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case digests volume III

case digests volume III



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tax law case digests
tax law case digests

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CIR v. CA, ROH Auto
(BIR Rules and Regulations)
EO41 was promulgated declaring a one-time tax amnestyon unpaid income taxes, later amended to include estate anddonor's taxes and taxes on business, for the taxable years1981 to 1985.Availing itself of the amnesty, R.O.H. Auto Products filed,tax amnesty returnms and paid the amnesty taxes due.Prior to this availment, CIR assessed the ROH deficiencyincome and business taxes in an aggregate amount of P1,410,157.71.ROH wrote back to state that since it had been able toavail itself of the tax amnesty, the deficiency tax notice shouldforthwith be cancelled and withdrawn.The request was denied by the Commissioner on theground that Revenue Memorandum Order No. 4-87, dated 09February 1987, implementing Executive Order No. 41, hadconstrued the amnesty coverage to include only assessmentsissued by the Bureau of Internal Revenue after thepromulgation of the executive order on 22 August 1986 and notto assessments theretofore made.
Is ROH covered by the tax amnesty?
Was the CIR’s position correct?
NO.Ratio Decidendi:
1. The added exception urged by petitioner Commissioner based on Revenue Memorandum Order No. 4-87, further restricting the scope of the amnesty clearly amounts to anact of administrative legislation quite contrary to themandate of the law which the regulation ought toimplement.2. The authority of the Secretary of Finance, in conjunction withthe CIR, to promulgate rules and regulations for theenforcement of internal revenue laws cannot becontroverted. Neither can it be disputed that such rules andregulations, as well as administrative opinions and rulings,ordinarily should deserve weight and respect by the courts.Much more fundamental than either of the above, however,is that all such issuances must not override, but mustremain consistent and in harmony with, the law they seek toapply and implement. Administrative rules and regulationsare intended to carry out, neither to supplant nor to modify,the law.
3. If, as the Commissioner argues, EO 41 had not beenintended to include 1981-1985 tax liabilities alreadyassessed prior to 22 August 1986, the law could havesimply so provided in its exclusionary clauses. It did not.The conclusion is unavoidable, and it is that the executiveorder has been designed to be in the nature of a generalgrant of tax amnesty subject only to the cases
excepted by it
CA affirmed.
Commissioner v. CA
 (G.R. # 119761; 08-29-1996) by yurei™
RA 7654 was enacted by Congress on June 10, 1993 and
took effect July 3, 1993.
It amended partly Sec. 142 (c) of the NIRC
Fortune Tobacco manufactured the following cigaretter brands:Hope, More and Champion. Prior to RA 7654, these 3 brandswere considered local brands subjected to an
ad valorem
tax of 20 to 45%. Applying the amendment and nothing else, (seefootnote below) the 3 brands should fall under Sec 142 (c) (2)NIRC and be taxed at 20 to 45%.3.
However, on
 July 1, 1993
, petitioner Commissioner of InternalRevenue issued
Revenue Memorandum Circular37-93
whichreclassified the 3 brands as locally manufactured cigarettesbearing a foreign brand subject to the 55%
ad valorem
tax. Thereclassification was before RA 7654 took effect.4.
In effect, the memo circular subjected the 3 brands to the provisions of Sec 142 (c) (1) NIRC imposing upon these brandsa rate of 55%
instead of just 20 to 45% under Sec 142 (c) (2)NIRC.5.
There was no notice and hearing. CIR argued that the memocircular was merely an interpretative ruling of the BIR which didnot require notice and hearing.
WON RMC 37-93 was valid and enforceable –
No; lack of notice and hearing violated due process required for promulgated rules. Moreover, it infringed on uniformity of taxation / equal  protection since other local cigarettes bearing foreign brands had not been included within the scope of the memo circular.
Contrary to petitioner’s contention, the memo was not a mereinterpretative rule but a legislative rule in the nature of subordinate legislation, designed to implement a primarylegislation by providing the details thereof. Promulgatedlegislative rules must be published.2.
On the other hand, interpretative rules only provide guidelinesto the law which the administrative agency is in charge of enforcing.3.
BIR, in reclassifying the 3 brands and raising their applicable taxrate, did not simply interpret RA 7654 but legislated under itsquasi-legislative authority.BELLOSILLO
separate opinion
: the administrative issuance was notquasi-legislative but quasi-judicial. Due process should still beobserved of course but use
 Ang Tibay v. CIR
Sec. 142 (c) ... There shall be... collected on cigarettes... a tax at the rates prescribed below... :(1)
On locally manufactured cigarettes which are currently classifiedand taxed at 55%
On other locally manufactured cigarettes (already at 20 to 45%)
 20 to 45%
CIR V. CA, CTA, & Fortune Tobacco
(BIR Rules and Regulations)
CIR, through RMC 37-93, aims to collect deficiencies onad valorem taxes against Fortune Tobacco following areclassification of foreign branded cigarettes, as per RA 7654.Fortune Tobacco raised the issue of the propriety of theassessment to the CTA, which decided against the CIR. CTAwas affirmed by CA.
Is RMC 37-93 a mere interpretative ruling, therefore notrequiring, for its effectivity, hearing and filing with the UP LawCenter?
NO.Ratio Decidendi:
1. When an administrative rule is merely interpretative, itsapplicability needs nothing further than its bare issuance for it gives no real consequence more than what the law itself has already prescribed.2. When, upon the other hand, the administrative rule goesbeyond merely providing for the means that can facilitate or render least cumbersome the implementation of the law butsubstantially adds to or increases the burden of thosegoverned, it behooves the agency to accord at least tothose directly affected a chance to be heard, and thereafter to be duly informed, before that new issuance is given theforce and effect of law.
3. A reading of RMC 37-93, particularly considering thecircumstances under which it has been issued, convincesus that the circular cannot be viewed simply as a correctivemeasure or merely as construing Section 142(c)(1) of theNIRC, as amended, but has, in fact and most importantly,been made in order to place "Hope Luxury," "PremiumMore" and "Champion" within the classification of locallymanufactured cigarettes bearing foreign brands and tothereby have them covered by RA 7654.4. Specifically, the new law would have its amendatoryprovisions applied to locally manufactured cigarettes which
at the time of its effectivity 
were not so classified as bearingforeign brands. (Prior to the issuance of the questionedcircular, "Hope Luxury," "Premium More," and "Champion"cigarettes were in the category of locally manufacturedcigarettes
bearing foreign brand subject to 45%
ad valorem
tax.)5. Hence, without RMC 37-93, the enactment of RA 7654,would have had no new tax rate consequence on privaterespondent's products.6. Evidently, in order to place "Hope Luxury," "Premium More,"and "Champion" cigarettes within the scope of theamendatory law and subject them to an increased tax rate,the now disputed RMC 37-93 had to be issued.7. In so doing, the BIR not simply intrepreted the law; verily, itlegislated under its quasi-legislative
authority. The dueobservance of the requirements of notice, of hearing, and of publication should not have been then ignored.
CTA, CA affirmed.
CIR v. Telefunken
(BIR Rules and Regulations)
Telefunken is a domestic corporation registered withthe Board of Investments (BOI) as an
export producer on apreferred pioneer status
RA 6135.
From October 1979 to September 1981, Telefunken producedsemi-conductor devices amounting to P92,843,774.00 whichwere entirely sold to foreign markets. BIR denied Telefunken’srequest for a tax refund/tax credit from the
contractor’s tax
 which it paid for said amount.Telefunken contended that under the provisions of Section 7 of RA 6135 in relation to Section 8 (a) of RA 5186 (TheInvestment Act), it was exempted from the payment of allnational internal revenue taxes for the period in question,except for income tax.
Section 7
of RA. 6135
(the law under which Telefunken isregistered) provides that registered export producers in apioneer status are entitled to the
incentives provided insection 8 (a) of RA 5186.
On the other hand CIR argues that the law speaks of firmsregistered under RA 5186
and thus, the privilege of taxexemption does not apply to firms registered under RA 6135.
WON Telefunken, registered under RA 6135 as apioneer export producer, is exempted from payment of the 3%contractor's tax from October 1979 to September 1981.
. The controlling statute is Section 205 (16) of the 1977National Internal Revenue Code which states:
Sec. 205 
Contractors, proprietors or operators of dockyardsand others.
A contractor's tax of three
of grossreceipts is hereby imposed on the following:xxx xxx xxx(16) Business agents and other independent contractorsincluding private detective or watchman agencies, exceptgross receipts of a pioneer enterprise registered with the Boardof Investments under Republic Act 5186. (As amended by P.D.No. 1457 , June 11, 1978)There is no difference between the gross receipts of pioneer enterprises registered with the Board of Investments under RA 6135 and the gross receipts of registered pioneer enterprises under RA 5186. In factthe CIR himself had ruled in this vein on February 4,1974 in the case of Asian Transmission Corporation.
This 1974 ruling was based the same on Section191(16) of the Tax Code which states:
Sec. 7.
Incentives to registered export producers
— Registeredexport producers. — Registered export producers unless they alreadyenjoy the same privileges under other laws
shall be entitled to theincentives set forth in parahraphs (h), (i) and (j) of Section 7 of Republic Act Numbered Fifty-one hundred eigthy-six, known as theInvestment Incentives Act; and 
registered export producers that are pioneer enterprises shall be entitled also to the incentives set forth in paragraphs (a), (b) and (c) of Section 8 
of the said Act
. Inaddition to the said incentives, and in lieu of other incentives providedin Section 7 and in Section 9 of that Act, registered export producer shall be entitled to benefits and incentives as enumerated hereunder:
“ Pursuant to Section 7 of Republic Act No. 6135, that corporation asa registered export producer on a pioneer status is entitled to the sametax incentives granted to a pioneer industry set forth in section 8(a) of republic Act No. 5186. Under this latter provision, a pioneer industry isexempt from all taxes under the National Internal Revenue Code,except income tax.
In other words, both a registered exportproducer on a pioneer status under Republic Act No. 6135 and apioneer industry under Republic Act No. 5186 are entitled to thesame tax exemption benefits under the Tax Code
Sec. 191.
Contractors, proprietors or operators of dockyards,and others
. — A contractor's tax of three
per centum
of thegross receipts is hereby imposed on the following:xxx xxx xxx(16) Business agents and other independent contractorsexcept persons, associations and corporations under contractfor embroidery and apparel for export, as well as their agentsand contractors and
except gross receipts of or from a pioneer industry registered with the Board of Investments under the provisions of Republic Act Numbered Five Thousand onehundred and eighty-six 
. (Emphasis supplied)A comparison of the above with the previously quoted Section205(16) of the 1977 Tax Code reveals that both provisionsspecifically mention pioneer industries registered with theBoard of Investments under Republic Act No. 5186 as exemptfrom payment of the contractor's tax.
2. Also, this 1974 ruling has not been abrogated with thepassage of the 1977 Tax Code, Section 205(16)
whichexpressly mentions only pioneer enterprises registered with theBoard of Investments under RA 5186 as exempt from thecontractor's tax (though with no reference being maderegarding pioneer enterprises registered under RA 6135).
Lastly, under Sec. 246 of the National Internal RevenueCode, rulings of the BIR may not be given retroactiveeffect, if the same is prejudicial to the taxpayer.
CIR v. Mega Gen. Merch
BIR Rules andRegulations)
 (BACKGROUND)Prior to the promulgation of P.D. No. 392 on
February 18, 1974
, importations of all kinds of paraffin waxwere subject to 7% advance sales tax on landed costs plus25% mark up pursuant to Section 183(b) now Section 197(II) inrelation to Section 186 (now Section 200) of the Tax Code.With the promulgation of P.D. No. 392, a new provision for theimposition of specific tax was added to Section 142 of the TaxCode
(effective Feb 18 1974)On April 1975 Mega wrote the CIR for clarification as towhether imported crude paraffin wax is subject to specific taxor advance sales tax. On
May 14, 1975
Former Commissioner Misael P. Vera in his reply ruled that only wax used as highpressure lubricant and micro crystallin is subject to specific tax;that paraffin which was used as raw material in themanufacture of candles, wax paper, matches, crayons, drugs,appointments etc., is subject to the 7% advance sales tax, thetax to be based on the landed cost thereof, plus 25% mark-up.
Due to Commissioner Vera's ruling Mega filed severalclaims for tax refund/tax credit of the specific tax paid bythem.
However, on
January 28, 1977
, then Acting CIR Efren Planadenied Mega’s claim. According to him the law does not makeany distinction as to the kind of wax subject to specific tax.During the pendency of Mega’s request for reconsideration, aninvestigation was conducted by the BIR in connection with the
importations of wax and petroleum that arrived in thecountry on or subsequent to the date of the ruling of January 28, 1977
it was ascertained that Mega owesthe government specific tax for importation of paraffin waxon June 21, 1977 and August 17, 1977
which gave rise to the
letter of assessment
May 8, 1978
.Prior, however, to the issuance of said letter of assessment of May 8, 1978,
CIR in a
letter dated January 11, 1978,
grantedMega’s claim for refund or tax credit since the importationwhich had arrived in Manila on April 18, 1975 was covered bythe ruling of May 14, 1975 (before its revocation by the rulingof January 28, 1977).
: WON Mega’s importation of crude paraffin wax on June21 and August 17, 1977 are subject to specific tax under Section 142(i) of the Tax Code promulgated on February 18,1974.
: Yes.
:Contrary to the CTA’s ruling
, the Court believes that the letter of Commissioner Plana dated January 11, 1978 did not in any
Section 142. Specific tax on manufactured oils and other fuels.—On refined and manufactured mineral oils and other motor fuels, there shall be collected the following taxes:xxx xxx xxx(i) Greases, waxes and petroleum, per kilogram,thirty-five centavos; ...
Excerpt from CTA ruling:“ To make petitioner liable for specific tax after it has made the importations, would surelyprejudice petitioner as it would be subject to a tax liability of which the Bureau of InternalRevenue has not made it fully aware. As a result, the rulings of May 8, 1978 and February 15,1980 having been issued long after the importations on June 21 and August 1 7, 1977 inquestion cannot be applied with legal effect in this case because to do so will violate theprohibition against retroactive application of the rulings of executive bodies.
Rulings or circulars promulgated by the Commissioner of Internal Revenue, such as the rulings of January 28, 1977 and those of May 8, 1978 and February 15, 1980, can not have anyretroactive application, where to do so, as it did in the case at bar, would prejudice thetaxpayer.”

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