Case Digest (G.R. No. L-9274)
Facts:
In Commissioner of Internal Revenue vs. Court of Appeals, Court of Tax Appeals and Fortune Tobacco Corporation (G.R. No. 119761, August 29, 1996), Fortune Tobacco Corporation, a domestic cigarette manufacturer, held registrations for the “Champion,” “Hope,” and “More” brands. Initially these brands were taxed as local products under various presidential decrees and statutes at ad valorem rates of 40–45% or 15–20%, depending on pack price. On July 1, 1993, two days before Republic Act No. 7654 became effective (amending Section 142(c)(1) of the National Internal Revenue Code under the 1987 Constitution), the Commissioner of Internal Revenue issued Revenue Memorandum Circular No. 37-93 (RMC 37-93), reclassifying “Hope,” “More,” and “Champion” as locally manufactured cigarettes bearing a foreign brand subject to a 55% ad valorem tax. Fortune Tobacco received a copy by mail on July 15, 1993, and sought reconsideration, which was denied on July 29. A deficiency assessment of ₱9,598,3Case Digest (G.R. No. L-9274)
Facts:
- Background of Fortune Tobacco Corporation
- Fortune Tobacco Corporation (“Fortune Tobacco”) manufactures various cigarette brands and holds trademark registrations for “Champion,” “Hope,” and “More.”
- A January 6, 1987 letter from then-CIR Bienvenido Tan initially classified these brands as foreign because the World Tobacco Directory listed them under foreign manufacturers. Fortune Tobacco thereupon:
- Renamed “Hope” to “Hope Luxury” and “More” to “Premium More,” arguing removal from the foreign category.
- Submitted proof that “Champion” was originally registered by Fortune Tobacco, thus a local brand.
- Tax Rates under Existing Law
- Under E.O. 22 (June 23, 1986), E.O. 273 (July 25, 1987) and RA 6956 (June 18, 1990), ad valorem excise tax rates on Fortune Tobacco brands ranged from 15%–45%, depending on brand classification and pack size.
- Republic Act No. 7654 (enacted June 10, 1993; effective July 3, 1993) amended NIRC Section 142(c):
- 55% ad valorem (min. ₱5/pack) on locally manufactured cigarettes currently classified and taxed at 55% or non-exportable by contract.
- 45% ad valorem (min. ₱3/pack) on other locally manufactured cigarettes.
- 20% rate if manufacturer’s wholesale price ≤ ₱4.80/pack.
- Issuance of Revenue Memorandum Circular No. 37-93
- On July 1, 1993, two days before RA 7654’s effectivity, the BIR issued RMC 37-93. It interpreted Section 142(c)(1) to require use of the World Tobacco Directory to classify cigarettes bearing foreign brands, then announced that Fortune Tobacco’s “Hope,” “More,” and “Champion” were henceforth subject to the 55% rate.
- Fortune Tobacco received a fax copy on July 2, 1993 (unaddressed), and a certified Xerox copy by mail on July 15, 1993.
- Fortune Tobacco’s request for reconsideration was denied July 29, 1993, and on July 30, 1993 the CIR assessed a deficiency of ₱9,598,334.
- Fortune Tobacco filed a petition for review with the CTA on August 3, 1993.
- Proceedings Below
- On August 10, 1994, the CTA held RMC 37-93 “defective, invalid and unenforceable” for lack of legal basis, canceled the ₱9.6 M assessment, and enjoined its collection. The CTA denied reconsideration on October 11, 1994.
- The CIR filed a petition with the Court of Appeals, which on March 31, 1995 affirmed the CTA decision in toto.
- The Solicitor General argued before the Supreme Court that RMC 37-93 was merely an interpretative rule requiring no notice, hearing or publication, and that it was not discriminatory.
Issues:
- Is RMC 37-93 a purely interpretative rule or a quasi-legislative rule requiring notice, hearing and publication?
- Did the BIR Commissioner validly issue RMC 37-93 without notice to, hearing of, or publication for Fortune Tobacco?
- Does RMC 37-93 violate the constitutional requirement of uniformity and equity in taxation?
Ruling:
- (Subscriber-Only)
Ratio:
- (Subscriber-Only)
Doctrine:
- (Subscriber-Only)