SAN MIGUEL BREWERY INC. v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES Court ofTax Appeals QUEZON CITY Third Division SAN MIGUEL BREWERY, INC., CTA CASE NO. 8955 Petitioner, Members: BAUTISTA, Chairperson versus - FABON-VICTORINO, and RINGPIS-LIBAN, JJ. COMMISSIONER OF INTERNAL Promulgated: REVENUE, . Respondent. AUG 1 8 ?017 X--------------------------------------------------------c--:---c-----------~-.-/-o-Lzi-1 -�---.-------------X DECISION BAUTISTA, J: The Case Before the Court is a Petition for Review1 filed by petitioner San Miguel Brewery, Inc. on December 19, 2014 for CTA Case No. 8955 pursuant to Section 7(a)(2)2 of Republic Act ("RA") No. 11253, as 1 Records, CTA Case No. 8955, Vol. 1, Petition for Review ("PFR"), pp. 14-88, with annexes. 2 Sec. 7. Jurisdiction.- The Court of Tax Appeals shall exercise: (a) Exclusive appellate jurisdiction to review by appeal, as herein provided. XXX XXX XXX (2)Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relations thereto, or other matters arising und.::r the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code provides a specific period of action, in which case the inaction shall be deemed a denial; XXX XXX XXX 3 An Act Creating the Court of Tax Appeals, as Amended. !

DECISION CTA CASE NO. 8955 Page 2of17 amended by RA No. 92824 and RA No. 95035, which seeks for the Court to render judgment: 1. deClaring the excise tax rate of Php20.57 per liter for San Mig Light in bottle, can, and kegs, specified in Revenue Memorandum Circular ('fRMC") No. 90-2012, as not valid;6 2. declaring that petitioner is entitled to a refund of the amount of Php83,019,296.21 representing erroneous, excessive, illegal, and/or wrongful collection, and overpayment to the Bureau of Internal Revenue CBIR"), of excise taxes on San Mig Light during the period from January 1, 2013 up to December 31, 2013;7 and 3. ordering respondent to refund the amount of Php83,019,296.21 to petitioner, with legal interest, or to issue to petitioner a Tax Credit Certificate CTCC") for said amount.8 The Parties9 Petitioner is a corporation duly organized and existing under the laws of the Republic of the Philippines, with principal address at 40 San Miguel Avenue, Mandaluyong City, Metro Manila. It is engaged in the business of manufacture, sale, and distribution of fermented and malt-based beverages. One of the beer products being manufactured by petitioner is San Mig Light. Respondent Commissioner of Internal Revenue ("CIR") is the head of the Bureau of Internal Revenue CBIR"), with office address at the Office of the CIR, BIR National Office Building, Agham Road, Diliman, Quezon City, Metro Manila. The Facts 4 An Act Expanding the Jurisdiction of the Court of Tax Appeals (CTA), Elevating its Rank to the Level of a Collegiate Court with Special Jurisdiction and Enlarging its Membership, Amending for the Purpose Certain Sections of Republic Act No. 1125, as amended, Otherwise Known as the Law Creating the Court of Tax Appeals, and for Other Purposes. 5 An Act Enlarging the Organizational Structure of the Court of Tax Appeals, Amending for the Purpose Certain Sections of the Law Creating the Court of Tax Appeals, and for Other Purposes. 6 Records, Vol. 1, PFR, Prayer, p. 31. 7 Id. s Id. at32. 9 Id., Joint Stipulation of Facts, Documents, Issues, and Other Matters ("JSFI"), pp. 393-394. (

DECISION CTA CASE NO. 8955 Page3 o�17 On December 19, 2012, RA No. 1035110 was approved and took effect upon its publication in a newspaper of general circulation. This law amended, among others, Section 143 of the 1997 National Internal Revenue Code, as amended ("1997 NIRC"), which imposes an excise tax at the following rates on fermented liquors effective January 1, 2013: (1) if the net retail price [excluding excise tax and value-added tax ("VAT")] per liter of volume capacity is Php50.60 or less, the tax shall be Php15.00 per liter; and (2) if the net retail price (excluding excise tax and VAT) per liter of volume capacity is more than Php50.60, the tax shall be Php20.00 per liter. It likewise provides that "[a]ll fermented liquors existing in the market at the time of the effectivity of this Act shall be classified according to the net retail prices and the tax rates provided above based on the latest price survey of the fermented liquors conducted by the [BIR]." On December 27, 2012, respondent issued RMC No. 90-201211, which provides that, effective January 1, 2013, the applicable tax rate for San Mig Light, in bottle (net retail price of Php47.99 per liter, hence, less than Php50.60)12 and in can (net retail price of Php61.51, hence more than Php50.60)13 are both at Php20.57 per liter. In order to remove its products from the breweries, petitioner paid the excise taxes due from January 1, 2013 to December 31, 2013.14 On December 9,2014, petitioner filed its administrative claim for refundlS in the amount of Php83,019,296.21, together with BIR Form No.191416, Summary List17, and Monthly Removals and Tax Payments for 201318. Alleging inaction19 on the part of respondent, petitioner filed the instant Petition for Review2o on December 19,2014. 10 An Act Restructuring The Excise Tax On Alcohol And Tobacco Products By Amending Sections 141,142,143,144, 145,8,131 And 288 Of Republic Act No. 8424. Otherwise Known As The National Internal Revenue Code Of 1997, As Amended By Republic Act No. 9334, And For Other Purposes n Records, Vol. 1, Exhibit "P," RMC No. 90-2012, pp. 35-55. 12 Id. at 36. 13 Id. at 37. 14 See Annex A. 15 Records, Vol. 1, Exhibit "P-1," Administrative Claim for Refund, pp. 56-60. 16 Id., Exhibit "P-1-b," BIR Form No.1914 (Application for Tax Credits/Refunds), p. 61. 17 Id., Exhibit "P-1-c," Summan; List, p. 62. Is Id., Exhibits "P-1-d" to "P-1-aa," Monthly Removals and Tax Payments, pp. 63-86. 19 Id., Vol. 2, JSFI, p. 394. 2o Id., Vol. 1, PFR, pp. 14-88, with annexes. fJ

DECISION CTA CASE NO. 8955 Page 4 of17 On January 9, 2015 the Court issued Summons21 addressed to respondent. On January 27,2015, respondent filed a Motion for Extension of Time Within Which to File Answer22, which was granted by the Court in its Resolution23dated January 30, 2015. Thereafter, respondent filed another Urgent Motion for Extension of Time to File Answer24 and the same was granted25 on March 11,2015. On March 9, 2015, respondent filed his Answer26 by registered mail, which was received by the Court on March 20, 2015. In his Answer, he raised the following Special and Affirmative Defenses, in sum: (1) the Petition for Review is not warranted to be given due course for lack of jurisdiction; (1a) the nullification of the Php20.57 excise tax rate specified in RMC No. 20-2012 does not fall under the special jurisdiction granted by the statute to the Court of Tax Appeals ("CTA"); (lb) a collateral attack on a presumably valid administrative issuance is not allowed; (lc) the CTA has no jurisdiction to determine the validity of the Php20.57 provision of RMC No. 20-2012 due to petitioner's non-exhaustion of administrative remedies; (2) petitioner is not entitled to a tax refund since there was no erroneous or illegal collection of excise taxes; and (3) claims for refund are construed strictly against the taxpayer and in favor of the Government. On May 6, 2015, Petitioner's Pre-Trial Brief27 and Respondent's Pre-Trial Brief28 were filed. On July 24,2015, petitioner filed a Motion for Commissioning of Independent Certified Public Accountant29 ("ICPA"), whose Judicial Affidavit3o and Personal Profile31 were submitted32 on August 3, 2015. 21 Records, Vol. 1, Summons, p. 89. 22 Id., Motion for Extension of Time Within Which to File Answer, pp. 90-94. 23 Id., Resolution, p. 97. 24 Id., Urgent Motion for Extension of Time to File Answer, pp. 98-102. 25 Id., Resolution, p. 127. 26 Id., Answer, pp. 130-150. 27 Records, Vol. 1, Petitioner's Pre-Trial Brief, pp. 221-227. 28 Id., Respondent's Pre-Trial Brief, pp. 233-237. 29 Id., Motion for Commissioning of Independent Certified Public Accountant, pp. 313-317. 30 Id., Exhibit "?-Commissioning," Judicial Affidavit ofMs. Normita L. Villaruz In Lieu ofDirect Testimony (In Support of Petitioner's Motion for Commissioning of [!CPA]), pp. 323-331. 31 Id., Personal Profile, pp. 332-373. ( 32 Id., Submission, p. 322.

DECISION CTA CASE NO. 8955 Page 5 o�17 During the Pre-Trial Conference33 on August 11,2015, the Court granted the parties fifteen (15) days or until August 26, 2015 to submit their Joint Stipulation of Facts and Issues; the Court also granted the Motion for Commissioning of ICPA. Ms. Normita L. Villaruz ("ICPA Villaruz") thereafter took her oath34 and was obliged to submit her ICPA Report within forty-five (45) days or until September 25, 2015. After being granted35 an extension, the parties filed their Joint Stipulation of Facts, Documents, Issues, and Other Matters36 ("JSFI") on September 4, 2015. On September 24,2015, the ICPA Report37 of ICPA Villaruz was submitted. Thereafter, the Court issued a Pre-Trial Order38 on September 28, 2015. During the course of the trial, petitioner presented as witnesses the following: (1) ICPA Villaruz39; and (2) Ms. Noemi L. Ronquillo40 ("Ms. Ronquillo"), Manager of the Accounting and Financial Services Division of petitioner. Witness ICPA Villaruz testified by way of judicial affidavit41 that she was commissioned as an ICPA in the instant case to conduct an examination, verification, and audit of the voluminous documents of petitioner's claim for refund. She stated that she co1npleted the work assigned to her within the original period granted by the Court and that on September 24, 2015, she submitted the ICPA Report42 dated September 22, 2014, consisting twenty-three (23) pages together with its attached Annexes "A" to "J" sub-markings inclusive, and its 33 Records, Vol. 1, Minutes of Hearing dated August 11, 2015, p. 374; Records, Vol. 1, August 24, 2015 Confirming Resolution, pp. 381-382. 34 Records, Vol. 1, Oath of Commission (For a CPA Firm), p. 379. 35 Records, Vol. 1, Motion for Extension of Time to Submit Joint Stipulation of Facts, Documents, Issues and Other Matters, pp. 383-385; Records, Vol. 1, Resolution, p. 400. 36 Records, Vol. 1, JSFI, pp. 393-398. 37 Id., Exhibit "P-4," ICPA Report, pp. 406-490. 38 Id., Pre-trial Order ("PTO"), pp. 492-497. 39 Records, Vol. 2, Exhibit "P-3," Judicial Affidavit ofMs. Normita L. Villaruz In Lieu of Direct Testimony, pp. 505-530; Records, Vol. 2, Minutes ofHearing dated October 13, 2015, p. 531; Transcript ofStenographic Notes ("TSN") Folder, October 13, 2015, pp. 1-10. 40 Records, Vol. 1, Exhibit "P-2," Judicial Affidavit ofMs. Noemi L. Ronquillo in Lieu of Direct Testimony, pp. 249-260; Records, Vol. 2, Minutes ofHearing dated January 26, 2016, p. 535; TSN Folder, Januan; 26, 2016, pp. 1-10. 41 Records, Vol. 1, Exhibit "P-3," Judicial Affidavit ofMs. Norm ita L. Villaruz in Lieu of Direct Testimony, pp. 505-530. ( 42 Id., Exhibit "P-4", ICPA Report, pp. 406-490.

DECISION CTA CASE NO. 8955 Page 6of17 supporting Sub-Annexes in two (2) separate binders containing the results of the examination, verification, and audit conducted by her; and that she has seen the originals of the supporting documents before they were submitted to the Court. ICPA Villaruz stated that included in her examination were the following documents: 1. Excise Tax Returns or BIR Form No. 2200-A filed by petitioner daily for advance payment of excise tax deposits for each plant, these forms were also filed daily by petitioner's Head Office for declaration of excise taxes due on daily beer removals for each plant; 2. BIR Filing Reference Statement, which serves as proof that the Excise Tax Return has been filed under the BIR's Electronic Filing and Payment System ("EFPS") containing the following information: taxpayer's name, TIN, RDO, Type of BIR Form filed, Amounts Payable/ (Over Remittance), accounting type, tax period, filing date, and tax type; 3. Payment confirmation forms from the following banks: (a) Bank of the Philippine Islands ("BPI") ExpressLink and Tax Payment Details Form; (b) Union Bank of the Philippines Payment Confirmation Form and UBP Payment Status Form; (c) China Banking Corporation (Bancnet-Chinabank) Payment Confirmation Forms, which confirms that BPI has successfully received payment instruction from the BIR EFPS through the BPI ExpressLink website (collectively referred to as "Accredited Agent Banks"); 4. Documents generated by petitioner, i.e. Shipping Memorandum, Delivery Receipt, Issue/Receipt Document, Stock Transfer Receipt; 5. Official Delivery Invoice, a BIR registered Form No. 245, which is prepared daily to summarize all the removals per shipping memorandum for the day, which are duly signed by the Internal Revenue Officer and petitioner's Plant Manager; 6. Excise Taxpayer's Removal Declaration ("ETRD") or BIR Form No. 2299; 7. Gate Pass Form and Claim Memorandum; (

DECISION CTA CASE NO. 8955 Page 7of17 8. Revenue Officers on Premises' ("ROOP") Daily Monitoring Report; 9. Report on Excise Tax Payments and Applications; 10. Daily and Monthly Official Register Book ("ORB"), Daily and Monthly Sworn Statement of the Volume of Removals ("SSR"); 11. Movement Report with Allocated Deposits; 12. Removals Schedule; and 13. Total Removals Report ICPA Villaruz stated that upon verification, the advance excise tax deposits for the six (6) brewery plants from January 1, 2013 to December 31, 2013 were the total advance payments for excise taxes due on total removals of all beer products of petitioner from each of the six (6) brewery plants; that the advance excise tax deposits were reflected in the Excise Tax Returns filed by petitioner with the BIR through the BIR EFPS; that the advance excise tax deposits are reflected in the Excise Tax Returns filed by petitioner with the BIR through the BIR EFPS; that the advance payments were received by the accredited agent banks and were confirmed received by the BIR; that the excise taxes due on the removals of all beer products were deducted from the payment of advance excise tax deposits; and that the total amount of Advance Excise Tax Deposits per Excise Tax Returns for all beer products made by petitioner for January 1, 2013 to December 31, 2013 sufficiently covered, and in fact, exceeded, the total amount of excise taxes due, filed, and paid on total actual removals of all beer products from the six (6) plants. ICPA Villaruz concluded that the amount of Php83,019,296.21 being claimed for refund as overpayment of excise taxes due on petitioner's removals for the period January 1, 2013 to December 31, 2013 was properly supported by the relevant documents. However, when the net adjustment mentioned in the ICPA Report is considered, the overpayment of excise taxes by petitioner (as adjusted), is Php83,019,273.64 instead of Php83,019,296.2143. 43 Records, Vol. 1, Exhibit "P-4," ICPA Report, p. 433. fl

DECISION CTA CASE NO. 8955 Page 8 of17 Witness Ms. Ronquillo testified that petitioner was constrained to pay excise taxes at the rate of Php20.57 under protest to enable it to make removals of its San Mig Light products; and that the rate was based on RMC No. 90-2012, which was issued by respondent on December 27, 2012 and effective on January 1, 2013. She avers that petitioner did not receive any notice of hearing nor was it given an opportunity to be heard with respect to RMC No. 90-2012. Ms. Ronquillo stated that before Section 143 ofthe 1997 NIRC was amended by RA No. 10351, San Mig Light was subject to an excise tax rate of Php15.49 per liter, however, BIR required it to pay Php20.57 per liter, the tax rate for high-priced brands, contending that San Mig Light was a variant of Pale Pilsen; and that petitioner has already questioned this in several cases now pending before the CTA and the Supreme Court on the ground that the BIR unlawfully reclassified San Mig Light as a variant under the old provisions of Section 143 of the 1997 NIRC. Ms. Ronquillo further explained that under the amendment, excise taxes should have been at the rate of Php20.00 for San Mig Light in bottle and in can, and Php15.00 per liter for San Mig Light in kegs; that during the period January 1, 2013 up to December 31, 2013, there was an excess assessment and collection in the amount of Php0.57 per liter for San Mig Light in bottle and in can, and Php5.57 per liter for San Mig Light in kegs, totaling to Php83,019,296.21. During the hearing on January 26, 2016, petitioner was granted fifteen (15) days or until February 10, 2016 to file its Formal Offer of Evidence ("FOE"); while respondent was granted a period of ten (10) days from receipt of the FOE to file his comment or opposition thereto.44 On February 10, 2016, petitioner filed a Motion for Extension of Time to File F0�45. This was granted46 by the Court on February 16, 2016. It then filed an Urgent Motion for Further Extension of Time to File FOE47 on February 23, 2016; which was granted48 by the Court on March 8, 2016. Finally, on February 26, 2016, petitioner filed its FOE49, offering Exhibits "P," "P-1," "P-1-a," "P-1-b," "P-1-b-1," "P-1-c" to "P- 1-aa," "P-2," "P-2-a," "P-3," "P-3-a," "P-4," "P-4-a" to "P-4-c," "P-5.1" 44 Records, Vol. 2, Minutes of Hearing dated Januan; 26, 2016, p. 535; Records, Vol. 2, Februan; 2, 2016 Confirming Resolution, p. 537. 45 Records, Vol. 2, Motion for Extension of Time to File FOE, pp. 538-540. 46 !d., Resolution, p. 543. ( 47 !d., Urgent Motion for Further Extension of Time to File FOE, pp. 544-546. 48 !d., Resolution, pp. 570-571. 49 !d., FOE, pp. 547-565.

DECISION CTA CASE NO. 8955 Page 9of17 to "P-5.491," "P-6.1" to "P-6.510," "P-7.1" to "P-7.498," "P-8.1" to "P- 8.490," "P-9.1" to "P-9.487," "P-10.1" to "P-10.477," "P-11.1" to "P- 11.12," "P-12.1" to "P-12.4,982," "P-13.1" to "P-13.340," "P-14.1" to "P- 14.1,106," "P-15.1" to "P-15.336," "P-16.1" to "P-16.336," "P-17.1" to "P-17.315," "P-18.1" to "P-18.5,470," "P-19.1" to P-19.9,059," "P-20.1" to "P-20.1,381," "P-21.1" to "P-21.3,827," "P-22.1," to "P-22.2,993," and "P-23.1" to "P-23.2,059." In response, respondent filed his Comment (Re: Petitioner's FOE)so, raising no objection to the admission of the exhibits. On April 6, 2016, the Court promulgated a Resolution51 admitting all of petitioner's evidence, except for Exhibits "P-23.546" and "P-23.1,966" for failure to submit the same to the Court. On July 15, 2016, respondent filed a Manifestation52 stating that to save the time of the parties and of the Court, and considering that the issues advanced by the parties are legal issues, he finds it unnecessary to present his witness; instead, he requested for a period of thirty (30) days within which to file his memorandum. During the hearing on July 18,2016, the Court granted the parties thirty (30) days or until August 17, 2016 to submit their respective memoranda. 53 On August 16, 2016, a Motion for Extension of Time to File Memorandum for Petitioner54 was filed. This was granted55 by the Court on August 26, 2016. Meanwhile, respondent filed a Manifestation56 on August 18, 2016, stating that he is adopting the arguments he raised in his Answer as his Memorandum; which was noted57 by the Court on September 2, 2016. On August 31, 2016, a Motion for Further Extension of Time to File Memorandum for Petitionerss was filed; which was granted by the Court on September 14, 2016. On September 6, 2016, petitioner so Records, Vol. 2, Comment (Re: Petitioner's FOE), pp. 572-575. st Id., Resolution, pp. 584-585. sz Id., Manifestation, pp. 586-588. 53 Records, Vol. 2, Minutes of Hearing dated July 18, 2016, p. 589; Records, Vol. 2, Confirming Order, p. 590. 54 Records, Vol. 2, Motion for Extension of Time to File Memorandum for Petitioner, pp. 592-594. ss Id., Resolution, p. 599. I 56 Id., Manifestation, pp. 595-597. 57 Id., Resolution, p. 604. "' Id., Motion fo' Fu,thu Extension of Time to File Memomndum fin' Petition", pp. 600-602.

DECISION CTA CASE NO. 8955 Page 10of17 submitted its Memorandum for Petitioner59; and its Motion to Admit Memorandum for Petitioner Dated September 5, 20166� was filed on September 14,2016. On September 21, 2016, the Court admitted petitioner's Memorandum and resolved to submit the case for decision;61 hence, this Decision. The Issues62 WHETHER THE COURT HAS JURISDICTION OVER THE INSTANT PETITION; WHETHER PETITIONER IS ENTITLED TO A REFUND IN THE AMOUNT OF PHP83,019,296.21 ALLEGEDLY REPRESENTING ERRONEOUSLY, EXCESSIVELY, ILLEGALLY AND/OR WRONGFULLY COLLECTED EXCISE TAXES ON SAN MIG LIGHT FOR THE PERIOD JANUARY 1, 2013 UNTIL DECEMBER 31, 2013; WHETHER THE TAX RATE OF PHP20.57 PER LITER SPECIFIED IN RMC NO. 90-2012 FOR SAN MIG LIGHT IN BOTTLE AND IN CAN, IS CONTRARY TO THE EXPRESS PROVISION OF SECTION 143 OF THE 1997 NIRC, AS AMENDED BY RA No. 10351, AND THEREFORE, INVALID; AND WHETHER RMC NO. 90-2012 WAS ISSUED WITHOUT THE REQUISITE PRIOR NOTICE AND HEARING. Petitioner's Arguments63 Petitioner alleges that the excise tax rate of Php20.57 per liter specified in RMC No. 90-2012 for San Mig Light is directly 59 Records, Vol 2, Memorandum for Petitioner, pp. 605-639. 60 !d., Motion to Admit [Memorandum] Dated September 5, 2016, pp.643-646. 61 !d., pp. 648-649. I 62 !d., PTO, p. 494. 63 !d., Memorandum for Petitioner, pp. 617-638.

DECISION CTA CASE NO. 8955 Page 11 o�17 contradictory to, inconsistent with, and violative of the express provisions of Section 143 of the 1997 NIRC, as amended by RA No. 10351. It maintains that the rate of Php20.57 per liter is actually what it was previously paying under protest, which it has challenged before the CTA and the Supreme Court on the principal basis that the BIR has unlawfully reclassified San Mig Light as a "variant" under the old provisions of Section 143 of the 1997 NIRC. According to petitioner, based on the new Section 143 of the 1997 NIRC, the excise tax rates should only be Php20.00 per liter for San Mig Light in bottle and in can, and Php15.00 per liter for San Mig Light in kegs. Petitioner argues that a mere administrative regulation, such as RMC No. 90-2012, is subordinate to a statutory provision, such as Section 143 of the 1997 NIRC; that whenever there is a conflict between the two, the statutory provision should prevail; and that pursuant to Article 7 of the Civil Code of the Philippines, administrative or executive acts, orders and regulations shall be valid only when they are not contrary to the laws or the Constitution. Petitioner claims that RMC No. 90-2012 is not valid for having been issued without prior hearing and prior notice to petitioner, in utter disregard of the due process provision of the 1987 Philippine Constitution and the process required by mandatory provisions of the 1987 Administrative Code64; that RMC No. 90-2012 was issued on December 27,2012 and was made effective on January 1, 2013 or barely five (5) days thereafter; and that a hearing should have been conducted by the BIR with prior notice and opportunity for petitioner to air its position on RMC No. 90-2012, which is clearly a violation of petitioner's constitutional right to due process. Petitioner cites Paragraph (1) ofSection 9, Chapter 2, Book VII of the 1987 Administrative Code, which mandates an agency to, "as far as practicable, publish or circulate notices of proposed rules and afford interested parties the opportunity to submit their views prior to the adoption of any rule;" while paragraph (2) thereof provides that "in the fixing of rates, no rule or final order shall be valid unless the proposed rates shall have been published in a newspaper of general circulation at least two (2) weeks before the first hearing thereon." Petitioner insists that it took the right course of action when it filed a claim for refund under Section 229 of the 1997 NIRC; that it did not challenge RMC No. 90-2012 before paying the excise tax rate 64 Executive Order No. 292. (

DECISION CTA CASE NO. 8955 Page 12of17 prescribed therein because RMC No. 90-2012 was made effective five (5) days after its issuance, hence, it just opted to pay the excise taxes at the rate specified in the RMC No. 90-2012 pursuant to Section 103(A)(2) of the 1997 NIRC which mandates that the excise tax shall be paid by the manufacturer before removal of domestic products from the place of production; and that by paying the excise taxes at the rate of Php20.57, as required by the RMC No. 90-2012, it was able to show good faith and to avoid the accrual of surcharges, interests, and penalties. Petitioner contends that that the evidence it presented remains uncontradicted; therefore, it is conclusive. It insists that it is entitled to a refund in the amount of Php83,019,273.64, as validated by the ICPA, representing erroneous, excessive, illegal and/or wrongful collection from and overpayment by petitioner in excise taxes from the period January 1, 2013 up to December 31, 2013. According to petitioner, the arguments raised by respondent in his Answer are baseless and without merit; that assessments should not be based on mere presumptions; that it was wrong for respondent to say that it was primarily seeking the nu~lification of a provision from RMC No. 90- 2012; that the Court has jurisdiction over the instant Petition for Review because declaring the excise tax rate of Php20.57 per liter for San Mig Light is only one of the reliefs prayed for by petitioner; that the Court has jurisdiction over the subject matter of the instant petition, which is a claim for refund; that since the Court has jurisdiction over the instant case, it must necessarily have the power and authority to pass upon any and all questions or incidents that are involved or that arise in the course of the proceedings, including the issue on the validity of the excise tax rate of Php20.57 under RMC No. 90-2012 as this is related to the claim for refund. Petitioner cites Buena, Jr. v. Benito6s and contends that the rule on exhaustion of administrative remedies is not applicable in the following instances, among others: (1) when there is a violation of due process; (2) when the issue involved is purely a legal question; and (3) when the administrative action is patently illegal. Petitioner likewise insists that the rule of strictissimi juris is not applicable in this case since the claim for refund is not a claim for tax exemption, nor is it an ordinary and simple claim for refund, but one that arose from the illegal and unlawful imposition and collection of the excise tax rate of Php20.57 by the BIR on San Mig Light that is expressly contradictory to and violative of Section 143 of the 1997 NIRC, as amended by RA No. 65 G.R. No. 181760, October 14, 2014, 738 SCRA 278. (

DECISION CTA CASE NO. 8955 Page 13 of17 10341 and of petitioner's constitutional and statutory right to due process. Respondent's Counter-Arguments66 Respondent alleges that petitioner is not entitled to a refund or a TCC in the amount of Php83,019,296.21 representing alleged erroneous, excessive, illegal and/or wrongful collection from, and overpayment of excise taxes during the period January 1, 2013 up to December 31, 2013, for taxes collected are presumed to be in accordance with laws and regulations. The CIR avers that the Court has no jurisdiction over the instant Petition for Review since petitioner is primarily seeking the nullification of a provision of RMC No. 90-2012, and that the alleged cause of action for refund is merely consequential to the primary purpose of the Petition for Review. According to respondent, the CTA, being a court of special jurisdiction, can only take cognizance of matters that are clearly within its jurisdiction; that RMC No. 90-2012 was issued in accordance with respondent's rule making power or quasi-legislative power; and that the authority to declare an administrative issuance as void is part of the general power conferred by the Constitution on courts of general jurisdiction. Respondent argues that a collateral attack on a presumably valid administrative issuance is not allowed; that a law is deemed valid unless declared null and void by a competent court; and that assuming petitioner is directly asking the Court for a refund or a TCC of excise taxes alleged to have been advanced or deposited, its supposed entitlement is entirely dependent on the collateral attack or invalidation of a presumably valid administrative issuance. Respondent argues further that the Court has no jurisdiction to determine the validity of the Php20.57 provision of RMC No. 90-2012 due to petitioner's non-exhaustion of administrative remedies; and that decisions rendered by administrative bodies, like the BIR, in the exercise of its quasi- legislative power is appealable to the Secretary of Finance then to the Office of the President, and eventually, to the regular courts. Respondent maintains that petitioner is not entitled to a tax refund, there being no erroneous or illegal collection of excise taxes. Respondent asserts that there was no re-classification of San Mig Light as it has always been classified as a variant of an existing brand; that 66 Records, Vol. 1, Answer, pp. 131-148. I

DECISION CTA CASE NO. 8955 Page 14 of17 petitioner should be considered estopped from questioning the classification of San Mig Light as a variant of San Miguel Pale Pilsen on account of its prior representations; that the removal of the second part of the definition of the term "variant brand" under paragraph 9 of the 1997 NIRC does not alter the fact that San Mig Light is a variant of San Miguel Beer; and that the inclusion of the word "light" in the name San Mig Light should be considered as a modifier suffixed to the root name that is contemplated by the definition of a variant under Section 143 of the 1997 NIRC. Lastly, respondent asseverates that claims for refund are construed strictly against the taxpayer and in favor of the government; and that petitioner has the burden of proof to establish that they are entitled to the tax refund or TCC. The Ruling of the Court Respondent argues that a collateral attack on a presumably valid administrative issuance is not allowed; and that a law is deemed valid unless declared null and void by a competent court, which in this case are the courts of general jurisdiction. Respondent's arguments has merit. A collateral attack on a presumably valid law is prohibited.67 As held by the Supreme Court in several cases, the constitutionality or validity of laws, orders, or such other rules with the force of law cannot be attacked collaterally. There is a legal presumption of validity of these laws and rules; and unless a law or rule is annulled in a direct proceeding, the legal presumption of its validity stands.68 In the case at bar, the Court cannot determine petitioner's entitlement to a tax refund or tax credit without going into the validity of RMC No. 90-2012. While RMCs are issuances that publish pertinent and applicable portions, as well as amplifications, of laws, rules, regulations and precedents issued by the BIR and other 67 Dasmarias Water District v. Monterey Foods Corporation, G.R. No. 175550, September 17, 2008, 565 SCRA624. 68 Dasmarias Water District v. Monterey Foods Corporation, G.R. No. 175550, September 17,2008, citing Tan v. Bausch & Lomb, Inc., G.R. No. 148420, December 15, 2005, 478 SCRA 115, citing Olsen and Co. v. Aldanese, G.R. No. L-18740, April28, 1922,43 Phil. 259; San Miguel Brewen; v. Magno, G.R. No. L- 21879, September 29,1967,21 SCRA 292. I

DECISION CTA CASE NO. 8955 Page 15of17 agencies/ offices, it must be determined what kind of administrative issuance RMC No. 90-2012 falls under to determine whether it can be attacked collaterally, to wit: (1) a legislative rule, or (2) an interpretative rule. A legislative rule is in the nature of subordinate legislation, designed to implement a primary legislation by providing the details thereof; while an interpretative rule is designed to provide guidelines to the law which the administrative agency is in charge of enforcing.69 When an administrative rule is merely interpretative in nature, its applicability needs nothing further than its bare issuance for it gives no real consequence more than what the law itself has prescribed.7� However, when the administrative rule substantially adds to or increases the burden of those governed, it behooves the agency to accord at least to those directly affected a chance to be heard, and thereafter to be duly informed, before that new issuance is given the force and effect of law. In which case, the agency involved legislated under its quasi-legislative authority.n In the case at bar, RA No. 10351 imposes an excise tax at Php15.00 per liter if the net retail price [excluding excise tax and value-added tax ("VAT")] per liter of volume capacity is Php50.60 or less; and Php20.00 per liter if the net retail price (excluding excise tax and VAT) per liter of volume capacity is more than Php50.60. Therefore, under RA No. 10351, San Mig Light (in bottle), which has a net retail price of Php47.99 per liter, should be subject to an excise tax of Php15.00 per liter; and San Mig Light (in can), which has a net retail price of Php61.51, should be subject to an excise tax of Php20.00 per liter. However, RMC No. 90- 2012 subjected both to Php20.57 per liter. In order to remove its products from the breweries, petitioner paid the excise taxes due under RMC No. 90-2012 and filed its administrative claim for refund or TCC on December 9, 2014. Thereafter, it filed the instant Petition for Review on December 19, 2014. Based on the foregoing, RMC No. 90-2012, through which legislated, is an administrative rule with the force of law. Hence, it cannot be attacked collaterally. While the CTA has the power to rule on the validity of a particular administrative rule or regulation by virtue of its certiorari powers,72 petitioner should have directly attacked RMC No. 90-2012 via a Petition for Certiorari at the earliest opportunity, 69 Commissioner of Internal Revenue v. Court of Appeals, Court of Tax Appeals, and Fortune Tobacco Corporation, G.R. No. 119761, August 29, 1996, 261 SCRA 236. 7o Id. 71 Id. 72 The Philippine American Life and General Insurance Company v. The Secretary of Finance and the Commissioner of Internal Revenue, G.R. No. 210987, November 24, 2014, 741 SCRA 578. (

DECISION CTA CASE NO. 8955 Page 16of17 rather than through a collateral attack via judicial claim for refund, which indirectly but surely questions the validity of RMC No. 90-2012. As already discussed above, collateral attacks on a presumably valid law is not allowed. Thus, unless and until RMC No. 90-2012 has been declared invalid and unconstitutional through the proper proceeding, the same is binding; and there is no basis for petitioner's claim for refund or TCC. With regard to the other issues, the Court finds the same academic in view of the Court's lack of jurisdiction. WHEREFORE, premises considered, the Petition for Review is hereby DENIED, petitioner having availed of the wrong mode of appeal. SO ORDERED. WE CONCUR: LOVELl[;!.BAUTISTA Associate Justice ~. ~ ~\.._.. (With Dissenting Opinion) MA. BELEN M. RINGPIS-LIBAN Associate Justice ATTESTATION I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. LOVEL/ii. BAUTISTA Associate Justice Chairperson

DECISION CTA CASE NO. 8955 Page17 o�17 CERTIFICATION Pursuant to Section 13 of Article VIII of the Constitution and the Division Chairperson's Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court. OSARIO Presiding Justice

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY En Bane SAN MIGUEL BREWERY, INC., CTA Case No. 8955 Petitioner, Members: - versus- BAUTISTA, Chairperson PABON-VICTORINO, and RINGPIS-LIBAN, JL COMMISSIONER OF INTERNAL Promulgated: REVENUE, AUG : e 2017 Respondent. 't ~(~ !'� - 0 c. X-----------------------------------------------------------------------------------------------X DISSENTING OPINION RINGPIS-LIBAN, l: With all due respect to the ponencia of my esteemed colleague, the Honorable Associate Justice Lovell R. Bautista, I register my dissent from the majority decision denying the Petition for Review for having availed of the wrong mode of appeal. While I agree that RMC No. 90-2012 cannot be attacked collaterally and ought to have been questions at the Regional Trial Court level, I am of the opinion that the CTA still has jurisdiction over the claim for refund and that this Court should have exercised the same. As a court of special or limited jurisdiction, the CTA can only take cognizance of matters that are evidently within its jurisdiction.1 The jurisdiction of the CTA is conferred by Republic Act No. 1125, as amended by Republic Act No. 9282, which provides in part: 1 Cathay Pacific Airways, Ltd. vs. Commissioner of Internal Revenue, CTA EB No. 717, April17, 2012.

Page 2 Dissenting Opinion CTA Case No. 8955) X------------------------------------------------X "SEC. 7. Jurisdiction.- The CTA shall exercise: (a) Exclusive appellate jurisdiction to review by appeal, as herein provided: (1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue; (2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relations thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code provides a specific period of action, in which case the inaction shall be deemed a denial;" (Emphasis supplied) From the foregoing provisions, the CTA has the power to determine whether or not petitioner is entitled to the refund of the aggregate amount of P:83,019,296.21 representing the excise taxes on San Mig Light during the period from January 1, 2013 to December 31,2013. Further, in the case of The Philippine American Lift and General Insurance Compaf!Y vs. The Secretary of Finance and the Commissioner of Internal Revenu?, the Supreme Court enunciated that the CTA has jurisdiction to rule on the validity of a particular administrative rule or regulation as long as it is within its appellate jurisdiction. The pertinent portion of the decision reads: "Evidently, City ofManila can be considered as a departure from Ursal in that in spite of there being no express grant in law, the CTA is deemed granted with powers of certiorari by implication. Moreover, City ofManila diametrically opposes British American Tobacco to the effect that it is now within the power of the CTA, through its power of certiorari, to rule on the validity of a particular administrative rule or regulation so 2 G.R. No. 210987, November 24, 2014.

Page 3 Dissenting Opinion CTA Case No. 8955) X------------------------------------------------X long as it is within its appellate jurisdiction. Hence, it can now rule not only on the propriety of an assessment or tax treatment of a certain transaction, but also on the validity of the revenue regulation or revenue memorandum circular on which the said assessment is based." (Emphasis supplied) Moreover, in the case of Banco De Oro, et al. vs. Republic ofthe Philippines, et a/.3, the Highest Tribunal held that: "We agree with respondents that the jurisdiction to review the rulings of the Commissioner of Internal Revenue pertains to the Court of Tax Appeals. The questioned BIR Ruling Nos. 370-2011 and DA 378-2011 were issued in connection with the implementation of the 1997 National Internal Revenue Code on the taxability of the interest income from zero- coupon bonds issued by the government. Under Republic Act No. 1125 (An Act Creating the Court of Tax Appeals), as amended by Republic Act No. 9282, such rulings of the Commissioner of Internal Revenue are appealable to that court, thus: SEC. 7. Jurisdiction. -The CTA shall exercise: a. Exclusive appellatejurisdiction to review l?J appeal as herein provided: 1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue or other laws administered l?J the Bureau of Internal Revenue; SEC. 11. Who Mqy Appeal,� Mode ofAppeal,� Effect ofAppeal. - AID' parry adverse!J affected l?J a decision, nding or inaction of the Commissioner of Internal Revenue, the Commissioner of Customs, the Secretary of Finance, the Secretary of 3 G.R. No. 198756, January 13, 2015.

Page 4 Dissenting Opinion CTA Case No. 8955) X------------------------------------------------X Trade and Industry or the Secretary of Agriculture or the Central Board of Assessment Appeals or the Regional Trial Courts mcryftle an appeal with the CTA within thirry (30) dcrys cifter the receipt of such decision or ruling or after the expiration of the period fixed by law for action as referred to in Section 7(a)(2) herein. SEC. 18. Appeal to the Court of Tax Appeals En Bane.- No civil proceeding involving matters arising under the National Internal Revenue Code, the Tariff and Customs Code or the Local Government Code shall be maintained, except as herein provided, until and unless an appeal has been previous!J filed with the CTA and disposed ofin accordance with the provisions of this Act. In Commissioner of Internal Revenue v. Leal, citing Rodriguez v. Blaquera, this court emphasized the jurisdiction of the Court of Tax Appeals over rulings of the Bureau Internal Revenue, thus: While the Court of Appeals correctly took cognizance of the petition for certiorari, however, let it be stressed that the jurisdiction to review the rulings of the Commissioner of Internal Revenue pertains to the Court of Tax Appeals, not the RTC The questioned R..L\10 No. 15-91 and RA1C No. 43-91 are actual!J rulings or opinions of the Commissioner implementing the Tax Code on the taxability ofpawnshops ... " (Emphases supplied) Considering that what is being assailed is a ruling of respondent CIR embodied in RMC 90-2012, this Court is vested with jurisdiction to rule on the validity thereof. Nonetheless, even without the issue of validity of the said RMC, this Court clearly has jurisdiction to decide on or to determine the propriety of the present refund claim.

Page 5 Dissenting Opinion CTA Case No. 8955) x------------------------------------------------x Based on the foregoing, I vote that the Court take jurisdiction over the Petition for Review and decide on petitioner's claim for refund or issuance of TCC. ~~ ~-1,� ' MA. BELEN M. RINGPIS-LIBAN Associate Justice