CIR vs.

San Miguel Corporation

GR 205045 & 205723

FACTS:

On October 19, 1999, San Miguel Corporation's Former Assistant Vice President
for Finance, wrote the Bureau of Internal Revenue Excise Tax Services Assistant
Commissioner to request the registration of and authority to manufacture "San Mig
Light". The letter dated October 27, 1999 granted this request.

On January 28, 2002, San Miguel Corporation's Vice President and Manager of the
Group Tax Services, wrote the Bureau of Internal Revenue Chief of the Large Taxpayers
Assistance Division II (LTAD II) to request information on the tax rate and classification
of "San Mig Light". On February 7, 2002, LTAD II replied confirming that based on the
submitted documents, San Miguel Corporation was allowed to register, manufacture, and
sell "San Mig Light" as a new brand.

However, on May 28, 2002, Bureau of Internal Revenue Large Taxpayers Service
Assistant Commissioner, issued a Notice of Discrepancy against San Miguel Corporation.
The Notice stated that "San Mig Light" was a variant of its existing beer products and
must, therefore, be subjected to the higher excise tax rate for variants.

The Finance Manager of San Miguel Corporation's Beer Division wrote a letter-
reply dated July 9, 2002 requesting the withdrawal of the Notice of Discrepancy. San
Miguel Corporation stated, among other things, that "San Mig Light" was not a variant of
any of its existing beer brands 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.

On October 14, 2002, the Assistant Commissioner wrote a letter-rejoinder

reiterating its finding that "San Mig Light Pale Pilsen" was truly a variant of "San Miguel
Pale Pilsen."

To prevent the issuance of additional excise tax assessments on San Mig Light
products and the disruption of its operations, San Miguel Corporation paid the higher
excise taxes. However, San Miguel Corporation filed with the Bureau of Internal Revenue
its two refund claims for erroneous excise taxes collected on San Mig Light products.

ISSUE: Whether “San Mig Light” is merely a low-calorie variant of “San Mig Pale Pilsen”
subject to higher excise tax rates.

RULING:

NO. Parenthetically, the Bureau of Internal Revenue's actions reflect its admission
and confirmation that "San Mig Light" is a new brand, shown as follows:

- When respondent's October 19, 1999 letter requested the registration and
authority to manufacture "San Mig Light," to be taxed at P12.15 per liter, the
Bureau of Internal Revenue granted the request.
- The response dated February 7, 2002 of the LTAD II Acting Chief confirmed
that respondent was allowed to register, manufacture, and sell "San Mig Light"
as a new brand.
- The Joint Stipulation of Facts, Documents and Issues in CTA Cases Nos. 7052
and 7053 dated July 29, 2005,92 signed by both parties, includes paragraph
1.08, which reads:

“1.08. From the time of its registration as a new brand in October 1999 and
its production in November 1999…”

- The May 28, 2002 Notice of Discrepancy was effectively nullified by the
subsequent issuance of Revenue Memorandum Order No. 6-2003, which
included "San Mig Light" as a new brand.

Before Rep. Act No. 9334 was passed, the Tax Code under Republic Act No. 8240
defined a "variant of a brand" as follows:

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 and/or a different brand which carries the
same logo or design of the existing brand.
 This definition includes two (2) types of "variants." The first involves the use of a
modifier that is prefixed and/or suffixed to a brand root name, and the second involves
the use of the same logo or design of an existing brand.

Rep. Act No. 9334 took effect on January 1, 2005 and deleted the second type of
"variant" from the definition.

Revenue Regulations No. 3-2006 reiterated the deletion of the second type of
"variant":

SEC. 2. DEFINITION OF TERMS. — For purposes of these Regulations, the following

words and phrases shall have the meaning indicated below:

xxx xxx xxx

(d) VARIANT OF A BRAND — shall refer to a brand of alcohol or tobacco products

on which a modifier is prefixed and/or suffixed to the root name of the brand.

The Court of Tax Appeals En Banc, in both assailed Decisions, quoted with approval
the First Division's 􏰀nding that "San Mig Light" does not fall under both first and second
parts of the definition of variant:

“The fact that "San Mig Light" is a "new brand" and not merely a variant of an
existing brand is bolstered by the fact that Annexes "C-1" and "C-2" of RA No.
8240, which enumerated the fermented liquors registered with the BIR do not
include the brand name "San Mig Light." Instead, what were listed, as existing
brands of petitioner, as of the effectivity of RA No. 8240, were as follows: "Pale
Pilsen 320 ml.," "Super Dry 355 ml." and "Premium Can 330 ml."

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 of petitioner's
fermented liquor, there being no root name of "San Miguel" or "San Mig" in its
existing brand names.”
Records show that there are marked differences in the designs of the existing
brand "Pale Pilsen" and the new brand "San Mig Light":

a) as to "Pale Pilsen" and "San Mig Light" in bottles:

1. the size, shape and color of the respective bottles are different. "Pale
Pilsen" is in a steiny bottle, while "San Mig Light" is packed in a tall and slim
transparent bottle;

2. the design and color of the inscription on the bottles are different from
each other. "Pale Pilsen" has its label encrypted or embossed on the bottle
itself, while "San Mig Light" has a silver and blue label of distinctive design
that is printed on paper pasted on the bottle; and

3. the color of the letters in the "Pale Pilsen" brand is white against the color
of the bottle, while that of the words "San Mig" is white against a blue
background and the word "Light" is blue against a silver background.

b) As to "Pale Pilsen" and "San Mig Light" in cans:

1. the words "Pale Pilsen" are in ordinary font printed horizontally in black
on the can against a diagonally striped light yellow gold background, while
the words "San Mig" are in Gothic font printed diagonally on the can against
a blue background and the word "Light" in ordinary font printed diagonally
against a diagonally striped silver background; and

2. the general color scheme of "Pale Pilsen" is light yellow gold, while that
of "San Mig Light" is silver.

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.
 In intellectual property law, a registered trademark owner has the right to prevent
others from the use of the same mark (brand) for identical goods or services. The use of
an identical or colorable imitation of a registered trademark by a person for the same
goods or services or closely related goods or services of another party constitutes
infringement. It is a form of unfair competition because there is an attempt to get a free
ride on the reputation and selling power of another manufacturer by passing of one's
goods as identical or produced by the same manufacturer as those carrying the other
mark (brand).

The variant contemplated under the Tax Code has a technical meaning. A variant
is determined by the brand (name) of the beer product, whether it was formed by
prefixing or suffixing a modifier to the root name of the alleged parent brand, or whether
it carries the same logo or design. The purpose behind the definition was to properly tax
brands that were presumed to be riding on the popularity of previously registered brands.

"San Mig Light" and "Pale Pilsen" do not share a root word. Neither is there an
existing brand in the list (Annexes C-1 and C-2 of the Tax Code) called "San Mig" to
conclude that "Light" is a suffix rendering "San Mig Light" as its "variant." As discussed
in the Court of Tax Appeals Decision, "San Mig Light" should be considered as one brand
name.