Revenue v. San Miguel Corporation

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 Petition1 docketed as G.R. No. 205045 assails the Court of Tax Appeals En Bane's September 20, 2012 Decision2 affirming the Third Division's grant of San Miguel Corporation's refund claim in CTA Case No. 7708, and the December 11, 2012 Resolution3 denying reconsideration. The Commissioner of Internal Revenue 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 Petition5 docketed as G.R. No. 205723 and consolidated with G.R. No. 205045 assails the Court of Tax Appeals En Bane's October 24, 2012 Decision6 dismissing the Commissioner of Internal Revenue's appeal, and the February 4, 2013 Resolution7 denying reconsideration.

The Commissioner of 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.9 The letter dated October 27, 1999 granted this request. 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. 13 He confirmed that 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.15 Specifically, for the year 1999, "San Mig 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.16 Hence, the 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.18 San Miguel Corporation stated, among other things, 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."19 It also emphasized that the Escudo logo was not a beer brand logo but a corporate logo.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."21 The letter-rejoinder cited certain 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 Demand29 to San Miguel Corporation with the accompanying Final Assessment Notice (FAN) Nos. LTS TF 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;30 and (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. 7405.37 The Court of Tax Appeals, upon motion, later consolidated CTA Case No. 7405 with CTA Case Nos. 7052 and 7053.38 The Court of Tax Appeals First Division, in its Decision39 dated October 18, 2011, granted the Petitions in CTA Case Nos. 7052 and 7053 and partially granted the Petition in CTA Case No. 7405.40 The Decision's 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 Excise Taxes per Petition P782,238,161.47 Less: Deductions from claims 1. Excise taxes due on SML removals per ODI which were not paid per Returns Polo Plant P420,252.62 2. Excise taxes due per Excise Tax Returns were Lesser than [the] amounts per ODI Polo Plant 121,975.00 3. SML Removals per shipping Memorandum were Greater than OD Is San Fernando Plant Bacolod Plant 181,080.1181.18 723,388.91