LA SUERTE CIGAR & CIGARETTE FACTORY, Petitioner, vs.

COURT OF
APPEALS and COMMISSIONER OF INTERNAL REVENUE,
Respondents. (G.R. No. 125346; November 11, 2014)

FACTS:
These cases involve the taxability of stemmed leaf tobacco imported and locally
purchased by cigarette manufacturers for use as raw material in the manufacture of
their cigarettes. Under the Tax Code, if it is to be exported or to be used in the
manufacture of cigars, cigarettes, or other tobacco products on which the excise tax will
eventually be paid on the finished product.

La Suerte was assessed by the BIR for excise tax deficiency amounting to more than 34
million pesos. La Suerte protested invoking the Tax Code which allows the sale of
stemmed leaf tobacco as raw material by one manufacturer directly to another without
payment of the excise tax. However, the CIR insisted that stemmed leaf tobacco is
subject to excise tax "unless there is an express grant of exemption from [the] payment
of tax."

La Suerte petitioned for review before the CTA which cancelled the assessment. The CIR
appealed to the CA which reversed the CTA. The CIR invoked a revenue regulation (RR)
which limits the exemption from payment of specific tax on stemmed leaf tobacco to
sales transactions between manufacturers classified as L-7 permittees.
ISSUES:
Is the RR valid?
HELD:
Yes, valid. Under Section 3(h) of RR No. 17-67, entities that were issued by the Bureau
of Internal Revenue with an L-7 permit refer to "manufacturers of tobacco products."
Hence, the transferor and transferee of the stemmed leaf tobacco must be an L-7
tobacco manufacturer.

The reason behind the tax exemption of stemmed leaf tobacco transferred between two
L-7 manufacturers is that the same had already been previously-taxed when acquired by
the L-7 manufacturer from dealers of tobacco. There is no new product when stemmed
leaf tobacco is transferred between two L-7 permit holders. Thus, there can be no excise
tax that will attach. The regulation, therefore, is reasonable and does not create a new
statutory right.

Moreover, although delegation is not allowed as a rule, the power to fill in the details
and manner as to the enforcement and administration of a law may be delegated to
various specialized administrative agencies.