LA PAZ Y BUEN VIAJE. (LA DICHA CIGAR & CIGARETTES FACTORY), PETITIONER VS. COLLECTOR OF INTERNAL REVENUE, RESPONDENT.

Appeal from a, decision of the Court of Tax Appeals dismissing the
claim of petitioner, La Paz y Buen Viaje (La Dicha Cigar &
Cigarettes Factory), for the refund of P12,066.00, representing
deficiency specific tax assessed and collected by respondent Collector
(now Commissioner) of Internal Revenue.

It is not disputed that during the period from September . 1949 to
September 1950, petitioner—a domestic corporation engaged in the
manufacture of cigarettes in the City of Manila—had produced and sold
6,033,000 “largos” (king size) cigarettes, over 80 millimeters in
length, at uniform wholesale price of P7.60 per thousand cigarettes,
and paid P4.00 for every thousand thereof, by affixing, with the
approval of an agent or representative of respondent herein, the
corresponding internal revenue stamps on the packs of said products.

Upon investigation conducted by respondent’s agents, it was found,
subsequently, that the specific tax for the aforementioned.king size
cigarettes was P6.00,per thousand, not P4.00 per thousand, as
originally paid by petitioner herein. Consequently, a deficiency tax of
P2.00 per thousand of said cigarettes, or the aggregate sum of P2,066.00 was assessed by respondent, who, by letter dated December 4,
1952, demanded from petitioner the payment of, among other items, the
said sum of P12,066.00. Petitioner asked respondent to reconsider such
action, but respondent refused to do so. An appeal sought to be taken
by petitioner to the Court of Tax Appeals was dismissed by the latter
for “lack of jurisdiction”, upon the ground that the appeal had not
been perfected within the reglementary period.

On September 26, 1958, petitioner paid, therefore, said sum of
P12.066.00, which, in a letter dated July 20, 1959, it asked respondent
to refund. Upon denial of this request by respondent, petitioner once
more appealed to the Court of Tax Appeals, which, in due course
rendered the decision adverted to above.

This case hinges on the proper interpretation of section 137 of the
Tax Code, as amended by Republic Act No. .419, the pertinent part of
which. reads:

Specific tax on eigojrs. and cigarettes.—On cigars and cigarettes there shall be collected the following taxes:

* * * * * *

“(b) Cigarettes—

“(1)
When the manufacturer’s or importer’s wholesale price, less the amount
of the tax, is three pesos and fifty centavos or less per thousand, on
each thousand two pesos. .

“(2) When the manufacturer’s or
importer’s wholesale price, less the, amount of the tax, is more than’
three pesos and fifty centavos but not more than four pesos and fifty
centavos per thousand, on each thousand, six pesos.

“(3)’
When the manufacturer’s or importer’s wholesale price, less the amount
of the tax, exceeds four pesos and fifty cantavos but not, more than
six pesos per thousand, on each thousand, eight pesos.

“(4)
“When the manufacturer’s of importer’s wholesale price, less the amount
of the tax, exceeds six pesos per thousand, on each thousand, ten pesos.

* * * * * *

And provided,
further, That on all cigarettes which have been .mechanically packed,
or are more than eighty millimeters in length, a minimum tax of four
pesos per thousand shall he collected, irre-spective of whether the
price at which such cigarettes are sold by the- manufacturer or
importer is three pesos and fifty .centavos or less per thousand * * *.”

Respondent arid the Court of Tax Appeals held that the provision
applicable to petitioner herein is subdivision (2) of paragraph (6) of
said section 137, because, after deducting the sum of P4.00, paid by
petitioner as specific tax, from the P7.60 per thousand it had charged
and collected for said cigarettes, there results a balance of P3.6O per
thousand of said cigarettes, the actual manufacturer’s wholesale
therefor, which falls under said subdivision (2) of paragraph (‘b).

Upon the other hand, petitioner maintains that the above quoted
proviso, in. relation to subdivision (1) of said paragraph (b) should
be applied to the aforementioned cigarettes, inasmuch as, deducting the
sum of P6.00 per thousand assessed and collected by respondent, from
the wholesale price of P7.60 charged and received by petitioner, the
balance remaining in its hands is only P1.60 per thousand, which falls
under said proviso of paragraph (6).

We cannot sustain petitioner’s contention. Section 19 (a) of
Regulations No. 27 of the Bureau of Internal Revenue (promulgated oh
March 1, 1923), which were in force, at the time of the removal of the
cigarettes above referred to, reads:

“Classification of cigars or cigarettes and reclassification due to increase or decrease in price.—The
tax on cigars or cigarettes is assessed oh the manufacturer’s wholesale price. Manufacturers shall file sworn statements with, the
Collector of Internal Revenue showing the maximum prices without
adding the internal revenue tax of the different bramds of cigars or
cigarettes immufaetured by them and the tax must be paid on the basis
of the prices so submitted. Manufacturers desiring to reclassify
cigars or cigarettes on account of an increase or decrease in prices
shall request permision in writing giving ‘reasons for the change. If
the Collector of Internal Revenue grants authority for a
reclassification of any lot or brand of cigars again be totalled and
the manufacturer will continue his entries in the corresponding
register book A. If, for instance, cigars or cigarettes are to be
changed from the P2.00 to P4.00 class, or from P1.20 to F1.60, the two
columns affected will be totalled and deductions or additions made
thereto, accordingly, after which they will again be totalled and the
manufacturer will continue his entries immediately under the new
totals.’ (Italics supplied: 21 Off. Gaz., page 460.)

Pursuant to this Rule, the validity of which has not been contested,
the basis for the determination of the rate of specific tax applicable
on cigars and cigarettes is a sworn statement by the manufacturer
showing the price Charged by the same “without adding, the internal
revenue tax”. Accordingly, for the manufacturer to be entitled to the
application of the proviso of said paragraph (6) of section 137, it is
necessary that the manufacturer’s net wholesale price, less the
specific tax of P4.00 per thousand, be not more than P3.50 per thousand
Since the net wholesale price of petitioner herein, excluding said sum
of P4.00, is P3.60 per thousand, it follows necessarily that the rate
applicable is that of P6.00 per thousand, as provided in subdivision
(2), paragraph (6) of said section 137.

Wherefore, the decision appealed from is hereby affirmed, with costs against the petitioner. It is so ordered.

Bengzon, C. J., Padilla, Bautista Angelo, Reyes, J.B.L., Parades, Dizon and Makalintal, JJ., concur.