CIR v. Hon. CA, CTA and Fortune Tobacco Corp.

, 261 SCRA 236

Doctrine: 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, the laws
must have the benefit of public hearing, it is generally required that before a legislative
rule is adopted there must be a hearing.

It should be understandable that when an administrative rule is merely interpretative in

nature, its applicability needs nothing further than its bare issuance for it gives no real
consequence more than what the law itself has already prescribed. When, upon the other
hand, the administrative rule goes beyond merely providing for the means that can
facilitate or render least cumbersome the implementation of the law but substantially adds
to or increases the burden of those governed, it behooves the agency to accord at least
to those directly affected a chance to be heard, and thereafter to be duly informed, before
that new issuance is given the force and effect of law.

Facts: Fortune Tobacco Corporation is engaged in the manufacture of different brands

of cigarettes. On various dates, the Philippine Patent Office issued to the corporation
separate certificates of trademark registration over "Champion," "Hope," and "More"
cigarettes.

The CIR initially classified 'Champion,' 'Hope,' and 'More' as foreign brands since they
were listed in the World Tobacco Directory as belonging to foreign companies. However,
Fortune changed the names of 'Hope' to Hope Luxury' and 'More' to 'Premium More,'
thereby removing the said brands from the foreign brand category. Fortune also submitted
proof the BIR that 'Champion' was an original register and therefore a local brand. Ad
Valorem taxes were imposed on these brands.

RA 7654 was passed in it was provided that 55% ad valorem tax will be imposed on local
brands carrying a foreign name. Two days before the effectivity of RA 7654, the BIR
issued Revenue Memorandum Circular No. 37-93, in which Fortune was to be imposed
55% ad valorem tax on the three brands classifying them as local brands carrying a
foreign name.

Fortune filed a petition with the CTA which was granted finding the RMC as defective.
The CIR filed a motion for reconsideration with the CTA which was denied, then to the
CA, an appeal, which was also denied.

ISSUE: Whether the RMC was valid.

RULING:NO. The RMC was made to place the three brands as locally made cigarettes
bearing foreign brands and to thereby have them covered by RA 7654. Specifically, the
new law would have its amendatory provisions applied to locally manufactured cigarettes
which at the time of its effectivity were not so classified as bearing foreign brands. Prior
to the issuance of the RMC, the brands were subjected to 45% ad valorem tax. In so
doing, the BIR not simply interpreted the law but it legislated under its quasi-legislative
authority. The due observance of the requirements of notice, of hearing, and of publication
should not have been then ignored.

The Court is convinced that the hastily promulgated RMC 37-93 has fallen short of a valid
and effective administrative issuance.