Admin Law 3

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 119761 August 29, 1996
COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
HON. COURT OF APPEALS, HON. COURT OF TAX APPEALS and
FORTUNE TOBACCO CORPORATION,respondents.
VITUG, J.:p
The Commissioner of Internal Revenue ("CIR") disputes the decision, dated 31

March 1995, of respondent Court of Appeals 1 affirming the 10th August 1994
decision and the 11th October 1994 resolution of the Court of Tax
Appeals 2("CTA") in C.T.A. Case No. 5015, entitled "Fortune Tobacco
Corporation vs. Liwayway Vinzons-Chato in her capacity as Commissioner of
Internal Revenue."
The facts, by and large, are not in dispute.
Fortune Tobacco Corporation ("Fortune Tobacco") is engaged in the

manufacture of different brands of cigarettes.
On various dates, the Philippine Patent Office issued to the corporation separate
certificates of trademark registration over "Champion," "Hope," and "More"
cigarettes. In a letter, dated 06 January 1987, of then Commissioner of Internal
Revenue Bienvenido A. Tan, Jr., to Deputy Minister Ramon Diaz of the
Presidential Commission on Good Government, "the initial position of the
Commission was to classify 'Champion,' 'Hope,' and 'More' as foreign brands
since they were listed in the World Tobacco Directory as belonging to foreign
companies. However, Fortune Tobacco changed the names of 'Hope' to
'Hope Luxury' and 'More' to 'Premium More,' thereby removing the said brands
from the foreign brand category. Proof was also submitted to the Bureau (of
Internal Revenue ['BIR']) that 'Champion' was an original Fortune Tobacco
Elsa M. Cañete CPA, MBA, DBA 1

Corporation register and therefore a local brand." 3 Ad Valorem taxes were
imposed on these brands, 4 at the following rates:
BRAND AD VALOREM TAX RATE

E.O. 22 and E.O. 273 RA 6956
06-23-86 07-25-87 06-18-90
07-01-86 01-01-88 07-05-90
Hope Luxury M. 100's

Sec. 142, (c), (2) 40% 45%
Hope Luxury M. King
Sec. 142, (c), (2) 40% 45%
More Premium M. 100's
Sec. 142, (c), (2) 40% 45%
More Premium International
Sec. 142, (c), (2) 40% 45%
Champion Int'l. M. 100's
Sec. 142, (c), (2) 40% 45%
Champion M. 100's
Sec. 142, (c), (2) 40% 45%
Champion M. King
Sec. 142, (c), last par. 15% 20%
Champion Lights
Sec. 142, (c), last par. 15% 20% 5
A bill, which later became Republic Act ("RA") No. 7654, 6 was enacted, on
10 June 1993, by the legislature and signed into law, on 14 June 1993, by
the President of the Philippines. The new law became effective on 03 July
1993. It amended Section 142(c)(1) of the National Internal Revenue Code
("NIRC") to read; as follows:
Sec. 142. Cigars and Cigarettes. —
xxx xxx xxx
(c) Cigarettes packed by machine. — There shall be levied,

assessed and collected on cigarettes packed by machine a tax at
the rates prescribed below based on the constructive manufacturer's
wholesale price or the actual manufacturer's wholesale price,
whichever is higher:
(1) On locally manufactured cigarettes which are currently classified

and taxed at fifty-five percent (55%) or the exportation of which is

not authorized by contract or otherwise, fifty-five (55%) provided that
the minimum tax shall not be less than Five Pesos (P5.00) per pack.
(2) On other locally manufactured cigarettes, forty-five percent

(45%) provided that the minimum tax shall not be less than Three
Pesos (P3.00) per pack.
xxx xxx xxx
When the registered manufacturer's wholesale price or the actual

manufacturer's wholesale price whichever is higher of existing
brands of cigarettes, including the amounts intended to cover the
taxes, of cigarettes packed in twenties does not exceed Four Pesos
and eighty centavos (P4.80) per pack, the rate shall be twenty
percent (20%). 7 (Emphasis supplied)
About a month after the enactment and two (2) days before the effectivity

of RA 7654, Revenue Memorandum Circular No. 37-93 ("RMC 37-93"),
was issued by the BIR the full text of which expressed:
REPUBLIKA NG PILIPINAS
KAGAWARAN NG PANANALAPI
KAWANIHAN NG RENTAS INTERNAS
July 1,
1993
REVENUE MEMORANDUM CIRCULAR NO. 37-93
SUBJECT: Reclassification of Cigarettes Subject to Excise Tax
TO: All Internal Revenue Officers and Others Concerned.
In view of the issues raised on whether "HOPE," "MORE" and

"CHAMPION" cigarettes which are locally manufactured are
appropriately considered as locally manufactured cigarettes bearing
a foreign brand, this Office is compelled to review the previous
rulings on the matter.
Section 142 (c)(1) National Internal Revenue Code, as amended by

R.A. No. 6956, provides:
On locally manufactured cigarettes bearing a foreign

brand, fifty-five percent (55%) Provided, That this rate
shall apply regardless of whether or not the right to use
or title to the foreign brand was sold or transferred by its
owner to the local manufacturer. Whenever it has to be
determined whether or not a cigarette bears a foreign
brand, the listing of brands manufactured in foreign
countries appearing in the current World Tobacco
Directory shall govern.
Under the foregoing, the test for imposition of the 55% ad

valorem tax on cigarettes is that the locally manufactured cigarettes
bear a foreign brand regardless of whether or not the right to use or
title to the foreign brand was sold or transferred by its owner to the
local manufacturer. The brand must be originally owned by a foreign
manufacturer or producer. If ownership of the cigarette brand is,
however, not definitely determinable, ". . . the listing of brands
manufactured in foreign countries appearing in the current World
Tobacco Directory shall govern. . . ."
"HOPE" is listed in the World Tobacco Directory as being

manufactured by (a) Japan Tobacco, Japan and (b) Fortune
Tobacco, Philippines. "MORE" is listed in the said directory as being
manufactured by: (a) Fills de Julia Reig, Andorra; (b) Rothmans,
Australia; (c) RJR-Macdonald Canada; (d) Rettig-Strenberg, Finland;
(e) Karellas, Greece; (f) R.J. Reynolds, Malaysia; (g) Rothmans,
New Zealand; (h) Fortune Tobacco, Philippines; (i) R.J. Reynolds,
Puerto Rico; (j) R.J. Reynolds, Spain; (k) Tabacalera, Spain; (l) R.J.
Reynolds, Switzerland; and (m) R.J. Reynolds, USA. "Champion" is
registered in the said directory as being manufactured by (a)
Commonwealth Bangladesh; (b) Sudan, Brazil; (c) Japan Tobacco,
Japan; (d) Fortune Tobacco, Philippines; (e) Haggar, Sudan; and (f)
Tabac Reunies, Switzerland.
Since there is no showing who among the above-listed

manufacturers of the cigarettes bearing the said brands are the real
owner/s thereof, then it follows that the same shall be considered
foreign brand for purposes of determining the ad valorem tax
pursuant to Section 142 of the National Internal Revenue Code. As
held in BIR Ruling No. 410-88, dated August 24, 1988, "in cases
where it cannot be established or there is dearth of evidence as to
whether a brand is foreign or not, resort to the World Tobacco
Directory should be made."

In view of the foregoing, the aforesaid brands of cigarettes, viz:
"HOPE," "MORE" and "CHAMPION" being manufactured by Fortune
Tobacco Corporation are hereby considered locally manufactured
cigarettes bearing a foreign brand subject to the 55% ad valorem tax
on cigarettes.
Any ruling inconsistent herewith is revoked or modified accordingly.
(SGD)
LIWAYWAY
VINZONS-
CHATO
Commission
er
On 02 July 1993, at about 17:50 hours, BIR Deputy Commissioner Victor

A. Deoferio, Jr., sent via telefax a copy of RMC 37-93 to Fortune Tobacco
but it was addressed to no one in particular. On 15 July 1993, Fortune
Tobacco received, by ordinary mail, a certified xerox copy of RMC 37-93.
In a letter, dated 19 July 1993, addressed to the appellate division of the

BIR, Fortune Tobacco requested for a review, reconsideration and recall of
RMC 37-93. The request was denied on 29 July 1993. The following day,
or on 30 July 1993, the CIR assessed Fortune Tobacco for ad valorem tax
deficiency amounting to P9,598,334.00.
On 03 August 1993, Fortune Tobacco filed a petition for review with the
CTA. 8
On 10 August 1994, the CTA upheld the position of Fortune Tobacco and
adjudged:
WHEREFORE, Revenue Memorandum Circular No. 37-93

reclassifying the brands of cigarettes, viz: "HOPE," "MORE" and
"CHAMPION" being manufactured by Fortune Tobacco Corporation
as locally manufactured cigarettes bearing a foreign brand subject to
the 55% ad valorem tax on cigarettes is found to be defective,
invalid and unenforceable, such that when R.A. No. 7654 took effect
on July 3, 1993, the brands in question were not CURRENTLY
CLASSIFIED AND TAXED at 55% pursuant to Section 1142(c)(1) of
the Tax Code, as amended by R.A. No. 7654 and were therefore still
classified as other locally manufactured cigarettes and taxed at 45%
or 20% as the case may be.

Accordingly, the deficiency ad valorem tax assessment issued on
petitioner Fortune Tobacco Corporation in the amount of
P9,598,334.00, exclusive of surcharge and interest, is hereby
canceled for lack of legal basis.
Respondent Commissioner of Internal Revenue is hereby enjoined

from collecting the deficiency tax assessment made and issued on
petitioner in relation to the implementation of RMC No. 37-93.
SO ORDERED. 9
In its resolution, dated 11 October 1994, the CTA dismissed for lack of
merit the motion for reconsideration.
The CIR forthwith filed a petition for review with the Court of Appeals,
questioning the CTA's 10th August 1994 decision and 11th October 1994
resolution. On 31 March 1993, the appellate court's Special Thirteenth
Division affirmed in all respects the assailed decision and resolution.
In the instant petition, the Solicitor General argues: That —
I. RMC 37-93 IS A RULING OR OPINION OF THE

COMMISSIONER OF INTERNAL REVENUE
INTERPRETING THE PROVISIONS OF THE TAX
CODE.
II. BEING AN INTERPRETATIVE RULING OR

OPINION, THE PUBLICATION OF RMC 37-93, FILING
OF COPIES THEREOF WITH THE UP LAW CENTER
AND PRIOR HEARING ARE NOT NECESSARY TO
ITS VALIDITY, EFFECTIVITY AND ENFORCEABILITY.
III. PRIVATE RESPONDENT IS DEEMED TO HAVE

BEEN NOTIFIED OR RMC 37-93 ON JULY 2, 1993.
IV. RMC 37-93 IS NOT DISCRIMINATORY SINCE IT

APPLIES TO ALL LOCALLY MANUFACTURED
CIGARETTES SIMILARLY SITUATED AS "HOPE,"
"MORE" AND "CHAMPION" CIGARETTES.
V. PETITIONER WAS NOT LEGALLY PROSCRIBED

FROM RECLASSIFYING "HOPE," "MORE" AND

"CHAMPION" CIGARETTES BEFORE THE
EFFECTIVITY OF R.A. NO. 7654.
VI. SINCE RMC 37-93 IS AN INTERPRETATIVE RULE,

THE INQUIRY IS NOT INTO ITS VALIDITY,
EFFECTIVITY OR ENFORCEABILITY BUT INTO ITS
CORRECTNESS OR PROPRIETY; RMC 37-93 IS
CORRECT. 10
In fine, petitioner opines that RMC 37-93 is merely an interpretative ruling

of the BIR which can thus become effective without any prior need for
notice and hearing, nor publication, and that its issuance is not
discriminatory since it would apply under similar circumstances to all
locally manufactured cigarettes.
The Court must sustain both the appellate court and the tax court.
Petitioner stresses on the wide and ample authority of the BIR in the
issuance of rulings for the effective implementation of the provisions of the
National Internal Revenue Code. Let it be made clear that such authority of
the Commissioner is not here doubted. Like any other government agency,
however, the CIR may not disregard legal requirements or applicable
principles in the exercise of its quasi-legislative powers.
Let us first distinguish between two kinds of administrative issuances —

a legislative rule and aninterpretative rule.
In Misamis Oriental Association of Coco Traders, Inc., vs. Department of

Finance Secretary, 11 the Court expressed:
. . . a legislative rule is in the nature of subordinate legislation,

designed to implement a primary legislation by providing the details
thereof . In the same way that laws must have the benefit of public
hearing, it is generally required that before a legislative rule is
adopted there must be hearing. In this connection, the
Administrative Code of 1987 provides:
Public Participation. — If not otherwise required by law, an agency

shall, as far as practicable, publish or circulate notices of proposed
rules and afford interested parties the opportunity to submit their
views prior to the adoption of any rule.

(2) In the fixing of rates, no rule or final order shall be valid unless
the proposed rates shall have been published in a newspaper of
general circulation at least two (2) weeks before the first hearing
thereon.
(3) In case of opposition, the rules on contested cases shall be

observed.
In addition such rule must be published. On the other

hand, interpretative rules are designed to provide guidelines to the
law which the administrative agency is in charge of enforcing. 12
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.
A reading of RMC 37-93, particularly considering the circumstances under

which it has been issued, convinces us that the circular cannot be viewed
simply as a corrective measure (revoking in the process the previous
holdings of past Commissioners) or merely as construing Section 142(c)(1)
of the NIRC, as amended, but has, in fact and most importantly, been
made in order to place "Hope Luxury," "Premium More" and "Champion"
within the classification of locally manufactured cigarettes bearing foreign
brands and to thereby have them covered by RA 7654. Specifically, the
new law would have its amendatory provisions applied to locally
manufactured cigarettes which at the time of its effectivity were not so
classified as bearing foreign brands. Prior to the issuance of the
questioned circular, "Hope Luxury," "Premium More," and "Champion"
cigarettes were in the category of locally manufactured
cigarettes not bearing foreign brand subject to 45% ad valorem tax.
Hence, without RMC 37-93, the enactment of RA 7654, would have had no
new tax rate consequence on private respondent's products. Evidently, in
order to place "Hope Luxury," "Premium More," and "Champion" cigarettes
within the scope of the amendatory law and subject them to an increased
tax rate, the now disputed RMC 37-93 had to be issued. In so doing, the
BIR not simply intrepreted the law; verily, it legislated under its quasi-

legislative authority. The due observance of the requirements of notice, of
hearing, and of publication should not have been then ignored.
Indeed, the BIR itself, in its RMC 10-86, has observed and provided:
RMC NO. 10-86

Effectivity of Internal Revenue Rules and Regulations
It has been observed that one of the problem areas bearing on

compliance with Internal Revenue Tax rules and regulations is lack
or insufficiency of due notice to the tax paying public. Unless there is
due notice, due compliance therewith may not be reasonably
expected. And most importantly, their strict enforcement could
possibly suffer from legal infirmity in the light of the constitutional
provision on "due process of law" and the essence of the Civil Code
provision concerning effectivity of laws, whereby due notice is a
basic requirement (Sec. 1, Art. IV, Constitution; Art. 2, New Civil
Code).
In order that there shall be a just enforcement of rules and

regulations, in conformity with the basic element of due process, the
following procedures are hereby prescribed for the drafting, issuance
and implementation of the said Revenue Tax Issuances:
(1) This Circular shall apply only to (a) Revenue

Regulations; (b) Revenue Audit Memorandum Orders;
and (c) Revenue Memorandum Circulars and Revenue
Memorandum Orders bearing on internal revenue tax
rules and regulations.
(2) Except when the law otherwise expressly provides,

the aforesaid internal revenue tax issuances shall not
begin to be operative until after due notice thereof may
be fairly presumed.
Due notice of the said issuances may be fairly

presumed only after the following procedures have been
taken;
xxx xxx xxx
(5) Strict compliance with the foregoing procedures is

enjoined. 13

Nothing on record could tell us that it was either impossible or
impracticable for the BIR to observe and comply with the above
requirements before giving effect to its questioned circular.
Not insignificantly, RMC 37-93 might have likewise infringed on uniformity

of taxation.
Article VI, Section 28, paragraph 1, of the 1987 Constitution mandates

taxation to be uniform and equitable. Uniformity requires that all subjects or
objects of taxation, similarly situated, are to be treated alike or put on equal
footing both in privileges and liabilities. 14 Thus, all taxable articles or kinds
of property of the same class must be taxed at the same rate 15 and the tax
must operate with the same force and effect in every place where the
subject may be found.
Apparently, RMC 37-93 would only apply to "Hope Luxury," "Premium

More" and "Champion" cigarettes and, unless petitioner would be willing to
concede to the submission of private respondent that the circular should,
as in fact my esteemed colleague Mr. Justice Bellosillo so expresses in his
separate opinion, be considered adjudicatory in nature and thus violative
of due process following the Ang Tibay 16 doctrine, the measure suffers
from lack of uniformity of taxation. In its decision, the CTA has keenly
noted that other cigarettes bearing foreign brands have not been similarly
included within the scope of the circular, such as —
1. Locally manufactured by ALHAMBRA INDUSTRIES, INC.
(a) "PALM TREE" is listed as manufactured by office of

Monopoly, Korea (Exhibit "R")
2. Locally manufactured by LA SUERTE CIGAR and CIGARETTE

COMPANY
(a) "GOLDEN KEY" is listed being manufactured by

United Tobacco, Pakistan (Exhibit "S")
(b) "CANNON" is listed as being manufactured by Alpha

Tobacco, Bangladesh (Exhibit "T")
3. Locally manufactured by LA PERLA INDUSTRIES, INC.
(a) "WHITE HORSE" is listed as being manufactured by

Rothman's, Malaysia (Exhibit "U")

(b) "RIGHT" is listed as being manufactured by
SVENSKA, Tobaks, Sweden (Exhibit "V-1")
4. Locally manufactured by MIGHTY CORPORATION
(a) "WHITE HORSE" is listed as being manufactured by

Rothman's, Malaysia (Exhibit "U-1")
5. Locally manufactured by STERLING TOBACCO CORPORATION
(a) "UNION" is listed as being manufactured by Sumatra

Tobacco, Indonesia and Brown and Williamson, USA
(Exhibit "U-3")
(b) "WINNER" is listed as being manufactured by Alpha

Tobacco, Bangladesh; Nangyang, Hongkong; Joo Lan,
Malaysia; Pakistan Tobacco Co., Pakistan; Premier
Tobacco, Pakistan and Haggar, Sudan (Exhibit "U-
4"). 17
The court quoted at length from the transcript of the hearing conducted on
10 August 1993 by the Committee on Ways and Means of the House of
Representatives; viz:
THE CHAIRMAN. So you have specific information on Fortune

Tobacco alone. You don't have specific information on other tobacco
manufacturers. Now, there are other brands which are similarly
situated. They are locally manufactured bearing foreign brands. And
may I enumerate to you all these brands, which are also listed in the
World Tobacco Directory . . . Why were these brand not reclassified
at 55 if your want to give a level playing filed to foreign
manufacturers?
MS. CHATO. Mr. Chairman, in fact, we have already prepared a

Revenue Memorandum Circular that was supposed to come after
RMC No. 37-93 which have really named specifically the list of
locally manufactured cigarettes bearing a foreign brand for excise
tax purposes and includes all these brands that you mentioned at 55
percent except that at that time, when we had to come up with this,
we were forced to study the brands of Hope, More and Champion
because we were given documents that would indicate the that
these brands were actually being claimed or patented in other
countries because we went by Revenue Memorandum Circular 1488

and we wanted to give some rationality to how it came about but we
couldn't find the rationale there. And we really found based on our
own interpretation that the only test that is given by that existing law
would be registration in the World Tobacco Directory. So we came
out with this proposed revenue memorandum circular which we
forwarded to the Secretary of Finance except that at that point in
time, we went by the Republic Act 7654 in Section 1 which amended
Section 142, C-1, it said, that on locally manufactured cigarettes
which are currently classified and taxed at 55 percent. So we were
saying that when this law took effect in July 3 and if we are going to
come up with this revenue circular thereafter, then I think our action
would really be subject to question but we feel that . . .
Memorandum Circular Number 37-93 would really cover even
similarly situated brands. And in fact, it was really because of the
study, the short time that we were given to study the matter that we
could not include all the rest of the other brands that would have
been really classified as foreign brand if we went by the law itself. I
am sure that by the reading of the law, you would without that ruling
by Commissioner Tan they would really have been included in the
definition or in the classification of foregoing brands. These brands
that you referred to or just read to us and in fact just for your
information, we really came out with a proposed revenue
memorandum circular for those brands. (Emphasis supplied)
(Exhibit "FF-2-C," pp. V-5 TO V-6, VI-1 to VI-3).
xxx xxx xxx
MS. CHATO. . . . But I do agree with you now that it cannot and in
fact that is why I felt that we . . . I wanted to come up with a more
extensive coverage and precisely why I asked that revenue
memorandum circular that would cover all those similarly situated
would be prepared but because of the lack of time and I came out
with a study of RA 7654, it would not have been possible to really
come up with the reclassification or the proper classification of all
brands that are listed there. . .(emphasis supplied) (Exhibit "FF-2d,"
page IX-1)
xxx xxx xxx
HON. DIAZ. But did you not consider that there are similarly
situated?

MS. CHATO. That is precisely why, Sir, after we have come up with
this Revenue Memorandum Circular No. 37-93, the other brands
came about the would have also clarified RMC 37-93 by I was
saying really because of the fact that I was just recently appointed
and the lack of time, the period that was allotted to us to come up
with the right actions on the matter, we were really caught by the
July 3 deadline. But in fact, We have already prepared a revenue
memorandum circular clarifying with the other . . . does not yet,
would have been a list of locally manufactured cigarettes bearing a
foreign brand for excise tax purposes which would include all the
other brands that were mentioned by the Honorable Chairman.
(Emphasis supplied) (Exhibit "FF-2-d," par. IX-4). 18
All taken, the Court is convinced that the hastily promulgated RMC 37-93 has
fallen short of a valid and effective administrative issuance.
WHEREFORE, the decision of the Court of Appeals, sustaining that of the Court
of Tax Appeals, is AFFIRMED. No costs.
SO ORDERED.
Kapunan, J., concurs.
Separate Opinions
BELLOSILLO, J.: separate opinion:
RA 7654 was enacted by Congress on 10 June 1993, signed into law by the
President on 14 June 1993, and took effect 3 July 1993. It amended partly Sec.
142, par. (c), of the National Internal Revenue Code (NIRC) to read —
Sec. 142. Cigars and cigarettes. — . . . . (c) Cigarettes packed by

machine. — There shall be levied, assessed and collected on
cigarettes packed by machine a tax at the rates prescribed below
based on the constructive manufacturer's wholesale price or the
actual manufacturer's wholesale price, whichever is higher.
not authorized by contract or otherwise, fifty-five percent (55%)
provided that the minimum tax shall not be less than Five Pesos
(P5.00) per pack (emphasis supplied).
(2) On other locally manufactured cigarettes, forty-five percent (45%)

provided that the minimum tax shall not be less than Three Pesos
(P3.00) per pack.
Prior to the effectivity of RA 7654, cigarette brands Hope Luxury, Premium

More and Champion were considered local brands subjected to an ad
valorem tax at the rate of 20-45%. However, on 1 July 1993 or two (2) days
before RA 7654 took effect, petitioner Commissioner of Internal Revenue issued
RMC 37-93 reclassifying "Hope,More and Champion being manufactured by
Fortune Tobacco Corporation . . . . (as) locally manufactured cigarettes bearing a
foreign brand subject to the 55% ad valorem tax on cigarettes." 1 RMC 37-93 in
effect subjectedHope Luxury, Premium More and Champion cigarettes to the
provisions of Sec. 142, par. (c), subpar. (1), NIRC, as amended by RA 7654,
imposing upon these cigarette brands an ad valorem tax of "fifty-five percent
(55%) provided that the minimum tax shall not be less than Five Pesos (P5.00)
per pack."
On 2 July 1993, Friday, at about five-fifty in the afternoon, or a few hours before
the effectivity of RA 7654, a copy of RMC 37-93 with a cover letter signed by
Deputy Commissioner Victor A. Deoferio of the Bureau of Internal Revenue was
sent by facsimile to the factory of respondent corporation in Parang, Marikina,
Metro Manila. It appears that the letter together with a copy of RMC 37-93 did not
immediately come to the knowledge of private respondent as it was addressed to
no one in particular. It was only when the reclassification of respondent
corporation's cigarette brands was reported in the column of Fil C. Sionil
in Business Bulletin on 4 July 1993 that the president of respondent corporation
learned of the matter, prompting him to inquire into its veracity and to request
from petitioner a copy of RMC 37-93. On 15 July 1993 respondent corporation
received by ordinary mail a certified machine copy of RMC 37-93.
Respondent corporation sought a review, reconsideration and recall of RMC 37-

93 but was forthwith denied by the Appellate Division of the Bureau of Internal
Revenue. As a consequence, on 30 July 1993 private respondent was assessed
an ad valorem tax deficiency amounting to P9,598,334.00. Respondent
corporation went to the Court of Tax Appeals (CTA) on a petition for review.

On 10 August 1994, after due hearing, the CTA found the petition meritorious
and ruled —
Revenue Memorandum Circular No. 37-93 reclassifying the brands

of cigarettes, viz: Hope, Moreand Champion being manufactured by
Fortune Tobacco Corporation as locally manufactured cigarettes
bearing a foreign brand subject to the 55% ad valorem tax on
cigarettes is found to be defective, invalid and unenforceable . . . .
cancelled for lack of legal basis. 2
The CTA held that petitioner Commissioner of Internal Revenue failed to

observe due process of law in issuing RMC 37-93 as there was no prior
notice and hearing, and that RMC 37-93 was in itself discriminatory. The
motion to reconsider its decision was denied by the CTA for lack of merit.
On 31 March 1995 respondent Court of Appeals affirmed in toto the
decision of the CTA. 3 Hence, the instant petition for review.
Petitioner now submits through the Solicitor General that RMC 37-93
reclassifying Hope Luxury, Premium Moreand Champion as locally manufactured
cigarettes bearing brands is merely an interpretative ruling which needs no prior
notice and hearing as held in Misamis Oriental Association of Coco Traders,
Inc. v. Department of Finance Secretary. 4 It maintains that neither is the
assailed revenue memorandum circular discriminatory as it merely "lays down
the test in determining whether or not a locally manufactured cigarette bears a
foreign brand using (only) the cigarette brands Hope, More and Champion as
specific examples." 5
Respondent corporation on the other hand contends that RMC 37-93 is not a
mere interpretative ruling but is adjudicatory in nature where prior notice and
hearing are mandatory, and that Misamis Oriental Association of Coco Traders,
Inc. v. Department of Finance Secretary on which the Solicitor General relies
heavily is not applicable. Respondent Fortune Tobacco Corporation also argues
that RMC 37-93 discriminates against its cigarette brands since those of its
competitors which are similarly situated have not been reclassified.
The main issues before us are (a) whether RMC 37-93 is merely an interpretative
rule the issuance of which needs no prior notice and hearing, or an adjudicatory
ruling which calls for the twin requirements of prior notice and hearing, and, (b)
whether RMC 37-93 is discriminatory in nature.

A brief discourse on the powers and functions of administrative bodies may be
instructive.
Administrative agencies posses quasi-legislative or rule making powers and

quasi-judicial or administrative adjudicatory powers. Quasi-legislative or rule
making power is the power to make rules and regulations which results
in delegated legislation that is within the confines of the granting statute and the
doctrine of nondelegability and separability of powers.
Interpretative rule, one of the three (3) types of quasi-legislative or rule making
powers of an administrative agency (the other two being supplementary or
detailed legislation, and contingent legislation), is promulgated by the
administrative agency to interpret, clarify or explain statutory regulations under
which the administrative body operates. The purpose or objective of an
interpretative rule is merely to construe the statute being administered. It purports
to do no more than interpret the statute. Simply, the rule tries to say what the
statute means. Generally, it refers to no single person or party in particular but
concerns all those belonging to the same class which may be covered by the
said interpretative rule. It need not be published and neither is a hearing required
since it is issued by the administrative body as an incident of its power to enforce
the law and is intended merely to clarify statutory provisions for proper
observance by the people. In Tañada v. Tuvera, 6 this Court expressly said that
"[i]interpretative regulations . . . . need not be published."
Quasi-judicial or administrative adjudicatory power on the other hand is the

power of the administrative agency to adjudicate the rights of persons before it. It
is the power to hear and determine questions of fact to which the legislative
policy is to apply and to decide in accordance with the standards laid down by
the law itself in enforcing and administering the same law. 7 The administrative
body exercises its quasi-judicial power when it performs in a judicial manner an
act which is essentially of an executive or administrative nature, where the power
to act in such manner is incidental to or reasonably necessary for the
performance of the executive or administrative duty entrusted to it. 8 In carrying
out their quasi-judicial functions the administrative officers or bodies are required
to investigate facts or ascertain the existence of facts, hold hearings, weigh
evidence, and draw conclusions from them as basis for their official action and
exercise of discretion in a judicial nature. Since rights of specific persons are
affected it is elementary that in the proper exercise of quasi-judicial power due
process must be observed in the conduct of the proceedings.
The importance of due process cannot be underestimated. Too basic is the rule
that no person shall be deprived of life, liberty or property without due process of
law. Thus when an administrative proceeding is quasi-judicial in character, notice

and fair open hearing are essential to the validity of the proceeding. The right to
reasonable prior notice and hearing embraces not only the right to present
evidence but also the opportunity to know the claims of the opposing party and to
meet them. The right to submit arguments implies that opportunity otherwise the
right may as well be considered impotent. And those who are brought into
contest with government in a quasi-judicial proceeding aimed at the control of
their activities are entitled to be fairy advised of what the government proposes
and to be heard upon its proposal before it issues its final command.
There are cardinal primary rights which must be respected in administrative

proceedings. The landmark case ofAng Tibay v. The Court of Industrial
Relations 9 enumerated these rights: (1) the right to a hearing, which includes the
right of the party interested or affected to present his own case and submit
evidence in support thereof; (2) the tribunal must consider the evidence
presented; (3) the decision must have something to support itself; (4) the
evidence must be substantial; (5) the decision must be rendered on the evidence
presented at the hearing, or at least contained in the record and disclosed to the
parties affected; (6) the tribunal or any of its judges must act on its or his own
independent consideration of the law and facts of the controversy, and not simply
accept the views of a subordinate in arriving at a decision; and, (7) the tribunal
should in all controversial questions render its decision in such manner that the
parties to the proceeding may know the various issues involved and the reasons
for the decision rendered.
In determining whether RMC No. 37-93 is merely an interpretative rule which

requires no prior notice and hearing, or an adjudicatory rule which demands the
observance of due process, a close examination of RMC 37-93 is in order.
Noticeably, petitioner Commissioner of Internal Revenue at first interprets Sec.
142, par. (c), subpar. (1), of the NIRC, as amended, by citing the law and
clarifying or explaining what it means —
Section 142 (c) (1), National Internal Revenue Code, as amended by

R.A. No. 6956, provides: On locally manufactured cigarettes bearing
a foreign brand, fifty-five percent (55%) Provided, That this rate shall
apply regardless of whether or not the right to use or title to the
foreign brand was sold or transferred by its owner to the local
manufacturer. Whenever it has to be determined whether or not a
cigarette bears a foreign brand, the listing of brands manufactured in
foreign countries appearing in the current World Tobacco Directory
shall govern.


however, not definitely determinable,
". . . the listing of brands manufactured in foreign countries
appearing in the current World Tobacco Directory shall govern . . ."
Then petitioner makes a factual finding by declaring that Hope (Luxury),

(Premium) More and Champion are manufactured by other foreign
manufacturers —
Hope is listed in the World Tobacco Directory as being

Tobacco, Philippines. More is listed in the said directory as being
Australia; (c) RJR-MacDonald, Canada; (d) Rettig-Strenberg,
Finland; (e) Karellas, Greece; (f) R.J. Reynolds, Malaysia; (g)
Rothmans, New Zealand; (h) Fortune Tobacco, Philippines; (i) R.J.
Reynolds, Puerto Rico; (j) R.J. Reynolds, Spain; (k) Tabacalera,
Spain; (l) R.J. Reynolds, Switzerland; and (m) R.J. Reynolds, USA.
"Champion" is registered in the said directory as being manufactured
by: (a) Commonwealth Bangladesh; (b) Sudan, Brazil; (c) Japan
Tobacco, Japan; (d) Fortune Tobacco, Philippines; (e) Haggar,
Sudan; and (f) Tabac Reunies, Switzerland.
From this finding, petitioner thereafter formulates an inference that since it cannot
be determined who among the manufacturers are the real owners of the brands
in question, then these cigarette brands should be considered foreign brands —

Finally, petitioner caps RMC 37-93 with a disposition specifically directed at

respondent corporation reclassifying its cigarette brands as locally manufactured
bearing foreign brands —

In view of the foregoing, the aforesaid brands of
cigarettes, viz: Hope, More and Champion being manufactured by
Fortune Tobacco Corporation are hereby considered locally
manufactured cigarettes bearing a foreign brand subject to the
55% ad valorem tax on cigarettes.
It is evident from the foregoing that in issuing RMC 37-93 petitioner

Commissioner of Internal Revenue was exercising her quasi-judicial or
administrative adjudicatory power. She cited and interpreted the law, made a
factual finding, applied the law to her given set of facts, arrived at a conclusion,
and issued a ruling aimed at a specific individual. Consequently prior notice and
hearing are required. It must be emphasized that even the text alone of RMC 37-
93 implies that reception of evidence during a hearing is appropriate if not
necessary since it invokes BIR Ruling No. 410-88, dated August 24, 1988, which
provides that "in cases where it cannot be established or there is dearth of
evidence as to whether a brand is foreign or not . . . ." Indeed, it is difficult to
determine whether a brand is foreign or not if it is not established by, or there is
dearth of, evidence because no hearing has been called and conducted for the
reception of such evidence. In fine, by no stretch of the imagination can RMC 37-
93 be considered purely as an interpretative rule — requiring no previous notice
and hearing and simply interpreting, construing, clarifying or explaining statutory
regulations being administered by or under which the Bureau of Internal Revenue
operates.
It is true that both RMC 47-91 in Misamis Oriental Association of Coco Traders
v. Department of Finance Secretary, and RMC 37-93 in the instant case
reclassify certain products for purposes of taxation. But the similarity between the
two revenue memorandum circulars ends there. For in properly determining
whether a revenue memorandum circular is merely an interpretative rule or an
adjudicatory rule, its very tenor and text, and the circumstances surrounding its
issuance will have no to be considered.
We quote RMC 47-91 promulgated 11 June 1991 —
Revenue Memorandum Circular No. 47-91
SUBJECT : Taxability of Copra

TO : All Revenue Officials and Employees and Others Concerned.

For the information and guidance of all officials and employees and
others concerned, quoted hereunder in its entirety is VAT Ruling No.
190-90 dated August 17, 1990:
COCOFED MARKETING RESEARCH CORPORATION

6th Floor Cocofed Building
144 Amorsolo Street
Legaspi Village, Makati
Metro Manila
Attention:
Ms. Esmyrna
E. Reyes
Vice President —
Finance
Sirs:
This has reference to your letter dated January 16, 1990

wherein you represented that inspite of your VAT
registration of your copra trading company, you are
supposed to be exempt from VAT on the basis of BIR
Ruling dated January 8, 1988 which considered copra
as an agricultural food product in its original state. In
this connection, you request for a confirmation of your
opinion as aforestated.
In reply, please be informed that copra, being an

agricultural non-food product, is exempt from VAT only
if sale is made by the primary producer pursuant to
Section 103 (a) of the Tax Code, as amended. Thus as
a trading company and a subsequent seller, your sale of
copra is already subject to VAT pursuant to Section 9(b)
(1) of Revenue Regulations 5-27.
This revokes VAT Ruling Nos. 009-88 and 279-88.
Very
truly
yours,
(Sgd.)
JOSE

U.
ONG
Com
missi
oner
of
Intern
al
Reve
nue
As a clarification, this is the present and official stand of this Office

unless sooner revoked or amended. All revenue officials and
employees are enjoined to give this Circular as wide a publicity as
possible.
(Sgd.)
JOSE
U.
ONG
Com
missi
oner
of
Intern
al
Reve
nue
Quite obviously, the very text of RMC 47-91 itself shows that it is merely an
interpretative rule as it simply quotes a VAT Ruling and reminds those concerned
that the ruling is the present and official stand of the Bureau of Internal Revenue.
Unlike in RMC 37-93 where petitioner Commissioner manifestly exercised her
quasi-judicial or administrative adjudicatory power, in RMC 47-91 there were no
factual findings, no application of laws to a given set of facts, no conclusions of
law, and no dispositive portion directed at any particular party.
Another difference is that in the instant case, the issuance of the assailed
revenue memorandum circular operated to subject the taxpayer to the new law
which was yet to take effect, while in Misamis, the disputed revenue
memorandum circular was issued simply to restate and then clarify the prevailing
position and ruling of the administrative agency, and no new law yet to take effect
was involved. It merely interpreted an existing law which had already been in

effect for some time and which was not set to be amended. RMC 37-93 is thus
prejudicial to private respondent alone.
A third difference, and this likewise resolves the issue of discrimination, is that
RMC 37-93 was ostensibly issued to subject the cigarette brands of respondent
corporation to a new law as it was promulgated two days before the expiration of
the old law and a few hours before the effectivity of the new law. That RMC 37-
93 is particularly aimed only at respondent corporation and its three (3) cigarette
brands can be seen from the dispositive portion of the assailed revenue
memorandum circular —

cigarettes, viz: Hope, More, and Champion being manufactured by
Thus the argument of the Solicitor General that RMC 37-93 is not discriminatory
as "[i]t merely lays down the test in determining whether or not a locally
manufactured cigarette bears a foreign brand using the cigarette
brandsHope, More and Champion as specific examples," cannot be accepted,
much less sustained. Without doubt, RMC 37-93 has a tremendous effect on
respondent corporation — and solely on respondent corporation — as its
deficiency ad valorem tax assessment on its removals of Hope, Luxury, Premium
More, and Champion cigarettes for six (6) hours alone, i.e., from six o'clock in the
evening of 2 July 1993 which is presumably the time respondent corporation was
supposed to have received the facsimile message sent by Deputy Commissioner
Victor A. Deoferio, until twelve o'clock midnight upon the effectivity of the new
law, was already P9,598,334.00. On the other hand, RMC 47-91 was issued with
no purpose except to state and declare what has been the official stand of the
administrative agency on the specific subject matter, and was indiscriminately
directed to all copra traders with no particular individual in mind.
That petitioner Commissioner of Internal Revenue is an expert in her filed is not

attempted to be disputed; hence, we do not question the wisdom of her act in
reclassifying the cigarettes. Neither do we deny her the exercise of her quasi-
legislative or quasi-judicial powers. But most certainly, by constitutional mandate,
the Court must check the exercise of these powers and ascertain whether
petitioner has gone beyond the legitimate bounds of her authority.

In the final analysis, the issue before us in not the expertise, the authority to
promulgate rules, or the wisdom of petitioner as Commissioner of Internal
Revenue is reclassifying the cigarettes of private respondents. It is simply the
faithful observance by government by government of the basic constitutional right
of a taxpayer to due process of law and equal protection of the laws. This is what
distresses me no end — the manner and the circumstances under which the
cigarettes of private respondent were reclassified and correspondingly taxed
under RMC 37-93, and adjudicatory rule which therefore requires reasonable
notice and hearing before its issuance. It should not be confused with RMC 47-
91, which is a mere interpretative rule.
In the earlier case of G.R. No. 119322, which practically involved the same
opposing interests, I also voted to uphold the constitutional right of the taxpayer
concerned to due process and equal protection of the laws. By a vote of 3-2, that
view prevailed. In sequela, we in the First Division who constituted the majority
found ourselves unjustly drawn into the vortex of a nightmarish episode. The
strong ripples whipped up by my opinion expressed therein — and of the majority
— have yet to varnish when we are again in the imbroglio of a similar dilemma.
The unpleasant experience should be reason enough to simply steer clear of this
controversy and surf on a pretendedloss of judicial objectivity. Such would have
been an easy way out, a gracious exit, so to speak, albeit lame. But to
camouflage my leave with a sham excuse would be to turn away from a
professional vow I keep at all times; I would not be true to myself, and to the
people I am committed to serve. Thus, as I have earlier expressed, if placed
under similar circumstances in some future time, I shall have to brave again the
prospect of anothervilification and a tarnished image if only to show proudly to
the whole world that under the present dispensation judicial independence in our
country is a true component of our democracy.
In fine, I am greatly perturbed by the manner RMC No. 37-93 was issued as well
as the effect of such issuance. For it cannot be denied that the circumstances
clearly demonstrate that it was hastily issued — without prior notice and hearing,
and singling out private respondent alone — when two days before a new tax law
was to take effect petitioner reclassified and taxed the cigarette brands of private
respondent at a higher rate. Obviously, this was to make it appear that even
before the anticipated date of effectivity of the statute — which was undeniably
priorly known to petitioner — these brands were already currently classified and
taxed at fifty-five percent (55%), thus shoving them into the purview of the law
that was to take effect two days after!
For sure, private respondent was not properly informed before the issuance of
the questioned memorandum circular that its cigarette brands Hope
Luxury, Premium More and Champion were being reclassified and subjected to a

higher tax rate. Naturally, the result would be to lose financially because private
respondent was still selling its cigarettes at a price based on the old, lower tax
rate. Had there been previous notice and hearing, as claimed by private
respondent, it could have very well presented its side, either by opposing the
reclassification, or by acquiescing thereto but increasing the price of its cigarettes
to adjust to the higher tax rate. The reclassification and the ensuing imposition of
a tax rate increase therefore could not be anything but confiscatory if we are also
to consider the claim of private respondent that the new tax is even higher than
the cost of its cigarettes.
Accordingly, I vote to deny the petition.
HERMOSISIMA, JR., J.: dissenting
Private respondent Fortune Tobacco Corporation in the instant case disputes its
liability for deficiency ad valoremexcise taxes on its removals of "Hope," "More,"
and "Champion" cigarettes from 6:00 p.m. to 12:00 midnight of July 2, 1993, in
the total amount of P9,598,334.00. It claims that the circular, upon which the
assessment was based and made, is defective, invalid and unenforceable for
having been issued without notice and hearing and in violation of the equal
protection clause guaranteed by the Constitution.
The majority upholds these claims of private respondent, convinced that the
Circular in question, in the first place, did not give prior notice and hearing, and
so, it could not have been valid and effective. It proceeds to affirm the factual
findings of the Court of Tax Appeals, which findings were considered correct by
respondent Court of Appeals, to the effect that the petitioner Commissioner of
Internal Revenue had indeed blatantly failed to comply with the said twin
requirements of notice and hearing, thereby rendering the issuance of the
questioned Circular to be in violation of the due process clause of the
Constitution. It is also its dominant opinion that the questioned Circular
discriminates against private respondent Fortune Tobacco Corporation insofar as
it seems to affect only its "Hope," "More," and "Champion" cigarettes, to the
exclusion of other cigarettes apparently of the same kind or classification as
these cigarettes manufactured by private respondent.
With all due respect, I disagree with the majority in its disquisition of the issues
and its resulting conclusions.

Section 245 of the National Internal Revenue Code,
as amended, empowers the Commissioner of Internal
Revenue to issue the questioned Circular
Section 245 of the National Internal Revenue Code, as amended, provides:
Sec. 245. Authority of Secretary of Finance to promulgate rules and

regulations. — The Secretary of Finance, upon recommendation of
the Commissioner, shall promulgate all needful rules and regulations
for the effective enforcement of the provisions of this Code . . .
without prejudice to the power of the Commissioner of Internal
Revenue to make rulings or opinions in connection with the
implementation of the provisions of internal revenue laws, including
rulings on the classification of articles for sales tax and similar
purposes.
The subject of the questioned Circular is the reclassification of cigarettes subject

to excise taxes. It was issued in connection with Section 142 (c) (1) of the
National Internal Revenue Code, as amended, which imposes ad valorem excise
taxes on locally manufactured cigarettes bearing a foreign brand. The same
provision prescribes the ultimate criterion that determines which cigarettes are to
be considered "locally manufactured cigarettes bearing a foreign brand." It
provides:
. . . Whenever it has to be determined whether or not a cigarette

bears a foreign brand, the listing of brands manufactured in foreign
countries appearing in the current World Tobacco Directory shall
govern.
There is only one World Tobacco Directory for a given current year, and
the same is mandated by law to be the BIR Commissioner's controlling
basis for determining whether or not a particular locally manufactured
cigarette is one bearing a foreign brand. In so making a determination,
petitioner should inquire into the entries in the World Tobacco Directory for
the given current year and shall be held bound by such entries therein.
She is not required to subject the results of her inquiries to feedback from
the concerned cigarette manufacturers, and it is doubtlessly not desirable
nor managerially sound to court dispute thereon when the law does not, in
the first place, require debate or hearing thereon. Petitioner may make
such a determination because she is the Chief Executive Officer of the
administrative agency that is the Bureau of Internal Revenue in which are
vested quasi-legislative powers entrusted to it by the legislature in

recognition of its more encompassing and unequalled expertise in the field
of taxation.
The vesture of quasi-legislative and quasi-judicial powers in

administrative bodies is not unconstitutional, unreasonable and
oppressive. It has been necessitated by "the growing complexity of
the modern society" (Solid Homes, Inc. vs. Payawal, 177 SCRA 72,
79). More and more administrative bodies are necessary to help in
the regulation of society's ramified activities. "Specialized in the
particular field assigned to them, they can deal with the problems
thereof with more expertise and dispatch than can be expected from
the legislature or the courts of justice" . . . 1
Statutorily empowered to issue rulings or opinions embodying the proper

determination in respect to classifying articles, including cigarettes, for purposes
of tax assessment and collection, petitioner was acting well within her
prerogatives when she issued the questioned Circular. And in the exercise of
such prerogatives under the law, she has in her favor the presumption of regular
performance of official duty which must be overcome by clearly persuasive
evidence of stark error and grave abuse of discretion in order to be overturned
and disregarded.
It is irrelevant that the Court of Tax Appeals makes much of the effect of the
passing of Republic Act No. 7654 2on petitioner's power to classify cigarettes.
Although the decisions assailed and sought to be reviewed, as well as the
pleadings of private respondent, are replete with alleged admissions of our
legislators to the effect that the said Act was intended to freeze the current
classification of cigarettes and make the same an integral part of the said Act,
certainly the repeal, if any, of petitioner's power to classify cigarettes must be
reckoned from the effectivity of the said Act and not before. Suffice it to say that
indisputable is the plain fact that the questioned Circular was issued on July 1,
1993, while the said Act took effect on July 3, 1993.
The contents of the questioned circular have not

been proven to be erroneous or illegal as to render
issuance thereof an act of grave abuse of
discretion on the part of petitioner Commissioner
Prior to the effectivity of R.A. No. 7654, Section 142 (c) (1) of the National
Internal Revenue Code, as amended, levies the following ad valorem taxes on
cigarettes in accordance with their predetermined classifications as established
by the Commissioner of Internal Revenue:

. . . based on the manufacturer's registered wholesale price:
(1) On locally manufactured cigarettes bearing a foreign brand, fifty-

five percent (55%) Provided, That this rate shall apply regardless of
whether or not the right to use or title to the foreign brand was sold
or transferred by its owner to the local manufacturer. Whenever it
has to be determined whether or not a cigarette bears a foreign
brand, the listing of brands manufactured in foreign countries
appearing in the current World Tobacco Directory shall govern.
(2) Other locally manufactured cigarettes, forty five percent (45%).
xxx xxx xxx
Prior to the issuance of the questioned Circular, assessed against and paid by
private respondent as ad valoremexcise taxes on their removals of "Hope,"
"More," and "Champion" cigarettes were amounts based on paragraph (2)
above, i.e., the tax rate made applicable on the said cigarettes was 45% at the
most. The reason for this is that apparently, petitioner's predecessors have all
made determinations to the effect that the said cigarettes were to be considered
"other locally manufactured cigarettes" and not "locally manufactured cigarettes
bearing a foreign brand." Even petitioner, until her issuance of the questioned
Circular, adhered to her predecessors' determination as to the proper
classification of the above-mentioned cigarettes for purposes of ad
valorem excise taxes. Apparently, the past determination that the said cigarettes
were to be classified as "other locally manufactured cigarettes" was based on
private respodnent's convenient move of changing the names of "Hope" to "Hope
Luxury" and "More" to "Premium More." It also submitted proof that "Champion"
was an original Fortune Tobacco Corporation register and, therefore, a local
brand. Having registered these brands with the Philippine Patent Office and with
corresponding evidence to the effect, private respondent paid ad valorem excise
taxes computed at the rate of not more than 45% which is the rate applicable to
cigarettes considered as locally manufactured brands.
How these past determinations pervaded notwithstanding their erroneous basis

is only tempered by their innate quality of being merely errors in interpretative
ruling, the formulation of which does not bind the government. Advantage over
such errors may precipitously be withdrawn from those who have been benefiting
from them once the same have been discovered and rectified.
Petitioner correctly emphasizes that:

. . . the registration of said brands in the name of private respondent
is proof only that it is the exclusive owner thereof in the Philippines;
it does not necessarily follow, however, that it is the exclusive owner
thereof in the whole world. Assuming arguendo that private
respondent is the exclusive owner of said brands in the Philippines,
it does not mean that they are local. Otherwise, they would not have
been listed in the WTD as international brands manufactured by
different entities in different countries. Moreover, it cannot be said
that the brands registered in the names of private respondent are
not the same brands listed in the WTD because private respondent
is one of the manufacturers of said brands listed in the WTD. 3
Private respondent attempts to cast doubt on the determination made by

petitioner in the questioned Circular that Japan is a manufacturer of "Hope"
cigarettes. Private respondent's own inquiry into the World Tobacco Directory
reveals that Japan is not a manufacturer of "Hope" cigarettes. In pointing this out,
private respondent concludes that the entire Circular is erroneous and makes
such error the principal proof of its claim that the nature of the determination
embodied in the questioned Circular requires a hearing on the facts and a debate
on the applicable law. Such a determination is adjudicatory in nature and,
therefore, requires notice and hearing. Private respondent is, however,
apparently only eager to show error on the part of petitioner for acting with grave
abuse of discretion. Private respondent conveniently forgets that petitioner,
equipped with the expertise in taxation, recognized in that expertise by the
legislature that vested in her the power to make rules respecting classification of
articles for taxation purposes, and presumed to have regularly exercised her
prerogatives within the scope of her statutory power to issue determinations
specifically under Section 142 (c) (1) in relation to Section 245 of the National
Internal Revenue Code, as amended, simply followed the law as she understood
it. Her task was to determine which cigarette brands were foreign, and she was
directed by the law to look into the World Tobacco Directory. Foreign cigarette
brands were legislated to be taxed at higher rates because of their more
extensive public exposure and international reputation; their competitive edge
against local brands may easily be checked by imposition of higher tax rates.
Private respondent makes a mountain of the mole hill circumstance that "Hope"
is listed, not as being "manufactured" by Japan but as being "used" by Japan.
Whether manufactured or used by Japan, however, "Hope" remains a cigarette
brand that can not be said to be limited to local manufacture in the Philippines.
The undeniable fact is that it is a foreign brand the sales in the Philippines of
which are greatly boosted by its international exposure and reputation. The
petitioner was well within her prerogatives, in the exercise of her rule-making
power, to classify articles for taxation purposes, to interpret the laws which she is
mandated to administer. In interpreting the same, petitioner must, in general, be

guided by the principles underlying taxation, i.e., taxes are the lifeblood of
Government, and revenue laws ought to be interpreted in favor of the
Government, for Government can not survive without the funds to underwrite its
varied operational expenses in pursuit of the welfare of the society which it
serves and protects.
Private respondent claims that its business will be destroyed by the imposition of
additional ad valorem taxes as a result of the effectivity of the questioned
Circular. It claims that under the vested rights theory, it cannot now be made to
pay higher taxes after having been assessed for less in the past. Of course
private respondent will trumpet its losses, its interests, after all, being its sole
concern. What private respondent fails to see is the loss of revenue by the
Government which, because of erroneous determinations made by its past
revenue commissioners, collected lesser taxes than what it was entitled to in the
first place. It is every citizen's duty to pay the correct amount of taxes. Private
respondent will not be shielded by any vested rights, for there are not vested
rights to speak of respecting a wrong construction of the law by administrative
officials, and such wrong interpretation does not place the Government in
estoppel to correct or overrule the same. 4
The Questioned Circular embodies an interpretative

ruling of petitioner Commissioner which as such does
not require notice and hearing
As one of the public offices of the Government, the Bureau of Internal Revenue,
through its Commissioner, has grown to be a typical administrative agency
vested with a fusion of different governmental powers: the power to investigate,
initiate action and control the range of investigation, the power to promulgate
rules and regulations to better carry out statutory policies, and the power to
adjudicate controversies within the scope of their activities. 5In the realm of
administrative law, we understand that such an empowerment of administrative
agencies was evolved in response to the needs of a changing society. This
development arose as the need for broad social control over complex conditions
and activities became more and more pressing, and such complexity could no
longer be dealt with effectivity and directly by the legislature or the judiciary. The
theory which underlies the empowerment of administrative agencies like the
Bureau of Internal Revenue, is that the issues with which such agencies deal
ought to be decided by experts, and not be a judge, at least not in the first
instance or until the facts have been sifted and arranged. 6
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. 7
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. 8
Interpretative rules, on the other hand, are "those which purport to do no more
than interpret the statute being administered, to say what it means." 9
There can be no doubt that there is a distinction between an

administrative rule or regulation and an administrative interpretation
of a law whose enforcement is entrusted to an administrative body.
When an administrative agency promulgates rules and regulations, it
"makes" a new law with the force and effect of a valid law, while
when it renders an opinion or gives a statement of policy, it merely
interprets a pre-existing law (Parker, Administrative Law, p. 197;
Davis Administrative Law, p. 194). Rules and regulations when
promulgated in pursuance of the procedure or authority conferred
upon the administrative agency by law, partake of the nature of a
statute, and compliance therewith may be enforced by a penal
sanction provided in the law. This is so because statutes 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. (Davis, op. cit. p. 194.)
A rule is binding on the courts as long as the procedure fixed for its
promulgation is followed and its scope is within the statutory
authority granted by the legislature, even if the courts are not in
agreement with the policy stated therein or its innate wisdom
(Davis, op. cit. pp. 195-197). On the other hand, administrative
interpretation of the law is at best merely advisory, for it is the courts
that finally determine what the law means. 10
"Whether a given statutory delegation authorizes legislative or interpretative

regulations depends upon whether the statute places specific 'sanctions' behind
the regulations authorized, as for example, by making it a criminal offense to

disobey them, or by making conformity with their provisions a condition of the
exercise of legal privileges." 11 This is because interpretative regulations are by
nature simply statutory interpretations, which have behind them no statutory
sanction. Such regulations, whether so expressly authorized by statute or issued
only as an incident of statutory administration, merely embody administrative
findings of law which are always subject to judicial determination as to whether
they are erroneous or not, even when their issuance is authorized by statute.
The questioned Circular has undisputedly been issued by petitioner in pursuance

of her rule-making powers under Section 245 of the National Internal Revenue
Code, as amended. Exercising such powers, petitioner re-classified "Hope,"
"More" and "Champion" cigarettes as locally manufactured cigarettes bearing
foreign brands. The re-classification, as previously explained, is the correct
interpretation of Section 142 (c) (1) of the said Code. The said legal provision is
not accompanied by any penal sanction, and no detail had to be filled in by
petitioner. The basis for the classification of cigarettes has been provided for by
the legislature, and all petitioner has to do, on behalf of the government agency
she heads, is to proceed to make the proper determination using the criterion
stipulated by the lawmaking body. In making the proper determination, petitioner
gave it a liberal construction consistent with the rule that revenue laws are to be
construed in favor of the Government whose survival depends on the
contributions that taxpayers give to the public coffers that finance public services
and other governmental operations.
The Bureau of Internal Revenue which petitioner heads, is the government

agency charged with the enforcement of the laws pertinent to this case and so,
the opinion of the Commissioner of Internal Revenue, in the absence of a clear
showing that it is plainly wrong, is entitled to great weight. Private respondent
claims that its rights under previous interpretations of Section 142 (c) (1) may not
abruptly be cut by a new interpretation of the said section, but precisely the said
section is subject to various and changing construction, and hence, any ruling
issued by petitioner thereon is necessarily interpretative and not legislative.
Private respondent insists that the questioned circular is adjudicatory in nature
because it determined the rights of private respondent in a controversy involving
his tax liability. It also asseverates that the questioned circular involved
administrative action that is particular and immediate, thereby rendering it subject
to the requirements of notice and hearing in compliance with the due process
clause of the Constitution.
We find private respondent's arguments to be rather strained.
Petitioner made a determination as to the classification of cigarettes as

mandated by the aforecited provisions in the National Internal Revenue Code, as

amended. Such determination was an interpretation by petitioner of the said legal
provisions. If in the course of making the interpretation and embodying the same
in the questioned circular which the petitioner subsequently issued after making
such a determination, private respondent's cigarettes products, by their very
nature of being foreign brands as evidenced by their enlistment in the World
Tobacco Directory, which is the controlling basis for the proper classification of
cigarettes as stipulated by the law itself, have come to be classified as locally
manufactured cigarettes bearing foreign brands and as such subject to a tax rate
higher than what was previously imposed thereupon based on past rulings of
other revenue commissioners, such a situation is simply a consequence of the
performance by petitioner of here duties under the law. No adjudication took
place, much less was there any controversy ripe for adjudication. The natural
consequences of making a classification in accordance with law may not be used
by private respondent in arguing that the questioned circular is in fact
adjudicatory in nature. Such an exercise in driving home a point is illogical as it is
fallacious and misplaced.
Private respondent concedes that under general rules of administrative law, "a
ruling which is merely 'interpretative' in character may not require prior notice to
affected parties before its issuance as well as a hearing" and "for this reason, in
most instances, interpretative regulations are not given the force of
law." 12Indeed, "interpretative regulations and those merely internal in nature
. . . need not be published." 13 And it is now settled that only legislative
regulations and not interpretative rulings must have the benefit of public
hearing. 14
Because (1) the questioned circular merely embodied an interpretation or a way

of reading and giving meaning to Section 142 (c) (1) of the National Internal
Revenue Code, as amended; (2) petitioner did not fill in any details in the
aforecited section but only classified cigarettes on the basis of the World
Tobacco Directory in the light of the paramount principle of construing revenue
laws in favor of the Government to the end that Government collects as much tax
money as it is entitled to in order to fulfill its public purposes for the general good
of its citizens; (3) no penal sanction is provided in the aforecited section that was
construed by petitioner in the questioned circular; and (4) a similar circular
declassifying copra from being an agricultural food to non-food product for
purposes of the value added tax laws, resulting in the revocation of an exemption
previously enjoyed by copra traders, has been ruled by us to be merely an
interpretative ruling and not a legislative, much less, an adjudicatory, action on
the part of the revenue commissioner, 15 this Court must not be blind to the fact
that the questioned Circular is indeed an interpretative ruling not subject to notice
and hearing.

Neither is the questioned Circular tainted by a
violation of the equal protection clause under the
Constitution
Private respondent anchors its claim of violation of its equal protection rights
upon the too obvious fact that only its cigarette brands, i.e., "Hope," "More" and
"Champion," are mentioned in the questioned circular. Because only the
cigarettes that they manufacture are enumerated in the questioned circular,
private respondent proceeded to attack the same as being discriminatory against
it. On the surface, private respondent seems to have a point there. A scrutiny of
the questioned Circular, however, will show that it is undisputedly one of general
application for all cigarettes that are similarly situated as private respondent's
brands. The new interpretation of Section 142 (1) (c) has been well illustrated in
its application upon private respondent's brands, which illustration is properly a
subject of the questioned Circular. Significantly, indicated as the subject of the
questioned circular is the "reclassification of cigarettes subject to excise taxes."
The reclassification resulted in the foregrounding of private respondent's
cigarette brands, which incidentally is largely due to the controversy spawned no
less by private respondent's own action of conveniently changing its brand
names to avoid falling under a classification that would subject it to higher ad
valorem tax rates. This caused then Commissioner Bienvenido Tan to depart
from his initial determination that private respondent's cigarette brands are
foreign brands. The consequent specific mention of such brands in the
questioned Circular, does not change the fact that the questioned Circular has
always been intended for and did cover, all cigarettes similarly situated as
"Hope," "More" and "Champion." Petitioner is thus correct in stating that:
. . . RMC 37-93 is not discriminatory. It lays down the test in

determining whether or not a locally manufactured cigarette bears a
foreign brand using the cigarette brands "Hope," More and
"Champion" as specific examples. Such test applies to all locally
manufactured cigarette brands similarly situated as the cigarette
brands aforementioned. While it is true that only "Hope," "More" and
"Champion" cigarettes are actually determined as locally
manufactured cigarettes bearing a foreign brand, RMC 37-93 does
not state that ONLY cigarettes fall under such classification to the
exclusion of other cigarettes similarly situated. Otherwise stated,
RMC 37-93 does not exclude the coverage of other cigarettes
similarly situated. Otherwise stated, RMC 37-93 does not exclude
the coverage of other cigarettes similarly situated as locally
manufactured cigarettes bearing a foreign brand. Hence, in itself,
RMC 37-93 is not discriminatory. 16

Both the respondent Court of Appeals and the Court of Tax Appeals held that the
questioned Circular reclassifying "Hope," "More" and "Champion" cigarettes, is
defective, invalid and unenforceable and has rendered the assessment against
private respondent of deficiency ad valorem excise taxes to be without legal
basis. The majority agrees with private respondent and respondent Courts. As
the foregoing opinion chronicles the fatal flaws in private respondent's
arguments, it becomes more apparent that the questioned Circular is in fact a
valid and subsisting interpretative ruling that the petitioner had power to
promulgate and enforce.
WHEREFORE, I vote to grant the petition and set aside the decisions of the
Court of Tax Appeals and the Court of Appeals, respectively, and to reinstate the
decision of petitioner Commissioner of Internal Revenue denying private
respondent's request for a review, reconsideration and recall of Revenue
Memorandum Circular No. 37-93 dated July 1, 1993.
Padilla, J., concurs.
Separate Opinions
BELLOSILLO, J.: separate opinion:
RA 7654 was enacted by Congress on 10 June 1993, signed into law by the
President on 14 June 1993, and took effect 3 July 1993. It amended partly Sec.
142, par. (c), of the National Internal Revenue Code (NIRC) to read —
Sec. 142. Cigars and cigarettes. — . . . . (c) Cigarettes packed by

machine. — There shall be levied, assessed and collected on
cigarettes packed by machine a tax at the rates prescribed below
based on the constructive manufacturer's wholesale price or the
actual manufacturer's wholesale price, whichever is higher.

not authorized by contract or otherwise, fifty-five percent (55%)
provided that the minimum tax shall not be less than Five Pesos
(P5.00) per pack (emphasis supplied).

(2) On other locally manufactured cigarettes, forty-five percent (45%)
provided that the minimum tax shall not be less than Three Pesos
(P3.00) per pack.
Prior to the effectivity of RA 7654, cigarette brands Hope Luxury, Premium

More and Champion were considered local brands subjected to an ad
valorem tax at the rate of 20-45%. However, on 1 July 1993 or two (2) days
before RA 7654 took effect, petitioner Commissioner of Internal Revenue issued
RMC 37-93 reclassifying "Hope,More and Champion being manufactured by
Fortune Tobacco Corporation . . . . (as) locally manufactured cigarettes bearing a
foreign brand subject to the 55% ad valorem tax on cigarettes." 1 RMC 37-93 in
effect subjectedHope Luxury, Premium More and Champion cigarettes to the
provisions of Sec. 142, par. (c), subpar. (1), NIRC, as amended by RA 7654,
imposing upon these cigarette brands an ad valorem tax of "fifty-five percent
(55%) provided that the minimum tax shall not be less than Five Pesos (P5.00)
per pack."
On 2 July 1993, Friday, at about five-fifty in the afternoon, or a few hours before
the effectivity of RA 7654, a copy of RMC 37-93 with a cover letter signed by
Deputy Commissioner Victor A. Deoferio of the Bureau of Internal Revenue was
sent by facsimile to the factory of respondent corporation in Parang, Marikina,
Metro Manila. It appears that the letter together with a copy of RMC 37-93 did not
immediately come to the knowledge of private respondent as it was addressed to
no one in particular. It was only when the reclassification of respondent
corporation's cigarette brands was reported in the column of Fil C. Sionil
in Business Bulletin on 4 July 1993 that the president of respondent corporation
learned of the matter, prompting him to inquire into its veracity and to request
from petitioner a copy of RMC 37-93. On 15 July 1993 respondent corporation
received by ordinary mail a certified machine copy of RMC 37-93.
Respondent corporation sought a review, reconsideration and recall of RMC 37-

93 but was forthwith denied by the Appellate Division of the Bureau of Internal
Revenue. As a consequence, on 30 July 1993 private respondent was assessed
an ad valorem tax deficiency amounting to P9,598,334.00. Respondent
corporation went to the Court of Tax Appeals (CTA) on a petition for review.
On 10 August 1994, after due hearing, the CTA found the petition meritorious
and ruled —
Revenue Memorandum Circular No. 37-93 reclassifying the brands

of cigarettes, viz: Hope, Moreand Champion being manufactured by
Fortune Tobacco Corporation as locally manufactured cigarettes
bearing a foreign brand subject to the 55% ad valorem tax on

cigarettes is found to be defective, invalid and unenforceable . . . .
cancelled for lack of legal basis. 2
The CTA held that petitioner Commissioner of Internal Revenue failed to

observe due process of law in issuing RMC 37-93 as there was no prior
notice and hearing, and that RMC 37-93 was in itself discriminatory. The
motion to reconsider its decision was denied by the CTA for lack of merit.
On 31 March 1995 respondent Court of Appeals affirmed in toto the
decision of the CTA. 3 Hence, the instant petition for review.
Petitioner now submits through the Solicitor General that RMC 37-93
reclassifying Hope Luxury, Premium Moreand Champion as locally manufactured
cigarettes bearing brands is merely an interpretative ruling which needs no prior
notice and hearing as held in Misamis Oriental Association of Coco Traders,
Inc. v. Department of Finance Secretary. 4 It maintains that neither is the
assailed revenue memorandum circular discriminatory as it merely "lays down
the test in determining whether or not a locally manufactured cigarette bears a
foreign brand using (only) the cigarette brands Hope, More and Champion as
specific examples." 5
Respondent corporation on the other hand contends that RMC 37-93 is not a
mere interpretative ruling but is adjudicatory in nature where prior notice and
hearing are mandatory, and that Misamis Oriental Association of Coco Traders,
Inc. v. Department of Finance Secretary on which the Solicitor General relies
heavily is not applicable. Respondent Fortune Tobacco Corporation also argues
that RMC 37-93 discriminates against its cigarette brands since those of its
competitors which are similarly situated have not been reclassified.
The main issues before us are (a) whether RMC 37-93 is merely an interpretative
rule the issuance of which needs no prior notice and hearing, or an adjudicatory
ruling which calls for the twin requirements of prior notice and hearing, and, (b)
whether RMC 37-93 is discriminatory in nature.
A brief discourse on the powers and functions of administrative bodies may be

instructive.
Administrative agencies posses quasi-legislative or rule making powers and

quasi-judicial or administrative adjudicatory powers. Quasi-legislative or rule
making power is the power to make rules and regulations which results

in delegated legislation that is within the confines of the granting statute and the
doctrine of nondelegability and separability of powers.
Interpretative rule, one of the three (3) types of quasi-legislative or rule making
powers of an administrative agency (the other two being supplementary or
detailed legislation, and contingent legislation), is promulgated by the
administrative agency to interpret, clarify or explain statutory regulations under
which the administrative body operates. The purpose or objective of an
interpretative rule is merely to construe the statute being administered. It purports
to do no more than interpret the statute. Simply, the rule tries to say what the
statute means. Generally, it refers to no single person or party in particular but
concerns all those belonging to the same class which may be covered by the
said interpretative rule. It need not be published and neither is a hearing required
since it is issued by the administrative body as an incident of its power to enforce
the law and is intended merely to clarify statutory provisions for proper
observance by the people. In Tañada v. Tuvera, 6 this Court expressly said that
"[i]interpretative regulations . . . . need not be published."
Quasi-judicial or administrative adjudicatory power on the other hand is the

power of the administrative agency to adjudicate the rights of persons before it. It
is the power to hear and determine questions of fact to which the legislative
policy is to apply and to decide in accordance with the standards laid down by
the law itself in enforcing and administering the same law. 7 The administrative
body exercises its quasi-judicial power when it performs in a judicial manner an
act which is essentially of an executive or administrative nature, where the power
to act in such manner is incidental to or reasonably necessary for the
performance of the executive or administrative duty entrusted to it. 8 In carrying
out their quasi-judicial functions the administrative officers or bodies are required
to investigate facts or ascertain the existence of facts, hold hearings, weigh
evidence, and draw conclusions from them as basis for their official action and
exercise of discretion in a judicial nature. Since rights of specific persons are
affected it is elementary that in the proper exercise of quasi-judicial power due
process must be observed in the conduct of the proceedings.
The importance of due process cannot be underestimated. Too basic is the rule
that no person shall be deprived of life, liberty or property without due process of
law. Thus when an administrative proceeding is quasi-judicial in character, notice
and fair open hearing are essential to the validity of the proceeding. The right to
reasonable prior notice and hearing embraces not only the right to present
evidence but also the opportunity to know the claims of the opposing party and to
meet them. The right to submit arguments implies that opportunity otherwise the
right may as well be considered impotent. And those who are brought into
contest with government in a quasi-judicial proceeding aimed at the control of

their activities are entitled to be fairy advised of what the government proposes
and to be heard upon its proposal before it issues its final command.
There are cardinal primary rights which must be respected in administrative

proceedings. The landmark case ofAng Tibay v. The Court of Industrial
Relations 9 enumerated these rights: (1) the right to a hearing, which includes the
right of the party interested or affected to present his own case and submit
evidence in support thereof; (2) the tribunal must consider the evidence
presented; (3) the decision must have something to support itself; (4) the
evidence must be substantial; (5) the decision must be rendered on the evidence
presented at the hearing, or at least contained in the record and disclosed to the
parties affected; (6) the tribunal or any of its judges must act on its or his own
independent consideration of the law and facts of the controversy, and not simply
accept the views of a subordinate in arriving at a decision; and, (7) the tribunal
should in all controversial questions render its decision in such manner that the
parties to the proceeding may know the various issues involved and the reasons
for the decision rendered.
In determining whether RMC No. 37-93 is merely an interpretative rule which

requires no prior notice and hearing, or an adjudicatory rule which demands the
observance of due process, a close examination of RMC 37-93 is in order.
Noticeably, petitioner Commissioner of Internal Revenue at first interprets Sec.
142, par. (c), subpar. (1), of the NIRC, as amended, by citing the law and
clarifying or explaining what it means —
Section 142 (c) (1), National Internal Revenue Code, as amended by

R.A. No. 6956, provides: On locally manufactured cigarettes bearing
a foreign brand, fifty-five percent (55%) Provided, That this rate shall
apply regardless of whether or not the right to use or title to the
foreign brand was sold or transferred by its owner to the local
manufacturer. Whenever it has to be determined whether or not a
cigarette bears a foreign brand, the listing of brands manufactured in
foreign countries appearing in the current World Tobacco Directory
shall govern.

however, not definitely determinable,

". . . the listing of brands manufactured in foreign countries
appearing in the current World Tobacco Directory shall govern . . ."
Then petitioner makes a factual finding by declaring that Hope (Luxury),

(Premium) More and Champion are manufactured by other foreign
manufacturers —
Hope is listed in the World Tobacco Directory as being

Tobacco, Philippines. More is listed in the said directory as being
Australia; (c) RJR-MacDonald, Canada; (d) Rettig-Strenberg,
Finland; (e) Karellas, Greece; (f) R.J. Reynolds, Malaysia; (g)
Rothmans, New Zealand; (h) Fortune Tobacco, Philippines; (i) R.J.
Reynolds, Puerto Rico; (j) R.J. Reynolds, Spain; (k) Tabacalera,
Spain; (l) R.J. Reynolds, Switzerland; and (m) R.J. Reynolds, USA.
"Champion" is registered in the said directory as being manufactured
by: (a) Commonwealth Bangladesh; (b) Sudan, Brazil; (c) Japan
Tobacco, Japan; (d) Fortune Tobacco, Philippines; (e) Haggar,
Sudan; and (f) Tabac Reunies, Switzerland.
From this finding, petitioner thereafter formulates an inference that since it cannot
be determined who among the manufacturers are the real owners of the brands
in question, then these cigarette brands should be considered foreign brands —

Finally, petitioner caps RMC 37-93 with a disposition specifically directed at

respondent corporation reclassifying its cigarette brands as locally manufactured
bearing foreign brands —

cigarettes, viz: Hope, More and Champion being manufactured by

It is evident from the foregoing that in issuing RMC 37-93 petitioner

Commissioner of Internal Revenue was exercising her quasi-judicial or
administrative adjudicatory power. She cited and interpreted the law, made a
factual finding, applied the law to her given set of facts, arrived at a conclusion,
and issued a ruling aimed at a specific individual. Consequently prior notice and
hearing are required. It must be emphasized that even the text alone of RMC 37-
93 implies that reception of evidence during a hearing is appropriate if not
necessary since it invokes BIR Ruling No. 410-88, dated August 24, 1988, which
provides that "in cases where it cannot be established or there is dearth of
evidence as to whether a brand is foreign or not . . . ." Indeed, it is difficult to
determine whether a brand is foreign or not if it is not established by, or there is
dearth of, evidence because no hearing has been called and conducted for the
reception of such evidence. In fine, by no stretch of the imagination can RMC 37-
93 be considered purely as an interpretative rule — requiring no previous notice
and hearing and simply interpreting, construing, clarifying or explaining statutory
regulations being administered by or under which the Bureau of Internal Revenue
operates.
It is true that both RMC 47-91 in Misamis Oriental Association of Coco Traders
v. Department of Finance Secretary, and RMC 37-93 in the instant case
reclassify certain products for purposes of taxation. But the similarity between the
two revenue memorandum circulars ends there. For in properly determining
whether a revenue memorandum circular is merely an interpretative rule or an
adjudicatory rule, its very tenor and text, and the circumstances surrounding its
issuance will have no to be considered.
We quote RMC 47-91 promulgated 11 June 1991 —
Revenue Memorandum Circular No. 47-91
SUBJECT : Taxability of Copra

TO : All Revenue Officials and Employees and Others Concerned.
For the information and guidance of all officials and employees and
others concerned, quoted hereunder in its entirety is VAT Ruling No.
190-90 dated August 17, 1990:

COCOFED MARKETING RESEARCH CORPORATION
6th Floor Cocofed Building
144 Amorsolo Street
Legaspi Village, Makati
Metro Manila
Attention:
Ms. Esmyrna
E. Reyes
Vice President —
Finance
Sirs:
This has reference to your letter dated January 16, 1990

wherein you represented that inspite of your VAT
registration of your copra trading company, you are
supposed to be exempt from VAT on the basis of BIR
Ruling dated January 8, 1988 which considered copra
as an agricultural food product in its original state. In
this connection, you request for a confirmation of your
opinion as aforestated.
In reply, please be informed that copra, being an

agricultural non-food product, is exempt from VAT only
if sale is made by the primary producer pursuant to
Section 103 (a) of the Tax Code, as amended. Thus as
a trading company and a subsequent seller, your sale of
copra is already subject to VAT pursuant to Section 9(b)
(1) of Revenue Regulations 5-27.
This revokes VAT Ruling Nos. 009-88 and 279-88.
Very
truly
yours,
(Sgd.)
JOSE
U.
ONG
Com
missi

oner
of
Intern
al
Reve
nue
As a clarification, this is the present and official stand of this Office

unless sooner revoked or amended. All revenue officials and
employees are enjoined to give this Circular as wide a publicity as
possible.
(Sgd.)
JOSE
U.
ONG
Com
missi
oner
of
Intern
al
Reve
nue
Quite obviously, the very text of RMC 47-91 itself shows that it is merely an
interpretative rule as it simply quotes a VAT Ruling and reminds those concerned
that the ruling is the present and official stand of the Bureau of Internal Revenue.
Unlike in RMC 37-93 where petitioner Commissioner manifestly exercised her
quasi-judicial or administrative adjudicatory power, in RMC 47-91 there were no
factual findings, no application of laws to a given set of facts, no conclusions of
law, and no dispositive portion directed at any particular party.
Another difference is that in the instant case, the issuance of the assailed
revenue memorandum circular operated to subject the taxpayer to the new law
which was yet to take effect, while in Misamis, the disputed revenue
memorandum circular was issued simply to restate and then clarify the prevailing
position and ruling of the administrative agency, and no new law yet to take effect
was involved. It merely interpreted an existing law which had already been in
effect for some time and which was not set to be amended. RMC 37-93 is thus
prejudicial to private respondent alone.

A third difference, and this likewise resolves the issue of discrimination, is that
RMC 37-93 was ostensibly issued to subject the cigarette brands of respondent
corporation to a new law as it was promulgated two days before the expiration of
the old law and a few hours before the effectivity of the new law. That RMC 37-
93 is particularly aimed only at respondent corporation and its three (3) cigarette
brands can be seen from the dispositive portion of the assailed revenue
memorandum circular —

cigarettes, viz: Hope, More, and Champion being manufactured by
Thus the argument of the Solicitor General that RMC 37-93 is not discriminatory
as "[i]t merely lays down the test in determining whether or not a locally
manufactured cigarette bears a foreign brand using the cigarette
brandsHope, More and Champion as specific examples," cannot be accepted,
much less sustained. Without doubt, RMC 37-93 has a tremendous effect on
respondent corporation — and solely on respondent corporation — as its
deficiency ad valorem tax assessment on its removals of Hope, Luxury, Premium
More, and Champion cigarettes for six (6) hours alone, i.e., from six o'clock in the
evening of 2 July 1993 which is presumably the time respondent corporation was
supposed to have received the facsimile message sent by Deputy Commissioner
Victor A. Deoferio, until twelve o'clock midnight upon the effectivity of the new
law, was already P9,598,334.00. On the other hand, RMC 47-91 was issued with
no purpose except to state and declare what has been the official stand of the
administrative agency on the specific subject matter, and was indiscriminately
directed to all copra traders with no particular individual in mind.
That petitioner Commissioner of Internal Revenue is an expert in her filed is not

attempted to be disputed; hence, we do not question the wisdom of her act in
reclassifying the cigarettes. Neither do we deny her the exercise of her quasi-
legislative or quasi-judicial powers. But most certainly, by constitutional mandate,
the Court must check the exercise of these powers and ascertain whether
petitioner has gone beyond the legitimate bounds of her authority.
In the final analysis, the issue before us in not the expertise, the authority to
promulgate rules, or the wisdom of petitioner as Commissioner of Internal
Revenue is reclassifying the cigarettes of private respondents. It is simply the
faithful observance by government by government of the basic constitutional right

of a taxpayer to due process of law and equal protection of the laws. This is what
distresses me no end — the manner and the circumstances under which the
cigarettes of private respondent were reclassified and correspondingly taxed
under RMC 37-93, and adjudicatory rule which therefore requires reasonable
notice and hearing before its issuance. It should not be confused with RMC 47-
91, which is a mere interpretative rule.
In the earlier case of G.R. No. 119322, which practically involved the same
opposing interests, I also voted to uphold the constitutional right of the taxpayer
concerned to due process and equal protection of the laws. By a vote of 3-2, that
view prevailed. In sequela, we in the First Division who constituted the majority
found ourselves unjustly drawn into the vortex of a nightmarish episode. The
strong ripples whipped up by my opinion expressed therein — and of the majority
— have yet to varnish when we are again in the imbroglio of a similar dilemma.
The unpleasant experience should be reason enough to simply steer clear of this
controversy and surf on a pretendedloss of judicial objectivity. Such would have
been an easy way out, a gracious exit, so to speak, albeit lame. But to
camouflage my leave with a sham excuse would be to turn away from a
professional vow I keep at all times; I would not be true to myself, and to the
people I am committed to serve. Thus, as I have earlier expressed, if placed
under similar circumstances in some future time, I shall have to brave again the
prospect of anothervilification and a tarnished image if only to show proudly to
the whole world that under the present dispensation judicial independence in our
country is a true component of our democracy.
In fine, I am greatly perturbed by the manner RMC No. 37-93 was issued as well
as the effect of such issuance. For it cannot be denied that the circumstances
clearly demonstrate that it was hastily issued — without prior notice and hearing,
and singling out private respondent alone — when two days before a new tax law
was to take effect petitioner reclassified and taxed the cigarette brands of private
respondent at a higher rate. Obviously, this was to make it appear that even
before the anticipated date of effectivity of the statute — which was undeniably
priorly known to petitioner — these brands were already currently classified and
taxed at fifty-five percent (55%), thus shoving them into the purview of the law
that was to take effect two days after!
For sure, private respondent was not properly informed before the issuance of
the questioned memorandum circular that its cigarette brands Hope
Luxury, Premium More and Champion were being reclassified and subjected to a
higher tax rate. Naturally, the result would be to lose financially because private
respondent was still selling its cigarettes at a price based on the old, lower tax
rate. Had there been previous notice and hearing, as claimed by private
respondent, it could have very well presented its side, either by opposing the

reclassification, or by acquiescing thereto but increasing the price of its cigarettes
to adjust to the higher tax rate. The reclassification and the ensuing imposition of
a tax rate increase therefore could not be anything but confiscatory if we are also
to consider the claim of private respondent that the new tax is even higher than
the cost of its cigarettes.
Accordingly, I vote to deny the petition.
HERMOSISIMA, JR., J.: dissenting
Private respondent Fortune Tobacco Corporation in the instant case disputes its
liability for deficiency ad valoremexcise taxes on its removals of "Hope," "More,"
and "Champion" cigarettes from 6:00 p.m. to 12:00 midnight of July 2, 1993, in
the total amount of P9,598,334.00. It claims that the circular, upon which the
assessment was based and made, is defective, invalid and unenforceable for
having been issued without notice and hearing and in violation of the equal
protection clause guaranteed by the Constitution.
The majority upholds these claims of private respondent, convinced that the
Circular in question, in the first place, did not give prior notice and hearing, and
so, it could not have been valid and effective. It proceeds to affirm the factual
findings of the Court of Tax Appeals, which findings were considered correct by
respondent Court of Appeals, to the effect that the petitioner Commissioner of
Internal Revenue had indeed blatantly failed to comply with the said twin
requirements of notice and hearing, thereby rendering the issuance of the
questioned Circular to be in violation of the due process clause of the
Constitution. It is also its dominant opinion that the questioned Circular
discriminates against private respondent Fortune Tobacco Corporation insofar as
it seems to affect only its "Hope," "More," and "Champion" cigarettes, to the
exclusion of other cigarettes apparently of the same kind or classification as
these cigarettes manufactured by private respondent.
With all due respect, I disagree with the majority in its disquisition of the issues
and its resulting conclusions.
Section 245 of the National Internal Revenue Code,

as amended, empowers the Commissioner of Internal
Revenue to issue the questioned Circular
Section 245 of the National Internal Revenue Code, as amended, provides:

Sec. 245. Authority of Secretary of Finance to promulgate rules and
regulations. — The Secretary of Finance, upon recommendation of
the Commissioner, shall promulgate all needful rules and regulations
for the effective enforcement of the provisions of this Code . . .
without prejudice to the power of the Commissioner of Internal
Revenue to make rulings or opinions in connection with the
implementation of the provisions of internal revenue laws, including
rulings on the classification of articles for sales tax and similar
purposes.
The subject of the questioned Circular is the reclassification of cigarettes subject

to excise taxes. It was issued in connection with Section 142 (c) (1) of the
National Internal Revenue Code, as amended, which imposes ad valorem excise
taxes on locally manufactured cigarettes bearing a foreign brand. The same
provision prescribes the ultimate criterion that determines which cigarettes are to
be considered "locally manufactured cigarettes bearing a foreign brand." It
provides:
. . . Whenever it has to be determined whether or not a cigarette

bears a foreign brand, the listing of brands manufactured in foreign
countries appearing in the current World Tobacco Directory shall
govern.
There is only one World Tobacco Directory for a given current year, and
the same is mandated by law to be the BIR Commissioner's controlling
basis for determining whether or not a particular locally manufactured
cigarette is one bearing a foreign brand. In so making a determination,
petitioner should inquire into the entries in the World Tobacco Directory for
the given current year and shall be held bound by such entries therein.
She is not required to subject the results of her inquiries to feedback from
the concerned cigarette manufacturers, and it is doubtlessly not desirable
nor managerially sound to court dispute thereon when the law does not, in
the first place, require debate or hearing thereon. Petitioner may make
such a determination because she is the Chief Executive Officer of the
administrative agency that is the Bureau of Internal Revenue in which are
vested quasi-legislative powers entrusted to it by the legislature in
recognition of its more encompassing and unequalled expertise in the field
of taxation.
The vesture of quasi-legislative and quasi-judicial powers in

administrative bodies is not unconstitutional, unreasonable and
oppressive. It has been necessitated by "the growing complexity of
the modern society" (Solid Homes, Inc. vs. Payawal, 177 SCRA 72,

79). More and more administrative bodies are necessary to help in
the regulation of society's ramified activities. "Specialized in the
particular field assigned to them, they can deal with the problems
thereof with more expertise and dispatch than can be expected from
the legislature or the courts of justice" . . . 1
Statutorily empowered to issue rulings or opinions embodying the proper

determination in respect to classifying articles, including cigarettes, for purposes
of tax assessment and collection, petitioner was acting well within her
prerogatives when she issued the questioned Circular. And in the exercise of
such prerogatives under the law, she has in her favor the presumption of regular
performance of official duty which must be overcome by clearly persuasive
evidence of stark error and grave abuse of discretion in order to be overturned
and disregarded.
It is irrelevant that the Court of Tax Appeals makes much of the effect of the
passing of Republic Act No. 7654 2on petitioner's power to classify cigarettes.
Although the decisions assailed and sought to be reviewed, as well as the
pleadings of private respondent, are replete with alleged admissions of our
legislators to the effect that the said Act was intended to freeze the current
classification of cigarettes and make the same an integral part of the said Act,
certainly the repeal, if any, of petitioner's power to classify cigarettes must be
reckoned from the effectivity of the said Act and not before. Suffice it to say that
indisputable is the plain fact that the questioned Circular was issued on July 1,
1993, while the said Act took effect on July 3, 1993.
The contents of the questioned circular have not

been proven to be erroneous or illegal as to render
issuance thereof an act of grave abuse of
discretion on the part of petitioner Commissioner
Prior to the effectivity of R.A. No. 7654, Section 142 (c) (1) of the National
Internal Revenue Code, as amended, levies the following ad valorem taxes on
cigarettes in accordance with their predetermined classifications as established
by the Commissioner of Internal Revenue:
. . . based on the manufacturer's registered wholesale price:
(1) On locally manufactured cigarettes bearing a foreign brand, fifty-

five percent (55%) Provided, That this rate shall apply regardless of
whether or not the right to use or title to the foreign brand was sold
or transferred by its owner to the local manufacturer. Whenever it
has to be determined whether or not a cigarette bears a foreign

brand, the listing of brands manufactured in foreign countries
appearing in the current World Tobacco Directory shall govern.
(2) Other locally manufactured cigarettes, forty five percent (45%).
xxx xxx xxx
Prior to the issuance of the questioned Circular, assessed against and paid by
private respondent as ad valoremexcise taxes on their removals of "Hope,"
"More," and "Champion" cigarettes were amounts based on paragraph (2)
above, i.e., the tax rate made applicable on the said cigarettes was 45% at the
most. The reason for this is that apparently, petitioner's predecessors have all
made determinations to the effect that the said cigarettes were to be considered
"other locally manufactured cigarettes" and not "locally manufactured cigarettes
bearing a foreign brand." Even petitioner, until her issuance of the questioned
Circular, adhered to her predecessors' determination as to the proper
classification of the above-mentioned cigarettes for purposes of ad
valorem excise taxes. Apparently, the past determination that the said cigarettes
were to be classified as "other locally manufactured cigarettes" was based on
private respodnent's convenient move of changing the names of "Hope" to "Hope
Luxury" and "More" to "Premium More." It also submitted proof that "Champion"
was an original Fortune Tobacco Corporation register and, therefore, a local
brand. Having registered these brands with the Philippine Patent Office and with
corresponding evidence to the effect, private respondent paid ad valorem excise
taxes computed at the rate of not more than 45% which is the rate applicable to
cigarettes considered as locally manufactured brands.
How these past determinations pervaded notwithstanding their erroneous basis

is only tempered by their innate quality of being merely errors in interpretative
ruling, the formulation of which does not bind the government. Advantage over
such errors may precipitously be withdrawn from those who have been benefiting
from them once the same have been discovered and rectified.
Petitioner correctly emphasizes that:
. . . the registration of said brands in the name of private respondent

is proof only that it is the exclusive owner thereof in the Philippines;
it does not necessarily follow, however, that it is the exclusive owner
thereof in the whole world. Assuming arguendo that private
respondent is the exclusive owner of said brands in the Philippines,
it does not mean that they are local. Otherwise, they would not have
been listed in the WTD as international brands manufactured by
different entities in different countries. Moreover, it cannot be said

that the brands registered in the names of private respondent are
not the same brands listed in the WTD because private respondent
is one of the manufacturers of said brands listed in the WTD. 3
Private respondent attempts to cast doubt on the determination made by

petitioner in the questioned Circular that Japan is a manufacturer of "Hope"
cigarettes. Private respondent's own inquiry into the World Tobacco Directory
reveals that Japan is not a manufacturer of "Hope" cigarettes. In pointing this out,
private respondent concludes that the entire Circular is erroneous and makes
such error the principal proof of its claim that the nature of the determination
embodied in the questioned Circular requires a hearing on the facts and a debate
on the applicable law. Such a determination is adjudicatory in nature and,
therefore, requires notice and hearing. Private respondent is, however,
apparently only eager to show error on the part of petitioner for acting with grave
abuse of discretion. Private respondent conveniently forgets that petitioner,
equipped with the expertise in taxation, recognized in that expertise by the
legislature that vested in her the power to make rules respecting classification of
articles for taxation purposes, and presumed to have regularly exercised her
prerogatives within the scope of her statutory power to issue determinations
specifically under Section 142 (c) (1) in relation to Section 245 of the National
Internal Revenue Code, as amended, simply followed the law as she understood
it. Her task was to determine which cigarette brands were foreign, and she was
directed by the law to look into the World Tobacco Directory. Foreign cigarette
brands were legislated to be taxed at higher rates because of their more
extensive public exposure and international reputation; their competitive edge
against local brands may easily be checked by imposition of higher tax rates.
Private respondent makes a mountain of the mole hill circumstance that "Hope"
is listed, not as being "manufactured" by Japan but as being "used" by Japan.
Whether manufactured or used by Japan, however, "Hope" remains a cigarette
brand that can not be said to be limited to local manufacture in the Philippines.
The undeniable fact is that it is a foreign brand the sales in the Philippines of
which are greatly boosted by its international exposure and reputation. The
petitioner was well within her prerogatives, in the exercise of her rule-making
power, to classify articles for taxation purposes, to interpret the laws which she is
mandated to administer. In interpreting the same, petitioner must, in general, be
guided by the principles underlying taxation, i.e., taxes are the lifeblood of
Government, and revenue laws ought to be interpreted in favor of the
Government, for Government can not survive without the funds to underwrite its
varied operational expenses in pursuit of the welfare of the society which it
serves and protects.
Private respondent claims that its business will be destroyed by the imposition of
additional ad valorem taxes as a result of the effectivity of the questioned

Circular. It claims that under the vested rights theory, it cannot now be made to
pay higher taxes after having been assessed for less in the past. Of course
private respondent will trumpet its losses, its interests, after all, being its sole
concern. What private respondent fails to see is the loss of revenue by the
Government which, because of erroneous determinations made by its past
revenue commissioners, collected lesser taxes than what it was entitled to in the
first place. It is every citizen's duty to pay the correct amount of taxes. Private
respondent will not be shielded by any vested rights, for there are not vested
rights to speak of respecting a wrong construction of the law by administrative
officials, and such wrong interpretation does not place the Government in
estoppel to correct or overrule the same. 4
The Questioned Circular embodies an interpretative

ruling of petitioner Commissioner which as such does
not require notice and hearing
As one of the public offices of the Government, the Bureau of Internal Revenue,
through its Commissioner, has grown to be a typical administrative agency
vested with a fusion of different governmental powers: the power to investigate,
initiate action and control the range of investigation, the power to promulgate
rules and regulations to better carry out statutory policies, and the power to
adjudicate controversies within the scope of their activities. 5In the realm of
administrative law, we understand that such an empowerment of administrative
agencies was evolved in response to the needs of a changing society. This
development arose as the need for broad social control over complex conditions
and activities became more and more pressing, and such complexity could no
longer be dealt with effectivity and directly by the legislature or the judiciary. The
theory which underlies the empowerment of administrative agencies like the
Bureau of Internal Revenue, is that the issues with which such agencies deal
ought to be decided by experts, and not be a judge, at least not in the first
instance or until the facts have been sifted and arranged. 6
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. 7
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. 8

Interpretative rules, on the other hand, are "those which purport to do no more
than interpret the statute being administered, to say what it means." 9
There can be no doubt that there is a distinction between an

administrative rule or regulation and an administrative interpretation
of a law whose enforcement is entrusted to an administrative body.
When an administrative agency promulgates rules and regulations, it
"makes" a new law with the force and effect of a valid law, while
when it renders an opinion or gives a statement of policy, it merely
interprets a pre-existing law (Parker, Administrative Law, p. 197;
Davis Administrative Law, p. 194). Rules and regulations when
promulgated in pursuance of the procedure or authority conferred
upon the administrative agency by law, partake of the nature of a
statute, and compliance therewith may be enforced by a penal
sanction provided in the law. This is so because statutes 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. (Davis, op. cit. p. 194.)
A rule is binding on the courts as long as the procedure fixed for its
promulgation is followed and its scope is within the statutory
authority granted by the legislature, even if the courts are not in
agreement with the policy stated therein or its innate wisdom
(Davis, op. cit. pp. 195-197). On the other hand, administrative
interpretation of the law is at best merely advisory, for it is the courts
that finally determine what the law means. 10
"Whether a given statutory delegation authorizes legislative or interpretative

regulations depends upon whether the statute places specific 'sanctions' behind
the regulations authorized, as for example, by making it a criminal offense to
disobey them, or by making conformity with their provisions a condition of the
exercise of legal privileges." 11 This is because interpretative regulations are by
nature simply statutory interpretations, which have behind them no statutory
sanction. Such regulations, whether so expressly authorized by statute or issued
only as an incident of statutory administration, merely embody administrative
findings of law which are always subject to judicial determination as to whether
they are erroneous or not, even when their issuance is authorized by statute.

The questioned Circular has undisputedly been issued by petitioner in pursuance
of her rule-making powers under Section 245 of the National Internal Revenue
Code, as amended. Exercising such powers, petitioner re-classified "Hope,"
"More" and "Champion" cigarettes as locally manufactured cigarettes bearing
foreign brands. The re-classification, as previously explained, is the correct
interpretation of Section 142 (c) (1) of the said Code. The said legal provision is
not accompanied by any penal sanction, and no detail had to be filled in by
petitioner. The basis for the classification of cigarettes has been provided for by
the legislature, and all petitioner has to do, on behalf of the government agency
she heads, is to proceed to make the proper determination using the criterion
stipulated by the lawmaking body. In making the proper determination, petitioner
gave it a liberal construction consistent with the rule that revenue laws are to be
construed in favor of the Government whose survival depends on the
contributions that taxpayers give to the public coffers that finance public services
and other governmental operations.
The Bureau of Internal Revenue which petitioner heads, is the government

agency charged with the enforcement of the laws pertinent to this case and so,
the opinion of the Commissioner of Internal Revenue, in the absence of a clear
showing that it is plainly wrong, is entitled to great weight. Private respondent
claims that its rights under previous interpretations of Section 142 (c) (1) may not
abruptly be cut by a new interpretation of the said section, but precisely the said
section is subject to various and changing construction, and hence, any ruling
issued by petitioner thereon is necessarily interpretative and not legislative.
Private respondent insists that the questioned circular is adjudicatory in nature
because it determined the rights of private respondent in a controversy involving
his tax liability. It also asseverates that the questioned circular involved
administrative action that is particular and immediate, thereby rendering it subject
to the requirements of notice and hearing in compliance with the due process
clause of the Constitution.
We find private respondent's arguments to be rather strained.
Petitioner made a determination as to the classification of cigarettes as

mandated by the aforecited provisions in the National Internal Revenue Code, as
amended. Such determination was an interpretation by petitioner of the said legal
provisions. If in the course of making the interpretation and embodying the same
in the questioned circular which the petitioner subsequently issued after making
such a determination, private respondent's cigarettes products, by their very
nature of being foreign brands as evidenced by their enlistment in the World
Tobacco Directory, which is the controlling basis for the proper classification of
cigarettes as stipulated by the law itself, have come to be classified as locally
manufactured cigarettes bearing foreign brands and as such subject to a tax rate

higher than what was previously imposed thereupon based on past rulings of
other revenue commissioners, such a situation is simply a consequence of the
performance by petitioner of here duties under the law. No adjudication took
place, much less was there any controversy ripe for adjudication. The natural
consequences of making a classification in accordance with law may not be used
by private respondent in arguing that the questioned circular is in fact
adjudicatory in nature. Such an exercise in driving home a point is illogical as it is
fallacious and misplaced.
Private respondent concedes that under general rules of administrative law, "a
ruling which is merely 'interpretative' in character may not require prior notice to
affected parties before its issuance as well as a hearing" and "for this reason, in
most instances, interpretative regulations are not given the force of
law." 12Indeed, "interpretative regulations and those merely internal in nature
. . . need not be published." 13 And it is now settled that only legislative
regulations and not interpretative rulings must have the benefit of public
hearing. 14
Because (1) the questioned circular merely embodied an interpretation or a way

of reading and giving meaning to Section 142 (c) (1) of the National Internal
Revenue Code, as amended; (2) petitioner did not fill in any details in the
aforecited section but only classified cigarettes on the basis of the World
Tobacco Directory in the light of the paramount principle of construing revenue
laws in favor of the Government to the end that Government collects as much tax
money as it is entitled to in order to fulfill its public purposes for the general good
of its citizens; (3) no penal sanction is provided in the aforecited section that was
construed by petitioner in the questioned circular; and (4) a similar circular
declassifying copra from being an agricultural food to non-food product for
purposes of the value added tax laws, resulting in the revocation of an exemption
previously enjoyed by copra traders, has been ruled by us to be merely an
interpretative ruling and not a legislative, much less, an adjudicatory, action on
the part of the revenue commissioner, 15 this Court must not be blind to the fact
that the questioned Circular is indeed an interpretative ruling not subject to notice
and hearing.
Neither is the questioned Circular tainted by a

violation of the equal protection clause under the
Constitution
Private respondent anchors its claim of violation of its equal protection rights
upon the too obvious fact that only its cigarette brands, i.e., "Hope," "More" and
"Champion," are mentioned in the questioned circular. Because only the
cigarettes that they manufacture are enumerated in the questioned circular,

private respondent proceeded to attack the same as being discriminatory against
it. On the surface, private respondent seems to have a point there. A scrutiny of
the questioned Circular, however, will show that it is undisputedly one of general
application for all cigarettes that are similarly situated as private respondent's
brands. The new interpretation of Section 142 (1) (c) has been well illustrated in
its application upon private respondent's brands, which illustration is properly a
subject of the questioned Circular. Significantly, indicated as the subject of the
questioned circular is the "reclassification of cigarettes subject to excise taxes."
The reclassification resulted in the foregrounding of private respondent's
cigarette brands, which incidentally is largely due to the controversy spawned no
less by private respondent's own action of conveniently changing its brand
names to avoid falling under a classification that would subject it to higher ad
valorem tax rates. This caused then Commissioner Bienvenido Tan to depart
from his initial determination that private respondent's cigarette brands are
foreign brands. The consequent specific mention of such brands in the
questioned Circular, does not change the fact that the questioned Circular has
always been intended for and did cover, all cigarettes similarly situated as
"Hope," "More" and "Champion." Petitioner is thus correct in stating that:
. . . RMC 37-93 is not discriminatory. It lays down the test in

determining whether or not a locally manufactured cigarette bears a
foreign brand using the cigarette brands "Hope," More and
"Champion" as specific examples. Such test applies to all locally
manufactured cigarette brands similarly situated as the cigarette
brands aforementioned. While it is true that only "Hope," "More" and
"Champion" cigarettes are actually determined as locally
manufactured cigarettes bearing a foreign brand, RMC 37-93 does
not state that ONLY cigarettes fall under such classification to the
exclusion of other cigarettes similarly situated. Otherwise stated,
RMC 37-93 does not exclude the coverage of other cigarettes
similarly situated. Otherwise stated, RMC 37-93 does not exclude
the coverage of other cigarettes similarly situated as locally
manufactured cigarettes bearing a foreign brand. Hence, in itself,
RMC 37-93 is not discriminatory. 16
Both the respondent Court of Appeals and the Court of Tax Appeals held that the
questioned Circular reclassifying "Hope," "More" and "Champion" cigarettes, is
defective, invalid and unenforceable and has rendered the assessment against
private respondent of deficiency ad valorem excise taxes to be without legal
basis. The majority agrees with private respondent and respondent Courts. As
the foregoing opinion chronicles the fatal flaws in private respondent's

arguments, it becomes more apparent that the questioned Circular is in fact a
valid and subsisting interpretative ruling that the petitioner had power to
promulgate and enforce.
WHEREFORE, I vote to grant the petition and set aside the decisions of the
Court of Tax Appeals and the Court of Appeals, respectively, and to reinstate the
decision of petitioner Commissioner of Internal Revenue denying private
respondent's request for a review, reconsideration and recall of Revenue
Memorandum Circular No. 37-93 dated July 1, 1993.
DIGEST
NO DIGEST
Note : important topic only
Commissioner of Internal Revenue vs. CA, 261 SCRA 236 (1996)
LEGISLATIVE v. INTERPRETATIVE RULE:
A legislative rule is in the nature of subordinate legislation,

designed to implement a primary legislation by providing the
details thereof. In the same way that laws must have the benefit
of public hearing, it is generally required that before a legislative
rule is adopted there must be hearing.
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.

Supreme Court
Manila

SECOND DIVISION

COMMISSIONER OF CUSTOMS G.R. No. 179579
and the DISTRICT COLLECTOR
OF THE PORT OF SUBIC, Present:
Petitioners,
CARPIO, J., Chairperson,
BRION,
PEREZ,
- versus - SERENO, and
REYES, JJ.

Promulgated:
HYPERMIX FEEDS
CORPORATION, February 1, 2012
Respondent.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
DECISION
SERENO, J.:
Before us is a Petition for Review under Rule 45, [1] assailing the Decision[2] and
the Resolution[3] of the Court of Appeals (CA), which nullified the Customs
Memorandum Order (CMO) No. 27-2003 [4] on the tariff classification of wheat issued by
petitioner Commissioner of Customs.
The antecedent facts are as follows:
On 7 November 2003, petitioner Commissioner of Customs issued CMO 27-2003.

Under the Memorandum, for tariff purposes, wheat was classified according to the
following: (1) importer or consignee; (2) country of origin; and (3) port of discharge.

[5]
The regulation provided an exclusive list of corporations, ports of discharge,
commodity descriptions and countries of origin. Depending on these factors, wheat
would be classified either as food grade or feed grade. The corresponding tariff for food
grade wheat was 3%, for feed grade, 7%.
CMO 27-2003 further provided for the proper procedure for protest or Valuation
and Classification Review Committee (VCRC) cases. Under this procedure, the release of
the articles that were the subject of protest required the importer to post a cash bond to
cover the tariff differential.[6]
A month after the issuance of CMO 27-2003, on 19 December 2003, respondent

filed a Petition for Declaratory Relief[7] with the Regional Trial Court (RTC) of Las Pias
City. It anticipated the implementation of the regulation on its imported and perishable
Chinese milling wheat in transit from China. [8] Respondent contended that CMO 27-2003
was issued without following the mandate of the Revised Administrative Code on public
participation, prior notice, and publication or registration with the University of the
Philippines Law Center.
Respondent also alleged that the regulation summarily adjudged it to be a feed

grade supplier without the benefit of prior assessment and examination; thus, despite
having imported food grade wheat, it would be subjected to the 7% tariff upon the arrival
of the shipment, forcing them to pay 133% more than was proper.
Furthermore, respondent claimed that the equal protection clause of the

Constitution was violated when the regulation treated non-flour millers differently from
flour millers for no reason at all.
Lastly, respondent asserted that the retroactive application of the regulation was
confiscatory in nature.
On 19 January 2004, the RTC issued a Temporary Restraining Order (TRO)

effective for twenty (20) days from notice.[9]
Petitioners thereafter filed a Motion to Dismiss. [10] They alleged that: (1) the RTC
did not have jurisdiction over the subject matter of the case, because respondent was
asking for a judicial determination of the classification of wheat; (2) an action for
declaratory relief was improper; (3) CMO 27-2003 was an internal administrative rule
and not legislative in nature; and (4) the claims of respondent were speculative and
premature, because the Bureau of Customs (BOC) had yet to examine respondents
products. They likewise opposed the application for a writ of preliminary injunction on
the ground that they had not inflicted any injury through the issuance of the regulation;

and that the action would be contrary to the rule that administrative issuances are
assumed valid until declared otherwise.
On 28 February 2005, the parties agreed that the matters raised in the application
for preliminary injunction and the Motion to Dismiss would just be resolved together in
the main case. Thus, on 10 March 2005, the RTC rendered its Decision [11] without having
to resolve the application for preliminary injunction and the Motion to Dismiss.
The trial court ruled in favor of respondent, to wit:

WHEREFORE, in view of the foregoing, the Petition is
GRANTED and the subject Customs Memorandum Order 27-2003 is
declared INVALID and OF NO FORCE AND EFFECT. Respondents
Commissioner of Customs, the District Collector of Subic or anyone acting
in their behalf are to immediately cease and desist from enforcing the said
Customs Memorandum Order 27-2003.
SO ORDERED.[12]

The RTC held that it had jurisdiction over the subject matter, given that the issue
raised by respondent concerned the quasi-legislative powers of petitioners. It likewise
stated that a petition for declaratory relief was the proper remedy, and that respondent
was the proper party to file it. The court considered that respondent was a regular
importer, and that the latter would be subjected to the application of the regulation in
future transactions.
With regard to the validity of the regulation, the trial court found that petitioners
had not followed the basic requirements of hearing and publication in the issuance of
CMO 27-2003. It likewise held that petitioners had substituted the quasi-judicial
determination of the commodity by a quasi-legislative predetermination.[13] The lower
court pointed out that a classification based on importers and ports of discharge were
violative of the due process rights of respondent.
Dissatisfied with the Decision of the lower court, petitioners appealed to the CA,
raising the same allegations in defense of CMO 27-2003. [14] The appellate court, however,
dismissed the appeal. It held that, since the regulation affected substantial rights of
petitioners and other importers, petitioners should have observed the requirements of
notice, hearing and publication.
Hence, this Petition.
Petitioners raise the following issues for the consideration of this Court:

I. THE COURT OF APPEALS DECIDED A QUESTION OF
SUBSTANCE WHICH IS NOT IN ACCORD WITH THE LAW AND
PREVAILING JURISPRUDENCE.
II. THE COURT OF APPEALS GRAVELY ERRED IN DECLARING
THAT THE TRIAL COURT HAS JURISDICTION OVER THE
CASE.
The Petition has no merit.
We shall first discuss the propriety of an action for declaratory relief.
Rule 63, Section 1 provides:

Who may file petition. Any person interested under a deed, will,
contract or other written instrument, or whose rights are affected by a
statute, executive order or regulation, ordinance, or any other governmental
regulation may, before breach or violation thereof, bring an action in the
appropriate Regional Trial Court to determine any question of construction
or validity arising, and for a declaration of his rights or duties, thereunder.
The requirements of an action for declaratory relief are as follows: (1) there must
be a justiciable controversy; (2) the controversy must be between persons whose interests
are adverse; (3) the party seeking declaratory relief must have a legal interest in the
controversy; and (4) the issue involved must be ripe for judicial determination. [15] We find
that the Petition filed by respondent before the lower court meets these requirements.
First, the subject of the controversy is the constitutionality of CMO 27-2003

issued by petitioner Commissioner of Customs. In Smart Communications v. NTC,[16] we
held:

The determination of whether a specific rule or set of rules issued by
an administrative agency contravenes the law or the constitution is within
the jurisdiction of the regular courts. Indeed, the Constitution vests the
power of judicial review or the power to declare a law, treaty,
international or executive agreement, presidential decree, order,
instruction, ordinance, or regulation in the courts, including the
regional trial courts. This is within the scope of judicial power, which
includes the authority of the courts to determine in an appropriate
action the validity of the acts of the political departments. Judicial
power includes the duty of the courts of justice to settle actual controversies
involving rights which are legally demandable and enforceable, and to

determine whether or not there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of any branch or
instrumentality of the Government. (Emphasis supplied)

Meanwhile, in Misamis Oriental Association of Coco Traders, Inc. v. Department
of Finance Secretary,[17] we said:
xxx [A] legislative rule is in the nature of subordinate legislation,
designed to implement a primary legislation by providing the details
thereof. xxx
In addition such rule must be published. On the other hand, interpretative
rules are designed to provide guidelines to the law which the administrative
agency is in charge of enforcing.
Accordingly, in considering a legislative rule a court is free to
make three inquiries: (i) whether the rule is within the delegated
authority of the administrative agency; (ii)whether it is reasonable;
and (iii) whether it was issued pursuant to proper procedure. But the
court is not free to substitute its judgment as to the desirability or wisdom
of the rule for the legislative body, by its delegation of administrative
judgment, has committed those questions to administrative judgments and
not to judicial judgments. In the case of an interpretative rule, the inquiry is
not into the validity but into the correctness or propriety of the rule. As a
matter of power a court, when confronted with an interpretative rule, is free
to (i) give the force of law to the rule; (ii) go to the opposite extreme and
substitute its judgment; or (iii) give some intermediate degree of
authoritative weight to the interpretative rule. (Emphasis supplied)

Second, the controversy is between two parties that have adverse interests.
Petitioners are summarily imposing a tariff rate that respondent is refusing to pay.
Third, it is clear that respondent has a legal and substantive interest in the
implementation of CMO 27-2003. Respondent has adequately shown that, as a regular
importer of wheat, on 14 August 2003, it has actually made shipments of wheat from
China to Subic. The shipment was set to arrive in December 2003. Upon its arrival, it
would be subjected to the conditions of CMO 27-2003. The regulation calls for the
imposition of different tariff rates, depending on the factors enumerated therein. Thus,
respondent alleged that it would be made to pay the 7% tariff applied to feed grade
wheat, instead of the 3% tariff on food grade wheat. In addition, respondent would have
to go through the procedure under CMO 27-2003, which would undoubtedly toll its time
and resources. The lower court correctly pointed out as follows:

xxx As noted above, the fact that petitioner is precisely into the
business of importing wheat, each and every importation will be
subjected to constant disputes which will result into (sic) delays in the
delivery, setting aside of funds as cash bond required in the CMO as
well as the resulting expenses thereof. It is easy to see that business
uncertainty will be a constant occurrence for petitioner. That the sums
involved are not minimal is shown by the discussions during the
hearings conducted as well as in the pleadings filed. It may be that the
petitioner can later on get a refund but such has been foreclosed because the
Collector of Customs and the Commissioner of Customs are bound by their
own CMO. Petitioner cannot get its refund with the said agency. We
believe and so find that Petitioner has presented such a stake in the outcome
of this controversy as to vest it with standing to file this petition.
[18]
(Emphasis supplied)

Finally, the issue raised by respondent is ripe for judicial determination, because
litigation is inevitable[19] for the simple and uncontroverted reason that respondent is not
included in the enumeration of flour millers classified as food grade wheat importers.
Thus, as the trial court stated, it would have to file a protest case each time it imports
food grade wheat and be subjected to the 7% tariff.
It is therefore clear that a petition for declaratory relief is the right remedy given
the circumstances of the case.
Considering that the questioned regulation would affect the substantive rights of
respondent as explained above, it therefore follows that petitioners should have applied
the pertinent provisions of Book VII, Chapter 2 of the Revised Administrative Code, to
wit:
Section 3. Filing. (1) Every agency shall file with the University of
the Philippines Law Center three (3) certified copies of every rule adopted
by it. Rules in force on the date of effectivity of this Code which are not
filed within three (3) months from that date shall not thereafter be the bases
of any sanction against any party of persons.
xxx xxx xxx
Section 9. Public Participation. - (1) If not otherwise required by
law, an agency shall, as far as practicable, publish or circulate notices of
proposed rules and afford interested parties the opportunity to submit their
views prior to the adoption of any rule.

(2) In the fixing of rates, no rule or final order shall be valid unless
the proposed rates shall have been published in a newspaper of general
circulation at least two (2) weeks before the first hearing thereon.
(3) In case of opposition, the rules on contested cases shall be
observed.

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, on 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 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.[20]
Likewise, in Taada v. Tuvera,[21] we held:

The clear object of the above-quoted provision is to give the
general public adequate notice of the various laws which are to
regulate their actions and conduct as citizens.Without such notice and
publication, there would be no basis for the application of the
maxim ignorantia legis non excusat. It would be the height of injustice to
punish or otherwise burden a citizen for the transgression of a law of
which he had no notice whatsoever, not even a constructive one.

Perhaps at no time since the establishment of the Philippine
Republic has the publication of laws taken so vital significance that at this
time when the people have bestowed upon the President a power heretofore
enjoyed solely by the legislature. While the people are kept abreast by the
mass media of the debates and deliberations in the Batasan Pambansa and
for the diligent ones, ready access to the legislative records no such
publicity accompanies the law-making process of the President. Thus,
without publication, the people have no means of knowing what
presidential decrees have actually been promulgated, much less a
definite way of informing themselves of the specific contents and texts
of such decrees. (Emphasis supplied)

Because petitioners failed to follow the requirements enumerated by the Revised
Administrative Code, the assailed regulation must be struck down.

Going now to the content of CMO 27-3003, we likewise hold that it is
unconstitutional for being violative of the equal protection clause of the Constitution.
The equal protection clause means that no person or class of persons shall be
deprived of the same protection of laws enjoyed by other persons or other classes in the
same place in like circumstances. Thus, the guarantee of the equal protection of laws is
not violated if there is a reasonable classification. For a classification to be reasonable, it
must be shown that (1) it rests on substantial distinctions; (2) it is germane to the purpose
of the law; (3) it is not limited to existing conditions only; and (4) it applies equally to all
members of the same class.[22]
Unfortunately, CMO 27-2003 does not meet these requirements. We do not see
how the quality of wheat is affected by who imports it, where it is discharged, or which
country it came from.
Thus, on the one hand, even if other millers excluded from CMO 27-2003 have
imported food grade wheat, the product would still be declared as feed grade wheat, a
classification subjecting them to 7% tariff. On the other hand, even if the importers listed
under CMO 27-2003 have imported feed grade wheat, they would only be made to pay
3% tariff, thus depriving the state of the taxes due. The regulation, therefore, does not
become disadvantageous to respondent only, but even to the state.
It is also not clear how the regulation intends to monitor more closely wheat
importations and thus prevent their misclassification. A careful study of CMO 27-2003
shows that it not only fails to achieve this end, but results in the opposite. The application
of the regulation forecloses the possibility that other corporations that are excluded from
the list import food grade wheat; at the same time, it creates an assumption that those
who meet the criteria do not import feed grade wheat. In the first case, importers are
unnecessarily burdened to prove the classification of their wheat imports; while in the
second, the state carries that burden.
Petitioner Commissioner of Customs also went beyond his powers when the
regulation limited the customs officers duties mandated by Section 1403 of the Tariff and
Customs Law, as amended. The law provides:
Section 1403. Duties of Customs Officer Tasked to Examine,
Classify, and Appraise Imported Articles. The customs officer tasked to
examine, classify, and appraise imported articlesshall determine whether
the packages designated for examination and their contents are in
accordance with the declaration in the entry, invoice and other
pertinent documents and shall make return in such a manner as to
indicate whether the articles have been truly and correctly declared in

the entry as regard their quantity, measurement, weight, and tariff
classification and not imported contrary to law. He shall submit samples
to the laboratory for analysis when feasible to do so and when such analysis
is necessary for the proper classification, appraisal, and/or admission into
the Philippines of imported articles.
Likewise, the customs officer shall determine the unit of quantity
in which they are usually bought and sold, and appraise the imported
articles in accordance with Section 201 of this Code.
Failure on the part of the customs officer to comply with his duties
shall subject him to the penalties prescribed under Section 3604 of this
Code.
The provision mandates that the customs officer must first assess and determine the
classification of the imported article before tariff may be imposed. Unfortunately, CMO
23-2007 has already classified the article even before the customs officer had the chance
to examine it. In effect, petitioner Commissioner of Customs diminished the powers
granted by the Tariff and Customs Code with regard to wheat importation when it no
longer required the customs officers prior examination and assessment of the proper
classification of the wheat.
It is well-settled that rules and regulations, which are the product of a delegated
power to create new and additional legal provisions that have the effect of law, should be
within the scope of the statutory authority granted by the legislature to the administrative
agency. It is required that the regulation be germane to the objects and purposes of the
law; and that it be not in contradiction to, but in conformity with, the standards prescribed
by law.[23]
In summary, petitioners violated respondents right to due process in the issuance

of CMO 27-2003 when they failed to observe the requirements under the Revised
Administrative Code. Petitioners likewise violated respondents right to equal protection
of laws when they provided for an unreasonable classification in the application of the
regulation. Finally, petitioner Commissioner of Customs went beyond his powers of
delegated authority when the regulation limited the powers of the customs officer to
examine and assess imported articles.
WHEREFORE, in view of the foregoing, the Petition is DENIED.
SO ORDERED.
Digest

Commissioner of Customs and the District Collector of the Port of Subic vs Hypermix Feeds
Corporation, G.R. No 179579, February 1, 2012)

In case of the inaction of the CIR on theprotested assessment, the taxpayer
hastwo options, and these options aremutually exclusive and resort to onebars the
application of the other.
Facts: An assessment notice was issued on March 27, 1998 by the Commissioner
of Internal Revenue against Lascona Land Co. Inc (Lascona) for their allegeddeficiency
income tax for the year 1993 in the amount of P753,266,56. Lasconasubsequently filed a
letter of protest on April 20, 1998, bur was later on denied byNorberto Odulio, the officer-in-
charge, Regional Director, Bureau of InternalRevenue, Revenue Region No. 8, Makati City.
His denial was based on Section228 of the Tax Code. Lascona appealed to the CTA argung
that the RegionalDirector erred in ruling that the failure to appeal to the CTA within
thirty (30) daysfrom the lapse of teh 180-day period rendered the assessment final
andexecutor. The CTA nullified the subject assessment in its decision on January 4,2000. A
motion for reconsideration by the CIR was denied, thus prompting themto appeal to the
Court of Appeals. The CA set aside the Decision of the CTA andfurther declared that the
subject Assessment Notice as final and executor.
Issue: Did the Court of Appeals Err in holding the assessment notice as final, executor,and
demandable?
Held: In
RCBC v. CIR
1
, the Court has held that in case the Commissioner failed to acton the disputed assessment
within the 180-day period from date of submission of documents, a taxpayer can either: (1)
file a petition for review with the Court of Tax Appeals within 30 days after the expiration of
the 180-day period; or (2)await the final decision of the Commissioner on the disputed
assessments andappeal such final decision to the Court of Tax Appeals within 30 days
after receipt of a copy of such decision.It must be emphasized, however, that in case of the
inaction of the CIR on theprotested assessment, whil
e we reiterate − the taxpayer has two options, either:
(1) file a petition for review with the CTA within 30 days after the expiration of
the180-day period; or (2) await the final decision of the Commissioner on thedisputed

assessment and appeal such final decision to the CTA within 30 daysafter the receipt of a
copy of such decision, these options are mutually exclusiveand resort to one bars the
application of the other.

SUPREME COURT
Manila
EN BANC
G.R. No. L-16704 March 17, 1962
VICTORIAS MILLING COMPANY, INC., petitioner-appellant,

vs.
SOCIAL SECURITY COMMISSION, respondent-appellee.
Ross, Selph and Carrascoso for petitioner-appellant.

Office of the Solicitor General and Ernesto T. Duran for respondent-appellee.
BARRERA, J.:
On October 15, 1958, the Social Security Commission issued its Circular No. 22
of the following tenor: .
Effective November 1, 1958, all Employers in computing the premiums due

the System, will take into consideration and include in the Employee's
remuneration all bonuses and overtime pay, as well as the cash value of
other media of remuneration. All these will comprise the Employee's
remuneration or earnings, upon which the 3-1/2% and 2-1/2%
contributions will be based, up to a maximum of P500 for any one month.
Upon receipt of a copy thereof, petitioner Victorias Milling Company, Inc., through
counsel, wrote the Social Security Commission in effect protesting against the
circular as contradictory to a previous Circular No. 7, dated October 7, 1957
expressly excluding overtime pay and bonus in the computation of the employers'
and employees' respective monthly premium contributions, and submitting, "In
order to assist your System in arriving at a proper interpretation of the term
'compensation' for the purposes of" such computation, their observations on
Republic Act 1161 and its amendment and on the general interpretation of the
words "compensation", "remuneration" and "wages". Counsel further questioned
the validity of the circular for lack of authority on the part of the Social Security
Commission to promulgate it without the approval of the President and for lack of
publication in the Official Gazette.
Overruling these objections, the Social Security Commission ruled that Circular
No. 22 is not a rule or regulation that needed the approval of the President and
publication in the Official Gazette to be effective, but a mere administrative
interpretation of the statute, a mere statement of general policy or opinion as to
how the law should be construed.
Not satisfied with this ruling, petitioner comes to this Court on appeal.
The single issue involved in this appeal is whether or not Circular No. 22 is a rule
or regulation, as contemplated in Section 4(a) of Republic Act 1161 empowering
the Social Security Commission "to adopt, amend and repeal subject to the
approval of the President such rules and regulations as may be necessary to
carry out the provisions and purposes of this Act."
There can be no doubt that there is a distinction between an administrative rule

or regulation and an administrative interpretation of a law whose enforcement is
entrusted to an administrative body. When an administrative agency promulgates
rules and regulations, it "makes" a new law with the force and effect of a valid
law, while when it renders an opinion or gives a statement of policy, it merely
interprets a pre-existing law (Parker, Administrative Law, p. 197; Davis,
Administrative Law, p. 194). Rules and regulations when promulgated in
pursuance of the procedure or authority conferred upon the administrative
agency by law, partake of the nature of a statute, and compliance therewith may
be enforced by a penal sanction provided in the law. This is so because statutes
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. (Davis,op. cit., p. 194.) .
A rule is binding on the courts so long as the procedure fixed for its promulgation
is followed and its scope is within the statutory authority granted by the
legislature, even if the courts are not in agreement with the policy stated therein
or its innate wisdom (Davis, op. cit., 195-197). On the other hand, administrative
interpretation of the law is at best merely advisory, for it is the courts that finally
determine what the law means.

Circular No. 22 in question was issued by the Social Security Commission, in
view of the amendment of the provisions of the Social Security Law defining the
term "compensation" contained in Section 8 (f) of Republic Act No. 1161 which,
before its amendment, reads as follows: .
(f) Compensation — All remuneration for employment include the cash

value of any remuneration paid in any medium other than cash except (1)
that part of the remuneration in excess of P500 received during the month;
(2) bonuses, allowances or overtime pay; and (3) dismissal and all other
payments which the employer may make, although not legally required to
do so.
Republic Act No. 1792 changed the definition of "compensation" to:
(f) Compensation — All remuneration for employment include the cash

value of any remuneration paid in any medium other than cash except that
part of the remuneration in excess of P500.00 received during the month.
It will thus be seen that whereas prior to the amendment, bonuses, allowances,
and overtime pay given in addition to the regular or base pay were expressly
excluded, or exempted from the definition of the term "compensation", such
exemption or exclusion was deleted by the amendatory law. It thus became
necessary for the Social Security Commission to interpret the effect of such
deletion or elimination. Circular No. 22 was, therefore, issued to apprise those
concerned of the interpretation or understanding of the Commission, of the law
as amended, which it was its duty to enforce. It did not add any duty or detail that
was not already in the law as amended. It merely stated and circularized the
opinion of the Commission as to how the law should be construed.1äwphï1.ñët
The case of People v. Jolliffe (G.R. No. L-9553, promulgated on May 30, 1959)
cited by appellant, does not support its contention that the circular in question is
a rule or regulation. What was there said was merely that a regulation may be
incorporated in the form of a circular. Such statement simply meant that the
substance and not the form of a regulation is decisive in determining its nature. It
does not lay down a general proposition of law that any circular, regardless of its
substance and even if it is only interpretative, constitutes a rule or regulation
which must be published in the Official Gazette before it could take effect.
The case of People v. Que Po Lay (50 O.G. 2850) also cited by appellant is not
applicable to the present case, because the penalty that may be incurred by
employers and employees if they refuse to pay the corresponding premiums on
bonus, overtime pay, etc. which the employer pays to his employees, is not by

reason of non-compliance with Circular No. 22, but for violation of the specific
legal provisions contained in Section 27(c) and (f) of Republic Act No. 1161.
We find, therefore, that Circular No. 22 purports merely to advise employers-

members of the System of what, in the light of the amendment of the law, they
should include in determining the monthly compensation of their employees upon
which the social security contributions should be based, and that such circular
did not require presidential approval and publication in the Official Gazette for its
effectivity.
It hardly need be said that the Commission's interpretation of the amendment

embodied in its Circular No. 22, is correct. The express elimination among the
exemptions excluded in the old law, of all bonuses, allowances and overtime pay
in the determination of the "compensation" paid to employees makes it
imperative that such bonuses and overtime pay must now be included in the
employee's remuneration in pursuance of the amendatory law. It is true that in
previous cases, this Court has held that bonus is not demandable because it is
not part of the wage, salary, or compensation of the employee. But the question
in the instant case is not whether bonus is demandable or not as part of
compensation, but whether, after the employer does, in fact, give or pay bonus to
his employees, such bonuses shall be considered compensation under the
Social Security Act after they have been received by the employees. While it is
true that terms or words are to be interpreted in accordance with their well-
accepted meaning in law, nevertheless, when such term or word is specifically
defined in a particular law, such interpretation must be adopted in enforcing that
particular law, for it can not be gainsaid that a particular phrase or term may have
one meaning for one purpose and another meaning for some other purpose.
Such is the case that is now before us. Republic Act 1161 specifically defined
what "compensation" should mean "For the purposes of this Act". Republic Act
1792 amended such definition by deleting same exemptions authorized in the
original Act. By virtue of this express substantial change in the phraseology of the
law, whatever prior executive or judicial construction may have been given to the
phrase in question should give way to the clear mandate of the new law.
IN VIEW OF THE FOREGOING, the Resolution appealed from is hereby

affirmed, with costs against appellant. So ordered.
Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L.,

Paredes, Dizon and De Leon, JJ., concur.
DIGEST

G.R. No. L-16704
VICTORIAS MILLING COMPANY, INC vs.
SOCIAL SECURITY COMMISSION
Facts:
On October 15,1958, the Social Security Commission issued Circular No. 22 requiring all
Employers in computing premiums to include in the Employee's remuneration all
bonuses and overtime pay, as well as the cash value of other media of remuneration.
Upon receipt of a copy thereof, petitioner Victorias Milling Company, Inc., through
counsel, wrote the Social Security Commission in effect protesting against the circular as
contradictory to a previous Circular No. 7 dated October 7, 1957 expressly excluding
overtime pay and bonus in the computation of the employers' and employees'
respective monthly premium contributions. Counsel further questioned the validity of
the circular for lack of autho
rity on the part of the Social Security Commission to promulgate it without the approval
of the President and for lack of publication in the Official Gazette. Overruling the
objections, the Social Security Commission ruled that Circular No. 22 is not a rule or
regulation that needed the approval of the President and publication in the Official
Gazette to be effective, but a mere administrative interpretation of the statute, a mere
statement of general policy or opinion as to how the law should be construed.
Petitioner comes to Court on appeal.
Issue: Whether or not Circular No. 22 is a rule or regulation as contemplated in Section
4(a) of Republic Act 1161 empowering the Social Security Commission.
Held:
There can be no doubt that there is a distinction between an administrative rule or
regulation and an administrative interpretation of a law whose enforcement is
entrusted to an administrative body. When an administrative agency promulgates rules
and regulations, it "makes" a new law with the force and effect of a valid law, while
when it renders an opinion or gives a statement of policy, it merely interprets a pre-
existing law. Rules and regulations when promulgated in pursuance of the procedure or
authority conferred upon the administrative agency by law, partake of the nature of a
statute, and compliance therewith may be enforced by a penal sanction provided
therein. 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. Therefore, Circular No. 22

purports merely to advise employers-members of the System of what, in the light of the
amendment of the law, they should include in determining the monthly compensation
of their employees upon which the social security contributions should be based, and
that such circular did not require presidential approval and publication in the Official
Gazette for its effectivity. The Resolution appealed from is hereby affirmed, with costs
against appellant. So ordered.
FIRST DIVISION
[G.R. No. 163448. March 08, 2005]
NATIONAL FOOD AUTHORITY (NFA), and JUANITO M. DAVID, in his

capacity as Regional Director, NFA Regional Office No. 1, San Juan,
La Union,petitioners, vs. MASADA SECURITY AGENCY, INC.,
represented by its Acting President & General Manager, COL. EDWIN
S. ESPEJO (RET.),respondents.
DECISION
YNARES-SANTIAGO, J.:
Assailed in this petition for review under Rule 45 of the Rules of Court is the
February 12, 2004 decision[1] of the Court of Appeals in CA-G.R. CV No. 76677,
which dismissed the appeal filed by petitioner National Food Authority (NFA) and
its April 30, 2004 resolution denying petitioners motion for reconsideration.
The antecedent facts show that on September 17, 1996, respondent
MASADA Security Agency, Inc., entered into a one year [2] contract[3] to provide
security services to the various offices, warehouses and installations of NFA
within the scope of the NFA Region I, comprised of the provinces of Pangasinan,
La Union, Abra, Ilocos Sur and Ilocos Norte. Upon the expiration of said contract,
the parties extended the effectivity thereof on a monthly basis under same terms
and condition.[4]

Meanwhile, the Regional Tripartite Wages and Productivity Board issued
several wage orders mandating increases in the daily wage rate. Accordingly,
respondent requested NFA for a corresponding upward adjustment in the
monthly contract rate consisting of the increases in the daily minimum wage of
the security guards as well as the corresponding raise in their overtime pay,
holiday pay, 13th month pay, holiday and rest day pay. It also claimed increases
in Social Security System (SSS) and Pag-ibig premiums as well as in the
administrative costs and margin. NFA, however, granted the request only with
respect to the increase in the daily wage by multiplying the amount of the
mandated increase by 30 days and denied the same with respect to the
adjustments in the other benefits and remunerations computed on the basis of
the daily wage.
Respondent sought the intervention of the Office of the Regional Director,
Regional Office No. I, La Union, as Chairman of the Regional Tripartite Wages
and Productivity Board and the DOLE Secretary through the Executive Director
of the National Wages and Productivity Commission. Despite the advisory [5] of
said offices sustaining the claim of respondent that the increase mandated by
Republic Act No. 6727 (RA 6727) and the wage orders issued by the RTWPB is
not limited to the daily pay, NFA maintained its stance that it is not liable to pay
the corresponding adjustments in the wage related benefits of respondents
security guards.
On May 4, 2001, respondent filed with the Regional Trial Court of Quezon,
City, Branch 83, a case for recovery of sum of money against NFA. Docketed as
Civil Case No. Q-01-43988, the complaint [6] sought reimbursement of the
following amounts allegedly paid by respondent to the security guards, to wit:
P2,949,302.84, for unpaid wage related benefits brought about by the effectivity
of Wage Order Nos. RB 1-05 and RB CAR-04; [7] RB 1-06 and RB CAR-05;[8] RB
1-07 and RB CAR-06;[9] and P975,493.04 for additional cost and margin, plus
interest. It also prayed for damages and litigation expenses.[10]
In its answer with counterclaim, [11] NFA denied that respondent paid the
security guards their wage related benefits and that it shouldered the additional
costs and margin arising from the implementation of the wage orders. It admitted,
however, that it heeded respondents request for adjustment only with respect to
increase in the minimum wage and not with respect to the other wage related
benefits. NFA argued that respondent cannot demand an adjustment on said
salary related benefits because it is bound by their contract expressly limiting
NFAs obligation to pay only the increment in the daily wage.
At the pre-trial, the only issue raised was whether or not respondent is
entitled to recover from NFA the wage related benefits of the security guards.[12]

On September 19, 2002, the trial court rendered a decision [13] in favor of
respondent holding that NFA is liable to pay the security guards wage related
benefits pursuant to RA 6727, because the basis of the computation of said
benefits, like overtime pay, holiday pay, SSS and Pag-ibig premium, is the
increased minimum wage. It also found NFA liable for the consequential
adjustments in administrative costs and margin. The trial court absolved
defendant Juanito M. David having been impleaded in his official capacity as
Regional Director of NFA Regional Office No. 1, San Juan, La Union. The
dispositive portion thereof, reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff MASADA Security

Agency, Inc., and against defendant National Food Authority ordering said defendant to
make the corresponding adjustment in the contract price in accordance with the increment
mandated under the various wage orders, particularly Wage Order Nos. RBI-05,
RBCAR-04, RBI-06, RBCAR-05, RBI-07 and RBCAR-06 and to pay plaintiff the
amounts representing the adjustments in the wage-related benefits of the security guards
and consequential increase in its administrative cost and margin upon presentment by
plaintiff of the corresponding voucher claims.
Plaintiffs claims for damages and attorneys fees and defendants counterclaim for
damages are hereby DENIED.
Defendant Juanito M. David is hereby absolved from any liability.
SO ORDERED.[14]
NFA appealed to the Court of Appeals but the same was dismissed on
February 12, 2004. The appellate court held that the proper recourse of NFA is to
file a petition for review under Rule 45 with this Court, considering that the appeal
raised a pure question of law. Nevertheless, it proceeded to discuss the merits of
the case for purposes of academic discussion and eventually sustained the ruling
of the trial court that NFA is under obligation to pay the administrative costs and
margin and the wage related benefits of the respondents security guards.[15]
On April 30, 2004, the Court of Appeals denied NFAs motion for
reconsideration.[16] Hence, the instant petition.
The issue for resolution is whether or not the liability of principals in service
contracts under Section 6 of RA 6727 and the wage orders issued by the
Regional Tripartite Wages and Productivity Board is limited only to the increment
in the minimum wage.
At the outset, it should be noted that the proper remedy of NFA from the
adverse decision of the trial court is a petition for review under Rule 45 directly
with this Court because the issue involved a question of law. However, in the
interest of justice we deem it wise to overlook the procedural technicalities if only
to demonstrate that despite the procedural infirmity, the instant petition is
impressed with merit.[17]
RA 6727[18] (Wage Rationalization Act), which took effect on July 1, 1989,
[19]
declared it a policy of the State to rationalize the fixing of minimum wages and
to promote productivity-improvement and gain-sharing measures to ensure a
decent standard of living for the workers and their families; to guarantee the
rights of labor to its just share in the fruits of production; to enhance employment
generation in the countryside through industrial dispersal; and to allow business
and industry reasonable returns on investment, expansion and growth.[20]
In line with its declared policy, RA 6727, created the National Wages and
Productivity Commission (NWPC),[21] vested, inter alia, with the power to
prescribe rules and guidelines for the determination of appropriate minimum
wage and productivity measures at the regional, provincial or industry levels;
[22]
and the Regional Tripartite Wages and Productivity Boards (RTWPB) which,
among others, determine and fix the minimum wage rates applicable in their
respective region, provinces, or industries therein and issue the corresponding
wage orders, subject to the guidelines issued by the NWPC. [23] Pursuant to its
wage fixing authority, the RTWPB issue wage orders which set the daily
minimum wage rates.[24]
Payment of the increases in the wage rate of workers is ordinarily shouldered
by the employer. Section 6 of RA 6727, however, expressly lodged said
obligation to the principals or indirect employers in construction projects and
establishments providing security, janitorial and similar services. Substantially the
same provision is incorporated in the wage orders issued by the RTWPB.
[25]
Section 6 of RA 6727, provides:
SEC. 6. In the case of contracts for construction projects and for security, janitorial and
similar services, the prescribed increases in the wage rates of the workers shall be borne
by the principals or clients of the construction/service contractors and the contract shall
be deemed amended accordingly. In the event, however, that the principal or client fails
to pay the prescribed wage rates, the construction/service contractor shall be jointly and
severally liable with his principal or client. (Emphasis supplied)
NFA claims that its additional liability under the aforecited provision is limited
only to the payment of the increment in the statutory minimum wage rate, i.e., the
rate for a regular eight (8) hour work day.
The contention is meritorious.
In construing the word wage in Section 6 of RA 6727, reference must be had
to Section 4 (a) of the same Act. It states:

SEC. 4. (a) Upon the effectivity of this Act, the statutory minimum wage rates for all
workers and employees in the private sector, whether agricultural or non-
agricultural, shall be increased by twenty-five pesos (P25) per day (Emphasis supplied)
The term wage as used in Section 6 of RA 6727 pertains to no other than the
statutory minimum wage which is defined under the Rules Implementing RA
6727 as the lowest wage rate fixed by law that an employer can pay his worker.
[26]
The basis thereof under Section 7 of the same Rules is the normal working
hours, which shall not exceed eight hours a day. Hence, the prescribed increases
or the additional liability to be borne by the principal under Section 6 of RA 6727
is the increment or amount added to the remuneration of an employee for an 8-
hour work.
Expresio unius est exclusio alterius. Where a statute, by its terms, is
expressly limited to certain matters, it may not, by interpretation or construction,
be extended to others.[27] Since the increase in wage referred to in Section 6
pertains to the statutory minimum wage as defined herein, principals in service
contracts cannot be made to pay the corresponding wage increase in the
overtime pay, night shift differential, holiday and rest day pay, premium pay and
other benefits granted to workers. While basis of said remuneration and benefits
is the statutory minimum wage, the law cannot be unduly expanded as to include
those not stated in the subject provision.
The settled rule in statutory construction is that if the statute is clear, plain
and free from ambiguity, it must be given its literal meaning and applied without
interpretation. This plain meaning rule or verba legis derived from the
maxim index animi sermo est (speech is the index of intention) rests on the valid
presumption that the words employed by the legislature in a statute correctly
express its intention or will and preclude the court from construing it differently.
The legislature is presumed to know the meaning of the words, to have used
words advisedly, and to have expressed its intent by use of such words as are
found in the statute. Verba legis non est recedendum, or from the words of a
statute there should be no departure.[28]
The presumption therefore is that lawmakers are well aware that the word
wage as used in Section 6 means the statutory minimum wage. If their intention
was to extend the obligation of principals in service contracts to the payment of
the increment in the other benefits and remuneration of workers, it would have so
expressly specified. In not so doing, the only logical conclusion is that the
legislature intended to limit the additional obligation imposed on principals in
service contracts to the payment of the increment in the statutory minimum wage.
The general rule is that construction of a statute by an administrative agency
charged with the task of interpreting or applying the same is entitled to great
weight and respect. The Court, however, is not bound to apply said rule where

such executive interpretation, is clearly erroneous, or when there is no ambiguity
in the law interpreted, or when the language of the words used is clear and plain,
as in the case at bar. Besides, administrative interpretations are at best advisory
for it is the Court that finally determines what the law means. [29] Hence, the
interpretation given by the labor agencies in the instant case which went as far as
supplementing what is otherwise not stated in the law cannot bind this Court.
It is not within the province of this Court to inquire into the wisdom of the law
for indeed, we are bound by the words of the statute.[30] The law is applied as it is.
At any rate, the interest of the employees will not be adversely affected if the
obligation of principals under the subject provision will be limited to the increase
in the statutory minimum wage. This is so because all remuneration and benefits
other than the increased statutory minimum wage would be shouldered and paid
by the employer or service contractor to the workers concerned. Thus, in the end,
all allowances and benefits as computed under the increased rate mandated by
RA 6727 and the wage orders will be received by the workers.
Moreover, the law secures the welfare of the workers by imposing a solidary
liability on principals and the service contractors. Under the second sentence of
Section 6 of RA 6727, in the event that the principal or client fails to pay the
prescribed wage rates, the service contractor shall be held solidarily liable with
the former. Likewise, Articles 106, 107 and 109 of the Labor Code provides:
ART. 106. Contractor or Subcontractor. Whenever an employer enters into contract with
another person for the performance of the formers work, the employees of the contractor
and of the latters subcontractor, if any, shall be paid in accordance with the provisions of
this Code.
In the event that the contractor or subcontractor fails to pay the wage of his employees in
accordance with this Code, the employer shall be jointly and severally liable with his
contractor or subcontractor to such employees to the extent of the work performed under
the contract, in the same manner and extent that he is liable to employees directly
employed by him.
ART. 107. Indirect Employer. The provisions of the immediately preceding Article shall
likewise apply to any person, partnership, association or corporation which, not being an
employer, contracts with an independent contractor for the performance of any work,
task, job or project.
ART. 109. Solidary Liability. The provisions of existing laws to the contrary
notwithstanding, every employer or indirect employer shall be held responsible with his
contractor or subcontractor for any violation of any provision of this Code. For purposes
of determining the extent of their civil liability under this Chapter, they shall be
considered as direct employers.

Based on the foregoing interpretation of Section 6 of RA 6727, the parties
may enter into stipulations increasing the liability of the principal. So long as the
minimum obligation of the principal, i.e., payment of the increased statutory
minimum wage is complied with, the Wage Rationalization Act is not violated.
In the instant case, Article IV.4 of the service contract provides:
IV.4. In the event of a legislated increase in the minimum wage of security guards and/or
in the PADPAO rate, the AGENCY may negotiate for an adjustment in the contract price.
Any adjustment shall be applicable only to the increment, based on published and
circulated rates and not on mere certification.[31]
In the same vein, paragraph 3 of NFA Memorandum AO-98-03- states:

3. For purposes of wage adjustments, consider only the rate based on the
wage Order issued by the Regional Tripartite Wage Productivity Board
(RTWPB). Unless otherwise provided in the Wage Order issued by the
RTWPB, the wage adjustment shall be limited to the increment in the
legislated minimum wage;[32]
The parties therefore acknowledged the application to their contract of the
wage orders issued by the RTWPB pursuant to RA 6727. There being no
assumption by NFA of a greater liability than that mandated by Section 6 of the
Act, its obligation is limited to the payment of the increased statutory minimum
wage rates which, as admitted by respondent, had already been satisfied by
NFA.[33] Under Article 1231 of the Civil Code, one of the modes of extinguishing
an obligation is by payment. Having discharged its obligation to respondent, NFA
no longer have a duty that will give rise to a correlative legal right of respondent.
The latters complaint for collection of remuneration and benefits other than the
increased minimum wage rate, should therefore be dismissed for lack of cause of
action.
The same goes for respondents claim for administrative cost and margin.
Considering that respondent failed to establish a clear obligation on the part of
NFA to pay the same as well as to substantiate the amount thereof with
documentary evidence, the claim should be denied.
WHEREFORE, the petition is GRANTED. The February 12, 2004 decision
and the April 30, 2004 resolution of the Court of Appeals which dismissed
petitioner National Food Authoritys appeal and motion for reconsideration,
respectively, in CA-G.R. CV No. 76677, are REVERSED and SET ASIDE. The
complaint filed by respondent MASADA Security Agency, Inc., docketed as Civil
Case No. Q-01-43988, before the Regional Trial Court of Quezon, City, Branch
83, is ordered DISMISSED.
SO ORDERED.

Davide Jr., C.J., (Chairman), Quisumbing, Carpio and Azcuna, JJ., concur.
DIGEST
National Food Authority (NFA)

vs
.
Masada Security Agency, Inc.

[G.R. No. 163448 March 08, 2005]
Facts:
On September 17, 1996, MASADA Security Agency, Inc., entered into a one year
contract to provide security services to the variousoffices, warehouses and installations of
NFA within the scope of the NFA Region I, comprised of the provinces of Pangasinan,
La Union, Abra,Ilocos Sur and Ilocos Norte. Upon the expiration of said contract, the
parties extended the effectivity thereof on a monthly basis under sameterms and
condition.Meanwhile, the Regional Tripartite Wages and Productivity Board issued
several wage orders mandating increases in the daily wagerate. Accordingly, respondent
requested NFA for a corresponding upward adjustment in the monthly contract rate
consisting of the increases inthe daily minimum wage of the security guards as well as
the corresponding raise in their overtime pay, holiday pay, 13thmonth pay, holiday and
rest day pay. It also claimed increases in Social Security System (SSS) and Pag-ibig
premiums as well as in the administrative costs and margin.NFA, however, granted the
request only with respect to the increase in the daily wage by multiplying the amount of
the mandated increase by 30days and denied the same with respect to the adjustments in
the other benefits and remunerations computed on the basis of the daily wage.Respondent
sought the intervention of the Office of the Regional Director, Regional Office No. I, La
Union, as Chairman of theRegional Tripartite Wages and Productivity Board and the
DOLE Secretary through the Executive Director of the National Wages andProductivity
Commission. Despite the advisory of said offices sustaining the claim of respondent that
the increase mandated by Republic ActNo. 6727 (RA 6727) and the wage orders issued
by the RTWPB is not limited to the daily pay, NFA maintained its stance that it is not
liable to
pay the corresponding adjustments in the wage related benefits of respondent‘s
security guards.

Issue:

Whether or not the liability of principals in service contracts under Section 6 of RA 6727
and the wage orders issued by the RegionalTripartite Wages and Productivity Board is
limited only to the increment in the minimum wage.
SC Ruling:
RA 6727, created the National Wages and Productivity Commission (NWPC), vested,
inter alia
, with the power to prescribe rules andguidelines for the determination of appropriate
minimum wage and productivity measures at the regional, provincial or industry levels;
and theRegional Tripartite Wages and Productivity Boards (RTWPB) which, among
others, determine and fix the minimum wage rates applicable intheir respective region,
provinces, or industries therein and issue the corresponding wage orders, subject to the
guidelines issued by the NWPC.Pursuant to its wage fixing authority, the RTWPB issue
wage orders which set the daily minimum wage rates.Payment of the increases in the
wage rate of workers is ordinarily shouldered by the employer. Section 6 of RA 6727,
however,expressly lodged said obligation to the principals or indirect employers in
construction projects and establishments providing security, janitorialand similar
services. Substantially the same provision is incorporated in the wage orders issued by
the RTWPB. Section 6 of RA 6727, provides:SEC. 6. In the case of contracts for
construction projects and for security, janitorial and similar services, the prescribed
increases inthe wage rates of the workers shall be borne by the principals or clients of the
construction/service contractors and the contract shall bedeemed amended accordingly. In
the event, however, that the principal or client fails to pay the prescribed wage rates,
theconstruction/service contractor shall be jointly and severally liable with his principal
or client. (Emphasis supplied)NFA claims that its additional liability under the aforecited
provision is limited only to the payment of the increment in the statutoryminimum wage
rate
, i.e
., the rate for a regular eight (8) hour work day. In construing the word ―wage‖ in Section 6 of RA
6727, reference mustbe had to Section 4 (a) of the same Act. It states:SEC. 4. (a) Upon
the effectivity of this Act, the statutory minimum wage rates for all workers and
employees in the private sector,whether agricultural or non-agricultural, shall
be increased by twenty-five pesos (P25) per day
… (Emphasis supplied)

The term ―wage‖ as used in Section 6 of RA 6727 pertains to no other than the ―statutory minimum
wage‖ which is defined under
theRules Implementing RA 6727 as the lowest wage rate fixed by law that an employer
can pay his worker. The basis thereof under Section 7 of thesame Rules is the normal
working hours, which shall not exceed eight hours a day. Hence, the prescribed increases
or the additional liability tobe borne by the principal under Section 6 of RA 6727 is the
increment or amount added to the remuneration of an employee for an 8-hour work.
Expresio unius est exclusio alterius

. Where a statute, by its terms, is expressly limited to certain matters, it may not, by
interpretation
or construction, be extended to others. Since the increase in wage referred to in Section 6 pertains to the
―statutory minimum wage‖ as defined
herein, principals in service contracts cannot be made to pay the corresponding wage
increase in the overtime pay, night shift differential, holidayand rest day pay, premium
pay and other benefits granted to workers. While basis of said remuneration and benefits
is the statutory minimumwage, the law cannot be unduly expanded as to include those not
stated in the subject provision.The settled rule in statutory construction is that if the
statute is clear, plain and free from ambiguity, it must be given its literalmeaning and
applied without interpretation. This plain meaning rule or
verba legis
derived from the maxim
index animi sermo est
(speech is theindex of intention) rests on the valid presumption that the words employed
by the legislature in a statute correctly express its intention or will andpreclude the court
from construing it differently. The legislature is presumed to know the meaning of the
words, to have used words advisedly,and to have expressed its intent by use of such
words as are found in the statute.
Verba legis non est recedendum
, or from the words of a statutethere should be no departure.At any rate, the interest of the
employees will not be adversely affected if the obligation of principals under the subject
provision willbe limited to the increase in the statutory minimum wage. This is so
because all remuneration and benefits other than the increased statutoryminimum wage
would be shouldered and paid by the employer or service contractor to the workers
concerned. Thus, in the end, all allowancesand benefits as computed under the increased
rate mandated by RA 6727 and the wage orders will be received by
the workers.Moreover, the law secures the welfare of the workers by imposing a solidary
liability on principals and the service contractors. Underthe second sentence of Section 6
of RA 6727, in the event that the principal or client fails to pay the prescribed wage rates,
the service contractorshall be held solidarily liable with the former. Likewise, Articles
106, 107 and 109 of the Labor Code provides:ART. 106. Contractor or Subcontractor.
–
Whenever an employer enters into contract with another person for the performance of
the
former‘s work, the employees of the contractor and of the latter‘s subcontractor, if any, shall be paid in
accordance with th
e provisionsof this Code.In the event that the contractor or subcontractor fails to pay the
wage of his employees in accordance with this Code, the employershall be jointly and
severally liable with his contractor or subcontractor to such employees to the extent of the
work performed under the contract,in the same manner and extent that he is liable to
employees directly employed by him.
…ART. 107. Indirect Employer. –

The provisions of the immediately preceding Article shall likewise apply to any
person,partnership, association or corporation which, not being an employer, contracts
with an independent contractor for the performance of any work, task, job or
project.ART. 109. Solidary Liability.
–
The provisions of existing laws to the contrary notwithstanding, every employer or
indirect employershall be held responsible with his contractor or subcontractor for any
violation of any provision of this Code. For purposes of determining the extent of their
civil liability under this Chapter, they shall be considered as direct employers.Based on
the foregoing interpretation of Section 6 of RA 6727, the parties may enter into
stipulations increasing the liability of theprincipal. So long as the minimum obligation of
the principal,
i.e
., payment of the increased statutory minimum wage is complied with, the
WageRationalization Act is not violated.In the instant case, Article IV.4 of the service
contract provides:IV.4. In the event of a legislated increase in the minimum wage of
security guards and/or in the PADPAO rate, the AGENCY maynegotiate for an
adjustment in the contract price. Any adjustment shall be applicable only to the
increment, based on published andcirculated rates and not on mere certification.

In the same vein, paragraph 3 of NFA Memorandum AO-98-03- states:3. For purposes of
wage adjustments, consider only the rate based on the wage Order issued by the Regional
Tripartite WageProductivity Board (RTWPB). Unless otherwise provided in the Wage
Order issued by the RTWPB, the wage adjustment shall belimited to the increment in the
legislated minimum wage;The parties therefore acknowledged the application to their
contract of the wage orders issued by the RTWPB pursuant to RA 6727.There being no
assumption by NFA of a greater liability than that mandated by Section 6 of the Act, its
obligation is limited to the payment of theincreased statutory minimum wage rates which,
as admitted by respondent, had already been satisfied by NFA.[33]Under Article 1231 of
theCivil Code, one of the modes of extinguishing an obligation is by payment. Having
discharged its obligation to respondent, NFA no longer havea duty that will give rise to a
correlative legal right of respondent.
The latter‘s complaint for collection of remuneration and benefits othe
r thanthe increased minimum wage rate, should therefore be dismissed for lack of cause
of action

SECOND DIVISION
[G.R. No. 126999. August 30, 2000]
SGMC REALTY CORPORATION, petitioner, vs. OFFICE OF THE

PRESIDENT (OP), RIDGEVIEW REALTY CORPORATION, SM
INVESTMENTS CORPORATION, MULTI-REALTY DEVELOPMENT
CORP., HENRY SY SR., HENRY SY JR., HANS T. SY, MARY UY TY
and VICTOR LIM, respondents.
RESOLUTION
QUISUMBING, J.:
In this special civil action for certiorari, petitioner seeks to set aside the
decision[1] of public respondent rendered on June 18, 1996, in OP Case
No. 95-L-6333, and its order[2] dated October 1, 1996, denying the motion
for reconsideration.
The records disclose that on March 29, 1994, petitioner filed before the
Housing and Land Use Regulatory Board (HLURB) a complaint for breach
of contract, violation of property rights and damages against private
respondents. After the parties filed their pleadings and supporting
documents, the arbiter rendered a decision dismissing petitioners
complaint as well as private respondents counterclaim.
Petitioner then filed a petition for review with the Board of Commissioners
of the HLURB which, however, dismissed said petition. On October 23,
1995, petitioner received a copy of said decision of the Board of
Commissioners. On November 20, 1995, petitioner filed an appeal with

public respondent. After the parties filed their memorandum, they filed their
respective draft decisions as ordered by public respondent.
On June 18, 1996, public respondent, without delving into the merits of the
case, rendered the assailed decision which reads:
"IN VIEW OF THE FOREGOING, the appeal is hereby DISMISSED

for being filed out of time.
"SO ORDERED."[3]
Petitioner seasonably filed a motion for reconsideration which was denied.

Undaunted, petitioner filed the instant petition, alleging that public
respondent committed grave abuse of discretion amounting to lack or
excess of jurisdiction:
[I]
IN HOLDING THAT THE PERIOD TO APPEAL FROM THE

HOUSING AND LAND USE REGULATORY BOARD TO THE
OFFICE OF THE PRESIDENT IS FIFTEEN (15) DAYS AND NOT
THIRTY (30) DAYS AS MANDATED IN THE 1994 RULES OF
PROCEDURE ADOPTED BY THE HOUSING AND LAND USE
REGULATORY BOARD, AN ADMINISTRATIVE AGENCY UNDER
THE SUPERVISION AND CONTROL OF PUBLIC RESPONDENT
OFFICE OF THE PRESIDENT.
[II]
IN DISREGARDING THE 1994 RULES OF PROCEDURE OF THE

HOUSING AND LAND USE REGULATORY BOARD WITHOUT
DECLARING THE SAME ILLEGAL AND/OR INVALID, AND IN
DISREGARDING THE WELL-ESTABLISHED DOCTRINE OF
LIBERAL CONSTRUCTION OF THE ADMINISTRATIVE RULES OF
PROCEDURE IN ORDER TO PROMOTE THEIR OBJECT AND TO
ASSIST THE PARTIES IN CLAIMING JUST, SPEEDY AND
INEXPENSIVE DETERMINATION OF THEIR RESPECTIVE
CLAIMS AND DEFENSES.[4]
The fundamental issue for resolution is whether or not public respondent

committed grave abuse of discretion in ruling that the reglementary period
within which to appeal the decision of HLURB to public respondent is
fifteen days.

Petitioner contends that the period of appeal from the HLURB to the Office
of the President is thirty (30) days from receipt by the aggrieved party of
the decision appealed from in accordance with Section 27 of the 1994
Rules of Procedure of HLURB and Section 1 of Administrative Order No.
18, series of 1987, of the Office of the President.
However, we find petitioners contention bereft of merit, because of its

reliance on a literal reading of cited rules without correlating them to
current laws as well as presidential decrees on the matter.
Section 27 of the 1994 HLURB Rules of Procedure provides as follows:
"Section 27. Appeal to the Office of the President. --- Any party may,
upon notice to the Board and the other party, appeal the decision of
the Board of Commissioners or its division to the Office of the
President within thirty (30) days from receipt thereof pursuant to and
in accordance with Administrative Order No. 18, of the Office of the
President dated February 12, 1987. Decision of the President shall
be final subject only to review by the Supreme Court on certiorari or
on questions of law."[5]
On the other hand, Administrative Order No. 18, series of 1987, issued by
public respondent reads:
"Section 1. Unless otherwise governed by special laws, an appeal to

the Office of the President shall be taken within thirty (30) days from
receipt by the aggrieved party of the decision/resolution/order
complained of or appealed from."[6]
As pointed out by public respondent, the aforecited administrative order

allows aggrieved party to file its appeal with the Office of the President
within thirty (30) days from receipt of the decision complained of.
Nonetheless, such thirty-day period is subject to the qualification that there
are no other statutory periods of appeal applicable. If there are special
laws governing particular cases which provide for a shorter or longer
reglementary period, the same shall prevail over the thirty-day period
provided for in the administrative order. This is in line with the rule in
statutory construction that an administrative rule or regulation, in order to
be valid, must not contradict but conform to the provisions of the enabling
law.[7]
We note that indeed there are special laws that mandate a shorter period
of fifteen (15) days within which to appeal a case to public respondent.

First, Section 15 of Presidential Decree No. 957 provides that the
decisions of the National Housing Authority (NHA) shall become final and
executory after the lapse of fifteen (15) days from the date of receipt of the
decision. Second, Section 2 of Presidential Decree No. 1344 states that
decisions of the National Housing Authority shall become final and
executory after the lapse of fifteen (15) days from the date of its receipt.
The latter decree provides that the decisions of NHA is appealable only to
the Office of the President. Further, we note that the regulatory functions of
NHA relating to housing and land development has been transferred to
Human Settlements Regulatory Commission, now known as HLURB.
[8]
Thus, said presidential issuances providing for a reglementary period of
appeal of fifteen days apply in this case. Accordingly, the period of appeal
of thirty (30) days set forth in Section 27 of HLURB 1994 Rules of
Procedure no longer holds true for being in conflict with the provisions of
aforesaid presidential decrees. For it is axiomatic that administrative rules
derive their validity from the statute that they are intended to implement.
Any rule which is not consistent with statute itself is null and void.[9]
In this case, petitioner received a copy of the decision of HLURB on

October 23, 1995. Considering that the reglementary period to appeal is
fifteen days, petitioner has only until November 7, 1995, to file its appeal.
Unfortunately, petitioner filed its appeal with public respondent only on
November 20, 1995 or twenty-eight days from receipt of the appealed
decision, which is obviously filed out of time.
As the appeal filed by petitioner was not taken within the reglementary
period, the prescriptive period for perfecting an appeal continues to run.
Consequently, the decision of the HLURB became final and executory
upon the lapse of fifteen days from receipt of the decision. Hence, the
decision became immutable; it can no longer be amended nor altered by
public respondent. Accordingly, inasmuch as the timely perfection of an
appeal is a jurisdictional requisite, public respondent has no more authority
to entertain the petitioners appeal. Otherwise, any amendment or alteration
made which substantially affects the final and executory judgment would
be null and void for lack of jurisdiction.[10]
Thus, in this case public respondent cannot be faulted of grave abuse of

discretion in ruling that the period of appeal is fifteen days and in
forthrightly dismissing petitioners appeal as the same was clearly filed out
of time.
Worth mentioning, just days prior to the promulgation of the assailed

decision of public respondent, the HLURB adopted on June 10, 1996, its

1996 Rules of Procedure. Significantly, Section 2, Rule XVIII of said rules
provides that any party may, upon notice to the HLURB and the other
party, appeal a decision rendered by the Board of Commissioners en
bancor by one of its divisions to the Office of the President within fifteen
(15) calendar days from receipt thereof in accordance with P.D. 1344 and
A.O. 18, series of 1987.[11] Apparently, the amendment was made pursuant
to the pronouncements of public respondent in earlier cases[12] it decided
that appeals to the Office of the President from the decision of HLURB
should be filed within fifteen (15) days from receipt thereof. At present
therefore, decisions rendered by HLURB is appealable to the Office of the
President within fifteen (15) calendar days from receipt thereof.
Finally, we find that the instant petition ought not to have been directly filed
with this Court. For while we have concurrent jurisdiction with the Regional
Trial Courts and the Court of Appeals to issue writs of certiorari, this
concurrence is not to be taken as an unrestrained freedom of choice
concerning the court to which application for the writ will be directed. There
is after all a hierarchy of courts. That hierarchy is determinative of the
venue of appeals, and should also serve as a general determinant of the
appropriate forum for petitions for the extraordinary writs.[13] A direct
invocation of the Supreme Courts original jurisdiction to issue these
extraordinary writs is allowed only when there are special and important
reasons therefor, clearly and specifically set out in the petition.[14]
WHEREFORE, the instant petition is DISMISSED for utter lack of merit.

Costs against petitioner.
SO ORDERED.
DIGEST
Case Digest on SGMC Realty Corporation v. Office Of The President G.R.

NO. 126999 (August 30, 2000)
November 10, 2010
FACTS: On October 23, 1995, petitioner got a copy of the decision of the Board
of Commissioner of the Housing and Land Use Regulatory Board. Petitioner filed
an appeal to the Office of the President on November 20, 1995, but this was
denied for having been filed outside of the required period. Petitioner argues that
the period for appeal is actually 30 days pursuant to the Rules of Procedure of
the Housing and Land Use Regulatory Board and Administrative Order No. 18,
Series of 1987.

HELD: The SC ruled that the 30-day period of appeal is subject to the
qualification that there are no other statutory periods of appeal applicable.
Section 15 of Presidential Decree No. 957 and Section 2 of P.D. No. 1344
provide that the decision of the Housing and Land Use Regulatory Board shall
become final after the lapse of 15 days from the date of its receipt. The period of
appeal of 30 days in the Rules of Procedure of the Housing and Land Use
Regulatory Board is invalid for being in conflict with Presidential Decree Nos. 957
and 1344.

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 159694 January 27, 2006
COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
AZUCENA T. REYES, Respondent.
x -- -- -- -- -- -- -- -- -- -- -- -- -- x
G.R. No. 163581 January 27, 2006
AZUCENA T. REYES, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
PANGANIBAN, CJ.:
Under the present provisions of the Tax Code and pursuant to elementary due
process, taxpayers must be informed in writing of the law and the facts upon
which a tax assessment is based; otherwise, the assessment is void. Being

invalid, the assessment cannot in turn be used as a basis for the perfection of a
tax compromise.
The Case
Before us are two consolidated1 Petitions for Review2 filed under Rule 45 of the

Rules of Court, assailing the August 8, 2003 Decision3 of the Court of Appeals
(CA) in CA-GR SP No. 71392. The dispositive portion of the assailed Decision
reads as follows:
"WHEREFORE, the petition is GRANTED. The assailed decision of the Court of

Tax Appeals is ANNULLED and SET ASIDE without prejudice to the action of the
National Evaluation Board on the proposed compromise settlement of the Maria
C. Tancinco estate’s tax liability."4
The Facts
The CA narrated the facts as follows:
"On July 8, 1993, Maria C. Tancinco (or ‘decedent’) died, leaving a 1,292 square-
meter residential lot and an old house thereon (or ‘subject property’) located at
4931 Pasay Road, Dasmariñas Village, Makati City.
"On the basis of a sworn information-for-reward filed on February 17, 1997 by a

certain Raymond Abad (or ‘Abad’), Revenue District Office No. 50 (South Makati)
conducted an investigation on the decedent’s estate (or ‘estate’). Subsequently, it
issued a Return Verification Order. But without the required preliminary findings
being submitted, it issued Letter of Authority No. 132963 for the regular
investigation of the estate tax case. Azucena T. Reyes (or ‘[Reyes]’), one of the
decedent’s heirs, received the Letter of Authority on March 14, 1997.
"On February 12, 1998, the Chief, Assessment Division, Bureau of Internal
Revenue (or ‘BIR’), issued a preliminary assessment notice against the estate in
the amount of P14,580,618.67. On May 10, 1998, the heirs of the decedent (or
‘heirs’) received a final estate tax assessment notice and a demand letter, both
dated April 22, 1998, for the amount of P14,912,205.47, inclusive of surcharge
and interest.
"On June 1, 1998, a certain Felix M. Sumbillo (or ‘Sumbillo’) protested the
assessment [o]n behalf of the heirs on the ground that the subject property had
already been sold by the decedent sometime in 1990.

"On November 12, 1998, the Commissioner of Internal Revenue (or ‘[CIR]’)
issued a preliminary collection letter to [Reyes], followed by a Final Notice Before
Seizure dated December 4, 1998.
"On January 5, 1999, a Warrant of Distraint and/or Levy was served upon the
estate, followed on February 11, 1999 by Notices of Levy on Real Property and
Tax Lien against it.
"On March 2, 1999, [Reyes] protested the notice of levy. However, on March 11,
1999, the heirs proposed a compromise settlement of P1,000,000.00.
"In a letter to [the CIR] dated January 27, 2000, [Reyes] proposed to pay 50% of
the basic tax due, citing the heirs’ inability to pay the tax assessment. On March
20, 2000, [the CIR] rejected [Reyes’s] offer, pointing out that since the estate tax
is a charge on the estate and not on the heirs, the latter’s financial incapacity is
immaterial as, in fact, the gross value of the estate amounting to P32,420,360.00
is more than sufficient to settle the tax liability. Thus, [the CIR] demanded
payment of the amount of P18,034,382.13 on or before April 15, 2000[;]
otherwise, the notice of sale of the subject property would be published.
"On April 11, 2000, [Reyes] again wrote to [the CIR], this time proposing to pay
100% of the basic tax due in the amount of P5,313,891.00. She reiterated the
proposal in a letter dated May 18, 2000.
"As the estate failed to pay its tax liability within the April 15, 2000 deadline, the
Chief, Collection Enforcement Division, BIR, notified [Reyes] on June 6, 2000
that the subject property would be sold at public auction on August 8, 2000.
"On June 13, 2000, [Reyes] filed a protest with the BIR Appellate Division.
Assailing the scheduled auction sale, she asserted that x x x the assessment,
letter of demand[,] and the whole tax proceedings against the estate are void ab
initio. She offered to file the corresponding estate tax return and pay the correct
amount of tax without surcharge [or] interest.
"Without acting on [Reyes’s] protest and offer, [the CIR] instructed the Collection
Enforcement Division to proceed with the August 8, 2000 auction sale.
Consequently, on June 28, 2000, [Reyes] filed a [P]etition for [R]eview with the
Court of Tax Appeals (or ‘CTA’), docketed as CTA Case No. 6124.
"On July 17, 2000, [Reyes] filed a Motion for the Issuance of a Writ of Preliminary
Injunction or Status Quo Order, which was granted by the CTA on July 26, 2000.
Upon [Reyes’s] filing of a surety bond in the amount ofP27,000,000.00, the CTA
issued a [R]esolution dated August 16, 2000 ordering [the CIR] to desist and

refrain from proceeding with the auction sale of the subject property or from
issuing a [W]arrant of [D]istraint or [G]arnishment of [B]ank [A]ccount[,] pending
determination of the case and/or unless a contrary order is issued.
"[The CIR] filed a [M]otion to [D]ismiss the petition on the grounds (i) that the
CTA no longer has jurisdiction over the case[,] because the assessment against
the estate is already final and executory; and (ii) that the petition was filed out of
time. In a [R]esolution dated November 23, 2000, the CTA denied [the CIR’s]
motion.
"During the pendency of the [P]etition for [R]eview with the CTA, however, the
BIR issued Revenue Regulation (or ‘RR’) No. 6-2000 and Revenue
Memorandum Order (or ‘RMO’) No. 42-2000 offering certain taxpayers with
delinquent accounts and disputed assessments an opportunity to compromise
their tax liability.
"On November 25, 2000, [Reyes] filed an application with the BIR for the
compromise settlement (or ‘compromise’) of the assessment against the estate
pursuant to Sec. 204(A) of the Tax Code, as implemented by RR No. 6-2000 and
RMO No. 42-2000.
"On December 26, 2000, [Reyes] filed an Ex-Parte Motion for Postponement of
the hearing before the CTA scheduled on January 9, 2001, citing her pending
application for compromise with the BIR. The motion was granted and the
hearing was reset to February 6, 2001.
"On January 29, 2001, [Reyes] moved for postponement of the hearing set on
February 6, 2001, this time on the ground that she had already paid the
compromise amount of P1,062,778.20 but was still awaiting approval of the
National Evaluation Board (or ‘NEB’). The CTA granted the motion and reset the
hearing to February 27, 2001.
"On February 19, 2001, [Reyes] filed a Motion to Declare Application for the
Settlement of Disputed Assessment as a Perfected Compromise. In said motion,
she alleged that [the CIR] had not yet signed the compromise[,] because of
procedural red tape requiring the initials of four Deputy Commissioners on
relevant documents before the compromise is signed by the [CIR]. [Reyes]
posited that the absence of the requisite initials and signature[s] on said
documents does not vitiate the perfected compromise.
"Commenting on the motion, [the CIR] countered that[,] without the approval of
the NEB, [Reyes’s] application for compromise with the BIR cannot be
considered a perfected or consummated compromise.

"On March 9, 2001, the CTA denied [Reyes’s] motion, prompting her to file a
Motion for Reconsideration Ad Cautelam. In a [R]esolution dated April 10, 2001,
the CTA denied the [M]otion for [R]econsideration with the suggestion that[,] for
an orderly presentation of her case and to prevent piecemeal resolutions of
different issues, [Reyes] should file a [S]upplemental [P]etition for [R]eview[,]
setting forth the new issue of whether there was already a perfected
compromise.
"On May 2, 2001, [Reyes] filed a Supplemental Petition for Review with the CTA,
followed on June 4, 2001 by its Amplificatory Arguments (for the Supplemental
Petition for Review), raising the following issues:
‘1. Whether or not an offer to compromise by the [CIR], with the acquiescence by
the Secretary of Finance, of a tax liability pending in court, that was accepted and
paid by the taxpayer, is a perfected and consummated compromise.
‘2. Whether this compromise is covered by the provisions of Section 204 of the
Tax Code (CTRP) that requires approval by the BIR [NEB].’
"Answering the Supplemental Petition, [the CIR] averred that an application for
compromise of a tax liability under RR No. 6-2000 and RMO No. 42-2000
requires the evaluation and approval of either the NEB or the Regional
Evaluation Board (or ‘REB’), as the case may be.
"On June 14, 2001, [Reyes] filed a Motion for Judgment on the Pleadings; the
motion was granted on July 11, 2001. After submission of memoranda, the case
was submitted for [D]ecision.
"On June 19, 2002, the CTA rendered a [D]ecision, the decretal portion of which
pertinently reads:
‘WHEREFORE, in view of all the foregoing, the instant [P]etition for [R]eview is
hereby DENIED. Accordingly, [Reyes] is hereby ORDERED to PAY deficiency
estate tax in the amount of Nineteen Million Five Hundred Twenty Four
Thousand Nine Hundred Nine and 78/100 (P19,524,909.78), computed as
follows:
xxxxxxxxx
‘[Reyes] is likewise ORDERED to PAY 20% delinquency interest on deficiency

estate tax due of P17,934,382.13 from January 11, 2001 until full payment
thereof pursuant to Section 249(c) of the Tax Code, as amended.’

"In arriving at its decision, the CTA ratiocinated that there can only be a perfected
and consummated compromise of the estate’s tax liability[,] if the NEB has
approved [Reyes’s] application for compromise in accordance with RR No. 6-
2000, as implemented by RMO No. 42-2000.
"Anent the validity of the assessment notice and letter of demand against the
estate, the CTA stated that ‘at the time the questioned assessment notice and
letter of demand were issued, the heirs knew very well the law and the facts on
which the same were based.’ It also observed that the petition was not filed
within the 30-day reglementary period provided under Sec. 11 of Rep. Act No.
1125 and Sec. 228 of the Tax Code."5
Ruling of the Court of Appeals
In partly granting the Petition, the CA said that Section 228 of the Tax Code and
RR 12-99 were mandatory and unequivocal in their requirement. The
assessment notice and the demand letter should have stated the facts and the
law on which they were based; otherwise, they were deemed void.6 The
appellate court held that while administrative agencies, like the BIR, were not
bound by procedural requirements, they were still required by law and equity to
observe substantive due process. The reason behind this requirement, said the
CA, was to ensure that taxpayers would be duly apprised of -- and could
effectively protest -- the basis of tax assessments against them.7 Since the
assessment and the demand were void, the proceedings emanating from them
were likewise void, and any order emanating from them could never attain
finality.
The appellate court added, however, that it was premature to declare as

perfected and consummated the compromise of the estate’s tax liability. It
explained that, where the basic tax assessed exceeded P1 million, or where the
settlement offer was less than the prescribed minimum rates, the National
Evaluation Board’s (NEB) prior evaluation and approval were the conditio sine
qua non to the perfection and consummation of any compromise.8 Besides, the
CA pointed out, Section 204(A) of the Tax Code applied to all compromises,
whether government-initiated or not.9 Where the law did not distinguish, courts
too should not distinguish.
Hence, this Petition.10
The Issues
In GR No. 159694, petitioner raises the following issues for the Court’s
consideration:

"I.
Whether petitioner’s assessment against the estate is valid.
"II.
Whether respondent can validly argue that she, as well as the other heirs, was
not aware of the facts and the law on which the assessment in question is based,
after she had opted to propose several compromises on the estate tax due, and
even prematurely acting on such proposal by paying 20% of the basic estate tax
due."11
The foregoing issues can be simplified as follows: first, whether the assessment
against the estate is valid; and, second, whether the compromise entered into is
also valid.
The Court’s Ruling
The Petition is unmeritorious.
First Issue:
Validity of the Assessment Against the Estate
The second paragraph of Section 228 of the Tax Code12 is clear and mandatory.
It provides as follows:
"Sec. 228. Protesting of Assessment. --
xxxxxxxxx
"The taxpayers shall be informed in writing of the law and the facts on which the
assessment is made: otherwise, the assessment shall be void."
In the present case, Reyes was not informed in writing of the law and the facts on
which the assessment of estate taxes had been made. She was merely notified
of the findings by the CIR, who had simply relied upon the provisions of former
Section 22913 prior to its amendment by Republic Act (RA) No. 8424, otherwise
known as the Tax Reform Act of 1997.
First, RA 8424 has already amended the provision of Section 229 on protesting
an assessment. The old requirement of merely notifying the taxpayer of the CIR’s
findings was changed in 1998 to informing the taxpayer of not only the law, but

also of the facts on which an assessment would be made; otherwise, the
assessment itself would be invalid.
It was on February 12, 1998, that a preliminary assessment notice was issued
against the estate. On April 22, 1998, the final estate tax assessment notice, as
well as demand letter, was also issued. During those dates, RA 8424 was
already in effect. The notice required under the old law was no longer sufficient
under the new law.
To be simply informed in writing of the investigation being conducted and of the

recommendation for the assessment of the estate taxes due is nothing but a
perfunctory discharge of the tax function of correctly assessing a taxpayer. The
act cannot be taken to mean that Reyes already knew the law and the facts on
which the assessment was based. It does not at all conform to the compulsory
requirement under Section 228. Moreover, the Letter of Authority received by
respondent on March 14, 1997 was for the sheer purpose of investigation and
was not even the requisite notice under the law.
The procedure for protesting an assessment under the Tax Code is found in
Chapter III of Title VIII, which deals with remedies. Being procedural in nature,
can its provision then be applied retroactively? The answer is yes.
The general rule is that statutes are prospective. However, statutes that are
remedial, or that do not create new or take away vested rights, do not fall under
the general rule against the retroactive operation of statutes.14Clearly, Section
228 provides for the procedure in case an assessment is protested. The
provision does not create new or take away vested rights. In both instances, it
can surely be applied retroactively. Moreover, RA 8424 does not state, either
expressly or by necessary implication, that pending actions are excepted from
the operation of Section 228, or that applying it to pending proceedings would
impair vested rights.
Second, the non-retroactive application of Revenue Regulation (RR) No. 12-99 is

of no moment, considering that it merely implements the law.
A tax regulation is promulgated by the finance secretary to implement the

provisions of the Tax Code.15 While it is desirable for the government authority or
administrative agency to have one immediately issued after a law is passed, the
absence of the regulation does not automatically mean that the law itself would
become inoperative.
At the time the pre-assessment notice was issued to Reyes, RA 8424 already
stated that the taxpayer must be informed of both the law and facts on which the

assessment was based. Thus, the CIR should have required the assessment
officers of the Bureau of Internal Revenue (BIR) to follow the clear mandate of
the new law. The old regulation governing the issuance of estate tax assessment
notices ran afoul of the rule that tax regulations -- old as they were -- should be in
harmony with, and not supplant or modify, the law.16
It may be argued that the Tax Code provisions are not self-executory. It would be
too wide a stretch of the imagination, though, to still issue a regulation that would
simply require tax officials to inform the taxpayer, in any manner, of the law and
the facts on which an assessment was based. That requirement is neither difficult
to make nor its desired results hard to achieve.
Moreover, an administrative rule interpretive of a statute, and not declarative of

certain rights and corresponding obligations, is given retroactive effect as of the
date of the effectivity of the statute.17 RR 12-99 is one such rule. Being
interpretive of the provisions of the Tax Code, even if it was issued only on
September 6, 1999, this regulation was to retroact to January 1, 1998 -- a date
prior to the issuance of the preliminary assessment notice and demand letter.
Third, neither Section 229 nor RR 12-85 can prevail over Section 228 of the Tax
Code.
No doubt, Section 228 has replaced Section 229. The provision on protesting an
assessment has been amended. Furthermore, in case of discrepancy between
the law as amended and its implementing but old regulation, the former
necessarily prevails.18 Thus, between Section 228 of the Tax Code and the
pertinent provisions of RR 12-85, the latter cannot stand because it cannot go
beyond the provision of the law. The law must still be followed, even though the
existing tax regulation at that time provided for a different procedure. The
regulation then simply provided that notice be sent to the respondent in the form
prescribed, and that no consequence would ensue for failure to comply with that
form.
Fourth, petitioner violated the cardinal rule in administrative law that the taxpayer
be accorded due process. Not only was the law here disregarded, but no valid
notice was sent, either. A void assessment bears no valid fruit.
The law imposes a substantive, not merely a formal, requirement. To proceed

heedlessly with tax collection without first establishing a valid assessment is
evidently violative of the cardinal principle in administrative investigations: that
taxpayers should be able to present their case and adduce supporting
evidence.19 In the instant case, respondent has not been informed of the basis of
the estate tax liability. Without complying with the unequivocal mandate of first

informing the taxpayer of the government’s claim, there can be no deprivation of
property, because no effective protest can be made.20 The haphazard shot at
slapping an assessment, supposedly based on estate taxation’s general
provisions that are expected to be known by the taxpayer, is utter chicanery.
Even a cursory review of the preliminary assessment notice, as well as the

demand letter sent, reveals the lack of basis for -- not to mention the insufficiency
of -- the gross figures and details of the itemized deductions indicated in the
notice and the letter. This Court cannot countenance an assessment based on
estimates that appear to have been arbitrarily or capriciously arrived at. Although
taxes are the lifeblood of the government, their assessment and collection
"should be made in accordance with law as any arbitrariness will negate the very
reason for government itself."21
Fifth, the rule against estoppel does not apply. Although the government cannot
be estopped by the negligence or omission of its agents, the obligatory provision
on protesting a tax assessment cannot be rendered nugatory by a mere act of
the CIR .
Tax laws are civil in nature.22 Under our Civil Code, acts executed against the
mandatory provisions of law are void, except when the law itself authorizes the
validity of those acts.23 Failure to comply with Section 228 does not only render
the assessment void, but also finds no validation in any provision in the Tax
Code. We cannot condone errant or enterprising tax officials, as they are
expected to be vigilant and law-abiding.
Second Issue:
Validity of Compromise
It would be premature for this Court to declare that the compromise on the estate
tax liability has been perfected and consummated, considering the earlier
determination that the assessment against the estate was void. Nothing has
been settled or finalized. Under Section 204(A) of the Tax Code, where the basic
tax involved exceeds one million pesos or the settlement offered is less than the
prescribed minimum rates, the compromise shall be subject to the approval of
the NEB composed of the petitioner and four deputy commissioners.
Finally, as correctly held by the appellate court, this provision applies to all
compromises, whether government-initiated or not. Ubi lex non distinguit, nec
nos distinguere debemos. Where the law does not distinguish, we should not
distinguish.

WHEREFORE, the Petition is hereby DENIED and the assailed Decision
AFFIRMED. No pronouncement as to costs.
SO ORDERED.
DIGEST
Taxation – Contents of a Formal Assessment Notice

In 1993, Maria Tancino died leaving behind an estate worth P32 million. In 1997,
a tax audit was conducted on the estate. Meanwhile, the National Internal
Revenue Code (NIRC) of 1997 was passed. Eventually in 1998, the estate was
issued a final assessment notice (FAN) demanding the estate to pay P14.9
million in taxes inclusive of surcharge and interest; the estate’s liability was
based on Section 229 of the [old] Tax Code. Azucena Reyes, one of the heirs,
protested the FAN. The Commissioner of Internal Revenue (CIR) nevertheless
issued a warrant of distraint and/or levy. Reyes again protested the warrant but in
March 1999, she offered a compromise and was willing to pay P1 million in
taxes. Her offer was denied. She continued to work on another compromise but
was eventually denied. The case reached the Court of Tax Appeals where Reyes
was also denied. In the Court of Appeals, Reyes received a favorable judgment.
ISSUE: Whether or not the formal assessment notice is valid.
HELD: No. The NIRC of 1997 was already in effect when the FAN was issued.
Under Section 228 of the NIRC, taxpayers shall be informed in writing of the
law and the facts on which the assessment is made: otherwise, the
assessment shall be void. In the case at bar, the FAN merely stated the amount
of liability to be shouldered by the estate and the law upon which such liability is
based. However, the estate was not informed in writing of the facts on which the
assessment of estate taxes had been made. The estate was merely informed of
the findings of the CIR. Section 228 of the NIRC being remedial in nature can be
applied retroactively even though the tax investigation was conducted prior to the
law’s passage. Consequently, the invalid FAN cannot be a basis of a
compromise, any proceeding emanating from the invalid FAN is void including
the issuance of the warrant of distraint and/or levy.

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 175451 September 28, 2007
ROSARIO L. DADULO, Petitioner,
vs.
THE HON. COURT OF APPEALS, OFFICE OF THE OMBUDSMAN, HON.
FELICIANO BELMONTE, JR., in his capacity as City Mayor of Quezon City
and GLORIA PATANGUI, Respondents.
RESOLUTION
For resolution is the motion for reconsideration filed by petitioner Rosario Dadulo
of the Decision dated April 13, 2007 which disposed of the case as follows:
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in

CA-G.R. SP No. 89909 affirming the March 4, 2003 Decision of the Office of the
Ombudsman in OMB-C-A-0470-J which found petitioner Rosario Dadulo guilty of
conduct prejudicial to the best interest of the service and imposed upon her the
penalty of suspension for six months is AFFIRMED.

SO ORDERED.1
Petitioner insists that the decision of the Office of the Ombudsman which found
her guilty of conduct prejudicial to the best interest of the service and imposed
upon her the penalty of suspension for six months, which was affirmed by the
Court of Appeals in the assailed April 13, 2007 Decision, was not supported by
substantial evidence and that the implementation of the suspension Order is
premature.
We deny the motion for reconsideration.
The factual findings of the Office of the Ombudsman upon which its decision on
petitioner’s administrative liability was based are supported by the evidence on
record. These include the affidavits of the parties to the instant case including
those of respondent Gloria Patangui and Jessica Patangui, and the counter-
affidavits of petitioner and of the other Barangay Security Development Officers
(BSDO).
Respondent Gloria Patangui testified that on September 22, 2002, the

construction materials were taken from her house and were brought to the
barangay outpost. Patangui was informed by a BSDO that petitioner ordered the
seizure.
Jessica, respondent’s 9 year-old daughter, testified that she witnessed the actual
taking of the construction materials; that she saw two men enter their premises
and take the construction materials while a woman was supervising the activity.
She later identified these men as the co-accused of petitioner.
Efren Pagabao, one of the BSDO administratively charged with petitioner,

admitted that they went to the residence of respondent upon orders of petitioner
on September 22, 2002 to verify whether respondent has a barangay permit for
the house construction they were undertaking. This established the presence of
the barangay officials at the respondent’s residence and that they were there
upon orders of petitioner.
On the other hand, other than a sweeping general denial of the charges against
her, petitioner merely alleged that respondent was a professional squatter. She
did not specifically deny any of the acts imputed against her nor did she explain
why the construction materials were later found at the barangay outpost.
Thus, contrary to petitioner’s claim, there is substantial evidence on record

sufficient to hold her administratively liable.

As to the alleged premature implementation of the suspension order, the same is
likewise bereft of merit.
Petitioner argues that her appeal has the effect of staying the execution of the
decision of the Ombudsman hence, the immediate implementation of the
suspension order before it has become final and executory, was premature. She
cited the cases of Lapid v. Court of Appeals2 and Laxina v. Court of
Appeals3 where this Court ruled against the immediate implementation of the
Ombudsman’s dismissal orders in view of Section 274 of Republic Act No. 6770.5
As correctly observed by the Solicitor General, at the time the Lapid and Laxina
cases were decided, Section 7, Rule III of the Rules of Procedure of the Office of
the Ombudsman was silent as to the execution of its decisions pending appeal.
This was later amended by Administrative Order No. 17 and Administrative Order
No. 14-A as implemented by Memorandum Circular No. 1 s. 2006. Hence, as
amended, Section 7 of Rule III now reads:
Section 7. Finality and execution of decision. – Where the respondent is

absolved of the charge, and in case of conviction where the penalty imposed is
public censure or reprimand, suspension of not more than one month, or a fine
equivalent to one month salary, the decision shall be final, executory and
unappealable. In all other cases, the decision may be appealed to the Court of
Appeals on a verified petition for review under the requirements and conditions
set forth in Rule 43 of the Rules of Court, within fifteen (15) days from receipt of
the written Notice of the Decision or Order denying the Motion for
Reconsideration.1âwphi1
An appeal shall not stop the decision from being executory. In case the
penalty is suspension or removal and the respondent wins such appeal, he
shall be considered as having been under preventive suspension and shall
be paid the salary and such other emoluments that he did not receive by
reason of the suspension or removal.
A decision of the Office of the Ombudsman in administrative cases shall be

executed as a matter of course.1âwphi1 The Office of the Ombudsman shall
ensure that the decision shall be strictly enforced and properly implemented. The
refusal or failure by any officer without just cause to comply with an order of the
Office of the Ombudsman to remove, suspend, demote, fine, or censure shall be
a ground for disciplinary action against said officer.
In the case of In the Matter to Declare in Contempt of Court Hon. Simeon A.
Datumanong, Secretary of DPWH,6we held that:

The Rules of Procedure of the Office of the Ombudsman are clearly procedural
and no vested right of the petitioner is violated as he is considered preventively
suspended while his case is on appeal. Moreover, in the event he wins on
appeal, he shall be paid the salary and such other emoluments that he did not
receive by reason of the suspension or removal. Besides, there is no such thing
as a vested interest in an office, or even an absolute right to hold office.
Excepting constitutional offices which provide for special immunity as regards
salary and tenure, no one can be said to have any vested right in an office.7
Well-settled is the rule that procedural laws are construed to be applicable to

actions pending and undetermined at the time of their passage, and are deemed
retroactive in that sense and to that extent. As a general rule, the retroactive
application of procedural laws cannot be considered violative of any personal
rights because no vested right may attach to nor arise therefrom.8
Following the ruling in the above cited case, this Court, in Buencamino v. Court
of Appeals,9 upheld the resolution of the Court of Appeals denying Buencamino’s
application for preliminary injunction against the immediate implementation of the
suspension order against him. The Court stated therein that considering that an
appeal under Administrative Order No. 17, the amendatory rule, shall not stop
the Decision of the Office of the Ombudsman from being executory, the Court of
Appeals did not commit grave abuse of discretion in denying petitioner’s
application for injunctive relief.
Finally, the appeal of the decision of the Ombudsman to the Court of Appeals is
through a Petition for Review under Rule 43 of the Rules of Court, Section 12 of
which categorically provides that the appeal shall not stay the award, judgment,
final order or resolution sought to be reviewed unless the Court of Appeals shall
direct otherwise upon such terms as it may deem just.
WHEREFORE, the instant motion for reconsideration is DENIED with FINALITY.
SO ORDERED.
DIGEST
NO Digest available

FIRST DIVISION
[G.R. No. 147096. January 15, 2002]
REPUBLIC OF THE PHILIPPINES, represented by NATIONAL

TELECOMMUNICATIONS COMMISSION, petitioner, vs. EXPRESS
TELECOMMUNICATION CO., INC. and BAYAN
TELECOMMUNICATIONS CO., INC., respondents.
[G.R. No. 147210. January 15, 2002]
BAYAN TELECOMMUNICATIONS (Bayantel), INC., petitioner, vs. EXPRESS

TELECOMMUNICATION CO., INC. (Extelcom), respondent.
DECISION
On December 29, 1992, International Communications Corporation

(now Bayan Telecommunications, Inc. or Bayantel) filed an application with the
National Telecommunications Commission (NTC) for a Certificate of Public

Convenience or Necessity (CPCN) to install, operate and maintain a digital
Cellular Mobile Telephone System/Service (CMTS) with prayer for a Provisional
Authority (PA). The application was docketed as NTC Case No. 92-486.[1]
Shortly thereafter, or on January 22, 1993, the NTC issued Memorandum
Circular No. 4-1-93 directing all interested applicants for nationwide or regional
CMTS to file their respective applications before the Commission on or before
February 15, 1993, and deferring the acceptance of any application filed after
said date until further orders.[2]
On May 6, 1993, and prior to the issuance of any notice of hearing by the
NTC with respect to Bayantels original application, Bayantel filed an urgent ex-
parte motion to admit an amended application. [3] On May 17, 1993, the notice of
hearing issued by the NTC with respect to this amended application was
published in the Manila Chronicle. Copies of the application as well as the notice
of hearing were mailed to all affected parties. Subsequently, hearings were
conducted on the amended application. But before Bayantel could complete the
presentation of its evidence, the NTC issued an Order dated December 19,
1993 stating:
In view of the recent grant of two (2) separate Provisional Authorities in favor of
ISLACOM and GMCR, Inc., which resulted in the closing out of all available frequencies
for the service being applied for by herein applicant, and in order that this case may not
remain pending for an indefinite period of time, AS PRAYED FOR, let this case be, as it
is, hereby ordered ARCHIVED without prejudice to its reinstatement if and when the
requisite frequency becomes available.
SO ORDERED.[4]
On June 18, 1998, the NTC issued Memorandum Circular No. 5-6-98 re-

allocating five (5) megahertz (MHz) of the radio frequency spectrum for the
expansion of CMTS networks. The re-allocated 5 MHz were taken from the
following bands: 1730-1732.5 / 1825-1827.5 MHz and 1732.5-1735 / 1827.5-
1830 MHz.[5]
Likewise, on March 23, 1999, Memorandum Circular No. 3-3-99 was issued
by the NTC re-allocating an additional five (5) MHz frequencies for CMTS
service, namely: 1735-1737.5 / 1830-1832.5 MHz; 1737.5-1740 / 1832.5-1835
MHz; 1740-1742.5 / 1835-1837.5 MHz; and 1742.5-1745 / 1837.5-1840 MHz.[6]
On May 17, 1999, Bayantel filed an Ex-Parte Motion to Revive Case,
[7]
citing the availability of new frequency bands for CMTS operators, as provided
for under Memorandum Circular No. 3-3-99.
On February 1, 2000, the NTC granted BayanTels motion to revive the latters
application and set the case for hearings on February 9, 10, 15, 17 and 22, 2000.
[8]
The NTC noted that the application was ordered archived without prejudice to
its reinstatement if and when the requisite frequency shall become available.
Respondent Express Telecommunication Co., Inc. (Extelcom) filed in NTC
Case No. 92-486 an Opposition (With Motion to Dismiss) praying for the
dismissal of Bayantels application.[9]Extelcom argued that Bayantels motion
sought the revival of an archived application filed almost eight (8) years
ago. Thus, the documentary evidence and the allegations of
respondentBayantel in this application are all outdated and should no longer be
used as basis of the necessity for the proposed CMTS
service. Moreover, Extelcom alleged that there was no public need for the
service applied for by Bayantel as the present five CMTS operators --- Extelcom,
Globe Telecom, Inc., Smart Communication, Inc., Pilipino Telephone
Corporation, and IslaCommunication Corporation, Inc. --- more than adequately
addressed the market demand, and all are in the process of enhancing and
expanding their respective networks based on recent technological
developments.
Extelcom likewise contended that there were no available radio frequencies
that could accommodate a new CMTS operator as the frequency bands allocated
in NTC Memorandum Circular No. 3-3-99 were intended for and had in fact been
applied for by the existing CMTS operators. The NTC, in its Memorandum
Circular No. 4-1-93, declared it its policy to defer the acceptance of any
application for CMTS. All the frequency bands allocated for CMTS use under
the NTCs Memorandum Circular No. 5-11-88 and Memorandum Circular No. 2-
12-92 had already been allocated to the existing CMTS
operators. Finally, Extelcom pointed out that Bayantel is its substantial
stockholder to the extent of about 46% of its outstanding capital stock,
and Bayantels application undermines the very operations of Extelcom.
On March 13, 2000, Bayantel filed a Consolidated Reply/Comment,[10] stating
that the opposition was actually a motion seeking a reconsideration of the NTC
Order reviving the instant application, and thus cannot dwell on the material
allegations or the merits of the case. Furthermore, Extelcom cannot claim that
frequencies were not available inasmuch as the allocation and assignment
thereof rest solely on the discretion of the NTC.
In the meantime, the NTC issued on March 9, 2000 Memorandum Circular
No. 9-3-2000, re-allocating the following radio frequency bands for assignment to
existing CMTS operators and to public telecommunication entities which shall be
authorized to install, operate and maintain CMTS networks, namely: 1745-
1750MHz / 1840-1845MHz; 1750-1775MHz / 1845-1850MHz; 1765-1770MHz /
1860-1865MHz; and 1770-1775MHz / 1865-1870MHz.[11]

On May 3, 2000, the NTC issued an Order granting in favor of Bayantel a
provisional authority to operate CMTS service.[12] The Order stated in pertinent
part:
On the issue of legal capacity on the part of Bayantel, this Commission has already taken
notice of the change in name of International Communications Corporation
to Bayan Telecommunications, Inc. Thus, in the Decision entered in NTC Case No. 93-
284/94-200 dated 19 July 1999, it was recognized that Bayan Telecommunications, Inc.,
was formerly named International Communications Corp. Bayantel and ICC Telecoms,
Inc. are one and the same entity, and it necessarily follows that what legal capacity ICC
Telecoms has or has acquired is also the legal capacity that Bayantel possesses.
On the allegation that the Commission has committed an error in allowing the revival of
the instant application, it appears that the Order dated 14 December 1993 archiving the
same was anchored on the non-availability of frequencies for CMTS. In the same Order,
it was expressly stated that the archival hereof, shall be without prejudice to its
reinstatement if and when the requisite frequency becomes available. Inherent in the said
Order is the prerogative of the Commission in reviving the same, subject to prevailing
conditions. The Order of 1 February 2001, cited the availability of frequencies for CMTS,
and based thereon, the Commission, exercising its prerogative, revived and reinstated the
instant application. The fact that the motion for revival hereof was made ex-parte by the
applicant is of no moment, so long as the oppositors are given the opportunity to be later
heard and present the merits of their respective oppositions in the proceedings.
On the allegation that the instant application is already obsolete and overtaken by
developments, the issue is whether applicant has the legal, financial and technical
capacity to undertake the proposed project.The determination of such capacity lies solely
within the discretion of the Commission, through its applicable rules and regulations. At
any rate, the oppositors are not precluded from showing evidence disputing such capacity
in the proceedings at hand. On the alleged non-availability of frequencies for the
proposed service in view of the pending applications for the same, the Commission takes
note that it has issued Memorandum Circular 9-3-2000, allocating additional frequencies
for CMTS. The eligibility of existing operators who applied for additional frequencies
shall be treated and resolved in their respective applications, and are not in issue in the
case at hand.
Accordingly, the Motions for Reconsideration filed by SMARTCOM and GLOBE

TELECOMS/ISLACOM and the Motion to Dismiss filed by EXTELCOM are hereby
DENIED for lack of merit.[13]
The grant of the provisional authority was anchored on the following findings:
COMMENTS:

1. Due to the operational mergers between Smart Communications, Inc.
and Pilipino Telephone Corporation (Piltel) and between Globe
Telecom, Inc. (Globe) and Isla Communications, Inc. (Islacom), free
and effective competition in the CMTS market is threatened. The fifth
operator, Extelcom, cannot provide good competition in as much as it
provides service using the analog AMPS. The GSM system dominates
the market.
2. There are at present two applicants for the assignment of the
frequencies in the 1.7 Ghz and 1.8 Ghz allocated to CMTS, namely
Globe and Extelcom. Based on the number of
subscribers Extelcomhas, there appears to be no congestion in its
network - a condition that is necessary for an applicant to be assigned
additional frequencies. Globe has yet to prove that there is congestion
in its network considering its operational merger with Islacom.
3. Based on the reports submitted to the Commission, 48% of the total
number of cities and municipalities are still without telephone service
despite the more than 3 million installed lines waiting to be subscribed.
CONCLUSIONS:
1. To ensure effective competition in the CMTS market considering the

operational merger of some of the CMTS operators, new CMTS
operators must be allowed to provide the service.
2. The re-allocated frequencies for CMTS of 3 blocks of 5 Mhz x 2 is
sufficient for the number of applicants should the applicants be
qualified.
3. There is a need to provide service to some or all of the remaining cities
and municipalities without telephone service.
4. The submitted documents are sufficient to determine compliance to the
technical requirements. The applicant can be directed to submit details
such as channeling plans, exact locations of cell sites, etc. as the
project implementation progresses, actual area coverage ascertained
and traffic data are made available. Applicant appears to be technically
qualified to undertake the proposed project and offer the proposed
service.
IN VIEW OF THE FOREGOING and considering that there is prima facie evidence to

show that Applicant is legally, technically and financially qualified and that the proposed
service is technically feasible and economically viable, in the interest of public service,
and in order to facilitate the development of telecommunications services in all areas of
the country, as well as to ensure healthy competition among authorized CMTS providers,
let a PROVISIONAL AUTHORITY (P.A.) be issued to Applicant BAYAN
TELECOMMUNICATIONS, INC. authorizing it to construct, install, operate and
maintain a Nationwide Cellular Mobile Telephone Systems (CMTS), subject to the
following terms and conditions without prejudice to a final decision after completion of
the hearing which shall be called within thirty (30) days from grant of authority, in
accordance with Section 3, Rule 15, Part IV of the Commissions Rules of Practice and
Procedure. xxx.[14]
Extelcom filed with the Court of Appeals a petition for certiorari and

prohibition,[15] docketed as CA-G.R. SP No. 58893, seeking the annulment of the
Order reviving the application ofBayantel, the Order granting Bayantel a
provisional authority to construct, install, operate and maintain a nationwide
CMTS, and Memorandum Circular No. 9-3-2000 allocating frequency bands to
new public telecommunication entities which are authorized to install, operate
and maintain CMTS.
On September 13, 2000, the Court of Appeals rendered the assailed
Decision,[16] the dispositive portion of which reads:
WHEREFORE, the writs of certiorari and prohibition prayed for are GRANTED. The

Orders of public respondent dated February 1, 2000 and May 3, 2000 in NTC Case No.
92-486 are herebyANNULLED and SET ASIDE and the Amended Application of
respondent Bayantel is DISMISSED without prejudice to the filing of a new CMTS
application. The writ of preliminary injunction issued under our Resolution dated August
15, 2000, restraining and enjoining the respondents from enforcing the Orders
dated February 1, 2000 and May 3, 2000 in the said NTC case is hereby made
permanent.The Motion for Reconsideration of respondent Bayantel dated August 28,
2000 is denied for lack of merit.
SO ORDERED.[17]
Bayantel filed a motion for reconsideration of the above decision. [18] The NTC,

represented by the Office of the Solicitor General (OSG), also filed its own
motion for reconsideration.[19]On the other hand, Extelcom filed a Motion for
Partial Reconsideration, praying that NTC Memorandum Circular No. 9-3-
2000 be also declared null and void.[20]
On February 9, 2001, the Court of Appeals issued the assailed Resolution
denying all of the motions for reconsideration of the parties for lack of merit.[21]
Hence, the NTC filed the instant petition for review on certiorari, docketed as
G.R. No. 147096, raising the following issues for resolution of this Court:

A. Whether or not the Order dated February 1, 2000 of the petitioner which revived the
application of respondent Bayantel in NTC Case No. 92-486 violated
respondent Extelcoms right to procedural due process of law;
B. Whether or not the Order dated May 3, 2000 of the petitioner granting
respondent Bayantel a provisional authority to operate a CMTS is in substantial
compliance with NTC Rules of Practice and Procedure and Memorandum Circular No. 9-
14-90 dated September 4, 1990.[22]
Subsequently, Bayantel also filed its petition for review, docketed as G.R. No.

147210, assigning the following errors:
I. THE COURT OF APPEALS SERIOUSLY ERRED IN ITS
INTERPRETATION OF THE PRINCIPLE OF EXHAUSTION OF
ADMINISTRATIVE REMEDIES WHEN IT FAILED TO DISMISS
HEREIN RESPONDENTS PETITION FOR CERTIORARI DESPITE
ITS FAILURE TO FILE A MOTION FOR RECONSIDERATION.
II. THE COURT OF APPEALS SERIOUSLY ERRED IN ITS FINDING
THAT THE REVIVAL OF NTC CASE NO. 92-486 ANCHORED ON A
EX-PARTE MOTION TO REVIVE CASE WAS TANTAMOUNT TO
GRAVE ABUSE OF DISCRETION ON THE PART OF THE NTC.
III. THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT DENIED
THE MANDATE OF THE NTC AS THE AGENCY OF GOVERNMENT
WITH THE SOLE DISCRETION REGARDING ALLOCATION OF
FREQUENCY BAND TO TELECOMMUNICATIONS ENTITIES.
IV. THE COURT OF APPEALS SERIOUSLY ERRED IN ITS
INTERPRETATION OF THE LEGAL PRINCIPLE THAT
JURISDICTION ONCE ACQUIRED CANNOT BE LOST WHEN IT
DECLARED THAT THE ARCHIVED APPLICATION SHOULD BE
DEEMED AS A NEW APPLICATION IN VIEW OF THE SUBSTANTIAL
CHANGE IN THE CIRCUMSTANCES ALLEGED IN ITS AMENDMENT
APPLICATION.
V. CONTRARY TO THE FINDING OF THE COURT OF APPEALS, THE
ARCHIVING OF THE BAYANTEL APPLICATION WAS A VALID ACT
ON THE PART OF THE NTC EVEN IN THE ABSENCE OF A
SPECIFIC RULE ON ARCHIVING OF CASES SINCE RULES OF
PROCEDURE ARE, AS A MATTER OF COURSE, LIBERALLY
CONSTRUED IN PROCEEDINGS BEFORE ADMINISTRATIVE
BODIES AND SHOULD GIVE WAY TO THE GREATER HIERARCHY
OF PUBLIC WELFARE AND PUBLIC INTEREST.

VI. CONTRARY TO THE FINDING OF THE COURT OF APPEALS, THE
ARCHIVING OF BAYANTELS APPLICATION WAS NOT VIOLATIVE
OF THE SUMMARY NATURE OF THE PROCEEDINGS IN THE
NTC UNDER SEC. 3, RULE 1 OF THE NTC REVISED RULES OF
PROCEDURE.
VII. THE COURT OF APPEALS SERIOUSLY ERRED IN ITS FINDING
THAT THE ARCHIVING OF BAYANTELS APPLICATION WAS
VIOLATIVE OF THE ALLEGED DECLARED POLICY OF THE
GOVERNMENT ON THE TRANSPARENCY AND FAIRNESS OF
ADMINISTRATIVE PROCESS IN THE NTC AS LAID DOWN IN SEC
4(1) OF R.A. NO. 7925.
VIII. THE COURT OF APPEALS SERIOUSLY ERRED IN ITS FINDING
THAT THE NTC VIOLATED THE PROVISIONS OF THE
CONSTITUTION PERTAINING TO DUE PROCESS OF LAW.
IX. THE COURT OF APPEALS SERIOUSLY ERRED IN DECLARING
THAT THE MAY 3, 2000 ORDER GRANTING BAYANTEL A
PROVISIONAL AUTHORITY SHOULD BE SET ASIDE AND
REVERSED.
i. Contrary to the finding of the Court of Appeals, there was no violation of
the NTC Rule that the legal, technical, financial and economic
documentations in support of the prayer for provisional authority should
first be submitted.
ii. Contrary to the finding of the Court of Appeals, there was no violation
of Sec. 3, Rule 15 of the NTC Rules of Practice and Procedure that a
motion must first be filed before a provisional authority could be issued.
iii. Contrary to the finding of the Court of Appeals that a plea for
provisional authority necessitates a notice and hearing, the very rule
cited by the petitioner (Section 5, Rule 4 of the NTC Rules of Practice
and Procedure) provides otherwise.
iv. Contrary to the finding of the Court of Appeals, urgent public need is
not the only basis for the grant of a provisional authority to an
applicant;
v. Contrary to the finding of the Court of Appeals, there was no violation
of the constitutional provision on the right of the public to information
when the Common Carrier Authorization Department (CCAD) prepared
its evaluation report.[23]
Considering the identity of the matters involved, this Court resolved to
consolidate the two petitions.[24]

At the outset, it is well to discuss the nature and functions of the NTC, and
analyze its powers and authority as well as the laws, rules and regulations that
govern its existence and operations.
The NTC was created pursuant to Executive Order No. 546, promulgated
on July 23, 1979. It assumed the functions formerly assigned to the Board of
Communications and the Telecommunications Control Bureau, which were both
abolished under the said Executive Order. Previously, the NTCs functions were
merely those of the defunct Public Service Commission (PSC), created under
Commonwealth Act No. 146, as amended, otherwise known as the Public
Service Act, considering that the Board of Communications was the successor-
in-interest of the PSC. Under Executive Order No. 125-A, issued in April 1987,
the NTC became an attached agency of the Department of Transportation and
Communications.
In the regulatory telecommunications industry, the NTC has the sole authority
to issue Certificates of Public Convenience and Necessity (CPCN) for the
installation, operation, and maintenance of communications facilities and
services, radio communications systems, telephone and telegraph
systems. Such power includes the authority to determine the areas of operations
of applicants for telecommunications services. Specifically, Section 16 of the
Public Service Act authorizes the then PSC, upon notice and hearing, to issue
Certificates of Public Convenience for the operation of public services within the
Philippines whenever the Commission finds that the operation of the public
service proposed and the authorization to do business will promote the public
interests in a proper and suitable manner.[25] The procedure governing the
issuance of such authorizations is set forth in Section 29 of the said Act, the
pertinent portion of which states:
All hearings and investigations before the Commission shall be governed by rules
adopted by the Commission, and in the conduct thereof, the Commission shall not be
bound by the technical rules of legal evidence. xxx.
In granting Bayantel the provisional authority to operate a CMTS, the NTC

applied Rule 15, Section 3 of its 1978 Rules of Practice and Procedure, which
provides:
Sec. 3. Provisional Relief. --- Upon the filing of an application, complaint or petition or

at any stage thereafter, the Board may grant on motion of the pleader or on its own
initiative, the relief prayed for, based on the pleading, together with the affidavits and
supporting documents attached thereto, without prejudice to a final decision after
completion of the hearing which shall be called within thirty (30) days from grant of
authority asked for. (underscoring ours)

Respondent Extelcom, however, contends that the NTC should have applied
the Revised Rules which were filed with the Office of the National Administrative
Register on February 3, 1993. These Revised Rules deleted the phrase on its
own initiative; accordingly, a provisional authority may be issued only upon filing
of the proper motion before the Commission.
In answer to this argument, the NTC, through the Secretary of the
Commission, issued a certification to the effect that inasmuch as the 1993
Revised Rules have not been published in a newspaper of general circulation,
the NTC has been applying the 1978 Rules.
The absence of publication, coupled with the certification by the
Commissioner of the NTC stating that the NTC was still governed by the 1978
Rules, clearly indicate that the 1993 Revised Rules have not taken effect at the
time of the grant of the provisional authority to Bayantel. The fact that the 1993
Revised Rules were filed with the UP Law Center on February 3, 1993 is of no
moment. There is nothing in the Administrative Code of 1987 which implies that
the filing of the rules with the UP Law Center is the operative act that gives the
rules force and effect. Book VII, Chapter 2, Section 3 thereof merely states:
Filing. --- (1) Every agency shall file with the University of

the Philippines Law Center three (3) certified copies of every rule adopted by it. Rules in
force on the date of effectivity of this Code which are not filed within three (3) months
from the date shall not thereafter be the basis of any sanction against any party or
persons.
(2) The records officer of the agency, or his equivalent functionary, shall carry out the
requirements of this section under pain or disciplinary action.
(3) A permanent register of all rules shall be kept by the issuing agency and shall be open
to public inspection.
The National Administrative Register is merely a bulletin of codified rules and

it is furnished only to the Office of the President, Congress, all appellate courts,
the National Library, other public offices or agencies as the Congress may select,
and to other persons at a price sufficient to cover publication and mailing or
distribution costs.[26] In a similar case, we held:
This does not imply however, that the subject Administrative Order is a valid exercise of
such quasi-legislative power. The original Administrative Order issued on August 30,
1989, under which the respondents filed their applications for importations, was not
published in the Official Gazette or in a newspaper of general circulation. The questioned
Administrative Order, legally, until it is published, is invalid within the context of Article
2 of Civil Code, which reads:

Article 2. Laws shall take effect after fifteen days following the completion of their
publication in the Official Gazette (or in a newspaper of general circulation in
the Philippines), unless it is otherwise provided. x x x
The fact that the amendments to Administrative Order No. SOCPEC 89-08-01 were filed
with, and published by the UP Law Center in the National Administrative Register, does
not cure the defect related to the effectivity of the Administrative Order.
This Court, in Taada vs. Tuvera (G.R. No. L-63915, December 29, 1986, 146 SCRA
446) stated, thus:
We hold therefore that all statutes, including those of local application and private laws,
shall be published as a condition for their effectivity, which shall begin fifteen days after
publication unless a differenteffectivity is fixed by the legislature.
Covered by this rule are presidential decrees and executive orders promulgated by the
President in the exercise of legislative power or, at present, directly conferred by the
Constitution. Administrative Rules and Regulations must also be published if their
purpose is to enforce or implement existing law pursuant also to a valid delegation.
Interpretative regulations and those merely internal in nature, that is, regulating only the
personnel of the administrative agency and not the public, need not be published. Neither
is publication required of the so-called letters of instructions issued by administrative
superiors concerning the rules or guidelines to be followed by their subordinates in the
performance of their duties.
x x x
We agree that the publication must be in full or it is no publication at all since its purpose
is to inform the public of the contents of the laws.
The Administrative Order under consideration is one of those issuances which should be
published for its effectivity, since its purpose is to enforce and implement an existing law
pursuant to a valid delegation, i.e., P.D. 1071, in relation to LOI 444 and EO 133.[27]
Thus, publication in the Official Gazette or a newspaper of general circulation

is a condition sine qua non before statutes, rules or regulations can take
effect. This is explicit from Executive Order No. 200, which repealed Article 2 of
the Civil Code, and which states that:
Laws shall take effect after fifteen days following the completion of their publication
either in the Official Gazette or in a newspaper of general circulation in the Philippines,
unless it is otherwise provided.[28]

The Rules of Practice and Procedure of the NTC, which implements Section
29 of the Public Service Act (C.A. 146, as amended), fall squarely within the
scope of these laws, as explicitly mentioned in the case Taada v. Tuvera.[29]
Our pronouncement in Taada vs. Tuvera is clear and categorical. Administrative rules

and regulations must be published if their purpose is to enforce or implement existing law
pursuant to a valid delegation.The only exceptions are interpretative regulations, those
merely internal in nature, or those so-called letters of instructions issued by
administrative superiors concerning the rules and guidelines to be followed by their
subordinates in the performance of their duties.[30]
Hence, the 1993 Revised Rules should be published in the Official Gazette or
in a newspaper of general circulation before it can take effect. Even the 1993
Revised Rules itself mandates that said Rules shall take effect only after their
publication in a newspaper of general circulation. [31] In the absence of such
publication, therefore, it is the 1978 Rules that governs.
In any event, regardless of whether the 1978 Rules or the 1993 Revised
Rules should apply, the records show that the amended application filed
by Bayantel in fact included a motion for the issuance of a provisional
authority. Hence, it cannot be said that the NTC granted the provisional
authority motu proprio. The Court of Appeals, therefore, erred when it found that
the NTC issued its Order of May 3, 2000 on its own initiative. This much is
acknowledged in the Decision of the Court of Appeals:
As prayer, ICC asked for the immediate grant of provisional authority to construct,
install, maintain and operate the subject service and to charge the proposed rates and after
due notice and hearing, approve the instant application and grant the corresponding
certificate of public convenience and necessity.[32]
The Court of Appeals also erred when it declared that the NTCs Order

archiving Bayantels application was null and void. The archiving of cases is a
widely accepted measure designed to shelve cases in which no immediate action
is expected but where no grounds exist for their outright dismissal, albeit without
prejudice. It saves the petitioner or applicant from the added trouble and expense
of re-filing a dismissed case. Under this scheme, an inactive case is kept alive
but held in abeyance until the situation obtains wherein action thereon can be
taken.
In the case at bar, the said application was ordered archived because of lack
of available frequencies at the time, and made subject to reinstatement upon
availability of the requisite frequency. To be sure, there was nothing irregular in
the revival of the application after the condition therefor was fulfilled.

While, as held by the Court of Appeals, there are no clear provisions in the
Rules of the NTC which expressly allow the archiving of any application, this
recourse may be justified under Rule 1, Section 2 of the 1978 Rules, which
states:
Sec. 2. Scope.--- These rules govern pleadings, practice and procedure before the Board
of Communications (now NTC) in all matters of hearing, investigation and proceedings
within the jurisdiction of the Board. However, in the broader interest of justice and in
order to best serve the public interest, the Board may, in any particular matter, except it
from these rules and apply such suitable procedure to improve the service in the
transaction of the public business. (underscoring ours)
The Court of Appeals ruled that the NTC committed grave abuse of discretion
when it revived Bayantels application based on an ex-parte motion. In this
regard, the pertinent provisions of the NTC Rules:
Sec. 5. Ex-parte Motions. --- Except for motions for provisional authorization of

proposed services and increase of rates, ex-parte motions shall be acted upon by the
Board only upon showing of urgent necessity therefor and the right of the opposing party
is not substantially impaired.[33]
Thus, in cases which do not involve either an application for rate increase or
an application for a provisional authority, the NTC may entertain ex-parte motions
only where there is an urgent necessity to do so and no rights of the opposing
parties are impaired.
The Court of Appeals ruled that there was a violation of the fundamental right
of Extelcom to due process when it was not afforded the opportunity to question
the motion for the revival of the application. However, it must be noted that said
Order referred to a simple revival of the archived application of Bayantel in NTC
Case No. 92-426. At this stage, it cannot be said thatExtelcoms right to
procedural due process was prejudiced. It will still have the opportunity to be
heard during the full-blown adversarial hearings that will follow. In fact, the
records show that the NTC has scheduled several hearing dates for this purpose,
at which all interested parties shall be allowed to register their opposition. We
have ruled that there is no denial of due process where full-blown adversarial
proceedings are conducted before an administrative body.
[34]
With Extelcom having fully participated in the proceedings, and indeed, given
the opportunity to file its opposition to the application, there was clearly no denial
of its right to due process.
In Zaldivar vs. Sandiganbayan (166 SCRA 316 [1988]), we held that the right to be

heard does not only refer to the right to present verbal arguments in court. A party may
also be heard through his pleadings. where opportunity to be heard is accorded either
through oral arguments or pleadings, there is no denial of procedural due process. As
reiterated in National Semiconductor (HK) Distribution, Ltd. vs. NLRC (G.R. No.
123520, June 26, 1998), the essence of due process is simply an opportunity to be heard,
or as applied to administrative proceedings, an opportunity to explain one's side. Hence,
inNavarro III vs. Damaso (246 SCRA 260 [1995]), we held that a formal or trial-type
hearing is not at all times and not in all instances essential. Plainly, petitioner was not
denied due process.[35]
Extelcom had already entered its appearance as a party and filed its

opposition to the application. It was neither precluded nor barred from
participating in the hearings thereon. Indeed, nothing, not even the Order reviving
the application, bars or prevents Extelcom and the other oppositors from
participating in the hearings and adducing evidence in support of their respective
oppositions. The motion to revive could not have possibly caused prejudice
to Extelcom since the motion only sought the revival of the application. It was
merely a preliminary step towards the resumption of the hearings on the
application of Bayantel. The latter will still have to prove its capability to
undertake the proposed CMTS. Indeed, in its Order datedFebruary 1, 2000, the
NTC set several hearing dates precisely intended for the presentation of
evidence on Bayantels capability and qualification. Notice of these hearings were
sent to all parties concerned, including Extelcom.
As regards the changes in the personal circumstances of Bayantel, the same
may be ventilated at the hearings during Bayantels presentation of evidence. In
fact, Extelcom was able to raise its arguments on this matter in the Opposition
(With Motion to Dismiss) anent the re-opening and re-instatement of the
application of Bayantel. Extelcom was thus heard on this particular point.
Likewise, the requirements of notice and publication of the application is no
longer necessary inasmuch as the application is a mere revival of an application
which has already been published earlier. At any rate, the records show that all
of the five (5) CMTS operators in the country were duly notified and were allowed
to raise their respective oppositions to Bayantelsapplication through
the NTCs Order dated February 1, 2000.
It should be borne in mind that among the declared national policies under
Republic Act No. 7925, otherwise known as the Public Telecommunications
Policy Act of the Philippines, is the healthy competition among
telecommunications carriers, to wit:
A healthy competitive environment shall be fostered, one in which telecommunications

carriers are free to make business decisions and to interact with one another in providing
telecommunications services, with the end in view of encouraging their financial viability
while maintaining affordable rates.[36]

The NTC is clothed with sufficient discretion to act on matters solely within its
competence. Clearly, the need for a healthy competitive environment in
telecommunications is sufficient impetus for the NTC to consider all those
applicants who are willing to offer competition, develop the market and provide
the environment necessary for greater public service. This was the intention that
came to light with the issuance of Memorandum Circular 9-3-2000, allocating
new frequency bands for use of CMTS. This memorandum circular enumerated
the conditions prevailing and the reasons which necessitated its issuance as
follows:
- the international accounting rates are rapidly declining, threatening the
subsidy to the local exchange service as mandated in EO 109 and RA
7925;
- the public telecommunications entities which were obligated to install,
operate and maintain local exchange network have performed their
obligations in varying degrees;
- after more than three (3) years from the performance of the obligations
only 52% of the total number of cities and municipalities are provided
with local telephone service.
- there are mergers and consolidations among the existing cellular mobile
telephone service (CMTS) providers threatening the efficiency of
competition;
- there is a need to hasten the installation of local exchange lines
in unserved areas;
- there are existing CMTS operators which are experiencing congestion in
the network resulting to low grade of service;
- the consumers/customers shall be given the freedom to choose CMTS
operators from which they could get the service.[37]
Clearly spelled out is the need to provide enhanced competition and the
requirement for more landlines and telecommunications facilities
in unserved areas in the country. On both scores, therefore, there was sufficient
showing that the NTC acted well within its jurisdiction and in pursuance of its
avowed duties when it allowed the revival of Bayantels application.
We now come to the issue of exhaustion of administrative remedies. The rule
is well-entrenched that a party must exhaust all administrative remedies before
resorting to the courts.The premature invocation of the intervention of the court is
fatal to ones cause of action. This rule would not only give the administrative
agency an opportunity to decide the matter by itself correctly, but would also

prevent the unnecessary and premature resort to courts.[38] In the case of Lopez
v. City of Manila,[39] we held:
As a general rule, where the law provides for the remedies against the action of an
administrative board, body or officer, relief to courts can be sought only after exhausting
all remedies provided. The reason rests upon the presumption that the administrative
body, if given the chance to correct its mistake or error, may amend its decision on a
given matter and decide it properly. Therefore, where a remedy is available within the
administrative machinery, this should be resorted to before resort can be made to the
courts, not only to give the administrative agency the opportunity to decide the matter by
itself correctly, but also to prevent unnecessary and premature resort to courts.
Clearly, Extelcom violated the rule on exhaustion of administrative remedies

when it went directly to the Court of Appeals on a petition for certiorari and
prohibition from the Order of the NTC dated May 3, 2000, without first filing a
motion for reconsideration. It is well-settled that the filing of a motion for
reconsideration is a prerequisite to the filing of a special civil action forcertiorari.
The general rule is that, in order to give the lower court the opportunity to correct itself, a
motion for reconsideration is a prerequisite to certiorari. It also basic that petitioner must
exhaust all other available remedies before resorting to certiorari. This rule, however, is
subject to certain exceptions such as any of the following: (1) the issues raised are purely
legal in nature, (2) public interest is involved, (3) extreme urgency is obvious or (4)
special circumstances warrant immediate or more direct action.[40]
This case does not fall under any of the recognized exceptions to this
rule. Although the Order of the NTC dated May 3, 2000 granting provisional
authority to Bayantel was immediately executory, it did not preclude the filing of a
motion for reconsideration. Under the NTC Rules, a party adversely affected by a
decision, order, ruling or resolution may within fifteen (15) days file a motion for
reconsideration. That the Order of the NTC became immediately executory does
not mean that the remedy of filing a motion for reconsideration is foreclosed to
the petitioner.[41]
Furthermore, Extelcom does not enjoy the grant of any vested interest on the
right to render a public service. The Constitution is quite emphatic that the
operation of a public utility shall not be exclusive. Thus:
No franchise, certificate, or any other form of authorization for the operation of a public
utility shall be granted to citizens of the Philippines or to corporations organized under
the laws of the Philippines at least sixty per centum of whose capital is owned by such
citizens, nor shall such franchise, certificate or authorization be exclusive in character or
for a longer period than fifty years. Neither shall any such franchise or right be granted

except under the condition that it shall be subject to amendment, alteration, or repeal by
the Congress when the common good so requires. xxx xxx xxx.[42]
In Radio Communications of the Phils., Inc. v. National Telecommunications

Commission,[43] we held:
It is well within the powers of the public respondent to authorize the installation by the
private respondent network of radio communications systems
in Catarman, Samar and San Jose, Mindoro. Under the circumstances, the mere fact that
the petitioner possesses a franchise to put up and operate a radio communications system
in certain areas is not an insuperable obstacle to the public respondents issuing the proper
certificate to an applicant desiring to extend the same services to those areas. The
Constitution mandates that a franchise cannot be exclusive in nature nor can a franchise
be granted except that it must be subject to amendment, alteration, or even repeal by the
legislature when the common good so requires. (Art. XII, sec. 11 of the 1986
Constitution). There is an express provision in the petitioners franchise which provides
compliance with the above mandate (RA 2036, sec. 15).
Even in the provisional authority granted to Extelcom, it is expressly stated

that such authority is not exclusive. Thus, the Court of Appeals erred when it
gave due course to Extelcomspetition and ruled that it constitutes an exception to
the rule on exhaustion of administrative remedies.
Also, the Court of Appeals erred in annulling the Order of the NTC dated May
3, 2000, granting Bayantel a provisional authority to install, operate and maintain
CMTS. The general rule is that purely administrative and discretionary functions
may not be interfered with by the courts. Thus, in Lacuesta v. Herrera,[44] it was
held:
xxx (T)he powers granted to the Secretary of Agriculture and Commerce (natural
resources) by law regarding the disposition of public lands such as granting of licenses,
permits, leases and contracts, or approving, rejecting, reinstating, or canceling
applications, are all executive and administrative in nature. It is a well recognized
principle that purely administrative and discretionary functions may not be interfered
with by the courts. (Coloso vs. Board of Accountancy, G.R. No. L-5750, April 20,
1953) In general, courts have no supervising power over the proceedings and actions of
the administrative departments of the government. This is generally true with respect to
acts involving the exercise of judgement or discretion and findings of fact. (54 Am. Jur.
558-559) xxx.
The established exception to the rule is where the issuing authority has gone
beyond its statutory authority, exercised unconstitutional powers or clearly acted
arbitrarily and without regard to his duty or with grave abuse of discretion.
[45]
None of these obtains in the case at bar.
Moreover, in petitions for certiorari, evidentiary matters or matters of fact
raised in the court below are not proper grounds nor may such be ruled upon in
the proceedings. As held inNational Federation of Labor v. NLRC:[46]
At the outset, it should be noted that a petition for certiorari under Rule 65 of the Rules of
Court will prosper only if there is a showing of grave abuse of discretion or an act
without or in excess of jurisdiction on the part of the National Labor Relations
Commission. It does not include an inquiry as to the correctness of the evaluation of
evidence which was the basis of the labor official or officer in determining his
conclusion. It is not for this Court to re-examine conflicting evidence, re-evaluate the
credibility of witnesses nor substitute the findings of fact of an administrative tribunal
which has gained expertise in its special field. Considering that the findings of fact of the
labor arbiter and the NLRC are supported by evidence on record, the same must be
accorded due respect and finality.
This Court has consistently held that the courts will not interfere in matters
which are addressed to the sound discretion of the government agency entrusted
with the regulation of activities coming under the special and technical training
and knowledge of such agency.[47] It has also been held that the exercise of
administrative discretion is a policy decision and a matter that can best be
discharged by the government agency concerned, and not by the courts.
[48]
In Villanueva v. Court of Appeals,[49] it was held that findings of fact which are
supported by evidence and the conclusion of experts should not be
disturbed. This was reiterated in Metro Transit Organization, Inc. v. National
Labor Relations Commission,[50] wherein it was ruled that factual findings of
quasi-judicial bodies which have acquired expertise because their jurisdiction is
confined to specific matters are generally accorded not only respect but even
finality and are binding even upon the Supreme Court if they are supported by
substantial evidence.
Administrative agencies are given a wide latitude in the evaluation of
evidence and in the exercise of its adjudicative functions. This latitude includes
the authority to take judicial notice of facts within its special competence.
In the case at bar, we find no reason to disturb the factual findings of the NTC
which formed the basis for awarding the provisional authority to Bayantel. As
found by the NTC, Bayantelhas been granted several provisional and permanent
authorities before to operate various telecommunications services.[51] Indeed, it
was established that Bayantel was the first company to comply with its obligation
to install local exchange lines pursuant to E.O. 109 and R.A. 7925. In recognition
of the same, the provisional authority awarded in favor of Bayantel to operate
Local Exchange Services in Quezon City, Malabon, Valenzuela and the
entire Bicol region was made permanent and a CPCN for the said service was
granted in its favor. Prima facie evidence was likewise found

showing Bayantels legal, financial and technical capacity to undertake the
proposed cellular mobile telephone service.
Likewise, the May 3, 2000 Order did not violate NTC Memorandum Circular
No. 9-14-90 dated September 4, 1990, contrary to the ruling of the Court of
Appeals. The memorandum circular sets forth the procedure for the issuance of
provisional authority thus:
EFFECTIVE THIS DATE, and as part of the Commissions drive to streamline and fast
track action on applications/petitions for CPCN other forms of authorizations, the
Commission shall be evaluating applications/petitions for immediate issuance of
provisional authorizations, pending hearing and final authorization of an application on
its merit.
For this purpose, it is hereby directed that all applicants/petitioners seeking for
provisional authorizations, shall submit immediately to the Commission, either together
with their application or in a Motion all their legal, technical, financial, economic
documentations in support of their prayer for provisional authorizations for
evaluation. On the basis of their completeness and their having complied with
requirements, the Commission shall be issuing provisional authorizations.
Clearly, a provisional authority may be issued even pending hearing and final
determination of an application on its merits.
Finally, this Court finds that the Manifestations of Extelcom alleging forum
shopping on the part of the NTC and Bayantel are not impressed with merit. The
divisions of the Supreme Court are not to be considered as separate and distinct
courts. The Supreme Court remains a unit notwithstanding that it works in
divisions. Although it may have three divisions, it is but a single court. Actions
considered in any of these divisions and decisions rendered therein are, in effect,
by the same Tribunal. The divisions of this Court are not to be considered as
separate and distinct courts but as divisions of one and the same court.[52]
Moreover, the rules on forum shopping should not be literally interpreted. We
have stated thus:
It is scarcely necessary to add that Circular No. 28-91 must be so interpreted and applied
as to achieve the purposes projected by the Supreme Court when it promulgated that
circular. Circular No. 28-91 was designed to serve as an instrument to promote and
facilitate the orderly administration of justice and should not be interpreted with such
absolute literalness as to subvert its own ultimate and legitimate objection or the goal of
all rules of procedure which is to achieve substantial justice as expeditiously as possible.
[53]

Even assuming that separate actions have been filed by two different parties
involving essentially the same subject matter, no forum shopping was committed
as the parties did not resort to multiple judicial remedies. The Court, therefore,
directed the consolidation of the two cases because they involve essentially the
same issues. It would also prevent the absurd situation wherein two different
divisions of the same court would render altogether different rulings in the cases
at bar.
We rule, likewise, that the NTC has legal standing to file and initiate legal
action in cases where it is clear that its inaction would result in an impairment of
its ability to execute and perform its functions. Similarly, we have previously held
in Civil Service Commission v. Dacoycoy[54] that the Civil Service Commission, as
an aggrieved party, may appeal the decision of the Court of Appeals to this
Court.
As correctly stated by the NTC, the rule invoked by Extelcom is Rule 65 of
the Rules of Civil Procedure, which provides that public respondents shall not
appear in or file an answer or comment to the petition or any pleading therein.
[55]
The instant petition, on the other hand, was filed under Rule 45 where no
similar proscription exists.
WHEREFORE, in view of the foregoing, the consolidated petitions are
GRANTED. The Court of Appeals Decision dated September 13, 2000 and
Resolution dated February 9, 2001are REVERSED and SET ASIDE. The
permanent injunction issued by the Court of Appeals is LIFTED. The Orders of
the NTC dated February 1, 2000 and May 3, 2000 are REINSTATED.No
pronouncement as to costs.
SO ORDERED.
Digest
Republic vs Extelcom, [373 SCRA 316; GR 147096, January 15, 2002]
(Administrative Law, quasi-legislative power, proper procedure, filing and publication)
Facts: National Telecommunications Commission (NTC) granted Bayantel the provisional

authority to operate a Cellular Mobile Telephone System/Service (CMTS) on its own
initiative applying Rule 15, Section 3 of its 1987 Rules of Practice and Procedures.

Respondent Extelcom contends that the NTC should have applied the Revised Rules
which were filed with the Office of the National Administrative Register where the
phrase “on its own initiative” were deleted and since the 1993 Revised Rules were filed
with the UP Law Center.
Issue: WON the 1993 Revised Rules which was filed in the UP Law Center is the law in
force and effect in granting provisional authority.
Held: No. There is nothing in the Administrative Code of 1987 which implies that the
filing of the rules with the UP Law Center is the operative act that gives the rules force
and effect. The National Administrative Register is merely a bulletin of codified rules.
Publication in the Official Gazette or a newspaper of general circulation is a condition
sine qua non before statutes, rules and regulations can take effect.

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-49774 February 24, 1981
SAN MIGUEL CORPORATION (CAGAYAN COCA-COLA PLANT), petitioner,

vs.
Hon. AMADO G. INCIONG, Deputy Minister of Labor and CAGAYAN COCA-
COLA FREE WORKERS UNION,respondents.
DE CASTRO, J.:
Petition for certiorari and prohibition, with preliminary injunction to review the
Order 1 dated December 19, 1978 rendered by the Deputy Minister of Labor in
STF ROX Case No. 009-77 docketed as "Cagayan Coca-Cola Free Workers
Union vs. Cagayan Coca-Cola Plant, San Miguel Corporation, " which denied

herein petitioner's motion for reconsideration and ordered the immediate
execution of a prior Order 2 dated June 7, 1978.
On January 3, 1977, Cagayan Coca-Cola Free Workers Union, private

respondent herein, filed a complaint against San Miguel Corporation (Cagayan
Coca-Cola Plant), petitioner herein, alleging failure or refusal of the latter to
include in the computation of 13th- month pay such items as sick, vacation or
maternity leaves, premium for work done on rest days and special holidays,
including pay for regular holidays and night differentials.
An Order 3 dated February 15, 1977 was issued by Regional Office No. X where
the complaint was filed requiring herein petitioner San Miguel Corporation
(Cagayan Coca-Cola Plant) "to pay the difference of whatever earnings and the
amount actually received as 13th month pay excluding overtime premium and
emergency cost of living allowance. "
Herein petitioner appealed from that Order to the Minister of Labor in whose
behalf the Deputy Minister of Labor Amado G. Inciong issued an Order 4 dated
June 7, 1978 affirming the Order of Regional Office No. X and dismissing the
appeal for lack of merit. Petitioner's motion for reconsideration having been
denied, it filed the instant petition.
On February 14, 1979, this Court issued a Temporary Restraining

Order 5 enjoining respondents from enforcing the Order dated December 19,
1978.
The crux of the present controversy is whether or not in the computation of the
13th-month pay under Presidential Decree 851, payments for sick, vacation or
maternity leaves, premium for work done on rest days and special holidays,
including pay for regular holidays and night differentials should be considered.
Public respondent's consistent stand on the matter since the effectivity of

Presidential Decree 851 is that "payments for sick leave, vacation leave, and
maternity benefits, as well as salaries paid to employees for work performed on
rest days, special and regular holidays are included in the computation of the
13th-month pay. 6 On its part, private respondent cited innumerable past rulings,
opinions and decisions rendered by then Acting Labor Secretary Amado G.
Inciong to the effect that, "in computing the mandatory bonus, the basis is the
total gross basic salary paid by the employer during the calendar year. Such
gross basic salary includes: (1) regular salary or wage; (2) payments for sick,
vacation and maternity leaves; (3) premium for work performed on rest days or
holidays: (4) holiday pay for worked or unworked regular holiday; and (5)
emergency allowance if given in the form of a wage adjustment." 7

Petitioner, on the other hand, assails as erroneous the aforesaid order, ruling and
opinions, vigorously contends that Presidential Decree 851 speaks only of basic
salary as basis for the determination of the 13th-month pay; submits that
payments for sick, vacation, or maternity leaves, night differential pay, as well as
premium paid for work performed on rest days, special and regular holidays do
not form part of the basic salary; and concludes that the inclusion of those
payments in the computation of the 13th-month pay is clearly not sanctioned by
Presidential Decree 851.
The Court finds petitioner's contention meritorious.
The provision in dispute is Section 1 of Presidential Decree 851 and provides:
All employers are hereby required to pay all their employees

receiving a basic salary of not more than Pl,000 a month, regardless
of the nature of the employment, a 13th-month pay not later than
December 24 of every year.
Section 2 of the Rules and Regulations for the implementation of Presidential

Decree 851 provides:
a) Thirteenth-month pay shall mean one twelfth (1/12) of the basic

salary of an employee within a calendar year
b) Basic salary shall include all remunerations on earnings paid by

an employer to an employee for services rendered but may not
include cost-of-living allowances granted pursuant to Presidential
Decree No. 525 or Letter of Instructions No. 174, profit sharing
payments and all allowances and monetary benefits which are not
considered or integrated as part of the regular or basic salary of the
employee at the time of the promulgation of the Decree on
December 16, 1975.
Under Presidential Decree 851 and its implementing rules, the basic salary of an
employee is used as the basis in the determination of his 13th-month pay. Any
compensations or remunerations which are deemed not part of the basic pay is
excluded as basis in the computation of the mandatory bonus.
Under the Rules and Regulations Implementing Presidential Decree 851, the
following compensations are deemed not part of the basic salary:
a) Cost-of-living allowances granted pursuant to Presidential Decree

525 and Letter of Instructions No. 174;

b) Profit sharing payments;
c) All allowances and monetary benefits which are not considered or

integrated as part of the regular basic salary of tile employee at the
time of the promulgation of the Decree on December 16, 1975.
Under a later set of Supplementary Rules and Regulations Implementing

Presidential Decree 851 issued by the then Labor Secretary Blas Ople, overtime
pay, earnings and other remunerations are excluded as part of the basic salary
and in the computation of the 13th-month pay.
The exclusion of cost-of-living allowances under Presidential Decree 525 and

Letter of Instructions No. 174, and profit sharing payments indicate the intention
to strip basic salary of other payments which are properly considered as "fringe"
benefits. Likewise, the catch-all exclusionary phrase "all allowances and
monetary benefits which are not considered or integrated as part of the basic
salary" shows also the intention to strip basic salary of any and all additions
which may be in the form of allowances or "fringe" benefits.
Moreover, the Supplementary Rules and Regulations Implementing Presidential

Decree 851 is even more emphatic in declaring that earnings and other
remunerations which are not part of the basic salary shall not be included in the
computation of the 13th-month pay.
While doubt may have been created by the prior Rules and Regulations
Implementing Presidential Decree 851 which defines basic salary to include all
remunerations or earnings paid by an employer to an employee, this cloud is
dissipated in the later and more controlling Supplementary Rules and
Regulations which categorically, exclude from the definition of basic salary
earnings and other remunerations paid by employer to an employee. A cursory
perusal of the two sets of Rules indicates that what has hitherto been the subject
of a broad inclusion is now a subject of broad exclusion. The Supplementary
rules and Regulations cure the seeming tendency of the former rules to include
all remunerations and earnings within the definition of basic salary.
The all-embracing phrase "earnings and other renumeration" which are deemed
not part of the basic salary includes within its meaning payments for sick,
vacation, or maternity leaves. Maternity premium for works performed on rest
days and special holidays pays for regular holidays and night differentials. As
such they are deemed not part of the basic salary and shall not be considered in
the computation of the 13th-month they, were not so excluded, it is hard to find
any "earnings and other remunerations" expressly excluded in the computation of

the 13th-month pay. Then the exclusionary provision would prove to be Idle and
with no purpose.
This conclusion finds strong support under the Labor Code of the Philippines. To
cite a few provisions:
Art. 87. — overtime work. Work may be performed beyond eight

hours a day provided what the employee is paid for the overtime
work, additional compensation equivalent to his regular wage plus at
least twenty-five (25%) percent thereof.
It is clear that overtime pay is an additional compensation other than and added

to the regular wage or basic salary, for reason of which such is categorically
excluded from the definition of basic salary under the Supplementary Rules and
Regulations Implementing Presidential Decree 851.
In Article 93 of the same Code, paragraph
c) work performed on any special holiday shall be paid an additional

compensation of at least thirty percent (30%) of the regular wage of
the employee.
It is likewise clear that prernium for special holiday which is at least 30% of the
regular wage is an additional compensation other than and added to the regular
wage or basic salary. For similar reason it shall not be considered in the
computation of the 13th- month pay.
WHEREFORE, the Orders of the Deputy Labor Minister dated June 7, 1978 and
December 19, 1978 are hereby set aside and a new one entered as above
indicated. The Temporary Restraining Order issued by this Court on February 14,
1979 is hereby made permanent. No pronouncement as to costs.
SO ORDERED.
DIGEST

FACTS

:
This is

ISSUE

:
Whether or not
the Government of the Philippine Islands can legally collect theduty of $1 per gross ton of 1,000 kilos as
a charge for wharfage on goods, wares and merchandiseexported through a port of entry of the
Philippine Islands or shipped therefrom to the UnitedStates, where it appears that the Government does
not own the wharf and that the sugar in questionwas loaded from a wharf which was the sole property of
a private person.
SEE BOOK of Alcantara
HELD

:

In view of its history, its long continuous construction, and what has been doneand
accomplished by and under it, clearly the Government is entitled to have and receive the
money inquestion even though the sugar is shipped from a private wharf.

Judgement of the lower court reversed, with costs.

: XI. CONTEMPORARY CONSTRUCTIONB.Executive Construction1.
Rule-Making Power

: San Miguel vs Inciong, 103 SCRA 139 G.R. No. L-
49774, February 24, 1981

FACTS

This is
a complaint filed on January 3, 1977 by Cagayan Coca-Cola Free WorkersUnion against
San Miguel Corporation (Cagayan Coca-Cola Plant) for the alleged failure or refusalof the latter to
include in the computation of 13th- month pay such items as sick, vacation or maternity leaves,
premium for work done on rest days and special holidays, including pay for regular holidays and night
differentials.
ISSUE

Whether or not in the computation of the 13th-month pay under Presidential Decree851, payments for
sick, vacation or maternity leaves, premium for work done on rest days andspecial holidays, including
pay for regular holidays and night differentials should be considered.
HELD

Citing certain provisions of the Labor Code of the Philippines specifically
Art. 87 onovertime work performed beyond 8 hours a day is paid as additional compensation equivalent
to aregular wage plus 25% hereof and Art 93 on work performed on any special holiday as anadditional

compensation of at least 30% of the regular wage of the employee, clearly, additionalcompensation is
categorically excluded from the definition of basic salary under theSupplementary Rules and
Regulations Implementing Presidential Decree 851. Therefore, additional compensation shall not be
considered in the computation of the 13th- month pay.
The Orders of the Deputy Labor Minister dated June 7, 1978 and December 19, 1978 are herebyset
aside and a new one entered as above indicated. The Temporary Restraining Order issued bythis Court
on February 14, 1979 is hereby made permanent. No pronouncement as to costs.

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Republic of the Philippines

G.R. No. 119761 August 29, 1996

COMMISSIONER OF INTERNAL REVENUE, petitioner,

The Commissioner of Internal Revenue ("CIR") disputes the decision, dated 31

The facts, by and large, are not in dispute.

Fortune Tobacco Corporation ("Fortune Tobacco") is engaged in the

Elsa M. Cañete CPA, MBA, DBA 1

BRAND AD VALOREM TAX RATE

Hope Luxury M. 100's

Sec. 142. Cigars and Cigarettes. —

xxx xxx xxx

(c) Cigarettes packed by machine. — There shall be levied,

(1) On locally manufactured cigarettes which are currently classified

Elsa M. Cañete CPA, MBA, DBA 2

(2) On other locally manufactured cigarettes, forty-five percent

xxx xxx xxx

When the registered manufacturer's wholesale price or the actual

About a month after the enactment and two (2) days before the effectivity

REVENUE MEMORANDUM CIRCULAR NO. 37-93

SUBJECT: Reclassification of Cigarettes Subject to Excise Tax

TO: All Internal Revenue Officers and Others Concerned.

In view of the issues raised on whether "HOPE," "MORE" and

Section 142 (c)(1) National Internal Revenue Code, as amended by

On locally manufactured cigarettes bearing a foreign

Under the foregoing, the test for imposition of the 55% ad

"HOPE" is listed in the World Tobacco Directory as being

Since there is no showing who among the above-listed

Elsa M. Cañete CPA, MBA, DBA 4

Any ruling inconsistent herewith is revoked or modified accordingly.

On 02 July 1993, at about 17:50 hours, BIR Deputy Commissioner Victor

In a letter, dated 19 July 1993, addressed to the appellate division of the

WHEREFORE, Revenue Memorandum Circular No. 37-93

Elsa M. Cañete CPA, MBA, DBA 5

Respondent Commissioner of Internal Revenue is hereby enjoined

In the instant petition, the Solicitor General argues: That —

I. RMC 37-93 IS A RULING OR OPINION OF THE

II. BEING AN INTERPRETATIVE RULING OR

III. PRIVATE RESPONDENT IS DEEMED TO HAVE

IV. RMC 37-93 IS NOT DISCRIMINATORY SINCE IT

V. PETITIONER WAS NOT LEGALLY PROSCRIBED

Elsa M. Cañete CPA, MBA, DBA 6

VI. SINCE RMC 37-93 IS AN INTERPRETATIVE RULE,

In fine, petitioner opines that RMC 37-93 is merely an interpretative ruling

Let us first distinguish between two kinds of administrative issuances —

In Misamis Oriental Association of Coco Traders, Inc., vs. Department of

. . . a legislative rule is in the nature of subordinate legislation,

Public Participation. — If not otherwise required by law, an agency

Elsa M. Cañete CPA, MBA, DBA 7

(3) In case of opposition, the rules on contested cases shall be

In addition such rule must be published. On the other

It should be understandable that when an administrative rule is merely

A reading of RMC 37-93, particularly considering the circumstances under

Elsa M. Cañete CPA, MBA, DBA 8

RMC NO. 10-86

It has been observed that one of the problem areas bearing on

In order that there shall be a just enforcement of rules and

(1) This Circular shall apply only to (a) Revenue

(2) Except when the law otherwise expressly provides,

Due notice of the said issuances may be fairly