CTA Case No. 2048 (Decision)

2F 'EPUl'LIC OJ'..THE PHILIPPINEI COURT TAX APPEA.LI QUEZON CITY LA SUERTE CIGAR AND CIGARETTE FACTORY, BATAAN CIGAR ~~D CIGARET~E FACTORY, INCo, Lit PERLA INDUSTRIES , INC . , PIONEER TOBACCO CORPORATION, INSULAR�YEB.\NA TOBACCO CORPORATION, LAS BT,JENAS FABRICA DE CIGARILLOS , INC � , LA DIGHA _GIGAR & CIGARETTE FAGTORY, GONSOLI:PATED �TOBACCO . UrDUSTRJES OF. THE PHILIPPINES , INc. , . LA. CAMPANA FABRICA DE TABACOO , INC o, ASSOC:IA1fED ANGLO..A!ViERIGAN TOBACCO COR- PORATION , . FORTUNE TOBACCO CORPORATION , BAGUMBUHAY CIGAR AND CIGARETTE FACTORY, STANDARD CIGARETTE ~llANUFACTUHING _CO,. , INc.; . , and D.L. TERUEL TOBACGO co., INCo 7 Petitioners, .... versus ... c.T . A. CASE NO � .2o48 HONORABLE MISAEL P. VERA , in his capacity as Commissioner of Inte.rnal Revenue, Respondent . X~ - - � � - - � � - ~ ~ - ~ - ~ - ~ ~ - X ALHAMBRA INDUSTRIES , INC . , LA FLOR DE LA ISABELA, INc.;ORPORADA, . and COLU!viliiA TOBACCQ CO~J.PANY , INC. , Petitioners, ... versus - C.T . A. CASE NO. 2031 HON. MISAEL P. VE~ , in his capacity as Commissioner of Internal Revenue , Respondent . I X~� - ~- - ~~- - - - - - - - - - X DECISION The two appeals from the decisionsof respondent are xnterrelated to each other. They involve various claims for refund of tobacco inspection fees on tobacco products such as cigars and cigarettes manufactured and removed for domestic sale or consumption imposed and. collected by respondent Commissioner of Internal :aevenue from petitioners Wlder Revenue Memorandum Circular No. 30-67 , dated August 22 , 1967, interpreting Section 6 (c) of Act No . 2613 , as amended qy Republic Act No . 3lo

C,T , A, Case No . 2048 - This case involves petitioners' various claims for refund amounting to ~1,406 , 877o64, covering the period frOm September 1967 to August 1969, inclusive, represent- ing tobacco inspection fees imposed and collected by res� pondent on said tobacco products for domestic sale or conswnption under Revenue Memorandum Circular No, 3Q...6?, dated August 22, 1967. The total amount paid, which is the subject of the various claims for refund, is not in disputei the same being the subject of stipulation bet- ween the parties (pp . 52-61 , CTA rec,), C, T, A. Case No . 2031 - On November 28, 1970, thi�s Court rendered its deci- sion (pp. 122-137 , CTA reco, CTA Case No. 2031) in this case denying .petitioners' various claims for refund of tobacco inspection fees amounting to �199,632~~19, cover- ing the period from Septembet 1967 to April 1969, �inclu.- sive , which were imposed and collected on petitioners' tobacco products such as cigars and cigarettes for do- mestic sale or consumption, In effect, this Court up- held respondent's stand that petitioners are liable to the tobacco inspection fees w1der Revenue Memorandum Cir- cular No . 30-6?, in relation to Sec. 6 (c) of Act No. 2613, �as amended by Rep. Act No . 31. Before our decision became final, petitioners filed a motion for reconsideration and prayed that, if denied, the case be reopened for the reception of evidence in . support of their argument that no inspection was actually conducted by the Tobacco Inspection Service of the Bureau of Internal Revenue, nor were inspection labels affixed

�I ' to the tobacco products which would warrant the imposi- > tion and collection of the tobacco inspection fees. Despite respondent's spirit ed opposition, we granted the motion to reopen in our resolution dated September 28, 1971 but denied the motion for reconsideration of our decision. In the said resolution, we ordered that CTA Cases Nos. 2048 and 2031 be heard jointly because the parties are represented by the same counsel ; both cases involve the same legal issu6; and the amounts involved in the litigation are not disputed (pp. 210-216, CTA rec., CIA Case No. 2031) . In CTA Case No. 2048, the issues posed for the Court's consideration are the following: 1. Whether or not the phrase "tobacco for domestic sale" found in Section 6(c) of Act No . 2613 (Tobacco Inspection Law), as amended by Republic Act No. 31 , in relation to Sec. 302 of the Revenue Code, includes tobacco products such as cigars and ciga- rettes; 2. Whether or not Rev enue Memorandum Circular No. 30-67 .of the Bureau of Inter- nal Revenue was v~lidly promulgated; and 3 . Whether or not an inspection was conducted on the tobacco products by the Tobacco Inspection Service of the Bureau of Internal Revenue. FIRST ISSUE: In CTA Case No. 2031, the issues rais ed are similar to the issues involved in CTA Case No. 2048, suprao How- ever, since we have already denied petitioners ' motion for reconsideration of our decision based on the first issue, the only questions left f or this Court to resolve, with respect to CIA Case No . 2031, are the second and third issues, supra. What is the meaning of the phrase "tobacco for domes- tic sale"? Does it include tobacco products such as cigars

- .4- and cigarettes? Petitioners argued� in CTA Case No. 2o48 that the collection of the tobacco inspec t ion fees on cigars and cigarettes for domes t ic sale or consumption under Revenue Memorandum Circular No., 3D-67 was ille gal because Act No . 2613, as amended by Republic Act No. 31, authorizes their collection only on leaf tobacco. This issue had already been raised and resolved by us in CTA Case Noo 2031. After a careful and thorough deliberation:. of the argu... ments raised, in relation to the evidence adduced by both partfes in support of their stand, we ,declared in CTA Case Noo 2031 that the collection of the tobacco inspection fees was valid and legal. On this point, we held as fol- lcwsa The Tobacco Inspection Law (Act No. 2613) was enated by the Philippine Legislature on February 4, 1916, authorizing the Collector (now Commissioner) of Internal Revenue to es- tablish general and local rules concerning the classification, marking and packing of tobacco for domestic sale or factory use and for expor- tation. Subsequently, two implementing regula- tions were issued by the Department of Finance, through the recommendation of the Collector of Inte.rnal Rev~nue, namely: Regulations No , 17 and No~ 47, issued on July 8, 1920 and May 12, 1925, respectively. Both regulations prescribed the manner of handling, packing, classifying , grading, inspection and shipment of leaf tobacco and partially manufactured tobacco from places of origin to local destination and manufactured products of tobacco for exporto On Oc t ober 1, 1946, the law which became Republic Act Noo 31 was approved. It amended certain sections of Act No., 2613, particularly Section 6(c) thereof, the interpretation ~f . which is now in controversy~ Section 6(c) of Act No , 2613 before and after its amendment are worded as follows& Section 6(c) - To require, whenever it shall be deemed expedient, the inspec- tion of and affixture of inspection la- bels to tobacco removed from the province � of its origin to another or other provinces before such re movalo

~ ., - Section 6{c) - To require whenever it shall be deemed expedient, the ins- pection of and �affixture of inspection labe~s to tobacco removed from the pro- vince of its origin to another or other provinces before such removal, or iQ . tob ceo for domestic s le or f ctor ~� Underlining supplied, The interpretation of the underlined phrase "tobacco for domestic sale or factory use" found in the amendatory law is the principal issueo Petitioners contended that the word "tobacco" found in Section 6(c) of the law refers to leaf tobacco alone and does not embrace tobacco pro- ducts such as cigars and cigarettes. Petitioners, therefore, disputed respondent's Memorandum Cir- cular Noo 30-67, requiring the inspection of all manufactured products of tobacco intended for do- mestic sale and the collection of the tobacco ins- pection fees imposed by Section 302 of the Revenue Code which providesa SEC. 302. Inspection Fees.- For inspection made in accordance with this Chapter, there shall be collected a fee of thirty centavos for each thou- sand cigars or fraction thereof in tfie lot offered for inspection; three cen- tavos for each thousand cigaret~ or fraction thereof in the lot offered for inspectionl� fifty centavos for each one hundred ki ogr ams of leaf tobacco or frac t ion t hereof in the lot offered f or inspectioni and one cent vo for ftach k~- logram or rraction thereof, of other � manufactured tobacco in the lot offered for inspection. (Emphasis supplied) Respondent vigorously contends that the phrase tttobacco for domestic sale" found in the amendatory law comprehends manufactured cigars and cigarettes for domestic sale and consumption. Petitioners' contention that the phrase "tobacco for domestic sale11 refers to leaf tobacco alone is restrictive, misleading, and agmns~ sound statutory construction. Webster's New International Dictionary 2nd edi- tion, p. 2658, defines tobacco as the leaves of the tobacco plant, prepared by drying and various manu- facturing processes, and used either for smoking or chewing, or as snuff, or the manufactured products from tobacco leaves; smoking or chewing tobacco, cigars, cigarettes, etc. collectively. From the above definition, it is clear that the word 'tobacco" refers both to leaf and manufactured tobacco such as cigars and cigaretteso It is to be noted that either Section 6(c) of ct No. 2613 or the amendatory law does not make a distinction as to

... 6 .... the meaning of t he word "to b~cco11 � Since our law- maki ng body use d . t he word tobacco in a general sense wi t hout an y qualification, this Court is po- w~ rless to give it a r e s t ric t ive meaning . Thus, it was helda XX XX XX XX XX XX XX XX XX XX Moreover, wheneve r our Revenue Code us e s the term "tobacco", whe the r as manufacturer or dealer, it refers to tobacco products" Instance s of t he legislat ive intent is manife sted in t he following provisions a SEC. 194~ Words and }2hr[iSeS defined~> X X X (m) X X X X (o) X X X X If we were to adopt pe titionersr r e strictive view of the meaning of tobacco as referring solely to leaf tobacco, then this Court would be declaring the ac t ion of our law-making body a mere exercise in futility , thereby rendering nugatory the provi- sions of Sections 6 (a) , 6(b) , 6(c ) , and 7 of Act No. 2613 , as amended by Republic ct No. 31, which reads as followsa XXX XXX XXX From the fore going provisions , it can be seen that leaf tobac~o and tobacco products for export are subject to th~ tobacco inspection fees. If Congress of the Philippines really intended to restrict the meaning of t he word "tobaccou under Republ~c Act No . 31! ~hich took effect Oc t ober 1 , 19.46 , ~n order t o l~~t the scope of the term tobacco under the law originally pas sed in 1'916 .and its im- plementing Regulations Nos. 17 and 47 , it could have easil y inserted the word ttleaf" to modify "tobaccon contained in the amendatory law. An examination of Sections 6(a) , 6(b) and 7, su2r5, reveals that , if our law-making body intended to limit the coverage of said sections to either leaf or manufactured to- bacco , it qualified the word "tobacco" with. such antecedent words. In Section 6(c) of Act No . 2613, as amended, no such qualificat ion was made by Con- gress, .thereby showing the broad scope and meaning of the word tobacco. For the Court to adopt petitio- ners' construction that tobacco means "leaf tobaccon would be engaging in unauthorized judicial legisla- tion by rewri t.ting the law and inserting words and phrases not found in it~ XXX XXX XXX Even the Philippine Tobacco Board (petitioners are members thereof), after Memorandum Circular No. 30..67 of respondent was promulgated, adopted Resolu-

tion No. 2-67 interpreting th' e. phrase "tobacco f �or domestic sale" as referring to wholesale disposal of tobacco products by cigar and cigarette facto- ries to its dealers while the phrase "tobacco for , factory use" meant nimported leaf tobacco� intended for use by cigar and cigarette factories in the ma... nufacture of tobacco products. Petitioners claimed that before the enactment of Republic Act No . 31 , amending Section 6(c) of Act No . 2613 , former Collectors and Comra.issioners of Internal Revenue had never imposed and collected tobacco -inspection fees on cigar and cigarettes re- moved for domestic sale or conswnptiono. It is Bll'- gued, therefore , that respondent should follow the inter~etation of his predecessors who - ruled tha~ the word "t�obacco" refers to leaf tobacco alone. The fallacy of petitioners� argument lies in the fact that, long before the last war up to the present time, tobacco inspection fees were collected on manufactured cigars for export and, therefore, the word 11 tobacco" is not applied to leaf tobacco alone but .it also includes tobacco products for ex- port like cigars , che't-ring tobacco, etc. Peti tioners r elied mainly on the explanator y note- to the bill whi ch became Republic ct No . 31. They alleged that the word lltobacco" refers to l eaf tobacco" for domestic sale or for exiortation. The phrase " tobacco for � � � factory use undoubt- edly refers to "leaf tobaccon Wlder the amendatory law {Sec . 6LC7, Republic Act No . 31) . Congress , however , omitted the descriptive word "leaf" and used the phrase "tobacco for domestic sale or fac- tory use" . Since tobacco products for exportation such as cigars and chewing tobacco are subject to ? to tobacco inspection fe.e s long before the last war and up to the present time , the deletion or non-in- clusion of the descriptive word "learn from the con- troversial phrase tttobacco for domestic sale or fac- tory usen indicate s a legislative intent to protect the local consumers pf tobacco products. Certainly, our lawmakers cannot be more solicitous of the health and smoking pleasure of foreign consl,llilers of tobacco products than of our own local consumers. Moreover, considering the amendatory law and even under the ori- ginal law, respondent is not precluded from rectify- ing the erroneous interpreta t ion of the law made by 1 his firedecess or.s. (Tan Guan v. Court of Tax Appeals, et al., G.R. No. L-23676, April 27 , 1967; Philippine American Drug Co . v . Co11 . of Int . Rev ., G. R. No . L-13032, ug . 31, 1959. ) For the foregoing considerations , this Court holds that the word tttobaccott and the phrase "to- bacco for domestic sale" found in Section 6 (c) of ct No . 2613 , as amended by Republic Act No. 31 , includes manufactured tobacco such as cigars and

'i 8 ... cigarettes . The collection , therefore , of the tobacco inspection fe~s on the cigars and cigar- ettes removed by the petitioners from their fac- tories for domestic sale is legal and justified. Moreover , the word 11 tob_acco" found in Section 6(c) of Act No . 2613 , supra , was clarified by Section 302 of the Revenue Code , which took effect on J uly 1 , 1939 , by express- ly authorizing the collection of tobacco inspection fees on cigars , cigarettes , leaf_tobgcco , and other manufactured to- bacco . Consequently , when the phrase "tobacco for domestic sale or factory use" was added to Section 6(c) of Act No o 2613 , as amended by Republic Act No . 31 , which took effect �on October 1 , 1946 , the meaning and scope of the word "tobac- co" are no longer in dispute . At any rate , we are going to 7 to discuss the other issues for the sake of argument. SECOND ISSUE: Petitioners argue that Revenue Memorandum Circular No . 30-67 does not have the force and effect of law be- cause it is not a regulation as required by Section 4 (j} of the National Internal Revenue Code , nor has it been published in the Official Ga~ette , as prescribed in Sec - tion 79(B) of the Revised Administrative Code . It would seem that petitioners have misconstrued an administrative rule of re,gulation from an administrative interpretation of a law whose enforcement is entrusted to an administ~ative body. When an ad~inistrative agency is autporized by law to promulgate rules and regulations , it practically "makes" a new law out of the law with the force and effect of a valid law . However , when it renders

.:.. 9 - > an opinion by means of circular or memorandum, it merely interprets a pre-existing law. To be effective and valid, the regulation must be approved by the proper official designated by law for the purpose and published in the Official Gazette; while an opinion or policy based on the law needs no such approval nor publication for its validity. (Victorias Milling Co . , Inc . vs. Social S�ecu- rity System, If SGRA 627, 630; see also Rcbmualdez vs . Area, 27 SCRA 828; Interprovincial utobus Co . vs . Coll o of Int . Rev . , 98' Phil . 290; Geotina vs . Court of Tax Appeals, G. R. No . L-33500 , Aug . 30 , 1971 . ) A rule of regulation �may be incorporated in the form of a circular . (People vs . Jolliffe, 105 Phil. 677) , which simply means that the substance and not the form of a regulation is decisive in determining ,1 ts nature . For a better appreciation of this particular question, we are tracing the antecedent facts which led to the is- suance of Revenue Memorandum Circular No . 30-67 , dated August 22, 1967. Act No � 2613 was passed by the Philippine Legisla- ture on February ~, 1916. Section 6 (c) thereof provided as follows: Section 6 (c) - To requi~e, whenever it shall be deemed expedient , the inspection of and affixture of inspection labels to tobacco removed from the province of its origin to ano- ther or other provinces before such removal. On Octobe r 1, 19lf6, Republic Act No . 31 was approved I amending, among others, Section 6 (c) of Act No. 2613 as follows: Section 6(c) - To require, whenever it shall be deemed expedient, the inspection of and affixture of inspection labels to tobacco removed from the province of its origin to another or other provinces before such removal, or to tobacco for domestic sale or factory use. (Underscoring supplied)

- 10- Pursuant to the above provision of law, the Bureau of Internal Revenue' on ~ctober 29 , 1946, issued General Circular No. V-27, wherein it provided, among others, that only le~t ~bacc9~--~ot_domestic s ~~ or f actory use and manuf P. ct ured tobaccos f or e...cport are su bje c t t o i ns - pectio:n and pa yment of tile corresponding inspec tion fe es . For reference, the pertinent provisions thereof read as follows: SUBJECT: Inspection required for all leaf tobacco for domestic sale or factory use and for all leaf tobacco and the manufactures thereof for export to any foreign coun- try; inspection fee on leaf tobacco in- creased from P0.25 to ~ 0.50 per hundred kilos or fract.ion thereof. XXX XXX XXX For the purpose of carrying out the foregoing pro- visions, t he following rules are hereby promul- gated, effe ctive Oct:tober 1, 1946: 1. All leaf tobacco harvested in the Philip- pines, whether removed from the place of its ori- gin or not so long as it is intended for domestic sale or factory use, shall be inspected and the corresponding inspection fees assessed and col- lected. X X X (Pp. 297-200, CTA ree., CTA Case No. 2048o) ? On August 22, 1967, Revenue Memorandum Circular No . 30-67 was issued, to become effective on September 1, 1967, amending General Circular No. V-27, the portions thereof, relevant to the issue under consideration, read as follows: To A11 Internal Revenue Officers and Other~ Concerned: SUBJECTs Inspection required for all locally produced leaf tobacco and ~artiallY manufactureg tobacco intended for domestic sale, for factory use or for export; all manufactured Droducts ot

.... 11- tobacco contemplated in Sectfon 194(m) of the Tax Code intended for domestic sale� and all imported foreign leaf tobacco and partially manufactured tobacc.o for domestic sale or factory user� the ins- pection fee shall ~e as provided in Sect on 302 of the Tax Codeo SECTION 2o x X X X X X Sec. 1. All leaf tobacco �harvested in the Philippines and partiallY manufactured tobacco whether removed from the place of .its origin or not so long as they are intended for domestic sale, for factory use, or for export; all manufac- tured roducts of tob ceo contem 1 ted in Section 1 m of the N tion 1 Intern 1 Revenue Code in� tended for domestic sale"; and all imported fo- reign leaf and partially manufactured tobacco in- tended 11for domestic sale or factory use", shall be inspected and the corresponding inspection fees assessed and collected. x � x x (Underscoring supplied) (Pp~ 37-38, BIR rec., CTA Case Noo 2031.) The reason behind the issuance of Revenue Memorandum Circular No. 30w67 was stated in Resolution Noo 2-67, ap- proved on May 31, 1967, of the Philippine Tobacco Board Its chairman is the responden~ Commissioner of Internal Revenue. The herein petitioners, as members of the Manila Tobacco ssociation, Inc., were represented in the said Board which adopted the said resolution reading as followsa XXX XXX XXX XXX WHEREAS , this original recommendation of Mr. Hernandez was perfectly in accordance with existing law, more particularly Section 1 of Republic ct Np. 31 which took effect since September 25, 1946, but perhaps thru oversight by the former Commissioners and officers of the Tobacco Inspection Service the propriety �and le- gality of effecting the inspection of tobacco pro- ducts for local sales and imported leaf tobacco for factory use might have been overlooked result- ing in huge losses of tobacco inspection fees from September 25, 1946 to the present, consider- ing that based upon records of local average sales of cigarettes aanndnu3a6l,lyoooo~fo.oo1,o9o,0o0s0ii0c0k0s,00(V0 isrgtiicnkias (native leaf) leaf) used the corresponding tobacco inspection fees at ~.03 per thousand amounts to ~1 ,65o,ooo.oo aside from cigars, the records of annual sales on which are not yet available; XXX XXX :XXX XXX (Pp. 35-36, BIR rec., CTA Case No . 2031, under- scoring supplied.)

1 12 - ~ - I From the foregoing ; it can be gleaned that Revenue Memor andum Circular No~ , 30-67 gives information or instruc- tion "To All Internal Revenue Officers and Others Con- cerned'' requiring,, among others, all locally produced leaf and partially ma~ufactured tobacco in~ended for domes- tic sale, for factory use and, for export and all manufac- tured products of t obacco under section 194(m) of the Revenue Code intended for domestic sale shall be ins- pected and the corresponding inspection fees assessed and collected as required in Section 302 of the same Code. It will thus be seeri that Revenue Memorandum Circular No. 30-67 was issued to correct the liberal policy adopted by previous officials of the Bureau of Int ernal Revenue in the promulgation of General Circular No. V-27. Accord- ingly,, it became necessary f or respondent to issue Reve- nue Memorandum Circular No. 30-67 to interpret and cons- true the phrase 11 to tobacco products for domestic sale Ol"� factory usen found in Section 6(c) of Act No. 2613, as amended by Republic �Act No o 31, thereby arres ting huge losses of tobacco inspection fees on tobacco products for domestic sale which were not i mposed and collected since the effectivity of General Circular No. V-27o Re- venue emaandum Circular No. 30-67 was, therefore, issued to apprise those concerned of the construction or inter- pretation which should be accor ded to said Ac!t No. 2613, as amended, and which respondent was duty bound to enforce. In other words, the Circular in question is an opinion of the respondent~ to how the said law should be construedo In his int erpretation, no at tempt .was made to enlarge or restrict the meaning of the law. He merely gave v!ay to

- 13 - the apparent, ordinary, and correct meaning of the phrase in question. � Comparable in many respec t s is the c ase of Victor- ias �tllling Coo, Inc . vs . Social Security System, 4 SCRA 627 , 630 , involving a circular issued by the Social Secu- rity Commission directing employers-members of the Sys- tem to take into considerat ion all bonuses and overtime pay i~ computing the premiums due it . Petitioner there- in protested said circular because i t contradicts a prev- ious circular expressly excluding bonus and over t ime pay from the definition of the term 11 compensat~on" in comput- ing the pr emium due the Systemo It was further all eged that the ne.w circular is invalid because it was neither approved by the President of the Philippines nor published in the Offic i al Gazet t e . The Supreme Court , however , up- held the validity of the new circular since the amendment of the law upon which the _old circular was based required the issuance of ~t he new circular . The High Tribunal dis- posed of the issue in this wise: 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 exemp- ted from the definition of the term "compen- sation" , such exemption or excl usion was dele- ted by the amendatory law. It thus became ne- cessary f or the Social Security Commission to interpret the effect of such deletion or eli- mination. Circular No . 22 was , therefore , is- ~ued to ap prise those concerned of the inter- pretation or understanding of the Commiss i on, of the law as amended , which it was its duty to enforce . It did not add any duty or detail thEtt wa-s no t already in the law as amended . It merely ststed and circularized the opinion of the Commis sion as to how the law should be construed. We find , ther efore , that CircuJa r No, 22 purports merel;t to advise emJ?loyers- members of

- llt - the System of what; in the light of the amend- ment of the l aw, they should include in deter- mining the monthly� compensation of their em- ployees upon which the social security contri- butions should be base, and that such circu- lar did not require presidential approval and ublication in the Official Gazet t e for its effectivity., (Underscoring su plied Moreover, Revenue Iv1emo1'andum Circular No . 30-67 does not provide a penalty: for its violation. It follows, therefore , that circulars, rules or reglllations which do not contain a penal sanction, despite the adverse consequences it may have upon those \vho violate the ame, are not required t o be publiS:ed in order to be valid. (Comrn. of Customs vs. Caltex (Phil.), Inco, 23 SCRA 650; Balbuna vs . Sec . of Education, G. R. No. L- 14-283, Nov . 29 , 1960.) The cas es cited by petitioners on this point are either not applicable or they in- volved circular OJ.: .L'eglllation providing a penalty .. As- suming arguendo that Revenue Memorandum Circular No . 30- 67 must be promulgated by the Secretary of Finance 'I and publised in the Official Gazet ~e to be valid and effective, nontheless, said r 'equirements of the law have been sllbstantially complied with in this case. The authority to promulgate rules and regulations I is lodged with th~ Secretary of Finance upon recomrnend- ation of the Commissioner of' Internal Revenue . The law provides: Sec . 338 . ~uthority of Secretary of Finance to promulgate rules and regulations.- The Secretary of Finance , upon recommendation of the Commissioner of Intern~l Revenue , shall promulgate all n eedful rules and regulations for the effective enforcement of the provisions of this Code. (National Internal Revenue Code) It is true that no regulation has ~yet been pro- mulgated by the Secretary of Finance requiring the ins-

- 15 - I paction fees on locally .manufactured cigars and cigar- ettes for domestic saleo The Secretary of. Finance, however , upon the recommendat ion of the Commissioner t of Internal Revenue had approved Revenue Nemorandum Cir- cular _No . 30-67 requiring , among others, inspection -of all manufactured products of tobacco for domestic sale and the collection of inspection fees . The said ap- proval is a substantial compliance of the revenue lawo As to the lack of publication of Revenue Memotan- du~ Circular No . 30-67 , Section 79(B) of the Revised dministrative Code r elied upon by petitioners provide_s: Sec . 79(B). Power tor egulate.-The Department Head shall have the power to re- gulate , whenever he may see fit to do so, all rules , regulations , orders ; circulars , memorandums , and other ins tr llCtions , not contrary to law, necessary to regulate the proper working and harmonious, and efficient administration of each and all of the of- fices and dependencies of his Department , and for the strict enforcement and proper execution of the laWw relat ive to matters under the jurisdiction of said Department; but none of said rules or orders shall pres- cribe penalties for the violation thereof , except as expressly authorized by law. P~l rules , regulations, orders, or instructions of a general and permanent character promul- gated in conformity with this section shall be num bered by each Department consecutively each :;.rear , and shall be duly published . Chiefs of Bureaus or Offices ma.y , how~ ever , be authorized to promulgate circulars of information or instructions for the go~ gernment of the officers and . employees in the interior administration of the business of each Bureau or Office , and in such case .�..aid circulars shall not be required to be publishea. (Underscoring supplied) Petitioners admit that the Circular in question "is but a. memorandum circular f or purposes of the interior administration of the Bureau of Internal Revenue , NOT a � re gulation within the contemplation of the afore ited Sections 4- and' 338.of the National In t ernal Revenue Code

... 16- an action '19(B) of the Revised Administrat ive Code." (P. 255, CT rec ., CTA Case No. 2o40o) On the basis of petitioners ' admissbn, Circ ular No . 30-67 need not be published pursuant to the second para5raph of Section 79(B), supra. The purpos1 however, of t he law in requiring the publication of rules and re tllations is to inform or notif � those who may be adversely affected thereby. The purpose behind this re uirement : ~as been subs t antia-lly complie with because , as admitted by petitioners, they were each furnished an served a copy of Revenue ~emoran- dum Circular No . 30-67o THI ISSU�: Petitioners assailed the legalit of the collection of tobacco inspection fees on two grounds , namely: (a) the duties of inspecting tobacco pro ucts and affi ing inspection labels thereto ~~der ,ct No . 2613, as amended, are exclusively lodged in the Tobacco� Inspection Service of the Bureau of Internal Revenue and not \�lith the reve- nue agents of the Tobacco and Miscellaneous Tax Division; and (b) the agents of the Tobacco and Miscellaneous Tax Division did not conduct the required inspection but merely made verific ation for purposes of collecting the specific � tax � The inspection of tobacco products and aftixture of inspection labels thereto are requirements imposed by Sec- tion 6(c) of Act No. 2613, as amended by Republic ct No . 31, which provides& Section 6(c) - To require, whenever it � shall be deemed expedient, the inspection of 90d a fixture of inspection labels to tobacco removed from the province of its origin to another or ot her provinces before such r emoval, or to tobacco for domestlc sale or factor y use . (Underscor ing supplied)

- 17 - The same ct, however,, authorizes respondent to appoint tobacco inspectors or any officer or employee of the T BIR to perform the duty pertaining to the Tobacco Ins- pection Service� T~e law provides& Section 9. The Collector of Internal Revenue may appoint inspectors of tobacco for the purpose of making the dientsapiel catniYon herein required and maY a lso officer or em lo ee of the Bureau to~- , form such duty � <~ � � � � Underscoring supplied) In compliance with the inspec t ion requirement of r Revenue Memorandum Circualr No~ 30-67, interpre t ing Section 6(c) of Act Noo 2613, as amended, supra, and in order to avoid possible confusion and disruption of petitioners' business operations thru unnecessary dupli- cation of functions, respondent issued a memorandum, dated October 11, 1967, addressed to " 11 Manufacturer s of Tobacco Productsu, which was duly served on petitio- ners, advising them that the "inspection made by the BI R Agents assigned in the factories xx xx xx shall be deemed ~ufficient compliance with the ins pection re- quirement of Sgid Revenue ~�1ernorandqm Circ ular_ Ii.q, � 3C- 6,2 � �� �" (p. 26, BIR rec. , CTA Case No. 2031). Under Section 6(c) of Act No. 2613, as amended , supra, the inspection and affixture of inspection labels to tobacco products for domestic sale fall within the discretionary powers of the respondento � s therein pro- vided, such inspection and affixture o~ inspection la- bel�s may be required by him whenever he shall deem it expedient, implying that he is not duty bowad at all times to perform such duties unless he deems .it expe- dient or convenient. Likewise , for undertaking the re- quired inspection, Section 9 of the said Act authorizes respondent to appoint tobacco inspectors, or he may ...--..

O!it 18 ... detail any officer or employee of the Bureau to per- form such duty. Consequently, when respondent, in his memorandum of October '11, 1967, supr9, considered the inspection made by the revenue agents from the Tobacco and Miscellaneous Division assigned in the tobacco fac- tories as sufficient comp+iance with the inspection re- quirement of Revenue Hemorandum Circular No. 3G-67, he was just exercising an act which the law authorizes him to doo For the same reason, the failw-e of respondent to affix the inspection labels to tobacco products does not render invalid �the collection_of the tobacco inspection fees from the petitioners. In both instances, respondent merely exercised a discretion explicitly authorized and sanctioned by law. Petitioners alleged that in the s~id memorandum, � dated October 11, 1967, the declaration that the inspec- tion made by BIR agents as sufficient c�ompliance viith the law is illegal because it was not approved by the ecretary of Finance. Said approval is not indispen- sable in this case since said memorandum is but a mere implementation of B.evenue lvfemorandum Circular No. 3o-67 which had already been approved by the said official. Petitioners presented testimonial evidence shovring that the agents of the Tobacco aqd Miscellaneous Divi- sion assigned in the various tobacco factories were there to inspect the tobacco for purposes of collecting the specific tai and not the tobacco inspection feeso Upon stipulation of the party litigants and to dis- pense with the presentation _of numerous witnesses~ it was a,greed that the testimony of Mr. Vicente Chua, Production Manager of La Suerte Cigar and Cigarette Factory, shall be considered as the procedure of inspection followed in

- 19 - -' ' the factories of all the petitioners for the perio~ under reviewo These are the salient features of his , testimony.: before the cigarettes were removed from the factor y , they were invoiced by the revenue agent as- signed there to check on the number of cases of ciga- rettes that were to be removed ; revenue agents checked the quantity of cigarettes .manufactured, quantity of cigarettes removed, strip stamps affixed; and early in the morning before the start of the operati qn, the re- venue agents checked the cigarette bobbins , strip stamps and saw to it that cigarettes re moved were properly re- corded in the books (pp., 6()...63, t. s . n . ) . Also from t he testimonies of the other witnesses of petitioners, it was shown that revenue agents and t obacco inspectors were permanently assigned in t he to- bacco factories (p . 12 , t . s . n .) ; they were provided with an ,office (P,� 21 , id . ); ear-ly in the morning , they I - I opened the machine , assigned the bobbins to be used, and they affixed the sea~ at 12,00 midnight (pp~ 19-20, id .); they saw to it that all raw materials for use in the manufacture of the finished products were duly re- corded ; and in the process of' manufacture, all tobacco products found unfit for sales were s~gregated by the factory employees thru the supervisi on of the revenue agents (pp. 2~43, id.). The foregoing testimonies belie petitionersr assert- ion that no actual inspection was conducted by agents of the respondent to justify the collection of the tobacco inspection fees. The testimonial evidence sufficiently establish that among the duties of the factory agents and tobacco inspectors area to check the kinds and quan- tities of raw materials that enter the fac t ory; the bob- bins used; the quant i t y and genuinness of the strip

/' - 20- stamps& the actQal qQantities of the tobacco products manufactured and removed; and the segregation of old tobacco products foQUd QUfit for sales. On the basis of the inspection procedure testified to by petitioners'- witness, respondent properly ascertained the inspection fees on tobacco products imposed under Act No. 2613, as amended , in relation t~ Section 302 of the Revenue Codeo Moreover, Mr. Rodolfo C.:oloso, �office Hanager, Co- lumbia Tobacco Corporation, testified that manQfactu- rers of tobacco products have to accomplish a BIR form captioned "Application For Inspection For Imported Leaf, Partially Manufactured Ti:ilbacco Products And Local- ly Manufactured Tobacco For Local Sale And/Or Factory Use" before paying the inspection fees re~uired by ct No. 2613, as amended. (E~q A, p .. 223, CTA reco, CTA Case No. 2031; pp. 4-5-4-7, t.s.n.) In said form, the manufacturers are required to state under oath that they will not remove or attempt to remove tobacco pro- ducts until the same shall qave been duly inspected by the revenue agento The L'evenue agent or tobacco ins- pector assigned in the factory is likewise required to certify therein that he had� inspected the tobacco pro- ducts .. In the appealed cases,the fprm in question is deemed to have been accomplished inasmQch as the to- bacco products have already been removed from the fac- tories and the corresponding inspection fees due there- on have been paid. It follows as a logical conclusion that the required inspection of the tobacco products had been made by the revenue agents~

':'" 21 - Wr~REFORE , the various claims of petitioners f or refund of tobacco inspection fees amounting to Pl , 606 , 509 . 83 in both appeals , CTA Cases Noso 2048 and 2031 , are hereby denied o Without pronouncement as to costs o SO ORDERED. Quezon City , Dec ember 15 , 1972 o ~ 4:-~U_;,~ (i?~~ E ~NISLAO R. ALVAREZ Associate Judge ~ iE CONCUR: ROMN M. UMALI Presiding Judge L1~ � FWAON L . AVANCEl~ Associate Judge