Destileria Limtuaco and Co., Inc. v. Teves

FIFTEENTH DIVISION [CA-G.R. CV NO. 101395. March 26, 2015.] DESTILERIA LIMTUACO AND CO., INC. , petitioner-appellee , vs. HON. MARGARITO B. TEVES, in his capacity as Secretary of Finance, and HON. LILIAN B. HEFTI, in her capacity as Commissioner of Internal Revenue , respondents-appellants. DECISION PIZARRO , J p : This is an appeal 2 assailing the Decision 3 of the Regional Trial Court (RTC), National Capital Judicial Region, Branch 88, Quezon City, in Special Civil Case No. Q-08-63597, which declared Section 14 of Bureau of Internal Revenue (BIR) Revenue Regulations (R.R.) No. 3-2006 as null and void for being contrary to law. The Facts : 4 Destileria Limtuaco and Co., Inc. 5 (DLCI) is a corporation engaged in the business of manufacturing distilled spirits, wines, and other alcoholic beverages for domestic distribution and for export for more than one hundred (100) years. In producing its products, it purchases raw alcohol materials from other manufacturers and then rectifies the same either by aging, purification, filtration, or carbon treatments to produce whiskeys, brandies, gins, rums, vodkas, tequilas, cocktails, herbal and sweet wines, and original medicinal wines. From its incorporation, the removal of the raw alcohol materials from one place of production to another for rectification has never been subject to prepayment of excise tax until the refining process has been completed and the finished product is produced. cCHITA On January 3, 2006, the Secretary of Finance, upon recommendation of the CIR, issued R.R. No. 3-2006, prescribing the Implementing Guidelines on the Revised Tax Rates on Alcohol and Tobacco Products Pursuant to the Provisions of Republic Act (R.A.) No. 9334 6 and Clarifying Certain Provisions of Existing Revenue Regulations Relative Thereto. The sections therein pertinent to the present case are as follows: SEC. 14. TAX-EXEMPT REMOVAL OF ALCOHOL FOR RECTIFICATION PURPOSES. Distilled spirits such as, but not limited to, ethyl alcohol, may be removed from the place of production for purposes of rectification by another establishment without prepayment of the specific tax. For this purpose, the distiller and the rectified shall file separately an application for a permit to purchase tax-exempt alcohol, respectively, with the BIR Officers concerned where the distiller and the rectifier are registered or required to be registered as excise taxpayers. A joint bond executed by the distiller and the rectifier shall be filed together with their respective applications for permit to remove and purchase tax-exempt alcohol, to guarantee the payment of the excise tax due on such removal of conditionally tax-exempt alcohol. The amount of the joint bond shall be based on the excise tax due on the estimated total annual volume of alcohol to be delivered by the distiller to the rectifier, or the excise tax due on the maximum volume capacity of registered under-bond tanks, whichever is lower. In case the amount of the joint bond is no longer sufficient to cover the total estimated excise tax due on the subsequent conditionally tax-exempt removals until the expiration of the joint bond, the amount of the joint bond shall be revised accordingly. The revised joint bond shall be submitted immediately after determination of the estimated excise tax otherwise due up to the validity period of the submitted joint bond. No subsequent tax-exempt removal shall be allowed unless the revised joint bond shall have been submitted by the manufacturer and the rectifier. CScaDH For purposes of this section, the term "rectification" shall refer to the process of refining, purifying or enhancing the quality of ethyl alcohol only by distillation. Other processes intended to improve or enhance the quality of alcohol such as, but not limited to, aging, purification, filtration, carbon-treatments, etc., without distillation undertaken by the rectifier or rectifier-compounder itself, are deemed excluded under the term rectification as defined herein. Hence, deliveries of under-bond alcohol from distilleries to any rectifier or rectifier/compounder employing processes not falling squarely under the definition of rectification shall not be allowed. xxx xxx xxx (Emphasis supplied) SEC. 22. LOSSES ON DISTILLED SPIRITS. No claim for excise tax refund or credit shall be allowed on distilled spirits that have been lost or destroyed after removal thereof from the place of production or released from the customs' custody. In case of losses incurred on bonded distilled spirits, the corresponding excise tax due on such losses shall be paid to the BIR. Losses of distilled spirits or rectified alcohol incurred before removal thereof from the distillery premises shall be accounted for and recorded in the ORBS as they occur on a daily basis. For this purpose, a loss of not more than one percent (1%) for distillation and four percent (4%) of excise tax-paid distilled spirits for rectification may be allowed when such loss is not caused by fraud, negligence or carelessness of the distillers or owners of the rectifying establishments. However, no deduction for losses shall be allowed on bonded distilled spirits delivered and subsequently stored for rectification purposes as well as losses arising from rectification of such bonded distilled spirits. The total volume of losses incurred during the month less the allowable percentage of loss, if any, shall be computed and the corresponding excise tax due thereon shall be paid to the BIR on or before every eighth (8th) day of the month immediately following the month of operations. aHSTID xxx xxx xxx SEC. 25. TRANSITORY PROVISIONS. Upon effectivity of the Act, the following transitory provisions shall be strictly observed by all concerned: xxx xxx xxx (3) Upon the date of the effectivity of these Regulations, all under-bond ethyl alcohol in the possession of rectifiers and rectifiers-compounders that do not fall squarely under the definition of rectification prescribed by these Regulations shall be immediately subject to the payment of excise tax imposed under the Act. For this purpose, all rectifiers and rectifier-compounders shall submit to the Chief, LTAD II or EXTA, as the case may be, a duly notarized inventory list of ethyl alcohol, whether tax-paid or under-bond, that are on-hand as of the date of effectivity of these Regulations. The said inventory list shall be submitted within fifteen (15) days immediately after the date of effectivity of these Regulations. The excise tax due on the under-bond stocks shall be paid within five (5) days after actual date of receipt of notice of disqualification as a rectifier or rectifier-compounder from the BIR. Feeling aggrieved, on October 10, 2008, DLCI filed before the RTC of Quezon City against the Hon. Margarito B. Teves, in his capacity as the Secretary of Finance, and Mde. Lilian B. Hefti, in her capacity as the Commissioner of Internal Revenue (CIR) (collectively, Respondents-Appellants), a petition for declaratory judgment and injunction 7 assailing, among others, the validity of Sections 14, 22, and 25 (3) of R.R. No. 3-2006 and seeking to permanently enjoin the implementation thereof. CDHaET DLCI claimed that under Section 137 8 of the National Internal Revenue Code of 1997 (1997 NIRC), as amended, it was exempted from the prepayment of excise taxes over spirits to be removed from the place of production for purpose of rectification, regardless of the process. However, with the issuance of Sections 14, 22, and 25 (3) of R.R. No. 3-2006, the Respondents-Appellants redefined a certain tax subject which, in effect, removed without legislative sanction the tax exemption granted to it. With the said R.R., "rectification" process for purposes of tax exemption is now limited to distillation only, to the exclusion of the processes of aging, purification, filtration, carbon treatments, etc., without distillation undertaken by the rectifier or rectifier-compounder. Thus, it reasoned that unrefined or unprocessed spirits or under-bond alcohol removed from the place of production for purposes of rectification or refining by means other than distillation are now subject to excise tax and/or are removed from the exemption under Section 137 of the 1997 NIRC. DLCI also asserted that nothing in the 1997 NIRC authorized the Respondents-Appellants to remove the exemption under Section 137 thereof through a revenue regulation. As R.R. No. 3-2006 was purportedly issued to provide implementing guidelines on R.A. No. 9334, it cannot therefore change the ordinary meaning of terms or abrogate the tax exemption granted under the 1997 NIRC. In their answer, the Respondents-Appellants countered that the said R.R. is valid inasmuch as administrative agencies are authorized to enact regulatory issuances to fill in the details of a statute. They added that providing specific definitions for general or vague terms is included in their authority. They insisted that the power of the Secretary of Finance to issue revenue regulations is specifically provided in Section 244 9 of the 1997 NIRC. They concluded that when the Secretary of Finance provided for a more precise definition of the word "rectification" in the questioned R.R., he was merely performing his responsibility to fill in the details in the 1997 NIRC. TaCEHA During pre-trial, the parties stipulated and agreed on the existence of Section 137 of the 1997 NIRC exempting from payment of excise taxes the removal of spirits under bond for rectification; and, that the assailed R.R. was issued as implementing guidelines on the Revised Tax Rates on Alcohol and Tobacco Products pursuant to the provisions of R.A. No. 9334. After trial, the RTC rendered judgment declaring Section 14 of R.R. No. 3-2006 as null and void for being contrary to law. The decretal portion of which states: WHEREFORE , premises considered, judgment is hereby rendered declaring Section 14 of BIR Revenue Regulations No. 3-2006 as null and void for being contrary to law. Consequently, public respondents are enjoined from implementing said regulation upon the finality of this Decision. On the other hand, the Court upholds the validity of: a) Sections 22 and 25 (3) of Revenue Regulations No. 3-2006 without prejudice to the right of the taxpayer to claim refund for excise taxes paid on distilled spirits which should have been covered by the tax-exemption under Section 137 of the NIRC; and, b) Section 2 of BIR Revenue Regulations No. 3-2008. SO ORDERED. 10 Dissatisfied with the RTC's decision, the Respondents-Appellants filed the present appeal. acHTIC The Issues : In seeking for the reversal of the RTC's decision, the Respondents-Appellants raise the following as errors: THE TRIAL COURT ERRED IN DECLARING SECTION 14 OF REVENUE REGULATIONS NO. 3-2006 VOID CONSIDERING THAT . . . I. SECTION 14 OF RR NO. 3-2006 ITSELF MERELY ECHOES SECTION 137 OF THE NIRC WHICH ITSELF LIMITS "RECTIFICATION" TO "ORIGINAL AND CONTINUOUS DISTILLATION" OR "REDISTILLATION". II. ADMINISTRATIVE AGENCIES LIKE THE DOF [AND] BIR ARE AUTHORIZED TO ENACT REGULATORY ISSUANCES TO "FILL IN THE DETAILS" OF STATU [T] ES THEY ARE MANDATED TO ENFORCE. 11 This Court's Ruling : The Respondents-Appellants aver that Section 137 of the 1997 NIRC itself limits rectification only to original and continuous distillation or redistillation. They further allege that in stating that rectification shall refer to the process of refining, purifying, or enhancing the quality of ethyl alcohol only by distillation, Section 14 of R.R. No. 3-2006 merely echoed the intent of the legislature as reflected in the language of Section 137 thereof, which confined rectification to distillation. Moreover, they insisted that in providing for a more precise definition of the word "rectification" in R.R. No 3-2006, the Secretary of Finance merely performed his mandated duty to fill in the details of the 1997 NIRC and cannot, thus, be faulted for doing so. Hence, they concluded that the trial court erred in declaring Section 14 of R.R. No. 3-2006 a nullity for contravening Section 137. ScaCEH For its part, DLCI questions the procedural remedy undertaken by the Respondents-Appellants, claiming that the appeal should be dismissed outright as it raises a pure question of law, which appeal should instead be filed before the Supreme Court via petition for review on certiorari under Rule 45 of the Rules of Court. Also, it points out that Section 14 clearly distorted the intent and meaning of Section 137 as nothing in the latter provision implies that rectification and distillation are one and the same thing. Not only that, it likewise asseverates that the definition of rectification provided in Section 14 contradicts the trade and commercial meaning of the term. We agree with DLCI that the Respondents-Appellants availed of the wrong mode of appeal. Section 2, Rule 41 of the Rules of Court provides the three (3) modes of appeal from judgments or final orders of the RTC, which are as follows: Section 2. Modes of appeal. (a) Ordinary appeal. The appeal to the Court of Appeals in cases decided by the Regional Trial Court in the exercise of its original jurisdiction shall be taken by filing a notice of appeal with the court which rendered the judgment or final order appealed from and serving a copy thereof upon the adverse party. No record on appeal shall be required except in special proceedings and other cases of multiple or separate appeals where the law or these Rules so require. In such cases, the record on appeal shall be filed and served in like manner. (b) Petition for review. The appeal to the Court of Appeals in cases decided by the Regional Trial Court in the exercise of its appellate jurisdiction shall be by petition for review in accordance with Rule 42. TIEHDC (c) Appeal by certiorari. In all cases where only questions of law are raised or involved, the appeal shall be to the Supreme Court by petition for review on certiorari in accordance with Rule 45. The first mode of appeal, the ordinary appeal under Rule 41 of the Rules of Court, is brought to this Court from the RTC, in the exercise of its original jurisdiction, and resolves questions of fact or mixed questions of fact and law. The second mode of appeal, the petition for review under Rule 42, is brought to this Court from the RTC, acting in the exercise of its appellate jurisdiction, and resolves questions of fact or mixed questions of fact and law. The third mode of appeal, the appeal by certiorari under Rule 45, is brought to the Supreme Court and resolves only questions of law. In the event that a litigant files an appeal raising only questions of law before this Court, Section 2, Rule 50 12 of the Rules of Court expressly mandates that the same should be dismissed outright as it is not reviewable by this Court. There is a question of law when the issue does not call for an examination of the probative value of the evidence presented, the truth or falsehood of facts being admitted, and the doubt concerns the correct application of law and jurisprudence on the matter. On the other hand, there is a question of fact when the doubt or controversy arises as to the truth or falsity of the alleged facts. 13 ACcaET When there is no dispute as to the facts, the question of whether or not the conclusion drawn from these facts is correct is a question of law. 14 Here, there is no dispute as to the facts of the instant case. What is being questioned herein is the conclusion drawn by the RTC as to the invalidity of Section 14 of R.R. No. 3-2006. This is, undoubtedly, a pure question of law. As the Respondents-Appellants' appeal solely involves a question of law, they should have directly taken their appeal to the Supreme Court by filing a petition for review on certiorari under Rule 45, not an ordinary appeal before this Court under Rule 41. The foregoing considered, the Respondents-Appellants' appeal must be dismissed for lack of jurisdiction. Aside therefrom, even if We were to overlook the Respondents-Appellants' procedural lapse and proceed to resolve the case on the merits, the outcome would be the same. Indeed, the Secretary of Finance went beyond his power of delegated authority when he limited the definition of rectification to distillation only in Section 14 of R.R. No. 3-2006, notwithstanding the lack of qualification provided in Section 137 of the 1997 NIRC. We, thus, affirm the assailed RTC decision and quote with approval the pertinent portions thereof, viz. : SaIEcA After a careful analysis of the above assailed provision of Revenue Regulations No. 3-2006, the Court finds Section 14 thereof insofar as it restricts the definition of the term "rectification" a nullity for violation of the provisions of the National Internal Revenue Code. Rules and regulations issued by administrative or executive officers in accordance with, and as authorized by law have the force and effect, or partake of the nature of a statute. The reason is that statutes express the policies, purposes, objectives, remedies and sanctions intended by the legislature in general terms. The details and manner of carrying them out are oftentimes left to the administrative agency entrusted with their enforcement. However, the rule is not absolute. In the case of United BF Homeowner's Association [,] et.al., [sic] vs. BF Homes, Inc., it was held that: "(T)he power to promulgate rules in the implementation of a statute is necessarily limited to what is provided for in the legislative enactment. Its terms must be followed for an administrative agency cannot amend an Act of Congress. The rule [-] making power must be confined to details for regulation of the mode or proceedings to carry into effect the law as it has been enacted, and it cannot be extended to amend or expand the statutory requirements or to embrace matters not covered by the statute. If a discrepancy occurs between the basic law and an implementing rule or regulation, it is the former that prevails. . . . The rule-making power of a public administrative body is a delegated power, which it may not use either to abridge the authority given it by Congress or the Constitution or to enlarge its power beyond the scope intended. Constitutional and statutory provisions control what rules and regulations may be promulgated by such a body, as well as with respect to what fields are subject to regulation by it. It may not make rules and regulations which are inconsistent with the provisions of the Constitution or a statute, particularly the statute it is administering or which created it, or which are in derogation of, or defeat the purpose of the statute. Moreover, where the legislature had delegated to an executive or administrative officers and boards authority to promulgate rules to carry out an express legislative purpose, the rules of administrative officers and boards, which have the effect of extending, or which conflict with the authority-granting statute, do not represent a valid exercise of the rule-making power but constitute an attempt by an administrative body to legislate. A statutory grant of powers should not be extended by implication beyond what may be necessary for their just and reasonable execution. It is axiomatic that a rule or regulation must bear upon, and be consistent with, the provisions of the enacting statute if such rule or regulation is to be valid." CcSTHI Section 137 of the NIRC excluded from prepayment of excise taxes spirits removed from the place of production to another establishment for purpose of rectification. The law did not specify nor qualify the rectification process needed to be undergone by the raw product to be tax-exempt. It is a rule in statutory construction that where the law does not distinguish, the courts should not distinguish. Ubi lex non distinguit, nec nos distinguire debemus. Under this principle, general words and phrases in a statute should be given general significance and the courts are not authorized to make any distinction. In the present case, as the basic law itself did not make any distinction on the rectification process the product should undergo in order to qualify for tax exemption, hence, this Court will not make any distinction. Moreover, even the BIR in an issued Memorandum included aging, purification, redistillation, activated carbon treatment, etc. as covered by the term rectification process. Hence, the promulgation by the respondents of Section 14 of Revenue Regulations No. 3-2006 [,] insofar as it defines and restricts the coverage of the rectification process of distilled spirits so as to be exempted from prepayment of excise tax to distillation alone when the basic law provides none, is [,] in effect [,] an amendment of the law and thus, a nullity. In every case of doubt, tax statutes are construed most strongly against the government and in favor of the citizens, because burdens are not to be imposed beyond what the statutes expressly and clearly import. (Citations omitted. Bracketed insertions Ours.) It bears reiterating that tax burdens are neither to be imposed nor presumed to be imposed beyond what the statute expressly and clearly imports; tax statutes being construed strictissimi juris against the government. In case of discrepancy between the basic law and a rule or regulation issued to implement said law, the basic law prevails as said rule or regulation cannot go beyond the terms and provisions of the basic law. It must be stressed that the objective of issuing BIR revenue regulations is to establish parameters or guidelines within which our tax laws should be implemented, and not to amend or modify its substantive meaning and import. 15 SDTIaE All told, contra factum non valet argumentum. 16 This case being as clear as daylight, the appeal should therefore be dismissed. WHEREFORE , the appeal is DISMISSED . No costs. SO ORDERED. Gaerlan and Hernando, 1 JJ., concur. Footnotes 1. Per Office Order No. 80-15-ABR, dated March 16, 2015. 2. Under Rule 41 of the Revised Rules of Court. 3. Dated March 8, 2013; See Rollo , pp. 24-34. 4. As culled from the record. 5. A corporation organized under Philippine laws with principal office address at 1830 E. Delos Santos Ave., Quezon City; See Record, p. 2. 6. An Act Increasing the Excise Tax Rates Imposed on Alcohol and Tobacco Products, amending for the purpose Sections 131, 141, 142, 143, 144, 145, and 288 of the National Internal Revenue Code of 1997, as amended. 7. See Record, pp. 1-32. 8. SEC. 137. Removal of Spirits under Bond for Rectification. Spirits requiring rectification may be removed from the place of production to another establishment for the purpose of rectification without prepayment of the excise tax: Provided , That the distiller removing such spirits and the rectifier receiving them shall file with the Commissioner their joint bond conditioned upon the payment by the rectifier of the excise tax due on the rectified alcohol: Provided, further , That in cases where alcohol has already been rectified either by original and continuous distillation or by redistillation, no loss for rectification and handling shall be allowed and the rectifier thereof shall pay the excise tax due on such losses: Provided, finally , That where a rectifier makes use of spirits upon which the excise tax has not been paid, he shall be liable for the payment of the tax otherwise due thereon. 9. SEC. 244. Authority of Secretary of Finance to Promulgate Rules and Regulations . The Secretary of Finance, upon recommendation of the Commissioner, shall promulgate all needful rules and regulations for the effective enforcement of the provisions of this Code. 10. Supra , note 3, p. 34. 11. See Appellants' Brief; Rollo , p. 12. Bracketed insertions supplied. 12. Sec. 2. Dismissal of improper appeal to the Court of Appeals. An appeal under Rule 41 taken from the Regional Trial Court to the Court of Appeals raising only questions of law shall be dismissed, issues of pure law not being reviewable by said court. Similarly, an appeal by notice of appeal instead of by petition for review from the appellate judgment of a Regional Trial Court shall be dismissed. An appeal erroneously taken to the Court of Appeals shall not be transferred to the appropriate court but shall be dismissed outright. (Emphasis supplied) 13. See Heirs of Cabigas v. Limbaco , G.R. No. 175291, July 27, 2011. 14. See Far East Marble (Philippines), Inc. v. Court of Appeals , G.R. No. 94093, August 10, 1993. 15. See Commissioner of Internal Revenue v. San Miguel Corporation , G.R. No. 184428, November 23, 2011. 16. There is no valid argument against a fact.