Article III Section 1 British American Tobacco v. Camacho As Sec. of Finance and Parayno, Jr. as Commissioner of BIR [G.R.

No. 163583, August 20, 2008] This is a petition for review on certiorari of a decision of the Regional Trial Court of Makati City Br. 61. Facts: 1. Petitioner contends that Sec. 145 of the National Internal Revenue Code (NIRC) as recodified in RA 8424 (Tax Reform Act) and further amended by RA 9334 is violative of the equal protection and uniformity clauses of the Constitution such that through its legislative classification freeze, new brands are at a disadvantage having higher tax rates compared to those older brands covered by such freeze which may have the same current net retail price. 2. Petitioner is the owner of a new brand of cigarettes (Lucky Strike). It filed on September 1, 2003 before the aforementioned RTC a petition for injunction with a prayer for the issuance of a TRO and/or writ of preliminary injunction seeking to enjoin the implementation of said section of the NIRC together with Revenue Regulations Nos. 1-97, 9-2003, 22-2003 and Revenue Memorandum Order No. 6-2003 issued by the BIR. - Jan. 1, 1997: RA 8284 amendments; Sec. 145 of the NIRC provides for four tiers of tax rates (low, medium, high, premium) based on the net retail price per pack of cigarettes which is based on a survey done in October 1, 1996 for the duly registered and active brands as of that time. Meanwhile, those brands not covered will be classified based on their current net retail price. - Rev. Reg. No. 1-97: Classified existing brands (brands registered on or before Jan. 1, 1997/RA 8424) from new brands which were registered thereafter providing that their (new brands) tax category will be based on their suggested retail price (SRP) until a survey by the Bureau has been conducted to determine its actual retail price after three months of its introduction to the market. - June 2001: Petitioner introduced their Lucky Strike brand of cigarettes which had an SRP of P9.90/pack therefore belonging to the high tax rate of P8.96/pack. - Rev. Reg. No. 9-2003: Empowered the BIR to make survey every two years on the current retail price of the products for the reclassification of their tax rates or for new tax category. - Rev. Mem. No. 6-2003: Issued guidelines for the net retail price of new brands of cigarettes and alcohol products. - Rev. Reg. 22-3003: Issued to implement the revised tax classification of the new brands (after Jan. 1, 1997) based on the survey (RR No. 1-97), which revealed that Lucky Strike has a current net retail price of P22 thus should be categorized in the premium rate of P13.44/pack. 3. On Sept. 4, 2003, the RTC denied the TRO, saying that it has no power to restrain tax collection. Then it also denied the Motion to Dismiss on March 2004 but issued the Writ of Preliminary Injunction for the Revenue Regulations and Memorandums. On a motion for reconsideration, both the parties agreed that it was their (the law and rules/orders) constitutionality that is being ultimately questioned. 4. On May 2004, RTC uplifted the writ and upheld their constitutionality, thus this petition for review in the Supreme Court. 5. Jan. 2005: RA 9334 amendments; This provided for the legislative freeze on brands of cigarettes introduced between Jan. 2, 1997- Dec. 31, 2003, saying that their current tax rate/category will be that which the BIR has assigned to them together with those old brands (prior to said date) contained in Annex D of the petition shall remain in their categories until revised by Congress. Thus, it resulted for petitioner having higher tax for their products, prompting them to amend their petition to assail the validity of RA 9334 and praying for a lower tax category, citing other

brands such as Philip Morris and Marlboro being unduly benefited because their category are still based on the Oct. 1996 tax base (and all those listed in Annex D) and thus having lower taxes than them despite the disparity in their prices. Said companies filed their respective motion for intervention which the Court granted. Issues: Procedural1. W/N the RTC has jurisdiction over the case 2. W/N petitioner is estopped from complaining about the authority of the Bureau upon entering the field/market, knowing and complying with its policies Substantive3. W/N Section 145 of the NIRC as amended by RA 9334, by retaining the Annex D (with tax base as of Oct. 1996) and the classification freeze violates the equal protection and uniformity of taxation clause of the Constitution 4. W/N the Revenue Regulations and Revenue Memorandum Orders are valid 5. W/N petitioner should be categorized in a lower tax category 6. W/N RA 8240 as amended by RA 9334 violates the General Agreement on Trade and Tariffs (GATT) of 1947 Held: 1. YES. Art. 8 Sec. 1 of the Constitution vests the courts with judicial power, thus having jurisdiction in cases wherein the constitutionality of the law or rule is challenged. It is not the Court of Tax Appeals who have the jurisdiction for the reason just mentioned. 2. NO. Petitioner did not do any misrepresentations or misleading acts as requirement for estoppel upon complying with the Bureau regarding the NIRC and its rules and regulations, and it was also mentioned that the unconstitutionality of the law may still be attacked though it was never done before. 3. NO. To fulfil the rational basis test to stand the test of equal protection and uniformity, a legislative classification must 1) rationally further a legitimate state interest, 2) have reasonable classifications, and 3) rest upon some ground of difference having fair and substantial relation to the object of legislation. The Court finds the classification freeze in the NIRC as having fulfilled these standards and mentioned that it was adopted by Congress for practicality and expediency, to have a uniform mechanism of taxation specially for fixing the tax rates of new brands, for stability in short. As regards the correctness of these schemes adopted by Congress (including retaining Annex D in the amendments), the Court refused to delve into that question declaring that it is already inquiring into the wisdom of legislators which it cannot and should not do for respect for a co-equal branch. 4. NO. The BIR clearly erred in issuing such orders since there is nowhere in Section 145 of the NIRC a granting of the power and authority for it to conduct resurveys and reclassifications every two years or earlier on said products for their new tax rates. 5. NO. It cannot avail of being into a lower tax category since it failed to compel or ask the BIR for the mandatory survey of its actual net retail price after three months of introduction of its product, thus the subsequent survey (long after the three-month mandatory period) was the first survey it had, availing it of no re-classification because technically, it was its first, thus cannot be reversed (perhaps only for those reclassified based on the Regulation and Memorandums which later were invalidated). 6. NO. It doesnt violate the GATT since the classification freeze is both applicable equally to local and imported products, and even assuming for the sake of discussion that it is prejudicial to the other one, it cannot prevail over RA 8240 as amended by RA 9334 because the latter one must prevail being a later enactment of Congress as statutes (since both have the force of it only) and as a special law dealing with taxation.