The Department of Finance did not exceed its legislative delegation in imposing conditions on the tax exemption for sales of stemmed leaf tobacco between cigarette manufacturers. While the power of taxation is inherently legislative, Congress can delegate details of enforcement and administration, such as imposing procedural conditions, to specialized agencies like the Department of Finance. The conditions imposed by the Department of Finance's regulations were procedural and did not substantively modify the classes of manufacturers eligible for the tax exemption under the law.
The Department of Finance did not exceed its legislative delegation in imposing conditions on the tax exemption for sales of stemmed leaf tobacco between cigarette manufacturers. While the power of taxation is inherently legislative, Congress can delegate details of enforcement and administration, such as imposing procedural conditions, to specialized agencies like the Department of Finance. The conditions imposed by the Department of Finance's regulations were procedural and did not substantively modify the classes of manufacturers eligible for the tax exemption under the law.
The Department of Finance did not exceed its legislative delegation in imposing conditions on the tax exemption for sales of stemmed leaf tobacco between cigarette manufacturers. While the power of taxation is inherently legislative, Congress can delegate details of enforcement and administration, such as imposing procedural conditions, to specialized agencies like the Department of Finance. The conditions imposed by the Department of Finance's regulations were procedural and did not substantively modify the classes of manufacturers eligible for the tax exemption under the law.
The Department of Finance did not exceed its legislative delegation in imposing conditions on the tax exemption for sales of stemmed leaf tobacco between cigarette manufacturers. While the power of taxation is inherently legislative, Congress can delegate details of enforcement and administration, such as imposing procedural conditions, to specialized agencies like the Department of Finance. The conditions imposed by the Department of Finance's regulations were procedural and did not substantively modify the classes of manufacturers eligible for the tax exemption under the law.
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LA SUERTE CIGAR & CIGARETTE FACTORY, petitioner vs COURT OF APPEALS
and COMMISSIONER OF INTERNAL REVENUE, respondents
G.R. No. 125346, November 11, 2014, EN BANC LEONEN, J
FACTS: The petitioner, La Suerte Cigar and Cigarette Factory (La Suerte) including Fortune Tobacco Corporation (Fortune) and Sterling Tobacco Corporation (Sterling) are domestic corporations engaged in the production and manufacture of cigar and cigarettes. These cases involve the taxability of stemmed leaf tobacco imported and locally purchased by said cigarette manufacturers for use as raw material in the manufacture of their cigarettes. Under the National Internal Revenue Code of 1997 (1997 NIRC), before it was amended on December 19, 2012 through Republic Act No. 10351 (Sin Tax Law), stemmed leaf tobacco is subject to an excise tax of P0.75 for each kilogram thereof. The 1997 NIRC further provides that stemmed leaf tobacco - leaf tobacco which has had the stem or midrib removed - may be sold in bulk as raw material by one manufacturer directly to another without payment of the tax, under such conditions as may be prescribed in the rules and regulations prescribed by the Secretary of Finance. Court of Tax Appeals' decision held petitioner La Suerte Cigar & Cigarette Factory (La Suerte) liable for deficiency specific tax on its purchase of imported and locally produced stemmed leaf tobacco and sale of stemmed leaf tobacco to Associated Anglo-American Tobacco Corporation (AATC) during the period from January 1, 1986 to June 30, 1989. Fortune Tobacco Corporation (Fortune) was not obliged to pay the excise tax on its importations of stemmed leaf tobacco for the periods from January 1, 1986 to June 30, 1989 and July 1, 1989 to November 30, 1990. Sterling Tobacco Corporation (Sterling) was liable to pay deficiency excise taxes on its importation and local purchases of stemmed leaf tobacco from November 1986 to June 24, 1989. The exemption from specific tax of the sale of stemmed leaf tobacco is qualified by and is subject to "such conditions as may be prescribed in the regulations of the Department of Finance." These conditions were provided for in RR Nos. V-39 and 17-67. Thus, Section 137 must be read and interpreted in accordance with these regulations. Section 20(a) of RR No. V-39 provides the rules for tax exemption on tobacco products: SECTION 20. Exemption from tax of tobacco products intended for agricultural or industrial purposes. — (a) Sale of stemmed leaf tobacco, etc., by one factory to another.— Subject to the limitations herein established, products of tobacco entirely unfit for chewing or smoking may be removed free of tax for agricultural or industrial use; and stemmed leaf tobacco, fine-cut shorts, the refuse of fine-cut chewing tobacco, refuse, scraps, cuttings, clippings, and sweepings of tobacco may be sold in bulk as raw materials by one manufacturer directly to another without the prepayment of the specific tax. The cigarette manufacturers contend that the authority of the Department of Finance to prescribe conditions is merely procedural.
ISSUE: Whether or not the Department of Finance exceed allowable limit of legislative delegation?
RULING:
No. The Department of Finance did not exceed allowable limit of legislative delegation. Its rule-making power is only for the effective enforcement of the law, which implicitly rules out substantive modifications. The Secretary of Finance cannot, by mere regulation, limit the classes of manufacturers that may be entitled to the tax exemption. Otherwise, Section 137 (Section 132 in the 1939 Tax Code) would be invalid as an undue delegation of legislative power without the required standards or parameters.
The power of taxation is inherently legislative and may be imposed or revoked
only by the legislature. Moreover, this plenary power of taxation cannot be delegated by Congress to any other branch of government or private persons, unless its delegation is authorized by the Constitution itself. Hence, the discretion to ascertain the following — (a) basis, amount, or rate of tax; (b) person or property that is subject to tax; (c) exemptions and exclusions from tax; and (d) manner of collecting the tax — may not be delegated away by Congress. However, it is well-settled that 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 like the Secretary of Finance in this case.
