COMMISSIONER OF INTERNAL REVENUE vs. HON. COURT OF APPEALS, HON.

COURT OF TAX APPEALS and FORTUNE TOBACCO CORPORATION G.R. No. 119761 August 29, 1996 VITUG, J.: FACTS : Fortune Tobacco Corporation, engaged in the manufacture of different cigarette brands was issued separate certificates of trademark registration on various dates for their products CHAMPION, HOPE and MORE. In a letter by then CIR Commissioner Bienvenido Tan Jr. To Deputy Minister Ramon Diaz of the PCGG, the commission classified these cigarettes as foreign brands having been listed in the World Tobacco Directory as belonging to foreign companies. Fortune Tobacco removed said brands from the foreign brands category by changing the names to HOPE Luxury and Premium MORE . Proof was submitted that CHAMPION was their original product and therefore a local brand. Ad valorem taxes were imposed on Hope Luxury More Premium and Champion International at 40% to 45% and Champion Kings and Lights at 15% to 20%. A bill which later became RA 7564 became effective on July 3, 1993 and it amended Sec 142(c)(1) of the National Internal Revenue Code. Two days before RA 7654 became effective RMC 37-93 was issued by the BIR stipulating that since HOPE, MORE and CHAMPION cant be traced to a single manufacturer of a single country, they are considered locally manufactured cigarettes bearing a foreign brand subject to 55% Ad Valorem tax on cigarettes. On July 2, 1993, BIR Deputy Commissioner Victor Deoferio Jr. sent a copy of RMC 3793 via telefax to Fortune Tobacco addressed to no particular person. A copy of the same was received by the company by ordinary mail on July 15, 1993 which prompted them to write a letter to the appellate division of BIR requesting for review, reconsideration and recall of said memo. The request was denied and an ad valorem tax deficiency was assessed at P 9,598,334. Fortune Tobacco filed a petition for review with the CTA which ruled that when RA 7654 took effect, the brands were not classified and taxed at 55%. As such , they shall be classified as locally manufactured cigarettes taxed at 45 or 20% as the case may be. The ad valorem tax assessment was cancelled for lack of legal basis. With the CTA dismissing a motion for reconsideration, the CIR filed a petition for review with CA which affirmed in all respect the assailed decision and resolution.

There was no Notice and hearing and CIR argued that the memo was a mere interpretation of the ruling of BIR and as such, notice and hearing is not required. ISSUE: WON RMC 37-93 is a mere interpretative ruling which can stand as valid and enforceable without publication. RULING: No. Like any government agency, the CIR may not disregard legal requirements and applicable principles in the exercise of its quasi legislative powers. Lack of notice and hearing was a violation of the required due process and an infringement of the uniformity of taxation and equal protection considering further that it excluded other cigarette bearing foreign brands. Interpretative rules provide guidelines which the administrative agency in charge must enforce. When merely interpretative, it has no other consequences other than what the law itself has already prescribed. The memo was not a mere interpretative rule. Instead, it was a legislative rule in the nature of subordinate legislation designed to implement a primary legislation by providing details thereof. Being a promulgated legislative rule, it must be published. BIR in its move to reclassify the three cigarette brands and in raising their ad valorem taxes legislated under a quasi legislative authority, it did not simply interpret RA 7654. Without RMC 37-93, the enactment of RA 7654 would have no new tax rate consequence on the products of the private respondent.