La Suerte v. CA (2014)

G.R. No. 125346. November 11, 2014.
*

LA SUERTE CIGAR & CIGARETTE FACTORY,
petitioner, vs. COURT OF APPEALS and
COMMISSIONER OF INTERNAL REVENUE,
respondents.
G.R. Nos. 136328-29. November 11, 2014.*

COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs. FORTUNE TOBACCO CORPORATION, respondent.
G.R. No. 144942. November 11, 2014.*

COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs. LA SUERTE CIGAR & CIGARETTE FACTORY,
respondent.
G.R. No. 148605. November 11, 2014.*

STERLING TOBACCO CORPORATION, petitioner, vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
G.R. No. 158197. November 11, 2014.*

petitioner, vs. COMMISSIONER OF INTERNAL
REVENUE, respondent.
G.R. No. 165499. November 11, 2014.*

petitioner, vs. COMMISSIONER OF INTERNAL
REVENUE, respondent.
_______________
* EN BANC.
490
490 SUPREME COURT REPORTS ANNOTATED

La Suerte Cigar ###amp### Cigarette Factory vs. Court of
Appeals
Taxation; Excise Taxes; Words and Phrases; Excise tax is a

tax on the production, sale, or consumption of a specific commodity
in a country.—Excise tax is a tax on the production, sale, or
consumption of a specific commodity in a country. Section 110 of
the 1986 Tax Code explicitly provides that the “excise taxes on
domestic products shall be paid by the manufacturer or producer
before [the] removal [of those products] from the place of
production.” “It does not matter to what use the article[s] subject
to tax is put; the excise taxes are still due, even though the
articles are removed merely for storage in some other place and
are not actually sold or consumed.” The excise tax based on
weight, volume capacity or any other physical unit of
measurement is referred to as “specific tax.” If based on selling
price or other specified value, it is referred to as “ad valorem” tax.
Same; Specific Taxes; When tobacco is harvested and
processed either by hand or by machine, all its products become
subject to specific tax.—It is evident that when tobacco is
harvested and processed either by hand or by machine, all its
products become subject to specific tax. Section 141 reveals the
legislative policy to tax all forms of manufactured tobacco — in
contrast to raw tobacco leaves — including tobacco refuse or all
other tobacco which has been cut, split, twisted, or pressed and is
capable of being smoked without further industrial processing.
Same; Tax Exemptions; Statutes granting tax exemptions
must be construed in strictissimi juris against the taxpayer and
liberally in favor of the taxing authority.—The onus of proving
that stemmed leaf tobacco is not subject to the specific tax lies
with the cigarette manufacturers. Taxation is the rule, exemption
is the exception. Accordingly, statutes granting tax exemptions
must be construed in strictissimi juris against the taxpayer and
liberally in favor of the taxing authority. The cigarette
manufacturers must justify their claim by a clear and categorical
provision in the law. Otherwise, they are liable for the specific tax
on stemmed leaf tobacco found in their possession pursuant to
Section 127 of the 1986 Tax Code, as amended.
Same; Same; Section 137 of the Tax Code authorizes a tax
exemption subject to the following: (1) that the stemmed leaf
tobacco is sold in bulk as raw material by one manufacturer
directly to another; and (2) that the sale or transfer has complied
with the conditions prescribed by the Department of Finance.—
Section 137 authorizes a
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tax exemption subject to the following: (1) that the stemmed

leaf tobacco is sold in bulk as raw material by one manufacturer
directly to another; and (2) that the sale or transfer has complied
with the conditions prescribed by the Department of Finance.
Same; Separation of Powers; The power of taxation is
inherently legislative and may be imposed or revoked only by the
legislature.—The power of taxation is inherently legislative and
may be imposed or revoked only by the legislature. Moreover, this
plenary power of taxation cannot be delegated by Congress to any
other branch of government or private persons, unless its
delegation is authorized by the Constitution itself. Hence, the
discretion to ascertain the following — (a) basis, amount, or rate
of tax; (b) person or property that is subject to tax; (c) exemptions
and exclusions from tax; and (d) manner of collecting the tax —
may not be delegated away by Congress.
Same; Delegation of Powers; It is well-settled that 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 like the Secretary of Finance in this case.
—However, it is well-settled that 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
like the Secretary of Finance in this case. This court in Maceda v.
Macaraig, Jr., 197 SCRA 771 (1991), explained the rationale
behind the permissible delegation of legislative powers to
specialized agencies like the Secretary of Finance: The latest in
our jurisprudence indicates that delegation of legislative power
has become the rule and its non-delegation the exception. The
reason is the increasing complexity of modern life and many
technical fields of governmental functions as in matters
pertaining to tax exemptions. This is coupled by the growing
inability of the legislature to cope directly with the many
problems demanding its attention. The growth of society has
ramified its activities and created peculiar and sophisticated
problems that the legislature cannot be expected reasonably to
comprehend. Specialization even in legislation has become
necessary. To many of the problems attendant upon present day
undertakings, the legislature may not have the competence, let
alone the interest and the time, to provide the required direct and
efficacious, not to say specific solutions.
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Same; Same; To be valid, a revenue regulation must be within

the scope of statutory authority or standard granted by the
legislature.—Rules and regulations implementing the law are
designed to fill in the details or to make explicit what is general,
which otherwise cannot all be incorporated in the provision of the
law. Such rules and regulations, when promulgated in pursuance
of the procedure or authority conferred upon the administrative
agency by law, “deserve to be given weight and respect by the
courts in view of the rule-making authority given to those who
formulate them and their specific expertise in their respective
fields.” To be valid, a revenue regulation must be within the scope
of statutory authority or standard granted by the legislature.
Specifically, the regulation must (1) be germane to the object and
purpose of the law; (2) not contradict, but conform to, the
standards the law prescribes; and (3) be issued for the sole
purpose of carrying into effect the general provisions of our tax
laws.
Same; Tax Exemptions; The Tax Code treats an importer and
a manufacturer differently. Section 123 clearly distinguishes
between goods manufactured or produced in the Philippines and
things imported.—The Tax Code treats an importer and a
manufacturer differently. Section 123 clearly distinguishes
between goods manufactured or produced in the Philippines and
things imported. The law uses the proper term “importation” or
“imported” whenever the transaction involves bringing in articles
from foreign countries as provided under Section 125 (cf. Section
124). Whenever the Tax Code refers to importers and
manufacturers, they are separately mentioned as two distinct
persons or entities (Sections 156 and 160). Under Chapter II,
whenever the law uses the word manufacturer, it only means
local manufacturer or producer of domestic products (Sections
150, 151, and 152 of the 1939 Tax Code). Moreover, foreign
manufacturers of tobacco products not engaged in trade or
business in the Philippines cannot be designated as L-7 since
these are beyond the pale of Philippine law and regulations. The
factories contemplated are those located or operating only in the
Philippines.
Same; Specific Taxes; Prolonged Practice; Prolonged practice
of the Bureau of Internal Revenue (BIR) in not collecting the
specific tax on stemmed leaf tobacco cannot validate what is
otherwise an erroneous application and enforcement of the law.
The government is never estopped from collecting legitimate taxes
because of the error commit-
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ted by its agents.—This court reiterated this rule in Abello v.

Commissioner of Internal Revenue, 452 SCRA 162 (2005), where it
rejected petitioners’ claim that the prolonged practice (since 1939
up to 1988) of the Bureau of Internal Revenue in not subjecting
political contributions to donor’s tax was an authoritative
interpretation of the statute, entitled to great weight and the
highest respect: This Court holds that the BIR is not precluded
from making a new interpretation of the law, especially when the
old interpretation was flawed. It is a well-entrenched rule that[:]
. . . erroneous application and enforcement of the law by public
officers do not block subsequent correct application of the statute,
and that the Government is never estopped by mistake or error on
the part of its agents. (Emphasis supplied, citations omitted)
Prolonged practice of the Bureau of Internal Revenue in not
collecting the specific tax on stemmed leaf tobacco cannot validate
what is otherwise an erroneous application and enforcement of
the law. The government is never estopped from collecting
legitimate taxes because of the error committed by its agents.
Same; Double Taxation; For double taxation in the
objectionable or prohibited sense to exist, “the same property must
be taxed twice, when it should be taxed but once.”—The contention
that the cigarette manufacturers are doubly taxed because they
are paying the specific tax on the raw material and on the
finished product in which the raw material was a part is also
devoid of merit. For double taxation in the objectionable or
prohibited sense to exist, “the same property must be taxed twice,
when it should be taxed but once.” “[B]oth taxes must be imposed
on the same property or subject- matter, for the same purpose, by
the same . . . taxing authority, within the same jurisdiction or
taxing district, during the same taxing period, and they must be
the same kind or character of tax.”
Same; Same; In this case, there is no double taxation in the
prohibited sense because the specific tax is imposed by explicit
provisions of the Tax Code on two (2) different articles or products:
(1) on the stemmed leaf tobacco; and (2) on cigar or cigarette.—
Excise taxes are essentially taxes on property because they are
levied on certain specified goods or articles manufactured or
produced in the Philippines for domestic sale or consumption or
for any other disposition, and on goods imported. In this case,
there is no double taxation in the prohibited sense because the
specific tax is imposed by explicit
494

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provisions of the Tax Code on two different articles or

products: (1) on the stemmed leaf tobacco; and (2) on cigar or
cigarette.
PETITIONS for review on certiorari of the decisions and

resolutions of the Court of Appeals.
The facts are stated in the opinion of the Court.
Angara, Abello, Concepcion, Regala & Cruz for La
Suerte Cigar & Cigarette Factory and Sterling Tobacco
Corporation.
Eduardo R. Ceniza for Fortune Tobacco Corporation.

LEONEN, J.:

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 National Internal Revenue
Code of 1997 (1997 NIRC), before it was amended on
December 19, 2012 through Republic Act No. 103511 (Sin
Tax Law), stemmed leaf tobacco is subject to an excise tax
of P0.75 for each kilogram thereof.2 The 1997 NIRC further
provides that stemmed leaf tobacco —“leaf tobacco which
has had the stem or midrib removed”3 —“may be sold in
bulk as raw material by one manufacturer directly to
another without payment of the tax, under such conditions
as may be prescribed in the rules and regulations
prescribed by the Secretary of Finance.”4
_______________
1 An Act Restructuring the Excise Tax on Alcohol and Tobacco

Products by Amending Sections 141, 142, 143, 144, 145, 8, 131 and 288 of
Republic Act No. 8424. Otherwise Known as the National Internal
Revenue Code of 1997, as Amended by Republic Act No. 9334, and for
Other Purposes.
2 Rep. Act No. 8424 (1997), Sec. 144.
3 Commonwealth Act No. 466 (1939), Sec. 132.
4 Rep. Act No. 8424 (1997), Sec. 140.
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This is a consolidation of six petitions for review of

several decisions of the Court of Appeals, involving three
cigarette manufacturers and the Commissioner of Internal
Revenue. G.R. No. 125346 is an appeal5 from the Court of
Appeals (Sixth Division) that reversed6 the Court of Tax
Appeals’ decision7 and held petitioner La Suerte Cigar &
Cigarette Factory (La Suerte) liable for deficiency specific
tax on its purchase of imported and locally produced
stemmed leaf tobacco and sale of stemmed leaf tobacco to
Associated Anglo-American Tobacco Corporation (AATC)
during the period from January 1, 1986 to June 30, 1989.
G.R. Nos. 136328-29 is an appeal8 by the Commissioner of
Internal Revenue (Commissioner) from the decision9 of the
Court of Appeals that affirmed the Court of Tax Appeals’
rulings10 that Fortune Tobacco Corporation
_______________
5 Rollo (G.R. No. 125346), pp. 16-75.

6 Id., at pp. 78-91 (decision) and pp. 93-100 (resolution). The decision
dated December 29, 1995 and the affirmatory resolution dated June 7,
1996 were both penned by Associate Justice Romeo J. Callejo, Sr. and
concurred in by Associate Justices Antonio M. Martinez (Chair) and
Pacita Cañizares-Nye.
7 Id., at pp. 139-161. The case was docketed as C.T.A. Case No. 4515.
The decision dated July 13, 1995 was penned by Presiding Judge Ernesto
D. Acosta and concurred in by Associate Judges Manuel K. Gruba and
Ramon O. De Veyra.
8 Rollo (G.R. Nos. 136328-29), pp. 8-25.
9 Id., at pp. 28-51 (decision) and p. 52 (resolution). The decision dated
January 30, 1998 and the affirmatory resolution dated November 13, 1998
were both penned by Associate Justice Corona Ibay-Somera (Chair) and
concurred in by Associate Justices Oswaldo D. Agcaoili and Rodrigo V.
Cosico.
10 Id., at pp. 53-72 (C.T.A. Case No. 4587) and pp. 73-88 (C.T.A. Case
No. 4616). The decision on C.T.A. Case No. 4587 dated November 23, 1994
was penned by Presiding Judge Ernesto D. Acosta and concurred in by
Associate Judges Manuel K. Gruba and Ramon O. De Veyra. The decision
on C.T.A. Case No. 4616 dated October 6, 1994 was penned by Associate
Judge Ramon O. De Veyra and concurred in by Presiding Judge Ernesto
D. Acosta and Associate Judge Manuel K. Gruba.
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(Fortune) was not obliged to pay the excise tax on its

importations of stemmed leaf tobacco for the periods from
January 1, 1986 to June 30, 1989 and July 1, 1989 to
November 30, 1990. In G.R. No. 148605, Sterling Tobacco
Corporation (Sterling) appeals11 the decision12 of the Court
of Appeals that reversed the Court of Tax Appeals’
decision13 and held it liable to pay deficiency excise taxes
on its importation and local purchases of stemmed leaf
tobacco from November 1986 to June 24, 1989. G.R. No.
144942 is an appeal14 from the Court of Appeals’ decision15
that affirmed the Court of Tax Appeals’ decision16 and
ordered the refund of specific taxes paid by La Suerte on its
importation of stemmed leaf tobacco in April 1995. In G.R.
No. 158197, La Suerte sought to appeal17 the decision18 of
the Court of Appeals holding it liable for deficiency
_______________
11 Rollo (G.R. No. 148605), pp. 10-51.

dated March 7, 2001 and the affirmatory resolution dated June 19, 2001
were both penned by Associate Justice Eliezer R. de los Santos and
concurred in by Associate Justices Godardo A. Jacinto (Chair) and
Bernardo P. Abesamis.
The decision dated July 13, 1995 was penned by Associate Judge Ramon
O. De Veyra and concurred in by Presiding Judge Ernesto D. Acosta and
Associate Judge Manuel K. Gruba.
14 Rollo (G.R. No. 144942), pp. 7-17.
15 Id., at pp. 19-23. The decision dated August 31, 2000 was penned by
Associate Justice Andres B. Reyes, Jr. and concurred in by Associate
Justices Quirino D. Abad Santos, Jr. (Chair) and Romeo A. Brawner.
The decision dated March 9, 1999 was penned by Associate Judge Ramon
O. De Veyra and concurred in by Presiding Judge Ernesto D. Acosta and
Associate Judge Amancio Q. Saga.
17 Rollo (G.R. No. 158197), pp. 3-33.
18 Id., at pp. 36-49 (decision) and p. 51 (resolution). The decision dated
July 18, 2002 was penned by Associate Justice Hilarion L. Aquino and
concurred in by Associate Justices Conchita Carpio-Morales (Chair) and
Jose L. Sabio, Jr. The affirmatory resolution
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specific tax on its local and imported purchases of

stemmed leaf tobacco and those it sold for the period from
June 21, 1989 to November 20, 1990. Finally, in G.R. No.
165499, La Suerte again sought to appeal by certiorari19
the decision20 of the Court of Appeals reversing the Court
of Tax Appeals and holding it liable for deficiency specific
tax on its importation of stemmed leaf tobacco in March
1995.

Factual background

Overview of cigarette manufacturing

The primary component of cigarettes is tobacco, a
processed product derived from the leaves of the plants in
the genus Nicotiana.21 Most cigarettes contain a mixture or
blend of several types of tobacco from a variety of sources.
The tobacco types grown in the Philippines are:
Virginia (or ‘flue-cured’),22 which accounts for 59.35% of
tobacco production, Burley (or ‘bright air-cured’),23
which makes

_______________
dated May 9, 2003 was penned by Associate Justice Jose L. Sabio, Jr.
and concurred in by Associate Justices Salvador J. Valdez, Jr. (Chair) and
Roberto A. Barrios.
19 Rollo (G.R. No. 165499), pp. 10-35.
dated October 10, 2003 and the affirmatory resolution dated September
24, 2004 were both penned by Associate Justice Godardo A. Jacinto
(Chair) and concurred in by Associate Justices Elvi John S. Asuncion and
Lucas P. Bersamin.
21 “Tobacco, the Unique Plant,” 25 Years of the National Tobacco
Administration, p. 31 (2012).
22 “Tobacco Types Grown in the Philippines,” 25 Years of the National
Tobacco Administration, p. 37 (2012): “Our flue-cured or Virginia tobacco
is actually concentrated in the Ilocos Region, primarily Ilocos Norte, Ilocos
Sur, La Union and Abra. We also have the same type grown in Isabela,
albeit on a smaller scale. . . .”
23 Id.: “For Burley tobacco, our main or largest growers are
Pangasinan, Isabela, Cagayan, Tarlac, Mindoro and La Union.”
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up 22.21%, and the Native (or ‘dark air-cured’),24

which makes up the remaining 18.44%.25 “[T]he ‘native’
type is normally categorized into three: cigar filler type,
wrapper type and chewing type, or . . . ‘Batek’ tobacco.”26
Virginia and Burley, considered as the aromatic type, are
intended for cigarette manufacturing.

Growing and harvesting

“Tobacco seeds undergo a process of germination, which
takes about 7 to 10 days, depending on the tobacco
varieties. . . . The tobacco seedlings are then sown in cold
frames or hotbeds to prevent attacks from insects, and then
transplanted into the fields”27 after 45 to 65 days.28
Harvesting begins 55 to 60 days after transplanting.29 A
farmer carries out either priming (leaf by leaf) or stalk
harvesting (by the whole plant).30

Curing

“After harvest, tobacco is stored for curing, which allows
for the slow oxidation and degradation of carotenoids. This
allows
_______________
24 Id.: “Dark air-cured tobacco or the ‘native’ type is . . . grown mostly

in Mindanao and the Visayas, Cagayan, Isabela, La Union and
Pangasinan.”
25 National Tobacco Administration, Department of Agriculture,
“Industry Performance” <http://nta.da.gov.ph/publications_industry.
html> (visited November 4, 2014).
26 Supra note 22.
27 Id., at p. 38.
28 National Tobacco Administration, Department of Agriculture,
“Industry Performance” <http://nta.da.gov.ph/publications_manual.
html> (visited November 4, 2014): Sowing is done within the month of
November, depending on the type of tobacco.
29 Id.
30 Supra note 22 at p. 38.
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for the leaves to take on properties that are usually

attributed to the ‘smoothness’ of the smoke.”31
“Curing methods vary with the type of tobacco grown.
The tobacco barn design varies accordingly.”32 There are
two main ways of curing tobacco in the Philippine setting:
1) Air-curing (for Burley and Native tobacco) “is carried
out by hanging the tobacco in well-ventilated barns, where
the tobacco is allowed to dry over a period of 4 to 8 weeks.
Air-cured tobacco is generally low in sugar content, which
gives the tobacco smoke a light, smooth, semi-sweet flavor.
These tobacco leaves usually have a high nicotine
content[;]”33 and
2) Flue-curing (for Virginia tobacco) process “starts by
the sticking of tobacco leaves, which are then hung from
tier-poles in curing barns. The procedure will generally
take about a week. Flue-cured tobacco generally produces
cigarette tobacco, which usually has a high content of
sugar, with medium to high levels of nicotine.”34
Once cured, the leaves are sorted into grades based on
size, color, and quality, and packed in standard bales.35 The
bales are then moved to accredited trading centers where
they are purchased by leaf buyers such as wholesale
tobacco dealers and exporters or cigarette manufacturing
companies.36
_______________
31 “Tobacco Cultivation and Processing,” 25 Years of the National

Tobacco Administration, p. 39 (2012).
32 Id.
33 Id.
34 Id.
35 Id.
36 See Tobacco Asia, p. 41 <http://nta.da.gov.ph/images/TA-Q3-11p40-
45.pdf> (visited November 4, 2014).
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Redrying and aging

After purchase, leaf tobacco is redried and then added
with moisture to make the tobacco pliable enough to
remove its large stems.37 The leaves are stripped or de-
stemmed, either by hand or machine, cleaned and
compressed into boxes or porous wooden vats called
hogsheads, and aged.38 Thereafter, the leaves are either
exported or used for the manufacture of cigarettes, cigars,
and other tobacco products.

Primary processing39

In the cigarette factory, the tobacco leaves undergo a
conditioning process where “high temperatures and
humidity restore moisture to suitable levels for cutting and
blending tobacco and completing the cigarette-making
process.”40
“[T]obaccos are precisely cut and blended according to
. . . formulas, or recipes, to produce tobaccos for various
brands of cigarettes. These brand recipes include
ingredients and flavors that are added to the tobacco to
give each brand its unique characteristics.”41

Cigarette making and packing42

“The blended tobacco — often referred to as “filler” or
“cut-filler” — . . . is delivered by a pneumatic feed system to
cigarette making machines . . . within the factory.”43 The
machine
_______________
37 See Philip Morris USA, “Making Our Cigarettes” <http://www.

philipmorrisusa.com/en/cms/Products/Cigarettes/Manufacturing/default.
aspx?src=top_nav> (visited November 4, 2014).
38 Id.
39 Id.
40 Id.
41 Id.
42 Id.
43 Id.
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disperses the shredded tobacco over a continuous roll of

cigarette paper and cuts the paper to the desired length.
The completed cigarettes are subsequently packed, sealed,
and placed in cartons.

Cigarette manufacturers

La Suerte Cigar & Cigarette Factory (La Suerte),44
Fortune Tobacco Corporation (Fortune),45 and Sterling
Tobacco Corporation (Sterling)46 are domestic corporations
engaged in the production and manufacture of cigars and
cigarettes. These companies import leaf tobacco from
foreign sources and purchase locally produced leaf tobacco
to be used in the manufacture of cigars and cigarettes.47
The transactions of these cigarette manufacturers
pertinent to these consolidated cases are the following:
1. La Suerte’s local purchases, importations, and sale of
stemmed leaf tobacco from January 1, 1986 to June 30,
1989 (G.R. No. 125346), and from June 1989 to November
1990 (G.R. No. 158197), and importations in March 1995
(G.R. No. 165499) and April 1995 (G.R. No. 144942);
2. Fortune’s importation of tobacco strips from January
1, 1986 to June 30, 1989, and from July 1, 1989 to
November 30, 1990 (G.R. Nos. 136328-29); and
3. Sterling’s importations and local purchases of
stemmed leaf tobacco from November 1986 to June 24,
1989 (G.R. No. 148605).
_______________
44 Rollo (G.R. No. 158197), p. 36.

45 Rollo (G.R. Nos. 136328-29), p. 144.
46 Rollo (G.R. No. 148605), p. 282.
47 Id.
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History of applicable tax provisions

The first tax code came into existence in 1939 with the
enactment of Commonwealth Act No. 46648 (1939 Code).
Section 136 of the 1939 Code imposed specific (excise) taxes
on manufactured products of tobacco, but excluded cigars
and cigarettes, which were subject to tax under a different
section.49 Section 136 provided thus:
_______________
48 An Act to Revise, Amend and Codify the Internal Revenue Laws of
the Philippines.
49 Sec. 137. Specific Tax on Cigars and Cigarettes.—On cigars and
cigarettes there shall be collected the following taxes:
(a) Cigars —
(1) When the manufacturer’s or importer’s wholesale price, less the
amount of the tax, does not exceed thirty pesos per thousand, on each
thousand, two pesos and thirty centavos.
amount of the tax, exceeds thirty pesos but does not exceed sixty pesos per
thousand, on each thousand, four pesos and sixty centavos.
amount of the tax, exceeds sixty pesos per thousand, on each thousand,
seven pesos.
(b) Cigarettes —
amount of the tax, is four pesos or less per thousand, on each thousand,
one peso and thirty centavos.
amount of the tax, is more than four pesos but not more than six pesos per
thousand, on each thousand, three pesos.
amount of the tax, exceeds six pesos per thousand, on each thousand, four
pesos.
The maximum price at which the various classes of cigars and
cigarettes are sold at wholesale in the factory or in the establishment of
the importer to any member of the public shall determine the rate of tax
applicable to such cigars and cigarettes; and if the manufacturer or
importer also sells, or allows to be
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SECTION 136. Specific Tax on Products of Tobacco.—On

manufactured products of tobacco, except cigars, cigarettes, and
tobacco specially prepared for chewing so as to be unsuitable for
consumption in any other manner, but including all other tobacco
twisted by hand or reduced into a condition to be consumed in any
manner other than by the ordinary mode of drying and curing;
and on all tobacco prepared or partially prepared for sale or
consumption, even if prepared without the use of any machine or
instrument and without being pressed or sweetened; and on all
fine-cut shorts and refuse, scraps, clippings, cuttings, and
sweepings of tobacco, there shall be collected on each kilogram,
sixty centavos.

On tobacco specially prepared for chewing so as to be unsuitable
for use in any other manner, on each kilogram, forty-eight
centavos. (Emphasis supplied)

Section 132 of the 1939 Code, however, by way of
exception, provided that “stemmed leaf tobacco . . . may be
sold in bulk as raw material by one manufacturer directly
to another, under such conditions as may be prescribed in
the regulations of the Department of Finance, without the
prepayment of the tax.” Section 132 stated:
_______________
sold, his cigars and cigarettes at wholesale in another establishment of

which he is the owner or in the profits of which he has an interest, the
maximum sale price in such establishment shall determine the rate of the
tax applicable to the cigars and cigarettes therein sold.
Every manufacturer or importer of cigars and cigarettes shall file with
the Collector of Internal Revenue, on the date or dates designated by the
latter, a sworn statement of the maximum wholesale prices of cigars and
cigarettes, and it shall be unlawful to sell said cigars and cigarettes at
wholesale at a price in excess of the one specified in the statement
required by this Title without previous written notice to said Collector of
Internal Revenue.
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SECTION 132. Removal of Tobacco Products Without Pre-

payment of Tax.—Products of tobacco entirely unfit for chewing or
smoking may be removed free of tax for agricultural or industrial
use, under such conditions as may be prescribed in the
regulations of the Department of Finance; and stemmed leaf
tobacco, fine-cut shorts, the refuse of fine-cut chewing tobacco,
refuse, scraps, cuttings, clippings and sweepings of tobacco may
be sold in bulk as raw material by one manufacturer directly to
another, under such conditions as may be prescribed in the
regulations of the Department of Finance, without the pre-
payment of the tax.

“Stemmed leaf tobacco,” as herein used means leaf tobacco which
has had the stem or midrib removed. The term does not include
broken leaf tobacco. (Emphasis supplied)

On September 29, 1954, upon the recommendation of
then Acting Collector of Internal Revenue J. Antonio
Araneta, the Department of Finance promulgated Revenue
Regulations No. V-39 (RR No. V-39), or “The Tobacco
Products Regulations,” relative to “the enforcement of the
provisions of Title IV of the [1939 Tax Code] insofar as they
affect the manufacture or importation of, and the collection
and payment of the specific tax on, manufactured tobacco
or products of tobacco.”50 Section 20(a) of RR No. V-39,
which lays the rules for tax exemption on tobacco products,
states:
SECTION 20. Exemption from tax of tobacco products

intended for agricultural or industrial purposes.—(a) Sale
of stemmed leaf tobacco, etc., by one factory to another.—
Subject to the limitations herein established, products of tobacco
entirely unfit for chewing or smoking may be removed free of tax
for agricultural or industrial use; and stemmed leaf tobacco, fine-
cut shorts, the refuse of fine-cut chewing tobacco, refuse, scraps,
cuttings, clippings, and sweepings of tobacco
_______________
50 Revenue Regulations No. V-39, Sec. 1.
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may be sold in bulk as raw materials by one manufacturer

directly to another without the prepayment of specific tax.
Stemmed leaf tobacco, fine-cut shorts, the refuse of fine-cut
chewing tobacco, scraps, cuttings, clippings, and sweeping of leaf
tobacco or partially manufactured tobacco or other refuse of
tobacco may be transferred from one factory to another under an
official L-7 invoice on which shall be entered the exact weight of
the tobacco at the time of its removal, and entry shall be made in
the L-7 register in the place provided on the page of removals.
Corresponding debit entry will be made in the L-7 register book of
the factory receiving the tobacco under heading “Refuse, etc.,
received from other factory,” showing the date of receipt,
assessment and invoice numbers, name and address of the
consignor, form in which received, and the weight of the tobacco.
This paragraph should not, however, be construed to permit the
transfer of materials unsuitable for the manufacture of tobacco
products from one factory to another. (Emphasis supplied)

Sections 10 and 11 of RR No. V-39 enumerate and
describe the record books to be kept and used by
manufacturers of tobacco products, viz.:
SECTION 10. (a) Register, auxiliary, and stamps

requisition books for manufacturers.—The Collector of
Internal Revenue shall from time to time supply provincial
revenue agents or the Chief of the Tobacco Tax Section with the
necessary number of manufacturers official register books and
official auxiliary register books as may be required in each locality
by manufacturers of tobacco products. Whenever any
manufacturer shall have qualified himself as such by executing a
proper bond, registering his factory, and paying the privilege tax
and shall have complied with all the requirements of engaging in
such business contained in the National Internal Revenue Code
and in these regulations, the internal revenue agent within whose
district the factory is located shall deliver to said manufacturer
the nec-
506

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essary official register books and auxiliary register books. These
books consist of the following:
B.I.R. No. 31.09 — Official Register Book, A-3 for
manufacturers of chewing and smoking tobacco.
B.I.R. No. 31.10 — Manufactured tobacco (Transcript sheet of
above).
B.I.R. No. 31.18 — Official Register Book, A-4, for
manufacturers of cigar.
B.I.R. No. 31.19 — (Transcript sheet of the above).
B.I.R. No. 31.27 — Official Register Book, A-5, for
Manufacturers of cigarettes.
B.I.R. No. 31.28 — (Transcript sheet of above).
B.I.R. No. 31.01 — Official Register Book, L-7, record of raw
materials for manufacturers of any class of tobacco products.
B.I.R. No. 31.02 — (Transcript sheet of above)[.]
B.I.R. No. 31.46 — Auxiliary Register Book, L-7-1/2, bale book,
for manufacturers of any class of tobacco products.
B.I.R. No. 31.47 — (Transcript sheet of above).
B.I.R. No. 31.12 — Stamp requisition book, for manufacturers
of manufactured tobacco.
of cigars.
of cigarettes.
B.I.R. No. 31.05 — L-7 Official Invoice Book for, use in
connection with L-7 register book.
B.I.R. No. 31.05 — L-7-1/2 Official Invoice Book, for use in
connection with L-7-1/2 bale book.
(b) General nature of official register and auxiliary
register books.—The L-7 official register book is the record of all
raw materials used in the manufacture of tobacco products of all
description in the factory. It is the primary record of the internal
operations of the fac-
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tory. It shows the raw materials used in the manufacture and the
articles actually manufactured or produced. The Schedule A
register books are the record of the articles actually manufactured
or produced, and transferred from the credit side of the official
register book, L-7. They show the amount of taxes paid and the
name of the person to whom the finished products is consigned or
sold when leaving the factory. The bale book[,] L-7-1/2, is an
auxiliary to the L-7 official register book.
All official register books and other official records herein
required of manufacturers shall be kept in the factory premises,
or in the factory warehouse, in the case of bale books, and open to
inspection by any internal revenue officer at all times of the day
or night.
....
SECTION 11. Entries to be made in the official register
and auxiliary register books; monthly transcripts.—(a)
Official bale book (L-7-1/2).—All leaf tobacco received in any
factory or factory warehouse shall be debited, and any removal of
tobacco from the factory shall be credited in the official bale book;
except cuttings, clippings, sweepings, and other partially
manufactured tobacco, which shall be credited in the L-7 register
book.
The Collector of Internal Revenue may in his discretion waive
the requirements of keeping an official bale book by small
factories.
(b) The Official Register Book (L-7).—One L-7 books shall
suffice for each manufacturer of tobacco products, regardless of
the classes of tobacco manufactured by him. All loose leaf tobacco
received in the factory proper and all bales of leaf tobacco which
are opened in the factory for use in the manufacture of tobacco
products shall be entered in the L-7 official register book under
the heading “Received from Dealers” at the net weights. In the
column headed “Name[”] and “Address” shall be shown the words
“Transferred from tobacco factory warehouse.” All leaf tobacco
received into a factory must be entered in the official bale book
pertaining to the factory and bales of leaf tobacco shall not be
taken up in the L-7
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register book until said bales are transferred for use and credited
in the official bale book. While leaf tobacco must be taken in the
official bale book, this is done for statistical purposes only. As
soon as it enters the factory for use in manufacture it should be
taken up in the L-7 register book and credited in the official bale
book.
All removals of waste of tobacco, whether transferred to other
factories, removed for agricultural or industrial purposes, or
destroyed on the premises or elsewhere, shall be entered in the
official register book, L-7, under the heading “Raw Materials
Removed,” showing all information required therein. (Emphasis
supplied)

Section 2 of RR No. V-39 broadly defined “manufactured
products of tobacco” and “manufacturer of tobacco
products” as follows:
Section 2. Definition of terms.—When used in there [sic]

regulations, the following terms shall be given the interpretations
indicated in their respective definitions given below, except where
the context indicates otherwise:
(a) “Manufactured products of tobacco” shall include cigars,
cigarettes, smoking tobacco, chewing, snuff, and all other forms of
manufactured and partially manufactured tobacco, as defined in
Section 194(M)51 of the National Internal Revenue Code.
_______________
51 SECTION 194. Words and Phrases Defined.—. . .

(m) “Manufacturer of tobacco” includes every person whose business it
is to manufacture tobacco or snuff, or who employs others to manufacture
tobacco or snuff, whether such manufacture be by cutting, pressing,
grinding, or rubbing any raw or leaf tobacco, or otherwise preparing raw
or leaf tobacco, or manufactured or partially manufactured tobacco and
snuff, or putting up for consumption scraps, refuse, or stems of tobacco
resulting from any process of handling tobacco stems, scraps, clippings, or
waste by sifting, twisting, screening, or by any other process.
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(b) “Manufacturer of tobacco products” shall include all

persons engaged in the manufacture of any of the forms of tobacco
mentioned in the next preceding paragraph.

In 1967, the Secretary of Finance promulgated Revenue
Regulations No. 17-67 (RR No. 17-67), as amended,52 or the
“Tobacco Revenue Regulations on Leaf, Scrap, Other
Partially Manufactured Tobacco and Other Tobacco
Products; Grading, Classification, Inspection, Shipments,
Exportation, Importation and the Manufacturers thereof
under the provisions of Act No. 2613, as amended.” Section
2(i) of RR No. 17-67 defined a “manufacturer of tobacco”
and included in the definition one who prepares partially
manufactured tobacco. Section 2(m) defined “partially
manufactured tobacco” as including stemmed leaf tobacco.
Thus, Sections 2(i) and (m) read:
(i) “Manufacturer of tobacco” — Includes every person whose

business it is to manufacture tobacco o[r] snuff or who employs
others to manufacture tobacco or snuff, whether such
manufacture be by cutting, pressing (not baling), grinding, or
rubbing (grating) any raw or leaf tobacco, or otherwise preparing
raw or leaf tobacco, or manufactured or partially manufactured
tobacco and snuff, or putting up for consumption scraps, refuse, or
stems of tobacco resulting from any process of handling tobacco
stems, scraps, clippings, or waste by sifting, twisting, screening or
by any other process.
....
(m) “Partially manufactured tobacco” — Includes:
(1) “Stemmed leaf” — handstripped tobacco, clean, good,
partially broken leaf only, free from mold and dust.
_______________
52 Amended by Revenue Regulations Nos. 9-72 (September 27, 1972),

1-73 (December 26, 1972), 5-75 (November 11, 1975), 10-75 (December 19,
1975), and 1-76 (November 16, 1976).
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(2) “Long-filler” — handstripped tobacco of good, long pieces of

broken leaf usable as filler for cigars without further preparation,
and free from mold, dust stems and cigar cuttings.
(3) “Short-filler” — handstripped or machine-stripped tobacco,
clean, good, short pieces of broken leaf, which will not pass
through a screen of two inches (2”) mesh.
(4) “Cigar-cuttings” — clean cuttings or clippings from cigars,
unsized with any other form of tobacco.
(5) “Machine-scrap tobacco” — machine-threshed, clean, good
tobacco, not included in any of the above terms, usable in the
manufacture of tobacco products.
(6) “Stems” — midribs of leaf tobacco removed from the whole
leaf or broken leaf either by hand or machine.
(7) “Waste tobacco” — denatured tobacco; powder or dust,
refuse, unfit for human consumption; discarded materials in the
manufacture of tobacco products, which may include stems.

Section 3 of RR No. 17-67 classified entities that dealt
with tobacco according to the type of permit that the
Bureau of Internal Revenue issued to each entity. Under
this classification, wholesale leaf tobacco dealers were
considered L-3 permittees. Those (referring to wholesale
leaf tobacco dealers) that reprocess partially manufactured
tobacco for export, for themselves, and/or for other L-6 or L-
7 permittees were considered L-6 permittees.
Manufacturers of tobacco products such as cigarette
manufacturers were considered L-7 permittees. Section 3 of
RR No. 17-67 reads:
(a) L-3 — Wholesale leaf tobacco dealer.

(b) L-3F — Wholesale leaf tobacco dealer. Issued only in favor
of Farmer’s Cooperative Marketing Association (FaCoMas) duly
organized in accordance
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with law. [This function relative to tobacco trading was

transferred to the Philippine Virginia Tobacco Administration
(PVTA) under Section 15 of Republic Act No. 2265].
(c) L-3R — Wholesale leaf tobacco dealers. Issued only in favor
of persons or entities having fully equipped Redrying Plants.
(d) L-3-¼ — Buyers for wholesale leaf tobacco dealers.
(e) L-4 — Wholesale leaf tobacco dealers. Issued only in favor of
persons or entities having flue-curing barns, who may purchase or
receive green Virginia leaf tobacco from bona fide tobacco planters
only, or handle green leaf of their own production, which tobacco
shall be sold or transferred only to holders of L-3 and L-3R
permits after flue-curing the tobacco.
(f) L-5 — Tobacco planters selling to consumers part or the
whole of their tobacco production.
(g) L-6 — Wholesale leaf tobacco dealers who, exclusively for
export, except as otherwise provided for in these regulations,
perform the following functions:
(1) Handstripped and/or thresh whole leaf tobacco for
themselves or for other L-6 or L-7 permittees;
(2) Reprocess partially manufactured tobacco for themselves, or
for other L-6 or L-7 permittees;
(3) Sell their partially manufactured tobacco to other L-6
permittees.
(h) L-7 — Manufacturers of tobacco products. [L-7-½
designates an auxiliary registered book (bale books), for
manufacturers of tobacco products.]
(i) B-14 — Wholesale leaf tobacco dealers (Privilege tax receipt)
(j) B-14 (a) — Retail leaf tobacco dealers (Privilege tax receipt)
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La Suerte contends that on December 12, 1972, then

Internal Revenue Commissioner Misael P. Vera issued a
ruling which declared that:
. . . . The subsequent sale or transfer by the L-6/L-3R permittee

for export or to an L-7-1/2 for use in the manufacture of cigars or
cigarettes may also be allowed without the prepayment of the
specific tax.53

Almost 40 years from the enactment of the 1939 Tax
Code, Presidential Decree No. 1158-A, otherwise known as
the “National Internal Revenue Code of 1977,” was
promulgated on June 3, 1977, to consolidate and integrate
the various tax laws which have so far amended or
repealed the provisions found in the 1939 Tax Code.
Section 132 was renumbered as Section 144, and Section
136 as Section 148. Sections 144 and 148, read:
SEC. 144. Removal of tobacco products without prepayment

of tax.—Products of tobacco entirely unfit for chewing or smoking
may be removed free of tax for agricultural or industrial use,
under such conditions as may be prescribed in the regulations of
the Department of Finance, and stemmed leaf tobacco, fine-cut
shorts, the refuse of fine-cuts chewing tobacco, re-refuse, scraps,
cuttings, clippings, stems or midribs, and sweepings of tobacco
may be sold in bulk as raw material by one manufacturer directly
to another, under such conditions as may be prescribed in the
regulations of the Department of Finance, without the
prepayment of the tax.
“Stemmed leaf tobacco”, as herein used means leaf tobacco
which has had the stem or midrib removed. The term does not
include broken leaf tobacco.
....
SEC. 148. Specific tax on products of tobacco.—On
manufactured products of tobacco, except cigars, ciga-
_______________
53 Rollo (G.R. No. 125346), p. 381.
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rettes, and tobacco specially prepared for chewing so as to be

unsuitable for consumption in any other manner, but including all
other tobacco twisted by hand or reduced into a condition to be
consumed in any manner other than by the ordinary mode of
drying and curing; and on all tobacco prepared or partially
prepared for sale or consumption, even if prepared without the
use of any machine or instrument and without being pressed or
sweetened; and on all fine-cut shorts and refuse, scraps, clippings,
cuttings, stems, and sweepings of tobacco, there shall be collected
on each kilogram, seventy-five centavos: Provided, however, That
fine-cut shorts and refuse, scraps, clippings, cuttings, stems and
sweepings of tobacco resulting from the handling, or stripping of
whole leaf tobacco may be transferred, disposed of, or otherwise
sold, without prepayment of the specific tax herein provided for
under such conditions as may be prescribed in the regulations
promulgated by the Secretary of Finance upon recommendation of
the Commissioner if the same are to be exported or to be used in
the manufacture of other tobacco products on which the specific
tax will eventually be paid on the finished product.
On tobacco specially prepared for chewing so as to be
unsuitable for use in any other manner, on each kilogram, sixty
centavos.

Sections 144 and 148 were subsequently renumbered as
Sections 120 and 125, respectively under Presidential
Decree No. 1994,54 which took effect on January 1, 1986
(1986 Tax Code); then as Sections 137 and 141 under
Executive Order No. 273;55 and finally as Sections 140 and
144 under Republic
_______________
54 Further Amending Certain Provisions of the National Internal

Revenue Code, promulgated on November 5, 1985.
55 Adopting a Value-Added Tax, Amending for this Purpose Certain
Provisions of the National Internal Revenue Code, and for Other
Purposes, promulgated on July 25, 1987 and took effect on January 1,
1988.
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Act No. 8424 or the “Tax Reform Act of 1997.” However,

the provisions remained basically unchanged.
The business transactions of La Suerte, Fortune, and
Sterling that the Commissioner found to be taxable for
specific tax took place during the effectivity of the 1986 Tax
Code, as amended by Executive Order No. 273. The
pertinent provisions are Sections 137 and 141, thus:

the Ministry of Finance. Stemmed leaf tobacco, fine-cut shorts,
the refuse of fine-cut chewing tobacco, scraps, cuttings, clippings,
stems or midribs, and sweepings of tobacco may be sold in bulk as
raw material by one manufacturer directly to another, without
payment of the tax under such conditions as may be prescribed in
the regulations of the Ministry of Finance.
‘Stemmed leaf tobacco,’ as herein used, means leaf tobacco
include broken leaf tobacco.
....
SEC. 141. Tobacco Products.—There shall be collected a tax
of seventy-five centavos on each kilogram of the following
products of tobacco:
(a) tobacco twisted by hand or reduced into a condition to be
consumed in any manner other than the ordinary mode of drying
and curing;
(b) tobacco prepared or partially prepared with or without the
use of any machine or instruments or without being pressed or
sweetened; and
(c) fine-cut shorts and refuse, scraps, clippings, cuttings,
stems and sweepings of tobacco.
Fine-cut shorts and refuse, scraps, clippings, cuttings, stems
and sweepings of tobacco resulting from the
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handling or stripping of whole leaf tobacco may be transferred,

disposed of, or otherwise sold, without prepayment of the specific
tax herein provided for under such conditions as may be
prescribed in the regulations promulgated by the Ministry of
Finance upon recommendation of the Commissioner, if the same
are to be exported or to be used in the manufacture of other
tobacco products on which the excise tax will eventually be paid
on the finished product.
centavos.

Parenthetically, the present provisions explicitly state
the following:
Stemmed leaf tobacco, tobacco prepared or partially prepared

with or without the use of any machine or instrument or without
being pressed or sweetened, fine-cut shorts and refuse, scraps,
clippings, cuttings, stems, midribs, and sweepings of tobacco
resulting from the handling or stripping of whole leaf tobacco
shall be transferred, disposed of, or otherwise sold, without any
prepayment of the excise tax . . . if the same are 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, under such conditions as may be
prescribed in the rules and regulations promulgated by the
Secretary of Finance, upon recommendation of the
Commissioner. 56

BIR Assessments

G.R. No. 125346
Sometime in June, 1989, a team of examiners from the Bureau

of Internal Revenue, led by Crisanto G. Luna,
_______________
56 Rep. Act No. 8424 (1997), Sec. 144, as amended by Rep. Act No.
10351 (2012).
516
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Revenue Officer III of the Field Operation Division of the Excise

Tax Service, conducted an examination of the books of La Suerte
by virtue of a letter of authority issued by then Commissioner
Jose U. Ong.
On January 3, 1990, La Suerte received a letter from then
Commissioner Jose U. Ong demanding the payment of
P34,934,827.67 as deficiency excise tax on La Suerte’s entire
importation and local purchase of stemmed leaf tobacco for the
period covering January 1, 1986 to June 30, 1989.
On January 12, 1990, La Suerte . . . protest[ed] the excise tax
deficiency assessment . . . stressing that the BIR assessment was
based solely on Section 141(b) of the Tax Code without, however,
applying Section 137 thereof, the more specific provision, which
expressly allows the sale of stemmed leaf tobacco as raw material
by one manufacturer directly to another without payment of the
excise tax. However, in a letter, dated August 31, 1990,
Commissioner Jose U. Ong denied La Suerte’s protest, insisting
that stemmed leaf tobacco is subject to excise tax “unless there is
an express grant of exemption from [the] payment of tax.”
In a letter dated October 17, 1990, Commissioner Ong
reiterated his demand for the payment of the alleged deficiency
excise taxes due from La Suerte, to wit:
“Please be informed that in an investigation conducted by this
Office, it was ascertained that you incurred a deficiency specific
tax on your importation and local purchase of stemmed leaf
tobacco covering the period from January 1, 1986 to June 30, 1989
in the total amount of P34,904,247.00 computed as follows:

. . . .” (page 99, Rollo)
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On December 6, 1990, La Suerte filed with the Court of Tax

Appeals a Petition for Review seeking for the annulment of the
assessments. . .
. . . On July 13, 1995, the Tax Court rendered [its] Decision, the
dispositive portion of which reads[:]
“WHEREFORE, in all the foregoing, the assessment of alleged
deficiency specific tax in the amount of P34,904,247.00 issued by
the Respondent is hereby CANCELLED for lack of merit.
SO ORDERED.”57

The Commissioner appealed the Court of Tax Appeals’
decision before the Court of Appeals. On December 29,
1995, the Court of Appeals Sixth Division ruled against La
Suerte and found that RR No. V-39 limits the tax
exemption on transfers of stemmed leaf tobacco to transfers
between two L-7 permittees.58 The Court of Appeals ruled
as follows:
IN THE LIGHT OF ALL THE FOREGOING, the Decision

appealed from is hereby REVERSED and SET ASIDE.
Respondent is ordered to pay the petitioner Commissioner of
Internal Revenue the amount of P34,904,247.00 as deficiency
specific tax on its importations and local purchases of stemmed
leaf tobacco and its sale of stemmed leaf tobacco to Associated
Anglo-American Tobacco Corporation covering the period from
January 1, 1986 to June 30, 1989, plus 25% surcharge for late
payment and 20% interest per annum from October 17, 1990 until
fully paid pursuant to Sections 248 and 249 of the Tax Code.
SO ORDERED.59
_______________
57 Id., at pp. 78-80.

58 Id., at p. 85.
59 Id., at p. 90.
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La Suerte filed a motion for reconsideration, which was

denied by the Court of Appeals in its June 7, 1996
resolution.60
On August 2, 1996, La Suerte filed the instant petition
for review,61 praying for the reversal of the Court of
Appeals’ decision and cancellation of the assessment by the
Commissioner. La Suerte raises the following grounds in
support of its prayer:
A. THE COURT OF APPEALS ERRED WHEN IT
CONSIDERED SECTION 20(A) OF RR NO. V-39, SINCE THE
COMMISSIONER RAISED IT FOR THE FIRST TIME IN THE
COURT OF APPEALS.
B. THE COURT OF APPEALS ERRED WHEN IT HELD
THAT SECTION 20(A) OF RR NO. V-39 RESTRICTS THE
APPLICATION OF SECTION 137 OF THE TAX CODE, SINCE
LANGUAGE IN SEC. 137 IS UNQUALIFIED, WHILE SEC.
20(A) CONTAINS NO RESTRICTIVE LANGUAGE.
C. THE COURT OF APPEALS ERRED WHEN IT IGNORED
SEC. 43 OF RR NO. 17-67 AS WELL AS OPINIONS OF BIR
OFFICIALS WHICH CONFIRMED THE EXEMPTION OF
STEMMED LEAF TOBACCO FROM PREPAYMENT OF
SPECIFIC TAX.
D. THE COURT OF APPEALS ERRED WHEN IT HELD
THAT SEC. 43 OF RR NO. 17-67 DID NOT REPEAL SECTIONS
35 AND 20(A) OF RR NO.
V-39, SINCE THEIR PROVISIONS ARE REPUGNANT TO
EACH OTHER.
E. THE COURT OF APPEALS ERRED WHEN IT HELD
THAT RR NO. V-39 IMPOSES SPECIFIC TAXES ON
STEMMED LEAF TOBACCO, SINCE IT MAKES NO MENTION
AT ALL OF TAXES ON STEMMED LEAF TOBACCO.
_______________
60 Id., at pp. 93-100.

61 Id., at pp. 16-75.
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F. THE COURT OF APPEALS ERRED WHEN IT HELD RR

NO. V-39 APPLIED TO L-6 PERMITTEES OR
MANUFACTURERS OF STEMMED LEAF TOBACCO, SINCE L-
6 CLASSIFICATION WAS NONEXISTENT AT THE TIME.
G. THE COURT OF APPEALS ERRED WHEN IT
INTERPRETED SECTION 20(A) OF RR NO. V-39 IN SUCH A
WAY AS TO RESULT IN ADMINISTRATIVE LEGISLATION,
SINCE THE INTERPRETATION SANCTIONED THE
RESTRICTION OF AN UNQUALIFIED PROVISION OF LAW
BY A MERE REGULATION.
H. THE COURT OF APPEALS ERRED WHEN IT GAVE NO
WEIGHT TO THE DECEMBER 12, 1972 BIR RULING AND
OPINIONS OF OTHER BIR OFFICIALS WHICH CONFIRMED
THE EXEMPTION OF STEMMED LEAF TOBACCO FROM
PREPAYMENT OF SPECIFIC TAX.
I. THE COURT OF APPEALS ERRED WHEN IT HELD
[THAT] NONAPPLICATION OF [THE] DECEMBER 12 RULING
DID NOT IMPINGE ON PRINCIPLE OF NON-
RETROACTIVITY OF RULINGS BECAUSE THE ASSESSMENT
DID NOT CITE THE RULING, SINCE CITATION OF A
RULING IN AN ASSESSMENT [IS] NOT NECESSARY FOR
PRINCIPLE TO APPLY.
J. THE COURT OF APPEALS ERRED WHEN IT
DISREGARDED THE ADMINISTRATIVE PRACTICE OF BIR
FOR OVER HALF A CENTURY OF NOT SUBJECTING
STEMMED LEAF TOBACCO TO SPECIFIC TAX.
K. THE COURT OF APPEALS ERRED WHEN IT HELD
THAT SUBJECTING STEMMED LEAF TOBACCO TO
SPECIFIC TAX IS NOT PROHIBITED FORM OF DOUBLE
TAXATION, SINCE A TAX ON BOTH STEMMED LEAF
TOBACCO AND CIGARETTES INTO WHICH IT IS
MANUFACTURED IS DOUBLE TAXATION.
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Appeals
L. THE COURT OF APPEALS ERRED WHEN IT HELD LA

SUERTE LIABLE FOR SPECIFIC TAX EVEN IF NO EFFORT
WAS FIRST MADE TO COLLECT THE TAX FROM THE
MANUFACTURER OF STEMMED LEAF TOBACCO, SINCE
TAX CODE ALLOWS THIS ONLY IF SPECIAL ALLOWANCE
IS GRANTED, WHICH IS NOT THE CASE.
M. THE COURT OF APPEALS ERRED WHEN IT FAILED TO
CONSIDER THAT THE REENACTMENT OF THE 1939 CODE
AS THE 1977 CODE AND 1986 TAX CODES ADOPTED THE
INTERPRETATION IN THE DECEMBER 1972 BIR RULING.
N. THE COURT OF APPEALS ERRED WHEN IT APPLIED
THE RULES OF CONSTRUCTION ON EXEMPTION FROM
TAXES, SINCE NO TAX EXEMPTION WAS INVOLVED BUT
MERELY AN EXEMPTION FROM PREPAYMENT OF TAX.62

G.R. No. 136328-29

In the letter dated November 24, 1989, the
Commissioner demanded from Fortune the payment of
deficiency excise tax in the amount of P28,938,446.25 for
its importation of tobacco strips from January 1, 1986 to
June 30, 1989. Fortune requested for reconsideration,
which was denied by the Commissioner on August 31,
1990. Undaunted, Fortune appealed to the Court of Tax
Appeals through a petition for review, which was docketed
as CTA Case No. 4587.63
In the decision dated November 23, 1994, the Court of
Tax Appeals ruled in favor of Fortune and set aside the
Commissioner’s assessment of P28,938,446.25 as deficiency
excise tax.
_______________
62 Id., at pp. 31-33.

63 Rollo (G.R. Nos. 136328-29), p. 54.
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Meanwhile, on March 20, 1991, Fortune received

another letter from the Bureau of Internal Revenue,
demanding payment of P1,989,821.86 as deficiency specific
tax on its importation of stemmed leaf tobacco from July 1,
1989 to November 30, 1990.64 Fortune filed its protest and
requested the Commissioner to cancel and withdraw the
assessment.65 On April 18, 1991, the Commissioner denied
with finality Fortune’s request.66 Fortune appealed to the
Court of Tax Appeals, and the case was docketed as CTA
Case No. 4616.67
In the decision dated October 6, 1994, the Court of Tax
Appeals ruled in favor of Fortune and set aside the
Commissioner’s assessment of P1,989,821.26 as deficiency
excise tax on stemmed leaf tobacco.
The Commissioner filed separate petitions before the
Court of Appeals, challenging the decisions rendered by the
Court of Tax Appeals in CTA Case Nos. 4587 and 4616.
These petitions were consolidated on November 28, 1996.68
In the decision dated January 30, 1998, the Court of
Appeals Seventeenth Division dismissed the consolidated
petitions filed by the Commissioner and affirmed the
assailed decisions of the Court of Tax Appeals. It also
denied the Commissioner’s motion for reconsideration.
Hence, the Commissioner filed the present petition69 on
January 8, 1999. The Commissioner claims that the Court
of Appeals erred (1) “in holding that stemmed leaf tobacco
is not subject to the specific tax imposed under Section 141
of the Tax Code[;]”70 (2) “in not holding that under Section
137 of the Tax Code, stemmed leaf tobacco is exempt from
specific tax
_______________
64 Id., at pp. 73-74.

65 Id., at p. 74.
66 Id.
67 Id., at pp. 73 and 75.
68 Id., at p. 28.
69 Id., at pp. 8-25.
70 Id., at p. 12.
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when sold in bulk as raw material by one manufacturer

directly to another under such conditions as may be
prescribed in the regulations of the Department of
Finance[;]”71 and (3) “in holding that there is double
taxation in the prohibited sense when specific tax is
imposed on stemmed leaf tobacco and again on the finished
product of which stemmed leaf tobacco is a raw material.”72

G.R. No. 144942

In April 1995, “[La Suerte] imported stemmed leaf
tobacco from various sellers abroad.”73 The Commissioner
“assessed specific taxes on the stemmed leaf tobacco in the
amount of P175,909.50, which [La Suerte] paid under
protest.”74 “Consequently, [La Suerte] filed a claim for
refund with [the Commissioner], [who] failed to act on the
same.”75 Undeterred, La Suerte appealed to the Court of
Tax Appeals, which in its March 9, 1999 decision, ruled in
its favor.
The Commissioner appealed to the Court of Appeals
Third Division, which on August 31, 2000, rendered its
decision in C.A.-G.R. S.P. No. 51902, affirming the decision
of the Court of Tax Appeals.
The Commissioner then filed the instant petition for
review76 asking this court to overturn the Court of Appeals’
decision. It avers that the Court of Appeals erred in holding
that Section 137 of the Tax Code applied “without any
conditions as to the domicile of the manufacturers and that
[the Commissioner] cannot indirectly restrict its
application to local manufacturers.”77
_______________
71 Id., at p. 13.
72 Id.
73 Rollo (G.R. No. 144942), p. 20.
74 Id.
75 Id.
76 Id., at pp. 7-17.
77 Id., at p. 9.
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The Third Division of this court initially denied78 the

petition due to an insufficient or defective verification and
because “the petition was filed by revenue lawyers and not
by the Solicitor General.”79
The Commissioner filed a motion for clarification80
seeking to clarify whether the Bureau of Internal Revenue
legal officers can file petitions for review pursuant to
Section 220 of the Tax Code without the intervention of the
Office of the Solicitor General.
The motion was referred to the En Banc81 on August 7,
2001, which issued the resolution on July 4, 2002, holding
that “Section 220 of the Tax Reform Act must not be
understood as overturning the long established procedure
before this Court in requiring the Solicitor General to
represent the interest of the Republic. This Court continues
to maintain that it is the Solicitor General who has the
primary responsibility to appear for the government in
appellate proceedings.”82 In the same resolution, this court
also declared the following:
The present controversy ruminate upon the singular issue of

whether or not Revenue Regulation 1767 [sic] issued by
petitioner, in relation to Section 137 of the Internal Revenue Code
in the imposition of a tax on stemmed-leaf tobacco, deviated from
the tax code. This question basically inquires then into whether or
not the revenue regulation has exceeded, on constitutional grounds,
the allowable limits of legislative delegation.
_______________
78 Id., at p. 33. The resolution was dated November 15, 2000.
79 Id. The Commissioner’s subsequent motion for reconsideration was
also denied in this court’s February 5, 2001 resolution (Rollo, p. 44).
80 Id., at pp. 45-50.
81 Id., at p. 55.
82 Id., at p. 86.
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Aware that the dismissal of the petition could have lasting

effect on government tax revenues, the lifeblood of the state, the
Court heeds the plea of petitioner for a chance to prosecute its
case.83 (Emphasis and underscoring supplied)

This court resolved to reinstate84 and give due course85
to the Commissioner’s petition.

G.R. No. 148605

“On January 12, 1990, [Sterling] received a pre-
assessment notice for alleged deficiency excise tax on its
importation and local purchase of stemmed-leaf tobacco for
P5,187,432.00 covering the period from November 1986 to
January 1989.”86 Sterling filed its protest letter87 dated
January 19, 1990. The Commissioner, through its letters88
dated August 31, 1990 and October 17, 1990, denied the
protest with finality.
Sterling filed before the Court of Tax Appeals a petition
for review89 dated January 3, 1991, seeking the
cancellation of the deficiency assessment and praying that
the Commissioner be ordered to desist from collecting the
assessed excise tax. On July 13, 1995, the Court of Tax
Appeals rendered its decision ordering the cancellation of
the assessment for deficiency excise tax.
The Commissioner then appealed90 to the Court of
Appeals. On March 7, 2001, the latter, through its Ninth
Division,
_______________
83 Id., at pp. 87-88.

84 Id., at p. 139. The resolution was dated October 8, 2002.
85 Id., at p. 252. The resolution was dated March 25, 2003.
86 Rollo (G.R. No. 148605), p. 54.
87 Id., at p. 99.
88 Id., at pp. 100-101.
89 Id., at pp. 91-95.
90 Id., at pp. 131-169.
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rendered a decision reversing the Court of Tax Appeals’

ruling, thus:
WHEREFORE, premises considered, the Decision of the Court

of Tax Appeals in C.T.A. Case No. 4532 is hereby REVERSED and
SET ASIDE, and the respondent is ORDERED to pay to the
public petitioner the amount of P5,187,432.00 as deficiency
specific tax on its imported and locally purchased stemmed leaf
tobacco from November 1986 to June 24, 1989, plus 25%
surcharge on P5,187,432.00, and 20% interest per annum on the
total amount due from December 07, 1990 until full payment,
pursuant to Sections 248-49 of the Tax Code.
SO ORDERED.91

Sterling filed a motion for reconsideration,92 which was
denied by the Court of Appeals in its June 19, 2001
resolution.
Hence, on August 13, 2001, Sterling filed the instant
petition for review.93
Sterling argues that the Court of Appeals erred in
holding that (1) then Section 141 of the Tax Code subjects
stemmed leaf tobacco to excise tax; (2) Section 137 of the
Tax Code did not exempt stemmed leaf tobacco from
prepayment of excise tax; (3) Section 20(A) of RR No. V-39
restricts the application of Section 137 of the Tax Code
since its language was unqualified, while Section 20(A)
contained no restrictive language; (4) RR No. V-39 imposed
specific taxes on stemmed leaf tobacco since its language
made no mention of taxes on stemmed leaf tobacco; (5) the
reason behind limiting exemptions only to transfers from
one L-7 to another L-7 is because sale has previously been
subjected to specific tax; and (6) the exemp-
_______________
91 Id., at p. 69.
92 Id., at pp. 70-85.
93 Id., at pp. 10-51.
526

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tion from specific tax did not apply to imported stemmed

leaf tobacco.94
Sterling further argues that the Court of Appeals erred
in not holding that (1) the Commissioner’s interpretation of
Section 141 of the Tax Code and Section 20(A) of RR No. V-
39 amounts to an amendment of Sections 141 and 137 of
the Tax Code by a mere administrative regulation; (2) a
December 12, 1972 Bureau of Internal Revenue ruling and
opinions of other Bureau of Internal Revenue officials
confirmed the exemption of stemmed leaf tobacco from
prepayment of specific tax; (3) the administrative practice
of the Bureau of Internal Revenue for over half a century of
not subjecting stemmed leaf tobacco to excise tax proves
that no excise taxes were ever intended to be imposed; (4)
imposition of excise tax on stemmed leaf tobacco would
result in the prohibited form of double taxation; and (5) the
reenactment of the relevant provisions in the 1977 and
1986 Tax Codes adopted the interpretation in the
December 1972 Bureau of Internal Revenue ruling.95
Sterling also contends that the “Court of Appeals erred in
applying the rules of construction on exemption from taxes,
since no tax exemption was involved, but merely an
exemption from prepayment of excise tax.”96

G.R. No. 158197

On January 10, 1991, the Commissioner sent a pre-
assessment notice to La Suerte demanding payment of
P11,757,275.25 as deficiency specific tax on its local
purchases and importations and on the sale of stemmed
leaf tobacco during the period from September 14, 1989 to
No-
_______________
94 Id., at pp. 14-15.

95 Id., at pp. 15-16.
96 Id., at p. 16.
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vember 20, 1990.97 On February 8, 1991, La Suerte

received the formal assessment letter of the
98
Commissioner.
La Suerte filed its protest on March 8, 1991.99 On May
14, 1991, La Suerte received the Commissioner’s decision
“denying the protest with finality.”100
“On June 13, 1991, the Court of Tax Appeals
promulgated a Decision finding for . . . La Suerte and
disposing [as follows:]”101
WHEREFORE, in view of the foregoing, We find the petition

for review meritorious and the same is hereby GRANTED.
Respondent’s decision dated April 29, 1991 is hereby set aside and
the formal assessment for the deficiency specific tax in the sum of
P11,575,275.25 subject of the respondent’s letter, dated January
30, 1991, is deemed cancelled.
No pronouncement as to costs of suit.
SO ORDERED.102

The Commissioner filed a motion for reconsideration
that was denied by the Court of Tax Appeals in its April 5,
1995 resolution.103
The Commissioner appealed to the Court of Appeals.104
In its decision dated July 18, 2002, the Court of Appeals
reversed the decision of the Court of Tax Appeals. It cited
Commissioner of Internal Revenue v. La Campaña Fabrica
de
_______________
97 Rollo (G.R. No. 158197), pp. 36-37.

98 Id., at p. 37.
99 Id., at p. 38.
100 Id.
101 Id.
102 Id.
103 Id.
104 Id., at p. 39.

528

Appeals
Tabacos, Inc.105 as basis for its ruling. La Suerte filed a

motion for reconsideration, but it was denied by the Court
of Appeals in the resolution106 dated May 9, 2003.
La Suerte prays for the reversal of the Court of Appeals’
decision and resolution in its petition for review,107 wherein
it raises the following arguments:
I. THE HONORABLE COURT OF APPEALS ERRED WHEN

IT HELD THAT SECTION 20(A) OF REV. REGS. NO. V-39
LIMITED THE CLASS OF MANUFACTURERS WHOSE SALES
OF STEMMED LEAF TOBACCO WERE EXEMPT FROM
PREPAYMENT OF SPECIFIC TAX.
II. EVEN IF SEC. 3 OF RR NO. 17-67 HAD BEEN WAS [sic]
INTENDED TO LIMIT MANUFACTURERS EXEMPT FROM
PREPAYMENT OF SPECIFIC TAX, THIS WOULD AMOUNT
TO UNLAWFUL DELEGATION OF LEGISLATIVE POWER.
III. RR NO. 17-67 WAS NEITHER ISSUED TO AMEND RR
NO. V-39 NOR TO AMEND THE TAX CODE, BUT SOLELY TO
IMPLEMENT ACT NO. 2613, AS AMENDED, WHICH WAS
ENACTED IN 1916 AND HAD ABSOLUTELY NOTHING TO DO
WITH TAXES.
IV. SECTION 2(H) OF RR NO. 17-67 EXCEEDED THE
CONSTITUTIONAL LIMITS ON THE DELEGATION OF
LEGISLATIVE POWER.
V. SECTION 3(M) OF RR NO. 17-67 AS INTERPRETED BY
COMMISSIONER EXCEEDED ALLOWABLE LIMITS ON
DELEGATION OF LEGISLATIVE POWER.
_______________
_______________
105 420 Phil. 920; 369 SCRA 118 (2001) [Per J. Pardo, First Division].
106 Rollo (G.R. No. 158197), p. 51.
107 Id., at pp. 3-33.
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Appeals
VI. THE HONORABLE COURT OF APPEALS ERRED IN
APPLYING SECTION 20(A) OF RR NO. V-39 TO LA SUERTE’S
IMPORTS OF STEMMED LEAF TOBACCO, FOR THE
APPLICABLE PROVISION IS CHAPTER V OF RR NO. V-39.
VII. THE COMMISSIONER’S PRESENT INTERPRETATION
OF SECTIONS 2(M)(1) AND 3(H) OF RR NO. 17-67, WAS NOT
THE INTERPRETATION GIVEN TO THOSE SECTIONS BY ITS
FRAMERS, AS SHOWN BY THE LONG ADMINISTRATIVE
PRACTICE AFTER THE ISSUANCE OF RR NO. 17-67 AND
THE BIR RULING DATED DECEMBER 12, 1972, WHICH
CONFIRMED THE TAX-FREE TRANSFER OF STEMMED
LEAF TOBACCO.108

G.R. No. 165499

On various dates in March 1995, the Commissioner of Internal

Revenue . . . collected from La Suerte the aggregate amount of
THREE HUNDRED TWENTY-FIVE THOUSAND FOUR
HUNDRED TEN PESOS (P325,410.00) for specific taxes on La
Suerte’s bulk purchases of stemmed-leaf tobacco from foreign
tobacco manufacturers. La Suerte paid the said amount under
protest.
....
On September 27, 1996 and October 2, 1996, La Suerte
instituted with the Commissioner of Internal Revenue . . . and
with Revenue District No. 52, a claim for refund of specific taxes
said to have been erroneously paid on its importations of
stemmed-leaf tobacco for the period of November 1994 up to May
1995, including the amount of Three Hundred Twenty-Five
Thousand Four Hundred Ten Pesos (P325,410.00). . . .
Inasmuch as its claim for refund was not acted upon by
petitioner and in order to toll the running of the
_______________
108 Id., at pp. 14-15.
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two-year reglementary period within which to file a judicial claim

for such refund as provided under Section 229 of the 1997
National Internal Revenue Code, as amended, La Suerte filed on
February 8, 1997 a petition for review with the CTA.109

On September 23, 1998, the Court of Tax Appeals
rendered judgment granting the petition for review and
ordering the Commissioner to refund the amount of
P325,410.00 to La Suerte.110 The Commissioner filed a
motion for reconsideration, but this was denied by the
Court of Tax Appeals on December 15, 1998.111
On appeal, the Court of Appeals Fourth Division
reversed112 the Court of Tax Appeals’ ruling. It also
denied113 La Suerte’s motion for reconsideration. Hence,
this petition was filed,114 reiterating the same arguments
already presented in the other cases.
This court ordered the consolidation of G.R. Nos.
136328-29 and 125346.115 Thereafter, this court
consolidated G.R. Nos. 165499, 144942, and 148605.116
Finally, this court approved the consolidation of G.R. Nos.
125346, 136328-29, 144942, 148605, 158197, and
165499.117
_______________
109 Rollo (G.R. No. 165499), pp. 46-47.

110 Id., at p. 47.
111 Id.
112 Id., at pp. 45-56. The decision dated October 10, 2003 and was
penned by Associate Justice Godardo A. Jacinto (Chair) and concurred in
by Associate Justices Elvi John S. Asuncion and Lucas P. Bersamin.
113 Id., at pp. 58-59.
114 Id., at pp. 10-35.
115 Rollo (G.R. No. 125346), p. 351. The resolution was dated January
20, 2003.
116 Rollo (G.R. No. 165499), p. 65. The resolution was dated February
14, 2005.
117 Rollo (G.R. No. 125346), p. 562. The En Banc resolution was dated
November 15, 2011.
531
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Issues

I. Whether stemmed leaf tobacco is subject to excise (specific)
tax under Section 141 of the 1986 Tax Code;
II. Whether Section 137 of the 1986 Tax Code exempting from
the payment of specific tax the sale of stemmed leaf tobacco by
one manufacturer to another is not subject to any qualification
and, therefore, exempts an L-7 manufacturer from paying said tax
on its purchase of stemmed leaf tobacco from other manufacturers
who are not classified as L-7 permittees;
III. Whether stemmed leaf tobacco imported by La Suerte,
Fortune, and Sterling is exempt from specific tax under Section
137 of the 1986 Tax Code;
IV. Whether Section 20(a) of RR No. V-39, in relation to RR No.
17-67, which limits the exemption from payment of specific tax on
stemmed leaf tobacco to sales transactions between
manufacturers classified as L-7 permittees is a valid exercise by
the Department of Finance of its rule-making power under
Section 338118 of the 1939 Tax Code;
V. Whether the possessor or owner of stemmed leaf tobacco
may be held liable for the payment of specific tax if such tobacco
product is removed from the place of production without payment
of said tax;
VI. Whether the August 31, 1990 ruling of then Bureau of
Internal Revenue Commissioner Jose U. Ong denying La Suerte’s
request for exemption from specific tax on its local purchase and
importation of stemmed leaf tobacco violates the principle on non-
_______________
118 Sec. 338. Authority of Secretary of Finance to promulgate rules

and regulations.—The Secretary of Finance, upon recommendation of the
Collector of Internal Revenue, shall promulgate all needful rules and
regulations for the effective enforcement of the provisions of this Code.
532

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retroactivity of administrative ruling for allegedly contradicting

the previous position taken by the Bureau of Internal Revenue
that such a transaction is not subject to specific tax as expressed
in the December 12, 1972 ruling of then Bureau of Internal
Revenue Commissioner Misael P. Vera; and
VII. Whether the imposition of excise tax on stemmed leaf
tobacco under Section 141 of the 1986 Tax Code constitutes
double taxation.

Arguments of the cigarette manufacturers

The cigarette manufacturers claim that since Section
137 of the 1986 Tax Code and Section 20(a) of RR No. V-39
do not distinguish “as to the type of manufacturer that may
sell stemmed leaf tobacco without the prepayment of
specific tax[,] [t]he logical conclusion is that any kind of
tobacco manufacturer is entitled to this treatment.”119 The
authority of the Secretary of Finance to prescribe the
“conditions” refers only to procedural matters and should
not curtail or modify the substantive right granted by the
law.120 The cigarette manufacturers add that the reference
to an L-7 invoice and L-7 register book in the second
paragraph of Section 20(a) cannot limit the application of
the tax exemption provision only to transfers between L-7
permittees because (1) it does not so provide;121 and (2)
under the terms of RR No. V-39, L-7 referred to
manufacturers of any class of tobacco products, including
manufacturers of stemmed leaf tobacco.122
They further argue that, going by the theory of the
Commissioner, RR No. 17-67 would have unduly restricted
the meaning of “manufacturers” by limiting it to a few
manufac-
_______________
119 Rollo (G.R. No. 125346), p. 386.

120 Id., at p. 394; (G.R. No. 148605), p. 290.
121 Id., at p. 386; id., at p. 297.
122 Id., at p. 388; id., at p. 306.
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turers such as manufacturers of cigars and cigarettes.123

Allegedly, RR No. 17-67 cannot change the original
meaning of L-7 in Section 20(A) of RR No. V-39 without
exceeding constitutional limits of delegated legislative
power.124 La Suerte further points out that RR No. 17-67
was not even issued for the purpose of implementing the
Tax Code but for the sole purpose of implementing Act No.
2613; and Section 3 of RR No. 17-67 restricts the new
designations only for administrative purposes.125
Moreover, the cigarette manufacturers contend “that
Section 132 does not operate as a tax exemption” because
“prepayment means payment of obligation in advance or
before it is due.”126 Consequently, the rules of construction
on tax exemption do not apply.127 According to them, “the
absence of tax prepayment for the sale of stemmed leaf
tobacco impliedly indicates the underlying policy of the law:
that stemmed leaf tobacco shall not be taxed twice, first, as
stemmed leaf tobacco and, second, as a component of the
finished products of which it forms an integral part.”128
Fortune, for its part, claims that stemmed leaf tobacco is
not subject to excise tax. It argues that stemmed leaf
tobacco cannot be considered prepared or partially
prepared tobacco because it does not fall within the
definition of a “processed tobacco” under Section 1-b of
Republic Act No. 698, as amended.129 Furthermore, it adds
that Section 141 should be strictly construed against the
taxing power.130 “There being no
_______________
123 Id., at p. 387.

124 Id., at pp. 389 and 391.
125 Id., at p. 392.
126 Id., at p. 395.
127 Id.; Rollo (G.R. No. 148605), pp. 319-320.
128 Id.
129 Rollo (G.R. No. 136328-29), pp. 147-148.
130 Id., at p. 152.
534

Appeals
explicit reference to stemmed leaf tobacco in Section

141, it cannot be claimed or construed to be subject to
specific tax.”131
According to Fortune, “a plain reading of Section 141
readily reveals that the intention was to impose excise
taxes on products of tobacco that are not to be used as raw
materials in the manufacture of other tobacco products.”132
“Section 2(m)(1) unduly expanded the meaning of prepared
or partially prepared tobacco to include a raw material like
stemmed leaf tobacco; hence, ultra vires and invalid.”133
As regards the taxability of their importations, Sterling
argues that since locally manufactured stemmed leaf
tobaccos are not subject to specific tax, it follows that
imported stemmed leaf tobaccos are also not subject to
specific tax.134 On the other hand, La Suerte claims that
Section 20(A) of RR No. V-39 does not apply to its imports
because the applicable provision is Section 128(b) of the
1986 Tax Code, which states that “imported articles shall
be subject to the same tax and the same rates and basis of
excise taxes applicable to locally manufactured articles,”
and Chapter V of RR No. V-39 (Payment of specific taxes on
imported cigars, cigarettes, smoking and chewing
tobacco).135
Finally, La Suerte and Sterling136 argues that the Court
of Appeals erred: (1) in ignoring Section 43 of RR No. 17-67,
December 12, 1972 Bureau of Internal Revenue ruling and
other Bureau of Internal Revenue opinions confirming the
exemption of stemmed leaf tobacco from prepayment of
specific tax;137 (2) in disregarding the Bureau of Internal
Revenue’s practice for over half a century of not subjecting
_______________
131 Id., at p. 153.

132 Id., at p. 151.
133 Id., at p. 152.
134 Rollo (G.R. No. 148605), p. 319.
135 Rollo (G.R. No. 125346), pp. 399-400.
136 Rollo (G.R. No. 148605), pp. 310-314.
137 Rollo (G.R. No. 144942), p. 322.
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stemmed leaf tobacco to specific tax;138 (3) in failing to

consider that the reenactment of the 1939 Tax Code as the
1977 and 1986 Tax Codes impliedly adopted the
interpretation in the December 12, 1972 ruling; and 4) in
holding that non-application of the December 12, 1972
ruling did not impinge on the principle of non-retroactivity
of rulings.139 Moreover, it argues that the Tax Code does
not authorize collection of specific tax from buyers without
a prior attempt to collect tax from manufacturers.140

Respondent’s Arguments

Respondent counters that “under Section 141(b),
partially prepared or manufactured tobacco is subject to
specific tax.”141 The definition of “partially manufactured
tobacco” in Section 2(m) of RR No. 17-67 includes stemmed
leaf tobacco; hence, stemmed leaf tobacco is subject to
specific tax.142 “Imported stemmed leaf tobacco is also
subject to specific tax under Section 141(b) in relation to
Section 128 of the 1977 Tax Code.”143 Fortune’s reliance on
the definition of “processed tobacco” in Section 1-b of
Republic Act No. 698144 as amended by Republic Act No.
1194 is allegedly misplaced because the definition therein
of processed tobacco merely clarified the type of tobacco
product that may not be imported into the country.145
Respondent posits that “there is no double taxation in
the prohibited sense even if specific tax is also imposed on
the
_______________
138 Id.
139 Rollo (G.R. No. 125346), pp. 401-403.
140 Id., at p. 397.
141 Id., at p. 431.
142 Id., at p. 432.
143 Id.
144 An Act to Limit the Importation of Foreign Leaf Tobacco.
145 Rollo (G.R. No. 125346), pp. 528-529.
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Appeals
finished product of which stemmed leaf tobacco is a raw

material.”146 Congress clearly intended it “considering that
stemmed leaf tobacco, as partially prepared or
manufactured tobacco, is subjected to specific tax under
Section 141(b), while cigars and cigarettes, of which
stemmed leaf tobacco is a raw material, are also subjected
to specific tax under Section 142.”147 It adds that there is
no constitutional prohibition against double taxation.148
“Foreign manufacturers of tobacco products not engaged
in trade or business in the Philippines cannot be classified
as L-7, L-6, or L-3R since they are beyond the pale of
Philippine laws and regulations.”149 “Since the transfer of
stemmed leaf tobacco from one factory to another must be
under an official L-7 invoice and entered in the L-7
registers of both transferor and transferee, it is obvious
that the factories contemplated are those located or
operating in the Philippines and operated only by L-7
permittees.”150 The transaction contemplated under Section
137 is sale and not importation because the law uses the
word “sold.”151 The law uses “importation” or “imported”
whenever the transaction involves bringing in articles from
foreign countries.152
Respondent argues that “the issuance of RR Nos. V-39
and 17-67 is a valid exercise by the Department of Finance
of its rule-making power” under Sections 132 and 338 of
the 1939 Tax Code.153 It explains that “the reason for the
exemption from specific tax of the sale of stemmed leaf
tobacco as raw material by one L-7 directly to another L-7
is that the stemmed leaf tobacco is supposed to have been
already sub-
_______________
146 Id., at p. 529.

147 Id., at p. 530.
148 Id.
149 Id., at p. 536.
150 Id.
151 Id., at p. 537.
152 Id.
153 Id.
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jected to specific tax when an L-7 purchased the same

from an L-6.”154 “Section 20(A) of RR No. V-39 adheres to
the standards set forth in Section 245 because it provides
the conditions for a tax-free removal of stemmed leaf
tobacco under Section 137 without negating the imposition
of specific tax under Section 141(b).”155 “To construe
Section 137 in the restrictive manner suggested by La
Suerte will practically defeat the revenue-generating
provision of Section 141(b).”156
It further argues that the August 31, 1990 ruling of then
Bureau of Internal Revenue Commissioner Jose U. Ong
denying La Suerte’s request for exemption from specific tax
on its local purchase and importation of stemmed leaf
tobacco does not violate the principle on non-retroactivity of
administrative ruling. It alleges that an erroneous ruling,
like the December 12, 1972 ruling, does not give rise to a
vested right that can be invoked by La Suerte.157
Finally, respondent contends that under Section 127, if
domestic products are removed from the place of production
without payment of the excise taxes due thereon, it is not
required that the tax be collected first from the
manufacturer or producer before the possessor thereof shall
be liable.158

Court’s Ruling

Nature of excise tax

Excise tax is a tax on the production, sale, or
consumption of a specific commodity in a country. Section
110 of the 1986 Tax Code explicitly provides that the
“excise taxes on domestic products shall be paid by the
manufacturer or producer before [the] removal [of those
products] from the place of pro-
_______________
154 Id., at p. 539.

155 Id., at p. 540.
156 Id.
157 Id., at pp. 545-546.
158 Id., at pp. 442-443.
538

Appeals
duction.” “It does not matter to what use the article[s]

subject to tax is put; the excise taxes are still due, even
though the articles are removed merely for storage in some
other place and are not actually sold or consumed.”159 The
excise tax based on weight, volume capacity or any other
physical unit of measurement is referred to as “specific
tax.” If based on selling price or other specified value, it is
referred to as “ad valorem” tax.

Section 141 subjects partially
prepared tobacco, such as stemmed leaf tobacco, to
excise tax

Section 141 of the 1986 Tax Code provides:
SEC. 141. Tobacco Products.—There shall be collected a tax

of seventy-five centavos on each kilogram of the following
products of tobacco:
(a) tobacco twisted by hand or reduced into a condition to be
consumed in any manner other than the ordinary mode of drying
and curing;
(b) tobacco prepared or partially prepared with or without the
use of any machine or instruments or without being pressed or
sweetened; and
(c) fine-cut shorts and refuse, scraps, clippings, cuttings,
stems and sweepings of tobacco.
Fine-cut shorts and refuse, scraps, clippings, cuttings, stems
and sweepings of tobacco resulting from the handling or stripping
of whole leaf tobacco may be transferred, disposed of, or otherwise
sold, without prepayment of the specific tax herein provided for
under such conditions as may be prescribed in the regulations
promulgated by the Ministry of Finance upon recommendation
_______________
159 People v. Sandiganbayan, 504 Phil. 407, 429; 467 SCRA 137, 158
(2005) [Per J. Panganiban, Third Division].
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of the Commissioner, if the same are to be exported or to be used

in the manufacture of other tobacco products on which the excise
tax will eventually be paid on the finished product.
centavos. (Emphasis supplied)

It is evident that when tobacco is harvested and
processed either by hand or by machine, all its products
become subject to specific tax. Section 141 reveals the
legislative policy to tax all forms of manufactured tobacco
— in contrast to raw tobacco leaves — including tobacco
refuse or all other tobacco which has been cut, split,
twisted, or pressed and is capable of being smoked without
further industrial processing.
Stemmed leaf tobacco is subject to the specific tax under
Section 141(b). It is a partially prepared tobacco. The
removal of the stem or midrib from the leaf tobacco makes
the resulting stemmed leaf tobacco a prepared or partially
prepared tobacco. The following is La Suerte’s own
illustration of how the stemmed leaf tobacco comes about:
In the process of removing the stems, the whole leaf
tobacco breaks into pieces; after the stems or midribs are
removed, the tobacco is threshed (cut by machine into fine
narrow strips) and then undergoes a process of redrying,160
undoubtedly showing that stemmed leaf tobacco is a
partially prepared tobacco.
Since the Tax Code contained no definition of “partially
prepared tobacco,” then the term should be construed in its
general, ordinary, and comprehensive sense.161
_______________
160 Rollo (G.R. No. 144942), p. 312.

161 Commissioner of Internal Revenue v. Court of Appeals, 363 Phil.
130, 137-138; 303 SCRA 508, 512 (1999) [Per J. Purisima, Third Division]
involved the proper application of the proviso in Section 168 of the old Tax
Code: “That credit for any sales, miller’s or excise taxes paid on raw
materials or supplies used in the milling process shall not be allowed
against the miller’s tax due, except in
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RR No. 17-67, as amended, supplements the law by

delineating what products of tobacco are “prepared or
manufactured” and “partially prepared or partially
manufactured.” Section 2(m) states:
(m) “Partially manufactured tobacco” — Includes:

(1) “Stemmed leaf” — handstripped tobacco, clean, good,
partially broken leaf only, free from mold and dust.
(2) “Long-filler” — handstripped tobacco of good, long pieces of
broken leaf usable as filler for cigars without further preparation,
and free from mold, dust stems and cigar cuttings.
(3) “Short-filler” — handstripped or machine-stripped tobacco,
clean, good, short pieces of broken leaf, which will not pass
through a screen of two inches (2”) mesh.
_______________
the case of a proprietor or operator of a refined sugar factory as
provided hereunder.” This court, citing Mustang Lumber, Inc. v. Court of
Appeals, 327 Phil. 214, 235; 257 SCRA 430, 448 (1996) [Per J. Davide, Jr.,
En Banc], stated: “It is a basic rule of interpretation that words and
phrases used in the statute, in the absence of a clear legislative intent to
the contrary, should be given their plain, ordinary and common usage or
meaning.” Construing the term “raw materials” in its ordinary sense, this
court held that the sales, miller’s and excise taxes paid on containers and
packaging materials are not raw materials of the milled products under
consideration and, thus, may be credited against the miller’s tax due. It
further declared, citing Samson v. Court of Appeals, 230 Phil. 59, 64; 145
SCRA 654, 659 (1986) [Per J. Alampay, Second Division]: “Under the rules
of statutory construction, exceptions, as a general rule, should be strictly
but reasonably construed. They extend only so far as their language fairly
warrants, and all doubts should be resolved in favor of the general
provisions rather than the exception. Where a general rule is established
by statute with exceptions, the court will not curtail the former nor add to
the latter by implication. . . .” Conformably, it held that “[t]he exception
provided for in Section 168 of the old Tax Code should thus be strictly
construed.”
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(4) “Cigar-cuttings” — clean cuttings or clippings from cigars,

unsized with any other form of tobacco.
(5) “Machine-scrap tobacco” — machine-threshed, clean, good
tobacco, not included in any of the above terms, usable in the
manufacture of tobacco products.
(6) “Stems” — midribs of leaf tobacco removed from the whole
leaf or broken leaf either by hand or machine.
(7) “Waste tobacco” — denatured tobacco; powder or dust,
refuse, unfit for human consumption; discarded materials in the
manufacture of tobacco products, which may include stems.

Insisting on the inapplicability of RR No. 17-67, La
Suerte points to the different definitions given to stemmed
leaf tobacco by Section 2(m)(1) of RR No. 17-67 and Section
137. It argues that while RR No. 17-67 defines stemmed
leaf tobacco as handstripped tobacco of clean, good,
partially broken leaf only, free from mold and dust, Section
137 defines it as leaf tobacco which has had the stem or
midrib removed. The term does not include broken leaf
tobacco. We are not convinced.
Different definitions of the term “stemmed leaf” are
unavoidable, especially considering that Section 2(m)(1) is
an implementing regulation of Act No. 2613, which was
enacted in 1916 for purposes of improving the quality of
Philippine tobacco products, while Section 137 defines the
tobacco product only for the purpose of exempting it from
the specific tax. Whichever definition is adopted, there is no
doubt that stemmed leaf tobacco is a partially prepared
tobacco.
The onus of proving that stemmed leaf tobacco is not
subject to the specific tax lies with the cigarette
manufacturers. Taxation is the rule, exemption is the
exception.162 Accord-
_______________
162 Philippine Amusement and Gaming Corporation (PAGCOR) v.

Bureau of Internal Revenue, G.R. No. 172087, March 15, 2011, 645
542

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ingly, statutes granting tax exemptions must be

construed in strictissimi juris against the taxpayer and
liberally in favor of the taxing authority. The cigarette
manufacturers must justify their claim by a clear and
categorical provision in the law. Otherwise, they are liable
for the specific tax on stemmed leaf tobacco found in their
possession pursuant to Section 127163 of the 1986 Tax Code,
as amended.

Stemmed leaf tobacco transferred in bulk between
cigarette manufacturers are exempt from excise tax
under Section 137 of the 1986 Tax Code in
conjunction with RR No. V-39 and RR No. 17-67

In the instant case, an exemption on the taxability of
stemmed leaf tobacco is found in Section 137, which
provides the following:

_______________
SCRA 338, 354 [Per J. Peralta, En Banc]; Michel J. Lhuillier

Pawnshop, Inc. v. Commissioner of Internal Revenue, 522 Phil. 693, 700;
489 SCRA 147, 155 (2006) [Per J. Ynares-Santiago, First Division]; Lung
Center of the Philippines v. Quezon City, 477 Phil. 141, 155; 433 SCRA
119, 133-134 (2004) [Per J. Callejo, Sr., En Banc]; Sea-Land Service, Inc.
v. Court of Appeals, 409 Phil. 508, 513; 357 SCRA 441, 444 (2001) [Per J.
Pardo, First Division]; Commissioner of Internal Revenue v. Mitsubishi
Metal Corporation, 260 Phil. 224, 235; 181 SCRA 214, 224 (1990) [Per J.
Regalado, Second Division].
163 Sec. 127. Payment of excise taxes on domestic products.—(a)
Persons liable; time for payment.—Unless otherwise especially allowed,
excise taxes on domestic products shall be paid by the manufacturer or
producer before removal from the place of production: Provided, That the
excise tax on locally manufactured petroleum products and indigeneous
[sic] petroleum levied under Section 145 and 151(a)(4), respectively, of this
Title shall be paid within 15 days from the date of removal thereof from
the place of production. Should domestic products be removed from the
place of production without the payment of the tax, the owner or person
having possession thereof shall be liable for the tax due thereon.
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the Ministry of Finance. Stemmed leaf tobacco, fine-cut shorts, the
refuse of fine-cut chewing tobacco, scraps, cuttings, clippings,
stems or midribs, and sweepings of tobacco may be sold in bulk as
raw material by one manufacturer directly to another, without
payment of the tax under such conditions as may be prescribed in
the regulations of the Ministry of Finance.
‘Stemmed leaf tobacco,’ as herein used, means leaf tobacco
include broken leaf tobacco. (Emphasis and underscoring
supplied)

Section 137 authorizes a tax exemption subject to the
following: (1) that the stemmed leaf tobacco is sold in bulk
as raw material by one manufacturer directly to another;
and (2) that the sale or transfer has complied with the
conditions prescribed by the Department of Finance.
That the title of Section 137 uses the term “without
prepayment” while the body itself uses “without payment”
is of no moment. Both terms simply mean that stemmed
leaf tobacco may be removed from the factory or place of
production without prior payment of the specific tax.
This court has held in Commissioner of Internal Revenue
v. La Campaña Fabrica de Tabacos, Inc.,164 reiterated in
Compania General de Tabacos de Filipinas v. Court of
Appeals165 and Commissioner of Internal Revenue v. La
Suerte Cigar and Cigarette Factory, Inc.166 that the
exemption from specific tax
_______________
164 Supra note 105 at p. 929; p. 124.

165 469 Phil. 1064, 1073; 426 SCRA 203, 209 (2004) [Per J.
Quisumbing, Second Division].
166 506 Phil. 324, 329; 469 SCRA 339, 345 (2005) [Per J. Sandoval-
Gutierrez, Third Division].
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of the sale of stemmed leaf tobacco is qualified by and is

subject to “such conditions as may be prescribed in the
regulations of the Department of Finance.” These conditions
were provided for in RR Nos. V-39 and 17-67. Thus, Section
137 must be read and interpreted in accordance with these
regulations.
Section 20(a) of RR No. V-39 provides the rules for tax
exemption on tobacco products:
SECTION 20. Exemption from tax of tobacco products

intended for agricultural or industrial purposes.—(a) Sale
of stemmed leaf tobacco, etc., by one factory to another.—
Subject to the limitations herein established, products of tobacco
entirely unfit for chewing or smoking may be removed free of tax
for agricultural or industrial use; and stemmed leaf tobacco, fine-
cut shorts, the refuse of fine-cut chewing tobacco, refuse, scraps,
cuttings, clippings, and sweepings of tobacco may be sold in bulk
as raw materials by one manufacturer directly to another without
the prepayment of the specific tax.
Stemmed leaf tobacco, fine-cut shorts, the refuse of fine-cut
chewing tobacco, scraps, cuttings, clippings, and sweeping of leaf
tobacco or partially manufactured tobacco or other refuse of
tobacco may be transferred from one factory to another under an
official L-7 invoice on which shall be entered the exact weight of
the tobacco at the time of its removal, and entry shall be made in
the L-7 register in the place provided on the page of removals.
Corresponding debit entry will be made in the L-7 register book of
the factory receiving the tobacco under heading “Refuse, etc.,
received from other factory,” showing the date of receipt,
assessment and invoice numbers, name and address of the
consignor, form in which received, and the net weight of the
tobacco. This paragraph should not, however, be construed to
permit the transfer of materials unsuitable for the manufacture of
tobacco products from one factory to another. (Emphasis supplied)
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The conditions under which stemmed leaf tobacco may

be transferred from one factory to another without
prepayment of specific tax are as follows:
(a) The transfer shall be under an official L-7 invoice on
which shall be entered the exact weight of the tobacco at
the time of its removal;
(b) Entry shall be made in the L-7 register in the place
provided on the page for removals; and
(c) Corresponding debit entry shall be made in the L-7
register book of the factory receiving the tobacco under the
heading, “Refuse, etc., received from the other factory,”
showing the date of receipt, assessment and invoice
numbers, name and address of the consignor, form in which
received, and the weight of the tobacco.
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.
La Campaña explained that 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, thus:
[T]he exemption from specific tax of the sale of stemmed leaf

tobacco as raw material by one L-7 directly to another L-7 is
because such stemmed leaf tobacco has been subjected to specific
tax when an L-7 manufacturer purchased the same from
wholesale leaf tobacco dealers designated under Section 3,
Chapter I, Revenue Regulations No. 17-67 (supra) as L-3, L-3F, L-
3R, L-4, or L-6, the latter being also a stripper of leaf tobacco.
These are the sources of stemmed leaf tobacco to be used as raw
materials by an L-7 manufacturer which does not produce
stemmed leaf tobacco. When an L-7 manufacturer
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sells the stemmed leaf tobacco purchased from the foregoing

suppliers to another L-7 manufacturer as raw material, such sale
is not subject to specific tax under Section 137 (now Section 140),
as implemented by Section 20(a) of Revenue Regulations No. V-
39.167
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.

RR Nos. V-39 and 17-67 did not exceed the allowable
limits of legislative delegation

The cigarette manufacturers contend that the authority
of the Department of Finance to prescribe conditions is
merely procedural. Its rule-making power is only for the
effective enforcement of the law, which implicitly rules out
substantive modifications. The Secretary of Finance
cannot, by mere regulation, limit the classes of
manufacturers that may be entitled to the tax exemption.
Otherwise, Section 137 (Section 132 in the 1939 Tax Code)
would be invalid as an undue delegation of legislative
power without the required standards or parameters.
The power of taxation is inherently legislative and may
be imposed or revoked only by the legislature.168 Moreover,
this plenary power of taxation cannot be delegated by
Congress to any other branch of government or private
persons, unless its
_______________
167 Supra note 105 at pp. 929-930; pp. 124-125.

168 Article VI, Section 1 of the Constitution institutionalizes the law-
making power of Congress; Section 24 under the same Article further
provides that “[a]ll appropriation, revenue or tariff bills . . . shall originate
exclusively in the House of Representatives. . . .”
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delegation is authorized by the Constitution itself.169

Hence, the discretion to ascertain the following — (a) basis,
amount, or rate of tax; (b) person or property that is subject
to tax; (c) exemptions and exclusions from tax; and (d)
manner of collecting the tax — may not be delegated away
by Congress.
However, it is well-settled that 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 like the Secretary of
Finance in this case.170
This court in Maceda v. Macaraig, Jr.171 explained the
rationale behind the permissible delegation of legislative
powers to specialized agencies like the Secretary of
Finance:
The latest in our jurisprudence indicates that delegation of

legislative power has become the rule and its non-delegation the
exception. The reason is the increasing complexity of modern life
and many technical fields of governmental functions as in matters
pertaining to tax exemptions. This is coupled by the growing
inability of the legislature to cope directly with the many
problems demanding its attention. The growth of society has
ramified its activities and created peculiar and sophisticated
problems that the legislature cannot be expected reasonably to
comprehend. Specialization even in legislation has become
necessary. To many of the problems attendant upon present day
undertakings, the legislature may not have the competence, let
alone the interest and the
_______________
169 Delegations allowed under the Constitution, in particular, the

authority of the President to fix tariff rates, import and export quotas,
tonnage and wharfage dues (Article VI, Section 28[2]) and the authority of
the local governments to create their own revenues and to levy taxes, fees,
and charges (Article X, Section 5).
170 Commissioner of Internal Revenue v. Solidbank Corporation, 462
Phil. 96, 117; 416 SCRA 436, 448 (2003) [Per J. Panganiban, First
Division].
171 274 Phil. 1060; 197 SCRA 771 (1991) [Per J. Gancayco, En Banc].
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time, to provide the required direct and efficacious, not to say

specific solutions.172

Thus, rules and regulations implementing the law are
designed to fill in the details or to make explicit what is
general, which otherwise cannot all be incorporated in the
provision of the law.173 Such rules and regulations, when
promulgated in pursuance of the procedure or authority
conferred upon the administrative agency by law,174
“deserve to be given weight and respect by the courts in
view of the rule-making authority given to those who
formulate them and their specific expertise in their
respective fields.”175 To be valid, a revenue regulation must
be within the scope of statutory authority or standard
granted by the legislature. Specifically, the regulation must
(1) be germane to the object and purpose of the law;176 (2)
not
_______________
172 Id., at p. 1111; pp. 809-810, citing J. Isagani A. Cruz, Philippine

Political Law, pp. 82-83 (1989).
173 Rodrigo, Jr. v. Sandiganbayan, 369 Phil. 103, 108-109; 309 SCRA
661, 665 (1999) [Per J. Kapunan, First Division]; Eastern Shipping Lines,
Inc. v. Philippine Overseas Employment Administration, 248 Phil. 762,
773; 166 SCRA 533, 544 (1988) [Per J. Cruz, First Division].
174 Victorias Milling Co., Inc. v. Social Security Commission, 114 Phil.
555, 558; 4 SCRA 627, 630 (1962) [Per J. Barrera, En Banc] explained:
“[S]tatutes are usually couched in general terms, after expressing the
policy, purposes, objectives, remedies and sanctions intended by the
legislature. The details and the manner of carrying out the law are often
times left to the administrative agency entrusted with its enforcement. In
this sense, it has been said that rules and regulations are the product of a
delegated power to create new or additional legal provisions that have the
effect of law.”
175 Chamber of Real Estate and Builders’ Associations, Inc. v. Romulo,
G.R. No. 160756, March 9, 2010, 614 SCRA 605, 639-640 [Per J. Corona,
En Banc].
176 Rabor v. Civil Service Commission, 314 Phil. 577, 593 and 595; 244
SCRA 614, 625 (1995) [Per J. Feliciano, En Banc].
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contradict, but conform to, the standards the law

prescribes;177 and (3) be issued for the sole purpose of
carrying into effect the general provisions of our tax
laws.178
Section 338 authorizes the Secretary of Finance to
promulgate all needful rules and regulations for the
effective enforcement of the provisions of the 1939 Tax Code.
The specific authority of the Department of Finance to
issue regulations relating to the taxation of tobacco
products is found in Section 4179 (Specific provisions to be
contained in
_______________
177 Tayug Rural Bank v. Central Bank of the Philippines, 230 Phil.
216, 224; 146 SCRA 120, 129 (1986) [Per J. Paras, Second Division];
Romulo, Mabanta, Buenaventura, Sayoc and De Los Angeles v. Home
Development Mutual Fund, 389 Phil. 296, 306; 333 SCRA 777, 786 (2000)
[Per CJ. Davide, Jr., First Division].
178 Supra note 170 at p. 118; p. 449.
179 Sec. 4. Specific provisions to be contained in regulations.—The
regulations of the Bureau of Internal Revenue shall, among other things,
contain provisions specifying, prescribing, or defining:
(a) The time and manner in which provincial treasurers shall canvas
their provinces for the purpose of discovering persons and property liable
to national internal revenue taxes, and the manner in which their lists
and records of taxable persons and taxable objects shall be made and kept.
(b) The forms of labels, brands, or marks to be required on goods
subject to a specific tax, and the manner in which the labeling, branding,
or marking shall be effected.
(c) The conditions under which and the manner in which goods
intended for export, which if not exported would be subject to a specific
tax, shall be labelled, branded, or marked.
....
(h) The conditions under which goods intended for storage in bonded
warehouses shall be conveyed thither, their manner of storage, and the
method of keeping the entries and records in connection therewith, also
the books to be kept by storekeepers and the reports to be made by them
in connection with their supervision of such houses.
....
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regulations); Section 125180 (Payment of specific tax on

imported articles to customs officers prior to release from
the customhouse); Section 132 (Removal of tobacco
products without prepayment of tax); Section 149181
(Extent of supervision over establishments producing
taxable output); Section 150182 (Records to be kept by
manufacturers; Assessment based
_______________
(j) The manner in which revenue shall be collected and paid, the
instrument, document, or object to which revenue stamps shall be affixed,
the mode of cancellation of the same, the manner in which the proper
books, records, invoices, and other papers shall be kept and entries
therein made by the person subject to the tax, as well as the manner in
which licenses and stamps shall be gathered up and returned after
serving their purposes.
180 Sec. 125. Payment of specific tax on imported articles.—Specific
taxes on imported articles shall be paid by the owner or importer to the
customs officers, conformably with regulations of the Department of
Finance and before the release of such articles from the customhouse.
181 Sec. 149. Extent of supervision over establishments producing
taxable output.—The Bureau of Internal Revenue has authority to
supervise establishments where articles subject to a specific tax are made
or kept. The Secretary of Finance shall prescribe regulations as to the
mode in which the processes of production shall be conducted insofar as
may be necessary to secure a sanitary output and to safeguard the
revenue.
182 Sec. 150. Records to be kept by manufacturers.—Assessment
based thereon.—The Secretary of Finance is authorized to prescribe, by
regulations, the records which shall be kept by manufacturers of articles
subject to specific tax, and such records, whether of raw materials
received into the factory or of articles produced therein, shall be deemed
public and official documents for all purposes.
The records of raw materials kept by such manufacturers may be used
as a species of evidence by which to determine the amount of raw
materials received into any factory exceeds the amount of manufactured
or partially manufactured products on hand and lawfully removed from
the factory, plus waste removed or destroyed, and a reasonable allowance
for unavoidable loss in manufacture, the Collector of Internal Revenue
may assess and collect the tax due on the products which should have
been produced from the excess.
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thereon); and Section 152183 (Labels and form of

packages) of the 1939 Tax Code.
RR No. V-39 was promulgated to enforce the provisions
of Title IV (Specific Taxes) of the 1939 Tax Code relating to
the manufacture and importation of, and payment of
specific tax on, manufactured tobacco or products of
tobacco. By an explicit provision in Section 132, the
lawmakers defer to the Department of Finance to provide
the details upon which the removal of stemmed leaf tobacco
may be exempt from the specific tax in view of its supposed
expertise in the tobacco trade. Section 20(a) of RR No. V-39
adhered to the standards because it provided the conditions
— the proper documentation and recording of raw
materials transferred from one factory to another — for a
tax-free removal of stemmed leaf tobacco, without negating
the imposition of specific tax under Section 137. The
“effective enforcement of the provisions of [the Tax Code]”
in Section 338 provides a sufficient standard for the
Secretary of Finance in determining the conditions for the
tax-free removal of stemmed leaf tobacco. Section 4 further
provides a limitation on the contents of revenue regulations
to be issued by the Secretary of Finance.
On the other hand, RR No. 17-67 was promulgated “[i]n
accordance with the provisions of Section 79(B) of the
Administrative Code, as amended by Act No. 2803.”184
Among the specific administrative powers conferred upon a
department head under the Administrative Code is that of
promulgating rules and regulations, not contrary to law,
“necessary to regu-
_______________
183 Sec. 152. Labels and form of packages.—All articles of domestic
manufacture subject to a specific tax and all leaf tobacco shall be put up
and prepared by the manufacturer or producer, when removed for sale or
consumption, in such packages only and bearing such marks or brands as
shall be prescribed in the regulations of the Department of Finance; and
goods of similar character imported into the Philippines shall likewise be
packed and marked in such manner as may be required. (Emphasis
supplied)
184 DOF Revenue Regulations No. 17-67 (1969), Chap. I, Sec. 1.
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late the proper working and harmonious and efficient

administration of each and all of the offices and
dependencies of his Department, and for the strict
enforcement and proper execution of the laws relative to
matters under the jurisdiction of said Department.”185
Under the 1939 Tax Code, the Secretary of Finance is
authorized to prescribe regulations affecting the business
of persons dealing in articles subject to specific tax,
including the mode in which the processes of production of
tobacco and tobacco products should be conducted and the
records to be kept by manufacturers. Clearly then, the
provisions of RR No. 17-67 classifying and regulating the
business of persons dealing in tobacco and tobacco products
are within the rule-making authority of the Secretary of
Finance.

RR No. 17-67 did not create a new classification

The contention of the cigarette manufacturers that RR
No. 17-67 unduly restricted the meaning of manufacturers
of tobacco products by limiting it to a few manufacturers
such as manufacturers of cigars and cigarettes is
misleading.
The definitions in RR No. 17-67 of “manufacturer of
tobacco” and “manufacturer of cigars and/or cigarettes” are
in conformity with, as in fact they are verbatim adoptions
of, the definitions under Section 194(m) and (n) of the 1939
Tax Code.
The cigarette companies further argue that RR No. 17-
67 unduly restricted the meaning of L-7 in Section 20(a) of
RR No. V-39 because when RR No. V-39 was issued, there
was no distinction at all between L-7, L-3, L-6 permittees,
and L-7 referred to manufacturers of any class of tobacco
products including stemmed leaf tobacco.
This argument is similarly misplaced.
_______________
185 Act No. 2657, known as the Administrative Code, as amended by

Act No. 2803, Sec. 79(B).
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A reading of the entire RR No. V-39 shows that the

regulation pertains particularly to activities of
manufacturers of smoking and chewing tobacco, cigars and
cigarettes.186 This was rightly so because the regulation
was issued to enforce the tax law provisions in relation to
the manufacture and importation of tobacco products.
Clearly apparent in Section 10(a) is that when a
manufacturer of chewing and smoking tobacco, cigars, or
cigarettes has been qualified to conduct his or her business
as such, he or she is issued by the internal revenue agent
the corresponding register books and auxiliary
_______________
186 SEC. 3. Administrative schedule and paragraphs used in

the collection of specific taxes on products of tobacco.—The
following administrative schedule and paragraphs will be used in the
collection of the tax on manufactured products of tobacco.
SCHEDULE A
Paragraph 3 (A-3) — Manufacture of smoking and chewing tobacco;
Paragraph 4 (A-4) — Manufacture of cigars;
Paragraph 5 (A-5) — Manufacture of cigarettes.
SEC. 4. Assessment numbers of manufacturers; assessment
rolls to be kept by provincial revenue agents or the chief of the
tobacco tax section.—Every manufacturer of tobacco products shall be
given a permanent and official assessment number, distinct for each
paragraph under which he operates, which will be stamped in the official
register books to be issued him by the Collector of Internal Revenue. No
two manufacturers under the same paragraph will be given the same
assessment number. When a manufacturer retires from business his
assessment number will be dropped. However, when there is merely a
change in the ownership of the tobacco factory by reason of sale, transfer,
or otherwise, the Collector of Internal Revenue may permit the new owner
or transferee, if the latter so desires, to use the old assessment number of
his vendor or transferor if the right to use said assessment number has
been included in the sale or transfer. Provincial Revenue Agents, if in the
provinces, and the Chief of the Tobacco Tax Section, if in Manila, shall
keep, by paragraph, a chronological assessment roll of the manufacturers
of tobacco products in their respective territories.
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register books pertaining to his business as well as the

official register book, L-7, to be used as record of the raw
materials for his or her product. It is, therefore, logical to
conclude that the L-7 invoice and L-7 register book under
Section 20(a) refers to those invoice and books used by
manufacturers of chewing and smoking tobacco, cigars or
cigarettes.
RR No. 17-67 clarified RR No. V-39 by explicitly
designating the manufacturers of tobacco products as L-7
permittees (Section 2), in contrast to wholesale leaf tobacco
dealers and those that process partially manufactured
tobacco such as stemmed leaf tobacco. RR No. 17-67 did not
create a new and restrictive classification but only
expressed in clear and categorical terms the distinctions
between “manufacturers” and “dealers” of tobacco that
were already implicit in RR No. V-39.
Indeed, there is no repugnancy between RR No. 17-67
and RR No. V-39, on the one hand, and the Tax Code, on
the other. It is safer to presume that the term
“manufacturer” used in Section 137 on tax exempt
removals referred to an entity that is engaged in the
business of, and was licensed by the Bureau of Internal
Revenue as a, manufacturer of tobacco products. It does not
include an entity engaged in business as a dealer in tobacco
that, incidentally or in furtherance of its business as a
dealer, strip or thresh whole leaf tobacco or reprocess
partially manufactured tobacco.187
Such construction is consistent with the rule that tax
exemptions, deemed to be in derogation of the state’s
sovereign right of taxation, are strictly applied and may be
granted only
_______________
187 Tax Code (1939), Sec. 151:

SEC. 151. Premises subject to approval by Collector.—No person shall
engage in business as a manufacturer of or dealer in articles subject to a
specific tax unless the premises upon which the business is to be
conducted shall have been approved by the Collector of Internal Revenue.
555
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Appeals
under clear and unmistakable terms of the law and not

merely upon a vague implication or inference.188

RR No. V-39 must be applied and read together with
RR No. 17-67

The cigarette manufacturers’ argument is misplaced,
stating that RR No. 17-67 could not modify RR No. V-39
because it was promulgated to enforce Act No. 2613, as
amended (entitled “An Act to Improve the Methods of
Production and the Quality of Tobacco in the Philippines
and to Develop the Export Trade Therein”), which allegedly
had nothing whatsoever to do with the Tax Code or with
the imposition of taxes.
“The Tobacco Inspection Service, instituted under Act
No. 2613, was made part of the Bureau of Internal Revenue
and Bureau of Customs administration for . . . internal
revenue purposes.”189 The Collector of Internal Revenue
was charged to enforce Act No. 2613, otherwise known as
the Tobacco Inspection Law, with a view to promoting the
Philippine tobacco trade and thereby increase the revenues
of the government. This can be inferred from a reading of
the following provisions of Act No. 2613:
SEC. 6. The Collector of Internal Revenue shall have the power

and it shall be his duty:

(a) To establish general and local rules respecting the
classification, marking, and packing of tobacco for domestic sale
or factory use and for exportation so far as may be necessary to
secure leaf tobacco of good quality and to secure its handling
under sanitary conditions, and to the end that leaf tobacco be
_______________
188 Floro Cement Corporation v. Gorospe, No. L-46787, August 12,

1991, 200 SCRA 480, 488 [Per J. Bidin, Third Division].
189 L. S. Barredo, Philippine Tobacco Laws and Specific Tax
Regulations, p. 11 (1970).
556

Appeals
not mixed, packed, and marked and of the same quality when it is
not of the same class and origin.
(b) To establish from time to time adequate rules defining the
standard and the type of leaf and manufactured tobacco which
shall be exported, as well also as the manner in which standard
tobacco, shall be packed. Before establishing the rules above
specified, the Collector of Internal Revenue shall give due notice
of the proposed rules or amendments to those interested and shall
give them an opportunity to present their objections to such rules
or amendments.
(c) To require, whenever it shall be deemed expedient the
inspection of and affixture of inspection labels to tobacco removed
from the province of its origin to another province before such
removal, or to tobacco for domestic sale or factory use.190
SEC. 7. No leaf tobacco or manufactured tobacco shall be
exported until it shall have been inspected by the Collector of
Internal Revenue or his duly authorized representative and found
to be standard for export. Collector of customs shall not permit the
exportation of tobacco from the Philippines unless the shipment
be in conformity with the requirements set forth in this Act. The
prohibition contained in this section shall not apply to waste and
refuse tobacco accumulated in the manufacturing process when it
is invoiced and marked as such waste and refuse.191 (Emphasis
supplied)
....
SEC. 9. The Collector of Internal Revenue may appoint
inspectors of tobacco for the purpose of making the inspections
herein required, and may also detail any officer or employee of the
Bureau to perform such duty. Said inspectors or employees shall
likewise be charged with the duty of grading leaf tobacco and
shall perform such other
_______________
190 As amended by Rep. Act No. 31 (1946), Sec. 1.

191 As amended by Rep. Act No. 31 (1946), Sec. 2.
557
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Appeals
duties as may be required of them in the promotion of the

Philippine tobacco industry. The Collector of Internal Revenue
shall likewise appoint, with the approval of the Secretary of
Finance, agents in the United States for the purpose of promoting
the export trade in tobacco with the United States, whose duty it
shall be to inspect shipments of tobacco upon or after their arrival
in that country when so required, to assist manufacturers of,
exporters of, and dealers in tobacco in disseminating information
regarding Philippine tobacco and, at the request of the parties, to
act as arbitrators between the exporter in the Philippine Islands
and the importer in the United States whenever a dispute arises
between them as to the quality, sizes, classes, or shapes shipped
or received. When acting as arbitrator as aforesaid, the agent
shall proceed in accordance with the law governing arbitration
and award in the locality where the dispute arises. All agents,
inspectors, and employees acting under and by virtue of this Act
shall be subject to all penal provisions applicable to internal-
revenue officers generally.192 (Emphasis supplied)
....
SEC. 12. The inspection fees collected by virtue of the provisions
of this Act shall constitute a special fund to be known as the
Tobacco Inspection Fund, which shall be expended by the
Collector of Internal Revenue, with the approval of the Secretary
of Finance, upon allotment by a Board consisting of the
Commissioner of Internal Revenue, the Director of Plant
Industry, the Director of the Bureau of Commerce and Industry,
two manufacturers designated by the Manila Tobacco Association,
and two persons representing the interests of the tobacco
producers and growers, appointed by the President of the
Philippine Islands[.]
These funds may be expended for any of the following purposes:
_______________
192 As amended by Act No. 3179 (1924), Sec. 1.
558

Appeals
(a) The payment of the expenses incident to the enforcement

of this Act including the salaries of the inspectors and agents.
(b) The payment of expenses incident to the reconditioning
and returning to the Philippine Islands of damaged tobacco and
the reimbursement of the value of the United States internal-
revenue stamps lost thereby.
(c) The advertising of Philippine tobacco products in the
United States and in foreign countries.
(d) The establishment of tobacco warehouses in the Philippine
Islands and in the United States at such points as the trade
conditions may demand.
(e) The payment of bounties to encourage the production of
leaf tobacco of high quality.
(f) The promotion and defense of the Philippine tobacco
interests in the United States and in foreign countries.
(g) The establishment, operation, and maintenance of tobacco
experimental farms for the purpose of studying and testing the
best methods for the improvement of the leaves: Provided,
however, That thirty per centum of the total annual income of the
tobacco inspection fund shall be expended for the establishment,
operation, and maintenance of said tobacco experimental farms
and for the investigation and discovery of efficacious ways and
means for the extermination and control of the pests and diseases
of tobacco: Provided, further, That in the establishment of
experimental farms, preference shall be given to municipalities
offering the necessary suitable land for the establishment of an
experimental farm.
(h) The sending of special agents and commissions to study
the markets of the United States and foreign countries with
regard to the Philippine cigars and their propaganda in said
markets.
559
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Appeals
(i) The organization of exhibits of cigars and other Philippine

tobacco products in the United States and in foreign countries.193
SEC. 13. The Collector Internal Revenue shall be the executive
officer charged with the enforcement of the provisions of this Act
and of the regulations issued in accordance therewith, but it shall
be the duty of the Director of Agriculture, with the approval of the
Secretary of Public Instruction, to execute and enforce the
provisions hereof referring to the cultivation of tobacco.
(Emphasis supplied)

The cigarette manufacturers, thus, erroneously
concluded that Act No. 2613 does not involve taxation.
Parenthetically, Section 8 of Act No. 2613 pertained to
the imposition of tobacco inspection fees, which are
National Internal Revenue taxes, these being one of the
miscellaneous taxes provided for under the Tax Code. Said
Section 8 was in fact repealed by Section 369(b) of the 1939
Tax Code, and the provision regarding inspection fees are
found in Section 302 of the 1939 Tax Code.
Since the two revenue regulations, RR Nos. V-34 and 17-
67, are in pari materia, i.e., they both pertain specifically to
the regulation of tobacco trade, they should be read and
applied together.
Statutes are in pari materia when they relate to the same

person or thing or to the same class of persons or things, or object,
or cover the same specific or particular subject matter.
It is axiomatic in statutory construction that a statute must be
interpreted, not only to be consistent with itself, but also to
harmonize with other laws on the same subject matter, as to form
a complete, coherent and intelligible system. The rule is expressed
in the maxim,
_______________
193 Id.
560

Appeals
“interpretare et concordare legibus est optimus interpretandi,” or

every statute must be so construed and harmonized with other
statutes as to form a uniform system of jurisprudence.194 (Citation
omitted)

The foregoing rules on statutory construction can be
applied by analogy to administrative issuances such as RR
No. V-39 and RR No. 17-67, especially since both are issued
by the same administrative agency.

Importation of stemmed leaf tobacco not included in
the exemption under Section 137

The transaction contemplated in Section 137 does not
include importation of stemmed leaf tobacco for the reason
that the law uses the word “sold” to describe the
transaction of transferring the raw materials from one
manufacturer to another.
The Tax Code treats an importer and a manufacturer
differently. Section 123 clearly distinguishes between goods
manufactured or produced in the Philippines and things
imported. The law uses the proper term “importation” or
“imported” whenever the transaction involves bringing in
articles from foreign countries as provided under Section
125 (cf. Section 124). Whenever the Tax Code refers to
importers and manufacturers, they are separately
mentioned as two distinct persons or entities (Sections 156
and 160). Under Chapter II, whenever the law uses the
word manufacturer, it only means local manufacturer or
producer of domestic products (Sections 150, 151, and 152
of the 1939 Tax Code).
Moreover, foreign manufacturers of tobacco products not
engaged in trade or business in the Philippines cannot be
_______________
194 Philippine Economic Zone Authority v. Green Asia Construction &

Development Corporation, G.R. No. 188866, October 19, 2011, 659 SCRA
756, 764 [Per J. Sereno (now CJ.), Second Division].
561
VOL. 739, NOVEMBER 11, 2014 561

Appeals
designated as L-7 since these are beyond the pale of

Philippine law and regulations. The factories contemplated
are those located or operating only in the Philippines.
Contrary to La Suerte’s claim, Chapter V, Section 61 of
RR No. V-39195 is not applicable to justify the tax
exemption of its importation of stemmed leaf tobacco
because from the title of Chapter V, the provision
particularly refers to specific taxes on imported cigars,
cigarettes, smoking and chewing tobacco.

No estoppel against government

The cigarette manufacturers contend that for a long
time prior to the transactions herein involved, the Collector
of Internal Revenue had never subjected their purchases
and importations of stemmed leaf tobacco to excise taxes.
This prolonged practice allegedly represents the official and
authoritative interpretation of the law by the Bureau of
Internal Revenue which must be respected.
We are not persuaded.
_______________
195 CHAPTER V — Payment of Specific Taxes on Imported Cigars,

Cigarettes, Smoking, and Chewing Tobacco
SEC. 61. Taxes due and payable before release from
customhouse.—With respect to the specific taxes on cigars and
cigarettes, smoking and chewing tobacco imported into the Philippines,
the same shall become due from and payable by the owner or importer to
the customs officers immediately before the release of such articles from
the customhouse in such manner and under such conditions as prescribed
or may be prescribed by the Commissioner of Customs. Philippine stamps
are now affixed to imported cigarettes during the process of manufacture
in the country of origin under the procedure outlined in Revenue
Regulations No. V-11, as amended by Revenue Regulations No. V-17.
562

Appeals
In Philippine Long Distance Telephone Co. v. Collector of

Internal Revenue,196 this court has held that this principle
is not absolute, and an erroneous implementation by an
officer based on a misapprehension of law may be corrected
when the true construction is ascertained. Thus:
The appellant argues that the Collector of Internal Revenue,

previous to the transactions herein involved, had never collected
the franchise tax on items of the same nature as those herein in
question and this is strong evidence that such transactions are
not subject to tax on the principle that a prolonged practice on the
part of an executive or administrative officer-in-charge of
executing a certain statute is an authoritative construction of
great weight. This contention may be granted, but the principle is
not absolute and may be overcome by strong reasons to the
contrary. If through a misapprehension of law an officer has
erroneously executed it for a long time, the error may be corrected
when the true construction is ascertained. Such we deem to be the
situation in the present case. Incidentally, the doctrine of estoppel
does not apply here.197 (Emphasis supplied)

This court reiterated this rule in Abello v. Commissioner
of Internal Revenue198 where it rejected petitioners’ claim
that the prolonged practice (since 1939 up to 1988) of the
Bureau of Internal Revenue in not subjecting political
contributions to donor’s tax was an authoritative
interpretation of the statute, entitled to great weight and
the highest respect:
This Court holds that the BIR is not precluded from making a
new interpretation of the law, especially when the old
interpretation was flawed. It is a well-entrenched rule that[:]
_______________
196 90 Phil. 674 (1952) [Per J. Jugo, En Banc].

197 Id., at p. 680.
198 492 Phil. 303; 452 SCRA 162 (2005) [Per J. Azcuna, First
Division].
563
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Appeals
. . . erroneous application and enforcement of the law by public

officers do not block subsequent correct application of the statute,
and that the Government is never estopped by mistake or error on
the part of its agents.199 (Emphasis supplied, citations omitted)

Prolonged practice of the Bureau of Internal Revenue in
not collecting the specific tax on stemmed leaf tobacco
cannot validate what is otherwise an erroneous application
and enforcement of the law. The government is never
estopped from collecting legitimate taxes because of the
error committed by its agents.200
In La Suerte Cigar and Cigarette Factory v. Court of Tax
Appeals,201 this court upheld the validity of a revenue
memorandum circular issued by the Commissioner of
Internal Revenue to correct an error in a previous circular
that resulted in the non-collection of tobacco inspection fees
for a long time and declared that estoppel cannot work
against the government:
. . . the assailed Revenue Memorandum Circular was issued to
rectify the error in General Circular No. V-27 and to interpret the
phrase “tobacco for domestic sale or factory use” with the view of
arresting huge losses of tobacco inspection fees which were not
collected and imposed since the said Circular (No. V-27) took
effect. Furthermore, the questioned Revenue Memorandum
Circular was also issued to apprise those concerned of the con-
_______________
199 Id., at p. 312.

200 La Suerte Cigar and Cigarette Factory v. Court of Tax Appeals, 219
Phil. 25, 36; 134 SCRA 29, 40 (1985) [Per J. Cuevas, Second Division]; E.
Rodriguez, Inc. v. Collector of Internal Revenue, 139 Phil. 354, 366; 28
SCRA 1119, 1130 (1969) [Per J. Barredo, En Banc].
201 La Suerte Cigar and Cigarette Factory v. Court of Tax Appeals, id.
564

Appeals
struction and interpretation which should be accorded to Act No.

2613, as amended, and which respondent is duty bound to enforce.
It is an opinion on how the law should be construed and there was
no attempt whatsoever to enlarge or restrict the meaning of the
law.
The basis for the issuance of said Memorandum Circular was
so stated in Resolution No. 2-67 of the Tobacco Board, wherein
petitioners as members of the Manila Tobacco Association, Inc.
were duly represented, the pertinent portions of which read:
“. . . .
WHEREAS, this original recommendation of Mr. Hernandez
was perfectly in accordance with existing law, more particularly
Sec. 1 of Republic Act No. 31 which took effect since September
25, 1946, but perhaps thru oversight by the former Commissioners
and officers of the Tobacco Inspection Service the propriety and
legality of effecting the inspection of tobacco products for local
sales and imported leaf tobacco for factory use might have
overlooked resulting in huge losses of tobacco inspection fees . . .”
(Italics supplied)
....
Tobacco Inspection fees are undoubtedly National Internal
Revenue taxes, they being one of the miscellaneous taxes provided
for under the Tax Code. Section 228 (formerly Section 302) of
Chapter VII of the Code specifically provides for the collection and
manner of payment of the said inspection fees. It is within the
power and duty of the Commissioner to collect the same, even
without inspection, should tobacco products be removed
clandestinely or surreptitiously from the establishment of the
wholesaler, manufacturer or redrying plant and from the customs
custody in case of imported leaf tobacco. Errors, omissions or
flaws committed by BIR inspectors and representatives while in
the performance of their duties cannot be set up as estoppel nor
estop the Government from collecting a tax legally due. Tobacco
inspection fees are
565
VOL. 739, NOVEMBER 11, 2014 565

Appeals
levied and collected for purposes of regulation and control and

also as a source of revenue since fifty per centum (50%) of said
fees shall accrue to the Tobacco Inspection Fee Fund created by
Sec. 12 of Act No. 2613, as amended and the other fifty per
centum, to the Cultural Center of the Philippines. (Sec. 88,
Chapter VII, NIRC)202 (Emphasis in this paragraph supplied,
citation omitted)

Furthermore, the December 12, 1972 ruling of
Commissioner Misael P. Vera runs counter to Section 20(a)
of RR No. V-39 in relation to RR No. 17-67, which provides
that only transfers of stemmed leaf tobacco between L-7
permittees are exempt. An implementing regulation cannot
be superseded by a ruling which is a mere interpretation of
the law. While opinions and rulings of officials of the
government called upon to execute or implement
administrative laws command much respect and weight,
courts are not bound to accept the same if they override,
instead of remain consistent and in harmony with, the law
they seek to apply and implement.203

Double taxation

The contention that the cigarette manufacturers are
doubly taxed because they are paying the specific tax on
the raw material and on the finished product in which the
raw material was a part is also devoid of merit.
For double taxation in the objectionable or prohibited
sense to exist, “the same property must be taxed twice,
when it
_______________
202 Id., at pp. 34-36; p. 40.

203 In Misamis Oriental Association of Coco Traders, Inc. v.
Department of Finance Secretary, G.R. No. 108524, November 10, 1994,
238 SCRA 63, 70 [Per J. Mendoza, Second Division], it was held that
“[t]he Commissioner of Internal Revenue is not bound by the ruling of his
predecessors. To the contrary, the overruling of decisions is inherent in
the interpretation of laws.”
566

Appeals
should be taxed but once.”204 “[B]oth taxes must be

imposed on the same property or subject-matter, for the
same purpose, by the same . . . taxing authority, within the
same jurisdiction or taxing district, during the same taxing
period, and they must be the same kind or character of
tax.”205
At all events, there is no constitutional prohibition
against double taxation in the Philippines.206 This court
has explained in Pepsi-Cola Bottling Company of the
Philippines, Inc. v. Municipality of Tanauan, Leyte:207
There is no validity to the assertion that the delegated

authority can be declared unconstitutional on the theory of double
taxation. It must be observed that the delegating authority
specifies the limitations and enumerates the taxes over which
local taxation may not be exercised. The reason is that the State
has exclusively reserved the same for its own prerogative.
Moreover, double taxation, in general, is not forbidden by our
fundamental law, since We have not adopted as part thereof the
injunction against double taxation found in the Constitution of the
United States and some states of the Union. Double taxation
becomes obnoxious only where the taxpayer is taxed twice for the
benefit of the same governmental entity or by the same
jurisdiction for the same purpose, but not in a case where one tax
is imposed by the State and the other by the city or
municipality.208 (Emphasis supplied, citations omitted)
_______________
204 Procter & Gamble Philippine Manufacturing Corporation v.
Municipality of Jagna, 183 Phil. 453, 461; 94 SCRA 894, 903 (1979) [Per
J. Melencio-Herrera, First Division].
205 Villanueva v. City of Iloilo, 135 Phil. 572, 588; 26 SCRA 578, 594
(1968) [Per J. Castro, En Banc].
206 China Banking Corporation v. Court of Appeals, 451 Phil. 772,
809; 403 SCRA 634, 664 (2003) [Per J. Carpio, First Division]; City of
Manila v. Inter-Island Gas Service, Inc., 99 Phil. 847, 854 (1956) [Per J.
Concepcion, En Banc].
207 161 Phil. 591; 69 SCRA 460 (1976) [Per J. Martin, En Banc].
208 Id., at pp. 602-603; pp. 466-467.

567
VOL. 739, NOVEMBER 11, 2014 567

Appeals
“It is something not favored, but is permissible, provided

some other constitutional requirement is not thereby
violated, such as the requirement that taxes must be
uniform.”209
Excise taxes are essentially taxes on property210 because
they are levied on certain specified goods or articles
manufactured or produced in the Philippines for domestic
sale or consumption or for any other disposition, and on
goods imported. In this case, there is no double taxation in
the prohibited sense because the specific tax is imposed by
explicit provisions of the Tax Code on two different articles
or products: (1) on the stemmed leaf tobacco; and (2) on
cigar or cigarette.211
WHEREFORE, this court:
1. DENIES the petition for review filed by La Suerte
Cigar & Cigarette Factory in G.R. No. 125346 and
AFFIRMS the questioned decision and resolution of the
Court of Appeals in C.A.-G.R. S.P. No. 38107;
2. GRANTS the petition for review filed by the
Commissioner of Internal Revenue in G.R. Nos. 136328-29
and REVERSES and SETS ASIDE the challenged
decision and resolution of the Court of Appeals in C.A.-G.R.
S.P. Nos. 38219 and 40313. Fortune Tobacco Corporation is
ORDERED to pay the following taxes:
a. P28,938,446.25 as deficiency excise tax for the
period covering January 1, 1986 to June 30, 1989, plus 20%
interest per annum from November 24, 1989 until fully
paid; and
_______________
209 Villanueva v. City of Iloilo, supra note 205.

210 People v. Sandiganbayan, supra note 159 at p. 429; p. 159.
211 Victorias Milling Co., Inc. v. Municipality of Victorias, 134 Phil.
180, 198; 25 SCRA 192, 209 (1968) [Per J. Sanchez, En Banc], states that
for double taxation to exist, “the same property must be taxed twice, when
it should be taxed but once.”
568

Appeals
b. P1,989,821.26 as deficiency excise tax for the period

covering July 1, 1989 to November 30, 1990, plus 20%
interest per annum from March 1, 1991 until fully paid.
3. GRANTS the petition for review filed by the
Commissioner of Internal Revenue in G.R. No. 144942 and
REVERSES and SETS ASIDE the challenged decision of
the Court of Appeals in C.A.-G.R. S.P. No. 51902. La Suerte
Cigar & Cigarette Factory’s claim for refund of the amount
of P175,909.50 is DENIED;
4. DENIES the petition for review filed by Sterling
Tobacco Corporation in G.R. No. 148605 and AFFIRMS
the questioned decision and resolution of the Court of
Appeals in C.A.-G.R. S.P. No. 38159;
Court of Appeals in C.A.-G.R. S.P. No. 37124; and
Court of Appeals in C.A.-G.R. S.P. No. 50241.
SO ORDERED.
Velasco, Jr., Leonardo-De Castro, Brion, Del Castillo,

Villarama, Jr., Perez, Mendoza, Reyes, Perlas-Bernabe and
Jardeleza, JJ., concur.
Sereno (CJ.), Peralta and Bersamin, JJ., On Official
Leave.
Carpio,** J., No part.
_______________
* * Designated Acting Chief Justice.

569
VOL. 739, NOVEMBER 11, 2014 569

Appeals
Petition in G.R. No. 125346 denied, judgment and

resolution affirmed; Petition in G.R. No. 136328-29 granted,
judgment and resolution reversed and set aside; Petition in
G.R. No. 144942 granted, judgment reversed and set aside;
Petition in G.R. No. 148605 denied, judgment and
resolution affirmed; Petition in G.R. No. 158197 denied,
judgment and resolution affirmed; and Petition in G.R. No.
165499 denied, judgment and resolution affirmed.
Notes.—That RA 8240 (incorporated as Section 145 of

the 1997 Tax Code) was enacted to raise government
revenues is a given fact, but this is not the sole and only
objective of the law — congressional deliberations show
that the shift from ad valorem to specific taxes introduced
by the law was also intended to curb the corruption that
became endemic to the imposition of ad valorem taxes.
(Commissioner of Internal Revenue vs. Fortune Tobacco
Corporation, 658 SCRA 289 [2011])
Double taxation means taxing the same property twice
when it should be taxed only once; that is, “taxing the same
person twice by the same jurisdiction for the same thing.”
(Swedish Match Philippines, Inc. vs. Treasurer of the City
of Manila, 700 SCRA 428 [2013])
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G.R. No. 125346. November 11, 2014.

G.R. Nos. 136328-29. November 11, 2014.*

G.R. No. 144942. November 11, 2014.*

G.R. No. 148605. November 11, 2014.*

G.R. No. 158197. November 11, 2014.*

G.R. No. 165499. November 11, 2014.*

490 SUPREME COURT REPORTS ANNOTATED

Taxation; Excise Taxes; Words and Phrases; Excise tax is a

VOL. 739, NOVEMBER 11, 2014 491

tax exemption subject to the following: (1) that the stemmed

492 SUPREME COURT REPORTS ANNOTATED

Same; Same; To be valid, a revenue regulation must be within

VOL. 739, NOVEMBER 11, 2014 493

ted by its agents.—This court reiterated this rule in Abello v.

494 SUPREME COURT REPORTS ANNOTATED

provisions of the Tax Code on two different articles or

PETITIONS for review on certiorari of the decisions and

1 An Act Restructuring the Excise Tax on Alcohol and Tobacco

VOL. 739, NOVEMBER 11, 2014 495

This is a consolidation of six petitions for review of

5 Rollo (G.R. No. 125346), pp. 16-75.

496 SUPREME COURT REPORTS ANNOTATED

(Fortune) was not obliged to pay the excise tax on its

11 Rollo (G.R. No. 148605), pp. 10-51.

VOL. 739, NOVEMBER 11, 2014 497

specific tax on its local and imported purchases of

498 SUPREME COURT REPORTS ANNOTATED

up 22.21%, and the Native (or ‘dark air-cured’),24

24 Id.: “Dark air-cured tobacco or the ‘native’ type is . . . grown mostly

VOL. 739, NOVEMBER 11, 2014 499

for the leaves to take on properties that are usually

31 “Tobacco Cultivation and Processing,” 25 Years of the National

500 SUPREME COURT REPORTS ANNOTATED

Redrying and aging

37 See Philip Morris USA, “Making Our Cigarettes” <http://www.

VOL. 739, NOVEMBER 11, 2014 501

disperses the shredded tobacco over a continuous roll of

44 Rollo (G.R. No. 158197), p. 36.

502 SUPREME COURT REPORTS ANNOTATED

History of applicable tax provisions

VOL. 739, NOVEMBER 11, 2014 503

SECTION 136. Specific Tax on Products of Tobacco.—On

sold, his cigars and cigarettes at wholesale in another establishment of

504 SUPREME COURT REPORTS ANNOTATED

SECTION 132. Removal of Tobacco Products Without Pre-

SECTION 20. Exemption from tax of tobacco products

50 Revenue Regulations No. V-39, Sec. 1.

VOL. 739, NOVEMBER 11, 2014 505

may be sold in bulk as raw materials by one manufacturer

SECTION 10. (a) Register, auxiliary, and stamps

506 SUPREME COURT REPORTS ANNOTATED

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508 SUPREME COURT REPORTS ANNOTATED

Section 2. Definition of terms.—When used in there [sic]

51 SECTION 194. Words and Phrases Defined.—. . .

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(b) “Manufacturer of tobacco products” shall include all

(i) “Manufacturer of tobacco” — Includes every person whose

52 Amended by Revenue Regulations Nos. 9-72 (September 27, 1972),