LA SUERTE CIGAR V.

COURT OF APPEALS
FACTS:
These cases involve the taxability of stemmed leaf tobacco imported and locally purchased
by cigarette manufacturers for use as raw material in the manufacture of their cigarettes. Under the
Tax Code, if it is to be exported or to be used in the manufacture of cigars, cigarettes, or other tobacco
products on which the excise tax will eventually be paid on the finished product.
La Suerte was assessed by the BIR for excise tax deficiency amounting to more than 34 million
pesos. La Suerte protested invoking the Tax Code which allows the sale of stemmed leaf tobacco as
raw material by one manufacturer directly to another without payment of the excise tax. However,
the CIR insisted that stemmed leaf tobacco is subject to excise tax "unless there is an express grant of
exemption from [the] payment of tax."
La Suerte petitioned for review before the CTA which cancelled the assessment. The CIR
appealed to the CA which reversed the CTA. The CIR invoked a revenue regulation (RR) which limits
the exemption from payment of specific tax on stemmed leaf tobacco to sales transactions between
manufacturers classified as L-7 permittees.

ISSUES:
Is stemmed leaf tobacco subject to excise (specific) tax?

HELD:
Yes, excise taxes on domestic products shall be paid by the manufacturer or producer
before[the] removal [of those products] from the place of production." "It does not matter to what
use the article[s] subject to tax is put; the excise taxes are still due, even though the articles are
removed merely for storage in someother place and are not actually sold or consumed.

When tobacco is harvested and processed either by hand or by machine, all its products become
subject to specific tax. Section 141 reveals the legislative policy to tax all forms of manufactured
tobacco — in contrast to raw tobacco leaves — including tobacco refuse or all other tobacco which
has been cut, split, twisted, or pressed and is capable of being smoked without further industrial
processing.

Stemmed leaf tobacco is subject to the specific tax under Section 141(b). It is a partially prepared
tobacco. The removal of the stem or midrib from the leaf tobacco makes the resulting stemmed leaf
tobacco a prepared or partially prepared tobacco.

Despite the differing definitions for "stemmed leaf tobacco" under revenue regulations, the onus of
proving that stemmed leaf tobacco is not subject to the specific tax lies with the cigarette
manufacturers. Taxation is the rule, exemption is the exception.