EN BANC

[G.R. No. 149154. June 10, 2003]

RODOLFO S. DE JESUS, EDELWINA DG. PARUNGAO, HERMILO S. BALUCAN, AVELINO C.

CASTILLO, DANILO B. DE LEON (Interim Board of Directors, Catbalogan Water District),
and ALICE MARIE C. OSORIO (Board Secretary), petitioners, vs. COMMISSION ON
AUDIT, respondent.

DECISION
CARPIO, J.:

The Case

This is a petition for certiorari[1] to annul the Decision dated 12 September 2000 of the
Commission on Audit (COA) and its Resolution dated 5 July 2001. The COA affirmed the disallowance
of payment of allowances and bonuses to members of the interim Board of Directors of the Catbalogan
Water District.

The Antecedents

An auditing team from the COA Regional Office No. VIII in Candahug, Palo, Leyte, audited the
accounts of the Catbalogan Water District (CWD) in Catbalogan, Samar. The auditing team discovered
that between May to December 1997 and April to June 1998, members of CWDs interim Board of
Directors (Board) granted themselves the following benefits: Representation and Transportation
Allowance (RATA), Rice Allowance, Productivity Incentive Bonus, Anniversary Bonus, Year-End
Bonus and cash gifts. These allowances and bonuses were authorized under Resolution No. 313,
series of 1995, of the Local Water Utilities Administration (LWUA).
During the audit, the COA audit team issued two notices of disallowance dated 1 October 1998
disallowing payment of the allowances and bonuses received by petitioners, namely: Rodolfo S. De
Jesus, Edelwina DG. Parungao, Hermilo S. Balucan, Avelino C. Castillo and Danilo B. De Leon as
members of the CWD Board as well as Alice Marie C. Osorio as the Boards secretary (collectively
petitioners). The audit team disallowed the allowances and bonuses on the ground that they run
counter to Section 13 of Presidential Decree No. 198 (PD 198).
Petitioners appealed to the COA Regional Office No. VIII but COA Regional Director Dominador
T. Tersol denied the appeal. Aggrieved, petitioners filed a petition for review with the COA which in a
decision dated 12 September 2000 denied the petition. The COA also denied on 5 July 2001
petitioners motion for reconsideration.
Hence, the instant petition.

The COAs Ruling

The COA explained that members of the CWD Board cannot receive compensation and other
benefits in addition to the per diems allowed by Section 13 of PD 198. We quote the relevant portion
of the COAs decision:

Resolution No. 313, s. 1995, as amended, which grants compensation and other benefits to the
members of the Board of Directors of CWD is not in harmony with the aforequoted provisions of Sec.
13, PD 198, which speaks only of per diems, the amount of which is subject to approval by the
administrator if more than P50.00 each for every meeting.
It is a fundamental rule in statutory construction that if a statute is clear, plain and free from
ambiguity, it must be given literal meaning and applied without attempted interpretation. Thus, any
resolution granting allowances to directors of Water Districts other than that authorized in Sec. 13 of
PD 198 is null and void. A statutorily proscribed benefit may not be amended by a mere
administrative fiat.[2]

The Issues

Petitioners contend that the COA committed grave abuse of discretion amounting to lack or
excess of jurisdiction in -
1. Motu proprio exercising jurisdiction to declare LWUA Board Resolution No. 313, Series of
1995, as amended, not in conformity with Section 13 of PD 198, as amended;
2. Ruling that Section 13 of PD 198, as amended, prohibits payment to petitioners of RATA,
extraordinary and miscellaneous expenses (EME), and other allowances and bonuses;
3. Demanding the refund of the disallowed allowances and bonuses received by petitioners
as interim members and secretary of the CWD Board.

The Courts Ruling

The petition is meritorious in part.

The Catbalogan Water District was created pursuant to PD 198, as amended,[3] otherwise known
as the Provincial Water Utilities Act of 1973. PD 198 authorized the local legislative bodies, through
an enabling resolution, to create their respective water districts, subject to the guidelines and
regulations under PD 198. PD 198 further created the Local Water Utilities Administration (LWUA), a
national agency, and granted LWUA regulatory powers necessary to optimize public service from
water districts.

COA s Authority to Disallow Allowances and Benefits Granted under LWUA Board Resolution
No. 313, Series 1995

For authority to grant themselves additional allowances and bonuses, petitioners rely on LWUA
Resolution No. 131, series of 1995, entitled Policy Guidelines on Compensation and Other Benefits to
WD Board of Directors. Petitioners assert that LWUA is the government agency tasked to regulate
and control water districts created pursuant to PD 198 and that LWUA has the power to issue
regulations to implement effectively PD 198. Petitioners claim that the COA has no jurisdiction to
construe any provision of PD 198 on the compensation and other benefits granted to LWUA-
designated members of the board of water districts. By exercising motu proprio plenary jurisdiction to
construe and apply Section 13 of PD 198, the COA encroached on the powers of the LWUA. The COA
also violated the presumption of legality and regularity generally accorded to policy circulars issued by
the administrative agency entrusted to enforce the law.
Petitioners further claim that it is the Department of Budget and Management (DBM), not the
COA, that has the power to administer the compensation and classification system of the government
service and to revise it as necessary. Finally, citing Eslao v. COA,[4] petitioners contend that the COA
can do no less than to faithfully observe and carry into effect the mandate of LWUA Board Resolution
No. 313, until it is declared void in the proper forum.
Petitioners contentions are untenable.
Section 2, Subdivision D, Article IX of the 1987 Constitution expressly provides:

Sec. 2(1). The Commission on Audit shall have the power, authority, and duty to examine,
audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures or
uses of funds and property, owned or held in trust by, or pertaining to the Government, or any
of its subdivisions, agencies or instrumentalities, including government-owned and controlled
corporations with original charters, and on a post audit basis: (a) constitutional bodies,
commissions and offices that have been granted fiscal autonomy under this constitution; (b)
autonomous state colleges and state universities; (c) other government-owned or controlled
corporations and their subsidiaries; and (d) such non-governmental entities receiving subsidy or
equity, directly or indirectly, from or through the government, which are required by law or the
granting institution to submit such audit as a condition of subsidy or equity. However, where the
internal control system of the audited agencies is inadequate, the Commission may adopt such
measures, including temporary or special preaudit, as are necessary and appropriate to correct the
deficiencies. It shall keep the general accounts of the government and, for such period as may be
provided by law, preserve the vouchers and other supporting papers pertaining thereto.

(2) The Commission shall have exclusive authority, subject to the limitations in this article, to define
the scope of its audit and examination, establish the techniques and methods required therefore,
and promulgate accounting and auditing rules and regulations, including those for the prevention
and disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable
expenditures, or uses of government funds and properties. (Emphasis supplied)

The Constitution and existing laws[5] mandate the COA to audit all government agencies,
including government-owned and controlled corporations with original charters. Indeed, the
Constitution specifically vests in the COA the authority to determine whether government entities
comply with laws and regulations in disbursing government funds, and to disallow illegal or irregular
disbursements of government funds.[6] This independent constitutional body is tasked to be vigilant
and conscientious in safeguarding the proper use of the governments, and ultimately, the peoples
property.[7]
The Court already ruled in several cases[8] that a water district is a government-owned and
controlled corporation with a special charter since it is created pursuant to a special law, PD 198. The
COA has the authority to investigate whether directors, officials or employees of government-owned
and controlled corporations, receiving additional allowances and bonuses, are entitled to such benefits
under applicable laws. Thus, water districts are subject to the jurisdiction of the COA.[9]
We cannot sustain petitioners claim that the COA usurped the functions of the LWUA in construing
PD 198 and disallowing payment of the additional allowances and bonuses. Such a theory leads to
the absurd situation where the board of an administrative agency, by the mere act of issuing a
resolution, can put to naught the broad and extensive powers granted to the COA by the Constitution.
This will prevent the COA from discharging its constitutional duty as an effective, efficient and
independent watchdog of the financial operations of the government.[10]
Petitioners reliance on Eslao[11] is misplaced. In Eslao, the Department of Environment and
Natural Resources and the Pangasinan State University entered into an agreement to evaluate
government reforestation programs. The Asian Development Bank granted a loan to fund the
implementation of the agreement. The personnel involved in the project were paid under the DBM-
issued National Compensation Circular No. 53, which dealt with foreign-assisted projects. The COA
disallowed the payment on the ground that the compensation should fall under the DBM-issued
Compensation Policy Guidelines No. 80-4, which governs all projects and provides for lower
compensation rates. In reversing the COA, the Court held that National Compensation Circular No. 53
amended Compensation Policy Guidelines No. 80-4 by excepting from the latters scope foreign-
assisted projects. The Court declared that the COA cannot substitute its own judgment for any
applicable x x x administrative regulation with the wisdom or propriety of which, however, it does not
agree, at least not before such x x x regulation is set aside by the x x x courts x x x.
Clearly, Eslao is not in point. The difference is that in Eslao, the COA accepted the wisdom of
Compensation Policy Guidelines No. 80-4 but refused to accept the propriety of the exception to the
circular embodied in National Compensation Circular No. 53. The DBM issued both compensation
regulations under its legislative authority to classify positions and determine appropriate salaries for
specific position classes and. review appropriate salaries for specific position classes and review the
compensation benefits programs of agencies x x x.[12] Clearly, the COA had ample legislative authority
to issue both compensation regulations. In the instant case, the COA was simply exercising its
constitutional duty to examine and audit disbursements of public funds that are patently beyond what
the law allows.
Petitioners confuse the COA which is an independent constitutional body with the DBM which is
under the executive branch of the government. The DBM is responsible for formulating and
implementing the national budget.[13] It is tasked to -

assist the President in the preparation of a national resources and expenditures budget, preparation,
execution and control of the National budget, preparation and maintenance of accounting systems
essential to the budgetary process, achievement of more economy and efficiency in the
management of government operations, administration of compensation and position classification
systems, assessment of organization effectiveness and review and evaluation of legislative
proposals having budgetary or organizational implications.[14]

While the DBM is the government agency tasked to release government funds, the duty to
examine and audit government accounts and expenditure properly pertains to the COA.[15]

PD 198 Expressly Prohibits the Grant of RATA, EME, and Bonuses to Members of the Board
of Water Districts

Section 13 of PD 198, as amended, reads as follows:

Compensation. - Each director shall receive a per diem, to be determined by the board, for each
meeting of the board actually attended by him, but no director shall receive per diems in any given
month in excess of the equivalent of the total per diems of four meetings in any given month. No
director shall receive other compensation for services to the district.

Any per diem in excess of P50 shall be subject to approval of the Administration. (Emphasis
supplied)

Petitioners argue that the term compensation in Section 13 of PD 198 does not include RATA,
EME, bonuses and other similar benefits disallowed in this case.
This issue was already resolved in the similar case of Baybay Water District v. Commission
on Audit.[16] In Baybay Water District, the members of the board of Baybay Water District also
questioned the disallowance by the COA of payment of RATA, rice allowance and excessive per
diems. The Court ruled that PD 198 governs the compensation of members of the board of water
districts. Thus, members of the board of water districts cannot receive allowances and benefits more
than those allowed by PD 198. Construing Section 13 of PD 198, the Court declared:

xxx Under S 13 of this Decree, per diem is precisely intended to be the compensation of members of
board of directors of water districts. Indeed, words and phrases in a statute must be given their
natural, ordinary, and commonly-accepted meaning, due regard being given to the context in which
the words and phrases are used. By specifying the compensation which a director is entitled to
receive and by limiting the amount he/she is allowed to receive in a month, and, in the same
paragraph, providing No director shall receive other compensation than the amount provided for per
diems, the law quite clearly indicates that directors of water districts are authorized to receive only
the per diem authorized by law and no other compensation or allowance in whatever form.

Section 13 of PD 198 is clear enough that it needs no interpretation. It expressly prohibits the
grant of compensation other than the payment of per diems, thus preempting the exercise of any
discretion by water districts in paying other allowances and bonuses.[17]

Refund of the Allowances and Benefits Received in Good Faith

Relying mainly on Civil Liberties Union v. Executive Secretary,[18] petitioners claim that the
COA grossly erred in requiring them to refund the allowances and bonuses they received in good faith.
In Civil Liberties Union, the Court declared Executive Order No. 284 unconstitutional as it allows
Cabinet members, undersecretaries or assistant secretaries to hold multiple positions in violation of
the express prohibition in Section 13, Article VII of the 1987 Constitution. However, the Court held that
during their tenure in the questioned positions, respondents are de facto officers and entitled to
emoluments for actual services rendered. The Court explained that in cases were there is no de
jure officer, a de facto officer, who in good faith has had possession of the office and has discharged
the duties pertaining thereto, is legally entitled to the emoluments of the office, and may in an
appropriate action recover the salary, fees and other compensations attached to the office.[19] The
Court considered it unjust that the public should benefit from the services of a de facto officer and then
be freed from all liability to pay for such, services. Thus, the Court ruled that any per diem, allowances
or other emoluments received by the respondents in Civil Liberties Union for actual services rendered
in the questioned positions may be retained by them.
The scenario in petitioners case is different. The CWD Board appointed petitioners pursuant to
PD 198. Petitioners received allowances and bonuses other than those granted to their office by PD
198. Petitioners cannot claim any compensation other than the per diem provided by PD 198 precisely
because no other compensation is attached to their office.
Nevertheless, our pronouncement in Blaquera v. Alcala[20] supports petitioners position on the
refund of the benefits they received. In Blaquera, the officials and employees of several government
departments and agencies were paid incentive benefits which the COA disallowed on the ground that
Administrative Order No. 29 dated 19 January 1993 prohibited payment of these benefits. While the
Court sustained the COA on the disallowance, it nevertheless declared that:

Considering, however, that all the parties here acted in good faith, we cannot countenance the
refund of subject incentive benefits for the year 1992, which amounts the petitioners have already
received. Indeed, no indicia of bad faith can be detected under the attendant facts and
circumstances. The officials and chiefs of offices concerned disbursed such incentive benefits in the
honest belief that the amounts given were due to the recipients and the latter accepted the same
with gratitude, confident that they richly deserve such benefits.

This ruling in Blaquera applies to the instant case. Petitioners here received the additional
allowances and bonuses in good faith under the honest belief that LWUA Board Resolution No. 313
authorized such payment. At the time petitioners received the additional allowances and bonuses, the
Court had not yet decided Baybay Water District.[21] Petitioners had no knowledge that such payment
was without legal basis. Thus, being in good faith, petitioners need not refund the allowances and
bonuses they received but disallowed by the COA.
WHEREFORE, the Decision of the Commission on Audit dated 12 September 2000 as well as its
Resolution dated 5 July 2001 are AFFIRMED with MODIFICATION. Petitioners need not refund the
Representation and Transportation Allowance, Rice Allowance, Productivity Incentive Bonus,
Anniversary Bonus, Year-End Bonus and cash gifts, received per Resolution No. 313, series of 1995,
of the Local Water Utilities Administration, between May to December 1997 and April to June 1998.
SO ORDERED.
Davide, Jr., C.J., Bellosillo, Puno, Vitug, Panganiban, Quisumbing, Ynares-Santiago, Sandoval-
Gutierrez, Austria-Martinez, Corona, Carpio-Morales, Callejo, Sr., and Azcuna, JJ., concur.
 THIRD DIVISION

[G.R. No. 104781. July 10, 1998]

CALTEX (PHILIPPINES), INC., petitioner, vs. COURT OF APPEALS and COMMISSIONER OF

CUSTOMS, respondents.

DECISION
ROMERO, J.:

Caltex, a corporation engaged in the oil industry, imported on various dates in 1982 light/medium
mix special oil and heavy crude oil for which it was assessed the following ad valorem duties by the
Collector of Customs:

1. P 97,697.143 - for the importation which arrived on April 10, 1982

2. P119,572.319 - for the importation which arrived on June 7, 1982

3. P 60,769.00 - for the importation which arrived on July 19, 1982

The basis of the assessments was a memorandum dated January 26, 1971, issued by then Acting
Commissioner of Customs which provided that the duties and taxes in the importation of crude oil shall
be based on the gross actual receipt without deducting the basic sediment and water (BSW). The full
text of the memorandum[1] reads as follows:

The Collector of Customs

Port of Manila

Port of Batangas

Subport of Limay, Bataan

Effective February 1, 1971, Customs duties and taxes on importation of crude oil shall be based on
the gross actual receipts without deducting the BSW as has been previously done.

In determining the freight, the amount indicated in the bill of lading or as certified by the ship agent
shall be used as basis. However, if it is found by the examiner that the actual receipt is more than
the manifested weight, the freight shall be adjusted accordingly.

Please see to it that all the personnel concerned in your respective ports are informed of these
instructions.

(SGD.) ROLANDO A. GEOTINA

Acting Commissioner of Customs

The assessments were timely protested by Caltex before the Collector of Customs on June 9,
1982, July 21, 1982 and September 8, 1982,[2] respectively, on the ground that the BSW contents
should have been deducted before imposing the assessable ad valorem duties.The protests were,
however, disregarded in a decision dated December 19, 1983.
Caltex then elevated the case to the Commissioner of Customs, who affirmed the Collectors
finding in a decision dated October 23, 1984, disposing as follows:

WHEREFORE, finding no cogent reason to disturb the decision of the Collector of Customs, Port of
Batangas, the same is hereby affirmed.
SO ORDERED.

Undaunted, Caltex filed a petition for review with the Court of Tax Appeals (CTA) raising the same
argument. On August 9, 1991,[3] the CTA ruled in favor of Caltex and reversed the decisions of both
the Collector of Customs and Commissioner of Customs, the dispositive portion of the decision reads:

WHEREFORE, the petition is GRANTED. Respondent [Commissioner of Customs] should and is

hereby ordered to refund or credit to petitioner the following amounts: P212,959.00 under Entry No.
163/82; P759,385.00 under Entry No. 204/82; P532,732.00 under Entry No. 293/82.[4]

Disagreeing with the CTA decision, the Commissioner of Customs filed a petition for review with
the Court of Appeals questioning the decision. On February 12, 1992, the appellate court set aside
the CTAs decision and reinstated the ruling of the Commissioner of Customs.[5]In reversing the CTAs
decision, the Court of Appeals justified its ruling in this wise:

The ad valorem duties should thus be based on the price paid by the importer as shown in the sales
invoice. In this case, apparently the sale invoices do not indicate a distinct and separate price or
value for the crude oil alone without the basic sediment and water contents or BSW. This is so
because, as already stated, the BSW naturally occur in crude oil. In the case at bar, the BSW was
only formed and produced during transit which should be considered an accession. Therefore, it
should be included in the delivery of crude oil as part of what was actually purchased by the
importer. (Civil Code, Art. 1166).

In computing the ad valorem duties on the basis of the sales invoice, (it becomes irrelevant whether
the volume of crude oil increased while in transit by reason of BSW and other impurities, because
the law mandates that the tax should be based on the home consumption value which is the price
indicated in the sales invoice or the value of the importation. (Commissioner of Customs v. Proctor &
Gamble, 169 SCRA 693 [1989]; Commissioner of Customs v. Court of Tax Appeals, 162 SCRA 730
[1988]; Commissioner of Customs v. Court of Tax Appeals, supra). Even if BSW contents are
deducted from the actual gross barrels received by respondent Caltex, the price in the sales invoice
would remain unaltered.

The decretal portion of the decision reads:[6]

WHEREFORE, the decision appealed from is REVERSED and the decision of the Collector of
Customs as affirmed by the Commissioner of Customs is REINSTATED.

Dismayed by the sudden turn of events, Caltex filed a motion for reconsideration which was,
however, denied by the Court of Appeals in a resolution dated March 19, 1992.[7] Hence, this petition.
The basic issue for resolution is whether the Basic Sediment and Water, as impurities, should
have been deducted from the gross actual receipts to determine the proper imposable ad
valorem duties.
Before discussing the crux of the petition, a preliminary matter to be threshed out is Caltexs
assertion that the Collector of Customs should have published the memorandum which increases the
imposable duties for importation of oil, for in the absence of publication, the same would be violative
of due process and Section 3502[8] of the Tariff and Customs Code.[9] At this juncture, it is important
to note that the non-publication of the memorandum was not denied by the Commissioner of
Customs.[10]
There is no doubt that issuances by an administrative agency have the force and effect of
law.[11] Corollarily, when the issuances are of general applicability, publication is necessary as a
requirement of due process.[12] In this regard, Commonwealth Act No. 638,[13] mandates that besides
legislations and resolutions of public nature of the Congress of the Philippines, executive and
administrative orders and proclamations which have general applicability must also be published.
It cannot be disputed that the questioned memorandum increases the imposable duties for the
importation of oil, a departure from the previous practice. To be sure, the increase invariably interferes
with the property rights of oil importers. Hence, the statutory norm of publication is necessary, not only
for effectivity, but also to apprise those affected. Since the assailed memorandum was never
published, it follows the same cannot be upheld.[14]
We, however, are not unmindful of the possible effect of this ruling upon our countrys tax revenue,
in light of the fact that the genesis of instant petition took place some 16 years ago. Likewise, we
cannot close our eyes to the fact that the collections were done in reliance on the validity of the
memorandum. Thus, we are constrained to adopt a practical and realistic solution for after all, custom
duties are taxes on import and export of goods, hence, it is the lifeblood of the nation.[15] Undoubtedly,
to accept Caltexs belated protestations will necessarily prejudice the public interest.
In Fernandez v. Cuerva,[16] which explained the effect of a declaration of invalidity of an assailed
legislative or executive act, we declared:

The growing awareness of the role of the judiciary as the governmental organ which has the final
say on whether or not a legislative or executive measure is valid leads to a more appreciative
attitude of the emerging concept that a declaration of nullity may have legal consequences which the
more orthodox view would deny. That for a period of time such a statute, treaty, executive order, or
ordinance was in actual existence appears to be indisputable. What is more appropriate and logical
then than to consider it as an operative fact.

In addition to the preceding discussion, a more glaring act which must be emphasized is that the
importations occurred in 1982 or eleven (11) years after said memorandum was issued, hence, Caltex
cannot feign ignorance as to the existence of such memorandum. Certainly, it is safe to assume that
Caltex, as a regular importer of crude oil, had knowledge that, from 1971 the procedure for determining
the ad valoremduties on crude oil importation was that the BSW content were to be included in
imposing the duties due. However, from 1971 to 1982, Caltex made no move to question the validity
of the memorandum nor did it assail the duties being charged on its shipment before the proper
forum.In fact, it would not be unwarranted to conclude that during this period, Caltex continued
importing crude oil under the procedures laid down by the Memorandum. To compound matters,
Caltex offered no plausible explanation nor justifiable reason for its delay or omission in taking timely
action against the memorandum which was already in existence for a period of nine years prior to the
importations in question. The time-honored rule anchored on public policy is that relief will be denied
to a litigant whose claim or demand has become stale, or who has acquiesced in the prevailing
situation for an unreasonable length of time, or who has not been vigilant or who has slept on his rights
either by negligence, folly or inattention.[17] Caltex has no one to blame but itself.
With respect to the decisive issue posed by the instant petition, the axiomatic rule is that the
dutiable value of an imported article subject to ad valorem is based on its home consumption value or
price as freely offered for sale in wholesale quantities in the ordinary course of trade in the principal
market of the country from where exported on the date of exportation to the Philippines. The home
consumption value is the price declared in the consular, commercial, trade or sales invoice. Thus, in
the leading case of Commissioner of Customs v. Court of Tax Appeal,[18] we held:

(t)he law is clear and mandatory. The dutiable value of an imported article subject to an ad
valorem rate of duty is based on its home consumption value or price as freely offered for sale in
wholesale quantities in the ordinary course of trade in the principal markets of the country from
where exported on the date of exportation to the Philippines. That home consumption value or price
is the value or price declared in the consular, commercial, trade or sales invoice.

The above doctrine has consistently been applied by this Court in subsequent cases.[19]
Consequently, Caltex, in an effort to prove that the BSW contents should have been omitted in
the purchase price, submitted the sales invoices provided by its seller in Saudi Arabia[20] indicating a
net barrel computation, that is, crude oil without BSW.[21] Paradoxically, the Import Entry permit
declaration it submitted before the Collector of Customs showed otherwise, that is the BSW contents
were not deducted in the purchase price.[22]
Obviously, there is a discrepancy between the sales invoice and the Import Entry permit submitted
by Caltex. Faced with this fact, we must uphold the latter as more conclusive. In the early case of
Murphy, Morris & Co. v. Collector of Customs,[23] we held that in the absence of any compelling reason,
sworn statements made before customs officials concerning an importation would render said
declarations conclusive upon the party. Furthermore, under the Tariff and Customs Code, declarations
and statements contained in the Import Entry Permit are presumed to be true and correct under the
penalties of falsification and perjury.[24] Moreover, descriptions in entries and other documents are
admissions against interest and presumptively correct.[25]
Our conclusion is premised on the fact that sales, commercial or consular invoices are not
conclusive on the government. Our customs laws should not be at the mercy of importers who may
avail of schemes and other arrangements to lower and reduce the face value of the articles covered
by such invoices.[26] Noteworthy is the fact that: If the customs authorities were bound by the invoice
value, it is evident that they would be, to a considerable extent, at the mercy of foreign merchants and
importers. The purpose of Congress in providing for an appraiser was to prevent fraud upon the
customs, and thus protect the revenues of the Government.[27]
Conformably with the above discussion, a scrutiny of Caltexs Import Entry declaration covering
the importation dated April 10, 1982, stated that it had paid a total purchase price of $53,055,905,
broken down as follows:

TOTAL BARRELS PRICE/BARREL TOTAL PRICE

(Including BSW)

Arabian Light/Medium 1,411,310 $32.964 $46,522,733

Arabian Heavy 210,537 $31.030 $ 6,533,131

$53,055,905

It is important to note that in arriving at the total purchase price, the barrels representing the BSW
were included in the computation. In other words, the 1,765 barrels of BSW of Arabian light/medium
mix crude oil, as well as the 1,852 barrels of BSW for Arabian heavy, were declared by Caltex as part
of the total purchase price.
If Caltex wanted to prove that, at the outset, the BSW contents were to be excluded from the
original purchase price, then it should have declared in the Import Entry permit that it had only paid for
the Arabian Light/Medium crude oil the amount of $46,464,241, computed as follows:

Gross Barrels : 1,411,310

Less : 1,765 (BSW content)

Net Barrels : 1,409,545

Multiplied by : $ 32.964 per barrel

TOTAL : $ 46,464,241

On the other hand, with respect to the Arabian heavy crude oil, Caltex should have paid the
amount of $6,475,624, computed as follows:

Gross Barrels : 210,537

Less : 1,852 (BSW content)

Net Barrel : 208,685

Multiplied by : $ 31.030 per barrel

TOTAL : $ 6,475,624

The importation dated June 7, 1982, as reflected in the Import Entry permit, would reveal that
Caltex paid $55,554,053 for Arabian light/medium crude oil and $8,835,300 for Arabian light crude
oil. The respective BSW contents of both importations were included for the purpose of determining
the total purchase price.[28] Likewise, for the importation dated July 19, 1982, the basis of the purchase
price paid by petitioner was without any deductions representing the BSW contents.[29]
Considering the foregoing, the Collector of Customs did not err in imposing a
20% ad valorem duty on Caltexs importations on the basis of the purchase price in the Import Entry
permit instead of the sales invoices.
Caltex, however, insists that BSW contents, being impurities, are not subject to ad
valorem taxes.[30] To support its contention, Caltex argues that:

x x x, the BSW is destined to be thrown away as they are in fact thrown away (TSN, April 14, 1986,
pp. 21 and 22 at the CTA). To petitioner, the thing of value is the crude oil while BSW has no value
whatsoever. Thus, when it is considered that the rate of duty is based according to value (ad
valorem as contrasted to specific which is imposed as a fixed sum on each article of a class without
regard to value (Blacks Law Dictionary, Fifth Edition), such a duty cannot attach to BSW, BSW
having no value at all.

It is important to emphasize that Caltex in contending that the BSW, as impurities, should be
deducted from the purchase price, has the burden of proof to establish the validity of the claimed
deduction.[31] A party challenging an appraisers finding of value is required to prove not only that the
appraised value is erroneous but also what the proper value is.[32]
Evidently, the issue to be resolved is whether BSW contents are impurities usually found in crude
oil. The resolution of this query is important since under customs law no deductions are permitted for
impurities except those not usually found in or upon such similar merchandice.[33]
Caltex asserts that these impurities are not an integral part of crude oil. This position was
sustained by the Court of Tax Appeals, thus:

It is clarified under Rule 3(b) that the application of Section 203 is premised on the condition that
before articles can be classified as forming part of the essential article, the other article should be a
composite part or component of the essential article. This is clear from the phrase Mixture and
composite articles which consist of different materials or are made of different components. It
appears that basic sediment and water are not components or composites of crude oil.[34]

In reversing the above finding, the Court of Appeals ruled that BSW naturally occurs in crude oil,
especially during transit, hence:

Thus, even the value of coverings and packing materials, which when destroyed upon opening after
arrival of the shipment has no value except perhaps as scrap, is included in determining the home
consumption value. There is no reason then why the BSW elements, which naturally occur in oil,
should be deducted from the gross receipt.[35]

We sustain the observation of the Court of Appeals.

The principal physical composition of oil are carbon and hydrogen.[36] However, this is not to
detract from the fact that other fundamental substances are properties of crude oil. One of this
substance is water. As one authority observes:

The presence of water in the rocks is a controlling factor in the accumulation of oil and gas. Its effect
in driving these substances from the finer to the coarser pores in the rock has been noticed.[37]

Another substance is sand.

Although most of the oil produced in the Salt Creek field, Wyo., comes from sands, some oil has
been produced in commercial quantities from crevices in the shale strata that lie above the First Wall
Creek sand. Oil is also produced from fissured shale in a few fields in California, at Florence, Colo.,
and in several small fields in Pennsylvania.[38]

As can be gleaned from the foregoing, there seems to be no dispute that BSW, as impurities, are
part of crude oil. In fact, we agree with the observation of the Court of Appeals that these impurities
could have been formed during the trip from Saudi Arabia to the Philippines.
Because of the paucity of local precedents squarely in point, we find occasion here to state the
rule as enunciated by the United States Customs Court[39] that prohibited the deduction for dirt or
impurities other than those not usually found in or upon the goods, thus:

Appellant conceded that no application for allowance was made under customs regulations. Such
application must be made within 10 days after the return of the weight by customs officials, and
compliance is mandatory as a condition precedent to recovery. The judgment of the Customs Court
sustaining Collectors rejection of the protest claim was properly rendered in accordance with
established law. Appellant failed to establish that the dirt and other impurities in the feathers were of
an unusual quantity deemed to be excessive in crude imported feathers.

Consequently, the Court of Appeals did not err in concluding BSW as an integral part of crude oil,
which must be included in the computation of the assessable duties.
 Finally, Caltex avers that it failed to receive a copy of the Commissioner of Customs petition within
the 15-day period to file a petition for review. Hence, the Court of Appeals erred in not dismissing the
petition outright as provided for in Circular No. 1-91 in relation to Circular No. 28-91.
Circular No. 1-91 issued on February 27, 1991 and pertinently provides:
xxxxxxxxx

5. HOW APPEAL TAKEN. - Appeal shall be taken by filing a verified petition for review in six (6)
legible copies, with the Court of Appeals, a copy of which shall be served on the adverse party and
on the court or agency a quo. Proof of service of the petition on the adverse party and on the court of
agency a quo shall be attached to the petition.

While Circular 28-91 reads as follows:

A petition filed under Rule 45, or under Rule 65, or a motion for extension may be denied outright if it
is not clearly legible, or there is no proof of service on the lower court, tribunal, or office concerned
and on the adverse party in accordance with Section 3, 5 and 10 of Rule 13, attached to the petition
or motion for extension when filed. (Underscoring supplied)

Reviewing the records of the case, while it seems that the petition for certiorari was indeed not
served upon Caltex within the 15-day reglementary period, the same was, however, furnished the very
next day. Hence, the proximity of the service of petition for review to Caltex may be pleaded as
substantial compliance therewith. Our pronouncement is not without any precedent. In Gabionza v.
Court of Appeals,[40]we explicitly stated:

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 an orderly administration
of justice and should not be interpreted with such absolute literalness as to subvert its own ultimate
and legitimate objective or the goal of all rules of procedure - which is to achieve substantial justice
as expeditiously as possible.

The fact that the Circular requires that it be strictly complied with merely underscored its mandatory
nature in that it cannot be dispensed with or its requirements altogether disregarded, but it does not
thereby interdict substantial compliance with its provisions under justifiable circumstances.

WHEREFORE, in view of the foregoing, the instant petition is DISMISSED and the appealed
decision of the Court of Appeals dated February 12, 1992, is AFFIRMED. No costs.
SO ORDERED.
Narvasa, C.J., (Chairman), Kapunan, and Purisima, JJ., concur.
G.R. 132593 JUNE 25, 1999
PHILIPPINE INTERNATIONAL TRADING CORPORATION, petitioner, vs. COMMISSION ON
AUDIT, respondent.

DECISION
GONZAGA-REYES, J.:

This is a petition for certiorari under Rule 64 of the 1997 Rules of Civil Procedure to annul Decision
No. 2447 dated July 27, 1992 of the Commission on Audit (COA) denying Philippine International Trading
Corporations (PITC) appeal from the disallowances made by the resident COA auditor on PITCs car plan
benefits; and Decision No. 98-048 dated January 27, 1998 of the COA denying PITCs motion for
reconsideration.
The following facts are undisputed:
The PITC is a government-owned and controlled corporation created under Presidential Decree (PD)
No. 252 on July 21, 1973[1], primarily for the purpose of promoting and developing Philippine trade in
pursuance of national economic development. On October 19, 1988, the PITC Board of Directors approved
a Car Plan Program for qualified PITC officers.[2] Under such car plan program, an eligible officer is entitled
to purchase a vehicle, fifty percent (50%) of the value of which shall be shouldered by PITC while the
remaining fifty percent (50%) will be shouldered by the officer through salary deduction over a period of five
(5) years. Maximum value of the vehicle to be purchased ranges from Two Hundred Thousand Pesos
(P200,000.00) to Three Hundred and Fifty Thousand Pesos (P350,000.00), depending on the position of
the officer in the corporation. In addition, PITC will reimburse the officer concerned fifty percent (50%) of
the annual car registration, insurance premiums and costs of registration of the chattel mortgage over the
car for a period of five (5) years from the date the vehicle was purchased. The terms and conditions of the
car plan are embodied in a `Car Loan Agreement.[3] Per PITCs car plan guidelines, the purpose of the plan
is to provide financial assistance to qualified employees in purchasing their own transportation facilities in
the performance of their work, for representation, and personal use. [4] The plan is envisioned to facilitate
greater mobility during official trips especially within Metro Manila or the employees principal place of
assignment, without having to rely on PITC vehicles, taxis or cars for hire. [5]
On July 1, 1989, Republic Act No. 6758 (RA 6758), entitled An Act Prescribing a Revised
Compensation and Position Classification System in the Government and For Other Purposes, took
effect. Section 12 of said law provides for the consolidation of allowances and additional compensation into
standardized salary rates save for certain additional compensation such as representation and
transportation allowances which were exempted from consolidation into the standardized rate. Said section
likewise provides that other additional compensation being received by incumbents as of July 1, 1989 not
integrated into the standardized salary rates shall continue to be authorized.
Section 12, RA 6758, reads

SEC. 12. Consolidation of All Allowances and Compensation. All allowances, except for representation
and transportation allowances; clothing and laundry allowances; subsistence allowance of marine officers
and crew on board government vessels and hospital personnel; hazard pay; allowances of foreign service
personnel stationed abroad; and such other additional compensation not otherwise specified herein as
may be determined by the DBM, shall be deemed included in the standardized salary rates herein
prescribed. Such other additional compensation, whether in cash or in kind, being received by
incumbents only as of July 1, 1989 not integrated into the standardized salary rates shall continue to be
authorized.

To implement RA 6758, the Department of Budget and Management (DBM) issued Corporate
Compensation Circular No. 10 (DBM-CCC No. 10).Paragraph 5.6 of DBM-CCC No. 10 discontinued
effective November 1, 1989, all allowances and fringe benefits granted on top of basic salary, not otherwise
enumerated under paragraphs 5.4 and 5.5 thereof.
Paragraph 5.6 of DBM-CCC No. 10 provides:

5.6 Payment of other allowances/fringe benefits and all other forms of compensation granted on top of
basic salary, whether in cash or in kind, not mentioned in Sub-paragraphs 5.4 and 5.5[6] above shall be
discontinued effective November 1, 1989. Payment made for such allowance/fringe benefits after said
date shall be considered as illegal disbursement of public funds.

On post audit, the payment/reimbursement of the above-mentioned expenses (50% of the yearly car
registration and insurance premiums and 50% of the costs of registration of the chattel mortgage over the
car) made after November 1, 1989 was disallowed by the resident COA auditor. The disallowance was
made on the ground that the subject car plan benefits were not one of the fringe benefits or form of
compensation allowed to be continued after said date under the aforequoted paragraph 5.6 of DBM-CCC
No. 10[7], in relation to paragraphs 5.4 and 5.5 thereof.
PITC, on its behalf, and that of the affected PITC officials, appealed the decision of the resident COA
auditor to the COA. On July 27, 1992, COA denied PITCs appeal and affirmed the disallowance of the said
car plan expenses in the assailed Decision No. 2447 dated July 27, 1992. Relevant portions of the decision
read thus:

Upon circumspect evaluation thereof, this Commission finds the instant appeal to be devoid of merit. It
should be noted that the reimbursement/payment of expenses in question is based on the Car Plan
benefit granted under Board Resolution No. 10-88-03 adopted by the PITC Board of Directors on October
19, 1988. The Car Plan is undeniably a fringe benefit as appearing in PITCs Compensation Policy under
the heading 3. Other Fringe Benefits, particularly Item No. 3.13 thereof. Inasmuch as PITC is a
government-owned and/or controlled corporation, the grant of the Car Plan (being a fringe benefit) should
be governed by the provisions of Corporate Compensation Circular No. 10, implementing RA
6758. Under sub-paragraph 5.6 of said Circular, it explicitly provides:

x x x x x x x x x.

Since the Car Plan benefit is not one of those fringe benefits or other forms of compensation mentioned in
Sub-paragraphs 5.4 and 5.5 of CCC No. 10, consequently the reimbursement of the 50% share of PITC
in the yearly registration and insurance premium of the cars purchased under said Car Plan benefit
should not be allowed. xxx.[8]

PITCs motion for reconsideration was denied by the COA in its Resolution dated January 27, 1998. [9]
Hence, the instant petition on the following grounds:

1. That the legislature did not intend to revoke existing benefits being received by incumbent government
employees as of July 1, 1989 (including subject car plan benefits) when RA 6758 was passed;

2. That the Car Loan Agreements signed between PITC and its officers pursuant to PITCs Car Plan
Program, including the Car Loan Agreements, duly executed prior to the effectivity of RA 6758, constitute
the law between the parties and as such, protected by Section 10, Article III of the 1987 Philippine
Constitution which prohibits the impairment of contracts; and

3. Finally, that the provisions of PD 985 do not apply to PITC inasmuch as under its Revised Charter, PD
1071, as amended by E.O. 756 and E.O. 1067, PITC is not only expressly exempted from OCPC rules
and regulations but its Board of Directors was expressly authorized to adopt compensation policies and
other related benefits to its officers/employees without need for further approval thereof by any
government office, agency or authority.[10]

The petition is meritorious.

First of all, we must mention that this Court has confirmed in Philippine Ports Authority vs. Commission
on Audit[11] the legislative intent to protect incumbents who are receiving salaries and/or allowances over
and above those authorized by RA 6758 to continue to receive the same even after RA 6758 took effect. In
reserving the benefit to incumbents, the legislature has manifested its intent to gradually phase out this
privilege without upsetting the policy of non-diminution of pay and consistent with the rule that laws should
only be applied prospectively in the spirit of fairness and justice. [12] Addressing the issue as to whether the
petitioners-officials may still receive their representation and transportation allowance (RATA) at the higher
rates provided by Letter of Implementation (LOI) No. 97 in light of Section 12, RA 6758, this Court said:

Now, under the second sentence of Section 12, first paragraph, the RATA enjoyed by these PPA officials
shall continue to be authorized only if they are being received by incumbents only as of July 1, 1989. RA
6758 has therefore, to this extent, amended LOI No. 97. By limiting the benefit of the RATA granted by
LOI No. 97 to incumbents, Congress has manifested its intent to gradually phase out this privilege without
upsetting its policy of non-diminution of pay.

The legislature has similarly adhered to this policy of non-diminution of pay when it provided for the
transition allowance under Section 17 of RA 6758 which reads:

SEC. 17. Salaries of Incumbents. Incumbents of position presently receiving salaries and additional
compensation/fringe benefits including those absorbed from local government units and other
emoluments, the aggregate of which exceeds the standardized salary rate as herein prescribed, shall
continue to receive such excess compensation, which shall be referred to as transition allowance. The
transition allowance shall be reduced by the amount of salary adjustment that the incumbent shall receive
in the future.

While Section 12 refers to allowances that are not integrated into the standardized salaries whereas
Section 17 refers to salaries and additional compensation or fringe benefits, both sections are intended
to protect incumbents who are receiving said salaries and/or allowances at the time RA 6758 took
effect.[13] (Emphasis supplied.)

Based on the foregoing pronouncement, petitioner correctly pointed out that there was no intention on
the part of the legislature to revoke existing benefits being enjoyed by incumbents of government positions
at the time of the passage of RA 6758 by virtue of Sections 12 and 17 thereof. There is no dispute that the
PITC officials who availed of the subject car plan benefits were incumbents of their positions as of July 1,
1989. Thus, it was legal and proper for them to continue enjoying said benefits within the five year period
from date of purchase of the vehicle allowed by their Car Loan Agreements with PITC.
Further, we see the rationale for the corporations fifty percent (50%) participation and contribution to
the subject expenses. As to the insurance premium, PITC, at least, up to the extent of 50% of the value of
the vehicle, has an insurable interest in said vehicle in case of loss or damage thereto. As to the costs of
registration of the vehicle in the employees name and of the chattel mortgage in favor of PITC, this is to
secure PITC of the repayment of the `Car Loan Agreement and the fulfillment of the other obligations
contained therein by the employee.
Still further, the vehicle being utilized by the officer is actually being used for corporate purposes
because the officer concerned is no longer entitled to utilize company-owned vehicles for official business
once he/she has availed of a car plan. Neither is said officer allowed to reimburse the costs of other land
transportation used within his principal place of assignment (i.e. Metro Manila) as the vehicle is presumed
to be his official vehicle.[14] In the event that the employee resigns, retires or is separated from the company
without cause prior to the completion of the 60-month car plan, the employee shall be given the privilege to
buy the car provided he pays the remaining installments of the loan and the amount equivalent to that
portion of the companys contribution corresponding to the unexpired period of the car plan. On the other
hand, if the employee has been separated from the company for cause, the company has the other option
aside from the foregoing to repossess the car from the employee, in which case, the company shall pay
back to the employee all amortizations already made by the employee to the company, interest free. [15]
Secondly, COA relied on DBM-CCC No. 10[16] as basis for the disallowance of the subject car plan
benefits. DBM-CCC No. 10 which was issued by the DBM pursuant to Section 23[17] of RA 6758 mandating
the said agency to issue the necessary guidelines to implement RA 6758 has been declared by this Court
in De Jesus, et al. vs. Commission on Audit, et al.[18] as of no force and effect due to the absence of
publication thereof in the Official Gazette or in a newspaper of general circulation. Salient portions of said
decision read:

On the need for publication of subject DBM-CCC No. 10, we rule in the affirmative. Following the doctrine
enunciated in Taada[19], publication in the Official Gazette or in a newspaper of general circulation in the
Philippines is required since DBM-CCC No. 10 is in the nature of an administrative circular the purpose of
which is to enforce or implement an existing law. Stated differently, to be effective and enforceable, DBM-
CCC No. 10 must go through the requisite publication in the Official Gazette or in a newspaper of general
circulation in the Philippines.

In the present case under scrutiny, it is decisively clear that DBM-CCC No. 10, which completely
disallows payment of allowances and other additional compensation to government officials and
employees, starting November 1, 1989, is not a mere interpretative or internal regulation. It is something
more than that. And why not, when it tends to deprive government workers of their allowances and
additional compensation sorely needed to keep body and soul together. At the very least, before the said
circular under attack may be permitted to substantially reduce their income, the government officials and
employees concerned should be apprised and alerted by the publication of said circular in the Official
Gazette or in a newspaper of general circulation in the Philippines to the end that they be given amplest
opportunity to voice out whatever opposition they may have, and to ventilate their stance on the
matter.This approach is more in keeping with democratic precepts and rudiments of fairness and
transparency.[20]

In the case at bar, the disallowance of the subject car plan benefits would hamper the officials in the
performance of their functions to promote and develop trade which requires mobility in the performance of
official business. Indeed, the car plan benefits are supportive of the implementation of the objectives and
mission of the agency relative to the nature of its operation and responsive to the exigencies of the service.
It has come to our knowledge that DBM-CCC No. 10 has been re-issued in its entirety and submitted
for publication in the Official Gazette per letter to the National Printing Office dated March 9, 1999. Would
the subsequent publication thereof cure the defect and retroact to the time that the above-mentioned items
were disallowed in audit?
 The answer is in the negative, precisely, for the reason that publication is required as
a condition precedent to the effectivity of a law to inform the public of the contents of the law or rules and
regulations before their rights and interests are affected by the same. From the time the COA disallowed
the expenses in audit up to the filing of herein petition the subject circular remained in legal limbo due to its
non-publication. As was stated in Taada vs. Tuvera[21], prior publication of laws before they become
effective cannot be dispensed with, for the reason that such omission would offend due process insofar as
it would deny the public knowledge of the laws that are supposed to govern it."
In view of the nullity of DBM-CCC No. 10 relied upon by the COA as basis for the disallowance of the
subject car plan benefits, we deem it unnecessary to discuss the second issue raised in the instant petition.
We deem it necessary though to resolve the third issue as to whether PITC is exempt from RA
985[22] as subsequently amended by RA 6758.According to petitioner, PITCs Revised Charter, PD 1071
dated January 25, 1977, as amended by EO 756 dated December 29, 1981, and further amended by EO
1067 dated November 25, 1985, expressly exempted PITC from the Office of the Compensation and
Position Classification (OCPC) rules and regulations. Petitioner cites Section 28 of P.D.1071 [23]; Section 6
of EO 756[24]; and Section 3 of EO 1067.[25]
According to the COA in its Decision No. 98-048 dated January 27, 1998, the exemption granted to
the PITC has been repealed and revoked by the repealing provisions of RA 6758, particularly Section 16
thereof which provides:

Section 16. Repeal of Special Salary Laws and Regulations. - All laws, decrees, executive orders,
corporate charters, and other issuances or parts thereof, that exempt agencies from the coverage of the
System, or that authorize and fix position classifications, salaries, pay rates or allowances of specified
positions, or groups of officials, and employees or of agencies, which are inconsistent with the System,
including the proviso under Section 2 and Section 16 of PD No. 985 are hereby repealed.

To this, petitioner argues that RA 6758 which is a law of general application cannot repeal provisions
of the Revised Charter of PITC and its amendatory laws expressly exempting PITC from OCPC coverage
being special laws. Our rules on statutory construction provide that a special law cannot be repealed,
amended or altered by a subsequent general law by mere implication[26]; that a statute, general in character
as to its terms and application, is not to be construed as repealing a special or specific enactment, unless
the legislative purpose to do so is manifested[27]; that if repeal of particular or specific law or laws is intended,
the proper step is to so express it.[28]
In the case at bar, the repeal by Section 16 of RA 6758 of all corporate charters that exempt agencies
from the coverage of the System was clear and expressed necessarily to achieve the purposes for which
the law was enacted, that is, the standardization of salaries of all employees in government owned and/or
controlled corporations to achieve equal pay for substantially equal work. Henceforth, PITC should now be
considered as covered by laws prescribing a compensation and position classification system in the
government including RA 6758. This is without prejudice, however, as discussed above, to the non-
diminution of pay of incumbents as of July 1, 1989 as provided in Sections 12 and 17 of said law.
WHEREFORE, the Petition is hereby GRANTED, the assailed Decisions of the Commission on Audit
are SET ASIDE.
SO ORDERED.
Davide, Jr., C.J., Romero, Bellosillo, Melo, Puno, Vitug, Kapunan, Mendoza, Quisumbing, Purisima,
Pardo, and Ynares-Santiago, JJ., concur.
Panganiban, and Buena, JJ., on leave.
 EN BANC

G.R. No. 101279 August 6, 1992

PHILIPPINE ASSOCIATION OF SERVICE EXPORTERS, INC., petitioner,

vs.
HON. RUBEN D. TORRES, as Secretary of the Department of Labor & Employment, and JOSE
N. SARMIENTO, as Administrator of the PHILIPPINE OVERSEAS EMPLOYMENT
ADMINISTRATION, respondents.

De Guzman, Meneses & Associates for petitioner.

GRIO-AQUINO, J.:

This petition for prohibition with temporary restraining order was filed by the Philippine Association of
Service Exporters (PASEI, for short), to prohibit and enjoin the Secretary of the Department of Labor
and Employment (DOLE) and the Administrator of the Philippine Overseas Employment
Administration (or POEA) from enforcing and implementing DOLE Department Order No. 16, Series
of 1991 and POEA Memorandum Circulars Nos. 30 and 37, Series of 1991, temporarily suspending
the recruitment by private employment agencies of Filipino domestic helpers for Hong Kong and
vesting in the DOLE, through the facilities of the POEA, the task of processing and deploying such
workers.

PASEI is the largest national organization of private employment and recruitment agencies duly
licensed and authorized by the POEA, to engaged in the business of obtaining overseas
employment for Filipino landbased workers, including domestic helpers.

On June 1, 1991, as a result of published stories regarding the abuses suffered by Filipino
housemaids employed in Hong Kong, DOLE Secretary Ruben D. Torres issued Department Order
No. 16, Series of 1991, temporarily suspending the recruitment by private employment agencies of
"Filipino domestic helpers going to Hong Kong" (p. 30, Rollo). The DOLE itself, through the POEA
took over the business of deploying such Hong Kong-bound workers.

In view of the need to establish mechanisms that will enhance the protection for
Filipino domestic helpers going to Hong Kong, the recruitment of the same by private
employment agencies is hereby temporarily suspended effective 1 July 1991. As
such, the DOLE through the facilities of the Philippine Overseas Employment
Administration shall take over the processing and deployment of household workers
bound for Hong Kong, subject to guidelines to be issued for said purpose.

In support of this policy, all DOLE Regional Directors and the Bureau of Local
Employment's regional offices are likewise directed to coordinate with the POEA in
maintaining a manpower pool of prospective domestic helpers to Hong Kong on a
regional basis.

For compliance. (Emphasis ours; p. 30, Rollo.)

Pursuant to the above DOLE circular, the POEA issued Memorandum Circular No. 30, Series of
1991, dated July 10, 1991, providing GUIDELINES on the Government processing and deployment
of Filipino domestic helpers to Hong Kong and the accreditation of Hong Kong recruitment agencies
intending to hire Filipino domestic helpers.

Subject: Guidelines on the Temporary Government Processing and Deployment of

Domestic Helpers to Hong Kong.

Pursuant to Department Order No. 16, series of 1991 and in order to operationalize
the temporary government processing and deployment of domestic helpers (DHs) to
Hong Kong resulting from the temporary suspension of recruitment by private
 employment agencies for said skill and host market, the following guidelines and
mechanisms shall govern the implementation of said policy.

I. Creation of a joint POEA-OWWA Household Workers Placement Unit (HWPU)

An ad hoc, one stop Household Workers Placement Unit [or HWPU] under the
supervision of the POEA shall take charge of the various operations involved in the
Hong Kong-DH industry segment:

The HWPU shall have the following functions in coordination with appropriate units
and other entities concerned:

1. Negotiations with and Accreditation of Hong Kong Recruitment Agencies

2. Manpower Pooling

3. Worker Training and Briefing

4. Processing and Deployment

5. Welfare Programs

II. Documentary Requirements and Other Conditions for Accreditation of Hong Kong
Recruitment Agencies or Principals

Recruitment agencies in Hong Kong intending to hire Filipino DHs for their employers
may negotiate with the HWPU in Manila directly or through the Philippine Labor
Attache's Office in Hong Kong.

xxx xxx xxx

X. Interim Arrangement

All contracts stamped in Hong Kong as of June 30 shall continue to be processed by

POEA until 31 July 1991 under the name of the Philippine agencies concerned.
Thereafter, all contracts shall be processed with the HWPU.

Recruitment agencies in Hong Kong shall submit to the Philippine Consulate General
in Hong kong a list of their accepted applicants in their pool within the last week of
July. The last day of acceptance shall be July 31 which shall then be the basis of
HWPU in accepting contracts for processing. After the exhaustion of their respective
pools the only source of applicants will be the POEA manpower pool.

For strict compliance of all concerned. (pp. 31-35, Rollo.)

On August 1, 1991, the POEA Administrator also issued Memorandum Circular No. 37, Series of
1991, on the processing of employment contracts of domestic workers for Hong Kong.

TO: All Philippine and Hong Kong Agencies engaged in the recruitment of Domestic
helpers for Hong Kong

Further to Memorandum Circular No. 30, series of 1991 pertaining to the government
processing and deployment of domestic helpers (DHs) to Hong Kong, processing of
employment contracts which have been attested by the Hong Kong Commissioner of
Labor up to 30 June 1991 shall be processed by the POEA Employment Contracts
Processing Branch up to 15 August 1991 only.

Effective 16 August 1991, all Hong Kong recruitment agent/s hiring DHs from the
Philippines shall recruit under the new scheme which requires prior accreditation
which the POEA.
 Recruitment agencies in Hong Kong may apply for accreditation at the Office of the
Labor Attache, Philippine Consulate General where a POEA team is posted until 31
August 1991. Thereafter, those who failed to have themselves accredited in Hong
Kong may proceed to the POEA-OWWA Household Workers Placement Unit in
Manila for accreditation before their recruitment and processing of DHs shall be
allowed.

Recruitment agencies in Hong Kong who have some accepted applicants in their
pool after the cut-off period shall submit this list of workers upon accreditation. Only
those DHs in said list will be allowed processing outside of the HWPU manpower
pool.

For strict compliance of all concerned. (Emphasis supplied, p. 36, Rollo.)

On September 2, 1991, the petitioner, PASEI, filed this petition for prohibition to annul the
aforementioned DOLE and POEA circulars and to prohibit their implementation for the following
reasons:

1. that the respondents acted with grave abuse of discretion and/or in excess of their
rule-making authority in issuing said circulars;

2. that the assailed DOLE and POEA circulars are contrary to the Constitution, are
unreasonable, unfair and oppressive; and

3. that the requirements of publication and filing with the Office of the National
Administrative Register were not complied with.

There is no merit in the first and second grounds of the petition.

Article 36 of the Labor Code grants the Labor Secretary the power to restrict and regulate
recruitment and placement activities.

Art. 36. Regulatory Power. The Secretary of Labor shall have the power to
restrict and regulate the recruitment and placement activities of all agencies within
the coverage of this title [Regulation of Recruitment and Placement Activities] and is
hereby authorized to issue orders and promulgate rules and regulations to carry out
the objectives and implement the provisions of this title. (Emphasis ours.)

On the other hand, the scope of the regulatory authority of the POEA, which was created by
Executive Order No. 797 on May 1, 1982 to take over the functions of the Overseas Employment
Development Board, the National Seamen Board, and the overseas employment functions of the
Bureau of Employment Services, is broad and far-ranging for:

1. Among the functions inherited by the POEA from the defunct Bureau of
Employment Services was the power and duty:

"2. To establish and maintain a registration and/or licensing system to

regulate private sector participation in the recruitment and placement
of workers, locally and overseas, . . ." (Art. 15, Labor Code, Emphasis
supplied). (p. 13, Rollo.)

2. It assumed from the defunct Overseas Employment Development Board the power
and duty:

3. To recruit and place workers for overseas employment of Filipino

contract workers on a government to government arrangement and in
such other sectors as policy may dictate . . . (Art. 17, Labor Code.) (p.
13, Rollo.)

3. From the National Seamen Board, the POEA took over:

2. To regulate and supervise the activities of agents or

representatives of shipping companies in the hiring of seamen for
 overseas employment; and secure the best possible terms of
employment for contract seamen workers and secure compliance
therewith. (Art. 20, Labor Code.)

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"
(Ibid.).

It is noteworthy that the assailed circulars do not prohibit the petitioner from engaging in the
recruitment and deployment of Filipino landbased workers for overseas employment. A careful
reading of the challenged administrative issuances discloses that the same fall within the
"administrative and policing powers expressly or by necessary implication conferred" upon the
respondents (People vs. Maceren, 79 SCRA 450). The power to "restrict and regulate conferred by
Article 36 of the Labor Code involves a grant of police power (City of Naga vs. Court of Appeals, 24
SCRA 898). To "restrict" means "to confine, limit or stop" (p. 62, Rollo) and whereas the power to
"regulate" means "the power to protect, foster, promote, preserve, and control with due regard for
the interests, first and foremost, of the public, then of the utility and of its patrons" (Philippine
Communications Satellite Corporation vs. Alcuaz, 180 SCRA 218).

The Solicitor General, in his Comment, aptly observed:

. . . Said Administrative Order [i.e., DOLE Administrative Order No. 16] merely
restricted the scope or area of petitioner's business operations by excluding
therefrom recruitment and deployment of domestic helpers for Hong Kong till after
the establishment of the "mechanisms" that will enhance the protection of Filipino
domestic helpers going to Hong Kong. In fine, other than the recruitment and
deployment of Filipino domestic helpers for Hongkong, petitioner may still deploy
other class of Filipino workers either for Hongkong and other countries and all other
classes of Filipino workers for other countries.

Said administrative issuances, intended to curtail, if not to end, rampant violations of

the rule against excessive collections of placement and documentation fees, travel
fees and other charges committed by private employment agencies recruiting and
deploying domestic helpers to Hongkong. [They are reasonable, valid and justified
under the general welfare clause of the Constitution, since the recruitment and
deployment business, as it is conducted today, is affected with public interest.

xxx xxx xxx

The alleged takeover [of the business of recruiting and placing Filipino domestic
helpers in Hongkong] is merely a remedial measure, and expires after its purpose
shall have been attained. This is evident from the tenor of Administrative Order No.
16 that recruitment of Filipino domestic helpers going to Hongkong by private
employment agencies are hereby "temporarily suspended effective July 1, 1991."

The alleged takeover is limited in scope, being confined to recruitment of domestic

helpers going to Hongkong only.

xxx xxx xxx

. . . the justification for the takeover of the processing and deploying of domestic
helpers for Hongkong resulting from the restriction of the scope of petitioner's
business is confined solely to the unscrupulous practice of private employment
agencies victimizing applicants for employment as domestic helpers for Hongkong
and not the whole recruitment business in the Philippines. (pp. 62-65, Rollo.)

The questioned circulars are therefore a valid exercise of the police power as delegated to the
executive branch of Government.
Nevertheless, they are legally invalid, defective and unenforceable for lack of power publication and
filing in the Office of the National Administrative Register as required in Article 2 of the Civil Code,
Article 5 of the Labor Code and Sections 3(1) and 4, Chapter 2, Book VII of the Administrative Code
of 1987 which provide:

Art. 2. Laws shall take effect after fifteen (15) days following the completion of their
publication in the Official Gazatte, unless it is otherwise provided. . . . (Civil Code.)

Art. 5. Rules and Regulations. The Department of Labor and other government
agencies charged with the administration and enforcement of this Code or any of its
parts shall promulgate the necessary implementing rules and regulations. Such rules
and regulations shall become effective fifteen (15) days after announcement of their
adoption in newspapers of general circulation. (Emphasis supplied, Labor Code, as
amended.)

Sec. 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 shall not
thereafter be the basis of any sanction against any party or persons. (Emphasis
supplied, Chapter 2, Book VII of the Administrative Code of 1987.)

Sec. 4. Effectivity. In addition to other rule-making requirements provided by law

not inconsistent with this Book, each rule shall become effective fifteen (15) days
from the date of filing as above provided unless a different date is fixed by law, or
specified in the rule in cases of imminent danger to public health, safety and welfare,
the existence of which must be expressed in a statement accompanying the rule.
The agency shall take appropriate measures to make emergency rules known to
persons who may be affected by them. (Emphasis supplied, Chapter 2, Book VII of
the Administrative Code of 1987).

Once, more we advert to our ruling in Taada vs. Tuvera, 146 SCRA 446 that:

. . . Administrative rules and regulations must also be published if their purpose is to

enforce or implement existing law pursuant also to a valid delegation. (p. 447.)

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. (p. 448.)

We agree that publication must be in full or it is no publication at all since its purpose
is to inform the public of the content of the laws. (p. 448.)

For lack of proper publication, the administrative circulars in question may not be enforced and
implemented.

WHEREFORE, the writ of prohibition is GRANTED. The implementation of DOLE Department Order
No. 16, Series of 1991, and POEA Memorandum Circulars Nos. 30 and 37, Series of 1991, by the
public respondents is hereby SUSPENDED pending compliance with the statutory requirements of
publication and filing under the aforementioned laws of the land.

SO ORDERED.

Narvasa, C.J., Gutierrez, Jr., Cruz, Feliciano, Padilla, Bidin, Medialdea, Regalado, Davide, Jr.,
Romero, Nocon and Bellosillo, JJ., concur.
 SECOND DIVISION

G.R. No. L-32166 October 18, 1977

THE PEOPLE OF THE PHILIPPINES, plaintiff-appellant,

vs.
HON. MAXIMO A. MACEREN CFI, Sta. Cruz, Laguna, JOSE BUENAVENTURA, GODOFREDO
REYES, BENJAMIN REYES, NAZARIO AQUINO and CARLO DEL ROSARIO, accused-appellees.

Office of the Solicitor General for appellant.

Rustics F. de los Reyes, Jr. for appellees.

AQUINO, J.: t .hqw

This is a case involving the validity of a 1967 regulation, penalizing electro fishing in fresh water
fisheries, promulgated by the Secretary of Agriculture and Natural Resources and the Commissioner
of Fisheries under the old Fisheries Law and the law creating the Fisheries Commission.

On March 7, 1969 Jose Buenaventura, Godofredo Reyes, Benjamin Reyes, Nazario Aquino and
Carlito del Rosario were charged by a Constabulary investigator in the municipal court of Sta. Cruz,
Laguna with having violated Fisheries Administrative Order No. 84-1.

It was alleged in the complaint that the five accused in the morning of March 1, 1969 resorted to
electro fishing in the waters of Barrio San Pablo Norte, Sta. Cruz by "using their own motor banca,
equipped with motor; with a generator colored green with attached dynamo colored gray or
somewhat white; and electrocuting device locally known as sensored with a somewhat webbed
copper wire on the tip or other end of a bamboo pole with electric wire attachment which was
attached to the dynamo direct and with the use of these devices or equipments catches fish thru
electric current, which destroy any aquatic animals within its cuffed reach, to the detriment and
prejudice of the populace" (Criminal Case No. 5429).

Upon motion of the accused, the municipal court quashed the complaint. The prosecution appealed.
The Court of First Instance of Laguna affirmed the order of dismissal (Civil Case No. SC-36). The
case is now before this Court on appeal by the prosecution under Republic Act No. 5440.

The lower court held that electro fishing cannot be penalize because electric current is not an
obnoxious or poisonous substance as contemplated in section I I of the Fisheries Law and that it is
not a substance at all but a form of energy conducted or transmitted by substances. The lower court
further held that, since the law does not clearly prohibit electro fishing, the executive and judicial
departments cannot consider it unlawful.

As legal background, it should be stated that section 11 of the Fisheries Law prohibits "the use of
any obnoxious or poisonous substance" in fishing.

Section 76 of the same law punishes any person who uses an obnoxious or poisonous substance in
fishing with a fine of not more than five hundred pesos nor more than five thousand, and by
imprisonment for not less than six months nor more than five years.

It is noteworthy that the Fisheries Law does not expressly punish .electro fishing." Notwithstanding
the silence of the law, the Secretary of Agriculture and Natural Resources, upon the
recommendation of the Commissioner of Fisheries, promulgated Fisheries Administrative Order No.
84 (62 O.G. 1224), prohibiting electro fishing in all Philippine waters. The order is quoted below:
+ .w ph!1

SUBJECT: PROHIBITING ELECTRO FISHING IN ALL WATERS +.w ph!1

OF THE PHILIPPINES.
Pursuant to Section 4 of Act No. 4003, as amended, and Section 4 of R.A. No. 3512, the following
rules and regulations regarding the prohibition of electro fishing in all waters of the Philippines are
promulgated for the information and guidance of all concerned. +.w ph!1

SECTION 1. Definition. Words and terms used in this Order 11 construed as

follows:

(a) Philippine waters or territorial waters of the Philippines' includes all waters of the
Philippine Archipelago, as defined in the t between the United States and Spain,
dated respectively the tenth of December, eighteen hundred ninety eight and the
seventh of November, nineteen hundred. For the purpose of this order, rivers, lakes
and other bodies of fresh waters are included.

(b) Electro Fishing. Electro fishing is the catching of fish with the use of electric
current. The equipment used are of many electrical devices which may be battery or
generator-operated and from and available source of electric current.

(c) 'Persons' includes firm, corporation, association, agent or employee.

(d) 'Fish' includes other aquatic products.

SEC. 2. Prohibition. It shall be unlawful for any person to engage in electro

fishing or to catch fish by the use of electric current in any portion of the Philippine
waters except for research, educational and scientific purposes which must be
covered by a permit issued by the Secretary of Agriculture and Natural Resources
which shall be carried at all times.

SEC. 3. Penalty. Any violation of the provisions of this Administrative Order

shall subject the offender to a fine of not exceeding five hundred pesos (P500.00) or
imprisonment of not extending six (6) months or both at the discretion of the Court.

SEC. 4. Repealing Provisions. All administrative orders or parts thereof

inconsistent with the provisions of this Administrative Order are hereby revoked.

SEC. 5. Effectivity. This Administrative Order shall take effect six (60) days
after its publication in the Office Gazette.

On June 28, 1967 the Secretary of Agriculture and Natural Resources, upon the recommendation of
the Fisheries Commission, issued Fisheries Administrative Order No. 84-1, amending section 2 of
Administrative Order No. 84, by restricting the ban against electro fishing to fresh water fisheries (63
O.G. 9963).

Thus, the phrase "in any portion of the Philippine waters" found in section 2, was changed by the
amendatory order to read as follows: "in fresh water fisheries in the Philippines, such as rivers,
lakes, swamps, dams, irrigation canals and other bodies of fresh water."

The Court of First Instance and the prosecution (p. 11 of brief) assumed that electro fishing is
punishable under section 83 of the Fisheries Law (not under section 76 thereof), which provides that
any other violation of that law "or of any rules and regulations promulgated thereunder shall subject
the offender to a fine of not more than two hundred pesos (P200), or in t for not more than six
months, or both, in the discretion of the court."

That assumption is incorrect because 3 of the aforequoted Administrative Order No. 84 imposes a
fm of not exceeding P500 on a person engaged in electro fishing, which amount the 83. It seems
that the Department of Fisheries prescribed their own penalty for swift fishing which penalty is less
than the severe penalty imposed in section 76 and which is not Identified to the at penalty imposed
in section 83.

Had Administrative Order No. 84 adopted the fighter penalty prescribed in on 83, then the crime of
electro fishing would be within the exclusive original jurisdiction of the inferior court (Sec. 44 [f],
Judiciary Law; People vs. Ragasi, L-28663, September 22,
We have discussed this pre point, not raised in the briefs, because it is obvious that the crime of
electro fishing which is punishable with a sum up to P500, falls within the concurrent original
jurisdiction of the inferior courts and the Court of First instance (People vs. Nazareno, L-40037, April
30, 1976, 70 SCRA 531 and the cases cited therein).

And since the instant case was filed in the municipal court of Sta. Cruz, Laguna, a provincial capital,
the order of d rendered by that municipal court was directly appealable to the Court, not to the Court
of First Instance of Laguna (Sec. 45 and last par. of section 87 of the Judiciary Law; Esperat vs.
Avila, L-25992, June 30, 1967, 20 SCRA 596).

It results that the Court of First Instance of Laguna had no appellate jurisdiction over the case. Its
order affirming the municipal court's order of dismissal is void for lack of motion. This appeal shall be
treated as a direct appeal from the municipal court to this Court. (See People vs. Del Rosario, 97
Phil. 67).

In this appeal, the prosecution argues that Administrative Orders Nos. 84 and 84-1 were not issued
under section 11 of the Fisheries Law which, as indicated above, punishes fishing by means of an
obnoxious or poisonous substance. This contention is not well-taken because, as already stated, the
Penal provision of Administrative Order No. 84 implies that electro fishing is penalized as a form of
fishing by means of an obnoxious or poisonous substance under section 11.

The prosecution cites as the legal sanctions for the prohibition against electro fishing in fresh water
fisheries (1) the rule-making power of the Department Secretary under section 4 of the Fisheries
Law; (2) the function of the Commissioner of Fisheries to enforce the provisions of the Fisheries Law
and the regulations Promulgated thereunder and to execute the rules and regulations consistent with
the purpose for the creation of the Fisheries Commission and for the development of fisheries (Sec.
4[c] and [h] Republic Act No. 3512; (3) the declared national policy to encourage, Promote and
conserve our fishing resources (Sec. 1, Republic Act No. 3512), and (4) section 83 of the Fisheries
Law which provides that "any other violation of" the Fisheries Law or of any rules and regulations
promulgated thereunder "shall subject the offender to a fine of not more than two hundred pesos, or
imprisonment for not more than six months, or both, in the discretion of the court."

As already pointed out above, the prosecution's reference to section 83 is out of place because the
penalty for electro fishing under Administrative order No. 84 is not the same as the penalty fixed in
section 83.

We are of the opinion that the Secretary of Agriculture and Natural Resources and the
Commissioner of Fisheries exceeded their authority in issuing Fisheries Administrative Orders Nos.
84 and 84-1 and that those orders are not warranted under the Fisheries Commission, Republic Act
No. 3512.

The reason is that the Fisheries Law does not expressly prohibit electro fishing. As electro fishing is
not banned under that law, the Secretary of Agriculture and Natural Resources and the
Commissioner of Fisheries are powerless to penalize it. In other words, Administrative Orders Nos.
84 and 84-1, in penalizing electro fishing, are devoid of any legal basis.

Had the lawmaking body intended to punish electro fishing, a penal provision to that effect could
have been easily embodied in the old Fisheries Law.

That law punishes (1) the use of obnoxious or poisonous substance, or explosive in fishing; (2)
unlawful fishing in deepsea fisheries; (3) unlawful taking of marine molusca, (4) illegal taking of
sponges; (5) failure of licensed fishermen to report the kind and quantity of fish caught, and (6) other
violations.

Nowhere in that law is electro fishing specifically punished. Administrative Order No. 84, in punishing
electro fishing, does not contemplate that such an offense fails within the category of "other
violations" because, as already shown, the penalty for electro fishing is the penalty next lower to the
penalty for fishing with the use of obnoxious or poisonous substances, fixed in section 76, and is not
the same as the penalty for "other violations" of the law and regulations fixed in section 83 of the
Fisheries Law.

The lawmaking body cannot delegate to an executive official the power to declare what acts should
constitute an offense. It can authorize the issuance of regulations and the imposition of the penalty
provided for in the law itself. (People vs. Exconde 101 Phil. 11 25, citing 11 Am. Jur. 965 on p. 11
32).

Originally, Administrative Order No. 84 punished electro fishing in all waters. Later, the ban against
electro fishing was confined to fresh water fisheries. The amendment created the impression that
electro fishing is not condemnable per se. It could be tolerated in marine waters. That circumstances
strengthens the view that the old law does not eschew all forms of electro fishing.

However, at present, there is no more doubt that electro fishing is punishable under the Fisheries
Law and that it cannot be penalized merely by executive revolution because Presidential Decree No.
704, which is a revision and consolidation of all laws and decrees affecting fishing and fisheries and
which was promulgated on May 16, 1975 (71 O.G. 4269), expressly punishes electro fishing in fresh
water and salt water areas.

That decree provides: +.wph!1

SEC. 33. Illegal fishing, dealing in illegally caught fish or fishery/aquatic products.
It shall he unlawful for any person to catch, take or gather or cause to be caught,
taken or gathered fish or fishery/aquatic products in Philippine waters with the use of
explosives, obnoxious or poisonous substance, or by the use of electricity as defined
in paragraphs (1), (m) and (d), respectively, of Section 3 hereof: ...

The decree Act No. 4003, as amended, Republic Acts Nos. 428, 3048, 3512 and 3586, Presidential
Decrees Nos. 43, 534 and 553, and all , Acts, Executive Orders, rules and regulations or parts
thereof inconsistent with it (Sec. 49, P. D. No. 704).

The inclusion in that decree of provisions defining and penalizing electro fishing is a clear recognition
of the deficiency or silence on that point of the old Fisheries Law. It is an admission that a mere
executive regulation is not legally adequate to penalize electro fishing.

Note that the definition of electro fishing, which is found in section 1 (c) of Fisheries Administrative
Order No. 84 and which is not provided for the old Fisheries Law, is now found in section 3(d) of the
decree. Note further that the decree penalty electro fishing by "imprisonment from two (2) to four (4)
years", a punishment which is more severe than the penalty of a time of not excluding P500 or
imprisonment of not more than six months or both fixed in section 3 of Fisheries Administrative
Order No. 84.

An examination of the rule-making power of executive officials and administrative agencies and, in
particular, of the Secretary of Agriculture and Natural Resources (now Secretary of Natural
Resources) under the Fisheries Law sustains the view that he ex his authority in penalizing electro
fishing by means of an administrative order.

Administrative agent are clothed with rule-making powers because the lawmaking body finds it
impracticable, if not impossible, to anticipate and provide for the multifarious and complex situations
that may be encountered in enforcing the law. All that is required is that the regulation should be
germane to the defects and purposes of the law and that it should conform to the standards that the
law prescribes (People vs. Exconde 101 Phil. 1125; Director of Forestry vs. Mu;oz, L-24796, June
28, 1968, 23 SCRA 1183, 1198; Geukeko vs. Araneta, 102 Phil. 706, 712).

The lawmaking body cannot possibly provide for all the details in the enforcement of a particular
statute (U.S. vs. Tupasi Molina, 29 Phil. 119, 125, citing U.S. vs. Grimaud 220 U.S. 506;
Interprovincial Autobus Co., Inc. vs. Coll. of Internal Revenue, 98 Phil. 290, 295-6).

The grant of the rule-making power to administrative agencies is a relaxation of the principle of
separation of powers and is an exception to the nondeleption of legislative, powers. Administrative
regulations or "subordinate legislation calculated to promote the public interest are necessary
because of "the growing complexity of modem life, the multiplication of the subjects of governmental
regulations, and the increased difficulty of administering the law" Calalang vs. Williams, 70 Phil. 726;
People vs. Rosenthal and Osme;a, 68 Phil. 328).

Administrative regulations adopted under legislative authority by a particular department must be in

harmony with the provisions of the law, and should be for the sole purpose of carrying into effect its
general provisions. By such regulations, of course, the law itself cannot be extended. (U.S. vs.
Tupasi Molina, supra). An administrative agency cannot amend an act of Congress (Santos vs.
Estenzo, 109 Phil. 419, 422; Teoxon vs. Members of the d of Administrators, L-25619, June 30,
1970, 33 SCRA 585; Manuel vs. General Auditing Office, L-28952, December 29, 1971, 42 SCRA
660; Deluao vs. Casteel, L-21906, August 29, 1969, 29 SCRA 350).

The rule-making power must be confined to details for regulating the mode or proceeding to carry
into effect the law as it his been enacted. The power cannot be extended to amending or expanding
the statutory requirements or to embrace matters not covered by the statute. Rules that subvert the
statute cannot be sanctioned. (University of Santo Tomas vs. Board of Tax A 93 Phil. 376, 382,
citing 12 C.J. 845-46. As to invalid regulations, see of Internal Revenue vs. Villaflor 69 Phil. 319,
Wise & Co. vs. Meer, 78 Phil. 655, 676; Del March vs. Phil. Veterans Administrative, L-27299, June
27, 1973, 51 SCRA 340, 349).

There is no question that the Secretary of Agriculture and Natural Resources has rule-making
powers. Section 4 of the Fisheries law provides that the Secretary "shall from time to time issue
instructions, orders, and regulations consistent" with that law, "as may be and proper to carry into
effect the provisions thereof." That power is now vested in the Secretary of Natural Resources by on
7 of the Revised Fisheries law, Presidential December No. 704.

Section 4(h) of Republic Act No. 3512 empower the Co of Fisheries "to prepare and execute upon
the approval of the Secretary of Agriculture and Natural Resources, forms instructions, rules and
regulations consistent with the purpose" of that enactment "and for the development of fisheries."

Section 79(B) of the Revised Administrative Code provides that "the Department Head shall have
the power to promulgate, whenever he may see fit do so, all rules, regulates, orders, memorandums,
and other instructions, not contrary to law, to regulate the proper working and harmonious and
efficient administration of each and all of the offices and dependencies of his Department, and for
the strict enforcement and proper execution of the laws relative to matters under the jurisdiction of
said Department; but none of said rules or orders shall prescribe penalties for the violation thereof,
except as expressly authorized by law."

Administrative regulations issued by a Department Head in conformity with law have the force of law
(Valerie vs. Secretary of culture and Natural Resources, 117 Phil. 729, 733; Antique Sawmills, Inc.
vs. Zayco, L- 20051, May 30, 1966, 17 SCRA 316). As he exercises the rule-making power by
delegation of the lawmaking body, it is a requisite that he should not transcend the bound
demarcated by the statute for the exercise of that power; otherwise, he would be improperly
exercising legislative power in his own right and not as a surrogate of the lawmaking body.

Article 7 of the Civil Code embodies the basic principle that administrative or executive acts, orders
and regulations shall be valid only when they are not contrary to the laws or the Constitution."

As noted by Justice Fernando, "except for constitutional officials who can trace their competence to
act to the fundamental law itself, a public office must be in the statute relied upon a grant of power
before he can exercise it." "department zeal may not be permitted to outrun the authority conferred
by statute." (Radio Communications of the Philippines, Inc. vs. Santiago, L-29236, August 21, 1974,
58 SCRA 493, 496-8).

"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 oftentimes 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." The rule or regulation should be within the scope of the statutory
authority granted by the legislature to the administrative agency. (Davis, Administrative Law, p. 194,
197, cited in Victories Milling Co., Inc. vs. Social Security Commission, 114 Phil. 555, 558).

In case of discrepancy between the basic law and a rule or regulation issued to implement said law,
the basic law prevails because said rule or regulation cannot go beyond the terms and provisions of
the basic law (People vs. Lim, 108 Phil. 1091).

This Court in its decision in the Lim case, supra, promulgated on July 26, 1960, called the attention
of technical men in the executive departments, who draft rules and regulations, to the importance
and necessity of closely following the legal provisions which they intend to implement so as to avoid
any possible misunderstanding or confusion.

The rule is that the violation of a regulation prescribed by an executive officer of the government in
conformity with and based upon a statute authorizing such regulation constitutes an offense and
renders the offender liable to punishment in accordance with the provisions of the law (U.S. vs.
Tupasi Molina, 29 Phil. 119, 124).

In other words, a violation or infringement of a rule or regulation validly issued can constitute a crime
punishable as provided in the authorizing statute and by virtue of the latter (People vs. Exconde 101
Phil. 1125, 1132).

It has been held that "to declare what shall constitute a crime and how it shall be punished is a
power vested exclusively in the legislature, and it may not be delegated to any other body or agency"
(1 Am. Jur. 2nd, sec. 127, p. 938; Texas Co. vs. Montgomery, 73 F. Supp. 527).

In the instant case the regulation penalizing electro fishing is not strictly in accordance with the
Fisheries Law, under which the regulation was issued, because the law itself does not expressly
punish electro fishing.

The instant case is similar to People vs. Santos, 63 Phil. 300. The Santos case involves section 28
of Fish and Game Administrative Order No. 2 issued by the Secretary of Agriculture and Natural
Resources pursuant to the aforementioned section 4 of the Fisheries Law.

Section 28 contains the proviso that a fishing boat not licensed under the Fisheries Law and under
the said administrative order may fish within three kilometers of the shoreline of islands and
reservations over which jurisdiction is exercised by naval and military reservations authorities of the
United States only upon receiving written permission therefor, which permission may be granted by
the Secretary upon recommendation of the military or naval authorities concerned. A violation of the
proviso may be proceeded against under section 45 of the Federal Penal Code.

Augusto A. Santos was prosecuted under that provision in the Court of First Instance of Cavite for
having caused his two fishing boats to fish, loiter and anchor without permission from the Secretary
within three kilometers from the shoreline of Corrigidor Island.

This Court held that the Fisheries Law does not prohibit boats not subject to license from fishing
within three kilometers of the shoreline of islands and reservations over which jurisdiction is
exercised by naval and military authorities of the United States, without permission from the
Secretary of Agriculture and Natural Resources upon recommendation of the military and naval
authorities concerned.

As the said law does not penalize the act mentioned in section 28 of the administrative order, the
promulgation of that provision by the Secretary "is equivalent to legislating on the matter, a power
which has not been and cannot be delegated to him, it being expressly reserved" to the lawmaking
body. "Such an act constitutes not only an excess of the regulatory power conferred upon the
Secretary but also an exercise of a legislative power which he does not have, and therefore" the said
provision "is null and void and without effect". Hence, the charge against Santos was dismiss.

A penal statute is strictly construed. While an administrative agency has the right to make ranks and
regulations to carry into effect a law already enacted, that power should not be confused with the
power to enact a criminal statute. An administrative agency can have only the administrative or
policing powers expressly or by necessary implication conferred upon it. (Glustrom vs. State, 206
Ga. 734, 58 Second 2d 534; See 2 Am. Jr. 2nd 129-130).

Where the legislature has delegated to executive or administrative officers and boards authority to
promulgate rules to carry out an express legislative purpose, the rules of administrative officers and
boards, which have the effect of extending, or which conflict with the authority granting statute, do
not represent a valid precise of the rule-making power but constitute an attempt by an administrative
body to legislate (State vs. Miles, Wash. 2nd 322, 105 Pac. 2nd 51).

In a prosecution for a violation of an administrative order, it must clearly appear that the order is one
which falls within the scope of the authority conferred upon the administrative body, and the order
will be scrutinized with special care. (State vs. Miles supra).
The Miles case involved a statute which authorized the State Game Commission "to adopt,
promulgate, amend and/or repeal, and enforce reasonable rules and regulations governing and/or
prohibiting the taking of the various classes of game.

Under that statute, the Game Commission promulgated a rule that "it shall be unlawful to offer, pay
or receive any reward, prize or compensation for the hunting, pursuing, taking, killing or displaying of
any game animal, game bird or game fish or any part thereof."

Beryl S. Miles, the owner of a sporting goods store, regularly offered a ten-down cash prize to the
person displaying the largest deer in his store during the open for hunting such game animals. For
that act, he was charged with a violation of the rule Promulgated by the State Game Commission.

It was held that there was no statute penalizing the display of game. What the statute penalized was
the taking of game. If the lawmaking body desired to prohibit the display of game, it could have
readily said so. It was not lawful for the administrative board to extend or modify the statute. Hence,
the indictment against Miles was quashed. The Miles case is similar to this case.

WHEREFORE, the lower court's decision of June 9, 1970 is set aside for lack of appellate
jurisdiction and the order of dismissal rendered by the municipal court of Sta. Cruz, Laguna in
Criminal Case No. 5429 is affirmed. Costs de oficio.

SO ORDERED.

Barredo, Concepcion, Jr., Santos and Guerrero, JJ., concur. 1wph1.t

Fernando and Antonio, JJ., took no part.

Guerrero, J., was designated to sit in the Second Division.

 EN BANC

G.R. No. L-9876 December 8, 1914

THE UNITED STATES, plaintiff-appellee,

vs.
ADRIANO PANLILIO, defendant-appellant.

Pedro Abad Santos for appellant.

Office of the Solicitor General Corpus for appellee.

MORELAND, J.:

This is an appeal from a judgment of the Court of First Instance of the Province of Pampanga
convicting the accused of a violation of the law relating to the quarantining of animals suffering from
dangerous communicable or contagious diseases and sentencing him to pay a fine of P40, with
subsidiary imprisonment in case of insolvency, and to pay the costs of the trial.

The information charges: "That on or about the 22nd day of February, 1913, all of the carabaos
belonging to the above-named accused having been exposed to the dangerous and contagious
disease known as rinderpest, were, in accordance with an order of duly-authorized agent of the
Director of Agriculture, duly quarantined in a corral in the barrio of Masamat, municipality of Mexico,
Province of Pampanga, P. I.; that, on said place, the said accused, Adriano Panlilio, illegally and
voluntarily and without being authorized so to do, and while the quarantine against said carabaos
was still in force, permitted and ordered said carabaos to be taken from the corral in which they were
then quarantined and conducted from one place to another; that by virtue of said orders of the
accused, his servants and agents took the said carabaos from the said corral and drove them from
one place to another for the purpose of working them."

The defendant demurred to this information on the ground that the acts complained of did not
constitute a crime. The demurrer was overruled and the defendant duly excepted and pleaded not
guilty.

From the evidence introduced by the prosecution on the trial of the cause it appears that the
defendant was notified in writing on February 22, 1913, by a duly authorized agent of the Director of
agriculture, that all of his carabaos in the barrio of Masamat, municipality of Mexico, Pampanga
Province, had been exposed to the disease commonly known as rinderpest, and that said carabaos
were accordingly declared under quarantine, and were ordered kept in a corral designated by an
agent of the Bureau of Agriculture and were to remain there until released by further order of the
Director of Agriculture.

It further appears from the testimony of the witnesses for the prosecution that the defendant fully
understood that, according to the orders of the Bureau of Agriculture, he was not to remove the
animals, or to permit anyone else to remove them, from the quarantine in which they had been
placed. In spite, however, of all this, the carabaos were taken from the corral by the commands of
the accused and driven from place to place on his hacienda, and were used as work animals
thereon in the same manner as if they had not been quarantined.

The contention of the accused is that the facts alleged in the information and proved on the trial do
not constitute a violation of Act No. 1760 or any portion thereof.

We are forced to agree with this contention. 1awphil.net

The original information against the accused charged a violation of section 6 of Act No. 1760
committed by the accused in that he ordered and permitted his carabaos, which, at the time, were in
quarantine, to be taken from quarantine and moved from one place to another on his hacienda. An
amended information was filed. It failed, however, to specify that section of Act No. 1760 alleged to
have been violated, evidently leaving that to be ascertained by the court on the trial.
The only sections of Act No. 1760, which prohibit acts and pronounce them unlawful are 3, 4 and 5.
This case does not fall within any of them. Section 3 provides, in effect, that it shall be unlawful for
any person, firm, or corporation knowingly to ship or otherwise bring into the Philippine Islands any
animal suffering from, infected with, or dead of any dangerous communicable disease, or any of the
effects pertaining to such animal which are liable to introduce such disease into the Philippine
Islands. Section 4 declares, substantially, that it shall be unlawful for any reason, firm, or corporation
knowingly to ship, drive or otherwise take or transport from one island, province, municipality,
township, or settlement to another any domestic animal suffering from any dangerous communicable
diseased or to expose such animal either alive or dead on any public road or highway where it may
come in contact with other domestic animals. Section 5 provides that whenever the Secretary of the
Interior shall declare that a dangerous communicable animal disease prevails in any island,
province, municipality, township, or settlement and that there is danger of spreading such disease by
shipping, driving or otherwise transporting or taking out of such island, province, municipality,
township, or settlement any class of domestic animal, it shall be unlawful for any person, firm or
corporation to ship, drive or otherwise remove the kind of animals so specified from such locality
except when accompanied by a certificate issued by authority of the Director of Agriculture stating
the number and the kind of animals to be shipped, driven, taken or transported, their destination,
manner in which they are authorized to be shipped, driven, taken, or transported, and their brands
and distinguishing marks.

A simple reading of these sections demonstrates clearly that the case at bar does not fall within any
of them. There is no question here of importation and there is no charge or proof that the animals in
question were suffering from a dangerous communicable disease or that the Secretary of the Interior
had made the declaration provided for in section 5 or that the accused had driven or taken said
animals from one island, province, municipality, township or settlement to another. It was alleged
had been exposed to a dangerous communicable disease and that they had been placed in a corral
in quarantine on the premises of the accused and that he, in violation of the quarantine, had taken
them from the corral and worked them upon the lands adjoining. They had not been in highway nor
moved from one municipality or settlement to another. They were left upon defendant's hacienda,
where they were quarantined, and there worked by the servants of the accused.

The Solicitor-General in his brief in this court admits that the sections referred to are not applicable
to the case at bar and also admits that section 7 of said Act is not applicable. This section provides:
"Whenever the Director of Agriculture shall order any animal placed in quarantine in accordance with
the provisions of this Act, the owner of such animal, or his agent, shall deliver it at the place
designated for the quarantine and shall provide it with proper food, water, and attendance. Should
the owner or his agent fail to comply with this requirement the Director of Agriculture may furnish
supplies and attendance needed, and the reasonable cost of such supplies and attendance shall be
collectible from the owner or his agent."

We are in accord with the opinion expressed by the Solicitor-General with respect to this section, as
we are with his opinion as to sections 3, 4, and 5. the law nowhere makes it a penal offense to
refuse to comply with the provisions of section 7, nor is the section itself so phrased as to warrant
the conclusion that it was intended to be a penal section. The section provides the means by which
the refusal of the owner to comply therewith shall be overcome and the punishment, if we may call it
punishment, which he shall receive by reason of that refusal. It has none of the aspects of a penal
provision or the form or substance of such provision. It does not prohibit any act. It does not compel
an act nor does it really punish or impose a criminal penalty. The other sections of the law under
which punishments may be inflicted are so phrased as to make the prohibited act unlawful, and
section 8 provides the punishment for any act declared unlawful by the law.

The Solicitor-General suggests, but does not argue, that section 6 is applicable to the case at bar.
Section 6 simply authorizes the Director of Agriculture to do certain things, among them, paragraph
(c) "to require that animals which are suffering from dangerous communicable diseases or have
been exposed thereto be placed in quarantine at such place and for such time as may be deemed
by him necessary to prevent the spread of the disease." Nowhere in the law, however, is the
violation of the orders of the Bureau of Agriculture prohibited or made unlawful, nor is there provided
any punishment for a violation of such orders. Section 8 provides that "any person violating any of
the provisions of this Act shall, upon conviction, be punished by a fine of not more than one
thousand pesos, or by imprisonment for not more than six months, or by both such fine and
imprisonment, in the discretion of the court, for each offense." A violation of the orders of the Bureau
of Agriculture, as authorized by paragraph (c), is not a violation of the provision of the Act. The
orders of the Bureau of Agriculture, while they may possibly be said to have the force of law, are
statutes and particularly not penal statutes, and a violation of such orders is not a penal offense
unless the statute itself somewhere makes a violation thereof unlawful and penalizes it. Nowhere in
Act No. 1760 is a violation of the orders of the Bureau of Agriculture made a penal offense, nor is
such violation punished in any way therein.

Finally, it is contended by the Government that if the offense stated in the information and proved
upon the trial does not constitute a violation of any of the provisions of Act No. 1760, it does
constitute a violation of article 581, paragraph 2, of the Penal Code. It provides:

A fine of not less than fifteen and not more than seventy pesetas and censure shall be
imposed upon: . . .

2. Any person who shall violate the regulations, ordinances, or proclamations issued with
reference to any epedemic disease among animals, the extermination of locusts, or any
other similar plague. 1awphil.net

It alleged in the information and was proved on the trial that the Bureau of agriculture had ordered a
quarantine of the carabaos at the time and place mentioned; that the quarantine had been executed
and completed and the animals actually segregated and confined; that the accused, in violation of
such quarantine and of the orders of the Bureau of Agriculture, duly promulgated, broke the
quarantine, removed the animals and used them in the ordinary work of his plantation. We consider
these acts a plain violation of the article of the Penal Code as above quoted. The fact that the
information in its preamble charged a violation of act No. 1760 does not prevent us from finding the
accused guilty of a violation of an article of the Penal Code. The complaint opens as follows: "The
undersigned accuses Adriano Panlilio of a violation of Act No. 1760, committed as follows:" Then
follows the body of the information already quoted in this opinion. We would not permit an accused
to be convicted under one Act when he is charged with the violation of another, if the change from
one statute to another involved a change of the theory of the trial or required of the defendant a
different defense or surprised him in any other way. The allegations required under Act No. 1760
include those required under article 581. The accused could have defended himself in no different
manner if he had been expressly charged with a violation of article 581.

In the case of United States vs. Paua (6 Phil. Rep., 740), the information stating the facts upon
which the charge was founded terminated with his expression: "In violation of section 315 of Act No.
355 of the Philippine Commission, in effect on the 6th of February, 1902."

In the resolution of this case the Supreme Court found that the facts set forth in the information and
proved on the trial did not constitute a violation of section 315 of Act No. 355 as alleged in the
information, but did constitute a violation of article 387 in connection with article 383 of the Penal
Code, and accordingly convicted the accused under those articles and sentenced him to the
corresponding penalty.

In that case the court said: "The foregoing facts, duly established as they were by the testimony of
credible witnesses who heard and saw everything that occurred, show beyond peradventure of
doubt that the crime of attempted bribery, as defined in article 387, in connection with article 383 of
the Penal Code, has been committed, it being immaterial whether it is alleged in the complaint that
section 315 of Act No. 355 of the Philippine Commission was violated by the defendant, as the same
recites facts and circumstances sufficient to constitute the crime of bribery as defined and punished
in the aforesaid articles of the Penal Code." (U. S. vs. Lim San, 17 Phil. Rep., 273; U.S. vs. Jeffrey,
15 Phil. Rep., 391; U. S. vs. Guzman, 25 Phil. Rep., 22.)

The accused is accordingly convicted of a violation of article 581, paragraph 2, of the Penal Code,
and is sentenced to pay a fine of seventy pesetas (P14) and censure, with subsidiary imprisonment
in case of insolvency, and the costs of this appeal. So ordered.

Arellano, C.J., Torres, Carson and Araullo, JJ., concur.

Johnson, J., dissents.
 EN BANC

[G.R. No. 111953. December 12, 1997]

HON. RENATO C. CORONA, in his capacity as Assistant Secretary for Legal Affairs, HON.
JESUS B. GARCIA, in his capacity as Acting Secretary, Department of Transportation
and Communications, and ROGELIO A. DAYAN, in his capacity as General Manager of
Philippine Ports Authority, petitioners, vs. UNITED HARBOR PILOTS ASSOCIATION OF
THE PHILIPPINES and MANILA PILOTS ASSOCIATION, respondents.

DECISION
ROMERO, J.:

In issuing Administrative Order No. 04-92 (PPA-AO No. 04-92), limiting the term of appointment
of harbor pilots to one year subject to yearly renewal or cancellation, did the Philippine Ports Authority
(PPA) violate respondents right to exercise their profession and their right to due process of law?
The PPA was created on July 11, 1974, by virtue of Presidential Decree No. 505. On December
23, 1975, Presidential Decree No. 857 was issued revising the PPAs charter. Pursuant to its power of
control, regulation, and supervision of pilots and the pilotage profession, [1] the PPA promulgated PPA-
AO-03-85 [2] on March 21, 1985, which embodied the Rules and Regulations Governing Pilotage
Services, the Conduct of Pilots and Pilotage Fees in Philippine Ports. These rules mandate, inter alia,
that aspiring pilots must be holders of pilot licenses [3]and must train as probationary pilots in outports
for three months and in the Port of Manila for four months. It is only after they have achieved
satisfactory performance [4] that they are given permanent and regular appointments by the PPA
itself [5] to exercise harbor pilotage until they reach the age of 70, unless sooner removed by reason
of mental or physical unfitness by the PPA General Manager. [6] Harbor pilots in every harbor district
are further required to organize themselves into pilot associations which would make available such
equipment as may be required by the PPA for effective pilotage services. In view of this mandate, pilot
associations invested in floating, communications, and office equipment. In fact, every new pilot
appointed by the PPA automatically becomes a member of a pilot association and is required to pay
a proportionate equivalent equity or capital before being allowed to assume his duties, as
reimbursement to the association concerned of the amount it paid to his predecessor.
Subsequently, then PPA General Manager Rogelio A. Dayan issued PPA-AO No. 04-92 [7] on
July 15, 1992, whose avowed policy was to instill effective discipline and thereby afford better
protection to the port users through the improvement of pilotage services. This was implemented by
providing therein that all existing regular appointments which have been previously issued either by
the Bureau of Customs or the PPA shall remain valid up to 31 December 1992 only and that all
appointments to harbor pilot positions in all pilotage districts shall, henceforth, be only for a term of
one (1) year from date of effectivity subject to yearly renewal or cancellation by the Authority after
conduct of a rigid evaluation of performance.
On August 12, 1992, respondents United Harbor Pilots Association and the Manila Pilots
Association, through Capt. Alberto C. Compas, questioned PPA-AO No. 04-92 before the Department
of Transportation and Communication, but they were informed by then DOTC Secretary Jesus B.
Garcia that the matter of reviewing, recalling or annulling PPAs administrative issuances lies
exclusively with its Board of Directors as its governing body.
Meanwhile, on August 31, 1992, the PPA issued Memorandum Order No. 08-92 [8] which laid
down the criteria or factors to be considered in the reappointment of harbor pilots, viz.: (1) Qualifying
Factors: [9] safety record and physical/mental medical exam report and (2) Criteria for
Evaluation: [10] promptness in servicing vessels, compliance with PPA Pilotage Guidelines, number of
years as a harbor pilot, average GRT of vessels serviced as pilot, awards/commendations as harbor
pilot, and age.
Respondents reiterated their request for the suspension of the implementation of PPA-AO No.
04-92, but Secretary Garcia insisted on his position that the matter was within the jurisdiction of the
Board of Directors of the PPA. Compas appealed this ruling to the Office of the President (OP),
reiterating his arguments before the DOTC.
On December 23, 1992, the OP issued an order directing the PPA to hold in abeyance the
implementation of PPA-AO No. 04-92. In its answer, the PPA countered that said administrative order
was issued in the exercise of its administrative control and supervision over harbor pilots under Section
6-a (viii), Article IV of P. D. No. 857, as amended, and it, along with its implementing guidelines, was
intended to restore order in the ports and to improve the quality of port services.
On March 17, 1993, the OP, through then Assistant Executive Secretary for Legal Affairs Renato
C. Corona, dismissed the appeal/petition and lifted the restraining order issued earlier. [11] He
concluded that PPA-AO No. 04-92 applied to all harbor pilots and, for all intents and purposes, was
not the act of Dayan, but of the PPA, which was merely implementing Section 6 of P.D. No. 857,
mandating it to control, regulate and supervise pilotage and conduct of pilots in any port district.
On the alleged unconstitutionality and illegality of PPA-AO No. 04-92 and its implementing
memoranda and circulars, Secretary Corona opined that:

The exercise of ones profession falls within the constitutional guarantee against wrongful deprivation
of, or interference with, property rights without due process. In the limited context of this case, PPA-
AO 04-92 does not constitute a wrongful interference with, let alone a wrongful deprivation of, the
property rights of those affected thereby. As may be noted, the issuance aims no more than to
improve pilotage services by limiting the appointment to harbor pilot positions to one year, subject to
renewal or cancellation after a rigid evaluation of the appointees performance.

PPA-AO 04-92 does not forbid, but merely regulates, the exercise by harbor pilots of their
profession in PPAs jurisdictional area. (Emphasis supplied)

Finally, as regards the alleged absence of ample prior consultation before the issuance of the
administrative order, Secretary Corona cited Section 26 of P.D. No. 857, which merely requires the
PPA to consult with relevant Government agencies. Since the PPA Board of Directors is composed of
the Secretaries of the DOTC, the Department of Public Works and Highways, the Department of
Finance, and the Department of Environment and Natural Resources, as well as the Director-General
of the National Economic Development Agency, the Administrator of the Maritime Industry Authority
(MARINA), and the private sector representative who, due to his knowledge and expertise, was
appointed by the President to the Board, he concluded that the law has been sufficiently complied with
by the PPA in issuing the assailed administrative order.
Consequently, respondents filed a petition for certiorari, prohibition and injunction with prayer for
the issuance of a temporary restraining order and damages, before Branch 6 of the Regional Trial
Court of Manila, which was docketed as Civil Case No. 93-65673. On September 6, 1993, the trial
court rendered the following judgment: [12]

WHEREFORE, for all the foregoing, this Court hereby rules that:

1. Respondents (herein petitioners) have acted in excess of jurisdiction and with grave abuse
of discretion and in a capricious, whimsical and arbitrary manner in promulgating PPA
Administrative Order 04-92 including all its implementing Memoranda, Circulars and
Orders;

2. PPA Administrative Order 04-92 and its implementing Circulars and Orders are declared null and
void;

3. The respondents are permanently enjoined from implementing PPA Administrative Order 04-92
and its implementing Memoranda, Circulars and Orders.

No costs.

SO ORDERED.

The court a quo pointed out that the Bureau of Customs, the precursor of the PPA, recognized
pilotage as a profession and, therefore, a property right under Callanta v. Carnation Philippines,
Inc. [13] Thus, abbreviating the term within which that privilege may be exercised would be an
interference with the property rights of the harbor pilots. Consequently, any withdrawal or alteration of
such property right must be strictly made in accordance with the constitutional mandate of due process
of law. This was apparently not followed by the PPA when it did not conduct public hearings prior to
the issuance of PPA-AO No. 04-92; respondents allegedly learned about it only after its publication in
the newspapers. From this decision, petitioners elevated their case to this Court on certiorari.
 After carefully examining the records and deliberating on the arguments of the parties, the Court
is convinced that PPA-AO No. 04-92 was issued in stark disregard of respondents right against
deprivation of property without due process of law. Consequently, the instant petition must be denied.
Section 1 of the Bill of Rights lays down what is known as the due process clause of the
Constitution, viz.:
SECTION 1. No person shall be deprived of life, liberty, or property without due process of
law, x x x.
In order to fall within the aegis of this provision, two conditions must concur, namely, that there is
a deprivation and that such deprivation is done without proper observance of due process. When one
speaks of due process of law, however, a distinction must be made between matters of procedure and
matters of substance. In essence, procedural due process refers to the method or manner by which
the law is enforced, while substantive due process requires that the law itself, not merely the
procedures by which the law would be enforced, is fair, reasonable, and just. [14] PPA-AO No. 04-92
must be examined in light of this distinction.
Respondents argue that due process was not observed in the adoption of PPA-AO No. 04-92
allegedly because no hearing was conducted whereby relevant government agencies and the pilots
themselves could ventilate their views. They are obviously referring to the procedural aspect of the
enactment. Fortunately, the Court has maintained a clear position in this regard, a stance it has
stressed in the recent case of Lumiqued v. Hon. Exevea, [15] where it declared that (a)s long as a party
was given the opportunity to defend his interests in due course, he cannot be said to have been denied
due process of law, for this opportunity to be heard is the very essence of due process.Moreover, this
constitutional mandate is deemed satisfied if a person is granted an opportunity to seek
reconsideration of the action or ruling complained of.
In the case at bar, respondents questioned PPA-AO No. 04-92 no less than four times [16] before
the matter was finally elevated to this Tribunal. Their arguments on this score, however, fail to
persuade. While respondents emphasize that the Philippine Coast Guard, which issues the licenses
of pilots after administering the pilots examinations, was not consulted, [17] the facts show that the
MARINA, which took over the licensing function of the Philippine Coast Guard, was duly represented
in the Board of Directors of the PPA. Thus, petitioners correctly argued that, there being no matters of
naval defense involved in the issuance of the administrative order, the Philippine Coast Guard need
not be consulted.[18]
Neither does the fact that the pilots themselves were not consulted in any way taint the validity of
the administrative order. As a general rule, notice and hearing, as the fundamental requirements of
procedural due process, are essential only when an administrative body exercises its quasi-judicial
function. In the performance of its executive or legislative functions, such as issuing rules and
regulations, an administrative body need not comply with the requirements of notice and hearing.[19]
Upon the other hand, it is also contended that the sole and exclusive right to the exercise of harbor
pilotage by pilots is a settled issue.Respondents aver that said right has become vested and can only
be withdrawn or shortened by observing the constitutional mandate of due process of law. Their
argument has thus shifted from the procedural to one of substance. It is here where PPA-AO No. 04-
92 fails to meet the condition set by the organic law.
There is no dispute that pilotage as a profession has taken on the nature of a property right. Even
petitioner Corona recognized this when he stated in his March 17, 1993, decision that (t)he exercise
of ones profession falls within the constitutional guarantee against wrongful deprivation of, or
interference with, property rights without due process. [20] He merely expressed the opinion that (i)n
the limited context of this case, PPA-AO 04-92 does not constitute a wrongful interference with, let
alone a wrongful deprivation of, the property rights of those affected thereby, and that PPA-AO 04-92
does not forbid, but merely regulates, the exercise by harbor pilots of their profession. As will be
presently demonstrated, such supposition is gravely erroneous and tends to perpetuate an
administrative order which is not only unreasonable but also superfluous.
Pilotage, just like other professions, may be practiced only by duly licensed individuals. Licensure
is the granting of license especially to practice a profession. It is also the system of granting licenses
(as for professional practice) in accordance with established standards. [21] A license is a right or
permission granted by some competent authority to carry on a business or do an act which, without
such license, would be illegal. [22]
Before harbor pilots can earn a license to practice their profession, they literally have to pass
through the proverbial eye of a needle by taking, not one but five examinations, each followed by
actual training and practice. Thus, the court a quo observed:
Petitioners (herein respondents) contend, and the respondents (herein petitioners) do not deny, that
here (sic) in this jurisdiction, before a person can be a harbor pilot, he must pass five (5) government
professional examinations, namely, (1) For Third Mate and after which he must work, train and
practice on board a vessel for at least a year; (2) For Second Mate and after which he must work,
train and practice for at least a year; (3) For Chief Mate and after which he must work, train and
practice for at least a year; (4) For a Master Mariner and after which he must work as Captain of
vessels for at least two (2) years to qualify for an examination to be a pilot; and finally, of course, that
given for pilots.

Their license is granted in the form of an appointment which allows them to engage in pilotage
until they retire at the age 70 years. This is a vested right. Under the terms of PPA-AO No. 04-92, (a)ll
existing regular appointments which have been previously issued by the Bureau of Customs or the
PPA shall remain valid up to 31 December 1992 only, and (a)ll appointments to harbor pilot positions
in all pilotage districts shall, henceforth, be only for a term of one (1) year from date of effectivity subject
to renewal or cancellation by the Authority after conduct of a rigid evaluation of performance.
It is readily apparent that PPA-AO No. 04-92 unduly restricts the right of harbor pilots to enjoy
their profession before their compulsory retirement. In the past, they enjoyed a measure of security
knowing that after passing five examinations and undergoing years of on-the-job training, they would
have a license which they could use until their retirement, unless sooner revoked by the PPA for mental
or physical unfitness. Under the new issuance, they have to contend with an annual cancellation of
their license which can be temporary or permanent depending on the outcome of their performance
evaluation. Veteran pilots and neophytes alike are suddenly confronted with one-year terms
which ipso facto expire at the end of that period. Renewal of their license is now dependent on a rigid
evaluation of performance which is conducted only after the license has already been
cancelled. Hence, the use of the term renewal. It is this pre-evaluation cancellation which primarily
makes PPA-AO No. 04-92 unreasonable and constitutionally infirm. In a real sense, it is a deprivation
of property without due process of law.
The Court notes that PPA-AO No. 04-92 and PPA-MO No. 08-92 are already covered by PPA-
AO No. 03-85, which is still operational.Respondents are correct in pointing out that PPA-AO No. 04-
92 is a surplusage [23] and, therefore, an unnecessary enactment. PPA-AO 03-85 is a comprehensive
order setting forth the Rules and Regulations Governing Pilotage Services, the Conduct of Pilots and
Pilotage Fees in Philippine Ports. It provides, inter alia, for the qualification, appointment, performance
evaluation, disciplining and removal of harbor pilots - matters which are duplicated in PPA-AO No. 04-
92 and its implementing memorandum order. Since it adds nothing new or substantial, PPA-AO No.
04-92 must be struck down.
Finally, respondents insinuation that then PPA General Manager Dayan was responsible for the
issuance of the questioned administrative order may have some factual basis; after all, power and
authority were vested in his office to propose rules and regulations. The trial courts finding of animosity
between him and private respondents might likewise have a grain of truth. Yet the number of cases
filed in court between private respondents and Dayan, including cases which have reached this Court,
cannot certainly be considered the primordial reason for the issuance of PPA-AO No. 04-92. In the
absence of proof to the contrary, Dayan should be presumed to have acted in accordance with law
and the best of professional motives. In any event, his actions are certainly always subject to scrutiny
by higher administrative authorities.
WHEREFORE, the instant petition is hereby DISMISSED and the assailed decision of the court a
quo dated September 6, 1993, in Civil Case No. 93-65673 is AFFIRMED. No pronouncement as to
costs.
SO ORDERED.
Narvasa, C.J., Regalado, Davide, Jr., Bellosillo, Melo, Puno, Vitug, Kapunan, Mendoza,
Francisco, and Panganiban, JJ., concur.
Martinez, J., no part.
 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 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

J
u
l
y
1
,
1
9
9
3

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
Commissioner

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.

8
On 03 August 1993, Fortune Tobacco filed a petition for review with the CTA.

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
an interpretative 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.

(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 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
subjected Hope 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, 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 . . . . 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 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
More and 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 Taada 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 of Ang
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.

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 . . ."

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 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.

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

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."

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.

Any ruling inconsistent herewith is revoked or modified accordingly.

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
Commis
sioner of
Internal
Revenu
e

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
Commis
sioner of
Internal
Revenu
e

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

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.

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
brands Hope, 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 pretended loss 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 another vilification 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
valorem excise 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
1
more expertise and dispatch than can be expected from the legislature or the courts of justice" . . .

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 2 on
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
valorem excise 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. 5 In
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." 12 Indeed, "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.

(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 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
subjected Hope 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, 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 . . . . 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 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
More and 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 Taada 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 of Ang
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.

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 . . ."

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 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.

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

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."

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.

Any ruling inconsistent herewith is revoked or modified accordingly.

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
Commis
sioner of
Internal
Revenu
e
 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
Commis
sioner of
Internal
Revenu
e

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

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.

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
brands Hope, 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 pretended loss 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 another vilification 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
valorem excise 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
1
more expertise and dispatch than can be expected from the legislature or the courts of justice" . . .

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 2 on
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
valorem excise 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. 5 In
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." 12 Indeed, "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.

 EN BANC

G.R. No. 78385 August 31, 1987

PHILIPPINE CONSUMERS FOUNDATION, INC., petitioner,

vs.
THE SECRETARY OF EDUCATION, CULTURE AND SPORTS, respondent.

GANCAYCO, J.:

This is an original Petition for prohibition with a prayer for the issuance of a writ of preliminary
injunction.

The record of the case discloses that the herein petitioner Philippine Consumers Foundation, Inc. is
a non-stock, non-profit corporate entity duly organized and existing under the laws of the Philippines.
The herein respondent Secretary of Education, Culture and Sports is a ranking cabinet member who
heads the Department of Education, Culture and Sports of the Office of the President of the
Philippines.

On February 21, 1987, the Task Force on Private Higher Education created by the Department of
Education, Culture and Sports (hereinafter referred to as the DECS) submitted a report entitled
"Report and Recommendations on a Policy for Tuition and Other School Fees." The report favorably
recommended to the DECS the following courses of action with respect to the Government's policy
on increases in school fees for the schoolyear 1987 to 1988

(1) Private schools may be allowed to increase its total school fees by not more than
15 per cent to 20 per cent without the need for the prior approval of the DECS.
Schools that wish to increase school fees beyond the ceiling would be subject to the
discretion of the DECS;

(2) Any private school may increase its total school fees in excess of the ceiling,
provided that the total schools fees will not exceed P1,000.00 for the schoolyear in
the elementary and secondary levels, and P50.00 per academic unit on a semestral
basis for the collegiate level. 1

The DECS took note of the report of the Task Force and on the basis of the same, the DECS, through the respondent Secretary of
Education, Culture and Sports (hereinafter referred to as the respondent Secretary), issued an Order authorizing, inter alia, the 15% to 20%
increase in school fees as recommended by the Task Force. The petitioner sought a reconsideration of the said Order, apparently on the
ground that the increases were too high. 2 Thereafter, the DECS issued Department Order No. 37 dated April 10, 1987 modifying its previous
Order and reducing the increases to a lower ceiling of 10% to 15%, accordingly. 3 Despite this reduction, the petitioner still opposed the
increases. On April 23, 1987, the petitioner, through counsel, sent a telegram to the President of the Philippines urging the suspension of the
implementation of Department Order No. 37. 4 No response appears to have been obtained from the Office of the President.

Thus, on May 20, 1987, the petitioner, allegedly on the basis of the public interest, went to this Court
and filed the instant Petition for prohibition, seeking that judgment be rendered declaring the
questioned Department Order unconstitutional. The thrust of the Petition is that the said Department
Order was issued without any legal basis. The petitioner also maintains that the questioned
Department Order was issued in violation of the due process clause of the Constitution in asmuch as
the petitioner was not given due notice and hearing before the said Department Order was issued.

In support of the first argument, the petitioner argues that while the DECS is authorized by law to
regulate school fees in educational institutions, the power to regulate does not always include the
power to increase school fees. 5

Regarding the second argument, the petitioner maintains that students and parents are interested
parties that should be afforded an opportunity for a hearing before school fees are increased. In
sum, the petitioner stresses that the questioned Order constitutes a denial of substantive and
procedural due process of law.

Complying with the instructions of this Court, 6 the respondent Secretary submitted a Comment on
the Petition. 7The respondent Secretary maintains, inter alia, that the increase in tuition and other
school fees is urgent and necessary, and that the assailed Department Order is not arbitrary in
character. In due time, the petitioner submitted a Reply to the Comment. 8 Thereafter, We
considered the case submitted for resolution.

After a careful examination of the entire record of the case, We find the instant Petition devoid of
merit.

We are not convinced by the argument that the power to regulate school fees "does not always
include the power to increase" such fees. Section 57 (3) of Batas Pambansa Blg. 232, otherwise
known as The Education Act of 1982, vests the DECS with the power to regulate the educational
system in the country, to wit:

SEC. 57. Educations and powers of the Ministry. The Ministry shall:

xxx xxx xxx

(3) Promulgate rules and regulations necessary for the administration, supervision
and regulation of the educational system in accordance with declared policy.

xxx xxx xxx 9

Section 70 of the same Act grants the DECS the power to issue rules which are likewise necessary
to discharge its functions and duties under the law, to wit:

SEC. 70. Rule-making Authority. The Minister of Education and Culture, charged
with the administration and enforcement of this Act, shall promulgate the necessary
implementing rules and regulations.

In the absence of a statute stating otherwise, this power includes the power to prescribe school fees.
No other government agency has been vested with the authority to fix school fees and as such, the
power should be considered lodged with the DECS if it is to properly and effectively discharge its
functions and duties under the law.

We find the remaining argument of the petitioner untenable. The petitioner invokes the due process
clause of the Constitution against the alleged arbitrariness of the assailed Department Order. The
petitioner maintains that the due process clause requires that prior notice and hearing are
indispensable for the Department Order to be validly issued.

We disagree.

The function of prescribing rates by an administrative agency may be either a legislative or an

adjudicative function. If it were a legislative function, the grant of prior notice and hearing to the
affected parties is not a requirement of due process. As regards rates prescribed by an
administrative agency in the exercise of its quasi-judicial function, prior notice and hearing are
essential to the validity of such rates. When the rules and/or rates laid down by an administrative
agency are meant to apply to all enterprises of a given kind throughout the country, they may
partake of a legislative character. Where the rules and the rates imposed apply exclusively to a
particular party, based upon a finding of fact, then its function is quasi-judicial in character. 9a

Is Department Order No. 37 issued by the DECS in the exercise of its legislative function? We
believe so. The assailed Department Order prescribes the maximum school fees that may be
charged by all private schools in the country for schoolyear 1987 to 1988. This being so, prior notice
and hearing are not essential to the validity of its issuance.

This observation notwithstanding, there is a failure on the part of the petitioner to show clear and
convincing evidence of such arbitrariness. As the record of the case discloses, the DECS is not
without any justification for the issuance of the questioned Department Order. It would be reasonable
to assume that the report of the Task Force created by the DECS, on which it based its decision to
allow an increase in school fees, was made judiciously. Moreover, upon the instance of the
petitioner, as it so admits in its Petition, the DECS had actually reduced the original rates of 15% to
20% down to 10% to 15%, accordingly. Under the circumstances peculiar to this case, We cannot
consider the assailed Department Order arbitrary.
Under the Rules of Court, it is presumed that official duty has been regularly performed. 10 In the
absence of proof to the contrary, that presumption prevails. This being so, the burden of proof is on the party assailing the regularity of official
proceedings. In the case at bar, the petitioner has not successfully disputed the presumption.

We commend the petitioner for taking the cudgels for the public, especially the parents and the
students of the country. Its zeal in advocating the protection of the consumers in its activities should
be lauded rather than discouraged. But a more convincing case should be made out by it if it is to
seek relief from the courts some time in the future. Petitioner must establish that respondent acted
without or in excess of her jurisdiction; or with grave abuse of discretion, and there is no appeal or
any other plain, speedy, and adequate remedy in the ordinary course of law before the extraordinary
writ of prohibition may issue. 11

This Court, however, does not go to the extent of saying that it gives its judicial imprimatur to future increases in school fees. The increases
must not be unreasonable and arbitrary so as to amount to an outrageous exercise of government authority and power. In such an
eventuality, this Court will not hesitate to exercise the power of judicial review in its capacity as the ultimate guardian of the Constitution.

WHEREFORE, in view of the foregoing, the instant Petition for prohibition is hereby DISMISSED for
lack of merit. We make no pronouncement as to costs.

SO ORDERED.

Teehankee, C.J., Yap, Fernan, Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Paras, Feliciano,
Padilla, Bidin, Sarmiento and Cortes, JJ., concur.