an expeditious
settlement of the case or to a fair, full and complete determination on its merits." 76
Rule 27, Section 1 of the Rules of Court does not provide when the motion may be used. Hence, the
allowance of a motion for production of document rests on the sound discretion of the court where the case is
pending, with due regard to the rights of the parties and the demands of equity and justice. 77

In Eagleridge Development Corporation v. Cameron Granville 3 Asset Management, Inc., we held that a
78

motion for production of documents may be availed of even beyond the pre-trial stage, upon showing of good
cause as required under Rule 27. We allowed the production of documents because the petitioner was able
79

to show "good cause" and relevance of the documents sought to be produced, and the trial court had not yet
rendered its judgment.

In this case, petitioner filed its Motion for Production of Documents after the Court of Tax Appeals Division
had rendered its judgment. According to the Court of Tax Appeals Division, the documents sought to be
produced were already discussed in the Commissioner's Memorandum dated October 21, 2010 and were
already considered by the tax court when it rendered its Decision. If petitioner believed that the evidence in
80

the custody and control of respondent "would provide a better illumination of the outcome of the case," it
should have sought their production at the earliest opportunity as it had been already aware of their
existence. Petitioner's laxity is inexcusable and is a fatal omission.
81

Under these circumstances, there was indeed no further need for the production of documents and objects
desired by petitioner. These pieces of evidence could have served no useful purpose. On the contrary, the
production of those documents after judgment defeats the purpose of modes of discovery in expediting case
preparation and shortening trials.

We find no reversible error on the part of the Court of Tax Appeals En Banc in affirming the Division's denial
of petitioner's Motion for Production of Documents.

II

These consolidated cases involve the Tax Code provision defining new brand as opposed to variant of brand,
as these two are treated differently for excise tax on fermented liquor.

Effective January 1, 1998, Republic Act No. 8424, otherwise known as the Tax Reform Act of 1997,
reproduced as Section 143 the provisions of Section 140 of the old Tax Code, as amended by Republic Act
No. 8240, governing excise taxes on fermented liquor. Section 143 distinguishes a new brand from a variant
of brand:

Sec. 143. Fermented Liquor. - There shall be levied, assessed and collected an excise tax on beer, lager
beer, ale, porter and other fermented liquors except tuba, basi, tapuy and similar domestic fermented liquors
in accordance with the following schedule:

(a) If the net retail price (excluding the excise tax and value-added tax) per liter of volume capacity is less
than Fourteen pesos and fifty centavos (₱14.50), the tax shall be Six pesos and fifteen centavos (P6.15) per
liter;

(b) If the net retail price (excluding the excise tax and the value-added tax) per liter of volume capacity is
Fourteen pesos and fifty centavos (P14.50) up to Twenty-two pesos (P22.00), the tax shall be Nine pesos
and fifteen centavos (P9.15) per liter;

(c) If the net retail price (excluding the excise tax and the value-added tax) per liter of volume capacity is more
than Twenty-two pesos (P22.00), the tax shall be Twelve pesos and fifteen centavos (Pl2.15) per liter.

Variants of existing brands which are introduced in the domestic market after the ejfectivity of
Republic Act No. 8240 shall be taxed under the highest classification of any variant of that brand.

Fermented liquor which are brewed and sold at micro-breweries or small establishments such as pubs and
restaurants shall be subject to the rate in paragraph (c) hereof. The excise tax from any brand of fermented
liquor within the next three (3) years from the effectivity of Republic Act No. 8240 shall not be lower than the
tax which was due from each brand on October 1, 1996. The rates of excise tax on fermented liquor under
paragraphs (a), (b) and (c) hereof shall be increased by twelve percent (12%) on January 1, 2000. New
brands shall he classified according to their current net retail price.
For the above purpose, 'net retail price' shall mean the price at which the fermented liquor is sold on retail in
twenty (20) major supermarkets in Metro Manila (for brands of fermented liquor marketed nationally),
excluding the amount intended to cover the applicable excise tax and the value-added tax. For brands which
are marketed only outside Metro Manila, the 'net retail price' shall mean the price at which the fermented
liquor is sold in five (5) major supermarkets in the region excluding the amount intended to cover the
applicable excise tax and the value-added tax.

The classification of each brand of fermented liquor based on its average net retail price as of October 1,
1996, as set forth in Annex 'C,' shall remain in force until revised by Congress.

A 'variant of brand' shall refer to a brand on which a modifier is prefixed and/or suffixed to the root
name of the brand and/or a different brand which carries the same logo or design of the existing
brand.

Every brewer or importer of fermented liquor shall, within thirty (30) days from the effectivity of R.A. No. 8240,
and within the first five (5) days of every month thereafter, submit to the Commissioner a sworn statement of
the volume of sales for each particular brand of fermented liquor sold at his establishment for the three-month
period immediately preceding.

Any brewer or importer who, in violation of this Section, knowingly misdeclares or misrepresents in his or its
sworn statement herein required any pertinent data or information shall be penalized by a summary
cancellation or withdrawal of his or its permit to engage in business as brewer or importer of fermented liquor.

Any corporation, association or partnership liable for any of the acts or omissions in violation of this Section
shall be fined treble the amount of deficiency taxes, surcharges and interest which may be assessed pursuant
to this Section.

Any person liable for any of the acts or omissions prohibited under this Section shall be criminally liable and
penalized under Section 254 of this Code. Any person who willfully aids or abets in the commission of any
such act or omission shall be criminally liable in the same manner as the principal.

If the offender is not a citizen of the Philippines, he shall be deported / immediately after serving the sentence,
without further proceedings for A deportation. (Emphasis supplied)

On January 1, 2005, Republic Act No. 933482 took effect, amending

Section 143 of the Tax Code to read:

Sec.143. Fermented Liquors. - There shall be levied, assessed and collected an excise tax on beer, lager
beer, ale, porter and other fermented liquors except tuba, basi, tapuy and similar fermented liquors in
accordance with the following schedule:

(a) If the net retail price (excluding the excise tax and the value-added tax) per liter of volume capacity is less
than Fourteen pesos and fifty centavos (P14.50), the tax shall be Eight pesos and twenty-seven centavos
(P8.27) per liter;

(b) If the net retail price (excluding the excise tax and the value-added tax) per liter of volume capacity is
Fourteen pesos and fifty centavos (P14.50) up to Twenty-two pesos (P22.00), the tax shall be Twelve pesos
and thirty centavos (P12.30) per liter;

(c) If the net retail price (excluding the excise tax and the value-added tax) per liter of volume capacity is more
than Twenty-two pesos (P22.00), the tax shall be Sixteen pesos and thirty-three centavos (₱16.33) per liter.

Variants of existing brands and variants of new brands which are introduced in the domestic market after the
effectivity of this Act shall be taxed under the proper classification thereof based on their suggested net retail
price: Provided, however, That such classification shall not, in any case, be lower than the highest
classification of any variant of that brand.

A 'variant of a brand' shall refer to a brand on which a modifier is prefvced and/or suffvced to the root
name of the brand.
Fermented liquors which are brewed and sold at micro-breweries or small establishments such as pubs and
restaurants shall be subject to the rate in paragraph (c) hereof.

New brands, as defined in the immediately following paragraph, shall initially be classified according to their
suggested net retail price.

'New brand' shall mean a brand registered after the date of effectivity of R.A. No. 8240.

'Suggested net retail price' shall mean the net retail price at which new brands, as defined above, of locally
manufactured or imported fermented liquor are intended by the manufacturer or importer to be sold on retail
in major supermarkets or retail outlets in Metro Manila for those marketed nationwide, and in other regions,
for those with regional markets. At the end of three (3) months from the product launch, the Bureau of Internal
Revenue shall validate the suggested net retail price of the new brand against the net retail price as defined
herein and determine the correct tax bracket to which a particular new brand of fermented liquor, as defined
above, shall be classified. After the end of eighteen (18) months from such validation, the Bureau of Internal
Revenue shall revalidate the initially validated net retail price against the net retail price as of the time of
revalidation in order to finally determine the correct tax bracket which a particular new brand of fermented
liquors shall be classified: Provided, however, That brands of fermented liquors introduced in the
domestic market between January 1, 1997 and December 31, 2003 shall remain in the classification
under which the Bureau of Internal Revenue has determined them to belong as of December 31, 2003.
Such classification of new brands and brands introduced between January 1, 1997 and December 31,
2003 shall not be revised except by an act of Congress.

'Net retail price', as determined by the Bureau of Internal Revenue through a price survey to be conducted by
the Bureau of Internal Revenue itself, or the National Statistics Office when deputized for the purpose by the
Bureau of Internal Revenue, shall mean the price at which the fermented liquor is sold on retail in at least
twenty (20) major supermarkets in Metro Manila (for brands of fermented liquor marketed nationally),
excluding the amount intended to cover the applicable excise tax and the value-added tax. For brands which
are marketed outside Metro Manila, the 'net retail price' shall mean the price at which the fermented liquor is
sold in at least five (5) major supermarkets in the region excluding the amount intended to cover the
applicable excise tax and the value-added tax.

The classification of each brand of fermented liquor based on its average net retail price as of
October 1, 1996, as set forth in Annex 'C', including the classification of brands for the same products
which, although not set forth in said Annex 'C', were registered and were being commercially
produced and marketed on or after October 1, 1996, and which continue to be commercially produced
and marketed after the e/fectivity of this Act, shall remain in force until revised by Congress.

The rates of tax imposed under this Section shall be increased by eight percent (8%) every two years starting
on January 1, 2007 until January 1, 2011.

Any downward reclassification of present categories, for tax purposes, of existing brands of fermented liquor
duly registered at the time of the effectivity of this Act which will reduce the tax imposed herein, or the
payment thereof, shall be prohibited.

Every brewer or importer of fermented liquor shall, within thirty (30) days from the effectivity of this Act, and
within the first five (5) days of every month thereafter, submit to the Commissioner a sworn statement of the
volume of sales for each particular brand of fermented liquor sold at his establishment for the three-month
period immediately preceding.

Any brewer or importer who, in violation of this Section, knowingly misdeclares or misrepresents in his or its
sworn statement herein required any pertinent data or information shall be penalized by a summary
cancellation or withdrawal of his or its permit to engage in business as brewer or importer of fermented liquor.

Any corporation, association or partnership liable for any of the acts or omissions in violation of this Section
shall be fined treble the amount of deficiency taxes, surcharges and interest which may be assessed pursuant
to this Section.
Any person liable for any of the acts or omissions prohibited under this Section shall be criminally liable and
penalized under Section 254 of this Code. Any person who willfully aids or abets in the commission of any
such act or omission shall be criminally liable in the same manner as the principal.

If the offender is not a citizen of the Philippines, he shall be deported immediately after serving the sentence,
without further proceedings for deportation. (Emphasis supplied)

On December 19, 2012, Rep. Act No. 10351, otherwise known as the Sin Tax Law, was promulgated to
83

further amend certain provisions on excise taxes on alcohol and tobacco products. Among the amendments
to Section 143 were:

(1) Increase in the excise tax rates and transition from three (3)- tiered to two (2)-tiered tax rates starting
January 1, 2014 until December 31, 2016; and to a single tax rate beginning January 1, 201 7, irrespective of
the price levels at which the products were sold in the market;

(2) All fermented liquors existing in the market at the time of the effectivity of the Act shall be classified
according to the net retail prices and the tax rates provided, based on the latest price survey of the fermented
liquors conducted by the Bureau of Internal Revenue. However, any downward reclassification is prohibited;

(3) Fermented liquors introduced in the domestic market after the effectivity of the Act shall be initially tax-
classified according to their suggested net retail prices until such time that their correct tax bracket is finally
determined under a specified period; and

(4) The proper tax classification of fermented liquors, whether registered before or after the effectivity of the
Act, shall be determined every two (2) years from the date of effectivity of the Act.

Excise taxes are imposed on the production, sale, or consumption of specific goods. Generally, excise taxes
on domestic products are paid by the manufacturer or producer before removal of those products from the
place of production. The excise tax based on weight, volume capacity, or any other physical unit of
84

measurement is referred to as "specific tax." If based on selling price or other specified value, it is referred to
as "ad valorem" tax. 85

The excise tax on beer is a specific tax based on volume, or on a per liter basis. Before its amendment,
Section 143 provided for three (3) layers of tax rates, depending on the net retail price per liter. How a new
beer product is taxed depends on its classification, i.e. whether it is a variant of an existing brand or a new
brand. Variants of a brand that were introduced in the market after January 1, 1997 are taxed under the
highest tax classification of any variant of the brand. On the other hand, new brands are initially classified and
taxed according to their suggested net retail price, until a survey is conducted by the Bureau of Internal
Revenue to determine their current net retail price in accordance with the specified procedure.

III

Petitioner argues that "San Mig Light," launched in November 1999, is not a new brand but merely a low-
calorie variant of "San Miguel Pale Pilsen." Thus, the application of the higher excise tax rate for variant
86

products is appropriate and respondent should not be entitled to a refund or issuance of a tax credit
certificate.
87

Respondent counters that "San Mig Light" is a new brand; the classification of "San Mig Light" as a new and
medium-priced brand may not be revised except by an act of Congress; and the Court of Tax Appeals did
88

not err in granting its claim for refund or issuance of tax credit certificate.

The refund claim in CTA Case No. 7405, subject of the Petition docketed as G.R. No. 205723, covers the
period from February 2, 2004 to November 30, 2005, while the refund claim in CTA Case No. 7708, subject of
the Petition docketed as G.R. No. 205045, covers the period from December 1, 2005 up to July 31, 2007.

We find for respondent.

Parenthetically, the Bureau of Internal Revenue's actions reflect its admission and confirmation that "San Mig
Light" is a new brand.
When respondent's October 19, 1999 letter requested the registration and authority to manufacture "San Mig
Light," to be taxed at ₱12.15 per liter, the Bureau of Internal Revenue granted the request.
89 90

The response dated February 7, 2002 of the LTAD II Acting Chief confirmed that respondent was allowed to
register, manufacture, and sell "San Mig Light" as a new brand. 91

The Joint Stipulation of Facts, Documents and Issues in CTA Cases Nos. 7052 and 7053 dated July 29,
2005, signed by both parties, includes paragraph 1.08, which reads:
92

1.08. From the time of its registration as a new brand in October 1999 and its production in November
1999, "San Mig Light" products have been withdrawn and sold, and taxes have been paid on such removals,
on the basis of its registration and tax rate as a new brand. (CTA No. 7052: Petition, par. 5.06; Answer, par.
2[e]; CTA No. 7053: Petition, par. 5.06; Answer, par. 2[e]). (Emphasis supplied)
93

The May 28, 2002 Notice of Discrepancy was effectively nullified by the subsequent issuance of Revenue
Memorandum Order No. 6-2003, which included "San Mig Light" as a new brand.

The Bureau of Internal Revenue issued Revenue Memorandum Order No. 6-2003 dated March 11, 2003 with
the subject, Prescribing the Guidelines and Procedures in the Establishment of Current Net Retail Prices of
New Brands of Cigarettes and Alcohol Products Pursuant to Revenue Regulations No. 9-2003. Annex "A-3" is
the Master List of Registered Brands of Locally Manufactured Alcohol Products as of February 28, 2003, and
the list includes "San Mig Light," classified as "NB" or "new brand registered on or after January 1, 1997" :
94 95

INTENDED
REMARKS
MARKET
BRAND CLAS SPECIFICATI PACKA
Date of
NAME S ON GE
Domest Expo Statu Last
ic Sale rt s Producti
on

B.
FERMENTED

LIQUOR

I. SAN
MIGUEL
CORPORATI
ON

....

"San Mig NB 330ml flint 24 bots x x Active

96
Light" bottle

IV

Any reclassification of fermented liquor products should be by act of Congress. Section 143 of the Tax Code,
as amended by Rep. Act No. 9334, provides for this classification freeze referred to by the parties:

Provided, however, That brands of fermented liquors introduced in the domestic market between January 1,
1997 and December 31, 2003 shall remain in the classification under which the Bureau of Internal Revenue
has determined them to belong as of December 31, 2003. Such classification of new brands and brands
introduced between January 1, 1997 and December 31, 2003 shall not be revised except by an act of
Congress.

....
The classification of each brand of fermented liquor based on its average net retail price as of October 1,
1996, as set forth in Annex 'C', including the classification of brands for the same products which, although
not set forth in said Annex 'C', were registered and were being commercially produced and marketed on or
after October 1, 1996, and which continue to be commercially produced and marketed after the effectivity of
this Act, shall remain in force until revised by Congress. (Emphasis supplied)
97

In her Dissenting Opinion, Court of Tax Appeals Associate Justice Cielito N. Mindaro-Grulla discussed that
British American Tobacco v. Camacho explained the purpose and application of the classification
98

freeze. Her Dissenting Opinion concludes that the classification freeze does not apply when a brand is a
99

variant erroneously determined as a new brand. 100

British American Tobacco involves Section 145 of the Tax Code governing excise taxes for cigars and
cigarettes.

This Court in British American Tobacco discussed that Rep. Act No. 9334 includes, among other things, the
legislative freeze on cigarette brands introduced between January 2, 1997 and December 31, 2003, in that
these cigarette brands will remain in the classification determined by the Bureau of Internal Revenue as of
December 31, 2003 until revised by Congress. In other words, after a cigarette brand is classified under the
101

low-priced, medium-priced, high-priced, or premium-priced tax bracket based on its

current net retail price, its classification is frozen unless Congress reclassifies it. 102

The petitioner in British American Tobacco questioned this legislative freeze under Section 145 for creating a
"grossly discriminatory classification scheme between old and new brands." This Court ruled that the
103

classification freeze provision does not violate the constitutional provisions on equal protection. 104

This Court discussed the legislative intent behind the classification freeze, that is, to deter the potential for
abuse if the power to reclassify is delegated and much discretion is given to the Department of Finance and
Bureau of Internal Revenue:

To our mind, the classification freeze provision was in the main the result of Congress' earnest efforts to
improve the efficiency and effectivity of the tax administration over sin products while trying to balance the
same with other state interests. In particular, the questioned provision addressed Congress' administrative
concerns regarding delegating too much authority to the DOF and BIR as this will open the tax system to
potential areas of abuse and corruption. Congress may have reasonably conceived that a tax system which
would give the least amount of discretion to the tax implementers would address the problems of tax
avoidance and tax evasion. 105

British American Tobacco discussed the legislative history of the classification freeze, but it did not explicitly
rule that the classification freeze only refers to retail price tax brackets.

In any event, petitioner's letters and Notices of Discrepancy, which effectively changed San Mig Light's
brand's classification from "new brand to variant of existing brand," necessarily changes San Mig Light's tax
bracket. Based on the legislative intent behind the classification freeze provision, petitioner has no power to
do this.

A reclassification of a fermented liquor brand introduced between January 1, 1997 and December 31, 2003,
such as "San Mig Light," must be by act of Congress. There was none in this case.

Before Rep. Act No. 9334 was passed, the Tax Code under Republic Act No. 8240 defined a "variant of a
brand" as follows:

A variant of a brand shall refer to a brand on which a modifier is prefixed and/or suffixed to the root name of
the brand and/or a different brand which carries the same logo or design of the existing brand. 106

This definition includes two (2) types of "variants." The first involves the use of a modifier that is prefixed and/
or suffixed to a brand root name, and the second involves the use of the same logo or design of an existing
brand.
Rep. Act No. 9334 took effect on January 1, 2005 and deleted the second type of "variant" from the definition:

A 'variant of a brand' shall refer to a brand on which a modifier is prefixed and/or suffixed to the root name of
the brand. 107

Revenue Regulations No. 3-2006, with the subject: "Prescribing the Implementing Guidelines of the Revised
Tax Rates on Alcohol and Tobacco Products Pursuant to the Provisions of Republic Act No. 9334, and
Clarifying Certain Provisions of Existing Revenue Regulations Relative Thereto " reiterated the deletion of the
second type of "variant":

SEC. 2. DEFINITION OF TERMS. - For purposes of these Regulations, the following words and phrases shall
have the meaning indicated below:

....

(d) VARIANT OF A BRAND - shall refer to a brand of alcohol or tobacco products on which a modifier is
pref1Xed and/or suff1Xed to the root name of the brand. (Emphasis supplied)

For this purpose, the term "root name" shall refer to a letter, word, number, symbol, or character; or a
combination of letters, words, numbers, symbols, and/or characters that may or may not form a word; or shall
consist of a word or group of words, which may or may not describe the other word or words: Provided, That
the root name has been originally registered as such with the Bureau of Internal Revenue (BIR).

Examples of root name: "L & M", "b W ", "10'', "Pall Mall'', "Blue Ice'', "Red Horse'', etc.

The term "modifier" shall refer to a word, a number or a combination of words and/or numbers that specifically
describe the root name to distinguish one variant from another whether or not the use of such modifier is a
common industry practice. The root name, although accompanied by a modifier at the time of the original
brand registration, shall be the basis in determining the tax classification of subsequent variants of such
brands.

Examples of modifiers: ...

For beer: "Light", "Dry", "Ice'', "Lager",

"Hard", "Premium", etc.

Any variation in the color and/or design of the label (such as logo, font, picturegram, and the like), manner
and/or form of packaging or size of container of the brand originally registered with the BIR shall not, by itself,
be deemed an introduction of a new brand or a variant of a brand: Provided, That all instances of such
variation shall require a prior written permit from the BIR.

In case such BIR-registered brand has more than one (1) tax classification as a result of the shift in the
manner of taxation from ad valorem tax to specific tax under R.A. No. 8240, the highest tax classification shall
be applied to such brand bearing a new label, package, or volume content per package, subject to the
provisions of the immediately preceding paragraph.

ILLUSTRATION:

No. 1. -

....

In case a letter(s), number(s), symbols(s) or word(s) is/are deleted from or replaced by another letter(s),
number(s), symbol(s) or word(s) in the root name of a previously BIR-registered brand, such that the
introduction of the said brand bearing such change(s) shall ride on the popularity of the said previously
registered brand, the same shall be classified as a variant of such previously registered brand: Provided, That
where the introduction of such brand by another manufacturer or importer will give rise to any legal action with
respect to infringement of patent or unfair competition, such brand shall be considered a variant of such
previously registered brand.

ILLUSTRATION:

No. 2. –

ROOT MODIFIER IS MODDIFIER IS MODIFIED

NAME PREFIXED SUFFIXED ROOT NAME

L&M Kings L& M L & M Lights M&L

10 Perfect 10 10 Menthols Ten

Blue Ice Wild Blue Ice Blue Ice Supreme Blue Iced

Red Horse Flying Red Horse Red Horse Reddish Horse

Premium

Pall Mall Long Pall Mall Pall Mall Filter Pal Mall

Petitioner submits that the complete name of "San Mig Light" is "San Mig Light Pale Pilsen," and Section 143
of the Tax Code, in relation to its Annexes C-1 and C-2, show that the parent brands of San Mig Light are
RPT in cans or San Miguel Beer Pale Pilsen in can 330 ml, Pale Pilsen, and Super Dry. It contends that
108 109

the root name of the existing brand is "Pale Pilsen," and RPT had the highest tax classification at the time
"San Mig Light" was introduced. "San Miguel Beer Pale Pilsen" and "San Mig Light" have almost identical
110

labels, and only these two labels bear the same "Pale Pilsen." 111

Respondent counters that petitioner changed its theory of the case on appeal, and this should not be
allowed. It argues that petitioner categorically invoked the second part of the definition of variant in Section
112

143, and this part of the definition has been deleted by Rep. Act No. 9334. Moreover, petitioner made no
113

categorical assertion on the first part of the definition, but only a vague statement that "the root name of the
existing brand is 'Pale Pilsen."' Respondent adds that petitioner "has not specified which type of 'San Mig
114

Light', in bottle or in can, is a variant of 'RPT' in can (San Miguel Beer Pale Pilsen)." 115

Petitioner, on the other hand, maintains that even during the trial stage, its theory has always been that "San
Mig Light" falls under both first and second parts of Section 143, before its amendment by Rep. Act No.
9334. 116

A change of theory on appeal is generally disallowed in this jurisdiction for being unfair to the adverse party. 117

Even then, the Court of Tax Appeals En Banc, in both assailed Decisions, quoted with approval the First
Division's finding that "San Mig Light" does not fall under both first and second parts of the definition of
variant:

The fact that "San Mig Light" is a "new brand" and not merely a variant of an existing brand is bolstered by the
fact that Annexes "C-1" and "C-2" of RA No. 8240, which enumerated the fermented liquors registered with
the BIR do not include the brand name "San Mig Light". Instead, what were listed, as existing brands of
petitioner, as of the effectivity of RA No. 8240, were as follows: "Pale Pilsen 320 ml.", "Super Dry 355 ml." and
"Premium Can 330 ml." Even in Section 4 of RR No. 2- 97, which provides for the classification and manner
of taxation of existing brands, new brands and variants of existing brands, the list of existing brands of
fermented liquors of petitioner does not include the brand "San Mig Light", but merely "RPT in cans 330 ml.",
"Premium Bottles 355 ml.", "Premium Bottles 355 ml." and "Premium Bottle Can 330 ml." for high priced
brands; and "Super Dry 355 ml.", "Pale Pilsen 320 ml.", and "Grande" for medium-priced brands. 118

Thus, it is clear that when the product "San Mig Light" was introduced in 1999, it was considered as an
entirely new product and a new brand of petitioner's fermented liquor, there being no root name of "San
Miguel" or "San Mig" in its existing brand names. The existing registered and classified brand name
of petitioner at that time was "Pale Pilsen." Therefore, the word "Light" cannot he considered as a
mere suff1:x to the word "San Miguel," hut it is part and parcel of an entirely new brand name, "San
Mig Light." Evidently, as correctly pointed out by petitioner, "San Mig Light" is not merely a variant of an
existing brand, but an entirely new brand:

Anent the second type of "variant of brand," i.e., when a different brand carries the same logo or design of an
existing brand, records show that there are marked differences in the designs of the existing brand
"Pale Pilsen" and the new brand "San Mig Light":

a) as to "Pale Pilsen" and "San Mig Light" in bottles:

1. the size, shape and color of the respective bottles are different. Each brand has a distinct design in its
packaging. "Pale Pilsen" is in a steiny bottle, while "San Mig Light" is packed in a tall and slim transparent
bottle;

2. the design and color of the inscription on the bottles are different from each other. "Pale Pilsen" has its
label encrypted or embossed on the bottle itself, while "San Mig Light" has a silver and blue label of distinctive
design that is printed on paper pasted on the bottle; and

3. the color of the letters in the "Pale Pilsen" brand is white against the color of the bottle, while that of the
words "San Mig" is white against a blue background and the word "Light" is blue against a silver background.

b) As to "Pale Pilsen" and "San Mig Light" in cans:

1. the words "Pale Pilsen" are in ordinary font printed horizontally in black on the can against a diagonally
striped light yellow gold background, while the words "San Mig" are in Gothic font printed diagonally on the
can against a blue background and the word "Light" in ordinary font printed diagonally against a diagonally
striped silver background; and

2. the general color scheme of "Pale Pilsen" is light yellow gold, while that of "San Mig Light" is silver.

Though the "escudo" logo appears on both "Pale Pilsen" bottle and "San Mig Light" bottle and can, the same
cannot be considered as an indication that "San Mig Light" is merely a variant of the brand "Pale Pilsen",
since the said "escudo" insignia is the corporate logo of petitioner. It merely identifies the products, as having
been manufactured by petitioner, but does not form part of its brand. In fact, it appears not only in petitioner's
beer products, but even in its non-beer products. 119

VI

A variant under the Tax Code has a technical meaning. It 1s determined by the brand (name) or logo of the
beer product.

To be sure, all beers are composed of four (4) raw materials: barley, hops, yeast, and water. Barley grain
120

has always been used and associated with brewing beer, while hops act as the bittering substance. Yeast 121

plays a role in alcoholic fermentation, with bottom-fermenting yeasts resulting in light lager and top-fermenting
ones producing the heavy and rich ale. With only four (4) ingredients combined and processed in varying
122

quantities, all beer are essentially related variants of these mixtures.

A manufacturer of beer may produce different versions of its products, distinguished by features such as
flavor, quality, or calorie content, to suit the tastes and needs of specific segments of the domestic market. It
can also leverage on the popularity of its existing brand and sell a lower priced version to make it affordable
for the low-income consumers. These strategies are employed to gain a higher overall level of share or profit
from the market.

In intellectual property law, a registered trademark owner has the right to prevent others from the use of the
same mark (brand) for identical goods or services. The use of an identical or colorable imitation of a
registered trademark by a person for the same goods or services or closely related goods or services of
another party constitutes infringement. It is a form of unfair competition because there is an attempt to get a
123

free on the reputation and selling power of another manufacturer by passing of one's goods as identical or
produced by the same manufacturer as those carrying the other mark (brand). 124
The variant contemplated under the tax Code has a technical meaning. A variant is determined by the brand
(name) of the beer product, whether it was formed by prefixing or suffixing a modifier to the root name of the
alleged parent brand, or whether it carries the same logo or design. The purpose behind the definition was to
properly tax brands that were presumed to be riding on the popularity of previously registered brands by
being marketed under an almost identical name with a prefix, suffix, or a variant. It seeks to address price
125

differentials employed by a manufacturer on similar products differentiated only in brand or design.

Specifically, the provision was meant to obviate any tax avoidance by manufacturing firms from the sale of
lower priced variants of its existing beer brands, thus, falling in the lower tax bracket with lower excise tax
rates. To favor government, a variant of a brand is taxed according to the highest rate of tax for that particular
brand.

"San Mig Light" and "Pale Pilsen" do not share a root word. Neither is there an existing brand in the list
(Annexes C-1 and C-2 of the Tax Code) called "San Mig" to conclude that "Light" is a suffix rendering "San
Mig Light" as its "variant." As discussed in the Court of Tax Appeals Decision, "San Mig Light" should be
126

considered as one brand name. 127

Respondent's statements describing San Mig Light as a low-calorie variant is not conclusive of its
classification as a variant for excise tax purposes. Burdens are not to be imposed nor presumed to be
imposed beyond the plain and express terms of the law. "The general rule of requiring adherence to the
128

letter in construing statutes applies with peculiar strictness to tax laws and the provisions of a taxing act are
not to be extended by implication." 129

Furthermore, respondent's payment of the higher taxes starting January 30, 2004 after deficiency
assessments were made cannot be considered as an admission that its San Mig Light is a variant. Section
130(A)(2) of the Tax Code requires payment of excise tax "before removal of domestic products from place of
production." These payments were made in protest as respondent subsequently filed refund claims.
130

VII

Petitioner argues that although the Bureau of Internal Revenue erroneously allowed San Miguel Corporation
to manufacture and sell "San Mig Light" in 1999 as a "new brand" with the lower excise tax rate for "new
brands," government is not estopped from correcting previous errors by its agents. 131

Petitioner submits that the Notice of Discrepancy was to remedy the ‘misinterpretation" of "San Mig Light" as
132

new brand. It submits that respondent's self-assessment of excise taxes as a new brand was without
approval:

San Mig Light was never registered with BIR as a new brand but always as a variant. Thus, petitioner's
payment of excise taxes on San Mig Light as a new brand is based on its own classification of San Mig Light
as a new brand without approval of the BIR. Under existing procedures in the payment of excise taxes,
taxpayers are required to pay their taxes based on self-assessment system with the government relying
heavily on the honesty of taxpayers. Such being the case, any payments made, even those allegedly made
as a condition for the withdrawal of the product from the place of production, cannot be considered as a
confirmation by the BIR of the correctness of such payment.
133

Section 143 of the Tax Code, as amended by Rep. Act No. 9334, provides for the Bureau of Internal
Revenue's role in validating and revalidating the suggested net retail price of a new brand of fermented liquor
for purposes of determining its tax bracket:

'Suggested net retail price' shall mean the net retail price at which new brands, as defined above, of locally
manufactured or imported fermented liquor are intended by the manufacturer or importer to be sold on retail
in major supermarkets or retail outlets in Metro Manila for those marketed nationwide, and in other regions,
for those with regional markets.At the end of three (3) months from the product launch, the Bureau of
InternalRevenue shall validate the suggested net retail price of the new brandagainst the net retail
price as defined herein and determine the correcttax bracket to which a particular new brand of
fermented liquor, asdefined above, shall be classified. After the end of eighteen (18) monthsfrom
such validation, the Bureau of Internal Revenue shall revalidatethe initially validated net retail price
against the net retail price as of thetime of revalidation in order to finally determine the correct tax
bracketwhich a particular new brand of fermented liquors shall be classified: Provided, however, That
brands of fermented liquors introduced in the domestic market between January 1, 1997 and December 31,
2003 shall remain in the classification under which the Bureau of Internal Revenue has determined them to
belong as of December 31, 2003. Such classification of new brands and brands introduced between January
1, 1997 and December 31, 2003 shall not be revised except by an act of Congress.

When respondent launched "San Mig Light" in 1999, it wrote the Bureau of Internal Revenue on October 19,
1999 requesting registration and authority to manufacture "San Mig Light" to be taxed as P12.15.

The Bureau of Internal Revenue granted this request in its October 27, 1999 letter. Contrary to petitioner's
contention, the registration granted was not merely for intellectual property protection but "for internal
134

revenue purposes only":

Your request dated October 19, 1999, for the registration of San Miguel Corporation commercial label for beer
bearing the trade mark "San Mig Light" Pale Pilsen, for domestic sale or export, 24 bottles in a case, each flint
bottle with contents of 330 ml., is hereby granted.

....

Please follow strictly the requirements of internal revenue laws, rules and regulations relative to the marks to
be placed on each case, cartons or box used as secondary containers. It is understood that the said brand be
brewed and bottled in the breweries at Polo, Valenzuela (A-2-21).

You are hereby informed that the registration of commercial labels in this Office is for internal revenue
purposes only and does not give you protection against any person or entity whose rights may be prejudiced
by infringement or unfair competition resulting from your use of the above indicated trademark. (Emphasis
135

supplied)

Because the Bureau of Internal Revenue granted respondent's request in its October 27, 1999 letter and
confirmed this grant in its subsequent letters, respondent cannot be faulted for relying on these actions by the
Bureau of Internal Revenue.

While estoppel generally does not apply against government, especially when the case involves the collection
of taxes, an exception can be made when the application of the rule will cause injustice against an innocent
party. 136

Respondent had already acquired a vested right on the tax classification of its San Mig Light as a new brand.
To allow petitioner to change its position will result in deficiency assessments in substantial amounts against
respondent to the latter's prejudice.

The authority of the Bureau of Internal Revenue to overrule, correct, or reverse the mistakes or errors of its
agents is conceded. However, this authority must be exercised reasonably, i.e., only when the action or
137

ruling is patent y erroneous or patent y contrary to law. For the presumption lies in the regularity of
138 139

performance of official duty, and reasonable care has been exercised by the revenue officer or agent in
140

evaluating the facts before him or her prior to rendering his or her decision or ruling-in this case, prior to the
approval of the registration of San Mig Light as a new brand for excise tax purposes. A contrary view will
create disorder and confusion in the operations of the Bureau of Internal Revenue and open the
administrative agency to inconsistencies in the administration and enforcement of tax laws.

In Commissioner v. Algue: 141

It is said that taxes are what we pay for civilized society. Without taxes, the government would be paralyzed
for lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part
of one's hard-earned income to the taxing authorities, every person who is able to must contribute his share in
the running of the government. The government for its part, is expected to respond in the form of tangible and
intangible benefits intended to improve the lives of the people and enhance their moral and material values.
This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an
arbitrary method of exaction by those in the seat of power.

But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic
regimes that it be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the
taxpayer has a right to complain and the courts will then come to his succor. For all the awesome power of
the tax collector, he may still be stopped in his tracks if the taxf:ayer can demonstrate, as it has here, that the
law has not been observed. 142

VIII

The Tax Code includes remedies for erroneous collection and overpayment of taxes. Under Sections 229 and
204(C) of the Tax Code, a taxpayer may seek recovery of erroneously paid taxes within two (2) years from
date of payment:

SEC. 229. Recovery of tax Erroneously or Illegally Collected. - No suit or proceeding shall be maintained in
any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or
illegally assessed or collected, or of any penalty claimed to have been collected without authority, of any sum
alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has
been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such
tax, penalty, or sum has been paid under protest or duress.

In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of
payment of the tax or penalty regardless of any supervening case that may arise after payment: Provided,
however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where
on the face of the return upon which payment was made, such payment appears clearly to have been
erroneously paid.

....

SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. -The
Commissioner may –

....

(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the
value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his
discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value
upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files
in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax
or penalty: Provided, however, That a return filed showing an overpayment shall be considered as a written
claim for credit or refund.

A Tax Credit Certificate validly issued under the provisions of this Code may be applied against any internal
revenue tax, excluding withholding taxes, for which the taxpayer is directly liable. Any request for conversion
into refund of unutilized tax credits may be allowed, subject to the provisions of Section 230 of this Code:
Provided, That the original copy of the Tax Credit Certificate showing a creditable balance is surrendered to
the appropriate revenue officer for verification and cancellation: Provided, further, That in no case shall a tax
refund be given resulting from availment of incentives granted pursuant to special laws for which no actual
payment was made.

The Commissioner shall submit to the Chairmen of the Committee on Ways and Means of both the Senate
and House of Representatives, every six (6) months, a report on the exercise of his powers under this
Section, stating therein the following facts and information, among others: names and addresses of taxpayers
whose cases have been the subject of abatement or compromise; amount involved; amount compromised or
abated; and reasons for the exercise of power: Provided, That the said report shall be presented to the
Oversight Committee in Congress that shall be constituted to determine that said powers are reasonably
exercised and that the Government is not unduly deprived of revenues.

In G.R. No. 205045, the Court of Tax Appeals En Banc ruled that "San Mig Light" is a new brand and not a
variant of an existing brand. Accordingly, it ordered the refund of erroneously collected excise taxes on"San
Mig Light" products in the amount of ₱926,169,056.74 for the period of December 1, 2005 to July 31, 2007. 143

In G.R. No. 205723, the Court of Tax Appeals En Banc found proper the refund of erroneously collected
excise taxes on "San Mig Light" products in the amount of '₱781,514,772.56 for the period of February 2,
2004 to November 30, 2005. It referred to, and agreed with, the findings of the Court-commissioned
144
Independent Certified Public Accountant Normita L. Villaruz on reaching this amount. The Court of Tax
145

Appeals also found, from the records, that respondent timely filed its administrative claim for refund on
December 28, 2005, and its judicial claim on January 31, 2006. 146

This Court accords the highest respect to the factual findings of the Court of Tax Appeals. We recognize its
developed expertise on the subject as it is the court dedicated solely to considering tax issues, unless there is
a showing of abuse in the exercise of authority. We find no reason to overturn the factual findings of the
147

Court of Tax Appeals on the amounts allowed for refund.

WHEREFORE, the Petitions are DENIED. The assailed Decisions and Resolutions of the Court of Tax
Appeals En Banc in CTA Case Nos. 7052, 7053, 7405, and 7708 are AFFIRMED.

SO ORDERED.

MARVIC M.V.F. LEONEN

Associate Justice