The Supreme Court ruled that RMC 37-93 issued by the BIR was a legislative rule rather than an interpretative ruling. As a legislative rule, it should have undergone the notice and hearing process required by law before it was issued. RMC 37-93 went beyond merely interpreting the law and substantially increased the tax burden on certain cigarette brands. By classifying those brands as foreign, it subjected them to a higher tax rate under the newly passed law. Without RMC 37-93, those brands would have remained under the lower tax rate for domestic cigarettes. The Court found RMC 37-93 infringed on uniformity of taxation and did not follow the proper rule-making process for legislative rules.
The Supreme Court ruled that RMC 37-93 issued by the BIR was a legislative rule rather than an interpretative ruling. As a legislative rule, it should have undergone the notice and hearing process required by law before it was issued. RMC 37-93 went beyond merely interpreting the law and substantially increased the tax burden on certain cigarette brands. By classifying those brands as foreign, it subjected them to a higher tax rate under the newly passed law. Without RMC 37-93, those brands would have remained under the lower tax rate for domestic cigarettes. The Court found RMC 37-93 infringed on uniformity of taxation and did not follow the proper rule-making process for legislative rules.
The Supreme Court ruled that RMC 37-93 issued by the BIR was a legislative rule rather than an interpretative ruling. As a legislative rule, it should have undergone the notice and hearing process required by law before it was issued. RMC 37-93 went beyond merely interpreting the law and substantially increased the tax burden on certain cigarette brands. By classifying those brands as foreign, it subjected them to a higher tax rate under the newly passed law. Without RMC 37-93, those brands would have remained under the lower tax rate for domestic cigarettes. The Court found RMC 37-93 infringed on uniformity of taxation and did not follow the proper rule-making process for legislative rules.
The Supreme Court ruled that RMC 37-93 issued by the BIR was a legislative rule rather than an interpretative ruling. As a legislative rule, it should have undergone the notice and hearing process required by law before it was issued. RMC 37-93 went beyond merely interpreting the law and substantially increased the tax burden on certain cigarette brands. By classifying those brands as foreign, it subjected them to a higher tax rate under the newly passed law. Without RMC 37-93, those brands would have remained under the lower tax rate for domestic cigarettes. The Court found RMC 37-93 infringed on uniformity of taxation and did not follow the proper rule-making process for legislative rules.
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COMMISSIONER OF INTERNAL REVENUE V.
CA G.R. 119761 AUGUST 29, 1996 FACTS: Fortune Tobacco is engaged in the manufacture of different brands of cigarettes. The Philippine Patent Office issued to the corporation separate certificates of trademark registration over “Champion,” “Hope,” and “More”. At first these brands were classified as foreign brands as belonging to foreign companies according to the World Tobacco Directory. However, the company changed the names to “Hope Luxury,” “Premium More,” thereby removing the said brands from the foreign brand category. RA 7654 was enacted by the legislature, and contained the following provisions:
Sec. 142. Cigars and Cigarettes. —
xxx xxx xxx
(c) Cigarettes packed by machine. — There shall be levied, assessed
and collected on cigarettes packed by machine a tax at the rates prescribed below based on the constructive manufacturer's wholesale price or the actual manufacturer's wholesale price, whichever is higher:
(1) On locally manufactured cigarettes which are currently classified
and taxed at fifty-five percent (55%) or the exportation of which is not authorized by contract or otherwise, fifty-five (55%) provided that the minimum tax shall not be less than Five Pesos (P5.00) per pack.
(2) On other locally manufactured cigarettes, forty-five percent
(45%) provided that the minimum tax shall not be less than Three Pesos (P3.00) per pack.
About a month after the enactment, and two days before the effectivity of RA 7654, the BIR issued RMC 37-93, stating, among others that “Hope,” “More,” and “Champion,” are foreign brands, and “since there is no showing who among the above-listed manufacturers of the cigarettes bearing the said brands are the real owner/s thereof, then it follows that the same shall be considered foreign brand for purposes of determining the ad valorem tax pursuant to Section 142 of the National Internal Revenue Code. As held in BIR Ruling No. 410-88, dated August 24, 1988, "in cases where it cannot be established or there is dearth of evidence as to whether a brand is foreign or not, resort to the World Tobacco Directory should be made." Hence, they were subject to the 55% ad valorem tax. However, the CTA ruled that the deficiency ad valorem tax assessment was canceled. In fine, petitioner opines that RMC 37-93 is merely an interpretative ruling of the BIR which can thus become effective without any prior need for notice and hearing, nor publication, and that its issuance is not discriminatory since it would apply under similar circumstances to all locally manufactured cigarettes. ISSUE: Whether RMC 37-93 was an interpretative ruling by the BIR. RULING: It was not. A legislative rule is in the nature of subordinate legislation, designed to implement a primary legislation by providing the details thereof . In the same way that laws must have the benefit of public hearing, it is generally required that before a legislative rule is adopted there must be hearing. In this connection, the Administrative Code of 1987 provides:
Public Participation. — If not otherwise required by law, an agency shall,
as far as practicable, publish or circulate notices of proposed rules and afford interested parties the opportunity to submit their views prior to the adoption of any rule.
(2) In the fixing of rates, no rule or final order shall be valid unless the proposed rates shall have been published in a newspaper of general circulation at least two (2) weeks before the first hearing thereon.
(3) In case of opposition, the rules on contested cases shall be observed.
In addition such rule must be published. On the other hand, interpretative rules are designed to provide guidelines to the law which the administrative agency is in charge of enforcing
It should be understandable that when an administrative rule is merely interpretative in
nature, its applicability needs nothing further than its bare issuance for it gives no real consequence more than what the law itself has already prescribed. When, upon the other hand, the administrative rule goes beyond merely providing for the means that can facilitate or render least cumbersome the implementation of the law but substantially adds to or increases 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. A reading of RMC 37-93, particularly considering the circumstances under which it has been issued, convinces us that the circular cannot be viewed simply as a corrective measure. Specifically, the new law would have its amendatory provisions applied to locally manufactured cigarettes which at the time of its effectivity were not so classified as bearing foreign brands. Prior to the issuance of the questioned circular, "Hope Luxury," "Premium More," and "Champion" cigarettes were in the category of locally manufactured cigarettes not bearing foreign brand subject to 45% ad valorem tax. Hence, without RMC 37-93, the enactment of RA 7654, would have had no new tax rate consequence on private respondent's products. Evidently, in order to place "Hope Luxury," "Premium More," and "Champion" cigarettes within the scope of the amendatory law and subject them to an increased tax rate, the now disputed RMC 37-93 had to be issued. In so doing, the BIR not simply intrepreted the law; verily, it legislated under its quasi-legislative authority. The due observance of the requirements of notice, of hearing, and of publication should not have been then ignored.
Not insignificantly, RMC 37-93 might have likewise infringed on uniformity of taxation. Apparently, RMC 37-93 would only apply to "Hope Luxury," "Premium More" and "Champion" cigarettes and, unless petitioner would be willing to concede to the submission of private respondent that the circular should, as in fact my esteemed colleague Mr. Justice Bellosillo so expresses in his separate opinion, be considered adjudicatory in nature and thus violative of due process following the Ang Tibay 16 doctrine, the measure suffers from lack of uniformity of taxation.
