G.R. No. 150947 - Commissioner of Internal Revenue vs. Michel J. Lhuillier Pawnshop Inc.

On March 11, 1991, Commissioner of Internal Revenue (CIR) issued Revenue Memorandum Order (RMO) No. 15-91, classifying pawnshops as “lending investors” and subjecting their gross income to a 5% percentage tax under Section 116 of the National Internal Revenue Code (NIRC) of 1977, as amended by Executive Order No. 273.
On May 27, 1991, RMO No. 15-91 was clarified and reinforced by Revenue Memorandum Circular (RMC) No. 43-91, setting January 1, 1991 as the uniform cut-off date for pawnshops’ liability and extending documentary stamp tax coverage.
Pursuant to these issuances, on September 11, 1997, the Bureau of Internal Revenue issued Assessment Notice No. 81-PT-13-94-97-9-118 against Michel J. Lhuillier Pawnshop, Inc. (Lhuillier), demanding payment of P3,360,335.11 as deficiency 5% percentage tax for 1994, inclusive of interest and surcharges.

On October 3, 1997, Lhuillier filed an administrative protest contending, among others, that:

Neither the Tax Code nor VAT law expressly imposes percentage tax on pawnshops;
Pawnshops differ from lending investors and enjoy a fixed annual tax of P1,000 under P.D. No. 114;
RMO No. 15-91 and RMC No. 43-91 amount to taxation by implication and class legislation, requiring congressional enactment;
The issuances lacked publication as required by law.

The protest remained unacted upon for over 180 days. On November 11, 1998, Lhuillier appealed to the Court of Tax Appeals (CTA) under Section 228 of Republic Act No. 8424.
The CTA denied the CIR’s motion to dismiss and, after hearing, on December 13, 2000, declared RMO No. 15-91 and RMC No. 43-91 null and void as regards pawnshops, and cancelled the assessment.
The CIR elevated the case to the Court of Appeals (CA), which on November 20, 2001, affirmed the CTA decision in CA-G.R. SP No. 62463.
CIR filed a petition for certiorari with the Supreme Court, challenging the CA’s ruling that pawnshops are not “lending investors” and that the administrative issuances are invalid.

Whether pawnshops are included in the term “lending investors” for purposes of imposing the 5% percentage tax under Section 116 of the NIRC of 1977, as amended.

Whether RMO No. 15-91 and RMC No. 43-91 are valid administrative issuances implementing Section 116 of the NIRC of 1977.
Whether publication, notice or hearing was necessary for these issuances to have the force of law.
Whether the repeal of Section 116 by R.A. No. 7716 affects the validity or applicability of the contested issuances.