GR 108524; (November, 1994) (Digest)
G.R. No. 108524 November 10, 1994
MISAMIS ORIENTAL ASSOCIATION OF COCO TRADERS, INC., petitioner, vs. DEPARTMENT OF FINANCE SECRETARY, COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE (BIR), AND REVENUE DISTRICT OFFICER, BIR MISAMIS ORIENTAL, respondents.
FACTS
Petitioner Misamis Oriental Association of Coco Traders, Inc., whose members are engaged in buying and selling copra, filed a petition for prohibition and injunction seeking to nullify Revenue Memorandum Circular (RMC) No. 47-91 and to enjoin the collection of the Value Added Tax (VAT) on the sale of copra by its members. Prior to the issuance of RMC No. 47-91 on June 11, 1991, which implemented VAT Ruling 190-90, copra was classified as an agricultural food product under Section 103(b) of the National Internal Revenue Code (NIRC) and was thus exempt from VAT at all stages of production or distribution. RMC No. 47-91 reclassified copra as an agricultural non-food product, making it exempt from VAT only if sold by the primary producer pursuant to Section 103(a) of the NIRC, thereby denying petitioner’s members the previous exemption.
ISSUE
The primary issue is whether RMC No. 47-91, which reclassified copra as an agricultural non-food product subject to VAT when sold by traders, is valid.
RULING
The Supreme Court dismissed the petition and upheld the validity of RMC No. 47-91. The Court ruled that:
1. The Commissioner of Internal Revenue, as the agency charged with implementing tax laws, has the authority to interpret provisions like Section 103 of the NIRC. The classification of copra as a non-food product, based on a strict construction of tax exemptions against the taxpayer, is entitled to great respect. The opinion of the Bureau of Food and Drug, which considered copra as food in a broader context, does not outweigh the BIR’s interpretation.
2. RMC No. 47-91 is an interpretative rule, not a legislative rule, and thus does not require a public hearing prior to its issuance. The Court may review its correctness but found no error in the Commissioner’s interpretation that copra per se is not intended for human consumption.
3. The circular does not violate the equal protection clause. There is a reasonable basis for distinguishing between coconut farmers/producers (who are exempt) and traders/dealers (who are not), as the former produce copra while the latter merely sell it. The differential treatment is justified.
4. The argument that the reclassification is counterproductive is a matter of policy addressed to the executive and legislative branches, not a ground for judicial invalidation. The Commissioner is not bound by the rulings of predecessors and may overturn them in interpreting laws.