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British American Tobacco vs. Camacho (G.R. No. 163583, August 20, 2008 and April 15, 2009)

This case involved a constitutional challenge by British American Tobacco to provisions in the National Internal Revenue Code that established a "classification freeze" for cigarette excise taxes. Under the freeze, older cigarette brands were taxed based on 1996 prices while new brands after 1997 were taxed based on current prices. The Supreme Court upheld the law, finding that legislative classifications in taxation need only be rational and reasonably related to the tax system. The classification freeze was found to treat all brands equally within their respective classes and therefore did not violate equal protection.

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287 views4 pages

British American Tobacco vs. Camacho (G.R. No. 163583, August 20, 2008 and April 15, 2009)

This case involved a constitutional challenge by British American Tobacco to provisions in the National Internal Revenue Code that established a "classification freeze" for cigarette excise taxes. Under the freeze, older cigarette brands were taxed based on 1996 prices while new brands after 1997 were taxed based on current prices. The Supreme Court upheld the law, finding that legislative classifications in taxation need only be rational and reasonably related to the tax system. The classification freeze was found to treat all brands equally within their respective classes and therefore did not violate equal protection.

Uploaded by

Jennilyn Gulfan Yase
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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American Tobacco v.

Camacho (2008)
G.R. No. 163583 August 20, 2008
YNARES-SANTIAGO, J.

Lessons Applicable:  Court of Tax Appeals Jurisdiction, Regional Trial Court Jurisdiction, Equal
Protection and Uniformity of Taxation (constitutional issue), BIR Power to Conduct Resurvey and
Reclassification (delegated by express legislation)

Laws Applicable:

FACTS:

 June 2001, petitioner British American Tobacco introduced and sold Lucky Strike, Lucky
Strike Lights and Lucky Strike Menthol Lights cigarettes w/ SRP P 9.90/pack - Initial
assessed excise tax: P 8.96/pack (Sec. 145 [c])
 February 17, 2003: RR 9-2003: Periodic review every 2 years or earlier of the current net
retail price of new brands and variants thereof for the purpose of the establishing and
updating their  tax classification
 March 11, 2003: RMO 6-2003: Guidelines and procedures in establishing current net
retail prices of new brands of cigarettes and alcohol products
 August 8, 2003: RR 22-2003: Implement the revised tax classification of certain new
brands introduced in the market after January 1, 1997 based on the survey of their
current net retail prices.  This increased the excise tax to P13.44 since the average net
retail price is above P 10/pack.  This cause petitioner to file before the RTC of Makati a
petition for injunction with prayer for issuance of a Temporary Restraining Order and/or
Writ of Preliminary Injunction sought to enjoin the implementation of Sec. 145 of the
NIRC, RR No. 1-97, 9-2003, 22-2003 and 6-2003 on the ground that they discriminate
against new brands of cigarettes in violation of the equal protection and uniformity
provisions  of the Constitution 
 RTC: Dismissed
 While petitioner's appeal was pending, RA 9334 amending Sec. 145 of the 1997 NIRC
among other took effect on January 1, 2005 which in effect increased petitioners excise
tax to P25/pack
 Petitioner filed a Motion to Admit attached supplement and a supplement to the petition
for review assailing the constitutionality of RA 9334 and praying a downward
classification of Lucky Strike products at the bracket taxable at P 8.96/pack since
existing brands are still taxed based on their price as of October 1996 eventhough they
are equal or higher than petitioner's product price.   
 Philip Morris Philippines Manufacturing Incorporated, Fortune Tobacco Corp., Mighty
Corp. and JT International Intervened.  
 Fortune Tobacco claimed that the CTA should have the exclusive appellate jurisdiction
over the decision of the BIR in tax disputes
ISSUE:

1. W/N the RTC rather than the CTA has jurisdiction.


2. W/N RA 9334 of the classification freeze provision is unconstitutional for violating the 
equal protection and uniformity provisions  of the Constitution
3. W/N RR Nos. 1-97, 9-2003, 22-2003 and RA 8243 even prior to its amendment by RA
9334 can authorize the BIR to conduct resurvey and reclassification. 
HELD:
1. Yes. The jurisdiction of the CTA id defined in RA 1125 which confers on the CTA jurisdiction to
resolve tax disputes in general.  BUT does NOT include cases where the constitutionality of a law or
rule is challenged which is a judicial power belonging to regular courts.
2. No. In Sison Jr. v. Ancheta, the court held that "xxx It suffices then that the laws operate equally
and uniformly on all persons under similar circumstances or that all persons must be treated in the
same manner, the conditions not being different, both in the privileges conferred and the liabilities
imposed.  If the law be looked upon in tems of burden on charges, those that fall within a class
should be treated in the same fashion, whatever restrictions cast on some in the group equally
binding on the rest. xxx"  Thus, classification if rational in character is allowable. In Lutz v. Araneta:
"it is inherent in the power to tax that a state be free to select the subjects of taxation, and it has
been repeatedly held that 'inequalities which result from a singling out of one particular class for
taxation, or exemption infringe no constitutional limitation"  SC previously held: "Equality and
uniformity in taxation means that all taxable articles or kinds of property of the same class shall be
taxed at the same rate. The taxing power has the authority to make reasonable and natural
classifications for purposes of taxation"

Under the the rational basis test, a legislative classification, to survive an equal protection challenge,
must be shown to rationally further a legitimate state interest . The classifications must be reasonable
and rest upon some ground of difference having a fair and substantial relation to the object of the
legislation

A legislative classification that is reasonable does not offend the constitutional guaranty of the equal
protection of the laws. The classification is considered valid and reasonable provided that: (1) it rests
on substantial distinctions; (2) it is germane to the purpose of the law; (3) it applies, all things being
equal, to both present and future conditions; and (4) it applies equally to all those belonging to the
same class.

Moreover, petitioner failed to clearly demonstrate the exact extent of such impact as the price is not
the only factor that affects competition.

3. NO. Unless expressly granted to the BIR, the power to reclassify cigarette brands remains a
prerogative of the legislature which cannot be usurped by the former.  These are however modified
by RA 9334.
G.R. No. 163583 April 15, 2009 BRITISH AMERICAN TOBACCO vs Camacho

British American Tobacco Corporation v. Finance Secretary Camacho, BIRCommissioner Parayno


(2008)

Doctrine: Classification if rational in character is allowable. The taxing power has the authority to make
reasonable and natural classifications for purposes of taxation.

Facts:

 British American Tobacco is the distributor of Lucky Strike Cigarette in the Philippines
 The company is questioning the constitutionality of RA 8240, entitled "An Act
Amending Sections 138, 139, 140, and 142 of the NIRC, as Amended and For Other
Purposes," which took effect on January 1, 1997
 The law provided a legislative freeze on brands of cigarettes introduced between the
period January 2, 1997 to December 31, 2003, such that said cigarettes shall remain in the
classification under which the BIR has determined them to belong as of December 31,
2003, until revised by Congress.
 In effect: older brands or existing brands will have, in the long term, lower price and tax
rate as inflation and price appreciation were not factored in.
o Their tax rate shall remain until Congress changes it
o Hence, a legislative freeze in the class of cigarettes

Net Retail 2005 Tax 2007 Tax 2009 Tax 2011 Tax Supreme
Price Court
(excludin Classification
g excise
tax and
VAT
Less than P2/pack P2.23/pack P2.47/pack P2.72/pack Low-priced
P5 per
pack
Bet P5- P6.35/pack P6.74/pack P7.14/pack P7.56/pack Medium-
P6.50 priced
Bet P6.50- P10.35/pack P10.88/pack P11.43/pack P12/pack High-priced
P10
Above P10 P25/pack P26.06/pack P27.16/pack P28.30/pac Premium-
k priced

 New brands shall be classified according to current net retail price


 New brands are the ones registered after January 1, 1997
 In 2001, Lucky Strike was introduced in the market
 Lucky Strike was classified as premium-priced hence was imposed the Above P10 tax
rate
 Lucky Strike protested the P22.77M tax assessment pegged at P25/pack
 Lucky Strike interposes that the legislative freeze is discriminatory against new brands
and poses barrier to entry in the cigarette industry
o Legislative freeze means: existing or "old" brands shall be taxed based on their
net retail price as of October 1, 1996.
o Hence, the classification based on pricing is lower for older brands compared to
new entrants
 Lucky Strike found it unfair that Philip Morris and Marlboro are classified only as High-
priced while it is classified as Premium Priced.

WON:

1. The pertinent portions of RA 8240, as amended by RA 9334, discriminates against


new cigarette brands and favors old cigarette brands?
2. The classification freeze provision unduly favors older brands over newer brands?

Held: In applying the rational basis test, the Court found the questioned law Constitutional.
 A legislative classification that is reasonable does not offend the constitutional guaranty
of the equal protection of the laws.
 The classification is considered valid and reasonable provided that:
(1) it rests on substantial distinctions;
(2) it is germane to the purpose of the law;
(3) it applies, all things being equal, to both present and future conditions; and
(4) it applies equally to all those belonging to the same class.
 classification freeze provision uniformly applies to all newly introduced brands in the
market,
 Finding that the assailed law seems to derogate, to a limited extent, one of its avowed
objectives (i.e. promoting fair competition among the players in the industry) would
suggest that, by Congress’s own standards, the current excise tax system on sin products
is imperfect. But the Court cannot declare a statute unconstitutional merely because it
can be improved or that it does not tend to achieve all of its stated objectives.

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