329 Phil. 987
VITUG, J.:
A bill, which later became Republic Act ("RA") No. 7654, [6] was enacted, on 10 June 1993, by the legislature and signed into law, on 14 June 1993, by the President of the Philippines. The new law became effective on 03 July 1993. It amended Section 142(c)(1) of the National Internal Revenue Code ("NIRC") to read; as follows:
"BRAND AD VALOREM TAX RATE E.O. 22 06-23-86 07-01-86 and E.O. 273 07-25-87 01-01-88 RA 6956 06-18-90 07-05-90 Hope Luxury M. 100's
Sec. 142, (c), (2) 40% 45% Hope Luxury M. King
Sec. 142, (c), (2) 40% 45% More Premium M. 100's
Sec. 142, (c), (2) 40% 45% More PremiumInternational
Sec. 142, (c), (2) 40% 45% Champion Int'l. M. 100's
Sec. 142, (c), (2) 40% 45% Champion M. 100's
Sec. 142, (c), (2) 40% 45% Champion M. King
Sec. 142, (c), last par. 15% 20% Champion Lights
Sec. 142, (c), last par. 15% 20%"[5]
"SEC. 142. Cigars and Cigarettes. -About a month after the enactment and two (2) days before the effectivity of RA 7654, Revenue Memorandum Circular No. 37-93 ("RMC 37-93"), was issued by the BIR the full text of which expressed:"x x x x x x x x x.
"(c) Cigarettes packed by machine. - There shall be levied, assessed and collected on cigarettes packed by machine a tax at the rates prescribed below based on the constructive manufacturer's wholesale price or the actual manufacturer's wholesale price, whichever is higher:
"(1) On locally manufactured cigarettes which are currently classified and taxed at fifty-five percent (55%) or the exportation of which is not authorized by contract or otherwise, fifty-five (55%) provided that the minimum tax shall not be less than Five Pesos (P5.00) per pack.
"(2).On other locally manufactured cigarettes, forty-five percent (45%) provided that the minimum tax shall not be less than Three Pesos (P3.00) per pack."x x x x x x x x x.
"When the registered manufacturer's wholesale price or the actual manufacturer's wholesale price whichever is higher of existing brands of cigarettes, including the amounts intended to cover the taxes, of cigarettes packed in twenties does not exceed Four Pesos and eighty centavos (P4.80) per pack, the rate shall be twenty percent (20%)."[7] (Italics supplied.)
On 02 July 1993, at about 17:50 hours, BIR Deputy Commissioner Victor A. Deoferio, Jr., sent via telefax a copy of RMC 37-93 to Fortune Tobacco but it was addressed to no one in particular. On 15 July 1993, Fortune Tobacco received, by ordinary mail, a certified xerox copy of RMC 37-93."REPUBLIKA NG PILIPINAS
KAGAWARAN NG PANANALAPI
KAWANIHAN NG RENTAS INTERNAS
July 1, 1993
REVENUE MEMORANDUM CIRCULAR NO. 37-93
SUBJECT : Reclassification of Cigarettes Subject to Excise Tax
TO : All Internal Revenue Officers and Others Concerned.
"In view of the issues raised on whether 'HOPE,' 'MORE' and 'CHAMPION' cigarettes which are locally manufactured are appropriately considered as locally manufactured cigarettes bearing a foreign brand, this Office is compelled to review the previous rulings on the matter.
"Section 142(c)(1) National Internal Revenue Code, as amended by R.A. No. 6956, provides:
"'On locally manufactured cigarettes bearing a foreign brand, fifty-five percent (55%) Provided, That this rate shall apply regardless of whether or not the right to use or title to the foreign brand was sold or transferred by its owner to the local manufacturer. Whenever it has to be determined whether or not a cigarette bears a foreign brand, the listing of brands manufactured in foreign countries appearing in the current World Tobacco Directory shall govern."
"Under the foregoing, the test for imposition of the 55% ad valorem tax on cigarettes is that the locally manufactured cigarettes bear a foreign brand regardless of whether or not the right to use or title to the foreign brand was sold or transferred by its owner to the local manufacturer. The brand must be originally owned by a foreign manufacturer or producer. If ownership of the cigarette brand is, however, not definitely determinable, 'x x x the listing of brands manufactured in foreign countries appearing in the current World Tobacco Directory shall govern. x x x'
"'HOPE' is listed in the World Tobacco Directory as being manufactured by (a) Japan Tobacco, Japan and (b) Fortune Tobacco, Philippines. 'MORE' is listed in the said directory as being manufactured by: (a) Fills de Julia Reig, Andorra; (b) Rothmans, Australia; (c) RJR-Macdonald, Canada; (d) Rettig-Strenberg, Finland; (e) Karellas, Greece; (f) R.J. Reynolds, Malaysia; (g) Rothmans, New Zealand; (h) Fortune Tobacco, Philippines; (i) R.J. Reynolds, Puerto Rico; (j) R.J. Reynolds, Spain; (k) Tabacalera, Spain; (l) R.J. Reynolds, Switzerland; and (m) R.J. Reynolds, USA. 'Champion' is registered in the said directory as being manufactured by (a) Commonwealth Bangladesh; (b) Sudan, Brazil; (c) Japan Tobacco, Japan; (d) Fortune Tobacco, Philippines; (e) Haggar, Sudan; and (f) Tabac Reunies, Switzerland.
"Since there is no showing who among the above-listed manufacturers of the cigarettes bearing the said brands are the real owner/s thereof, then it follows that the same shall be considered foreign brand for purposes of determining the ad valorem tax pursuant to Section 142 of the National Internal Revenue Code. As held in BIR Ruling No. 410-88, dated August 24, 1988, 'in cases where it cannot be established or there is dearth of evidence as to whether a brand is foreign or not, resort to the World Tobacco Directory should be made.'
"In view of the foregoing, the aforesaid brands of cigarettes, viz: 'HOPE,' 'MORE' and 'CHAMPION' being manufactured by Fortune Tobacco Corporation are hereby considered locally manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax on cigarettes.
"Any ruling inconsistent herewith is revoked or modified accordingly.
(SGD) LIWAYWAY VINZONS-CHATO
Commissioner"
"WHEREFORE, Revenue Memorandum Circular No. 37-93 reclassifying the brands of cigarettes, viz: `HOPE,' `MORE' and `CHAMPION' being manufactured by Fortune Tobacco Corporation as locally manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax on cigarettes is found to be defective, invalid and unenforceable, such that when R.A. No. 7654 took effect on July 3, 1993, the brands in question were not CURRENTLY CLASSIFIED AND TAXED at 55% pursuant to Section 1142(c)(1) of the Tax Code, as amended by R.A. No. 7654 and were therefore still classified as other locally manufactured cigarettes and taxed at 45% or 20% as the case may be.In its resolution, dated 11 October 1994, the CTA dismissed for lack of merit the motion for reconsideration.
"Accordingly, the deficiency ad valorem tax assessment issued on petitioner Fortune Tobacco Corporation in the amount of P9,598,334.00, exclusive of surcharge and interest, is hereby canceled for lack of legal basis.
"Respondent Commissioner of Internal Revenue is hereby enjoined from collecting the deficiency tax assessment made and issued on petitioner in relation to the implementation of RMC No. 37-93.
"SO ORDERED." [9]
In the instant petition, the Solicitor General argues: That -In fine, petitioner opines that RMC 37-93 is merely an interpretative ruling of the BIR which can thus become effective without any prior need for notice and hearing, nor publication, and that its issuance is not discriminatory since it would apply under similar circumstances to all locally manufactured cigarettes.
"I. RMC 37-93 IS A RULING OR OPINION OF THE COMMISSIONER OF INTERNAL REVENUE INTERPRETING THE PROVISIONS OF THE TAX CODE.
"II. BEING AN INTERPRETATIVE RULING OR OPINION, THE PUBLICATION OF RMC 37-93, FILING OF COPIES THEREOF WITH THE UP LAW CENTER AND PRIOR HEARING ARE NOT NECESSARY TO ITS VALIDITY, EFFECTIVITY AND ENFORCEABILITY.
"III. PRIVATE RESPONDENT IS DEEMED TO HAVE BEEN NOTIFIED OR RMC 37-93 ON JULY 2, 1993.
"IV. RMC 37-93 IS NOT DISCRIMINATORY SINCE IT APPLIES TO ALL LOCALLY MANUFACTURED CIGARETTES SIMILARLY SITUATED AS 'HOPE,' 'MORE' AND 'CHAMPION' CIGARETTES.
"V. PETITIONER WAS NOT LEGALLY PROSCRIBED FROM RECLASSIFYING ‘HOPE,’ ‘MORE’ AND ‘CHAMPION’ CIGARETTES BEFORE THE EFFECTIVITY OF R.A. NO. 7654.
"VI. SINCE RMC 37-93 IS AN INTERPRETATIVE RULE, THE INQUIRY IS NOT INTO ITS VALIDITY, EFFECTIVITY OR ENFORCEABILITY BUT INTO ITS CORRECTNESS OR PROPRIETY; RMC 37-93 IS CORRECT." [10]
"x x x a legislative rule is in the nature of subordinate legislation, designed to implement a primary legislation by providing the details thereof. In the same way that laws must have the benefit of public hearing, it is generally required that before a legislative rule is adopted there must be hearing. In this connection, the Administrative Code of 1987 provides:It should be understandable that when an administrative rule is merely interpretative in nature, its applicability needs nothing further than its bare issuance for it gives no real consequence more than what the law itself has already prescribed. When, upon the other hand, the administrative rule goes beyond merely providing for the means that can facilitate or render least cumbersome the implementation of the law but substantially adds to or increases the burden of those governed, it behooves the agency to accord at least to those directly affected a chance to be heard, and thereafter to be duly informed, before that new issuance is given the force and effect of law.
"Public Participation. - If not otherwise required by law, an agency shall, as far as practicable, publish or circulate notices of proposed rules and afford interested parties the opportunity to submit their views prior to the adoption of any rule.
"(2) In the fixing of rates, no rule or final order shall be valid unless the proposed rates shall have been published in a newspaper of general circulation at least two (2) weeks before the first hearing thereon.
"(3) In case of opposition, the rules on contested cases shall be observed.
"In addition such rule must be published. On the other hand, interpretative rules are designed to provide guidelines to the law which the administrative agency is in charge of enforcing." [12]
Indeed, the BIR itself, in its RMC 10-86, has observed and provided:Nothing on record could tell us that it was either impossible or impracticable for the BIR to observe and comply with the above requirements before giving effect to its questioned circular."RMC NO. 10-86
Effectivity of Internal Revenue Rules and Regulations
"It has been observed that one of the problem areas bearing on compliance with Internal Revenue Tax rules and regulations is lack or insufficiency of due notice to the tax paying public. Unless there is due notice, due compliance therewith may not be reasonably expected. And most importantly, their strict enforcement could possibly suffer from legal infirmity in the light of the constitutional provision on `due process of law' and the essence of the Civil Code provision concerning effectivity of laws, whereby due notice is a basic requirement (Sec. 1, Art. IV, Constitution; Art. 2, New Civil Code).
"In order that there shall be a just enforcement of rules and regulations, in conformity with the basic element of due process, the following procedures are hereby prescribed for the drafting, issuance and implementation of the said Revenue Tax Issuances:
"(1). This Circular shall apply only to (a) Revenue Regulations; (b) Revenue Audit Memorandum Orders; and (c) Revenue Memorandum Circulars and Revenue Memorandum Orders bearing on internal revenue tax rules and regulations.
"(2). Except when the law otherwise expressly provides, the aforesaid internal revenue tax issuances shall not begin to be operative until after due notice thereof may be fairly presumed.
"Due notice of the said issuances may be fairly presumed only after the following procedures have been taken:"xxx xxx xxx "(5). Strict compliance with the foregoing procedures is enjoined." [13]
"1. Locally manufactured by ALHAMBRA INDUSTRIES, INC.The court quoted at length from the transcript of the hearing conducted on 10 August 1993 by the Committee on Ways and Means of the House of Representatives; viz:
(a) `PALM TREE' is listed as manufactured by office of Monopoly, Korea (Exhibit `R')
"2. Locally manufactured by LA SUERTE CIGAR and CIGARETTE COMPANY
(a) `GOLDEN KEY' is listed being manufactured by United Tobacco, Pakistan (Exhibit `S')
(b) `CANNON' is listed as being manufactured by Alpha Tobacco, Bangladesh (Exhibit `T')
"3. Locally manufactured by LA PERLA INDUSTRIES, INC.
(a) `WHITE HORSE' is listed as being manufactured by Rothman's, Malaysia (Exhibit `U')
(b) `RIGHT' is listed as being manufactured by SVENSKA, Tobaks, Sweden (Exhibit `V-1')
"4. Locally manufactured by MIGHTY CORPORATION
(a) 'WHITE HORSE' is listed as being manufactured by Rothman's, Malaysia (Exhibit 'U-1')
"5. Locally manufactured by STERLING TOBACCO CORPORATION
(a) ‘UNION' is listed as being manufactured by Sumatra Tobacco, Indonesia and Brown and Williamson, USA (Exhibit 'U-3')
(b) ‘WINNER' is listed as being manufactured by Alpha Tobacco, Bangladesh; Nanyang, Hongkong; Joo Lan, Malaysia; Pakistan Tobacco Co., Pakistan; Premier Tobacco, Pakistan and Haggar, Sudan (Exhibit 'U-4')." [17]
"THE CHAIRMAN. So you have specific information on Fortune Tobacco alone. You don't have specific information on other tobacco manufacturers. Now, there are other brands which are similarly situated. They are locally manufactured bearing foreign brands. And may I enumerate to you all these brands, which are also listed in the World Tobacco Directory x x x. Why were these brands not reclassified at 55 if your want to give a level playing field to foreign manufacturers?All taken, the Court is convinced that the hastily promulgated RMC 37-93 has fallen short of a valid and effective administrative issuance.
"MS. CHATO. Mr. Chairman, in fact, we have already prepared a Revenue Memorandum Circular that was supposed to come after RMC No. 37-93 which have really named specifically the list of locally manufactured cigarettes bearing a foreign brand for excise tax purposes and includes all these brands that you mentioned at 55 percent except that at that time, when we had to come up with this, we were forced to study the brands of Hope, More and Champion because we were given documents that would indicate the that these brands were actually being claimed or patented in other countries because we went by Revenue Memorandum Circular 1488 and we wanted to give some rationality to how it came about but we couldn't find the rationale there. And we really found based on our own interpretation that the only test that is given by that existing law would be registration in the World Tobacco Directory. So we came out with this proposed revenue memorandum circular which we forwarded to the Secretary of Finance except that at that point in time, we went by the Republic Act 7654 in Section 1 which amended Section 142, C-1, it said, that on locally manufactured cigarettes which are currently classified and taxed at 55 percent. So we were saying that when this law took effect in July 3 and if we are going to come up with this revenue circular thereafter, then I think our action would really be subject to question but we feel that . . . Memorandum Circular Number 37-93 would really cover even similarly situated brands. And in fact, it was really because of the study, the short time that we were given to study the matter that we could not include all the rest of the other brands that would have been really classified as foreign brand if we went by the law itself. I am sure that by the reading of the law, you would without that ruling by Commissioner Tan they would really have been included in the definition or in the classification of foregoing brands. These brands that you referred to or just read to us and in fact just for your information, we really came out with a proposed revenue memorandum circular for those brands. (Italics supplied)
"Exhibit 'FF-2-C', pp. V-5 TO V-6, VI-1 to VI-3)."x x x x x x x x x.
"MS. CHATO. x x x But I do agree with you now that it cannot and in fact that is why I felt that we . . . I wanted to come up with a more extensive coverage and precisely why I asked that revenue memorandum circular that would cover all those similarly situated would be prepared but because of the lack of time and I came out with a study of RA 7654, it would not have been possible to really come up with the reclassification or the proper classification of all brands that are listed there. x x x' (italics supplied) (Exhibit 'FF-2d', page IX-1)"x x x x x x x x x.
"HON. DIAZ. But did you not consider that there are similarly situated?
"MS. CHATO. That is precisely why, Sir, after we have come up with this Revenue Memorandum Circular No. 37-93, the other brands came about the would have also clarified RMC 37-93 by I was saying really because of the fact that I was just recently appointed and the lack of time, the period that was allotted to us to come up with the right actions on the matter, we were really caught by the July 3 deadline. But in fact, We have already prepared a revenue memorandum circular clarifying with the other . . . does not yet, would have been a list of locally manufactured cigarettes bearing a foreign brand for excise tax purposes which would include all the other brands that were mentioned by the Honorable Chairman. (Italics supplied) (Exhibit 'FF-2-d,' par. IX-4)."[18]
SEC. 142. Cigars and cigarettes. - x x x (c) Cigarettes packed by machine. - There shall be levied , assessed and collected on cigarettes packed by machine a tax at the rates prescribed below based on the constructive manufacturer's wholesale price or the actual manufacturer's wholesale price, whichever is higher:
(1) On locally manufactured cigarettes which are currently classified and taxed at fifty-five percent (55%) or the exportation of which is not authorized by contract or otherwise, fifty-five percent (55%) provided that the minimum tax shall not be less than Five Pesos (P5.00) per pack (italics supplied).
(2) On other locally manufactured cigarettes, forty-five percent (45%) provided that the minimum tax shall not be less than Three Pesos (P3.00) per pack.
Revenue Memorandum Circular No. 37-93 reclassifying the brands of cigarettes, viz: Hope, More, and Champion being manufactured by Fortune Tobacco Corporation as locally manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax on cigarettes is found to be defective, invalid and unenforceable x x x Accordingly, the deficiency ad valorem tax assessment issued on petitioner Fortune Tobacco Corporation in the amount of P9,598,334.00, exclusive of surcharge and interest, is hereby cancelled for lack of legal basis."[2]The CTA held that petitioner Commissioner of Internal Revenue failed to observe due process of law in issuing RMC 37-93 as there was no prior notice and hearing, and that RMC 37-93 was in itself discriminatory. The motion to reconsider its decision was denied by the CTA for lack of merit. On 31 March 1995 respondent Court of Appeals affirmed in toto the decision of the CTA.[3] Hence, the instant petition for review.
Section 142 (c) (1), National Internal Revenue Code, as amended by R.A. No. 6956, provides: On locally manufactured cigarettes bearing a foreign brand, fifty-five percent (55%) Provided, That this rate shall apply regardless of whether or not the right to use or title to the foreign brand was sold or transferred by its owner to the local manufacturer. Whenever it has to be determined whether or not a cigarette bears a foreign brand, the listing of brands manufactured in foreign countries appearing in the current World Tobacco Directory shall govern.Then petitioner makes a factual finding by declaring that Hope (Luxury), (Premium) More and Champion are manufactured by other foreign manufacturers-
Under the foregoing, the test for imposition of the 55% ad valorem tax on cigarettes is that the locally manufactured cigarettes bear a foreign brand regardless of whether or not the right to use or title to the foreign brand was sold or transferred by its owner to the local manufacturer. The brand must be originally owned by a foreign manufacturer or producer. If ownership of the cigarette brand is, however, not definitely determinable, "x x x the listing of brands manufactured in foreign countries appearing in the current World Tobacco Directory shall govern x x x"
Hope is listed in the World Tobacco Directory as being manufactured by (a) Japan Tobacco, Japan and (b) Fortune Tobacco, Philippines. More is listed in the said directory as being manufactured by: (a) Fills de Julia Reig, Andorra; (b) Rothmans, Australia; (c) RJR-MacDonald, Canada; (d) Rettig-Strenberg, Finland; (e) Karellas, Greece; (f) R.J. Reynolds, Malaysia; (g) Rothmans, New Zealand; (h) Fortune Tobacco, Philippines; (i) R.J. Reynolds, Puerto Rico; (j) R.J. Reynolds, Spain; (k) Tabacalera, Spain; (l) R.J. Reynolds, Switzerland; and (m) R.J. Reynolds, USA. "Champion" is registered in the said directory as being manufactured by: (a) Commonwealth Bangladesh; (b) Sudan, Brazil; (c) Japan Tobacco, Japan; (d) Fortune Tobacco, Philippines; (e) Haggar, Sudan; and (f) Tabac Reunies, Switzerland.From this finding, petitioner thereafter formulates an inference that since it cannot be determined who among the manufacturers are the real owners of the brands in question, then these cigarette brands should be considered foreign brands-
Since there is no showing who among the above-listed manufacturers of the cigarettes bearing the said brands are the real owner/s thereof, then it follows that the same shall be considered foreign brand for purposes of determining the ad valorem tax pursuant to Section 142 of the National Internal Revenue Code. As held in BIR Ruling No. 410-88, dated August 24, 1988, "in cases where it cannot be established or there is dearth of evidence as to whether a brand is foreign or not, resort to the World Tobacco Directory should be made."Finally, petitioner caps RMC 37-93 with a disposition specifically directed at respondent corporation reclassifying its cigarette brands as locally manufactured bearing foreign brands-
In view of the foregoing, the aforesaid brands of cigarettes, viz: Hope, More and Champion being manufactured by Fortune Tobacco Corporation are hereby considered locally manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax on cigarettes.It is evident from the foregoing that in issuing RMC 37-93 petitioner Commissioner of Internal Revenue was exercising her quasi-judicial or administrative adjudicatory power. She cited and interpreted the law, made a factual finding, applied the law to her given set of facts, arrived at a conclusion, and issued a ruling aimed at a specific individual. Consequently prior notice and hearing are required. It must be emphasized that even the text alone of RMC 37-93 implies that reception of evidence during a hearing is appropriate if not necessary since it invokes BIR Ruling No. 410-88, dated August 24, 1988, which provides that "in cases where it cannot be established or there is dearth of evidence as to whether a brand is foreign or not x x x" Indeed, it is difficult to determine whether a brand is foreign or not if it is not established by, or there is dearth of, evidence because no hearing has been called and conducted for the reception of such evidence. In fine, by no stretch of the imagination can RMC 37-93 be considered purely as an interpretative rule - requiring no previous notice and hearing and simply interpreting, construing, clarifying or explaining statutory regulations being administered by or under which the Bureau of Internal Revenue operates.
Any ruling inconsistent herewith is revoked or modified accordingly.
We quote RMC 47-91 promulgated 11 June 1991 -Quite obviously, the very text of RMC 47-91 itself shows that it is merely an interpretative rule as it simply quotes a VAT Ruling and reminds those concerned that the ruling is the present and official stand of the Bureau of Internal Revenue. Unlike in RMC 37-93 where petitioner Commissioner manifestly exercised her quasi-judicial or administrative adjudicatory power, in RMC 47-91 there were no factual findings, no application of laws to a given set of facts, no conclusions of law, and no dispositive portion directed at any particular party.
Revenue Memorandum Circular No. 47-91
SUBJECT: Taxability of Copra
TO : All Revenue Officials and Employees and Others Concerned.
For the information and guidance of all officials and employees and others concerned, quoted hereunder in its entirety is VAT Ruling No. 190-90 dated August 17,1990:
COCOFED MARKETING RESEARCH CORPORATION
6th Floor Cocofed Building
144 Amorsolo Street
Legaspi Village, Makati
Metro Manila
Attention: Ms. Esmyrna E. Reyes
Vice President - Finance
Sirs:
This has reference to your letter dated January 16, 1990 wherein you represented that inspite of your VAT registration of your copra trading company, you are supposed to be exempt from VAT on the basis of BIR Ruling dated January 8,1988 which considered copra as an agricultural food product in its original state. In this connection, you request for a confirmation of your opinion as aforestated.
In reply, please be informed that copra, being an agricultural non-food product, is exempt from VAT only if sale is made by the primary producer pursuant to Section 103 (a) of the Tax Code, as amended. Thus as a trading company and a subsequent seller, your sale of copra is already subject to VAT pursuant to Section 9(b)(1) of Revenue Regulations 5-27.
This revokes VAT Ruling Nos. 009-88 and 279-88.
Very truly yours,
(Sgd.) JOSE U. ONG
Commissioner of Internal Revenue
As a clarification, this is the present and official stand of this Office unless sooner revoked or amended. All revenue officials and employees are enjoined to give this Circular as wide a publicity as possible.
(Sgd.) JOSE U. ONG
Commissioner of Internal Revenue
In view of the foregoing, the aforesaid brands of cigarettes, viz: Hope, More, and Champion being manufactured by Fortune Tobacco Corporation are hereby considered locally manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax on cigarettes.Thus the argument of the Solicitor General that RMC 37-93 is not discriminatory as "[i]t merely lays down the test in determining whether or not a locally manufactured cigarette bears a foreign brand using the cigarette brands Hope, More and Champion as specific examples," cannot be accepted, much less sustained. Without doubt, RMC 37-93 has a tremendous effect on respondent corporation - and solely on respondent corporation - as its deficiency ad valorem tax assessment on its removals of Hope Luxury, Premium More, and Champion cigarettes for six (6) hours alone, i.e., from six o'clock in the evening of 2 July 1993 which is presumably the time respondent corporation was supposed to have received the facsimile message sent by Deputy Commissioner Victor A. Deoferio, until twelve o'clock midnight upon the effectivity of the new law, was already P9,598,334.00. On the other hand, RMC 47-91- was issued with no purpose except to state and declare what has been the official stand of the administrative agency on the specific subject matter, and was indiscriminately directed to all copra traders with no particular individual in mind.
Any ruling inconsistent herewith is revoked or modified accordingly.
Section 245 of the National Internal Revenue Code, as amended, empowers the Commissioner of Internal Revenue to issue the questioned CircularThe subject of the questioned Circular is the reclassification of cigarettes subject to excise taxes. It was issued in connection with Section 142 (c) (1) of the National Internal Revenue Code, as amended, which imposes ad valorem excise taxes on locally manufactured cigarettes bearing a foreign brand. The same provision prescribes the ultimate criterion that determines which cigarettes are to be considered "locally manufactured cigarettes bearing a foreign brand." It provides:
Section 245 of the National Internal Revenue Code, as amended, provides:
"Sec. 245. Authority of Secretary of Finance to promulgate rules and regulations.- The Secretary of Finance, upon recommendation of the Commissioner, shall promulgate all needful rules and regulations for the effective enforcement of the provisions of this Code x x x without prejudice to the power of the Commissioner of Internal Revenue to make rulings or opinions in connection with the implententation of the provisions of internal revenue laws, including rulings on the classification of articles for sales tax and similar purposes."
"x x x Whenever it has to be determined whether or not a cigarette bears a foreign brand, the listing of brands manufactured in foreign countries appearing in the current World Tobacco Directory shall govern."There is only one World Tobacco Directory for a given current year, and the same is mandated by law to be the BIR Commissioner's controlling basis for determining whether or not a particular locally manufactured cigarette is one bearing a foreign brand. In so making a determination, petitioner should inquire into the entries in the World Tobacco Directory for the given current year and shall be held bound by such entries therein. She is not required to subject the results of her inquiries to feedback from the concerned cigarette manufacturers, and it is doubtlessly not desirable nor managerially sound to court dispute thereon when the law does not, in the first place, require debate or hearing thereon. Petitioner may make such a determination because she is the Chief Executive Officer of the administrative agency that is the Bureau of Internal Revenue in which are vested quasi-legislative powers entrusted to it by the legislature in recognition of its more encompassing and unequalled expertise in the field of taxation.
"The vesture, of quasi-legislative and quasi-judicial powers in administrative bodies is not unconstitutional, unreasonable and oppressive. It has been necessitated by 'the growing complexity of the modern society' (Solid Homes, Inc. vs. Payawal, 177 SCRA 72, 79). More and more administrative bodies are necessary to help in the regulation of society's ramified activities. 'Specialized in the particular field assigned to them, they can deal with the problems thereof with more expertise and dispatch than can be expected from the legislature or the courts of justice' x x x"[1]Statutorily empowered to issue rulings, or opinions embodying the proper determination in respect to classifying articles, including cigarettes, for purposes of tax assessment and collection, petitioner was acting well within her prerogatives when she issued the questioned Circular. And in the exercise of such prerogatives under the law, she has in her favor the presumption of regular performance of official duty which must be overcome by clearly persuasive evidence of stark error and grave abuse of discretion in order to be overturned and disregarded.
"x x x based on the manufacturer's registered wholesale price:Prior to the issuance of the questioned Circular, assessed against and paid by private respondent as ad valorem excise taxes on their removals of "Hope," 'More," and "Champion" cigarettes were amounts based on paragraph (2) above, i.e., the tax rate made applicable on the said cigarettes was 45% at the most. The reason for this is that apparently, petitioner's predecessors have all made determinations to the effect that the said cigarettes were to be considered "other locally manufactured cigarettes" and not "locally manufactured cigarettes bearing a foreign brand." Even petitioner, until her issuance of the questioned Circular, adhered to her predecessors' determination as to the proper classification of the above-mentioned cigarettes for purposes of ad valorem excise taxes. Apparently, the past determination that the said cigarettes were to be classified as "other locally manufactured cigarettes" was based on private respondent's convenient move of changing the names of "Hope" to "Hope Luxury" and "More" to "Premium More." It also submitted proof that "Champion" was an original Fortune Tobacco Corporation register and, therefore, a local brand. Having registered these brands with the Philippine Patent Office and with corresponding evidence to that effect, private respondent paid ad valorem excise taxes computed at the rate of not more than 45% which is the rate applicable to cigarettes considered as locally manufactured brands.
(1) On locally manufactured cigarettes bearing a foreign brand, fifty-five percent (55%) Provided, That this rate shall apply regardless of whether or not the right to use or title to the foreign brand was sold or transferred by its owner to the local manufacturer. Whenever it has to be determined whether or not a cigarette bears a foreign brand, the listing of brands manufactured in foreign countries appearing in the current World Tobacco Directory shall govern.
(2) Other locally manufactured cigarettes, forty five percent (45%). x x x"
"x x x the registration of said brands in the name of private respondent is proof only that it is the exclusive owner thereof in the Philippines, it does not necessarily, follow, however, that, it is the exclusive owner thereof in the whole world. Assuming arguendo that private respondent is the exclusive owner of said brands in the Philippines, it does not mean that they are local. Otherwise, they would not have been listed in the WTD as international brands manufactured by different entities in different countries. Moreover, it cannot be said that the brands registered in the names of private respondent are not the same brands listed in the WTD because private respondent is one of the manufacturers of said brands listed in the WTD."[3]Private respondent attempts to cast doubt on the determination made by petitioner in the questioned Circular that Japan is a manufacturer of "Hope" cigarettes. Private respondent's own inquiry into the World Tobacco Directory reveals that Japan is not a manufacturer of "Hope" cigarettes. In pointing this out, private respondent concludes that the entire Circular is erroneous and makes such error the principal proof of its claim that the nature of the determination embodied in the questioned Circular requires a hearing on the facts and a debate on the applicable law. Such a determination is adjudicatory in nature and, therefore, requires notice and hearing. Private respondent is, however, apparently only eager to show error on the part of petitioner for acting with grave abuse of discretion. Private respondent conveniently forgets that petitioner, equipped with the expertise in taxation, recognized in that expertise by the legislature that vested in her the power to make rules respecting classification of articles for taxation purposes, and presumed to have regularly exercised her prerogatives within the scope of her statutory power to issue determinations specifically under Section 142 (c) (1) in relation to Section 245 of the National Internal Revenue Code, as amended, simply followed the law as she understood it. Her task was to determine which cigarette brands were foreign, and she was directed by the law to look into the World Tobacco Directory. Foreign cigarette brands were legislated to be taxed at higher rates because of their more extensive public exposure and international reputation; their competitive edge against local brands may easily be checked by imposition of higher tax rates. Private respondent makes a mountain of the mole hill circumstance that "Hope" is listed, not as being "manufactured" by Japan but as being "used" by Japan. Whether manufactured or used by Japan, however, "Hope" remains a cigarette brand that can not be said to be limited to local manufacture in the Philippines. The undeniable fact is that it is a foreign brand the sales in the Philippines of which are greatly boosted by its international exposure and reputation. The petitioner was well within her prerogatives, in the exercise of her rule-making power, to classify articles for taxation purposes, to interpret the laws which she is mandated to administer. In interpreting the same, petitioner must, in general, be guided by the principles underlying taxation, i.e., taxes are the lifeblood of Government, and revenue laws ought to be interpreted in favor of the Government, for Government can not survive without the funds to underwrite its varied operational expenses in pursuit of the welfare of the society which it serves and protects.
"There can be no doubt that there is a distinction between an administrative rule or regulation and an administrative interpretation of a law whose enforcement is entrusted to an administrative body. When an administrative agency promulgates rules and regulations, it 'makes' a new law with the force and effect of a valid law, while when it renders an opinion or gives a statement of policy, it merely interprets a pre-existing law (Parker, Administrative Law, p. 197; Davis, Administrative Law, p. 194). Rules and regulations when promulgated in pursuance of the procedure or authority conferred upon the administrative agency by law, partake of the nature of a statute, and compliance therewith may be enforced by a penal sanction provided in the law. This is so because statutes are usually couched in general terms, after expressing the policy, purposes, objectives, remedies and sanctions intended by the legislature. The details and the manner of carrying out the law are often times left to the administrative agency entrusted with its enforcement. In this sense, it has been said that rules and regulations are the product of a delegated power to create new or additional legal provisions that have the effect of law. (Davis, op. cit. p. 194.)"Whether a given statutory delegation authorizes legislative or interpretative regulations depends upon whether, the statute places specific 'sanctions' behind the regulations authorized, as for example, by making it a criminal offense to disobey them, or by making conformity with their provisions a condition of the exercise of legal privileges."[11] This is because interpretative regulations are by nature simply statutory interpretations, which have behind them into statutory sanction. Such regulations, whether so expressly authorized by statute or issued only as an incident of statutory administration, merely embody administrative findings of law which are always subject to judicial determination as to whether they are erroneous or not, even when their issuance is authorized by statute.
A rule is binding on the courts as long as the procedure fixed for its promulgation is followed and its scope is within the statutory authority granted by the legislature, even if the courts are not in agreement with the policy stated therein or its innate wisdom (Davis, op. cit. pp. 195-197). On the other hand, administrative interpretation of the law is at best merely advisory, for it is the courts that finally determine what the law means."[10]
"x x x RMC 37-93 is not discriminatory. It lays down the test in determining whether or not a locally manufactured cigarette bears a foreign brand using the cigarette brands 'Hope,' 'More' and 'Champion' as specific examples. Such test applies to all locally manufactured cigarette brands similarly situated as the cigarette brands aforementioned. While it is true that only 'Hope,' 'More' and 'Champion' cigarettes are actually determined as locally manufactured cigarettes bearing a foreign brand, RMC 37-93 does not state that ONLY cigarettes fall under such classification to the exclusion of other cigarettes similarly situated. Otherwise stated, RMC 37-93 does not exclude the coverage of other cigarettes similarly situated. Otherwise stated, RMC 37-93 does not exclude the coverage of other cigarettes similarly situated as locally manufactured cigarettes bearing a foreign brand. Hence, in itself, RMC 37-93 is not discriminatory."[16]Both the respondent Court of Appeals and the Court of Tax Appeals held that the questioned Circular reclassifying "Hope," "More" and "Champion" cigarettes, is defective, invalid and unenforceable and has rendered the assessment against private respondent of deficiency ad valorem excise taxes to be without legal basis. The majority agrees with private respondent and respondent Courts. As the foregoing opinion chronicles the fatal flaws in private respondent's arguments, it becomes more apparent that the questioned Circular is in fact a valid and subsisting interpretative ruling that the petitioner had power to promulgate and enforce.