January 17, 1985

LA SUERTE CIGAR AND CIGARETTE FACTORY, BATAAN CIGAR AND CIGARETTE FACTORY, INC., LA
PERLA INDUSTRIES, INC., PIONEER TOBACCO CORPORATION, INSULAR-YEBANA TOBACCO
CORPORATION, LAS BUENAS FABRICA DE CIGARILLOS, INC., LA DICHA CIGAR & CIGARETTE FACTORY,
CONSOLIDATED TOBACCO INDUSTRIES OF THE PHILIPPINES, INC., LA CAMPANA FABRICA DE TABACOS,
INC., ASSOCIATED ANGLO-AMERICAN TOBACCO CORPORATION, FORTUNE TOBACCO CORPORATION,
BAGUMBUHAY CIGAR AND CIGARETTE FACTORY, STANDARD CIGARETTE MANUFACTURING CO., INC.,
and D.L. TERUEL TOBACCO CO., INC., petitioners,
vs.
COURT OF TAX APPEALS and HON. MISAEL P. VERA, IN HIS CAPACITY AS COMMISSIONER OF INTERNAL
REVENUE, respondents.
[G.R. NO. L-36131]
ALHAMBRA INDUSTRIES, INC., LA FLOR DE LA ISABELA, INCORPORADA AND COLUMBIA TOBACCO
COMPANY, INC., petitioners,
vs.
COURT OF TAX APPEALS and HON. MISAEL P. VERA, IN HIS CAPACITY AS COMMISSIONER OF INTERNAL
REVENUE, respondents.
Cuevas, J.:
SUMMARY: To correct an error in an earlier circular (which cost the Government lots of money), the BIR promulgated
a new Revenue Memorandum Circular which clarified the forms of tobacco products to be charged with inspection
fees. Petitioner cigarette manufacturers were among those who were made to pay the fees, so they assailed the
RMC for going beyond the provisions of the law which provided for the forms of tobacco products to be charged with
inspection fees. CTA and SC held that the circular was not ultra vires, since the law in question was general in scope
all along, thus cigarettes were (and are still) included. SC also held that the RMC was a mere interpretative rule which
need not be published in the OG (since it was just meant to correct the old circular; and the cigarette manufacturers
themselves admitted that the rule was internal in nature; plus they were furnished copies).
DOCTRINE: When an administrative agency renders an opinion by means of a circular or Memorandum, it merely
interprets a pre-existing law, and no publication is necessary for its validity. Errors or omissions by its tax collection
agents in the performance of their duties do not estop government from collecting tax legally due.
NATURE: Petition for review on certiorari. Original action for tax refund before the CTA.
FACTS

Act No. 2613 (the Tobacco Inspection Law) was passed by the Philippine Legislature. Its Sec. 6 provided:
o Sec. 6. The Commissioner of Internal Revenue shall have the power and it shall be his duty:
xxxx
(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 or other provinces before such
removal."

Oct. 1, 1946 RA 31 was passed, amending Act No. 2613. With the amendment, Sec. 6 of said law now
read:
o "Sec. 6. The Commission of Internal Revenue shall have the power and it shall be his duty:
xxxx
(c) To require, whenever it shall be deemed expedient, the inspection of and affixture of inspection
labels to tobacco removed from province of its origin to another or other provinces before such
removal or to tobacco for domestic sale or factory use.
o The explanatory note to the House Bill which eventually became RA 31 stated that the amendment
was intended to widen the scope of the Commissioners regulatory power to leaf tobacco and
manufactured tobacco for factory use regardless of which country it was being exported to. The
scope of the old law was confined to tobacco intended for export to the United States.

Oct. 29, 1946 General Circular No. V-27 was issued to implement Secs. 6, 7, and 14 of Act No. 2613.
o This circular inadvertently included the term leaf (which was omitted in the final version of RA
31).

As a result, the Government was unable to collect tobacco inspection fees on cigars and cigarettes
for domestic sale, as well as on imported leaf and partially manufactured tobacco (because
apparently these were excluded from the term leaf tobacco).
The error was discovered in 1967, when an Assistant Chief of the BIR Tobacco Inspection Service appeared
in a hearing of the Joint Legislative-Executive Tax Commission.
May 31, 1967 To address the oversight, Resolution 2-67 adopted by the Philippine Tobacco Board was
approved. It dealt with interpretations of certain phrases in the law and regulations on tobacco inspection.
o Tobacco for domestic sale refers to wholesale disposal of tobacco products by cigar and
cigarette factories to its dealers
o Tobacco for factory use refers to imported leaf tobacco intended for use by cigar and cigarette
companies in the manufacture of tobacco products.
Aug. 22, 1967 Pursuant to Resolution 2-67, BIR Commissioner Misael VERA issued Revenue
Memorandum Circular (RMC) 30-67.
o It required the inspection of:

(a) all locally produced leaf tobacco and partially manufactured tobacco intended for
domestic sale, for factory use or for export;

(b) all manufactured products of tobacco contemplated in Sec. 194(m) of the Tax Code
intended for domestic sale;

(c) all imported foreign leaf tobacco and partially manufactured tobacco for domestic sale
or factory use,
o It also mandated the collection of the corresponding inspection fees.
o The circular provided that it will take effect on Sep. 1, 1967.
Pursuant to the RMC, the BIR collected tobacco inspection fees from the petitioner TOBACCO COMPANIES
(over their objections) in the following amounts:
o P199,632.19 for the period Sept. 1967-April 1969 in CTA Case no. 2031
o P1,406,877.64 for the period Sept. 1967-Aug. 1969 in CTA Case no. 2048
The tobacco companies filed two separate actions for refund before the CTA.
The claim in Case no. 2031 was denied, but the CTA later allowed the case to be reopened to allow the
tobacco companies to present evidence to show that BIR did not conduct inspections so as to merit the
imposition and collection of the inspection fees. The two cases were later consolidated.
Dec. 15, 1972 The CTA denied both claims. Hence, the tobacco companies appealed to the SC.
o

ISSUES (HELD)
1) W/N RMC 30-67 is ultra vires for unduly extending the scope of Act 2613 (NO)
2) W/N RMC 30-67 is invalid for non-publication in the Official Gazette and for non-promulgation by the Finance
Secretary as provided by the NIRC (NO)
3) W/N the BIR actually conducted inspections so as to warrant the impost and collection of tobacco inspection fees
(YES)
RATIO
1) TOBACCO AS USED IN ACT 2613 INCLUDES BOTH LEAF AND MANUFACTURED TOBACCO. UBI LEX NON
DISTINGUIT, NEC NOS DISTINGUERE DEBEMOS.

Tobacco Companies: Tobacco for domestic sale or factory use as used in Act 2613, Sec. 6(c) refers only
to leaf tobacco and does not include manufactured tobacco.

SC: We do not agree.

o Even without the amendment, Act 2613 already covered leaf tobacco, partially manufactured
tobacco for local sale, and leaf tobacco products for export.
o The original Act 2613 does not contain the word leaf, which Congress could well have inserted if it
really intended to confine the operation of the law to leaf tobacco. The omission is a clear indication
that Congress intended to include within the purview of the law manufactured tobacco and leaf
tobacco for export.
o CTA: The construction of the tobacco companies is restrictive, misleading and unsound.
o Websters definition of tobacco: the leaves of the tobacco plant, prepared by drying and various
manufacturing processes, and use either for smoking or showing, or as snuff, or the manufactured
products from tobacco leaves; smoking or chewing tobacco cigars, cigarettes, etc., collectively.
o It is clear from the foregoing definition that tobacco includes manufactured cigars and cigarettes.
o Neither Act 2613 nor RA 31 append any modifying or qualifying term to tobacco, evincing the
intention of Congress to use such term in its general sense. The courts are thus powerless to
restrict its meaning. If Congress intended to restrict the law, it should have put the term leaf in RA
31; but it did not.

2) RMC 30-67 IS AN INTERPRETATIVE RULE WHICH NEED NOT BE PUBLISHED

[see facts]. RMC 30-67 is a consequence of the failure of the Government to collect taxes on manufactured
tobacco and leaf tobacco for export from 1946 to 1967.

The inadvertent restriction of the term tobacco in General Circular V-27 was remedied by Phil. Tobacco
Board Resolution 2-67, which in turn led to the promulgation of RMC 30-67. The tobacco companies are
represented in the Phil. Tobacco Board.

Counsel for the tobacco companies admitted that each company was furnished a copy of RMC 30-67. Thus
there was substantial compliance with the purpose of the law: to inform or notify the parties affected by the
law or rule.

Furthermore, the tobacco companies admitted that RMC 30-67 is an internal memorandum relating to
the administration of the BIR and not a regulation within the contemplation of NIRC Secs. 4 and 338 as well
Sec. 79(b) of the Revised Admin. Code, which empowers bureau heads (like Comm. Vera) to issue internal
rules and memoranda relating to internal matters without need of publication in the Official Gazette.

Romualdez v. Arca: When an administrative agency renders an opinion by means of a circular or

Memorandum, it merely interprets a pre-existing law, and no publication is necessary for its validity. RMC
30-67 merely served to correct the error in General Circular V-27.

Salaria v. Buenviaje: Although the construction of a law by the executive branch is not binding upon the
courts, such construction must be given weight as coming from the branch which is tasked to implement the
law.

RMC 30-67 has been issued in accordance with the Revised Administrative Code, with the approval of the
Secretary of Finance; therefore it has the force and effect of law.
3) REFUND NOT WARRANTED AS RECORD SHOWS THAT THERE WAS INSPECTION

Tobacco inspection fees are a form of National Internal Revenue tax.

It is one of the miscellaneous taxes provided for in the NIRC (as provided in Sec. 228, Chap. VII).

The BIR Commissioner is entitled and empowered to collect inspection fees, even without inspection, should
the tobacco products be removed clandestinely or surreptitiously from the premises of the manufacturer,
wholesaler, or redryer; or in the case of imported tobacco, from the customs custody.

Phil. American Drug v. Collector: Errors or omissions by its tax collection agents in the performance of their
duties do not estop government from collecting tax legally due.

Tobacco inspection fees are both regulatory and revenue-generating, since its proceeds are divided
between the Tobacco Inspection Fee Fund and the Cultural Center of the Philippines.

CASE AT BAR: CTA findings on the issue of inspection must be upheld. SC does not find cogent reason to
disturb them; they are thus binding on the SC.
o The tobacco companies agreed that the testimony of La Suertes Production Manager, Vicente
Chua, should be considered as the Procedure of Inspection in all their factories.
o Before being removed from the factory, the cigarettes are invoiced, checked, counted, and affixed
with strip stamps. The cigarette bobbins were also checked and it was made sure that cigarettes
removed were properly recorded in the books.
o The testimonies of other witnesses for the tobacco companies show that BIR agents and tobacco
inspectors recorded the raw materials to be used in manufacturing tobacco products, and those
unfit for sale were segregated.
DISPOSITION: Petition dismissed.