CIR vs. CA 261 SCRA 262, G.R. No.

119761, August 29, 1996

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

However, on July 1, 1993, petitioner Commissioner of Internal Revenue issued Revenue Memorandum
Circular37-93 which reclassified the 3 brands as locally manufactured cigarettes bearing a foreign brand
subject to the 55% ad valorem tax. The reclassification was before RA 7654 took effect.

In effect, the memo circular subjected the 3 brands to the provisions of Sec 142 (c) (1) NIRC imposing upon
these brands a rate of 55% instead of just 20 to 45% under Sec 142 (c) (2) NIRC. There was no notice and
hearing. CIR argued that the memo circular was merely an interpretative ruling of the BIR which did not
require notice and hearing.

Issue:
Whether or not RMC 37-93 was valid and enforceable.

Held:
No; lack of notice and hearing violated due process required for promulgated rules. Moreover, it infringed
on uniformity of taxation / equal protection since other local cigarettes bearing foreign brands had not
been included within the scope of the memo circular.

Contrary to petitioner’s contention, the memo was not a mere interpretative rule but a legislative rule in
the nature of subordinate legislation, designed to implement a primary legislation by providing the details
thereof. Promulgated legislative rules must be published.
On the other hand, interpretative rules only provide guidelines to the law which the administrative agency
is in charge of enforcing.

BIR, in reclassifying the 3 brands and raising their applicable tax rate, did not simply interpret RA 7654 but
legislated under its quasi-legislative authority. BELLOSILLO separate opinion: the administrative issuance
was not quasi-legislative but quasi-judicial. Due process should still be observed of course but use Ang
Tibay v. CIR.

One of the powers of administrative agencies like the Bureau of Internal Revenue, is the power to make
rules. The necessity for vesting administrative agencies with this power stems from the impracticability of
the lawmakers providing general regulations for various and varying details pertinent to a particular
legislation.

The rules that administrative agencies may promulgate may either be legislative or interpretative. The
former is a form of subordinate legislation whereby the administrative agency is acting in a legislative
capacity, supplementing the statute, filling in the details, pursuant to a specific delegation of legislative
power.
It should be understandable that when an administrative rule is merely interpretative in nature, its
applicability needs nothing further than its bare issuance for it gives no real consequence more than what
the law itself has already prescribed.

When, upon the other hand, the administrative rule goes beyond merely providing for the means that can
facilitate or render least cumbersome the implementation of the law but substantially adds to or increases
the burden of those governed, it behooves the agency to accord at least to those directly affected a chance
to be heard, and thereafter to be duly informed, before that new issuance is given the force and effect of
law.