Commissioner of Internal Revenue v. La Suerte Cigar & Cigarette Factory, Inc.

THIRD DIVISION [CA-G.R. SP No. 50035. July 31, 2000.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . LA SUERTE CIGAR & CIGARETTE FACTORY, INC. , respondent . D E C I S I O N REYES, JR. , J p : This is an appeal by petition for review under Rule 43 of the Rules of Court from the Decision dated 3 September 1998 of the Court of Tax Appeals ordering petitioner Commissioner of Internal Revenue to refund to respondent La Suerte Cigar and Cigarette Factory, Inc. (LSCCFI) the amount of P1,125,268.25 representing unauthorized collections of specific taxes on stemmed leaf tobacco it imported during the period from December 1989 to November 1990. The facts are as follows: Respondent LSCCFI is a corporation organized and existing under the laws of the Republic of the Philippines and engaged in the processing, manufacture, and distribution of tobacco products. During the period from December 1989 to November 1990, respondent LSCCFI imported stemmed leaf tobacco from various sellers abroad. Petitioner Commissioner of Internal Revenue assessed specific taxes on the stemmed leaf tobacco in the amount of P1,125,268.25, which respondent LSCCFI filed a claim for refund with petitioner Commissioner of Internal Revenue, which failed to act on the same. Undeterred, respondent LSCCFI appealed to the Court of Tax Appeals, which in the decision dated 3 September 1998 rules as follows: "This is not a case of first impression. As adverted to earlier, the Honorable Court of Appeals has ruled on this issue in the recent case of Commissioner of Internal Revenue v. Fortune Tobacco Corporation, docketed as CA-G.R. SP. Nos. 38219 and 40313 and promulgated on January 30, 1998. xxx xxx xxx It appears that the consolidated cases at bar are no different from the facts and circumstances obtaining in the case of Fortune Tobacco and involve the same principal issue to contend with. We therefore adopt the aforesaid ruling. SEcITC WHEREFORE, foregoing premises considered, we find the petition meritorious and in accordance with law. Hence, the same is hereby GRANTED and respondent is ORDERED to REFUND in favor of LA Suerte Cigar and Cigarettes Factory, Inc. the total amount of P1,125,268.25 representing erroneously or illegally paid specific taxes for the period from December 1989 to November 1990." The decision dated 30 January 1998 of the Court of Appeals, which was cited by the Court of Tax Appeals, reads in part: "Section 137 of the tax code expressly defines stemmed leaf tobacco and excludes it from payment of the tax when sold in bulk as raw material by one manufacturer directly to another. When Revenue Regulation No. 1767 undertakes to classify stemmed leaf tobacco under Section 141 in a manner different from the way it is treated in Section 137, it is no longer engaged in mere classification. It is already adding something to the law not in consonance with what the law itself specifically provides but contrary to it. It is not only engaged in implementation but in amending a specific provision of the law. xxx xxx xxx. It is elementary that any taxes not specifically imposed by law cannot be mandated on the strength of an administrative regulation which purports to implement the said law. Only Congress, not the BIR, can provide for additional taxes. Revenue Regulation No. 17-67 is valid where it provides for the procedure in enforcing the statute. But the petitioner's powers are limited to questions of procedure, excluding matters of substance such as the imposition of new taxes in addition to those specifically mentioned in the law. This is specifically true when the particular product being taxed by regulation is expressly excluded from taxation by the law. The petitioner is arrogating powers to itself which it does not possess." In the present case, petitioner Commissioner of Internal Revenue questions the ruling of the Court of Tax Appeals that the subject stemmed leaf tobacco is exempt from specific tax. The instant appeal lacks merit. Section 137 of the National Internal Revenue Code (NIRC) states: "Stemmed leaf tobacco, fine-cut shorts, the refuse of fine-cut chewing tobacco, scraps, cuttings, clippings, stems or midribs, and sweepings of tobacco may be sold in bulk as raw material by one manufacturer directly to another, without payment of the [specific] tax under such conditions as may be prescribed in the regulations of the Department of Finance." On the other hand, Revenue Regulation No. V-39 requires that to be entitled to the exemption granted by Section 137 of the NIRC, both the buyer and the seller should be holders of L-7 permits, which are issued only to local manufacturers. In effect, Revenue Regulation No. V-39 restricts the application of Section 137 of the NIRC to domestic producers. It is settled that if the law uses a general term without any qualifications, the administrative agency mandated to implement it cannot its application ( Cebu Oxygen and Acetylene Co., Inc. v. Drilon, 176 SCRA 24 [1989]). Since Section 137 of the NIRC exempts from the specific tax sales in bulk of stemmed leaf tobacco as raw material by one manufacturer directly to another without any conditions as to the domicile of the producers, petitioner Commissioner of Internal Revenue cannot indirectly restrict its application to local manufacturers. Although Section 137 of the NIRC provides that the exemption is granted "under such conditions as may be prescribed in the regulations of the Department of Finance," this merely contemplates matters of procedure, such as the manner of claiming the exemption, but not questions of substance, such as the inclusion or exclusion of entire classes of producers from the exemption. Therefore, the relevant portion of Revenue Regulation No. V-39 is invalid. Significantly, the Bureau of Internal Revenue has not collected specific taxes on stemmed leaf tobacco since 1939, when the NIRC was first enacted, until 1989, when petitioner Commissioner of Internal Revenue assessed the stemmed leaf tobacco imported by respondent LSCCFI. Thus, petitioner Commissioner of Internal Revenue should reinstate its former policy from which it has improperly deviated. aHADTC WHEREFORE, the appeal of petitioner Commissioner of Internal Revenue is hereby DENIED and the decision dated 3 September 1998 of the Court of Tax Appeals is AFFIRMED. SO ORDERED. Abad Santos, Jr. and Brawner, JJ . , concur.