Case Summary (G.R. No. 32836-37)
Petitioner
Commissioner of Internal Revenue, representing the Bureau of Internal Revenue (BIR), asserting broad quasi-legislative authority to issue rulings and classifications necessary for enforcing the NIRC.
Respondents
Court of Appeals – affirmed the CTA decision invalidating RMC 37-93Court of Tax Appeals – originally ruled RMC 37-93 defective, invalid, and unenforceableFortune Tobacco Corporation – manufacturer of the affected cigarette brands
Key Dates
• January 6, 1987 – Initial position by Commissioner Tan classifying brands as foreign or local
• June 10, 1993 – Enactment of Republic Act No. 7654 amending Section 142(c) of NIRC
• July 1, 1993 – Issuance of RMC 37-93 reclassifying respondent’s cigarette brands
• July 3, 1993 – Effectivity of RA 7654 imposing new ad valorem rates
• August 10, 1994 – CTA decision cancelling P9,598,334 deficiency assessment
• March 31, 1995 – Court of Appeals decision affirming CTA
• August 29, 1996 – Supreme Court decision affirming lower courts
Applicable Law
• 1987 Philippine Constitution – due process (Art. III, Sec. 1), uniformity of taxation (Art. VI, Sec. 28, par. 1)
• National Internal Revenue Code, Section 142(c) – ad valorem tax rates for machine-packed cigarettes
• NIRC, Section 245 – authority of CIR to make rulings and classifications for tax enforcement
• RA 7654 – amended Section 142(c)(1), raising rates to 55% for locally manufactured cigarettes bearing foreign brands
Factual Background
Fortune Tobacco held registered trademarks for “Champion,” “Hope,” and “More” cigarettes. Past BIR rulings classified “Simplified” brands (renamed by Fortune as “Hope Luxury” and “Premium More”) and “Champion” as local brands, subject to 45% or 20% ad valorem rates. RA 7654 raised the rate on locally manufactured cigarettes bearing foreign brands to 55%. Two days before RA 7654’s effectivity, the BIR issued RMC 37-93 reclassifying Fortune’s brands as foreign, retroactively applying the 55% rate to removals from July 1 to 3, 1993.
Revenue Memorandum Circular No. 37-93
RMC 37-93:
• Interpreted Section 142(c)(1) NIRC as taxing all locally manufactured cigarettes bearing a foreign brand at 55%, regardless of brand-use rights
• Relied on the World Tobacco Directory to identify foreign brands when ownership was not definitively determinable
• Found “Hope,” “More,” and “Champion” listed under various foreign manufacturers in the Directory
• Declared those brands as foreign and subject to 55% ad valorem tax, revoking inconsistent prior rulings
Procedural History
Fortune Tobacco received RMC 37-93 and requested its recall (denied)BIR assessed P9,598,334 deficiency for July 2 – 3, 1993 removalsFortune filed petition with CTA; CTA cancelled the assessment, holding RMC 37-93 defective and unenforceableCourt of Appeals affirmed CTA decisionCIR appealed to the Supreme Court
Issue
Whether RMC 37-93 is a valid interpretative ruling requiring no prior notice, hearing, or publication, or whether it is a quasi-legislative/adjudicatory issuance that violated due process and uniformity of taxation.
Court’s Analysis
Legislative vs. Interpretative Rules
– Legislative (subordinate) rules supplement statutes, require notice, hearing, and publication under the Administrative Code, and carry the force and effect of law.
– Interpretative rules merely construe existing statutes, require no notice or publication, and do not create new legal obligations.
Nature of RMC 37-93
– Although styled as interpretative, RMC 37-93 went beyond mere clarification by retroactively reclassifying specific brands, effectively raising Fortune’s tax burden.
– The BIR made factual findings (citing Directory entries), applied the law to those facts, and issued a dispositive order targeting Fortune Tobacco’s brands.
– Such action amounted to quasi-legislative or adjudicatory rule-making, not a simple interpretation.
Due Process Requirements
– Quasi-legislative/adjudicatory issuances materially increasing burdens on private parties demand prior notice, hearing, and publication to satisfy due process (Art. III, Sec. 1, 1987 Constitution).
– BIR’s own RMC 10-86 prescribes procedures for internal revenue issuances, including noti
Case Syllabus (G.R. No. 32836-37)
Procedural History
- Petition for review filed by the Commissioner of Internal Revenue (CIR) under G.R. No. 119761
- CIR challenged the Court of Appeals’ 31 March 1995 decision affirming the Court of Tax Appeals’ (CTA) 10 August 1994 decision and 11 October 1994 resolution in CTA Case No. 5015
- CTA Case No. 5015: Fortune Tobacco Corporation vs. Liwayway Vinzons-Chato (CIR)
- CIR appealed CTA’s en banc denial of reconsideration and CA’s affirmation to the Supreme Court
Facts of the Case
- Fortune Tobacco Corporation (FTC) manufactures various cigarette brands including “Champion,” “Hope” (later “Hope Luxury”), and “More” (later “Premium More”)
- Philippine Patent Office issued separate certificates for those trademarks
- Initial BIR position (6 Jan 1987) classified the three brands as foreign based on World Tobacco Directory listings
- FTC renamed “Hope” to “Hope Luxury” and “More” to “Premium More” and submitted proof that “Champion” was an original FTC brand—leading to local-brand classification and 40–45% ad valorem taxes under E.O. 22, E.O. 273, and R.A. 6956
- R.A. 7654 (enacted 10 June 1993; effect 3 July 1993) amended NIRC Sec. 142(c) to set new excise rates:
- 55% on locally manufactured cigarettes currently classified and taxed at 55% (min. ₱5.00/pack)
- 45% on other locally manufactured cigarettes (min. ₱3.00/pack)
- 20% on low-priced packs (≤ ₱4.80/pack)
Revenue Memorandum Circular No. 37-93
- Issued by CIR (Liwayway Vinzons-Chato) on 1 July 1993 (two days before R.A. 7654 took effect) via Revenue Memorandum Circular No. 37-93
- Purpose: reclassify “Hope,” “More,” and “Champion” cigarettes as locally manufactured bearing foreign brands subject to 55% ad valorem tax
- Interpretation: when brand ownership is not determinable, World Tobacco Directory listing governs
- World Tobacco Directory entries showed multiple foreign manufacturers for each brand, creating presumption of foreign brand
- Circular revoked any inconsistent rulings
Post-Circular Events
- FTC received certified copy of RMC 37-93 by ordinary mail on 15 July 1993
- FTC requested review and recall of RMC 37-93 on 19 July 1993; request denied 29 July 1993
- On 30 July 1993, CIR assessed FTC for ₱9,598,334.00 deficiency ad valorem tax
- FTC filed petition for re