FACTS: These
cases involve the taxability of stemmed leaf tobacco imported and locally
purchased by cigarette manufacturers for use as raw material in the manufacture
of their cigarettes. Under the Tax Code, if it is to be exported or to be used
in the manufacture of cigars, cigarettes, or other tobacco products on which
the excise tax will eventually be paid on the finished product.
La Suerte was assessed by the BIR for excise tax deficiency
amounting to more than 34 million pesos. La Suerte protested invoking the Tax
Code which allows the sale of stemmed leaf tobacco as raw material by one
manufacturer directly to another without payment of the excise tax. However,
the CIR insisted that stemmed leaf tobacco is subject to excise tax
"unless there is an express grant of exemption from [the] payment of
tax."
La Suerte petitioned for review before the CTA which
cancelled the assessment. The CIR appealed to the CA which reversed the CTA.
The CIR invoked a revenue regulation (RR) which limits the exemption from
payment of specific tax on stemmed leaf tobacco to sales transactions between
manufacturers classified as L-7 permittees.
ISSUES: [1] Is
stemmed leaf tobacco subject to excise (specific) tax?
[2] Is
purchase of stemmed leaf tobacco from manufacturers who are not classified as
L-7 permittees subject to tax?
[3] Is
the RR valid?
[4] Is
the possessor or owner, or importer or exporter, of stemmed leaf tobacco liable
for the payment of specific tax if such tobacco product is removed from the
place of production without payment of said tax?
[5] Does
the imposition of excise tax on stemmed leaf tobacco under Section 141 of the
1986 Tax Code constitute double taxation, considering they are paying the
specific tax on the raw material and on the finished product in which the raw
material was a part?
HELD: [1] Yes,
excise taxes on domestic products shall be paid by the manufacturer or producer
before[the] removal [of those products] from the place of production."
"It does not matter to what use the article[s] subject to tax is put; the
excise taxes are still due, even though the articles are removed merely for
storage in some other place and are not actually sold or consumed.
When tobacco is harvested and processed either by hand or
by machine, all its products become subject to specific tax. Section 141
reveals the legislative policy to tax all forms of manufactured tobacco — in
contrast to raw tobacco leaves — including tobacco refuse or all other tobacco
which has been cut, split, twisted, or pressed and is capable of being smoked
without further industrial processing.
Stemmed leaf tobacco is subject to the specific tax under
Section 141(b). It is a partially prepared tobacco. The removal of the stem or
midrib from the leaf tobacco makes the resulting stemmed leaf tobacco a
prepared or partially prepared tobacco.
Despite the differing definitions for "stemmed leaf
tobacco" under revenue regulations, the onus of proving that stemmed leaf
tobacco is not subject to the specific tax lies with the cigarette
manufacturers. Taxation is the rule, exemption is the exception.
[2]
Stemmed leaf tobacco transferred in bulk between
cigarette manufacturers are exempt from excise tax under the Tax Code vis-a-vis
RRs.
Section 137 authorizes a tax exemption subject to the
following: (1) that the stemmed leaf tobacco is sold in bulk as raw material by
one manufacturer directly to another; and (2) that the sale or transfer has
complied with the conditions prescribed by the Department of Finance.
The conditions under which stemmed leaf tobacco may be
transferred from one factory to another without prepayment of specific tax are
as follows: (a) The transfer shall be under an official L-7 invoice on which
shall be entered the exact weight of the tobacco at the time of its removal;
(b) Entry shall be made in the L-7 register in the place provided on the page
for removals; and (c) Corresponding debit entry shall be made in the L-7
register book of the factory receiving the tobacco under the heading,
"Refuse, etc., received from the other factory," showing the date of
receipt, assessment and invoice numbers, name and address of the consignor,
forming which received, and the weight of the tobacco.
[3]
Yes, valid. Under Section 3(h) of RR No. 17-67,
entities that were issued by the Bureau of Internal Revenue with an L-7 permit
refer to "manufacturers of tobacco products." Hence, the transferor
and transferee of the stemmed leaf tobacco must be an L-7 tobacco manufacturer.
The reason behind the tax exemption of stemmed leaf tobacco
transferred between two L-7 manufacturers is that the same had already been
previously-taxed when acquired by the L-7 manufacturer from dealers of tobacco.
There is no new product when stemmed leaf tobacco is transferred between two
L-7 permit holders. Thus, there can be no excise tax that will attach. The
regulation, therefore, is reasonable and does not create a new statutory right.
Moreover, although delegation is not allowed as a rule, the
power to fill in the details and manner as to the enforcement and
administration of a law may be delegated to various specialized administrative
agencies.
[4]
Importation of stemmed leaf tobacco not included in the
exemption. The transaction contemplated in Section 137 does not include
importation of stemmed leaf tobacco for the reason that the law uses the word
"sold" to describe the transaction of transferring the raw materials
from one manufacturer to another.
[5]
In this case, there is no double taxation in the
prohibited sense because the specific tax is imposed by explicit provisions of
the Tax Code on two different articles or products: (1) on the stemmed leaf
tobacco; and (2) on cigar or cigarette.
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