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

THIRD DIVISION [CA-G.R. SP No. 51902. August 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., A. , J p : This is an appeal by petition for review under Rule 43 of the Rules of Court from the Decision dated 9 March 1999 of the Court of Appeals ordering petitioner Commissioner of Internal Revenue to refund to respondent La Suerte Cigar and Cigarette Factory, Inc. (LSCCFI) the amount of P175,909.50 representing unauthorized collections of specific taxes on stemmed leaf tobacco it imported during the month of April 1995. 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 month of April 1995, 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 P175,909.50, which respondent LSCCFI paid under protest. Consequently, 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 9 March 1999 ruled in its favor. In the case of Commissioner of Internal Revenue v. Fortune Tobacco Corporation, CA-G.R. S.P. Nos. 38219 and 40313, 30 January 1998, the Court of Appeals held: "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 17-67 is valid where it provides for the 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." TIaCcD 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 limit 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 first 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. WHEREFORE, the appeal of petitioner Commissioner of Internal Revenue is hereby DENIED and the decision dated 9 March 1999 of the Court of Appeals is AFFIRMED. IEAHca SO ORDERED. Abad Santos, Jr. and Brawner, JJ . , concur.