EN BANC [G.R. No. L-16704. March 17, 1962.] VICTORIAS MILLING COMPANY, INC., petitioner-appellant, vs.

SOCIAL SECURITY COMMISSION, respondent-appellee.

Ross, Selph & Carrascoso for petitioner-appellant. Solicitor General and Ernesto Duran for respondent-appellee.

SYLLABUS 1. STATUTORY CONSTRUCTION; DISTINCTION BETWEEN AN ADMINISTRATIVE RULE AND AN ADMINISTRATIVE INTERPRETATION OF LAW; NATURE OF ADMINISTRATIVE RULES AND REGULATIONS. When an administrative agency promulgates rules and regulations, it makes "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. 2. ID.; ID.; BINDING EFFECT OF ADMINISTRATIVE RULES ON COURTS; REQUISITES. A rule is binding on the courts so 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. 3. ID.; ID.; CIRCULAR NO. 22 OF THE SOCIAL SECURITY COMMISSION MERELY AN ADVISORY OPINION AND NEED NOT BE APPROVED BY THE PRESIDENT. Circular No. 22 of the Social Security Commission purports merely to advise employers-members of the System of what, in the light of the amendment of the law, they should include in determining the monthly compensation of their employees upon which the social security contributions should be based. It did not add any duty or detail that was not already in the law as amended. It merely stated and circularized the opinion of the Commission as to how the law should be construed. Such circular, therefore, did not require presidential approval and publication in the Official Gazette for its effectivity. 4. ID.; INTERPRETATION OF TERMS OR WORDS; RULE WHEN A TERM OR WORD IS SPECIFICALLY DEFINED IN A STATUTE. While the rule is that terms or words are to be interpreted in accordance with their well-accepted meaning in law, nevertheless, when such term or word is specifically defined in a particular law, such interpretation must be adopted in enforcing that particular law, for it can not be gainsaid that a particular phrase or term may have one meaning for one purpose and another meaning for some other purpose.

DECISION

BARRERA, J p: On October 15, 1958, the Social Security Commission issued its Circular No. 22 of the following tenor. "Effective November 1, 1958, all Employers in computing the premiums due the System, will take into consideration and include in the Employee's remuneration all bonuses and overtime pay, as well as the cash value of other media of remuneration. All these will comprise the Employee's remuneration or earnings, upon which the 3-1/2% and 2- 1/2% contributions will be based, up to a maximum of P500 for any one month." Upon receipt of a copy thereof, petitioner Victorias Milling Company, Inc., through counsel, wrote the Social Security Commission in effect protesting against the circular as contradictory to a previous Circular No. 7, dated October 7, 1957 expressly excluding overtime pay and bonus in the computation of the employers' and employees' respective monthly premium contributions, and submitting, "In order to assist your System in arriving at a proper interpretation of the term `compensation' for the purposes of" such computation, their observations on Republic Act 1161 and its amendment and on the general interpretation of the words "compensation",

"remuneration" and "wages". Counsel further questioned the validity of the circular for lack of authority on the part of the Social Security Commission to promulgate it without the approval of the President and for lack of publication in the Official Gazette. Overruling these objections, the Social Security Commission ruled that Circular No. 22 is not a rule or regulation that needed the approval of the President and publication in the Official Gazette to be effective, but a mere administrative interpretation of the statute, a mere statement of general policy or opinion as to how the law should be construed. Not satisfied with this ruling, petitioner comes to this Court on appeal. The single issue involved in this appeal is whether or not Circular No. 22 is a rule or regulation, as contemplated in Section 4(a) of Republic Act 1161 empowering the Social Security Commission "to adopt, amend and repeal subject to the approval of the President such rules and regulations as may be necessary to carry out the provisions and purposes of this Act." 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 preexisting 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 so 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. 195197). 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. Circular No. 22 in question was issued by the Social Security Commission, in view of the amendment of the provisions of the Social Security Law defining the term "compensation" contained in Section 8(f) of Republic Act No. 1161 which, before its amendment, reads as follows: "(f) Compensation All remuneration for employment include the cash value of any remuneration paid in any medium other than cash except (1) that part of the remuneration in excess of P500 received during the month; (2) bonuses, allowances or overtime pay; and (3) dismissal and all other payments which the employer may make, although not legally required to do so." Republic Act No. 1792 changed the definition of "compensation" to: "(f) Compensation All remuneration for employment include the cash value of any remuneration paid in any medium other than cash except that part of the remuneration in excess of P500.00 received during the month." It will thus be seen that whereas prior to the amendment, bonuses, allowances, and overtime pay given in addition to the regular or base pay were expressly excluded or exempted from the definition of the term "compensation", such exemption or exclusion was deleted by the amendatory law. It thus became necessary for the Social Security Commission to interpret the effect of such deletion or elimination. Circular No. 22 was, therefore, issued to apprise those concerned of the interpretation or understanding of the Commission, of the law as amended, which it was its duty to enforce. It did not add any duty or detail that was not already in the law as amended. It merely stated and circularized the opinion of the Commission as to how the law should be construed. The case of People vs. Jolliffe (G.R. No. L-9553, promulgated on may 30, 1959) cited by appellant, does not support its contention that the circular in question is a rule or regulation. What was there said was merely that a regulation may be incorporated in the form of a circular. Such statement simply meant that the substance and not the form of a regulation is decisive in determining its nature. It does not lay down a general proposition of law that any circular, regardless of its substance and even if it is only interpretative, constitutes a rule or regulation which must be published in the Official Gazette before it could take effect. The case of People vs. Que Po Lay (50 O.G. 2850) also cited by appellant is not applicable to the present case, because the penalty that may be incurred by employers and employees if they refuse to pay the corresponding premiums on bonus, overtime pay, etc. which the employer pays to his employees, is not by reason of non-compliance with Circular No. 22, but for violation of the specific legal provisions contained in Section 27 (e) and (f) of Republic Act No. 1161. We find, therefore, that Circular No. 22 purports merely to advise employers-members of the System of what, in the light of the amendment of the law, they should include in determining the monthly compensation of their employees upon which the social security contributions should be based, and that such circular did not require presidential approval and publication in the Official Gazette for its effectivity.

It hardly need be said that the Commission's interpretation of the amendment embodied in its Circular No. 22, is correct. The express elimination among the exemptions excluded in the old law, of all bonuses, allowances and overtime pay in the determination of the "compensation" paid to employees makes it imperative that such bonuses and overtime pay must now be included in the employee's remuneration in pursuance of the amendatory law. It is true that in previous cases, this Court has held that bonus is not demandable because it is not part of the wage, salary, or compensation of the employee. But the question in the instant case is not whether bonus is demandable or not as part of compensation, but whether, after the employer does, in fact, give or pay bonus to his employees, such bonuses shall be considered compensation under the Social Security Act after they have been received by the employees. While it is true that terms or words are to be interpreted in accordance with their well-accepted meaning in law, nevertheless, when such term or word is specifically defined in a particular law, such interpretation must be adopted in enforcing that particular law, for it can not be gainsaid that a particular phrase or term may have one meaning for one purpose and another meaning for some other purpose. Such is the case that is now before us. Republic Act 1161 specifically defined what "compensation" should mean "For the purposes of this Act". Republic Act 1792 amended such definition by deleting some exceptions authorized in the original Act. By virtue of this express substantial change in the phraseology of the law, whatever prior executive or judicial construction may have been given to the phrase in question should give way to the clear mandate of the new law. IN VIEW OF THE FOREGOING, the Resolution appealed from is hereby affirmed, with costs against appellant. So ordered. Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J. B. L., Paredes, Dizon and De Leon, JJ., concur.

EN BANC [G.R. No. L-9408. October 31, 1956.] EMILIO Y. HILADO, petitioner, vs. THE COLLECTOR OF INTERNAL REVENUE and THE COURT OF TAX APPEALS, respondents.

Emilio Y. Hilado in his own behalf. Solicitor General Ambrosio Padilla, Assistant Solicitor General Ramon Avancea and Solicitor Jose P. Alejandro for respondents.

SYLLABUS 1. TAXATION; INCOME TAX; LOSSES DEDUCTIBLE; LOSS CONSISTING OF PORTION OF WAR DAMAGE CLAIM. Petitioner claimed in his 1951 income tax return the deduction of the portion of his war damage claim which had been duly approved by the Philippine War Damage Commission under the Philippine Rehabilitation Act for 1946 but which was not paid and never has been paid pursuant to a notice upon him by said Commission that said part of his claim will not be paid until the United States Congress should make further appropriation. He claims that said amount represents a "business asset" within the meaning of said Act which he is entitled to deduct as a loss in his return for 1951. Held: Assuming that the said amount represents a portion of petitioner's war damage claim which was not paid, the same would not be deductible as a loss in 1951 because, according to petitioner, the last installment he received from the War Damage Commission, together with the notice that no further payment would be made on his claim, was in 1950. In the circumstance, said amount would at most be a proper deduction from his 1950 gross income. Neither can the said amount be considered as a "business asset" which can be deducted as a loss in contemplation of law because its collections is not enforceable as a matter of right, but is dependently merely upon the generosity and magnanimity of the U.S. government. 2. ID.; LOSSES OF PROPERTY DURING THE WAR DEDUCTIBLE IN THE YEAR OF ACTUAL DESTRUCTION. It is true that under the authority of section 338 of the National Internal Revenue Code the Secretary of Finance, in the exercise of his administrative powers, caused the issuance of General Circular No. V-123 as in implementation or interpretative regulation of section 30 of the same Code, under which the aforesaid amount was allowed to be deducted "in the year the last installment was received with notice that no further payment would be made until the United States Congress makes further appropriation therefore," but such circular was found latter to be wrong and was revoked and the Secretary of Finance, through the V-139 which not only revoked and declared void his previous Circular No. V-123 but laid down the rule that losses of property which occurred during the period of World War II from fires, storms, shipwreck or other casualty, or from robbery, theft, or embezzlement are deductible for income tax purposes in the year of actual destruction of said property. As the amount claimed does not represent a "business asses" that may be deducted as a loss in 1951, it is clear that the loss of the corresponding asset or property could only be deducted in the year it was actually sustained. This is in line with section 30 (d) of the National Internal Revenue Code which prescribes that losses sustained are allowance as deduction only within the corresponding taxable year. 3. ID.; ID.; WRONG CONSTRUCTION OF LAW CANNOT GIVE RISE TO VESTED RIGHTS. General Circular No. V-123, having been issued on a wrong construction of the law, cannot give rise to a vested right that can be invoked by a taxpayer. The reason is obvious; a vested right cannot spring from a wrong interpretation. 4. ADMINISTRATIVE LAW; CONSTRUCTION OF STATUTES BY ADMINISTRATIVE OFFICIALS NOT BINDING ON THEIR SUCCESSORS. The Secretary of Finance is vested with authority to revoke, repeal or abrogate the acts or previous rulings of his predecessors in office because the construction of a statute by those who administer it is not binding on their successors if thereafter the latter become satisfied that a different construction should be given. [Association of Clerical Employees vs. Brotherhood of Railway & Steamship Clerks, 85 F. (2d) 152, 109 A.L. R., 345.] 5. INTERNATIONAL LAW; NATURE OF INTERNAL REVENUE LAWS; ENFORCEABLE DURING ENEMY OCCUPATION. Internal revenue laws are not political in nature and as such were continued in force during the period of enemy occupation and in effect were actually enforced by the occupation government. As a matter of fact, income tax returns were filed during that period and income tax payments were affected and considered valid and legal. Such tax laws are deemed to be the laws of the occupied territory and not of the occupying enemy.

DECISION

BAUTISTA ANGELO, J p: On March 31, 1952, petitioner filed his income tax return for 1951 with the treasurer of Bacolod City wherein he claimed, among other things, the amount of P12,837.65 as a deductible item from his gross income pursuant to General Circular No. V-123 issued by the Collector of Internal Revenue. This circular was issued pursuant to certain rules laid down by the Secretary of Finance On the

basis of said return, an assessment notice demanding the payment of P9,419 was sent to petitioner, who paid the tax in monthly installments, the last payment having been made on January 2, 1953. Meanwhile, on August 30, 1952, the Secretary of Finance, through the Collector of Internal Revenue, issued General Circular No. V-139 which not only revoked and declared void his general Circular No. V- 123 but laid down the rule that losses of property which occurred during the period of World War II from fires, storms, shipwreck or other casualty, or from robbery, theft, or embezzlement are deductible in the year of actual loss or destruction of said property. As a consequence, the amount of P12,837.65 was disallowed as a deduction from the gross income of petitioner for 1951 and the Collector of Internal Revenue demanded from him the payment of the sum of P3,546 as deficiency income tax for said year. When the petition for reconsideration filed by petitioner was denied, he filed a petition for review with the Court of Tax Appeals. In due time, this court rendered decision affirming the assessment made by respondent Collector of Internal Revenue. This is an appeal from said decision. It appears that petitioner claimed in his 1951 income tax return the deduction of the sum of P12,837.65 as a loss consisting in a portion of his war damage claim which had been duly approved by the Philippine War Damage Commission under the Philippine Rehabilitation Act of 1946 but which was not paid and never has been paid pursuant to a notice served upon him by said Commission that said part of his claim will not be paid until the United States Congress should make further appropriation. He claims that said amount of P12,837.65 represents a "business asset" within the meaning of said Act which he is entitled to deduct as a loss in his return for 1951. This claim is untenable. To begin with, assuming that said a mount represents a portion of the 75% of his war damage claim which was not paid, the same would not be deductible as a loss in 1951 because, according to petitioner, the last installment he received from the War Damage Commission, together with the notice that no further payment would be made on his claim, was in 1950. In the circumstance, said amount would at most be a proper deduction from his 1950 gross income. In the second place, said amount cannot be considered as a "business asset" which can be deducted as a loss in contemplation of law because its collection is not enforceable as a matter of right, but is dependent merely upon the generosity and magnanimity of the U. S. government. Note that, as of the end of 1945, there was absolutely no law under which petitioner could claim compensation for the destruction of his properties during the battle for the liberation of the Philippines. And under the Philippine Rehabilitation Act of 1946, the payments of claims by the War Damage Commission merely depended upon its discretion to be exercised in the manner it may see fit, but the non-payment of which cannot give rise to any enforceable right, for, under said Act, "All findings of the Commission concerning the amount of loss or damage sustained, the cause of such loss or damage, the persons to whom compensation pursuant to this title is payable, and the value of the property lost or damaged, shall be conclusive and shall not be reviewable by any court". (section 113). It is true that under the authority of section 338 of the National Internal Revenue Code the Secretary of Finance, in the exercise of his administrative powers, caused the issuance of General Circular No. V-123 as an implementation or interpretative regulation of section 30 of the same Code, under which the amount of P12,837.65 was allowed to be deducted "in the year the last installment was received with notice that no further payment would be made until the United States Congress makes further appropriation therefor", but such circular was found later to be wrong and was revoked. Thus, when doubts arose as to the soundness or validity of such circular, the Secretary of Finance sought the advice of the Secretary of Justice who, accordingly, gave his opinion the pertinent portion of which reads as follows: "Yet it might be argued that war losses were not included as deductions for the year when they were sustained because the taxpayers had prospects that losses would be compensated for by the United States Government; that since only uncompensated losses are deductible, they had to wait until after the determination by the Philippine War Damage Commission as to the compensability in part or in whole of their war losses so that they could exclude from the deductions those compensated for by the said Commission; and that, of necessity, such determination could be complete only much later than in the year when the loss was sustained. This contention falls to the ground when it is considered that the Philippine Rehabilitation Act which authorized the payment by the United States Government of war losses suffered by property owners in the Philippines was passed only on August 30, 1946, long after the losses were sustained. It cannot be said therefore, that the property owners had any conclusive assurance during the years said losses were sustained, that the compensation was to be paid therefor. Whatever assurance they could have had, could have been based only on some information less reliable and less conclusive than the passage of the Act itself. Hence, as diligent property owners, they should adopt the safest alternative by considering such losses deductible during the year when they were sustained." In line with this opinion, the Secretary of Finance, through the Collector of Internal Revenue, issued General Circular No. V-139 which not only revoked and declared void his previous Circular No. V 123 but laid down the rule that losses of property which occurred during the period of World War II from fires, storms, shipwreck or other casualty, or from robbery, theft, or embezzlement are deductible for income tax purposes in the year of actual destruction of said property. We can hardly argue against this opinion. Since we have already stated that the amount claimed does not represent a "business asset" that may be deducted as a loss in 1951, it is clear that the loss of the corresponding asset or property could only be deducted in the year it was actually sustained. This is in line with section 30 (d) of the National Internal Revenue Code which prescribes that losses sustained are allowable as deduction only within the corresponding taxable year. Petitioner's contention that during the last war and as a consequence of enemy occupation in the Philippines "there was no taxable year" within the meaning of our internal revenue laws because during that period they were unenforceable, is without merit. It is well known that our internal revenue laws are not political in nature and as such were continued in force during the period of enemy occupation and in effect were actually enforced by the occupation government. As a matter of fact, income tax returns were filed during that period and income tax payment were effected and considered valid and legal. Such tax laws are deemed to be the laws of the occupied territory and not of the occupying enemy.

"Furthermore, it is a legal maxim, that excepting that of a political nature, 'Law once established continues until changed by some competent legislative power. It is not changed merely by change of sovereignty.' (Joseph H. Beale, Cases on Conflict of Laws, III, Summary section 9, citing Commonwealth vs. Chapman, 13 Met., 68.) As the same author says, in his Treatise on the Conflict of Laws (Cambridge, 1916, section 131): 'There can be no break or interregnun in law. From the time the law comes into existence with the first-felt corporateness of a primitive people it must last until the final disappearance of human society. Once created, it persists until a change takes place, and when changed it continues in such changed condition until the next change and so forever. Conquest or colonization is impotent to bring law to an end; inspite of change of constitution, the law continues unchanged until the new sovereign by legislative act creates a change.'" (Co Kim Chan vs. Valdes Tan Keh and Dizon, 75 Phil., 113, 142-143.) It is likewise contended that the power to pass upon the validity of General Circular No. V-123 is vested exclusively in our courts in view of the principle of separation of powers and, therefore, the Secretary of Finance acted without valid authority in revoking it and approving in lieu thereof General Circular No. V-139. It cannot be denied, however, that the Secretary of Finance is vested with authority to revoke, repeal or abrogate the acts or previous rulings of his predecessor in office because the construction of a statute by those administering it is not binding on their successors if thereafter the latter become satisfied that a different construction should be given. [Association of Clerical Employees vs. Brotherhood of Railways & Steamship Clerks, 85 F. (2d) 152, 109 A.L.R., 345.] "When the Commissioner determined in 1937 that the petitioner was not exempt and never had been, it was his duty to determine, assess and collect the tax due for all years not barred by the statutes of limitation. The conclusion reached and announced by his predecessor in 1924 was not binding upon him. It did not exempt the petitioner from tax, This same point was decided in this way in Stanford University Bookstore, 29 B. T. A., 1280; affd., 83 Fed. (2d) 710." (Southern Maryland Agricultural Fair Association vs. Commissioner of Internal Revenue, 40 B. T. A., 549, 554). With regard to the contention that General Circular No. V-139 cannot be given retroactive effect because that would affect and obliterate the vested right acquired by petitioner under the previous circular, suffice it to say that General Circular No. V-123, having been issued on a wrong construction of the law, cannot give rise to a vested right that can be invoked by a taxpayer. The reason is obvious: a vested right cannot spring from a wrong interpretation. This is too clear to require elaboration. "It seems too clear for serious argument that an administrative officer can not change a law enacted by Congress. A regulation that is merely an interpretation of the statute when once determined to have been erroneous becomes nullity. An erroneous construction of the law by the Treasury Department or the collector of internal revenue does not preclude or estop the government from collecting a tax which is legally due." (Ben Stocker, et al., 12 B. T. A., 1351.) "Art. 2254. No vested or acquired right can arise from acts or omissions which are against the law or which infringe upon the rights of others." (Article 2254, New Civil Code.) Wherefore, the decision appealed from is affirmed Without pronouncement as to costs. Paras, C.J., Padilla, Montemayor, Labrador, Concepcion, Reyes, J. B. L., Endencia and Felix, JJ., concur.

SECOND DIVISION [G.R. No. 112024. January 28, 1999.] PHILIPPINE BANK OF COMMUNICATIONS, petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, COURT OF TAX APPEALS and COURT OF APPEALS, respondents.

The Solicitor General for respondents. Angara, Abello Concepcion Regala for petitioner.

SYNOPSIS Petitioner, Philippine Bank of Communications, on August 7, 1987, requested the Commissioner of Internal Revenue (CIR) for a tax credit of P5,016,954.00 representing the overpayment of taxes in the first and second quartets of 1985. On July 25, 1988, it filed a claim for refund of creditable taxes withheld by their lessees from property rentals in 1985 for P282,795.50 and in 1986 for P234,077.69. Pending investigation by the CIR, petitioner instituted a petition for review on Nov. 18, 1988 before the Court of Tax Appeals (CTA). In 1993, the CTA rendered a decision denying the request for a tax refund or credit in the amount of P5,299,749.95 on the ground that it was filed beyond the two-year reglementary period. The petitioner's claim for refund in 1986 was likewise denied on the assumption that it was automatically credited by PBCom against its tax payment in the succeeding year. These pronouncements by the CTA were affirmed in toto by the CA. Hence, this petition. Petitioner argues that its claim for refund tax credits are not yet barred by prescription relying on the applicability of Revenue Memorandum Circular No. 7-85 stating that overpaid income taxes are not covered by the two-year prescriptive period under the Tax Code and that taxpayers may claim refund or tax credits within (ten) 10 years under Art. 1414 of the Civil Code. CTAIDE The Supreme Court ruled that when the Acting Commissioner of Internal Revenue issued RMC 7-85, changing the prescriptive period of two years to ten years on claims of excess quarterly income tax payments, such circular created a clear inconsistency with the provision of Sec. 230 of the 1977 NIRC. In so doing, the BIR did not simply interpret the law; rather it legislated guidelines contrary to the statute passed by Congress. It bears repeating that Revenue memorandum-circulars are considered administrative rulings (in the sense of more specific and less general interpretations of tax laws) which are issued from time to time by the Commissioner of Internal Revenue. It is widely accepted that the interpretation placed upon a statute by the executive officers, whose duty is to enforce it, is entitled to great respect by the courts. Nevertheless, such interpretation is not conclusive and will be ignored if judicially found to be erroneous. Thus, courts will not countenance administrative issuances that override, instead of remaining consistent and in harmony with, the law they seek to apply and implement.

SYLLABUS 1. TAXATION; GENERAL PRINCIPLES; BASIS AND PURPOSE; GENERATE FUNDS FOR THE STATE TO FINANCE THE NEEDS OF THE CITIZENRY AND ADVANCE THE COMMON WEAL. Basic is the principle that "taxes are the lifeblood of the nation." The primary purpose is to generate funds for the State to finance the needs of the citizenry and to advance the common weal. Due process of law under the Constitution does not require judicial proceedings in tax cases. This must necessarily be so because it is upon taxation that the government chiefly relies to obtain the means to carry on its operations and it is of utmost importance that the modes adopted to enforce the collection of taxes levied should be summary and interfered with as little as possible. 2. ID.; TAX REFUND FOR CLAIMING REFUND ON OVERPAYMENT; PRESCRIPTIVE PERIOD THEREOF. From the same perspective, claims for refund or tax credit should be exercised within the time fixed by law because the BIR being an administrative body enforced to collect taxes, its functions should not be unduly delayed or hampered by incidental matters. Section 230 of the National Internal Revenue Code (NIRC) of 1977 (now Sec. 229, NIRC of 1997) provides for the prescriptive period for filing a court proceeding for the recovery of tax erroneously or illegally collected. The rule states that the taxpayer may file a claim for refund or credit with the Commissioner of Internal Revenue, with two (2) years after payment of tax, before any suit in CTA is commenced. The two-year prescriptive period provided, should be computed from the time of filing the Adjustment Return and final payment of the tax for the year. 3. ADMINISTRATIVE LAW; ADMINISTRATIVE BODIES; CIRCULARS AND ISSUANCES; SHOULD NOT RUN AGAINST THE STATUTE PASSED BY CONGRESS. When the Acting Commissioner of Internal Revenue issued RMC 7-85, changing the prescriptive period of two to ten years on claims of excess quarterly income tax payments, such circular created a clear inconsistency with the provision of Sec. 230 of 1977 NLRC. In so doing, the BIR did not simply interpret the law; rather it legislated guidelines contrary to the statute passed by Congress. It bears repeating that Revenue memorandum-circulars are considered administrative rulings which are issued from time to time by the Commissioner of Internal Revenue. It is widely accepted that the interpretation placed upon a statute by the executive officers, whose duty is to enforce it, is entitled to great respect by the courts. Nevertheless, such interpretation is not conclusive and will be ignored if judicially found to be erroneous. Thus, courts will not countenance administrative issuances that override, instead of remaining consistent and in harmony with, the law they seek to apply and implement.

4. ID.; COMMISSIONER OF INTERNAL REVENUE; ERRORS IN ADMINISTRATIVE INTERPRETATION; CANNOT PUT THE STATE IN ESTOPPEL. Fundamental is the rule that the State cannot be put in estoppel by the mistakes or errors of its officials or agents. As pointed out by the respondent courts, the nullification of RMC No. 7-85 issued by the Acting Commissioner of Internal Revenue is an administrative interpretation which is not in harmony with Sec. 230 of 1977 NIRC, for being contrary to the express provision of a statute. Hence, his interpretation could not be given weight for to do so would, in effect, amend the statute. 5. ID.; ADMINISTRATIVE BODIES; ADMINISTRATIVE DECISIONS; DO NOT FORM PART OF THE LEGAL SYSTEM. Article 8 of the Civil Code recognizes judicial decisions, applying or interpreting statutes as part of the legal system of the country. But administrative decisions do not enjoy that level of recognition. A memorandum-circular of a bureau head could not operate to vest a taxpayer with a shield against judicial action. For there are no vested rights to speak of respecting a wrong construction of the law by the administrative officials and such wrong interpretation could not place the Government in estoppel to correct or overrule the same. Moreover, the non-retroactivity of rulings by the Commissioner of Internal Revenue is not applicable in this case because the nullity of RMC No. 7-85 was declared by respondent courts and not by the Commissioner of Internal Revenue. 6. TAXATION; PAYMENT; CLAIM FOR REFUND; CONSTRUED IN STRICTISSIMI JURIS AGAINST THE TAXPAYER. As repeatedly held by this Court, a claim for refund is in the nature of a claim for exemption and should be construed in strictissimi juris against the taxpayer. 7. ID.; NATIONAL INTERNAL REVENUE CODE, INCOME TAX; EXCESS OF THE TOTAL QUARTERLY PAYMENTS THEREOF IS EITHER REFUNDED OR CREDITED AGAINST THE ESTIMATED QUARTERLY INCOME TAX LIABILITIES FOR THE SUCCEEDING TAXABLE YEAR. Sec. 69 of the 1977 NIRC (now Sec. 76 of the 1997 NIRC) provides that any excess of the total quarterly payments over the actual income tax computed in the adjustment or final corporate income tax return, shall either (a) be refunded to the corporation, or (b) may be credited against the estimated quarterly income tax liabilities for the quarters of the succeeding taxable year. 8. ID.; ID.; ID.; ID.; REMEDIES ARE IN THE ALTERNATIVE AND THE CHOICE OF ONE PRECLUDES THE OTHER. The corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR form) its intention, whether to request for a refund or claim for an automatic tax credit for the succeeding taxable year. To ease the administration of tax collection, these remedies are in the alternative, and the choice of one precludes the other. 9. REMEDIAL LAW; EVIDENCE; FINDINGS OF FACT OF QUASI-JUDICIAL BODIES; ACCORDED GREAT WEIGHT. That the petitioner opted for an automatic tax credit in accordance with Sec. 69 of the 1977 NIRC, as specified in its 1986 Final Adjusted Income Tax Return, is a finding of fact which we must respect. Moreover, the 1987 annual corporate tax return of the petitioner was not offered as evidence to controvert said fact. Thus, we are bound by the findings of fact by respondent courts, there being no showing of gross error or abuse on their part to disturb out reliance thereon. aEIADT

DECISION

QUISUMBING, J p: This petition for review assails the Resolution 1 of the Court of Appeals dated September 22, 1993, affirming the Decision 2 and Resolution 3 of the Court of Tax Appeals which denied the claims of the petitioner for tax refund and tax credits, and disposing as follows: dctai "IN VIEW OF ALL THE FOREGOING, the instant petition for review is DENIED due course. The Decision of the Court of Tax Appeals dated May 20, 1993 and its resolution dated July 20, 1993, are hereby AFFIRMED in toto. SO ORDERED." 4 The Court of Tax Appeals earlier ruled as follows: "WHEREFORE, petitioner's claim for refund/tax credit of overpaid income tax for 1985 in the amount of P5,299,749.95 is hereby denied for having been filed beyond the reglementary period. The 1986 claim for refund amounting to P234,077.69 is likewise denied since petitioner has opted and in all likelihood automatically credited the same to the succeeding year. The petition for review is dismissed for lack of merit.

SO ORDERED." 5 The facts on record show the antecedent circumstances pertinent to this case.

Petitioner, Philippine Bank of Communications (PBCom), a commercial banking corporation duly organized under Philippine laws, filed its quarterly income tax returns for the first and second quarters of 1985, reported profits, and paid the total income tax of P5,016,954.00. The taxes due were settled by applying PBCom's tax credit memos and accordingly, the Bureau of Internal Revenue (BIR) issued Tax Debit Memo Nos. 0746-85 and 0747-85 for P3,401,701.00 and P1,615,253.00, respectively. Subsequently, however, PBCom suffered losses so that when it filed its Annual Income Tax Returns for the year-ended December 31, 1985, it declared a net loss of P25,317,228.00, thereby showing no income tax liability. For the succeeding year, ending December 31, 1986, the petitioner likewise reported a net loss of P14,129,602.00, and thus declared no tax payable for the year. But during these two years, PBCom earned rental income from leased properties. The lessees withheld and remitted to the BIR withholding creditable taxes of P282,795.50 in 1985 and P234,077.69 in 1986. On August 7, 1987, petitioner requested the Commissioner of Internal Revenue, among others, for a tax credit of P5,016,954.00 representing the overpayment of taxes in the first and second quarters of 1985. Thereafter, on July 25, 1988, petitioner filed a claim for refund of creditable taxes withheld by their lessees from property rentals in 1985 for P282,795.50 and in 1986 for P234,077.69. Pending the investigation of the respondent Commissioner of Internal Revenue, petitioner instituted a Petition for Review on November 18, 1988 before the Court of Tax Appeals (CTA). The petition was docketed as CTA Case No. 4309 entitled: "Philippine Bank of Communications vs. Commissioner of Internal Revenue." The losses petitioner incurred as per the summary of petitioner's claims for refund and tax credit for 1985 and 1986, filed before the Court of Tax Appeals, are as follows: 1985 1986 Net Income (Loss) (P25,317,228.00) (P14,129,602.00) Tax Due NIL NIL Quarterly tax Payments Made 5,016,954.00 Tax Withheld at Source 282,795.50 234,077.69 Excess Tax Payments P5,299,749.50* P234,077.69 ============== ============== * CTA's decision reflects PBCom's 1985 tax claim as P5,299,749.95. A forty-five centavo difference was noted. On May 20, 1993, the CTA rendered a decision which, as stated on the outset, denied the request of petitioner for a tax refund or credit in the sum amount of P5,299,749.95, on the ground that it was filed beyond the two-year reglementary period provided for by law. The petitioner's claim for refund in 1986 amounting to P234,077.69 was likewise denied on the assumption that it was automatically credited by PBCom against its tax payment in the succeeding year. On June 22, 1993, petitioner filed a Motion for Reconsideration of the CTA's decision but the same was denied due course for lack of merit. 6 Thereafter, PBCom filed a petition for review of said decision and resolution of the CTA with the Court of Appeals. However on September 22, 1993, the Court of Appeals affirmed in toto the CTA's resolution dated July 20, 1993. Hence this petition now before us. The issues raised by the petitioner are: I. Whether taxpayer PBCom which relied in good faith on the formal assurances of BIR in RMC No. 7-85 and did not immediately file with the CTA a petition for review asking for the refund/tax credit of its 1985-86 excess quarterly income tax payments can be prejudiced by the subsequent BIR rejection, applied retroactively, of its assurances in RMC No. 7-85 that the prescriptive period for the refund/tax credit of excess quarterly income tax payments is not two years but ten (10). 7 II. Whether the Court of Appeals seriously erred in affirming the CTA decision which denied PBCom's claim for the refund of P234,077.69 income tax overpaid in 1986 on the mere speculation, without proof, that there were taxes due in 1987 and that PBCom availed of tax-crediting that year. 8 Simply stated, the main question is: Whether or not the Court of Appeals erred in denying the plea for tax refund or tax credits on the ground of prescription, despite petitioner's reliance on RMC No. 7-85, changing the prescriptive period of two years to ten years?

Petitioner argues that its claims for refund and tax credits are not yet barred by prescription relying on the applicability of Revenue Memorandum Circular No. 7-85 issued on April 1, 1985. The circular states that overpaid income taxes are not covered by the two-year prescriptive period under the tax Code and that taxpayers may claim refund or tax credits for the excess quarterly income tax with the BIR with ten (10) years under Article 1144 of the Civil Code. The pertinent portions of the circular reads: "REVENUE MEMORANDUM CIRCULAR NO. 7-85 SUBJECT: PROCESSING OF REFUND OR TAX CREDIT OF EXCESS CORPORATE INCOME TAX RESULTING FROM THE FILING OF THE FINAL ADJUSTMENT RETURN TO: All Internal Revenue Officers and Others Concerned Sections 85 and 86 of the National Internal Revenue Code provide: xxx xxx xxx The foregoing provisions are implemented by Section 7 of Revenue Regulations Nos. 10-77 which provide: xxx xxx xxx It has been observed, however, that because of the excess tax payments, corporations file claims for recovery of overpaid income tax with the Court of Tax Appeals within the two-year period from the date of payment, in accordance with Sections 292 and 295 of the National Internal Revenue Code. It is obvious that the filing of the case in court is to preserve the judicial right of the corporation to claim the refund or tax credit. It should be noted, however, that this is not a case of erroneously or illegally paid tax under the provisions of Sections 292 and 295 of the Tax Code. In the above provision of the Regulations the corporation may request for the refund of the overpaid income tax or claim for automatic tax credit. To insure prompt action on corporate annual income tax returns showing refundable amounts arising from overpaid quarterly income taxes, this Office has promulgated Revenue Memorandum Order No. 32-76 dated June 11, 1976, containing the procedure in processing said returns. Under these procedures, the returns are merely pre-audited which consist mainly of checking mathematical accuracy of the figures of the return. After which, the refund or tax credit is granted, and, this procedure was adopted to facilitate immediate action on cases like this. In this regard, therefore, there is no need to file petitions for review in the Court of Tax Appeals in order to preserve the right to claim refund or tax credit within the two-year period. As already stated, actions hereon by the Bureau are immediate after only a cursory pre-audit of the income tax returns. Moreover, a taxpayer may recover from the Bureau of Internal Revenue excess income tax paid under the provisions of Section 86 of the Tax Code within 10 years from the date of payment considering that it is an obligation created by law (Article 1144 of the Civil Code). 9 (Emphasis supplied.) Petitioner argues that the government is barred from asserting a position contrary to its declared circular if it would result to injustice to taxpayers. Citing ABS-CBN Broadcasting Corporation vs. Court of Tax Appeals 10 petitioner claims that rulings or circulars promulgated by the Commissioner of Internal Revenue have no retroactive effect if it would be prejudicial to taxpayers. In ABS-CBN case, the Court held that the government is precluded from adopting a position inconsistent with one previously taken where injustice would result therefrom or where there has been a misrepresentation to the taxpayer. Petitioner contends that Sec. 246 of the National Internal Revenue Code explicitly provides for this rule as follows: Cdpr "Sec. 246. Non-retroactivity of rulings. Any revocation, modification or reversal of any of the rules and regulations promulgated in accordance with the preceding section or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation, modification, or reversal will be prejudicial to the taxpayers except in the following cases: a) where the taxpayer deliberately misstates or omits material facts from his return or in any document required of him by the Bureau of Internal Revenue; b) where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based; c) where the taxpayer acted in bad faith."

Respondent Commissioner of Internal Revenue, through the Solicitor General, argues that the two-year prescriptive period for filing tax cases in court concerning income tax payments of Corporations is reckoned from the date of filing the Final Adjusted Income Tax Return, which is generally done on April 15 following the close of the calendar year. As precedents, respondent Commissioner cited cases which adhered to this principle, to wit: ACCRA Investments Corp. vs. Court of Appeals, et al., 11 and Commissioner of Internal Revenue vs. TMX Sales, Inc., et al., 12 Respondent Commissioner also states that since the Final Adjusted Income Tax Return of the petitioner for the taxable year 1985 was supposed to be filed on April 15, 1986, the latter had only until April 15, 1988 to seek relief from the court. Further, respondent Commissioner stresses that when the petitioner filed the case before the CTA on November 18, 1988, the same was filed beyond the time fixed by law, and such failure is fatal to petitioner's cause of action. After a careful study of the records and applicable jurisprudence on the matter, we find that, contrary to the petitioner's contention, the relaxation of revenue regulations by RMC 7-85 is not warranted as it disregards the two-year prescriptive period set by law. Basic is the principle that "taxes are the lifeblood of the nation." The primary purpose is to generate funds for the State to finance the needs of the citizenry and to advance the common weal. 13 Due process of law under the Constitution does not require judicial proceedings in tax cases. This must necessarily be so because it is upon taxation that the government chiefly relies to obtain the means to carry on its operations and it is of utmost importance that the modes adopted to enforce the collection of taxes levied should be summary and interfered with as little as possible. 14 From the same perspective, claims for refund or tax credit should be exercised within the time fixed by law because the BIR being an administrative body enforced to collect taxes, its functions should not be unduly delayed or hampered by incidental matters. Section 230 of the National Internal Revenue Code (NIRC) of 1977 (now Sec. 229, NIRC of 1997) provides for the prescriptive period for filing a court proceeding for the recovery of tax erroneously or illegally collected, viz.: "Sec. 230. Recovery of tax erroneously or illegally collected. No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. In any case, no such suit or proceeding shall be begun after the expiration of two years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment; Provided however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid." (Emphasis supplied) The rule states that the taxpayer may file a claim for refund or credit with the Commissioner of Internal Revenue, within two (2) years after payment of tax, before any suit in CTA is commenced. The two-year prescriptive period provided, should be computed from the time of filing the Adjustment Return and final payment of the tax for the year. In Commissioner of Internal Revenue vs. Philippine American Life Insurance Co., 15 this Court explained the application of Sec. 230 of 1977 NIRC, as follows: "Clearly, the prescriptive period of two years should commence to run only from the time that the refund is ascertained, which can only be determined after a final adjustment return is accomplished. In the present case, this date is April 16, 1984, and two years from this date would be April 16, 1986. . . . As we have earlier said in the TMX Sales case, Sections 68, 16 69, 17 and 70 18 on Quarterly Corporate Income Tax Payment and Section 321 should be considered in conjunction with it." 19 When the Acting Commissioner of Internal Revenue issued RMC 7-85, changing the prescriptive period of two years to ten years on claims of excess quarterly income tax payments, such circular created a clear inconsistency with the provision of Sec. 230 of 1977 NIRC. In so doing, the BIR did not simply interpret the law; rather it legislated guidelines contrary to the statute passed by Congress. It bears repeating that Revenue memorandum-circulars are considered administrative rulings (in the sense of more specific and less general interpretations of tax laws) which are issued from time to time by the Commissioner of Internal Revenue. It is widely accepted that the interpretation placed upon a statute by the executive officers, whose duty is to enforce it, is entitled to great respect by the courts. Nevertheless, such interpretation is not conclusive and will be ignored if judicially found to be erroneous. 20 Thus, courts will not countenance administrative issuances that override, instead of remaining consistent and in harmony with, the law they seek to apply and implement. 21 In the case of People vs. Lim, 22 it was held that rules and regulations issued by administrative officials to implement a law cannot go beyond the terms and provisions of the latter. "Appellant contends that Section 2 of FAO No. 37-1 is void because it is not only inconsistent with but is contrary to the provisions and spirit of Act No. 4003 as amended, because whereas the prohibition prescribed in said Fisheries Act was for any single period of time not exceeding five years duration, FAO No. 37-1 fixed no period, that is to

say, it establishes an absolute ban for all time. This discrepancy between Act No. 4003 and FAO No. 37-1 was probably due to an oversight on the part of Secretary of Agriculture and Natural Resources. Of course, in case of discrepancy, the basic Act prevails, for the reason that the regulation or rule issued to implement a law cannot go beyond the terms and provisions of the latter. . . . In this connection, the attention of the technical men in the offices of Department Heads who draft rules and regulation is called to the importance and necessity of closely following the terms and provisions of the law which they intended to implement, this to avoid any possible misunderstanding or confusion as in the present case." 23 Further, fundamental is the rule that the State cannot be put in estoppel by the mistakes or errors of its officials or agents. 24 As pointed out by the respondent courts, the nullification of RMC No. 7-85 issued by the Acting Commissioner of Internal Revenue is an administrative interpretation which is not in harmony with Sec. 230 of 1977 NIRC, for being contrary to the express provision of a statute. Hence, his interpretation could not be given weight for to do so would, in effect, amend the statute. As aptly stated by respondent Court of Appeals: "It is likewise argued that the Commissioner of Internal Revenue, after promulgating RMC No. 7-85, is estopped by the principle of non-retroactivity of BIR rulings. Again We do not agree. The Memorandum Circular, stating that a taxpayer may recover the excess income tax paid within 10 years from date of payment because this is an obligation created by law, was issued by the Acting Commissioner of Internal Revenue. On the other hand, the decision, stating that the taxpayer should still file a claim for a refund or tax credit and the corresponding petition for review within the two-year prescription period, and that the lengthening of the period of limitation on refund from two to ten years would be adverse to public policy and run counter to the positive mandate of Sec. 230, NIRC, was the ruling and judicial interpretation of the Court of Tax Appeals. Estoppel has no application in the case at bar because it was not the Commissioner of Internal Revenue who denied petitioner's claim of refund or tax credit. Rather, it was the Court of Tax Appeals who denied (albeit correctly) the claim and in effect, ruled that the RMC No. 7-85 issued by the Commissioner of Internal Revenue is an administrative interpretation which is out of harmony with or contrary to the express provision of a statute (specifically Sec. 230, NIRC), hence, cannot be given weight for to do so would in effect amend the statute." 25 Article 8 of the Civil Code 26 recognizes judicial decisions, applying or interpreting statutes as part of the legal system of the country. But administrative decisions do not enjoy that level of recognition. A memorandum-circular of a bureau head could not operate to vest a taxpayer with a shield against judicial action. For there are no vested rights to speak of respecting a wrong construction of the law by the administrative officials and such wrong interpretation could not place the Government in estoppel to correct or overrule the same. 27 Moreover, the non-retroactivity of rulings by the Commissioner of Internal Revenue is not applicable in this case because the nullity of RMC No. 7-85 was declared by respondent courts and not by the Commissioner of Internal Revenue. Lastly, it must be noted that, as repeatedly held by this Court, a claim for refund is in the nature of a claim for exemption and should be construed in strictissimi juris against the taxpayer. 28 On the second issue, the petitioner alleges that the Court of Appeals seriously erred in affirming CTA's decision denying its claim for refund of P234,077.69 (tax overpaid in 1986), based on mere speculation, without proof, that PBCom availed of the automatic tax credit in 1987. prcd Sec. 69 of the 1977 NIRC 29 (now Sec. 76 of the 1997 NIRC) provides that any excess of the total quarterly payments over the actual income tax computed in the adjustment or final corporate income tax return, shall either (a) be refunded to the corporation, or (b) may be credited against the estimated quarterly income tax liabilities for the quarters of the succeeding taxable year. The corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR form) its intention, whether to request for a refund or claim for an automatic tax credit for the succeeding taxable year. To ease the administration of tax collection, these remedies are in the alternative, and the choice of one precludes the other. As stated by respondent Court of Appeals: "Finally, as to the claimed refund of income tax over-paid in 1986 the Court of Tax Appeals, after examining the adjusted final corporate annual income tax return for taxable year 1986, found out that petitioner opted to apply for automatic tax credit. This was the basis used (vis-a-vis the fact that the 1987 annual corporate tax return was not offered by the petitioner as evidence) by the CTA in concluding that petitioner had indeed availed of and applied the automatic tax credit to the succeeding year, hence it can no longer ask for refund, as to [sic] the two remedies of refund and tax credit are alternative." 30

That the petitioner opted for an automatic tax credit in accordance with Sec. 69 of the 1977 NIRC, as specified in its 1986 Final Adjusted Income Tax Return, is a finding of fact which we must respect. Moreover, the 1987 annual corporate tax return of the petitioner was not offered as evidence to controvert said fact. Thus, we are bound by the findings of fact by respondent courts, there being no showing of gross error or abuse on their part to disturb our reliance thereon. 31 WHEREFORE, the petition is hereby DENIED. The decision of the Court of Appeals appealed from is AFFIRMED, with COSTS against the petitioner. cdphil

EN BANC [G.R. No. 95832. August 10, 1992.] MAYNARD R. PERALTA, petitioner, vs. CIVIL SERVICE COMMISSION, respondent.

Tranquilino F. Meris Law Office for petitioner.

SYLLABUS 1. ADMINISTRATIVE LAW; OPINIONS RENDERED BY ADMINISTRATIVE OR EXECUTIVE AGENCIES, MERELY ADVISORY. When an administrative or executive agency renders an opinion or issues a statement of policy, it merely interprets a pre-existing law; and the administrative interpretation of the law is at best advisory, for it is the courts that finally determine what the law means. It has also been held that interpretative regulations need not be published. 2. ID.; ADMINISTRATIVE CONSTRUCTION, NOT BINDING UPON THE COURTS. Administrative construction, if we may repeat, is not necessarily binding upon the courts. Action of an administrative agency may be disturbed or set aside by the judicial department if there is an error of law, or abuse of power or lack of jurisdiction or grave abuse of discretion clearly conflicting with either the letter or the spirit of a legislative enactment. 3. STATUTORY CONSTRUCTION; INTENT OR SPIRIT OF THE LAW MUST PREVAIL OVER THE LETTER THEREOF. Where the true intent of the law is clear that calls for the application of the cardinal rule of statutory construction that such intent or spirit must prevail over the letter thereof, for whatever is within the spirit of a statute is within the statute, since adherence to the letter would result in absurdity, injustice and contradictions and would defeat the plain and vital purpose of the statute. (Hidalgo vs. Hidalgo, G.R. No. L-25326, May 29, 1970, 33 SCRA 105) 4. ID.; REPUBLIC ACT NO. 2625 AMENDING THE REVISED PENAL CODE; LEGISLATIVE INTENT TO EXCLUDE SATURDAYS, SUNDAYS AND HOLIDAYS FROM COMPUTATION OF LEAVE, MANIFEST. The intention of the legislature in the enactment of R.A. 2625 may be gleaned from, among others, the sponsorship speech of Senator Arturo M. Tolentino during the second reading of House Bill No. 41 (which became R.A. 2625). He said: "The law actually provides for sick leave and vacation leave of 15 days each year of service to be with full pay. But under the present law, in computing these periods of leaves, Saturday, Sunday and holidays are included in the computation so that if an employee should become sick and absent himself on a Friday and then he reports for work on a Tuesday, in the computation of the leave the Saturday and Sunday will be included, so that he will be considered as having had a leave of Friday, Saturday, Sunday and Monday, or four days. "The purpose of the present bill is to exclude from the computation of the leave those days, Saturdays and Sundays, as well as holidays, because actually the employee is entitled not to go to office during those days. And it is unfair and unjust to him that those days should be counted in the computation of leaves." 5. ID.; ID.; FIFTEEN (15) DAYS VACATION AND FIFTEEN (15) DAYS SICK LEAVE WITH FULL PAY GRANTED TO ALL EMPLOYEES, EXCLUSIVE OF SATURDAYS, SUNDAYS AND HOLIDAYS; PRINCIPLE OF UBI LEX NON DISTINGUIT NEC NOS DISTINGUERE DEBEMUS, APPLIED. R.A. 2625 specifically provides that government employees are entitled to fifteen (15) days vacation leave of absence with full pay and fifteen (15) days sick leave with full pay, exclusive of Saturdays, Sundays and Holidays in both cases. Thus, the law speaks of the granting of a right and the law does not provide for a distinction between those who have accumulated leave credits and those who have exhausted their leave credits in order to enjoy such right. Ubi lex non distinguit nec nos distinguere debemus. The fact remains that government employees, whether or not they have accumulated leave credits, are not required by law to work on Saturdays, Sundays and Holidays and thus they can not be declared absent on such non-working days. They cannot be or are not considered absent on non-working days; they cannot and should not be deprived of their salary corresponding to said non-working days just because they were absent without pay on the day immediately prior to, or after said non-working days. A different rule would constitute a deprivation of property without due process. 6. CONSTITUTIONAL LAW; AN UNCONSTITUTIONAL ACT IS NOT A LAW AND GENERALLY CONFERS NO RIGHT; QUALIFICATION. The general rule vis-a-vis legislation is that an unconstitutional act is not a law; it confers no rights; it imposes no duties; it affords no protection; it creates no office; it is in legal contemplation as inoperative as though it had never been passed. But, as held in Chicot County Drainage District vs. Baxter State Bank: ". . . . It is quite clear, however, that such broad statements as to the effect of a determination of unconstitutionality must be taken with qualifications. The actual existence of a statute, prior to such determination is an operative fact and may have consequences which cannot always be ignored. The past cannot always be erased by a new judicial declaration. The effect of the subsequent ruling as to invalidity may have to be considered in various aspects with respect to particular relations, individual and corporate; and particular conduct, private and official."

DECISION

PADILLA, J p: Petitioner was appointed Trade-Specialist II on 25 September 1989 in the Department of Trade and Industry (DTI). His appointment was classified as "Reinstatement/Permanent". Before said appointment, he was working at the Philippine Cotton Corporation, a governmentowned and controlled corporation under the Department of Agriculture. LibLex On 8 December 1989, petitioner received his initial salary, covering the period from 25 September to 31 October 1989. Since he had no accumulated leave credits, DTI deducted from his salary the amount corresponding to his absences during the covered period, namely, 29 September 1989 and 20 October 1989, inclusive of Saturdays and Sundays. More specifically, the dates of said absences for which salary deductions were made, are as follows: 1. 29 September 1989 Friday 2. 30 September 1989 Saturday 3. 01 October 1989 Sunday 4. 20 October 1989 Friday 5. 21 October 1989 Saturday 6. 22 October 1989 Sunday Petitioner sent a memorandum to Amando T. Alvis (Chief, General Administrative Service) on 15 December 1989 inquiring as to the law on salary deductions, if the employee has no leave credits. Amando T. Alvis answered petitioner's query in a memorandum dated 30 January 1990 citing Chapter 5.49 of the Handbook of Information on the Philippine Civil Service which states that "when an employee is on leave without pay on a day before or on a day immediately preceding a Saturday, Sunday or Holiday, such Saturday, Sunday, or Holiday shall also be without pay (CSC, 2nd Ind., February 12, 1965)." Petitioner then sent a letter dated 20 February 1990 addressed to Civil Service Commission (CSC) Chairman Patricia A. Sto. Tomas raising the following question: "Is an employee who was on leave of absence without pay on a day before or on a day immediately preceding a Saturday, Sunday or Holiday, also considered on leave of absence without pay on such Saturday, Sunday or Holiday?" 1 Petitioner in his said letter to the CSC Chairman argued that a reading of the General Leave Law as contained in the Revised Administrative Code, as well as the old Civil Service Law (Republic Act No. 2260), the Civil Service Decree (Presidential Decree No. 807), and the Civil Service Rules and Regulations fails to disclose a specific provision which supports the CSC rule at issue. That being the case, the petitioner contended that he cannot be deprived of his pay or salary corresponding to the intervening Saturdays, Sundays or Holidays (in the factual situation posed), and that the withholding (or deduction) of the same is tantamount to a deprivation of property without due process of law. llcd On 25 May 1990, respondent Commission promulgated Resolution No. 90-497, ruling that the action of the DTI in deducting from the salary of petitioner, a part thereof corresponding to six (6) days (September 29, 30, October 1, 20, 21, 22, 1989) is in order. 2 The CSC stated that: "In a 2nd Indorsement dated February 12, 1965 of this Commission, which embodies the policy on leave of absence without pay incurred on a Friday and a Monday, reads: 'Mrs. Rosalinda Gonzales is not entitled to payment of salary corresponding to January 23 and 24, 1965, Saturday and Sunday, respectively, it appearing that she was present on Friday, January 22, 1965 but was on leave without pay beginning January 25, the succeeding Monday. It is the view of this Office that an employee who has no more leave credit in his favor is not entitled to the payment of salary on Saturdays, Sundays or holidays unless such non-working days occur within the period of service actually rendered.' (Emphasis supplied) The rationale for the above ruling which applies only to those employees who are being paid on monthly basis, rests on the assumption that having been absent on either Monday or Friday, one who has no leave credits, could not be favorably credited with intervening days had the game been working days. Hence, the above policy that for an employee on leave without pay to be entitled to salary on Saturdays, Sundays or holidays, the same must occur between the dates where the said employee actually renders service. To rule otherwise would allow an employee who is on leave of absent (sic) without pay for a long period of time to be entitled to payment of his salary corresponding to Saturdays, Sundays or holidays. It also discourages the employees who have exhausted their leave credits from absenting themselves on a Friday or Monday in order to have a prolonged weekend, resulting in the prejudice of the government and the public in general." 3

Petitioner filed a motion for reconsideration and in Resolution No. 90-797, the respondent Commission denied said motion for lack of merit. The respondent Commission in explaining its action held:

"The Primer on the Civil Service dated February 21, 1978, embodies the Civil Service Commission rulings to be observed whenever an employee of the government who has no more leave credits, is absent on a Friday and/or a Monday is credits, is absent on a Friday and/or a Monday is enough basis for the deduction of his salaries corresponding to the intervening Saturdays and Sundays. What the Commission perceived to be without basis is the demand of Peralta for the payment of his salaries corresponding to Saturdays and Sundays when he was in fact on leave of absence without pay on a Friday prior to the said days. A reading of Republic Act No. 2260 (sic) does not show that a government employee who is on leave of absence without pay on a day before or immediately preceding Saturday, Sunday or legal holiday is entitled to payment of his salary for said days. Further, a reading of Senate Journal No. 67 dated May 4, 1960 of House Bill No. 41 (Republic Act No. 2625) reveals that while the law excludes Saturdays, Sundays and holidays in the computation of leave credits, it does not, however, include a case where the leave of absence is without pay. Hence, applying the principle of inclusio unius est exclusio alterius, the claim of Peralta has no merit. Moreover, to take a different posture would be in effect giving more premium to employees who are frequently on leave of absence without pay, instead of discouraging them from incurring further absence without pay." 4 Petitioner's motion for reconsideration having been denied, petitioner filed the present petition. What is primarily questioned by the petitioner is the validity of the respondent Commission's policy mandating salary deductions corresponding to the intervening Saturdays, Sundays or Holidays where an employee without leave credits was absent on the immediately preceding working day. During the pendency of this petition, the respondent Commission promulgated Resolution No. 91-540 dated 23 April 1991 amending the questioned policy, considering that employees paid on a monthly basis are not required to work on Saturdays, Sundays or Holidays. In said amendatory Resolution, the respondent Commission resolved "to adopt the policy that when an employee, regardless of whether he has leave credits or not, is absent without pay on day immediately preceding or succeeding Saturday, Sunday or holiday, he shall not be considered absent on those days." Memorandum Circular No. 16 Series of 1991 dated 26 April 1991, was also issued by CSC Chairman Sto. Tomas adopting and promulgating the new policy and directing the Heads of Departments, Bureaus and Agencies in the national and local governments, including government-owned or controlled corporations with original charters, to oversee the strict implementation of the circular. Because of these developments, it would seem at first blush that this petition has become moot and academic since the very CSC policy being questioned has already been amended and, in effect, Resolutions No. 90-497 and 90-797, subject of this petition for certiorari, have already been set aside and superseded. But the issue of whether or not the policy that had been adopted and in force since 1965 is valid or not, remains unresolved. Thus, for reasons of public interest and public policy, it is the duty of the Court to make a formal ruling on the validity or invalidity of such questioned policy. llcd The Civil Service Act of 1959 (R.A. No. 2260) conferred upon the Commissioner of Civil Service the following powers and duties: "Sec. 16 (e) with the approval by the President to prescribe, amend and enforce suitable rules and regulations for carrying into effect the provisions of this Civil Service Law, and the rules prescribed pursuant to the provisions of this law shall become effective thirty days after publication in the Official Gazette; xxx xxx xxx (k) To perform other functions that properly belong to a central personnel agency." 5 Pursuant to the foregoing provisions, the Commission promulgated the herein challenged policy. Said policy was embodied in a 2nd Indorsement dated 12 February 1965 of the respondent Commission involving the case of a Mrs. Rosalinda Gonzales. The respondent Commission ruled that an employee who has no leave credits in his favor is not entitled to the payment of salary on Saturdays, Sundays or Holidays unless such non-working days occur within the period of service actually rendered. The same policy is reiterated in the Handbook of Information on the Philippine Civil Service. 6 Chapter Five on leave of absence provides that: "5.51 When intervening Saturday, Sunday or holiday considered as leave without pay when an employee is on leave without pay on a day before or on a day immediately preceding a Saturday, Sunday or holiday, such Saturday, Sunday or holiday shall also be without pay. (CSC, 2nd Ind., Feb. 12, 1965)." It is likewise illustrated in the Primer on the Civil Service 7 in the section referring to Questions and Answers on Leave of Absences, which states the following:

"27. How is leave of an employee who has no more leave credits computed if: (1) he is absent on a Friday and the following Monday? (2) if he is absent on Friday but reports to work the following Monday? (3) if he is absent on a Monday but present the preceding Friday? (1) He is considered on leave without pay for 4 days covering Friday to Monday; (2) He is considered on leave without pay for 3 days from Friday to Sunday; (3) He is considered on leave without pay for 3 days from Saturday to Monday." When an administrative or executive agency renders an opinion or issues a statement of policy, it merely interprets a pre-existing law; and the administrative interpretation of the law is at best advisory, for it is the courts that finally determine what the law means. 8 It has also been held that interpretative regulations need not be published. 9 In promulgating as early as 12 February 1965 the questioned policy, the Civil Service Commission interpreted the provisions of Republic Act No. 2625 (which took effect on 17 June 1960) amending the Revised Administrative Code, and which stated as follows: "SECTION 1. Sections two hundred eighty-four and two hundred eighty-five-A of the Administrative Code, as amended, are further amended to read as follows: 'SEC. 284. After at least six months' continues (sic) faithful, and satisfactory service, the President or proper head of department, or the chief of office in the case of municipal employees may, in his discretion, grant to an employee or laborer, whether permanent or temporary, of the national government, the provincial government, the government of a chartered city, of a municipality, of a municipal district or of government-owned or controlled corporations other than those mentioned in Section two hundred sixty-eight, two hundred seventy-one and two hundred seventy-four hereof, fifteen days vacation leave of absence with full pay, exclusive of Saturdays, Sundays and holidays, for each calendar year of service. 'SEC. 285-A. In addition to the vacation leave provided in the two preceding sections each employee or laborer, whether permanent or temporary, of the national government, the provincial government, the government of a chartered city, of a municipality or municipal district in any regularly and specially organized province, other than those mentioned in Section two hundred sixty-eight, two hundred seventy-one and two hundred seventy-four hereof, shall be entitled to fifteen days of sick leave for each year of service with full pay, exclusive of Saturdays, Sundays and holidays: Provided, That such sick leave will be granted by the President, Head of Department or independent office concerned, or the chief of office in case of municipal employees, only on account of sickness on the part of the employee or laborer concerned or of any member of his immediate family.'" The Civil Service Commission in its here questioned Resolution No. 90-797 construed R.A. 2625 as referring only to government employees who have earned leave credits against which their absences may be charged with pay, as its letters speak only of leaves of absence with full pay. The respondent Commission ruled that a reading of R.A. 2625 does not show that a government employee who is on leave of absence without pay on a day before or immediately preceding a Saturday, Sunday or legal holiday is entitled to payment of his salary for said days. Administrative construction, if we may repeat, is not necessarily binding upon the courts. Action of an administrative agency may be disturbed or set aside by the judicial department if there is an error of law, or abuse of power or lack of jurisdiction or grave abuse of discretion clearly conflicting with either the letter or the spirit of a legislative enactment. 10 We find this petition to be impressed with merit. As held in Hidalgo vs. Hidalgo: 11 " . . . where the true intent of the law is clear that calls for the application of the cardinal rule of statutory construction that such intent or spirit must prevail over the letter thereof, for whatever is within the spirit of a statute is within the statute, since adherence to the letter would result in absurdity, injustice and contradictions and would defeat the plain and vital purpose of the statute." The intention of the legislature in the enactment of R.A. 2625 may be gleaned from, among others, the sponsorship speech of Senator Arturo M. Tolentino during the second reading of House Bill No. 41 (which became R.A. 2625). He said:

"The law actually provides for sick leave and vacation leave of 15 days each year of service to be with full pay. But under the present law, in computing these periods of leaves, Saturday, Sunday and holidays are included in the computation so that if an employee should become sick and absent himself on a Friday and then he reports for work on a Tuesday, in the computation of the leave the Saturday and Sunday will be included, so that he will be considered as having had a leave of Friday, Saturday, Sunday and Monday, or four days. llcd

"The purpose of the present bill is to exclude from the computation of the leave those days, Saturdays and Sundays, as well as holidays, because actually the employee is entitled not to go to office during those days. And it is unfair and unjust to him that those days should be counted in the computation of leaves." 12 With this in mind, the construction by the respondent Commission of R.A. 2625 is not in accordance with the legislative intent. R.A. 2625 specifically provides that government employees are entitled to fifteen (15) days vacation leave of absence with full pay and fifteen (15) days sick leave with full pay, exclusive of Saturdays, Sundays and Holidays in both cases. Thus, the law speaks of the granting of a right and the law does not provide for a distinction between those who have accumulated leave credits and those who have exhausted their leave credits in order to enjoy such right. Ubi lex non distinguit nec nos distinguere debemus. The fact remains that government employees, whether or not they have accumulated leave credits, are not required by law to work on Saturdays, Sundays and Holidays and thus they can not be declared absent on such non-working days. They cannot be or are not considered absent on non-working days; they cannot and should not be deprived of their salary corresponding to said non-working days just because they were absent without pay on the day immediately prior to, or after said non-working days. A different rule would constitute a deprivation of property without due process. Furthermore, before their amendment by R.A. 2625, Sections 284 and 285-A of the Revised Administrative Code applied to all government employees without any distinction. It follows that the effect of the amendment similarly applies to all employees enumerated in Sections 284 and 285-A, whether or not they have accumulated leave credits. As the questioned CSC policy is here declared invalid, we are next confronted with the question of what effect such invalidity will have. Will all government employees on a monthly salary basis, deprived of their salaries corresponding to Saturdays, Sundays or legal holidays (as herein petitioner was so deprived) since 12 February 1965, be entitled to recover the amounts corresponding to such non-working days? The general rule vis-a-vis legislation is that an unconstitutional act is not a law; it confers no rights; it imposes no duties; it affords no protection; it creates no office; it is in legal contemplation as inoperative as though it had never been passed. 13 But, as held in Chicot County Drainage District vs. Baxter State Bank: 14 " . . . . It is quite clear, however, that such broad statements as to the effect of a determination of unconstitutionality must be taken with qualifications. The actual existence of a statute, prior to such determination is an operative fact and may have consequences which cannot always be ignored. The past cannot always be erased by a new judicial declaration. The effect of the subsequent ruling as to invalidity may have to be considered in various aspects with respect to particular relations, individual and corporate; and particular conduct, private and official." To allow all the affected government employees, similarly situated as petitioner herein, to claim their deducted salaries resulting from the past enforcement of the herein invalidated CSC policy, would cause quite a heavy financial burden on the national and local governments considering the length of time that such policy has been effective. Also, administrative and practical considerations must be taken into account if this ruling will have a strict restrospective application. The Court, in this connection, calls upon the respondent Commission and the Congress of the Philippines, if necessary, to handle this problem with justice and equity to all affected government employees. It must be pointed out, however, that after CSC Memorandum Circular No. 16 Series of 1991 amending the herein invalidated policy was promulgated on 26 April 1991, deductions from salaries, made after said date in contravention of the new CSC policy must be restored to the government employees concerned. prLL WHEREFORE, the petition is GRANTED, CSC Resolutions No. 90-497 and 90-797 are declared NULL and VOID. The respondent Commission is directed to take the appropriate action so that petitioner shall be paid the amounts previously but unlawfully deducted from his monthly salary as above indicated. No costs. SO ORDERED. Narvasa, C . J ., Gutierrez, Jr., Cruz, Feliciano, Bidin, Grio-Aquino, Medialdea, Regalado, Davide, Jr., Romero, Nocon and Bellosillo, JJ ., concur.

SPECIAL SECOND DIVISION [G.R. No. 135992. January 31, 2006.] EASTERN TELECOMMUNICATIONS PHILIPPINES, INC. and TELECOMMUNICATIONS TECHNOLOGIES, INC., petitioners, vs. INTERNATIONAL COMMUNICATION CORPORATION, respondent.

AMENDEDDECISION

AUSTRIA-MARTINEZ, J p: On July 23, 2004, the Court promulgated its Decision in the above-captioned case with the following dispositive portion: WHEREFORE, the petition for review on certiorari is PARTIALLY GRANTED. The Order of the National Telecommunications Commissions dated November 10, 1997 in NTC Case No. 96-195 is AFFIRMED with the following modifications: Respondent International Communication Corporation, in accordance with Section 27 of NTC MC No. 11-9-93, is required to: (1) Deposit in escrow in a reputable bank 20% of the investment required for the first two years of the implementation of the proposed project; and (2) Post a performance bond equivalent to 10% of the investment required for the first two years of the approved project but not to exceed P500 Million. within such period to be determined by the National Telecommunications Commission. No pronouncement as to costs. SO ORDERED. 1 Respondent now seeks a partial reconsideration of the portion of the Court's decision requiring it to make a 20% escrow deposit and to post a 10% performance bond. Respondent claims that Section 27 of NTC MC No. 11-9-93, which required the foregoing amounts, pertains only to applications filed under Executive Order No. 109 (E.O. No. 109) and not to applications voluntarily filed. In its Manifestation in support of the motion for partial reconsideration, respondent attached a letter from Deputy Commissioner and Officer-in-Charge (OIC), Kathleen G. Heceta, of the National Telecommunications Commission (NTC), stating thus: xxx xxx xxx Please be informed that the escrow deposit and performance bond were required to public telecommunications entities to ensure that the mandated installation of local exchange lines are installed within three (3) years pursuant to EO 109 and RA 7925. Since your company has already complied with its obligation by the installation of more than 300,000 lines in Quezon City, Malabon City and Valenzuela City in the National Capital Region and Region V in early 1997, the escrow deposit and performance bond were not required in your subsequent authorizations. 2 In a Resolution dated October 4, 2004, the Court required petitioners and the NTC to file their respective comments on the motion. 3 Subsequently, in its Manifestation/Comment filed on January 11, 2005, the Office of the Solicitor General (OSG), in behalf of the NTC, likewise referred to the same letter of OIC Heceta and declared that it fully agrees with respondent that the escrow deposit and performance bond are not required in subsequent authorizations for additional/new areas outside its original roll-out obligation under the Service Area Scheme of E.O. No. 109. SHacCD Petitioners did not file any comment and it was only after the Court issued a show cause and compliance Resolution on October 19, 2005 that petitioners manifested in their Entry of Special Appearance, Manifestation and Compliance dated November 25, 2005 that they have no further comments on respondent's motion for partial reconsideration. 4

The Court has observed in its Decision that Section 27 of NTC MC No. 11-9-93 is silent as to whether the posting of an escrow deposit and performance bond is a condition sine qua non for the grant of a provisional authority. The NTC, through the OSG, explicitly clarified, which was not disputed by petitioners, that the escrow deposit and performance bond are not required in subsequent authorizations for additional/new areas outside its original roll-out obligation under E.O. No. 109. The OSG agreed with respondent's stance that since the provisional authority in this case involves a voluntary application not covered by the original service areas created by the NTC under E.O. No. 109, then it is not subject to the posting of an escrow deposit and performance bond as required by E.O. No. 109, but only to the conditions provided in the provisional authority. Further, the OSG adapted the ratiocination of the Court of Appeals on this matter, i.e., respondent was not subjected to the foregoing escrow deposit and performance bond requirement because the landline obligation is already outside its original roll-out commitment under E.O. No. 109. 5 The NTC, being the government agency entrusted with the regulation of activities coming under its special and technical forte, and possessing the necessary rule-making power to implement its objectives, 6 is in the best position to interpret its own rules, regulations and guidelines. The Court has consistently yielded and accorded great respect to the interpretation by administrative agencies of their own rules unless there is an error of law, abuse of power, lack of jurisdiction or grave abuse of discretion clearly conflicting with the letter and spirit of the law. 7 In City Government of Makati vs. Civil Service Commission, 8 the Court cited cases where the interpretation of a particular administrative agency of a certain rule was adhered to, viz.: As properly noted, CSC was only interpreting its own rules on leave of absence and not a statutory provision in coming up with this uniform rule. Undoubtedly, the CSC like any other agency has the power to interpret its own rules and any phrase contained in them with its interpretation significantly becoming part of the rules themselves. As observed in West Texas Compress & Warehouse Co. v. Panhandle & S.F. Railing Co. xxx xxx xxx This principle is not new to us. In Geukeko v. Araneta this Court upheld the interpretation of the Department of Agriculture and Commerce of its own rules of procedure in suspending the period of appeal even if such action was nowhere stated therein. We said xxx xxx xxx . . . It must be remembered that Lands Administrative Order No. 6 is in the nature of procedural rules promulgated by the Secretary of Agriculture and Natural Resources pursuant to the power bestowed on said administrative agency to promulgate rules and regulations necessary for the proper discharge and management of the functions imposed by law upon said office. . . . Recognizing the existence of such rulemaking authority, what is the weight of an interpretation given by an administrative agency to its own rules or regulations? Authorities sustain the doctrine that the interpretation given to a rule or regulation by those charged with its execution is entitled to the greatest weight by the Court construing such rule or regulation, and such interpretation will be followed unless it appears to be clearly unreasonable or arbitrary (42 Am. Jur. 431). It has also been said that: xxx xxx xxx The same precept was enunciated in Bagatsing v. Committee on Privatization where we upheld the action of the Commission on Audit (COA) in validating the sale of Petron Corporation to Aramco Overseas Corporation on the basis of COA's interpretation of its own circular that set bidding and audit guidelines on the disposal of government assets The COA itself, the agency that adopted the rules on bidding procedure to be followed by government offices and corporations, had upheld the validity and legality of the questioned bidding. The interpretation of an agency of its own rules should be given more weight than the interpretation by that agency of the law it is merely tasked to administer (underscoring supplied). Given the greater weight accorded to an agency's interpretation of its own rules than to its understanding of the statute it seeks to implement, we simply cannot set aside the former on the same grounds as we would overturn the latter. More specifically, in cases where the dispute concerns the interpretation by an agency of its own rules, we should apply only these standards: "Whether the delegation of power was valid; whether the regulation was within that delegation; and if so, whether it was a reasonable regulation under a due process test." An affirmative answer in each of these questions should caution us from discarding the agency's interpretation of its own rules. (Emphasis supplied) Thus, the Court holds that the interpretation of the NTC that Section 27 of NTC MC No. 11-9-93 regarding the escrow deposit and performance bond shall pertain only to a local exchange operator's original roll-out obligation under E.O. No. 109, and not to roll-out obligations made under subsequent or voluntary applications outside E.O. No. 109, should be sustained. DHcEAa

IN VIEW THEREOF, respondent's Motion for Partial Reconsideration is GRANTED. The Court's Decision dated July 23, 2004 is AMENDED, the dispositive portion of which should read as follows: WHEREFORE, the petition for review on certiorari is DENIED. The Order of the National Telecommunications Commission dated November 10, 1997 in NTC Case No. 96-195 is AFFIRMED. thereby deleting the order requiring respondent to make a 20% escrow deposit and to post a 10% performance bond. SO ORDERED. Puno, Callejo, Sr., Tinga and Chico-Nazario, JJ., concur.

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.

Estelito P. Mendoza, Pio de Roda & Associates and Sycip, Salazar, Hernandez & Gatmaitan for private respondent

SYLLABUS 1. POLITICAL LAW; ADMINISTRATIVE LAW; ADMINISTRATIVE AGENCIES; RULE MAKING POWERS; LEGISLATIVE RULE AND INTERPRETATIVE RULE; DISTINGUISHED. Let us 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, (238 SCRA 63) 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." 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 increase 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. 2. ID.; ID.; ID.; ID.; ID.; REVENUE MEMORANDUM CIRCULAR NO. 37-93; A LEGISLATIVE RULING; DUE OBSERVANCE OF THE REQUIREMENTS OF NOTICE, OF HEARING AND OF PUBLICATION FOR ITS VALIDITY SHOULD NOT HAVE BEEN IGNORED. 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 interpreted 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. 3. POLITICAL LAW; LEGISLATIVE DEPARTMENT; UNIFORMITY OF TAXATION RULE; VIOLATED IN CASE AT BAR. 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. Thus, all taxable articles or kinds of property of the same class must be taxed at the same rate 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 doctrine, the measure suffers from lack of uniformity of taxation. BELLOSILLO, J.: separate opinion 1. POLITICAL LAW; ADMINISTRATIVE LAW; ADMINISTRATIVE AGENCIES; POWERS AND FUNCTIONS. 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. 2. ID.; ID.; ID.; ID.; RULE MAKING POWERS; INTERPRETATIVE RULE; CONSTRUED. Interpretative rule, one of the three (3) types of quasilegislative 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 Tanada vs. Tuvera, (No. L-63915, 29 December 1986, 146 SCRA 446) this Court expressly said that "[i]nterprative regulations . . . need not be published." 3. ID.; ID.; ID.; ID.; QUASI-JUDICIAL POWERS; CONSTRUED. 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. 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. 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. 4. ID.; ID.; ID.; ID.; ID.; WHEN AN ADMINISTRATIVE PROCEEDING IS QUASI-JUDICIAL IN CHARACTER, NOTICE AND FAIR OPEN HEARING ARE ESSENTIAL TO THE VALIDITY OF THE PROCEEDING. 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 quasijudicial 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 fairly advised of what the government proposes and to be heard upon its proposal before it issues its final command. 5. ID.; ID.; ID.; ID.; ID.; CARDINAL PRIMARY RIGHTS WHICH MUST BE RESPECTED IN ADMINISTRATIVE PROCEEDINGS. There are cardinal primary rights which must be respected in administrative proceedings. The landmark case of Ang Tibay vs. The Court of Industrial Relations (69 Phil. 635 [1940]) 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.

6. ID.; ID.; ID.; ID.; ID.; REVENUE MEMORANDUM CIRCULAR 37-93; AN ADJUDICATORY RULE; PRIOR NOTICE AND HEARING ARE REQUIRED FOR ITS VALIDITY. It is evident 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. 7. ID.; ID.; ID.; ID.; ID.; IN PROPERLY DETERMINING WHETHER A MEMORANDUM CIRCULAR IS MERELY AN INTERPRETIVE RULE OR AN ADJUDICATORY RULE, ITS VERY TENOR AND TEXT, AND THE CIRCUMSTANCES SURROUNDING ITS ISSUANCE WILL HAVE TO BE CONSIDERED. 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 to be considered. HERMOSISIMA, J., dissenting opinion: 1. POLITICAL LAW; ADMINISTRATIVE LAW; ADMINISTRATIVE AGENCIES; POWERS AND FUNCTIONS; THE COMMISSIONER OF INTERNAL REVENUE IS DULY AUTHORIZED BY LAW TO ISSUE REVENUE MEMORANDUM CIRCULAR 37-93. 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 rules 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 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. 2. ID.; ID.; ID.; ID.; QUASI-LEGISLATIVE POWERS; REVENUE MEMORANDUM CIRCULAR 37-93; HAVE NOT BEEN PROVEN TO BE ERRONEOUS OR ILLEGAL AS TO RENDER ITS ISSUANCE AN ACT OF GRAVE ABUSE OF DISCRETION. 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 no 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. 3. ID.; ID.; ID.; ID.; ID.; MERELY AN INTERPRETATIVE RULING. 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 that interpretation and embodying the same in the questioned circular which the petitioner subsequently issued after making such a determination, private respondent's cigarette 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 her 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. 4. ID.; ID.; ID.; ID.; ID.; NOT VIOLATIVE OF THE EQUAL PROTECTION CLAUSE OF 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 manufacturer 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 reclassification 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 the 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." 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 substituting interpretative ruling that the petitioner had power to promulgate and enforce.

DECISION

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 '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 3793"), was issued by the BIR the full text of which expressed:

"REPUBLIKA NG PILIPINAS KAGAWARAN NG PANANALAPI KAWANIHAN NG RENTAS INTERNAS July 1, 1993 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 death 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. On 03 August 1993, Fortune Tobacco filed a petition for review with the CTA. 8 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 this resolution, dated 11 October 1994, the CTA dismissed for lack of merit the motion for reconsideration. dctai 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 interpreted the law; verily, it legislated under it 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). Tax 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 Rothmans, 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; Nanyang, 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 brands not reclassified at 55 if your want to give a level playing field 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 included all the other brands that were mentioned by the Honorable Chairman. (Emphasis supplied) (Exhibit 'FF-2-d,' par. IX-4)." 1 8 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. Bellosillo and Kapunan, JJ ., concur.