G.R. No.

205045/205723 January 25, 2017

COMMISSIONER OF INTERNAL REVENUE vs. SAN MIGUEL CORPORATION

Facts:
In October, 1999 SMC VP for Finance wrote BIR Excise Tax Services Asst. Commissioner requesting for
registration and authority to manufacture "San Mig Light" to be taxed at P12.15 per liter pursuant to Sec. 143 of the
1997 NIRC schedule for excise tax of fermented liquor which was granted. On November 1999, SMC advised Asst.
Commissioner that San Mig Light would be sold at a net retail price of P21.15 per liter and would be taxed at P9.15
following the schedule of Sec . 143.
On January, 2002 SMC VP and Manager of Group Tax Services wrote BIR requesting information on tax
rate and classification of San Mig Light and got a reply on February 2002 confirming that based on submitted
documents SMC is allowed to register, manufacture, and sell "San Mig Light" as a new brand and that the tax
classification and rate of as a new brand were in order.
However on May 2002, BIR issued a notice of discrepancy to SMC stating that San Mig Light is a variant
of its existing beer and should be taxed under the highest classification of the variant of that brand which is P12.15
per liter per Sec. 143 and the 12% increase should be based on such amount. 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.
SMC wrote a letter requesting withdrawal of Notice stating that San Mig Light is not a variant of its beer
product because of "the distinctive shape, color scheme, and general appearance"; and the "different alcohol content
and innovative low calorie formulation." It also emphasized that the Escudo logo was not a beer brand logo but a
corporate logo. However, BIR in their letter-reply reiterated that it is a variant and cited SMC's publication and
Annual Report as support for its finding.
After several conferences held to settle the tax classification issue, Commissioner Parayno wrote SMC on
January 2004 to validate its finding that San Mig Light is a variant subject to excise tax of P12.15 per liter and
starting 2000 at P13.61 per liter. Preliminary Assessment Notice (PAN) was served followed by a Final Assessment
Notice (FAN) covering from November 1999 to January 29, 2004.
SMC filed protest/request for reconsideration for the FAN which was denied by BIR thus filing petition for
review at Court of Tax Appeals (CTA) assailing the denial. Meanwhile to avoid disruption on their operations they
paid the P13.61 excise tax starting February 2004 but under protest.
On December 2005, SMC filed at BIR refund claim covering period from February 2004 to November and
due to inaction of BIR filed a petition for review at CTA, which was granted in their favor. BIR filed a motion for
reconsideration with Motion for production of documents by SMC of October 1999 to December 2000 Kaunlaran
Publication and 1999 Annual Report but was denied hence this petition at SC.
Issues
(1) Whether or not "San Mig Light" is a new brand and not a variant of "San Miguel Pale Pilsen.
(2) Whether the deficiency excise tax assessments issued by the BIR against SMC are valid.
Ruling
SC upheld CTA ruling that San Mig Light is a new brand. 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. 'New brand' shall mean a brand
registered after the date of affectivity of R.A. No. 8240 on January 1, 1997. Thus, it is clear that when the product
"San Mig Light" was introduced in 1999, it was considered as an entirely new product and a new brand, there being
no root name of "San Miguel" or "San Mig" in its existing brand names. The existing registered brand name of
SMC at that time was "Pale Pilsen." Therefore, the word "Light" cannot he considered as a mere suffix to the word
"San Miguel," but an entirely new brand name, "San Mig Light." Further, in BIR's October, 1999 letter to SMC, the
registration granted was not merely for intellectual property protection but "for internal revenue purposes only":
Your request dated October 19, 1999, for the registration of San Miguel Corporation commercial label
for beer bearing the trade mark "San Mig Light" Pale Pilsen, for domestic sale or export, 24 bottles in a
case, each flint bottle with contents of 330 ml., is hereby granted.
xxxx xxxx xxxx
You are hereby informed that the registration of commercial labels in this Office is for internal
revenue purposes only and does not give you protection against any person or entity whose rights may
be prejudiced by infringement or unfair competition resulting from your use of the above indicated
trademark.
Relying on above letter, SMC had already acquired a vested right on the tax classification of its San Mig Light
as a new brand. To allow BIR to change its position will result in deficiency assessments in substantial amounts
against SMC to the latter's prejudice.
Deficiency tax assessment changing classification of San Mig Light from new brand to variant is not
valid. The classification of "San Mig Light" as a new brand may not be revised except by an act of Congress as
laid down by RA No. 8240; and CTA did not err in granting its claim for refund or issuance of tax credit
certificate.