CIR vs. CA, CTA and FORTUNE TOBACCO CORPORATION G.R. No. 119761 August 29, 1996, Taxation


‘Champion,’ ‘Hope,’ and ‘More’ were classified 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 and registered as a local brand.” Ad Valorem taxes were imposed on these brands.

RMC 37-93, Reclassification of Cigarettes Subject to Excise Tax, was issued by the BIR which aims to collect deficiencies on ad valorem taxes against Fortune Tobacco following their reclassification as foreign branded cigarettes.

“HOPE,” “MORE” and “CHAMPION” being manufactured by Fortune Tobacco Corporation were considered locally manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax on cigarettes under RA 7654.

Fortune Tobacco filed a petition for review with the CTA. RMC 37-93 is found to be defective, invalid and unenforceable.

The CA sustained the decision of the CTA. Hence, this appeal.


Is RMC 37-93 a mere interpretative ruling, therefore not requiring, for its effectivity, hearing and filing with the UP Law Center?


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:


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


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.

All taken, the Court is convinced that the hastily promulgated RMC 37-93 has fallen short of a valid and effective administrative issuance.


The decision of the Court of Appeals, sustaining that of the Court of Tax Appeals, is AFFIRMED.

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