COMMISSIONER OF INTERNAL REVENUE vs. HON. COURT OF APPEALS, HON. COURT OF TAX APPEALS and FORTUNE TOBACCO CORPORATION G.R. No. 119761 August 29, 1996 VITUG,
J.:
FACTS :
Fortune Tobacco Tobacco Corporation, Corporation, engaged in the manufacture of different different cigarette brands was issued separate certificates of trademark registration on various dates for their produc products ts CHAMP CHAMPIO ION, N, HOPE HOPE and and MORE. MORE. In a lette letterr by then then CIR Commi Commiss ssion ioner er Bienvenido Tan Jr. To Deputy Minister Ramon Diaz of the PCGG, the commission classified these cigarettes as foreign brands having been listed in the World Tobacco Directory as belonging to foreign companies. Fortune Tobacco removed said brands from from the the fore foreig ign n bran brands ds cate catego gory ry by chan changi ging ng the the name names s to HOPE HOPE Luxu Luxury ry and and Premium MORE . Proof Proof was submitted that that CHAMPION was their original original product and and therefore a local brand. Ad valorem taxes were imposed on Hope Luxury More Premium and Champion International at 40% to 45% and Champion Champion Kings and Lights at 15% to 20%. A bill which later became RA 7564 became effective on July 3, 1993 and it amended Sec 142(c)(1) of the National Internal Revenue Code. Two Two days days befo before re RA 7654 7654 beca became me effec effectiv tive e RMC 37-93 37-93 was was issue issued d by the BIR stipu stipulat lating ing that that since since HOPE HOPE,, MORE MORE and and CHAMP CHAMPION ION can’t can’t be trace traced d to a singl single e manufacturer of a single country, they are considered locally manufactured cigarettes bearing a foreign brand subject to 55% Ad Valorem tax on cigarettes. On July 2, 1993, BIR Deputy Commissioner Commissioner Victor Deoferio Jr. sent a copy of RMC 3793 via telefax to Fortune Tobacco addressed to no particular person. A copy of the same was received by the company by ordinary mail on July 15, 1993 which prompted them them to writ write e a lett letter er to the the appe appell llat ate e divi divisi sion on of BIR BIR requ reque estin sting g for for revi revie ew, reconsideration and recall of said memo. The request was denied and an ad valorem tax deficiency was assessed at P 9,598,334. Fortu Fortune ne Toba Tobacc cco o filed filed a petit petition ion for review review with the CTA which which ruled ruled that when RA 7654 took effect, the brands were not classified and taxed at 55%. As such , they shall be classified as locally manufactured cigarettes taxed at 45 or 20% as the case may be. The ad valorem tax assessment assessment was cancelled for lack of legal basis. With the CTA dismissing a motion for reconsideration, the CIR filed a petition for review with CA which affirmed in all respect the assailed decision and resolution.
There was no Notice and hearing and CIR argued that the memo was a mere interpretation of the ruling of BIR and as such, notice and hearing is not required. ISSUE:
WON RMC 37-93 is a mere interpretative ruling which can stand as valid and enforceable without publication. RULING:
No. Like any government agency, the CIR may not disregard legal requirements and applicable principles in the exercise of its quasi legislative powers. Lack of notice and hearing was a violation of the required due process and an infringement of the uniformity of taxation and equal protection considering further that it excluded other cigarette bearing foreign brands. Interpretative rules provide guidelines which the administrative agency in charge must enforce. When merely interpretative, it has no other consequences other than what the law itself has already prescribed. The memo was not a mere interpretative rule. Instead, it was a legislative rule in the nature of subordinate legislation designed to implement a primary legislation by providing details thereof. Being a promulgated legislative rule, it must be published. BIR in its move to reclassify the three cigarette brands and in raising their ad valorem taxes legislated under a quasi legislative authority, it did not simply interpret RA 7654. Without RMC 37-93, the enactment of RA 7654 would have no new tax rate consequence on the products of the private respondent.
