CIR v. CA

2/14/2018 SUPREME COURT REPORTS ANNOTATED VOLUME 261
*
G.R. No. 119761. August 29, 1996.
COMMISSIONER OF INTERNAL REVENUE,

petitioner, vs. HON. COURT OF APPEALS,
HON. COURT OF TAX APPEALS and
FORTUNE TOBACCO CORPORATION,
respondents.
Taxation; The CIR may not disregard legal

requirements or applicable principles in the exercise
of its quasi-legislative powers.—Petitioner stresses
on the wide and ample authority of the BIR in the
issuance of rulings for the effective implementation
of the provisions of the National Internal Revenue
Code. Let it be made clear that such authority of the
Commissioner is not here doubted. Like any other
government agency, however, the CIR may not
disregard legal requirements or applicable principles
in the exercise of its quasi-legislative powers.
Same; RMC 37–93 cannot be viewed simply as a
corrective measure or merely as construing Section
142(c)(1) of the NIRC.—A reading of RMC 37–93,
particularly considering the circumstances under
which it has been issued, convinces us that the
circular cannot be viewed simply as a corrective
measure (revoking in the process the previous
holdings of past Commissioners) or merely as
construing Section 142(c)(1) of the NIRC, as
amended, but has, in fact and most importantly,
been made in order to place “Hope Luxury,”
“Premium More” and “Champion” within the
classification of locally manufactured cigarettes
http://www.central.com.ph/sfsreader/session/000001619378c82149ee1db9003600fb002c009e/t/?o=False 1/67
bearing foreign brands and to thereby have them

covered by RA 7654. Specifically, the new law would
have its amendatory provisions applied to locally
manufactured cigarettes which at the time of its
effectivity were not so classified as bearing foreign
brands. Prior to the issuance of the questioned
circular, “Hope Luxury,” “Premium More,” and
“Champion” cigarettes were in the category of locally
manufactured cigarettes not bearing foreign brand
subject to 45% ad valorem tax. Hence, without RMC
37–93, the enactment of RA 7654, would have had
no new tax rate consequence on private respondent’s
products.
_______________
* FIRST DIVISION.
237
VOL. 261, AUGUST 29, 1996 237
Commissioner of lnternal Revenue vs. Court of

Appeals
Same; RMC 37–93 might have infringed on

uniformity of taxation.—Not insignificantly, RMC
37–93 might have likewise infringed on uniformity
of taxation.
Same; Uniformity requires that all subjects or
objects of taxation, similarly situated, are to be
treated alike or put on equal footing both in
privileges and liabilities.—Article VI, Section 28,
paragraph 1, of the 1987 Constitution mandates
taxation to be uniform and equitable. Uniformity
requires that all subjects or objects of taxation,
similarly situated, are to be treated alike or put on
equal footing both in privileges and liabilities. Thus,

all taxable articles or kinds of property of the same
class must be taxed at the same rate and the tax
must operate with the same force and effect in every
place where the subject may be found.
Same; Court is convinced that the hastily
promulgated RMC 37–93 has fallen short of a valid
and effective administrative issuance.—All taken,
the Court is convinced that the hastily promulgated
RMC 37–93 has fallen short of a valid and effective
administrative issuance.
BELLOSILLO, J., Separate Opinion:
Taxation; In issuing RMC 37–93 petitioner

Commissioner of lnternal Revenue was exercising her
quasi-judicial or administrative adjudicatory power,
consequently prior notice and hearing are required.—
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.
238
238 SUPREME COURT REPORTS

ANNOTATED

Appeals
HERMOSISIMA, JR., J., Dissenting Opinion:
Taxation; Petitioner was acting well within her

prerogatives when she issued the questioned
Circular.—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.
Same; 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.—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.
Same; Private respondent will not be shielded by
any vested rights for there are no vested rights to
speak of respecting a wrong construction of the law
by administrative officials and such wrong

interpretation does not place the Government in
estoppel to correct or overrule the same.—Private
respondent claims that its business will be destroyed
by the imposition of additional ad valorem taxes as a
result of the effectivity of the questioned Circular. It
claims that under the vested rights theory, it cannot
now be made to pay higher taxes after having been
assessed for less in the past. Of course private
respondent will trumpet its losses, its interests, after
all, being its sole concern. What private respondent
fails to see is the loss of revenue by the Government
which, because of erroneous determinations made by
its past revenue commissioners, collected lesser
taxes than what it was entitled to in the first place.
It is every citizen’s duty to pay the correct amount of
taxes. Private respondent will not be shielded by any
vested rights, for there are no vested rights to
239
VOL. 261, AUGUST 29, 1996 239

Appeals
speak of respecting a wrong construction of the law

by administrative officials, and such wrong
interpretation does not place the Government in
estoppel to correct or overrule the same.
Same; It is now settled that only legislative
regulations and not interpretative rulings must have
the benefit of public hearing.—Private respondent
concedes that under general rules of administrative
law, “a ruling which is merely ‘interpretative’ in
character may not require prior notice to affected
parties before its issuance as well as a hearing” and
“for this reason, in most instances, interpretative

regulations are not given the force of law.” Indeed,
“interpretative regulations and those merely
internal in nature x x x need not be published.” And
it is now settled that only legislative regulations and
not interpretative rulings must have the benefit of
public hearing.
PETITION for review of a decision of the Court

of Appeals.
The facts are stated in the opinion of the Court.

Estelito P. Mendoza, Pio de Roda &
Associates Law Office and Sycip, Salazar,
Hernandez & Gatmaitan for private
respondent.
VITUG, J.:
"“The Commissioner of Internal Revenue

(“CIR") disputes the decision, dated 1 31 March
1995, of respondent Court of Appeals affirming
the 10th August 1994 decision and the 11th
October 2 1994 resolution of the Court of Tax
Appeals (“CTA") in C.T.A. Case No. 5015,
entitled “Fortune Tobacco Corporation vs.
Liwayway Vinzons-Chato in her capacity as
Commissioner of Internal Revenue.”
The facts, by and large, are not in dispute.
_______________
1 Through Associate Justices Justo P. Torres, Jr.

(ponente), Corona Ibay-Somera and Conrado M. Vasquez,
Jr. (members).
2 Penned by Presiding Judge Ernesto D. Acosta and
concurred in by Associate Judges Ramon O. De Veyra and
Manuel K. Gruba.
240

ANNOTATED
Appeals
Fortune Tobacco Corporation (“Fortune

Tobacco”) is engaged in the manufacture of
different brands of cigarettes.
On various dates, the Philippine Patent
Office issued to the corporation separate
certificates of trademark registration over
“Champion,” “Hope,” and “More” cigarettes. In
a letter, dated 06 January 1987, of then
Commissioner of Internal Revenue Bienvenido
A. Tan, Jr., to Deputy Minister Ramon Diaz of
the Presidential Commission on Good
Government, “the initial position of the
Commission was to classify ‘Champion,’ ‘Hope,’
and ‘More’ as foreign brands since they were
listed in the World Tobacco Directory as
belonging to foreign companies. However,
Fortune Tobacco changed the names of ‘Hope’
to ‘Hope Luxury’ and ‘More’ to ‘Premium More,’
thereby removing the said brands from the
foreign brand category. Proof was also
submitted to the Bureau (of Internal Revenue
[‘BIR']) that ‘Champion’ was an original
Fortune Tobacco Corporation3
register and
therefore a local brand." Ad4 Valorem taxes
were imposed on these brands, at the following
rates:
“BRAND AD VALOREM TAX RATE

E.O.22 E.O. 273 RA 6956
and
06–23–86 07–25– 06–18–
87 90
07–01–86 01–01– 07–05–
88 90
Hope Luxury M. 100’s
Sec. 142, (c), 40% 45%
(2)
Hope Luxury M. King
Sec. 142, (c), 40% 45%
(2)
More Premium M. 100’s
Sec. 142, (c), 40% 45%
(2)
More Premium International
Sec. 142, (c), 40% 45%
(2)
Champion Int’l. M. 100’s
Sec. 142, (c), 40% 45%
(2)
_______________
3 Underscoring supplied. Rollo, pp. 55–56.

4 Since the institution of Executive Order No. 22 on 23
June 1986.
241
VOL. 261, AUGUST 29, 1996 241

Appeals
Champion M. 100’s
Sec. 142, (c), (2) 40% 45%
Champion M. King
Sec. 142, (c), last par. 15% 20%
Champion Lights
5
5
Sec. 142, (c), last par. 15% 20%"
A bill, which
6
later became Republic Act (“RA")
No. 7654, 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:
“SEC. 142. Cigars and Cigarettes.—

“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.
“When the registered manufacturer’s wholesale
price or the actual manufacturer’s wholesale price
whichever is higher of existing
_______________
5 Rollo, p. 56.
6 An Act Revising The Excise Tax Base, Allocating a Portion Of
The Incremental Revenue Collected For The Emergency
Employment Program For Certain Workers Amending For The
Purpose Section 142 Of The National Internal Revenue Code, As
Amended, And For Other Purposes.
242
242 SUPREME COURT REPORTS ANNOTATED

Appeals
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)7 per pack, the rate shall be twenty percent
(20%)." (Italics supplied.)
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:
“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 RA. 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
_______________
7 Official Gazette, Vol. 89., No. 32, 09 August 1993, p. 4476.
243
VOL. 261, AUGUST 29, 1996 243

Appeals
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; (I) 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
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”
244

ANNOTATED
Appeals
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.
In a letter, dated 19 July 1993, addressed to
the appellate division of the BIR, Fortune
Tobacco requested for a review, reconsideration
and recall of RMC 37–93. The request was
denied on 29 July 1993. The following day, or
on 30 July 1993, the CIR assessed Fortune
Tobacco for ad valorem tax deficiency
amounting to P9,598,334.00.
On 03 August 1993, Fortune Tobacco
8
filed a
petition for review with the CTA.
On 10 August 1994, the CTA upheld the
position of Fortune Tobacco and adjudged:
“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.
“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
9
of RMC No. 37–93.
“SO ORDERED."
_______________
8 The petition was subsequently amended on 12 August

1993.
9 Rollo, pp. 115–116.
245
VOL. 261, AUGUST 29, 1996 245

Appeals
In its resolution, dated 11 October 1994, the

CTA dismissed for lack of merit the motion for
reconsideration.
The CIR forthwith filed a petition for review
with the Court of Appeals, questioning the
CTA’s 10th August 1994 decision and 11th
October 1994 resolution. On 31 March 1995,
the appellate court’s Special Thirteenth
Division affirmed in all respects the assailed

decision and resolution.
In the instant petition, the Solicitor General
argues: That—
“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 OF 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;
10
RMC 37–93 IS CORRECT."
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
_______________
10 Rollo, pp. 21–22.
246

ANNOTATED
Appeals
apply under similar circumstances to all locally

manufactured cigarettes.
The Court must sustain both the appellate
court and the tax court.
Petitioner stresses on the wide and ample
authority of the BIR in the issuance of rulings
for the effective implementation of the
provisions of the National Internal Revenue
Code. Let it be made clear that such authority
of the Commissioner is not here doubted. Like
any other government agency, however, the
CIR may not disregard legal requirements or
applicable principles in the exercise of its
quasi-legislative powers.
Let us first distinguish between two kinds of
administrative issuances—a legislative rule
and an interpretative rule.
In Misamis Oriental Association of Coco

Traders, 11Inc. vs. Department of Finance
Secretary, the Court expressed:
“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:
“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 12 the
administrative agency is in charge of enforcing."
_______________
11 238 SCRA 63.

12 Italics supplied. At p. 69.
247
VOL. 261, AUGUST 29, 1996 247


Appeals
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.
A reading of RMC 37–93, particularly
considering the circumstances under which it
has been issued, convinces us that the circular
cannot be viewed simply as a corrective
measure (revoking in the process the previous
holdings of past Commissioners) or merely as
construing Section 142(c)(1) of the NIRC, as
amended, but has, in fact and most
importantly, been made in order to place “Hope
Luxury,” “Premium More” and “Champion”
within the classification of locally
manufactured cigarettes bearing foreign
brands and to thereby have them covered by
RA 7654. Specifically, the new law would have
its amendatory provisions applied to locally
manufactured cigarettes which at the time of its
effectivity were not so classified as bearing
foreign brands. Prior to the issuance of the
questioned circular, “Hope Luxury,” “Premium
More,” and “Champion” cigarettes were in the
category of locally manufactured cigarettes not
bearing foreign brand subject to 45% ad

valorem tax. Hence, without RMC 37–93, the
enactment of RA 7654, would have had no new
tax rate consequence on private respondent’s
products. Evidently, in order to place “Hope
Luxury,” “Premium More,” and “Champion”
cigarettes within the scope of the amendatory
law and subject them to an increased tax rate,
the now disputed RMC 37–93 had to be issued.
In so doing, the BIR not simply interpreted the
law; verily, it legislated under its quasi-
legislative authority. The due observance of the
requirements of notice, of hearing, and of
publication should not have been then ignored.
248

ANNOTATED
Appeals
Indeed, the BIR itself, in its RMC 10–86, has

observed and provided:
“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:
“x x x x x x x x x
"(5) Strict compliance with the foregoing procedures is

13
enjoined."
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.
_______________
13 Rollo, pp. 65–66.
249
VOL. 261, AUGUST 29, 1996 249

Appeals
Not insignificantly, RMC 37–93 might have

likewise infringed on uniformity of taxation.
Article VI, Section 28, paragraph 1, of the
1987 Constitution mandates taxation to be
uniform and equitable. Uniformity requires
that all subjects or objects of taxation, similarly
situated, are to be treated alike or put on 14
equal
footing both in privileges and liabilities. Thus,
all taxable articles or kinds of property of the 15
same class must be taxed at the same rate
and the tax must operate with the same force
and effect in every place where the subject may
be found.
Apparently, RMC 37–93 would only apply to
“Hope Luxury,” “Premium More” and
“Champion” cigarettes and, unless petitioner
would be willing to concede to the submission
of private respondent that the circular should,
as in fact my esteemed colleague Mr. Justice
Bellosillo so expresses in his separate opinion,
be considered adjudicatory in nature and thus
violative
16
of due process following the Ang
Tibay doctrine, the measure suffers from lack
of uniformity of taxation. In its decision, the
CTA has keenly noted that other cigarettes
bearing foreign brands have not been similarly
included within the scope of the circular, such
as—
“1. Locally manufactured by ALHAMBRA

INDUSTRIES, INC.
(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.
_______________
14 See Juan Luna Subdivision vs. Sarmiento, 91 Phil.

371.
15 City of Baguio vs. De Leon, 25 SCRA 938.
16 Ang Tibay vs. Court of Industrial Relations, 69 Phil.
635.
250

ANNOTATED
Appeals
(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, Pakistan17
and Haggar, Sudan (Exhibit ‘U-4')."
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:
“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 you want to give a level playing
field to foreign manufacturers?
“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 that these
_______________
17 Rollo, pp. 97–98.
251
VOL. 261, AUGUST 29, 1996 251

Appeals
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 as 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).
“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 . .
. / wanted to come up with a more extensive coverage
and precisely why I asked that reve-nue
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)
“HON. DIAZ. But did you not consider that there
are similarly situated?
252

ANNOTATED
Appeals
“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
that would have also clarified RMC 37–93 but 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)
18
(Exhibit ‘FF-2-d,’ par. IX-4)."
All taken, the Court is convinced that the

hastily promulgated RMC 37–93 has fallen
short of a valid and effective administrative
issuance.
WHEREFORE, the decision of the Court of
Appeals, sustaining that of the Court of Tax
Appeals, is AFFIRMED. No costs.
SO ORDERED.
Kapunan, J., concur.

Padilla (Chairman), J., I join Mr.
Justice Hermosisima, Jr. in his dissenting
opinion.
Bellosillo, J., See separate opinion.
Hermosisima, Jr., J., I dissent. See
dissenting opinion.
SEPARATE OPINION
BELLOSILLO, J.:
RA 7654 was enacted by Congress on 10 June

1993, signed into law by the President on 14
June 1993, and took effect 3 July 1993. It
amended partly Sec. 142, par. (c), of the

National Internal Revenue Code (NIRC) to
read—
_______________
18 Rollo, pp. 98–100.
253
VOL. 261, AUGUST 29, 1996 253

Appeals
SEC. 142. Cigar and cigarettes.—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 percent (55%) provided that the
minimum tax shall not be less than Five
Pesos (P5.00) per pack (underscoring
supplied).
(2) On other locally manufactured cigarettes,
forty-five per cent (45%) provided that the
minimum tax shall not be less than Three
Pesos (P3.00) per pack.
Prior to the effectivity of RA 7654, cigarette

brands Hope Luxury, Premium More and
Champion were considered local brands
subjected to an ad valorem tax at the rate of

20–45%. However, on 1 July 1993 or two (2)
days before RA 7654 took effect, petitioner
Commissioner of Internal Revenue issued RMC
37–93 reclassifying “Hope, More and Champion
being manufactured by Fortune Tobacco
Corporation x x x x (as) locally manufactured
cigarettes bearing a foreign brand subject1
to
the 55% ad valorem tax on cigarettes." RMC
37–93 in effect subjected Hope Luxury,
Premium More and Champion “cigarettes to
the provisions of Sec. 142, par. (c), subpar. (1),
NIRC, as amended by RA 7654, imposing upon
these cigarette brands an ad valorem tax of
“fifty-five percent (55%) provided that the
minimum tax shall not be less than Five Pesos
(P5.00) per pack.”
On 2 July 1993, Friday, at about five-fifty in
the afternoon, or a few hours before the
effectivity of RA 7654, a copy of RMC 37–93
with a cover letter signed by Deputy
Commissioner Victor A. Deoferio of the Bureau
of Internal Revenue was sent by facsimile to
the factory of respondent corporation in
Parang, Marikina, Metro Manila. It appears
that the letter together with a copy of RMC 37–
93 did not immediately come
_______________
1 See penultimate paragraph of RMC 37–93.
254

ANNOTATED
Appeals
to the knowledge of private respondent as it

was addressed to no one in particular. It was
only when the reclassification of respondent
corporation’s cigarette brands was reported in
the column of Fil C. Sionil in Business Bulletin
on 4 July 1993 that the president of respondent
corporation learned of the matter, prompting
him to inquire into its veracity and to request
from petitioner a copy of RMC 37–93. On 15
July 1993 respondent corporation received by
ordinary mail a certified machine copy of RMC-
37–93.
Respondent corporation sought a review,
reconsideration and recall of RMC 37–93 but
was forthwith denied by the Appellate Division
of the Bureau of Internal Revenue. As a
consequence, on 30 July 1993 private
respondent was assessed an ad valorem tax
deficiency amounting to P9,598,334.00.
Respondent corporation went to the Court of
Tax Appeals (CTA) on a petition for review.
On 10 August 1994, after due hearing, the
CTA found the petition meritorious and ruled—
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
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 2interest, is hereby
cancelled for lack of legal basis."
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
______________
2 Decision penned by Presiding Judge Ernesto D. Acosta,

concurred in by Associate Judges Manuel K. Gruba and
Ramon O. De Veyra.
255
VOL. 261, AUGUST 29, 1996 255

Commissioner of lnternal Revenue us. Court of
Appeals
1995 respondent Court of Appeals 3

affirmed in
toto the decision of the CTA. Hence, the
instant petition for review.
Petitioner now submits through the Solicitor
General that RMC 37–93 reclassifying Hope
Luxury, Premium More and Champion as
locally manufactured cigarettes bearing foreign
brands is merely an interpretative ruling which
needs no prior notice and hearing as held in
Misamis Oriental Association of Coco Traders,
Inc. v. Department of Finance Secretary.4 It
maintains that neither is the assailed revenue
memorandum circular discriminatory as it
merely “lays down the test in determining
whether or not a locally manufactured cigarette
bears a foreign brand using (only) the cigarette
brands Hope,
5
More and Champion as specific
examples."
Respondent corporation on the other hand
contends that RMC 37–93 is not a mere
interpretative ruling but is adjudicatory in

nature where prior notice and hearing are
mandatory, and that Misamis Oriental
Association of Coco Traders, Inc. v. Department
of Finance Secretary on which the Solicitor
General relies heavily is not applicable.
Respondent Fortune Tobacco Corporation also
argues that RMC 37–93 discriminates against
its cigarette brands since those of its
competitors which are similarly situated have
not been reclassified.
The main issues before us are (a) whether
RMC 37–93 is “merely an interpretative rule
the issuance of which needs no prior notice and
hearing, or an adjudicatory ruling which calls
for the twin requirements of prior notice and
hearing, and, (b) whether RMC 37–93 is
discriminatory in nature.
A brief discourse on the powers and
functions of administrative bodies may be
instructive.
Administrative agencies possess quasi-
legislative or rule making powers and quasi-
judicial or administrative adjudica-
______________
3 Special Thirteenth Division; Decision penned by

Associate Justice Justo P. Torres as Chairman, concurred
in by Associate Justices Corona Ibay-Somera and Conrado
M. Vasquez, Jr. .
4 G.R. No. 108524, 10 November 1994; 238 SCRA 63.
5 Petition for Review, p. 28; Rollo, p. 38.
256

ANNOTATED

Appeals
tory powers. Quasi-legislative or rule making

power is the power to make rules and
regulations which results in delegated
legislation that is within the confines of the
granting statute and the doctrine of
nondelegability and separability of powers.
Interpretative rule, one of the three (3) types
of quasilegislative or rule making powers of an
administrative agency (the other two being
supplementary or detailed legislation, and
contingent legislation), is promulgated by the
administrative agency to interpret, clarify or
explain statutory regulations under which the
administrative body operates. The purpose or
objective of an interpretative rule is merely to
construe the statute being administered. It
purports to do no more than interpret the
statute. Simply, the rule tries to say what the
statute means. Generally, it refers to no single
person or party in particular but concerns all
those belonging to the same class which may be
covered by the said interpretative rule. It need
not be published and neither is a hearing
required since it is issued by the administrative
body as an incident of its power to enforce the
law and is intended merely to clarify statutory
provisions for proper observance by the people.
In Tañada v. Tuvera,6 this Court expressly said
that "[i]nterpretative regulations x x x x need
not be published.”
Quasi-judicial or administrative
adjudicatory power on the other hand is the
power of the administrative agency to
adjudicate the rights of persons before it. It is
the power to hear and determine questions of
fact to which the legislative policy is to apply
and to decide in accordance with the standards

laid down by the law itself in enforcing7
and
administering the same law. The
administrative body exercises its quasijudicial
power when it performs in a judicial manner an
act which is essentially of an executive or
administrative nature, where the power to act
in such manner is incidental to or reasonably
necessary for the performance of the executive
or ad-
_______________
6 No. L-63915, 29 December 1986, 146 SCRA 446.

7 Hormed v. Helvering, 312 U.S. 552; Reetz v. Michigan,
188 U.S. 505; Gudmindson v. Cardollo, 126 F 2d. 521.
257
VOL. 261, AUGUST 29, 1996 257

Appeals
8
ministrative duty entrusted to it. In carrying
out their quasijudicial functions the
administrative officers or bodies are required to
investigate facts or ascertain the existence of
facts, hold hearings, weigh evidence, and draw
conclusions from them as basis for their official
action and exercise of discretion in a judicial
nature. Since rights of specific persons are
affected it is elementary that in the proper
exercise of quasijudicial power due process
must be observed in the conduct of the
proceedings.
The importance of due process cannot be
underestimated. Too basic is the rule that no
person shall be deprived of life, liberty or
property without due process of law. Thus

when an administrative proceeding is quasi-
judicial in character, notice and fair open
hearing are essential to the validity of the
proceeding. The right to reasonable prior notice
and hearing embraces not only the right to
present evidence but also the opportunity to
know the claims of the opposing party and to
meet them. The right to submit arguments
implies that opportunity otherwise the right
may as well be considered impotent. And those
who are brought into contest with government
in a quasi-judicial proceeding aimed at the
control of their activities are entitled to be
fairly advised of what the government proposes
and to be heard upon its proposal before it is-
sues its final command.
There are cardinal primary rights which
must be respected in administrative
proceedings. The landmark case of Ang Tibay v.
The Court of Industrial Relations9 enumerated
these rights: (1) the right to a hearing, which
includes the right of the party interested or
affected to present his own case and submit
evidence in support thereof; (2) the tribunal
must consider the evidence presented; (3) the
decision must have something to support itself;
(4) the evidence must be substantial; (5) the
decision must be rendered on the evidence
presented at the hearing, or at least contained
in the record and disclosed to the parties
affected; (6) the tribunal or any of its
______________
8 Collins v. Selectmen of Brookline, 91 N.E. 2d, 747.

9 69 Phil. 635 (1940).
258

ANNOTATED
Appeals
judges must act on its or his own independent

consideration of the law and facts of the
controversy, and not simply accept the views of
a subordinate in arriving at a decision; and, (7)
the tribunal should in all controversial
questions render its decision in such manner
that the parties to the proceeding may know
the various issues involved and the reasons for
the decision rendered.
In determining whether RMC No. 37–93 is
merely an interpretative rule which requires no
prior notice and hearing, or an adjudicatory
rule which demands the observance of due
process, a close examination of RMC 37–93 is
in order. Noticeably, petitioner Commissioner
of Internal Revenue at first interprets Sec. 142,
par. (c), subpar. (1), of the NIRC, as amended,
by citing the law and clarifying or explaining
what it means—
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 x the
listing of brands manufactured in foreign countries
appearing in the current World Tobacco Directory
shall govern x x x”
Then petitioner makes a factual finding by

declaring that Hope (Luxury), (Premium) More
and Champion are manufactured by other
foreign manufacturers—
259
VOL. 261, AUGUST 29, 1996 259

Appeals
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; (1) 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
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.
Any ruling inconsistent herewith is revoked or
260

ANNOTATED
Appeals
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 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.
It is true that both RMC 47–91 in Misamis
Oriental Association of Coco Traders v.
Department of Finance Secretary, , and RMC
37–93 in the instant case reclassify certain
products for purposes of taxation. But the
similarity between the two revenue
memorandum circulars ends there. For in
properly determining whether a revenue
memorandum circular is merely an
interpretative rule or an adjudicatory rule, its
very tenor and text, and the circumstances

surrounding its issuance will have to be
considered.
We quote RMC 47–91 promulgated 11 June
1991—
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:
261
VOL. 261, AUGUST 29, 1996 261

Appeals
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 in spite 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
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 Reve-
262

ANNOTATED
Commissioner of lnternal Revenue us. Court of
Appeals
nue. 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.
Another difference is that in the instant
case, the issuance of the assailed revenue
memorandum circular operated to subject the
taxpayer to the new law which was yet to take
effect, while in Misamis, the disputed revenue
memorandum circular was issued simply to
restate and then clarify the prevailing position
and ruling of the administrative agency, and no
new law yet to take effect was involved. It
merely interpreted an existing law which had
already been in effect for some time and which
was not set to be amended. RMC 37–93 is thus
prejudicial to private respondent alone.
A third difference, and this likewise resolves
the issue of discrimination, is that RMC 37–93
was ostensibly issued to subject the cigarette
brands of respondent corporation to a new law
as it was promulgated two days before the
expiration of the old law and a few hours before
the effectivity of the new law. That RMC 37–93
is particularly aimed only at respondent
corporation and its three (3) cigarette brands
can be seen from the dispositive portion of the
assailed revenue memorandum circular—
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

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,
263
VOL. 261, AUGUST 29, 1996 263

Appeals
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.
That petitioner Commissioner of Internal
Revenue is an expert in her field is not
attempted to be disputed; hence, we do not

question the wisdom of her act in reclassifying
the cigarettes. Neither do we deny her the
exercise of her quasilegislative or quasi-judicial
powers. But most certainly, by constitutional
mandate, the Court must check the exercise of
these powers and ascertain whether petitioner
has gone beyond the legitimate bounds of her
authority.
In the final analysis, the issue before us is
not the expertise, the authority to promulgate
rules, or the wisdom of petitioner as
Commissioner of Internal Revenue in
reclassifying the cigarettes of private
respondents. It is simply the faithful
observance by government of the basic
constitutional right of a taxpayer to due process
of law and the equal protection of the laws.
This is what distresses me no end—the manner
and the circumstances under which the
cigarettes of private respondent were
reclassified and correspondingly taxed under
RMC 37–93, an adjudicatory rule which
therefore requires reasonable notice and
hearing before its issuance. It should not be
confused with RMC 47–91, which is a mere
interpretative rule.
In the earlier case of G.R. No. 119322, which
practically involved the same opposing
interests, I also voted to uphold the
264

ANNOTATED
Appeals
constitutional right of the taxpayer concerned

to due process and equal protection of the laws.
By a vote of 3–2, that view prevailed. In
sequela, we in the First Division who
constituted the majority found ourselves
unjustly drawn into the vortex of a nightmarish
episode. The strong ripples whipped up by my
opinion expressed therein—and of the majority
—have yet to vanish when we are again in the
imbroglio of a similar dilemma. The unpleasant
experience should be reason enough to simply
steer clear of this controversy and surf on a
pretended loss of judicial objectivity. Such
would have been an easy way out, a gracious
exit, so to speak, albeit lame. But to camouflage
my leave with a sham excuse would be to turn
away from a professional vow I keep at all
times; I would not be true to myself, and to the
people I am committed to serve. Thus, as I have
earlier expressed, if placed under similar
circumstances in some future time, I shall have
to brave again the prospect of another
vilification and a tarnished image if only to
show proudly to the whole world that under the
present dispensation judicial independence in
our country is a true component of our
democracy.
In fine, I am greatly perturbed by the
manner RMC No. 37–93 was issued as well as
the effect of such issuance. For it cannot be
denied that the circumstances clearly
demonstrate that it was hastily issued—
without prior notice and hearing, and singling
out private respondent alone—when two days
before a new tax law was to take effect
petitioner reclassified and taxed the cigarette
brands of private respondent at a higher rate.
Obviously, this was to make it appear that
even before the anticipated date of effectivity of
the statute—which was undeniably priorly

known to petitioner—these brands were
already currently classified and taxed a fifty-
five percent (55%), thus shoving them into the
purview of the law that was to take effect two
days after!
For sure, private respondent was not
properly informed before the issuance of the
questioned memorandum circular that its
cigarette brands Hope Luxury, Premium More
and Champion were being reclassified and
subjected to a higher tax rate. Naturally, the
result would be to lose financially because
265
VOL. 261, AUGUST 29, 1996 265

Appeals
private respondent was still selling its

cigarettes at a price based on the old, lower tax
rate. Had there been previous notice and
hearing, as claimed by private respondent, it
could have very well presented its side, either
by opposing the reclassification, or by
acquiescing thereto but increasing the price of
its cigarettes to adjust to the higher tax rate.
The reclassification and the ensuing imposition
of a tax rate increase therefore could not be
anything but confiscatory if we are also to
consider the claim of private respondent that
the new tax is even higher than the cost of its
cigarettes.
Accordingly, I vote to deny the petition.
DISSENTING OPINION
HERMOSISIMA, JR., J.:
Private respondent Fortune Tobacco

Corporation in the instant case disputes its
liability for deficiency ad valorem excise taxes
on its removals of “Hope,” “More,” and
“Champion” cigarettes from 6:00 p.m. to 12:00
midnight of July 2, 1993, in the total amount of
P9,598,334.00. It claims that the circular, upon
which the assessment was based and made, is
defective, invalid and unenforceable for having
been issued without no.-tice and hearing and in
violation of the equal protection clause
guaranteed by the Constitution.
The majority upholds these claims of private
respondent, convinced that the Circular in
question, in the first place, did not give prior
notice and hearing, and so, it could not have
been valid and effective. It proceeds to affirm
the factual findings of the Court of Tax
Appeals, which findings were considered
correct by respondent Court of Appeals, to the
effect that the petitioner Commissioner of
Internal Revenue had indeed blatantly failed to
comply with the said twin requirements of
notice and hearing, thereby rendering the
issuance of the questioned Circular to be in
violation of the due process clause of the
Constitution. It is also its dominant opinion
that the questioned Circular discriminates
against private respondent Fortune Tobacco
Corporation insofar as it
266

ANNOTATED
Appeals
seems to affect only is “Hope,” “More,” and

“Champion” cigarettes, to the exclusion of other
cigarettes apparently of the same kind or
classification as these cigarettes are
manufactured by private respondent.
With all due respect, I disagree with the
majority in its disquisition of the issues and its
resulting conclusions.
Section 245 of the National Internal Revenue

Code,
as amended, empowers the Commissioner of
Inter
nal Revenue to issue the questioned Circular
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
implementation of the provisions of internal revenue
laws, including rulings on the classification of
articles for sales tax and similar purposes.”
The 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:
“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 Com-
267
VOL. 261, AUGUST 29, 1996 267

Appeals
missioner’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 expected1
from the legislature or
the courts of justice’ x x x"
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.
______________
1 Phil. Association of Service Exporters, Inc. vs. Torres,

212 SCRA 304.
268

ANNOTATED

Appeals
It is irrelevant that the Court of Tax Appeals

makes much of the effect2
of the passing of
Republic Act No. 7654 on petitioner’s power to
classify cigarettes. Although the decisions
assailed and sought to be reviewed, as well as
the pleadings of private respondent, are replete
with alleged admissions of our legislators to the
effect that the said Act was intended to freeze
the current classification of cigarettes and
make the same an integral part of the said Act,
certainly the repeal, if any, of petitioner’s
power to classify cigarettes must be reckoned
from the effectivity of the said Act and not
before. Suffice it to say that indisputable is the
plain fact that the questioned Circular was
issued on July 1, 1993, while the said Act took
effect on July 3, 1993.
The contents of the questioned circular have not

been proven to be erroneous or illegal as to
render
issuance thereof an act of grave abuse of
discretion
on the part of petitioner Commissioner
Prior to the effectivity of R.A. No. 7654, Section
142(c)(1) of the National Internal Revenue
Code, as amended, levies the following ad
valorem taxes on cigarettes in accordance with
their predetermined classifications as
established by the Commissioner of Internal
Revenue:
“x x x based on the manufacturer’s registered

wholesale price:
(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
______________
2 Entitled, “An Act Revising the Excise Tax Base,

Allocating a Portion of the Incremental Revenue Collected
for the Emergency Employment Program for Certain
Workers Amending for the Purpose Section 142 of the
National Internal Revenue Code, as amended, and for
Other Purposes,” 89 O.G. 4475–4480, August 9, 1993.
269
VOL. 261, AUGUST 29, 1996 269

Appeals
countries appearing in the current World Tobacco

Directory shall govern.
(2) Other locally manufactured cigarettes, forty
five percent (45%).
x x x”
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 abovementioned 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.
How these past determinations pervaded
notwithstanding their erroneous basis is only
tempered by their innate quality of being
merely errors in interpretative rulings, the
formulation of which does not bind the
government. Advantage over such errors may
precipitously be withdrawn from those who
have been benefiting from them once the same
have been discovered and rectified.
270

ANNOTATED
Appeals
Petitioner correctly emphasizes that:
“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 3the
manufacturers of said brands listed in the WTD."
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
______________
3 Petition for Review dated May 9, 1995, p. 38, Rollo, p.

48.
271
VOL. 261, AUGUST 29, 1996 271

Appeals
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.
Private respondent claims that its business
will be destroyed by the imposition of
additional ad valorem taxes as a result of the
effectivity of the questioned Circular. It claims
that under the vested rights theory, it cannot
now be made to pay higher taxes after having
been assessed for less in the past. Of course
private respondent will trumpet its losses, its
interests, after all, being its sole concern. What
private respondent fails to see is the loss of
revenue by the Government which, because of
erroneous determinations made by its past
revenue commissioners, collected lesser taxes
than what it was entitled to in the first place. It
is every citizen’s duty to pay the correct
amount of taxes. Private respondent will not be
shielded by any vested rights, for there are no
vested rights to speak of respecting a wrong
construction of the law by ad-
272

ANNOTATED

Appeals
ministrative officials, and such wrong

interpretation does not place the Government4
in estoppel to correct or overrule the same.
The questioned Circular embodies an

interpretative
ruling of petitioner Commissioner which as
such
does not require notice and hearing
As one of the public offices of the Government,
the Bureau of Internal Revenue, through its
Commissioner, has grown to be a typical
administrative agency vested with a fusion of
different governmental powers: the power to
investigate, initiate action and control the
range of investigation, the power to promulgate
rules and regulations to better carry out
statutory policies, and the power to adjudicate
controversies
5
within the scope of their
activities. In the realm of administrative law,
we understand that such an empowerment of
administrative agencies was evolved in
response to the needs of a changing society.
This development arose as the need for broad
social control over complex conditions and
activities became more and more pressing, and
such complexity could no longer be dealt with
effectively and directly by the legislature or the
judiciary. The theory which underlies the
empowerment of administrative agencies like
the Bureau of Internal Revenue, is that the
issues with which such agencies deal ought to
be decided by experts, and not by a judge, at
least not in the first instance or
6
until the facts
have been sifted and arranged.
One of the powers of administrative agencies

like the Bureau of Internal Revenue, is the
power to make rules. The necessity for vesting
administrative agencies with this power stems
from the impracticability of the lawmakers
providing general regulations for various and
varying details
7
pertinent to a particular
legislation.
______________
4 Tan Guan vs. Court of Appeals, 19 SCRA 903;

Compania General de Tabacos de Filipinas vs. City of
Manila, 8 SCRA 367.
5 1 Am. Jur. 2d., p. 816.
6 73 C.J.S. pp. 295–296.
7 1 Am. Jur. 2d., p. 890.
273
VOL. 261, AUGUST 29, 1996 273

Appeals
The rules that administrative agencies may

promulgate may either be legislative or
interpretative. The former is a form of
subordinate legislation whereby the
administrative agency is acting in a legislative
capacity, supplementing the statute, filling in
the details, pursuant
8
to a specific delegation of
legislative power.
Interpretative rules, on the other hand, are
“those which purport to do no more than
interpret the statute
9
being administered, to say
what it means."
“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.)
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 the10
courts that
finally determine what the law means."
______________
8 1 Am. Jur. 2d., p. 892.

9 De Leon, Hector, Administrative Law, 1989 ed., p. 67.
10 Victorias Milling Co., Inc. vs. Social Security

Commission, 114 Phil. 558.
274

ANNOTATED
Appeals
“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 11
condition of the exercise of legal privileges."
This is because interpretative regulations are
by nature simply statutory interpretations,
which have behind them no 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.
The questioned Circular has undisputedly
been issued by petitioner in pursuance of her
rule-making powers under Section 245 of the
National Internal Revenue Code, as amended.
Exercising such powers, petitioner re-classified
“Hope,” “More” and “Champion” cigarettes as
brands. The re-classification, as previously
explained, is the correct interpretation of
Section 142(c)(1) of the said Code. The said
legal provision is not accompanied by any penal

sanction, and no detail had to be filled in by
petitioner. The basis for the classification of
cigarettes has been provided for by the
legislature, and all petitioner has to do, on
behalf of the government agency she heads, is
to proceed to make the proper determination
using the criterion stipulated by the lawmaking
body. In making the proper determination,
petitioner gave it a liberal construction
consistent with the rule that revenue laws are
to be construed in favor of the Government
whose survival depends on the contributions
that taxpayers give to the public coffers that
finance public services and other governmental
operations.
The Bureau of Internal Revenue which
petitioner heads, is the government agency
charged with the enforcement of the laws
pertinent to this case and so, the opinion of the
Commis-
______________
11 De Leon, supra, p. 69.
275
VOL. 261, AUGUST 29, 1996 275

Appeals
sioner of Internal Revenue, in the absence of a

clear showing that it is plainly wrong, is
entitled to great weight. Private respondent
claims that its rights under previous
interpretations of Section 142(c)(1) may not
abruptly be cut by a new interpretation of the
said section, but precisely the said section is

subject to various and changing construction,
and hence, any ruling issued by petitioner
thereon is necessarily interpretative and not
legislative. Private respondent insists that the
questioned circular is adjudicatory in nature
because it determined the rights of private
respondent in a controversy involving his tax
liability. It also asseverates that the questioned
circular involved administrative action that is
particular and immediate, thereby rendering it
subject to the requirements of notice and
hearing in compliance with the due process
clause of the Constitution.
We find private respondent’s arguments to
be rather strained.
Petitioner made a determination as to the
classification of cigarettes as mandated by the
aforecited provisions in the National Internal
Revenue Code, as amended. Such
determination was an interpretation by
petitioner of the said legal provisions. If in the
course of making that interpretation and
embodying the same in the questioned circular
which the petitioner subsequently issued after
making such a determination, private
respondent’s cigarette products, by their very
nature of being foreign brands as evidenced by
their enlistment in the World Tobacco
Directory, which is the controlling basis for the
proper classification of cigarettes as stipulated
by the law itself, have come to be classified as
brands and as such subject to a tax rate higher
than what was previously imposed thereupon
based on past rulings of other revenue
commissioners, such a situation is simply a
consequence of the performance by petitioner of
her duties under the law. No adjudication took
place, much less was there any controversy ripe

for adjudication. The natural consequences of
making a classification in accordance with law
may not be used by private respondent in
arguing that the questioned circular is in fact
adjudicatory
276

ANNOTATED
Appeals
in nature. Such an exercise in driving home a

point is illogical as it is fallacious and
misplaced.
Private respondent concedes that under
general rules of administrative law, “a ruling
which is merely ‘interpretative’ in character
may not require prior notice to affected parties
before its issuance as well as a hearing” and
“for this reason, in most instances,
interpretative regulations
12
are not given the
force of law." Indeed, “interpretative
regulations and those merely internal
13
in nature
x x x need not be published." And it is now
settled that only legislative regulations and not
interpretative rulings
14
must have the benefit of
public hearing.
Because (1) the questioned circular merely
embodied an interpretation or a way of reading
and giving meaning to Section 142(c)(1) of the
National Internal Revenue Code, as amended;
(2) petitioner did not fill in any details in the
aforecited section but only classified cigarettes
on the basis of the World Tobacco Directory in
the light of the paramount principle of
construing revenue laws in favor of the

Government to the end that Government
collects as much tax money as it is entitled to
in order to fulfill its public purposes for the
general good of its citizens; (3) no penal
sanction is provided in the aforecited section
that was construed by petitioner in the
questioned circular; and (4) a similar circular
declassifying copra from being an agricultural
food to non-food product for purposes of the
value added tax laws, resulting in the
revocation of an exemption previously enjoyed
by copra traders, has been ruled by us to be
merely an interpretative ruling and not a
legislative, much less, an adjudicatory, action
15
on the part of the revenue commissioner, this
Court must not be blind to the fact that the
questioned Circular is indeed an interpretative
ruling not subject to notice and hearing.
______________
12 Comment of Fortune Tobacco Corporation, p. 52;

Rollo, p. 199.
13 Tañada vs. Tuvera, 146 SCRA 454.
14 Misamis Oriental Association of Coco Traders, Inc. vs.
Department of Finance Secretary, 238 SCRA 63.
15 Ibid.
277
VOL. 261, AUGUST 29, 1996 277

Appeals
Neither is the questioned Circular tainted by a

vio
lation of the equal protection clause under the
Con
stitution
Private respondent anchors its claim of
violation of its equal protection rights upon the
too obvious fact that only its cigarette brands,
i.e., “Hope,” “More” and “Champion,” are
mentioned in the questioned circular. Because
only the cigarettes that they manufacture are
enumerated in the questioned circular, private
respondent proceeded to attack the same as
being discriminatory against it. On the surface,
private respondent seems to have a point there.
A scrutiny of the questioned Circular, however,
will show that it is undisputedly one of general
application for all cigarettes that are similarly
situated as private respondent’s brands. The
new interpretation of Section 142(1)(c) has
been well illustrated in its application upon
private respondent’s brands, which illustration
is properly a subject of the questioned Circular.
Significantly, indicated as the subject of the
questioned circular is the “reclassification of
cigarettes subject to excise taxes.” The
reclassification resulted in the foregrounding of
private respondent’s cigarette brands, which
incidentally is largely due to the controversy
spawned no less by private respondent’s own
action of conveniently changing its brand
names to avoid falling under a classification
that would subject it to higher ad valorem tax
rates. This caused then Commissioner
Bienvenido Tan to depart from his initial
determination that private respondent’s
cigarette brands are foreign brands. The
consequent specific mention of such brands in
the questioned Circular, does not change the
fact that the questioned Circular has always
been intended for and did cover, all cigarettes
similarly situated as “Hope,” “More” and

“Champion.” Petitioner is thus correct in
stating that:
“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 ‘Cham
278

ANNOTATED
Appeals
pion’ 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 as locally manufactured
cigarettes bearing a foreign brand. 16
Hence, in itself,
RMC 37–93 is not discriminatory."
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.
WHEREFORE, I vote to grant the petition
and set aside the decisions of the Court of Tax
Appeals and the Court of Appeals, respectively,
and to reinstate the decision of petitioner
Commissioner of Internal Revenue denying
private respondent’s request for a review,
reconsideration and recall of Revenue
Memorandum Circular No. 37–93 dated July 1,
1993.
Judgment affirmed.
Note.—Uniformity of taxation merely

requires that all the subjects or objects of
taxation, similarly situated are to be treated
alike both in privileges and liabilities. (Tan vs.
Del Rosario, Jr., 237 SCRA 324 [1994])
——o0o——
______________
16 Petition for Review dated May 9, 1995, pp. 28–29,

Rollo, pp. 38–39.
279
VOL. 261, AUGUST 30, 1996 279

People vs. Reyes
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2/14/2018 SUPREME COURT REPORTS ANNOTATED VOLUME 261

COMMISSIONER OF INTERNAL REVENUE,

Taxation; The CIR may not disregard legal

bearing foreign brands and to thereby have them

VOL. 261, AUGUST 29, 1996 237

Commissioner of lnternal Revenue vs. Court of

Same; RMC 37–93 might have infringed on

equal footing both in privileges and liabilities. Thus,

BELLOSILLO, J., Separate Opinion:

Taxation; In issuing RMC 37–93 petitioner

238 SUPREME COURT REPORTS

Commissioner of lnternal Revenue vs. Court of

HERMOSISIMA, JR., J., Dissenting Opinion:

Taxation; Petitioner was acting well within her

by administrative officials and such wrong

VOL. 261, AUGUST 29, 1996 239

Commissioner of lnternal Revenue vs. Court of

speak of respecting a wrong construction of the law

“for this reason, in most instances, interpretative

PETITION for review of a decision of the Court

The facts are stated in the opinion of the Court.

"“The Commissioner of Internal Revenue

1 Through Associate Justices Justo P. Torres, Jr.

240 SUPREME COURT REPORTS

Fortune Tobacco Corporation (“Fortune

“BRAND AD VALOREM TAX RATE

3 Underscoring supplied. Rollo, pp. 55–56.

VOL. 261, AUGUST 29, 1996 241

“SEC. 142. Cigars and Cigarettes.—

"(1) On locally manufactured cigarettes which

242 SUPREME COURT REPORTS ANNOTATED

brands of cigarettes, including the amounts intended

About a month after the enactment and two (2)

REVENUE MEMORANDUM CIRCULAR NO.

SUBJECT: Reclassification of Cigarettes Subject to

“In view of the issues raised on whether ‘HOPE/

‘On locally manufactured cigarettes bearing a foreign

“Under the foregoing, the test for imposition of

7 Official Gazette, Vol. 89., No. 32, 09 August 1993, p. 4476.

VOL. 261, AUGUST 29, 1996 243

bear a foreign brand regardless of whether or not the

determinable, ‘x x x the listing of brands

(SGD.) LIWAYWAY VINZONS-CHATO

244 SUPREME COURT REPORTS

On 02 July 1993, at about 17:50 hours, BIR

“WHEREFORE, Revenue Memorandum Circular

effect on July 3, 1993, the brands in question were

8 The petition was subsequently amended on 12 August

VOL. 261, AUGUST 29, 1996 245

In its resolution, dated 11 October 1994, the

Division affirmed in all respects the assailed

“I. RMC 37–93 IS A RULING OR

In fine, petitioner opines that RMC 37–93 is

10 Rollo, pp. 21–22.

246 SUPREME COURT REPORTS

apply under similar circumstances to all locally

In Misamis Oriental Association of Coco

“x x x a legislative rule is in the nature of

"(2) In the fixing of rates, no rule or final order

“In addition such rule must be published. On the