CASE: BRITISH AMERICAN TOBACCO CORPORATION vs.

FINANCE SECRETARY
CAMACHO
G.R. No. 163583
August 20, 2008

(Petition for review assails the validity of: (1) Sec 145 NIRC (2) RA 9334 (3) Revenue
Regulations Nos. 1-97, 9-2003, and 22-2003; and (4) Revenue Memorandum Order No. 6-
2003.)

FACTS:
On Jan 1, 1997 RA No. 8240 took effect, entitled "An Act Amending Sections 138, 139,
140, and 142 of the NIRC, as Amended and For Other Purposes". In the same year, Congress
passed RA 8424 or The Tax Reform Act of 1997, re-codifying the NIRC. Section 142 was
renumbered as Section 145 of the NIRC.

The British American Tobacco, which is the distributor of Lucky Strike in the Phil,
questioned the constitutionality of RA No. 8420 which provide a legislative freeze on brands of
cigarettes introduced between Jan 2, 1997 to Dec 31, 2003, such that said cigarettes shall
remain in the classification under which the BIR has determined them to belong as of Dec 31,
2003, until revised by Congress. In effect, older brands and existing brands will have in a long
term have a lower price and tax rate as inflation and price appreciation were not factored in.

In June 2001, petitioner introduced Lucky Strike in the market with a suggested retail
price of P9.90/pack. Pursuant to Section 145 Lucky Strike brands were initially assessed the
excise tax at P8.96 per pack.

Subsequently, Revenue Regulation No. 22-2003 was issued on August 8, 2003 to

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 price. Respondent
Commissioner of the Bureau of Internal Revenue thus recommended the applicable tax rate of
P13.44 per pack inasmuch as Lucky Strike's average net retail price is above P10.00 per pack.

On September 1, 2003, petitioner filed before the Regional Trial Court (RTC) of Makati,
Branch 61, a petition for injunction with prayer for the issuance of a Temporary Restraining
Order (TRO) and/or Writ of Preliminary Injunction on the ground that they discriminate against
new brands of cigarettes, in violation of the equal protection and uniformity provisions of the
Constitution|| (May 12. Trial Court uphold the constitutionality of Sec 145 of NIRC, Rev.
Regulations and Rev. Memorandum.) Brought this case up to the higher courts.

Lucky Strike interposes that the legislative freeze is discriminatory against new brands
and poses barrier to the entry of cigarette industry. Lucky Strike found it unfair that Philip and
Marlboro are classified only high-priced when it classified as premium priced.

ISSUE:
1. Whether or not the pertinent portions of RA No. 8240 and RA No. 9334 discriminates
against new cigarette brands and favors old cigarette brands.
2. Whether or not the classification freeze provision unduly favors older brands over the
new brands.

HELD:
NO. The law is 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.

The classification freeze provision uniformly applies to all cigarette brands whether
existing or to be introduced in the market at some future time. It does not purport to exempt any
brand from its operation nor single out a brand for the purpose of imposition of excise taxes.