Request for Review and Amendment of Section 12 (c) of the Revenue Regulations (RR) 17-2012

January 30, 2014 DOF OPINION Mr. Nestor C. Mendones SVP Chief Finance Officer Tanduay Distillers, Inc. 348 J. Nepomuceno Street San Miguel District, Manila SUBJECT : Request for Review and Amendment of Section 12 (c) of the Revenue Regulations (RR) 17-2012 This has reference to your request for review and amendment of Revenue Regulations (RR) No. 17-2012, which states: "SEC. 12. Transitory Provisions . Upon the effectivity of the Act, the following transitory provisions shall be strictly observed by all concerned: xxx xxx xxx (c) The specific tax that was paid on the physical inventory of ethyl alcohol held in possession by manufacturers of compounded liquors as of the effectivity of the Act subsequently used as raw materials in the production of compounded liquors shall not be entitled to tax credit/refund or shall not be deducted from the total excise tax due on compounded liquors." The facts, which are undisputed, are as follows: cTIESa On 09 January 2013, the Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular (RMC) No. 03-2013, clarifying certain provisions of RR No. 17-2012 and implementing the provisions of Republic Act (RA) No. 10351, as well as the provisions of RMC No. 90-2012. RMC 03-2013 explains, among others, the taxability of distilled spirits under Section 3 of RR No. 17-2012, and states that all end-products such as ethyl alcohol, ethanol or other similar products or mixtures are separate and distinct distilled spirits and therefore should be subjected to a separate and distinct excise tax. On 15 February 2013, the BIR issued RMC No. 18-2013, clarifying the taxability of distilled spirits provided under RMC No. 03-2013. Based on the foregoing, Tanduay Distillers, Inc. issued a letter dated 11 March 2013 to the Commissioner of Internal Revenue, requesting for the amendment or revocation of the penultimate paragraph of RMC No. 18-2013, which states: "xxx xxx xxx The excise tax that has already been paid on ethyl alcohol or ethanol pursuant to RMC No. 3-2013 shall not be entitled to tax credit/refund or shall not be deducted from the total excise tax due on compounded liquors. xxx xxx xxx" The Commissioner of Internal Revenue, however, denied Tanduay Distillers, Inc.'s request for amendment of RMC No. 18-2013, citing Section 12 (c) of RR No. 17-2012 as basis for its ruling. Consequently, Tanduay Distillers, Inc. requested the review of Section 12 (c) of RR No. 17-2012 before this Office, and alleged that Section 12 (c) of RR No. 17-2012 has usurped legislative functions since RA No. 10351 did not specify that taxes previously paid on raw materials/ethyl alcohol inventory at the time of the effectivity of the new law cannot be used as a tax credit against taxes due on finished products. ASHaTc Based on this, Tanduay Distillers, Inc. claims that it is unable to understand the basis behind Section 12 (c) of RR No. 17-2012, particularly why manufacturers of compound liquors allegedly are enjoined to pay double taxes on its ethyl alcohol inventory: first as a raw material by itself, and secondly, as part of the finished product. Or why such taxes paid thereon cannot be recouped as tax credit/refund by the manufacturers of distilled spirits. After a careful review of the case records, we see no reason to disturb the provisions of RR No. 17-2012, particularly Section 12 (c). A review of RA No. 10351 reveals that it does not grant tax credit or refund, particularly on the payment of excise tax on ethyl alcohol or ethanol. Due to the absence of any provision allowing tax credit/refund, the provisions of the law are deemed to apply prospectively without exception. Indeed, it is a settled rule that tax laws are prospective in application, unless expressly provided to apply retroactively. 1 Consequently, the Commissioner of Internal Revenue and the Department of Finance cannot be mandated to retroactively apply the tax scheme provided under RA No. 10531 to taxes already paid to the government. Moreover, Section 12 of RA No. 10351 provides that the Secretary of Finance shall, upon the recommendation of the Commissioner of Internal Revenue, promulgate the necessary rules and regulations for the effective implementation of the law. This is in conjunction with Section 4 of the National Internal Revenue Code (NIRC) which provides that the power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary of Finance. SaDICE It is clear therefore that the authority of the Secretary of Finance, in conjunction with the Commissioner of Internal Revenue, to promulgate needful rules and regulations for the effective enforcement of internal revenue laws cannot be controverted. Based on the foregoing, we regret to inform you that your request for amendment of the above provision of RR No. 17-2012 is hereby denied. Very truly yours, (SGD.) CESAR V. PURISIMA Secretary Footnotes 1. Provincial Assessor of Marinduque v. Court of Appeals, et al. , G.R. No. 170532, 30 April 2009.