G.R. Nos. 171516-17               February 13, 2009

COMMISSIONER OF CUSTOMS, Petitioner, vs.COURT OF TAX APPEALS, LAS ISLAS FILIPINAS FOOD CORPORATION and PAT-PRO OVERSEAS CO., LTD., Respondents.

CORONA, J.: Respondent Las Islas Filipinas Food Corporation (LIFFC) owned and operated an industry-specific customs bonded warehouse catering to food manufacturers.1 Among the conditions for its establishment and operations was securing an import allocation from the Sugar Regulatory Administration (SRA) every time it imported sugar for its clients.2

On February 20, 2004, Pat-Pro Overseas Company, Ltd. (PPOC), a Thai company, appointed LIFFC as its "exclusive offshore trading, storage and transfer facility" in the Philippines for its local and foreign transshipment3 operations.4 Pursuant to this appointment, it shipped ten (10) twenty-foot containers of refined sugar to LIFFC.

The shipment of refined sugar arrived in Manila on April 24, 2004. Because LIFFC failed to present an import allocation from the SRA, the shipment became subject of Alert Order No. A/IE/20040719-101.5 On July 16, 2004, a decree of abandonment was issued due to LIFFC’s failure to file an import entry.6 Thereafter, the Collector of Customs issued a warrant of seizure and detention7 on July 27, 2004 in view of the SRA’s advice that no import allocation had been granted to LIFFC.8

On August 16, 2004, LIFFC and PPOC (respondents) moved to quash the decree of abandonment.9 However, in an order dated September 21, 2004,10 the motion was denied (for being filed out of time as the decree of abandonment had already attained finality on August 3, 2004).lawphil.net

Respondents appealed the September 21, 2004 order to the Commissioner of Customs asserting that they were deprived of due process. They alleged that they were never notified of the issuance of the decree of abandonment.

After reviewing the evidence on record, the Commissioner found that respondents were not informed of the abandonment proceedings. Thus, in a decision dated February 4, 2005, he set aside the decree of abandonment and ordered the institution of proceedings for seizure and forfeiture.11

Pursuant to the February 4, 2005 decision of the Commissioner, the Republic instituted proceedings for the seizure and forfeiture of respondents’ importation.12 It contended that, because respondents imported the refined sugar without securing an import allocation from the SRA, the shipment should be forfeited pursuant to Section 2530 (f) and (1)-5 of the Tariff and Customs Code of the Philippines (TCCP).13

Respondents, on the other hand, asserted that the refined sugar was merely transshipped to the Philippines while PPOC was looking for a buyer in the international market. Thus, an import allocation from the SRA was unnecessary.

In decisions dated February 14, 2005 and February 16, 2005, the Collectors held that because LIFFC did not secure an import allocation from the SRA, the shipment was an illegal importation of refined sugar. They ordered its forfeiture in favor of the government.14

On appeal,15 the Commissioner affirmed the decisions of both Collectors.16

On April 15, 2005, respondents appealed to the Court of Tax Appeals (CTA) via petitions for review17 contending that the Commissioner erred in affirming the February 14, 2005 and February 16, 2005 decisions of the Collectors.18 They insisted that an import allocation from the SRA was unnecessary inasmuch as the refined sugar was sent to the

Philippines only for temporary storage and warehousing and would be shipped eventually to PPOC’s final buyer.

On April 20, 2005, respondents filed a motion to release cargo for exportation upon filing of a surety bond. The Commissioner opposed the said motion on the basis of Section 2301 of the TCCP which provides:

Section 2301. Warrant for Detention of Property-Cash Bond. – Upon making any seizure, the Commissioner shall issue a warrant for the detention of the property; and if the owner or importer desires to secure the release of the property for legitimate use, the Collector shall, with the approval of the Commissioner of Customs, surrender it upon the filing of a cash bond, in an amount fixed by him, conditioned upon the payment of the appraised value of the article and/or any fine, expenses and costs which may be adjudged in the case: Provided, That such importation shall not be released under any bond when there is prima facie evidence of fraud in the importation of the article: Provided, further, That articles the importation of which is prohibited by law shall not be released under any circumstances whatsoever: Provided, finally, That nothing in this section shall be construed as relieving the owner or importer from any criminal liability which may arise from any violation of law committed in connection with the importation of the article. (emphasis supplied)

The Commissioner argued that the shipment could not be released inasmuch as respondents had no import allocation from the SRA. Thus, there was prima facie evidence of fraud in the importation of refined sugar.

In a resolution dated July 12, 2005, the CTA granted the motion and ordered the release of the shipment subject to LIFFC’s filing of a continuing surety bond.19

The Commissioner moved for reconsideration but it was denied.20 The CTA ordered respondents to comply with the July 12, 2005 resolution within 10 days. However, the release of the shipment was held in abeyance for several months as respondents failed to comply with the conditions imposed by the said resolution.21 It was released only on January 6, 200622 when respondents finally complied with all the conditions stated in the July 12, 2005 resolution.

On March 1, 2006, the Commissioner filed this petition23 seeking the annulment of the six resolutions (dated July 12, 2005, July 20, 2005, September 27, 2005, November 8, 2005, December 13, 2005 and January 6, 2006) issued in CTA Case Nos. 7198 and 7199.24

On March 20, 2006, we issued a temporary restraining order enjoining the implementation of the said resolutions.

The Commissioner basically contends that the CTA committed grave abuse of discretion when it disregarded Section 2301 of the TCCP and ordered the release of respondents’ shipment of refined sugar.

We grant the petition.

Section 2301 of the TCCP states that seized articles may not be released under bond if there is prima facie evidence25 of fraud in their importation. Fraud is a "generic term embracing all multifarious means which human ingenuity can devise and which are resorted to by one individual to secure an advantage and includes all surprise, trick, cunning, dissembling and any unfair way by which another is cheated."26 Since fraud is a state of mind, its presence can only be determined by examining the attendant circumstances.

Under Section 1202 of the TCCP,27 importation takes place when merchandise is brought into the customs territory of the Philippines with the intention of unloading the same at port.

An exception to this rule is transit cargo28 entered for immediate exportation. Section 2103 of the TCCP provides:

Section 2103. Articles Entered for Immediate Exportation. – Where an intent to export the article is shown by the bill of lading, invoice, manifest or other satisfactory evidence, the whole or part of a bill (not less than one package) may be entered for immediate exportation under bond. The Collector shall designate the vessel or aircraft in which the articles are laden constructively as warehouse to facilitate the direct transfer of the articles to the exporting vessel or aircraft.

Unless it shall appear by the bill of lading, invoice, manifest, or other satisfactory evidence, that the articles arriving in the Philippines are destined for transshipment, no exportation thereof shall be permitted except under entry for immediate exportation under irrevocable domestic letter of credit, bank guaranty or bond in an amount equal to the ascertained duties, taxes and other charges.1avvphi1

Upon the exportation of the articles, and the production of proof of lading of same beyond the limits of the Philippines, the irrevocable domestic letter of credit, bank guaranty or bond shall be released.

For an entry for immediate exportation to be allowed under this provision, the following must concur:

(a) there is a clear intent to export the article as shown in the bill of lading, invoice, cargo manifest or other satisfactory evidence;

(b) the Collector must designate the vessel or aircraft wherein the articles are laden as a constructive warehouse to facilitate the direct transfer of the articles to the exporting vessel or aircraft;

(c) the imported articles are directly transferred from the vessel or aircraft designated as a constructive warehouse to the exporting vessel or aircraft and

(d) an irrevocable domestic letter of credit, bank guaranty or bond in an amount equal to the ascertained duties, taxes and other charges is submitted to the Collector (unless it appears in the bill of lading, invoice, manifest or satisfactory evidence that the articles are destined for transshipment).

None of the requisites above was present in this case. While respondents insist that the shipment was sent to the Philippines only for temporary storage and warehousing, the bill of lading clearly denominated "South Manila, Philippines" as the port of discharge.29 This not only negated any intent to export but also contradicted LIFFC’s representation. Moreover, the shipment was unloaded from the carrying vessel for the purpose of storing the same at LIFFC’s warehouse. Importation therefore took place and the only logical conclusion is that the refined sugar was truly intended for domestic consumption.

Furthermore, while respondents insisted that an import allocation was unnecessary, they filed an application, albeit belatedly, in the SRA for the shipment of refined sugar. Respondents’ web of conflicting statements and actuations undoubtedly proves bad faith, if not outright fraud.

All things considered, pursuant to Section 2301 of the TCCP, the shipment of refined sugar should not be released under bond.

WHEREFORE, the petition is hereby GRANTED. The July 12, 2005, July 20, 2005, September 27, 2005, November 8, 2005, December 13, 2005 and January 6, 2006 resolutions of the Court of Tax Appeals in CTA Case Nos. 7198 and 7199 are REVERSED and SET ASIDE.

The March 20, 2006 temporary restraining order enjoining the implementation of the assailed CTA resolutions is hereby made permanent.

The Court of Tax Appeals is ordered to expeditiously decide CTA Case Nos. 7198 and 7199.

Costs against respondents Las Islas Filipinas Food Corporation and Pat-Pro Overseas Co., Ltd.

SO ORDERED.

G.R. No. 144440             September 1, 2004

COMMISSIONER OF CUSTOMS, petitioner, vs.PHILIPPINE PHOSPHATE FERTILIZER CORPORATION, respondent.

TINGA, J.: The financial planners of the State are often confounded by the precarious balance between the need to provide a conducive investment climate and the need to enhance revenue collections. In the present Petition for Review, the Court is called upon to interpret the provisions of a law designed to benefit investors with tax exemptions. Tax exemptions are generally construed strictly against the taxpayer; yet, when the purported ambiguities in the law are more imagined than real, there should be no hesitation to rule for the taxpayer.

The factual backdrop of the case is uncomplicated.

Respondent Philippine Phosphate Fertilizer Corporation (Philphos) is a domestic corporation engaged in the manufacture and production of fertilizers for domestic and international distribution. Its base of operations is in the Leyte Industrial Development Estate, an export processing zone.1 It is also registered with the Export Processing Zone Authority (EPZA), now known as the Philippine Export Zone Authority (PEZA).2

The manufacture of fertilizers required Philphos to purchase fuel and petroleum products for its machineries. These fuel supplies are considered indispensable by Philphos, as they are used to run the machines and equipment and in the transformation of raw materials into fertilizer.3 The fuel supplies are secured domestically from local distributors, in this case, Petron Corporation (Petron), which imports the same and pays the corresponding customs duties to the Bureau of Customs; and, the ad valorem and specific taxes to the Bureau of Internal Revenue. When the fuel and petroleum products are delivered at Philphos’s manufacturing plant inside the Leyte Industrial Development Estate, Philphos is billed by Petron the corresponding customs duties imposed on these products. Effectively thus, Philphos reimburses Petron for the customs duties on the purchased fuels and petroleum products which are passed on by the Petron as part of the selling price.4

Under this arrangement, Philphos made several purchases from Petron of fuels and other petroleum products used directly or indirectly in the manufacture of fertilizers for the period of October 1991 until June 1992.5 During the period in question, Philphos indirectly paid as customs duties, the amount of Twenty Million One Hundred Forty Nine Thousand Four Hundred Seventy Three Pesos and Seventy Seven Centavos (P20,149,473.77).6

In a letter to the Bureau of Customs, dated 18 September 1992, Philphos sought the refund of customs duties it had paid for the period covering the months of October to December 1991, and January to June, 1992.7 It pointed out that Philphos, being an enterprise registered with the export processing zone, is entitled to tax incentives under Presidential Decree No. 66 (EPZA Law), referring specifically to Section 17 thereof which exempts from customs and internal revenue laws, supplies brought into the export processing zone. Consequently, Philphos argued that the customs duties billed by Petron on Philphos should be refunded.

The Bureau of Customs denied the claim for refund in a letter dated 4 January 1993.8 Hence, a Petition for Review was filed with the Court of Tax Appeals (CTA), assailing the

denial of the refund. The CTA ruled for Philphos in a Decision9 dated 5 October 1995, ordering the issuance of a Tax Credit Certificate in the amount of Twenty Million One Hundred Forty Nine Thousand Four Hundred Seventy Three Pesos and Seventy Seven Centavos (P20,149,473.77) in favor of Philphos. The matter was elevated by the Commissioner of Customs (Commissioner) to the Court of Appeals (CA), which eventually affirmed the CTA’s Decision in toto.10

Both the CTA and the CA relied upon Section 17(1) of the EPZA Law to justify the conclusion that Philphos is entitled to the refund. Before this Court, the Commissioner argues that since the importation of the subject products, made by the seller Petron, had already been finally terminated, all future claims for refund are thus barred. It likewise insists that controlling in this case is Section 18(i) of the EPZA Law, under which claims for refunds similar to Philphos’s are precluded. Finally, the Commissioner posits that since a refund on tax credit partakes the nature of an exemption, the grant thereof must be explicit.

There is no need to inquire into the factual basis for the amount sought to be refunded.11

Petitioner does not dispute the amount, but only the legal basis for the exemption. Moreover, since the Court itself is not a trier of facts it will respect primarily the findings of the ultimate trier of facts, namely: the CA. In this case, however, there is coalescence in the findings of the two courts below.

The EPZA Law, promulgated in 1972, has since been superseded by Republic Act No. 7916, or "The Special Economic Zone Act of 1995." However, since the claim for exemption covers the years 1991 and 1992, or before the enactment of Republic Act No. 7916, the provisions of the EPZA Law are applicable in the present petition.

Consideration of the general philosophy and thrust of the EPZA Law cannot be evaded. The export processing zone is intended to be a viable commercial, industrial and investment area.12 The enunciated policy of the EPZA Law is to encourage and promote foreign commerce as a means of making the Philippines a center of international trade; strengthening our export trade and foreign exchange position; hastening industrialization; reducing domestic unemployment; and accelerating the development of the country, by establishing export processing zones in strategic locations in the Philippines.13

As noted by the CTA, the basic policy in establishing export processing zones is to attract enterprises, especially foreign investors, who will be manufacturing products primarily for export and be able to do so without their supplies and raw materials entering, and the export products leaving, the Philippine territory within the context of customs and revenue regulations.14 From a macro-perspective though, export processing zones are not intended to solely benefit investors. These zones are scattered throughout the country in remote areas and have the patent benefit of creating employment opportunities within their localities. It is the presence of tangible tax benefits attached to these zones which make them viable as investment locations, areas which ordinarily would be overlooked.

The incentives offered to enterprises duly registered with the PEZA consist, among others, of tax exemptions. These benefits may, at first blush, place the government at a disadvantage as they preclude the collection of revenue. Still, the expectation is that the tax breaks ultimately redound to the benefit of the national economy, enticing as they do more enterprises to invest and do business within the zones; thus creating more employment opportunities and infusing more dynamism to the vibrant interplay of market forces.

Section 17 of the EPZA Law particularizes the tax benefits accorded to duly registered enterprises. It states:

SEC. 17. Tax Treatment of Merchandize in the Zone. – (1) Except as otherwise provided in this Decree, foreign and domestic merchandise, raw materials, supplies, articles, equipment, machineries, spare parts and wares of

every description, except those prohibited by law, brought into the Zone to be sold, stored, broken up, repacked, assembled, installed, sorted, cleaned, graded, or otherwise processed, manipulated, manufactured, mixed with foreign or domestic merchandise or used whether directly or indirectly in such activity, shall not be subject to customs and internal revenue laws and regulations nor to local tax ordinances, the following provisions of law to the contrary notwithstanding. (emphasis supplied)

The cited provision certainly covers petroleum supplies used, directly or indirectly, by Philphos to facilitate its production of fertilizers, subject to the minimal requirement that these supplies are brought into the zone. The supplies are not subject to customs and internal revenue laws and regulations, nor to local tax ordinances. It is clear that Section 17(1) considers such supplies exempt even if they are used indirectly, as they had been in this case.

Since Section 17(1) treats these supplies for tax purposes as beyond the ambit of customs laws and regulations, the arguments of the Commissioner invoking the provisions of the Tariff and Customs Code must fail. Particularly, his point that the importation of the petroleum products by Petron was deemed terminated under Section 120215 of the Tariff and Customs Code, and that the termination consequently barred any future claim for refund under Section 160316 of the same law is misplaced and inconsequential. Moreover, the cited provisions of the Tariff and Customs Code if related to Section 17(1) of the EPZA Law would significantly render the argument strained and, if upheld, obviate many of the benefits granted by Section 17(1), for the provision does not limit the tax exemption only to direct taxes. Following the Commissioner’s interpretation, any duly registered enterprise sought to be held liable for the controverted custom’s duty because the importer had shifted the duty to the buyer would forever be precluded from challenging the duty, which it is not in the first place obliged to pay under the law. Hand in hand with its patent noxiousness to the spirit of the EPZA Law, the approach calls for the unwarranted application of the Tariff and Customs Code to investors and players in the zones, which under the EPZA Law are beyond the reach of domestic customs and tax laws, as well as regulations.

Neither would the prescriptive periods or procedural requirements provided under the Tariff and Customs Code serve as a bar for the claim for refund. The holding of the CTA on this point is illuminating:

Contrary to the allegation of the Respondent that Section 17(1) does not provide for duty and tax exemption privilege, this Court disagrees. That phrase shall not be subject to customs and internal revenue laws and regulations nor to local tax ordinances, the provisions of law to the contrary notwithstanding cannot be interpreted in any other manner than to mean that merchandise or supplies brought into the zone are exempt from customs duties and taxes. The incentive given under Section 17(1) is broader than a mere tax exemption. The phrase is so broad to include not only the exemption from customs duties and taxes but everything required in the enforcement of the customs and internal revenue laws save on the exceptions and conditions specified in the EPZA law itself. Considering that the customs and internal revenue laws are primarily enacted to impose duties and taxes, the phrase cannot be interpreted to exclude these impositions. More so, the phrase will also include exemption from other rules and regulations which are normally followed in the discharge of importation such as the filing of import entries, examinations and other requirements attendant to the importation of goods into the country.17

Even our recent ruling in Nestle Philippines, Inc. v. Court of Appeals,18 to the effect that the claim for refund of customs duties in protestable cases may be foreclosed by the failure to file a written protest, is not apropos in the case at bar because petitioner therein was not a duly registered enterprise under the EPZA Law and thus not entitled to the exemptions therein.19

This leads to another question well-worth resolving — what is the prescriptive period which a duly registered enterprise should observe in applying for a refund to which it is entitled under the EPZA Law? The EPZA Law itself is silent on the matter, and the prescriptive periods under the Tariff and Customs Code and other revenue laws are inapplicable, by specific mandate of Section 17(1) of the EPZA Law. This does not mean though that prescription will not lie, as the Civil Code provisions on solutio indebiti20 may find application. The Civil Code is not a customs and internal revenue law. The Court has in the past sanctioned the application of the provisions on solutio indebiti in cases when taxes were collected thru error or mistake.21 Solutio indebiti is a quasi-contract, thus the claim for refund must be commenced within six (6) years from date of payment pursuant to Article 1145(2) of the New Civil Code.22 Clearly then, Philphos’s right to refund has not yet prescribed.

Still, the Commissioner insists that it is Section 18(i) of the EPZA Law that is applicable, and precludes Philphos’s claim for refund. The provision reads:

SEC. 18. Additional Incentives. A zone registered enterprise shall also enjoy the following incentives:

xxx

(i)Tax credit. – Every registered zone enterprise shall enjoy a tax credit equivalent to the sales, compensating and specific taxes and duties on supplies, raw materials and semi-manufactured products used in the manufacture, processing or production of its export products and forming part thereof; x x x. (emphasis supplied)23

Indubitably, Section 18 does not exclude or otherwise limit the broad grant of benefits accorded by Section 17. These "additional incentives" under Section 18 are to be enjoyed in conjunction with the incentives under Section 17. This is indicated by the use of the words "additional" and "shall also" in the first paragraph of Section 18. Even the Commissioner admits the distinct character of Section 18.24 The divergent natures of the benefits under Sections 17 and 18 become readily apparent upon examination of the additional incentives enumerated under Section 18. They include allowance of net-operating loss carry-over, accelerated depreciation, exemption from export tax, foreign exchange assistance, financial assistance, exemptions for local taxes and licenses, deductions for labor training services, and deductions for organizational and pre-operating expenses.25 Section 18 does not serve the purpose of qualifying the benefits provided under Section 17. Instead, it enumerates another class of incentives also available to registered enterprises, in addition to, and apart from, the general benefits accorded under Section 17. There can be no doubt that the additional incentives under Section 18 are separate and distinct from those under the preceding section.

Still, the Commissioner argues that Section 18(i) of the EPZA Law specifically controls the issuance of a tax credit equivalent to duties on supplies purchased, and that the provision clearly states that such supplies must form part of the export products, particularly fertilizer.

A plain reading of Section 18(i) unmistakably indicates that the tax credit as an additional incentive avails only if the supplies actually form part of the export products. There is an apparent distinction between this provision and Section 17(1) which exempts from taxation supplies used indirectly by the registered enterprise. It is apparent that the petroleum supplies in question, which physically do not form part of the exportable fertilizers, are exempt from taxation under Section 17(1), but no tax credit could be claimed on them under Section 18(i).

Still, this acknowledged distinction is not a cause for abject reversal of the assailed decisions, as it does not affect the key disposition. For Section 17(1) is determinative of the fundamental question whether there is legal basis for the claim of exemption. On the other hand, Section 18(i) does not impose

limitations on the exemptions granted in the preceding provisions, but would only affect, if at all, the modality by which the exemption takes form.

Obviously, the relief sought for erroneously paid taxes would be a return to the taxpayer of the amount paid to the government. The Tax Reform Act of 1997 authorizes either a refund or credit as a means of recovery of tax erroneously or illegally collected.26 It may be that there is no essential difference between a tax refund and a tax credit since both are modes of recovering taxes erroneously or illegally paid to the government.27 Yet, there are unmistakable formal and practical differences between the two modes. Formally, a tax refund requires a physical return of the sum erroneously paid by the taxpayer, while a tax credit involves the application of the reimbursable amount against any sum that may be due and collectible from the taxpayer.28 On the practical side, the taxpayer to whom the tax is refunded would have the option, among others, to invest for profit the returned sum, an option not proximately available if the taxpayer chooses instead to receive a tax credit.

It should be noted that in its initial letter to the Commissioner dated 18 September 1992, Philphos specifically requested the refund of Twenty Million One Hundred Forty Nine Thousand Four Hundred Seventy Three Pesos and Seventy Seven Centavos (P20,149,473.77). However, in its Petition for Review before the CTA, Philphos prayed for the issuance of "corresponding tax credits" in the same amount. Still, there is no vehement insistence on the part of Philphos that the return of the amount paid should come in the form of a refund or a credit.29

The CTA, as affirmed by the CA, ordered the issuance of a Tax Credit Certificate in favor of Philphos. No elaboration was made as to why the relief granted was a tax credit and not a refund, but we can deduce that such was the relief afforded as it was the relief prayed for by Philphos in its Petition before the tax court. However, a slight modification of the award is necessary so as not to render nugatory the proscription under Section 18(i) that a tax credit avails only if the supplies form part of the export product. Instead of awarding a Tax Credit Certificate to Philphos, a refund of the same amount is warranted under the circumstances.

The grant of exemption under Section 17(1) is clear and unambiguous. There is neither logic nor need to cast a speck of uncertainly on a doubt-free situation to resolve the resulting forced question in favor of the government. The disposition arises not out of a blind solicitude towards the concerns of business, but from the duty to affirm and enforce a crystal-clear legislative policy and initiative intent. Indeed, the revenue collectors of the government should be cautious before attempting to gut away at concessions the State itself has deemed worthy of award to deserving investors. It is unsound practice and uncouth behaviour to invite over guests to dinner at home, then charge them for the use of the silverware before allowing them to dine.

WHEREFORE, the Petition for Review is DENIED. The assailed Decisions of the Court of Appeals dated 4 August 2000 and of the Court of Tax Appeals dated 5 October 1995 are AFFIRMED, with modification that in lieu of the issuance of a Tax Credit Certificate, the amount of Twenty Million One Hundred Forty Nine Thousand Four Hundred Seventy Three Pesos and Seventy Seven Centavos (P20,149,473.77) be refunded to respondent Philippine Phosphate Fertilizer Corporation. No costs.

SO ORDERED. 

G.R. No. 94262 May 31, 1991

FEEDER INTERNATIONAL LINE, PTE., LTD., by its agent, FEEDER INTERNATIONAL (PHILS.) INC., petitioner, vs.COURT OF APPEALS, Fourteenth Division, COURT OF TAX APPEALS, and COMMISSIONER OF CUSTOMS, respondents

REGALADO, J.:p The instant petition seeks the reversal of the decision of respondent Court of Appeals dated May 8, 1990, affirming the decision rendered by respondent Court of Tax Appeals which found the vessel M/T "ULU WAI" liable under Section 2530(a) of the Tariff and Customs Code of the Philippines (Presidential Decree No. 1464), as amended, and its cargo of 1,100 metric tons of gas oil and 1,000 metric tons of fuel oil liable under Section 2530(a), (f), and (1-1) of the same Code and ordering the forfeiture of the said vessel and its cargo. 1

The facts as culled from the decision of the Court of Appeals in CA-G.R. SP No. 20470 are as follows:

The M/T "ULU WAI" foreign vessel of Honduran registry, owned and operated by Feeder International Shipping Lines of Singapore, left Singapore on May 6, 1986 carrying 1,100 metric tons of gas oil and 1,000 metric tons of fuel oil consigned to Far East Synergy Corporation of Zamboanga, Philippines.

On May 14, 1986, the vessel anchored at the vicinity of Guiuanon Island in Iloilo without notifying the Iloilo customs authorities. The presence of the vessel only came to the knowledge of the Iloilo authorities by information of the civilian informer in the area. Acting on said information, the Acting District Collector of Iloilo dispatched a Customs team on May 19, 1986 to verify the report.

The Customs team found out that the vessel did not have on board the required ship and shipping documents, except for a clearance from the port authorities of Singapore clearing the vessel for "Zamboanga."

In view thereof, the vessel and its cargo were held and a Warrant of Seizure and Detention over the same was issued after due investigation. The petitioner then filed its Motion to Dismiss and to Quash the Warrants of Seizure and Detention which the District Collector denied in his Order dated December 12, 1986.

In the course of the forfeiture proceedings, the parties, through their respective counsel, agreed on a stipulation of facts, to wit:

l. That the existence and identity of MT "ULU WAI" subject of Sl-2-86, herein identified as Exh. "A", is admitted.

2. That the existence and identity of l,100 metric tons of gas oil, subject of Sl-2-86-A, herein identified as Exh. "B", is admitted;

3. That the existence and identity of 1,000 metric tons of fuel oil, subject of Sl-2-86 herein identified as Exh. "B-1", is admitted;

4. That M/T "ULU WAI" left Singapore May 6, 1986 and was cleared by Singapore customs authorities for Zamboanga, Philippines;

5. That subject vessel arrived at Guiuanon Island, Municipality of Nueva Valencia, sub-province of Guimaras, Province of Iloilo, Philippines, about 1120HRS, May 14,1986;

6. That subject vessel was boarded by Customs and Immigration authorities for the first time in the afternoon of May 19, 1986, at about 1600HRS;

7. That an apprehension report dated May 21, 1986, submitted by the Team leader of the Customs and Immigration Team, Roberto Intrepido, marked and identified as Exh. "C", is admitted;

8. That at the time of boarding, the Master of subject vessel could not produce any ship and/or shipping documents regarding her cargo except the Port Clearance Certificate No. 179999 issued by the Port of Singapore authority dated May 4, 1986, marked as Exh. "D", which is hereby admitted;

9. That on May 26, 1986, the Master of M/T "ULU WAI", Capt. Romeo E. Deposa filed a Marine Protest dated same date, which Marine Protest, marked and identified as Exh. "E", is hereby admitted;

10. That the sworn statement of said Capt. Romeo E. Deposa, marked and identified as Exh. "F", given on May 26, 1986 before Atty. Hernando Hinojales, Customs Legal Officer, is admitted;

11. That the sworn statement of Mr. Antonio Torres, Owner's representative of M/T "ULU WAI" marked and identified as Exh. "G" given before Atty. Hernando Hinojales on May 28,1986, is admitted;

12. That the sworn statement of Wilfredo Lumagpas, Master of M/T "CATHEAD" given before Lt. Dennis Azarraga on June 4, 1986, marked and identified as Exh. "H", is admitted;

13. That the existence of Fixture Note No. FN-M-86-05-41 entered into by and between the National Stevedoring & Lighterage Corporation and the Far East Synergy Corporation, marked and identified as Exh. "I", is admitted; and;

14. That the Preliminary Report of Survey Sounding Report dated June 17, 1986, signed by J.P. Piad, Surveyor of Interport Surveying Services, Inc. and duly attested by Ernesto Cutay, Chief Officer of the M/T "ULU WAI" marked and identified as Exh. "J", is also admitted. 2

On March 17, 1987, the District Collector issued his decision, with the following disposition:

WHEREFORE, premises considered, the M/T "ULU WAI" hereby found guilty of violating Section 2530 (a) of the Tariff and Customs Code of the Philippines (PD 1464), as amended, while her cargo of 1,100 M/T Gas Oil and 1,000 M/T Fuel Oil are hereby found guilty of violating Section 2530* (a), (f), and (1-1) under the same Code and are hereby forfeited in favor of the Republic of the Philippines.

SO ORDERED. 3

Petitioner appealed to the Commissioner of Customs who rendered a decision dated May 13, 1987, the decretal portion of which reads:

WHEREFORE, premises considered, the decision dated March 19, 1987 of the District Collector of Customs of Iloilo, ordering the forfeiture of M/T "ULU WAI" and its cargo of 2,100 metric tons of gas and fuel oil is hereby affirmed in toto.

SO ORDERED. 4

On June 25, 1987, petitioner filed a petition for review of the decisions of the Collector and the Commissioner of Customs with the Court of Tax Appeals, praying for the issuance of a writ of preliminary injunction and/or a restraining order to enjoin the

Commissioner from implementing his decision. On December 14, 1988, the Court of Tax Appeals issued its decision, with this dispositive portion:

WHEREFORE, the decision of respondent Commissioner of Customs dated May 13, 1987, ordering the forfeiture of the vessel M/T "ULU WAI" for violation of Section 2530(a) of the Tariff and Custom Codes (sic), as amended, and its cargo of 1,100 metric tons of Gas Oil and 1,000 metric tons of Fuel Oil for violation of Section 2530 * (a) and (f), and (I-1) of the same Code, is hereby affirmed. With costs.

SO ORDERED. 5

Petitioner, on January 19, 1990, filed a petition for review of the Court of Tax Appeals' decision with this Court. On March 21, 1990, we issued a resolution 6 referring the disposition of the case to the Court of Appeals in view of our decision in Development Bank of the Philippines vs. Court of Appeals, et al. 7 holding that final judgments or decrees of the Court of Tax Appeals are within the exclusive appellate jurisdiction of the Court of Appeals.

On May 8, 1990, the Court of Appeals rendered its questioned decision affirming the decision of the Court of Tax Appeals. Petitioner's motion for reconsideration having been denied on July 4, 1990, it interposed this instant petition contending that:

1. The Court of Appeals erred in finding on the basis of circumstantial evidence that an illegal importation had been committed;

2. Petitioner was deprived of property without due process of law in that its right to be presumed innocent was not recognized and the decision was not supported by proof beyond reasonable doubt; and

3. The sworn statements of Deposa and Torres were taken without assistance of counsel in violation of their constitutional right thereto. 8

We find no merit in the Petition.

1. It must be here emphasized that a forfeiture proceeding under tariff and customs laws is not penal in nature, contrary to the argument advanced by herein petitioner. In the case of People vs. Court of first Instance of Rizal etc., et al., 9 this Court made an exhaustive analysis of the nature of forfeiture proceedings, in relation to criminal proceedings, as follows:

. . . It is quite clear that seizure and forfeiture proceedings under the tariff and customs laws are not criminal in nature as they do not result in the conviction of the offender nor in the imposition of the penalty provided for in Section 3601 of the Code. As can be gleaned from Section 2533 of the code, seizure proceedings, such as those instituted in this case, are purely civil and administrative in character, the main purpose of which is to enforce the administrative fines or forfeiture incident to unlawful importation of goods or their deliberate possession. The penalty in seizure cases is distinct and separate from the criminal liability that might be imposed against the indicted importer or possessor and both kinds of penalties may be imposed.

In the case at bar, the decision of the Collector of Customs, as in other seizure proceedings, concerns the res rather than the persona. The proceeding is a probe on contraband or illegally imported goods. These merchandise violated the revenue law of the country, and as such, have been prevented from being assimilated in lawful commerce until corresponding duties are paid thereon and the penalties imposed and satisfied either in the form of fine or of forfeiture in favor of the government who will dispose of them in accordance with law. The importer or possessor is treated differently. The fact that the administrative penalty be falls on him

is an inconsequential incidence to criminal liability. By the same token, the probable guilt cannot be negated simply because he was not held administratively liable. The Collector's final declaration that the articles are not subject to forfeiture does not detract his findings that untaxed goods were transported in respondents' car and seized from their possession by agents of the law. Whether criminal liability lurks on the strength of the provision of the Tariff and Customs Code adduced in the information can only be determined in a separate criminal action. Respondents' exoneration in the administrative cases cannot deprive the State of its right to prosecute. But under our penal laws, criminal responsibility, if any, must be proven not by preponderance of evidence but by proof beyond reasonable doubt.

Considering, therefore, that proceedings for the forfeiture of goods illegally imported are not criminal in nature since they do not result in the conviction of the wrongdoer nor in the imposition upon him of a penalty, proof beyond reasonable doubt is not required in order to justify the forfeiture of the goods. In this case, the degree of proof required is merely substantial evidence which means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. 10

In the case at bar, we find and so hold that the Government has sufficiently established that an illegal importation, or at least an attempt thereof, has been committed with the use of the vessel M/T "ULU WAI," thus warranting the forfeiture of said vessel and its cargo pursuant to the provisions of the Tariff and Customs Code.

Before we proceed to a discussion of the factual findings of the Court of Appeals, it bears mention that petitioner, which is a corporate entity, has no personality to invoke the right to be presumed innocent which right is available only to an individual who is an accused in a criminal case.

2. The main issue for resolution is whether or not there was an illegal importation committed, or at least an attempt thereof, which would justify a forfeiture of the subject vessel and its cargo.

Petitioner avers that respondent court erred in finding that an illegal importation had been committed on the basis of circumstantial evidence, erroneously relying on Section 5 (now Section 4), Rule 133 of the Rules of Court. As earlier stated, forfeiture proceedings are not criminal in nature, hence said provision of Rule 133 which involves. such circumstantial evidence as will produce a conviction beyond reasonable doubt does not apply.

Section 1202 of the Tariff and Customs Code provides that importation begins when the carrying vessel or aircraft enters the jurisdiction of the Philippines with intention to unload therein. It is clear from the provision of the law that mere intent to unload is sufficient to commence an importation. And "intent," being a state of mind, is rarely susceptible of direct proof, but must ordinarily be inferred from the facts, 11 and therefore can only be proved by unguarded, expressions, conduct and circumstances generally. 12

In the case at bar, that petitioner is guilty of illegal importation, there having been an intent to unload, is amply supported by substantial evidence as clearly demonstrated by this comprehensive discussion in respondent court's decision:

It is undisputed that the vessel M/T "ULU WAI" entered the jurisdiction of the Philippines. The issue that calls for Our resolution is whether or not there was an intention to unload. The facts and circumstances borne by the evidence convince Us that there was intent to unload. The following circumstances unmistakably point to this conclusion.

1. Considering that the vessel came from Singapore, the route to Zamboanga was shorter and Iloilo lies further north. It is not logical for the sailing vessel to travel a longer distance to get the necessary repairs.

2. When the vessel M/T "ULU WAI" anchored at Guiuanon Island, Guimaras, Iloilo, it did not notify the Iloilo port or Customs authorities of its arrival. The master of the vessel did not file a marine protest until 12 days after it had anchored, despite the supposed urgency of the repairs needed and notwithstanding the provision (Sec. 1016) of the Code requiring the master to file protest within 24 hours.

3. At the time of boarding by the customs personnel, the required ship's and shipping documents were not on board except the clearance from Singaporean port officials clearing the vessel for Zamboanga. Petitioner claims that these were turned over to the shipping agent who boarded the vessel on May 15, 1986. However, this claim is belied by the sworn marine protest (Exhibit "E") of the master of M/T "ULU WAI" Mr. Romeo Deposa.

It was only on or about the 20th of May when I instructed one of the crew to: get down of (sic) the vessel and find means and ways to contact the vessel's representative.

Moreover, in such Sworn Statement (Exhibit "G"), ship agent, Antonio Torres, stated that he did not know the buyer of the oil, which is impossible if he had the Local Purchase Order of the alleged buyer, Pogun Construction SDN. Torres also swore that his knowledge came from the vessel's owner, without mentioning the shipping documents which indicate such data. He also said that he did not know the consignee of the oil which would have been patent from the documents. Lastly, as also pointed out by the court a quo, the captain of the vessel M/T "ULU WAI" Romeo Deposa, in his sworn statement to custom authorities on May 26, 1986, enumerated the documents he allegedly gave to Mr. Antonio Torres, but did not mention as among them the Local Purchase Order of Pogun Construction SDN and the Bill of Lading.

4. When the vessel was inspected, the tugboat M/T "CATHEAD", and the large M/T "SEMIRANO NO. 819" were alongside it. A fixture note revealed that the barge and the tugboat were contracted by Consignee Far East Synergy to load the cargo of the vessel into the awaiting barge and to discharge the same to Manila (Exhibits "I" and "I-1").

It is of no moment that the fixture note did not expressly mention the vessel M/T "ULU WAI" Government witnesses, Asencio and Lumagpas, testified that it was the vessel's cargo which was to be unloaded and brought to Manila by them. 13

The aforequoted findings of fact of respondent Court of Appeals are in consonance with the findings of both the Collector and the Commissioner of Customs, as affirmed by the Court of Tax Appeals. We, therefore, find no compelling reason to deviate from the elementary principle that findings of fact of the Court of Appeals, and of the administrative and quasi-judicial bodies for that matter, are entitled to great weight and are conclusive and binding upon this Court absent a showing of a grave abuse of discretion amounting to lack of jurisdiction.

3. The fact that the testimonies of Deposa and Torres were given without the assistance of counsel may not be considered an outright violation of their constitutional right to be assisted by counsel. As explained in the case of Nera vs. The Auditor General: 14

The right to the assistance of counsel is not indispensable to due process unless required by the Constitution or a law. Exception is made in the charter only during the custodial investigation of a person suspected of a crime, who may not waive his right to counsel except in writing and in the presence of counsel, and during the trial of the accused, who has the right "to be heard by himself and counsel," either retained by him or provided for him by the government at its expense. These guarantees are embodied in the Constitution, along with the other rights of the person facing criminal

prosecution, because of the odds he must contend with to defend his liberty (and before even his life) against the awesome authority of the State.

In other proceedings, however, the need for the assistance of counsel is not as urgent nor is it deemed essential to their validity. There is nothing in the Constitution that says a party in a non-criminal proceeding is entitled to be represented by counsel and that without such representation he will not be bound by such proceedings. The assistance of lawyers, while desirable, is not indispensable. The legal profession was not engrafted in the due process clause such that without the participation of its members the safeguard is deemed ignored or violated. The ordinary citizen is not that helpless that he cannot validly act at all except only with a lawyer at his side.

Besides, if ever there was any doubt as to the veracity of the sworn statements of Deposa and Torres, they should have been presented during any appropriate stage of the proceedings to refute or deny the statements they made. This was not done by petitioner. Hence, the presumption that official duty was regularly performed stands. In addition, petitioner does not deny that Torres is himself a lawyer. Finally, petitioner simply contends that the sworn statements were taken without the assistance of counsel but, however, failed to allege or prove that the same were taken under anomalous circumstances which would render them inadmissible as evidence against petitioner. We thus find no compelling reason to doubt the validity or veracity of the said sworn statements.

WHEREFORE, the instant petition is DENIED for lack of merit and the judgment appealed from is hereby AFFIRMED in toto.

SO ORDERED.

G.R. No. 139050            October 2, 2001

REPUBLIC OF THE PHILIPPINES, represented by the COMMISSIONER OF CUSTOMS, petitioner, vs.THE COURT OF TAX APPEALS and AGFHA, INCORPORATED, respondents.

VITUG, J.: On 12 December 1992, a shipment of bales of textile gray cloth, under Bill of Lading No. HKT-138899, arrived at the Manila International Container Port (MICP) aboard the vessel "S/S ACX Daisy." The shipment's Inward Foreign Manifest stated that the bales of cloth were consigned to GQ GARMENTS, Inc., of 244 Escolta Street, Binondo, Manila. The Clean Report of Findings (CRF) issued by the Societe Generale de Surveilance (SGS), however, mentioned AGFHA, Incorporated, to be the consignee of the shipment. Forthwith, the shipping agent, FIL-JAPAN, requested for an amendment of the Inward Foreign Manifest so as to correct the name of the consignee from that of GQ GARMENTS, Inc., to that of AGFHA, Inc.

On 22 January 1993, FIL-JAPAN forwarded to AGFHA, Inc., the amended Inward Foreign Manifest which the latter, in turn, submitted to the MICP Law Division. The MICP indorsed the document to the Customs Intelligence Investigation Services (CIIS). The CIIS placed the subject shipment under Hold Order No. H/CI/01/2293/01, dated 22 January 1993, on the ground that GQ GARMENTS, Inc., could not be located in its given address at 244 Escolta Street, Binondo, Manila, and was thus suspected to be a fictitious firm. Forfeiture proceedings under Section 2530(f) and (l) (3-5) of the Tariff and Customs Code were initiated.

AGFHA, Inc., through its president Wilson Kho, filed a motion for intervention contending that AGFHA, Inc., is the lawful owner and actual consignee of the subject shipment. The motion for intervention was granted on 2 March 1993. Following a hearing, the Collector of Customs came up with a draft decision ordering the lifting of the warrant of seizure and detention on the basis of its findings that GQ GARMENTS, Inc., was not a fictitious corporation and that there was a valid waiver of rights over the bales of cloth by GQ

GARMENTS, Inc., in favor of AGFHA, Inc. The draft decision was submitted to the Deputy Commissioner for clearance and approval, who, in turn, transmitted it to the CIIS for comment. The CIIS opposed the draft decision, insisting that GQ GARMENTS, Inc., was a fictitious corporation and that even if it did exist, its president, John Barlin, had no authority to waive the right over the subject shipment in favor of AGFHA, Inc.

The Deputy Commissioner, relying on the comment of the CIIS, rejected the draft decision of the Collector of Customs.

GQ GARMENTS, Inc., and AGFHA, Inc., filed a joint motion for reconsideration, which was given due course. Convinced that the evidence presented established the legal existence of GQ GARMENTS, Inc., and finding that a resolution passed by the Board of Directors of GQ GARMENTS, Inc., ratified the waiver of its president, the Collector of Customs in another draft decision granted the joint motion. The Office of the Commissioner of Customs, however, disapproved the new draft decision and denied the release of the goods; it ruled:

"1. x x x [I]t is quite suspicious that it took more than one month before the alleged error in the consignee was discovered by the shipper and by AGFHA, Inc., and by GQ Garments especially considering the fact that there is a CRF naming therein AGFHA as consignee of the subject shipment which means that the shipper was contracted by SGS so that the latter can inspect the subject shipment to be imported by consignee; that Mr. Wilson Kho admitted it was AGFHA who ordered the shipment by telephone call; that prior to this shipment there was no order placed in the name of GQ Garments from Indonesia; and that this is already the second of four shipments ordered by AGFHA, Inc., from Jakarta, Indonesia.

"2. Mr. Wilson Kho's explanation that the shipper committed an error in naming GQ GARMENTS as the consignee of the subject shipment because his business card contains the name of both GQ GARMENTS and AGFHA, Inc. appears to be an afterthought and self-serving. Moreover, he admitted that he is not an officer nor even a stockholder of GQ GARMENTS so why should his business card indicate his name as President/General Manager of GQ GARMENTS and AGFHA, Inc. That is clearly a misrepresentation.

"3. During the hearing on April 15, 1994, Mr. John John Barlin of GQ GARMENTS admitted that the letter dated February 11, 1993 purportedly signed by him (in which he allegedly informed the Collector of Customs that AGFHA, Inc., is the rightful owner of the subject shipment and that GQ GARMENTS is waiving its right over the same) actually came from Wilson Kho. In other words, the said letter is spurious.

"4. From the admissions of both Mr. Wilson Kho and Mr. John John Barlin, it is clear that GQ GARMENTS is actually owned by Mr. Wilson Kho and its corporate franchise appears to be being used to perpetrate fraud and other scheme to confuse authorities (pp. 1-4, Decision of Commissioner of Customs, Custom Case No. 94-017)"1

In deference to the directive of the Commissioner, the District Collector of Customs ordered the forfeiture of the shipment. On 14 October 1994, AGFHA, Inc., interposed an appeal to the Office of the Commissioner of Customs. The appeal was dismissed consistently with the Commissioner's earlier stand that disapproved the Collector of Customs' draft decision.

On 5 October 1995, AGFHA, Inc., filed a petition for review with the Court of Tax Appeals questioning the forfeiture of the bales of textile cloth. Finding merit in the plea of appellants, the Court of Tax Appeals granted the petition and ordered the release of the goods to AGFHA, Inc.

On 27 December 1996, the Commissioner of Customs then challenged before the Court of Appeals the decision of the tax court.

In its decision, dated 31 May 1999, the Court of Appeals dismissed the appeal for lack of merit. Quoting extensively from the assailed decision of the tax court, the appellate court ruled that the Bureau of Customs has failed to satisfy its burden of proving fraud on the part of the importer or consignee. It expounded thusly:

"Section 2530 (f) and (1) 3-5 of the Tariff and Customs Code, provide that in order that a shipment be liable to forfeiture, it must be proved that fraud has been committed by the importer/consignee to evade payment of the duties due. To establish the existence of fraud, the onus probandi is on the part of the Bureau of Customs who ordered the forfeiture of the subject shipments. The BOC, however, failed.

"x x x           x x x           x x x

"'x x x This Court could not fathom any individual or collective importance of the x x x findings [of the BOC] as indicative of the actual commission of fraud or any attempt or frustration thereof. As defined, actual or intentional fraud consists of deception willfully and deliberately done or resorted to in order to induce another to give up some right. It must amount to intentional wrong-doing with the sole object of avoiding the tax.

`The circumstances or findings presented by the [BOC] do not reveal x x x any kind of deception that could have been played upon [the] Bureau to give up some of its right, e.g., to collect correct taxes on properly declared shipment of goods.

`x x x           x x x           x x x

`[BOC] is saying that the shipper knew all along that AGFHA, Inc., was the real consignee due to the pre-inspection done by SGS and the corresponding issuance of the CRF naming AGFHA, Inc. as the consignee. So that in naming GQ GARMENTS Inc. as the consignee in the Bill of Lading and Inward Foreign Manifest, the same was intentional and deliberately done and not a case of error or inadvertence x x x.

`[The Court] could not believe that [BOC] assumed the above circumstance as a fact in his attempt to forfeit the subject shipment in favor of the government. The respondent is trying to second guess the act of the shipper that the latter had prior knowledge of AGFHA Inc., as the true consignee before the shipment. [The Court] deem[s] such conclusion as pure hearsay. Obviously, it is only the shipper and/or the SGS who could personally vouch for events that transpired prior to the shipment of the goods subject matter of this case.

`x x x [AGFHA Inc.] has offered the following controverting and convincing evidence x x x:

`1. Telex message from the shipping agent of shipper P.T. Mandala Subur Textile Industry to FIL-JAPAN Shipping Company Manila, requesting amendment of the Bill of Lading and other shipping records, to change consignee from GQ Garments, Inc. to Agfha, Inc.;

`2. Application for Amendment of the Inward Foreign Manifest filed by the shipper's agent, FIL-JAPAN Shipping Company, for approval with the Customs Law Division, Manila International Container Port (MICP), to change the name of the consignee from GQ Garments, Inc. to Agfha, Inc.

`3. Letter dated February 10, 1993 by Wilson Kho, president of Agfha, Inc. addressed to Atty. Buenaventura Maniego, District Collector of Customs, MICP, North Harbor, Manila manifesting the former's

intention and willingness to pay the corresponding duties and taxes on the subject shipment based on a higher valuation indicated in the Clean Report of Findings (CRF) as recommended by the SGS, as against the lower valuation indicated in the invoice.

`4. Bill of Lading covering the subject shipment showing the shipper as P.T. Mandala Subur Textile Industry and the consignee as GQ Garments, Inc.

`5. The Clean Report of Findings (CRF) dated December 9, 1992 showing the consignee of the subject shipment as Agfha, Inc. and the shipper as P.T. Mandala Subur Textile Industry.

`6. Import Authority No. (IAN) 18.012.37679, assigned by the Central Bank of the Philippines appearing on the right hand portion of the CRF.

`The above evidence speak for themselves. If any deception is intended by petitioner Agfha, Inc., why would it apply for an Import Authority Number under its name? It knew for certain that the subject goods will be pre-inspected by SGS under its name.

"x x x           x x x           x x x

`x x x [AGFHA Inc.] expressed its willingness to pay the higher duties and taxes imposed on the subject shipment as indicated in the CRF. x x x From the very start up to the end, petitioner had been consistent in its actuations. It applied for an Import Authority with the Central Bank of the Philippines which authority was used by the SGS in making the necessary pre-inspection and issuing the CRF. It undertook remedial measures to amend the consignee in the Bill of Lading and Inward Foreign Manifest when the shipper made a mistake. It then manifested to pay the correct taxes and duties. The government stands to lose nothing.'"2

The Court of Appeals attributed the error in indicating GQ GARMENTS, Inc., instead of AGFHA, Inc., in the Inward Foreign Manifest as being the consignee of the subject shipment to the shipping agent. It also noted the finding of the tax court that GQ GARMENTS, Inc., was, in fact, a registered importer with Registration No. 91-5624 per the Customs Intelligence and Investigation Service List of Registered Importers contained in Customs Memorandum Order No. 149-88 for the year 1991.

The BOC instituted the instant petition for review under Rule 45 of the Revised Rules of Court assailing the affirmance by the Court of Appeals of the tax court's decision of 04 November 1996.

The appeal is not meritorious.

Section 2530 (f) and (1) (3-5) provides:

"Section 2530. Property Subject to Forfeiture Under Tariff and Customs Law. - Any vehicle, vessel or aircraft, cargo, article and other objects shall, under the following conditions be subjected to forfeiture;

"x x x           x x x           x x x

"f. Any article the importation or exportation of which is effected or attempted contrary to law, or any article of prohibited importation or exportation, and all other articles which, in the opinion of the Collector, have been used, are or were entered to be used as instruments in the importation or exportation of the former.

"x x x           x x x           x x x

"1. Any article sought to be imported or exported:

"x x x           x x x           x x x

"(3) On the strength of a false declaration or affidavit executed by the owner, importer, exporter or consignee concerning the importation of such article;

"(4) On the strength of a false invoice or other document executed by the owner, importer, exporter or consignee concerning the importation or exportation of such article; and

"(5) Through any other practice or device contrary to law by means of which such articles was entered through a customhouse to the prejudice of the government."

The requisites for the forfeiture of goods under Section 2530(f), in relation to (1) (3-5), of the Tariff and Customs Code are: (a) the wrongful making by the owner, importer, exporter or consignee of any declaration or affidavit, or the wrongful making or delivery by the same person of any invoice, letter or paper - all touching on the importation or exportation of merchandise; (b) the falsity of such declaration, affidavit, invoice, letter or paper; and (c) an intention on the part of the importer/consignee to evade the payment of the duties due.3

Petitioner asserts that all of these requisites are present in this case. It contends that it did not presume fraud, rather the events positively point to the existence of fraud. Private respondent AGFHA, Inc., on the other hand, maintains that there has only been an inadvertent error and not an intentional wrongful declaration by the shipper to evade payment of any tax due. The resolution of this issue would entail a reevaluation of the attendant circumstances, a matter that cannot be freely undertaken by this Tribunal. It has been a settled rule that the Supreme Court is not a trier of facts.4 Findings of the appellate court are generally binding and cannot be disturbed by this Court unless it is sufficiently shown that there has been no evidence on record to support such findings.5 The assessment made by the appellate court carry even more weight when it is consistent with that of the trial court.6 Consonantly, the factual determination of the Court of Tax Appeals, when supported by substantial evidence, will not be reversed on appeal unless it is clear that the said court has committed gross error in the process.7 The Collector of Customs, Court of Tax Appeals and the Court of Appeals are unanimous in concluding that no fraud has been committed by private respondent in the importation of the bales of cloth. The records do appear to sustain this conclusion.

Fraud must be proved to justify forfeiture.8 It must be actual, amounting to intentional wrong-doing with the clear purpose of avoiding the tax.9 Forfeiture is not favored in law nor in equity.10 Mere negligence is not equivalent to the fraud contemplated by law.11 What is here involved is an honest mistake, not even directly attributable to private respondent, which will not deprive the government of its right to collect the proper tax. The conclusion of the appellate court, being consistent with the evidence on record and not contrary to law and jurisprudence, hardly can be overturned by this Court.

WHEREFORE, the petition is hereby DENIED and the assailed decision of the Court of Appeals is AFFIRMED.

SO ORDERED.

G.R. No. 156946               July 15, 2009

SECRETARY OF FINANCE, Petitioner, vs.ORO MAURA SHIPPING LINES, Respondent.

BRION, J.: We resolve the petition1 filed by the Secretary of Finance (petitioner), assailing the Decision dated August 26, 2002,2 and Resolution dated January 20, 20033 of the Court of Appeals (CA) in CA-G.R. SP No. 64644. The CA affirmed the decision4 dated

March 29, 2001 of the Court of Tax Appeals (CTA) holding that the assessment made by the Customs Collector of the Port of Manila on respondent Oro Maura Shipping Lines’ (respondent) vessel M/V "HARUNA" had become final and conclusive upon all parties, and could no longer be subject to re-assessment.

FACTUAL ANTECEDENTS

On November 24, 1992, the Maritime Industry Authority (MARINA) authorized the importation of one (1) unit vessel M/V "HARUNA"; ex: Shin Shu Maru No. 8, under a Bareboat Charter, for a period of five (5) years from its actual delivery to the charterer. The original parties to the bareboat charter agreement were Haruna Maritime S.A., represented by Mr. Yoji Morinaga of Panama, and Mr. Guerrero G. Dajao, proprietor and manager of Glory Shipping Lines, the charterer.

On December 29, 1992, the Department of Finance (DOF), in its 1st Indorsement, allowed the temporary registration of the M/V "HARUNA" and its tax and duty-free release to Glory Shipping Lines, subject to the conditions imposed by MARINA. The Bureau of Customs (BOC) also required Glory Shipping Lines to post a bond in the amount equal to 150% of the duties, taxes and other charges due on the importation, conditioned on the re-exportation of the vessel upon termination of the charter period, but in no case to extend beyond the year 1999.

On March 16, 1993, Glory Shipping Lines posted Ordinary Re-Export Bond No. C(9) 121818 for P1,952,000.00, conditioned on the re-export of the vessel within a period of one (1) year from March 22, 1993, or, in case of default, to pay customs duty, tax and other charges on the importation of the vessel in the amount of P1,296,710.00.

On March 22, 1993, the M/V "HARUNA" arrived at the Port of Mactan. Its Import Entry No. 120-93 indicated the vessel’s dutiable value to be P6,171,092.00 and its estimated customs duty to be P1,296,710.00.

On March 22, 1994, Glory Shipping Lines’ re-export bond expired. Almost two (2) months after, or on May 10, 1994, Glory Shipping Lines sent a Letter of Guarantee to the Collector guaranteeing to renew the Re-Export Bond on vessel M/V "HARUNA" on or before May 20, 1994; otherwise, it would pay the duties and taxes on said vessel. Glory Shipping Lines never complied with its Letter of Guarantee; neither did it pay the duties and taxes and other charges due on the vessel despite repeated demands made by the Collector of the Port of Mactan.

Since the re-export bond was not renewed, the Collector of the Port of Mactan assessed it customs duties and other charges amounting to P1,952,000.00; thereafter, it sent Glory Shipping Lines several demand letters dated April 22, 1996, June 21, 1996, and March 10, 1997, respectively. Glory Shipping Lines failed to pay the assessed duties despite receipt of these demand letters.

Unknown to the Collector of the Port of Mactan, Glory Shipping Lines had already offered to sell the vessel M/V "HARUNA" to the respondent in October 1994. In fact, the respondent already applied for an Authority to Import the vessel with MARINA on October 21, 1994, pegging the proposed acquisition cost of the vessel at P1,100,000.00. MARINA granted this request through a letter dated December 5, 1994, after finding that the proposed acquisition cost of the vessel reasonable, taking into consideration the vessel’s depreciation due to wear and tear.

On December 2, 1994, Haruna Maritime S.A. and Glory Shipping Lines sold the M/V "HARUNA" to the respondent without informing or notifying the Collector of the Port of Mactan.

On December 13, 1994, Kariton and Company (Kariton), representing the respondent, inquired with the DOF if it could pay the duties and taxes due on the vessel, with the information that the vessel was acquired by Glory Shipping Lines through a bareboat charter and was previously authorized by the DOF to be released under a re-export

bond. The DOF referred Kariton’s letter to the Commissioner of Customs for appropriate action, per a 1st Indorsement dated December 13, 1994. In turn, the Commissioner of Customs, in a 2nd Indorsement dated December 14, 1994, referred the DOF’s 1st Indorsement to the Collector of Customs of the Port of Manila.

On the basis of these indorsements and the MARINA appraisal, Kariton filed Import Entry No. 179260 at the Port of Manila on behalf of the respondent. The Collector of the Port of Manila accepted the declared value of the vessel at P1,100,000.00 and assessed duties and taxes amounting to P149,989.00, which the respondent duly paid on January 4, 1995, as evidenced by Bureau of Customs Official Receipt No. 50245666.

On November 5, 1997, after discovering that the vessel M/V "HARUNA" had been sold to the respondent, the Collector of the Port of Mactan sent the respondent a demand letter for the unpaid customs duties and charges of Glory Shipping Lines. When the respondent failed to pay, the Collector of the Port of Mactan instituted seizure proceedings against the vessel M/V "HARUNA" for violation of Section 2530, par. 1, subpar. (1) to (5) of the Tariff and Customs Code of the Philippines (TCCP).

In his September 1998 Decision,5 the Collector of the Port of Mactan ordered the forfeiture of the vessel in favor of the Government, after finding that both Glory Shipping Lines and the respondent acted fraudulently in the transaction.

The Cebu District Collector, acting on the respondent’s appeal, reversed the decision of the Collector of the Port of Mactan in his December 1, 1998 decision, concluding that while there appeared to be fraud in the sale of the vessel M/V "HARUNA" by Haruna Maritime S.A. and Glory Shipping Lines to the respondent, there was no proof that the respondent was a party to the fraud.6 Moreover, the Cebu District Collector gave weight to MARINA’s appraisal of the dutiable value of the vessel. The decision also held that in light of this appraisal that the Collector of Custom of the Port of Manila used as basis for his assessment, the customs duty the Collector of the Port of Manila imposed was unquestionably proper.

On December 14, 1998, the Commissioner of Customs, in a 3rd Indorsement,7 affirmed the decision of the Cebu District Collector and recommended his approval to the petitioner.

In a 4th Indorsement dated January 8, 1999,8 the petitioner affirmed the Commissioner’s recommendation, but ordered a re-assessment of the vessel based on the entered value, without allowance for depreciation. The respondent filed a motion for reconsideration, which the petitioner denied.

On May 15, 2000, the respondent filed a Petition for Review with the CTA,9 assailing the petitioner’s January 8, 1999 decision. In a decision dated March 29, 2001, the CTA granted the respondent’s petition and set aside the petitioner’s 4th Indorsement, thus affirming the previous decision of the Commissioner of Customs.10

Dissatisfied with this outcome, the petitioner sought its review through a petition filed with the CA; he claimed that the CTA erred when it held that the petitioner no longer had authority to order the re-assessment of the vessel. 11

The CA affirmed the findings of the CTA in its decision dated August 26, 2002.12 The appellate court concluded that the assessment made by the Collector of the Port of Manila had already become final and conclusive on all parties, pursuant to Sections 1407 and 1603 of the TCCP; the respondent paid the assessed duties on January 4, 1995, while the Collector of the Port of Mactan demanded payment of additional duties and taxes only on November 5, 1997, or more than one year from the time the respondent paid. The CA also upheld the findings of the Cebu District Collector, of the Commissioner of Customs, and of the CTA that the fraud in this case could not be imputed to the respondent since it was not shown that the respondent knew about Glory Shipping Lines’ infractions.

The CA subsequently denied petitioner’s Motion for Reconsideration in its resolution of January 20, 2003.13 Hence, this petition.

THE PETITION

The petitioner submits three issues for our resolution:

I

WHETHER THE COURT OF APPEALS ERRED IN HOLDING THAT THE ASSESSMENT MADE BY THE MANILA CUSTOMS COLLECTOR ON THE SUBJECT VESSEL HAD BECOME FINAL AND CONCLUSIVE UPON ALL PARTIES.

II

WHETHER THE COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENT WAS AN "INNOCENT PURCHASER."

III

WHETHER THE COURT OF APPEALS ERRED IN NOT HOLDING THAT A LIEN IN FAVOR OF THE GOVERNMENT AND AGAINST THE VESSEL EXISTS.

The petitioner mainly argues that the CA committed a reversible error when it held that the assessment of the Customs Collector of the Port of Manila had become final and conclusive on all parties pursuant to Sections 1407 and 1603 of the TCCP. According to the petitioner, these provisions cannot limit the authority of the Secretary of Finance or the Commissioner of Customs to assess or collect deficiency duties; in the exercise of their supervisory powers, the Commissioner and the Secretary may at any time direct the re-assessment of dutiable articles and order the collection of deficiency duties. Even assuming that Sections 1407 and 1603 of the TCCP apply to the present case, the petitioner posits that the one-year limitation14 set forth in these provisions presupposes that the return and all entries, as passed upon and approved by the Collector, reflect the accurate description and value of the imported article. Where the article was misdeclared or undervalued, the statute of limitations does not begin to run until a deficiency assessment has been issued and settled in full. Lastly, the petitioner claims that the respondent, being a direct and actual party to the importation, should have ensured that the imported article was properly declared and assessed the correct duties.

The respondent, on the other hand, claims that the appraisal of the Collector can only be altered or modified within a year from payment of duties, per Sections 1407 and 1603 of the TCCP; it is only when there is fraud or protest or when the import entry was merely tentative that settlement of duties will not attain finality. The petitioner’s allegation that there was misdeclaration or undervaluation of the vessel is not supported by the evidence and is contrary to the findings of the District Collector of the Port of Cebu, which the petitioner himself affirmed in his 4th Indorsement dated January 8, 1999. Moreover, the records show that the value of the vessel was properly declared by the respondent at P1,100,000.00, pursuant to the appraisal of the MARINA.

The core legal issue for our resolution is whether the Secretary of Finance can order a re-assessment of the vessel M/V "HARUNA."

THE COURT’S RULING

We find the petition meritorious and rule that the petitioner can order the re-assessment of the vessel M/V "HARUNA."

Procedural Issue

The Collector of the Port of Mactan found that the respondent defrauded the BOC of the proper customs duty, but the District Collector of Cebu held otherwise on appeal and

absolved the respondent from any participation in the fraud committed by Glory Shipping Lines. These factual findings and conclusion were affirmed by the Commissioner of Customs, by the CTA and, ultimately, by the CA. Although in agreement with the conclusion, the petitioner, however, ordered a reassessment of the dutiable value of the vessel based on the original entered value, without allowance for depreciation.

Factual findings of the lower courts, when affirmed by the CA, are generally conclusive on the Court.15 For this reason, the Rules of Court provide that only questions of law may be raised in a petition for review on certiorari. We delve into factual issues and act on the lower courts’ factual findings only in exceptional circumstances, such as when these findings contain palpable errors or are attended by arbitrariness.16

After a review of the records of the present case, we find that the CTA and the CA overlooked and misinterpreted factual circumstances that, had they been brought to light and properly considered, would have changed the outcome of this case. In particular, a closer scrutiny of the surrounding circumstances of the case and the respondent’s actions reveal the existence of fraud that deprived the State of the customs duties properly due to it.

A Critical Look at the Facts

Our examination of the facts tells us that there are four significant phases that should be considered in appreciating the present case.

The first phase is the original tax and duty-free entry of the MV Haruna when Glory Shipping Lines filed Import Entry No. 120-93 with the Collector of the Port of Mactan on March 22, 1993. The vessel then had a declared dutiable value of P6,171,092.00 and the estimated customs duty was P1,296,710.00. It was allowed conditional entry on the basis of a one-year re-export bond that lapsed and was not renewed. Despite a letter of guarantee subsequently issued by Glory Shipping Lines and repeated demand letters, no customs duties and charges were paid. The vessel remained in the Philippines.

The second significant phase occurred when Glory Shipping Lines offered to sell the vessel to the respondent in October 1994. At that point, the respondent applied for an Authority to Import the vessel, based on the proposed acquisition cost of P1,100,000.00. MARINA granted the request based on the proposed acquisition cost, taking depreciation into account.

From the first to the second phase, bad faith already intervened as Glory Shipping Lines, instead of paying in accordance with its commitment, simply turned around, disregarded the demand letters of the Collector of the Port of Mactan, and offered the vessel for sale to the respondent.

The respondent, for its part, already knew of the status of the vessel (as it in fact subsequently manifested before the DOF); in fact, what it asked for was an authority to import, although the vessel was already in the Philippines. The respondent likewise was the party which secured an appraisal from MARINA knowing fully well of the vessel’s value based on its previous history. It also joined Glory Shipping Lines in the latter’s attempt to evade the payment of the customs duties and charges demanded by the Collector of the Port of Mactan by pushing through with the purchase of the vessel without any notification to the Collector of the Port of Mactan - the Port that first administratively enforced the rules on the vessel’s importation resulting in its tax-free entry and conditional release.

The third phase came when the respondent’s representative asked the DOF if it could pay the duties and taxes due on the vessel, knowing fully well the vessel’s history of entry into the country. The respondent’s declared value in the request was P1.1 Million based on the lower appraisal that it secured from MARINA. The DOF referred the matter to the Commissioner of Customs who in turn made his own referral to the Collector of Customs of the Port of Manila. It was the Collector of the Port of Manila who accepted the

declared value of P1.1 Million and assessed duties and taxes amounting to P149,989.00. The respondent thus paid the customs duties as approved by the Collector of the Port of Manila. As in the second phase, no notice was given in this third phase to the Port of Mactan as the Port that allowed the entry of the vessel into the country and which had existing demand letters for the customs duties and charges due on the vessel.

The fourth phase started on November 5, 1997 when the Collector of the Port of Mactan acted after learning of the sale of the vessel to the respondent. The Collector eventually instituted seizure proceedings that led to the petition currently with us.

Evidence of Fraud

The tie-up between Glory Shipping Lines and the respondent in the four phases identified above can better be appreciated if the surrounding facts are considered.

An undisputed given in the narration of the four phases is the valuation of P6,171,092.00 that Glory Shipping Lines gave when the vessel first entered the country under Import Permit No. 120-93 on March 22, 1993. When the respondent made its request with the MARINA for authorization to import the same vessel after a span of only 19 months, the respondent proposed an acquisition cost of only P1,100,000.00. Consistent with this proposal, the respondent, through Kariton, gave the vessel the same declared value in its own Import Entry No. 179260 filed with the Collector of the Port of Manila. Thus, in a little over a year and a half, the declared value of the vessel decreased by P5,000,000.00, or an astonishing 80% of its original price. We find this drop in value within a short period of 19 months to be too fantastic to be accepted without question, even allowing for depreciation. Equally fantastic is the change in the customs duties, taxes and other charges due which fell from P1,296,710.00 in March 1993 to P149,989.00 in January 1995, all because of the sale, the new application by the vendee, and the change in the Port where the assessment and collection were made.

The drop alone from the undisputed original entry valuation of P6,171,092.00 to the respondent’s new valuation of P1,100,000.00 (or a decrease of 80% from the original valuation) is already a prima facie evidence of fraud that the rulings below did not properly appreciate simply because they disregarded the records of the original entry of the vessel through the Port of Mactan. Section 2503 of the TCCP provides in this regard that:

Section 2503. Undervaluation, Misclassification and Misdeclaration of Entry. – When the dutiable value of the imported articles shall be so declared and entered that the duties, based on the declaration of the importer on the face of the entry, would be less by ten percent (10%) than should be legally collected, or when the imported articles shall be so described and entered that the duties based on the importer’s description on the face of the entry would be less by ten percent (10%) than should be legally collected based on the tariff classification, or when the dutiable weight, measurement or quantity of imported articles is found upon examination to exceed by ten percent (10%) or more than the entered weight, measurement or quantity, a surcharge shall be collected from the importer in an amount of not less than the difference between the full duty and the estimated duty based upon the declaration of the importer, nor more than twice of such difference: Provided, That an undervaluation, misdeclaration in weight, measurement or quantity of more than thirty percent (30%) between the value, weight, measurement, or quantity declared in the entry, and the actual value, weight, quantity, or measurement shall constitute a prima facie evidence of fraud penalized under Section 2530 of this Code: Provided, further, That any misdeclared or underdeclared imported articles/items found upon examination shall ipso facto be forfeited in favor of the Government to be disposed of pursuant to the provision of this Code.

When the undervaluation, misdescription, misclassification or misdeclaration in the import entry is intentional, the importer shall be subject to the penal provision under Section 3602 of this Code. [Emphasis supplied.]

The 80% drop in valuation existing in this case renders the consideration and application of Section 2503 unavoidable.

Significantly, the respondent never explained the considerable disparity between the dutiable value declared by Glory Shipping Lines and the dutiable value it declared – difference of P5,000,000.00 – so as to overturn or contradict this prima facie finding of fraud. We note that the exercise of due diligence alone would have alerted it to Glory Shipping Lines’ acquisition cost and the vessel’s declared value at its first entry. The respondent, being in the shipping business, should have known the standard prices of vessels and that the value it proposed to MARINA, as described in the second phase above, is extraordinarily low compared to the vessel’s originally declared valuation. All these strengthen, rather than weaken, the prima facie evidence of fraud that the law dictates when an unconscionable disparity of valuations exists.

Depreciation not factor in determining dutiable value

Neither can the respondent hide behind the excuse that the vessel’s dutiable value at P1,100,000.00 was approved by MARINA via the Authority to Import, taking into consideration the vessel’s depreciation brought about by its ordinary wear and tear. In the first place, we observe that nowhere in the TCCP does it state that the depreciated value of an imported item can be used as the basis to determine an imported item’s dutiable value. Section 201 of P.D. No. 1464 (the Tariff and Customs Code of 1978)17 in this regard provides:

Sec. 201. — Basis of Dutiable Value. — The dutiable value of an imported article subject to an ad valorem rate of duty shall be based on the cost (fair market value) of same, like or similar articles, as bought and sold or offered for sale freely in the usual wholesale quantities in the ordinary course of trade in the principal markets of the exporting country on the date of exportation to the Philippines (excluding internal excise taxes to be remitted or rebated) or where there is none on such date, then on the cost (fair market value) nearest to the date of exportation, including the value of all container, covering and/or packings of any kind and all other expenses, costs and charges incident to placing the article in a condition ready for shipment to the Philippines, and freight as well as insurance premium covering the transportation of such articles to the port of entry in the Philippines.

Where the fair market value or price of the article cannot be ascertained thereat or where there exists a reasonable doubt as to the fairness of such value or price, then the fair market value or price in the principal market in the country of manufacture or origin, if it is not the country of exportation, or in a third country with the same stage of economic development as the country of exportation shall be used.

When the dutiable value of the article cannot be ascertained in accordance with the preceding paragraphs or where there exists a reasonable doubt as to the cost (fair market value) of the imported article declared in the entry, the correct dutiable value of the article shall be ascertained by the Commissioner Of Customs from the reports of the Revenue or Commercial Attache (Foreign Trade Promotion Attache), pursuant to Republic Act Numbered Fifty-four Hundred and Sixty-six or other Philippine diplomatic officers or Customs Attaches and from such other information that may be available to the Bureau of Customs. Such values shall be published by the Commissioner of Customs from time to time.

When the dutiable value cannot be ascertained as provided in the preceding paragraphs, or where there exists a reasonable doubt as to the dutiable value of the imported article declared in the entry, it shall be domestic wholesale selling price of such or similar article in Manila or other principal markets in the Philippines or on the date the duty become payable on the article under appraisement, on the usual wholesale quantities and in the ordinary course of trade, minus:

(a) not more than twenty-five (25) per cent thereof for expenses and profits; and

(b) duties and taxes paid thereon. (as amended by E.O. 156) [Emphasis supplied.]

Even assuming that the depreciated value of the vessel can be considered in determining the vessel’s dutiable value, still, we find that the decrease of 80% from the original price after the passage of only 19 months cannot be believed and thus should not be accepted.

Assuming further that MARINA merely committed a mistake in approving the vessel’s proposed acquisition cost at P1,100,000.00, and that the Collector of the Port of Manila similarly erred, we reiterate the legal principle that estoppel generally finds no application against the State when it acts to rectify mistakes, errors,18 irregularities, or illegal acts,19 of its officials and agents, irrespective of rank. This ensures efficient conduct of the affairs of the State without any hindrance on the part of the government from implementing laws and regulations, despite prior mistakes or even illegal acts of its agents shackling government operations and allowing others, some by malice, to profit from official error or misbehavior. The rule holds true even if the rectification prejudices parties who had meanwhile received benefits.20

This principle is particularly true when it comes to the collection of taxes. As we stated in Intra-Strata Assurance Corporation v. Republic of the Philippines:21

It has long been a settled rule that the government is not bound by the errors committed by its agents. Estoppel does not also lie against the government or any of its agencies arising from unauthorized or illegal acts of public officers.22 This is particularly true in the collection of legitimate taxes due where the collection has to be made whether or not there is error, complicity, or plain neglect on the part of the collecting agents.23 In CIR v. CTA, we pointedly said:

It is axiomatic that the government cannot and must not be estopped particularly in matters involving taxes. Taxes are the lifeblood of the nation through which the government agencies continue to operate and with which the State effects its functions for the welfare of its constituents. Thus, it should be collected without unnecessary hindrance or delay. [Emphasis supplied.]

The Respondent’s Complicity

That the respondent fully participated in moves to defraud the BOC, as shown by the recital of the four phases above, is further supported by another factual circumstance – the respondent’s acknowledgment to the DOF that the vessel M/V "HARUNA" conditionally entered the country under a re-export bond filed with the BOC. This is plain from the 1st Indorsement of the DOF dated December 13, 1994, which states:

1st IndorsementDecember 13, 1994

Respectfully forwarded to the Commissioner of Customs, Manila, for appropriate action, the herein letter of even date of Kariton & Company, requesting in behalf of their client, ORO MAURA SHIPPING LINE to pay the corresponding duties and taxes due on the vessel MV "HARUNA" (ex. Shinsu Maru No. 8) which was acquired by Glory Shipping Lines thru bareboat charter under P.D. No. 760, as amended and previously authorized by this Department to be released under a re-export bond pursuant to Section 1 of P.D. No. 1711 amending P.D. No. 760 under our 1st Indorsement dated December 29, 1992, copy attached, subject to pertinent import laws, rules and regulations.

With the knowledge that the vessel was released under a re-export bond, the respondent should have known that this original entry was subject to specific conditions, among them, the obligation to guarantee the re-export of the vessel within a given period, or otherwise to pay the customs duties on the vessel. It should have known, too, of the conditions of the vessel’s release under the re-export bond and of the state of Glory Shipping Lines’ status of compliance.

There was an original but incomplete importation by Glory Shipping Lines that the respondent could not have simply disregarded proceeds from knowledge of the vessel’s history and the application of the relevant law. In this respect, Section 1202 of the TCCP provides:

Importation begins when the carrying vessel or aircraft enters the jurisdiction of the Philippines with intention to unlade therein. Importation is deemed terminated upon payment of the duties, taxes and other charges due upon the articles, or secured to be paid, at a port of entry and the legal permit for withdrawal shall have been granted, or in case said articles are free of duties, taxes and other charges, until they have legally left the jurisdiction of the customs.

In order for an importation to be deemed terminated, the payment of the duties, taxes, fees and other charges of the item brought into the country must be in full. For as long as the importation has not been completed, the imported item remains under the jurisdiction of the BOC.24 From the perspective of process, the importation that originally started with Glory Shipping Lines was therefore never completed and terminated, so that the respondent’s present importation is merely a continuation of that original process.lawphil.net

Saddled with knowledge of the underlying facts that preceded its purchase, the conclusion that the respondent fully cooperated with Glory Shipping Lines in avoiding the original charges and duties due is unavoidable; the respondent provided the medium (1) to disregard the original duties due on the vessel’s first entry; and (2) to avoid the Port of Mactan where demands for payment of overdue custom duties already existed. In the process, it of course acted for its own interest by securing for itself lower dutiable values and lesser duties due. The fact that the respondent did all these confirms that it participated in the moves to defraud the BOC of the legitimate taxes due as originally assessed.

Finality of the Port of Manila Assessment

Our finding of fraud leads us to conclude that the assessment of the Collector of the Port of Manila cannot become final and conclusive pursuant to Section 1603 of the TCCP, which states:

Section 1603. Finality of Liquidation. – When articles have been entered and passed free of duty or final adjustments of duties made, with subsequent delivery, such entry and passage free of duty or settlements of duties will, after the expiration of one (1) year, from the date of the final payment of duties, in the absence of fraud or protest or compliance audit pursuant to the provisions of this Code, be final and conclusive upon all parties, unless the liquidation of the import entry was merely tentative.

Nature of a tax lien

An important factual circumstance that the CTA and the CA appear to have completely overlooked is that the vessel first entered the Philippines through the Port of Mactan and it was the Collector of the Port of Mactan who first acquired jurisdiction over the vessel when he approved the vessel’s temporary release from the custody of the BOC, after Glory Shipping Lines filed Ordinary Re-Export Bond No. C(9) 121818.

When this re-export bond expired on March 22, 1994, Glory Shipping Lines filed a letter dated May 10, 1994 guaranteeing the renewal of the re-export bond on or before May 20, 1994, otherwise the duties, taxes and other charges on the vessel would be paid. Therefore, when May 20, 1994 came and went without the renewal of the vessel’s re-export bond, the obligation to pay customs duties, taxes and other charges on the importation in the amount of P1,296,710.00 arose and attached to the vessel. Undoubtedly, this lien was never paid by Glory Shipping Lines, thus it continued to exist even after the vessel was sold to the respondent. Section 1204 of the TCCP in this regard states:

Section 1204. Liability of Importer for Duties. – Unless relieved by laws or regulations, the liability for duties, taxes, fees and other charges attaching on importation constitutes a personal debt due from the importer to the government which can be discharged only by payment in full of all duties, taxes, fees and other charges legally accruing. It also constitutes a lien upon the articles imported which may be enforced while such articles are in custody or subject to the control of the government.

As defined by Black’s Law Dictionary, a lien is a claim or charge on property for payment of some debt, obligation or duty.25 In this particular instance, the obligation is a tax lien that attaches to imported goods, regardless of ownership.26

Consequently, when the respondent bought the vessel from Glory Shipping Lines on December 2, 1994, the obligation to pay the BOC P1,296,710.00 as customs duties had already attached to the vessel and the non-renewal of the re-export bond made this liability due and demandable. The subsequent transfer of ownership of the vessel from Glory Shipping Lines to the respondent did not extinguish this liability.

Therefore, while it is true that the respondent had already paid the customs duties assessed by the Collector of the Port of Manila, this payment did not have the effect of extinguishing the lien given the tax lien that had attached to the vessel and the fact that what had been paid was different from what was owed. From the point of amount alone, the customs duties paid to the Collector at the Port of Manila only amounted to P149,989.00, while the lien which had attached to the vessel based on the unpaid assessment by the Collector of the Port of Mactan amounted to P1,296,710.00.

Finally, we deem it necessary to reiterate our pronouncement in Chevron Philippines v. Commissioner of the Bureau of Customs,27 where we discussed the importance of tariff and customs duties in the following manner:

Taxes are the lifeblood of the nation. Tariff and customs duties are taxes constituting a significant portion of the public revenue which enables the government to carry out the functions it has been ordained to perform for the welfare of its constituents.28 Hence, their prompt and certain availability is an imperative need29 and they must be collected without unnecessary hindrance.30 [Emphasis supplied.]

In keeping with this and other cited rulings, we find in favor of the petitioner and uphold his order for the re-assessment of the value of the vessel based on the entered value, which in this case should follow the unpaid assessment made by the Collector of Customs of the Port of Mactan.

WHEREFORE, we REVERSE the decision of the Court of Appeals dated August 26, 2002 in CA-G.R. SP No. 64644, and REINSTATE WITH MODIFICATION the ruling under former Finance Secretary Edgardo Espiritu’s 4th Indorsement dated January 8, 1999. The re-assessment shall be based on the unpaid assessment by the Collector of Customs of the Port of Mactan against respondent Oro Maura Shipping Lines dated November 5, 1997, made on the basis of M/V HARUNA’s entered value, without allowance for depreciation, but including other taxes and charges due. Seizure proceedings shall proceed in due course unless the unpaid customs duties, other taxes and charges are duly paid. Costs against the petitioner.

SO ORDERED.

G.R. No. 138081             March 30, 2000

THE BUREAU OF CUSTOMS (BOC) and THE ECONOMIC INTELLIGENCE AND INVESTIGATION BUREAU (EIIB), petitioners, vs.NELSON OGARIO and MARK MONTELIBANO, respondents.

 MENDOZA, J.: The question for decision in this case is whether the Regional Trial Court has jurisdiction to enjoin forfeiture proceedings in the Bureau of Customs. In accordance with what is now settled law, we hold it does not.

The facts are as follows: On December 9, 1998, Felipe A. Bartolome, District Collector of Customs of Cebu, issued a Warrant of Seizure and Detention1 of 25,000 bags of rice, bearing the name of SNOWMAN, Milled in Palawan" shipped on board the M/V "Alberto", which was then docketed at Pier 6 in Cebu City. The warrant was issued on the basis of the report of the Economic Intelligence and Investigation Bureau (EIIB), Region VII that the rice had been illegally imported. The report stated that the rice was landed in Palawan by a foreign vessel and then placed in sacks marked "SNOWMAN," Milled in Palawan." It was then shipped to Cebu City on board the vessel M/V "Alberto." Forfeiture proceedings were started in the customs office in Cebu, docketed as Cebu Seizure Identification Case No. 17-98.

On December 10, 1998, respondent Mark Montelibano, the consignee of the sacks of rice, and his buyer, respondent Elson Ogario, filed a complaint for injunction (Civil Case No. CEB-23077) in the Regional Trial Court of Cebu City, alleging:

4.) That upon arrival of the herein-mentioned sacks of rice at the PIER 5 of Cebu City, Philippines on the 7th day of December 1998 all of the defendants rushed to the port with long arms commanding the plaintiff's laborer[s] to stopped [sic] the unloading of the same from the vessel named M/V Alberto. The defendants alleged that the herein-mentioned rice were [sic] smuggled from abroad without even proof that the same were [sic] purchased from a particularly country.

5.) By the mere suspicion of the defendants that the goods were smuggled from abroad, they immediately put on hold the release of the goods from the ship and at the same time they jointly barred unloading and loading activities of the plaintiffs' laborers of the herein-mentioned rice.

6.) The plaintiffs then presented all the pertinent and necessary documents to all of the defendants but the latter refused to believe that the same is from Palawan because their minds are closed due to some reason or another Civil [while] the plaintiffs believed that the same is merely an act of harassment. The documents are as follows:

A.) Certification from the National Food Authority that the same is from Palawan. This is hereto attached Annex A.

B) Bill of Lading issued by ANMA PHILIPPINES Shipping Company. This is hereto attached as Annex B.

7.) The acts of the defendants in stopping he loading and unloading activities of the plaintiff's laborers [have] no basis in law and in fact; thus, unlawful and illegal. A mere suspicious which is not coupled with any proof or evidence to that effect is [a] matter which the law prohibits.

8.) That for more than three days and despite the repeated plea of the plaintiffs that their goods should be released to them and the defendants should stop from barring the unloading and loading activities, the latter blindly refused [to] heed the same.

9.) That the acts of all of the defendants which are greatly unlawful and erroneous would caused [sic] irreparable damage, injury, and grave injustices to the plaintiffs.

10.) That by way of example or correction for the public good and to deter the defendants from doing the same acts to other businessmen, defendants should be held liable for exemplary damages in amount of not less than One Hundred Thousand Pesos (P100,000.00).

11.) That the plaintiffs are entitled to the relief prayed in this complaint and the whole or part of such reliefs consists in restraining perpetually the defendants from holding the

herein-mentioned twenty-five thousand sacks of rice. That defendants should be restrained perpetually from barring the unloading and loading activities of the plaintiffs' laborers.

12.) That allowing the defendants to continue their unlawful acts would work grave injustice to the plaintiffs. Unless a preliminary injunction be granted ex-parte, grave and irreparable injury and damage would result to the plaintiffs before the latter can be heard on notice.

13.) That if the defendants be not restrained perpetually from their unlawful acts, the herein-mentioned rice will deteriorate and turn into dusts [sic] if not properly disposed.1âwphi1.nêt

14.) That a Warrant of Seizure and detention issued by the Collector of Custom[s] dated December 9, 1998 be quashed because the defendants' act of seizing and detaining the herein-mentioned sacks of rice are illegal. The continuing act of detaining the herein-mentioned sacks of rice will led to the deterioration of the same. That no public auction sale of the same should be conducted by the Bureau of Custom[s] or any government agenc[y].

15.) That plaintiffs are ready and willing to file a bond executed to the defendants in an amount to be fixed by this Honorable Court to the effect that plaintiffs will pay to the defendants all damages which they may sustain by reason of the injunction if this Honorable Court should finally decide that the plaintiffs are not entitled thereto.

PRAYER

WHEREFORE, Premised on the foregoing, it is most respectfully prayed before this Honorable Court that a restraining order or temporary injunction be immediately issued prohibiting the defendants from holding plaintiffs' above-mentioned goods. That it is further prayed that a restraining order or temporary injunction be issued prohibiting the defendants from barring the unloading and loading activities of the plaintiffs' laborers. Further, the plaintiffs prayed that the warrant of seizure and detention issued by the Collector of Custom[s] dated December 9, 1998 be quashed and no public auction sale of the same should be conducted by any government agency or authority.

It is further prayed that after due hearing, judgment be rendered:

1.) Making the restraining order and/or preliminary injunction permanent.

2.) Ordering the defendants jointly to pay exemplary or corrective damages to the plaintiff[s] in the amount of One Hundred Thousand Pesos (P100,000.00)

Such other relief which are just and demandable under the circumstances are also prayed for.In separate motions, petitioners Bureau of Customs (BOC), Port of Cebu 3 and the EIIB, as well as the Philippine Navy and Coast Guard, sought the dismissal of the complaint on the ground that the RTC had no jurisdiction, but their motions were denied. In its resolution, dated January 11, 1999, the RTC said:

The Warrant of Seizure and Detention issued by the Bureau of Customs cannot divest this court of jurisdiction since its issuance is without legal basis as it was anchored merely on suspicion that the items in question were imported or smuggled. It is very clear that the defendants are bereft of any evidence to prove that the goods were indeed imported or smuggled, that is why the plaintiffs have very vigorously protested against the seizure of cargoes by the defendants. In fact, as revealed by defendants' counsel, the Warrant of Seizure and Detention was issued merely to shift the burden of proof to the shippers or owners of the goods to prove that the bags of rice were not imported or smuggled. However, the court feels this is unfair because the settled rule is that he who alleges must prove the same. Besides, at this time when our economy is not good, it would be a

[dis]service to the nation to use the strong arm of the law to make things hard or difficult for the businessmen.4

The 25,000 bags of rice were ordered returned to respondents upon the posting by them of an P8,000,000.00 bond.

Petitioners BOC and EIIB moved for a reconsideration, but their motion was denied by the RTC in its order dated January 25, 1999.5 In the same order, the RTC also increased the amount of respondents' bond to P22,500,000.00. On certiorari to the Court of Appeals, the resolution and order of the RTC were sustained.6

Accordingly, on April 26, 1999, upon motion of respondents, the RTC ordered the sheriff to place in respondents' possession the 25,000 bags of rice.

Meanwhile, in the forfeiture proceedings before the Collector of Customs of Cebu (Cebu Seizure Identification Case No. 17-98), a decision was rendered, the dispositive portion of which reads:

WHEREFORE, by virtue of the authority vested in me by law, it is hereby ordered and decreed that the vessel M/V "Alberto"; the 25,000 bags of rice brand "Snowman"; and the two (2) trucks bearing Plate Nos. GCC 844 and GHZ 388 are all FORFEITED in favor of the government to be disposed of in the manner prescribed by law while the seven (7) trucks bearing Plate Nos. GFX 557; GFX 247; TPV 726; GBY 874; GVE 989; and GDF 548 are RELEASED in favor of their respective owners upon proper identification and compliance with pertinent laws, rules and regulations.

Since this decision involves the release of some of the articles subject matter of herein case which is considered adverse to the government, the same is hereby elevated to the Commissioner of Customs for automatic review pursuant to Republic Act 7651. 7

The District Collector of Customs found "strong reliable, and convincing evidence" that the 25,000 bags of rice were smuggled. Said evidence consisted of certifications by the Philippine Coast Guard, the Philippine Ports Authority, and the Arrastre Stevedoring Office in Palawan that M/V "Alberto" had never docked in Palawan since November, 1998; a certification by Officer-in-Charge Elenita Ganelo of the National Food Authority (NFA) Palawan that her signature in NFA Grains Permit Control No. 00986, attesting that the 25,000 bags of rice originated from Palawan, was forged; and the result of the laboratory analysis of a sample of the subject rice by the International Rice Research Institute (IRRI) stating that the sample "does not compare with any of our IRRI released varieties."

Respondent Montelibano did not take part in the proceedings before the District Collector of Customs despite due notice sent to his counsel because he refused to recognize the validity of the forfeiture proceedings.8

On April 30, 1999, petitioners filed the present petition for review on certiorari of the decision of the Court of Appeals, dated April 15, 1999, upholding the resolution of the RTC denying petitioners' motions to dismiss. They contend that:

I. SINCE THE REGIONAL TRIAL COURT OF CEBU CITY DOES NOT HAVE JURISDICTION OVER THE SUBJECT MATTER OF THE INSTANT CONTROVERSY, AND THE BUREAU OF CUSTOMS HAD ALREADY EXERCISED EXCLUSIVE ORIGINAL JURISDICTION OVER THE SAME, THE COURT OF APPEALS SERIOUSLY ERRED IN SUSTAINING THE EXERCISE BY THE TRIAL JUDGE OF JURISDICTION OVER THE CASE BELOW AND IN AFFIRMING THE TRIAL JUDGE'S RESOLUTION DATED JANUARY 11, 1999 AND ORDER DATED JANUARY 25, 1999 IN CIVIL CASE NO. CEB-23077.

II. SINCE RESPONDENTS HAVE NOT EXHAUSTED ALL THE ADMINISTRATIVE REMEDIES PROVIDED FOR BY LAW, THE COURT OF APPEALS SERIOUSLY ERRED IN UPHOLDING THE TRIAL JUDGE'S DENIALS OF PETITIONERS' SEPARATE MOTIONS TO DISMISS AND MOTIONS FOR RECONSIDERATION.9

In Jao v. Court of Appeals, 10 this Court, reiterating its ruling in a long line of cases, said:

There is no question that Regional Trial Courts are devoid of any competence to pass upon the validity or regularity of seizure and forfeiture proceedings conducted by the Bureau of Customs and to enjoin or otherwise interfere with these proceedings. The Collector of Customs sitting in seizure and forfeiture proceedings has exclusive jurisdiction to hear and determine all questions touching on the seizure and forfeiture of dutiable goods. The Regional Trial Courts are precluded from assuming cognizance over such matters even through petitions of certiorari, prohibition or mandamus.

It is likewise well-settled that the provisions of the Tariff and Customs Code and that of Republic Act No. 1125, as amended, otherwise known as "An Act Creating the Court of Tax Appeals," specify the proper fora and procedure for the ventilation of any legal objections or issues raised concerning these proceedings. Thus, actions of the Collector of Customs are appealable to the Commissioner of Customs, whose decision, in turn, is subject to the exclusive appellate jurisdiction of the Court of Tax Appeals and from there to the Court of Appeals.

The rule that Regional Trial Courts have no review powers over such proceedings is anchored upon the policy of placing no unnecessary hindrance on the government's drive, not only to prevent smuggling and other frauds upon Customs, but more importantly, to render effective and efficient the collection of import and export duties due the State, which enables the government to carry out the functions it has been instituted to perform.

Even if the seizure by the Collector of Customs were illegal, which has yet to be proven, we have said that such act does not deprive the Bureau of Customs of jurisdiction thereon.

Respondents cite the statement of the Court of Appeals that regular courts still retain jurisdiction "where, as in this case, for lack of probable cause, there is serious doubt as to the propriety of placing the articles under Customs jurisdiction through seizure/forfeiture proceedings" 11 They overlook the fact, however, that under the law, the question of whether probable cause exists for the seizure of the subject sacks of rice is not for the Regional Trial Court to determine. The customs authorities do not have to prove to the satisfaction of the court that the articles on board a vessel were imported from abroad or are intended to be shipped abroad before they may exercise the power to effect customs' searches, seizures, or arrests provided by law and continue with the administrative hearings. 12 As the Court held in Ponce Enrile v. Vinuya: 13

The governmental agency concerned, the Bureau of Customs, is vested with exclusive authority. Even if it be assumed that in the exercise of such exclusive competence a taint of illegality may be correctly imputed, the most that can be said is that under certain circumstances the grave abuse of discretion conferred may oust it of such jurisdiction. It does not mean however that correspondingly a court of first instance is vested with competence when clearly in the light of the above decisions the law has not seen fit to do so. The proceeding before the Collector of Customs is not final. An appeal lies to the Commissioner of Customs and thereafter to the Court of Tax Appeals. It may even reach this Court through the appropriate petition for review. The proper ventilation of the legal issues raised is thus indicated.

Certainly a court of first instance is not therein included. It is devoid of jurisdiction.

It is noteworthy that because of the indiscriminate issuance of writs of injunction, the Supreme Court issued on June 25, 1999 Administrative Circular No. 07-99 to all judges of lower courts entitled EXERCISE OF UTMOST CAUTION, PRUDENCE, AND JUDICIOUSNESS IN ISSUANCE OF TEMPORARY RESTRAINING ORDERS AND WRITS OF PRELIMINARY INJUNCTION. The circular states in part:

Finally, judges should never forget what the Court categorically declared in Mison v. Natividad (213 SCRA 734, 742 [1992]) that "[b]y express provision of law, amply supported by well-settled jurisprudence, the Collector of Customs has exclusive jurisdiction over seizure and forfeiture proceedings, and regular courts cannot interfere with his exercise thereof or stifle or put it to naught.

The Office of the Court Administrator shall see to it that this circular is immediately disseminated and shall monitor implementation thereof.1âwphi1.nêt

STRICT OBSERVANCE AND COMPLIANCE of this Circular is hereby enjoined.

WHEREFORE, the temporary restraining order issued on May 17, 1999 is hereby made permanent. The decision, dated April 15, 1999, of the Court of Appeals is REVERSED and Civil Case No. CEB-23077 in the Regional Trial Court, Branch 5, Cebu City is DISMISSED.

SO ORDERED.