G.R. No. 139803 - Commissioner of Internal Revenue vs. La Suerte Cigar and Cigarette Factory Inc.

La Suerte Cigar and Cigarette Factory, Inc. (the respondent) is engaged in manufacturing cigarettes and utilizes imported stemmed‐leaf tobacco as raw material.
The petitioner, the Commissioner of Internal Revenue, imposed specific taxes on the respondent pursuant to Section 141 (now Section 144) of the Tax Code and relevant Revenue Regulations.

In 1995, the respondent purchased stemmed‐leaf tobacco from a foreign manufacturer on two separate occasions:

The applicable specific tax rate was P0.75 per kilogram, resulting in tax assessments of:

Respondent later filed a claim for a refund of the P118,350.00, covering the period from October 1994 to May 1995.
The Commissioner of Internal Revenue failed to act on this refund claim.
Consequently, the respondent filed the claim with the Court of Tax Appeals (CTA), where the case was docketed as CTA Case No. 5527.
The CTA issued a Decision on February 15, 1999, ordering the petitioner to refund the disputed amount.

In response to the CTA ruling, the petitioner elevated the dispute by filing a petition for review with the Court of Appeals, seeking a writ of preliminary injunction.
On August 23, 1999, the Court of Appeals denied the petition and affirmed the CTA’s Decision.
The central factual controversy involved the interpretation and application of Section 137 (now Section 140) of the Tax Code and its implementing Revenue Regulations Nos. V-39 and 17-67 regarding:

The sale of stemmed‐leaf tobacco as raw material.
The requirement that such sales occur directly between parties designated as L-7 (manufacturers of tobacco products).

Section 137 of the Tax Code exempts the sale of stemmed‐leaf tobacco (and other tobacco products) from specific tax when sold in bulk as raw material by one manufacturer directly to another, subject to prescribed conditions.
Revenue Regulations Nos. V-39 and 17-67 provide the conditions and definitions necessary to implement this exemption, notably:

The requirement that both the seller and the buyer be categorized as L-7 manufacturers (a specific classification for manufacturers of tobacco products).
The administrative conditions such as issuance of an official L-7 invoice, accurate recording in an L-7 register, and detailed debit entries.

Whether the respondent (La Suerte Cigar and Cigarette Factory, Inc.) is entitled to a refund of P118,350.00 erroneously paid as specific tax on imported stemmed‐leaf tobacco.

The interpretation of Section 137 (now Section 140) of the Tax Code, specifically whether its exemption for stemmed‐leaf tobacco applies without qualification to all manufacturers or only under certain conditions.
Whether the conditions imposed by Revenue Regulation No. V-39 (Section 20) limiting the exemption to transactions between L-7 manufacturers should govern the application of the tax exemption.
If restricting the scope of the statutory exemption to only L-7 manufacturers constitutes an exercise in unauthorized legislative power by the administrative agency.
The proper categorization of the respondent under the regulatory scheme—particularly whether being a manufacturer of cigarettes qualifies as an L-7 manufacturer for the purposes of availing the tax exemption.