Commissioner vs.

CA, CTA and Fortune

GR No. 119761
August 29, 1996

Facts:
RA 7654 was enacted which amended the Sec 142(c)(1) of the National
Internal Revenue Code regarding taxes on cigars and cigarettes.
2 days before the effectivity of RA 7654, BIR issued Revenue Memorandum
Circular No. 37-93 (RMC 37-93) which provided that 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.
Fortune Tobacco requested for a review, reconsideration and recall of RMC 37-
93 with the appellate division of the BIR but was denied.
CIR assessed Fortune Tobacco for ad valorem tax deficiency amounting to
P9,598,334.00.
Fortune Tobacco filed a petition for review with the CTA. CTA ruled in favor of
Fortune Tobacco and stated that HOPE, MORE and CHAMPION were not
classified and taxed at 55% when RA 7654 took effect and was therefore still
classified as other locally manufactured cigarettes and taxed at 45% or 20%
as the case may be.
CA affirmed the decision of the CTA.

Issues:
1. What are the 2 kinds of administrative issuances?
2. Was there compliance with due process requirements?

Held
1. The 2 kinds of administrative issuances are legislative rule and interpretative
rule:
Legislative rule Interpretative rule
Is in the nature of subordinate Designed to provide guidelines to the
legislation, designed to implement a law which the administrative agency is
primary legislation by providing the in charge of enforcing. (Misamis
details thereof. In the same way that Oriental vs. Department of Finance)
laws must have the benefit of public
hearing, it is generally required that
before a legislative rule is adopted
there must be hearing. (Misamis
Oriental vs. Department of Finance)
Must be published. (supra) Need not be published.
It goes beyond merely providing for the Its applicability needs nothing further
means that can facilitate or render least than its bare issuance for it gives no
cumbersome the implementation of the real consequence more than what the
law. It substantially adds to or increases law itself has already prescribed.
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.

2. Since RMC 37-93 did not merely interpret the law because it placed HOPE,
MORE and CHAMPION within the coverage of the amendatory law, BIR
legislated under its quasi-legislative authority. Thus, the observance of the
requirements of notice, of hearing, and of publication should have been
followed. RMC 10-86 provides for the rules to be followed in order to abide
with the due process requirements. In this case, there was no notice, hearing
and publication made in order for the administrative issuance to be effective.
Thus, RMC 37-93 was not valid and effective.