4Commissioner of Internal Revenue v CA

FACTS

RA 7654 was enacted by Congress on June 10, 1993 and took effect July 3, 1993. It amended partly Sec. 142 (c) of
the NIRC1.Fortune Tobacco manufactured the following cigarette brands: Hope, More and Champion. Prior to RA
7654, these 3 brands were considered local brands subjected to an ad valorem tax of 20 to 45%. Applying the
amendment and nothing else, the 3 brands should fall under Sec 142 (c) (2) NIRC and be taxed at 20 to 45%.

However, on July 1, 1993, petitioner Commissioner of Internal Revenue issued Revenue Memorandum Circular 37-
93 which reclassified the 3 brands as locally manufactured cigarettes bearing a foreign brand subject to the 55% ad
valorem tax. The reclassification was before RA 7654 took effect. In effect, the memo circular subjected the 3
brands to the provisions of Sec 142 (c) (1) NIRC imposing upon these brands a rate of 55% instead of just 20 to 45%
under Sec 142 (c) (2) NIRC. There was no notice and hearing. CIR argued that the memo circular was merely an
interpretative ruling of the BIR which did not require notice and hearing.

ISSUE: WON Revenue Memorandum Circular 37-93 was valid and enforceable.

RULING

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 mere
interpretative rule but a legislative rule in the nature of subordinate legislation, designed to implement a primary
legislation by providing the details thereof. Promulgated legislative rules must be published. On the other hand,
interpretative rules only provide guidelines to the law which the administrative agency is in charge of enforcing.
BIR, in reclassifying the 3 brands and raising their applicable tax rate, did not simply interpret RA 7654 but
legislated under its quasi-legislative authority.

BELLOSILLO Separate Opinion: the administrative issuance was not quasi-legislative but quasi-judicial. Due process
should still be observed of course but use Ang Tibay v. CIR. One of the powers of administrative agencies like the
Bureau of Internal Revenue, is the power to make rules. The necessity for vesting administrative agencies with this
power stems from the impracticability of the lawmakers providing general regulations for various and varying
details pertinent to a particular legislation. The rules that administrative agencies may promulgate may either be
legislative or interpretative. The former is a form of subordinate legislation whereby the administrative agency is
acting in a legislative capacity, supplementing the statute, filling in the details, pursuant to a specific delegation of
legislative power. 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.