Ozamis Manabay Industries, Inc. v. Commissioner of Internal Revenue

EIGHTH DIVISION [CA-G.R. SP NO. 47286. February 11, 2000.] OZAMIS MANABAY INDUSTRIES, INCORPORATED , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N GUERRERO , J p : Petition for review under Rule 43 of the Rules of Court seeking to reverse respondent's decision and resolution of petitioner's motion for reconsideration thereof, in effect ordering petitioner to pay deficiency Value-Added Tax (VAT) on copra sales for the year 1993. As required, respondent filed his comment dated 16 February 1999 signed by the Litigation and Prosecution Division of the office plus the comment submitted by the Office of the Solicitor General, dated 29 June 1999. The antecedent facts are not disputed and correctly summarized by the Court of Tax Appeals' questioned decision, as follows: "Petitioner is a domestic corporation engaged in the business among others, of buying and selling of copra. "On November 27, 1995, petitioner was assessed by respondent deficiency value added tax on the sales of copra for the year 1993, in the amount of P1,781,587.39. computed as follows: Gross sales on copra P10,063,257.10 Output tax(P10,063,257.10 x 1/11 P914,841.55 Less: Input tax 0.00 Deficiency Value Added Tax still Due P914,841.55 Add: 25% surcharge 20% interest from 3.25.93 to 10.25.95 504,505.44 Compromise penalty 133,500.00 Total deficiency VAT due and collectible P1,781,557.39 =========== "On December 22, 1995, petitioner timely protested the assessment but the same was denied by the respondent in a decision, dated January 16, 1996, received by petitioner's counsel on February 22, 1996. "Hence, on February 23, 1996, petitioner filed through registered mail the instant petition for review. "Petitioner contends that VAT Ruling 190-90 which reversed BIR Ruling RR-68-01 series of 1988, has no force and effect on the ground that petitioner was not notified nor was the VAT Ruling ever published. Thus, the assessment issued by the respondent against the petitioner has no legal basis. cdlex "BIR Ruling No. 68-01, series of 1988, dated January 11, 1998, is quoted hereunder as follows: Joebon Corporation South Road, Dumaguete City Negros Oriental Attention: Mr. Juanito U. Lee, President Gentlemen: This refers to your letter dated December 9,1987 addressed to the Provincial Revenue Officer of Dumaguete City, requesting our opinion on the applicability or non-applicability of the Value-Added Tax (VAT) assessment as imposed by Executive Order no. 273. It is represented that JOEBON MARKETING CORPORATION is engaged in the buying and selling of copra; that our opinion is sought to guide you regarding compliance of the requirements under the law especially with reference to your registration if so covered. In reply, I have the honor to inform you that pursuant to the unnumbered ruling of the Commissioner of Internal Revenue dated January 18, 1988 copra has been classified as agricultural food product and therefore not subject to the value-added tax in all stages of production or distribution. Very truly yours, (Sgd.) BEETHOVEN L. RUALO Regional Director "On August 17,1990, VAT Ruling No. 190-90 was issued reclassifying a copra as a non-food agricultural product. The sale thereof is exempt only if made by the primary producer pursuant to sec. 103(a) of the Tax Code, as amended. Thus, as a trading company and a subsequent seller, sale of copra is already subject to VAT pursuant to sec. 9(b) (1) of Revenue Regulations No. 5-87. This revokes VAT Ruling Nos. 009-88 and 279-88. "Later, in a letter dated April 10, 1991, the Bureau of Food and drugs, through its Director, Dr. Quintin L. Kintanar, addressed to Mr. Victor A. Deoferio, Jr., Chairman, VAT Review Committee, BIR, clarified that copra is an agricultural food product because copra is produced from coconut meat which is food and more than 80% of products derived from (sic) copra are edible products. "On November 27, 1996, petitioner was assessed by the respondent deficiency VAT on its copra sales for 1993 in the amount of P1,781,557.39. Its protest was denied by the respondent. "In an answer to the petition for review filed by the petitioner, the respondent claimed she has the power to classify copra for VAT purposes pursuant to Sec. 245 of the Tax Code, as amended. Thus, when it classified copra as an agricultural non-food product under VAT Ruling No. 190-90 the notice and publication requirement are not required being merely an interpretative ruling. Copra is not an agricultural food product within the meaning of Sec. 103(b) of the Tax Code. Therefore, the same is exempt from VAT only if made by the primary producer pursuant to Sec. 103(b) of the Tax Code. Therefore, the sale is exempt from VAT only if made by the primary producer pursuant to Sec. 103(a) of the same Code. In this case, petitioner is not the primary producer of copra sold by it. Hence, the sale of copra by petitioner is, therefore, subject to VAT." 1 In its decision of 24 September 1997, the Court of Tax Appeals decreed: "WHEREFORE, premises considered, judgment is hereby rendered dismissing the herein petition for lack of merit. "Petitioner is hereby ORDERED to PAY the respondent the amount of P1,648,057.39 (net of the compromise penalty) as deficiency VAT for 1993, plus 20% delinquency interest pursuant to Section 249(c) of the Tax Code, as amended. No pronouncement as to costs. "SO ORDERED." 2 Because petitioner's motion for reconsideration was partially meritorious, the CTA modified the decision by deleting the 25% surcharge, interest and penalty imposed, in these words: "ACCORDINGLY, the decision of the Court dated September 24, 1997 is hereby affirmed. The deficiency assessment for Value Added Tax (VAT) issued by respondent against petitioner in the amount of P914.841.55 is upheld but the imposition, in addition thereto, of the 25% surcharge, interest and penalty should be, as it is hereby, deleted. No pronouncement as to costs. cdtai "SO ORDERED." 3 Still unsatisfied, petitioner elevated the CTA decision through the instant petition for review, citing as lone issue: "WHETHER OR NOT, THE LACK OF NOTICE TO THE PETITIONER AFTER THE ADOPTION OF VAT RULING NO. 190-90 DATED AUGUST 17, 1990, BEING A REINTERPRETATION OF A LAW ALREADY PREVIOUSLY INTERPRETED AND RELIED UPON BY COPRA TRADERS FOR SEVERAL YEARS, VIOLATES THE RULE ON FAIR PLAY OR DUE PROCESS." 4 The petition is not well taken. VAT Ruling 190-90 which reversed BIR ruling RR-68-01 series of 1988 and cited against the stand of petitioner in its deficiency assessment for value-added tax (VAT) came about as a result of a letter query of Joebon Marketing Corporation. Since petitioner was not a party to that activity, like court and quasi-judicial proceedings, petitioner was not entitled a copy of VAT ruling 190-90. Copies of interpretative rulings rendered by the Bureau of Internal Revenue, like other administrative bodies, are furnished only to parties involved in the proceedings. Neither do interpretative rulings partake of the character of legislative rules which require publication for their effectivity. In Misamis Oriental Association of Coco Traders, Inc. vs. Department of Finance, 5 the distinctions between legislative rule and an interpretative rule and their legal ramifications are thoroughly discussed in these words: "Petitioner complains that it was denied due process because it was not heard before the ruling was made. There is a distinction in administrative law between legislative rules and interpretative rules. There would be force in petitioner's argument if the circular in question were in the nature of a legislative rule. But it is not. It is mere interpretative rule. "The reason for this distinction is that 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: llcd ' 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. cdlex '(1) In the fixing of rates, no rule or final order shall be valid '(2) 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. "Accordingly, in considering a legislative rule a court is free to make three inquiries:(i) whether the rule is within the delegated authority of the administrative agency, (ii) whether it is reasonable; and (iii) whether it was issued pursuant to proper procedure. But the court is not free to substitute its judgment as to the desirability or wisdom of the rule of the legislative body, by its delegation of administrative judgment, has committed those questions to administrative judgments and not to judicial judgments. In the case of an interpretative rule, the inquiry is not into the validity but into the correctness or propriety of the rule. As a matter of power a court, when confronted with an interpretative rule, is free to (i) give the force of law to the rule (ii) go to the opposite extreme and substitute its judgment; or (iii) give some intermediate degree of authoritative weight to the interpretative rule." In effect, judicial decisions assume the same authority as the nature itself and until authoritatively abandoned, necessarily become, to the extent that they are applicable, the criteria which must control the actuations not only of those called upon to abide thereby but also of those who are duty bound to enforce obedience thereto. 6 Thus, there is no violation of due process in the case at hand. WHEREFORE, the instant petition is hereby DISMISSED . Costs against petitioner. SO ORDERED Aquino and Asuncion . , JJ ., concur. Footnotes 1. Rollo , pp. 138-141. 2. Ibid ., pp. 141-142. 3. Ibid ., p. 142. 4. Rollo , p. 143. 5. 238 SCRA 63. 6. Caltex Phils., Inc. vs. Palomar , 18 SCRA 257.