CASE DIGEST: CIR vs. SMC (G.R. No. 205045; January 25, 2017)

CASE DIGEST: COMMISSIONER OF INTERNAL REVENUE, Petitioner vs. SAN MIGUEL CORPORATION, Respondent. (G.R. No. 205045; January 25, 2017)

FACTS:
When SMC's October 19, 1999 letter requested the registration and authority to manufacture "San Mig Light," to be taxed at ₱12.15 per liter, the BIR granted the request, thus confirming SMC can register, manufacture, and sell "San Mig Light" as a new brand.

The CIR 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 products is appropriate (₱19.91 per liter instead of ₱9.15 per liter) and SMC should not be entitled to a refund or issuance of a tax credit certificate. The CTA sided with SMC; hence, this petition by the CIR with the SC.

ISSUES:
[1] Can the BIR validly reclassify brands?
[2] Is "San Mig Light" is a new brand and not a variant of "San Miguel Pale Pilsen"?
[3] Is it not that estoppel does not apply to the government in case of collection of taxes?
[4] Is SMC entitled to a refund of excess payment of excise taxes on "San Mig Light"?
HELD:
[1] No, any reclassification of fermented liquor products should be by act of Congress. (Section 143 of the Tax Code)

The CIR'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.

[2] A new brand still because the BIR has no power to reclassify.

Also, 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. The word "Light" cannot he considered as a mere suffix to the word "San Miguel," hut it is part and parcel of an entirely new brand name, "San Mig Light."

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.

[3] 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.

[4] Yes, SMC is entitled to tax refund or tax credit certification. 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.

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