Commissioner of Internal Revenue v. Sterling Tobacco Corp.

NINTH DIVISION [CA-G.R. SP No. 38159. March 7, 2001.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . STERLING TOBACCO CORPORATION , respondent . D E C I S I O N DELOS SANTOS , E.R. , J p : Petitioner assails in this petition for review on certiorari the decision dated July 13, 1995 of the Court of Tax Appeals in CTA Case No. 4532, entitled "Sterling Tobacco Corp. vs. Commissioner of Internal Revenue", in which the Tax Court ordered the cancellation of the assessment for deficiency specific tax issued against the respondent. On January 12, 1990, the respondent received a pre-assessment notice for alleged deficiency excise tax on its importation and local purchase of stemmed-leaf tobacco for P5,187,432.00 covering the period from November 1986 to January 1989, computed as follows: Stemmed-Leaf Tobacco Rate of Tax Specific Tax Imported - 1,086,550 kg x 0.75 P 814,912.50 Local - 5,829,906 kg x 0.75 4,372,429.50 Total Amount Due (Basic Tax) P 5,187,342.00 =========== On January 19, 1990, the respondent protested the assessment and asked for the particulars thereof. On December 7, 1990, it received two letters from the petitioner dated August 31, 1990 and October 17, 1990, respectively, denying with finality its protest. Petitioner then reiterated its demand for the payment of alleged deficiency specific tax. On January 3, 1991, the respondent filed with the Court of Tax Appeals a Petition for Review seeking the cancellation of the deficiency assessment and praying that the petitioner be ordered to desist from instituting the collection of the said assessment. On July 13, 1995, the Tax Court rendered its decision ordering the cancellation of the assessment for deficiency specific tax against the respondent, basing its decision mainly on Section 137 of the old Tax Code, which reads: SECTION 137. Removal of tobacco products without prepayment of tax . Products of tobacco entirely unfit for chewing or smoking may be removed free of tax for agricultural or industrial use, under such conditions as may be prescribed in the regulations of the Department of Finance. Stemmed leaf tobacco, fine-cut shorts, the refuse of fine-cut chewing tobacco, scraps, cuttings, clippings, stems or mid-ribs, and sweepings of tobacco may be sold in bulk as raw material by one manufacturer directly to another, without payment of the tax under such conditions as may be prescribed in the regulations of the Department of Finance . "'Stemmed leaf tobacco' as herein used means leaf tobacco which has had the stem or midrib removed. The term does not include broken leaf tobacco." (emphasis ours) The Tax Court found that the respondent's local purchases of stemmed-leaf tobacco come from various manufacturers and these were used as raw materials for cigars and cigarettes. It held the term "manufacturers to refer to both manufacturers of cigars and cigarettes, per Section 2 of Revenue Regulations No. 17-67. It further noted that Section 20 of Revenue Regulations No. V-39 specifically mentioned stemmed-leaf tobacco as exempted from the specific tax, and that the only qualification required by Section 137 was that the said product be sold in bulk as raw materials to manufacturers of tobacco products such as cigars and cigarettes. The Tax Court concluded that the effect of the exemption under Section 137 on the tax collection is simply to postpone the payment of the excise tax until the finished product. The Tax Court observed that Section 127 of the Tax Code requires that the excise tax be paid by the manufacturer or producer before removal from the factory, yet the bulk of the assessment against the respondent was based on the mere fact that it was a possessor of the products being taxed. The law identified the taxpayer as the manufacturer or producer, and not the mere possessor, such as was the respondent in regard to certain purchases of stemmed-leaf tobacco. The petitioner therefore acted inconsistently when it also assessed the respondent as a manufacturer for sales made to the Associated Anglo-American Tobacco Corporation, a local cigarette maker. The Tax Court held that the petitioner was required to first collect from the manufacturer, and only if it could not pay would the possessor be liable for the specific tax. The Tax Court further held that Section 43(a) of the Revenue Regulations No. 17-67 specifically exempted partially manufactured tobacco, except imported leaf tobacco, unless entered in the L-7 register. L-7 refers to manufacturers of tobacco products. As to the deficiency specific tax on imported stemmed-leaf tobacco, the Tax Court held that Section 137 of the Tax Code does not distinguish between imported and locally purchased stemmed-leaf tobacco, as long as it was sold as raw material by one local manufacturer to another, and the sale is entered in the L-7 register. The respondent claimed that it bought from various manufacturers in America and these purchases were properly recorded in the L-7 register. The Tax Court cited its decision in Fortune Tobacco vs. Commissioner of Internal Revenue, CTA Case No. 4587, November 23, 1994, where it said that Section 1-b of R.A. 690, entitled "An Act to Limit the Importation of Foreign Leaf Tobacco" specifically excluded stemmed-leaf tobacco from its definition of processed tobacco. This, it said, contrasts with Section 2(m) of revenue regulations No. 17-67 which classifies said product as partially manufactured. The conflict necessitates the voiding of that regulation which favors the State following the principle that tax laws must be construed strictissimi juris in favor of the taxpayer. Moreover, the Tax Court argues that the petitioner unjustifiably expanded its definition of partially manufactured tobacco products under Section 141 of the Tax Code to include stemmed-leaf tobacco, whereas the same was already specifically exempted under Section 137. Clearly, it is the intention of Section 137 to exempt stemmed-leaf tobacco from the specific tax if sold in bulk as raw material to another manufacturer. To hold otherwise would result in double taxation, which is not encouraged unless the law clearly intended it. The public petitioner appeals to Us on petition for review, on the following grounds, which We shall hereunder discuss together: I UNDER SECTION 141(b) OF THE TAX CODE, STEMMED LEAF TOBACCO, BEING PARTIALLY PREPARED OR MANUFACTURE TOBACCO, IS SUBJECT TO SPECIFIC TAX. II. THE STEMMED LEAF TOBACCO PURCHASED BY RESPONDENT FROM LOCAL SUPPLIERS AND THE STEMMED LEAF TOBACCO SOLD BY RESPONDENT ARE NOT EXEMPT FROM SPECIFIC TAX SINCE THE SALE THEREOF WAS NOT MADE UNDER THE CONDITIONS PRESCRIBED IN THE REGULATIONS OF THE DEPARTMENT OF FINANCE. III. CONSTRUING TOGETHER SECTIONS 141 AND 137 OF THE TAX CODE, STEMMED LEAF TOBACCO IS SUBJECT TO SPECIFIC TAX, EXCEPT WHEN SOLD IN BULK AS RAW MATERIAL FROM ONE L-7 DIRECTLY TO ANOTHER L-7. IV. UNDER SECTION 43 OF REVENUE REGULATIONS NO. 17-67, THE EXEMPTION FROM SPECIFIC TAX OF PARTIALLY MANUFACTURED TOBACCO APPLIES ONLY TO PARTIALLY MANUFACTURED TOBACCO FOR EXPORT. V. IMPORTED STEMMED LEAF TOBACCO IS NOT COVERED BY THE EXEMPTION FROM SPECIFIC TAX UNDER SECTION 137 OF THE TAX CODE. VI. THE EXEMPTION UNDER SECTION 43(a) OF REVENUE REGULATIONS NO. 17-67 OF IMPORTED LEAF TOBACCO ENTERED IN THE L-7 REGISTER DOES NOT APPLY TO IMPORTED STEMMED LEAF TOBACCO. VII. UNDER SECTION 127 OF THE TAX CODE, IF DOMESTIC PRODUCTS ARE REMOVED FROM THE PLACE OF PRODUCTION WITHOUT THE PAYMENT OF THE EXCISE TAX, IT IS NOT REQUIRED THAT THE TAX BE COLLECTED FIRST FROM THE MANUFACTURER OR PRODUCER BEFORE THE POSSESSOR THEREOF SHALL BE LIABLE. VIII. TAX EXEMPTIONS ARE CONSTRUED STRICTLY AGAINST THE TAXPAYER AND LIBERALLY IN FAVOR OF THE GOVERNMENT. We find the appeal to be meritorious. Section 141 of the old Tax Code provides: SECTION 141. Tobacco Products. There shall be collected a tax of seventy-five centavos on each kilogram of the following products of tobacco: (a) Tobacco twisted by hand or reduced into a condition to be consumed in any manner other than ordinary mode of drying and curing; (b) Tobacco prepared or partially prepared with or without the use of any machine or instruments or without being pressed or sweetened; and (c) Fine-cut, shorts and refuse, scraps, clippings, cuttings, stems and sweepings of tobacco. Fine-cut shorts and refuse, scraps, clippings, cuttings, stems and sweepings of tobacco resulting from the handling or stripping of whole leaf tobacco may be transferred, disposed of, or otherwise sold, without pre-payment of the specific tax herein provided for under such conditions as may be prescribed in the regulations promulgated by the Secretary of Finance upon recommendation of the Commissioner if the same are to be exported or to be used in the manufacture of other tobacco products on which the excise tax will eventually be paid on the finished product . (emphasis ours) Under the foregoing provision, partially prepared or manufactured tobacco is subject to the specific tax of P0.75 per kilogram, and under Section 2(m)(l) of Revenue Regulations No. 17-67, otherwise known as "Tobacco Regulations on Leaf, Scrap, Other Partially Manufactured Tobacco and other Tobacco Products; Grading Classification, Inspection, Shipments, Exportation, Importation and the Manufacturers Thereof under the provisions of Act No. 2613, as amended", stemmed leaf tobacco is classified as partially manufactured tobacco product, thus: Section 2. Definition of Terms xxx xxx xxx (m) "Partially manufactured Tobacco" includes: (l) "Stemmed leaf" hand-stripped tobacco, clean, good, partially broken leaf only, free from mold and dust. xxx xxx xxx In the case at bar, it is not disputed that the subject of the deficiency specific tax assessment is stemmed leaf tobacco. The Tax Court held that the stemmed leaf tobacco purchased by the respondent from local suppliers are exempt from specific tax because they were sold in bulk as raw materials by one manufacturer directly to another pursuant to Section 137 of the Tax Code. We disagree. There is no dispute that under Section 137 of the Tax Code, the sale of stemmed leaf tobacco in bulk as raw material by one manufacturer directly to another is exempt from specific tax only if made under such conditions as may be prescribed in the regulations of the Department of Finance . The conditions under which the exemption under Section 137 of the Tax Code shall apply are prescribed in Revenue Regulations No. V-39 on "The Tobacco Products Regulations" relative to the "enforcement of the provisions of Title IV of the National Internal Revenue Code insofar as they affect the manufacture or importation of, and the collection and payment of specific tax on manufactured tobacco or products of tobacco." (Sec. 1, Revenue Regulations No. V-39). Pertinently, Section 20(a) of the Revenue Regulations No. V-39 reads: SECTION 20. Exemption from tax of tobacco products intended for agricultural or industrial purposes, (a) Sale of stemmed leaf tobacco, etc., by one factory to another. Subject to the limitations herein established , products of tobacco entirely unfit for chewing or smoking may be removed free of tax for agricultural or industrial use; and stemmed leaf tobacco , fine-cut shorts, the refuse of fine-cut chewing tobacco, refuse, scraps, cuttings, clippings, and sweepings, and sweepings of tobacco may be sold in bulk as raw materials by one manufacturer directly to another without the prepayment of specific tax. Stemmed leaf tobacco , fine-cut shorts, the refuse of fine-cut chewing tobacco, scraps, cuttings, clippings, and sweeping of leaf tobacco or partially manufactured tobacco or other refuse of tobacco may be transferred from one factory to another under an official L-7 invoice on which shall be entered the exact weight of the tobacco at the time of its removal, and entry shall be made in the L-7 register in the place provided on the page of removals. Corresponding debit entry will be made in the L-7 register book of the factory receiving the tobacco under the heading "Refuse, etc., received from other factory", showing the date of receipt, assessment and invoice numbers, name and address of the consignor, form in which received, and the weight of the tobacco. This paragraph should not, however, be construed to permit the transfer of materials unsuitable for the manufacture of tobacco products from one factory to another. (emphasis ours) Thus, the conditions under which stemmed leaf tobacco, among others, may be transferred from one factory to another without prepayment of specific tax are as follows; (a) The transfer of the stemmed leaf tobacco shall be made under an official L-7 invoice on which shall be entered by the consignor/transferor the exact weight of the tobacco at the time its removal; (b) Entry of the transfer shall also be made in the L-7 register of the consignor in the place provided on the page of removals; (c) corresponding debit entry shall be made in the L-7 register book of the consignee or factory receiving the tobacco under the heading "Refuse, etc., received from other factory", showing the date of receipt, assessment and invoice numbers, name and address of the consignor, from in which received, and the weight of the tobacco. Section 3 of Revenue Regulations No. 17-67 classifies and identifies leaf tobacco dealers and manufacturers of tobacco products as follows: Section 3. (a) L-3 Wholesale leaf tobacco dealer. (b) L-3F Wholesale leaf tobacco dealer. Issued only in favor of Farmer's Cooperative Marketing Association (FaCoMas) duly organized in accordance with law. xxx xxx xxx (c) L-3R Wholesale leaf tobacco dealers. Issued only in favor of persons or entities having fully equipped Redrying Plants. (d) L-3 Buyers for wholesale leaf tobacco dealers. (e) L-4 Wholesale leaf tobacco dealers. Issued only in favor of persons or entities having flue-curing barns, who may purchase or receive green Virginia Leaf Tobacco from bona fide tobacco planters only, or handle green leaf of their own production, which tobacco shall be sold or transferred only to holders of L-3 and L3R permits after flue-curing the tobacco. (f) L-5 Tobacco planters selling to consumers part of the whole of their tobacco production. (g) L-6 Wholesale leaf tobacco dealers who, exclusively for export, except as otherwise provided for in these regulations, perform the following functions: a. Handstripped and/or thresh whole leaf tobacco for themselves or for other L-6 or L-7 permittees; b. Re-process partially manufactured tobacco for themselves, or for other L-6 or L-7 permittees; c. Sell their partially manufactured tobacco to other L-6 permittees. (h) L-7 Manufacturers of tobacco products. [L-7 designates an auxiliary registered book (bale books), for manufacturers of tobacco products.] (i) B-14 Wholesale leaf tobacco dealers (Privilege tax receipt) (j) B-14(a) Retail leaf tobacco dealers (Privilege tax receipt) Note that Section 3(h) of the afore-quoted section defines L-7 as "manufacturers of tobacco products." The implication, then, of the condition prescribed under Section 20(a) of Revenue Regulations No. V-39 that the transfer of stemmed leaf tobacco from one factory to another must be "under an official L-7 invoice" and that "entry shall be made in the L-7 register" is simply that the transferor/consignor must be L-7. This is so because, obviously, only an L-7 has an official L-7 invoice and an L-7 register. Corollarily, the significance of the condition that the "corresponding debit entry shall be made in the L-7 register book of the factory receiving the tobacco" is that transferee/consignee must also be an L-7 because only an L-7 has an L-7 register book. The conclusion, then, is that stemmed leaf tobacco may be sold in bulk as raw material by one manufacturer directly to another without prepayment of the specific tax only if the sale thereof is from one L-7 directly to another L-7 . It must again be emphasized that although Section 137 of the Tax Code uses the term "manufacturer" to embrace all manufacturers of tobacco and tobacco products, this is expressly qualified by the phrase "under such conditions as may be prescribed in the regulations of the Department of Finance" so that the term 'manufacturer", under said regulations, refers only to L-7. The records show that while the respondent, an L-7, acquired stemmed leaf tobacco from various manufacturers, there are no proofs showing that these suppliers are also L-7. In interpreting a statute and its implementing rules and regulations , the Tax Court itself has stated that: " . . ., it is an elementary rule in statutory construction that a statute must be read or construed as a whole or in its entirety. All parts, provisions, or sections must be read, considered or construed together, and each must be considered with respect to all the others, and in harmony with the whole. ( St . Martin, et al . v . Iberville Parish, et al., 212 La. 886, cited in MARTIN's Statutory Construction, p. 132). Under this rule, that construction is favored which will render every word operative rather that one which make some words idle and nugatory. ( Shimonek v . Tillanan, 1P 2D, 154; ibid) Thus, courts are duty-bound to adopt a construction that will give effect to every part of a statute, if at all possible, following the maxim 'ut magis valeat quam pereat' (that construction is to be sought which gives effect to the whole statute). ( Almeda v. Florentino, GR No. L-23800, Dec. 21, 1965)" Indeed, as the Tax Court has itself admonished, Sections 141 and 137 of the Tax Code must be construed together to harmonize and make both provisions operative. An interpretation that renders one provision nugatory or even a mere surplusage could not have been contemplated absent clear proof. Section 141 of the Tax Code gives us the general rule on the imposition of excise tax on tobacco products, and it is that partially manufactured tobacco is subject to specific excise tax. Thus, stemmed leaf tobacco being partially manufactured tobacco, as defined under Section 2(m)(l) of Revenue Regulations No. 17-67, is subject to specific tax. On the other hand, Section 137, as implemented by Section 20(a) of Revenue Regulation No. V-39, provides that stemmed leaf tobacco is exempt from specific tax when sold in bulk as raw materials by an L-7 directly to another L-7. This is the exception contemplated by the second paragraph of Section 141. Following the authoritative interpretation of the Department of Finance, It should be obvious now that there really are no conflicts between Sections 137 and 141 as well as Section 2(m)(1) of Revenue Regulations No. 17-67 and Section 20(a) of revenue Regulation No. V-39. Clearly, the Tax Court's ruling that under Section 137 of the Tax Code, the stemmed leaf tobacco sold by various suppliers which are not L-7 to respondent who is L-7 are exempt from specific tax, fails to consider and harmonize the qualification in both Sections 137 and 141 for availment of the exemption. It made the error of giving undue focus on the statutory grant of exemption from excise, which is not the general policy of the law. It fails to appreciate the fact that the exemption from the specific tax granted to the sale of stemmed leaf tobacco as raw material by an L-7 directly to another L-7 is because said sale presumably has already been previously subjected to specific tax when the L-7 purchased the product from its various non-L-7 suppliers. It is for this reason that the law requires also that the sale be (1) in bulk, (2) as raw material (3) by one manufacturer, and (4) directly to another manufacturer to qualify for the exemption granted under Section 137. In regard to the excise tax on imported stemmed leaf tobacco, the Tax Court in ruling for the respondent, invoked Section 43(a) of Revenue Regulation No. 17-67, which provides: "SECTION 43. Tobacco exempted from specific tax . No specific tax shall be collected on the following: (a) Leaf tobacco and partially manufactured tobacco, except imported leaf tobacco, unless entered in the L-7 official register book . xxx xxx xxx (emphasis supplied) It is the said Court's contention that from the above regulation, partially manufactured tobacco, irrespective of whether it is local or imported leaf tobacco, will not be subject to specific tax if entered in the L-7 official register book . It then concludes that there is no showing that the said Section 43(a) has been superseded by other regulations, thus the petitioner cannot interpret it otherwise, because the said revenue regulations has the force and effect of law until shown to be inconsistent with the law that authorizes it. But we note that Section 43 of Revenue Regulations No. 17-67 falls under Chapter XI thereof, which is entitled "Partially Manufactured Tobacco and Tobacco Products for Export", and it readily becomes clear that Sections 38-44 thereunder deal with the exportation of partially manufactured tobacco and tobacco products: (1) Section 38 enumerates the manufactured tobacco products for export i. e., cigars and cigarettes, smoking tobacco, chewing tobacco, snuff tobacco and partially manufactured tobacco products; (2) Section 39 provides the requirements for packing of partially manufactured tobacco and tobacco products for export and marking of the containers; (3) Section 40 prescribes the Official Inspection Label and Export strip stamps or seals; (4) Section 41 deals with the inspection of partially manufactured tobacco or tobacco products for export; (5) Section 42 requires notice of export shipment and proof of exportation to be submitted to the Commissioner of Internal Revenue; and (6) Section 44 treats of the return of rejected partially manufactured tobacco or manufactured products of tobacco by foreign buyers. There can be no doubt, then, that the exemption from specific tax under Section 43, Chapter XI of Revenue Regulations No. 17-67 refers to leaf tobacco, partially manufactured tobacco and manufactured products of tobacco for export, and not to imported leaf tobacco, even if entered in the L-7 official register book. Again, the policy under Section 141 of the Tax Code is that all partially manufactured tobacco is subject to specific tax. If assuming arguendo , the Tax Court is correct that Section 43 of Revenue Regulations No. 17-67 exempts all partially manufactured tobacco from specific tax, this view is directly contrary to Section 141 of the Tax Code. Then the said regulation as interpreted by the respondent cannot itself be given the force and effect of law. But as we have already seen, Section 43(a) of Revenue Regulation No. 17-67 applies to tobacco for export. Here lies the unfortunate oversight of the Tax Court. It was also held that the stemmed leaf tobacco imported by the respondent is likewise exempt from specific tax under Section 137 of the Tax Code. Let is suffice that the law makes no distinction as to whether stemmed leaf tobacco sold by one manufacturer to another is imported or local, or whether the manufacturer that supplies stemmed leaf tobacco is a foreign or local supplier. We hold that imported stemmed leaf tobacco is not covered by the exemption under Section 137 of the Tax Code, and further, that the said section refers to local manufacturers only as transferor and transferee. Since the exemption is subject to the condition that the sale of obvious that foreign manufacturers of tobacco and tobacco products not engaged in trade or business in the Philippines cannot be classified as L-7 since they are beyond the pale of Philippine laws and regulations. As provided in Section 20(a) of Revenue Regulations No. V-39, the transfer of stemmed leaf tobacco from one factory to another must be under an official L-7 invoice and entered in the L-7 registers of both the transferor and transferee. Obviously, the factories must be operated by holders of L-7 permits. We share the view expressed by Presiding Judge Ernesto D. Acosta of the Tax Court, in his concurring opinion in C.T.A. Case No. 4617, entitled "La Suerte Cigar and Cigarette Factory vs. Commissioner of Internal Revenue" , (petition, Annex "D"): "However, with respect to imported leaf tobacco, I beg to disagree with the majority opinion that the foreign suppliers would qualify as manufacturer within the contemplation of Section 137 of the Ta x Co de. I believe the manufacturers referred to therein are domestic manufacturer. The transaction is sale and not importation for the reason that the law uses the word 'sold' to describe the transaction of transferring the raw materials from one manufacturer to another. the law uses the term 'importation or imported' whenever the transaction involves bringing in articles from foreign countries as provided under Section 128 of the T ax Co de." One may ask why tobacco companies are classified into L-3, L-3F, L-3R, L-3, L-4, L-5, L-6, L-7, L-7, etc. From the very nature of these companies, it is not difficult to see that it is for the purpose of facilitating tax collection. This system allows for clear differentiation in tax rates and tax base based on volume and kind of product. A view that disregards the above distinctions can wreck havoc to the elaborate painstaking tax collection efforts of the government involving the heavily regulated tobacco products. As to whether imported stemmed leaf tobacco is subject to specific tax, Section 128 of the Tax Code, in relation to Sections 137 and 141 thereof, provides: SECTION 128. Payment of excise taxes on imported articles . (a) Persons liable. Excise taxes on imported articles shall be paid by the owner or importer to the customs officers, conformably with the regulations of the Department of Finance and before the release of such articles from the custom house, or by the person who is found in possession of articles which are exempt from excise taxes other than those legally entitled to exemption. xxx xxx xxx (b) Rate and basis of the excise tax on imported articles. Unless otherwise specified, imported articles shall be subject to the same rates and basis of excise taxes applicable to locally manufactured articles. (emphasis supplied) Clearly, the liability for excise taxes on imported articles shall be borne by the owner or importer. The rate and basis of the excise tax on imported articles are the same for similar locally manufactured articles. Section 43 of Revenue Regulation No. 17-67 mentions imported leaf tobacco entered in the L-7 register, NOT imported stemmed leaf tobacco . Under Section 2(l) thereof, "leaf tobacco" is defined as "whole leaf or leaf in its complete form"; while under Section 2(m), "stemmed leaf tobacco", which falls under the classification "Partially manufactured tobacco", is defined as "hand-stripped tobacco, clean, good, unbroken leaf only, free from mold and dust". Needless to say, leaf tobacco is not manufactured tobacco. What is exempt under Section 43(a) is imported leaf tobacco entered in the L-7 register book, not imported stemmed leaf tobacco . Hence, even if the imported stemmed leaf tobacco is entered in respondent's L-7 and L-7 registers, the same is not exempt from specific tax. It is provided under Section 127 of the Tax Code that excise taxes on domestic products shall be paid by the manufacturer or producer before removal from the place of production. However, should domestic products be removed from the place of production without the payment of the tax, the owner or person having possession thereof shall be liable for the tax due thereon: SECTION 127. Payment of excise taxes on domestic products, (a) Persons liable, time for payment. Unless otherwise specially allowed, excise taxes on domestic products shall be paid by the manufacture or producer before removal from the place of production: Provided, that the excise tax on locally manufactured petroleum products and indigenous petroleum levied under Sections 145 and 151(a)(4), respectively, of this title shall be paid within fifteen (15) days from the date of removal thereof from the place of production. Should domestic products be removed from the place of production without the payment of the tax, the owner or person having possession thereof shall be liable for the tax due thereon (emphasis ours) If the domestic products are removed from the place of production without the payment of the excise tax, the law does not require that the tax be first collected from the manufacturer or producer before the owner or possessor thereof shall be liable for the tax. The obvious purpose of the law is to ensure that the excise tax on the product is paid, whoever may be liable therefor. We have found that stemmed leaf tobacco was purchased by the respondent from suppliers which were not L-7, and that these were removed from the latter's place of production without the payment of the specific tax thereon. Thus, the respondent, as the present owner or possessor, is liable for the specific tax. We hold that its liability is not conditioned on the tax having been first collected from its suppliers and the latter having failed to pay the same. In its petition for review before the Tax Court, the respondent invoked the tax exemption provision under Section 137 of the Tax Code and Section 43(a) of Revenue Regulations No. 17-67. It is well-settled that tax exemptions are not presumed; that they are construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority; that the tax exemption cannot be made by inference or implication but must be proven beyond reasonable doubt; and in case of doubt, the same shall be resolved against exemption; a claim for exemption must be premised on the clearest grant by organic or statutory law ( Government of P.I. vs. Monte de Piedad, 35 Phil. 42; Telephone and Telegraph Co. vs. CIR, 58 Phil. 639; Manila Jockey Club vs. CIR, 98 Phil. 670; Philippine Guarantee vs. CIR, 15 SCRA 1; Abad vs. CTA, 18 SCRA 374; CIR vs. A.D. Guerrero, 21 SCRA 180; Davao Gulf Lumber Corporation vs. Commissioner of Internal Revenue, 293 SCRA 76; Commissioner of Internal Revenue vs. Court of Appeals, 298 SCRA 83). We find that the respondent has not proved its right to the claimed exemption from excise tax on its imported and locally purchased stemmed leaf tobacco. We uphold the validity of the questioned rules and regulations issued by the Department of Finance, and We conclude that a strict interpretation of Section 137 of the Tax Code and Section 43(a) of Revenue Regulations No. 17-67 negates the Tax Court's cancellation of the deficiency assessment issued to the respondent by the petitioner. "As long as administrative issuances relate solely to carrying into effect the provisions of law, they are valid and have the force of law. (Republic vs. Hizon, 320 SCRA 574) WHEREFORE, premises considered, the Decision of the Court of Tax Appeals in C.T.A. Case No. 4532 is hereby REVERSED and SET ASIDE, and the respondent is ORDERED to pay to the public petitioner the amount of P5,187,432.00 as deficiency specific tax on its imported and locally purchased stemmed leaf tobacco from November 1986 to June 24, 1989, plus 25% surcharge on P5,187,432.00, and 20% interest per annum on the total amount due from December 07, 1990 until full payment, pursuant to Sections 248-49 of the Tax Code. SO ORDERED. Jacinto and Abesamis, JJ . , concur.