[G.R. No. 119761. August 29, 1996.

COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. HON. COURT OF

APPEALS, HON. COURT OF TAX APPEALS and FORTUNE TOBACCO
CORPORATION, Respondents.

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., v. 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 quasi-
legislative or rule making powers of an administrative agency (the other two
being supplementary or detailed legislation, and contingent legislation), is
promulgated by the administrative agency to interpret, clarify or explain
statutory regulations under which the administrative body operates. The purpose
or objective of an interpretative rule is merely to construe the statute being
administered. It purports to do no more than interpret the statute. Simply, the
rule tries to say what the statute means. Generally, it refers to no single person
or party in particular but concerns all those belonging to the same class which
may be covered by the said interpretative rule. It need not be published and
neither is a hearing required since it is issued by the administrative body as an
incident of its power to enforce the law and is intended merely to clarify
statutory provisions for proper observance by the people. In Tanada v. Tuvera,
(No. L-63915, 29 December 1986, 146 SCRA 446) this Court expressly said that"
[i]nterpretive regulations . . . need not be published." cralaw virtua1aw library

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 quasi-judicial in character, notice and fair open hearing are
essential to the validity of the proceeding. The right to reasonable prior notice
and hearing embraces not only the right to present evidence but also the
opportunity to know the claims of the opposing party and to meet them. The
right to submit arguments implies that opportunity otherwise the right may as
well be considered impotent. And those who are brought into contest with
government in a quasi-judicial proceeding aimed at the control of their activities
are entitled to be 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 v. 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 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.: chanrob1es virtual 1aw library

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. v. 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.:

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 v.
Liwayway Vinzons-Chato in her capacity as Commissioner of Internal Revenue."
library
cralaw virtua1aw

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:

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 ("NITC") to
read; as follows: jgc:chanrobles.com.ph

"SEC. 142. Cigars and Cigarettes. —

"(c). Cigarettes packed by machine. — There shall be levied, assessed and

collected on cigarettes packed by machine a tax at the rates prescribed below
based on the constructive manufacturer’s wholesale price or the actual
manufacturer’s wholesale price, whichever is higher: jgc:chanrobles.com.ph

"(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.

"When the registered manufacturer’s wholesale price or the actual

manufacturer’s wholesale price whichever is higher of existing brands of
cigarettes, including the amounts intended to cover the taxes, of cigarettes
packed in twenties does not exceed Four Pesos and eighty centavos (P4.80) per
pack, the rate shall be twenty percent (20%)." 7 (Emphasis supplied.)

About a month after the enactment and two (2) days before the effectivity of RA
7654, Revenue Memorandum Circular No. 37-93 ("RMC 37-93"), was issued by
the BIR the full text of which expressed:

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: jgc:chanrobles.com.ph

"‘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: jgc:chanrobles.com.ph

"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. chanroblesvirtual|awlibrary

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., v. Department of Finance

Secretary, 11 the Court expressed: jgc:chanrobles.com.ph

". . . 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: jgc:chanrobles.com.ph

"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: jgc:chanrobles.com.ph

"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: jgc:chanrobles.com.ph

"(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: chanrob1es virtual 1aw library

"(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
—: jgc:chanrobles.com.ph

"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: jgc:chanrobles.com.ph

"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)

"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)

"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)." 18

All taken, the Court is convinced that the hastily promulgated RMC 37-93 has
fallen short of a valid and effective administrative issuance.

WHEREFORE, the decision of the Court of Appeals, sustaining that of the Court of
Tax Appeals, is AFFIRMED. No costs.

SO ORDERED.

Bellosillo and Kapunan, JJ., concur.

 EN BANC

G.R. No. 142801-802. July 10, 2001

BUKLOD NG KAWANING EIIB, CESAR POSADA, REMEDIOS G. PRINCESA,

BENJAMIN KHO, BENIGNO MANGA, LULU MENDOZA, petitioners, vs.
HON. EXECUTIVE SECRETARY RONALDO B. ZAMORA, HON. SECRETARY
JOSE PARDO, DEPARTMENT OF FINANCE, HON. SECRETARY BENJAMIN
DIOKNO, DEPARTMENT OF BUDGET AND MANAGEMENT, HON.
SECRETARY ARTEMIO TUQUERO, DEPARTMENT OF
JUSTICE, Respondents.

DECISION

SANDOVAL-GUTIERREZ, J.:

In this petition for certiorari, prohibition and mandamus, petitioners Buklod Ng

Kawaning EIIB, Cesar Posada, Remedios Princesa, Benjamin Kho, Benigno Manga
and Lulu Mendoza, for themselves and in behalf of others with whom they share
a common or general interest, seek the nullification of Executive Order No.
191 1 and Executive Order No. 223 2 on the ground that they were issued by
the Office of the President with grave abuse of discretion and in violation of their
constitutional right to security of tenure.

The facts are undisputed:

On June 30, 1987, former President Corazon C. Aquino, issued Executive Order
No. 127 3 establishing the Economic Intelligence and Investigation Bureau (EIIB)
as part of the structural organization of the Ministry of Finance. 4 The EIIB was
designated to perform the following functions:

(a) Receive, gather and evaluate intelligence reports and information and

evidence on the nature, modes and extent of illegal activities affecting the
national economy, such as, but not limited to, economic sabotage,
smuggling, tax evasion, and dollar-salting, investigate the same and aid in
the prosecution of cases;

(b) Coordinate with external agencies in monitoring the financial and

economic activities of persons or entities, whether domestic or foreign,
which may adversely affect national financial interest with the goal of
regulating, controlling or preventing said activities;

(c) Provide all intelligence units of operating Bureaus or Offices under the

Ministry with the general framework and guidelines in the conduct of
intelligence and investigating works;
 (d) Supervise, monitor and coordinate all the intelligence and investigation
operations of the operating Bureaus and Offices under the Ministry;

(e) Investigate, hear and file, upon clearance by the Minister, anti-graft and
corruption cases against personnel of the Ministry and its constituents units;

(f) Perform such other appropriate functions as may be assigned by the

Minister or his deputies.5cräläwvirtualibräry

In a desire to achieve harmony of efforts and to prevent possible conflicts among

agencies in the course of their anti-smuggling operations, President Aquino
issued Memorandum Order No. 225 on March 17, 1989, providing, among
others, that the EIIB  shall be the agency of primary responsibility for anti-
smuggling operations in all land areas and inland waters and waterways outside
the areas of sole jurisdiction of the Bureau of Customs. 6 cräläwvirtualibräry

Eleven years after, or on January 7, 2000, President Joseph Estrada issued

Executive Order No. 191 entitled Deactivation of the Economic Intelligence and
Investigation Bureau. 7 Motivated by the fact that the designated functions of the
EIIB are also being performed by the other existing agencies of the government
and that there is a need to constantly monitor the overlapping of functions
among these agencies, former President Estrada ordered the deactivation of EIIB
and the transfer of its functions to the Bureau of Customs and the National
Bureau of Investigation.

Meanwhile, President Estrada issued Executive Order No. 196 8 creating the

Presidential Anti-Smuggling Task Force Aduana. 9 cräläwvirtualibräry

Then the day feared by the EIIB employees came. On March 29, 2000, President
Estrada issued Executive Order No. 223 10 providing that all EIIB personnel
occupying positions specified therein shall be deemed separated from the service
effective April 30, 2000, pursuant to a bona fide reorganization resulting to
abolition, redundancy, merger, division, or consolidation of positions. 11 cräläwvirtualibräry

Agonizing over the loss of their employment, petitioners now come before this
Court invoking our power of judicial review of Executive Order Nos. 191 and 223.
They anchor their petition on the following arguments:

Executive Order Nos. 191 and 223 should be annulled as they are
unconstitutional for being violative of Section 2(3), Article IX-B of the
Philippine Constitution and/or for having been issued with grave abuse
of discretion amounting to lack or excess of jurisdiction.

B.

The abolition of the EIIB is a hoax. Similarly, if Executive Order Nos. 191
and 223 are considered to effect a reorganization of the EIIB, such
reorganization was made in bad faith.

C.

The President has no authority to abolish the EIIB.

Petitioners contend that the issuance of the afore-mentioned executive orders

is: (a) a violation of their right to security of tenure; (b) tainted with bad faith
as they were not actually intended to make the bureaucracy more efficient but to
give way to Task Force Aduana, the functions of which are essentially and
substantially the same as that of EIIB; and (c) a usurpation of the power of
Congress to decide whether or not to abolish the EIIB.

Arguing in behalf of respondents, the Solicitor General maintains that: (a) the

President enjoys the totality of the executive power provided under Sections 1
and 7, Article VII of the Constitution, thus, he has the authority to issue
Executive Order Nos. 191 and 223; (b) the said executive orders were issued in
the interest of national economy, to avoid duplicity of work and to streamline the
functions of the bureaucracy; and (c) the EIIB was not abolished, it was
only deactivated.

The petition is bereft of merit.

Despite the presence of some procedural flaws in the instant petition, such as,
petitioners disregard of the hierarchy of courts and the non-exhaustion of
administrative remedies, we deem it necessary to address the issues. It is in the
interest of the State that questions relating to the status and existence of a
public office be settled without delay. We are not without precedent. In Dario v.
Mison, 12 we liberally decreed:

The Court disregards the questions raised as to procedure, failure to exhaust

administrative remedies, the standing of certain parties to sue, for two
reasons, `[b]ecause of the demands of public interest, including the need
for stability in the public service,' and because of the serious implications of
these cases on the administration of the Philippine civil service and the rights of
public servants.

At first glance, it seems that the resolution of this case hinges on the question
- Does the deactivation of EIIB constitute abolition of an office?  However, after
coming to terms with the prevailing law and jurisprudence, we are certain that
the ultimate queries should be a) Does the President have the authority to
reorganize the executive department? and,  b) How should the reorganization be
carried out?

Surely, there exists a distinction between the words deactivate and abolish.

To deactivate means to render inactive or ineffective or to break up by
discharging or reassigning personnel, 13 while to abolish means to do away with,
to annul, abrogate or destroy completely. 14 In essence, abolition denotes an
intention to do away with the office wholly and permanently. 15 Thus, while
in abolition, the office ceases to exist, the same is not true in deactivation  where
the office continues to exist, albeit remaining dormant or inoperative. Be that as
it may, deactivation and abolition are both reorganization measures.

The Solicitor General only invokes the above distinctions on the mistaken
assumption that the President has no power to abolish an office.

The general rule has always been that the power to abolish a public office is
lodged with the legislature. 16 This proceeds from the legal precept that the
power to create includes the power to destroy. A public office is either created by
the Constitution, by statute, or by authority of law. 17 Thus, except where the
office was created by the Constitution itself, it may be abolished by the same
legislature that brought it into existence. 18
cräläwvirtualibräry

The exception, however, is that as far as bureaus, agencies or offices in the

executive department are concerned, the Presidents power of control may justify
him to inactivate the functions of a particular office, 19 or certain laws may grant
him the broad authority to carry out reorganization measures. 20 The case in
point is Larin v. Executive Secretary. 21 In this case, it was argued that there is
no law which empowers the President to reorganize the BIR. In decreeing
otherwise, this Court sustained the following legal basis, thus:

Initially, it is argued that there is no law yet which empowers the President to
issue E.O. No. 132 or to reorganize the BIR.

We do not agree.

Section 48 of R.A. 7645 provides that:

Sec. 48. Scaling Down and Phase Out of Activities of Agencies Within the
Executive Branch. The heads of departments, bureaus and offices and agencies
are hereby directed to identify their respective activities which are no longer
essential in the delivery of public services and which may be  scaled down,
phased out or abolished, subject to civil service rules and regulations. X x
x. Actual scaling down, phasing out or abolition of the activities shall be effected
pursuant to Circulars or Orders issued for the purpose by the Office of the
President.

Said provision clearly mentions the acts of scaling down, phasing out and
abolition of offices only and does not cover the creation of offices or transfer of
functions. Nevertheless, the act of creating and decentralizing is included in the
subsequent provision of Section 62 which provides that:

Sec. 62. Unauthorized organizational charges.- Unless otherwise created by law

or directed by the President of the Philippines, no organizational unit or changes
in key positions in any department or agency shall be authorized in their
respective organization structures and be funded from appropriations by this Act.
(italics ours)

The foregoing provision evidently shows that the President is authorized

to effect organizational changes including the creation of offices in the
department or agency concerned.

Another legal basis of E.O. No. 132 is Section 20, Book III of E.O. No. 292 which
states:

Sec. 20. Residual Powers. Unless Congress provides otherwise, the President

shall exercise such other powers and functions vested in the President which are
provided for under the laws  and which are not specifically enumerated above or
which are not delegated by the President in accordance with law. (italic ours)

This provision speaks of such other powers vested in the President

under the law. What law then gives him the power to reorganize? It is
Presidential Decree No. 1772 which amended Presidential Decree No.
1416. These decrees expressly grant the President of the Philippines the
continuing authority to reorganize the national government, which
includes the power to group, consolidate bureaus and agencies, to
abolish offices, to transfer functions, to create and classify functions,
services and activities and to standardize salaries and materials. The
validity of these two decrees are unquestionable. The 1987 Constitution clearly
provides that all laws, decrees, executive orders, proclamations, letters of
instructions and other executive issuances not inconsistent with this Constitution
shall remain operative until amended, repealed or revoked. So far, there is yet
no law amending or repealing said decrees. (Emphasis supplied)
Now, let us take a look at the assailed executive order.

In the whereas clause of E.O. No. 191, former President Estrada anchored his
authority to deactivate EIIB on Section 77 of Republic Act 8745 (FY 1999
General Appropriations Act), a provision similar to Section 62 of R.A. 7645
quoted in Larin, thus;

Sec. 77. Organized Changes. Unless otherwise provided by law or directed by

the President of the Philippines, no changes in key positions or organizational
units in any department or agency shall be authorized in their respective
organizational structures and funded from appropriations provided by this Act.

We adhere to the precedent or ruling in Larin that this provision recognizes the

authority of the President to effect organizational changes in the department or
agency under the executive structure. Such a ruling further finds support in
Section 78 of Republic Act No. 8760. 22 Under this law, the heads of
departments, bureaus, offices and agencies and other entities in the Executive
Branch are directed (a) to conduct a comprehensive review of their respective
mandates, missions, objectives, functions, programs, projects, activities and
systems and procedures; (b) identify activities which are no longer essential in
the delivery of public services and which may be scaled down, phased-out or
abolished; and (c) adopt measures that will result in the streamlined
organization and improved overall performance of their respective
agencies. 23 Section 78 ends up with the mandate that the actual streamlining
and productivity improvement in agency organization and operation shall be
effected pursuant to Circulars or Orders issued for the purpose by the
Office of the President. 24 The law has spoken clearly. We are left only with the
duty to sustain.

But of course, the list of legal basis authorizing the President to reorganize any
department or agency in the executive branch does not have to end here. We
must not lose sight of the very source of the power that which constitutes an
express grant of power. Under Section 31, Book III of Executive Order No. 292
(otherwise known as the Administrative Code of 1987), the President, subject
to the policy in the Executive Office and in order to
achieve simplicity, economy and efficiency, shall have the continuing
authority to reorganize the administrative structure of the Office of the
President. For this purpose, he may transfer the functions of other Departments
or Agencies to the Office of the President. In Canonizado v. Aguirre, 25 we ruled
that reorganization involves the reduction of personnel, consolidation of
offices, or abolition thereof by reason of economy or redundancy of
functions. It takes place when there is an alteration of the existing structure of
government offices or units therein, including the lines of control, authority and
responsibility between them. The EIIB is a bureau attached to the Department of
Finance. 26 It falls under the Office of the President. Hence, it is subject to the
Presidents continuing authority to reorganize.

It having been duly established that the President has the authority to carry out
reorganization in any branch or agency of the executive department, what is
then left for us to resolve is whether or not the reorganization is valid. In this
jurisdiction, reorganizations have been regarded as valid provided they are
pursued in good faith. Reorganization is carried out in good faith if it is for the
purpose of economy or to make bureaucracy more efficient. 27 Pertinently,
Republic Act No. 6656 28 provides for the circumstances which may be considered
as evidence of bad faith in the removal of civil service employees made as a
result of reorganization, to wit: (a) where there is a significant increase in the
number of positions in the new staffing pattern of the department or agency
concerned; (b) wherean office is abolished and another performing substantially
the same functions is created; (c) where incumbents are replaced by those less
qualified in terms of status of appointment, performance and merit; (d) where
there is a classification of offices in the department or agency concerned and the
reclassified offices perform substantially the same functions as the original
offices, and (e) where the removal violates the order of separation. 29cräläwvirtualibräry

Petitioners claim that the deactivation of EIIB was done in bad faith because four
days after its deactivation, President Estrada created the Task Force Aduana.

We are not convinced.

An examination of the pertinent Executive Orders 30 shows that the deactivation

of EIIB and the creation of Task Force Aduana were done in good faith. It was
not for the purpose of removing the EIIB employees, but to achieve the ultimate
purpose of E.O. No. 191, which is economy. While Task Force Aduana was
created to take the place of EIIB, its creation does not entail expense to the
government.

Firstly  , there is no employment of new personnel to man the Task Force.

E.O. No. 196 provides that the technical, administrative and special
staffs of EIIB are to be composed of people who are already in the public
service, they being employees of other existing agencies. Their tenure
with the Task Force would only be temporary, i.e., only when the agency
where they belong is called upon to assist the Task Force. Since their
employment with the Task force is only by way of detail or
assignment, they retain their employment with the existing agencies.
And should the need for them cease, they would be sent back to the
agency concerned.

Secondly , the thrust of E.O. No. 196 is to have a small group of military men
under the direct control and supervision of the President as base of the
governments anti-smuggling campaign. Such a smaller base has the necessary
powers 1) to enlist the assistance of any department, bureau, or office and to
use their respective personnel, facilities and resources; and 2) to select and
recruit personnel from within the PSG and ISAFP for assignment to the Task
Force. Obviously, the idea is to encourage the utilization of personnel,
facilities and resources of the already existing departments, agencies,
bureaus, etc., instead of maintaining an independent office with a whole
set of personnel and facilities. The EIIB had proven itself burdensome for the
government because it maintained separate offices in every region in the
Philippines.

And thirdly, it is evident from the yearly budget appropriation of the government

that the creation of the Task Force Aduana was especially intended to lessen
EIIBs expenses. Tracing from the yearly General Appropriations Act, it appears
that the allotted amount for the EIIBs general administration, support, and
operations for the year 1995, was P128,031,000; 31 for
1996, P182,156,000; 32 for 1998, P219,889,000; 33 and, for
1999, P238,743,000. 34 Theseamounts were far above
the P50,000,000 35 allocation to the Task Force Aduana  for the year 2000.

While basically, the functions of the EIIB have devolved upon the Task Force
Aduana, we find the latter to have additional new powers. The Task Force
Aduana, being composed of elements from the Presidential Security Group (PSG)
and Intelligence Service Armed Forces of the Philippines (ISAFP), 36 has the
essential power to effect searches, seizures and arrests. The EIIB did not have
this power. The Task Force Aduana has the power to enlist the assistance of any
department, bureau, office, or instrumentality of the government, including
government-owned or controlled corporations; and to use their personnel,
facilities and resources. Again, the EIIB did not have this power. And, the Task
Force Aduana has the additional authority to conduct investigation of cases
involving ill-gotten wealth. This was not expressly granted to the EIIB.

Consequently, it cannot be said that there is a feigned reorganization.

In Blaquera v. Civil Sevice Commission, 37 we ruled that a reorganization in good
faith is one designed to trim the fat off the bureaucracy and institute economy
and greater efficiency in its operation.

Lastly, we hold that petitioners right to security of tenure is not violated. Nothing
is better settled in our law than that the abolition of an office within the
competence of a legitimate body if done in good faith suffers from no infirmity.
Valid abolition of offices is neither removal nor separation of the
incumbents. 38 In the instructive words laid down by this Court in Dario v.
Mison, 39 through Justice Abraham F. Sarmiento:

Reorganizations in this jurisdiction have been regarded as valid provided they

are pursued in good faith. As a general rule, a reorganization is carried out in
good faith if it is for the purpose of economy or to make bureaucracy more
efficient. In that event, no dismissal (in case of dismissal) or separation
actually occurs because the position itself ceases to exist. And in that
case, security of tenure would not be a Chinese wall. Be that as it may, if
the abolition, which is nothing else but a separation or removal, is done for
political reasons or purposely to defeat security of tenure, otherwise not in good
faith, no valid abolition takes and whatever abolition is done, is void ab initio.
There is an invalid abolition as where there is merely a change of nomenclature
of positions, or where claims of economy are belied by the existence of ample
funds.

Indeed, there is no such thing as an absolute right to hold office. Except

constitutional offices which provide for special immunity as regards salary and
tenure, no one can be said to have any vested right in an office or its salary. 40 cräläwvirtualibräry

While we cast a commiserating look upon the plight of all the EIIB employees
whose lives perhaps are now torn with uncertainties, we cannot ignore the
unfortunate reality that our government is also battling the impact of a
plummeting economy. Unless the government is given the chance to recuperate
by instituting economy and efficiency in its system, the EIIB will not be the last
agency to suffer the impact. We cannot frustrate valid measures which are
designed to rebuild the executive department.

WHEREFORE, the petition is hereby DENIED. No costs.

SO ORDERED.